4 the legislative body of the Community Facilities District, has duly adopted the Community Facilities District Formation Resolutions, has duly adopted the Resolution and an ordinance levying the Special Taxes within the Community Facilities District (the “Ordinance”), and has caused to be recorded in the real property records of Upland County, a notice of special tax lien (the “Notice of Special Tax Lien”) (the Community Facilities District Formation Resolution, the Ordi nance, and the Notice of Special Tax Lien being collectively referred to herein as the “Formation Documents”), and the City Council has duly adopted the Resolution. Each of the Formation Documents remains in full force and effect as of the date hereof and has not been amended. The Community Facilities District is duly organized and validly existing as a community facilities district under the laws of the State. The City has, and at the Closing Date will have, as the case may be, full legal right, power a nd authority: (i) to execute, deliver and perform its obligations under this Purchase Agreement and the Fiscal Agent Agreement and to carry out all transactions on its part contemplated by each of such agreements; (ii) to enter into the Continuing Disclosure Certificate; and (iii) to carry out, give effect to and consummate the transactions contemplated by the Formation Documents, the Fiscal Agent Agreement, this Purchase Agreement and the Official Statement.
This Purchase Agreement, the Fiscal Agent Agreement and the Continuing Disclosure Certificate are collectively referred to herein as the “City Documents.” B. By all necessary official action of the City, the City has duly authorized and approved the execution and delivery by the City of, and the performance by the City of, the obligations on its part contained in, the City Documents and has approved the use and distribution by the Underwriter of the Preliminary Official Statement and the execution, use and distribution by the Underwriter of the Official Statement, and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered by the parties thereto, the City Documents will constitute the legally valid and binding obligations of the City, on its own behalf and on behalf of the Communities Facilities District, enforceable upon the City and the Community Facilities District in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally. To the City’s knowledge, the City has complied, and will at the Closing Date be in compliance in all respects, with the terms of the City Documents.
C. The information in the Preliminary Official Statement (other than statements pertaining to the book-entry system, as to which no view is expressed) as of its date was and as of the date hereof is, and in the Official Statement (other than statements pertaining to the book-entry system as to which no view is expressed) as of its date is, true and correct in all material respects and does not contain any untrue statement of a material fact or omit to sta te a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, upon delivery and up to and including 25 days after the End of the Underwriting Period (as defined in paragraph (D) below), the Official Statement will be amended and supplemented so as to contain no misstatement of any material fact or material omission of any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading.
D. Up to and including 25 days after the End of the Underwriting Period (as defined below), the City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The City will advise
5 the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise materially affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. As used herein, the term “End of the Underwriting Period” means the later of such time as: (i) the Bonds are delivered to the Underwriter; or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives written notice to the contrary to the City, the End of the Underwriting Period shall be deemed to be the Closing Date.
Any notice delivered pursuant to this provision shall be delivered to the City at or prior to the Closing Date and shall specify a date (other than the Closing Date) to be deemed the “End of the Underwriting Period.” If in the opinion of the Underwriter any such event or proceedings requires the preparation and distribution of a supplement or amendment to the Official Statement, the City shall prepare and furnish to the Underwriter, at the Community Facilities District’s expense, such number of copies of the supplement or amendment to the Official Statement, in (i) a “designated electronic format” consistent with the requirements of the MSRB’s Rule G-32 and (ii) a printed format form in substance mutually agreed upon by the City and the Underwriter as the Underwriter may reasonably request. If such amendment or supplement to the Official Statement shall be made subsequent to the Closing Date, the City also shall furnish, or cause to be furnished, such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably deem necessary to evidence the truth and accuracy of any such supplement or amendment to the Official Statement.
E. As of the time of acceptance hereof and as of the Closing Date, the City and the Community Facilities District, as applicable, have each complied, and will at the Closing Date be in compliance in all material respects, with the Formation Documents and the City Documents, and any immaterial noncompliance by the City or the Community Facilities District, if any, will not impair the ability of the City or the Community Facilities District, as applicable, to carry out, give effect to or consummate the transactions on their part contemplated by the foregoing. From and after the date of issuance of its Bonds, the City will continue to comply with the covenants of the City contained in the City Documents and it shall cause the Community Facilities District to cont inue to comply with the covenants of the Community Facilities District contained in the City Documents.
F. Except as described in the Preliminary Official Statement, neither the City nor the Community Facilities District is, and as of the Closing Date, neithe r will be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City or the Community Facilities District, as the case may be, is a party or is otherwise subject or bound; and, to the City’s knowledge, no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument which breach, default or event could have a materially adverse effect on the City’s ability to perform its obligations under the City Documents; and as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the City Documents and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or
6 other instrument to which the City is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City of its obligations under the City Documents or the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement. The City has received all licenses, permits or other regulatory approvals required, if any, for the pledge, collection and/or application by the Community Facilities District of the Special Taxes (as defined in the Fiscal Agent Agreement) and other moneys pledged to the payment of the principal of and interest on the Bonds under the Fiscal Agent Agreement.
G. Except as may be required under the “blue sky” or other securities laws of any jurisdiction, all approvals, consents, authorizations, elections and orders of, or filings or registrations with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the City of its obligations under the City Documents, and the performance of the conditions precedent to be performed by the City pursuant to this Purchase Agreement, have been or will be obtained at the Closing Date and are or will be in full force and effect at the Closing Date.
H. At the time of acceptance hereof there is and as of the Closing there will be no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body (collectively and individually, an “Action”) pending (notice of which has been served on the City) or to the knowledge of the City threatened, in which any such Action:
(i) in any way questions the powers of the City Council or the existence of the Community Facilities District or the titles of the officers of the City to their respective offices; (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery of the Bonds or the payment or collection of Special Taxes or any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contests or affects the validity of the City Documents or the consummation of the transactions on the part of the City contemplated thereby; (iii) contests the exclusion of interest on the Bonds from State income taxation or contests the powers of the City that result in any material adverse change relating to the financial condition of the City or the Community Facilities District; (iv) except as disclosed in the Official Statement, wherein an unfavorable decision, ruling or finding would materially adversely affect the financial position or condition of the City or the Community Facilities District or would result in any material adverse change in the ability of the City to pledge or apply the Special Tax Revenues or to pay debt service on the Bonds; or (v) contests the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserts that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and as of the time of acceptance hereof there is and, as of the Closing Date, there will be no known basis for any Action of the nature described in clauses (i) through (v) of this sentence.
I. The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter and at the expense of t he Underwriter as the Underwriter may reasonably request in order: (i) to qualify the Bonds for offer and sale under the “blue sky” or other securities laws and regulations of such states and other jurisdictions of the United States of America as the Underwriter may designate; and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions and will use its best efforts to continue such qualifications in effect so long as required for the distribution o f the Bonds; provided, however, that the City will not be required to execute a special or general consent to service of
7 process or qualify as a foreign corporation in connection with any such qualification in any jurisdiction.
J. The City Documents conform as to form and tenor to the descriptions thereof contained in the Preliminary Official Statement. The City represents that the Bonds, when issued, executed and delivered in accordance with the Fiscal Agent Agreement and sold to the Underwriter as provided herein, will be validly issued and outstanding obligations of the City, for and on behalf of the Community Facilities District, entitled to the benefits of the Fiscal Agent Agreement. The Fiscal Agent Agreement creates a valid pledge of, first lien upon and security interest in, the Special Tax Revenues, and in the moneys in the Special Tax Fund established pursuant to the Fiscal Agent Agreement, on the terms and conditions set forth in the Fiscal Agent Agreement. The Fiscal Agent Agreement creates a valid pledge of the moneys in certain funds and accounts established pursuant to the Fiscal Agent Agreement, subject in all cases to the provisions of the Fiscal Agent Agreement permitting the application thereof for the purposes and on the terms and conditions set forth therein.
K. Except as disclosed in the Preliminary Official Statement, there are, to the City’s knowledge, no entities with outstanding assessment liens against any of the properties within the Community Facilities District which are senior to or on a parity with the lien of the Special Taxes.
L. The issuance and sale of the Bonds is not subject to any transfer or other documentary stamp taxes of the State or any political subdivision thereof.
M. The City shall not knowingly take or omit to take any ac tion that, under existing law, may adversely affect the exclusion from gross income for federal income tax purposes, or the exemption from State of California personal income tax, of the interest on the Bonds. The City has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the City is a bond issuer whose arbitrage certifications may not be relied upon.
N. Any certificate signed by an authorized officer or employee of the City and delivered to the Underwriter in connection with the issuance of the Bonds shall be deemed a representation and covenant of the City to the Underwriter as to the statements made therein.
O. The City will apply the proceeds of the Bonds in accordance with the Fiscal Agent Agreement and as described in the Official Statement.
P. At or prior to the Closing, the City will have duly authorized, executed and delivered the Continuing Disclosure Certificate in substantially the form under Appendix E to the Official Statement. Based on a review of its prior undertakings with respect to Rule 15c2-12, and except as disclosed in the Preliminary Official Statement and Official Statement, the City has not failed to comply in any material respect with a continuing disclosure undertaking under Rule 15c2 -12 during the previous five years.
Q. Between the date of this Purchase Agreement and the date of Closing, the City will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter and the City shall not create, assume or guarantee any indebtedness payable from, or pledge or otherwise encumber, the Special Taxes or other assets, properties, funds or interests that will be pledged as security for the Bonds pursuant to the City Documents.
8 R. Until such time as moneys have been set aside in an amount sufficient to pay or defease all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of rede mption if redeemed prior to maturity, the City will faithfully perform and abide by all of the covenants, undertakings and provisions on its part contained in the Fiscal Agent Agreement.
S. The Preliminary Official Statement was deemed final by a duly authori zed officer of the City prior to its delivery to the Underwriter, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of the Rule. The City hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the City shall cause a final electronic and/or printed form of the Official Statement as set forth in Section 1 above to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of the Rule and Rules G -12, G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board.
T. The City hereby approves the preparation and distribution of the Official Statement, consisting of the Preliminary Official Statement with such changes as are noted thereon and as may be made thereto, with the approval of Bond Counsel and the Underwriter from time to time prior to the Closing Date.
U. The City hereby ratifies any prior use of and authorizes the future use by the Underwriter, in connection with the offering and sale of the Bonds, of the Preliminary Of ficial Statement, the Official Statement, this Purchase Agreement and all information contained herein, and all other documents, certificates and written statements furnished by the City to the Underwriter in connection with the transactions contemplated by this Purchase Agreement.
V. The execution and delivery of this Purchase Agreement by the City shall constitute a representation by the City to the Underwriter that the representations and warranties contained in this Section 2 with respect to the City and the Community Facilities District are true as of the date hereof.
3. Conditions to the Obligations of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the City contained herein, to the accuracy in all material respects of the statements of the officers and other officials of the City and the Community Facilities District made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the City and the Community Facilities District of their obligations to be performed hereunder at or prior to the Closing Date and, to the following additional conditions:
A. At the Closing Date, the Community Facilities District Resolutions, the Formation Documents, and the City Documents shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds, and with the transactions contemplated thereby, and by this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate.
B. At the Closing Date, except as was described in the Preliminary Official Statement, the City shall not be, in any respect material to the Bonds, the City Documents or the transactions
9 referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any appli cable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, and the performance by the City of its obligations under the Bonds, the City Documents, the Community Facilities District Resolutions, this Purchase Agreement and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, will not conflict with or co nstitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America or of any department, division, agency or instrumentality of either thereof or under any applicable court or administrative decree or order or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the City of its obligations under the City Documents, the Bonds or the Community Facilities District Resolutions.
C. The information contained in the Official Statement (other than statements pertaining to the book-entry system, as to which no view is expressed) is, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant hereto, true and correct in all material respects and does not, as of the Closing Date or as of the date of any supplement or amendment thereto, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
D. The Underwriter shall have the right to cancel its obligation to purchase the Bonds and to terminate this Purchase Agreement by written notice to the City if, between the date of this Purchase Agreement and the Closing Date, in the Underwriter’s sole and reasonable judgment any of the following events shall occur (each a “Termination Event”):
1. Between the date hereof and the Closing Date, the market price or marketability, at the initial offering prices set forth on the cover page of the Official Statement, of the Bonds, or the ability of the Underwriter to enforce contracts for the sale of the Bonds, shall have been materially adversely affected, in the reasonable judgment of the Underwriter (evidenced by a written notice to the City terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following:
a. Legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or the legislature of the State or recommended to the Congress by the President of the United States of America or a member of the President’s Cabinet, the Department of the Treasury, the Internal Revenue Service or any member of Congress or favorably reported for passage to either House of Congress by any committee of such House t o which such legislation had been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regu lation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department of the United States of America, the Internal Revenue Service or other federal or State authority with appropriate jurisdiction, with the purpose or effect, directly or indirectly, of imposing federal or State income taxation upon such interest as would be received by any owners of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof;
10 b. Legislation introduced in or enacted (or resolution passed) by the Congress, or shall have been favorably reported out of committee or be pending in committee, or shall have been recommended to the Congress for passage by the President of the United Sta tes of America or a member of the President’s Cabinet, or an order, decree, injunction or decision issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release, statement or other form of noti ce issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds, the Resolution or the City Documents, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Fiscal Agent Agreement is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds, as contemplated hereby or by the Official Statement or otherwise, is or would be in violation of the federal securities laws as amended and then in effect;
c. A general suspension of trading in securities on the New York Stock Exchange or other major exchange shall be in force, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the Securities and Exchange Commission or any other governmental authority having jurisdiction;
d. There shall have occurred (1) an outbreak or escalat ion of hostilities or the declaration by the United States of a national emergency or war or (2) any other calamity or crisis in the financial markets of the United States or elsewhere or the escalation of such calamity or crisis;
e. Except as disclosed in or contemplated by the Official Statement, any material adverse change in the affairs of the City or the Community Facilities District shall have occurred;
2. The introduction, proposal or enactment of any amendment to the federal or California Constitution or any action by any federal or State court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the City or the Community Facilities District, their property, income, securities (or interest thereon), or the validity or enforceability of Special Taxes;
3. Any event occurring or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue or incorrect in any material respect any statement or information contained in the Prelim inary Official Statement or in the Official Statement or has the effect that the Preliminary Official Statement or the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or ne cessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
4. A general banking moratorium shall have been declared by federal, State of New York or State of California officials authorized to do so o r a material disruption in securities settlement, payment or clearance services affecting the Bonds shall have occurred;
11 5. Any new restriction on transactions in securities materially affecting the market for securities (including the imposition of any limit ation in interest rates) or the extension of credit by, or a charge to the net capital requirements of, underwriters shall have been established by the New York Stock Exchange, the Comptroller of the Currency, the Securities and Exchange Commission or any other federal or State agency or the Congress of the United States of America, or by Executive Order;
6. A decision by a court of the United States of America shall be rendered, or a stop order, release, regulation or no -action letter by or on behalf of the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall have been issued or made, to the effect that the issuance, offering or sale of the Bonds as contemplated by this Purchase Agreement or by the Official Statement, or any document relating to the issuance, offering or sale of the Bonds is or would be in violation of any provision of the federal securities laws at the Closing Date, including the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939;
7. Any amendment is made to the Official Statement that in the Underwriter’s reasonable judgment will materially adversely affect the marketability of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds;
8. Any proceeding shall have been commenced or be threatened in writing by the Securities and Exchange Commission against the City or the Community Facilities District;
9. The commencement of an Action described in Section 2(H); Upon the occurrence of a Termination Event and the termination of this Purchase Agreement by the Underwriter, all obligations of the City, the Community Facilities District, and the Underwriter under this Agreement shall terminate, without further liability, e xcept that the City and the Underwriter shall pay their respective expenses as set forth in Section 5 below.
E. At or prior to the Closing Date, the Underwriter shall have received a counterpart original or certified copy of the following documents, in each c ase satisfactory in form and substance to the Underwriter:
1. Official Statement. The Official Statement and each supplement or amendment, if any thereto, executed by an authorized officer of the City;
2. Fiscal Agent Agreement. The Fiscal Agent Agreement, duly executed and delivered by the City and the Fiscal Agent;
3. Resolutions. Certifications by the City Clerk with respect to each resolution and ordinance of the City Council, for the City or as the legislative body of the Community Facilities District, relating to the City Documents, the transactions contemplated thereby, formation of the Community Facilities District and issuance of the Bonds;
4. City Continuing Disclosure Certificate. The Continuing Disclosure Certificate executed by the City;
12 5. Bond Counsel Opinion. An unqualified approving opinion for the Bonds, dated the Closing Date and addressed to the City, of Bond Counsel in substantially the form included as Appendix F to the Official Statement; together with a letter of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the City may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it;
6. Supplemental Opinion. A supplemental opinion or opinions, dated the Closing Date and addressed to the Underwriter, of Bond Counsel, to the effect that:
(i) this Purchase Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding agreement of the City and is enforceable in accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors’ rights generally or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases and by limitations on legal remedies against public agencies in the State; (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Fiscal Agent Agreement is exempt from qualification under the Trust Indenture Act of 1939, as amended;
(iii) the information contained in the Official Statement on the cover and under the captions “THE FINANCING PLAN,” “THE BONDS,” “SOURCES OF PAYMENT FOR THE BONDS,” “LEGAL MATTERS – Tax Exemption” and in Appendices D and F to the Official Statement (excluding any financial, statistical and economic data, forecasts, numbers, charts, graphs, estimates, projections, and assumptions and any information regarding The Depository Trust Company and the book-entry system as to which Bond Counsel need express no opinion or view, and further, excluding any material that may be treated as included under such captions by cross-reference), are accurate insofar as such statements purport to summarize certain provisions of the Bonds, the Fiscal Agent Agreement, Bond Counsel’s final approving opinion and the Community Facilities District Act; and
(iv) the Community Facilities District has been duly formed, and the Special Taxes have been duly and validly levied in accordance with the provisions of the Community Facilities District Act and, except to the extent prohibited by moratorium, bankruptcy, reorganization, fraudulent conveyance or transfer, insolvency or other similar laws affecting creditors’ rights generally, a lien to secure payment of the Special Taxes has been imposed on taxable property in the Community Facilities District;
7. Letter of Disclosure Counsel. A letter, dated the Closing Date and addressed to the Underwriter and the City, of Best Best & Krieger LLP, acting as Disclosure Counsel, to the effect that no facts have come to the attention of the attorneys in such firm rending legal services in connection with the Bonds that cause them to believe that the Preliminary Official Statement as of its date and as of the date of this Purchase Agreement and the Official Statement, as of its date or as of the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statement made therein, in light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to any appendices, CUSIP numbers, financial, accounting, statistical, economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections,
13 assumptions or expressions of opinion, any determinations regarding valuation, real estate, and environmental matters, or any basis therefor; information about the Underwriter, underwriting; statements relating to the treatment of the Bonds or the interest, discount or premium related thereto for tax purposes under the laws of any jurisdiction and statements contained in the Official Statement under the caption LEGAL MATTERS – Tax Exemption,” any information about the Depository Trust Company or the book-entry system).
8. City Attorney Opinion. An opinion, dated the Closing Date and addressed to the Underwriter, of the City Attorney, in substantially the form attached hereto as Exhibit B;
9. Closing Certificate of the City. A certificate, dated the Closing Date, and signed by an authorized officer of the City substantially in the form of Exhibit C hereto, together with such additional certifications as Bond Counsel may require;
10. Fiscal Agent Incumbency Certificate. Certified copies of the general resolution of the Fiscal Agent authorizing the execution and delivery of certain documents by certain officers of the Fiscal Agent which resolution authorizes the execution of the Fiscal Agent Agreement and the authentication of the Bonds;
11. Fiscal Agent ’s Certificate. A certificate or certificates of the Fiscal Agent, dated the Closing Date, in form and substance acceptable to the Underwriter and Bond Counsel;
12. Fiscal Agent ’s Counsel Opinion. An opinion or opinions of counsel to the Fiscal Agent dated the Closing Date and addressed to the City and the Underwriter to the effect that the Fiscal Agent has duly authorized the execution and delivery of the Fiscal Agent Agreement and is a valid and binding obligation of the Fiscal Agent enforceable in accordance with its terms;
13. Opinion of Underwriter’s Counsel. An opinion of Kutak Rock LLP, counsel to the Underwriter, dated the date of the Closing, addressed to the Underwriter, in form and substance acceptable to the Underwriter;
14. Special Tax Consultant Certificate. A certificate, dated the Closing Date from Willdan Financial Services (the “Special Tax Consultant”) substantially in the form attached as Exhibit D hereto;
15. Specimen Bonds. Copies of the Specimen Bonds;
16. Nonarbitrage Certificate. A certificate of the City, dated the Closing Date, in a form acceptable to Bond Counsel and the Underwriter, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended;
17. Form 8038-G. An Information Return for Tax-Exempt Bond Issues (Internal Revenue Service Form 8038-G), in a form satisfactory to Bond Counsel for filing, executed by a duly authorized officer of the City, together with evidence that such Form 8038 -G has been mailed;
18. CDIAC Statements. Copies of filings with the California Debt and Investment Advisory Commission relating to the issuance of the Bonds;
14 19. Blanket Letter of Representations. A copy of the Blanket Letter of Representations to DTC relating to the Bonds signed by the City;
20. Certificates Regarding Preliminary Official Statement . Prior to and in connection with printing and distribution of the Preliminary Official Statement, (i) an executed certificate of the City deeming the Preliminary Official Statement final within the meaning of the Rule, and (ii) an executed certificate of Lennar Homes of California, LLC, a California limited liability company (the “Property Owner”), substantially in the form under Exhibit F hereto;
21. Property Owner Continuing Disclosure Certificate. An executed copy of the Property Owner Continuing Disclosure Certificate in the form included as an appendix to the Official Statement;
22. Property Owner Bring-Down Certificate. An executed bring-down certificate from the Property Owner, dated as of the Closing Date, substantially in the form set forth in Exhibit G hereto;
23. Property Owner Counsel Opinion. The opinions of counsel to the Property Owner addressed to the City and the Underwriter, dated as of the Closing Date, in form and substance acceptable to the City and the Underwriter;
24. Appraiser Closing Certificate. A certificate in form and substance as set forth in Exhibit H hereto of Kitty Siino & Associates, Inc., Tustin, California, the appraiser of the property within the Community Facilities District, dated as of the Closing Date; and
25. Additional Documents. Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the material representations and warranties of the City contained herein, and of the statements and information contained in the Official Statement and the due performance or satisfaction by the City at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the City and the Community Facilities District in connection with the transactions contemplated hereby and by the Fiscal Agent Agreement and the Official Statement.
If the City shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement s hall terminate and neither the City nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter and the City set forth in Section 5 hereof shall continue in full force and effect.
4. Representations and Agreements of the Underwriter. The Underwriter represents to and agrees with the City that:
A. The Underwriter is duly authorized to execute and deliver this Purchase Agreement and to take any action under the Purchase Agreement required to be taken by it.
15 B. The Underwriter is in compliance with MSRB Rule G-37 with respect to the City and the Community Facilities District, and is not prohibited thereby from acting as underwriter with respect to securities of the City and the Community Facilities District. The Underwriter is in compliance with MSRB Rule G-17 with respect to the City and the Community Facilities District.
C. The Underwriter has, and has had, no financial advisory relationship with the City or the Community Facilities District with respect to the Bonds, and no investment firm controlling, controlled by or under common control with the Underwriter has or has had any such financial advisory relationship, within the meaning of California Government Code Section 53590, or otherwise.
D. The Underwriter has not paid or agreed to pay, nor will it pay or agree to pay, any entity, company, firm or person (including, but not limited to, the City’s financial consultants, or any officer, agent or employee thereof), other than a bona fide officer, a gent or employee working for the Underwriter, any compensation, fee, gift or other consideration contingent upon or resulting from the award of or entering into this Purchase Agreement.
E. The Underwriter has reasonably determined that the City’s undertaking in the Continuing Disclosure Certificate to provide continuing disclosure with respect to the Bonds is sufficient to effect compliance with the Rule.
5. Expenses.
A. Whether or not the Underwriter accepts delivery of and pays for the Bonds as set forth herein, it shall be under no obligation to pay, and the City shall pay out of the proceeds of the Bonds or any other legally available funds of the City, all expenses incidental to the performance of the City’s obligations hereunder, including but not limited to the cost of printing and delivering the Bonds to the Underwriter; the costs of printing and shipping the Preliminary Official Statement and the Official Statement; the fees and disbursements of the City, the Community Facilities District, the Fiscal Agent, Bond Counsel, Disclosure Counsel, accountants and any other experts or consultants retained by the City or the Community Facilities District in connection with the issuance and sale of the Bonds; and any other expenses not specifically enumerated in paragraph (B) of this Section incurred in connection with the issuance and sale of the Bonds.
B. Whether or not the Bonds are delivered to the Underwriter as set forth herein, the City shall be under no obligation to pay, and the Underwriter shall be responsible for and pay, CUSIP® and CDIAC fees and expenses to qualify the Bonds for sale under any “blue sky” laws; and all other expenses incurred by the Underwriter in connection with its public offering and distribution of the Bonds not specifically enumerated in paragraph (A) of this Section, including the fees and disbursements of its counsel.
6. Undertakings of the City. The City agrees: (a) to inform the Underwriter, from time to time, upon the reasonable request of the Underwriter, of the amount then on deposit in the Reserve Fund; and (b) to make available to the Underwriter, upon reasonable request of the Underwriter, at the expense of the City, sufficient copies of its audited financial statements, if any, and any resolutions of the City Council with respect to the Community Facilities District Resolutions, the Bonds, the Fiscal Agent Agreement, the Official Statement, any amendments or supplements thereto, and other documents relating to the Bonds and pertaining to the City or the Community Facilities
16 District adopted or executed, as the case may be, after the Closing Date, to the extent that such documents are publicly available.
7. Establishment of Issue Price.
The Underwriter agrees to assist the City in establishing the issue price of the Bonds and shall execute and deliver to the City at or before the Closing Date an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit E, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds.
With respect to Bonds of those maturities as to which at least 10% of the Bonds of the maturity has been sold to the public (defined in paragraph (f) below) at a single price (the “10% test”), based on reporting by the Underwriter to the City on the date hereof and prior to the execution of this Purchase Agreement, which maturities are indicated in Exhibit A attached hereto as having satisfied the 10% test (the “10% Test Maturities”), the City will treat the first price at which 10% of each such maturity of the Bonds was sold to the public as the issue price of that maturity. With respect to Bonds of those maturities as to which the 10% test has not been satisfied, based on reporting by the Underwriter to the City on the date hereof and prior to the execution of this Purchase Agreement, which maturities are indicated in Exhibit A attached hereto as being subject to the “hold - the-offering-price rule,” defined below (the “Hold-the-Offering-Price Maturities”), the Underwriter and the City agree that the rules in paragraph (c) below shall apply. For purposes of this section, for Bonds maturing on the same date but having different interest rates, each separate group of Bonds having a different interest rate is subject to the 10% test or paragraph (c) below, as the case may be, as if such separate group of Bonds was a separate maturity.
The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (each an “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A attached hereto, except as otherwise set forth therein. Exhibit A also sets forth, identified under the columns (X) “10% Test Satisfied,” (Y) “10% Test Not Satisfied,” and (Z) “Subject to Hold-the-Offering-Price-Rule Used,” as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the Underwriter represents that (i) the 10% test has been satisfied (based on the assumption that the orders aggregating more than 10% of a maturity will be confirmed by the close of the business day immediately following the date of this Purchase Agreement) (see clause (X) above, which will be checke d), or (ii) the 10% test has not been satisfied and for which the City and the Underwriter agree that the restrictions set forth in the next sentence shall apply (see clauses (Y) and (Z) above, both of which will be checked) , which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following:
1. the close of the fifth (5th) business day after the sale date; or
17 2. the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public.
The Underwriter shall promptly advise the City, after the close of the fifth (5th) business day, whether it has sold at least 10% of each Hold-the-Offering-Price maturity to the public at a price that is no higher than the initial offering price to the public of that maturity, if such sale has occurred prior to the close of the fifth (5th) business day after the sale date.
The Underwriter confirms that:
(i) any selling group agreement and any retail or other third -party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker-dealer that is a party to such retail or other third-party distribution agreement, as applicable:
(A) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter,
(B) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below), and (C) to acknowledge that, unless otherwise advised by the dealer or broker- dealer, the Underwriter shall assume that each order submitted by the dealer or broker -dealer is a sale to the public.
(ii) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain langua ge obligating each dealer that is a party to a retail or other third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker -dealer that is a party to such retail or other third-party distribution agreement to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires.
(e) The City acknowledges that, in making the representation set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing the issue price of the Bonds, including, but not limited to, its agreement to comply with the hold -the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wire s, and (ii) in the event that a retail or other third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker -dealer that is a party to such agreement to comply with the requirements for establishing the issue price of the Bonds, including, but not limited to, its agreement to comply with the hold -the-offering-price rule, if applicable to the Bonds, as set forth in the retail or other third -party distribution agreement and the related pricing wires.
18 (f) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section.
Further, for purposes of this section:
(i) “public” means any person other than an underwriter or a related party;
(ii) “underwriter” means (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a retail or other third - party distribution agreement participating in the initial sale of the Bonds to the public); (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (iv) “sale date” means the date of execution of this Purchase Agreement by all parties.
8. Notices. Any notice or other communication to be given to the City pursuant to this Bond Purchase Agreement may be given by delivering the same in writing to such entity, at the addresses set forth on the cover page hereof. Any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Hilltop Securities Inc., 2533 South Coast Highway 101, Suite 250, Cardiff by the Sea, California 92007, Attention: Public Finance. All such notices, requests or other communications may be made by telephone, personal or courier delivery, registered or cer tified mail, facsimile transmission or electronic communication, provided that delivery by facsimile transmission or electronic communication must be confirmed by the sender. The City and the Underwriter may, by notice given as aforesaid, specify a different address for any such notices, requests or other communications.
9. Parties In Interest. This Purchase Agreement is made solely for the benefit of the City and the Underwriter (including any successors or assignees of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. The City and the Underwriter may not assign this Agreement. The term “successor” shall not include any holder of any Bonds merely by virtue of such holding.
10. Survival of Representations and Warranties. The representations and warranties of the City under this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing and regardless of any investigations mad e by or on
19 behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the City or the Community Facilities District and regardless of delivery of and payment for the Bonds.
11. Severability. If any provision of this Purchase Agreement is, or is held or deemed to be, invalid, inoperative or unenforceable as applied in any particular case in any jurisdiction or jurisdictions, because it conflicts with any provisions of any constitution, statute, rule of public policy or for any other reason, such circumstances shall not make the provision in question invalid, inoperative or unenforceable in any other case or circumstance, or make any other provision or provisions of this Agreement invalid, inoperative or unenforceable to any extent whatsoever.
12. Execution in Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.
13. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understanding between the parties hereto in relation to the sale of the Bonds by the City.
14. Governing Law. This Purchase Agreement shall be governed by the laws of the State applicable to contracts made and performed in the State.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS]
20 15. Effective Date. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the City and shall be valid and enforceable as of the time of such acceptance.
Very truly yours,
HILLTOP SECURITIES INC.
By:
Its: Managing Director
The foregoing is hereby agreed to and
accepted as of the date first above written:
CITY OF UPLAND, for and on behalf of
COMMUNITY FACILITIES DISTRICT
NO. 2022-1 (ENCLAVE AT UPLAND) OF
THE CITY OF UPLAND
By:
Authorized Representative
Time of Execution: _____________ p.m. California time
[EXECUTION PAGE OF BOND PURCHASE AGREEMENT – COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND) OF THE CITY OF UPLAND 2023 SPECIAL TAX BONDS]
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EXHIBIT A
MATURITY SCHEDULE
Maturity
(September 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-The-
Offering-Price
Rule (marked
if used)
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
20__(T)
20__(T)
20__(T)
20__(T)
_________________
(T) Term Bond.
(C) Priced to optional call at [par] on September 1, 20___. *At the time of execution of this Purchase Agreement and assuming orders are confirmed by the close of the business day immediately following the date of this Purchase Agreement.
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EXHIBIT B
FORM OF CITY ATTORNEY OPINION
[Closing Date]
Hilltop Securities Inc.
Cardiff by the Sea, CA
City of Upland
Upland, CA
Re: Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland 2023 Special Tax Bonds
Ladies and Gentlemen:
We serve as City Attorney to the City of Upland (the “City”). This opinion is addressed to you in connection with the issuance by the City of its Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland 2023 Special Tax Bonds (the “Bonds”) in the principal amount of $______. The Bonds are being issued pursuant to a Fiscal Agent Agreement, dated as of ____ 1, 2023 (the “Fiscal Agent Agreement”), between the City and U.S. Bank Trust Company, National Association, as fiscal agent (the “Fiscal Agent ”) and sold pursuant to the Bond Purchase Agreement dated [BPA Date] (the “Purchase Agreement”), between the City and Hilltop Securities Inc., as underwriter (the “Underwriter”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement or, if not defined in the Fiscal Agent Agreement, in the Purchase Agreement.
In rendering this opinion, we have made the assumption that all documents submitted to or reviewed by us are accurate and complete and, if not originals, are true and correct copies of originals. As to questions of fact material to this opinion letter, we have relied upon representations and information supplied to us by the City and its officers, employees, and representatives and upon representations and certificates of various public officials. In the course of my representation, nothing has come to our attention that caused us to believe that any of the factual representations upon which we have relied are not true, but we have made no other factual investigations.
When used herein, the phrase “to our current actual knowledge” means that, during the course of our representation of the City, no information that would give us current actual knowledge of the inaccuracy of such statements has come to our attention. However, we have not undertaken any independent investigation or inquiry to determine the accuracy of such statements other than inquiries of officers of the City. Any limited inquiry undertaken by us during the preparation of this opinion letter should not be regarded as such an investigation. No inference as to our knowledge of any matters bearing on the accuracy of any such statement should be drawn from the fact of my representation of the City, either past or present.
For the purpose of rendering the opinions set forth below, we have assumed that the Bonds have been issued in compliance with the provisions of the Mello -Roos Community Facilities Act of 1982 of the State of California (being §53311 et seq., of the California Government Code), that the Bonds have been issued in accordance with the requirements of the Fiscal Agent Agreement, and that
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such issuance does not result in the violation of any constitutional, statutory, or o ther limitation relating to the amount of indebtedness that may be incurred by the City.
Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the opinion that:
1. The City is a public body, corporate and politic, duly organized and existing under and by virtue of the laws of the State of California.
2. The meetings of the City relating to the proceedings taken in connection with the issuance of the Bonds were duly called and held and the Resolution was duly adopte d or enacted and is in full force and effect and has not been amended, modified or supplemented in any way.
3. The Purchase Agreement, the Fiscal Agent Agreement, the Continuing Disclosure Certificate and the Bonds have been duly authorized and executed by the City and, assuming the due authorization, execution, and delivery of the Purchase Agreement, Continuing Disclosure Certificate, and the Fiscal Agent Agreement by and their enforceability against the other parties thereto, the Purchase Agreement, Continuing Disclosure Certificate, the Fiscal Agent Agreement and the Bonds are legal, valid, binding agreements of the City for the District enforceable against the City in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium, or other laws relating to or affecting the enforcement of creditors’ rights generally; by the application of general principles of equity, including without limitation concepts of materiality, reasonableness, good faith, and fair dealing, regardless of whether considered in a proceeding in equity or at law; the possible unavailability of specific performance or injunctive relief; and by the limitations imposed on action s against governmental entities in the State of California.
4. The adoption of the Resolution and the execution and delivery by the City of the Purchase Agreement, the Fiscal Agent Agreement, Continuing Disclosure Certificate, and the Bonds and compliance with the provisions thereof by the City do not violate any applicable law, regulation or, to the best of my current actual knowledge, judgment, order or decree of any court or any public or governmental agency or authority of the State of California or the federal government of the United States of America and, to the best of my current actual knowledge, do not result in the breach of any of the provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the City is a party or by which it is otherwise subject.
5. To our current actual knowledge, the City is not violating any applicable law or administrative regulation of the State of California or the United States, is not violating or in breach of any applicable judgment or decree, and is not in breach of or default under any loan agreement, note, resolution, agreement or other instrument to which the City is a party or is otherwise subject, which violation, breach, or default would materially adversely affect the transactions contemplated by the Purchase Agreement, the Fiscal Agent Agreement, or the Bonds.
The opinions set forth above are further qualified as follows:
(a) Our opinions are limited to the matters expressly set forth herein and no opinion is to be implied or may be inferred beyond the matters expressly so stated;
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(b) We are licensed to practice law in the State of California; accordingly, the foregoing opinions only apply insofar as the laws of the State of California and the United States may be concerned, and we express no opinion with respect to the laws of any other jurisdiction; (c) We express no opinion as to the enforceability under certain circumstances of contractual provisions respecting various summary remedies without notice or opportunity for hearing or correction, especially if their operation would work a substantial for feiture or impose a substantial penalty upon the burdened party;
(d) We express no opinion as to the effect or availability of any specific remedy provided for in the Fiscal Agent Agreement under particular circumstances, except that we believe such remedies are, in general, sufficient for the practical realization of the rights intended thereby; (e) We express no opinion as to the enforceability of any indemnification, contribution, choice of law, choice of forum, or waiver provisions contained in the Fiscal Agent Agreement or the Purchase Agreement;
(f) We express no opinion concerning the application to or compliance with federal securities law, including but not limited to the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, any state securities or “Blue Sky” law, or any federal, state or local tax law, of the Bonds or the issuance and sale thereof; (g) We disclaim any obligation to update this opinion for events occurring after the date hereof or any new facts or information that may become known to me after the date of this opinion; We hereby confirm to you that, to our current actual knowledge, there are no actions, suits, proceedings, inquiries or investigations, at law or in equity, before or by any court, governmen tal agency, public board or body that are pending and have been served, or overtly threatened in writing against the City, contesting the titles of its officers to their respective offices, 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 Resolution, or the Fiscal Agent Agreement, or the collection or application of the Special Taxes and the interest thereon to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Fiscal Agent Agreement, the Continuing Disclosure Certificate, or the powers of the City or its authority with respect to the Bonds, the Resolutions, the Fiscal Agent Agreement, the Continuing Disclosure Certificate, the Purchase Agreement or any action on the part of the City contemplated by any of said documents.
As City Attorney to the City in this matter, we have not rendered financial advice to the City and do not represent, by this opinion or otherwise, that we have reviewed or made any assessment about, nor do we offer any opinion about, the financial condition of the City, past, present or future, including any financial information contained in the documents; nor have we reviewed the financial feasibility of this transaction or those projects that the proceeds of the Bonds will fund or any of their components, and, accordingly, we offer no opinion whatsoever regarding such financial feasibility.
This letter is furnished by us as City Attorney. No attorney-client relationship has existed or exists between us and the Underwriter in connection with the Bonds or by virtue of this letter. This letter is delivered to the Underwriter solely for their benefit in connection with the transactions covered by the first paragraph of this letter and may not be relied upo n or used by, circulated, quoted or referred to, nor may copies hereof be delivered to, any other person or for any other purpose
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without our prior written approval; provided, however, that copies of this opinion may be included in the closing transcripts for the transactions covered by the first paragraph of this letter. This letter is not intended to be relied upon by owners of Bonds.
Very truly yours,
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EXHIBIT C
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
CLOSING CERTIFICATE OF THE CITY
I, the undersigned, hereby certify that I am the ________ of the City of Upland (the “City”), the City Council of the City (the “City Council”) of which is the legislative body for Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland (the “Community Facilities District”), a community facilities district duly organized and existing under the laws of the State of California (the “State”) and I am authorized to execute this Certificate on behalf of the City in connection with the issuance of the above -captioned bonds (the “Bonds”). All capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Bond Purchase Agreement (the “Bond Purchase Agreement”), dated [BPA Date], by and between the City and Hilltop Securities Inc.
I further certify on behalf of the City that:
(i) The representations, warranties and covenants of the City contained in the Bond Purchase Agreement are true and correct in all material respects on and as of the date hereof as if made on the date hereof;
(ii) The Community Facilities District Resolutions, Formation Documents and the City Documents are in full force and effect and have not been amended, modified or supplemented; (iii) Except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation at law or in equity, or by any court or regulatory agency, public board or body pending, with respect to which the City or the Community Facilities District has been served with process, or to the knowledge of the City, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the creation, organization, existence or powers of the City or the Community Facilities District, or the titles of their officers to their respective offices, (b) enjoin or restrain the issuance, sale and delivery of the Bonds, the levy or collection of the Special Taxes or any other moneys or property pledged or to be pledged under the Fiscal Agent Agreement, or the pledge thereof, (c) in any way question or affect any of the rights, powers, duties or obligations of the City or the Community Facilities District with respect to the Special Taxes or mone ys and assets pledged or to be pledged to pay the principal of, premium, if any, or interest on the Bonds, (d) in any way question or affect any authority for the issuance of the Bonds, or the validity or enforceability of the Bonds or the proceedings relating to the issuance of the Bonds, or (e) in any way question or affect the Bond Purchase Agreement or the transactions contemplated thereby, the Official Statement or the City Documents;
(iv) The information in the Preliminary Official Statement (other th an statements pertaining to the book-entry system, as to which no view is expressed) as of its date was and as of the date hereof is, and in the Official Statement (other than statements pertaining to the book-entry system, as to which no view is expressed) as of its date was and as of the date hereof is, true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstanc es under which they were made, not misleading;
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(v) The City has complied with all agreements and covenants, and satisfied all conditions, on its part to be complied with or satisfied under the Bond Purchase Agreement and under the Community Facilities District Resolutions, the Formation Documents, the City Documents and the Official Statement at or prior to the date hereof; (vi) No event has occurred since the date of the Official Statement which either makes untrue or incorrect in any material respect as of the date hereof any statement or information contained in the Preliminary Official Statement or the Official Statement (other than statements pertaining to the book-entry system as to which no view is expressed) or is not reflected in the Official Statement but should be reflected therein in order to make the statements and information therein not misleading in any material respect; and
(vii) The use of and distribution by the Underwriter of the Preliminary Official Statement and the Official Statement in connection with the offer and sale of the Bonds is hereby ratified.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date set forth below.
Dated: [Closing Date] CITY OF UPLAND
By:
Its:
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EXHIBIT D
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
CERTIFICATE OF SPECIAL TAX CONSULTANT
The undersigned hereby states and certifies:
1. That the undersigned is an authorized officer of Willdan Financial Services (the “Special Tax Consultant”) and as such is familiar with the facts herein certified and is authorized and qualified to certify the same.
2. That the Special Tax Consultant has reviewed and is familiar with the Rate and Method of Apportionment of Special Tax (the “Rate and Method”) as set forth in Appendix A to the Official Statement dated [BPA Date], for Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland (the “Community Facilities District”) 2023 Special Tax Bonds.
Capitalized terms not otherwise defined herein shall be defined as provided in the Rate and Method or the Fiscal Agent Agreement, dated as of _______ 1, 2023, between the City of Upland (the “City”) and U.S. Bank Trust Company, National Association, as Fiscal Agent .
3. That the Special Taxes, if levied in accordance with the Rate and Method and collected will annually yield sufficient revenue to make timely payments of the Annual Debt Service on the Bonds, and annual Administrative Expenses related to the levy and collec tion of the Special Taxes and the expenses of the Fiscal Agent for the Bonds (no representation is made as to the actual amounts that will be collected in future years).
4. That the Special Tax, if collected in the maximum amounts permitted pursuant to the Rate and Method on the Closing Date, after payment of annual Administrative Expenses related to the levy and collection of the Special Taxes and the expenses of the Fiscal Agent for the Bonds, would annually generate at least 110% of the Annual Debt Se rvice payable with respect to the Bonds payable from such Special Taxes assuming the debt service schedule shown in the Official Statement is true and correct.
5. That all information supplied by the Special Tax Consultant for use in the Official Statement is true and correct, as of the date of the Official Statement and as of the date hereof.
6. That, as of the dates of the Preliminary Official Statement and the Official Statement and as of the date hereof, the information contained in those portions of t he Official Statement entitled “THE DISTRICT” and “APPENDIX A,” including the tables sourced to the Special Tax Consultant, and the other data provided by the Special Tax Consultant and included in the Official Statement, do not, to our knowledge, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.
7. The City, Hilltop Securities Inc., Best Best & Krieger LLP and all the professionals involved in the financing are entitled to rely on this Certificate.
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Dated: [Closing Date] WILLDAN FINANCIAL SERVICES
By:
Authorized Representative
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EXHIBIT E
$_______
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
FORM OF ISSUE PRICE CERTIFICATE
The undersigned, on behalf of Hilltop Securities Inc. (“Hilltop”) hereby certifies as set forth below with respect to the sale and issuance of the above-captioned bonds (the “Bonds”).
1. Sale of the Bonds.
(a) Hilltop offered each Maturity of the Bonds to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Pric es”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B.
(b) As set forth in the Bond Purchase Agreement, dated [BPA Date], between the Issuer and Hilltop, Hilltop agreed in writing that, (i) for each Maturity of the Bonds, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering- price rule”), and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any retail distribution agreement shall contain the agreement of each broker-dealer who is a party to the retail distribution agreement, to comply with the hold -the- offering-price rule. Pursuant to such agreement, no Underwriter (as defined below) has offered or sold any Maturity of the Bonds at a price that is higher than the respective Initia l Offering Price for that Maturity of the Bonds during the Holding Period.
2. Defined Terms.
(a) Holding Period means, for each Maturity of the Bonds, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business d ay after the Sale Date, or (ii) the date on which Hilltop has sold at least 10% of such Maturity of the Bonds to the Public at prices that are no higher than the Initial Offering Price for such Maturity. (b) Issuer means the City of Upland.
(c) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate Maturities.
(d) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter.
The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly.
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(e) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is [BPA Date]. (f) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bond s to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Hilltop’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder.
The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in a Certificate as to Arbitrage and Tax Co mpliance Procedures for the Bonds and with respect to compliance with the federal income tax rules affecting the Bonds, and by Best Best & Krieger LLP in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds.
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Dated: [Closing Date] HILLTOP SECURITIES INC.
By:
Title:
-Signature Page-
Issue Price Certificate
Schedule
SCHEDULE A
SALE PRICES
(To be attached)
Schedule
SCHEDULE B
PRICING WIRE OR EQUIVALENT COMMUNICATION
(Attached)
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EXHIBIT F
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
CERTIFICATE OF
LENNAR HOMES OF CALIFORNIA, LLC
[POS Date]
City of Upland
Community Facilities District No. 2022-1
(Enclave at Upland) of the City of Upland
460 North Euclid Avenue,
P.O. Box 460
Upland, CA 91785
Hilltop Securities Inc.
2533 South Coast Highway 101, Suite 250
Cardiff, CA 92007
Reference is made to the Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland, 2023 Special Tax Bonds (the “Bonds”) and to the Bond Purchase Agreement (the “Bond Purchase Agreement”) to be entered into by and between the City of Upland (the “City”), for and on behalf of Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland (the “Community Facilities District”), and Hilltop Securities Inc., as underwriter (the “Underwriter”). This Certificate of Lennar Homes of California, LLC (the “Certificate”) is delivered pursuant to and in satisfaction of Section 3(E)(20) of the Bond Purchase Agreement.
Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Bond Purchase Agreement.
As used in this Certificate, the phrase “Actual Knowledge of the Undersigned” means, as of the date of this Certificate, the actual knowledge (as opposed to constructive) that the undersigned currently has or has obtained through (i) interviews with such current officers and responsible employees of the Property Owner as the undersigned has reasonably determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in this Certificate, and/or (ii) review of documents reasonably available to the undersigned and which the undersigned reasonably deemed necessary for the undersigned to obtain knowledge of the matters set forth in this Certificate. The undersigned has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of the Property Owner’s current business and operations. The undersigned has not contacted individuals who are no longer employed by the Property Owner or its Relevant Entities. The Property Owner further notes that Lennar Corporation, a Delaware corporation (“Lennar Corporation”), completed a merger with CalAtlantic Group, Inc., a Delaware corporation (no w CalAtlantic Group, LLC, herein “CalAtlantic”) in February, 2018, pursuant to which CalAtlantic merged with and into a subsidiary of Lennar Corporation, with the subsidiary of Lennar Corporation being the surviving
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entity. Separate and apart from Lennar Corporation’s due diligence efforts for purposes of completing the acquisition of CalAtlantic, for purposes of this Certificate, individuals who were employees and officers of CalAtlantic and its subsidiaries prior to the merger have not been consulted or contacted and documents entered into by CalAtlantic and its subsidiaries or related to their properties and projects have not been reviewed.
As used in this Certificate, the term “Relevant Entity” of the Property Owner means any other Person (i) who presently directly, or indirectly through one or more intermediaries, is currently controlling, controlled by or under common control with the Property Owner, and (ii) for whom information, including financial information or operating data, concerning such Person is material to potential investors in their evaluation of the Community Facilities District and investment decision regarding the Bonds (i.e., information regarding such Person’s assets or funds that would materially affect the Property Owner’s ability to develop the Property as described in the Preliminary Official Statement or to pay its Special Tax on the portion of the Property then owned by the Property Owner (to the extent the responsibility of the Property Owner) prior to delinquency). “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.
For purposes hereof, the term “control” (including the terms “controlling,” “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Certificate, CalAtlantic, and its direct and indirect subsidiaries, shall not be considered a “Relevant Entity” of the Property Owner..
As used in this Certificate, the term “Property” means the real property currently owned by the Property Owner within Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland (the “Community Facilities District”), as further described in the Preliminary Official Statement.
The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of Lennar Homes of California, LLC, a California limited liability company (the “Property Owner”), and the undersigned, on behalf of the Property Owner, further certifies as follows:
(1) The Property Owner is duly organized and validly existing under the laws of the State of California and is in good standing under the laws of the State of California, and has or will have prior to the Closing, all requisite limited liability company right, power and authority:
(i) to execute and deliver this Certificate;
(ii) to acquire, own, develop and sell the Property, as described in the Preliminary Official Statement;
(iii) to execute and deliver the Property Owner Continuing Disclosure Certificate at Closing;
(iv) to perform its obligations under the Property Owner Continuing Disclosure Certificate; and
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(v) to carry on its business as described in the Preliminary Official Statement. (2) The Property Owner agrees to execute at Closing the Property Owner Continuing Disclosure Certificate substantially in the form attached as an appendix to the Preliminary Official Statement, with such ad ditional changes as may be agreed upon by the Underwriter, Bond Counsel and the Property Owner.
(3) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Property Owner is not aware of any material failures by it or any Relevant Entity to comply in all material respects with any previous continuing disclosure undertaking in a written certificate or agreement executed by it or its Relevant Entities to provide periodic continuing disclosure reports or notices of listed events with respect to community facilities district or assessment district bond issues in California within the past five years.
(4) To the Actual Knowledge of the Undersigned, the Property Owner and its Relevant Entities are not in breach of or in default under any applicable judgment or decree or any loan agreement, line of credit, option agreement, development agreement, indenture, fiscal agent agreement, bond or note (collectively, the “Material Agreements”) to which the Property Owner or its Relevant Entities are a party or otherwise subject, which breach or default could reasonably be expected to materially and adversely affect the ability of the Property Owner:
(i) to own and develop the Property, as described in the Preliminary Offi cial Statement;
(ii) to pay the Special Tax on the Property (to the extent the responsibility of the Property Owner) prior to delinquency;
(iii) to carry on its business as described in the Preliminary Official Statement; or
(iv) to perform its obligations under the Property Owner Continuing Disclosure Certificate.
(5) Except as described in the Preliminary Official Statement, the Property Owner has no loans outstanding and unpaid and no lines of credit that are secured by the Property.
(6) Except as disclosed in the Preliminary Official Statement, with respect to property owned by the Property Owner or any of its Relevant Entities located within the boundaries of a community facilities district or assessment district in California, to the Actual Knowledge of the Undersigned, within the last five (5) years, neither the Property Owner nor any of its Relevant Entities has (i) intentionally failed to pay when due any property taxes, special taxes, or assessments levied or assessed against such property absent a bona fide dispute as to the amount owed, (ii) had any such property become either tax deeded to any governmental agency or the subject of judicial foreclosure proceedings for failure to pay such property taxes, special taxes, or assessments levied or asse ssed against such property, or (iii) failed to cure such delinquencies within forty-five days of becoming aware of such
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delinquencies (to the extent the responsibility of the Property Owner or any such Relevant Entity).
(7) Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, there is no litigation, inquiry, investigation or administrative proceeding, by or before any court, regulatory agency, public board or body, pending against the Property Owner (with service of process to the Property Owner having been accomplished), or to the Actual Knowledge of the Undersigned, overtly threatened in writing against the Property Owner, or to the Actual Knowledge of the Undersigned, pending against any Relevant Entity (with service of process to such Relevant Entity having been accomplished), or to the Actual Knowledge of the Undersigned, overtly threatened in writing against any Relevant Entity, in each case which, if successful, could reasonably be expected to:
(i) materially and adversely affect the ability of the Property Owner to own and develop the Property, as described in the Preliminary Official Statement; (ii) materially and adversely affect the ability of the Property Owner to pay the Special Tax on the Property (to the extent the responsibility of the Property Owner) prior to delinquency;
(iii) materially and adversely affect the ability of the Property Owner to carry on its business as described in the Preliminary Official Statement; (iv) materially adversely affect the ability of the Property Owner to perform its obligations under the Property Owner Continuing Disclosure Certificate; (v) challenge, question the validity or enforceability of, or restrain or enjoin the performance of, the Special Tax, the Bonds, the Resolution, the Fiscal Agent Agreement, the Property Owner Continuing Disclosure Certificate or the Bond Purchase Agreement; or
(vi) restrain or enjoin collection of the Special Tax or other sums to be pledged to pay the principal of and interest on the Bonds. (8) Except as disclosed in the Preliminary Official Statement or in this Certificate:
(i) the Property Owner and, to the Actual Knowledge of the Undersigned, its Relevant Entities, are able to pay their respective bills as they become due; (ii) neither the Property Owner nor, to the Actual Knowledge of the Undersigned, any of its Relevant Entities, has filed for bankruptcy or been declared bankrupt in the last ten (10) years; and
(iii) to the Actual Knowledge of the Undersigned, there are no proceedings pending against the Property Owner (with service of process to the Property Owner having been accomplished) or overtly threatened in writing in which the Property Owner or any of its Relevant Entities may be adjudicated as bankrupt, be come the debtor in a bankruptcy proceeding, be discharged from any or all of its respective
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debts or obligations, be granted an extension of time to pay its respective debts or obligations, or be granted a reorganization or readjustment of its respective d ebts or obligations.
(9) As of the date of the Preliminary Official Statement, the information contained therein solely with respect to the Property Owner, its Relevant Entities, the proposed development of the Property, ownership of the Property, the P roperty Owner’s development plan, the Property Owner’s financing plan, the Property Owner’s lenders (if any), and contractual arrangements of the Property Owner or any Relevant Entities (including, if material to the Property Owner’s development plan or th e Property Owner’s financing plan, loans of the Property Owner or such Relevant Entities) as set forth under the sections of the Preliminary Official Statement captioned “THE DISTRICT—General Description of the District,” “—The Developer” and “—The Development” and “CONTINUING DISCLOSURE—Property Owner Continuing Disclosure” (but in all cases under all captions excluding therefrom (i) information regarding the Appraisal Report, market value ratio and annual special tax rates and ratios, and (ii) information which is identified as having been provided by a source other than the Property Owner) is true and correct in all material respects, and did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (10) Except as disclosed in the Preliminary Official Statement, the Property Owner has not submitted an application for, nor received actual notice of:
(i) the formation or authorization of any other assessment district or community facilities district that would include any portion of the Property, or (ii) the authorization or issuance of any debt secured by an assessment or another special tax to be levied on any portion of the Property, other than the Special Tax.
(11) Except as set forth in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, there are no claims, disputes, lawsuits, actions or contingent liabilities of or against the Property Owner or its Relevant Entities, or among, by or between the Property Owner and any contractors working on the development of the Property, which could reasonably be expected to materially and adversely affect:
(i) the ability of the Property Owner to own and develop the Property, as described in the Preliminary Official Statement;
(ii) the ability of the Property Owner to pay the Special Tax on the Property (to the extent the responsibility of the Property Owner) prior to delinquency; (iii) the ability of the Property Owner to carry on its business as described in the Preliminary Official Statement; or
(iv) the ability of the Property Owner to perform its obligations under the Property Owner Continuing Disclosure Certificate.
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(12) The Property Owner covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Property Owner will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way:
(i) seeks to challenge or overturn the formation of the Community Facilities District;
(ii) seeks to challenge the adoption of the ordinance levying the Special Tax within the Community Facilities District;
(iii) seeks to invalidate the Community Facilities District or any of the Bonds or any refunding obligations relating thereto; or
(iv) seeks to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notices of special tax lien relating thereto.
The foregoing covenant shall not prevent the Property Owner in any way from bringing any other action, suit, proceeding, inquiry or investigation at law or in equity relating to the following:
(a) a claim that the Special Tax has not been levied in accordance with the Rate and Method;
(b) the application or use of the Special Taxes levied and collected; or (c) the enforcement of the obligations of the City or the Community Facilities District under the Fiscal Agent Agreement or any agreements among the Property Owner and it Relevant Entities, the City and/or the Community Facilities District or to which the Property Owner or its Relevant Entities is a party or beneficiary. (13) The Property Owner has received a copy of the Rate and Method containing the prepayment formula. The Property Owner acknowledges that any prepayment of the Special Tax may only be made in accordance with the Rate and Method. (14) The Property Owner intends to comply with the provision of the Mello-Roos Community Facilities Act of 1982, as amended, relating to the Notice of Special Tax described in California Government Code Section 53341.5 in connection with the sale of the Property.
(15) Based upon its current development plans, including, without limitation, its current budget and subject to economic conditions and risks generally inherent in the development of real property, including, but not limited to, the risks described in the Preliminary Official Statement under the sectio ns “RISK FACTORS” and “THE DISTRICT,” the Property Owner anticipates that it will have sufficient funds to develop and sell the Property as described in the Preliminary Official Statement and pay Special Taxes on the Property (to the extent the responsibility of the Property Owner) prior to delinquency.
However, no assurance can be given that sources of financing available to the Property Owner will be sufficient to complete the property development and home construction as
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currently anticipated and as described in the Preliminary Official Statement. While the Property Owner has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither the Property Owner nor any of its Relevant Entities has any legal obligation of any kind to make any such funds available or to obtain loans. Other than pointing out the willingness of the Property Owner to provide internal financing in the past, the Property Owner has not represent ed in any way that it will do so in the future. If and to the extent that internal financing and home sales revenues are inadequate to pay the costs to complete the Property Owner’s planned development in the Community Facilities District and other financ ing by the Property Owner is not put into place, there could be a shortfall in the funds required to complete the proposed development by the Property Owner and portions of the Property may not be developed. (16) The Property Owner consents to the issuance of the Bonds. The Property Owner acknowledges and agrees that the proceeds of such Bonds will be used for the acquisition and construction of the improvements described in the Preliminary Official Statement. The Property Owner acknowledges that the costs to acquire and construct such improvements are estimates, and that any increase in costs in excess of the estimated costs relating to improvements will reduce the improvements which may be financed by the City, and neither the City, nor the Community Facilities District has any obligation to provide moneys to pay for any such costs.
(17) If between the date of this Certificate and the Closing Date, any event relating to or affecting such Property Owner, its Relevant Entities, or the ownership, development or sale of the Property shall occur of which the undersigned has actual knowledge and which the undersigned believes would cause the information under the sections of the Preliminary Official Statement indicated in Paragraph 9 hereof (and subject to the limitations and exclusions contained in Section 9 of this Certificate) to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were ma de, not misleading, Property Owner shall notify the City and the Underwriter and if, in the opinion of counsel to the City or the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Preliminary Official Statement, the Property Owner shall reasonably cooperate with the City in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the City and to the Underwriter.
(18) The Property Owner agrees to deliver a Bring-Down Certificate, dated the Closing Date, in substantially the form attached as Appendix G to the Bond Purchase Agreement. If any event related to or affecting the Property Owner, its Relevant Entities or the ownership, development or sale of the Property occurs, as a result of which it is necessary to modify the form of Bring-Down Certificate, the Property Owner agrees to deliver at the time of issuance of the Bonds a new form of Bring-Down Certificate revised to reflect such event.
(19) The Property Owner acknowledges and agrees that:
(i) in connection with the purchase and sale of the Bonds under the Bond Purchase Agreement, and with the discussions, undertakings and procedures leading up to the consummation of the purchase and sale of the Bonds under the Bond
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Purchase Agreement, the Underwriter is and has been acting solely as principal and is not acting as the agent or fiduciary of the Property Owner; (ii) the Underwriter has not assumed a fiduciary responsibility in favor of the Property Owner with respect to (a) the offering of the Bonds contemplated hereby or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Property Owner on other matters), or (b) any other obligation to the Property Owner with respect to the offering contemplated by the Bond Purchase Agreement; and (iii) the Property Owner has consulted its own legal, financial and other advisors to the extent it has deemed appropriate in connection with the offering contemplated by the Bond Purchase Agreement.
(20) On behalf of the Property Owner, I have reviewed the contents of this Certificate and consulted with counsel regarding the meaning of its contents. The Property Owner acknowledges and understands that a variety of state and federal laws, including but not limited to the Securities Act of 1933, as amended, and Rule 10b -5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the Property Owner, and that under some circumstances certification as to the matters set forth in this Certificate, without additional disclosures or other action, may not fully discharge all duties and ob ligations of the Property Owner under such laws.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
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The undersigned has executed this Certificate solely in his or her capacity as an authorized officer or representative of Property Owner and he or she will have no personal liability arising from or relating to this Certificate. Any liability arising from or relating to this Certificate may only be asserted against the Property Owner.
LENNAR HOMES OF CALIFORNIA, LLC,
a California limited liability company
By:___________________________________________
Name:________________________________________
Title:_________________________________________
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EXHIBIT G
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
BRING-DOWN CERTIFICATE OF
LENNAR HOMES OF CALIFORNIA, LLC
[Closing Date]
City of Upland
Community Facilities District No. 2022-1
(Enclave at Upland) of the City of Upland
460 North Euclid Avenue,
P.O. Box 460
Upland, CA 91785
Hilltop Securities Inc.
2533 South Coast Highway 101, Suite 250
Cardiff, CA 92007
Reference is made to the Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland, 2023 Special Tax Bonds (the “Bonds”) and to the Bond Purchase Agreement, dated [BPA Date] (the “Bond Purchase Agreement”), entered in connection therewith. This Bring- Down Certificate of Lennar Homes of California, LLC (the “Bring-Down Certificate”) is delivered by Lennar Homes of California, LLC, a California limited liability company (the “Property Owner”) pursuant to Section 3(E)(22) of the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Certificate of Lennar Homes of California, LLC (the “Certificate”), dated [POS Date] delivered by the Property Owner in connection with the distribution of the Preliminary Official Statement relating to the Bonds.
The undersigned certifies that he or she is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Property Owner, and the undersigned, on behalf of the Property Owner, further certifies as follows:
(1) The undersigned has received the final Official Statement relating to the Bonds , dated [BPA Date] (the “Final Official Statement”). Each statement made in the Certificate is affirmed and restated as if made on the date hereof; except that all references therein to the Preliminary Official Statement shall be deemed to be references to the Final Official Statement. (2) To the Actual Knowledge of the Undersigned, no event has occurred since the date of the Preliminary Official Statement that has, in any material way, adversely affected the statements and information described in Paragraph 9 of the Certificate (and subject to the limitations and exclusions contained in Paragraph 9 of the Certificate) relating to the Property Owner and its Relevant Entities, the Property, the Property Owner’s development and financing plans, and the Property Owner’s contractual arrangements (but excluding any information cited as coming from a
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source other than the Property Owner), which should be disclosed in the Final Official Statement for the purposes for which it is to be used in order to make such statements and information contained in the Final Official Statement not misleading in any material respect. (3) For a period of 25 days after the Closing Date, if the undersigned has actual knowledge of any event relating to or affecting the Property Owner, its Relevant Entities, or the ownership development or sale of the Property which could cause t he information under the captions of the Final Official Statement indicated in Paragraph 9 of the Certificate (and subject to the limitations and exclusions contained in Paragraph 9 of the Certificate) to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Property Owner shall notify the City and the Underwriter and if, in the opinion of counsel to the Ci ty or the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Final Official Statement, the Property Owner shall reasonably cooperate with the City in the preparation of an amendment or supplement to the Final Official Statement in form and substance satisfactory to counsel to the City and to the Underwriter.
(4) The Property Owner has duly executed and delivered the Property Owner Continuing Disclosure Certificate, and the Property Owner Continuing Disclosure Certificate constitutes the legal, valid and binding obligation of the Property Owner, enforceable against the Property Owner in accordance with its terms, except as such enforcement is limited by bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent conveyance, and other similar laws relating to or affecting the rights of creditors and certain equitable, legal, or statutory principles affecting the enforcement of contractual rights generally, regardless of whether such enforcement i s considered in a proceeding in equity or at law.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
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The undersigned has executed this Bring-Down Certificate solely in his or her capacity as an authorized officer or representative of Property Owner and he or she will have no personal liability arising from or relating to this Bring-Down Certificate. Any liability arising from or relating to this Bring-Down Certificate may only be asserted against the Property Owner.
LENNAR HOMES OF CALIFORNIA, LLC,
a California limited liability company
By:___________________________________________
Name:________________________________________
Title:_________________________________________
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EXHIBIT H
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
CERTIFICATE OF APPRAISER
The undersigned hereby states and certifies:
1. That she is an authorized principal of Kitty Siino &Associates, Inc., Tustin, California (the “Appraiser”) and as such is familiar with the facts herein certified and is authorized and qualified to certify the same.
2. That the Appraiser has prepared an appraisal report dated _______, 2023, with a date of value as of February 23, 2023 (the “Appraisal Report”), on behalf the Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland (the “Community Facilities District”) and in connection with the Official Statement dated [BPA Date] (“Official Statement”), concerning Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland 2023 Special Tax Bonds (the “Bonds”).
3. That the Appraiser hereby consents to the reproduction and use of the Appraisal Report appended to the Preliminary Official Statement and the Official Statement. The Appraiser also consents to the references to the Appraiser and the Appraisal made in the Preliminary Official Statement and the Official Statement.
4. In the opinion of the Appraiser the assumptions made in the Appraisal Report are reasonable.
5. That the Official Statement has been reviewed on behalf of the Appraiser and to the best knowledge of the Appraiser the statements concerning the Appraisal Report and the value of the property contained under the captions “THE DISTRICT – Appraisal Report,” and “APPENDIX B – APPRAISAL REPORT” are true, correct and complete in all material respects and do not contain any untrue statement of a material fact or omit to state a material fact necess ary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
6. Each of the parcels appraised by the Appraiser is encompassed within the Community Facilities District as set forth in the boundary map of the Community Facilities District and the Appraisal Report fairly and accurately described, as of the stated date of value, the market values of the properties in the Community Facilities District that are subject to the special taxes.
7. That, as of the date of the Official Statement and as of the date hereof, the Appraisal Report appended to the Official Statement, to the best of my knowledge and belief, and subject to all of the Limiting Conditions and Major Assumptions set forth in the Appraisa l Report, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading, and no events or occurrences have been ascertained by us or have come to our attention that would materially and adversely affect the conclusions as to the market value of the
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appraised property stated in the Appraisal Report. However, we have not performed any procedures since the date of value of the Appraisal Report to obtain knowledge of such events or occurrences nor are we obligated to do so in the future.
8. The Appraisal Report complies with the Appraisal Standards for Land-Secured Financings issued by the California Debt and Investment Advisory Commission dated July, 2004.
The City and Hilltop Securities Inc., as underwriter, are entitled to rely on this Certificate.
Dated: [Closing Date]
KITTY SIINO &ASSOCIATES, INC.
By:
PRELIMINARY OFFICIAL STATEMENT DATED ___________, 2023
NEW ISSUE - BOOK-ENTRY ONLY NO RATING
In the opinion of Best Best & Krieger, LLP, Riverside, California (“Bond Counsel”), subject to certain qualifications described in this Official Statement, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, 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 imposed on individuals and corporations; however for tax years beginning after December 31, 2022, interest on the Bonds is taken into account in determi ning the annual adjusted financial statement income of certain corporations for the purpose of computing the alternative minimum tax imposed on certain corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income tax. See “LEGAL MATTERS — Tax Exemption.” $4,260,000*
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
Dated: Date of Delivery Due: September 1, as shown on the inside front cover page The Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland 2023 Special Tax Bonds (the “Bonds”) are being issued and delivered to (i) finance the construction and acquisition of public facilities to be owned and operated by the City of Upland (the “City”) needed with respect to the development within Community Facilities District No. 2022-1 (Enclave at Upland) of the City (the “District”), County of San Bernardino (“County”), State of California (the “State”), (ii) fund a reserve fund securing the Bonds, and (iii) pay costs of issuance of the Bonds. The District has been formed by the City and is located in the City and County.
The Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Sections 53311 et seq. of the Government Code of the State of California), and pursuant to a Fiscal Agent Agreement, dated as of _____________ 1, 2023 (the “Fiscal Agent Agreement”), by and between the City, for and on behalf of the District, and U.S. Bank Trust Company, National Association as fiscal agent (the “Fiscal Agent”). The Bonds are special obligations of the City and the District and are payable solely from revenues derived from certain annual Special Taxes (as defined in this Official Statement) to be levied on and collected from the owners of certain taxable land within the District and from certain other funds pledged under the Fiscal Agent Agreement, all as further described in this Official Statement. The Special Taxes are to be levied according to the rate and method of apportionment for the District approved by the City Council of the City and the qualified electors within the District. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” The City Council of the City is the legislative body of the District.
The Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases may be made in integral multiples of $5,000 and will be in book-entry form only. Purchasers of Bonds will not receive certificates representing their beneficial ownership of the Bonds but will receive credit balances on the books of their respective nominees.
The Bonds will not be transferable or exchangeable except for transfer to another nominee of DTC or as otherwise described in this Official Statement. Interest on the Bonds will be payable semiannually on each March 1 and September 1, commencing September 1, 2023. Principal of and interest on the Bonds will be paid by the Fiscal Agent to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the be neficial owners of the Bonds.
Additional bonds can be issued for refunding purposes only. See “THE BONDS — General Provisions,” “— Book-Entry Only System” and APPENDIX G — “INFORMATION CONCERNING DTC.”
Neither the faith and credit nor the taxing power of the City, the County, the State or any political subdivision of such entities is pledged to the payment of the Bonds. Except for the Special Tax Revenues (as defined herein), no other taxes are pledged to the payment of the Bond s. The Bonds are special obligations of the City and the District payable solely from Special Tax Revenues and certain other amounts held under the Fiscal Agent Agreement as more fully de scribed in this Official Statement.
The Bonds are subject to optional redemption, mandatory redemption prior to maturity from special tax prepayments and mandatory sinking fund redemption, as described in this Official Statement. See “THE BONDS — Redemption.” Investment in the Bonds involves risks that are not appropriate for certain investors. Certain events could affect the abili ty of the City to pay the principal of and interest on the Bonds when due. See the section of this Official Statement entitled “RISK FACTORS” for a discussion of certain risk factors that should be considered, in addition to the other matters set forth in this Official Statement, in evaluating the i nvestment quality of the Bonds.
This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue.
Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. ____________________
MATURITY SCHEDULE
(See Inside Cover Page)
____________________
The Bonds are offered when, as and if issued and accepted by Hilltop Securities Inc., the Underwriter, subject to approval as to their legality by Best Best & Krieger LLP, Riverside, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be pas sed on for the City and the District by the City Attorney and by Best Best & Krieger LLP, Riverside, California, as Disclosure Counsel, for the Underwriter by Kutak Rock LLP, Irvine, California, as counsel to the Underwriter, and for the Fiscal Agent by its counsel. It is anticipated that the Bonds in book -entry form will be available for delivery to DTC in New York, New York, on or about ________, 2023. [UNDERWRITER LOGO]
Dated: ______, 2023
* Preliminary, subject to change.
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MATURITY SCHEDULE
$4,260,000*
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
Base CUSIP No.† _______
Maturity Date
(September 1)
Principal
Amount Interest Rate Yield Price CUSIP†©
$______ _____% Term Bonds due September 1, 20__ Yield: _____% Price: _____ CUSIP No.† ___ $______ _____% Term Bonds due September 1, 20__ Yield: ____% Price: _____ CUSIP No.† ____ $______ _____% Term Bonds due September 1, 20__ Yield: _____% Price: ____ CUSIP No.† ___
* Preliminary, subject to change.
† CUSIP® is a registered trademark of the American Bankers Association. CUSIP data herein is provided by CUSIP Global Services, which is owned by FactSet Research Systems Inc. (“FactSet”). FactSet will manage the CUSIP system on behalf of the American Banker s Association. This information is not intended to create a database and does not serve in any way as a substitute for the CUSIP Services Bureau. CUSIP numbers have been assigned by an independent company not affiliated with the City, the District or the Underwriter and are included solely for the convenience of the registered owners of the applicable Bonds. None of the City, the District or the Underwriter is responsible for the selection or uses of these CUS IP numbers, and no representation is made as to their correctness on the applicable Bonds or as included herein. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to al l or a portion of certain maturities of the Bonds.
CITY OF UPLAND
Upland, California
MEMBERS
Bill Velto, Mayor
Carlos A. Garcia; Mayor Pro Tem
James Breitling; Councilmember
Shannan Maust; Councilmember
Rudy Zuniga; Councilmember
STAFF
Michael Blay, City Manager
Greg Bradley, City Treasurer
Keri Johnson, City Clerk
Stephen P. Deitsch, City Attorney
SPECIAL SERVICES
Bond and Disclosure Counsel
Best Best & Krieger LLP
Riverside, California
Fiscal Agent
U.S. Bank Trust Company, National Association
Los Angeles, California
Municipal Advisor
Urban Futures, Inc.
Tustin, California
Special Tax Consultant
Willdan Financial Services
Temecula, California
Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District, the Fiscal Agent or the Underwriter. This Offic ial Statement does not constitute an offer to sell or the solicitation of an offer t o 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.
This Official Statement, deemed final by the City and the District, is not to be construed as a contract with the purchasers or Owners of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as suc h and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment to this Official Statement, is intended to be deposited with the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at www.emma.msrb.org .
The information set forth in this Official Statement, which has been obtained from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the City o r the District. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Stateme nt nor any sale made hereunder shall, under any circumstances, create any implicat ion that there has been no change in the affairs of the City or the District or any other parties described in this Official Statement since the date of this Official Statement. All summaries of the Fiscal Agent Agreement or other documents are made subje ct to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is made by this Official Statement to such documents on file with the City for further information. While the Cit y maintains an Internet website for various purposes, none of the information on that website is incorporated by reference in this Official Statement or intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds or any other bonds or obligations of the City. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded.
The Underwriter has provided the following sentence for inclusion in this Official Statement:
The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstance s of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
Certain statements included or incorporated by reference in this Official Statement constitute “forward looking statements” within the meaning o f the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “THE DISTRICT.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED
TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO
ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD -LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.
IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
TABLE OF CONTENTS
-i-
INTRODUCTORY .................................................................. 1 General ............................................................................... 1 The District ........................................................................ 1 Sources of Payment for the Bonds ..................................... 3 City CFD Administrative Policies and Practices ................ 4 Description of the Bonds .................................................... 4 Redemption ........................................................................ 4 Issuance of Additional Bonds............................................. 4 Tax Matters ........................................................................ 4 Professionals Involved in the Offering ............................... 5 Continuing Disclosure ........................................................ 5 Bond Owners’ Risks .......................................................... 5 Forward Looking Statements ............................................. 6 Other Information .............................................................. 6 THE FINANCING PLAN ........................................................ 6 Estimated Sources and Uses of Funds ................................ 7 THE BONDS ........................................................................... 7 General Provisions ............................................................. 7 Authority for Issuance ........................................................ 8 Redemption ........................................................................ 8 Registration, Transfer and Exchange ............................... 11 Book-Entry Only System ................................................. 11 Debt Service Schedule ..................................................... 12 SOURCES OF PAYMENT FOR THE BONDS .................... 12 Limited Obligations ......................................................... 12 Special Taxes ................................................................... 13 Special Tax Fund ............................................................. 17 Bond Fund ........................................................................ 18 Reserve Fund ................................................................... 19 No Superior Obligations; No Parity Bonds
Except for Refunding ............................................... 20 THE DISTRICT ..................................................................... 20 General Description of the District .................................. 21 Description of Authorized Facilities ................................ 21 The Property Owner ......................................................... 21 The Development ............................................................. 22 Overlapping Community Facilities Districts .................... 26 Estimated Direct and Overlapping Indebtedness .............. 26 Expected Tax Burden ....................................................... 26 Appraisal Report .............................................................. 27 Estimated Value-to-Lien Ratio ......................................... 28 Delinquency History ........................................................ 31 City’s Collection Practices ............................................... 31 RISK FACTORS.................................................................... 31 Risks of Real Estate Secured Investments
Generally .................................................................. 31 Limited Obligations ......................................................... 31 Insufficiency of Special Taxes ......................................... 32 Special Tax Delinquencies ............................................... 33 Climate Change ................................................................ 34 Natural Disasters .............................................................. 34 Drought ............................................................................ 34 Hazardous Substances ...................................................... 35 Parity Taxes and Special Assessments ............................. 36 Disclosures to Future Purchasers ..................................... 36 Non-Cash Payments of Special Taxes .............................. 36 Payment of the Special Tax Is Not a Personal
Obligation of the Owners .......................................... 37 Concentration of Ownership ............................................. 37 Land Values ...................................................................... 37 Increasing Mortgage Interest Rates .................................. 38 Impact of Economic Conditions on the
Development in the District ...................................... 38 FDIC/Federal Government Interests in Properties ............ 38 Bankruptcy and Foreclosure ............................................. 39 No Acceleration Provision ................................................ 40 Loss of Tax Exemption..................................................... 40 Limitations on Remedies .................................................. 41 Limited Secondary Market ............................................... 41 Voter Initiatives ................................................................ 41 IRS Audit of Tax-Exempt Bond Issues ............................ 42 Ballot Initiatives ............................................................... 42 Recent Case Law Related to the Mello-Roos Act ............. 42 Potential Early Redemption of Bonds from
Prepayments or Assessment Bond Proceeds ............. 43 Legal Requirements .......................................................... 43 Cyber Security .................................................................. 43 CONTINUING DISCLOSURE.............................................. 44 City Continuing Disclosure .............................................. 44 Property Owner Continuing Disclosure ............................ 44 LEGAL MATTERS ............................................................... 45 Tax Exemption ................................................................. 45 Legal Opinion ................................................................... 46 Litigation .......................................................................... 46 No Rating ......................................................................... 46 Underwriting .................................................................... 46 Municipal Advisor ............................................................ 46 Financial Interests ............................................................. 47 Pending Legislation .......................................................... 47 Additional Information ..................................................... 47
APPENDIX A - RATE AND METHOD OF
APPORTIONMENT OF SPECIAL TAX .................... A-1
APPENDIX B - APPRAISAL REPORT .............................. B-1
APPENDIX C - SUPPLEMENTAL
INFORMATION CONCERNING CITY OF
UPLAND AND COUNTY OF SAN
BERNARDINO ............................................................ C-1
APPENDIX D - SUMMARY OF FISCAL
AGENT AGREEMENT ............................................... D-1
APPENDIX E - FORM OF CONTINUING
DISCLOSURE CERTIFICATES OF THE
CITY AND THE PROPERTY OWNER ...................... E-1
APPENDIX F - PROPOSED FORM OF BOND
COUNSEL OPINION ................................................... F-1
APPENDIX G - INFORMATION
CONCERNING DTC ................................................... G-1
[DISTRICT LOCATION MAP]
[AERIAL PHOTO]
1 OFFICIAL STATEMENT
$4,260,000*
COMMUNITY FACILITIES DISTRICT NO. 2022-1
(ENCLAVE AT UPLAND) OF THE CITY OF UPLAND
2023 SPECIAL TAX BONDS
INTRODUCTORY
This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement. A f ull review should be made of the entire Official Statement. The sale and delivery of Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in APPENDIX D — “SUMMARY OF FISCAL AGENT AGREEMENT — DEFINITIONS” or APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
General
The purpose of this Official Statement (the “Official Statement”) is to provide certain information concerning the issuance of the $4,260,000* Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland 2023 Special Tax Bonds (the “Bonds”). The proceeds of the Bonds will be used to (i) finance the construction and acquisition of public facilities needed with respect to the development within Community Facilities District No. 2022-1 (Enclave at Upland) of the City of Upland, County of San Bernardino, State of California (the “District”), (ii) fund a reserve fund securing the Bonds, and (iii) pay costs of issuance of the Bonds.
The Bonds are authorized to be issued pursuant to 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 a Fiscal Agent Agreement dated as of _______ 1, 2023 (the “Fiscal Agent Agreement”) by and between the City of Upland (the “City”), for and on behalf of the District, and U.S. Bank Trust Company, National Association (the “Fiscal Agent”). The Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues (as defined in this Official Statement), subject to transfers to the Administrative Expense Fund as described herein, and all moneys deposited in the Bond Fund and the Reserve Fund.
The District
The District contains approximately 15.8 gross acres and approximately 15.8 developable acres, located south of Foothill Blvd., north of 11th St., and east of Dewey Way in the City located within San Bernardino County (the “County”). The District encompasses Tract Map No. 20366 (the “Property”) and is planned for 192 single family residential homes at buildout in a neighborhood being marketed as “The Enclave” (the “Project”).
Homes within the District are planned to consist of 192 single family homes with two floor plans ranging in size from approximately 1,372 square feet to approximately 1,970 square feet.
Lennar Homes of California, LLC, a California limited liability company (the “Property Owner” or “Lennar”) acquired the property in the District on December 16, 2021 and is the developer of the Project. As of the February 1, 2023 date of value (the “Date of Value”) of the Appraisal Report (as defined below), 8 of the 192 planned single family residential homes had been completed and conveyed to individual homeowners. Of the remaining 184 residential lots, the Property Owner owned 6 model homes (none of which were in escrow), 35 homes, which were over 95% completed (35 of which were in escrow), 28 homes under construction that had not yet reached 95% completion (9 of which were in escrow) and 115 finished lots (none of which were in escrow).
Since the Date of Value, an additional 35 homes closed escrow to individual homeowners, resulting in 43 homes conveyed to individual homeowners, as of April 10, 2023. Of the remaining 149 residential lots owned by the
* Preliminary, subject to change.
2 Property Owner, there are 6 completed model homes (none of which are in escrow), 44 homes under construction (38 of which are in escrow), and 99 finished lots without any vertical home construction thereon (none of which are in escrow), as of April 10, 2023. Homes under contract may not result in closed escrows as sales contracts are subject to cancellation by the homebuyers.
The Property Owner has obtained 127 building permits of the 192 residential lots within the District and these 127 lots will be classified as Developed Property under the Rate and Method (as defined below) for the Fiscal Year 2023-24 Special Tax levy. See “THE DISTRICT — General Description of the District” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Formation Proceedings. The District was formed by the City pursuant to the Act. The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State of California (the “State”). Any local agency (as defined in the Act) may establish a community facilities district under the Act to provide for and finance the cost of eligible public facilities and services. Generally, the legislative body of the local agency, which forms a district acts on behalf of such district as its legislative body. Subject to approval by two -thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a district and may levy and collect a special tax within such district to repay such indebtedness.
Pursuant to the Act, the City Council of the City (the “City Council”), acting as the legislative body of the District, adopted the necessary resolutions stating its intent to establish the District, to authorize the levy of Special Taxes (defined below) on taxable property within the boundaries of the District, and to have the District incur bonded indebtedness to fund facilities owned and operated by the City in lieu of certain City development impact fees, which include, but are not limited to park, traffic, water, sewer, storm drain and other capital improvements, police and fire facilities and incidental expenses (the “City Facilities”). Following public hearings conducted pursuant to the provisions of the Act, the City Council adopted resolutions establishing the District and calling special elections to submit the levy of the special taxes and the incurring of bonded indebtedness to the qualified voters of the District. On June 27, 2022, at a special election held pursuant to the Act, the Property Owner, as the sole landowner in the District at the time and therefore the only qualified voter of the District, authorized the District to incur bonded indebtedness within the District in an aggregate principal amount not to exceed $6,500,000 and the levy of Special Taxes (as defined below) to repay such bonded indebtedness in accordance with the Rate and Method of Apportionment for the District (the “Rate and Method”). The Rate and Method is attached hereto as APPENDIX A.
The Assigned Special Tax (as defined in the Rate and Method) is the special tax that will be levied to pay debt service on the Bonds. The Assigned Special Tax is referred to in this Official Statement as the “Special Tax” or the “Special Taxes.”
Appraisal Report. Kitty Siino & Associates, Inc. (the “Appraiser”) has conducted an appraisal, dated March 28, 2023, of the land within the District subject to the Special Tax (the “Appraisal Report”). The Appraisal Report sets forth an estimate of the market value of the fee simple interest of the taxable land and improvements within the District. The Appraiser is of the opinion that, based upon the assumptions and conditions contained in the Appraisal Report, the aggregate value of the property within the District, as of the February 1, 2023, Date of Value, was $43,825,598. This estimate of value results in an overall District-wide appraised value-to-lien ratio of approximately 10.29* to 1 for the District based on the estimated amount of land secured debt allocated to parcels within the District. See “THE DISTRICT — Appraisal Report,” APPENDIX B — “APPRAISAL REPORT” and “RISK FACTORS — Parity Taxes and Special Assessments.”
* Preliminary, subject to change.
3 Sources of Payment for the Bonds
Special Taxes. The Special Tax is that tax that has been authorized to be levied against certain land within the District pursuant to the Act and in accordance with the Rate and Met hod to satisfy the Special Tax Requirement (as defined in the Rate and Method). “Special Tax Revenues” are defined in the Fiscal Agent Agreement to mean the proceeds of the Special Taxes received by the City, including any scheduled payments, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties thereon . See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Under the Fiscal Agent Agreement, the District has pledged to repay the Bonds from the Special Tax Revenues (subject to the deposit of certain amounts in the Administrative Expense Fund for each Fiscal Year) and amounts on deposit in the Bond Fund and the Reserve Fund established under the Fiscal Agent Agreement.
Reserve Fund. The Fiscal Agent Agreement establishes a Reserve Fund for the Bonds to be maintained at the Reserve Requirement. The Fiscal Agent Agreement provides that the Reser ve Requirement shall, as of the date of calculation, equal the lesser of: (i) 10% of the original issue price of the Bonds calculated in accordance with Treasury Regulations Section 1.148-2(f)(1); (ii) Maximum Annual Debt Service on the Bonds; or (iii) 125% of average Annual Debt Service on the Bonds (the “Reserve Requirement”). The initial Reserve Requirement for the Bonds is an amount equal to $_______. The ability of the City Council to increase the annual Special Taxes levied in the District to replenish the Reserve Fund is subject to the maximum annual amounts of Special Taxes authorized for the District and certain limitations in the Act. The moneys in the Reserve Fund will be used only for payment of the principal of, and interest and any redemption premium on, the Bonds, and, at the direction of the City, for deposit in the Rebate Fund. See “SOURCES OF PAYMENT FOR THE BONDS — Reserve Fund.” The Special Tax Revenues are the primary security for the repayment of the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Bond Fund and the Reserve Fund, to the limited extent described in the Fiscal Agent Agreement. See “SOURCES OF PAYMENT FOR THE BONDS — Reserve Fund.” Foreclosure Proceeds. The City will covenant in the Fiscal Agent Agreement, for the benefit of the owners of the Bonds, that it will order, and cause to be commenced, judicial foreclosure proceedings against properties in the District with delinquent Special Taxes in excess of $5,000 by October 1 following the close of the Fiscal Year in which such Special Taxes were due, and if the amount on deposit in the Reserve Fund is less than the Reserve Requirement, it will commence judicial foreclosure proceedings against all properties in the District with delinquent Special Taxes by October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Spe cial Taxes levied, and diligently pursue to completion such foreclosure proceedings. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales.”
There is no assurance that the property within the District can be sold for the appraised value or assessed values described in this Official Statement, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current or future property owners within the District. See “RISK FACTORS — Land Values” and APPENDIX B — “APPRAISAL REPORT.”
EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OBLIGATIONS OF THE CITY OR THE DISTRICT,
BUT ARE SPECIAL OBLIGATIONS OF THE CITY AND THE DISTRICT PAYABLE SOLELY FROM
SPECIAL TAX REVENUES AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED IN THIS OFFICIAL STATEMENT.
No Superior Obligations; No Parity Bonds Except for Refunding. The District and the City covenant in the Fiscal Agent Agreement that they will not issue any other obligations payable, as to principal or interest,
4 from the Special Tax Revenues that have, or purport to have, any lien upon the Special Tax Revenues superior to or on a parity with the lien of the Bonds, except with respect to the redemption prior to maturity of any Bonds subject to call and redemption and payment of said Bonds from proceeds of refunding bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California, which shall be payable from and have a lien upon the Special Tax Revenues on a parity with the Bonds to be outstanding following the issuance of such refunding bonds. See “SOURCES OF PAYMENT FOR THE BONDS — No Superior Obligations; No Parity Bonds Except for Refunding.” City CFD Administrative Policies and Practices
The City adopted its Amended and Restated Goals and Policies for Mello-Roos Community Facilities District Financings for all community facilities districts of the City on October 8, 2018. These policies address, among other things, when community facilities district bonds can be issued by the City including the terms and conditions of the community facilities district bonds.
Description of the Bonds
The Bonds will be issued and delivered in the form of a single, fully registered Bonds for each maturity, registered in the name of The Depository Trust Company, New York, New York and its successors and assigns, as nominee (“DTC”), and will be available to actual purchasers of the Bonds (the “Beneficial Owners”) in integral multiples of $5,000, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants. Beneficial Owners will not be entitled to receive physical delivery of the Bonds.
In the event that the book-entry only system described in this Official Statement is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Fiscal Agent Agreement. See APPENDIX G — “INFORMATION CONCERNING DTC.”
Principal of, premium, if any, and interest on the Bonds is payable by the Fiscal Agent to DTC, as the registered Owner of the Bonds. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book-entry only system is no longer used with respect to the Bonds, principal, interest and redemption premium, if any, shall be paid to the registered Owner thereof in accordance with the Fiscal Agent Agreement. See “THE BONDS — Book-Entry Only System” and see APPENDIX G — “INFORMATION CONCERNING DTC.”
Redemption
The Bonds are subject to optional redemption, mandatory redemption prior to maturity from special tax prepayments and mandatory sinking fund redemption as described in this Official Statement. For a more complete description of the Bonds and the documentation pursuant to which they are being sold and delivered, see “THE BONDS” and APPENDIX D — “SUMMARY OF FISCAL AGENT AGREEMENT.” Issuance of Additional Bonds.
The maximum bond authorization within the District is $6,500,000. Following the issuance of the Bonds, no additional bonds can be issued on a parity basis with the Bonds, with the exception of refunding bonds.
Tax Matters
In the opinion of Bond Counsel, subject to certain qualifications described in this Official Statement, under existing statutes, regulations, rulings and judicial decisions, and assuming certain representations and compliance with certain covenants and requirements described herein, 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 imposed on individuals and corporations; however fo r tax years beginning after December 31, 2022, interest on the Bonds is taken into account in determining the annual adjusted financial
5 statement income of certain corporations for the purpose for computing the alternative minimum tax imposed on certain corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income tax. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, see “LEGAL MATTERS — Tax Exemption.”
Professionals Involved in the Offering
U.S. Bank Trust Company, National Association will act as Fiscal Agent under the Fiscal Agent Agreement. Hilltop Securities, Inc. is the Underwriter of the Bonds. Certain proceedings in connection with the issuance and delivery of the Bonds are subject to the approval of Best Best & Krieger LLP, Riverside, California (“Bond Counsel”). Certain legal matters will be passed on for the City and the District by the City Attorney’s Office and by Best Best & Krieger LLP, Riverside, California (“Disclosure Counsel”), and for the Underwriter by Kutak Rock LLP, Irvine, California as Underwriter’s Counsel. Other professional services have been performed by Willdan Financial Services, Temecula, California, as Special Tax Consultant, Urban Futures, Inc., Tustin, California, as Municipal Advisor and Kitty Siino & Associates, Inc., Tustin, California, as Appraiser. At times, Bond Counsel and Disclosure Counsel represent the Underwriter in matters unrelated to the Bonds.
For information concerning the respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the Bonds, see “LEGAL MATTERS — Financial Interests.”
Continuing Disclosure
Pursuant to a Continuing Disclosure Certificate to be executed by the City (the “City Continuing Disclosure Certificate”), the City will agree to provide, or cause to be provided, on an annual basis, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board (the “MSRB”), which can be found at www.emma.msrb.org (“EMMA”), certain financial information and operating data. The City will further agree to provide notice to EMMA of certain enumerated events. These covenants are being made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the “Rule”) adopted by the Securities and Exchange Commission (the “SEC”).
Although the Underwriter does not consider the Property Owner to be an obligated party under the Rule, the Property Owner will agree to provide or cause to be provided to EMMA, pursuant to a Continuing Disclosure Certificate to be executed by the Property Owner (the “Property Owner Continuing Disclosure Certificate”), certain semi-annual information with respect to itself and its development within the District and notice of certain listed events to assist the Underwriter in marketing the Bonds . The Property Owner’s obligations under the Property Owner Continuing Disclosure Certificate will terminate upon the earliest to occur of: (a) the legal defeasance, prior redemption or payment in full of all of the Bonds, or (b) the date on which the Property Owner and its Affiliates (as defined in the Property Owner Continuing Disclosure Certificate) collectively own 38 or less residential lots in the District.
See “CONTINUING DISCLOSURE” and APPENDIX E for a description of the specific nature of the annual reports and notices of listed events to be filed by the City, on behalf of the District, under the City Continuing Disclosure Certificate, and semi-annual reports and notices of listed events to be provided by the Property Owner under the Property Owner Continuing Disclosure Certificate.
Bond Owners’ Risks
Certain events could affect the timely repayment of the principal of and interest on the Bonds when due.
See the section of this Official Statement entitled “RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating an investment in the Bonds. The Bonds are not rated by any nationally recognized rating agency.
6 Forward Looking Statements
Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “project,” “budget” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption “THE DISTRICT.”
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN
SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE
OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD -LOOKING STATEMENTS. THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.
Other Information
This Official Statement speaks only as of its date, and the information contained in this Official Statement is subject to change.
Brief descriptions of the Bonds and the Fiscal Agent Agreement are included in this Official Statement.
Such descriptions and information do not purport to be comprehensive or definitive. All references to the Fiscal Agent Agreement, the Bonds and the constitution and laws of the State as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Fiscal Agent Agreement.
Copies of the Fiscal Agent Agreement, the City Continuing Disclosure Certificate and other documents and information referred to in this Official Statement are available for inspection and (upon request and payment to the City of a charge for copying, mailing and handling) for delivery from the City at 460 N Euclid Ave, Upland, CA 91786, Attention: City Manager.
THE FINANCING PLAN
A portion of the Bond proceeds will be used by the District to design, construct and/or acquire certain authorized City Facilities, which includes reservoir projects, treatment plant projects, and pipeline projects . See “THE DISTRICT — Description of Authorized Facilities” for a description of the public facilities authorized to be financed with the proceeds of the Bonds.
7 Estimated Sources and Uses of Funds
The following table sets forth the expected sources and uses of Bond proceeds:
Sources of Funds
Principal Amount of Bonds
Minus Net Original Issue Discount
Total Sources
Uses of Funds
Improvement Fund
Reserve Fund
Capitalized Interest Sub-Account
Costs of Issuance Fund(1)
Underwriter’s Discount
Total Uses
(1) Costs of Issuance include legal fees, printing costs, Appraisal Report costs, Municipal Advisor fees, Special Tax Consultant fees, and Fiscal Agent fees, in addition to other miscellaneous costs incidental to Bond issuance.
THE BONDS
General Provisions
The Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the inside cover page, payable semiannually on each March 1 and September 1, commencing on September 1, 2023 (each, an “Interest Payment Date”), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The Bonds will be issued in fully registered form in integral multiples of $5,000. See “— Book-Entry Only System.”
Interest shall be calculated on the basis of a 360-day year composed of twelve 30 day months. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, 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 shall 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 shall bear interest from [Closing Date]; provided, however, that if at the time of authentication of a Bond, interest is in default thereon, such Bond shall bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon or from ________, 2023, if no interest has previously been paid or made available for payment thereon.
Interest on the Bonds is payable by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date, 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 Record Date preceding the Interest Payment Date. The principal of the Bonds and any premium on the Bonds are payable in lawful money of the United States of America by check of the Fiscal Agent upon surrender of such Bonds at the Principal Office of the Fiscal Agent; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Fiscal Agent prior to any Record Date, interest on such Bonds shall be paid to such Owner on each succeeding Interest Payment Date by wire transfer of immediately available funds to an account in the United States of America designated in such written request.
8 Authority for Issuance
The Bonds are issued pursuant to the Act and the Fiscal Agent Agreement. As required by the Act, the City Council has taken the following actions with respect to establishing the District and the Bonds:
Resolutions of Intention and Resolution of Necessity. On May 23, 2022, the City Council adopted a resolution stating its intention to establish the District and to authorize the levy of a special tax therein, and a resolution declaring the necessity to have the District incur bonded indebtedness in an amount not to exceed $6,500,000.
Resolutions of Formation. Following a noticed public hearing conducted on June 27, 2022, the City Council adopted on June 27, 2022, resolutions which established the District, authorized the levy of a special tax within the District, and determined the necessity for the District to incur bonded indebtedness in a maximum aggregate principal amount of $6,500,000.
Resolution Calling Election. The resolutions adopted by the City Council on June 27, 2022, also called for a consolidated special election by the landowners in the District on the issues of the levy of the Special Tax, the incurring of bonded indebtedness within the District, and the establishment of an appropriations limit.
Landowner Election and Declaration of Results. On June 27, 2022, an election was held at which the landowners within the District approved ballot propositions authorizing the issuance of up to $6,500,000 of bonds to finance the City Facilities, the levy of the Special Tax, and the establishment of an appropriations limit for the District. The landowners within the District approved ballot propositions authorizing the District to issue bonds in an aggregate principal amount not to exceed $6,500,000 for financing public facilities. On June 27, 2022, the City Council adopted a resolution approving the canvass of the votes and declaring the District to be fully formed with the authority to levy the Special Taxes, to incur the bonded indebtedness, and to have the established appropriations limit.
Special Tax Lien and Levy. The Notice of Special Tax Lien for the District was recorded in the Office of the County Recorder of the County on June 28, 2022, as Document No. 2022-0229087, reflecting a continuing lien against the taxable property within the District (the “Notice of Special Tax Lien”).
Ordinance Levying Special Taxes. On July 11, 2022, the City Council adopted Ordinance No. 1964 (the “Ordinance”), which authorized the levy of Special Taxes within the District.
Resolution Authorizing Issuance of the Bonds. On ________, 2023, the City Council adopted a resolution approving issuance of the Bonds.
Redemption
Optional Redemption. The Bonds are subject to redemption prior to their stated maturity dates at the option of the City on September 1, 20__, or any date thereafter, from such maturities as selected by the City (and by lot within any one maturity), in integral multiples of $5,000, at the option of the City from moneys derived by the City from any source, at a redemption price (expressed as a percent age of the principal amount of the Bonds to be redeemed), together with accrued interest to the date of redemption, as follows:
Redemption Dates Redemption Prices
September 1, 20__ through August 31, 20__ 103%
September 1, 20__ through August 31, 20__ 102
September 1, 20__ through August 31, 20__ 101
September 1, 20__ and any day thereafter 100
Mandatory Redemption From Special Tax Prepayments. The Bonds are subject to mandatory redemption prior to their stated maturity dates on any Interest Payment Date, as selected among maturities by the
9 City (and by lot within any one maturity), in integral multiples of $5,000, from moneys derived by the City from Special Tax Prepayments, at redemption prices (expressed as percentages of the principal amounts of the Bonds to be redeemed), together with accrued interest to the date of redemption, as follows:
Redemption Dates Redemption Prices
Any Interest Payment Date through September 1, 20__ 103% March 1, 20__ and September 1, 20__ 102
March 1, 20__ and September 1, 20__ 101
March 1, 20__ and any Interest Payment Date thereafter 100
See the caption “RISK FACTORS—Potential Early Redemption of Bonds from Prepayments or Assessment Bond Proceeds” for a discussion of the potential for a lower than expected yield on the Bonds as a result of a special mandatory redemption from prepayment of Special Taxes.
Mandatory Sinking Fund Redemption. The Outstanding Bonds maturing on September 1, 20__, September 1, 20__ and September 1, 20__ are subject to mandatory sinking fund redemption, in part, on September 1, 20__, September 1, 20__ and September 1, 20__, respectively and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, and from sinking payments as follows:
Bonds Maturing on September 1, 20__
Redemption Date
(September 1) Sinking Payments
(Maturity)
Bonds Maturing on September 1, 20__
Redemption Date
(September 1) Sinking Payments
(Maturity)
Bonds Maturing on September 1, 20__
Redemption Date
(September 1) Sinking Payments
(Maturity)
10 The amounts in the foregoing schedules shall be reduced by the City pro rata among redemption dates, in order to maintain substantially level Debt Service, as a result of any prior or partial o ptional or mandatory redemption. The City shall provide the Fiscal Agent with a revised sinking fund schedule.
Purchase of Bonds. In lieu of payment at maturity or redemption under the Fiscal Agent Agreement, moneys in the Bond Fund 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. In such event, the City shall, as may be appropriate, provide to the Fiscal Agent a revised maturity schedule or a revised mandatory sinking fund schedule for the Bonds, or both.
Notice to Fiscal Agent. An Authorized Officer shall give the Fiscal Agent written notice of the City’s intention to redeem Bonds not less than 45 days prior to the applicable redemption date specifying the principal amounts and maturities of the Bonds to be redeemed. The requirement to provide such notice to the Fiscal Agent shall not apply to mandatory sinking fund redemption of the Bonds.
Redemption Procedure by Fiscal Agent. The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, or electronically submitted, to the Securities Depositories and to one or more Information Services selected by an Authorized Officer, and to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books maintained by the Fiscal Agent at its Principal Office; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such Bonds. The Fiscal Agent shall also cause notice of any redemption to be mailed, in such manner and within such time, to the Underwriter.
Such notice shall state the date of such notice, the date of issue of the Bonds, the place or places of redemption, the redemption date, the redemption price and, if less than all of the then Outstanding Bonds are to be called for redemption, shall 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 shall 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, shall state as to any Bond called for redemption in part the portion of the principal of the Bond to be redeemed, shall require that such Bonds be then surrendered at the Principal Office of the Fiscal Agent for redemption at the said redemption price, and shall state that further interest on such Bonds will not accrue from and after the redemption date. The cost of the mailing and publication of any such redemption notice shall be paid by the District.
Any notice of optional redemption of the Bonds delivered in accordance with the Fiscal Agent Agreement may be conditional and if any condition stated in the notice of redemption shall not have been satisfied on or prior to the redemption date, said notice shall be of no force and effect and the District shall not be required to redeem such Bonds and the redemption shall not be made and the Fiscal Agent shall within a reasonable time thereafter give notice, to the persons and in the manner in which the notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled.
Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer.
In the event of a mandatory redemption pursuant to the Fiscal Agent Agreement, the City shall transfer or cause to be transferred to the Fiscal Agent for deposit in the Bond Fund moneys in an amount equal to the redemption price of the Bonds being redeemed on or before the 15th day of the month preceding the Interest Payment Date upon which such Bonds are to be redeemed.
11 If less than all the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed shall be in the principal amount of $5,000 or a multiple thereof, and, in selecting portions of such Bonds for redemption, the Fiscal Agent shall treat each such Bond as representing the number of Bonds of $5,000 denomination which is obtained by dividing the principal amount of such Bond to be redeemed in part by $5,000.
Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the Bonds of a maturity or any given portion thereof, the Fiscal Agent shall select the Bonds of such maturity to be redeemed, from all Bonds of such maturity or such given portion thereof not previously called for redemption, by lot within a maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate.
Upon surrender of Bonds redeemed in part only, the City shall execute and the Fiscal Agent shall authenticate and deliver to the Owner, at the expense of the District, a new Bond or Bonds, of the same maturity, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond or Bonds.
Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption prices of the Bonds called for redemption shall have been deposited in the Bond Fund, such Bonds shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and interest shall cease to accrue on the Bonds to be redeemed on the redemption date specified in the notice of redemption.
All Bonds redeemed and purchased by the Fiscal Agent pursuant to the Fiscal Agent Agreement shall be cancelled by the Fiscal Agent.
Registration, Transfer and Exchange
Registration. The Fiscal Agent will keep sufficient books for the registration and t ransfer of the Bonds.
The ownership of the Bonds will be established by the Bond registration books held by the Fiscal Agent.
Transfer. Whenever any Bond is surrendered for registration of transfer, the City shall execute and the Fiscal Agent will authenticate and deliver a new Bond or Bonds of like aggregate principal amount; provided that the Fiscal Agent will not be required to register transfers of (i) Bonds for a period of 15 days next preceding the date established by the Fiscal Agent for selection of Bonds for redemption or (ii) with respect to Bonds selected for redemption.
Exchange. Bonds may be exchanged at the Principal Office of the Fiscal Agent only for a like aggregate principal amount of Bonds of authorized denominations and of the same maturity and interest rate. The cost for any services rendered or any expense incurred by the Fiscal Agent in connection with any such exchange shall be paid by the District. The Fiscal Agent shall collect from the Owner requesting exchange of a Bond any ta x or other governmental charge required to be paid with respect to such exchange.
No exchanges of Bonds shall be required to be made (i) during the fifteen (15) days preceding the date established by the Fiscal Agent for selection of Bonds for redemption, or (ii) with respect to Bonds which have been selected for redemption.
Book-Entry Only System
The Bonds will be issued in book-entry form, and The Depository Trust Company of New York, New York will act as securities depository. So long as the Bonds are held in book-entry form, principal of, premium, if any, and interest on the Bonds will be paid by the Fiscal Agent directly to DTC for distribution to the beneficial owners of the Bonds in accordance with procedures adopted by DTC. See APPENDIX G — “INFORMATION CONCERNING DTC.”
12 Debt Service Schedule
The following table presents the annual debt service on the Bonds (including sinking fund redemptions), assuming there are no optional redemptions or mandatory redemptions from Special Tax Prepayments pursuant to the Rate and Method. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and “THE BONDS — Redemption.”
ANNUAL DEBT SERVICE SCHEDULE
Bond Year Ending
September 1 Principal Interest
Total Annual
Debt Service
Total
Source: Underwriter.
SOURCES OF PAYMENT FOR THE BONDS
Limited Obligations
The Bonds are special, limited obligations of the City and the District payable only from amounts pledged under the Fiscal Agent Agreement and from no other sources.
The Special Tax Revenues are the primary security for the repayment of the Bonds. Under the Fiscal Agent Agreement, the City and the District have pledged to repay the Bonds from the Special Tax Revenues
13 (which are the proceeds of the Special Taxes received by the City, including any scheduled payments, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties thereon) (subject to the deposit of certain amounts in the Administrative Expense Fund for each Fiscal Year) and all moneys deposited in the Bond Fund and the Reserve Fund.
In the event that the Special Tax Revenues are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Bond Fund and the Reserve Fund for the exclusive benefit of the Owners of the Bonds.
Neither the faith and credit nor the taxing power of the City, the County, the State or any political subdivision thereof is pledged to the payment of the Bonds. Except for the Special Tax Revenues, no other taxes are pledged to the payment of the Bonds. The Bonds are not general obligations of the City or the District, but are special obligations of the City and the District payable solely from Special Taxes and amounts held under the Fiscal Agent Agreement as more fully described in this Official Statement.
Special Taxes
Authorization and Pledge. In accordance with the provisions of the Act, the City Council established the District on June 27, 2022, for the purpose of financing the City Facilities. At a special election held on June 27, 2022, the owner of the property within the District authorized the District to incur indebtedness in an amount not to exceed $6,500,000 and approved the Rate and Method which authorizes the Special Tax to be levied to repay District indebtedness, including the Bonds. On July 11, 2022, the City Council adopted Ordinance No. 1964, which authorized the levy of Special Taxes in the District.
The District will covenant in the Fiscal Agent Agreement that each year it will levy Special Taxes up to the maximum rates permitted under the Rate and Method in an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay the principal of and interest on any Outstanding Bonds, to replenish the Reserve Fund and to pay the estimated Administrative Expenses. Notwithstanding the foregoing, pursuant to Section 53321(d) of the Act, under no circumstances will the Special Taxes levied against any Assessor’s Parcel used as a private residence be increased as a consequence of delinquency or default by the owner of any other Assessor’s Parcel or Assessor’s Parcels within the District by more than 10%.
The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See “RISK FACTORS — Insufficiency of Special Taxes.” Rate and Method of Apportionment of Special Tax. All capitalized terms used in this section shall have the meaning set forth in APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
Under the Rate and Method, each Fiscal Year, each parcel in the District will be classified as Taxable Property or Exempt Property. In addition, each Assessor’s Parcel of Taxable Property will be classified as Developed Property, Undeveloped Property or Provisional Undeveloped Property. Each Assessor’s Parcel of Developed Property shall be classified according to its applicable Land Use Class based on its land use type and Building Square Footage.
The Assigned Special Tax applicable to an Assessor’s Parcel classified as Developed Property commencing in Fiscal Year 2022-23 shall be determined to the Rate and Method The Backup Special Tax for Developed Property commencing in Fiscal Year 2022-23 will be $41,404 per Acre. The Maximum Special Tax for Developed Property will be the greater of the Assigned Special Tax for Developed Property and the Backup
14 Special Tax for Developed Property. The Maximum Special Tax for Provisional Property and Undeveloped Property commencing in Fiscal Year 2022-23 will be $41,404 per Acre.
For each Fiscal Year, commencing Fiscal Year 2022-23, the CFD Administrator shall levy the Special Tax on all Taxable Property in accordance with the following steps:
Step 1: The Special Tax shall be levied Proportionately on each Assessor’s Parcel of Developed Property at 100% of the applicable Assigned Special Tax;
Step 2: If additional monies are needed to satisfy the Special Tax Requirement after Step 1 has been completed, the Special Tax shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property up to 100% of the Maximum Special Tax for Undeveloped Property; Step 3: If additional monies are needed to satisfy the Special Tax Requirement after the first two steps have been completed, then the Special Tax amount determined in Step 1 shall be increased Proportionately on each Assessor’s Parcel of Developed Property up to 100% of the Maximum Special Tax for Developed Property; Step 4: If additional monies are needed to satisfy the Special Tax Requirement after the first three steps have been completed, then the Special Tax shall be levied Proportionately on each Assessor’s Parcel of Provisional Property up to 100% of the Maximum Special Tax for Provisional Property.
Notwithstanding the above, under no circumstances will the Special Tax levied in any Fiscal Year against any Assessor’s Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased as a result of a delinquency or default in the payment of the Special Tax applicable to any other Assessor’s Parcel within CFD No. 2022-1 by more than ten percent (10%) above what would have been levied in the absence of such delinquencies or defaults. “Special Tax Requirement” means that amount required in any Fiscal Year to: (i) pay regularly scheduled Debt Service on all Outstanding Bonds; (ii) pay periodic costs on the Outstanding Bonds, including but not limited to, credit enhancement and rebate payments on the Outstanding Bonds; (iii) pay Administrative Fees and Expenses; (iv) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v) accumulate funds to pay directly for acquisition or construction of facilities authorized by the District and as required by the Funding Agreement provided that the inclusion of such amount does not cause an increase in the Special Tax to be levied on Undeveloped Property; and (vi) pay for reasonably anticipated delinquent Special Taxes based on the delinquency rate for Special Taxes levied in the previou s Fiscal Year; less (vii) a credit for funds available to reduce the Annual Special Tax levy, as determined by the CFD Administrator pursuant to the Indenture.
However, pursuant to Section 53321(d) of the Act, notwithstanding the above, under no circumstances will the Special Tax levied against any taxable parcel of private residential property within the District be increased by more than 10% as a consequence of a delinquency or default by the owner of any other parcel within the District.
15 Table 1 describes the Special Tax rates for Fiscal Year 2023-24.
TABLE 1
CITY OF UPLAND
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND) SPECIAL TAX RATES FOR FISCAL YEAR 2023-24
Land Use Class Land Use Type
Building Square
Footage
Developed
Property
Fiscal Year
2023-24(1)
Assigned Special
Tax per
Residential Unit
Estimated Special Taxes
for Fiscal Year 2023-24
Developed Property(2)
No. of
Units at
Buildout
Projected
Special Tax
Revenues at
Buildout(3)
1 Detached Residential greater than 1,900 17 $2,106 $ 8,424 28 $58,968 2 Detached Residential 1,801 - 1,900 21 2,059 26,767 34 70,006 3 Detached Residential 1,701 - 1,800 15 2,023 18,207 28 56,644 4 Detached Residential 1,700 or less 15 1,995 9,975 26 51,870 5 Attached Residential greater than 1,750 0 1,804 - 0 - 6 Attached Residential 1,626 - 1,750 13 1,747 12,229 18 31,446 7 Attached Residential 1,501 - 1,625 12 1,694 13,552 14 23,716 8 Attached Residential 1,500 or less 34 1,673 40,152 44 73,612 Total 127 192
(1) Under the Rate and Method, property is classified as “Developed Property” for special tax levy purposes if a building permit has been issued for the parcel prior to May 1 of the previous fiscal year. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Based on building permits issued as of February 1, 2023.
(2) Represents the total Assigned Special Tax applicable to Developed Property, including the administrative expenses priority amount of $20,000 per bond year to be used to pay administrative expenses. (3) Assumes that all building permits will be issued for all residential units in accordance with the Property Owner’s currently proposed development. Represents the annual Special Tax revenues to be collected each bond year in accordance with the Rate and Method and the Property Owner’s proposed development and includes the Administrative expenses priority amount of $20,000 per bond year to be used to pay administrative expenses. See “THE DISTRICT” and “APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Source: Willdan Financial Services.
16 Prepayment of Special Taxes. The City Council may allow property owners to fully or partially prepay the obligation of parcels of Taxable Property to pay the Special Taxes with respect to the Special Tax Requirement.
Additionally, the City will covenant in the Fiscal Agent Agreement that the City shall cause all applications of owners of property in the District to prepay and satisfy the Special Tax obligation for their property to be reviewed by the Tax Consultant and shall not accept any such prepayment unless such consultant certifies in writing that following the acceptance of the proposed prepayment by the City and the redemption of Bonds with such prepayment, the maximum amount of the Special Taxes that may be levied on all Taxable Property in the District following such prepayment will be at least 1.10 times Maximum Annual Debt Service on the Bonds , which will remain Outstanding following such redemption plus estimated Administrative Expenses . See APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” and “THE BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments.” Collection and Application of Special Taxes. The Special Taxes are collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes. The District may, however, collect the Special Taxes at a different time or in a different manner if necessary to meet its financial obligations.
Covenants to Protect Special Tax Rates. The City will make certain covenants in the Fiscal Agent Agreement for the purpose of ensuring that the current maximum Special Tax rates and method of collection of the Special Taxes are not altered in a manner that would impair the District’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and Administrative Expenses when due. The City will covenant that it will not initiate proceedings under the Act to reduce the Maximum Special Tax rates (the “Maximum Rates”) on then existing Developed Property in the District below the amounts that are necessary to provide Special Tax Revenues in an amount equal to estimated Administrative Expenses for the then current Fiscal Year plus an amount equal to 110% of Maximum Annual Debt Service on the Outstanding Bonds. For purposes of such calculation, “Developed Property” has the meaning set forth in the Rate and Method. See “RISK FACTORS — Voter Initiatives.” The City will further covenant that in the event an ordinance is adopted by initiative pursuant to Section 3 of Article XIII C of the California Constitution, which purports to reduce or otherwise alter the Maximum Rates, it will commence and pursue legal action seeking to preserve its ability to comply with the covenant described above.
The City will covenant not to permit the tender of Bonds in payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant certifying that accepting such tender will not result in the City having insufficient Special Tax Revenues to pay the principal of and interest on the Outstanding Bonds following such tender. See “RISK FACTORS — Non-Cash Payments of Special Taxes.” Although the Special Taxes constitute liens on taxable parcels within the District, they do not constitute a personal indebtedness of the owners of property within the District. Moreover, other liens for taxes and assessments already exist on the property located within the District and others could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners in the District. See “RISK FACTORS — Parity Taxes and Special Assessments.” There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled “RISK FACTORS.” Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of land within the District resulting from a landowner’s failure to pay the Special Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of and interest on the Bonds under the Fiscal Agent Agreement.
Pursuant to Section 53356.1 of the Government Code, the City will covenant in the Fiscal Agent Agreement with and for the benefit of the Owners of the Bonds that (i) it will order, and cause to be commenced,
17 judicial foreclosure proceedings against properties in the District with delinquent Special Taxes in excess of $5,000 by October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) if the amount on deposit in the Reserve Fund is less than the Reserve Requirement it will commence judicial foreclosure proceedings against all properties in the District with delinquent Special Taxes by October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than ninety-five percent (95%) of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. See APPENDIX D — “SUMMARY OF FISCAL AGENT AGREEMENT.”
If foreclosure is necessary and other funds (including amounts in the Reserve Fund) have been exhausted, debt service payments on the Bonds could be delayed until the foreclosure proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the City and the District. See “RISK FACTORS — Bankruptcy and Foreclosure.” Moreover, no assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. See “RISK FACTORS — Land Values.” Although the Act authorizes the District to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the District or the City any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provi des that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes.
No Teeter Plan. Although the County Board of Supervisors has adopted the Alternative Method of Distribution of Tax Levies and Collections and Tax Sale Proceeds (the “Teeter Plan”) which allows each entity levying secured property taxes in the County to draw on the amount of property taxes levied rather than the amount actually collected, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, the District is not included in the County Teeter Plan. Consequently, the District may not draw on the County Tax Loss Reserve Fund in the event of delinquencies in Special Tax payments.
Special Tax Fund
Pursuant to the Fiscal Agent Agreement, there will be established, as a separate fund to be held by the Fiscal Agent, the “Community Facilities District No. 2022-1 of the City of Upland 2023 Special Tax Bonds Special Tax Fund” (the “Special Tax Fund”) to the credit of which the City will deposit, not later than 10 Business Days after receipt, all Special Tax Revenues received by the City.
Moneys in the Special Tax Fund, and all accounts therein, will be held by the Fiscal Agent for the benefit of the City and the Owners of the Bonds, will be disbursed as provided below and, pending disbursement, will be subject to a lien in favor of the Owners of the Bonds. Notwithstanding the foregoing, any amounts received by the City which constitute Special Tax Prepayments will be transferred by the City not later than 10 business days after receipt to the Fiscal Agent for deposit by the Fiscal Agent in the “Special Tax Prepayments Account” established pursuant to the Fiscal Agent Agreement.
As soon as practicable after the receipt from the City of any Special Tax Revenues, but no later than 10 Business Days after such receipt, the Fiscal Agent will withdraw from the Special Tax Fund and deposit in the Administrative Expense Fund, an amount which is estimated by the City, in a written communication from an Authorized Officer delivered to the Fiscal Agent (upon which the Fiscal Agent may conclusively rely) to be sufficient, together with the amount then on deposit in the Administrative Expense Fund, to pay the Administrative Expenses during the current Fiscal Year. Thereafter, the Fiscal Agent shall deposit in the Interest Account and the Principal Account of the Bond Fund the amounts required by the Fiscal Agent Agreement, as described under “— Bond Fund” below. If after such deposits are made to the Administrative Expense Fund, the Interest Account and the Principal Account there are funds remaining on deposit in the Special Tax Fund, the City shall instruct the Fiscal Agent by an Officer’s Certificate (upon which the Fiscal Agent may conclusively rely) to transfer such
18 amount from the Special Tax Fund to the Reserve Fund to the extent that the amount on deposit therein is less than the Reserve Requirement.
On September 2 of each year, the amount, if any, on deposit in the Special Tax Fund, together with the amount then on deposit in the Bond Fund (including the Principal Account therein but excluding the Interest Account or the Special Tax Prepayments Account), as determined by the City, shall not exceed the greater of (i) one year’s earnings on such amounts, or (ii) 1/12th of Annual Debt Service for the then current Bond Year. If on September 2 of any year the amount on deposit in the Special Tax Fund, together with the amount then on deposit in the Bond Fund (other than such excluded amounts), exceeds the maximum amount allowable pursuant to the preceding sentence, as determined by the City and communicated in writing by an Authorized Officer to the Fiscal Agent (upon which the Fiscal Agent may conclusively rely), moneys shall be transferred from the Special Tax Fund to the Administrative Expense Fund to pay any additional Administrative Expenses during the then current Fiscal Year, as directed in writing by the City. The Fiscal Agent shall have no obligation to monitor the City’s obligations as set forth in the foregoing sentence. Subject to the requirement described above, on each September 2 commencing September 2, 20__, any funds remaining in the Special Tax Fund which are not needed to pay principal of or interest on the Bonds then due and payable may be retained in the Special Tax Fund to reduce the Special Taxes levied in future years (subject to the limitations set forth in the Rate and Method).
Moneys in the Special Tax Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Investment Earnings will be retained in the Special Tax Fund to be used for the purposes of such fund to the extent set forth in the Fiscal Agent Agreement. See APPENDIX D — “SUMMARY OF FISCAL AGENT AGREEMENT.”
Bond Fund
Pursuant to the Fiscal Agent Agreement, there will be established, as a separate fund to be held by the Fiscal Agent, the “Community Facilities District No. 2022-1 of the City of Upland 2023 Special Tax Bonds Bond Fund” (the “Bond Fund”) and within the Bond Fund, an Interest Account, a Principal Account and a Special Tax Prepayments Account. Moneys in the Bond Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as provided below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds.
On or before each Interest Payment Date, the Fiscal Agent shall transfer from the Special Tax Fund and deposit into the following respective accounts in the Bond Fund, the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Special Tax Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:
Interest Account. On or before each Interest Payment Date, the Fiscal Agent shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on the Bonds on such date. No deposit need be made into the Interest Account on any Interest Payment Date if the amount on deposit therein is at least equal to the interest becoming due and payable on the Bonds on such date. All moneys in the Interest Account, including the Capitalized Interest Sub-Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity).
All funds in the Capitalized Interest Sub-Account shall be used and withdrawn to pay interest on the Bonds prior to using any other funds on deposit in the Interest Account for such purpose. All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having become due and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Fiscal Agent and transferred to the Special Tax Fund.
19 Principal Account. On or before each Interest Payment Date which occurs on September 1, the Fiscal Agent shall deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds becoming due and payable on such date, or the redemption price of the Bonds (consisting of the principal amount thereof and any applicable redemption premium) required to be redeemed on such date pursuant to the Fiscal Agent Agreement. All moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Bonds upon the redemption thereof pursuant to the Fiscal Agent Agreement. All amounts on deposit in t he Principal Account on the first day of any Bond Year, to the extent not required to pay the principal of any Outstanding Bonds then having become due and payable, shall be withdrawn therefrom by the Fiscal Agent and transferred to the Special Tax Fund.
In the event that moneys on deposit in the Special Tax Fund will be insufficient on any Interest Payment Date for the Fiscal Agent to deposit the required amounts in the Interest Account and the Principal Account, as provided above, the Fiscal Agent shall deposit the available funds first to the Interest Account up to the full amount required to cause the aggregate amount on deposit therein to equal the amount of interest becoming due and payable on the Bonds on the Interest Payment Date, and shall then deposit the remaining available funds in the Special Tax Fund to the Principal Account up to the full amount required to cause the aggregate amount on deposit therein to equal the amount, if any, of principal becoming due and payable on the Bonds on the Intere st Payment Date. If, after making such deposits to the Interest Account and the Principal Account, and after transferring moneys from the Reserve Fund to such accounts, as provided in the Fiscal Agent Agreement, the amount on deposit in the Principal Account is insufficient to pay the full amount of the principal of each of the Bonds which is due or is to be redeemed on the Interest Payment Date, the Fiscal Agent shall make a prorated payment of the principal of each of such Bonds as specified in an Officer ’s Certificate provided to the Fiscal Agent.
Reserve Fund
In order to secure further the payment of principal of and interest on the Bonds, the District will, upon delivery of the Bonds, deposit in the Reserve Fund and thereafter to maintain in the Reser ve Fund an amount equal to the Reserve Requirement. The Fiscal Agent Agreement provides that the amoun t in the Reserve Fund shall equal the lesser of: (i) 10% of the original issue price of the Bonds calculated in accordance with Treasury Regulations Section 1.148-2(f)(1); (ii) Maximum Annual Debt Service on the Bonds; or (iii) 125% of average Annual Debt Service on the Bonds. Moneys in 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 the principal of and interest and any premium on the Bonds and shall be subject to a lien in favor of the Owners of the Bonds.
Subject to the limits on the maximum annual Special Tax which may be levied within the District, as described in the Rate and Method, the City will covenant to levy Special Taxes in an amount that is anticipated to be sufficient, in light of the other intended uses of the Special Tax proceeds, to maintain the balance in the Reserve Fund at the Reserve Requirement. The ability of the legislative body of the District to increase the annual Special Taxes levied in the District to replenish the Reserve Fund is additionally subject to certain additional limitations under the Act restricting the amount by which Special Taxes on taxable parcels can be increased due to delinquencies of other taxable parcels.
Except as otherwise provided in the Fiscal Agent Agreement, all amounts on deposit in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Interest Account and the Principal Account of the Bond Fund in the event of any deficiency at any time in either of such accounts of the amount then required for payment of the principal of and interest and any premium on the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement for the purpose of redeeming Bonds, as described below.
20 Whenever, on any September 2, the amount in the Reserve Fund, less Investment Earnings resulting from the investment of the funds therein which pursuant to the Fiscal Agent Agreement must be rebated to the United States, as previously directed by the City, exceeds the Reserve Requirement, as calculated by the City, the Fiscal Agent shall provide written notice to the City of the amount of the excess. Upon receiving written direction from an Authorized Officer (upon which the Fiscal Agent may conclusively rely), the Fiscal Agent shall, subject to the requirements of the Fiscal Agent Agreement, transfer an amount from the Reserve Fund which will reduce the amount on deposit therein to an amount equal to the Reserve Requirement to the Interest Account and the Principal Account, in such order, to be used for the payment of the interest on and principal of the Bonds on the next succeeding Interest Payment Date in accordance with the Fiscal Agent Agreement.
Whenever the balance in the Reserve Fund is equal to or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall, upon receiving written direction from an Authorized Officer (upon which the Fiscal Agent may conclusively rely), transfer the amount in the Reserve Fund to the Interest Account and the Principal Account, in the priority specified in the Fiscal Agent Agreement, to be applied, on the next succeeding Interest Payment Date, to the payment and redemption, in accordance with the Fiscal Agent Agreement, of all of the Outstanding Bonds. In the event that the amount available to be so transferred from the Reserve Fund to the Interest Account and the Principal Account exceeds the amount required to pay and redeem the Outstanding Bonds, the excess shall be transferred to the City to be used for any lawful purpose of the City.
In the event of a prepayment of Special Taxes, under certain circumstances, a portion of the Reserve Fund will be credited to the amount being prepaid and be applied to redeem Bonds. See APPENDIX D — “SUMMARY OF FISCAL AGENT AGREEMENT.”
No Superior Obligations; No Parity Bonds Except for Refunding The District and the City covenant in the Fiscal Agent Agreement that they will not issue any other obligations payable, as to principal or interest, from the Special Tax Revenues which have, or purport to have, any lien upon the Special Tax Revenues superior to or on a parity with the lien of the Bonds, except with respect to the redemption prior to maturity of any Bonds subject to call and redemption and payment of said Bonds from proceeds of refunding bonds issued under the Act as the same now exists or as hereafter amended, or under any other law of the State of California, which shall be payable from and have a lien upon the Special Tax Revenues on a parity with the Bonds to be outstanding following the issuance of such refunding bonds.
THE DISTRICT
The information about the Property Owner contained in this section of the Official Statement entitled “THE DISTRICT” has been provided by representatives of the Property Owner and has not been independently confirmed or verified by the Underwriter, the City or the District. None of the Underwriter, the City or the District makes any representation as to the accuracy or adequacy of the information contained in this section. There may be material adverse changes to this information after the date of this Official Statement.
No assurance can be given that the proposed development within the District will occur as described below. As the proposed development progresses and homes are sold, it is expected that the ownership of the land within the District will become more diversified. No assurance can be given that development within the District will occur in a timely manner or in the configuration described herein, or that any property owner described herein will obtain or retain ownership of any of the land within the District. The Bonds and the Special Taxes are not personal obligations of any property owners, including the Property Owner and, in the event that a property owner defaults in the payment of the Special Taxes, the City may proceed with judicial foreclosure but has no direct recourse to the assets of any property owner. As a result, other than as provided herein, no financial statements or information is, or will be, provided about the Property Owner or any other property owner. The Bonds are secured solely by the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement. See “SOURCES OF PAYMENT FOR THE BONDS” and “RISK FACTORS.”
21 The information under this of the Official Statement includes forward-looking statements. See the cautionary information regarding forward-looking statements in this Official Statement on the page immediately preceding the Table of Contents. As previously discussed, such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which only speak as of the date of this Official Statement.
General Description of the District
The District contains approximately 15.8 gross and developable acres, located in the City, south of W.
Foothill Blvd., north of 11th St., and east of Dewey Way. The District is included within Tract Map No. 20366 and is planned for 192 single-family residential homes at buildout in a neighborhood being marketed as “The Enclave”. The Property Owner acquired the property in the District on December 16, 2021. The Property Owner plans to construct 192 single-family residential homes and sell such homes to individual homebuyers. The following table summarizes the ownership and development status within the District as of April 10, 2023.
Property Owner
Completed
Homes
Under
Construction
Finished
Lots
Individual Owner 43 0 0
Property Owner 6 44 99
TOTAL: 49 44 99
Source: The Property Owner.
Description of Authorized Facilities
The City Facilities will be constructed by the City, and are in lieu of certain City development impact fees. Such City Facilities that are authorized to be financed from Bond proceeds consist of park, traffic, water, sewer, storm drain and other capital improvements, police and fire facilities. The City expects to apply Bond proceeds to finance reservoir projects, treatment plant projects and pipeline projects.
The Property Owner
Lennar Homes of California, LLC, a California limited liability company (previously defined as “Property Owner”), is based in Irvine, California, and has been in the business of developing residential real estate communities in California since 1996. Lennar Homes is wholly-owned by U.S. Home, LLC, a Delaware limited liability company (“U.S. Home”). U.S. Home is wholly-owned by Lennar Corporation, which is based in Miami, Florida (“Lennar Corporation”). Founded in 1954, Lennar Corporation completed its initial public offering in 1971 and listed its common stock on the New York Stock Exchange in 1972. Lennar Corporation’s Class A and Class B common stock are listed on the New York Stock Exchange under the symbols “LEN” and “LEN.B.” respectively. Lennar Corporation is one of the largest homebuilders in the United States based on home sales revenues and net earnings, and operates under a number of brand names, including the Property Owner and U.S.
Home. Lennar Corporation primarily develops residential communities both within the Lennar Corporation family of builders and through consolidated and unconsolidated partnerships in which Lennar Corporation maintains an interest.
Lennar Corporation is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, 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 Lennar Corporation’s annual report on Form 10-K and its most recent quarterly report on Form 10-Q, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such filings can also be accessed over the internet at the SEC’s website at www.sec.gov . This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No
22 representation is made in this Official Statement as to the accuracy or adequacy of the information contained on the internet site.
Copies of Lennar Corporation’s annual report and related financial statements are available from Lennar Corporation’s website at www.Lennar Homes.com. This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement.
The Development
The property within the District is expected to be developed with 192 single-family detached homes in a neighborhood being marketed as “The Enclave” with two product lines each featuring four floor plans ranging in size from approximately 1,372 square feet to approximately 1,970 square feet.
Substantial infrastructure and construction within the District has been completed, which includes sewer, water storm drain ad street improvements. All lots within the District are in a finished lot condition . The remaining infrastructure necessary for the development of the property includes grind and overlay street improvements, landscaping, construction of retaining walls, and installation of dry utilities for each development phase.
The Property Owner obtained 127 building permits of the 192 lots within the District. The Property Owner expects to complete home construction and to convey all homes within the District to individual homeowners by the second quarter of 2024.
23 A summary of the proposed development status for the Project, including estimated square footage and estimated base sales prices for the property being developed by the Property Owner within the District, as of April 10, 2023, is set forth below:
TABLE 2
The Enclave – Development Status
(as of April 10, 2023)
Product Plan No.
Expected
Number of
Homes at
Buildout
Estimated
Square
Footage
Closed to
Individual
Homeowners
Completed
Homes Owned by
Property Owner
Homes Under
Construction
Owned by
Property Owner
Finished Lots
Owned by
Property Owner
Estimated
Base Sales
Price
Centerstone 1 26 1,651 4 1 4 17 $678,100
Centerstone 2 28 1,761 5 0 4 19 688,190
Centerstone 3 34 1,868 8 1 6 19 701,500
Centerstone 4 28 1,970 4 1 6 17 717,000
Subtotal for Centerstone: 116 21 3 20 72
Parkvue 1 22 1,372 7 1 6 8 578,490
Parkvue 2 22 1,484 7 1 6 8 568,990
Parkvue 3 14 1,616 5 0 6 3 587,990
Parkvue 4 18 1,745 3 1 6 8 618,490
Subtotal for Parkvue: 76 22 3 24 27
Project Total: 192 43 6 44 99
Source: The Property Owner.
24 No assurance can be given that home construction and sales will be carried out on the schedule and according to the plans outlined herein, or that the home construction and sale plans or base prices set forth above will not change after the date of this Official Statement. Additionally, homes sold may not result in closed escrows as sales contracts are subject to cancellation. In changing market conditions, builders will often revise the product lines and prices and the rate of sales can fluctuate. The Property Owner continuously evaluates its product lines and prices in light of the then current market conditions. See “RISK FACTORS” herein for a discussion of risk factors.
Status of Entitlement Approvals. The Property Owner believes all discretionary approvals required for the development of the Project have been obtained.
Environmental Review. The Project as currently planned has undergone all required environmental and biological review and the necessary environmental approvals for the development of the entire property have been obtained. A Phase I Environmental Site Assessment and Limited Phase II Environmental Site Assessment Report for the Property was prepared by Converse Consultants of Redlands (“Converse”) and dated November 27, 2013.
A Limited Phase II ESA was also prepared upon recommendation by Converse for further assessment. The reports concluded all soil sample analytical results were less than or equal to the regulatory and screening levels and there were no environmental issues that would hinder development of the Property. Furthermore, a geotechnical review of the rough grading plan was prepared by NMG Geotechnical, Inc., on March 15, 2021. The review recommended certain mitigation measures, which the Property Owner has addressed.
Impact of Economic Conditions on the Development in the District . Certain events and factors which negatively affect the regional, State and national economies could have an adverse effect on the pace at which the Property Owner can complete the remaining future homes, and demand by, and the ability of individuals to purchase homes within the District. Such events and factors could include rising inflation and interest rates, persistent supply chain issues, further impacts of the COVID -19 pandemic and global market instability caused by the war in Ukraine. Any adverse impact of the foregoing and other economic factors on the Project in the District and the real estate market in general cannot be predicted.
Financing Plan. Through January 25, 2023, the Property Owner had expended approximately $2.7 million on the Project. The Property Owner expects to incur approximately $1.3 million on grading, temporary erosion control, installation of sewer, water and storm drain system, street improvements, dry utilities construction, construction of permitted and retaining walls, construction of special amenities, entry features, and landscaping for parks between January 25, 2023 and the full buildout of the Project in the second quarter of 2024.
25 The Property Owner expects to use internally generated funds, which may include home sales revenue and proceeds of the Bonds to complete its planned development in the District, and believes that it will have sufficient funds available to complete its planned development as described in this Official Statement.
The following table is a summary of the Property Owner’s estimated sources and uses of funds for its project in the District (exclusive of land acquisition costs, home construction costs, sales and marketing costs, corporate overhead allocation, and other carry costs).
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND)
OF THE CITY OF UPLAND
PROPERTY OWNER’S PROJECTED SOURCES AND USES OF FUNDS
Expended Costs as of
January 25, 2023 Remaining Costs Total Budget
Sources of Funds
Property Owner funded $2,638,689.00 $1,226,932.07 $3,865,621.07 Total Sources of Funds $2,638,689.00 $1,226,932.07 $3,865,621.07
Uses of Funds
Grading $8,027.00 $31,494.00 $39,521.00
Removal/Relocation 0.00 168,407.77 168,407.77
Temporary Erosion Control 4,463.00 6,470.68 10,933.68
Sewer System 14,000.00 10,000.00 24,000.00
Water System 89,376.00 31,162.35 120,538.35
Storm Drain System 67,597.00 61,900.00 129,497.00
Street Improvements 351,849.00 59,573.27 411,422.27
Dry Utilities 497,808.00 10,411.00 508,219.00
Perimeter/Ret. Walls 308,157.00 25,231.00 333,388.00
Special Amenities 976,025.00 236,886.00 1,212,911.00
Entry Features 99,021.00 51,285.00 150,306.00
Parks 222,366.00 534,111.00 756,477.00
Total Uses of Funds $2,638,689.00 $1,226,932.07 $3,865,621.07
Source: The Property Owner.
Although the Property Owner 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 within the District will be available to the Property Owner when needed. While the Property Owner has made such internal funding available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither the Property Owner, nor any other entity or person is under any legal obligation of any kind to expend funds for the development of and construction of homes on the Property Owner’s property in the District or the payment of ad valorem property taxes or the Special Taxes. Any contributions by the Property Owner or any other entity or person to fund the costs of such development are entirely voluntary.
If and to the extent the aforementioned sources are inadequate to pay the costs to complete the planned development by the Property Owner within the District and other financing by the Property Owner is not put into place, there could be a shortfall in the funds required to complete the proposed development by the Property Owner in the District and the remaining portions of the project in the District may not be completed. There is no legal obligation to Bond holders to make any such funds available for land development, construction, or the payment of ad valorem property taxes or the Special Taxes. See “RISK FACTORS” herein for a discussion of risk factors.
26 Overlapping Community Facilities Districts
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 amount of ind ependent 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 and have formed other community facilities districts and improvement areas and, under other provisi ons 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. See “-Estimated Direct and Overlapping Indebtedness.” Estimated Direct and Overlapping Indebtedness
Within the boundaries of the District are other overlapping local agencies providing public services. The approximate amount of the direct and overlapping debt on the parcels within the District as of February 1, 2023, is shown in Table 3 below.
TABLE 3
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND)
OF THE CITY OF UPLAND
DIRECT AND OVERLAPPING DEBT
As of February 1, 2023
I. Appraisal Value $43,825,598
II. DIRECT AND OVERLAPPING ASSESSMENT DEBT: % Applicable Debt 3/1/2023 Metropolitan Water District General Obligation Bonds 0.0005% $ 91 Chaffey Community College District General Obligation Bonds 0.0120 35,322 Upland Unified School District General Obligation Bonds 0.1470 120,081 City of Upland Community Facilities District No. 2022-1 100.0000 4,260,000 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $4,415,494
III. OVERLAPPING GENERAL FUND DEBT:
San Bernardino General Fund Obligations 0.006% $ 9,573 San Bernardino County Pension Obligation Bonds 0.006 3,747 San Bernardino County Flood Control District General Fund Obligations 0.006 2,444 Chaffey Community College District General Fund Obligations 0.012 3,120 City Of Upland General Fund Obligations 0.150 9,418 TOTAL OVERLAPPING GENERAL FUND DEBT $ 28,302
IV. OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): $ 94,009
V. COMBINED TOTAL DEBT $4,537,805(1)
VI. RATIOS TO APPRAISED VALUE:
Direct Debt ($4,260,000) 9.72%
Total Direct and Overlapping Tax and Assessment Debt 10.08 Combined Total Debt 10.35
(1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations.
Source: San Bernardino County Assessor’s Office, Willdan Financial Services.
Expected Tax Burden
Based on the appraised values within the District set forth in the Appraisal Report, the projected debt service on the Bonds, and estimated District Administrative Expenses of $20,000 for Fiscal Year 2023-24, the City expects that, in Fiscal Year 2023-24, the projected effective tax rates levied on taxable property in the District, will range from approximately 1.43% to 1.44% of average appraised value of homes within each Land Use
27 Category (as defined in the Rate and Method). Subject to the limitations established by the Rate and Method and the provisions of the Act, the City Council will covenant in the Fiscal Agent Agreement to levy Special Taxes on parcels of taxable property in the District in each Fiscal Year in an amount sufficient to pay deb t service on the outstanding Bonds.
Table 4 below describes the estimated Fiscal Year 2023-24 effective tax burden for sample units of Developed Property within the District. The estimated tax rates and amounts presented in this Official Statement are based on currently available information. The actual amounts charged may vary and may increase in future years depending on the amount of Bonds, and the number of delinquencies in the District, among other factors.
TABLE 4
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND)
OF THE CITY OF UPLAND
ESTIMATED FISCAL YEAR 2023-24 EFFECTIVE TAX OBLIGATION
Class 2 Class 3 Class 8
Detached Detached Attached
Values 1,801 to 1,900
Sq. Ft.
1,701 to 1,800
Sq. Ft.
Less than 1,500
Sq. Ft.
Median Base Price(1) $588,420 $572,325 $474,880
Less: Homeowner’s Exemption (7,000) (7,000) (7,000)
Estimated Net Assessed Value $581,420 $565,325 $467,880
Ad Valorem Property Taxes
Basic Levy 1.0000% $5,814.20 $5,653.25 $4,678.80
Chaffey Community College District 0.0137 79.65 77.44 64.09 Upland Unified School Bonds 0.0463 269.19 261.74 216.82 Metropolitan Water District DS 0.0035 20.35 19.78 16.37 Total $6,183.38 $6,012.21 $4,975.89
ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES
MWD Standby(2) $7.59 $7.59 $7.59
SBCO Fire West Valley(2) 166.84 166.84 166.84
Upland Vector Control(2) 1.30 1.30 1.30
County Vector Control(2) 7.51 7.51 7.51
Upland CFD No. 2022-1 Special Tax(3) 2,059.00 2,023.00 1,673.00 Total $2,242.24 $2,206.24 $1,856.24
PROJECTED TOTAL PROPERTY TAXES $8,425.62 $8,218.45 $6,832.13
Estimated Effective Tax Rate 1.43% 1.44% 1.44%
(1) based on the Appraisal as of the Date of Value. See "APPENDIX B – APPRAISAL REPORT". (2 based on the Fiscal Year 2022-23 tax bills for subject property. (3) based on the Rate and Method.
Source: San Bernardino County Assessor’s Office; Willdan Financial Services.
Appraisal Report
In order to provide information with respect to the value of the property within the District, the County engaged Kitty Siino & Associates, Inc., the Appraiser, to prepare the Appraisal Report. The Appraiser has an “MAI” designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land-secured municipal bonds. The Appraiser was selected by the City and has no material relationships with the City or the owners of the land within the District other than the relationship represented by the engagement to prepare the Appraisal Report. The City instructed the Appraiser to prepare its analysis and report in conformity with the Uniform Standards of Professional Appraisal Practice and the appraisal standards of the California Debt and Investment Advisory Commission. A copy of the Appraisal Report is included as APPENDIX B — “APPRAISAL REPORT” to this Official Statement.
The purpose of the Appraisal Report was to estimate the market value of the fee simple interest of the property within the District subject to the Special Tax levy. The estimate of mark et value assumes that all
28 improvements and benefits to the subject properties, which are to be funded with the proceeds of the Bonds are completed and in place.
Subject to the assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded that, as of the Date of Value (February 1, 2023), the appraised value of the property within the District subject to the Special Tax lien was $43,825,598. The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in APPENDIX B. The City makes no representation as to the accuracy of the Appraisal Report. See APPENDIX B — “APPRAISAL REPORT.” There is no assurance that the property within the District can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the landowner. See “RISK FACTORS — Land Values” and APPENDIX B — “APPRAISAL REPORT.” Estimated Value-to-Lien Ratio
The appraised value of the property within the District as of the Date of Value is $43,825,598. Dividing the appraised value by the principal amount of the Bonds results in value to lien ratio of 10.29* to 1 for the District.
The ratio for total outstanding bonded debt including overlapping debt is 9.66* to 1 for the District. However, additional land-secured special tax or assessment debt could be applicable to the parcels within the District in the future. See “RISK FACTORS — Parity Taxes and Special Assessments.”
* Preliminary, subject to change.
29 Table 5 below reflects the values assigned to parcels in the Appraisal Report, the estimated principal amount of the Bonds an d the estimated appraised value-to-lien ratios in the District, based on the estimated Fiscal Year 2023-24 Special Tax levy, categorized by property ownership. The Property Owner, as owner of 184 of the 192 lots within the District, is responsible for the payment of 95.5% of the Fiscal Year 2023-24 Special Tax levy. See “RISK FACTORS - Concentration of Ownership.”
TABLE 5
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND)
OF THE CITY OF UPLAND
ESTIMATED VALUE-TO-LIEN RATIOS FOR FISCAL YEAR 2023-24
ALLOCATED BY PROPERTY OWNERSHIP
(As of February 1, 2023)
Property
Owner Land Use Classification(1)
No. of
Units
Appraised
Property Value(2)
Percentage of
Appraised
Value
CFD 2022-1
Proposed
2023 Bond(3)
Value-to-Lien
Ratio(4)
Estimated Buildout
Special Tax(5)
Percentage of Total Fiscal
Year 202-23 Estimated
Special Tax Levy
Individuals Developed (fully built homes) 8 $ 4,713,810 10.8% $ 191,516 24.61:1 $ 16,466 4.5% Lennar Developed (model homes) 6 2,424,231 5.5 130,884 18.52:1 11,253 3.1 Lennar Developed (over 95% complete) 35 12,935,604 29.5 740,407 17.47:1 63,658 17.4 Lennar Developed (under construction) 28 4,650,732 10.6 635,472 7.32:1 54,636 14.9 Lennar Developed (finished lots) 115 19,101,221 43.6 2,561,720 7.46:1 220,249 60.1 Subtotal Developed 192 $43,825,598 100.0% $4,260,000 10.29:1 $366,262 100.0%
(1) Based on building permits issued as of February 1, 2023. Under the Rate and Method, property is considered "Developed Propert y" for special tax levy purposes if a building permit has been issued for the assessor's parcel prior to May 1 preceding the applicable tax year. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
(2) Based on the Appraisal as of the Date of Value. See "APPENDIX B – APPRAISAL REPORT.” (3) Allocated based on percentage of Assigned Special Tax on Developed Property at buildout. (4) Value-to-Lien Ratio is calculated as "Appraised Value" divided by "Principal Amount of Bonds." (5) Based on Assigned Special Tax on Developed Property, and includes the Administrative Expense Priority Amount of $20,000 per B ond Year to be used to pay administrative expenses. See "THE DISTRICT – Expected Tax Burden" for more details.
Source: San Bernardino County Assessor’s Office; Willdan Financial Services.
30 Table 6 below sets forth the appraised value-to-lien ratios for the parcels of Taxable Property in the District by value-to-lien ranges based on the projected Fiscal Year 2023-24 Special Tax levy and development status as of the Date of Value (February 1, 2023). Since the Date of Value, the Property Owner has conveyed additional homes to individual homeowners and has commenced construction of additional homes within the District. See “THE DISTRICT – The Development.”
TABLE 6
COMMUNITY FACILITIES DISTRICT NO. 2022-1 (ENCLAVE AT UPLAND)
OF THE CITY OF UPLAND
VALUE-TO-LIEN STRATIFICATION FOR DEVELOPED PROPERTY ONLY (As of February 1, 2023)
Value-to Lien
Category(1) No. of Units
Appraised
Value(2)
Percentage of
Appraised
Value
CFD 2022-1
Proposed 2023
Bonds(3)
Value-to-Lien
Ratio(4)
Estimated Fiscal
Year 2023-24
Special Tax(5)
Percentage of Total Fiscal
Year 2023-24 Estimated
Special Tax Levy
Not greater than 4.00:1 0 - 0.0% - NA - 0.0%
4.01:1 to 7.00:1 48 $ 7,972,683 18.2 $1,162,090 6.86:1 $ 99,913 27.3
7.01:1 to 10.00:1 95 15,779,269 36.0 2,035,103 7.75:1 174,972 47.8
10.01:1 to 20.00:1 41 15,359,835 35.0 871,291 17.63:1 74,911 20.5 Greater than 20.00:1 8 4,713,810 10.8 191,516 24.61:1 16,466 4.5 Total 192 $43,825,598 100.0% $4,260,000 10.29:1 $366,262 100.0%
(1) Based on building permits issued as of February 1, 2023. Under the Rate and Method, property is considered "Developed Property" for special tax levy purposes if a building permit has been issued for the assessor's parcel prior to May 1 preceding the applicable tax year. See "See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes” and APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.”
(2) based on the Appraisal as of the Date of Value. See "APPENDIX B -- Appraisal Report.” (3) Allocated based on percentage of Assigned Special Tax on Developed Property at buildout. (4) Value-to-Lien Ratio is calculated as appraised value divided by principal amount of the Bonds. (5) Based on Assigned Special Tax on Developed Property, and includes the Administrative Expense Priority Amount of $20,000 per B ond Year to be used to pay administrative expenses. See "THE DISTRICT – Expected Tax Burden" for more details.
Source: Willdan Financial Services.
31 Delinquency History
There are no delinquencies on the parcels in the District for Fiscal Year 2022-23.
City’s Collection Practices
The staff of the City provides administrative and other support services for the community facilities districts that have been formed by the City. These services include, but are not limited to, attempting to collect delinquent special taxes prior to the commencement of foreclosure proceedings by sending demand letters to property owners whose special taxes are delinquent advising them of the consequences of failing to pay the applicable special taxes. The City expects to levy Special Taxes within the District and will covenant in the Fiscal Agent Agreement to commence foreclosure proceedings against parcels with delinquent Special Taxes under certain circumstances described in this Official Statement. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales.”
RISK FACTORS
The purchase of the Bonds involves significant investment risks and, therefore, the Bonds are not suitable investments for many investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth in this Official Statement, in evaluating the investment quality of the Bonds.
The Bonds have not been rated by a rating agency. This discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the Bonds. The occurrence of one or more of the events discussed in this section of this Official Statement could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed in this section of this Official Statement could adversely affect the value of the property in the District. See “— Land Values” and “— Limited Secondary Market” below.
Risks of Real Estate Secured Investments Generally
The Bond Owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses.
No assurance can be given that the individual homeowners will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See “— Bankruptcy and Foreclosure” below, for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels.
Limited Obligations
The Bonds and related interest are not payable from the funds of the City. Except with respect to the Special Taxes, neither the credit nor the taxing power of the District or the City is pledged for the payment of principal or interest of the Bonds, and, except as provided in the Fiscal Agent Agreement, no Owner of the Bonds may compel the exercise of any taxing power by the District or the City or force the forfeiture of any City or District property. The principal of, premium, if any, and interest on the Bonds are not a debt of the City or a legal or equitable pledge, charge, lien or encumbrance upon any of the City’s or District’s property or upon any of the City’s or District’s income, receipts or revenues, except the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement.
32 Insufficiency of Special Taxes
The annual amount of Special Tax to be levied on each taxable parcel in the District will generally be based on the land use class to which a parcel of Developed Property is assigned under the Rate and Method. See APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” and “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Rate and Method of Apportionment of Special Tax.” The maximum Special Tax for each Assessor’s Parcel for Developed Property in any Fiscal Year shall be the greater of (i) the Assigned Special Tax for Developed Property or (ii) the Backup Special Tax for Developed Property. See APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” Notwithstanding that the maximum Special Taxes that may be levied in the District exceeds debt service due on the Bonds, the Special Taxes collected could be inadequate to make timely payment of debt service either because of nonpayment or because property becomes exempt from taxation as permitted in the Rate and Method.
In order to pay debt service on the Bonds, it is necessary that the Special Taxes be paid in a timely manner.
Should the Special Taxes not be paid on time, the City has established a Rese rve Fund under the Fiscal Agent Agreement to pay debt service on the Bonds to the extent other funds are not available. See “SOURCES OF PAYMENT FOR THE BONDS — Reserve Fund.” The City will covenant in the Fiscal Agent Agreement to maintain in the Reserve Fund an amount equal to the Reserve Requirement subject, however, to the limitation that the City may not levy the Special Tax in the District in any Fiscal Year at a rate in excess of the maximum amounts permitted under the Rate and Method. In addition, under no circumstances may the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by owner of any other parcel or parcels within the District by more than 10% in any Fiscal Year. As a result, if a significant number of delinquencies occurs, the District could be unable to replenish the Reserve Fund to the Reserve Requirement. If such defaults were to continue in successive years, the Reserve Fund could be depleted and a default on the Bonds could occur.
The City will covenant in the Fiscal Agent Agreement that, under certain conditions, it will institute judicial foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were ever instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales” for provisions which apply in the event of such foreclosure and which the City is required to follow in the event of delinquencies in the payment of the Special Tax.
In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Bonds (if the Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the City on behalf of the District of the proceeds of sale. The City may adjust the future Special Tax levied on taxable parcels in the District, subject to the limitation on the maximum Special Tax, to provide an amount required to pay interest on, principal of, and redemption premiums, if any, on the Bonds, and the amount, if any, necessary to replenish the Reserve Fund to an amount equal to the Reserve Requirement and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in the District will be at all times sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement, even if the Special Tax is levied at the maximum Special Tax rates. See “Bankruptcy and Foreclosure” below for a discussion of potential delays in foreclosure actions.
The Rate and Method governing the levy of the Special Tax expressly exempts property owned by public agencies and other exempt entities in the District. See Section F of APPENDIX A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” If for any reason property within the District becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government, another public agency or a religious organization, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within the District. This would result in the owners of such
33 property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due.
The Act provides that, if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation o f these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within the District was to become owned by public agencies, collection of the Special Tax might become more difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the Bonds when due and a default could occur with respect to the payment of such principal and interest.
Special Tax Delinquencies
Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the Bonds are derived, are customarily billed to the properties within the District on the ad valorem property tax bills sent to owners of such properties. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments.
See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales,” for a discussion of the provisions which apply, and procedures which the City is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See “— FDIC/Federal Government Interests in Properties” below, for a discussion of the policy of the Federal Deposit Insurance Corporation (the “FDIC”) regarding the payment of special taxes and assessment and limitations on the City’s ability to foreclose on the lien of the Special Taxes in certain circumstances where property within the District is owned by the federal government, agencies of the federal government, or, possibly, government sponsored enterprises such as Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”).
The City has the authority and the obligation, subject to the Act and the maximum Special Tax rates set forth in the Rate and Method, to increase the levy of Special Taxes against non-delinquent property owners in the District in the event other owners in the District are delinquent. Pursuant to the Rate and Method and the Act, under no circumstances may the Special Tax levied against any parcel used for private residential purpos es be increased as a consequence of delinquency or default by owner of any other parcel or parcels within the District by more than 10% in any Fiscal Year. Thus, the City may not be able to increase Special Tax levies in future Fiscal Years by enough to make up for delinquencies for prior Fiscal Years. This would result in draws on the Reserve Fund, and if delinquencies continue and in the aggregate exceed the Reserve Fund balance, defaults would occur in the payment of principal and interest on the Bonds.
Although the City will covenant in the Fiscal Agent Agreement to commence and diligently pursue foreclosure under the circumstances described under the caption “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales,” foreclosure delays may occur under the circumstances described under the caption “RISK FACTORS — Bankruptcy and Foreclosure.” Delinquencies may result as a consequence of many factors. See “RISK FACTORS,” generally, for a discussion of certain potential causes of delinquencies.
34 Climate Change
According to the California Climate Change Fourth Assessment for the Inland Desert Regions, which was published in 2018, the region covering the City, the region will continue to experience, among other things, (a) extremely high maximum temperatures, (b) increased energy needs for cooling to compensate for a rise in temperatures, and (c) increased water stress in an already water -limited region. Such climate change risks may exacerbate the impact of natural disasters listed above. See “— Natural Disasters.” Natural Disasters
The District, like all California communities, may be subject to unpredictable seismic activity, fires, flood, or other natural disasters. Southern California is a seismically active area. On June 4, 2020, there was a 5.5 magnitude earthquake in the in Searless Valley, California in the County of San Bernardino. Seismic activity represents a potential risk for damage to buildings, roads, bridges and property within the District. In addition, land susceptible to seismic activity may be subject to liquefaction during the occurrence of such event. The District is not located in a designated Earthquake Study Zone, as determined by the State of California, and there are no known active faults crossing the District.
Per FEMA Map No. 06071C8606H dated August 28, 2008, the District is located in Zone X, which is a minimal flood hazard area.
In recent years, wildfires have caused extensive damage throughout the State, including within the City.
Certain of these fires have burned thousands of acres and destroyed hundreds and in some cases thousands of homes. In some instances entire neighborhoods have been destroyed. Several fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. In August 2021, there was a fire north of Glen Helen Parkway, east of Sierra Avenue and Lytle Creek Road, west of the 15 Freeway in San Bernardino County that burned 819 acres. In January 2018, there was a fire in the City of Rancho Cucamonga near the Interstate 15 and Interstate 210, that burned 40 acres. The District is not located in an area which the Department of Forestry and Fire Protection of the State of California has designated as a very high fire hazard severity zone. However, there is a risk of residential property within the District being destroyed by wildfires and no assurance can be given as to the severity or frequency of wildfires within the vicinity of the District. There may also be a risk that homeowners may not be able to obtain casualty loss insurance from commercial carriers and may need to obtain insurance from the California Insurance Pool Authority.
In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the District. As a result, a substantial portion of the property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in the District could be diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes.
Drought
From time to time, areas of the State have experienced significant drought conditions that resulted in severe impacts to water supplies and restrictions on water use. On July 8, 2021, Governor Newsom issued Executive Order No. 10-21, which declared a drought state of emergency in 50 counties in northern and central California (including the County) and requested that all water users voluntarily reduce water use by fifteen percent (15%). On October 19, 2021, the Governor extended the declaration to include the remaining counties, such that the drought state of emergency is in effect Statewide. At the end of March 2022, following the driest first three months of a year in the state’s recorded history, Governor Newsom signed an executive order calling on local water suppliers to move to Level 2 of their Water Shortage Contingency Plans, which require locally-appropriate actions that will conserve water across all sectors, and directed the State Water Resources Control Board to consider a ban on the watering of decorative grass at businesses and institutions. The State Water Resources Control Board voted unanimously on May 24, 2022, to implement a statewide ban on watering of non-functional
35 turf in the commercial, industrial, and institutional sectors, as well as regulations requiring local agencies to implement water use restrictions amid the possibility that water supplies may be up to 20% lower due to extreme weather. In the last ten years, the per capita water use in the system has been reduced due to conservation measures. An increase in drought conditions could lead to wildfires which may cause damage within the District.
See “— Natural Disasters” above. The statewide regulations also require that all California water suppliers implement conservation under Level 2 of their Water Shortage Contingency Plans. On March 24, 2023, Governor Newsom eased emergency provisions due to above-average rainfall in the region, while maintaining other measures that support those regions and communities that still face water supply challenges, as well as promoting long-term water resilience. The Executive Order ended the voluntary 15% water conservation target but encourages Californians to make conservation a way of life. It also ended the requirement that local water agencies implement level 2 of their drought contingency plans, however, it maintained the ban on wasteful water uses, such as watering ornamental grass on commercial properties and preserved all current emergency orders focused on groundwater supply, where the effects of the multi-year drought continue to be devastating. The Executive Order further maintained orders focused on specific watersheds that have not benefited from recent rains, including the Klamath River and Colorado River basins, which both remain in drought, and retained a state of emergency for all 58 counties to allow for drought/flood response and recovery efforts to continue.
The City remains in a Level High Water Shortage Stage. The City gets its water from three primary sources: groundwater, local surface water from San Antonio Creek, and imported water. All of the City’s groundwater and surface water depend on rainfall for replenishment.
Hazardous Substances
The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel 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 referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many 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 taxed parcels be affected 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.
Further, it is possible that liabilities may arise in the future with respect to any of the p arcels 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 which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel that is realizable upon a delinquency and the willingness or ability of the owner of any parcel to pay the Special Tax Installments.
The value of the taxable property within the District, as set forth in the various tables in this Official Statement, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. The City has n ot independently verified, but is not aware, that any owner (or operator) of any of the parcels within the District has such a current liability with respect to any such parcel. However, it is possible that such liabilities do currently exist and that the District is not aware of them.
36 Parity Taxes and Special Assessments
Property within the District is subject to taxes imposed by public agencies also having jurisdiction over the land within the District. See “THE DISTRICT — Estimated Direct and Overlapping Indebtedness.” The Special Taxes and any related penalties will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by the City and other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See “RISK FACTORS — Bankruptcy and Foreclosure” below.
The City has no control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all or a portion of the property within the District. In addition, the landowners within the District may, without the consent or knowledge of the City, petition other public agencies to issue public indebtedness secured by special taxes, ad valorem taxes or assessments. Any such special taxes, ad valorem taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for property within the District described in this Official Statement. See “SOURCES OF PAYMENT FOR BONDS” and “THE DISTRICT — Estimated Direct and Overlapping Indebtedness.”
Disclosures to Future Purchasers
The willingness or ability of an owner of a parcel to pay the Special Tax even if the value of the parcel is sufficient may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy, and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The City has caused the No tice of Special Tax Lien to be recorded in the Office of the Recorder for the County against each parcel. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within the District or lending of money thereon.
The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospect ive purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute.
Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due.
Non-Cash Payments of Special Taxes
Under the Act, the City Council as the legislative body of the District may reserve to itself the right and authority to allow the owner of any taxable parcel to tender a Bond in full or partial payment of any installment of the Special Taxes or the interest or penalties thereon. A Bond so tendered is to be accepted at par and credit is to be given for any interest accrued thereon to the date of the tender. Thus, if Bonds can be purchased in the secondary market at a discount, it may be to the advantage of an owner of a taxable parcel to pay the Special Taxes applicable thereto by tendering a Bond. Such a practice would decrease the cash flow available to the City to make payments with respect to other Bonds then outstanding; and, unless the practice was limited by the City, the Special Taxes paid in cash could be insufficient to pay the debt service due with respect to such other Bonds.
37 In order to provide some protection against the potential adverse impact on cash flows, which might be caused by the tender of Bonds in payment of Special Taxes, the Fiscal Agent Agreement includes a covenant pursuant to which the City will not authorize owners of taxable parcels to satisfy Special Tax obligations by the tender of Bonds unless the City shall have first obtained a report of an Independent Financial Consultant certifying that doing so would not result in the City having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds when due.
Payment of the Special Tax Is Not a Personal Obligation of the Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the valu e of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the City has no recourse against the owner.
Concentration of Ownership
Based on development and ownership status as of February 1, 2023, the Property Owner and individual homeowners are expected to be responsible for approximately 95.5% and 4.5% of the projected Fiscal Year 2023- 24 Special Tax levy, respectively. See Table 5 herein.
The timely payment of principal of and interest on the Bonds depends upon the willingness and ability of the current and future property owners in the District to pay the Special Taxes prior to delinquency. General and local economic conditions and governmental requirements or restrictions may affect the willingness of the current property owners, or any successor property owners, to pay the Special Taxes, and there is no assurance that the current property owners, or any successor property owners, will pay such Special Taxes even if financially able to do so. Due to the concentration of ownership of the property within the District, a failure by the Property Owner or any successor property owner thereto to pay the Special Taxes may result in a default in the payment of debt service on the Bonds. See “THE DISTRICT — The Property Owner.” Land Values
The value of the property within the District is a critical factor in determining the investment quality of the Bonds. If a property owner is delinquent in the payment of Special Taxes, the District’s only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical eve nts such as earthquakes, fires or floods, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See “THE DISTRICT — Appraisal Report” and APPENDIX B — “APPRAISAL REPORT.”
The Appraiser has estimated, on the basis of certain assumptions and limiting conditions contained in the Appraisal Report, that as of the Date of Value, the minimum market value of the property within the District was $43,825,598. See “THE DISTRICT — Appraisal Report.” The Appraisal Report indicates the Appraiser’s opinion as to the minimum market value of the properties referred to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the applicable market as of the Date of Value. The Appraiser’s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not change adversely in the future.
Prospective purchasers of the Bonds should not assume that the taxable land within the District could be sold for the appraised amount at a foreclosure sale for delinquent Special Taxes. In arriving at the estimate of market value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur following a reasonable marketing period, which is not always present in a foreclosure sale. See APPENDIX B for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used b y the Appraiser. Any event which causes one of the Appraiser’s assumptions to be untrue could result in a reduction
38 of the value of the taxable land and improvements within the District from the market value estimated by the Appraiser.
No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes.
See “SOURCES OF PAYMENT FOR THE BONDS — Special Taxes — Proceeds of Foreclosure Sales.” Increasing Mortgage Interest Rates
Since March 2022, there have been eight interest rate increases rising the Federal Funds Rate from 0.25-
0.50 percent to 4.5-4.75 percent. Mortgage interest rates are expected to continue to increase in the near term.
Increases in mortgage interest rates could have a negative impact on the sale of the remaining homes in the District described herein. With respect to entry-level households, increased mortgage interest rates may adversely impact the affordability of homes and may increase mortgage payment levels for owning a lower -priced home relative to renting a residence, thereby making purchasing less attractive. With respect to move -up households, higher mortgage interest rates may impact the desire of current homeowners to move from their present home due to the fact that their present home likely has a relatively low mortgage interest rate. In addition, the new home would likely have a higher interest rate on a new mortgage loan as well as a higher purchase price and property taxes.
Such considerations may decrease the desire for move-up households to purchase a new home. The foregoing factors could reduce demand for and/or the ability to achieve the sales prices of the remaining homes to be sold within the District as described herein.
Impact of Economic Conditions on the Development in the District Certain events and factors which negatively affect the regional, State and national economies could have an adverse effect on the pace at which the Property Owner can complete future homes, and demand by, and the ability of individuals to purchase homes within the District. Such events and factors could include rising inflation and interest rates, persistent supply chain issues, further impacts of the COVID -19 pandemic and global market instability caused by the war in Ukraine. Any adverse impact of the foregoing and other economic factors on the Project in the District and the real estate market in general cannot be predicted.
FDIC/Federal Government Interests in Properties
The ability of the City to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the FDIC, the Drug Enforcement Agency, the Inter nal 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 City 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
39 assessments on parity with the 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 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.
Bankruptcy and Foreclosure
The payment of the Special Tax and the ability of the City to foreclose the lien of a delinquent unpaid tax may be limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, re organization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases.
Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings and could result in the possibility of delinquent Special Tax installments not being paid in full. Such a delay would increase t he likelihood of a delay or default in payment of the principal of and interest on the Bonds. 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.
To the extent that bankruptcy or similar proceedings were to involve a large property owner, the chances would increase the likelihood that the Reserve Fund could be fully depleted during any resulting delay in receiving payment of delinquent Special Taxes. As a result, sufficient monies would not be available in the Reserve Fund for transfer to the Redemption Fund to make up any shortfalls resulting from delinquent payments of the Special Tax and thereby to pay principal of and interest on the Bonds on a timely basis.
On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on that property. The cour t upheld the priority of unpaid ad valorem property taxes imposed before the bankruptcy petition (the “pre-petition taxes”), but unpaid taxes imposed after the filing of the bankruptcy petition (“post-petition taxes”) were declared to be unsecured “administrative expenses” of the bankruptcy estate, and were therefore held to be payable from the bankruptcy estate only after payment of all secured creditors. As a result, the secured creditor of the property was able to foreclose on the property and ret ain all of the proceeds of the sale except for the amount of the pre - petition taxes.
According to the court’s ruling, as administrative expenses, post-petition taxes would have to be paid, but only if the debtor had sufficient assets not subject to other perfected security interests to do so. In certain circumstances, payment of such administrative expenses may also be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that ti me again become subject to and would secure liens for then current and future ad valorem property taxes.
Glasply was controlling precedent on bankruptcy courts in the State of California for several years subsequent to the date of the Ninth Circuit’s holding. Pursuant to state law, the lien date for general ad valorem property taxes levied in the State of California is the January 1 preceding the Fiscal Year for which the taxes are levied. Under the Glasply holding, a bankruptcy petition filing would have prevented the lien for general ad
40 valorem property taxes levied in Fiscal Years subsequent to the filing of a bankruptcy petition from attaching and becoming a lien so long as the property was a part of the estate in bankruptcy. However, the Glasply holding was for the most part subsequently rendered inoperative with respect to the imposition of a lien for and the collection of ad valorem property taxes by amendments to the federal Bankruptcy Code (Title 11 U.S.C.) which were part of the Bankruptcy Reform Act of 1994 (the “Bankruptcy Reform Act”) passed by Congress during the latter part of 1994. The Bankruptcy Reform Act added a provision to the automatic stay section of the Bankruptcy Code which, pursuant to Section 362(b)(18) thereof, excepts from the Bankruptcy Code’s automatic stay provisions, “the creation of a statutory lien for an ad valorem property tax imposed by . . . a political subdivision of a state, if such tax comes due after the filing of the petition” by a debtor in bankruptcy court. The effect of this provision is to continue the secured interest of ad valorem taxes on real property (i.e., post-petition taxes) in effect during the period following the filing of a bankruptcy petition, including during the period bankruptcy proceedings are pending.
Without further clarification by the courts or Congress, the original rationale of the Glasply holding could, however, still result in the treatment of post-petition special taxes as “administrative expenses,” rather than as tax liens secured by real property, at least during the pendency of bankruptcy proceedings. This treatment might result from the fact that, although the lien of special taxes is of record from the date of the filing of a Notice of Special Tax Lien, the actual special tax is levied annually. As noted above, special taxes have a different lien date than the lien date for general ad valorem property taxes in the State of California noted above. The lien of a Mello - Roos special tax attaches upon recordation of the notice of the special tax lien, as provided for in Section 53328.3 of the Act, as opposed to the annual January 1 lien date for general ad valorem property taxes. Thus, in deciding whether the original Glasply ruling is applicable to a bankruptcy proceeding involving special taxes rather than general ad valorem property taxes, a court might consider the differences in the statutory provisions for creation of the applicable tax lien (general ad valorem or special tax) in determining whether there is a basis for post - petition special taxes to be entitled to a lien on the property during pending bankruptcy proceedings. If a court were to apply Glasply to eliminate the priority of the special tax lien as a secured claim against property with respect to post-petition levies of the Special Taxes made against property owners within the District who file for bankruptcy, collections of the Special Taxes from such property owners could be reduced as the result of being treated as “administrative expenses” of the bankruptcy estate. Also, and most importantly, is the fact that the original holding in Glasply and the mitigation of that holding by the Bankruptcy Reform Act of 1994 both appear to be applicable only to general ad valorem property taxes, and, therefore, the exemption from the automatic stay in Section 362(b)(18) discussed above may not be applicable to special taxes since they were not expressly mentioned or provided for in this section, nor defined to be included within the term “ad valorem property taxes.” No Acceleration Provision
The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or in the event interest on the Bonds becomes included in gross income for federal income tax purposes.
See “— Limitations on Remedies” below.
Loss of Tax Exemption
As discussed under the caption “LEGAL MATTERS — Tax Exemption,” the interest on the Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds as a result of a failure of the City to comply with certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Such an event of taxability would not in and of itself result in an early redemption of the Bonds and the Bonds will remain outstanding to maturity or until redeemed under the redemption provisions of the Fiscal Agent Agreement.
41 Limitations on Remedies
Remedies available to the owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the tax-exempt status of the Bonds.
Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors’ rights, by equitable principles and by the exercise of judicial discretion. The lack of availabil ity of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the Bonds.
Limited Secondary Market
There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the City has committed to provide certain financial and operating information on an annual basis, there can be no assurance that such information will be available to Bond owners on a timely basis. See “CONTINUING DISCLOSURE.” The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price.
Voter Initiatives
Under the California 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 City. Subject to overriding federal constitutional principles, such collection may be materially and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems in the payment of outstanding obligations such as the 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 California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges.
On November 2, 2010, California 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 L egislature to impose higher taxes (as defined in Proposition 26) without a two-thirds vote of the Legislature. Article XIIIC requires 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 issuance of special tax bonds of the City for the District were each authorized by not less than a two-thirds vote of the landowners within the District who constituted the qualified electors at
42 the time of such voted authorization. The City believes, therefore, that issuance of the Bonds does not require the conduct of further proceedings under the Mello-Roos 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 City and the District can be determined. 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.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service 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 Internal Revenue Service. It is also possible that the market value of the Bonds might be affected a s a result of such an audit of the Bonds (or by an audit of similar bonds).
Ballot 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 California voters. The adoption of any such initiative might place limitations on the ability of the State, 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 land in the District.
See “— Voter Initiatives.”
Recent 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 Facilities District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district established under its City of San Diego charter (the “Charter”) and was intended to function much like a community facilities district established under the Mello-Roos Act. The CCFD was comprised of all of the real property in the entire City of San Diego.
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 voters 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 Mello-Roos Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential 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 comply with the City of San Diego’s Charter and with applicable provisions of the California 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 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 residential property pursuant to the Mello -Roos Act in situations where there are fewer than 12 registered voters. Therefore, by its terms, the San Diego Court ’s holding does not apply to the special tax election in the District.
43 Moreover, Sections 53341 and 53359 of the Act establish a limited period of time in which special taxes levied under the Mello-Roos Act may be challenged by a third party:
53341. Any action or proceeding to attack, review, set aside, void, or annul the levy of a special tax or an increase in a special tax pursuant to [the Mello-Roos Act] shall be commenced within 30 days after the special tax is approved by the voters....
53359. An action to determine the validity of bonds issued pursuant to [the Mello -Roos Act] or the validity of any special taxes levied pursuant to [the Mello -Roos Act] ... shall .... be commenced within 30 days after the voters approve the issuance of the bonds or the special tax ...
Section 53326(b) of the Mello-Roos Act defines the authorized voters for an election in which the special taxes will be levied on residential property: “Except as otherwise provided in subdivision (c), if at least 12 persons, who need not necessarily be the same 12 persons, have been registered to vote within the territory of the proposed community facilities district for each of the 90 days preceding the close of the protest hearing, the vote shall be by the registered voters of the proposed district, with each voter having one vote. Otherwise, the vote shall be by the landowners of the proposed district and each person who is the owner of land at the close of the protest hearing, or the authorized representative thereof, shall have one vote for each acre or portion of an acre of land that he or she owns within the proposed community facilities district not exempt from the special tax....” Landowner voters approved the Special Taxes and the issuance of bonds for the District in compliance with all applicable requirements of the Mello-Roos Act in 2021. Therefore, pursuant to Sections 53341 and 53359 of the Mello-Roos Act, the statute of limitations period to challenge the validity of the special tax has expired.
Because the San Diego Court expressly stated that it did not consider the facts presented by the District and because the period for challenging the Special Taxes has passed, the City believes the Special Taxes are valid and cannot be challenged.
Potential Early Redemption of Bonds from Prepayments or Assessment Bond Proceeds Property owners within the District, including the Property Owner and any individual property owner, are permitted to prepay their Special Taxes at any time. Such prepayments could also be made from the proceeds of bonds issued by or on behalf of an overlapping special assessment district or community facilities district. Such prepayments will result in a redemption of the Bonds on the Interest Payment Date for which timely notice may be given under the Fiscal Agent Agreement following the receipt of the prepayment. The resulting redemption of Bonds that were purchased at a price greater than par could reduce the otherwise expected yield on such Bonds.
See the caption “THE BONDS — Redemption.”
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 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 thr eatened species.
Cyber Security
The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including without limitation hacking, viruses, ransomware, malware and other attacks. To date, the City has not experienced a material threat to its computer operating system. However, no assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City or the District, or the administration of the Bonds.