Watsonville City Council
May 27, 2025

16 judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State;
(E) the execution and delivery of the Authority Documents and the issuance of the Bonds and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the Authority is subject, which breach or default has or may have a material adverse effect on the ability of the Authority to perform its obligations under the Authority Documents;
(F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the Authority Documents or the Official Statement by the Authority or the consummation by the Authority of the transactions on its part contemplated therein, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter; and
(G) based on the information made available to such counsel in its role as counsel to the Authority, and without having undertaken to determine independently or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement under the caption entitled “THE AUTHORITY,” nothing has come to its attention which would lead it to believe that the statements contained in the abovereferenced caption as of the date of the Official Statement and as of the date of Closing contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(xi) an opinion dated the date of Closing and addressed to the Underwriter, the Trustee and the Bond Counsel, of the City Attorney, to the effect that:
(A) the City is duly organized and validly existing as a charter city and municipal corporation under the Constitution and laws of the State of California;
(B) the resolution of the City approving and authorizing the execution and delivery of the City Documents and approving and authorizing the issuance of the Bonds and the delivery of the Official Statement and other actions of the City was duly adopted at a meeting of the governing body of the City which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout,

17 and the resolution is now in full force and effect and has not been amended or superseded in any way;
(C) there is no action, suit, proceeding, inquiry or investigation at law or in equity before or by any court or public body pending with respect to which the City has been served or, to such counsel’s knowledge, threatened against or affecting the City, except as may be disclosed in the Official Statement, which would materially adversely impact the City’s ability to complete the transactions contemplated by the City Documents, the Official Statement or any other document or certificate related to such transactions, restrain or enjoin the collection of Base Rental Payments with respect to the Lease Agreement, or in any way contesting or affecting the validity of the Bonds, the Official Statement or the City Documents;
(D) the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents;
(E) the City Documents have been duly authorized, executed and delivered by the City, and (assuming due execution and delivery by parties other than the City) are valid, legal and binding agreements of the City enforceable in accordance with their terms, except that the rights and obligations under the City Documents are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State; and
(F) no authorization, approval, consent, or other order of the State of California or any other governmental body within the State of California is required for the valid authorization, execution and delivery of the City Documents, except such as have been obtained and except such as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Bonds by the Underwriter. (xii) a letter of Anzel Galvan LLP, Disclosure Counsel to the Authority and the City dated the date of Closing and addressed to the Underwriter, in substantially the form attached hereto as Exhibit D;

18 (xiii) an opinion of counsel to the Trustee, addressed to the Underwriter and the Authority, dated the date of the Closing, to the effect that:
(A) the Trustee is a national banking association duly organized and validly existing under the laws of the United States, having full corporate power to undertake the trust created under the Indenture; (B) the Indenture and the Assignment Agreement (together, the “Trustee Documents”) have each been duly authorized, executed and delivered by the Trustee and, assuming due authorization, execution and delivery by the other parties thereto, the Trustee Documents constitute the valid, legal and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought;
(C) the Trustee has duly authenticated the Bonds upon the order of Authority;
(D) the Trustee’s actions in executing and delivering the Trustee Documents are in full compliance with, and do not conflict with any applicable law or governmental regulation and, to the best of such counsel’s knowledge, after reasonable inquiry with respect thereto, do not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and
(E) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is or will be required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents; (xiv) a certificate, dated the date of Closing, signed by a duly authorized officer of the Trustee satisfactory in form and substance to the Underwriter, to the effect that:
(A) the Trustee is duly organized and existing as a national banking association under the laws of the United States of America, having the full corporate power and authority to enter into and perform its duties under the Trustee Documents;
(B) the Trustee is duly authorized to enter into the Trustee Documents and has duly executed and delivered the Trustee Documents, and assuming due authorization and execution by the other parties thereto, the Trustee Documents are legal, valid and binding upon the Trustee and enforceable against such party in accordance with its terms;

19 (C) the Trustee has duly authenticated the Bonds under the Indenture and delivered the Bonds to or upon the order of the Underwriter; and
(D) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of the Trustee that has not been obtained is required for the execution and delivery of the Bonds or the consummation by the Trustee of its obligations under the Trustee Documents;
(xv) the preliminary and final Statement of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the California Government Code and Section 8855(g) of the Government Code; (xvi) a copy of the executed Blanket Issuer Letter of Representations by and between the City or the Authority and DTC relating to the book-entry system; (xvii) the tax certificate executed by the Authority and the City relating to the Bonds in form and substance to the reasonable satisfaction of Bond Counsel and the Underwriter;
(xviii) a title policy with respect to the Property in form and substance acceptable to Bond Counsel, the Underwriter and Underwriter’s Counsel; (xix) evidence of insurance in compliance with the requirements of the Lease Agreement in form and substance acceptable to the Underwriter; (xx) an opinion of Kutak Rock LLP (“Underwriter’s Counsel”) in form and substance acceptable to the Underwriter;
(xxi) a certificate, dated the date of the Preliminary Official Statement, of the City, as required under Rule 15c2-12;
(xxii) a certificate, dated the date of the Preliminary Official Statement, of the Authority, as required under Rule 15c2-12; and
(xxiii) such additional legal opinions, Bonds, proceedings, instruments or other documents as the Underwriter or Underwriter’s Counsel may reasonably request.

Section 10. Changes in Official Statement. Within 90 days after the Closing or within 25 days following the “end of the underwriting period” (as defined in Rule 15c2-12), whichever occurs first, if any event shall occur as a result of which it is necessary, in the reasonable opinion of the Underwriter, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the Authority will forthwith prepare and furnish to the Underwriter an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City and the Authority shall cooperate with

20 the Underwriter in the filing by the Underwriter of such amendment or supplement to the Official Statement with the EMMA. The Underwriter acknowledges that the “end of the underwriting period” will be the date of Closing unless the Underwriter otherwise notifies the City in writing that it still owns some or all of the Bonds.

Section 11. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the Authority shall pay only from the proceeds of the Bonds, but only as the Authority and such other party providing such services may agree, all expenses and costs of the Authority and the City incident to the performance of their obligations in connection with the authorization, issuance, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee, including fees and disbursements of its counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel, the municipal advisor and other professional advisors employed by the Authority or the City, title insurance and costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds. The Underwriter shall pay all out-ofpocket expenses of the Underwriter, including, without limitation, the fees and expenses of its counsel, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds.

Section 12. Notices. 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 Samuel A.

Ramirez & Co., Inc., 12130 Millennium Drive, Suite 300, Los Angeles, California 90094; Attention:

Public Finance. Any notice or other communication to be given to the Authority or the City pursuant to this Purchase Agreement may be given by delivering the same in writing to such entity, at the addresses set forth on the cover page hereof.

Section 13. Parties in Interest. This Purchase Agreement is made solely for the benefit of the Authority, the City and the Underwriter (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the Authority and the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriter and shall survive the delivery of and payment for the Bonds.

Section 14. 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.

21 Section 15. Governing Law. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State of California.

SAMUEL A. RAMIREZ & CO., INC.

By:

Managing Director
The foregoing is hereby agreed to and accepted as of the date first above written:

WATSONVILLE PUBLIC FINANCE AUTHORITY
By:

Authorized Officer
Time of Execution: _____________ p.m. California time
Accepted:

CITY OF WATSONVILLE
By:

Authorized Officer
Time of Execution: _____________ p.m. California time

A-1

EXHIBIT A

MATURITY SCHEDULE
$________

WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
Maturity
(May 1)
Principal
Amount
Interest
Rate Yield Price
10% Test
Satisfied*
10% Test
Not
Satisfied
Subject to
Hold-TheOfferingPrice Rule
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
20__(T)
20__(T)
(T) Term Bond.
(C) Priced to optional call at [par] on May 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.

B-1

EXHIBIT B

FORM OF ISSUE PRICE CERTIFICATE
$_______

WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
The undersigned, Samuel A. Ramirez & Co., Inc. (“Ramirez”), hereby certifies as set forth below with respect to the sale and issuance of the above-captioned obligations (the “Bonds”).

1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A.

2. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Ramirez offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B.
(b) As set forth in the Bond Purchase Agreement, dated [BPA Date], by and among Ramirez, the Issuer and the City of Watsonville, Ramirez has agreed in writing that, (i) for each Maturity of the Hold-the-Offering-Price Maturities, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering-price rule”), and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any 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 Hold-the-Offering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period.

3. Defined Terms.
(a) Issuer means the Watsonville Public Finance Authority. (b) General Rule Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “General Rule Maturities.”
(c) Hold-the-Offering-Price Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “Hold-the-Offering-Price Maturities.” (d) Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date, or (ii) the date on which Ramirez has sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-theOffering-Price Maturity.

B-2
(e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities.
(f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter.

The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is [BPA Date]. (h) 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 Bonds to the Public).

The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents the interpretation by Ramirez 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 the attached Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Bond Counsel, 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.

Except as expressly set forth above, the certifications set forth herein may not be relied upon or used by any third party or for any other purpose.

Dated: [Closing Date] SAMUEL A. RAMIREZ & CO., INC., as underwriter By:

Authorized Signatory

B-3

SCHEDULE A

SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING

PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES
[TO BE ATTACHED]

B-4

SCHEDULE B

PRICING WIRE OR EQUIVALENT COMMUNICATION

C-1

EXHIBIT C

FORM OF SUPPLEMENTAL OPINION OF BOND COUNSEL
On the Closing Date, Bond Counsel expects to deliver a supplemental opinion in substantially the following form:
[TO COME FROM BOND COUNSEL]

D-1

EXHIBIT D

FORM OF DISCLOSURE COUNSEL LETTER
On the Closing Date, Disclosure Counsel expects to deliver a negative assurance letter in substantially the following form:
[TO COME FROM DISCLOSURE COUNSEL]

PRELIMINARY OFFICIAL STATEMENT DATED ___________, 2025
This Preliminary Official Statement and the information contained herein are subject to completion or amendment. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

NEW ISSUE—BOOK-ENTRY ONLY RATING:

S&P: “____”
(See “RATING” herein)
In the opinion of Anzel Galvan LLP, San Francisco, California, Bond Counsel, under existing law and subject to certain qualifications described herein, the interest on the Series 2025 Bonds is excludable from gross income for federal income tax purposes.

In addition, interest on the Series 2025 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals; however, interest on the Series 2025 Bonds may affect the federal alternative minimum tax applicable to certain corporations. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See “TAX MATTERS.”
$[Par Amount]*

WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025
Dated: Date of Delivery Due: May 1, as shown on inside cover The Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 (the “Series 2025 Bonds”) are payable from base rental payments (the “Base Rental Payments”) to be made by the City of Watsonville (the “City”) for the right to use certain real property (the “Property”) pursuant to a Lease Agreement, dated as of June 1, 2025 (the “Lease Agreement”), by and between the City, as lessee, and the Watsonville Public Finance Authority (the “Authority”), as lessor. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS.”
The Series 2025 Bonds are being issued to provide funds to (i) finance a portion of the costs of the design, acquisition, construction and installation of certain public capital improvements to the City’s Ramsay Park and City Plaza, and related infrastructure improvements; and (ii) pay the costs incurred in connection with the issuance of the Series 2025 Bonds. See “THE PROJECT.” The City has covenanted under the Lease Agreement to make all Base Rental Payments provided for therein, to include all such payments as a separate line item in its annual budgets, and to make all the necessary annual appropriations for such Base Rental Payments. The City’s obligation to make Base Rental Payments is subject to abatement during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defects in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property. See “RISK FACTORS—Abatements.” The Series 2025 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Interest on the Series 2025 Bonds is payable semiannually on May 1 and November 1 of each year, commencing November 1, 2025. Purchasers will not receive certificates representing their interest in the Series 2025 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series 2025 Bonds will be paid by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the Beneficial Owners of the Series 2025 Bonds. See “THE SERIES 2025 BONDS—Book-Entry Only System” herein.

The Series 2025 Bonds will be issued pursuant to an Indenture, dated as of June 1, 2025 (the “Indenture”) by and among the City, the Authority and the Trustee. The Series 2025 Bonds and any additional bonds issued pursuant to the Indenture (“Additional Bonds”) are collectively referred to as the “Bonds.”
The Series 2025 Bonds are subject to extraordinary and mandatory sinking fund redemption prior to maturity. See “THE SERIES 2025 BONDS—Redemption.” The Series 2025 are not subject to optional redemption.

The Series 2025 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State of California, or any political subdivision thereof, is pledged to the payment of the Series 2025 Bonds.

The obligation of the City to make the Base Rental Payments does not constitute a debt of the City or the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State of California is obligated to levy or pledge any form of taxation or for which the City or the State of California has levied or pledged any form of taxation. The Authority has no power to tax.

THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

The Series 2025 Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their validity by Anzel Galvan LLP, San Francisco, California, Bond Counsel. Anzel Galvan LLP, San Francisco, California, is also acting as Disclosure Counsel to the City and the Authority. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City of Watsonville, and for the Underwriter by Kutak Rock LLP, Irvine, California. It is anticipated that the Series 2025 Bonds in definitive form will be available for delivery to DTC in New York, New York on or about ______________, 2025. [UW Logo]
Dated: __________________, 2025
* Preliminary; subject to change.

MATURITY SCHEDULE
$_________________________

WATSONVILLE PUBLIC FINANCE AUTHORITY
Lease Revenue Bonds, Series 2025
Base CUSIP†: ________
Maturity Date
(May 1) Principal Amount Interest Rate Yield Price CUSIP† $_____________ ______% Term Bonds due May 1, 20__ Yield: ______% Price: ______ C CUSIP† __ $_____________ ______% Term Bonds due May 1, 20__ Yield: ______% Price: ______ C CUSIP† __ C Priced to optional redemption date of May 1, 20__, at par. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2025 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Underwriter, the Authority or the City, or their agents or counsel, assume responsibility for the accuracy of such numbers.

No dealer, broker, salesperson or other person has been authorized by the City or the Authority to give any information or to make any representations in connection with the offer or sale of the Series 2025 Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Authority. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2025 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 is not to be construed as a contract with the purchasers or Owners of the Series 2025 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

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 circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.

This Official Statement and the information contained herein are subject to completion or amendment without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or the Authority or any other parties described herein since the date hereof. These securities may not be sold nor may an offer to buy be accepted prior to the time the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Series 2025 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City.

All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

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,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the captions “THE CITY OF WATSONVILLE,” “CITY FINANCIAL INFORMATION” and “RISK FACTORS.”

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 EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS

SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR

RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.

IN CONNECTION WITH THE OFFERING OF THE SERIES 2025 BONDS, THE UNDERWRITER MAY

OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2025 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 UNDERWRITER MAY OFFER AND SELL THE SERIES 2025 BONDS TO CERTAIN DEALERS AND DEALER

BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING

PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.

THE SERIES 2025 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS

AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Series 2025 Bonds.

CITY OF WATSONVILLE

SANTA CRUZ COUNTY, CALIFORNIA

WATSONVILLE PUBLIC FINANCE AUTHORITY GOVERNING BOARD AND CITY COUNCIL

OF THE CITY OF WATSONVILLE
Maria Orozco, Chair/Mayor
Kristal Salcido, Vice Chair/Mayor Pro Tempore
Eduardo Montesino, Board Member/Council Member
Vanessa Quiroz-Carter, Board Member/Council Member
Kristal Salcido, Board Member/Council Member
Casey K. Clark, Board Member/Council Member
Jimmy Dutra, Board Member/Council Member
Ari Parker, Board Member/Council Member
_____________

CITY / AUTHORITY OFFICIALS
Tamara Vides, City Manager/Executive Director
Marissa Duran, Administrative Services Director/Treasurer Irwin I. Ortiz, City Clerk/Secretary
Burke, Williams & Sorensen, LLP, City Attorney
_____________

BOND COUNSEL AND DISCLOSURE COUNSEL
Anzel Galvan LLP
San Francisco, California
_____________

MUNICIPAL ADVISOR
Urban Futures, Inc.

Walnut Creek, California
_____________

TRUSTEE
U.S. Bank Trust Company, National Association
San Francisco, California
_____________

TABLE OF CONTENTS
Page
i
INTRODUCTION.......................................................................................................................................................... 1 THE SERIES 2025 BONDS .......................................................................................................................................... 3 General....................................................................................................................................................................... 3 Registration ................................................................................................................................................................ 4 Redemption ................................................................................................................................................................ 4 Book-Entry Only System........................................................................................................................................... 5 SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS...................................................... 6 Pledge of Revenues.................................................................................................................................................... 6 Base Rental Payments................................................................................................................................................ 7 Additional Rental Payments....................................................................................................................................... 7 Abatement .................................................................................................................................................................. 8 Substitution or Release of the Property...................................................................................................................... 9 Action on Default....................................................................................................................................................... 9 No Reserve Fund...................................................................................................................................................... 10 Additional Bonds ..................................................................................................................................................... 10 Insurance .................................................................................................................................................................. 10 SOURCES AND USES OF FUNDS ........................................................................................................................... 11 BASE RENTAL PAYMENT SCHEDULE................................................................................................................. 12 THE PROJECT ............................................................................................................................................................ 12 THE PROPERTY......................................................................................................................................................... 12 General..................................................................................................................................................................... 12 The Property............................................................................................................................................................. 13 THE AUTHORITY...................................................................................................................................................... 13 THE CITY OF WATSONVILLE................................................................................................................................ 14 General..................................................................................................................................................................... 14 City Council ............................................................................................................................................................. 14 City Management..................................................................................................................................................... 14 Employee Relations ................................................................................................................................................. 15 Risk Management .................................................................................................................................................... 16 CITY FINANCIAL INFORMATION......................................................................................................................... 17 Accounting and Financial Reporting ....................................................................................................................... 17 Financial Policies..................................................................................................................................................... 17 Budget Procedure, Proposed Budget and Historical Budget Information ............................................................... 19 Comparative Change in Fund Balance of the City General Fund............................................................................ 22 Comparative General Fund Balance Sheets of the City........................................................................................... 24 Tax Revenues by Source.......................................................................................................................................... 26 Sales Taxes............................................................................................................................................................... 26 Property Taxes ......................................................................................................................................................... 30 Utility Users’ Tax..................................................................................................................................................... 33 Other Taxes.............................................................................................................................................................. 33 Transient Occupancy Tax ........................................................................................................................................ 33 Long-Term General Fund Obligations..................................................................................................................... 34 Overlapping Debt Statement.................................................................................................................................... 34 Retirement System................................................................................................................................................... 35 Other Post-Employment Benefits (OPEB) .............................................................................................................. 40 State Budget Information ......................................................................................................................................... 41 Changes in State Budget .......................................................................................................................................... 41 RISK FACTORS.......................................................................................................................................................... 41 General Considerations – Security for the Series 2025 Bonds................................................................................ 41 Abatements............................................................................................................................................................... 42 No Reserve Fund...................................................................................................................................................... 43

ii
Effect of Economy on Revenues.............................................................................................................................. 43 Natural Disasters...................................................................................................................................................... 43 Public Health Emergencies...................................................................................................................................... 45 Hazardous Substances.............................................................................................................................................. 45 Other Financial Matters ........................................................................................................................................... 45 Substitution, Addition and Removal of Property; Additional Bonds ...................................................................... 45 Limited Recourse on Default; No Acceleration of Base Rental .............................................................................. 46 Limitations on Remedies Available; Bankruptcy .................................................................................................... 47 Possible Insufficiency of Insurance Proceeds.......................................................................................................... 48 Loss of Tax Exemption ............................................................................................................................................ 48 Federal Funding Risks ............................................................................................................................................. 48 No Liability of Authority to the Owners.................................................................................................................. 48 Cybersecurity ........................................................................................................................................................... 49 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS..................... 49 Article XIIIA of the State Constitution.................................................................................................................... 49 Legislation Implementing Article XIIIA ................................................................................................................. 49 Article XIIIB of the State Constitution .................................................................................................................... 50 Articles XIIIC and XIIID of the State Constitution................................................................................................. 50 Proposition 62 .......................................................................................................................................................... 51 Proposition 1A ......................................................................................................................................................... 52 Proposition 22 .......................................................................................................................................................... 52 Proposition 26 .......................................................................................................................................................... 53 Possible Future Initiatives........................................................................................................................................ 53 TAX MATTERS.......................................................................................................................................................... 53 General..................................................................................................................................................................... 53 Original Issue Premium and Discount ..................................................................................................................... 54 Post Issuance Matters............................................................................................................................................... 55 Not Bank Qualified .................................................................................................................................................. 55 CERTAIN LEGAL MATTERS................................................................................................................................... 55 ABSENCE OF LITIGATION...................................................................................................................................... 55 UNDERWRITING....................................................................................................................................................... 56 RATINGS..................................................................................................................................................................... 56 MUNICIPAL ADVISOR............................................................................................................................................. 56 CONTINUING DISCLOSURE................................................................................................................................... 56 FINANCIAL STATEMENTS OF THE CITY ............................................................................................................ 57 MISCELLANEOUS..................................................................................................................................................... 57

APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF WATSONVILLE.......................................................................................................................A-1 APPENDIX B SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS .................................................. B-1

APPENDIX C AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2024........................................................................................................................... C-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION ...........................................................D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE.....................................................E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM ............................................................................................F-1

iii

CITY OF WATSONVILLE

REGIONAL LOCATION MAP

1 OFFICIAL STATEMENT
$[Par Amount]*

WATSONVILLE PUBLIC FINANCE AUTHORITY
LEASE REVENUE BONDS, SERIES 2025

INTRODUCTION
This Official Statement (which includes the cover page and the appendices hereto) (the “Official Statement”) provides certain information concerning the sale and delivery of $_________________________ aggregate principal amount of Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 (the “Series 2025 Bonds”).

The net proceeds of the sale of the Series 2025 Bonds will be used to (i) finance a portion of the costs of the design, acquisition, construction and installation of certain public capital improvements as part of the City’s Ramsay Park and City Plaza, and related infrastructure improvements (collectively, the “Project”); and (ii) pay the costs incurred in connection with the issuance of the Series 2025 Bonds. See “THE PROJECT” herein for a further description of the Project.

The Series 2025 Bonds are equally and ratably payable from base rental payments (the “Base Rental Payments”) to be made by the City of Watsonville (the “City”) for the right to use certain real property (collectively, the “Property” and described further under the caption “THE PROPERTY”) pursuant to a Lease Agreement, dated as of June 1, 2025 (the “Lease Agreement”), between the City, as lessee, and the Watsonville Public Finance Authority (the “Authority”), as lessor.

The Series 2025 Bonds will be issued pursuant to an Indenture, dated as of June 1, 2025 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Pursuant to the Indenture, the Authority may issue additional bonds (the “Additional Bonds”) payable from the Base Rental Payments on a parity with the Series 2025 Bonds (the Series 2025 Bonds and any such Additional Bonds being collectively referred to as the “Bonds”). See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Additional Bonds.”
Pursuant to a Ground Lease, dated as of June 1, 2025 (the “Ground Lease”), by and between the City and the Authority, the City has leased the Property to the Authority. The Authority has subleased the Property to the City under the Lease Agreement. The Lease Agreement obligates the City to make Base Rental Payments to the Authority.

The Trustee and the Authority have entered into an Assignment Agreement, dated as of June 1, 2025, pursuant to which the Authority has assigned to the Trustee for the benefit of the Bond Owners substantially all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including its right to receive the Base Rental Payments due under the Lease Agreement and to enforce any remedies in the event of a default by the City.

The Property leased under the Ground Lease and the Lease Agreement will consist of the Property (as such term is defined under the caption “THE PROPERTY”). The Property generally consists of the City’s Police/Innovation Technology Building, Parks and Community Services Building, Youth Center and City Hall . See the captions “THE PROPERTY” and “THE PROJECT—The Project and the Project Site.” The City also has the right to substitute or release all or a portion of the Property subject to certain conditions precedent.

See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS¾Substitution, Addition and Removal of Property.”
* Preliminary; subject to change.

2 The City will covenant under the Lease Agreement to take such action as may be necessary to include all Rental Payments, which are comprised of Base Rental Payments and Additional Rental Payments (which include taxes and assessments affecting the Property, administrative costs of the Authority relating to the Property, fees and expenses of the Trustee and other amounts payable under the Lease Agreement), due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor, subject to abatement as described herein.

Base Rental Payments are subject to complete or partial abatement in the event and to the extent that there is substantial interference with the City’s right to use and occupy the Property or any portion thereof.

See “RISK FACTORS—Abatements.” Abatement of Base Rental Payments under the Lease Agreement, to the extent that payment is not made from alternative sources as set forth below, would result in all Bond Owners receiving less than the full amount of principal of and interest on the Series 2025 Bonds. To the extent that proceeds of insurance are available or moneys are available in certain funds and accounts pledged as security for the Series 2025 Bonds, Base Rental Payments (or a portion thereof) may be made during periods of abatement.

THE SERIES 2025 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE

SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY OR THE STATE OF CALIFORNIA (THE “STATE”), OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2025 BONDS. THE AUTHORITY HAS NO TAXING POWER.

THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT

CONSTITUTE A DEBT OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF

WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR

RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE

STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.

The Authority is not funding a debt service reserve fund for the Series 2025 Bonds.

The City has agreed to provide, or cause to be provided, to the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission (“Rule 15c2- 12”) certain annual financial information and operating data and, in a timely manner, notice of certain listed events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12.

See “CONTINUING DISCLOSURE” herein for a description of the Authority’s and the City’s compliance with its prior continuing disclosure undertakings pursuant to Rule 15c2-12 and APPENDIX—E “FORM OF CONTINUING DISCLOSURE CERTIFICATE” for a description of the specific nature of the annual report and notices of listed events and the terms of the disclosure undertaking pursuant to which such reports are to be made.

U.S. Bank Trust Company, National Association, San Francisco, California, will act as Trustee with respect to the Series 2025 Bonds. The Series 2025 Bonds will be issued subject to the approval as to their legality by Anzel Galvan LLP, San Francisco, California, Bond Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney of the City of Watsonville and by Anzel Galvan LLP, San Francisco, California, Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by Kutak Rock LLP, Irvine, California. The City’s financial statements for the fiscal year ended June 30, 2024, included as Appendix C hereto have been audited by Maze & Associates, Pleasant Hill, California (the “Auditor”). See APPENDIX C—“AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2024” herein. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor

3 has not performed any post-audit review of the financial condition of the City and also has not performed any procedures relating to this Official Statement.

Certain events could affect the ability of the City to make the Base Rental Payments when due. See “RISK FACTORS” for a discussion of certain factors that should be considered, in addition to other matters set forth herein, in evaluating an investment in the Series 2025 Bonds.

The presentation of information, including tables of receipt of revenues, is intended to show recent historical information and, except for a discussion of the proposed fiscal year 2025-26 budget and estimated fiscal year 2024-25 results, is not intended to indicate future or continuing trends in the financial position or other affairs of the City. No representation is made that past experience, as it might be shown by such financial and other information, will necessarily continue or be repeated in the future. See the captions “THE CITY OF WATSONVILLE” and “CITY FINANCIAL INFORMATION” for financial and operating information related to the City.

The summaries or references to the Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement and other documents, agreements and statutes referred to herein, and the description of the Series 2025 Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined herein) that are defined in the Indenture or the Lease Agreement have the meanings set forth therein. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS.”
THE SERIES 2025 BONDS
General
The Series 2025 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. The Series 2025 Bonds will be dated as of and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Series 2025 Bonds will be paid semiannually on May 1 and November 1 (each, an “Interest Payment Date”) of each year, commencing November 1, 2025.

Interest on the Series 2025 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof (a “Record Date”) unless (i) a Series 2025 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (ii) a Series 2025 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the dated date thereof, or (iii) interest on any Series 2025 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest will be paid in lawful money of the United States on each Interest Payment Date to the Persons in whose names the ownership of the Series 2025 Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except as provided below. Interest will be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2025 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date.

The principal and premium, if any, of the Series 2025 Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2025 Bonds will be subject to redemption as set forth herein.

4 Registration
The Series 2025 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2025 Bonds (the “Beneficial Owners”) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined in Appendix F) as described herein.

Beneficial Owners will not be entitled to receive physical delivery of the Series 2025 Bonds. See “THE SERIES 2025 BONDS—Book-Entry Only System.”
Redemption
Extraordinary Redemption from Net Proceeds. The Series 2025 Bonds are subject to redemption, in whole or in part, on any date, in denominations of $5,000 or any integral multiple thereof, from and to the extent of any Net Insurance Proceeds received with respect to all or a portion of the Property, deposited by the Trustee in the Redemption Fund pursuant to the Indenture, at a Redemption Price equal to the principal amount of the Series 2025 Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium.

Optional Redemption of Series 2025 Bonds. The Series 2025 Bonds are not subject to optional redemption prior to maturity.

Mandatory Sinking Fund Redemption. The Series 2025 Bonds with stated maturities on May 1, 20__, are subject to mandatory sinking fund redemption in part (by lot) on each May 1 on and after May 1, 20__, in integral multiples of $5,000 at a Redemption Price equal to the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in accordance with the following schedule:

Redemption Date
(May 1)
Principal
Amount
*
* Final Maturity.

In the event of a partial optional redemption or extraordinary mandatory redemption of any of the Term Bonds, the City will provide the Trustee with a revised mandatory sinking fund schedule giving effect to the redemption so completed.

Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption with respect to any redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Authority and pro rata among Bonds of the same Series with the same maturity. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed.

Notice of Redemption. So long as the Bonds are held in book-entry form, notices of redemption will be mailed by the Trustee only to DTC and not to any Beneficial Owners. The Authority will provide the Trustee with written notice of redemption pursuant to the Indenture at least thirty (30) days prior to the date set for the redemption of Series 2025 Bonds, or such shorter period as may be consented to by the Trustee, such notice being for the convenience of the Trustee. The Trustee on behalf and at the expense of the Authority will

5 mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (except in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and will require that such Bonds be then surrendered at the principal corporate trust office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption.

With respect to any notice of optional redemption of the Bonds, such notice may state that such redemption is conditional upon the receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys sufficient to pay the principal of, premium if any, and interest on the Bonds to be redeemed and upon other conditions set forth therein and that, if such money has not been so received or such other conditions have not been satisfied, said notice is of no force and effect and the Trustee is not required to redeem such Bonds. If any condition stated in the redemption notice for an optional redemption have not been satisfied on or prior to the redemption date: (i) the redemption notice will be of no force and effect, (ii) the Authority will not be required to redeem such Bonds, (iii) the redemption will not be made, and (iv) the Trustee will within a reasonable time thereafter give notice to the persons in the manner in which the conditional redemption notice was given that such condition or conditions were not met and that the redemption was canceled.

Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered.

Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds will become due and payable on said date, and, upon presentation and surrender thereof at the principal corporate trust office of the Trustee, said Bonds will be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date.

If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, will be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof has been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture will be canceled upon surrender thereof and destroyed.

Book-Entry Only System
General. DTC will act as securities depository for the Series 2025 Bonds. The Series 2025 Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee).

One fully-registered Series 2025 Bond will be issued for each maturity of the Series 2025 Bonds, each in the initial aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX F— “BOOK-ENTRY ONLY SYSTEM.”
Transfer and Exchange of Bonds. The following provisions regarding the exchange and transfer of the Series 2025 Bonds apply only during any period in which the Series 2025 Bonds are not subject to DTC’s

6 book-entry system. While the Series 2025 Bonds are subject to DTC’s book-entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC.

Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds will be surrendered for transfer, the Authority will execute and the Trustee will authenticate and will deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee will require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.

The transferor will also provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045. The Trustee may rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

The Bonds may be exchanged at the principal corporate trust office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee will require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

The Trustee is not obligated to make any transfer or exchange of Bonds of a Series during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption.

SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS Pledge of Revenues
The Series 2025 Bonds are equally and ratably payable from and secured by Base Rental Payments and certain amounts on deposit in certain funds and accounts established under the Indenture. Base Rental Payments will be paid by the City from any and all legally available funds. See the captions “THE CITY OF WATSONVILLE,” “CITY FINANCIAL INFORMATION” and “RISK FACTORS” for a description of such available funds and the potential risks associated with the availability of such funds to make Base Rental Payments. The City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make the necessary annual appropriations therefor.

The Authority, pursuant to the Assignment Agreement, will assign to the Trustee for the benefit of the Series 2025 Bond Owners all of the Authority’s right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, its right to receive Base Rental Payments to be paid by the City under and pursuant to the Lease Agreement; provided that, the Authority will retain the rights to indemnification and to payment of reimbursement of its reasonable costs and expenses under the Lease Agreement. The City will pay Base Rental Payments directly to the Trustee, as assignee of the Authority. See “—Base Rental Payments” below. Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on a parity with the Series 2025 Bonds, subject to certain conditions precedent. See the captions “THE PROJECT” and “—Additional Bonds.” Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture, all of the Base Rental Payments and any other amounts (including proceeds of the sale of the Bonds) held in the Base Rental Payment Fund, the Interest Fund, the

7 Principal Fund and the Redemption Fund are pledged by the Authority pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets.

THE SERIES 2025 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY, PAYABLE

SOLELY FROM BASE RENTAL PAYMENTS AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE

AUTHORITY, THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE SERIES 2025 BONDS. THE AUTHORITY HAS NO TAXING POWER.

Base Rental Payments
Rental Payments (collectively, the Base Rental Payments and the Additional Rental Payments) will be paid by the City to the Authority for and in consideration of the right to use and occupy the Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. Each Base Rental Payment will be deposited with the Trustee no later than the fifth Business Day preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due. All Base Rental Payments will be paid directly by the City to the Trustee, and if received by the Authority at any time will be transferred by the Authority to the Trustee within one Business Day after the receipt thereof. All Base Rental Payments received by the Trustee will be deposited by the Trustee in the Base Rental Payment Fund.

Pursuant to the Indenture, on the Business Day immediately preceding each Interest Payment Date and on the Business Day immediately preceding each Principal Payment Date, the Trustee will transfer amounts in the Base Rental Payment Fund as are necessary to the Interest Fund and the Principal Fund to provide for the payment of the interest on and principal of the Series 2025 Bonds.

Scheduled Base Rental Payments relating to the Series 2025 Bonds are set forth below under the caption “BASE RENTAL PAYMENT SCHEDULE.”

THE OBLIGATION OF THE CITY TO MAKE THE BASE RENTAL PAYMENTS DOES NOT

CONSTITUTE A DEBT OF THE CITY, THE STATE OR ANY POLITICAL SUBDIVISION THEREOF

WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR

RESTRICTION, AND DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY OR THE

STATE IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY OR THE STATE HAS LEVIED OR PLEDGED ANY FORM OF TAXATION.

Additional Rental Payments
For the right to use and occupy the Property, the Lease Agreement requires the City to pay, as Additional Rental payments thereunder, in addition to the Base Rental Payments, such amounts as shall be required for the payment of the following:
(i) All taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein. (ii) All reasonable administrative costs of the Authority relating to the Property including, but without limiting the generality of the foregoing, salaries, wages, fees and expenses, compensation and indemnification of the Trustee payable by the Authority under the Indenture, fees of auditors, accountants, attorneys or engineers, and all other necessary and reasonable administrative costs of the Authority or charges required to be paid by it in order to maintain its existence or to comply with the terms of

8 the Indenture or the Lease Agreement or to defend the Authority and its members, officers, agents and employees.
(iii) Insurance premiums for all insurance required pursuant to the Lease Agreement. (iv) Any amounts with respect to the Lease Agreement or the Bonds required to be rebated to the federal government in accordance with section 148(f) of the Internal Revenue Code of 1986. (v) All other payments required to be paid by the City under the provisions of the Lease Agreement or the Indenture.

Amounts constituting Additional Rental Payments payable under the Lease Agreement will be paid by the City directly to the person or persons to whom such amounts are payable. The City will pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof.

Abatement
Base Rental Payments and Additional Rental Payments are paid by the City in each Rental Period for and in consideration of the right to use and occupy the Property. Except as otherwise specifically provided in the Lease Agreement, during any period in which, by reason of material damage to, or destruction or condemnation of, the Property, or any defect in title to the Property, there is substantial interference with the City’s right to use and occupy any portion of the Property, Rental Payments are subject to abatement proportionately, and the City waives the benefits of Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement will continue in full force and effect. The amount of such abatement will be agreed upon by the City and the Authority; provided, however, that the Rental Payments due for any Rental Period may not exceed the annual fair rental value of that portion of the Property available for use and occupancy by the City during such Rental Period. Any such abatement will continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement will be extended as provided in the Lease Agreement, except that the term will in no event be extended ten years beyond the stated termination date of the Lease Agreement. The Trustee cannot terminate the Lease Agreement in the event of such substantial interference. Abatement of Base Rental Payments and Additional Rental Payments is not an event of default under the Lease Agreement and does not permit the Trustee to take any action or avail itself of any remedy against the City. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Rental Payments—Rental Abatement.”
Notwithstanding the foregoing, to the extent that moneys are available for the payment of Rental Payments due under the Lease Agreement in any of the funds and accounts established under the Indenture (including as a result of the availability of insurance proceeds or amounts in certain funds and accounts pledged to the Series 2025 Bonds), such Rental Payments will not be abated as provided above but, rather, will be payable by the City as a special obligation payable solely from said funds and accounts.

The Lease Agreement provides that if the Bonds have not been fully paid or defeased by the final maturity thereof, or if the Rental Payments remain due and payable or have been abated at any time and for any reason, then the term of the Lease Agreement will be extended until the date upon which (i) all Bonds are fully paid or defeased, or (ii) the Indenture is discharged by its terms and all Rental Payments are paid in full, up to an additional ten years beyond the final maturity of the Bonds.

9 Substitution or Release of the Property
General. The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement and described below. After a substitution or release, the portion of the Property for which the substitution or release has been effected will be released from the leasehold encumbrance of the Lease Agreement.

The Lease Agreement provides that there will be no reduction in or abatement of the Base Rental Payments due from the City thereunder as a result of such substitution or release. Any such substitution or release is subject to the following specific conditions precedent:
(a) the City finds (as set forth in a certificate delivered by the City to the Trustee) that the Property, as constituted after such substitution or release: (i) has an annual fair rental value at least equal to the maximum annual Base Rental Payments payable by the City in any Rental Period, during the remaining term of this Lease Agreement, as determined by the City on the basis of commercially reasonable evidence of the fair rental value of the Property, and (ii) has a useful life in excess of the final maturity of any Outstanding Bonds.
(b) the City obtains or causes to be obtained a CLTA or ALTA title insurance policy or policies with respect to any substituted property in an amount at least equal to the aggregate principal amount of any Outstanding Bonds, of the type and with the endorsements described in the Lease Agreement; (c) the City provides the Trustee with an Opinion of Counsel to the effect that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes;
(d) the City, the Authority and the Trustee execute, and the City causes to be recorded with the Santa Cruz County Clerk-Recorder, any document necessary to reconvey to the City the portion of the Property being released and to include any substituted real property in the description of the Property contained in the Lease Agreement and in the Ground Lease; (e) the City shall have provided notice of such substitution to each rating agency then rating the Bonds;
(f) no event of default has occurred and is continuing under the Lease Agreement; (g) the City gives, or causes to be given, any notice of the occurrence of such substitution required to be given pursuant to the Continuing Disclosure Certificate; (h) the City certifies to the Trustee that the City has a current need for the substituted real property; and
(i) the City certifies to the Trustee that any substitution will not cause the City to violate any of its covenants, representations and warranties made in the Lease Agreement.

See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—No Consequential Damages; Use of Property; Substitution or Release.” Action on Default
Should the City default under the Lease Agreement, the Trustee, as assignee of the Authority under the Lease Agreement, may terminate the Lease Agreement and recover certain damages from the City, or may

10 retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis, and will have the right to re-enter and re-let the Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Base Rental Payments may not be accelerated upon a default under the Lease Agreement. See “RISK FACTORS—Limited Recourse on Default; No Acceleration of Base Rental.”
For purposes of certain actions of Bond Owners under the Indenture and the Lease Agreement, such as certain consents and amendments and the direction of remedies following default, Series 2025 Bond Owners do not act alone and may not control such matters to the extent such matters are not supported by the requisite number of the Owners of all Series 2025 Bonds and Additional Bonds, if any.

For a description of the events of default and permitted remedies of the Trustee (as assignee of the Authority) contained in the Lease Agreement and the Indenture, see APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Defaults and Remedies” and “—THE INDENTURE—Default and Limitations of Liability.”
No Reserve Fund
The Authority has not funded a debt service reserve fund for the Series 2025 Bonds.

Additional Bonds
Pursuant to the Indenture, the Authority may issue Additional Bonds payable from the Base Rental Payments on parity with the Series 2025 Bonds upon satisfaction of certain conditions, including, but not limited to, the following:
(a) The issuance of such Additional Bonds has been authorized under and pursuant to the Indenture and provided for by a Supplemental Indenture; (b) The Authority and the City are in compliance with all agreements, conditions, covenants and terms contained in the Indenture, the Lease Agreement and the Ground Lease required to be observed or performed by each of them;
(c) The Ground Lease has been amended, to the extent necessary, and the Lease Agreement has been amended so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds, payable at such times and in such manner as may be necessary to provide for the timely payment of the principal of and interest on such Additional Bonds; provided, however, that no such amendment is permitted to be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period is in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith.

See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE—Issuance of Bonds; Application of Proceeds.”
Insurance
The Lease Agreement requires the City to maintain or cause to be maintained fire, lightning and special extended coverage insurance (which includes coverage for vandalism and malicious mischief, but need not include coverage for earthquake damage) on all improvements constituting any part of the Property in an amount equal to the greater of 100% of the replacement cost of such improvements or 100% of the outstanding

11 principal amount of the Bonds. All insurance required to be maintained pursuant to the Lease Agreement may be subject to a deductible in an amount not to exceed $500,000.

The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards covered by the casualty insurance described in the preceding paragraph, in an amount sufficient at all times to pay an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period.

The City is also required to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard commercial general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees, and worker’s compensation insurance as described in APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance.”
The City’s obligation to maintain the insurance described above (including rental interruption insurance) may be satisfied by self-insurance, provided such self-insurance complies with the requirements of the Lease Agreement.

The City is required under the Lease Agreement to provide, at its own expense, one or more CLTA or ALTA title insurance policies for the Property, in the aggregate amount of not less than the initial aggregate principal amount of the Bonds (and the initial aggregate principal amount of Additional Bonds issued after the Closing Date), insuring the fee interest of the City in the Property, the Authority’s leasehold estate in the Property under the Ground Lease, and the City’s subleasehold estate in the Property under the Lease Agreement, subject only to Permitted Encumbrances, and providing that all proceeds thereunder are payable to the Trustee for the benefit of the Owners.

See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance.”

SOURCES AND USES OF FUNDS
The sources and uses of funds with respect to the Series 2025 Bonds are shown below.

Sources
Principal Amount of Series 2025 Bonds $
Net Original Issue [Premium][Discount]
Total Sources
$
Uses
Project Fund $
Costs of Issuance(1)
Total Uses $
(1) Includes legal, municipal advisory, rating agency, printing fees, underwriter’s discount, and other miscellaneous costs of issuance.

12 BASE RENTAL PAYMENT SCHEDULE
Following is the annual schedule of Base Rental Payments due with respect to the Series 2025 Bonds, assuming no redemption prior to maturity:

Bond Year
(Ending May 1) Principal Interest Total
2026 $ $ $
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
Total $ $ $

THE PROJECT
The Project consists of the design, acquisition, construction and/or installation of certain capital improvements in the City, including completion of the Ramsay Park Renaissance Project and City Plaza Project.

Ramsay Park is the City’s largest park. The Ramsay Park Renaissance Project is anticipated to include upgrades to certain facilities, including a renovation to the Sotomayer soccer field, a redesigned multi-use sports field, an inclusive and sensory playground, small and large dog play areas, and a 3,500-square foot nature center with culturally relevant exhibits and educational programs. Other funding for the Ramsay Park Renaissance Project has included Measure R amounts, State grants, American Rescue Plan Act (ARPA) funds and amounts from the City of Watsonville. The total cost of the project is approximately $33 million.

The City Plaza Project will include updating the gazebo in the center of the park, renovating the historic community fountain, improve landscaping and lighting throughout the park, and adding a permanent stage with seating areas, game tables, group picnic areas, a play station, public art, a circular walkway around the middle of the plaza, a drinking fountain with bottle-filling station, bicycle parking, improved electrical infrastructure to facilitate events and performances, and signage to highlight the historical elements of the park.

THE PROPERTY
General
The Property leased under the Ground Lease and the Lease Agreement will consist of the City’s Police/Innovation Technology Building, Parks and Community Services Building, Youth Center and City Hall.

The City has the right to substitute or release all or a portion of the Property subject to certain conditions precedent.

The Property is utilized exclusively by the City as a hub for its local government, where it houses various departments responsible for managing city finances, planning, police parks and recreation services and various other administrative services.

13 The City and the Authority have agreed and determined that based on the aggregate value of the land and improvements comprising the Property as of the date of delivery of the Series 2025 Bonds, that the annual fair rental value of the Property is not less than the maximum annual Rental Payments due in any year. In making such determination of fair rental value, consideration was given to the uses and purposes that may be served by the Property and the benefits therefrom which will accrue to the City and the general public.

Payments of the Rental Payments for the Property during each Rental Period shall constitute the total rental for said Rental Period.

The City will lease the Property to the Authority pursuant to the Ground Lease. The Authority will then sublease the Property to the City pursuant to the Lease Agreement.

The Property
The Property consists of the properties listed in the following table and described in more detail below.

Facility Location and Use
Approx.

Building
Square
Footage
Approx.

Land
Square
Footage
Estimated
Building
Value
Estimated
Land Value
Police/IT Building(1) 215 Union Street- Police
and Innovate Technology
Services
19,466 33,604 $10,472,360 $1,680,200
Parks and Community
Services Building (2)
231 Union Street –
Parks/Community Services
Administrative Offices
3,809 84,564 $965,823 $2,790,612
Youth Center(3) 30 Maple Avenue –
Entertainment & Recreation
Center
11,178 N/A(5) $3,327,127 N/A(5)
City Hall(4) 250 Main Street –
managing City finances,
planning, public works
32,460 N/A(5) $10,071,084 N/A(5)
Total 66,913 118,168 $24,836,394 $4,470,812
(1) The Police/IT Building is a two-story building that was constructed in 1982. It has a steel frame construction, unreinforced masonry infill walls and a foundation of spread/strip footings. It has not been seismically retrofitted and is located on a soft soil site.
(2) Parks and Community Services Building is a one-story building that was constructed in 1959. It has not been seismically retrofitted and is located on a soft soil site.
(3) The Youth Center is a single-story building that was constructed in 1994. It has an engineered wood frame construction, bearing sheer wall masonry and a slab foundation. It has not been seismically retrofitted and is located on a soft soil site. (4) The City Hall was constructed in 1964 with a bearing sheer wall construction, and on a foundation of spread/strip footings.

It has not been seismically retrofitted and is located on a soft soil site. (5) Included in Parks and Community Services Building land square footage.

Source: The City.

THE AUTHORITY
The Authority was established pursuant to the provisions of Articles 1, 2 and 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Act”) and a Joint Exercise of Powers Agreement dated as of October 24, 2017 (as amended, the “JPA Agreement”), between the City and the Industrial Development Authority of the City of Watsonville. The City Council of the City is appointed as the governing board of the Authority, and the Authority is administered by the City’s staff. Under the JPA

14 Agreement and Article 4 of the Act, the Authority is authorized to assist in the financing of public capital improvements.

THE CITY OF WATSONVILLE
General
The City is located approximately six miles inland from the Monterey Bay, ninety-five miles south of the City and County of San Francisco and forty-seven miles southwest of the City of San José. The City encompasses an area of approximately 6.8 square miles within the County of Santa Cruz. The City was incorporated in 1868 and, in 1903, became a chartered city. As of January 1, 2024, the population of the City was estimated to be 51,032. For additional economic and demographic information regarding the City, see APPENDIX A ¾ “ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF WATSONVILLE.”
City Council
The City operates under a council-manager form of government. Policymaking and legislative authority are vested in the governing City Council, which consists of seven Council Members, one of whom serves as mayor. The mayor is appointed on sequential basis from each of the numbered City Council districts and serves for a term of one year. The City Council is elected on a non-partisan basis from seven electoral districts. Council members are elected to four-year terms. Elections are staggered with four Council Members elected during one election and three Council Members elected in the following election two years later.

The City Council is responsible, among other things, for passing ordinances, adopting the budget, appointing committees, and hiring the government's City Manager, City Clerk, and Attorney. The City Manager is responsible for carrying out the policies and ordinances of the governing council, for overseeing the day-to-day operations of the government, and for appointing the department heads.

The members of the City Council and the current expiration dates of their respective terms are set forth in the table below.

CITY OF WATSONVILLE
City Council
Name and Office Term Expires
Maria Orozco, Mayor and District 3 December 2026
Kristal Salcido, Mayor Pro Tempore and District 4 December 2026 Eduardo Montesino, District 1 December 2028
Vanessa Quiroz-Carter, District 2 December 2028
Casey K. Clark, District 5 December 2026
Jimmy Dutra, District 6 December 2028
Ari Parker, District 7 December 2026
Source: City of Watsonville.

City Management
Brief biographies of the City Manager and the Administrative Services Director follow below.

Tamara Vides, City Manager. Ms. Vides has worked at the City for nearly 30 years. Prior to her appointment as City Manager in 2024, she served in several roles including Interim City Manager, Assistant

15 City Manager and Deputy City Manager. She holds a Bachelor of Science in Business Administration and a Master of Science in Recreation Management from San José State University. As City Manager for the City, she oversees the City’s departments, managing over 450 employees and a budget exceeding $267 million. Her focus lies in advancing the City Council’s strategic goals, fostering intergovernmental relations, and serving as a liaison to the community.

Ms. Vides’s efforts have earned her numerous accolades, including the prestigious 2024 John H. Nail Award for Assistant City Manager of the Year and the 2023 Workforce Development Achievement Award.

She has been honored with recognition for her contributions to community health, youth development, and human rights, showcasing her unwavering dedication to her community’s well-being.

Marissa Dura, Administrative Services Director. Ms. Duran has nearly three decades of dedicated service to the City. Prior to her appointment as Administrative Services Director in 2023, she served the City as Assistant Finance Director, Sr. Financial Analyst and Accountant II. Ms. Duran has extensive operational and managerial experience in all the functional areas. She has played a key role in shaping the City’s fiscal strategy and long-term planning. Ms. Vides earned a bachelor’s degree in accounting from the California State University at San José.

Throughout her tenure, Ms. Vides has overseen the development and administration of over 25 Government Finance Officers Association (GFOA) award-winning budget documents and Annual Comprehensive Financial Reports (ACFRs). She currently oversees the day-to-day operations of the Finance Department.

Employee Relations
The City had 432.25 authorized positions at the beginning of fiscal year 2024-25. The City’s employees, other than the City Clerk and the City Manager, are represented by the following labor groups. In addition, the City Clerk and City Manager have contracts with the City. In the previous five years, there have not been any work stoppages by City employees.

CITY OF WATSONVILLE
City Employee Labor Groups
Labor Group
Number of
Budgeted
Employees
Contract
Expiration Date(1)
OE3 - Operating Engineers Local Union No. 3 117.75 06/30/2025 POA - Police Officer's Association 56 06/30/2025
SEIU - Service Employees International Union Local 521 41.75 12/31/2025 LiUNA – Mid level Managers 80.75 06/30/2025
Management 58 06/30/2025
Executive 12 06/30/2025
Confidential 11 06/30/2025
Fire Management 4 06/30/2025
Police Management 5 06/30/2025
IAFF Local 1272 - International Association of Firefighters 34 06/30/2025 Public Safety Mid-Management 12 06/30/2025

16 (1) All contracts will continue according to their terms after their respective stated expiration dates until renegotiated.

Source: City of Watsonville.

The City is currently negotiating new contracts with almost all employee units (PSMM, IAFF, POA, LiUNA, OE3 Management, Police Management, Fire Management, Confidential) and the Executive Team with contracts\compensation plans ending on June 30, 2025. The remaining bargaining unit, SEIU has a contract expiring in December 2025. It is budgeted and anticipated that all groups will be provided with salary increases in each of the next three years.

Risk Management
For more information with respect to the insurance requirements under the Lease Agreement, see the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Insurance” in this Official Statement.

The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City also provides health insurance coverage to employees. There have been no significant reductions in insurance coverage for any risk of loss in the past fiscal year, and settled claims have not exceeded the commercial coverage in any of the past three fiscal years. The City has established a risk management fund to account for and finance its uninsured risks of loss.

The City’s risk management programs provide coverage for up to a maximum of $150,000 for each Workers' Compensation claim; $500,000 for each General Liability claim. The City purchases commercial insurance for claims in excess of coverage provided by the self-insurance programs. There have been no significant changes in insurance coverage as compared to last fiscal year.

All funds of the City participate in the self-insurance programs. The employee health insurance program is funded by contributions of a flat rate per employee to the self-insurance fund. Other self-insurance programs are funded by budgeted appropriations. Funding is estimated to provide the amount needed to pay prior and then current fiscal year claims and to establish reserves for catastrophic losses.

Liabilities in the self-insurance Internal services fund at June 30, 2024, totaled $4,368,818 as follows:

Health Benefits $104,289; General Liability $1,335,942; and Workers’ Compensation $2,928,587.

The City is a member of the California Intergovernmental Risk Authority (“CIRA”), formerly known as Public Agency Risk Sharing Authority of California. CIRA, a consortium of municipalities, fire districts, and special districts, was established in July 2021 to pool resources, share risks, purchase excess insurance, and share costs for professional risk management and claims administration. CIRA’s Executive Committee consists of Board officers (President, Vice President, Treasurer, and Auditor/Controller) and ten members-atlarge, representing both region and size. Executive Committee members are elected from the Board of Directors and serve staggered, two-year terms.

The City is self-insured for general liability claims up to $500,000 (effective November 11, 1994) for each occurrence. Coverage for individual losses in excess of $500,000, up to $10,000,000, is provided through CIRA. Under this program, members share in losses between the members’ individual self-insured retention and $1,000,000 under a risk sharing pool program; and from $1,000,000 to $40,000,000, coverage is provided by another risk pool, CSAC-EIA.

Estimates for all liabilities have been accrued in the Self-Insurance Internal Service Fund, which included an estimate for incurred but not reported claims. At June 30, 2024, total estimated claims payable for

17 General Liability were $1,335,942. For additional information about the City insurance policies, see Note IV.B to the City’s audited financial statements for fiscal year 2023-24 attached hereto as Appendix C.

CITY FINANCIAL INFORMATION
Accounting and Financial Reporting
The City maintains its accounting records in accordance with Generally Accepted Accounting Principles (“GAAP”) and the standards established by the Governmental Accounting Standards Board (“GASB”). The City Council and City staff review fiscal performance against the budget at the mid-point of each fiscal year. Combined financial statements of the City and its component units are produced following the close of each fiscal year of the City ended June 30.

The City Council employs an independent certified public accountant who examines at least annually the financial statements of the City in accordance with GAAP, including tests of the accounting records and other auditing procedures as such accountant considers necessary. As soon as practicable, after the end of the fiscal year, a final audit and report is submitted by the independent accountant to the City Council. The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity. The operations of each fund are accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, revenues and expenditures or expenses, as appropriate.

Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. The budget is adopted in accordance with GAAP. Revenues are recognized on the accrual basis (i.e., when they are earned).

Expenditures are recorded when the related fund liability is incurred. See Note I to the City’s audited financial statements for fiscal year 2023-24 attached hereto as Appendix C for a description of the significant accounting policies of the City. See the caption “— Financial Statements” for a discussion of the City’s audited financial statements for fiscal year 2023-24.

The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund because there are legal restrictions on their use. Information on the remaining governmental funds of the City as of June 30, 2024, is set forth in Appendix C.

Financial Policies
Fund Balance Policy. On February 28, 2018, the City Council adopted a Fund Balance Policy (the “Fund Balance Policy”) to establish a target minimum level of restricted reserves in the General Fund to:
• Demonstrate continued prudent fiscal management and creditworthiness. • Mitigate financial impacts resulting from a natural disaster or other catastrophic events. • Alleviate loss of major revenue sources.
• Respond to challenges of a changing economic environment, including prolonged downturns in the local, state, or national economy.
• Moderate unanticipated operating or capital expenditures.

Unrestricted Reserve. Pursuant to the City’s Fund Balance Policy, the City is required to maintain an unrestricted fund balance in the City’s General fund of no less than 20% of General Fund operating expenses (the “Unrestricted Reserve”), which is inclusive of the reserve required under Section 1112 of the City Charter, currently set at $2,450,000 and the Emergency Reserve described below. As of June 30, 2024, the balance in the Unrestricted Reserve was $34,011,463, representing 48% of General Fund budgeted operating expenses for fiscal year 2023-24.

18 Emergency Reserve. Pursuant to the City’s Fund Balance Policy, the City has adopted a goal of committing 10% of General Fund operating expenditures for emergencies and contingencies as part of the Unrestricted Reserve balance (the “Emergency Reserve”). As of June 30, 2024, the balance in the Emergency Reserve was $5,844,487, representing 10% of General Fund budgeted operating expenses for fiscal year 2023-24.

Pursuant to the City’s Fund Balance Policy, the Emergency Reserve may be used in the following circumstances:
• Disasters: An unplanned, major, catastrophic event such as declared emergencies, natural disasters or any other unforeseen event requiring expenditures over 5% of General Fund adopted appropriations in a given fiscal year.
• Revenue Shortfall: If regular General Fund revenues are projected to be will be less than the prior year's, or less than the highest of any of the prior four fiscal years' regular General Fund revenues. • Retirement Cost Increases: In the event that the City’s anticipated payments for employee benefits are expected to be more than 5% greater than the prior year’s payments. • Asset Failure: Should an asset of the City have an unexpected failure requiring emergency repairs of over $100,000 that cannot be paid for out of available operating appropriations.

The City Council must act to appropriate the use of money in the Emergency Reserve except in emergency situations (i.e., when there is an urgent need to use such money in the absence of the City Council’s appropriation thereof), in which case the City Manager may authorize the use of these funds and an appropriations request must be reviewed by the City Council at their next regular meeting.

The use of the Emergency Reserve is restricted to the lower of either 50% of the available reserve in the first year of an emergency or the amount of the triggering event. In the second year of a triggering event, the remaining balance may be used.

At the end of each fiscal year, along with the Annual Comprehensive Financial Report of the City the Administrative Services Director will report on the level of unrestricted fund balance and reserves and will make recommendations for the use of any available funds.

One-Time Reserve Policy. The City has adopted a policy of using one-time revenues to support onetime expenditures.

One-time revenues consist of revenues that by their nature are difficult to predict and cannot be relied upon as regular sources of operating revenue. Examples of one-time revenues include but are not limited to:
• Excess year-end unassigned fund balance resulting from revenues being greater than expenditures during the fiscal year;
• Sale of City-owned assets or property; and
• Litigation settlements.

One-time expenses consist of non-recurring and non-operational expenses, typically related to shortduration activities or one-time projects, which may include, but are not limited to, the following:
• Increasing levels of reserves;
• Paying down debt;
• Paying down unfunded CalPERS liability; and
• Funding capital or other one-time expenditures
Investment Policy. Pursuant to California Government Code Section 53646, the City Treasurer prepares investment policy guidelines that are approved by the City Council annually. The City’s current investment policy was approved on January 25, 2022 (the “Investment Policy”). The Investment Policy applies

19 to the investment of all City funds not required for immediate expenditure, excluding proceeds from certain bond issues that are covered by bond documents. The objectives of the Investment Policy are, in order or priority, safety of principal, liquidity, and yield. All investments are made in accordance with the California Government Code Section 53601 and, in general, the Investment Policy is more restrictive than State law. The City’s Administrative Services Director serves as the City Treasurer.

The Administrative Services Director, in the capacity of City Treasurer, is designated as the Chief Investment Officer of the City and is responsible for investment decisions and activities, under the direction of the City Manager. The Administrative Services Director is required under the Investment Policy develop and maintain written administrative procedures for the operation of the investment program by qualified Finance Department staff, consistent with the Investment Policy.

The Investment Policy establishes an Investment Committee, consisting of the City Manager or their designee, the Director of Finance, Assistant Director of Finance, and investment staff. Members of the Investment Committee serve without compensation and meet as needed. The Investment Committee include in its deliberations such topics as: economic outlook, portfolio diversification, maturity structure, potential risks to the City’s funds, authorized depositories, and selection of banks and primary dealers.

The par value, market value, costs basis, and percent of total investments by market value for each category of the City’s investments, as March 31, 2025, are set forth in the following table:

TABLE 1

CITY OF WATSONVILLE
INVESTMENT PORTFOLIO AS OF MARCH 31, 2025
Investment Type Cost Basis Market Value
Local Agency Investment Fund $22,047,908 $22,066,631
California Asset Management Program 112,486,924 112,486,924 Source: City of Watsonville.

For additional information with respect to the City’s cash and investments, see Note I.D to the audited financial statements for fiscal year 2023-24 attached to the Official Statement as Appendix C.

Budget Procedure, Proposed Budget and Historical Budget Information Budget Procedure. In accordance with the City Charter, the City Council adopts a budget on an annual basis. Each budget is biennial, which begins in the first fiscal year and covers a two-year period beginning on July 1 and running through June 30 for two years. The City’s budget serves as the foundation for the City’s financial planning and control. All departments of the City are required to submit requests for appropriations to the government’s management on or before March 31 of each fiscal year. The Finance Department uses these requests as a starting point for developing a proposed budget. The Finance Department then presents the proposed budget to the City Council for review prior to May 31. The City Council is required to hold public hearings on the proposed budget and to adopt a final budget by no later than June 30, the close of the City’s fiscal year. The appropriated budget is prepared by fund (i.e. General Fund), department (i.e., police), and division (i.e., investigation). Department directors may make transfers of appropriations within a department. Transfers of appropriations between departments, however, require the special approval of the City Manager.

Once the budget is adopted by the City Council, the responsibility of implementing each departmental budget lies with each department head, with ultimate responsibility resting with the City Manager. Department directors are expected to operate their departments within the appropriations established in the budget. Any

20 amendments to an adopted budget that increase expenditures within any fund require the approval of the City Council. The City Manager may transfer appropriations within a fund without increasing total expenditures when appropriate for continued operations except for contingency funds. The Administrative Services Director may transfer appropriations within a division upon request of a department head except in salary and capital accounts. The City Council will reappropriate capital improvement project budgets each year until the project is complete.

Proposed Fiscal Year 2025-26 Budget.

General. [To come.]
Revenues. [To come.]
Expenditures. [To come.]
Comparison of Budget to Actual Performance. Set forth in the table below are the adopted General Fund budgets for fiscal years 2022-23 and 2023-24 (as originally adopted and not reflecting any mid-fiscal year budget adjustments) and the audited General Fund results for the corresponding fiscal years.

21 TABLE 2

CITY OF WATSONVILLE

GENERAL FUND BUDGETS AND RESULTS
FISCAL YEARS 2022-23 AND 2023-24
Adopted
2022-23 Budget
Audited
2022-23 Results
Adopted
2023-24 Budget
Audited
2023-24 Results
REVENUES:

Taxes $34,411,245 $36,408,419 $41,138,2621 $44,616,220
Licenses, permits and fees 2,941,957 2,436,035 2,731,701 3,376,598 Intergovernmental 2,915,633 3,485,959 8,506,329 5,169,535 Charges for services 3,792,770 3,910,505 4,311,708 4,431,903 Fines 647,560 530,360 647,560 455,543
Interest 2,742,507 3,365,394 3,314,505 6,091,126
Miscellaneous 1,144,112 7,732,476 1,651,577 4,825,770
Total Revenues $48,595,784 $57,869,148 $62,301,641 68,966,695 EXPENDITURES:

Current:

General government) 22,510,787 16,430,151 29,372,569 16,180,306 Public safety 29,255,956 29,585,373 31,380,286 31,757,510 Streets 5,578,996 5,395,431 6,827,971 5,568,676
Culture and recreation 6,816,480 6,619,164 6,662,970 6,810,839 Debt service:

Principal -- 194,812 -- 201,136
Interest and fiscal charges -- 4,259 -- 7,060
Total Expenditures $64,162,219 $58,229,190 $74,243,796 $60,525,527 Excess (Deficiency) of Revenues
Over (Under) Expenditures(1) $(15,566,435) $(360,042) $(11,942,155) $8,441,168

OTHER FINANCING SOURCES (USES)
Transfers in $5,871,244 $4,122,071 $4,663,481 $4,092,815 Transfers out (180,956) (364,179) (238,211) (148,479)
Total other sources (uses) $5,690,288 $3,757,892 $4,425,270 $3,944,336 Net Change in Fund Balance $(9,876,147) $3,397,850 $(7,516,885) $12,385,504 Fund Balance-beginning of year $18,228,109 $18,228,109 $21,625,959 $21,625,959 Fund Balance-end of year $8,351,962 $21,625,959 $14,109,074 $34,011,463 (1) The budgeted deficiency of revenues under expenditures for fiscal years 2022-23 and 2023-24 reflects a strategic spend-down of fund balance, primarily to fund capital improvement projects.

Source: City of Watsonville audited financial statements for fiscal years 2022-23 and 2023-24.

22 Comparative Change in Fund Balance of the City General Fund The table below presents the City’s General Fund Statement of Revenues, Expenditures and Change in Fund Balance for fiscal years 2018-19 through 2022-23 (audited) and 2024-25 (estimated).

23 TABLE 3

CITY OF WATSONVILLE GENERAL FUND STATEMENT OF

REVENUES, EXPENDITURES AND CHANGE IN FUND BALANCES
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
Estimated
2024-25(2)
REVENUES:

Taxes(1) $30,265,864 $31,696,950 $34,344,898 $36,408,419 $44,616,220 $44,712,930 Licenses, permits and fees 4,326,047 2,212,590 3,373,571 2,436,035 3,376,598 3,096,381 Intergovernmental(2) 3,696,130 3,162,931 2,472,809 3,485,959 5,169,535 3,452,244 Charges for services 3,518,050 3,353,708 3,500,499 3,910,505 4,431,903 4,261,865 Fines 671,565 462,190 592,760 530,360 455,543 515,653
Interest 2,863,834 2,481,291 2,731,729 3,365,394 6,091,126 4,816,968 Miscellaneous 1,722,526 2,515,265 2,194,199 7,732,476 4,825,770 1,585,302 Total Revenues $47,064,016 $45,884,925 $49,210,465 $57,869,148 $68,966,695 $62,441,343 EXPENDITURES:

Current:

General government(3) $11,115,028 $9,837,863 $13,551,227 $16,430,151 $16,180,306 $19,681,483 Public safety 26,074,152 26,404,851 28,203,017 29,585,373 31,757,510 32,231,269 Streets 4,771,141 5,317,110 5,170,149 5,395,431 5,568,676 4,758,545 Culture and recreation 5,177,931 4,708,097 6,028,429 6,619,164 6,810,839 7,290,504 Debt service:

Principal -- 1,649,451 -- 194,812 201,136 181,292
Interest and fiscal charges -- -- -- 4,259 7,060 9,773
Total Expenditures $47,138,252 $47,917,372 $52,952,822 $58,229,190 $60,525,527 $64,152,866

REVENUES OVER (UNDER)
EXPENDITURES(1) $(74,236) $(2,032,447) $(3,742,357) $(360,042) $8,441,168 $(1,711,523)

OTHER FINANCING SOURCES (USES)
Issuance of debt $144,201 $1,649,451 -- -- --
Transfers in 3,636,287 3,729,635 $3,783,286 $4,122,071 $4,092,815 $4,067,381 Transfers out (381,094) (1,667,803) (83,777) (364,179) (148,479) (135,139) Total other sources (uses) $3,399,394 $3,711,283 $3,699,509 $3,757,892 $3,944,336 $3,932,242 Net Change in Fund Balance(1) $3,325,158 $1,678,836 $(42,848) $3,397,850 $12,385,504 $2,220,719 Fund Balance-beginning of year(1) $13,266,963 $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 Fund Balance-end of year(1) $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 $36,232,182 (1) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” (2) Estimated based on City’s fiscal year 2024-25 mid-year budget update.

Source: City of Watsonville audited financial statements for fiscal years 2019-20 through 2023-24; City of Watsonville mid-year budget update for estimated fiscal year 2024-25 amounts.

24 Comparative General Fund Balance Sheets of the City
The table below presents the City’s General Fund Balance Sheets for fiscal years 2019-20 through 2023-24 (audited).

25 TABLE 4

CITY OF WATSONVILLE

GENERAL FUND BALANCE SHEETS

FIVE-YEAR COMPARISON
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
ASSETS:

Cash and investments(1) $19,800,341 $21,481,142 $21,927,988 $23,905,029 $33,481,768 Receivables:

Interest 242,762 92,942 138,619 409,636 481,417
Taxes 3,461,110 3,450,512 3,914,301 4,268,865 6,075,779 Accounts 735,324 1,288,593 2,024,890 1,594,197 1,526,293 Intergovernmental 1,988,724 3,137,504 2,854,378 2,506,116 3,160,583 Due from other funds 654,692 955,413 843,485 462,405 300,619 Advances receivable 101,674 -- -- -- --
Loans receivable 2,292,458 1,815,302 1,423,779 421,302 3,750 Inventories 12,100 18,282 -- -- --
Total Assets(1) $29,289,185 $32,239,690 $33,127,440 $33,567,550 $45,030,209 LIABILITIES:

Accounts payable $1,064,275 $759,039 $1,686,110 $1,418,928 $2,632,984 Accrued personal costs 2,026,060 1,849,930 2,008,985 791,796 860,322 Retentions payable 14,559 87,127 105,311 111,293 57,007 Advances payable 3,978,545 3,191,066 2,368,419 1,253,516 344,747 Unearned revenue -- -- -- -- 1,465,376
Deposits payable 409,520 1,765,600 1,884,460 1,896,620 3,150,091 Total Liabilities $7,492,959 $7,652,762 $8,053,285 $5,472,153 $8,510,527 Deferred Inflows of Resources
Unavailable Revenue $5,204,105 $6,315,971 $6,846,046 $6,469,438 $2,508,219 Total Deferred Inflows of Resources $5,204,105 $6,315,971 $6,846,046 $6,469,438 $2,508,219

FUND BALANCES
Nonspendable $113,774 $18,282 -- -- --
Unassigned(1) 16,478,347 18,252,675 $18,228,109 $21,625,959 $34,011,463 Total Fund Balances $16,592,121 $18,270,957 $18,228,109 $21,625,959 $34,011,463 Total Liabilities, Deferred Inflow of Resources and
Fund Balances $29,289,185 $32,239,690 $33,127,440 $7,309,519 $45,030,209 (1) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” Source: City of Watsonville audited financial statements for fiscal years 2019-20 through 2023-24.

26 Tax Revenues by Source
The City derives its General Fund tax revenues from a variety of sources including ad valorem property taxes, sales and use taxes, franchise taxes, a real property transfer tax and transient occupancy taxes.

The City’s total General Fund tax revenues by source for the five most recent fiscal years are set forth below.

TABLE 5

CITY OF WATSONVILLE

GENERAL FUND TAX REVENUES BY SOURCE
Revenue Source
Audited
2019-20
Audited
2020-21
Audited
2021-22
Audited
2022-23
Audited
2023-24
Estimated
2024-25(1)
% of
Total(2)
Sales and use taxes $10,842,869 $12,817,985 $13,881,873 $15,161,756 $22,003,386(3) $21,554,541(4) 48.2% Property taxes 12,712,164 12,585,391 13,195,357 13,766,834 14,788,668 15,036,948 33.6 Utility users’ taxes 4,264,876 3,996,803 4,144,043 4,358,302 4,675,775 4,769,979 10.7 Other taxes(5) 1,454,062 1,530,145 1,390,070 1,487,003 1,677,784 1,751,462 3.9 Transient occupancy taxes 991,893 766,626 1,611,253(4) 1,536,839 1,412,314 1,600,000 3.6 Totals $30,265,864 $31,696,950 $34,222,596 $36,310,734 $44,557,927 $44,712,930 100.0% (1) Estimated fiscal year 2024-25 figures are based on City’s mid-year budget update for fiscal year 2024-25. (2) Calculated by dividing revenue source for estimated fiscal year 2024-25 amounts divided by total of estimated fiscal year 2024-25 amounts.
(3) Increase in fiscal year 2023-24 over prior fiscal year primarily due to passage of Measure R in November 2022, which became effective on April 1, 2023. See “Sales Taxes – Measure R Sales Taxes.” (4) Decrease from fiscal year 2023-24 due to an extra month being accrued in such fiscal year. (5) “Other taxes” consists of business licenses, franchise fees, cannabis tax and tourist assessment fees.

Source: City of Watsonville.

Sales Taxes
General. As shown in Table 5, sales and use tax revenues represented the largest source of tax revenues for the City’s General Fund in each of fiscal years 2020-21 through 2023-24 and are again estimated to be City’s General Fund’s largest source of tax revenues in fiscal year 2024-25 based on the City’s fiscal year 2024-25 mid-year budget update. A sales and use tax is imposed on retail sales or consumption of personal property in the City. In fiscal year 2024-25, sales and use tax revenues is estimated to total approximately $21.6 million, a decrease of approximately 2.04% compared to sales and use tax revenues of approximately $22.0 million in fiscal year 2023-24.

For fiscal year 2025-26, sales tax revenues are expected at approximately $_______ million based on the proposed fiscal year 2025-26 budget, representing an increase of approximately $_______ million, or ____% from fiscal year 2024-25 estimated results.

The City’s sales tax revenue represents the City’s share of the sales and use tax imposed on taxable transactions occurring within the City’s boundaries. The sales tax is governed by the Bradley-Burns Uniform Local Sales and Use Tax Law, set forth in California Revenue and Taxation Code Section 7200 et seq. The State collects and administers the tax, and makes distributions on taxes collected within the City as follows:

27 TABLE 6

CITY OF WATSONVILLE

SALES TAX RATES
Rate
State 6.00%
City of Watsonville - Measure L(1) 0.25
City of Watsonville - Measures G and Y(2) 0.50
City of Watsonville – Measure R(3) 0.50
Santa Cruz County Regional Transportation Commission - Measure D(4) 0.50 Santa Cruz Metropolitan Transit District(5) 0.50
Santa Cruz County Public Library(6) 0.25
County of Santa Cruz 1.25
Total 9.75%
(1) Effective April 1, 2007; does not sunset. See “– Measure L Sales Taxes” below. (2) Effective October 1, 2014. Extended in March 2020 pursuant to Measure Y; as extended, do not sunset.

See “– Measures G and Y” below.
(3) Effective April 1, 2023; does not sunset. See “– Measure R Sales Taxes” below. (4) Effective April 1, 2017; terminates on March 31, 2047. A portion of Measure D sale and use taxes are allocated to the City for transportation projects that are approved by the Santa Cruz County Regional Transportation Commission. Such tax revenues are not available for General Fund purposes of the City. (5) Effective January 1, 1979; does not sunset.
(6) Effective April 1, 1997; does not sunset.

Source: California Department of Tax and Fee Administration.

As shown in the table above, the local sales tax rate in the City is 9.25%. Of the 9.25% sales tax, the City is allocated 1% under the Bradley-Burns Uniform Local Sales and Use Tax Law, 0.25% under Measure L and 0.50% under Measure G/Y (see “– Measure L Sales Taxes” and “– Measure G/Y Sales Taxes” below). In addition, a portion of Measure D sale and use taxes are allocated to the City for transportation projects that are approved by the Santa Cruz County Regional Transportation Commission. Such tax revenues are not available for General Fund purposes of the City.

The State’s actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Sales tax revenue collected by the State is directly deposited monthly to the City’s General Fund. For a summary of historical taxable transactions in the City, see “– History of Taxable Transactions.” Certain transactions are exempt from the State sales tax, including sales of the following products:
• food products for home consumption;
• prescription medicine;
• newspapers and periodicals;
• edible livestock and their feed;
• seed and fertilizer used in raising food for human consumption; and • gas, electricity and water when delivered to consumers through mains, lines and pipes.

This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the CDTFA’s March 2018 publication entitled “Sales and Use Taxes: Exemptions and Exclusions,” which can be found on the CDTFA’s website at http://www.cdtfa.ca.gov. The reference to this Internet website is shown for reference and convenience only; the information contained within the website may not be current and has not been reviewed by the City and is not incorporated in this Official Statement by reference.

28 In June 2018, the United States Supreme Court published its decision in South Dakota v. Wayfair (the “Wayfair Decision”), in which the Supreme Court held that sales to a customer in a particular state alone are sufficient to create a nexus for purposes of determining whether a seller is required to collect sales taxes of the applicable state. Prior to the Wayfair Decision, courts had interpreted the dormant Commerce Clause of the United States Constitution to require that a company have physical nexus in a state in order for the seller to be liable for the collection of that state’s sales tax. Physical nexus is defined as having either property or payroll in the state, including a resident employee working from home or inventory stored in that state. The State of California has issued guidance in response to the Wayfair Decision. Under such guidance, beginning April 1, 2019, retailers located outside of the State are required to register with the California Department of Tax and Fee Administration (the “CDTFA”), collect the California use tax, and pay the tax to the CDTFA based on the amount of their sales into California, even if they do not have a physical presence in the state. The new collection requirements apply to retailers if during the preceding or current calendar year certain sales thresholds are met. The new collection requirements apply to taxable sales of tangible personal property to California consumers on and after April 1, 2019, and are not retroactive. Additionally, the State’s passage of Assembly Bill 147, signed by the Governor on April 25, 2019, provides the implementation rules for the Wayfair Decision in California. The City is unable to predict the impact that the Wayfair Decision will have on its sales tax revenues.

Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA.

This process was formerly administered by the State Board of Equalization. The Taxpayer Transparency and Fairness Act of 2017, which took effect July 1, 2017, restructured the State Board of Equalization and separated its functions among three separate entities: the State Board of Equalization, the CDTFA, and the Office of Tax Appeals. The State Board of Equalization will continue to perform the duties assigned to it by the state Constitution, while all other duties will be transferred to the newly established CDTFA and the Office of Tax Appeals. CDTFA will handle most of the taxes and fees previously collected by the State Board of Equalization, including sales and use tax.

Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, or county are required to be transmitted by the CDTFA to such city, city and county, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter.

Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter.

According to the CDTFA, it distributes quarterly tax revenues to cities, counties, and special districts using the following method. Using the prior year’s quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments, and refunds, and then adjusts for growth, to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire, or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers.

The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances, and the current advance are provided with each quarterly clean-up payment.

Measure L Sales Taxes. In November 2006, pursuant to Measure L, voters in the City approved the levy of an additional sales and use tax of 0.25% (the “Measure L Sales Tax”). Pursuant to Measure L, the

29 effectiveness of the additional sales and use tax by voters was conditioned on the approval by City voters at the November 2006 election of Measure M pursuant to which the rate of the Pension Tax Override was capped at

7.7 cents per $100.00 of assessed value. Measure M was also approved by voters in the City at the November 2006 election, with the Measure L Sales Tax becoming effective on April 1, 2007. The Measure L Sales Tax does not sunset.

Measure G/Y Sales Taxes. In June 2014, pursuant to Measure G, voters in the City approved the levy of an additional sales and use tax of 0.5% to fund public safety services and the Community Services Department (the “Measure G Sales Tax”). The Measure G Sales Tax became effective October 1, 2014, and had an initial expiration date of October 1, 2021, unless extended by voters in the City. In March 2020, voters in the City renewed the Measure G Sales Tax pursuant to Measure Y. The Measure G Sales Tax as renewed by Measure Y is referred to in this Official Statement as the “Measure G/Y Sales Tax.” Measure G/Y Sales Tax revenues are apportioned as follows: 54% for funding police services, 38% for funding fire services; and 8% for funding the City’s Parks and Community Services Department. Measure G/Y Sales Tax revenues are special taxes and may be used by the City only for the foregoing purposes. The Measure G/Y Sales Tax does not sunset.

The following table shows Measure G/Y Sales Tax revenues for fiscal year 2019-20 through 2023-24.

TABLE 7

CITY OF WATSONVILLE

MEASURE G/Y SALES TAX REVENUES
Fiscal
Year
Measure G/Y Sales
Tax Revenues
2019-20 $4,019,999
2020-21 4,688,779
2021-22 5,248,855
2022-23 5,151,025
2023-24 5,249,448
2024-25 5,146,000
Total $29,504,106
Source: City of Watsonville.

Measure R Sales Tax. In November 2022, voters approved Measure R (the “Measure R Sales Tax”), a half-cent sales tax on most goods sold within the City. Measure R revenues will fund community investments, including park repairs, playground expansions, trail maintenance, safe spaces for children, afterschool programs, gang prevention initiatives, street maintenance, pothole repairs, library access and services for seniors, employment opportunities, and more. The Measure R Sales Tax does not sunset.

Measure R Sales Tax revenues for fiscal year 2023-24 were approximately $6.1 million and are estimated to be $5.5 million for fiscal year 2024-25 based on the City’s fiscal year 2024-25 mid-year budget update.

History of Taxable Transactions. A summary of historic taxable sales within the City for calendar years 2020 through 2024 is shown in the following table.

TABLE 8

CITY OF WATSONVILLE

TAXABLE SALES BY CATEGORY
(IN THOUSANDS)
Business 2020 2021 2022 2023 2024

30 Motor Vehicle and Parts Dealers $174,014 $203,371 $228,763 $338,754 $373,391 Home Furnishings and Appliance Stores 10,465 12,313 12,699 9,225 8,081 Building Material, Garden Equip & Supplies 82,221 85,933 85,614 91,337 90,692 Food and Beverage Stores 55,488 58,070 59,697 62,485 64,636 Gasoline Stations 42,513 69,065 90,135 72,384 73,656
Clothing and Clothing Accessories Stores 16,628 25,514 25,240 25,965 26,219 General Merchandise Stores 50,794 51,886 53,247 51,280 57,481 Food Services and Drinking Places 86,764 108,744 119,197 122,316 121,547 Other Retail Group 42,883 48,950 54,521 49,633 43,827
Total Retail and Food Services 561,769 663,846 729,114 823,379 859,531 All Other Outlets 141,187 153,959 175,765 180,560 186,772 Total All Outlets $702,956 $817,806 $904,879 $1,003,939 $1,046,303 Source: California Department of Tax and Fee Administration.

Property Taxes
General. Based on the fiscal year 2024-25 mid-year budget update, the City’s property tax revenues are estimated at approximately $15.0 million for fiscal year 2024-25, representing approximately 33% of the City’s total budgeted General Fund revenues for such fiscal year. Since fiscal year 2015-16, assessed values within the City have increased approximately 58%.

Property taxes have been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13, property tax revenues were first curtailed over 35 years ago when they were reduced by two-thirds and thereafter limited to 2% annual increases or the consumer price index, whichever was less.

Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.”
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee.

If taxes are unpaid for a period of five years or more, the property is deeded to the State of California and may be sold at public auction.

Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the

31 counties, except for levies to support prior voted debt, and prescribed how levies on countywide property values are to be shared with local taxing entities within each county.

ERAF Shift Legislation. Certain property taxes have been shifted from local government agencies to schools by the State Legislature for deposit in the Education Revenue Augmentation Fund (“ERAF”), a shift that has resulted in diversion of City property taxes since fiscal year 1992-93. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Proposition 1A” and “– Proposition

22.” There can be no assurance that the State will not undertake future ERAF shifts.

Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year.

Assessed Valuation History. The following table shows the City’s assessed valuation for fiscal years 2015-16 through 2024-25.

TABLE 9

CITY OF WATSONVILLE

ASSESSED VALUATION
FISCAL YEARS 2015-16 THROUGH 2024-25
(in thousands)
Fiscal Year
Ended
June 30
Residential
Property
Commercial
Property
Industrial
Property
Other
Property
Unsecured
Property
Less: Tax
Exempt
Property
Taxable
Assessed
Value
2016 $2,456,187 $563,026 $115,344 $361,791 $235,517 $200,675 $3,531,190 2017 2,606,044 626,252 135,130 394,814 229,211 229,936 3,761,515 2018 2,757,691 609,505 168,676 435,526 259,425 252,874 3,977,950 2019 2,727,533 583,841 442,945 421,714 262,350 222,957 4,215,426 2020 2,858,513 618,090 470,547 459,879 277,705 246,737 4,437,997 2021 3,002,026 640,089 485,947 410,766 276,813 205,383 4,610,258 2022 3,150,126 671,837 505,514 480,908 275,929 207,448 4,810,854 2023 3,288,822 757,157 515,512 507,728 290,464 307,240 5,052,543 2024 3,445,220 808,533 538,541 530,585 315,084 337,827 5,300,136 2025 3,606,546 810,694 567,375 649,525 356,877 412,182 5,578,835 Source: HDL, Coren & Cone.

The County operates under a statutory program entitled Alternate Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”). Under the Teeter Plan local taxing entities receive 100% of their tax levies net of delinquencies, but do not receive interest or penalties on delinquent taxes collected by the County. The City’s share of the ad valorem property tax levy is included in the County’s Teeter Plan. As a result, the City currently receives 100% of such levy and is not impacted by delinquencies in payment. However, the County may choose to discontinue the Teeter Plan at any time.

The largest property taxpayers in the City for fiscal year 2024-25 based on total assessed valuation, the land use and the percentage of the City’s total assessed value attributable to each are shown in the below table. The information in Table 9 has been obtained from third-party sources and is included for general

32 information purposes only. The City has not verified the information in Table 9 and does not guarantee the accuracy of such information.

TABLE 10

CITY OF WATSONVILLE

TOP TEN PRINCIPAL PROPERTY TAXPAYERS
FISCAL YEAR 2024-25 ASSESSED VALUATION
Property Owner
Primary
Land Use Assessed Valuation
% of
Total(1)

1. S Martinelli and Company Industrial $70,989,063 1.36%

2. MPT of Watsonville Institutional/Hospital 45,949,698 0.88

3. Eden Freedom Investors Residential Develop 36,973,607 0.71

4. Ow Family- Lee Road LLC Industrial 32,072,567 0.61

5. Freedom Associates LLC Industrial 31,819,142 0.61

6. William J and Nava J Hansen Co Trustees Commercial 30,293,991 0.58

7. Blackbird Homes LLC Residential Develop 28,843,953 0.55

8. WRI Freedom Center LP Commercial 28,028,806 0.54

9. Save Mart Portfolio Owner Fund Commercial 26,530,200 0.51

10. 111 Jennings Drive LLC Industrial 24,645,150 0.47
Total $356,146,177 6.82%
(1) 2024-25 Local Secured Assessed Valuation: $5,578,835,033.

Source: City of Watsonville.

Redevelopment Dissolution Act. The State’s Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) authorized the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed values of properties within designated redevelopment project areas (the “incremental value”) occurring after the year the project area is formed. In effect, local taxing agencies, such as the City, realize tax revenues only in the assessed value of such property at the time the redevelopment project is created for the duration of such redevelopment project.

Although Assembly Bill No. 26 (“AB X1 26”), enacted on June 29, 2011 as Chapter 5 of Statutes of 2011, statutorily dissolved redevelopment agencies as of February 1, 2012, the enforceable obligations of dissolved redevelopment agencies continue to be paid from property taxes derived from such incremental value until the enforceable obligations are paid in full in accordance with Parts 1.8 (commencing with Section 34161) and

1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012, by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012, and as such statutory provisions have and may further be amended from time to time (as amended, the “Dissolution Act”).

Under the Dissolution Act, taxing entities, such as the City, are to receive distributions (in proportion to such taxing entity’s share of property tax revenues in the tax rate area for the applicable fiscal year) of residual amounts of property taxes attributable to incremental value on each June 1 and January 2, commencing June 1, 2012, after payment of (i) tax sharing obligations established previously pursuant to the Community Redevelopment Law, (ii) enforceable obligations of the successor agency to the former redevelopment agency, and (iii) an administrative cost allowance to such successor agency. As enforceable obligations of the former redevelopment agency and its successor agency are paid and retired, residual amounts of property tax revenues attributable to redevelopment project area incremental value are expected to increase over time.

33 Utility Users’ Tax
The City imposes a utility users’ tax on all users of electricity, gas, water, telecommunication services and video services within the City’s limits. The tax rate for electricity, gas, and water is 6%. The tax rate for telecommunication services and video services is 5.5%. An exemption from the utility users’ tax is available to certain users, including senior citizens over the age of 62 and to permanently disabled individuals, and certain low income residential users.

As provided by the State Constitution, insurance companies are exempt from the City’s utility users’ tax. In addition, county, state, federal and foreign governments within the City are not subject to this tax, as the City has no authority to impose a tax on these entities. Exemptions account for a minor amount of the total utility users’ tax base. Utility companies collect and transmit the utility users’ tax monthly to the City’s Finance Department, which then deposits the tax revenues into the General Fund.

For fiscal year 2024-25, utility users’ tax revenues are estimated at approximately $4.8 million, representing an increase of approximately $0.1 million, or 2% from fiscal year 2023-24 actual results.

In a recent unpublished opinion, Richard Beck v. City of Canyon Lake, filed on March 20, 2025, the California Court of Appeal, Fourth Appellate District, Division One, determined that the utility users’ tax on water and sewer services of the City of Canyon Lake (the “Canyon Lake Water/Sewer UUT”) was both a “general tax” for purposes of Article XIII C of the State Constitution and a “fee or charge” under article XIII D of the State Constitution. Although Canyon Lake Water/Sewer UUT complied with the requirements of Article XIIIC, it did not comply with those of Article XIIID. The Court noted that its conclusion does not eliminate other Canyon Lake taxes and utility users’ taxes or other funding sources. In accordance with the California Rules of Court, rule 8.1115, unpublished opinions are opinions that are not certified for publication and generally may not be cited or relied on by other courts or parties in other actions. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIC and Article XIIID of the California Constitution.”
Other Taxes
The City’s General Fund tax revenues in the “other taxes” category consist of business licenses, franchise fees, cannabis tax and tourist assessment fees.

For fiscal year 2024-25, other taxes are estimated at approximately $1.8 million representing an increase of approximately $0.1 million, or 4% from fiscal year 2023-24 actual results.

Transient Occupancy Tax
The City assesses a transient occupancy tax as a percentage of the rental price for transient lodging charged when the period of occupancy is 30 consecutive calendar days or less. The current rate of the transient occupancy tax is 12%. The City’s Finance Director serves as the tax administrator, and proprietors of properties subject to the City’s transient occupancy tax remit the tax directly to the tax administrator, together with completed reporting forms, on or before the last day of the month following the close of each calendar quarter.

A delinquent penalty of 10% attaches to delinquent transient occupancy taxes on the first day of each month after the tax is due. Any operator who fails to remit any delinquent remittance on or before a period of 30 days following the date on which the remittance first became delinquent is required to pay a second delinquency penalty in the amount of 10% of the tax in addition to the amount of the tax and the 10% penalty first imposed. In addition to the penalties imposed, any operator who shall fail to remit any tax imposed is required to pay interest at the rate of 0.5% per month, or fraction thereof, on the amount of the tax, exclusive of penalties, from the date on which the remittance first became delinquent until paid.

34 In fiscal year 2024-25, transient occupancy tax revenues are estimated at approximately $1.6 million, an increase of approximately 13% from fiscal year 2023-24 actual results.

Long-Term General Fund Obligations
The City makes scheduled periodic payments pursuant to certain other outstanding long term agreements. Below are descriptions of the City’s outstanding long-term agreements, in connection with which General Fund appropriations are made annually. This excludes obligations payable by the City or its related entities from special revenues. For additional information, see the notes to the City’s 2023-24 audited financial statements included in Appendix C.

For additional information regarding the City’s long-term General Fund obligations as of June 30, 2024, see the note III. E to the City’s fiscal year 2023-24 audited financial statements included in Appendix C.

Overlapping Debt Statement
Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc. and dated April 1, 2022. This Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy.

TABLE 11

CITY OF WATSONVILLE
DIRECT AND OVERLAPPING Debt
2024-25 Assessed Valuation: $5,578,835,033
OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 6/1/25 Cabrillo Joint Community College District 9.054% $7,669,363 Pajaro Valley Joint Unified School District 26.600 40,450,198 Pajaro Valley Health Care District 28.046 14,962,541
Santa Cruz Libraries Facilities Financing Authority Community Facilities District No. 2016-1 0.002 695 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $63,082,797
DIRECT AND OVERLAPPING GENERAL FUND DEBT:

Santa Cruz County General Fund Obligations 9.131% $14,798,851 Santa Cruz County Pension Obligation Bonds 9.131 9,412,691 Santa Cruz County Office of Education General Fund Obligations 9.131 584,807 Pajaro Valley Joint Unified School District Certificates of Participation 26.600 2,781,030 City of Watsonville General Fund Obligations 100. 1,241,807(1)(2) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $28,819,186 OVERLAPPING TAX INCREMENT DEBT (Successor Agency): 100. % $3,085,000 COMBINED TOTAL DEBT $94,986,983(3)
(1) Excludes issue to be sold.
(2) Includes share of Santa Cruz County Emergency Communications Center obligations ($392,713). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

Ratios to 2024-25 Assessed Valuation:

Total Overlapping Tax and Assessment Debt............................. 1.13% Total Direct Debt ($1,241,807)................................................ 0.02% Combined Total Debt.................................................................. 1.70%

35 Ratios to Redevelopment Successor Agency Incremental Valuation ($1,557,706,265):

Total Overlapping Tax Increment Debt ...................................... 0.20% (1) Excludes the Bonds.
(2) Includes share of Santa Cruz County Emergency Communications Center obligations ($480,963). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations.

Source: California Municipal Statistics, Inc.

Retirement System
This section contains certain information relating to CalPERS. The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City has not independently verified the information provided by CalPERS and makes no representations and expresses no opinion as to the accuracy of the information provided by CalPERS.

The financial reports of CalPERS are available on its Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. Such information is not incorporated by reference in this Official Statement. Neither the City nor the Underwriter can guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans.

As previously described, the City will use the net proceeds of the Bonds to prepay a portion of the City’s UAL with respect to its pension plans. See “REFINANCING PLAN.” Except with respect the summary of the application of the net proceeds to the refunding of the City’s obligations to CalPERS under the CalPERS Contracts evidencing the City’s UAL under the caption “– Funded Status,” the following information does not reflect the refunding of such obligations. In addition, it is possible that CalPERS will determine at a future date that an additional unfunded liability exists that is attributable to the City if actual plans experience differs from the current actuarial estimates. See “– Funded Status” below for additional information regarding the refunding of the UAL with the net proceeds of the Bonds.

Description of Plans. The City participates in CalPERS, a defined benefit public employee retirement system, under which CalPERS acts as a common investment and administrative agent for local and state governmental agencies within the State. The City maintains two defined benefit plans (collectively, the “Plans”) consisting of the Miscellaneous Plan and the Safety Plan. The Safety Plan consists of a plan for police personnel (the “Safety Police Plan”) and a plan for fire personnel (the “Safety Fire Plan”). The Safety Police Plan and Safety Fire Plan are referred to collectively in this Official Statement as the “Safety Plan.” The Safety plan is a risk pool for which CalPERS provides separate valuation reports for each benefit tier.

Benefit provisions under the Plans are established by State statute and City resolution.

Benefits Provided. All qualified permanent and probationary are eligible to participate in the Plans.

CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the California Public Employees’ Retirement Law (the “Retirement Law”).

36 The provisions and benefits of the Plans that were in effect at June 30, 2024, are summarized as follows:

Miscellaneous Plan
Tier 1 Tier 2 Tier 3
Hire Date
Prior to
July 1, 2011
On or after
July 1, 2011
On or after
January 1, 2013
Benefit Formula 2.0% @ 55 2.0% @ 60 2.0% @ 62
Benefit Vesting Schedule 5 Years Service 5 Years Service 5 Years Service Benefit Payments Monthly for life Monthly for life Monthly for life Retirement Age 50-63 50-63 52-67
Monthly benefits, as a % of eligible
compensation 1.426% to 2.418% 1.092% to 2.418% 1% - 2.5% Required Employee Contribution Rates 7.00% 7.00% 7.50%
Required Employer Contributions Rates 8.93% 8.93% 14.880% Safety Plan
Tier 1 Tier 2 Tier 3
Hire Date
Prior to
July 1, 2011
After
July 1, 2011
After
July 1, 2013
Benefit Formula 3.0% @ 50 3.0% @ 55 2.7% @ 57
Benefit Vesting Schedule 5 Years Service 5 Years Service 5 Years Service Benefit Payments Monthly for life Monthly for life Monthly for life Retirement Age 50 50-55 50-57
Monthly benefits, as a % of eligible
compensation 3.0% 2.4% to 3.0% 2.0% - 2.7%
Required Employee Contribution Rates 9.0% 9.0% 13.75%
Required Employer Contributions Rates 27.11% 22.83% 13.54% Source: City of Watsonville audited financial statements for the fiscal year ended June 30, 2024.

California Public Employees’ Pension Reform Act of 2013. Employees hired prior to January 1, 2013, and that have remained under continuous employment with a CalPERS agency are considered “Classic” employees. California Public Employees’ Pension Reform Act of 2013 (“PEPRA”), which was signed by the State Governor on September 12, 2012, established a new pension benefit tier for employees who were hired on and after January 1, 2013, who were not previously CalPERS members or have left employment with a CalPERS agency for more than 6 months.

PEPRA adjusted the benefit formulas, required employee contribution, calculation of benefits and maximum pay, as well as other benefits. PEPRA employees receive the following benefit formulas: (i) 2.0% at age 62 formula for Miscellaneous employees; and (ii) 2.7% at age 57 for Safety employees. Employees are required to pay at least 50% of the total (annual) normal cost rate and are required to make the full amount of required employee contributions themselves under PEPRA. Retirement benefits for such employees are calculated on the highest average annual compensation over a consecutive 36-month period. Accordingly, retirement benefits for PEPRA miscellaneous employees are calculated as 2% of the average final 36 months compensation and retirement benefits for PEPRA safety employees are calculated as 2.7% of the average final 36 months of compensation. Retirement benefits for Classic miscellaneous employees are calculated as 2% of the average final 12 months of compensation, and retirement benefits for Classic safety employees are calculated as 3% of the average final 12 months compensation. Retroactive benefits increases are also prohibited, as are contribution holidays and purchases of additional non-qualified service credit.

37 PEPRA also capped pensionable income as noted below. Maximum amounts are set annually, subject to adjustment in accord with the Consumer Price Index.

CalPERS Pension Compensation Limits for
Calendar Year 2024 (Classic and PEPRA members)
Classic PEPRA
Maximum Pensionable Income $345,000 $181,734 (1)
(1) The Maximum Pensionable income for PEPRA members employed at agencies that participate in Social Security is $151,446.

Source: CalPERS Payroll Circular Letter dated January 2, 2024.

Additional employee contributions, limits on pensionable compensation and higher retirement ages for new members as a result of the passage of PEPRA are expected to reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term.

Required Contributions. Section 20814(c) of the Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on July 1 following notice of a change in the rate. Funding contributions for both plans are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

CalPERS collects employer contributions for each plan as a percentage of payroll for the normal cost portion and as a dollar amount for contributions toward the UAL. The dollar amounts are billed on an annual basis. The City may elect a lump sum payment option. In fiscal year 2023-24, the City’s contributions to the Miscellaneous Plan and the Safety Plan totaled $4,083,668 and $3,739,251, respectively.

The actuarially determined normal cost rates and UAL contribution amounts for each Plan for fiscal years 2023-24 through 2025-26 are as follows:

Fiscal Year 2023-24 Fiscal Year 2024-25 Fiscal Year 2025-26 Employer
Normal
Cost Rate
Employer
Payment of
UAL
Employer
Normal
Cost Rate
Employer
Payment of
UAL
Employer
Normal
Cost Rate
Employer
Payment of
UAL
Miscellaneous 8.93% $4,220,229 8.89% $4,907,733 8.89% $4,890,490 Safety (Classic - Tier 1) Fire 27.11 1,412,207 27.32 1,662,266 27.38 1,874,011 Safety Tier 2 Fire 22.83 0 23.00 6,167 23.06 7,121
Safety Fire PEPRA 13.54 0 13.76 45,077 13.99 51,655
Safety (Classic - Tier 1) Police 27.11 2,452,088 27.32 2,934,799 27.38 3,344,273 Safety Tier 2 Police 22.83 0 23.00 35,504 23.06 40,549
Safety PEPRA Police 13.54 0 13.76 51,196 13.99 58,562
Source: CalPERS Actuarial Reports as of June 30, 2023.

38 Projected Employer Contributions. The following tables show the City’s actuarially-determined required employer contribution for fiscal year 2025-26 and projected employer contributions (before cost sharing) for fiscal years 2026-27 through 2030-31 for each Plan by normal cost (expressed as a percentage of total active payroll) and amortization of the unfunded accrued liability (expressed as a dollar amount).

Miscellaneous
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 8.89% 8.8% 8.8% 8.7% 8.7% 8.6%
UAL Payment $4,890,490 $5,295,000 $5,598,000 $6,250,000 $6,392,000 $6,513,000 Safety (Classic - Tier 1) Fire
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 27.38% 27.4% 27.4% 27.4% 27.4% 27.4%
UAL Payment $1,874,011 $1,997,000 $2,099,000 $2,310,000 $2,363,000 $2,411,000 Safety Tier 2 Fire
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 23.06% 23.1% 23.1% 23.1% 23.1% 23.1%
UAL Payment $7,121 $7,200 $7,300 $7,400 $7,500 $7,500
Safety Fire PEPRA
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 13.99% 14.0% 14.0% 14.0% 14.0% 14.0%
UAL Payment $51,655 $52,000 $53,000 $54,000 $54,000 $54,000 Safety (Classic - Tier 1) Police
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 27.38% 27.4% 27.4% 27.4% 27.4% 27.4%
UAL Payment $3,344,273 $3,580,000 $3,775,000 $4,189,000 $4,284,000 $4,367,000 Safety Tier 2 Police
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 23.06% 23.1% 23.1% 23.1% 23.1% 23.1%
UAL Payment $40,549 $41,000 $42,000 $42,000 $42,000 $42,000

39 Safety PEPRA Police
Required
Contribution
Projected Future Employer Contributions
(Assumes 6.80% Return for Fiscal Year 2023-24)
Fiscal Year 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Normal Cost % 13.99% 14.0% 14.0% 14.0% 14.0% 14.0%
UAL Payment $58,562 $59,000 $60,000 $61,000 $61,000 $61,000 Source: CalPERS Actuarial Reports as of June 30, 2023.

The projections assume that all CalPERS actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. In particular, the projections assume a 6.80% annual rate of return for fiscal year 2023-24 but do not include any reductions in the normal cost that will occur over time as new employees are hired into PEPRA or other lower cost benefit tiers, investment returns for fiscal year 2023-24 or any other future fiscal years.

40 Funded Status. The following table sets forth the schedule of funding for the Plans for the valuation dates of June 30, 2021, 2022, and 2023.

Valuation Date
Ended June 30
Accrued
Liability
Market Value
of Assets
Unfunded
Accrued
Liability
Funded
Ratio(1)
Annual
Covered
Payroll
Miscellaneous Plan
2021 $180,260,720 $144,652,442 $35,608,278 80.2% $22,735,951 2022 190,453,714 132,705,318 57,748,396 69.7% 23,810,278 2023 199,811,341 139,991,052 59,820,289 70.1% 25,201,816 Safety (Classic - Tier 1) Fire
2021 $59,495,694 $45,737,097 $13,758,597 76.9% $1,808,005 2022 61,898,551 41,036,974 20,861,577 66.3% 1,934,431
2023 63,781,656 41,822,057 21,959,599 65.6% 1,718,716
Safety Tier 2 Fire
2021 $398,658 $413,093 $(14,435) 103.6% $239,100
2022 512,208 450,537 61,671 88.0% 257,754
2023 642,298 565,955 76,343 88.1% 276,357
Safety Fire PEPRA
2021 $2,731,313 $2,830,962 $(99,649) 103.6% $1,706,137
2022 3,534,818 3,097,495 437,323 87.6% 2,044,451
2023 4,429,037 3,876,226 552,811 87.5% 2,108,397
Safety (Classic - Tier 1) Police
2021 $113,952,722 $90,815,063 $23,137,659 79.7% $4,585,930 2022 120,258,257 82,783,034 37,475,223 68.8% 4,592,246
2023 123,829,361 84,088,826 39,740,535 67.9% 4,431,074
Safety Tier 2 Police
2021 $2,535,249 $2,658,370 $(123,121) 104.9% $1,277,391 2022 3,055,110 2,710,970 344,140 88.7% 1,141,995
2023 3,398,630 2,964,976 433,654 87.2% 1,186,446
Safety PEPRA Police
2021 $2,844,761 $2,971,647 $(126,886) 104.5% $2,641,812 2022 3,758,961 3,288,994 469,967 87.5% 2,969,861
2023 4,961,080 4,334,584 626,496 87.4% 3,439,692
(1) Based on the market value of assets.

Source: CalPERS Actuarial Reports as of June 30, 2023.

There is a two-year lag between the valuation date and the start of the contribution fiscal year. This two-year lag is necessary due to the amount of time needed to extract and test the membership and financial data, and the need to provide public agencies with their required employer contribution well in advance of the start of the fiscal year.

See Note IV.E in Appendix C for additional information regarding the Plans, including a description of the actuarial methods and assumptions used to measure the City’s net pension liability as of the June 30, 2023, measurement date.

Other Post-Employment Benefits (OPEB)

41 Starting July 1, 2015, the City ceased to pay cash subsidies for retirees. The retirees pay the full amount of their premiums to California State Association of Counties – Excess Insurance Authority (“CSACEIA”). The medical/drug implicit subsidy was the only source of liability related for OPEB. Since there is no cash subsidy, as of June 30, 2024, the net OPEB liability was calculated to be immaterial for financial reporting purposes. As of June 30, 2024, the City’s net OPEB liability totaled $5,056,400.

State Budget Information
Information about the State budget is regularly available at various State-maintained websites. The Fiscal Year 2023-24 State budget and the 2024-25 State budget may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” Additionally, an impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. The Office of the Legislative Analyst is located at 925 L Street, Suite 1000, Sacramento, CA 95814. To request publications call (916) 445- 4656. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of the internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references.

Changes in State Budget
Each year, the final State Budget, which requires approval by a two-thirds vote of each house of the State Legislature, may differ substantially from the Governor’s original budget proposal. The State Budget will be affected by State and national economic conditions and other factors over which the City will have no control. The City cannot predict the impact that subsequent State budgets will have on its finances and operations.

RISK FACTORS
The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating the purchase of the Series 2025 Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2025 Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks.

General Considerations – Security for the Series 2025 Bonds The Series 2025 Bonds are special obligations of the Authority, payable solely from Base Rental Payments and the other assets pledged therefor under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Series 2025 Bonds. The Authority has no taxing power.

The obligation of the City to make the Base Rental Payments does not constitute a debt of the City, the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation.

Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to pay the Base Rental Payments and Additional Rental Payments from any source of legally available funds and the City has covenanted in the Lease Agreement that it will take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Lease Agreement as a separate line item in its biennial budgets and to make necessary annual appropriations for all such Rental Payments, subject to abatement. The City is currently liable and may

42 become liable on other obligations payable from general revenues. See “CITY FINANCIAL INFORMATION—Indebtedness.”
The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. To the extent that additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other activities before making Base Rental Payments and other payments due under the Lease Agreement. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. However, the City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB of the California Constitution. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIB of the California Constitution.” Abatements
In the event of substantial interference with the City’s right to use and occupy any portion of the Property by reason of damage to, or destruction or condemnation of the Property, or any defects in title to the Property, Base Rental Payments will be subject to abatement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Abatement.” In the event that a portion of the Property, if damaged or destroyed by an insured casualty, could not be replaced during the period of time in which proceeds of the City’s rental interruption insurance will be available in lieu of Base Rental Payments, plus the period for which funds are available from the funds and accounts established under the Indenture, or in the event that casualty insurance proceeds are insufficient to provide for complete repair or replacement of such portion of the Property or redemption of the Series 2025 Bonds, there could be insufficient funds to make payments to Owners in full. The Authority has not funded a reserve fund for the Series 2025 Bonds.

It is not always possible to predict the circumstances under which abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured.

For example, it is not clear whether fair rental value is established as of commencement of the lease or at the time of the abatement. If the latter, it may be that the value of the Property is substantially higher or lower than its value at the time of the execution and delivery of the Series 2025 Bonds. Abatement, therefore, could have an uncertain and material adverse effect on the security for and payment of the Series 2025 Bonds.

The City is required under the Lease Agreement to maintain property insurance and rental interruption insurance with respect to the Property, as well as a policy of title insurance (which is obtained at Closing). See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS—Insurance.” If damage, destruction, title defect or eminent domain proceedings with respect to the Property results in abatement of the Base Rental Payments related to such Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), and eminent domain proceeds, if any, are insufficient to make all payments of principal and interest with respect to the Series 2025 Bonds during the period that the Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Series 2025 Bond Owners for nonpayment under such circumstances.

Any such abatement will continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Property, ending with the substantial completion of the work of repair or replacement of the Property, or the portion thereof so damaged or destroyed; and the term of the Lease Agreement will be extended as provided in the Lease Agreement, up to a maximum of ten years beyond the stated termination date of the Lease Agreement.

43 No Reserve Fund
The Authority has not funded a debt service reserve fund for the Series 2025 Bonds.

Effect of Economy on Revenues
The City relies heavily on property taxes and sales taxes. These revenues can be negatively affected by economic downturns in various ways. Property taxes are directly linked to the assessed value of property in the City and an economic recession affecting real estate markets can cause a significant decline in the City’s property tax revenues. Similarly, a recession could cause a reduction in consumer spending and travel, which would have a material adverse impact on the City’s sales tax. The City can provide no assurance that economic factors affecting the City, the State, or the nation will not cause a reduction in the City’s General Fund tax revenues and a material adverse effect on the City’s ability to pay Base Rental Payments.

Natural Disasters
The occurrence of any natural disaster in the City, including, without limitation, fire, windstorm, drought, earthquake, landslide, mudslide, flood or a rise in sea levels as result of climate change, could have an adverse material impact on the economy within the City, its General Fund and the revenues available for the payment of Base Rental Payments.

Seismic. The City, like most regions in the State, is located in an area of seismic activity and, therefore, could be subject to potentially destructive earthquakes. The City lies between two major fault zones:
the San Andreas to the north and east and the San Gregorio offshore to the west. Other active or potentially active fault zones that could affect the City include the Zayante-Vergeles in Pajaro Valley and the Monterey Bay to the west. The proximity of these faults makes the City, including in the vicinity of the Property, subject to the hazards associated with ground shaking, surface rupture, and soil instability. In the case of surface rupture, properties along the rupture could be red-tagged and may not be rebuilt. If an earthquake were to substantially damage or destroy taxable property within the City and in the vicinity of the Property, the assessed valuation of such property would be reduced.

While the City and greater County have experienced numerous earthquakes, the Loma Prieta earthquake is the most recent notable earthquake, resulting in a major disaster declaration for the area. It struck the County and the greater San Francisco Bay region on October 17, 1989, registering as 6.9 magnitude. The epicenter was in the Santa Cruz Mountains along the San Andreas Fault, and the most intense shaking lasted for 20 seconds.

Seismic hazards encompass ground rupture, shaking, lurching, blind thrust faults that lack surface breaks, liquefaction, and ground failure. The occurrence of one or more natural disasters could occur and could result in damage to improvements and property within the City of varying seriousness. The damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost, or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement.

The City is not obligated under the Lease Agreement to maintain earthquake insurance on the Property. In the event of damage or destruction to the Property caused by perils for which the City does not provide insurance and is not required to provide insurance under the Lease Agreement, the City is not obligated to repair, replace, or reconstruct the Property. If an earthquake were to cause serious damage to the Property during any period when such facilities were not insured for earthquake damage, or if the proceeds of any earthquake insurance were insufficient to replace or repair the damaged Property, the City would be limited to its General Fund, reserves, and emergency grants, if any, in seeking to make appropriate repairs.

Pending such repairs, the City’s obligation to make Base Rental Payments would be subject to abatement and rental interruption insurance proceeds likely would not cover losses caused by earthquakes. The City will not

44 be obligated to repair or restore the Property in the event of uninsured damage caused by an earthquake. See “RISK FACTORS – Abatements.”
Flood. The City is in portions of two major drainage basins: Pajaro River Basin and the Watsonville Slough watershed. The eastern and downtown areas of the City drain to the Pajaro River and its tributaries, Salsipuedes and Corralitos Creeks. The central and western areas of the City drain to the Watsonville Slough and its tributaries, Harkins Slough, Struve Slough, and West Struve Slough. The Pajaro River Basin covers approximately 1,300 square miles and spans the Counties of San Benito, Santa Clara, Santa Cruz, and Monterey. The Pajaro River, Salsipuedes Creek, and Corralitos Creek are channelized with levee improvements in the eastern and downtown areas of the City.

High-intensity storms occur most often from December through April, although they can occur as early as September and as late as May. Storms occurring early in the season are unlikely to result in excessive runoff because infiltration and surface storage capacities are high.

The City contains flood plain areas, identified by the Federal Emergency Management Agency (“FEMA”), indicating that several areas of the City are subject to 100-year floods. The Property is located in a 100-year flood zone.

Wildfire. In recent years, wildfires have caused extensive damage throughout the State, including within the County. 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. There is a risk of property within the City being destroyed by wildfires, and no assurance can be given as to the severity or frequency of wildfires within the City or its vicinity. In addition to their direct impact on health and safety and property damage in California, the smoke from wildfires has impacted the quality of life in Northern California and the City and may have short-term and future impacts on commercial activity in the City. The fires have been driven in large measure by drought conditions and low humidity. Experts expect that California will continue to be subject to wildfire conditions year over year as a result in changing weather patterns due to climate change.

The Property is not in a fire hazard severity zone.

Drought. On October 19, 2021, the Governor declared a drought emergency for the entire State. After two wet winters, the Governor lifted the drought state of emergency for 19 coastal and desert counties, including Santa Clara and San Francisco counties, on September 4, 2024. The drought emergency remains in effect for the remaining 39 counties. There can be no assurance that subsequent declarations will not impose mandatory water use restrictions should dry conditions persist in 2025 or future years.

Climate Change. Climate change caused by human activities may have adverse effects on the City.

Climate change can also result in more variable weather patterns throughout the State, which can lead to longer and more severe droughts as well as increased risk of flooding and a rise in sea levels. The City considers the potential effects of climate change in its planning.

Projections of the impacts of global climate change on the City are complex and depend on many factors that are outside the City’s control. The various scientific studies that forecast the amount and timing of adverse impacts of climate change are based on assumptions contained in such studies, but actual events may vary materially. Also, the scientific understanding of climate change and its effects continues to evolve.

Accordingly, the City is unable to forecast with certainty when adverse impacts of climate change will occur or the extent of such impacts.

The City prepared a Local Hazard Mitigation Plan (“LHMP”) dated September 2020 to help the City plan for natural disasters and hazard events. The LHMP indicates that the City is vulnerable to numerous

45 hazards, including earthquakes, drought, flood, high winds and wildfire. Climate change can exacerbate these hazards. While the impacts of climate change may be mitigated by the City’s past and future investment in adaptation strategies, the City can give no assurance about the net effects of those strategies and whether the City will be required to take additional adaptive mitigation measures.

The occurrence of natural disasters in the City could result in substantial damage to the City and the Property which, in turn, could substantially reduce General Fund revenues and affect the ability of the City to make Base Rental Payments or cause an abatement in Base Rental Payments. Reduced ability to pay Base Rental Payments could affect the payment of the principal of and interest on the Series 2025 Bonds. The City maintains liability insurance and property casualty insurance (for losses other than from seismic events) for the Premises. See the caption “THE CITY OF WATSONVILLE—Risk Management.” However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers.

Public Health Emergencies
A pandemic, epidemic or outbreak of an infectious disease can have significant adverse health and financial impacts on global and local economies. For example, beginning in 2020, the COVID-19 pandemic negatively affected economic activity throughout the world, including the United States and the State of California. The initial impacts of stay-at home orders globally were unprecedented, with commerce, travel, asset values and financial markets experiencing disruptions worldwide. The COVID-19 pandemic had material adverse impacts on the City’s economy and certain aspects of the City’s financial condition.

While the declarations of COVID-19 as a public health emergency have been lifted, future pandemics and other widespread public health emergencies can and do arise from time to time. The City cannot predict whether another national or localized outbreak of highly contagious or epidemic disease in the future could negatively impact the City’s economy or finances.

Hazardous Substances
An additional environmental condition that may result in the reduction in the assessed value of property, and therefore property tax revenue available to make Base Rental Payments, would be the discovery of a hazardous substance that would limit the beneficial use of taxable property within the City. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required 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 property within the City be affected by a hazardous substance, could be to reduce the marketability and value of the property by the costs of remedying the condition. The City is not aware of any hazardous substances located on the Property.

Other Financial Matters
Due to weakness in the economy of the State and the United States, it is possible that the general revenues of the City will decline. Such financial matters may have a detrimental impact on the City’s General Fund, and, accordingly, may reduce the City’s ability to make Base Rental Payments. See “THE CITY OF WATSONVILLE” and “CITY FINANCIAL INFORMATION.”
Substitution, Addition and Removal of Property; Additional Bonds The Authority and the City may amend the Lease Agreement to substitute alternate real property for any portion of or add additional real property to the Property or to release a portion of the Property from the Lease Agreement, upon compliance with all of the conditions set forth in the Lease Agreement. After a substitution or release, the portion of the Property for which the substitution or release has been effected will

46 be released from the leasehold encumbrance of the Lease Agreement. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS―Substitution or Release of the Property.” Moreover, the Authority may issue Additional Bonds secured by Base Rental Payments which are increased from current levels. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS— Additional Bonds.”
Although the Lease Agreement requires, among other things, that the Property, as constituted after such substitution or release, have an annual fair rental value at least equal to the maximum Base Rental Payments payable by the City in any Rental Period, it does not require that such Property have an annual fair rental value equal to the annual fair rental value of the Property at the time of substitution or release. Thus, a portion of the Property could be replaced with less valuable real property or could be released altogether. Such a replacement or release could have an adverse impact on the security for the Series 2025 Bonds, particularly if an event requiring abatement of Base Rental Payments were to occur subsequent to such substitution or release. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—No Consequential Damages; Use of the Property; Substitution or Release.” The Indenture requires, among other things, that upon the issuance of Additional Bonds, the Ground Lease and the Lease Agreement will be amended, to the extent necessary, so as to increase the Base Rental Payments payable by the City thereunder by an aggregate amount equal to the principal of and interest on such Additional Bonds; provided, however, that no such amendment will be made such that the sum of Base Rental Payments, including any increase in the Base Rental Payments as a result of such amendment, plus Additional Rental Payments, in any Rental Period is in excess of the annual fair rental value of the Property after taking into account the use of the proceeds of any Additional Bonds issued in connection therewith. See APPENDIX B—“SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS—THE INDENTURE— Issuance of Bonds; Application of Proceeds.”
Limited Recourse on Default; No Acceleration of Base Rental Failure by the City to make Base Rental Payments or other payments required to be made under the Lease Agreement, or failure to observe and perform any other terms, covenants or conditions contained in the Lease Agreement or in the Indenture for a period of 30 days after written notice of such failure and request that it be remedied has been given to the City by the Authority or the Trustee, constitute events of default under the Lease Agreement and permit the Trustee or the Authority to pursue any and all remedies available. In the event of a default, notwithstanding anything in the Lease Agreement or in the Indenture to the contrary, there is no right under any circumstances to accelerate the Base Rental Payments or otherwise declare any Base Rental Payments not then in default to be immediately due and payable, nor do the Authority or the Trustee have any right to re-enter or re-let the Property except as described in the Lease Agreement.

The enforcement of any remedies provided in the Lease Agreement and the Indenture could prove both expensive and time consuming. If the City defaults on its obligation to make Base Rental Payments with respect to the Property, the Trustee, as assignee of the Authority, may retain the Lease Agreement and hold the City liable for all Base Rental Payments thereunder on an annual basis and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City.

Alternatively, the Authority or the Trustee may terminate the Lease Agreement, retake possession of the Property and proceed against the City to recover damages pursuant to the Lease Agreement. Due to the specialized nature of the Property or any property substituted therefor pursuant to the Lease Agreement and the restrictions on its use, no assurance can be given that the Trustee will be able to re-let the Property so as to provide rental income sufficient to make all payments of principal of, interest and premium, if any, on the Series 2025 Bonds when due, and the Trustee is not empowered to sell the Property for the benefit of the Owners of the Series 2025 Bonds. Any suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. See “SECURITY AND SOURCES OF PAYMENT FOR THE

47 SERIES 2025 BONDS” and APPENDIX B—“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Defaults and Remedies.”
Limitations on Remedies Available; Bankruptcy
The enforceability of the rights and remedies of the Owners and the obligations of the City may become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose.

Under Chapter 9 of the United States Bankruptcy Code (Title 11, United States Code) (the “Bankruptcy Code”), which governs bankruptcy proceedings of public entities such as the City, no involuntary bankruptcy petition may be filed against a public entity. However, upon satisfaction of certain prerequisite conditions, a voluntary bankruptcy petition may be filed by the City. The filing of a bankruptcy petition results in a stay against enforcement of remedies under agreements to which the bankrupt entity is a party. A bankruptcy filing by the City could thus limit remedies under the Lease Agreement. A bankruptcy debtor may choose to assume or reject executory contracts and leases, such as the Lease Agreement. In the event of rejection of a lease by debtor lessee, the leased property is returned to the lessor and the lessor has a claim for a limited amount of the resulting damages.

Under the Indenture, the Trustee holds a security interest in the Base Rental Payments for the benefit of the Owners of the Bonds, but such security interest arises only when the Base Rental Payments are actually received by the Trustee following payment by the City. The Property is not subject to a security interest, mortgage or any other lien in favor of the Trustee for the benefit of Owners. In the event of a bankruptcy filed by the City and the subsequent rejection of the Lease Agreement by the City, the Authority would recover possession of the Property and the Trustee, as assignee of the Authority, would have a claim for damages against the City. The Trustee’s claim would constitute a secured claim only to the extent of Revenues in the possession of the Trustee; the balance of such claim would be unsecured.

Bankruptcy proceedings would subject the Owners of the Series 2025 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently entail risks of delay, limitation, or modification of their rights with respect to the Series 2025 Bonds. In a bankruptcy case, the amount recovered by Owners of the Series 2025 Bonds could be affected by whether the Lease Agreement is determined to be a “true lease” or a loan or other financing arrangement (a “financing lease”), and the Owners’ recovery could be reduced in either case. If the Lease Agreement is determined by the bankruptcy court to constitute a “true lease” (rather than a financing lease), the City could choose not to perform under the Lease Agreement by rejecting it and the claim of the Owners could be substantially limited pursuant to Section 365 of the Bankruptcy Code to a fraction of the scheduled amount of Base Rental Payments, and that reduced claim amount could be impaired as an unsecured claim under a plan of adjustment. If a bankruptcy court were to treat the Lease Agreement as a financing lease then, under a plan of adjustment, the priority, payment terms, collateral, payment dates, payment sources, covenants and other terms or provisions of the Lease Agreement and the Series 2025 Bonds may be altered. Such a plan could be confirmed even over the objections of the Trustee and the Owners, and without their consent. For example, the amount of the Base Rental Payments from the City might be substantially reduced because of the power of the bankruptcy court under the Bankruptcy Code to adjust secured claims to the value of their collateral, which, as described above, could be limited to the Base Rental Payments held by the Trustee. In addition, there can be a substantial disparity in treatment based on the nature of the Property. Whether the Lease Agreement is characterized by the bankruptcy court as a true lease or a financing lease, either scenario could result in the Owners not receiving the full amount of the principal and interest due on the Series 2025 Bonds.

48 The opinions of counsel, including Bond Counsel, delivered in connection with the issuance of the Series 2025 Bonds will be so qualified. Bankruptcy proceedings, or the exercising of powers by the federal or state government, if initiated, could subject the Owners to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.

Possible Insufficiency of Insurance Proceeds
The Lease Agreement obligates the City to keep in force various forms of insurance, subject to deductibles, for repair or replacement of the Property in the event of damage, destruction or title defects, subject to certain exceptions. The Authority and the City make no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant to the Lease Agreement and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Series 2025 Bonds when due. In addition, certain risks, such as earthquakes and floods, are not required to be insured under the Lease Agreement, and therefore, are not carried by the City. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS— Insurance.”
Loss of Tax Exemption
As discussed under the heading “TAX MATTERS,” the interest on the Series 2025 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Series 2025 Bonds, as a result of acts or omissions of the Authority or the City in violation of its covenants in the Indenture and the Lease Agreement. Should such an event of taxability occur, the Series 2025 Bonds would not be subject to a special redemption and would remain Outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture.

In addition, subsequent to the issuance of the Series 2025 Bonds there might be federal, state or local statutory changes (or judicial or regulatory changes to or interpretations of federal, state or local law) that affect the federal, state or local tax treatment of the Series 2025 Bonds, including the imposition of additional federal income or state taxes on owners of tax-exempt state or local obligations, such as the Series 2025 Bonds. These changes could adversely affect the market value or liquidity of the Series 2025 Bonds. No assurance can be given that subsequent to the issuance of the Series 2025 Bonds statutory changes will not be introduced or enacted or judicial or regulatory interpretations will not occur having the effects described above. Before purchasing any of the Series 2025 Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the Series 2025 Bonds.

Federal Funding Risks
Federal policies on the federal debt ceiling, taxes, foreign trade and tariffs, immigration, climate change, clean energy, and other topics can shift dramatically from one administration to another. From time to time, such changes can result in dramatic shifts in the level of federal funding for various policy priorities, leading to unpredictability in near-term and future federal funding. The City can provide no certain assurances with respect to continued grant funding or other direct payments to the City and County in support of governmental services, whether previously made directly or by pass-through to the State.

No Liability of Authority to the Owners
Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the Series 2025 Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be

49 performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture.

Cybersecurity
The City, like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropriating assets or information or causing operational disruption and damage. 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. Additionally, the City carries cybersecurity insurance.

CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Principal of and interest on the Series 2025 Bonds are payable from Base Rental Payments made from the City’s General Fund. See the caption “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2025 BONDS.” Articles XIIIA, XIIIB, XIIIC and XIIID of the State Constitution, Propositions 62, 111, 218, 1A and 22, and certain other provisions of law discussed below are included in this Official Statement to describe the potential effect of these Constitutional and statutory measures on the ability of the City to levy taxes and spend tax proceeds for operating and other purposes.

Article XIIIA of the State Constitution
On June 6, 1978, State voters approved Proposition 13, which added Article XIIIA to the State Constitution. Article XIIIA, as amended, limits the amount of any ad valorem tax on real property to 1% of the full cash value thereof, except that additional ad valorem taxes may be levied to pay debt service: (i) on indebtedness approved by the voters prior to December 1, 1978; (ii) on bonded indebtedness approved by a two-thirds vote on or after December 1, 1978, for the acquisition or improvement of real property; or (iii) bonded indebtedness incurred by a school district, community college district or county office of education for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition. Article XIIIA defines full cash value to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” This full cash value may be increased at a rate not to exceed 2% per year to account for inflation.

Article XIIIA has subsequently been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, including a general economic downturn, to provide that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster, and in other minor or technical ways.

Legislation Implementing Article XIIIA
Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA.

Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The 1% property tax is automatically levied by counties and distributed according to a formula among taxing agencies.

50 Increases in assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the 2% annual adjustment are allocated among the various jurisdictions in the “taxing area” based upon their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years.

All taxable property is shown at full cash value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. All taxable property value included in this Official Statement is shown at 100 percent of taxable value (unless noted differently) and all tax rates reflect the $1 per $100 of taxable value.

Article XIIIB of the State Constitution
In addition to the limits that Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual “appropriations limit” imposed by Article XIIIB which effectively limits the amount of such revenues that such entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to “proceeds of taxes,” which consist of tax revenues and the investment proceeds thereof, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed “the cost reasonably borne by such entity in providing the regulation, product or service.” “Proceeds of taxes” excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds which are not “proceeds of taxes,” such as reasonable user charges or fees, and certain other non-tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized as of October 1, 1979, or subsequently authorized by the voters (such as the Bonds), appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government.

The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each local government’s actual appropriations be tested against its limit every two years.

If the aggregate “proceeds of taxes” for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency’s taxpayers through tax rate or fee reductions over the following two years.

The City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB.

Articles XIIIC and XIIID of the State Constitution
On November 5, 1996, State voters approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the State Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments and property-related fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination.

51 Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. The voter approval requirements of Proposition 218 reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs.

Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain property-related fees, charges, and assessments for municipal services and programs, such as hearings and stricter and more individualized benefit requirements and findings. These provisions include, among other things: (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel; (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred; (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party; and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. If the City is unable to continue to collect these revenues, the services and programs funded with these revenues would have to be curtailed and/or the City’s General Fund might have to be used to support them. The City is unable to predict whether or not in the future it will be able to continue all existing services and programs funded by the fees, charges and assessments in light of Proposition 218 or, if these services and programs are continued, which amounts (if any) would be used from the City’s General Fund to continue to support such activities.

Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund.

Although a portion of the City’s General Fund revenues are derived from taxes purported to be governed by Proposition 218, all of such taxes were imposed in accordance with the requirements of Proposition 218. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges which support the City’s General Fund.

Proposition 62
Proposition 62 was adopted by the voters at the November 4, 1986, general election and: (a) requires that any new or higher taxes for general governmental purposes imposed by local governmental entities such as the City be approved by a two-thirds vote of the governmental entity’s legislative body and by a majority vote of the voters of the governmental entity voting in an election on the tax; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters of the governmental entity voting in an election on the tax; (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the

52 sale of real property by local governmental entities; and (f) requires that any tax imposed by a local governmental entity on or after July 1, 1985, be ratified by a majority vote of the voters voting in an election on the tax within two years of the adoption of the initiative or be terminated by November 15, 1988.

California appellate court cases have overturned the provisions of Proposition 62 pertaining to the imposition of taxes for general government purposes. However, the California Supreme Court upheld Proposition 62 in its decision on August 28, 1995 in Fresno County Transportation Authority v. Guardino.

This decision reaffirmed the constitutionality of Proposition 62. Certain matters regarding Proposition 62 were not addressed in the Court’s decision, such as what remedies exist for taxpayers subject to a tax not in compliance with Proposition 62, and whether the decision applies to charter cities. The City has not experienced any substantive adverse financial impact as a result of the passage of Proposition 62.

Proposition 1A
Proposition 1A, proposed by the State Legislature in connection with the State’s fiscal year 2004-05 budget, approved by the voters in November 2004 and generally effective in State fiscal year 2006-07, provides that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain exceptions.

Proposition 1A generally prohibits the State from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year, as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax revenues among local governments within a county must be approved by two-thirds of both houses of the Legislature. Proposition 1A provides, however, that beginning in State fiscal year 2008-09, the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. The State also will not be able to borrow from local property tax revenues for more than two fiscal years within a period of ten fiscal years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the State-wide local sales tax. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the motor vehicle license fee rate currently in effect, 0.65% of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State, beginning July 1, 2005, to suspend State mandates affecting cities, counties and special districts, excepting mandates relating to employee rights, schools or community colleges, in any year that the State does not fully reimburse local governments for their costs to comply with such mandates.

Proposition 1A may result in increased and more stable City revenues. The magnitude of such increase and stability is unknown and would depend on future actions by the State. However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing spending on other State programs or other action, some of which could be adverse to the City.

Many of the provisions of Proposition 1A have been superseded by Proposition 22 enacted in November 2010 and described below.

Proposition 22
On November 2, 2010, the voters of the State approved Proposition 22, known as “The Local Taxpayer, Public Safety, and Transportation Protection Act” (“Proposition 22”). Proposition 22, among other things, broadens the restrictions established by Proposition 1A. While Proposition 1A permits the State to appropriate or borrow local property tax revenues on a temporary basis during times of severe financial hardship, Proposition 22 amends Article XIII of the State Constitution to prohibit the State from appropriating

53 or borrowing local property tax revenues under any circumstances. The State can no longer borrow local property tax revenues on a temporary basis even during times of severe financial hardship. Proposition 22 also prohibits the State from appropriating or borrowing proceeds derived from any tax levied by a local government solely for the local government’s purposes. Furthermore, Proposition 22 restricts the State’s ability to redirect redevelopment agency property tax revenues to school districts and other local governments and limits uses of certain other funds although this provision no longer has any meaningful impact given the statewide dissolution of redevelopment agencies. Proposition 22 is intended to stabilize local government revenue sources by restricting the State government’s control over local revenues. The City cannot predict whether Proposition 22 will have a beneficial effect on the City’s financial condition Proposition 26
On November 2, 2010, State voters also approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect its General Fund revenues.

Possible Future Initiatives
Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 218, 111, 62, 1A, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the City or the City’s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the City.

TAX MATTERS
General
In the opinion of Anzel Galvan LLP, San Francisco, California, Bond Counsel, under existing law and subject to certain qualifications described below, interest on the Series 2025 Bonds is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). Interest on the Series 2025 Bonds is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals; however, such interest is taken into account in determining the annual adjusted financial statement income for the purpose of computing the alternative minimum tax imposed on certain corporations. In the further opinion of Bond Counsel, interest on the Series 2025 Bonds is exempt from California personal income taxes. The proposed form of

54 opinion of Bond Counsel with respect to the Series 2025 Bonds to be delivered on the date of issuance of the Series 2025 Bonds is set forth in Appendix D.

The Tax Code contains a number of requirements that apply to the Series 2025 Bonds, and the Authority has made certain representations and has covenanted to comply with each such requirement.

Bond Counsel’s opinion assumes the accuracy of the representations made by the Authority and is subject to the condition that the Authority comply with the above-referenced covenants. If the Authority fails to comply with such covenants or if the Authority’s representations are inaccurate or incomplete, interest on the Series 2025 Bonds could be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2025 Bonds.

Except as expressly stated herein, Bond Counsel expresses no opinion regarding any tax consequences related to the ownership, sale or disposition of the Series 2025 Bonds, or the amount, accrual or receipt of interest on, the Series 2025 Bonds. Owners of the Series 2025 Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Series 2025 Bonds.

Original Issue Premium and Discount
If the initial offering price to the public at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes “original issue discount” for purposes of federal income taxes. If the initial offering price to the public at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes “original issue premium” for purposes of federal income taxes.

Under the Tax Code, original issue discount is treated as interest excluded from federal gross income to the extent properly allocable to each owner thereof subject to the limitations described in the limitation described herein. The original issue discount accrues over the term to maturity of the Series 2025 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Series 2025 Bonds who purchase the Series 2025 Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under the federal alternative minimum tax.

Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Series 2025 Bond (said term being the shorter of the Series 2025 Bond's maturity date or its call date).

The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Series 2025 Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Series 2025 Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers who do not purchase in the original offering, should consult their own tax advisors with respect to federal income tax consequences of owning such Bonds.

55 Post Issuance Matters
The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2025 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Tax Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS.

Bond Counsel’s engagement with respect to the Series 2025 Bonds ends with the issuance of the Series 2025 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the Owners regarding the tax-exempt status of the Series 2025 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Authority and its appointed counsel, including the Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of taxexempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2025 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2025 Bonds, and may cause the Authority or the Owners to incur significant expense.

Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Series 2025 Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Series 2025 Bonds. Prospective purchasers of the Series 2025 Bonds should consult their own tax advisors regarding any pending or proposed legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

Not Bank Qualified
The Authority has not designated the Series 2025 Bonds as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3)(B) of the Code.

CERTAIN LEGAL MATTERS
The validity of the Series 2025 Bonds and certain other legal matters are subject to the approving opinion of Anzel Galvan LLP, Bond Counsel. Anzel Galvan LLP is also acting as Disclosure Counsel for the City and represented the City in connection with negotiation of the Project Agreement. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Bond and Disclosure Counsel will receive compensation from the City contingent upon the sale and delivery of the Series 2025 Bonds.

From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the Series 2025 Bonds. Certain legal matters will be passed upon for the Underwriter by Anzel Galvan LLP.

Counsel to the Underwriter will receive compensation contingent upon the issuance of the Series 2025 Bonds.

ABSENCE OF LITIGATION
To the best knowledge of the City and the Authority, there is no action, suit or proceeding pending or threatened either restraining or enjoining the execution or delivery of the Series 2025 Bonds, the Lease Agreement, the Ground Lease or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the Authority or the City taken with respect to any of the foregoing.

56 UNDERWRITING
The Series 2025 Bonds are being purchased by Samuel A. Ramirez & Co. (the “Underwriter”). The Underwriter will purchase the Series 2025 Bonds from the Authority at an aggregate purchase price of $__________________ (representing the principal amount of the Series 2025 Bonds, [plus][minus] a net original issue [premium][discount] of $__________________ and less an Underwriter’s discount of $__________________)
The purchase agreement relating to the Series 2025 Bonds provides that the Underwriter will purchase all of the Series 2025 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in such purchase agreement, the approval of certain legal matters by counsel and certain other conditions.

The initial offering prices that are stated on the inside front cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Series 2025 Bonds to certain dealers (including dealers depositing Series 2025 Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices.

RATINGS
S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”) has assigned an issuer credit rating of “____” with a stable outlook to the Series 2025 Bonds. Such rating reflects only the views of S&P and any desired explanation of the significance of such rating should be obtained from the rating agency furnishing the same. Generally, a rating agency bases its ratings on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2025 Bonds. None of the Authority, the City, or the Underwriter has undertaken any responsibility either to bring to the attention of the owners of the Series 2025 Bonds a proposed change in or withdrawal of any ratings or to oppose any such proposed revision or withdrawal.

MUNICIPAL ADVISOR
Urban Futures, Inc., has acted as municipal advisor (the “Municipal Advisor”) to the Authority and City in conjunction with the issuance of the Series 2025 Bonds. The Municipal Advisor has assisted in matters related to the planning, structuring, execution, and delivery of the Series 2025 Bonds. The Municipal Advisor will receive compensation contingent upon the sale and delivery of the Series 2025 Bonds. The Municipal Advisor has not audited, authenticated, or otherwise independently verified the information set forth in this Official Statement, or any other related information available, with respect to accuracy and completeness of disclosure of such information. Because of this limited participation, the Municipal Advisor makes no guaranty, warranty, or other representation with respect to the accuracy or completeness of this Official Statement, or any other matter related to this Official Statement.

CONTINUING DISCLOSURE
The City has covenanted for the benefit of the Owners of the Series 2025 Bonds to provide annually certain financial information and operating data relating to the Series 2025 Bonds and the City (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. For a complete listing of items of information which will be provided in each Annual Report and further description of the City’s undertaking with respect to the Annual Report and certain enumerated events, see APPENDIX E—“FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The Annual Report is to be provided by the City not later than March 31 after the end of the City’s fiscal year, commencing with the report for fiscal year 2024-25.

57 The Annual Report will be filed by the City with the Municipal Securities Rulemaking Board.

These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12.

Within the last five years, the City and its related entities have not failed to timely file all required information pursuant to its existing continuing disclosure undertakings pursuant to Rule 15c2-12.

FINANCIAL STATEMENTS OF THE CITY
Included herein as Appendix C are the audited financial statements of the City for the year ended June 30, 2025, together with the report thereon dated December 26, 2024, of Maze & Associates, Pleasant Hill, California, certified public accountants (the “Auditor”). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The City’s financial statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post-audit review of the financial condition of the City and also has not performed any procedures relating to this Official Statement. The Auditor has not undertaken to update the audited financial statements of the City or its report, and no opinion is expressed by the Auditor with respect to any event subsequent to its report dated December 26, 2024.

MISCELLANEOUS
References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture, the Lease Agreement, the Ground Lease and other documents are available, upon request, and upon payment to the City of a charge for copying, mailing and handling, from the City Clerk at the City of Watsonville, 275 Main Street, Suite 400, Watsonville, California 95076.

Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the City and the purchasers or Owners of any of the Series 2025 Bonds.

The execution and delivery of this Official Statement have been duly authorized by the Authority and the City.

WATSONVILLE PUBLIC FINANCE AUTHORITY
By:

Executive Director

CITY OF CITY OF WATSONVILLE
By:

City Manager

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APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION

REGARDING THE CITY OF WATSONVILLE
Population
The following table summarizes population estimates for the City, the County and the State from 2020 through 2024.

POPULATION ESTIMATES
City of Watsonville,
County of Santa Cruz and State of California
2020-2024(1)
Year
(January 1)
City of
Watsonville
County of
Santa Cruz
State of
California
2020 (1) 51,809 270,861 39,538,223
2021 52,315 265,533 39,327,868
2022 51,096 264,495 39,114,785
2023 50,820 263,338 39,061,058
2024 51,032 262,572 39,128,162
(1) April 1 data.

Source: California State Department of Finance, Demographic Research Unit, E-4 Population Estimates for Cities, Counties, and the State, 2021-2024, with 2020 Benchmark.

Personal Income
Personal Income is the income that is received by all persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors’ income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance.

The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the estimates of personal income are presented by the place of residence of the income recipients.

The following table summarizes per capita personal income for the City, the County, the State of California and the United States for the years 2014 through 2023. This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area.

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PER CAPITA PERSONAL INCOME(1)
County of Santa Cruz, State of California, and United States 2014-2023
Year
County of
Santa Cruz California United States
2014 54,097 50,617 46,289
2015 56,935 53,816 48,062
2016 58,545 55,862 48,974
2017 62,116 58,214 51,006
2018 64,095 60,984 53,311
2019 69,475 64,219 55,567
2020 77,231 70,065 59,114
2021 88,329 76,887 64,450
2022 88,277 76,741 66,096
2023 88,581 80,771 69,418
(1) Per capita personal income is the total personal income divided by the total mid-year population estimates of the U.S. Bureau of the Census. All dollar estimates are in current dollars (not adjusted for inflation).

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

Employment
The following table summarizes the labor force, employment and unemployment figures for the past five years of data currently available for the City, the County and the State.

CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
2020 through 2024(1)
City of Watsonville, Santa Cruz County and the State of California

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Year and Area Labor Force Employment(2) Unemployment
Unemployment
Rate (%)(3)
2020
City of Watsonville 24,400 20,600 3,800 15.6%
Santa Cruz County 135,700 122,700 13,000 9.6
State of California 18,956,600 17,039,800 1,916,800 10.1 2021
City of Watsonville 24,200 20,900 3,300 13.5%
Santa Cruz County 133,000 124,000 8,900 6.7
State of California 18,954,600 17,564,900 1,389,700 7.3 2022
City of Watsonville 23,900 21,400 2,500 10.5%
Santa Cruz County 133,900 127,500 6,400 4.8
State of California 19,218,300 18,393,900 824,400 4.3
2023
City of Watsonville 23,900 21,200 2,600 11.0%
Santa Cruz County 135,100 127,700 7,500 5.5
State of California 19,471,000 18,551,800 919,200 4.7
2024
City of Watsonville [25,600] [21,000] [4,500] [17.7%]
Santa Cruz County 136,100 128,000 8,100 5.9
State of California 19,644,100 18,600,900 1,043,100 5.3 Note: Data is not seasonally adjusted.
(1) Annual averages, unless otherwise specified.
(2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table.

Source: California Employment Development Department. March 2024 Benchmark.

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Industry
The County is included in the Santa Cruz-Watsonville Metropolitan Statistical Area (the “MSA”).

The distribution of employment in the MSA is presented in the following table for the past five calendar years.

These figures are multi county-wide statistics and may not necessarily accurately reflect employment trends in the County.

INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES
Santa Cruz-Watsonville MSA
(Santa Cruz County)
2020-2024(1)
2020 2021 2022 2023 2024
Farming 8,000 7,200 7,100 6,900 7,400
Mining, Logging and Construction 4,400 4,800 5,000 5,100 5,100 Manufacturing 6,800 7,500 7,900 7,900 8,200
Wholesale Trade 3,300 3,300 3,500 3,200 2,900
Retail Trade 10,800 11,000 11,000 10,800 10,600
Transportation, Warehousing and Utilities 1,700 2,000 2,200 2,100 2,100 Information 600 600 700 700 700
Financial Activities 3,200 3,200 3,300 3,300 3,400
Professional and Business Services 10,400 10,600 10,700 9,900 9,500 Private Education and Health Services 17,100 17,200 17,700 18,600 19,400 Leisure and Hospitality 10,300 11,800 14,000 14,400 14,400 Other Services 4,400 4,300 4,700 4,700 4,700
Government 21,100 20,200 18,800 19,100 19,100
Total: 102,100 103,700 106,600 106,700 107,500
Note: The “Total, All Industries” data is not directly comparable to the employment data found herein. (1) Employment is reported by place of work; it does not include persons involved in labor-management disputes. Figures are rounded to the nearest hundred. Columns may not add to totals due to rounding.

Source: State of California, Employment Development Department, Industry Employment & Labor Force by Annual Average, March 2024 Benchmark.

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Principal Employers
The following tables list the principal employers located in the City and the County for the periods shown below.

PRINCIPAL EMPLOYERS
City of Watsonville
2024
Rank Name of Business Employees Percent of Total City Employment

1. Pajaro Valley Unified School District 2,269 9.78%

2. Watsonville Community Hospital 638 2.75

3. Granite Construction 521 2.25

4. Del Mar Food Products, Inc. 450 1.94

5. City of Watsonville 406 1.75

6. Lakeside Organic Gardens LLC 276 1.19

7. Nordic Naturals, Inc. 263 1.13

8. S Martinelli & Co. 241 1.04

9. FedEx Ground Package Systems, Inc. 240 1.03

10. A & I Transport Inc. 227 0.98
Source: City of Watsonville Annual Comprehensive Financial Report for the year ending June 30, 2024.

PRINCIPAL EMPLOYERS
2024
Santa Cruz County
Rank: Employer Employees

1. University of California at Santa Cruz 2.00%

2. Santa Cruz Government Center 2.00

3. Dominican Hospital 2.00

4. Santa Cruz Health Center 0.59

5. Granite Rock 0.59

6. Plantronics Inc. 0.59

7. Watsonville City Sewer Dept. 0.59

8. Source Naturals 0.59

9. Cabrillo Senson House 1 0.59

10. Monterey Mushrooms 0.59

11. Larse Farms Inc. 0.59

12. Ameri-Kleen 0.59
Source: County of Orange, Annual Comprehensive Financial Report for Fiscal Year Ended June 30, 2024.

Education
Public education in the City is provided by the Watsonville Unified School District. Within the City, there are sixteen elementary schools, six middle schools, three high schools, three alternative education schools and 5 private schools.

Transportation
Five major State highways connect Santa Cruz with adjacent counties. Highway 1 leads along the coast from San Francisco south to the City of Santa Cruz and on to Monterey. Highways 9 and 17 traverse the

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County from the City of Santa Cruz across the Santa Cruz mountains into Santa Clara County. Watsonville is joined with Santa Clara County by Highway 152 and with San Benito County by Highway 129. Highways 17, 152 and 129 connect with U.S. 101, a major north-south route.

Air cargo and passenger flight services are provided at the San José Metropolitan Airport, 32 miles east; Monterey Airport, 43 miles south; San Francisco International Airport, 60 miles northeast; and Watsonville Municipal Airport. Watsonville Municipal Airport provides private and executive air transportation facilities. Bus transportation is provided through the Santa Cruz Metropolitan Transit District for inter-urban and local inter-community service. Greyhound and Peerless Bus Lines provide service to other local areas and additional transcontinental service. Commercial and passenger rail services are provided by the Southern Pacific and Amtrak lines. Southern Pacific Transportation Company provides freight service for the coastal part of the County and the Watsonville area. Freight transportation is also provided through numerous common and contract carriers.

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APPENDIX B

SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS
The following is a summary of certain provisions of the Lease Agreement and the Indenture which are not described elsewhere in this Official Statement. This summary does not purport to be comprehensive and reference should be made to the respective document for a full and complete statement of the provisions thereof.

INDENTURE
DEFINITIONS; EQUAL SECURITY
Definitions. Unless the context otherwise requires, the terms defined in the Indenture for all purposes thereof and of any amendment thereof or supplement thereto and of the Bonds and of any certificate, opinion, request or other document mentioned in the Indenture or any amendment thereof or supplement thereto have the meanings defined in the Indenture, the following definitions to be equally applicable to both the singular and plural forms of any of the terms defined in the Indenture. Capitalized terms not otherwise defined in the Indenture have the meanings assigned to such terms in the Lease Agreement. “Additional Bonds” means Bonds other than the Series 2025 Bonds issued under the Indenture in accordance with the provisions described under the captions “ISSUANCE OF BONDS; APPLICATION OF PROCEEDS—Conditions for the Issuance of Additional Bonds” and “—Procedure for the Issuance of Additional Bonds.”
“Act” means the Marks-Roos Local Bond Pooling Act of 1985, commencing with Section 6584 of the California Government Code.
“Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to the Lease Agreement.
“Assignment Agreement” means the Assignment Agreement, dated as of the date of the Indenture, by and between the Authority and the Trustee, as amended and supplemented from time to time. “Authority” means the Watsonville Public Finance Authority, a joint exercise of powers entity organized and existing under and by virtue of the laws of the State of California. “Authorized Authority Representative” means the Chair, Vice Chair, Executive Director, Treasurer and Secretary of the Authority, or any other person authorized by the Board of Directors of the Authority to act on behalf of the Authority under or with respect to the Indenture. “Authorized City Representative” means the Mayor of the City, the Mayor Pro Tempore of the City, the City Manager of the City, the Administrative Services Director of the City or the City Clerk, or any other person authorized by the City Council of the City to act on behalf of the City under or with respect to the Indenture.
“Authorized Denominations” means $5,000 or any integral multiple thereof. “Base Rental Payment Fund” means the fund by that name established in accordance with the Indenture.
“Base Rental Payments” means all amounts payable to the Authority by the City as Base Rental Payments pursuant to the Lease Agreement.

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“Beneficial Owner” means, whenever used with respect to a Book-Entry Bond, the person whose name is recorded as the beneficial owner of such Book-Entry Bond or a portion of such Book-Entry Bond by a Participant on the records of such Participant or such person’s subrogee. “Bonds” means the Series 2025 Bonds and any Additional Bonds issued under the Indenture. “Book-Entry Bonds” means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of the Indenture.
“Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday, (b) a day on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed or the payment system of the Federal Reserve System is not operational. “Cede & Co.” means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book-Entry Bonds.
“City” means the City of Watsonville, a charter city and municipal corporation duly organized and existing under and by virtue of the Constitution and laws of the State of California. “Closing Date” means __________________, 2025.
“Code” means the Internal Revenue Code of 1986, as amended. “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated as of the date of the Indenture, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof.
“Costs of Issuance” means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with the Indenture, the Lease Agreement, the Ground Lease, the Assignment Agreement, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, market study fees, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel, the initial fees and expenses of any bond insurer or reserve fund credit facility provider, and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. “Costs of Issuance Fund” means the fund by that name established in accordance with the Indenture. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors as securities depository for any Series of Book-Entry Bonds, including any such successor appointed pursuant to the Indenture. “Electronic Means” shall mean the following communications methods: e-mail, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder.
“Federal Securities” means: (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America); and (b) obligations of any agency, department or instrumentality of the United States of

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America the timely payment of principal of and interest on which are fully guaranteed by the United States of America.
“Ground Lease” means the Ground Lease, dated as of the date of the Indenture, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement.
“Indenture” means the Indenture, as originally executed and as it may be amended or supplemented from time to time by any Supplemental Indenture.
“Information Services” means Municipal Securities Rulemaking Board through the Electronic Municipal Marketplace Access (EMMA) website; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. “Interest Fund” means the fund by that name established in accordance with the Indenture. “Interest Payment Date” means May 1 and November 1 of each year, commencing on November 1, 2025.
“Lease Agreement” means the Lease Agreement, dated as of June 1, 2025, by and between the City and the Authority, as originally executed and as it may be from time to time amended in accordance with the provisions thereof.
“Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation no longer performs the function of a securities rating agency for any reason, the term “Moody’s” will be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. “Office of the Trustee” means the principal corporate trust office of the Trustee in San Francisco, California, or such other office as may be specified to the Authority and the City by the Trustee in writing, except that with respect to presentation of Bonds for payment or for registration of transfer and exchange such term means the office or the agency of the Trustee at which, at any particular time, its corporate trust agency is conducted as specified to the Authority and the City by the Trustee in writing. “Opinion of Counsel” means a written opinion of Anzel Galvan LLP, or other counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority or the City and which written opinion is satisfactory to the Trustee. “Outstanding,” when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture described under the caption “MISCELLANEOUS—Disqualified Bonds”) all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except:
(a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation;
(b) Bonds with respect to which all liability of the Authority has been discharged in accordance with the provisions of the Indenture described under the caption “DEFEASANCE— Discharge of Indenture;” and
(c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds have been authenticated and delivered by the Trustee pursuant to the Indenture.

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“Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books.
“Participant” means any entity which is recognized as a participant by DTC in the book-entry system of maintaining records with respect to Book-Entry Bonds. “Participating Underwriter” has the meaning ascribed thereto in the Continuing Disclosure Certificate. “Permitted Investments” means any of the following to the extent then permitted by the general laws of the State of California:
(1) (a) Direct obligations (other than an obligation subject to —variation in principal repayment) of the United States of America (“United States Treasury Obligations”), (b) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (d) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated (collectively “United States Obligations”). These include, but are not necessarily limited to:
-U.S. Treasury obligations
All direct or fully guaranteed obligations
-Farmers Home Administration
Certificates of beneficial ownership
-General Services Administration
Participation certificates
-U.S. Maritime Administration
Guaranteed Title XI financing
-Small Business Administration
Guaranteed participation certificates
Guaranteed pool certificates
-Government National Mortgage Association (GNMA)
GNMA-guaranteed mortgage-backed securities
GNMA-guaranteed participation certificates
-U.S. Department of Housing & Urban Development
Local authority bonds
-Washington Metropolitan Area Transit Authority
Guaranteed transit bonds
(2) Federal Housing Administration debentures.
(3) The listed obligations of government-sponsored agencies which are not backed by the full faith and credit of the United States of America:
-Federal Home Loan Mortgage Corporation (FHLMC)
Participation certificates (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) Senior debt obligations

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-Farm Credit Banks (formerly: Federal Land Banks, Federal intermediate Credit Banks and Banks for Cooperatives)
Consolidated systemwide bonds and notes
-Federal Home Loan Banks (FHL Banks)
Consolidated debt obligations
-Federal National Mortgage Association (FNMA)
Senior debt obligations
Mortgage-backed securities (excluded are stripped mortgages securities which are purchased at prices exceeding their principal amounts) -Financing Corporation (FICO)
Debt obligations
-Resolution Funding Corporation (REFCORP)
Debt obligations
(4) Bank deposit products, unsecured certificates of deposit (including those placed by a third party pursuant to an agreement between the City and the Trustee), trust funds, trust accounts, overnight banking deposits, interest bearing deposits, interest bearing money market accounts, time deposits, demand deposits, other deposit products, and bankers’ acceptances (having maturities of not more than 30 days) of any bank (including the Trustee and any affiliate) the short-term obligations of which are rated “A-1” or “A-2” without regard to qualifier by S&P.
(5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks, including the Trustee and its affiliates, which have capital and surplus of at least $5 million.
(6) Commercial paper (having original maturities of not more than 270 days) rated, at the time of purchase, “A-1” or better by S&P and “Prime-1” by Moody’s. (7) Money market mutual funds rated in the highest investment category granted thereby from S&P and Moody’s (including those for which the Trustee or its affiliates receives and retains a fee for services provided to the fund, whether as a custodian, transfer agent, investment advisor or otherwise) but excluding such funds with a floating net asset value.
(8) Repurchase agreements:

With (1) any domestic bank, or domestic branch of a foreign bank or any non-bank financial institution or primary dealer as designated by the Federal Reserve the long term debt of which is rated at least “BBB+” by Standard & Poor’s or Moody’s (including the Trustee or any of its affiliates); or (2) any broker-dealer with “retail customers” or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least “BBB+” by Standard & Poor’s or Moody’s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated “BBB+” or better by Standard & Poor’s or Moody’s, provided that:
(a) The collateral is securities described in clause 1(a), (b) or (c) of this subsection, and the market value of the collateral is maintained at levels equal to 104% of the amount of cash transferred by the Trustee or the City to the provider of the repurchase agreement plus accrued interest with the collateral being valued weekly and marked-tomarket at current market price plus accrued interest; (b) The Trustee or a third party acting solely as agent therefor or for the City (the “Holder of the Collateral”) has possession of the collateral or the collateral has been

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transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor’s books); (c) The repurchase or reverse repurchase agreement states and an opinion of counsel is rendered at the time such collateral is delivered that the Holder of the Collateral has a first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession);
(d) The repurchase or reverse repurchase agreement provides that if during its term the provider’s rating by either Moody’s or Standard & Poor’s is withdrawn or suspended or falls below “BBB” by Standard & Poor’s or “Baa2” by Moody’s, as appropriate, the provider must, at the direction of Trustee, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the Trustee or the City.

Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with no evergreen provision), collateral levels need not be as specified in (a) above, so long as such collateral levels are 103% or better and the provider is rated at least “A” by Standard & Poor’s or Moody’s, respectively.
(9) State Obligations
(a) Direct general obligations of any state of the United States or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated “A2” by Moody’s and “A” by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct, general short-term obligations of any state agency or subdivision described in (a) above and rated “A-1+” by S&P and “Prime-1” by Moody’s. (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated “AA” or better by S&P and “Aa” or better by Moody’s.
(10) Local Agency Investment Fund of the State of California. (11) Investment agreements, including guaranteed investment contracts, repurchase agreements and forward delivery agreements, that are obligations of an entity rated, or whose obligations are rated, or guaranteed by an entity which is rated or whose obligations are rated, (at the time the investment is entered into) not lower than “A-“ by S&P or Fitch, or “A3” by Moody’s. (12) Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:
(a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions;

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(b) the municipal obligations are secured by cash or United States Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations;
(c) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations (“Verification”); (d) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;
(e) no substitution of a United States Treasury Obligation is permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and (f) the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent.

The Trustee has no responsibility to monitor the ratings of Permitted Investments after the initial purchase of such Permitted Investments.
“Person” means an individual, corporation, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. “Project” means the design, acquisition, construction and installation of certain public capital improvements to be located at the City’s Ramsay Park and City Plaza, and related infrastructure improvements as further described in Exhibit B to the Lease Agreement. “Project Fund” means the fund by that name established in accordance with the Indenture. “Principal Fund” means the account by that name established in accordance with the Indenture. “Rebate Fund” means the fund by that name established in accordance with the Indenture. “Rebate Requirement” has the meaning ascribed thereto in the Tax Certificate. “Record Date” means the fifteenth day of the month next preceding an Interest Payment Date, whether or not such day is a Business Day.
“Redemption Fund” means the fund by that name established in accordance with the Indenture. “Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant to the Indenture.
“Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments.
“Rental Period” means the period from the Closing Date through April 30, 2026, and, thereafter, the twelve-month period commencing on May 1 of each year during the term of the Lease Agreement.

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“Representation Letter” means the Letter of Representations from the Authority to DTC, or any successor securities depository for any Series of Book-Entry Bonds, in which the Authority makes certain representations with respect to issues of its securities for deposit by DTC or such successor depository. “S&P” means S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, its successors and assigns, except that if such entity no longer performs the functions of a securities rating agency for any reason, the term “S&P” will be deemed to refer to any other nationally recognized securities rating agency selected by the Authority.
“Securities Depositories” means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other securities depositories as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee. “Security Documents” means the Indenture, the Lease Agreement and the Assignment Agreement. “Series” means the Series 2025 Bonds executed, authenticated and delivered on the Closing Date and identified pursuant to the Indenture and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds.
“Series 2025 Bonds” means the Watsonville Public Finance Authority Lease Revenue Bonds, Series 2025 issued under the Indenture.
“Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture.
“Tax Certificate” means the Tax Certificate executed by the Authority and the City at the time of issuance of the Series 2025 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Trustee” means U.S. Bank Trust Company, National Association, a national banking association duly organized and existing under and by virtue of the laws of the United States, or any successor thereto as Trustee under the Indenture, appointed as provided therein.
“Written Certificate of the Authority” and “Written Request of the Authority” mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Authority Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument
“Written Certificate of the City” and “Written Request of the City” mean, respectively, a written certificate or written request signed in the name of the City by an Authorized City Representative. Any such certificate or request may, but need, not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument.

Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, the Indenture will be deemed to be and will constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered thereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered thereunder, subject to the agreements, conditions, covenants and provisions contained therein; and all agreements and covenants set forth therein to be performed by or on behalf of the Authority or the City are for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or

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otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided in the Indenture.

THE BONDS
Form of Series 2025 Bonds. The Series 2025 Bonds will be in substantially the form set forth in the Indenture, with appropriate or necessary insertions, omissions and variations as permitted or required by the Indenture.

Transfer and Exchange of Bonds. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds are surrendered for transfer, the Authority will execute and the Trustee will authenticate and deliver a new Bond or Bonds of the same Series in a like aggregate principal amount, in any Authorized Denomination. The Trustee will require the Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer.

The transferor shall also provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045. The Trustee may rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series of other authorized denominations. The Trustee will require the payment by the Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

The Trustee will not be obligated to make any transfer or exchange of Bonds of a Series pursuant to the Indenture during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption.

Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which will be open to inspection during regular business hours and upon reasonable notice by the City; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as provided in the Indenture.

Execution of Bonds. The Bonds will be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Authority Representative attested by the manual or facsimile signature of the Secretary or any duly authorized deputy secretary of the Authority. The Bonds will then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who will have signed or attested any of the Bonds will cease to be such officers of the Authority before the Bonds so signed or attested will have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, will be as binding upon the Authority as though those who signed and attested the same had continued to be such officers of the Authority, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds will be the proper officers of the Authority although at the nominal date of such Bonds any such Person will not have been such officer of the Authority.

Authentication of Bonds. Only such of the Bonds as will bear thereon a certificate of authentication substantially in the form as that set forth in the Indenture, manually executed by the Trustee, will be valid or

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obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of or on behalf of the Trustee will be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered under the Indenture and are entitled to the benefits of the Indenture.

Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, will be of such authorized denominations as may be determined by the Authority, will be in fully registered form without coupons and may contain such reference to any of the provisions of the Indenture as may be appropriate. Every temporary Bond will be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds of a Series it will execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds of such Series, may be surrendered, for cancellation, at the Office of the Trustee and the Trustee will authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of such Series in Authorized Denominations. Until so exchanged, the temporary Bonds of such Series are entitled to the same benefits under the Indenture as definitive Bonds of such Series authenticated and delivered under the Indenture.

Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond becomes mutilated, the Authority, at the expense of the Owner of said Bond, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like tenor and Series in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee will be canceled by it and delivered to, or in accordance with the order of, the Authority. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee is given, the Authority, at the expense of the Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like tenor and Series in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond has matured or has been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under the Indenture and of the expenses which may be incurred by the Authority and the Trustee. Any Bond of a Series issued under the provisions of the Indenture in lieu of any Bond of such Series alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and will be entitled to the benefits of the Indenture with all other Bonds of such Series secured by the Indenture.

Book-Entry Bonds.
(a) Prior to the issuance of a Series of Bonds, the Authority may provide that such Series of Bonds will initially be issued as Book-Entry Bonds and, in such event, the Bonds of such Series for each maturity will be in the form of a separate single fully registered Bond (which may be typewritten). The Series 2025 Bonds will initially be issued as Book-Entry Bonds.

Except as provided in the Indenture, the registered Owner of all of the Book-Entry Bonds will be Cede & Co., as nominee of DTC. Notwithstanding anything to the contrary contained in the Indenture, payment of interest with respect to any Book-Entry Bond registered as of each Record Date in the name of Cede & Co. will be made by wire transfer of same-day funds to the account of Cede & Co. on the Interest Payment Date at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter.
(b) The Trustee and the Authority may treat DTC (or its nominee) as the sole and exclusive Owner of Book-Entry Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to Book-Entry Bonds, selecting Book-Entry Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Book-Entry Bonds under the

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Indenture, registering the transfer of Book-Entry Bonds, obtaining any consent or other action to be taken by Owners of Book-Entry Bonds and for all other purposes whatsoever, and neither the Trustee nor the Authority will be affected by any notice to the contrary. Neither the Trustee nor the Authority have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in Book-Entry Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant, the payment by DTC or any Participant of any amount in respect of the principal, premium, if any, or interest with respect to Book-Entry Bonds, any notice which is permitted or required to be given to Owners of Book-Entry Bonds under the Indenture, the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of Book-Entry Bonds, or any consent given or other action taken by DTC as Owner of Book-Entry Bonds. The Trustee will pay all principal, premium, if any and interest with respect to Book-Entry Bonds, only to DTC, and all such payments will be valid and effective to fully satisfy and discharge the Authority’s obligations with respect to the principal, premium, if any, and interest with respect to the BookEntry Bonds to the extent of the sum or sums so paid. Except under the conditions of subsection (c) below, no person other than DTC will receive an executed Book-Entry Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in the Indenture with respect to record dates, the term “Cede & Co.” in the Indenture will refer to such new nominee of DTC. (c) In the event (i) DTC, including any successor as securities depository for a Series of Bonds, determines not to continue to act as securities depository for such Series of Bonds; or (ii) the Authority determines that the incumbent securities depository will no longer so act, and delivers a written certificate to the Trustee to that effect, then the Authority will discontinue the book-entry system with the incumbent securities depository for such Series of Bonds. If the Authority determines to replace the incumbent securities depository for such Series of Bonds with another qualified securities depository, the Authority will prepare or direct the preparation of a new single, separate fully registered Bond of such Series for the aggregate outstanding principal amount of Bonds of such Series of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Authority, the Trustee and the successor securities depository for the Bonds of such Series as are not inconsistent with the terms of the Indenture. If the Authority fails to identify another qualified successor securities depository for such Series of Bonds to replace the incumbent securities depository, then the Bonds of such Series will no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository for such Series of Bonds, or its nominee, designate. In such event the Authority will execute, and deliver to the Trustee, a sufficient quantity of Bonds of such Series to carry out the transfers and exchanges provided in the Indenture. All such Bonds of such Series will be in fully registered form in Authorized Denominations.
(d) Notwithstanding any other provision of the Indenture to the contrary, so long as any Book-Entry Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Book-Entry Bond and all notices with respect to such BookEntry Bond will be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book-Entry Bonds pursuant to the Indenture by the Authority, the City or the Trustee with respect to any consent or other action to be taken by Owners, the Authority, the City or the Trustee, as the case may be, will establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible.

In connection with any proposed transfer outside the Book-Entry Only system, the Authority, the City or DTC shall provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including without limitation any cost basis reporting

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obligations under Internal Revenue Code Section 6045. The Trustee may rely on the information provided to it and shall have no responsibility to verify or ensure the accuracy of such information.

ISSUANCE OF BONDS; APPLICATION OF PROCEEDS
Issuance of Series 2025 Bonds. The Authority may, at any time, execute the Series 2025 Bonds for issuance pursuant to the Indenture and deliver the same to the Trustee. The Trustee will authenticate the Series 2025 Bonds and deliver the Series 2025 Bonds to the original purchaser thereof upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor.

Conditions for the Issuance of Additional Bonds. The Authority may at any time issue one or more Series of Additional Bonds (in addition to the Series 2025 Bonds) payable from Base Rental Payments as provided in the Indenture on a parity with all other Bonds theretofore issued thereunder, but only subject to the following conditions, which are conditions precedent to the issuance of such Additional Bonds:
(a) The issuance of such Additional Bonds has been authorized under and pursuant to the Indenture and has been provided for by a Supplemental Indenture which specifies the following:
(i) The application of the proceeds of the sale of such Additional Bonds; (ii) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (iii) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that (i) the serial Bonds of such Series of Additional Bonds are payable as to principal annually on May 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds have annual mandatory sinking fund redemptions on May 1, (ii) the Additional Bonds are payable as to interest semiannually on May 1 and November 1 of each year, except that the first installment of interest may be payable on either May 1 or November 1 and will be for a period of not longer than twelve months and the interest will be payable thereafter semiannually on May 1 and November 1, (iii) all Additional Bonds of a Series of like maturity will be identical in all respects, except as to number or denomination, and (iv) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, will be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates;
(iv) The redemption premiums and terms, if any, for such Additional Bonds; (v) The form of such Additional Bonds; and
(vi) If a reserve fund is to be established and maintained for such Series of Additional Bonds, the applicable reserve requirement and the amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in such reserve fund to be held as separate security for such Series of Additional Bonds;
(vii) Designate accounts in the Interest Fund, the Principal Fund, the Redemption Fund, the Rebate Fund and the reserve fund (if any) to be applicable to such Additional Bonds; and (viii) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions of the Indenture; including the establishment of a capitalized interest fund for the Additional Bonds, if appropriate;