Agenda packet — Watsonville City Council, September 22, 2026 (part 3 of 5)

53 Section 11.16. Paired Obligation Provider Guidelines. For purposes of Sections 6.14 and

6.21, Paired Obligations shall comply with the following conditions:
(a) A Paired Obligation Provider shall initially have a long-term rating of A- or better by S&P and A3 or better by Moody’s.
(b) So long as the long-term rating of the Paired Obligation Provider is not reduced below BBB by S&P or Baa2 by Moody’s, the interest rate of such Paired Obligation shall be deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of Sections

6.14 and 6.21.

In the event that a Paired Obligation Provider does not maintain the Minimum Rating Requirement and the City does not replace such Paired Obligation Provider with another Paired Obligation Provider which maintains the Initial Rating Requirement within ten (10) Business Days of notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement, interest with respect to such Paired Obligations shall be computed for purposes of Sections 6.14 and

6.21 without regard to payments to be received from the Paired Obligation Provider. The Trustee has no obligation to monitor the ratings of any Paired Obligation Providers. [Signature Page Follows]

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IN WITNESS WHEREOF, the City has caused the Indenture to be signed in its name by its Authorized Officer, and the Trustee, in token of its acceptance of the duties and obligations of the Trustee created hereunder, has caused the Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written.

CITY OF WATSONVILLE
By:

TAMARA VIDES

CITY MANAGER
ATTEST:

By:

IRWIN I. ORTIZ

CITY CLERK
APPROVED AS TO FORM:

Samantha W. Zutler
City Attorney
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee
By:

Authorized Officer

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EXHIBIT A
FORM OF 2026 BOND

UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED OFFICER OF THE

DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE TRUSTEE FOR

REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS

REQUESTED BY AN AUTHORIZED OFFICER OF THE DEPOSITORY (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED

BY AN AUTHORIZED OFFICER OF THE DEPOSITORY), ANY TRANSFER, PLEDGE, OR

OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

No. ____ $__________

UNITED STATES OF AMERICA

STATE OF CALIFORNIA

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026

INTEREST RATE MATURITY DATE DATED DATE CUSIP
____% May 1, 20__ ____, 2026
REGISTERED OWNER CEDE & CO.

PRINCIPAL AMOUNT: _________________________________________ DOLLARS The CITY OF WATSONVILLE, a municipal corporation that is duly organized and existing under its charter and the Constitution of the State of California (the “City”), for value received, hereby promises to pay to the Registered Owner specified above or registered assigns (the “Registered Owner”), on the Maturity Date specified above (subject to any right of prior redemption hereinafter provided for), the Principal Amount specified above, in lawful money of the United States of America, and to pay interest thereon in like lawful money from the interest payment date next preceding the date of authentication of this Bond (unless: (i) this Bond is authenticated after the fifteenth day of the calendar month preceding an interest payment date, whether or not such day is a business day, and on or before the following interest payment date, in which event it shall bear interest from such interest payment date; or (ii) this Bond is authenticated on or before April 15, 2027, in which event it shall bear interest from the Original Issue Date identified above; provided, however, that if as of the date of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the interest payment date to which interest has previously been paid or made available for payment on this Bond), at the Interest Rate per annum specified above, payable on May 1, 2027 and each May 1 and November 1 thereafter, calculated on the basis of a 360-day year composed of twelve 30-day months. Principal hereof and premium, if any, upon early redemption hereof are payable by check of the Trustee upon presentation and surrender hereof at the Office (as defined in the hereinafter described Indenture) of U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Interest hereon is payable by check of the Trustee sent by

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first class mail on the applicable interest payment date to the Registered Owner hereof at the Registered Owner’s address as it appears on the registration books of the Trustee as of the close of business on the fifteenth day of the month preceding each interest payment date (except that in the case of a Registered Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Registered Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Registered Owner prior to the fifteenth (15th) day of the month preceding such interest payment date).

This Bond is not a debt of the State of California, or any of its political subdivisions (other than the City), and neither the State, nor any of its political subdivisions (other than the City), is liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the City other than the Net Revenues (as such term is defined in the Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and the Trustee) and other moneys pledged therefor under the Indenture. The obligation of the City to make payments in accordance with the Indenture is a limited obligation of the City as set forth in the Indenture and the City shall have no liability or obligation in connection herewith except with respect to such payments to be made pursuant to the Indenture. This Bond does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limitation or restriction.

This Bond is one of a duly authorized issue of bonds of the City designated as the “City of Watsonville Wastewater Revenue Bonds, Series 2026” (the “2026 Bonds”), of an aggregate principal amount of _____________ Dollars ($[PAR]), all of like tenor and date (except for such variation, if any, as may be required to designate varying numbers or interest rates) and all issued pursuant to the provisions of Section 200 of the City’s charter and Chapter 9 of Title 3 of the City’s Municipal Code, and pursuant to the Indenture and the resolution authorizing the issuance of the 2026 Bonds.

Reference is hereby made to the Indenture (copies of which are on file at the office of the City) and all supplements thereto for a description of the terms on which the 2026 Bonds are issued, the provisions with regard to the nature and extent of the Net Revenues, and the rights thereunder of the Owners of the 2026 Bonds and the rights, duties and immunities of the Trustee and the rights and obligations of the City hereunder, to all of the provisions of which the Registered Owner of this Bond, by acceptance hereof, assents and agrees. The 2026 Bonds have been issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof.

The 2026 Bonds have been issued by the City for the purpose of financing certain capital improvements to the Wastewater System of the City.

This Bond and the interest, premium, if any, hereon and all other 2026 Bonds and the interest and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the City, secured by a pledge and lien on the Net Revenues, the Revenue Fund, the Reserve Fund, and any other amounts on deposit in certain funds and accounts to the extent set forth in the Indenture, and payable from the Net Revenues. As and to the extent set forth in the Indenture, all of the Net Revenues are exclusively and irrevocably pledged in accordance with the terms hereof and the provisions of the Indenture, to the payment of the principal of and interest and premium (if any) on this Bond.

The Indenture and the rights and obligations of the City and the Owners of the 2026 Bonds and the Trustee may be modified or amended from time to time and at any time with the written consent of the Owners of a majority in aggregate principal amount of all 2026 Bonds then

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Outstanding, exclusive of Bonds disqualified as set forth in the Indenture, in the manner, to the extent and upon the terms provided in the Indenture, but no such modification or amendment shall: (i) extend the fixed maturity of any 2026 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the owner of each 2026 Bond so affected; or (ii) reduce the aforesaid percentage of 2026 Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Net Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the 2026 Bonds of the lien created by the Indenture on such Net Revenues and other assets, except as expressly provided in the Indenture, without the consent of the Owners of all of the 2026 Bonds then Outstanding.

The Indenture and the rights and obligations of the City, of the Trustee and the Owners of the 2026 Bonds may also be modified or amended for certain purposes described more fully in the Indenture at any time in the manner, to the extent and upon the terms provided in the Indenture by a supplemental indenture, which the City and the Trustee may enter into without the consent of any 2026 Bond Owners, if the Trustee shall receive an Opinion of Bond Counsel to the effect that the provisions of such supplemental indenture will not materially adversely affect the interests of the Owners of the Outstanding 2026 Bonds.

The 2026 Bonds are subject to optional and sinking fund redemption prior to maturity as provided in the Indenture.

If an Event of Default, as defined in the Indenture, shall occur, the principal of all of the 2026 Bonds and the interest accrued thereon may be declared due and payable upon the conditions, in the manner and with the effect provided in the Indenture, but such declaration and its consequences may be rescinded and annulled as further provided in the Indenture.

This Bond is transferable by the Registered Owner hereof, in person or by his or her duly authorized attorney in writing, at the office of the Trustee but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture and upon surrender and cancellation of this Bond. Upon registration of such transfer, a new 2026 Bond or 2026 Bonds, of authorized denomination or denominations, for the same aggregate principal amount of the same maturity will be issued to the transferee in exchange therefor.

This Bond may be exchanged at said office of the Trustee for a like aggregate principal amount of Bonds of other authorized denominations of the same maturity, but only in the manner, subject to the limitations and upon payment of the taxes and charges provided in the Indenture.

The Trustee shall not be required to register the transfer or exchange of this Bond during the period in which the Trustee is selecting 2026 Bonds for redemption or if this Bond has been selected for redemption.

The City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the City and the Trustee shall not be affected by any notice to the contrary.

It is hereby certified that all of the things, conditions and acts required to exist, to have happened or to have been performed precedent to and in the issuance of this Bond do exist, have

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happened or have been performed in due and regular time, form and manner as required by the Indenture and the laws of the State of California and that the amount of this Bond, together with all other indebtedness of the City, does not exceed any limit under any laws of the State of California, and is not in excess of the amount of 2026 Bonds permitted to be issued under the Indenture.

This Bond shall not be entitled to any benefit under the Indenture or become valid or obligatory for any purpose until the certificate of authentication hereon endorsed shall have been manually signed by the Trustee.

IN WITNESS WHEREOF, the City has caused this Bond to be executed in its name and on its behalf with the manual or facsimile signature of its City Manager and the City Clerk, all as of the Dated Date identified above.

CITY OF WATSONVILLE
By:

TAMARA VIDES

CITY MANAGER
Attest:

IRWIN I. ORTIZ

CITY CLERK

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Statement of Insurance
[To come from Insurer]

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[FORM OF TRUSTEE’S CERTIFICATE OF AUTHENTICATION
TO APPEAR ON BONDS]
This is one of the Bonds described in the within-mentioned Indenture.

Dated: _________, 2026
U.S. BANK TRUST COMPANY, NATIONAL
ASSOCIATION, as Trustee
By:

Its: Authorized Signatory

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[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers unto (Name, Address and Tax Identification or
Social Security Number of Assignee)
the within registered Bond and hereby irrevocably constitute(s) and appoint(s) __________________ _________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises.

Dated:

Note: The signature(s) on this Assignment must
correspond with the name(s) as written on the
face of the within Bond in every particular
without alteration or enlargement or any
change whatsoever.

Signature Guaranteed:

Note: Signature guarantee shall be made by a
guarantor institution participating in
the Securities Transfer Agents
Medallion Program or in such other
guarantee program acceptable to the
Trustee.

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EXHIBIT B
DESCRIPTION OF 2026 PROJECT
The Project consists of the City’s Energy Infrastructure Modernization Program at the Watsonville Wastewater Treatment Facility. The Energy Infrastructure Modernization Program is an energy service company design‑build project to be undertaken pursuant to a guaranteed maximum price construction agreement with Climatec, LLC. The Project includes, among other components, replacement of the existing cogeneration engine‑generator with new linear generators, installation of a biogas conditioning/gas scrubber system, replacement of the existing coarse bubble diffuser aeration system with high‑efficiency turbo blowers and fine bubble diffusers, installation of a sludge dewatering system, and a secondary treatment process model, together with related engineering, environmental, and construction management costs.

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EXHIBIT C

FORM OF REQUISITION FROM ACQUISITION FUND
$[PAR]

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026
REQUISITION NO. __ FOR

DISBURSEMENT FROM ACQUISITION FUND
The undersigned hereby states and certifies:
(i) that the undersigned is the duly appointed, qualified and acting Finance Director of the City of Watsonville, a municipal corporation that is organized and existing under its charter and the Constitution of the State of California (the “City”), and as such, is familiar with the facts herein certified and is authorized to certify the same;
(ii) that, pursuant to Section 3.05 of that certain Indenture of Trust, dated as of October 1, 2026, by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), the undersigned hereby requests the Trustee to disburse this date the following amounts from the Acquisition Fund established under the Indenture relating to the above-captioned obligations, to the payees designated on the attached Exhibit A; (iii) that each obligation mentioned herein has been incurred by the City and is a proper charge against the Acquisition Fund;
(iv) that any approval required under the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code), prior to the expenditure of such amount for the purpose set forth on the attached Exhibit A has been received and is final; and (v) that there has not been filed with or served upon the City notice of any lien, right to lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys payable to any of the payees named on the attached Exhibit A, which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen’s or mechanics’ liens accruing by mere operation of law.

Dated: _________ __, 20__

CITY OF WATSONVILLE
By:

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EXHIBIT A

ACQUISITION FUND DISBURSEMENTS
Item
Number Payee Name and Address Purpose of Obligation Amount

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EXHIBIT D

FORM OF SUBSTITUTION STATEMENT
U.S. Bank Trust Company, National Association
One California Street, Suite 1000
San Francisco, California 94111
Attention: Global Corporate Trust Services
Reference: City of Watsonville Wastewater Revenue Bonds, Series 2026 The undersigned ______ of the City of Watsonville (the “City”) hereby states pursuant to Section 3.06 of the Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee, that each component of the 2026 Project (as such term is defined in the Indenture) described in the first column of Exhibit A attached hereto, with an estimated cost set forth in the second column of Exhibit A, will be replaced by the corresponding improvement described in the third column of Exhibit A with an estimated cost set forth in the fourth column of Exhibit A.

Dated: _________ __, 20__
______

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EXHIBIT A
Components of
2026 Project to
be Replaced
Cost of Each
Component of
2026 Project
to be Replaced
Improvements
to be
Substituted
Cost of Each
Improvement
to be
Substituted

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Agenda Draft
PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER __, 2026 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall therebe any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

NEW ISSUE – BOOK-ENTRY ONLY RATINGS: INSURED: S&P: “___” UNDERLYING: S&P “___”
(See “RATINGS” herein)
In the opinion of Anzel Galvan LLP, San Francisco, California, Bond Counsel, under existing law and subject to certain qualifications described herein, interest on the 2026 Bonds is excludable from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the 2026 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 purposes of computing the alternative minimum tax imposed on certain corporations. In the further opinion of Bond Counsel, interest on the 2026 Bonds is exempt from California personal income taxes. See “TAX MATTERS” herein. $[PAR AMOUNT]*

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026
Dated: Date of Delivery Due: May 1, as shown on the inside front cover THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THE 2026 BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION.

The above-captioned bonds (the “2026 Bonds”) are being issued by the City of Watsonville (the “City”) pursuant to a resolution of the City Council of the City adopted on September 22, 2026, an Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and pursuant to Chapter 9 of Title 3 of the City’s Municipal Code (the City of Watsonville Public Enterprise Financing Law), as supplemented by the general authority conferred by Section 200 of the City’s Charter (collectively, the “Bond Law”). The 2026 Bonds will be issued in fully registered form, in denominations of $5,000 or any integral multiple thereof, and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the 2026 Bonds. Individual purchases of the 2026 Bonds will be made in book-entry form only. Purchasers of the 2026 Bonds will not receive physical certificates representing their interests in the 2026 Bonds. See “APPENDIX F – BOOK-ENTRY ONLY SYSTEM” herein.

Payments of principal and interest on the 2026 Bonds will be made by the Trustee to DTC, which will in turn remit such principal and interest to its participants for subsequent disbursement to Beneficial Owners of the 2026 Bonds as described herein. Interest on the 2026 Bonds is payable on each May 1 and November 1, commencing May 1, 2027, until the maturity or the earlier redemption thereof. Principal on the 2026 Bonds will be paid on each May 1, commencing May 1, 2027, upon surrender of such 2026 Bond at the principal corporate office of the Trustee upon maturity or the earlier prepayment thereof.

The 2026 Bonds are subject to optional redemption and mandatory sinking fund redemption prior to maturity, as described herein. See “THE 2026 BONDS – Redemption” herein.

Proceeds of the 2026 Bonds will be used to (i) finance the costs of the City’s Energy Infrastructure Modernization Program at the Watsonville Wastewater Treatment Facility, (ii) purchase a municipal bond insurance policy to guarantee payment of the principal of and interest on the 2026 Bonds when due, (iii) purchase a debt service reserve insurance policy for deposit in the Reserve Fund for the 2026 Bonds, and (iv) pay costs of issuance of the 2026 Bonds. See “PLAN OF FINANCE” herein.

The 2026 Bonds are limited obligations of the City payable solely from and secured by a pledge of and lien on Net Revenues, which consist of Revenues of the City’s Wastewater System remaining after the payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts held under the Indenture.

The scheduled payment of principal of and interest on the 2026 Bonds when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the 2026 Bonds by [INSURER] (the “Insurer” or “__”). The Insurer will also issue a debt service reserve insurance policy concurrently with the issuance of the 2026 Bonds to be credited to the Reserve Fund to satisfy the Reserve Requirement for the 2026 Bonds. See “BOND INSURANCE” herein. [INSURER LOGO]
THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026 BONDS PURSUANT TO THE

INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE GENERAL CREDIT OR TAXING POWER OF THE CITY IS PLEDGED. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026 BONDS

IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE OF AND LIEN ON

NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY

POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS” and “RISK FACTORS” herein.

The 2026 Bonds are offered, when, as and if issued and received by the Underwriter, subject to the approval as to legality by Anzel Galvan LLP, San Francisco, California, Bond Counsel. Anzel Galvan LLP is also acting as Disclosure Counsel to the City. Certain legal matters will be passed upon for the City by Burke, Williams & Sorensen, LLP, as City Attorney, and for the Underwriter by Kutak Rock LLP, Irvine, California, for the Insurer by its counsel and for the Trustee by its counsel. It is anticipated that the 2026 Bonds will be available for delivery through the facilities of DTC on or about _______, 2026. [UNDERWRITER LOGO]
Dated: __________, 2026
* Preliminary; subject to change.

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MATURITY SCHEDULE
Base CUSIP†_____
$[PAR AMOUNT]*

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026
Maturity Date
(May 1)
Principal
Amount
Interest
Rate Yield Price CUSIP†
$__________ _____% Term Bond due _____ 1, 20__ Yield: _____% - Price: _____ CUSIP†: _____ * Preliminary; subject to change.
† 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© 2026 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 City, or their agents or counsel, assume responsibility for the accuracy of such numbers.

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GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT
No dealer, broker, salesperson, or other person has been authorized by the City to give any information or to make any representations 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. 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 2026 Bonds, by a person in any jurisdiction in which it is unlawful for such person to make an offer, solicitation, or sale.

This Official Statement is not to be construed as a contract with the purchasers of the 2026 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 information set forth herein has been obtained by the City from sources that are believed to be reliable. The information in the section of this Official Statement captioned “APPENDIX F – BOOKENTRY ONLY SYSTEM” has been furnished by The Depository Trust Company, and no representation has been made by the City, the Municipal Advisor, or the Underwriter as to the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change 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 since the date hereof. This Official Statement is submitted with respect to the sale of the 2026 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 the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions.

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 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.

Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget,” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves 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 has no plans to issue any updates or revisions to any forward-looking statements in this Official Statement. No assurance is given that actual results will meet the City’s forecasts in any way, regardless of the level of optimism communicated in the information.

This Official Statement, including any supplement or amendment hereto, is intended to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access (“EMMA”) system. A wide variety of other information, including financial information, concerning the City, is available from publications and websites of the City and others. No such information is a part of or incorporated into this Official Statement, except as expressly noted herein.

THE 2026 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2026 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

THE UNDERWRITER MAY OFFER AND SELL THE 2026 BONDS TO CERTAIN DEALERS

AND DEALER BANKS AND BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER

THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND

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SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER.
[INSURER] (the “Insurer” or “__”) makes no representation regarding the 2026 Bonds or the advisability of investing in the 2026 Bonds. In addition, the Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the Insurer supplied by the Insurer and presented under the heading “BOND INSURANCE” and APPENDIX H—“SPECIMEN MUNICIPAL BOND INSURANCE POLICY.”

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CITY OF WATSONVILLE

SANTA CRUZ COUNTY, CALIFORNIA

CITY COUNCIL
Kristal Salcido, Mayor
Casey K. Clark, Mayor Pro Tempore
Eduardo Montesino, Council Member
Vanessa Quiroz-Carter, Council Member
Maria Orozco, Council Member
Jimmy Dutra, Council Member
Ari Parker, Council Member

CITY STAFF
Tamara Vides, City Manager
Irwin I. Ortiz, City Clerk
Marissa Duran, Administrative Services Director/City Treasurer Danielle Green, Director of Public Works & Utilities

PROFESSIONAL SERVICES
City Attorney
Burke, Williams & Sorensen, LLP
San Francisco, California
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

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i
Table of Contents
INTRODUCTION..............................................1 Authorization; Purpose...................................1 The City..........................................................1 The Wastewater System .................................2 Security and Sources of Payment for the 2026
Bonds..............................................................2 Additional Bonds and Contracts.....................3
Bond Insurance...............................................3 Debt Service Reserve Fund ............................3 Rate Covenant ................................................3 Limited Obligation .........................................3 Continuing Disclosure....................................4 Forward-Looking Statements.........................4
Risk Factors....................................................4 Summaries and References.............................4
PLAN OF FINANCE.........................................5 The Project .....................................................5 Estimated Sources and Uses of Funds............5
THE 2026 BONDS.............................................6 General Provisions .........................................6 Redemption ....................................................6 Transfer and Exchange...................................8

SECURITY AND SOURCES OF PAYMENT
FOR THE 2026 BONDS....................................8 Limited Obligation .........................................8 Pledge of Net Revenues..................................9 Flow of Funds.................................................9 Debt Service Reserve Fund ............................9 Rate Stabilization Fund ................................10 Rate Covenant ..............................................10 Issuance of Additional Bonds and Contracts11
Acceleration..................................................11 Insurance and Condemnation .......................12
DEBT SERVICE SCHEDULE........................12
BOND INSURANCE.......................................13 THE CITY........................................................14 General......................................................... 14 City Council................................................. 14 City Management......................................... 14 Management Policies................................... 15 Budget Process............................................. 16 Employees; Labor Relations........................ 17
Risk Management ........................................ 17 Outstanding Parity Obligations.................... 18
THE WASTEWATER SYSTEM.................... 19
General......................................................... 19 Watsonville Wastewater Treatment Facility 19
Outside District Wastewater Agreements.... 21
Recycled Water Facility............................... 23 Environmental Compliance and Regulatory
Status............................................................ 24 Historical Wastewater System Connections 25
Largest Wastewater System Customers....... 26
Wastewater System Rates and Charges....... 26
Connection Charges..................................... 28 Comparative Wastewater Rates................... 28
Billing and Collection Procedures............... 29
Future Wastewater System Improvements.. 30
Projected Wastewater System Connections. 31
Growth Management ................................... 31

WASTEWATER SYSTEM FINANCIAL
INFORMATION ............................................. 32 Financial Statements.................................... 32 Available Cash............................................. 32 Historical Operating Results and Debt Service
Coverage ...................................................... 32 Projected Operating Results and Debt Service
Coverage ...................................................... 34 Retirement Plans.......................................... 35 Other Post-Employment Benefits................ 39

CONSTITUTIONAL LIMITATIONS ON
APPROPRIATIONS AND CHARGES .......... 39
Article XIIIB................................................ 39

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ii
Proposition 218.............................................39 Proposition 26...............................................41 Future Initiatives and Legislation.................42
RISK FACTORS..............................................42 Limited Obligations......................................42 Accuracy of Assumptions and Projections...42
System Demand............................................42 System Expenses..........................................43 Concentration of System Revenues...... Error!
Bookmark not defined.

Rate Covenant Not a Guarantee ...................43
Proposition 218 and Rate-Setting Risk ........43
Additional Parity Obligations.......................44
Acceleration; Limitation on Remedies.........44
Effect of City Bankruptcy ............................45 Statutory and Regulatory Compliance..........47
Natural Disasters ..........................................48 Drought and Water Conservation.................49
Climate Change and Sea Level Rise ............49
Public Health Emergencies...........................49
Cybersecurity................................................50 Federal Funding Risks................................. 50 Loss of Tax-Exempt Status.......................... 50
Secondary Market........................................ 51 Ratings; Change or Withdrawal of Ratings. 51
Future Litigation .......................................... 51 APPROVAL OF LEGAL PROCEEDINGS ... 51
NO LITIGATION............................................ 51 The City and the 2026 Bonds ...................... 51
The Wastewater System............................... 52 TAX MATTERS ............................................. 52 General......................................................... 52 Original Issue Premium and Discount......... 52
Post Issuance Matters................................... 53 CERTAIN LEGAL MATTERS ...................... 54
RATINGS........................................................ 54 CONTINUING DISCLOSURE ...................... 54
UNDERWRITING .......................................... 55 MUNICIPAL ADVISOR ................................ 55
FINANCIAL INTERESTS.............................. 55
MISCELLANEOUS........................................ 55 APPENDIX A – ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY AND COUNTY
APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE APPENDIX C – FORM OF OPINION OF BOND COUNSEL
APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATE
APPENDIX E – AUDITED FINANCIAL STATEMENTS
APPENDIX F – BOOK-ENTRY ONLY SYSTEM
APPENDIX G – ADOPTED WASTEWATER RATE RESOLUTION
APPENDIX H – SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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1 OFFICIAL STATEMENT
$[PAR AMOUNT]*

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026

INTRODUCTION
This Official Statement, which includes the front cover page, the inside front cover page, the table of contents, and the appendices hereto (the “Official Statement”), provides certain information concerning the issuance by the City of Watsonville (the “City”) of its $[PAR AMOUNT]* aggregate principal amount of Wastewater Revenue Bonds, Series 2026 (the “2026 Bonds”).

This introduction is not a summary of this Official Statement. This introduction contains only brief descriptions of the 2026 Bonds, the security for the 2026 Bonds and certain other matters relating to the 2026 Bonds. All such descriptions are qualified in their entirety by reference to the more detailed information appearing elsewhere in this Official Statement, including the cover page and appendices hereto, and the offering of the 2026 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B.

Authorization; Purpose
The 2026 Bonds are being issued by the City pursuant to a resolution of the City Council of the City adopted on September 22, 2026, an Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and pursuant to Chapter 9 of Title 3 of the City’s Municipal Code (the City of Watsonville Public Enterprise Financing Law), as supplemented by the general authority conferred by Section 200 of the City’s Charter (collectively, the “Bond Law”).

The 2026 Bonds are being issued to: (i) finance the City’s Energy Infrastructure Modernization Program at the Watsonville Wastewater Treatment Facility (the “Treatment Plant”), an ESCO‑structured design‑build project that will replace the existing cogeneration engine‑generator with new linear generators and biogas conditioning equipment and upgrade aeration and sludge dewatering systems; (ii) to pay the premium for a Municipal Bond Debt Service Reserve Insurance Policy (the “Reserve Policy”) to be issued by [INSURER] (the “Insurer”) for deposit in the Reserve Fund to fund the initial Reserve Requirement; and (iii) to pay certain costs of issuance of the 2026 Bonds, including the premium for a Municipal Bond Insurance Policy (the “Insurance Policy”) insuring the 2026 Bonds, to be issued by the Insurer concurrently with the issuance of the 2026 Bonds. See “PLAN OF FINANCE.” The City
The City is a charter city organized and existing under the laws of the State of California, located in the County of Santa Cruz approximately six miles inland from the Monterey Bay. It was incorporated in 1868 and, in 1903, became a chartered city. The City provides a full range of services. See “THE CITY” herein.
* Preliminary; subject to change.

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2 The Wastewater System
The City owns and operates a wastewater collection, treatment, recycling, and disposal system (the “Wastewater System”) serving residential, commercial, and industrial customers within the City. The Wastewater System includes more than 120 miles of gravity sanitary sewer pipeline, 5.6 miles of force main pipelines, 13 lift stations, and more than 2,350 access structures within the City limits. Wastewater is treated at the Treatment Plant, a City-owned and operated treatment facility. A recycled water facility built by the City in partnership with the Pajaro Valley Water Management Agency (“Pajaro Valley Water”) is located adjacent to the Treatment Plant.

The Wastewater System collects wastewater in approximately 6.6 square miles of the 6.8 square miles of the City. It also receives wastewater for treatment that is collected by three outside sanitary districts: Freedom County Sanitation District (“FCSD”); Pajaro County Sanitation District (“PCSD”); and Salsipuedes Sanitary District (“SSD” and together with FCSD and PCSD, the “Outside Districts”). Taking into account the wastewater collected by the Outside Districts, the Wastewater System provides wastewater services to approximately 21 square miles to a population of approximately 60,000 in Santa Cruz County.

Under their respective Outside District Wastewater Agreements, each of the Outside Districts is obligated to pay the City an amount equal to their proportionate share of the Wastewater System’s operation and maintenance costs and certain capital costs. The City is not responsible for the collection of wastewater within the service areas of the Outside Districts, nor is it responsible for payment of their operating, maintenance or capital costs of the Outside Districts.

Revenues of the Wastewater System are derived primarily from service charges paid by System customers pursuant to rates, fees, and charges adopted by the City Council. See “THE WASTEWATER SYSTEM” and “WASTEWATER SYSTEM FINANCIAL INFORMATION” herein.

Security and Sources of Payment for the 2026 Bonds
The 2026 Bonds are limited obligations of the City payable solely from, and secured by a pledge of, Net Revenues of the Wastewater System, and from certain funds and accounts held under the Indenture. “Net Revenues” generally means gross Revenues of the Wastewater System less Operation and Maintenance Costs, all as more particularly defined in Appendix B hereto.

The obligation of the City to pay the 2026 Bonds from Net Revenues is on a parity with the obligation of the City to make payments on two installment sale agreements with the California State Water Resources Control Board, for the Mañana Lane Sewer Replacement Project (the “Mañana Lane Sewer Replacement Project Agreement”) and the Freedom Sanitation Trunk Sewer Line Project (the “Freedom Sanitation Trunk Sewer Line Project Agreement” and together with the Mañana Lane Sewer Replacement Project Agreement, the “Existing SRF Agreements”). Mañana Lane Sewer Replacement Project Agreement and Freedom Sanitation Trunk Sewer Line Project Agreement are outstanding in the principal amount of $955,319 and $3,472,022, respectively.

THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026

BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE GENERAL CREDIT OR TAXING POWER OF THE CITY IS PLEDGED. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026 BONDS IS A

SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE

OF AND LIEN ON NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR

OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN

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3 CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS” herein.

Additional Bonds and Contracts
The City may issue additional bonds and execute contracts or other obligations payable from and secured by a pledge of and lien on Net Revenues on a parity with the 2026 Bonds, subject to satisfaction of the conditions described under “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Issuance of Additional Bonds and Contracts.” The 2026 Bonds and all other revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from and secured by a pledge of and lien on Net Revenues on a parity with the 2026 Bonds are collectively referred to herein as the “Bonds.” The City may from time to time execute installment sale agreements, loan agreements, or other contracts, or other obligations payable from and secured by a pledge of and lien on Net Revenues on a parity with the 2026 Bonds. The Mañana Lane Sewer Replacement Project Agreement and Freedom Sanitation Trunk Sewer Line Project Agreement and all other contracts of the City authorized and executed by the City, the payments under which are payable from and secured by a pledge of and lien on Net Revenues on a parity with the 2026 Bonds and which are secured by a pledge and lien on Net Revenues, are hereinafter collectively referred to as the “Contracts.” Contracts exclude contracts entered into for operation and maintenance of the Wastewater System.

Bond Insurance
The scheduled payment of principal of and interest on the 2026 Bonds when due will be guaranteed under the Insurance Policy to be issued by the Insurer concurrently with the delivery of the 2026 Bonds.

See the caption “BOND INSURANCE.”
Debt Service Reserve Fund
A reserve account for the 2026 Bonds (the “Reserve Fund”) is established pursuant to the Indenture in an amount equal to the Reserve Requirement, which is an amount equal to the least of: (i) ten percent (10%) of the initial principal amount of the 2026 Bonds; (ii) Maximum Annual Debt Service with respect to the 2026 Bonds; or (iii) one hundred twenty-five percent (125%) of average Annual Debt Service for the then-current and each future Fiscal Year during which any 2026 Bonds will be Outstanding, in each case calculated as of the Closing Date. The Reserve Requirement for the 2026 Bonds is $_______. The Insurer will issue, simultaneously with the issuance of the 2026 Bonds, the Reserve Policy in the principal amount of $______ for deposit in the Reserve Fund to satisfy the Reserve Requirement. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS — Debt Service Reserve Fund” herein.

Limited Obligation
THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026

BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR

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4 WHICH THE GENERAL CREDIT OR TAXING POWER OF THE CITY IS PLEDGED. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026 BONDS IS A

SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES

NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR ANY

POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

Continuing Disclosure
The City will covenant in its continuing disclosure certificate (the “Continuing Disclosure Certificate”) for the benefit of the holders and beneficial owners of the 2026 Bonds to provide, or cause a Dissemination Agent to provide, to the Municipal Securities Rulemaking Board through its EMMA system, certain financial information and operating data relating to the City and the Wastewater System on an annual basis not later than nine months after the end of the City’s Fiscal Year (currently March 31 based on the City’s Fiscal Year end of June 30), commencing with the report for Fiscal Year 2025-26, due March 31, 2027, and to provide notice of certain enumerated events, in each case as required by Rule 15c2-12. See “CONTINUING DISCLOSURE” herein and “APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12.

Forward-Looking Statements
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget,” “project,” or similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties, and other factors that 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 those forwardlooking statements if or when its expectations, or events, conditions, or circumstances on which such statements are based, occur or fail to occur, other than as required by the Continuing Disclosure Certificate.

Risk Factors
Investment in the 2026 Bonds involves risks that may not be appropriate for some investors. See “RISK FACTORS” herein for a discussion of certain factors that should be considered, in addition to the other matters set forth herein, in evaluating an investment in the 2026 Bonds. The various risks discussed herein should be considered in evaluating the ability of the City to make payments of debt service on the 2026 Bonds in a timely manner. This discussion of risk factors is not, and is not intended to be, comprehensive or exhaustive.

Summaries and References
The summaries or references to the Indenture and other documents, agreements and statutes referred to herein, and the description of the Series 2026 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. Copies of the Indenture and additional information may be obtained upon request from the City of Watsonville City Clerk, 275 Main Street, Suite 400, Watsonville, California 95076.

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5 PLAN OF FINANCE
The Project
A portion of the proceeds of the 2026 Bonds will be used to finance the costs of the City’s Energy Infrastructure Modernization Program at the Watsonville Wastewater Treatment Facility, an energy service company (“ESCO”) design‑build project to be undertaken pursuant to a guaranteed maximum price construction agreement with Climatec, LLC (the “Project”). The Project includes, among other components, replacement of the existing cogeneration engine‑generator with new linear generators, installation of a biogas conditioning/gas scrubber system, replacement of the existing coarse bubble diffuser aeration system with high‑efficiency turbo blowers and fine bubble diffusers, installation of a sludge dewatering system, and a secondary treatment process model, together with related engineering, environmental, and construction management costs.

The City currently estimates the total cost of the Project at approximately $20.8 million, with an estimated net investment of approximately $19 million after anticipated federal incentives. The City expects to fund the Project through a combination of proceeds of the 2026 Bonds, federal incentives and utility incentives. See also “THE WASTEWATER SYSTEM – Future Wastewater System Improvements” herein for related cogeneration project cost estimates.

Construction of the Project is expected to commence in Fall 2026, and to be completed within 24 to 36 months thereafter. When complete, the Project is expected to reduce the Treatment Plant’s reliance on purchased electricity from Pacific Gas and Electric Company and to result in estimated savings of more than $800,000 per year in reduced purchased power costs; however, such savings are based on current engineering and ESCO analyses and on assumptions regarding energy prices, facility loading, incentive availability and other factors, and no assurance can be given that actual savings will be realized in the amounts or on the schedule currently anticipated. The projected operating results give effect to the estimated annual energy savings anticipated to result from the Project described under the caption “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage.”
Estimated Sources and Uses of Funds
The following table details the estimated sources and uses of 2026 Bond proceeds.

Estimated Sources
Principal Amount of Bonds
Plus: Net Original Issue Premium
Less: Underwriter’s Discount
Total Sources
Estimated Uses
Costs of Issuance (1)
Deposit to the Acquisition Fund (2)
Total Uses
(1) Includes fees and expenses of Bond Counsel, Disclosure Counsel, the Trustee, the Municipal Advisor, the rating agency, premiums for the Insurance Policy and the Reserve Policy, costs of printing and other miscellaneous costs. (2) Amounts in the Acquisition Fund are anticipated to be applied to the acquisition and construction of the Project.

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6 THE 2026 BONDS
General Provisions
The 2026 Bonds will be issued in fully registered form, without coupons, in denominations of $5,000 and any integral multiple thereof. The 2026 Bonds will be dated their date of delivery and will bear interest at the rates, and will mature in the amounts and on May 1 in the years, set forth on the inside cover page hereof, payable semiannually on May 1 and November 1 of each year, commencing May 1, 2027 (each, an “Interest Payment Date”). Interest on the 2026 Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months.

The 2026 Bonds will be issued only as book-entry bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company (“DTC”), New York, New York. DTC will act as securities depository for the 2026 Bonds. Ownership interests in the 2026 Bonds may be purchased in book-entry form only. See “APPENDIX F – BOOK-ENTRY ONLY SYSTEM.”
In the event that the book-entry only system that is described below is discontinued, interest on the 2026 Bonds will be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such Interest Payment Date, such interest to be paid by check of the Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books (except that in the case of an Owner of one million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner’s option, be made by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the Record Date). Principal of and premium (if any) on any 2026 Bond will be paid by check of the Trustee upon presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of the Trustee. Both the principal of and interest and premium (if any) on the 2026 Bonds will be payable in lawful money of the United States of America. As used herein, “Record Date” means the 15th day of the month next preceding each Interest Payment Date, whether or not such day is a Business Day.

Each 2026 Bond will be dated the date of initial delivery, and will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before April 15, 2027, in which event it will bear interest from the date of initial delivery; provided, however, that if, as of the date of authentication of any 2026 Bond, interest thereon is in default, such 2026 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on the 2026 Bonds will be calculated on the basis of a 360-day year composed of twelve 30-day months.

Redemption*
Optional Redemption. The 2026 Bonds maturing on or before May 1, 20__ are not subject to optional redemption prior to maturity. The 2026 Bonds maturing on or after May 1, 20__ are subject to redemption prior to their respective stated maturity dates, at the option of the City, as a whole or in part on May 1, 20__, or on any date thereafter, among maturities as directed by the City and by lot within a maturity, at a redemption price equal to 100 percent of the principal amount to be redeemed, plus accrued interest to the redemption date, without premium.
* Preliminary; subject to change.

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7 Mandatory Sinking Fund Redemption. The 2026 Bonds maturing on May 1, 20__ (the “Term Bonds”) are subject to mandatory sinking fund redemption, in part, by lot, on May 1 in each year, at a redemption price equal to 100 percent of the principal amount thereof to be redeemed, without premium, plus accrued interest to the redemption date, from sinking fund payments as follows:

Redemption Date
(May 1)
Principal
Amount
* Maturity.

If some but not all of the Term Bonds are optionally redeemed, the principal amount of the applicable Term Bonds to be redeemed pursuant to mandatory sinking fund redemption on any subsequent May 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Order of the City filed with the Trustee (which Written Order will include a revised sinking fund schedule); provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the applicable Term Bonds optionally redeemed.

Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2026 Bonds, the Trustee will select the 2026 Bonds for redemption as a whole or in part among maturities on any date as directed by the City and by lot within each maturity in integral multiples of $5,000. The Trustee will promptly notify the City in writing of the numbers of the 2026 Bonds or portions thereof so selected for redemption.

Notice of Redemption. Notice of redemption will be sent electronically or mailed by first class mail, postage prepaid, not less than 20 nor more than 60 days prior to the redemption date, to the respective registered owners of 2026 Bonds at their addresses appearing on the Registration Books, to the Securities Depositories and to the Information Services.

Each notice of redemption shall state the date of the notice, the Redemption Date, the place or places of redemption, the Redemption Price, the maturities, CUSIP numbers, if any, and, in the case of 2026 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice shall also state that on the Redemption Date there will become due and payable on each of said 2026 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said specified portion of the principal thereof in the case of a 2026 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date interest thereon shall cease to accrue, and shall require that such 2026 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2026 Bond. Notice of redemption of 2026 Bonds shall be given by the Trustee, at the expense of the City, for and on behalf of the City.

Any notice of optional redemption may state that such redemption is conditioned upon receipt by the Trustee, on or prior to the date fixed for redemption, of moneys sufficient to pay the redemption price of the 2026 Bonds to be redeemed. If such moneys are not so received, the notice will be of no force and effect, the City will not be required to redeem such Bonds, and the redemption will not be made. The Trustee will, within a reasonable time after the date fixed for redemption, give notice, in the same manner as the

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8 original notice of redemption, that such moneys were not received. So long as DTC or its nominee is the registered owner of the 2026 Bonds, notices of redemption will be given only to DTC.

Effect of Redemption. If notice of redemption has been duly given and moneys sufficient for redemption are held by the Trustee, then 2026 Bonds called for redemption become due and payable on the redemption date at the applicable redemption price, interest on such 2026 Bonds ceases to accrue from and after the redemption date, and such 2026 Bonds are no longer secured by the Indenture and no longer outstanding thereunder.

Transfer and Exchange
So long as the 2026 Bonds are held in book-entry form, transfers and exchanges of beneficial ownership interests in the 2026 Bonds will be effected pursuant to the rules and procedures of DTC and its participants. The City and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest on the 2026 Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement or the Indenture. The City and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner with respect to the 2026 Bonds or an error or delay relating thereto.

If the book-entry system is discontinued, the 2026 Bonds may be transferred or exchanged for other Bonds of authorized denominations at the corporate trust office of the Trustee, subject to the terms and conditions of the Indenture, including payment of any tax or governmental charge required to be paid.

SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS
Limited Obligation
The City is obligated to make payments of principal of and interest on the 2026 Bonds solely from Net Revenues. The term “Net Revenues” means, for any period, the Revenues of the Wastewater System for such period less the Operation and Maintenance Costs of the Wastewater System for such period. See Appendix B for detailed definitions of “Revenues” and “Operation and Maintenance Costs.” When held by the Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or realized gain derived from the investment of amounts in any of such funds or accounts.

Development fees, connection charges and capacity charges that are, at the time of collection, restricted by law to the financing of capital improvements to the Wastewater System (“Restricted Capital Charges”) are excluded from Revenues and do not constitute Net Revenues, are accounted for in a separate subaccount of the Revenue Fund, and are not pledged to the payment of the 2026 Bonds.

THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2026

SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES

NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY

POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.

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9 Pledge of Net Revenues
Pursuant to the Indenture, all of the Net Revenues, all amounts held in the Revenue Fund, all amounts held in the Reserve Fund, and any other amounts (including proceeds of the sale of the 2026 Bonds) held in any fund or account established pursuant to the Indenture (except the Costs of Issuance Fund, the Rebate Fund and the Rate Stabilization Fund) are irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2026 Bonds in accordance with their terms and the provisions of the Indenture, and the Net Revenues shall not be used for any other purpose while the 2026 Bonds remain Outstanding; provided that out of the Net Revenues there may be apportioned such sums for such purposes as are expressly permitted therein (see “– Flow of Funds”).

Said pledge, together with the pledge created by all other Contracts and Bonds, constitute a first lien on and security interest on Net Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted in the Indenture, the Revenue Fund and other funds and accounts created under the Indenture for the payment of the principal of and interest, and the premium, if any, on the 2026 Bonds and all Contracts and Debt Service on Bonds in accordance with the terms of the Indenture, and will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act and will be valid and binding against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice of the Indenture.

Flow of Funds
All Revenues of the Wastewater System are required to be deposited promptly upon receipt into the Revenue Fund maintained by the City. Amounts on deposit in the Revenue Fund are applied, in the following order of priority, generally as follows:
• First, to pay Operation and Maintenance Costs of the Wastewater System as they become due; • Second, to make deposits to the Payment Fund or Redemption Fund, as applicable, in amounts sufficient to pay the principal of and interest on the 2026 Bonds and any other Bonds and Contracts as it becomes due, without preference or priority among them; • Third, to restore any deficiency in the Reserve Fund and any debt service reserve fund or account established for any other Bonds and Contracts;
• Fourth, to pay debt service on obligations which are payable from Net Revenues on a subordinate basis to Bonds and Contracts; and
• Fifth, any remaining surplus not needed for the foregoing purposes may, at the discretion of the City, be deposited in the Rate Stabilization Fund or expended for any other lawful purpose of the Wastewater System, including capital improvements.

Debt Service Reserve Fund
The Insurer will issue, simultaneously with the initial issuance of the 2026 Bonds, the Reserve Policy in the amount of $_____ (equal to the Reserve Requirement) for deposit in the Reserve Fund, effective as of the date of issuance of the 2026 Bonds. Maintenance of the Reserve Policy in the Reserve Fund will satisfy for all purposes the City’s obligation to fund the Reserve Fund in the amount of the Reserve Requirement with respect to the 2026 Bonds. Under the terms of the Reserve Policy, the Insurer will unconditionally and irrevocably guarantee to pay that portion of the scheduled payments of principal of and interest on the 2026 Bonds that becomes due for payment but shall be unpaid by reason of

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10 nonpayment by the City. The City will have no obligation to replace the Reserve Policy or to fund the Reserve Fund with cash if, at any time the 2026 Bonds are Outstanding, any rating assigned to the Insurer is downgraded, suspended or withdrawn, or amounts are not available under the Reserve Policy, other than in connection with a draw thereon. Amounts drawn under the Reserve Policy will be used solely to pay scheduled payments of principal of and interest on the 2026 Bonds.

See “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” for further information regarding the Reserve Policy.

Rate Stabilization Fund
The City has established a Rate Stabilization Fund under the Indenture, which is held by the City in trust. Amounts on deposit in the Rate Stabilization Fund do not constitute Revenues of the Wastewater System when deposited, but amounts withdrawn from the Rate Stabilization Fund and deposited into the Revenue Fund in any Fiscal Year are treated as Revenues for such Fiscal Year, including for purposes of calculating compliance with the Rate Covenant described below. Amounts on deposit in the Rate Stabilization Fund are not pledged to, and do not constitute security for, the 2026 Bonds.

On or before the Closing Date, the City will deposit $875,000 into the Rate Stabilization Fund from cash on hand in the Sewer Fund generated from Revenues in previous Fiscal Years. The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund from time to time and transfer such amounts to the Revenue Fund, during or within 270 days after the end of a Fiscal Year, for application in accordance with the Indenture, as summarized above. In no event are amounts on deposit in the Rate Stabilization Fund pledged to the payment of the 2026 Bonds.

Rate Covenant
The City has covenanted in the Indenture that it will, to the fullest extent permitted by law, fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Wastewater System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year, as follows:
(i) Revenues for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to this Indenture to be made in such Fiscal Year, including (A) payments of Operation and Maintenance Costs, and (B) all transfers required by the Indenture to the payment of debt service on the Bonds and Contracts in such Fiscal Year (see “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Flow of Funds), and
(ii) Net Revenues equal to 120% of Debt Service for such Fiscal Year (the “Rate Covenant”). “Debt Service” is calculated with respect to all Bonds and Contracts then outstanding, including the 2026 Bonds. The City may adjust and classify its rates and charges from time to time, but may not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates and charges will at all times be sufficient to meet the requirements of the Rate Covenant. If the rate covenant contained in any other Bonds or Contracts differs from the Rate Covenant, the City must also comply with that covenant.

The Rate Covenant is an obligation to establish rates reasonably expected to produce the required Net Revenues, measured at the time such rates are fixed. It is not a guarantee of results, and actual Net Revenues in any Fiscal Year may be less than 120% of Debt Service without any breach of the Rate Covenant. The Indenture expressly provides that such a shortfall does not constitute a default

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11 or an Event of Default, does not give rise to a declaration of an Event of Default, and does not of itself constitute evidence of any failure by the City to comply with the Rate Covenant. The City’s ability to increase rates and charges is subject to Article XIII D of the California Constitution. See “RISK FACTORS — Proposition 218.”
Issuance of Additional Bonds and Contracts
The City may issue Bonds or execute additional Contracts payable from and secured by a pledge of and lien on Net Revenues on a parity with the 2026 Bonds, subject to delivery of a special report of an Independent Certified Public Accountant or Independent Financial Consultant demonstrating that Net Revenues (excluding amounts transferred from the Rate Stabilization Fund) for the most recent audited Fiscal Year, or for any 12 consecutive calendar months within the 18 calendar months preceding issuance:
(i) were at least equal to 120 percent of Debt Service for such period; and (ii) after giving effect to rate increases approved and in effect as of the date of calculation, were at least equal to 120 percent of Debt Service for such period, plus the Debt Service that would have accrued on any Bonds or Contracts issued or executed since the end of such period and on the proposed additional Bonds or Contract, in each case assuming such obligations had been outstanding from the beginning of such period. Bonds or Contracts issued or executed to refund outstanding Bonds or Contracts are not subject to this test if aggregate Debt Service is not thereby increased. The Indenture does not include a forward-looking (projected Net Revenues) alternative test. See “APPENDIX B – SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” for the complete test.

Acceleration
The Indenture permits acceleration of the principal of, and accrued interest on, the 2026 Bonds upon an Event of Default. Upon an Event of Default arising from certain bankruptcy or insolvency proceedings involving the City, or from the acceleration of any other Bond or Contract, the Trustee is required, upon written notice to the City, to declare the principal of all 2026 Bonds then Outstanding, and the interest accrued thereon, to be immediately due and payable. Upon any other Event of Default the Trustee may make such a declaration, and is required to do so at the written direction of the Owners of a majority in aggregate principal amount of the 2026 Bonds then Outstanding given with the prior written consent of the Insurer. Only the 2026 Bonds may be accelerated under the Indenture; the Trustee has no power thereunder to accelerate any other Bond or any Contract.

Any such declaration and its consequences must be rescinded and annulled by the Trustee if, at any time after the declaration and before any judgment or decree for the payment of the moneys due has been obtained or entered, (i) the City deposits with the Trustee (or, with respect to any other Bond or Contract, with the applicable trustee therefor) a sum sufficient to pay all principal and installments of interest which are overdue, together with interest on such overdue principal at the rate borne by the 2026 Bonds to the extent permitted by law, and the reasonable fees, disbursements and expenses of the Trustee, and (ii) all other Events of Default actually known to a Responsible Officer of the Trustee (other than principal and interest due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate has been made therefor. No such rescission and annulment extends to or affects any subsequent Event of Default, or impairs any right or power consequent thereon.

So long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations under the Insurance Policy or the Reserve Policy, then upon the occurrence and continuance of a default or an Event of Default the Insurer is entitled to control and direct the enforcement of all rights and remedies granted to the Owners of the 2026 Bonds or to the Trustee for their benefit, no default or Event of Default may be waived without the Insurer’s written consent, and the Insurer is deemed to be the sole

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12 owner of the 2026 Bonds for all purposes of the Indenture, including for purposes of exercising remedies and approving amendments. See “RISK FACTORS – Acceleration; Limitation on Remedies.” Insurance and Condemnation
The City is required under the Indenture to maintain, or cause to be maintained, insurance on the Wastewater System of the types and in the amounts customarily carried by public entities operating similar systems, and may satisfy this requirement through a self-insurance program meeting the conditions described in the Indenture. Net proceeds of insurance relating to damage to or destruction of the Wastewater System are required to be applied to the reconstruction, repair, or replacement of the damaged or destroyed property. Net proceeds of eminent domain awards are required to be applied to additions, betterments, extensions, or improvements to the Wastewater System or, to the extent not so applied, deposited in the Revenue Fund. The Indenture does not provide for redemption of the 2026 Bonds from insurance or condemnation proceeds. See “RISK FACTORS – Natural Disasters” herein.

DEBT SERVICE SCHEDULE
The table below presents the annual debt service with respect to the 2026 Bonds, assuming that there are no optional redemptions or mandatory redemption upon acceleration of the 2026 Bonds (see “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Acceleration”), for the year ending on May 1 in the years shown below:

Date
(May 1) Principal Interest Total
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
Source: Underwriter.

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13 BOND INSURANCE
[To come from Insurer]

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14 THE CITY
General
The City is located approximately six miles inland from the Monterey Bay between the cities of Santa Cruz and Monterey in the County of Santa Cruz. The City encompasses an area of approximately 6.8 square miles. It was incorporated in 1868 and, in 1903, became a chartered city. As of January 1, 2026, the most recent date for which an estimate is available, the population of the City was estimated to be 50,454.

The City provides a full range of services including police and fire protection; water treatment and distribution; solid waste collection and disposal; sanitary sewer collection and treatment; airport facilities; building inspection, planning, economic development, housing rehabilitation, and general government services; library; recreation; parks; street construction and maintenance; and general administration.

City Council
The City operates under a council-manager form of government. Policymaking and legislative authority are vested in the City Council, which consists of seven Council Members, one of whom serves as Mayor. The Mayor is appointed on a 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, with Council Members elected to four-year terms on a staggered basis. 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. Dayto-day administration of the City, including the Wastewater System, is carried out by the City Manager and staff, including a Director of Public Works & Utilities responsible for operation of the Wastewater System.

The members of the City Council and the expiration dates of their terms are shown below.

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

City Management
Brief biographies of the City Manager, the Administrative Services Director, and the Director of Public Works & Utilities follow below.

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15 Tamara Vides, City Manager. Ms. Vides has served as City Manager since August 2024, following service with the City in a variety of prior roles, including Assistant City Manager, Deputy City Manager, City Manager Pro Tempore, and Assistant to the City Manager. She holds a Bachelor of Science in Business Administration and a Master’s degree in Recreation Administration from San José State University.

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 Duran, Administrative Services Director. Ms. Duran has served as Administrative Services Director since 2023, following nearly three decades of service to the City, including as Assistant Finance Director, Senior Financial Analyst, and Accountant II. She holds a bachelor’s degree in accounting from California State University, San José, and also serves as the City’s Treasurer.

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

Danielle Green, Director of Public Works & Utilities. Ms. Green has served as Director of Public Works & Utilities since May 2026, following nearly eight years with the City in roles of increasing responsibility, including Assistant Director of Public Works & Utilities and Principal Engineer. Prior to joining the City, she spent over 16 years in the water and wastewater public works construction consulting industry. She is a licensed Professional Engineer and holds a Bachelor of Science in Structural Engineering from the University of California, San Diego.

Management Policies
The City has adopted several policies that are designed to ensure the prudent and effective management of City operations, including a debt management policy and an investment policy. With respect to the Wastewater System, the City has also adopted a reserve policy. The City’s debt management policy, investment policy, and Wastewater System’s reserve policy are described below.

Investment Policy. The City Treasurer prepares investment policy guidelines that are approved by the City Council annually. The City’s current investment policy was adopted by the City Council on April 16, 2026 (the “Investment Policy”). The Investment Policy applies 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 of 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 to 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

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16 the Investment Committee serve without compensation and meet as needed. The Investment Committee includes 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.

As of June 30, 2026, the City had a total of $139,068,522 in permitted investments under the Investment Policy. Of such amount, approximately 8 percent was allocated to the Wastewater System.

The City Treasurer is required to provide a quarterly report to the City Manager and the City Council detailing the City’s investments, dates of maturity, amounts invested, current market value, rate of interest and other such information as may be required by the City Council. For additional information relating to the Investment Policy, see Note III to the City’s audited financial statements set forth in Appendix E.

Debt Management Policy. The City’s debt management policy addresses the matters that are required by California Government Code § 8855(i), including: (i) the purposes for which debt proceeds may be used; (ii) the types of debt that may be issued; (iii) the relationship of the debt to, and integration with, the City’s capital improvement program or budget; (iv) policy goals related to the City’s planning goals and objectives; and (v) the internal control procedures which ensure that the proceeds of each debt issuance are directed to their intended use.

Wastewater System Reserve Policy. The City’s financial policy includes a reserve policy for the Wastewater System (the “Wastewater System Reserve Policy”). The Wastewater System Reserve Policy has two target components: (1) an operating reserve of approximately three months (or 25 percent) of the Wastewater System’s operating and maintenance expenditures (the “Operating Reserve”); and (2) a capital reserve of 2 percent of existing assets (the “Capital Reserve”). As of June 30, 2026, the Operating Reserve and Capital Reserve targets were approximately $4.9 million and $5.6 million, respectively. As of June 30, 2026, the City had an estimated Operating Reserve and Capital Reserve of approximately $6.2 million and $5.0 million, respectively.

As described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Limited Obligation,” only Wastewater System Revenues are pledged to the payment of the 2026 Bonds and other Contracts and Bonds; General Fund moneys are not pledged to or available therefor.

Budget Process
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

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17 established in the budget. Any 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.

Employees; Labor Relations
As of June 30, 2026, the City’s Wastewater Division employed approximately 20 full-time equivalent employees, including a Division Manager, Collection System Supervisor, a Wastewater Operations Supervisor, a Utilities Maintenance Supervisor, four Collection System Operators, four Utilities Mechanics, and seven Wastewater Treatment Plant Operators. Wastewater Division employees are covered by collective bargaining agreements with Operating Engineers Local 3, Mid‑Management and Management bargaining units. The agreements have a scheduled termination date of June 30, 2028. The City is not aware of any unresolved labor disputes or work stoppages affecting Wastewater System operations as of the date of this Official Statement. See “WASTEWATER SYSTEM FINANCIAL INFORMATION – Retirement Plans” herein for a discussion of pension and other post-employment benefit obligations relating to employees serving the Wastewater System.

Risk Management
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 is self-insured for general liability claims up to $500,000 for each occurrence, with coverage for individual losses in excess of that amount provided through the City’s membership in the California Intergovernmental Risk Authority (“CIRA”), a joint powers risk pool of municipalities, fire districts, and special districts that pools resources, shares risk, purchases excess insurance, and shares the costs of professional risk management and claims administration. The City also maintains a risk management fund to account for and finance its uninsured risks of loss. The City does not maintain earthquake insurance on the Wastewater System. See “RISK FACTORS – Natural Disasters” for a discussion of the availability and limitations of earthquake and flood coverage.

The City’s self-insurance program separately provides up to $150,000 of coverage for each Workers’ Compensation claim, and CIRA coverage for General Liability claims in excess of the City’s $500,000 self-insured retention extends up to $1,000,000 under a risk-sharing pool and from $1,000,000 to $40,000,000 through another risk pool, the California State Association of Counties Excess Insurance Authority (“CSAC-EIA”).

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 selfinsurance 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.

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, 2025, total estimated claims payable for

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18 General Liability were $1,938,992. For a discussion of how the City’s risk management and insurance programs relate to the payment of the 2026 Bonds, see “RISK FACTORS – Natural Disasters.” Outstanding Parity Obligations
The obligation of the City to pay the 2026 Bonds from Net Revenues will be on a parity with the obligation of the City to make installment payments on the Existing SRF Agreements, each of which is described below.

The Mañana Lane Sewer Replacement Project Agreement is a Clean Water State Revolving Fund installment sale agreement (Agreement No. D1501001, “Mañana Lane”), in the original principal amount of $1,486,310, bearing interest at 1.600 percent per annum. It matures in 2038, and had an outstanding balance of approximately $955,319 as of June 30, 2026.

The Freedom Sanitation Trunk Sewer Line Project Agreement is a Clean Water State Revolving Fund installment sale agreement (Agreement No. D1601017, Project No. C-06-8011-110, “Freedom Trunk”), which financed the City’s Airport Freedom Sewer Trunk sewer pipeline replacement project (constructed in 2020 at a cost of approximately $4.3 million), in the original principal amount of $4,490,677, bearing interest at 1.700 percent per annum. It matures in 2040, and had an outstanding balance of approximately $3,472,022 as of June 30, 2026. Under its agreement with the City, FCSD is obligated to reimburse the City for one-half of the annual debt service payments on the Freedom Trunk agreement.

The City maintains a restricted reserve account for each of the Existing SRF Agreements in the amount equal to one year’s debt service. As of June 30, 2026, the City maintained restricted reserve accounts with amounts equal to the required amounts. Said reserve accounts will not be available to pay debt service on the 2026 Bonds. The following table summarizes certain provisions of the Existing SRF Agreements.

TABLE 1

CITY OF WATSONVILLE WASTEWATER SYSTEM
Summary of Existing SRF Agreements
Agreement
Outstanding
Principal
Final
Maturity
Annual Debt
Service
Reserve
Requirement
Mañana Lane $955,319 January 10, 2038 $88,130(1) $88,130 Freedom Trunk $3,472,022 October 31, 2040 264,185(2) 264,185 Total $4,427,341 $352,315 $352,315
(1) Level payments, due each January 10.
(2) Level payments, due each October 31.

Source: City of Watsonville.

The City has also been awarded, but has not yet closed, an additional Clean Water State Revolving Fund loan of approximately $37 million to finance the Wastewater System’s headworks and influent pump station replacement project. The City expects the Clean Water State Revolving Fund financing to close in early 2027, after the 2026 Bonds are issued. Said Clean Water State Revolving Fund financing will be secured by Net Revenues on parity with the 2026 Bonds. See “WASTEWATER SYSTEM FINANCIAL INFORMATION – Historical Operating Results and Debt Service Coverage” and “THE WASTEWATER SYSTEM – Future Wastewater System Improvements.” For additional economic and demographic information regarding the City, see APPENDIX A – “ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY AND COUNTY.”

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19 THE WASTEWATER SYSTEM
General
The City owns and operates a wastewater collection system and treatment facility serving residential, commercial and industrial customers within the City and three outside sanitary districts:

Freedom County Sanitation District, Pajaro County Sanitation District, and Salsipuedes Sanitary District.

The City’s wastewater collection service area encompasses approximately 6.6 square miles within City limits, and the City receives wastewater flows from the three outside districts for a combined service area of approximately 21 square miles. Within the City’s collection service area, the City is the sole provider of wastewater collection and treatment services.

The Wastewater System includes more than 120 miles of gravity sanitary sewer pipeline, 5.6 miles of force main pipelines, 13 lift stations, and more than 2,350 access structures within the City limits.

Wastewater is treated at the Treatment Plant, a City-owned and operated treatment facility. A recycled water facility built by the City in partnership with Pajaro Valley Water is located adjacent to the Treatment Plant. The City is the sole provider of wastewater collection service within the City limits.

The Wastewater System serves four distinct customer classes, each with different flow characteristics and pollutant loading profiles. Residential customers include single-family residences and multi-family dwelling units. Commercial High Strength customers include food service establishments– primarily restaurants and bakeries–that discharge wastewater with significantly elevated biochemical oxygen demand (“BOD”) and total suspended solids (“TSS”) concentrations. Commercial Low Strength customers encompass all other commercial customers, including laundries, retail establishments, and offices. Industrial customers are billed on measured flow and on biochemical oxygen demand and suspended solids loadings rather than a fixed monthly charge. See “– Wastewater System Rates and Charges.” As of June 30, 2026, the Wastewater System had 14,688 residential and 1,171 commercial connections in the City. See “– Historical Wastewater System Connections.” The Wastewater System also receives septic loads and fats, oil, grease loads from outside haulers. Each hauler is permitted and charged based on the volume discharged. No formal agreement exists with such haulers.

Land use in the City’s service area is approximately 71 percent undeveloped as agricultural, environmental management, and coastal lands. The developed portions of the service area comprise approximately 44 percent residential, 19 percent commercial, mixed use, and industrial, 13 percent public, 11 percent specific plan, and 12 percent transportation/utilities.

Revenues from the City’s wastewater service, including amounts received from the Outside Districts for their share of operation and maintenance costs of the Treatment Plant, are pledged to repayment of the 2026 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS.” Watsonville Wastewater Treatment Facility
The Treatment Plant is the Wastewater System’s primary wastewater treatment facility and is owned and operated by the City. It is located at 401 Panabaker Lane, Watsonville, California, near the Pajaro River and the Monterey Bay southwest of the City, between State Route 1 and the coast, and provides preliminary, primary, secondary and tertiary treatment of wastewater prior to ocean discharge or delivery for recycled water use. The Treatment Plant has a rated capacity of approximately 12.1 million gallons per day (“MGD”) average dry‑weather flow and 36 MGD peak wet‑weather flow and typically treats approximately 4 to 5 MGD of wastewater in dry‑weather conditions.

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20 The original Treatment Plant was constructed in 1961, and the plant was substantially reconstructed and expanded between approximately 1984 and 1987 to provide secondary treatment and to establish the current rated capacity. Subsequent projects, including secondary treatment upgrades completed in 1996, odor control improvements in 2005 and 2012, and construction and later upgrades of the Recycled Water Facility, have been undertaken to improve reliability, odor control and recycled water production rather than to expand rated wastewater treatment capacity.

Preliminary treatment consists of screening and grit removal performed through the headworks and influent pump station facilities. These facilities receive incoming wastewater, provide coarse screening and grit removal, and convey flows into downstream primary and secondary treatment processes. Portions of the existing headworks and influent pumping infrastructure are aging and approaching or exceeding their expected useful life, and the City has identified replacement of these facilities as a major capital priority to improve operational reliability, maintainability and resilience. The City is therefore proceeding with the Headworks and Influent Pump Station Replacement Project described under “– Future Wastewater System Improvements,” which is expected to replace the existing headworks screening and influent pump station facilities with modernized facilities of substantially similar function and capacity, including new pumping, screening, grit handling, electrical and related support systems.

Primary treatment consists of sedimentation in primary clarifiers. Secondary treatment consists of trickling filtration followed by solids‑contact activated sludge stabilization and secondary clarification, without effluent disinfection, to an advanced secondary treatment level prior to ocean discharge through the outfall. A portion of the treated effluent is diverted to the Recycled Water Facility for tertiary treatment and disinfection to produce Title 22 compliant recycled water for agricultural irrigation in partnership with Pajaro Valley Water. It provides coagulation, flocculation, sedimentation, filtration and ultraviolet disinfection and has storage capacity in below‑grade tanks; its operation helps reduce groundwater overdraft and provides an additional reliable local water supply for the Pajaro Valley. See “– Recycled Water Facility.”
Solids are gravity‑thickened, anaerobically digested, dried, and dewatered by belt filter press.

Anaerobic digestion generates methane (biogas), which has historically been used to fuel an on‑site cogeneration facility producing electricity and hot water for use at the Treatment Plant, with excess electricity at times exported to the electric grid. The existing cogeneration engine‑generator has been placed out of service because it does not meet current air‑quality standards and has experienced reliability issues.

As described under “PLAN OF FINANCE – The Project” and “– Future Wastewater System Improvements,” a portion of the City’s Energy Infrastructure Modernization Program includes replacement of the existing cogeneration engine‑generator with new linear generators and biogas conditioning equipment to improve on‑site energy reliability and reduce purchased power costs.

Effluent from the Treatment Plant is discharged through an approximately 7,350‑foot ocean outfall and diffuser terminating at a depth of approximately 64 feet in Monterey Bay. The outfall has an average daily and peak weather capacity of 17 MGD and 38 MGD, respectively. The City owns the outfall and associated ocean disposal facilities and is the permit holder under its National Pollutant Discharge Elimination System (“NPDES”) ocean discharge permit. The Outside Districts hold contractual capacity rights in the Treatment Plant and outfall pursuant to the Outside District Wastewater Agreements (as hereinafter defined) but do not have an ownership interest in the outfall facilities.

The Treatment Plant site and certain other Wastewater System facilities are subject to flood, tsunami and seismic risk. The Treatment Plant site is located within mapped high‑hazard flood zones for both a 100‑year riverine flood event and tsunami‑related inundation under applicable state and local hazard mapping, and certain coastal sewer pump stations are similarly located within high‑hazard flood zones and are subject to existing risk of submersion in the event of a tsunami or 100‑year flood. In response to these

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21 risks, the City is undertaking the WWTF Electrical System Hazard Mitigation Improvements Project, referred to in the capital improvement program as the Main Switchgear and Energy Recovery Electrical System Improvements (the “Electrical System Project”), which is intended to elevate and harden the Treatment Plant’s primary electrical facilities and standby power systems, relocate critical electrical equipment including the main switchgear and PG&E service and transformer to an elevated Main Electrical Facility, and replace existing emergency generators with a higher‑capacity standby generator. Because the Treatment Plant’s treatment processes, recycled water production facilities and energy recovery systems depend on reliable electrical service, the Electrical System Project is expected to improve the resilience of the Treatment Plant as a whole by reducing the likelihood that flooding or seismic events will interrupt electrical service to primary and secondary treatment, and therefore recycled water production.

Outside District Wastewater Agreements
General. The City provides wastewater treatment and disposal services to the Outside Districts pursuant to long-standing service agreements between the City and each Outside District (collectively, the “Outside District Wastewater Agreements,” and each, an “Outside District Wastewater Agreement”).

Under each Outside District Wastewater Agreement, the applicable Outside District holds contractual “capacity rights” in the Treatment Plant, expressed as maximum allowable peak-month daily average discharge of flow, BOD, and suspended solids. Each Outside District pays the City its proportionate share of (i) the capital costs of Treatment Plant and outfall improvements, generally based on its capacity rights, and (ii) Treatment Plant operation, maintenance, replacement and administrative costs, based on its actual measured share of flow, BOD, and suspended solids loadings. Under the Outside District Wastewater Agreements, the City retains ownership of the Treatment Plant, ocean outfall and transmission facilities, and the Outside Districts do not acquire any ownership, easement or other property right in such facilities by virtue of their capacity rights.

Freedom County Sanitation District. The City and FCSD are parties to an Outside District Wastewater Agreement approved by the City Council on June 26, 1984 (Resolution No. 175-84, the “FCSD Agreement”), which superseded an earlier agreement between the parties dated June 24, 1975. FCSD holds capacity rights in the City’s Contract I Ocean Plan Treatment Plant of 1.35 MGD of flow, 1,982 pounds per day of BOD, and 2,312 pounds per day of suspended solids. As stated in the FCSD Agreement, these amounts represent approximately 8.18 percent of the Treatment Plant’s total flow capacity, 3.18 percent of its total BOD capacity, and 4.48 percent of its total suspended solids capacity, based on a stated total Treatment Plant capacity of 16.5 MGD of flow, 62,400 pounds per day of BOD, and 51,600 pounds per day of suspended solids.

FCSD pays its proportionate share of the capital costs of state-mandated Treatment Plant and outfall improvements based on its capacity rights, and pays its share of maintenance, operation, and administrative costs based on the ratio of its actual average daily flow, BOD, and suspended solids loadings to total plant loadings, calculated and reconciled semiannually. If FCSD’s discharge reaches 75 percent of its capacity rights for three consecutive months, FCSD must report to the City on its plan to avoid exceeding capacity.

The City has the option, but is not obligated, to accept flows from FCSD in excess of its capacity rights (subject to applicable fees), but any such acceptance does not constitute an allotment of additional capacity rights to FCSD. The FCSD Agreement may be modified by mutual resolution of both governing bodies and remains in effect until superseded by a new agreement between the City and FCSD.

Salsipuedes Sanitary District. The City and SSD are parties to an Outside District Wastewater Agreement with an effective date of January 1, 1984, approved by City Council resolution in early 1985 (the “SSD Agreement”), which superseded a prior agreement between the parties dated November 4, 1966.

SSD holds capacity rights of 0.281 MGD of flow, 440 pounds per day of BOD, and 514 pounds per day of suspended solids, representing approximately 1.70 percent, 0.71 percent, and 1.00 percent, respectively, of

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22 the same 16.5 MGD flow, 62,400 pounds per day BOD, 51,600 pounds per day of suspended solids total Treatment Plant capacity referenced in the FCSD Agreement.

The cost-sharing, capacity-exceedance, and modification provisions of the SSD Agreement are substantially similar to those of the FCSD Agreement. SSD pays its proportionate share of Treatment Plant and outfall capital and operating costs based on its capacity rights and measured flow and loadings, with semi-annual reconciliation. The SSD Agreement additionally provides that if the City annexes territory lying within SSD’s boundaries, SSD’s capacity rights are reduced by a percentage corresponding to the equivalent dwelling units within the annexed area relative to those remaining within SSD.

Pajaro County Sanitation District. The City and PCSD are parties to an Outside District Wastewater Agreement effective May 1, 2001 (approved by City Council Resolution No. 88-01, the “PCSD Agreement”), as amended by a First Amendment effective in late 2003 (Resolution No. 296-03, the “PCSD Amendment”). PCSD holds capacity rights of 1.57 MGD of flow, 7,372 pounds per day of BOD, and 6,000 pounds per day of suspended solids, representing 13.1 percent, 18.4 percent, and 12.7 percent, respectively, of the Treatment Plant’s total capacity as stated in the PCSD Agreement (12.0 MGD of flow, 40,000 pounds per day of BOD, and 47,000 pounds per day of suspended solids). Unlike the FCSD and SSD Agreements, the PCSD Agreement provides that upon any change in the Treatment Plant’s rated discharge capacity, PCSD’s percentage capacity rights will be reapportioned in proportion to the revised rated capacity.

In connection with the PCSD Agreement, PCSD purchased additional capacity beyond amounts it had previously acquired, consisting of 4,055 pounds per day of BOD. The PCSD Agreement allocates Treatment Plant operation and maintenance costs 20 percent to flow, 40 percent to BOD, and 40 percent to suspended solids, with monthly user charges assessed based on PCSD’s measured discharges relative to total discharges from all sources. Unlike the FCSD and SSD Agreements, the PCSD Agreement requires PCSD to impose an immediate moratorium on new connections to its sewer system if its discharge exceeds its capacity rights for any parameter, remaining in effect until PCSD has reduced its discharge below its capacity rights or acquired additional capacity.

The PCSD Amendment revised the source control and pretreatment provisions of the PCSD Agreement to conform to a 2003 regional water board NPDES discharge order and added a provision under which the City acts as PCSD’s agent in implementing PCSD’s source control program. The PCSD Amendment did not modify PCSD’s capacity rights or the cost-sharing provisions described above; in all other respects, the PCSD Agreement remains in full force and effect.

TABLE 2

CITY OF WATSONVILLE WASTEWATER SYSTEM
Summary of Outside District Capacity Rights in Treatment Plant Outside District
Flow
(MGD)
BOD
(lbs/day)
Suspended
Solids
(lbs/day)
% Flow /
BOD / SS(1)
Freedom County Sanitation District 1.35 1,982 2,312 8.18% / 3.18% / 4.48% Salsipuedes Sanitary District 0.281 440 514 1.70% / 0.71% / 1.00% Pajaro County Sanitation District 1.57 7,372 6,000 13.1% / 18.4% / 12.7% (1) Percentages of Treatment Plant flow, BOD, and suspended solids capacity, respectively, as stated in each Outside District’s Outside District Wastewater Agreement.

Source: City of Watsonville.

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23 The City projects the Outside District contributions to Wastewater System operation and maintenance and capital costs based on these capacity rights and allocation formulas. In the most recent service charge rate study, the Outside Districts are projected to contribute approximately $1.32 million in Fiscal Year 2026‑27, consisting of approximately $0.17 million for operation and maintenance and $1.15 million for capital improvement program costs.

Amounts received by the City from the Outside Districts as their share of operation, maintenance and capital costs constitute Revenues pledged to the payment of debt service on the 2026 Bonds. See “WASTEWATER SYSTEM FINANCIAL INFORMATION – Historical Operating Results and Debt Service Coverage” and “– Projected Operating Results and Debt Service Coverage.” Billing. Billing and true‑up mechanics vary by Outside District Wastewater Agreement. The Outside District Wastewater Agreement with PCSD provides for monthly billing based on prior‑year flow and loadings, with an annual reconciliation against actual costs and loadings. The Outside District Wastewater Agreements with FCSD and SSD provide for semi‑annual billing and reconciliation based on flow, BOD and suspended solids data reported by each district for the applicable period. In Fiscal Year 2024‑25, the City received approximately $2.3 million (9 percent of total revenues for such fiscal year) from the Outside Districts in aggregate as reimbursement for their proportionate share of the Wastewater System’s operation and maintenance costs and capital costs.

Duration. None of the Outside District Wastewater Agreements has a fixed expiration date. Each will remain in effect until superseded by a new agreement between the City and the applicable district or is terminated. There can be no assurance as to the future level of flows, loadings, or payments from the Outside Districts. The projected operating results set forth under the caption “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage” assume that the Outside District Wastewater Agreements remain in effect on substantially their current terms.

Recycled Water Facility
The Recycled Water Facility is located at 500 Clearwater Lane, Watsonville, California, and is part of the Watsonville Area Water Recycling Project (the “Recycling Project”), a joint effort of the City and the Pajaro Valley Water to provide recycled water to farmers throughout the coastal areas of South Santa Cruz and North Monterey counties. Pajaro Valley Water operates approximately 20 miles of distribution pipeline for recycled water deliveries to approximately 95 agricultural water users in an 8,000-acre coastal area. The recycled water produced by the Recycled Water Facility meets Title 22 treatment regulations, and can be supplemented with potable water and other groundwater sources, prior to distribution to the irrigation customers. This supplemental water is purchased by Pajaro Valley Water from the City’s potable water distribution system. These agricultural water users rely on regional water supplies, including recycled water and blended potable water, to help meet their food crop irrigation needs.

The Recycled Water Facility was constructed in coordination with Pajaro Valley Water. The City owns the recycled water treatment infrastructure and treats secondary effluent to Title 22 tertiary standards.

Pajaro Valley Water operates the distribution pumps at the facility to deliver recycled water to its agricultural users as part of the management of its distribution system. The facility began operating in 2009, and is owned and operated by the City. Under an agreement with Pajaro Valley Water (the “Recycling Project Agreement”), Pajaro Valley Water funded 100 percent of the design and construction costs of the Recycled Water Facility. The City is responsible for its operation, repair, and maintenance. Under the Recycling Project Agreement, Pajaro Valley Water is required to reimburse the City’s operation and maintenance costs associated with the Recycling Project on a quarterly basis. Pajaro Valley Water holds an annual water right of up to 4,000 acre-feet, or the annual capacity of the Recycled Water Facility, whichever is greater. Recycled water revenues and costs are recorded in the Sewer Fund and are structured to be net

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24 neutral to the City. Pajaro Valley Water also makes capital-cost contribution payments to the City on a quarterly basis. Reimbursement from Pajaro Valley Water lags the City’s billing, and recycled water revenues and costs therefore may not correspond within any particular period, but the City is reimbursed for all operation and maintenance costs of the Recycling Project. The Recycling Project Agreement will remain in effect until amended or terminated by mutual agreement of the City and Pajaro Valley Water.

The Recycled Water Facility has a rated tertiary treatment capacity of approximately 7 MGD and typically produces between 4 and 5 MGD of recycled water on average, depending on seasonal irrigation demand and operational requirements. Recycled water is delivered under Master Reclamation Permit Order No. R3-2008-0039 (issued by the California Regional Water Quality Control Board, Central Coast Region; Waste Discharge Identification No. 3 4403081 81). Potable supplementation is limited to approximately 2,000 gallons per minute.

The Recycling Project is intended to protect local groundwater supplies in the Pajaro Valley, which are being consumed more quickly than they are replenished due to overdraft and seawater intrusion risk.

By treating wastewater and making it available to the region’s approximately $400 million local agricultural industry, the Recycling Project reduces reliance on groundwater pumping for irrigation and reduces wastewater discharges into the Monterey Bay National Marine Sanctuary. The Recycling Project accounts for over 20 percent of the approximately 18,500 acre-feet per year of coastal pumping reduction needed to halt seawater intrusion into the local aquifer. In calendar year 2025, the Recycled Water Facility produced approximately 2,300 acre-feet of recycled water, which was more than half of the water distributed by Pajaro Valley Water in 2025.

The City does not plan to expand the Recycled Water Facility’s design capacity in the foreseeable future. Accordingly, and because the Recycling Project is structured to be revenue-neutral to the City through Pajaro Valley Water’s reimbursement of operation and maintenance costs, for purposes of this Official Statement, revenues from sales of recycled water are projected to have no impact on Net Revenues available to pay debt service on the 2026 Bonds and other Contracts and Bonds during the projection period.

See “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage.”
Environmental Compliance and Regulatory Status
The City operates the Treatment Plant and Recycled Water Facility under permits issued by the State Water Resources Control Board and Regional Water Quality Control Boards and is subject to the requirements of the Monterey Bay National Marine Sanctuary and other applicable environmental laws and regulations. The Treatment Plant’s ocean discharge is authorized under an NPDES permit issued by the Central Coast Regional Water Quality Control Board, and the Recycled Water Facility operates under Master Reclamation Permit Order No. R3‑2008‑0039 (Waste Discharge Identification No. 3 4403081 81), which authorizes recycled water use for direct food‑crop irrigation in the Pajaro Valley subject to Title 22 requirements and associated monitoring and reporting conditions. As of the date of this Official Statement, all material wastewater and recycled water discharge permits are current, and the City is not aware of any material noncompliance with permit requirements.

The City is required to maintain a Sanitary Sewer Management Plan (“SSMP”) for its wastewater collection system under the State Water Resources Control Board’s General Waste Discharge Requirements for Sanitary Sewer Systems. The City’s SSMP has been adopted by the City Council and is subject to periodic audits and updates in accordance with State Water Board guidance. The City is required to report sanitary sewer overflows (“SSOs”) meeting specified thresholds under applicable regulatory requirements.

The City has experienced SSOs in recent years that were reported and addressed in accordance with regulatory requirements. None of the SSOs in the last five fiscal years has resulted in material penalties or

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25 enforcement actions that, in the judgment of the City, would be expected to materially adversely affect Net Revenues or the Wastewater System’s ability to provide service.

The City’s ocean outfall and recycled water operations are subject to the regulations of the Monterey Bay National Marine Sanctuary, which generally prohibit discharges of pollutants and other materials into sanctuary waters except as authorized under applicable permits and regulations. As of the date of this Official Statement, the City is not aware of any pending changes in sanctuary regulations or conditions that specifically target or are expected to materially alter the terms of the City’s existing ocean discharge or recycled water permits.

The City operates an approved industrial pretreatment and source control program in connection with the Wastewater System to regulate industrial and commercial discharges to the publicly owned treatment works, implemented through wastewater discharge permitting, application of local limits and federal categorical pretreatment standards, and ongoing monitoring, reporting and enforcement measures designed to protect treatment processes, sludge and recycled‑water quality, and downstream receiving waters. The City is not aware of any pending litigation, administrative proceedings or consent orders related to environmental compliance that would be expected to materially adversely affect the Wastewater System or its Net Revenues.

As of the date of this Official Statement, there are no existing regulatory requirements specifically mandating per- and polyfluoroalkyl substances (“PFAS”) treatment in effluent or biosolids for the City’s Wastewater System. The City has conceptually evaluated potential biosolids pyrolysis or related projects that could address PFAS or other emerging contaminants in the future and reduce biosolids hauling costs, but such projects are not currently funded or prioritized in the capital improvement program and would depend on future regulatory or policy developments.

Historical Wastewater System Connections
The following table shows billed connections to the Wastewater System for the five most recent Fiscal Years.

TABLE 3

CITY OF WATSONVILLE WASTEWATER SYSTEM
Historical Wastewater System Connections
Fiscal
Year
Residential
Connections
Commercial
Connections
Total
Connections
% Increase/
(Decrease)(1)
2021-22 14,380 1,170 15,550 --
2022-23 14,388 1,169 15,557 <1%
2023-24 14,591 1,170 15,761 <1%
2024-25 14,684 1,170 15,854 <1%
2025-26 14,688 1,171 15,859 <1%
(1) Represents the percentage change in total wastewater connections.

Source: City of Watsonville.

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26 Largest Wastewater System Customers
The following table sets forth the ten largest wastewater service customers of the Wastewater System as of June 30, 2025, as determined by the amount of their respective payments.

TABLE 4

CITY OF WATSONVILLE WASTEWATER SYSTEM
Largest Wastewater System Customers
Customer Type
Wastewater System
Charge Revenues % of Total
S Martinelli Beverage processing $1,029,215 4.01%
Del Mar Food processing $648,979 2.53
Blue Ribbon Food processing $435,518 1.70
Mizkan Food processing $89,086 0.35
Pack Fresh Produce packing $86,387 0.34
Watsonville Community Hospital Hospital $43,665 0.17
Lineage LC Cold storage $37,880 0.15
Spectra Mat Materials manufacturing $9,206 0.04
Tom Nino Commercial property $3,474 0.01
Walkers St Properties Commercial property $3,073 0.01
Top Ten Total $2,386,484 9.30
Total Wastewater System $25,674,715 100.00%
Source: City of Watsonville.

Wastewater System Rates and Charges
General. The City has the power to establish rates and charges as needed to operate the Wastewater System. The Wastewater System rates are not subject to review or approval by the California Public Utilities Commission or any other agency. However, the City is required to comply with the notice, hearing, and majority protest provisions of Article XIIID of the California Constitution, which is popularly known as Proposition 218. See “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES – Proposition 218.” The City determines the adequacy of the Wastewater System rate structure after full consideration of expected operations, maintenance, and capital costs.

The City Council adopted a resolution approving a five-year Wastewater System rate plan on May 26, 2026 (the “Adopted Rate Plan”) for Fiscal Years 2026-27 through 2030-31 (the “Current Rate Cycle”).

The Adopted Rate Plan was recommended by the City’s most recent rate study. The City Council’s adoption followed a duly noticed public hearing under Proposition 218. At that hearing, the City Council found that timely written protests did not represent a majority of the 11,480 parcels served by the City’s wastewater service. The City Council accordingly overruled the protests received. See “APPENDIX G – ADOPTED WASTEWATER RATE RESOLUTION.”
Several factors informed the need for these rate adjustments. Operating costs have continued to increase year over year due to inflationary pressures across all departments and expenditure types, including power, chemicals, personnel, and infrastructure. The Wastewater System also faces ongoing rehabilitation and replacement needs for aging infrastructure, including collection mains, sewer pump stations, and

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27 treatment facility upgrades and improvements. In addition, the City has planned significant capital expenditures, with Capital Improvement Program expenditures for Fiscal Years 2026-27 through Fiscal Year 2030-31 totaling approximately $77.6 million, the largest of which is the replacement of the headworks and influent pump station. See “– Future Wastewater System Improvements.” The rates and charges in the Adopted Rate Plan reflect annual increases of 16 percent for Fiscal Year 2026-27, 12 percent for Fiscal Year 2027-28, and 6 percent for Fiscal Years 2028-29 through 2030-

31. Rate increases are effective July 1 of each year from 2026 through 2030. These annual adjustments are intended to close the gap between the Wastewater System’s revenue and the cost of wastewater service incrementally. This approach avoids the rate shock of a single large adjustment. It also provides the Wastewater System with the revenue certainty needed to plan capital projects, maintain financial reserves, and service debt obligations.

The projected operating results set forth under the caption “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage” assume the rate increases adopted by the City Council on May 26, 2026. Although these rate increases have been adopted (and are no longer merely proposed), the City Manager retains discretion as to the precise timing of implementation of future scheduled adjustments (subject to the notice requirement described above). In addition, the City Manager retains discretion, and the City Council retains the power and authority, to decrease rates below the rates adopted by the City Council on May 26, 2026. Accordingly, there can be no assurance that Wastewater System rates will be adjusted exactly as scheduled or that actual operating results will not differ from the projections in this Official Statement.

The City is subject to certain covenants with respect to the 2026 Bonds which require the City to set Wastewater System rates and charges in amounts expected to be sufficient to yield Net Revenues at the coverage levels described herein. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Covenant.”
Rates and Charges. The City adopts rates and charges for the Wastewater System by City Council action. Under the current rate structure, residential accounts (single family and multifamily combined) are billed a flat monthly fixed charge; there is no separate volumetric wastewater flow charge tied to metered water usage. Commercial customers are billed the minimum monthly fee plus a volumetric charge per one hundred cubic feet (“CCF”) based on high- or low-strength discharge classification. Industrial customers are billed based on metered flow (per million gallons, or “MG”), BOD per 1,000 pounds, and TSS loadings per 1,000 pounds, rather than a fixed monthly charge.

The following table summarizes the Wastewater System’s rates for Fiscal Years 2025-26 and 2026- 27, effective July 1 of each year.

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28 TABLE 5

CITY OF WATSONVILLE WASTEWATER SYSTEM
Wastewater System Rates and Charges
Monthly Charges
Customer Class
Fiscal Year
2025-26
Fiscal Year
2026-27
Residential Monthly Fixed Charge
Fixed Fee (Single and multifamily) $61.51 $70.42
Commercial Accounts
Minimum Fee $33.93 $35.04
Volumetric Fee
High Strength ($/CCF) $7.90 $8.50
Low Strength ($/CCF) $4.56 $5.31
Industrial Accounts
Flow ($/MG) $3,194.97 $4,359.89
biochemical oxygen demand ($/1,000 lbs.) $318.28 $528.20 total suspended solids ($/1,000 lbs.) $765.91 $592.23
Source: City of Watsonville.

Connection Charges
A sanitary sewer connection fee must be paid to the City by anyone who wishes to connect to the Wastewater System. Under the City’s current development fee schedule, the connection fee is currently $2,513.82 per unit for residential connections (single family and multifamily alike). For commercial and industrial connections, the fee is the sum of $7.00 per gallon per day of peak month discharge flow, $444.53 per pound per day of BOD, and $561.41 per pound per day of suspended solids, subject to the same $2,513.82 minimum. Connection fee revenues are not included in Revenues pledged to the 2026 Bonds.

See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS.” Comparative Wastewater Rates
The following table compares the City’s current average monthly single family residential wastewater charge to that of other nearby wastewater service providers.

TABLE 6

CITY OF WATSONVILLE WASTEWATER SYSTEM
Comparison of Monthly Wastewater Charges - Typical Single-Family Customer Fiscal Year 2026-27
Provider Monthly Charge
City of Watsonville $70.42
Scotts Valley(1) 71.54
City of Santa Cruz(2) 75.32
Santa Cruz County Sanitation District(3) 103.34
(1) Scotts Valley is reported to be in the midst of a rate study; its future rate increases are to be determined.

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29 (2) The City of Santa Cruz is in year two of a five-year schedule of rate increases. (3) Santa Cruz County Sanitation District (which serves Capitola, Live Oak and Soquel) is forecasting 7.7% increases in each of the next four fiscal years (Fiscal Years 2027-28 through 2030-31).

Source: City of Watsonville; agency published rate schedules.

Billing and Collection Procedures
The City of Watsonville bills wastewater service on a combined monthly utility bill that also includes water and solid waste charges. The City’s utility billing and collection framework is established by Chapter 6-3 of the Watsonville Municipal Code, City Council resolutions setting rates and billing terms, and the City’s residential water discontinuation policy adopted to comply with the Water Shutoff Protection Act.

Customers are billed monthly on a combined utility statement. Approximately 87 percent of utility bills are paid by the due date. The City’s historical bad-debt write-off rate is approximately 6 percent of billed revenues. If a bill is not paid when due, Section 6-3.310 of the Municipal Code authorizes the City to suspend utility service, apply partial payments proportionately among services, and, at the Director’s discretion, record unpaid charges as a lien against the property receiving service. The City may also require payment of prior obligations, deposits, or owner responsibility for accounts that are not in good standing before new or continued service is provided. As of June 30, 2026, the Wastewater System had 1,351 delinquent accounts (approximately 8.5 percent of total accounts) and 212 customers on a payment plan (1 percent of total accounts).

For residential accounts, the City administers discontinuation of service for nonpayment through its residential water discontinuation policy. Although Senate Bill 998 applies only to residential water service, the policy describes the billing and collection practices used for the City’s combined residential utility bill, which includes wastewater charges. Under that policy, a residential account is not subject to discontinuation procedures until it has been delinquent for at least 60 days. Balances of $50 or less are carried forward to the next billing cycle without further collection action.

Before discontinuing residential service for nonpayment, the City must make a good-faith effort to provide written notice at least seven business days before shutoff. Notice is mailed to the billing address and, if different, to the service address, to the occupant. The notice states the amount due, the date by which payment or other arrangements must be made, and how the customer may obtain assistance or a copy of the policy.

The policy also provides additional protections for residential customers. Customers may request review or appeal of disputed bills, and service may not be discontinued while a timely appeal is pending.

The City must also offer alternative payment arrangements in qualifying hardship cases and provide additional notice to occupants of certain master-metered properties.

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30 Future Wastewater System Improvements
General. The following table summarizes the projected capital improvement program expenditures for the Wastewater System for Fiscal Years 2026‑27 through 2030‑31.

TABLE 7

CITY OF WATSONVILLE WASTEWATER SYSTEM
Five-Year Capital Improvement Program
(000s omitted)
CIP Project Name
Fiscal
Year
2026-27
Fiscal
Year
2027-28
Fiscal
Year
2028-29
Fiscal
Year
2029-30
Fiscal
Year
2030-31 Total
Sanitary Sewer Lift Station $100 $100 $100 $100 $100 $500 Infrastructure Repairs/Replacement 250 250 250 250 250 1,250 Sanitary Sewer Main Replacement/Repairs 200 200 200 200 200 1,000 Headworks and Influent Pump Station 2,000 15,000 13,000 7,000 37,000 Main Switchgear and Energy Recovery Electrical
System Improvements
6,000 -- -- -- -- 6,000
System Evaluation and Capacity Assurance Plan 70 -- -- -- -- 70 Cogen Replacement/Energy Savings Project (1) 20,000 -- -- -- -- 20,000 Sewer Pump Station Improvements - Pajaro Dunes -- 500 4,676 -- 2,500 7,676 Pump Station 14 Improvements -- -- -- -- 1,200 1,200
Dewatering System Improvements -- -- -- -- 2,000 2,000
Old Headworks Demolition Project -- -- -- -- 250 250
Digester Cleaning and Piping Improvements -- -- 285 -- -- 285 Division Automotive Equipment Replacement -- 280 -- 65 -- 345 Total $28,620 $16,330 $18,511 $7,615 $6,500 $77,576
(1) Represents the Project; to be funded with proceeds of the 2026 Bonds. See “PLAN OF FINANCE – The Project.” Source: City of Watsonville.

The City is undertaking three major Treatment Plant projects intended to replace aging infrastructure, improve resilience and reliability, and reduce energy costs.

The Headworks and Influent Pump Station Replacement Project would replace aging preliminarytreatment and influent-pumping facilities, including new pumping, screening, grit-handling, electrical, odor-control, and related improvements. The replacement facilities are expected to maintain substantially similar treatment capacity while improving flow management, including during peak wet-weather events.

The City expects to fund the project primarily with a Clean Water State Revolving Fund financing incurred after issuance of the 2026 Bonds, secured by Net Revenues on parity with the 2026 Bonds, together with available grants.

The WWTF Electrical System Hazard Mitigation Improvements Project would reduce flood and seismic risks to critical electrical and standby-power infrastructure. It includes a new elevated electrical facility, relocated switchgear and utility service, a larger standby generator and fuel storage, and related electrical and site work. The City expects the project to protect the electrical system against a 500-year flood event and a long-return-interval seismic event. Funding is expected primarily from federal hazardmitigation grants and matching funds.

The Energy Infrastructure Modernization Program, financed in part with 2026 Bond proceeds, would modernize on-site energy systems through new linear generators, biogas conditioning equipment,

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31 high-efficiency aeration and blower equipment, sludge dewatering facilities, and related improvements.

The existing cogeneration engine must be retired upon completion of the Electrical System Project because it does not meet current regulatory and PG&E protection standards and has reached the end of its useful life. The City expects the program to improve energy efficiency, strengthen on-site power production, and reduce purchased-electricity costs, although savings and other benefits may differ from current expectations. See “PLAN OF FINANCE.”
Collectively, these projects are intended to improve the Treatment Plant’s reliability, maintainability, efficiency, and resilience. They require substantial capital expenditures and remain subject to planning, permitting, financing, construction, cost-escalation, and schedule risks. See “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage” and “RISK FACTORS.”
Projected Wastewater System Connections
The following table shows projected billed connections to the Wastewater System for the current and next four Fiscal Years. See “– Growth Management” below.

TABLE 8

CITY OF WATSONVILLE WASTEWATER SYSTEM
Projected Wastewater System Connections(1)
Fiscal
Year
Residential
Connections
Commercial
Connections
Total
Connections
% Increase/
(Decrease)(2)
2026-27 15,137 1,047 16,184 2.05%
2027-28 15,215 1,053 16,268 0.50
2028-29 15,294 1,058 16,352 0.50
2029-30 15,374 1,064 16,438 0.50
2030-31 15,454 1,069 16,523 0.50
(1) The projections shown in Table 8 are as of April 7, 2026, and were utilized in connection with the rate study performed by Raftelis for the the Adopted Rate Plan.
(2) Represents the percentage change in total wastewater connections. Increase in Fiscal Year 2026-27 was computed in reference to actual connections as of June 30, 2026 shown in Table 3.

Source: City of Watsonville.

Growth Management
The City is substantially built out and constrained from significant new growth by protected agricultural land, airport land use restrictions, and slough and other environmental buffer areas, such that future development is expected to consist primarily of infill redevelopment within the City and annexation of unincorporated county areas already tributary to the Treatment Plant through the Freedom County Sanitation District. The City has identified the Pajaro County Sanitation District’s service area as having some potential for additional growth, with implications for that district’s allocated share of Treatment Plant capacity that remain to be determined. There can be no assurance that the City will not enact future growth control ordinances that increase limits on growth. See “– Projected Wastewater System Connections.”

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32 WASTEWATER SYSTEM FINANCIAL INFORMATION
Financial Statements
A copy of the most recent audited financial statements of the City (which include the audited financial statements of the Sewer Fund) prepared by Maze & Associates, Pleasant Hill, California (the “Auditor”), is set forth in Appendix E hereto. 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 the date of its report. The summary operating results contained under the caption “– Historical Operating Results and Debt Service Coverage” are derived from the City’s audited financial statements and underlying accounting records for the five most recent Fiscal Years (excluding certain noncash items and after certain other adjustments, as described in the footnotes to the table), and are qualified in their entirety by reference to such statements, including the notes thereto. See “APPENDIX E – AUDITED FINANCIAL STATEMENTS.”
The City accounts for moneys received and expenses paid in accordance with generally accepted accounting principles applicable to public entities (“GAAP”). The Sewer Fund of the City is accounted for as a proprietary fund type (enterprise fund), using the “economic resources” measurement focus and the accrual basis of accounting, under which revenues are recognized in the period in which they are earned and expenses are recognized in the period in which the liability is incurred. Except as otherwise expressly noted herein, all financial information that has been derived from the City’s audited financial statements reflects the application of GAAP.

Available Cash
As of August 30, 2026, the Sewer Fund had approximately $11.3 million in cash and investments (none of which was reported as restricted), equivalent to approximately 209 days of Fiscal Year 2024-25 Operation and Maintenance Costs.

Historical Operating Results and Debt Service Coverage
The following table is a summary of operating results of the Wastewater System for the five most recent Fiscal Years. These results for Fiscal Years 2021-22 through 2024-25 have been derived from the City’s audited financial statements, but exclude certain non-cash items and include certain other adjustments as described in the footnotes below. The results shown for Fiscal Year 2025-26 are estimated, and also exclude certain non-cash items and include certain other adjustments as described in the footnotes below. The table has not been reviewed or audited by the Auditor.

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33 TABLE 9

CITY OF WATSONVILLE WASTEWATER SYSTEM
Historical Operating Results and Debt Service Coverage
($ in thousands)
Fiscal Year
2021-22
Fiscal Year
2022-23
Fiscal Year
2023-24
Fiscal Year
2024-25
Fiscal Year
2025-26(1)
Revenue
Sewer Rate Revenues $12,527 $13,546 $14,163 $15,705 $16,639 Pajaro Valley Water Contributions(2) 1,953 1,625 1,255 3,475 3,532 Outside District Contributions(3) 1,636 1,306 1,528 2,264 1,592 Other Revenue(4) 334 2,503 1,162 4,704 6,022
Total Revenue $16,450 $18,979 $18,108 $26,148 $27,785
Operation and Maintenance Costs
Wastewater Treatment $10,176 $10,039 $11,160 $13,725 $14,126 Sewer Maintenance 945 1,167 1,218 1,083 1,281
Recycling Operations 2,014 2,194 2,449 2,948 3,554
Total Operation and Maintenance Costs $13,135 $13,401 $14,827 $17,755 $18,960 Net Revenues $3,315 $5,578 $3,281 $8,393 $8,825
Debt Service
Existing SRF Agreements $465 $465 $465 $465 $446
Total Debt Service $465 $465 $465 $465 $446
Historical Debt Service Coverage Ratio 6.78 9.84 7.06 18.05 19.79 (1) Reflects Fiscal Year 2025-26 adopted budget with certain adjustments. (2) Consists of cost-sharing contributions from Pajaro Valley Water for operation, maintenance and capital costs relating to the Recycled Water Facility. See “THE WASTEWATER SYSTEM – Recycled Water Facility.” (3) Consists of cost-sharing contributions of the Outside Districts for operation, maintenance and capital costs of the Treatment Plant. See “THE WASTEWATER SYSTEM – Outside District Wastewater Agreements.” (4) Includes grants and other revenues. Fiscal Year 2024-25 includes approximately $3.1 million of one-time capital grant proceeds associated with the Levee Embankment Stabilization and Main Switchgear and Energy Recovery projects. See “THE WASTEWATER SYSTEM – Future Wastewater System Improvements.” Source: City of Watsonville.

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34 Projected Operating Results and Debt Service Coverage The projected operating results of the Wastewater System for the current and next four Fiscal Years are set forth below, reflecting certain significant assumptions concerning future events and circumstances.

The projected operating results give effect to the estimated annual energy savings anticipated to result from the Project described under the caption “PLAN OF FINANCE – The Project.” TABLE 10

CITY OF WATSONVILLE WASTEWATER SYSTEM
Projected Operating Results and Debt Service Coverage
($ in thousands)
Fiscal Year
2026-27
Fiscal Year
2027-28
Fiscal Year
2028-29
Fiscal Year
2029-30
Fiscal Year
2030-31
Revenues
Sewer Rate Revenue(1) $17,822 $20,048 $21,344 $22,723 $24,192 Pajaro Valley Water Contributions(2) 3,248 3,248 3,248 3,248 3,248 Outside District Contributions(3) 1,318 478 586 478 856 Other Revenue(4) 5,153 1,061 1,061 1,061 1,061
Transfer from (to) Rate Stabilization Fund(5) -- 875 -- -- -- Total Revenues $27,540 $25,709 $26,237 $27,509 $29,356
Operation and Maintenance Costs(6)
Wastewater Treatment $15,638 $16,515 $16,276 $16,859 $17,462 Sewer Maintenance 1,513 1,573 1,636 1,702 1,770
Recycling Operations 2,983 3,104 3,230 3,361 3,498
Utilities Administration 155 129 101 71 38
Total Operation and Maintenance Costs $20,134 $21,192 $21,144 $21,922 $22,731 Net Revenues $7,407 $4,517 $5,094 $5,588 $6,625
Debt Service
Existing SRF Agreements $352 $352 $352 $352 $352
2026 Bonds* 1,078 1,564 1,563 1,561 1,562
2027 Clean Water State Revolving Fund(7)
financing
-- -- -- -- 1,866
Total Debt Service* $1,430 $1,916 $1,915 $1,913 $3,780
Projected Debt Coverage Ratio* 5.18 2.36 2.66 2.92 1.75 (1) Projected sewer rate revenues assume the rate increases reflected in the Adopted Rate Plan are implemented. There can be no assurance that Wastewater System rates will be adjusted exactly as scheduled. Such revenues also reflect the assumption that connections will increase 0.5 percent annually.
(2) Represent projected cost-sharing contributions from Pajaro Valley Water for operation, maintenance and capital costs relating to the Recycled Water Facility. See “THE WASTEWATER SYSTEM – Recycled Water Facility.” The projected capital improvement program expenditures for the Wastewater System for Fiscal Years 2026‑27 through 2030‑31 were used to project capital costs contributions.
(3) Represent projected cost-sharing contributions of the Outside Districts for operation, maintenance and capital costs of the Treatment Plant, grants and other revenues. See “THE WASTEWATER SYSTEM – Outside District Wastewater Agreements.” The projected capital improvement program expenditures for the Wastewater System for Fiscal Years 2026‑27 through 2030‑31 were used to project capital costs contributions. (4) Includes grants and other revenues.

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35 Footnotes continued:
(5) Represent transfers to and from the Rate Stabilization Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Stabilization Fund.”
(6) Operation and Maintenance Costs are assumed to increase at an average annual rate of approximately 3.7 percent, driven primarily by the cost increases of chemicals, utilities (power) and personnel. (7) Clean Water State Revolving Fund financing is anticipated to close after the issuance of the 2026 Bonds and will be secured by Net Revenues on parity with the 2026 Bonds. See “THE CITY – Outstanding Parity Obligations.” *Preliminary; subject to change.

Note: Individual amounts may not sum to totals shown due to rounding.

Source: City of Watsonville.

The financial forecast represents the City’s estimate of projected financial results based on a variety of assumptions. All of such assumptions are material to the development of the projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast, and such variations may be material. See “RISK FACTORS – Accuracy of Assumptions and Projections.” Retirement Plans
This section contains certain information relating to the City’s pension plans administered by the California Public Employees’ Retirement System (“CalPERS”). The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries, and from the City’s audited financial statements for the fiscal year ended June 30, 2025. 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.

Accounting and financial reporting by state and local government employers for defined benefit pension plans is governed by Governmental Accounting Standards Board Statement No. 68 (“GASB 68”), under which, among other things, unfunded pension liabilities are included on the employer’s balance sheet. GASB 68 affects the City’s accounting and reporting requirements, but it does not change the City’s pension plan funding obligations.

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”). Substantially all full-time City employees other than those providing public safety services participate in the Miscellaneous Plan; City employees providing police and fire protection services participate in the Safety Plan. Benefit provisions under the Plans are established by State statute and City resolution.

This section describes in detail the Miscellaneous Plan, in which substantially all full-time employees of the City providing services to the Wastewater System participate. The Safety Plan is a separate risk pool for which CalPERS provides separate valuation reports for each benefit tier, with its own

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36 benefit formulas, contribution rates and funded status; detailed financial information regarding the Safety Plan is not presented in this section. See “APPENDIX E – AUDITED FINANCIAL STATEMENTS” for required GASB 68 disclosures applicable to all of the City’s pension plans, including the Safety Plan.

Benefits Provided. All qualified permanent and probationary employees are eligible to participate in the Miscellaneous Plan. 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. Classic members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits; PEPRA members are eligible to retire at age 52 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”). The provisions and benefits of the Miscellaneous Plan in effect at June 30, 2025 are summarized as follows:

Miscellaneous Plan
Summary of Provisions and Benefits
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 Contribution Rates 8.89% 8.89% 14.88% Source: City of Watsonville.

California Public Employees’ Pension Reform Act of 2013. Employees hired prior to January 1, 2013, and who 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 percent at age 62 formula for Miscellaneous employees; and (ii) 2.7 percent at age 57 for Safety employees.

Employees are required to pay at least 50 percent 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 percent of the average final 36 months compensation. Retirement benefits for Classic Miscellaneous employees are calculated under the benefit formula applicable to their tier, as shown in the table above, applied to the average final 12 months compensation. Retroactive benefit increases are also prohibited, as are contribution holidays and purchases of additional non-qualified service credit. PEPRA also capped pensionable income.

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37 Maximum amounts are set annually, subject to adjustment in accord with the Consumer Price Index. For calendar year 2026, CalPERS limits pensionable compensation to $360,000 for Classic members, $159,733 for PEPRA members who participate in Social Security and $191,679 for PEPRA members who do not participate in Social Security. 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 liability 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 the Miscellaneous Plan 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 (“UAL”). The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees.

Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contributions requirements are classified as plan member contributions.

The required employer contribution is comprised of a Normal Cost component and a component equal to an amortized amount of the unfunded liability or Annual Unfunded Accrued Liability (“UAL”) Payment. The Normal Cost is the annual cost of service earned by active employees for the upcoming Fiscal Year, which is expressed as a percentage of payroll. The Annual UAL Payment is the amortized dollar amount needed to fund past service credit earned (or accrued) for members who are currently receiving benefits, active members, and for members entitled to deferred benefits, as of the valuation date.

The UAL Payment is a fixed dollar annual payment, billed monthly.

CalPERS collects employer contributions for the Miscellaneous 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. For Fiscal Year 2024-25, the City’s total required Miscellaneous Plan contribution was $4,748,925 in UAL payments and $2,297,425 in normal cost contributions citywide, of which the Sewer Fund was allocated approximately $1,075,214 (UAL) and $523,729 (normal cost), or a combined approximately $1,598,943 (approximately 22.7 percent of the citywide Miscellaneous Plan contribution).

Projected Employer Contributions. The following table shows the City’s actuarially-determined required employer contribution for Fiscal Year 2027-28 and projected employer contributions (before cost sharing) for Fiscal Years 2028-29 through 2032-33 for the Miscellaneous 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 Plan
Required and Projected Future Employer Contributions(1) Fiscal Year
2027-28
Fiscal Year
2028-29
Fiscal Year
2029-30
Fiscal Year
2030-31
Fiscal Year
2031-32
Fiscal Year
2032-33
Normal Cost % 8.63% 8.6% 8.5% 8.4% 8.4% 8.3%
UAL Payment $5,654,318 $6,016,000 $5,868,000 $5,698,000 $5,323,000 $5,274,000 (1) Assumes 6.80% Return for Fiscal Year 2025-26 and thereafter.

Source: CalPERS Actuarial Report for the Miscellaneous Plan as of June 30, 2025.

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38 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 percent annual rate of return for Fiscal Year 2025-26 and thereafter 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. 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.

Net Pension Liability. As of the most recent CalPERS actuarial valuation (measurement date June 30, 2024, as reported in the City’s Fiscal Year 2024-25 audited financial statements), the Miscellaneous Plan reported a net pension liability for GASB 68 purposes of approximately $53,025,159 citywide, of which approximately $12,726,038 (approximately 24 percent) was allocated to the Sewer Fund, and a funded ratio (based on the Miscellaneous Plan’s fiduciary net position as a percentage of the total pension liability) of approximately 74 percent. The Miscellaneous Plan’s discount rate assumption was 6.90 percent.

The CalPERS Board of Administration has adjusted, and may in the future further adjust, actuarial assumptions (including the discount rate), which may increase the City’s required contributions in future years, and no assurance can be given that required contributions will not significantly increase.

The net pension liability and funded ratio set forth in this paragraph are determined for financial reporting purposes in accordance with GASB 68. They differ from the unfunded accrued liability and funded ratio determined for funding purposes in the CalPERS actuarial valuations, which are set forth under “– Funded Status” below. The principal difference is the discount rate: the rate applied for funding purposes is net of both investment and administrative expenses, while the rate applied for financial reporting purposes is net of investment expenses only. Because the financial reporting measure applies a higher discount rate to the same market value of plan assets, it produces a smaller liability and a higher funded ratio than the funding measure as of the same date.

Funded Status. The following table sets forth the schedule of funding for the Miscellaneous Plan for the valuation dates of June 30 of 2021 through 2025.

Valuation Date
Ended June 30
Accrued
Liability
Market Value
of Assets
Unfunded
Accrued Liability
Funded
Ratio(1)
Annual Covered
Payroll
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 2024 210,640,477 152,557,318 58,083,159 72.4 25,765,170 2025 221,135,160 170,299,999 50,835,161 77.0 27,479,287 (1) Based on the market value of assets.

Source: CalPERS Actuarial Report for the Miscellaneous Plan as of June 30, 2025.

The figures shown in the previous table were prepared by CalPERS for funding purposes in accordance with the actuarial methods and assumptions used by CalPERS to establish employer contribution rates. The accrued liability and funded ratio shown differ from the total pension liability and funded ratio determined for financial reporting purposes under GASB 68. See “– Net Pension Liability” above.

See “APPENDIX E – AUDITED FINANCIAL STATEMENTS” for additional information, regarding the Miscellaneous Plan.

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39 Other Post-Employment Benefits
The City provides other post-employment benefits (“OPEB”) in the form of an implicit rate subsidy to eligible retirees; the City ceased paying direct cash subsidies for retiree healthcare effective July 1, 2015, and funds OPEB obligations on a pay-as-you-go basis without a dedicated OPEB trust. As of the most recent actuarial valuation reflected in the City’s Fiscal Year 2024-25 financial statements, the City’s total OPEB liability was approximately $5,176,900 citywide (of which approximately $1,941,060 was attributable to the City’s business-type activities), of which approximately $699,838 was allocated to the Sewer Fund. See “APPENDIX E – AUDITED FINANCIAL STATEMENTS” for additional information, including required GASB 75 disclosures.

CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB
Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, authority, special district or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The “base year” for establishing such appropriation limit is the 1978-79 State fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices.

Adjustments in the appropriations limit of an entity may also be made if: (a) the financial responsibility for a service is transferred to another public entity or to a private entity; (b) the financial source for the provision of services is transferred from taxes to other revenues; or (c) the voters of the entity approve a change in the limit for a period of time not to exceed four years.

Appropriations that are subject to Article XIIIB generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments from retirement, unemployment, insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from:
(i) regulatory licenses, user charges, and user fees (but only to the extent that such proceeds exceed the cost reasonably borne by the entity in providing the service or regulation); and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts that are permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years.

Certain expenditures are excluded from the appropriations limit, including payments of indebtedness that were existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters, and payments that are required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly.

The City is of the opinion that its charges for Wastewater System do not exceed the costs that it reasonably bears in providing such service and therefore are not subject to the limits of Article XIIIB. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Covenant” for a description of the City’s covenant to set rates and charges for the Wastewater System.

Proposition 218
General. An initiative measure entitled the “Right to Vote on Taxes Act” (the “Initiative”) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Articles XIIIC and XIIID to the State Constitution. According to the “Title and Summary” of the Initiative prepared

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40 by the State Attorney General, the Initiative limits “the authority of local governments to impose taxes and property-related assessments, fees and charges.”
Article XIIID. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “propertyrelated service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership.

Article XIIID requires that any agency which imposes or increases any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, because fees for wastewater service are a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fees or charges may be limited by a majority protest.

In addition to the majority-protest procedure described above, Assembly Bill 2257 (Government Code Sections 53759.1 through 53759.2) establishes a separate written-objection procedure applicable to water and wastewater rates. In connection with the rate increases adopted by the City Council on May 26, 2026 for the Current Rate Cycle, the City provided notice of, and an opportunity to submit, written objections to the proposed wastewater rates in accordance with this procedure. Only two customers submitted timely written objections during the applicable comment period. Under Government Code Sections 53759.1 through 53759.2, customers who did not submit a timely written objection during that period are subject to certain limitations on their ability to challenge the adopted rates for the Current Rate Cycle. The City has no indication that either of the two customers who submitted timely objections intends to bring a legal challenge to the adopted rates. This discussion is limited to rates adopted for the Current Rate Cycle; it does not address, and should not be read to limit, the rights of customers with respect to any future rate-setting process.

In addition, Article XIIID includes a number of limitations that are applicable to existing fees and charges, including provisions to the effect that: (a) revenues that are derived from the fee or charge may not exceed the funds which are required to provide the property-related service; (b) such revenues may not be used for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge that is imposed upon any parcel or person as an incident of property ownership may not exceed the proportional cost of the service attributable to the parcel; and (d) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted.

Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v.

City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water and wastewater services that are “primarily based on the amount consumed” (i.e., metered water or wastewater rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The State Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the “Bighorn Case”), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The State Supreme Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218.

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41 In August 2013, an Orange County Superior Court judge ruled that the tiered pricing model of San Juan Capistrano, which charges higher rates to customers who use more water, violates Proposition 218.

The City of San Juan Capistrano appealed the decision, to the 4th District Court of Appeal, which published its decision on April 20, 2015. The court’s decision found that the City of San Juan Capistrano’s tiered rates were not sufficiently cost justified, but that the Constitution does allow for tiered rates. A rehearing petition was filed with the court on May 6, 2015. The 4th District Court of Appeal subsequently modified its unpublished opinion on May 19, 2015, without change in the judgment. In July 2015, the California Supreme Court denied a request to depublish the case. The City believes that its rate structure for the Wastewater System is distinguishable from the structure deemed unconstitutional in San Juan Capistrano and is consistent with Proposition 218 and the Constitution, because the City does not impose inclining block rates of the type at issue in that case and its rates and charges are based on the cost of providing service to each customer class. See “THE WASTEWATER SYSTEM – Wastewater System Rates and Charges.”
Article XIIIC. Article XIIIC provides that the initiative power may not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges is applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC applied to rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations.

On August 3, 2020, the State Supreme Court issued an opinion in Wilde v. City of Dunsmuir, (2020) 9 Cal.5th 1105, holding that taxpayers do not have the right under Proposition 218 to challenge water rates by referendum, and the City does not believe that Article XIIIC grants to the voters within the City the power (whether by initiative under Article XIIIC or otherwise, or by referendum, which is not authorized under Article XIIIC) to repeal or reduce rates and charges for the Enterprise in a manner that would interfere with the contractual obligations of the City or the obligation of the City to maintain and operate the Enterprise.

The City last adopted or amended its wastewater rates and charges on May 26, 2026, effective July 1, 2026, following a Proposition 218 protest hearing process, at which no majority protest was received.

See “APPENDIX G – ADOPTED WASTEWATER RATE RESOLUTION.” Article XIIID also authorizes judicial actions to challenge the validity of property-related fees. See “RISK FACTORS – Proposition 218 and Rate-Setting Risk” and “NO LITIGATION” herein.

Proposition 26
On November 2, 2010, voters in the State 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

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42 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 applies to charges imposed or increased after November 2, 2010 and 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 believes that its Wastewater System rates and charges meet the exception that is described in clause (g) above and are not taxes under Proposition 26.

Future Initiatives and Legislation
Articles XIIIA, XIIIB, XIIIC, and XIIID were each adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted that further affect the City’s ability to levy and collect wastewater rates, fees, and charges, or the City’s revenues or appropriations more generally. The City cannot predict whether any future initiative or legislative change will be enacted, or the nature or extent of its impact on the Wastewater System, Net Revenues, or the security for the 2026 Bonds, if enacted.

RISK FACTORS
The following information should be considered by prospective investors in evaluating the 2026 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the 2026 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. Prospective purchasers of the 2026 Bonds should read this entire Official Statement, including the appendices, to obtain information essential to making an informed investment decision. There can be no assurance that other risk factors will not become material in the future.

Limited Obligations
The 2026 Bonds are limited obligations of the City payable solely from and secured by a pledge of and lien on Net Revenues of the Wastewater System and certain funds held under the Indenture. The City is not obligated to pay debt service on the 2026 Bonds from any source other than Net Revenues, and the 2026 Bonds do not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation.

Accuracy of Assumptions and Projections
Any projections of Net Revenues, customer growth, or debt service coverage included in this Official Statement are forward-looking statements based on assumptions believed reasonable by the City as of the date hereof. Such assumptions are inherently subject to significant economic, demographic, regulatory, and other uncertainties, and actual results may differ materially from the projected results. No assurance can be given that the assumptions underlying the projections will prove accurate.

System Demand
There can be no assurance that the demand for wastewater or recycled water services will occur as described in this Official Statement. Reductions in demand could require an increase in rates or charges in

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43 order to comply with the Rate Covenant. Demand for wastewater or recycled water services could be reduced as a result of hydrological conditions, conservation efforts (including in response to drought), an economic downturn or other factors. See the captions “THE WASTEWATER SYSTEM – Wastewater System Rates and Charges” and “RISK FACTORS – Accuracy of Assumptions and Projections.” The City treats wastewater from the Outside Districts pursuant to the Outside District Wastewater Agreements. None of the Outside District Wastewater Agreements has a stated expiration date; each remains in effect until superseded by a new agreement between the City and the applicable district.

Revenues from the treatment of wastewater generated within the Outside Districts accounted for approximately 9 percent of total Wastewater System Revenues in Fiscal Year 2024-25 (the latest Fiscal Year for which complete information is available).

The projected operating results that are set forth under the caption “WASTEWATER SYSTEM FINANCIAL INFORMATION – Projected Operating Results and Debt Service Coverage” assume that the Outside District Wastewater Agreements will continue in force. However, in the event that any such agreement is terminated, Wastewater System Revenues could be significantly lower than projected herein.

System Expenses
There can be no assurance that the City’s expenses will be consistent with the descriptions in this Official Statement. Operation and Maintenance Costs may vary with labor costs (including costs related to pension liabilities and the costs of retaining qualified personnel with the proper certifications to operate Wastewater System treatment and other facilities), treatment and biosolids disposal costs, chemical and energy costs, regulatory compliance costs, and other factors. Increases in expenses could reduce Net Revenues and could require an increase in rates or charges in order to comply with the Rate Covenant. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Covenant.” Rate increases are subject to the provisions of Proposition 218, and there can be no assurance that the City will be able to increase rates as needed to address increases in Wastewater System expenses. See “– Proposition 218 and Rate-Setting Risk.”
Rate Covenant Not a Guarantee
The Rate Covenant obligates the City to fix rates and charges that are reasonably expected, at the commencement of a Fiscal Year, to yield Net Revenues at the required level. It does not obligate the City to achieve that level, and the City’s obligation is qualified by the phrase “to the fullest extent permitted by law.” Numerous factors outside the City’s control, including reduced usage resulting from conservation, drought or wet-weather conditions, the loss or contraction of one or more significant customers, increases in energy, chemical, labor or regulatory compliance costs, unplanned repairs, and delinquencies in collection, may cause actual Net Revenues in any Fiscal Year to be less than projected. Prospective purchasers should not assume that Net Revenues in any Fiscal Year will equal or exceed 120 percent of Debt Service, or that a failure to achieve that level will give rise to any remedy on their behalf. See “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Covenant.” Proposition 218 and Rate-Setting Risk
As described under “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES,” future increases in the Wastewater System’s rates, fees, and charges are subject to the majority-protest procedures of Article XIIID of the California Constitution. If a majority protest were filed and sustained with respect to a future proposed rate increase, the City could be prevented from increasing

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44 rates as planned, which could adversely affect the City’s ability to generate Net Revenues sufficient to satisfy the Rate Covenant or to fund the Capital Improvement Program.

In addition, wastewater rates and charges, once adopted, remain subject to legal challenge as being inconsistent with the substantive requirements of Article XIIID (e.g., that charges not exceed the cost of service or be used for purposes other than the service for which imposed). See “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES” for a description of the written-objection procedure under Assembly Bill 2257 applicable to rates adopted for the Current Rate Cycle. See “NO LITIGATION.”
Additional Parity Obligations
The City may issue additional Bonds or execute Contracts payable from and secured by a pledge of and lien on Net Revenues on parity with the 2026 Bonds, subject to satisfaction of the additional bonds test described under “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Issuance of Additional Bonds and Contracts.” The issuance of additional Bonds or execution of Contracts would result in an increase in the aggregate debt service payable from and secured by a pledge of and lien on Net Revenues, without the consent of the owners of the 2026 Bonds.

Acceleration; Limitation on Remedies
Upon the occurrence and continuance of an Event of Default, the Trustee may, and upon the written direction of the Owners of a majority in aggregate principal amount of the 2026 Bonds then Outstanding and with the prior written consent of the Insurer must, declare the principal of all 2026 Bonds then Outstanding and the interest accrued thereon to be immediately due and payable. Acceleration is mandatory upon an Event of Default arising from bankruptcy or reorganization proceedings involving the City or from the acceleration of any other Bond or Contract. Any such declaration is subject to rescission as described under “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Acceleration.” Notwithstanding the availability of acceleration, the remedies available upon an Event of Default are, as a practical matter, limited. The 2026 Bonds remain payable solely from, and secured by a pledge of and lien on, Net Revenues whether or not they have been accelerated, and acceleration creates no additional source of payment. The principal remedies are an action in mandamus or for specific performance to compel the City to perform its obligations under the Indenture, together with the appointment of a receiver of the Net Revenues and other assets pledged under the Indenture, to which the Trustee is entitled as a matter of right upon instituting proceedings. Additionally, the City's obligation under the Rate Covenant is to fix rates and charges reasonably expected, at the commencement of each Fiscal Year, to yield Net Revenues at the level described under “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS – Rate Covenant,” to the fullest extent permitted by law. It is not an obligation to achieve any particular level of Net Revenues, and the Indenture expressly provides that the failure of Net Revenues to reach that level in any Fiscal Year does not constitute a default or an Event of Default. Accordingly, no remedy is available to the Trustee or the Owners by reason of such a shortfall alone. In addition, following an Event of Default the Indenture directs that Revenues and other funds held by the Trustee be applied first to the Trustee's fees and expenses, second to the payment of Operation and Maintenance Costs, and only thereafter to principal of and interest on the 2026 Bonds and to Debt Service on other Bonds and Contracts. There can be no assurance that Net Revenues remaining after payment of Operation and Maintenance Costs would be sufficient to pay the 2026 Bonds.

Further, so long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder, the Insurer is entitled to control and direct the enforcement of all rights and remedies granted to the Owners of the 2026 Bonds or to the Trustee for their benefit, no default or Event

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45 of Default may be waived without the Insurer's written consent, and the Insurer is deemed to be the sole owner of the 2026 Bonds for all purposes of the Indenture, including for purposes of exercising remedies and approving amendments. Owners should assume that the Insurer, and not the Owners, will determine whether, when and how remedies are exercised, and the Insurer's interests may differ from those of the Owners. In addition, no Owner has the right to institute proceedings to enforce the Indenture unless an Event of Default has occurred, the Owners of not less than 50% in aggregate principal amount of the 2026 Bonds then Outstanding have made written request upon the Trustee, reasonable indemnity has been tendered, and the Trustee has failed to comply for 60 days. See “BOND INSURANCE.” The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues in amounts that are sufficient to pay principal of and interest on the 2026 Bonds may be adversely affected by actions and events outside of the control of the City or actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See the caption “CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES – Proposition 218.” Furthermore, the remedies available to the owners of the 2026 Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In the event that the City fails to comply with its covenants under the Indenture or fails to pay principal of and interest on the 2026 Bonds, there can be no assurance as to the availability of remedies adequate to protect the interest of the holders of the 2026 Bonds.

In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2026 Bonds will be subject to such limitations, and the various other legal opinions to be delivered concurrently with the issuance of the 2026 Bonds will be similarly qualified. See Appendix C.

In addition, usual equity principles may limit the specific enforcement under State law of certain remedies, as may the exercise by the United States of America of the powers delegated to it by the federal Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the 2026 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations or modification of their rights. Remedies may be limited because the Wastewater System serves an essential public purpose.

Effect of City Bankruptcy
Pursuant to State law, the City is authorized to file for bankruptcy protection under certain circumstances. Should the City file for bankruptcy protection, the assets of the Sewer Fund would in all likelihood be initially subject to the bankruptcy proceedings and, therefore, there could be adverse effects on the Owner of 2026 Bonds. An involuntary bankruptcy petition cannot be filed against the City.

The rights and remedies available to the Owner of 2026 Bonds under the Indenture may become subject to, including through a City bankruptcy, among other things: (i) the United States Bankruptcy Code (the “Bankruptcy Code”), (ii) other applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally, now or hereinafter in effect; (iii) equity principles; (iv) limitations on the specific enforcement of certain remedies; (v) the exercise by the United

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46 States of America of the powers delegated to it by the U.S. Constitution; (vi) the reasonable and necessary exercise, in certain circumstances, of the police powers inherent in the sovereignty of the State and its governmental bodies having an interest in serving a significant and legitimate public purpose; and (vii) regulatory and judicial actions that are subject to discretion and delay.

To the extent that Revenues are determined to be “special revenues” under the Bankruptcy Code, the Revenues collected after the date of a bankruptcy filing should continue to be subject to the liens of the Indenture. However, if any or all of the Revenues were determined not to be “special revenues,” then any such amounts collected after the commencement of the bankruptcy case will likely not be subject to the liens of the Indenture. No assurance can be given that a court would hold that any or all Revenues are special revenues. Even if the Revenues constitute special revenues, the Bankruptcy Code provides that special revenues may be applied to necessary operating expenses of the project or system before they are applied to other obligations, and this rule applies regardless of the provisions of the transaction documents.

The 2026 Bonds are in any event secured by a pledge of Net Revenues, which are calculated after payment of Operation and Maintenance Costs, and following an Event of Default the Indenture directs that Revenues held by the Trustee be applied to Operation and Maintenance Costs before principal of and interest on the 2026 Bonds. See “— Acceleration; Limitation on Remedies.” Certain amounts relating to the Wastewater System are not pledged under the Indenture and would not be available to Owners of the 2026 Bonds in a City bankruptcy. Amounts on deposit in the Rate Stabilization Fund are not pledged to, and do not constitute security for, the 2026 Bonds, notwithstanding that transfers from that fund to the Revenue Fund constitute Revenues when made. Restricted Capital Charges do not constitute Net Revenues and are not pledged, although they may be held in a subaccount of the Revenue Fund pending application to the capital improvements for which they were collected. Owners would have no lien on such amounts, and questions could arise as to the tracing of pledged and unpledged amounts held within the same fund.

In a case arising from the insolvency proceedings of Commonwealth of Puerto Rico, the United States Court of Appeals for the First Circuit concluded that while a debtor has the right to voluntarily apply special revenues to the payment of debt service during the pendency of a bankruptcy case, the debtor is not obligated to do so, even though the special revenues are subject to the lien of the bond documents. The Owner of the 2026 Bonds may not be able to assert a claim against any property of the City other than the Revenues. It is not clear precisely which expenses would constitute necessary operating expenses, and a court may define necessary operating expenses more broadly than comparable terms are defined under the Indenture. If any or all of the Revenues are no longer subject to the lien of the Indenture, or are applied to necessary operating expenses, then there may be limited, if any, funds from which the holders of the 2026 Bonds are entitled to be paid.

Furthermore, although Section 922(d) of the Bankruptcy Code provides that the automatic stay arising upon the filing of a bankruptcy petition under Chapter 9 does not apply to the collection and application of pledged special revenues to payment of bonds secured by such special revenues (which was confirmed by the United States Court of Appeals for the First Circuit in the insolvency proceedings of Commonwealth of Puerto Rico referred to above), if the City were to become a debtor in a proceeding under Chapter 9, the bankruptcy court could find that the automatic stay exception for pledged special revenues does not apply, and the parties to the proceeding may thus be prohibited from taking any action to collect Revenues, or to enforce any related obligation connected with the 2026 Bonds without the bankruptcy court’s permission.

In addition, if the City has possession of Revenues (whether collected before or after commencement of the bankruptcy) and if the City does not voluntarily turn over such Revenues to the

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47 Owner of the 2026 Bonds for the payment of debt service due and payable under the Indenture, it is not entirely clear what procedures the Owner of the 2026 Bonds would have to follow to attempt to obtain possession of such Revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. The United States Court of Appeals for the First Circuit, in another case involving the insolvency proceedings of Commonwealth of Puerto Rico, concluded that a bankruptcy court does not have the power to order a debtor to comply with state law.

The results of the foregoing, including but not limited to matters that may arise in proceedings under the Bankruptcy Code, are difficult to predict. The foregoing could subject the owners of the 2026 Bonds to, among other things: (i) judicial discretion and interpretation of rights; (ii) the automatic stay provisions of the Bankruptcy Code, which among other things, could operate to cause a delay or prohibition in debt service payments to the owners of 2026 Bonds; (iii) rejection of significant agreements; (iv) avoidance of certain payments to the owners of the 2026 Bonds as preferential payments; (v) assignments of certain obligations, including those in favor of the owners of the 2026 Bonds; (vi) significant delays, reductions in payments and other losses to the owners of the 2026 Bonds; (vii) an adverse effect on the liquidity and/or market values of the 2026 Bonds; (viii) additional borrowing, which borrowing may have priority over the lien of the Indenture; (ix) alterations to the priority, interest rate, payment terms, collateral, maturity dates, payment sources and terms, covenants (including tax-related covenants) and other terms or provisions of the Indenture or the 2026 Bonds, and other obligations, including treating the owners of the 2026 Bonds as general unsecured creditors of the City; and (x) the release of all or a portion of Revenues, free and clear of the lien of the Indenture.

The City Treasurer holds and invests all moneys in the Sewer Fund. Should the City initiate a bankruptcy proceeding, the Bankruptcy Court could hold that owners of the 2026 Bonds do not have a valid lien on the portion of the Revenues which are invested as part of the City’s investment program. In the event of such a holding, owners of the 2026 Bonds could be treated as unsecured creditors of the City with respect to such portion of the Revenues.

So long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder or under the Reserve Policy, the Insurer is entitled to control and direct the enforcement of all rights and remedies of the Owners and the Trustee upon a default or an Event of Default, including in any bankruptcy proceeding involving the City. In addition, a bankruptcy or insolvency proceeding involving the City constitutes an Event of Default under the Indenture upon which the Trustee is required to accelerate the 2026 Bonds, although the automatic stay would in all likelihood prevent enforcement of such acceleration. The Indenture does not authorize the Trustee to consent to or adopt, on behalf of any Owner, any plan of reorganization, arrangement, adjustment or composition affecting the 2026 Bonds, or to vote in respect of the claim of any Owner in any such proceeding, without the approval of the Owners so affected.

Legal opinions to be delivered concurrently with the delivery of 2026 Bonds will be qualified to the extent that the enforceability of certain legal rights related to the 2026 Bonds may be subject to general principles of equity which permit the exercise of judicial discretion and are subject to the provisions of applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, as well as limitations on legal remedies against cities in the State.

Statutory and Regulatory Compliance
The Wastewater System is subject to extensive federal, state, and local statutory and regulatory requirements governing wastewater collection, treatment, and disposal, including requirements administered by the U.S. Environmental Protection Agency, the California State Water Resources Control

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48 Board, and the applicable California Regional Water Quality Control Board, as described under “THE WASTEWATER SYSTEM – Environmental Compliance and Regulatory Status.” Changes in applicable law or regulation, more stringent discharge or water quality standards, new or more stringent contaminant regulation, or enforcement actions arising from noncompliance could require the City to make unanticipated capital expenditures or incur penalties, either of which could adversely affect Net Revenues or require additional rate increases. In addition, as the owner and operator of the Treatment Plant, the City may be subject to liability under the federal Comprehensive Environmental Response, Compensation, and Liability Act and analogous state laws for the investigation and remediation of hazardous substances, including substances contained in fats, oils, and grease, industrial pretreatment discharges, and biosolids handled or generated at the Treatment Plant, regardless of whether the City caused or contributed to the release of such substances.

The City’s Outside District Wastewater Agreements with the Outside Districts allocate capital and operating costs for Treatment Plant, ocean outfall and transmission facilities based on defined capacity rights and wastewater loading parameters. Changes in applicable laws or regulations, Treatment Plant rated capacity, wastewater loadings or required capital improvements could necessitate adjustments to those allocations or amendments to the agreements, and there can be no assurance that any such changes will not adversely affect cost recovery, Net Revenues or the City’s relationships with the Outside Districts.

Natural Disasters
The Wastewater System, including the Treatment Plant, is located near the Pajaro River and the Monterey Bay in an area subject to flooding, coastal storm events and seismic activity. Damage to or destruction of Wastewater System facilities from earthquakes, flooding, coastal surge, severe storms, wildfire or other natural disasters could result in significant repair or replacement costs, interruptions in wastewater collection and treatment service, and reductions in Revenues and Net Revenues available to pay Debt Service on the 2026 Bonds. See “THE WASTEWATER SYSTEM — General” and “SECURITY AND SOURCES OF PAYMENT FOR THE 2026 BONDS — Insurance and Condemnation.” The Treatment Plant site is located near the Pajaro River and the Monterey Bay within mapped high‑hazard flood zones for both a 100‑year riverine flood event and tsunami‑related inundation under applicable state and local hazard mapping. The City’s coastal sewer pump stations are similarly located within high‑hazard flood zones and are subject to existing risk of submersion in the event of a tsunami or 100‑year flood. These locational characteristics increase the potential for damage to Wastewater System facilities from flood and tsunami events. The City is implementing the Electrical System Project described under “THE WASTEWATER SYSTEM — Future Wastewater System Improvements,” which is intended to elevate and harden the Treatment Plant’s primary electrical facilities and standby power systems and enhance the resilience of the Wastewater System’s energy infrastructure. While the Electrical System Project is expected to reduce the likelihood that flooding or seismic events will interrupt electrical service to the Treatment Plant, it cannot eliminate such risks, and other Wastewater System facilities, including collection mains, lift stations, process units and structures, may still be damaged or rendered inoperable by extreme events. See “PLAN OF FINANCE — The Project” and “THE WASTEWATER SYSTEM — Future Wastewater System Improvements.”
Depending on the magnitude and location of a natural disaster, available insurance, self‑insurance and reserves may be inadequate to restore damaged facilities or offset lost Revenues, and there can be no assurance that future natural disasters will not result in substantial damage to the Wastewater System, increased costs or reductions in Net Revenues available to pay the 2026 Bonds. See “THE CITY — Risk Management” and “WASTEWATER SYSTEM FINANCIAL INFORMATION — Available Cash.”

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49 A small portion of the Wastewater System’s service area in the City is located within a Moderate to High Fire Hazard Severity Zone, based on the online hazard mapping published by the California Department of Forestry and Fire Protection (CAL FIRE). The City does not consider wildfire to be a material risk to the operation of the Wastewater System.

Drought and Water Conservation
Because wastewater flows are correlated with water use, sustained drought conditions and state or local water conservation mandates that reduce water consumption within the City’s service area could reduce wastewater flows and, to the extent Wastewater System charges have a volumetric component, could reduce Net Revenues. As shown in Table 3, approximately 93 percent of the City’s wastewater customers are residential accounts, which are billed a fixed charge that does not depend on water usage and therefore is not directly affected by drought. The remaining 7 percent are commercial accounts, which the City does not expect to be directly affected by drought, and industrial accounts, many of which support agricultural activity such as food washing and processing. It is possible that accounts that support agricultural activity will be indirectly affected in drought years, although the Recycling Project and the groundwater basin management plan are intended to support sustainable groundwater management and mitigate agricultural losses. Extreme or sustained drought could nonetheless reduce industrial wastewater usage and, to some degree, Revenues, although the service area has historically weathered droughts typical of the region.

Climate Change and Sea Level Rise
Climate change and associated sea level rise may increase the frequency and severity of coastal storm events, flooding, extreme precipitation and heat, drought and other climate‑related conditions affecting the Wastewater System and its service area. The Treatment Plant’s location near the Pajaro River and the Monterey Bay exposes certain facilities to riverine flooding, coastal surge and storm‑related inundation, and climate‑driven changes in rainfall patterns and runoff could increase flood hazards over time.

The City has considered projected local sea level rise and climate‑related flood risks in planning capital improvements at the Treatment Plant, including elevating certain critical electrical facilities and standby power systems under the Electrical System Project described herein. However, climate projections are inherently uncertain, and future changes in sea level, storm intensity or precipitation patterns could exceed the design assumptions underlying current facilities and improvements. See “THE WASTEWATER SYSTEM — Future Wastewater System Improvements.”
Adverse climate‑related conditions, including increased flooding, erosion, storm damage or heat‑related equipment stress, could require additional capital and operating expenditures, accelerate rehabilitation and replacement of existing facilities or reduce demand for wastewater service, and there can be no assurance that such conditions will not materially adversely affect Revenues or Net Revenues available to pay the 2026 Bonds. See “WASTEWATER SYSTEM FINANCIAL INFORMATION — Projected Operating Results and Debt Service Coverage.” Public Health Emergencies
The COVID-19 pandemic, beginning in 2020, negatively affected economic activity throughout the world. While the declarations of COVID-19 as a public health emergency have since been lifted, public health emergencies, such as pandemics, could adversely affect the City’s ability to collect Net Revenues (for example, as a result of government-imposed moratoria on utility shutoffs for nonpayment, economic disruption reducing customers’ ability to pay, or staffing disruptions affecting Wastewater System

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50 operations). The City cannot predict the likelihood, timing, or duration of any future public health emergency or its potential impact on the Wastewater System.

Cybersecurity
The City, like other public and private entities, relies on computer and other digital networks and systems to conduct its operations, including billing and collection of Wastewater System revenues and, in some cases, operational control systems (SCADA) for treatment and collection facilities. A successful cyberattack against the City or its service providers could result in a disruption of Wastewater System operations, a compromise of confidential customer information, a disruption to billing and revenue collection, or damage to physical infrastructure controlled by digital systems, any of which could adversely affect Net Revenues or require the City to incur unanticipated expenses.

The City maintains an Information Security Policy establishing minimum information security requirements applicable citywide. Under the policy, responsibility for information security is divided between an information risk management function and a technical information security function, with the City’s IT Director (or designee) serving as Information Security Officer; information security risk decisions are made jointly by these functions, and City executive management retains ultimate responsibility for accepting risk on the City’s behalf. The policy requires, among other things: risk assessments of City systems at least annually, and upon significant changes, new technology deployments, or discovery of a significant vulnerability; classification and handling requirements for sensitive and personally identifiable information; network segmentation separating internet-facing systems, internal systems, and systems with high security categorizations (including systems containing personally identifiable information); firewalls, anti-malware controls, and web filtering; periodic vulnerability scanning and penetration testing, including of critical systems; a documented incident response plan and a Security Operations Center function for coordinating response to significant incidents; mandatory security awareness training for employees, reinforced annually; and business continuity, disaster recovery, and data backup and restoration procedures that are tested regularly. The City has not experienced any material cybersecurity incidents in the previous five years.

There can be no assurance that the City’s prevention and mitigation efforts will be successful in preventing a cyberattack or limiting its effects.

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.

Loss of Tax-Exempt Status
The Internal Revenue Code of 1986, as amended, imposes a number of requirements that must be satisfied for interest on obligations such as the 2026 Bonds to be and remain excluded from gross income for federal income tax purposes, including requirements concerning the use and investment of proceeds, and the rebate of certain earnings to the federal government. The City has covenanted to comply with such requirements. Failure to comply could cause interest on the 2026 Bonds to become includable in gross income for federal income tax purposes retroactive to the date of issuance of the 2026 Bonds, regardless of

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51 the date on which such noncompliance is ascertained, and such Bonds are not subject to special redemption in that event. See “TAX MATTERS.”
Secondary Market
There can be no guarantee that a secondary market for the 2026 Bonds will develop or, if a secondary market does develop, that it will provide owners of the 2026 Bonds with a liquid market for their Bonds or that it will continue for the life of the 2026 Bonds. Prices of bonds traded in the secondary market, though normally quoted, are subject to change based upon various factors, including prevailing interest rates, financial or economic conditions, credit ratings, and general market conditions.

Ratings; Change or Withdrawal of Ratings
There is no assurance that any rating assigned to the 2026 Bonds will continue for any given period of time or that a rating will not be revised or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. Any downward revision or withdrawal of a rating could have an adverse effect on the market price and marketability of the 2026 Bonds. See “RATINGS.” Future Litigation
The City is from time to time subject to claims and legal proceedings arising in the ordinary course of its operations, including with respect to the Wastewater System. See “NO LITIGATION.” Adverse determinations in such litigation, or future litigation not currently pending or threatened, could require the City to make unanticipated expenditures, could affect the City’s ability to impose or collect rates and charges, or could otherwise adversely affect Net Revenues.

APPROVAL OF LEGAL PROCEEDINGS
Certain legal matters incident to the authorization, issuance, and sale of the 2026 Bonds by the City are subject to the approval of Anzel Galvan LLP, San Francisco, California, Bond Counsel to the City, whose approving opinion will be delivered with the 2026 Bonds, in substantially the form set forth in Appendix C hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness, or fairness of this Official Statement and has not been engaged to, and will not, review or express any opinion regarding the accuracy or completeness of the information set forth in this Official Statement, other than certain matters set forth under “TAX MATTERS.” Anzel Galvan LLP is also acting as Disclosure Counsel to the City in connection with the issuance of the 2026 Bonds.

NO LITIGATION
The City and the 2026 Bonds
Concurrently with the delivery of the 2026 Bonds, the City will certify that there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, governmental agency, public board, or body, pending of which the City has received service of process or, to the knowledge of the City, threatened against the City, seeking to restrain or enjoin the issuance or sale of the 2026 Bonds, or in any way contesting or affecting any proceedings of the City taken concerning the issuance or sale of the 2026 Bonds, the pledge or application of any moneys or security provided for the payment of the 2026 Bonds, the validity or enforceability of the documents executed by the City in connection with the 2026

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52 Bonds, the completeness or accuracy of this Official Statement, or the existence or powers of the City relating to the sale of the 2026 Bonds.

The Wastewater System
Various claims and suits are filed or are pending against the City in the normal course of its affairs, including with respect to the Wastewater System. Although the outcome of such pending matters is not presently determinable, in the opinion of Burke, Williams & Sorensen, LLP, City Attorney, other than litigation incidental to the ordinary conduct of the City’s affairs or which is adequately covered by insurance, there is no suit pending or, to the knowledge of the City, threatened against the City of which the City has received service of process that will have a material adverse effect on the financial condition of the Wastewater System or the City’s ability to pay debt service on the 2026 Bonds. The City is not aware of any pending litigation, administrative proceedings, or consent orders related to the Wastewater System’s environmental compliance.

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 2026 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 2026 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 2026 Bonds is exempt from California personal income taxes. The proposed form of opinion of Bond Counsel with respect to the 2026 Bonds to be delivered on the date of issuance of the 2026 Bonds is attached as Appendix C.

The Tax Code contains a number of requirements that apply to the 2026 Bonds, and the City 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 City and is subject to the condition that the City comply with the above-referenced covenants. If the City fails to comply with such covenants or if the representations are inaccurate or incomplete, interest on the 2026 Bonds could be included in gross income for federal income tax purposes retroactively to the date of issuance of the 2026 Bonds.

Except as expressly stated herein, Bond Counsel expresses no opinion regarding any tax consequences related to the ownership, sale or disposition of the 2026 Bonds, or the amount, accrual or receipt of interest on, the 2026 Bonds. Owners of the 2026 Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the 2026 Bonds.

Original Issue Premium and Discount
If the initial offering price to the public at which a 2026 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 2026 Bond is sold is greater than the amount

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53 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 herein.

The original issue discount accrues over the term to maturity of the 2026 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 2026 Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such 2026 Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the 2026 Bonds who purchase the 2026 Bonds after the initial offering of a substantial amount of such maturity. Owners of such 2026 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of 2026 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 2026 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 2026 Bond (said term being the shorter of the 2026 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 2026 Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a 2026 Bond is amortized each year over the term to maturity of the 2026 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 2026 Bond premium is not deductible for federal income tax purposes. Owners of premium 2026 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 2026 Bonds.

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 2026 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 City, 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 2026 Bonds ends with the issuance of the 2026 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the Owners of the 2026 Bonds regarding the tax-exempt status of the 2026 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the City 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 tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the 2026 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 2026 Bonds, and may cause the City 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 2026 Bonds to be subject, directly or indirectly, to federal income

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54 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 2026 Bonds. Prospective purchasers of the 2026 Bonds should consult their own tax advisors regarding any pending or proposed legislation, regulations or litigation, as to which Bond Counsel expresses no opinion.

CERTAIN LEGAL MATTERS
The validity of the 2026 Bonds and certain other legal matters are subject to the approving opinion of Anzel Galvan LLP, San Francisco, California, Bond Counsel to the City. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix C hereto. Anzel Galvan LLP is not passing upon, and undertakes no responsibility for, the accuracy, completeness, or fairness of the information contained in this Official Statement, other than certain matters set forth under the caption “TAX MATTERS.”
Anzel Galvan LLP is also acting as Disclosure Counsel to the City in connection with the issuance of the 2026 Bonds. Certain legal matters will be passed upon for the City by Burke, Williams & Sorensen, LLP, as City Attorney, and for the Underwriter by its counsel, Kutak Rock LLP.

Payment of the fees of Bond Counsel and Disclosure Counsel for services rendered in connection with the issuance of the 2026 Bonds is contingent upon the sale and delivery of the 2026 Bonds. From time to time, Anzel Galvan LLP represents the Underwriter on matters unrelated to the 2026 Bonds.

RATINGS
S&P Global Ratings (“S&P”) is expected to assign a rating of “___” to the 2026 Bonds based upon the delivery of the Insurance Policy by the Insurer at the time of issuance of the 2026 Bonds. S&P has assigned an underlying rating of “___” to the 2026 Bonds. Such ratings reflect only the view of the rating agency, and an explanation of the significance of such ratings may be obtained only from the rating agency.

There is no assurance that any such rating will continue for any given period of time or that it will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant.

Neither the City nor the Underwriter has undertaken any responsibility either to bring to the attention of the owners of the 2026 Bonds any proposed change in or withdrawal of any rating or to oppose any such proposed revision or withdrawal. Any such downward revision or withdrawal of the rating may have an adverse effect on the market price of the 2026 Bonds. See “RISK FACTORS – Ratings; Change or Withdrawal of Ratings.”

CONTINUING DISCLOSURE
The City will covenant, for the benefit of the holders and beneficial owners of the 2026 Bonds, in its Continuing Disclosure Certificate, to provide, or cause a Dissemination Agent to provide, to the Municipal Securities Rulemaking Board through its EMMA system, certain financial information and operating data relating to the City and the Wastewater System on an annual basis not later than nine months after the end of the City’s Fiscal Year (currently March 31 based on the City’s Fiscal Year end of June 30), due March 31, 2027, commencing with the report for Fiscal Year 2025-26 (the “Annual Report”), and to provide notice of certain enumerated events with respect to the 2026 Bonds, in each case as required by Rule 15c2-12. The specific nature of the information to be contained in the Annual Report and the notices of enumerated events is set forth in Appendix D hereto. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12. See “APPENDIX D – FORM OF CONTINUING DISCLOSURE CERTIFICATE.”

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55 A default under the Continuing Disclosure Certificate does not constitute a default under the Indenture, and the sole remedy in the event of any failure of the City to comply with the Continuing Disclosure Certificate is an action to compel specific performance of the covenants contained therein; no owner or beneficial owner of the 2026 Bonds is entitled to recover monetary damages for any such failure.

Within the last five years, the City has not failed to comply, in any material respect, with any of its previous undertakings with respect to Rule 15c2-12 to provide annual reports or notices of enumerated events.

UNDERWRITING
The 2026 Bonds are being purchased by Samuel A. Ramirez & Co., Inc. (the “Underwriter”) pursuant to a Bond Purchase Agreement between the Underwriter and the City. The Underwriter has agreed to purchase the 2026 Bonds at a price of $________ (being the aggregate principal amount thereof, [plus/less] net original issue [premium/discount] of $________, and less an Underwriter’s discount of $________). The Bond Purchase Agreement provides that the Underwriter will purchase all of the 2026 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the Bond Purchase Agreement, including the approval of certain legal matters by counsel and certain other conditions.

The initial public offering prices 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 2026 Bonds to certain dealers (including dealers depositing 2026 Bonds into investment trusts), dealer banks, banks acting as agents, and others at prices lower than said public offering prices.

MUNICIPAL ADVISOR
Urban Futures, Inc., Walnut Creek, California, has acted as municipal advisor (the “Municipal Advisor”) to the City in connection with the issuance and sale of the 2026 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification of, or to assume responsibility for, the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading, or distributing municipal or other public securities. Compensation for the Municipal Advisor’s services with respect to the 2026 Bonds is entirely contingent upon the sale and delivery of the 2026 Bonds.

FINANCIAL INTERESTS
The fees being paid to the Underwriter, the Municipal Advisor, and Anzel Galvan LLP, as Bond Counsel and Disclosure Counsel, are contingent upon the issuance of the 2026 Bonds. From time to time, Anzel Galvan LLP, the Municipal Advisor, and the Underwriter and their respective affiliates may have engaged, and may in the future engage, in other transactions with, and perform other services for, the City in the ordinary course of business for which they have received or will receive customary fees or expenses.

MISCELLANEOUS
References are made herein to the Indenture and certain other documents and reports, which references are brief summaries thereof and do not purport to be complete or definitive; reference is made to such documents and reports for full and complete statements of their contents. Copies of the Indenture and such other documents are available, upon request and upon payment to the City of a charge for copying,

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56 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 or estimates, whether or not expressly so stated, are intended as such and not as representations of fact, and no representation is made that any of such opinions or estimates will be realized. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the 2026 Bonds.

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

CITY OF WATSONVILLE
By: _______________________________
City Manager

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A-1

APPENDIX A

ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING

THE CITY AND THE COUNTY
Population
The following table summarizes population estimates for the City, the County and the State from 2017 through 2026.

CITY OF WATSONVILLE, COUNTY OF SANTA CRUZ AND

STATE OF CALIFORNIA

POPULATION STATISTICS
Year
(January 1)
City of
Watsonville
County of
Santa Cruz
State of
California
2017 52,678 275,410 39,273,915
2018 52,428 274,274 39,429,439
2019 52,053 272,618 39,503,656
2020 51,917 271,259 39,535,623
2021 51,809 270,861 39,369,530
2022 52,315 265,533 39,179,680
2023 51,096 264,495 39,228,444
2024 50,820 263,338 39,420,663
2025 51,032 262,572 39,529,101
2026 50,454 261,069 39,592,978
Source: California State Department of Finance, Demographic Research Unit, E-4 Population Estimates for Cities, Counties, and the State, 2011-2020, with 2010 and 2020 Census Benchmark and 2021-2026 with 2020 Census 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. 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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The following table summarizes per capita personal income for the County, the State of California and the United States for the ten most recent years available.

COUNTY OF SANTA CRUZ,

STATE OF CALIFORNIA, AND UNITED STATES
PER CAPITA PERSONAL INCOME(1)
Year
County of
Santa Cruz California United States
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 70,100 59,151
2021 88,329 77,134 64,692
2022 88,277 77,196 66,298
2023 88,581 81,196 70,002
2024 93,580 86,232 73,204
(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.

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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.

CITY OF WATSONVILLE, COUNTY OF SANTA CRUZ,

STATE OF CALIFORNIA AND UNITED STATES

ESTIMATED AVERAGE ANNUAL EMPLOYMENT AND
UNEMPLOYMENT OF RESIDENT LABOR FORCE(1)
Year and Area Labor Force Employment(2) Unemployment
Unemployment
Rate (%)(3)
2021
City of Watsonville 24,200 20,900 3,300 13.5%
Santa Cruz County 133,558 124,570 8,988 6.7
State of California 19,013,818 17,619,280 1,394,538 7.3 2022
City of Watsonville 23,900 21,400 2,500 10.5%
Santa Cruz County 134,438 128,007 6,431 4.8
State of California 19,267,435 18,441,358 826,077 4.3
2023
City of Watsonville 23,900 21,200 2,600 11.0%
Santa Cruz County 135,736 128,206 7,530 5.5
State of California 19,514,618 18,593,621 920,997 4.7
2024
City of Watsonville 24,300 21,600 2,700 11.1%
Santa Cruz County 137,632 129,518 8,114 5.9
State of California 19,692,824 18,650,672 1,042,152 5.3 2025
City of Watsonville N/A N/A N/A N/A
Santa Cruz County 139,020 130,230 8,790 6.3
State of California 19,823,761 18,738,481 1,085,280 5.5 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, Labor Market Information Division for City, State and County; United States Department of Labor, Bureau of Labor Statistics for the U.S.

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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.

SANTA CRUZ-WATSONVILLE MSA

INDUSTRY EMPLOYMENT & LABOR FORCE ANNUAL AVERAGES
2021 2022 2023 2024 2025
Civilian Labor Force 133,558 134,438 135,736 137,632 139,020 Civilian Employment 124,570 128,007 128,206 129,518 130,230 Civilian Unemployment 8,988 6,431 7,530 8,114 8,790
Civilian Unemployment Rate 6.7% 4.8% 5.5% 5.9% 6.3%
Total Farm 7,200 7,100 7,000 7,800 7,900
Total Nonfarm 96,500 99,300 99,800 100,800 101,100
Goods Producing 12,200 13,000 12,900 12,800 12,400
Mining, Logging and Construction 4,800 5,000 5,100 5,100 5,000 Manufacturing 7,500 7,900 7,900 7,700 7,400
Durable Goods 4,200 4,300 4,400 4,300 4,200
Non-Durable Goods 3,300 3,700 3,400 3,300 3,100
Service Providing 84,300 86,400 86,800 88,000 88,700
Trade, Transportation, and Utilities 16,300 16,700 16,100 15,500 15,200 Wholesale Trade 3,300 3,500 3,200 2,900 2,900
Retail Trade 11,000 11,000 10,800 10,600 10,400
Transportation, Warehousing, and Utilities 2,000 2,200 2,100 2,100 1,900 Information 600 700 700 700 600
Financial Activities 3,200 3,200 3,100 3,100 3,000
Finance and Insurance 1,900 1,800 1,800 1,700 1,700
Real Estate and Rental and Leasing 1,300 1,400 1,400 1,400 1,400 Professional and Business Services 10,600 10,700 9,900 9,600 9,600 Private Education and Health Services 17,200 17,700 18,600 19,600 20,400 Leisure and Hospitality 11,800 14,000 14,400 14,400 14,400 Arts, Entertainment, and Recreation 1,700 2,300 2,700 2,800 3,000 Accommodation and Food Services 10,100 11,600 11,800 11,500 11,500 Other Services 4,300 4,700 4,700 4,700 4,700
Government 20,200 18,800 19,400 20,600 20,700
Federal Government 500 500 500 500 500
State Government 7,700 6,300 6,500 7,100 7,000
Local Government 11,900 12,000 12,400 12,900 13,200
Total, All Industries 103,700 106,400 106,800 108,600 108,900 Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The “Total, All Industries” data is not directly comparable to the employment data found in this Appendix A.

Source: State of California, Employment Development Department, Santa Cruz County Industry Employment & Labor Force - by Annual Average, March 2025 Benchmark.

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Principal Employers
The following table provides a listing of the ten largest employers based on number of employees in the City as of June 30, 2025.

CITY OF WATSONVILLE

TEN LARGEST EMPLOYERS
AS OF JUNE 30, 2025
Rank Employer
Number of
Employees
Percent of Total
Employment

1. Pajaro Valley Unified School District 2,462 9.94%

2. Watsonville Community Hospital 622 2.51%

3. Granite Construction 521 2.10%

4. Del Mar Food Products, Inc. 450 1.82%

5. City of Watsonville* 402 1.62%

6. S. Martinelli & Co. 323 1.30%

7. Lakeside Organic Gardens LLC 276 1.11%

8. Nordic Naturals, Inc. 263 1.06%

9. FedEx Ground Package System, Inc. 240 0.97%

10. A & I Transport Inc. 181 0.73%
Source: City of Watsonville Annual Comprehensive Financial Report for the year ending June 30, 2025. Figure for the City of Watsonville includes certificated, classified and administrative staff.

The following table provides a listing of industries ranked by number of employees in the County as of June 30, 2025.

COUNTY OF SANTA CRUZ

PRINCIPAL EMPLOYERS
AS OF JUNE 30, 2025
Rank Employer
Percent of Total
Employment

1. University of California, Santa Cruz 2.28%

2. Santa Cruz Government Center (County Services) 2.28%

3. Dominican Hospital 2.28%

4. Santa Cruz Health Center (County Services) 0.57%

5. Granite Rock 0.57%

6. Poly, an HP Inc. Corp. 0.57%

7. Watsonville City Sewer Dept. 0.57%

8. Source Naturals 0.57%

9. Cabrillo Sesnon House 1 0.57%

10. Monterey Mushrooms 0.57%

11. Larse Farms Inc. 0.57%

12. Ameri-Kleen 0.57%
Source: County of Santa Cruz, Annual Comprehensive Financial Report for Fiscal Year Ended June 30, 2025. Employment figures are estimated by the County from State Employment Development Department size ranges; twelve employers are shown because several are tied within the same reported range.

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Retail Sales
A summary of historic taxable sales within the City and the County during the past five years for which data is available is shown in the following tables.

CITY OF WATSONVILLE

TAXABLE TRANSACTIONS
(DOLLARS IN THOUSANDS)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2021 863 $663,846 1,479 $817,806
2022 840 $729,114 1,461 $904,879
2023 835 $823,379 1,488 $1,003,939
2024 822 $862,569 1,475 $1,049,809
2025 826 $993,250 1,472 $1,163,670
Source: State Department of Tax and Fee Administration.

COUNTY OF SANTA CRUZ

TAXABLE TRANSACTIONS
(DOLLARS IN THOUSANDS)
Retail Stores Total All Outlets
Number
of Permits
Taxable
Transactions
Number
of Permits
Taxable
Transactions
2021 6,095 $3,433,759 10,641 $4,575,986
2022 5,650 $3,592,319 10,006 $4,846,272
2023 5,329 $3,627,341 9,608 $4,866,536
2024 5,208 $3,618,873 9,467 $4,897,596
2025 5,157 $3,744,127 9,407 $5,090,203
Source: State Department of Tax and Fee Administration.

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A-7
The following tables show taxable sales by type of business within the City and the County for the five most recent calendar years available.

CITY OF WATSONVILLE

TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
(IN THOUSANDS)
Business Type 2021 2022 2023 2024 2025
Motor Vehicle and Parts Dealers $203,371 $228,764 $338,754 $374,137 $505,849 Home Furnishings and Appliance Stores 12,313 12,699 9,225 8,212 6,321 Building Material and Garden Equipment and
Supplies Dealers 85,933 85,614 91,337 90,673 88,909
Food and Beverage Stores 58,070 59,697 62,485 64,933 64,717 Gasoline Stations 69,065 90,135 72,384 73,659 79,311
Clothing and Clothing Accessories Stores 25,514 25,240 25,965 26,310 27,630 General Merchandise Stores 51,886 53,247 51,280 57,482 53,894 Food Services and Drinking Places 108,744 119,197 122,316 123,058 125,686 Other Retail Group 48,950 54,521 49,633 44,106 40,934
Total Retail and Food Services 663,846 729,114 823,379 862,569 993,250 All Other Outlets 153,959 175,765 180,560 187,240 170,420 Total All Outlets $817,806 $904,879 $1,003,939 $1,049,809 $1,163,670 Note: Numbers may not sum due to rounding.

Source: California Department of Tax and Fee Administration.

COUNTY OF SANTA CRUZ

TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
(IN THOUSANDS)
Business Type 2021 2022 2023 2024 2025
Motor Vehicle and Parts Dealers $493,363 $488,190 $613,350 $647,723 $786,058 Home Furnishings and Appliance Stores 124,045 122,849 106,198 105,292 105,006 Building Material and Garden Equipment and
Supplies Dealers 435,731 440,552 428,878 415,068 420,564 Food and Beverage Stores 294,159 298,904 296,050 297,875 307,839 Gasoline Stations 295,589 374,213 328,980 313,152 296,048 Clothing and Clothing Accessories Stores 180,481 181,654 181,085 181,056 177,496 General Merchandise Stores 315,253 336,312 327,438 335,193 332,550 Food Services and Drinking Places 569,320 637,266 650,931 665,920 671,221 Other Retail Group 725,819 712,377 694,430 657,595 647,344 Total Retail and Food Services 3,433,759 3,592,319 3,627,341 3,618,873 3,744,127 All Other Outlets 1,142,227 1,253,953 1,239,195 1,278,723 1,346,075 Total All Outlets $4,575,986 $4,846,272 $4,866,536 $4,897,596 $5,090,203 Note: Numbers may not sum due to rounding.

Source: California Department of Tax and Fee Administration.

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A-8
Education
Public K–12 education in the City is provided principally by the Pajaro Valley Unified School District, which operates elementary, middle, high, charter, alternative and specialized educational programs serving the Watsonville area. Private and parochial school options are also available in and near the City.Transportation
Five principal State highways serve Santa Cruz County and provide connections to adjacent counties: State Routes 1, 9, 17, 129 and 152. State Route 1 serves the County’s coastal communities and provides connections north toward the San Francisco Bay Area and south toward Monterey County. State Route 17 provides the principal connection between Santa Cruz and Santa Clara Counties. State Route 9 serves the San Lorenzo Valley and connects with State Route 17 in the Santa Cruz Mountains. State Routes 152 and 129 connect the Watsonville area with U.S. Highway 101 and destinations in Santa Clara and San Benito Counties.

Air transportation is available through San José Mineta International Airport, Monterey Regional Airport and San Francisco International Airport. Watsonville Municipal Airport is a general-aviation airport serving private, corporate and other non-scheduled aviation users.

Public bus service within the City and throughout Santa Cruz County is provided by Santa Cruz Metropolitan Transit District (“Santa Cruz METRO”), including local Watsonville service and regional connections. Santa Cruz METRO also operates the Highway 17 Express to downtown San José, providing connections to regional and intercity rail and transit services at the San José Diridon station. Intercity bus service, including Greyhound service, is available through the Santa Cruz and Watsonville transit centers.

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B-1

APPENDIX B

SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE

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C-1

APPENDIX C

PROPOSED FORM OF OPINION OF BOND COUNSEL
Upon delivery of the 2026 Bonds, Anzel Galvan LLP, Bond Counsel, proposes to render its final approving opinion in substantially the following form:
[Date of Delivery]
City of Watsonville
Watsonville, California
Re: $________ City of Watsonville Wastewater Revenue Bonds, Series 2026 Ladies and Gentlemen:

We have acted as Bond Counsel to the City of Watsonville (the “City”) in connection with the issuance by the City of $________ aggregate principal amount of City of Watsonville Wastewater Revenue Bonds, Series 2026 (the “Bonds”). The Bonds are issued pursuant to Chapter 9 of Title 3 of the City’s Municipal Code (the City of Watsonville Public Enterprise Financing Law), a resolution of the City Council of the City adopted on September 22, 2026, and an Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee.

Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture.

In our capacity as Bond Counsel, we have examined such law and such certified proceedings, certifications, opinions and other documents as we have deemed necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon the certified proceedings and other certifications of public officials furnished to us and the accuracy of the legal conclusions contained in said opinions without undertaking to certify the same by independent investigation. We have also assumed the genuineness of all documents and signatures presented to us, the authenticity of documents submitted as originals and the conformity to originals of documents submitted as copies. Furthermore, we have assumed compliance with all covenants and agreements contained in the Bonds and the Indenture.

Based upon our examination of the foregoing, and in reliance thereon, we are of the opinion, under existing law, that:

1. The Bonds constitute the valid and binding limited obligations of the City.

2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding agreement of, the City. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of Net Revenues and the other assets pledged therefor under the Indenture, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture.

3. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals; however, interest on the Bonds is taken into account in determining annual adjusted financial statement income for the purpose of computing the alternative minimum tax imposed on certain corporations. The opinion set forth in the preceding sentence is subject to the condition that the City must comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the

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C-2
date hereof in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The City has covenanted to comply with all applicable requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to the date hereof.

4. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.

Except as expressly stated in paragraphs 3 and 4, we express no opinion regarding any tax consequences related to the ownership, sale or disposition of the Bonds, or the amount, accrual or receipt of interest on, the Bonds. Owners of the Bonds should consult their tax advisors regarding the applicability of any collateral tax consequences of owning the Bonds.

Our opinion is limited to matters governed by the laws of the State of California and federal law.

We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws affecting creditors’ rights, by the application of equitable principles, whether considered at law or in equity, and the exercise of judicial discretion in appropriate cases and by the limitations on legal remedies against public agencies in the State of California and laws relating to conflicts of interest.

We express no opinion as to any provision in the Bonds or the Indenture with respect to the indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained therein, nor are we expressing any opinion with respect to the state or quality of title to or interest in any assets described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on any assets thereunder.

We also express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds and expressly disclaim any duty to advise the owners of the Bonds with respect to matters contained in the Official Statement or other offering material.

This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Moreover, our opinions are not a guarantee of a particular result and are not binding on the Internal Revenue Service or any court; rather, our opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations, opinions, and covenants referenced above. Our engagement with respect to this matter has terminated as of the date hereof.

Respectfully submitted,

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APPENDIX D

FORM OF CONTINUING DISCLOSURE CERTIFICATE
This Continuing Disclosure Certificate, dated as of October 1, 2026 (the “Disclosure Certificate”), is executed and delivered by the City of Watsonville (the “City”) in connection with the issuance of its City of Watsonville Wastewater Revenue Bonds, Series 2026 (the “2026 Bonds”) pursuant to an Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), by and between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).

Capitalized terms not defined herein shall have the meaning set forth in the Indenture. The City covenants and agrees as follows:

SECTION 1. Purpose of this Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the 2026 Bonds and in order to assist the Participating Underwriter in complying with the Rule (as the foregoing capitalized terms are hereinafter defined).

SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings:
“Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any 2026 Bonds (including persons holding 2026 Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any 2026 Bonds for federal income tax purposes.
“Dissemination Agent” shall mean Urban Futures, Inc., or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation.

In the absence of such a designation, the City shall act as the Dissemination Agent. “Financial Obligation” shall mean, for purposes of the Listed Events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii).

The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule.
“Listed Events” shall mean any of the events listed in Section 5 of this Disclosure Certificate. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (“EMMA”) website of the MSRB, currently located at http://emma.msrb.org.
“Official Statement” shall mean the Official Statement for the 2026 Bonds dated ______, 2026, as amended or supplemented.
“Participating Underwriter” shall mean the original underwriter of the 2026 Bonds required to comply with the Rule in connection with offering of the 2026 Bonds.

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“Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

SECTION 3. Provision of Annual Reports.
(a) The City shall, or shall cause the Dissemination Agent by written direction to such Dissemination Agent to, not later than nine month after the end of the City’s fiscal year (which currently ends on June 30), commencing with the report due for the fiscal year ending June 30, 2026, provide to the MSRB an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the City may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report.

An Annual Report shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. The City’s fiscal year is currently effective from July 1 to the immediately succeeding June 30 of the following year. The City will promptly notify the MSRB of a change in the fiscal year dates. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the City shall provide the Annual Report to the Dissemination Agent (if the Dissemination Agent is not the City). If by fifteen (15) Business Days prior to the date specified in (a) for the Annual Report, the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such failure to receive the report. If the Dissemination Agent is other than the City, the City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (c) If the City fails to provide an Annual Report by the date required in subsection (a), the City shall or shall cause the Dissemination Agent to, in a timely manner, send a notice of such failure to file to the MSRB, in substantially the form attached as Exhibit A.

SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or include by reference the following:
(a) The audited financial statements of the City for the most recent fiscal year of the City then ended. If the City prepares audited financial statements and if the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the City in a format similar to the financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

Audited financial statements of the City shall be audited by such auditor as shall then be required or permitted by State law. Audited financial statements, if prepared by the City, shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the City may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the City shall modify the basis upon which its financial statements are prepared, the City shall provide a notice of such modification to the MSRB, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis.

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(b) The principal amount of the 2026 Bonds outstanding. (c) An update of the information for such fiscal year substantially in the form of Tables 3 and 4 under the caption “THE WASTEWATER SYSTEM” in the Official Statement (d) An update of the information for the immediately preceding fiscal (with no obligation to update projections) substantially in the form of Table 10 under the caption “WASTEWATER SYSTEM FINANCIAL INFORMATION” in the Official Statement
(e) A description of additional Contracts or Bonds (as such terms are defined in the Indenture) executed or issued by the City during the most recently completed Fiscal Year.

Any or all of the items listed above may be included in, or by specific reference to, other documents, including the City’s Annual Comprehensive Financial Reports, or official statements of debt issues of the City or related public entities, which have been submitted to the MSRB or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB. The City shall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.
(a) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2026 Bonds in a timely manner not later than ten business days after the occurrence of the event:

1. Principal and interest payment delinquencies;

2. Unscheduled draws on debt service reserves reflecting financial difficulties;

3. Unscheduled draws on credit enhancements reflecting financial difficulties;

4. Substitution of credit or liquidity providers, or their failure to perform;

5. Adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB);

6. Tender offers;

7. Defeasances;

8. Rating changes;

9. Bankruptcy, insolvency, receivership or similar event of the obligated person; or

10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties.

Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the

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existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2026 Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event:

1. Unless described in paragraph 5(a)(5), notices or determinations by the Internal Revenue Service with respect to the tax status of the 2026 Bonds or other material events affecting the tax status of the 2026 Bonds;

2. Modifications to rights of 2026 Bond holders;

3. 2026 Bond calls;

4. Release, substitution, or sale of property securing repayment of the 2026 Bonds;

5. Non-payment related defaults;

6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms;

7. Appointment of a successor or additional trustee or the change of name of a trustee; or

8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders.
(c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws.
(d) If the City learns of the occurrence of a Listed Event described in Section 5(a) or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to owners of affected 2026 Bonds pursuant to the Indenture.

SECTION 6. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB.

SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance or payment in full of all of the 2026 Bonds. If such termination occurs prior to the final maturity date of the 2026 Bonds, the City shall give notice of such termination in a filing with the MSRB.

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SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.

The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be Urban Futures, Inc.

SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:
(a) If the amendment or waiver relates to the provisions of Sections 3, 4 or 5(a) or (b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2026 Bonds, or the type of business conducted;
(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized 2026 Bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the 2026 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and
(c) The amendment or waiver does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the 2026 Bonds.

SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate.

If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event.

SECTION 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of 2026 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance.

SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. A Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save such Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2026 Bonds.

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SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, if any, the Participating Underwriter and the Owners and Beneficial Owners from time to time of the 2026 Bonds and shall create no rights in any other person or entity.

CITY OF WATSONVILLE
By: _______________________________
City Manager
ACKNOWLEDGED:

URBAN FUTURES, INC.,
as Dissemination Agent
By:

Authorized Signatory

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APPENDIX E

AUDITED FINANCIAL STATEMENTS OF
THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2025

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APPENDIX F

BOOK-ENTRY ONLY SYSTEM
The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2026 Bonds, payment of principal, premium, if any, accreted value and interest on the 2026 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2026 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC.

1. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2026 Bonds (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be issued with respect to each $500 million of principal amount, and an additional certificate will be issued with respect to any remaining principal amount of such issue.

2. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over

3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has Standard & Poor’s highest rating: “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.

3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their

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ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership.

DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Securities may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

6. Redemption notices shall be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures.

Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8. Principal, redemption price and interest payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time.

Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

9. If applicable, a Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to tender/remarketing agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant’s interest in the Securities, on DTC’s records, to tender/remarketing agent. The requirement for physical delivery of Securities in connection with an

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optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Securities to tender/remarketing agent’s DTC account.

10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

11. The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC.

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APPENDIX G

ADOPTED WASTEWATER RATE RESOLUTION

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$_________

CITY OF WATSONVILLE
WASTEWATER REVENUE BONDS, SERIES 2026

BOND PURCHASE AGREEMENT
[BPA Date]
City of Watsonville
250 Main St.

Watsonville, CA 95076
Ladies and Gentlemen:

The undersigned Samuel A. Ramirez & Co., Inc. (the “Underwriter”) hereby offers to enter into this Bond Purchase Agreement (the “Purchase Agreement”) with you, the City of Watsonville (the “City”), for the purchase by the Underwriter and the delivery by the City of the Bonds specified below. The proceeds of the Bonds will be used to: (i) finance the costs of capital improvements to the City’s wastewater system (the “Wastewater System”), (ii) pay the premium for a municipal bond debt service reserve insurance policy (the “Reserve Policy”), to be issued by the Insurer (as defined below) to satisfy the Reserve Requirement for the Bonds; and (ii) pay costs of issuance of the Bonds, including the premium for a Municipal Bond Insurance Policy (the “Policy”) insuring the Bonds to be issued by the Insurer concurrently with the issuance of the Bonds. This offer is subject to your acceptance prior to 11:59 p.m., Los Angeles time, on the date hereof and if not so accepted will be subject to withdrawal by the Underwriter upon written notice delivered to the City at any time prior to the acceptance thereof by the City. Upon such acceptance, this Purchase Agreement shall be in full force and effect in accordance with its terms and shall be binding upon you and the Underwriter. All terms not defined herein shall have the meanings set forth in the Indenture and Official Statement (each as defined below).

The City acknowledges and agrees that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s length commercial transaction between the City and the Underwriter in which the Underwriter is acting solely as a principal and not as an agent of the City and the Underwriter is not acting as a municipal advisor, financial advisor or fiduciary to the City; (ii) the Underwriter has not assumed any advisory or fiduciary responsibility to the City with respect to the transaction contemplated by the Purchase Agreement and the discussions, undertakings or procedures leading thereto (irrespective of whether the Underwriter, or any affiliate of the Underwriter, have provided other services or are currently providing other services to the City on other matters); (iii) the only contractual obligations the Underwriter has to the City with respect to the transaction contemplated by this Purchase Agreement are expressly set forth in this Purchase Agreement; and (iv) the City has consulted its own financial and/or municipal legal, accounting, tax and other advisors, as applicable, to the extent the City has deemed appropriate.

The City acknowledges that it has previously provided the Underwriter with an acknowledgement of receipt of the required Underwriter disclosure under Rule G-17 of the Municipal Securities Rulemaking Board (the “MSRB”).

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2 1. Upon the terms and conditions and upon the basis of the representations herein set forth, the Underwriter hereby agrees to purchase from the City for offering to the public, and the City hereby agrees to sell and deliver to the Underwriter, all (but not less than all) of the $_________ aggregate principal amount of the City of Watsonville Wastewater Revenue Bonds, Series 2026 (the “Bonds”) at a price of $______, being the principal amount of the Bonds, plus original issue premium of $_______, less an Underwriter’s discount of $______. The City acknowledges that the Underwriter will on the Closing Date, on behalf of the City, wire a portion of the purchase price in the amount of $___________ representing the premiums for the Policy and the Reserve Policy (as such terms are defined herein), directly to ___________ (the “Insurer”).

The Bonds shall mature in the amounts and on the dates, and bear interest at the rates, set forth in Exhibit A hereto. The Bonds will be subject to redemption as set forth in the Indenture (defined below) and Official Statement herein described.

The Bonds shall be as described in and shall be secured under and pursuant to an Indenture of Trust, dated as of October 1, 2026 (the “Indenture”), between the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), substantially in the form previously submitted to the Underwriter with only such changes therein as shall be mutually agreed upon by the City, the Trustee and the Underwriter.

The obligation of the City to pay the principal of and interest on the Bonds is a special obligation of the City, payable solely from Net Revenues (as defined in the Indenture) of the Wastewater System and certain other amounts held under the Indenture. The principal of and interest on the Bonds are not required to be paid from any other funds of the City, including any proceeds of any taxes, and the Bonds do not constitute a debt or pledge of the faith and credit of the City or the State of California (the “State”) or any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction.

The City hereby ratifies the use by the Underwriter of the Preliminary Official Statement, dated [POS Date] relating to the Bonds (together with the cover page and all appendices thereto, and any supplements thereof, the “Preliminary Official Statement”), and authorizes the Underwriter to use and distribute the Preliminary Official Statement, the Official Statement (as defined below), the Indenture, the Continuing Disclosure Certificate required by Securities and Exchange Commission Rule 15c2-12, as amended (“Rule 15c2-12”), and substantially in the form attached as an appendix to the Official Statement (the “Continuing Disclosure Certificate”), and this Purchase Agreement, and all information contained therein, and all other documents, certificates and statements furnished by the City to the Underwriter in connection with the offer and sale of the Bonds by the Underwriter. The City has heretofore “deemed final” the Preliminary Official Statement within the meaning of Rule 15c2-12.

The City will undertake pursuant to the Continuing Disclosure Certificate to provide certain annual financial and operating information and notices of the occurrence of certain events.

A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the final Official Statement. This undertaking will be entered into in order to assist the Underwriter in complying with Rule 15c2-12.

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3 2. The Underwriter agrees to offer all the Bonds to the public initially at the prices (or yields) set forth on the inside front cover page of the Official Statement of the City pertaining to the Bonds, dated [BPA Date] (together with all appendices thereto, and with such changes therein and supplements thereto and as are consented to in writing by the Underwriter, are herein called the “Official Statement”). Subsequent to the initial public offering of the Bonds, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds subject to Section 5 hereof. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. “Public Offering” shall include an offering to a representative number of institutional investors or registered investment companies, regardless of the number of such investors to which the Bonds are sold.

The Underwriter agrees that prior to the time the final Official Statement relating to the Bonds is available, the Underwriter will send to any potential purchaser of the Bonds, upon the request of such potential purchaser, a copy of the most recent Preliminary Official Statement. Such Preliminary Official Statement shall be sent by first class mail or electronic distribution (or other equally prompt means) not later than the first business day following the date upon which each such request is received.

3. The City shall also deliver a sufficient number of copies of the Official Statement to enable the Underwriter to distribute a single copy of each Official Statement to any potential customer of the Underwriter requesting an Official Statement during the time period beginning when the Official Statement becomes available and ending on the End Date (defined below). The City shall deliver these copies to the Underwriter no later than the earlier of (i) seven (7) business days after the execution of this Purchase Agreement or (ii) one (1) business day prior to the Closing Date in order to permit the Underwriter to comply with Rule 15c2-12, and the applicable rules of the MSRB, with respect to distribution of the Official Statement. The City shall prepare the Official Statement, including any amendments thereto, in word-searchable PDF format as described in MSRB Rule G-32 and shall provide the electronic copy of the word-searchable PDF format of the Official Statement to the Underwriter no later than one (1) business day prior to the Closing Date to enable the Underwriter to comply with MSRB Rule G-32. The Underwriter covenants to file, or cause to be filed, the Official Statement (and any supplement and amendment thereof furnished to the Underwriter pursuant to this Section 3), with the MSRB’s Electronic Municipal Market Access database (“EMMA”).

The Official Statement (except with respect to information relating to DTC, DTC’s bookentry system, information regarding the Insurer, the Policy and the Reserve Policy, or any information therein provided by or pertaining to the Underwriter), as of its date, as of the Closing Date and as of the date of any update, amendment or supplement thereto as required hereby subsequent to the Closing, up to and including the date which is twenty-five (25) days following the end of the Underwriting Period (as hereinafter defined) (the “End Date”), will be correct and complete in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. For the purposes herein, “Underwriting Period” shall mean the period beginning on the date hereof and ending: (i) in the absence of written notice by the Underwriter to the City before the Closing Date, the Closing Date, or (ii) such other date as specified by the Underwriter in a written notice delivered to the City before the Closing Date, which shall be no more than ninety (90) days after the Closing Date.

Page 446 of 716 ends

Watsonville City CouncilSeptember 22, 2026

Watsonville City Council
September 22, 2026