HomeMy WebLinkAbout07.G- Water 7.G
RESOLUTION (ID # 4709) DOC ID: 4709
CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION
Agreement
From: Amy Casas M/CC Meeting Date: 11/07/2016
Prepared by: Amy Casas,
Dept: Water Ward(s): N/A
Subject:
Resolution of the Common Council of the City of San Bernardino (1) Approving the
Issuance of Not to Exceed $45,000,000 Aggregate Principal Amount of Sewer Revenue
Bonds, Series 2016 (City of San Bernardino Sewer Facilities Project) of the California
Municipal Finance Authority; (Ii) Approving the Form of an Indenture of Trust and
Authorizing the Execution and Delivery of an Installment Purchase Agreement, a
Continuing Disclosure Agreement, a Bond Purchase Agreement and Other Related
Documents; (Iii) Approving the Delivery of an Official Statement; and (Iv) Approving
Certain Actions in Connection Therewith (#4709)
Current Business Registration Certificate: Not Applicable
Financial Impact:
Funding of the capital projects will ensure that critical projects are completed, while
allowing the Department to stabilize rates by spreading costs over a longer time period.
Motion: Adopt the Resolution.
Background:
The wastewater treatment facilities are owned and operated by the San Bernardino
Municipal Water Department (the "Department'); however, the Mayor and Common
Council is the governing body. The Department, through the City of San Bernardino, is
seeking approval of the Mayor and Common Council to issue the 2016 Sewer Service
Revenue Bonds in an amount not to exceed $45,000,000 through the California
Municipal Finance Authority.
Approval of this financing will allow the Department to take advantage of historically low
interest rates, expedite funding of critical projects while allocating the cost of these
facilities to both current and future rate payers in a level manner. This even cost
allocation will assist the Department in rate stabilization by avoiding the spikes in cost
associated with paying projects on a pay-as-you-go basis.
The Department intends the proceeds to fund the following capital projects:
Project Name Projected Description
Cost
Primary Influent Flow $12,500,000 Increases capacity and treatment
Equalization effectiveness.
Clean Water Factory - Phase 1 13,500,000 Will provide advanced tertiary treatment for
groundwater recharge.
Updated: 11/2/2016 by Georgeann "Gigi" Hanna Packet Pg. 998
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4709
Centralized Partial Oxidation 5,000,000 The POGT incorporates a gas turbine to
Gas Turbine (POGT) convert digester methane gas into hydrogen.
The full project will feed all six of the
Department's digester gas-fueled engines
and enable the Department to comply with
new limits established by the Southern
California Air Quality Management District.
Department Administration 2,125,000 Consolidation of facilities.
Building
Customer Service Relocation 1,000,000 Facilitate move from City Hall.
Total Projects $34,125,000
The attached Preliminary Official Statement has been reviewed by the Board of Water
Commissioners and approved for transmittal to the Mayor and Common Council. The
Preliminary Official Statement must include all facts that would be material to an
investor in the 2016 Bonds. Material information is information that there is a substantial
likelihood would have actual significance in the deliberations of the reasonable investor
when deciding whether to buy or sell the 2016 Bonds. Members of the Mayor and
Common Council may review the Preliminary Official Statement and/or question staff
and consultants to ensure they feel comfortable that it includes all material facts. The
key provisions of the Preliminary Official Statement include:
• The terms of the 2016 Bonds are summarized on the cover/inside cover and the
section entitled, "DESCRIPTION OF THE 2016 BONDS."
• The security for the 2016A Bonds is described in the section entitled,
"SECURITY and SOURCES OF PAYMENT FOR THE 2016 BONDS." The 2016
Bonds are secured by a pledge of and payable from net revenues of the sewer
treatment system.
• The sewer treatment system is described in the section entitled, "THE
ENTERPRISE."
• The key risk factors posed to owners of the 2016 Bonds are summarized in the
section entitled, "RISK FACTORS."
This item was approved for submission to the Mayor and Common Council by the Board
of Water Commissioners on October 18, 2016. The Board of Water Commissioners
recommends approval of this item by the Mayor and Common Council.
Summary of Documents:
Proposed Preliminary Official Statement. This is the offering document that will be
presented to potential investors in the 2016 Bonds, and includes information about the
Department and the Sewer Treatment Enterprise, as well as a summary of the terms
and payment obligations for the 2016 Bonds. The proposed Preliminary Official
Updated: 11/2/2016 by Georgeann "Gigi" Hanna I Packet Pg.999
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Statement is materially complete in regards to the bond issuance, with only non-
essential information that will be completed or updated for the Official Statement.
Indenture of Trust/Installment Sale Agreement. These documents outline the specific
terms describing how the proceeds of the refunding bonds will be used, how payments
are to be made out of the Sewer Treatment Enterprise, and the legal security for
investors, along with other terms of the borrowing.
Bond Purchase Agreement. This document defines the terms under which the
Department's underwriter will purchase the Bonds and deliver them to investors.
City Attorney Review:
N/A
Supporting Documents:
MCC RESO OCT $45M SEWER BONDS (DOC)
765710013(5)_Official Statement - San Bernardino Sewer Revenue Bonds Series 2016
(DOCX)
Updated: 11/2/2016 by Georgeann "Gigi" Hanna Packet Pg. 1000
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1 RESOLUTION NO.
2 RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
3 OF SAN BERNARDINO (I) APPROVING THE ISSUANCE OF NOT TO EXCEED
$45,000,000 AGGREGATE PRINCIPAL AMOUNT OF SEWER REVENUE BONDS,
4 SERIES 2016 (CITY OF SAN BERNARDINO SEWER FACILITIES PROJECT) OF
5 THE CALIFORNIA MUNICIPAL FINANCE AUTHORITY; (II) APPROVING THE
FORM OF AN INDENTURE OF TRUST AND AUTHORIZING THE EXECUTION o
6 AND DELIVERY OF AN INSTALLMENT PURCHASE AGREEMENT, A m
CONTINUING DISCLOSURE AGREEMENT, A BOND PURCHASE AGREEMENT
7 AND OTHER RELATED DOCUMENTS; (III)APPROVING THE DELIVERY OF AN
8 OFFICIAL STATEMENT; AND (IV) APPROVING CERTAIN ACTIONS IN
CONNECTION THEREWITH U
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WHEREAS, the City of San Bernardino, California (the "City") is a member of the vn
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10 California Municipal Finance Authority(the"Authority"); and
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WHEREAS, pursuant to Article 4 of Chapter 5 of Division 7 of Title 1 of the c
12 Government Code of the State of California (the "Bond Law") and the Authority's Joint
13 Exercise of Powers Agreement, the Authority is authorized to borrow money for the purpose z
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of assisting the City in the financing and refinancing of costs related to public capital 00
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15 improvements of the City; and w
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WHEREAS, it has been proposed that the Authority assist the City in the financing of M
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17 certain public capital improvements to the City's sewer system (the "Sewer System Assets"); 60
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19 WHEREAS, in order to assist the City with the financing of the Sewer System Assets, LU
20 it has been proposed that the City initially sell the Sewer System Assets to the Authority, and 0
21 that the Authority sell the Sewer System Assets to the City and the City purchase such Sewer
22 System Assets from the Authority pursuant to an Installment Purchase Agreement (the
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23 "Installment Purchase Agreement"), by and between the City and the Authority, the proposed a
24 form of which on file with the Office of the City Clerk (as defined herein), pursuant to which
25 the City will agree to make certain installment purchase payments (the "2016 Purchase
26 Payments") in connection therewith; and
• 27 WHEREAS, the Authority and the City have determined that it would be in the best
28 interests of the Authority, the City and the citizens of the City to authorize, pursuant to an
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1 Indenture of Trust (the "Indenture"), by and between the Authority and U.S. Bank National
2 Association, as trustee (the "Trustee"), the proposed form of which on file with the Office of
3 the City Clerk, the issuance of the Authority's Sewer Revenue Bonds, Series 2016 (City of
4 San Bernardino Sewer Facilities Project) (the "2016 Bonds") in the aggregate principal
amount of not to exceed $45,000,000 under the provisions of the Bond Law, for the purpose
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of raising funds necessary to provide such financial assistance to the City; and m
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WHEREAS, the 2016 Bonds will be offered for sale through a Preliminary Official =
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Statement, attached hereto as Exhibit "A" and an Official Statement, the proposed form of
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which is on file in the Office of the City Clerk; and
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WHEREAS, it has been proposed that the City enter into a Bond Purchase Agreement
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(the "Bond Purchase Agreement") with Raymond James & Associates, Inc. (the c(D
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"Underwriter") and the Authority, the proposed form of which is on file with the Office of the o
12 City Clerk, providing for the purchase of the 2016 Bonds by the Underwriter; and
13 WHEREAS, it has been proposed that the City enter into a Continuing Disclosure Z
14 Agreement (the "Continuing Disclosure Agreement") with the Trustee, the proposed form of
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which is on file in the Office of the City Clerk, in order to assist the Underwriter in complying w
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with Securities and Exchange Commission Rule 15c2-12; and 2
17 WHEREAS, the City has determined that it is in the best public interest of the City to
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approve the above documents and authorize and approve the transactions contemplated o
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19 thereby. X
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20 NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COMMON
21 COUNCIL OF THE CITY OF SAN BERNARDINO AS FOLLOWS:
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22 Section 1. The Mayor and Common Council hereby approve the issuance of the
23 2016 Bonds by the Authority under and pursuant to the Bond Law; provided, the aggregate a
24 principal amount of the 2016 Bonds shall not exceed $45,000,000. The 2016 Bonds shall be
25 issued pursuant to the Indenture. The Mayor and Common Council hereby approve the
26 Indenture in the form thereof on file with the City Clerk, together with such additions thereto
27 and changes therein as are approved in accordance with Section 6 hereof, such approval to be
28 conclusively evidenced by the execution and delivery thereof. The Mayor and Common
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1 Council hereby approve the issuance of the 2016 Bonds in accordance with the terms and
2 provisions of the Indenture (as executed and delivered).
3 Section 2. The Mayor and Common Council hereby approve the Installment
4 Purchase Agreement in the form thereof on file with the City Clerk, together with such
5 additions thereto and changes therein as are approved in accordance with Section 6 hereof,
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6 such approval to be conclusively evidenced by the execution and delivery thereof The
j7 General Manager of the City's Municipal Water Department (the "Department"), the Deputy
8 General Manager of the Department, the Finance Director of the Department and their
9 respective designees (each, an "Authorized Officer"), are each hereby authorized to execute
10 the final form of the Installment Purchase Agreement, for and in the name and on behalf of
11 the City. The Mayor and Common Council hereby authorize the delivery and performance of U)
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12 the Installment Purchase Agreement. F-
13 Section 3. The Mayor and Common Council hereby approve the Continuing o
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Disclosure Agreement in the form on file with the City Clerk, together with such additions W
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thereto and changes therein as are approved in accordance with Section 6 hereof, such w
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approval to be conclusively evidenced by the execution and delivery thereof. The Authorized ,
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17 Officers are each hereby authorized to execute the final form of the Continuing Disclosure v
18 Agreement, for and in the name and on behalf of the City. The Mayor and Common Council p
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hereby authorize the delivery and performance of the Continuing Disclosure Agreement. W
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21 Section 4. The Mayor and Common Council hereby approve the Bond Purchase
Agreement in the form thereof on file with the City Clerk, together with such additions thereto E
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23 and changes therein as are approved in accordance with Section 6 hereof, such approval to be Q
24 conclusively evidenced by the execution and delivery thereof. The Authorized Officers are
each hereby authorized to execute the final form of the Bond Purchase Agreement, for and in
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26 the name and on behalf of The City. The Mayor and Common Council hereby authorize the
27 delivery and performance of the Bond Purchase Agreement.
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1 Section 5. The Mayor and Common Council hereby approve the Preliminary
2 Official Statement relating to the 2016 Bonds (the "Preliminary Official Statement") in the
3 form thereof, attached hereto as Exhibit "A," with such additions thereto and changes therein
4 as are approved by any Authorized Officer, upon consultation with the City Attorney,Norton
Rose Fulbright US LLP, Bond Counsel ("Bond Counsel"), and Orrick, Herrington & -4�'
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Sutcliffe LLP, Disclosure Counsel ("Disclosure Counsel"). Each of the Authorized Officers m
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is hereby authorized to execute and deliver a certificate deeming the Preliminary Official
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Statement final for purposes of SEC Rule 15c2-12. Upon the pricing of the 2016 Bonds,
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each of the Authorized Officers is hereby authorized to prepare and execute a final Official •2
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Statement (the "Official Statement"), substantially in the form of the Preliminary Official �
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Statement, with such additions thereto and changes therein as approved by any Authorized
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Officer, upon consultation with the City Attorney, Bond Counsel and Disclosure Counsel. c
12 The Mayor and Common Council hereby authorize the distribution of the Preliminary
13 Official Statement and the Official Statement by the Underwriters in connection with the o
14 offering and sale of the 2016 Bonds. W
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16 Section 6. The agreements approved in Sections 1, 2, 3 and 4 of this Resolution
17 shall, when executed and delivered pursuant to said sections, contain such additions and
18 changes as shall have been approved by the Authorized Officers. Each Authorized Officer is
19 hereby authorized to determine, in connection with the issuance of the 2016 Bonds and the w
20 execution and delivery of the agreements approved in Sections 1, 2, 3 and 4 hereof, the U
21 following with respect to the 2016 bonds.
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(a) the aggregate principal amount of the 2016 Bonds, which shall not
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23 exceed $45,000,000; a
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25 (b) the capital projects to be financed with the proceeds of the 2016 Bonds;
26 (c) the other uses of proceeds of the 2016 Bonds;
27
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1 (d) the final 2016 Purchase Payment under the Installment Purchase
2 Agreement, which shall be due and payable not later than August 1, 2046;
3 (e) the true interest cost of the 2016 Bonds, which shall not exceed 5.00%;
4 and
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(f) the Underwriter's discount on the 2016 Bonds, which shall not exceed m°
6 a,
7 0.50% of the principal amount thereof.
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8 Section 7. The General Manager of the Department, the Deputy General Manager of
9 the Department, the Finance Director of the Department, the City Attorney and the Secretary
10 of the Department and the other officers, employees and agents of the Department or the City 3
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11 are hereby authorized and directed,jointly and severally, for and in the name of the City, to do
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12 any and all things and to take all actions, including execution and delivery of any and all
13 assignments, certificates, requisitions, agreements, notices, consents, instruments of o
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14 conveyance, warrants and other documents which they, or any of them, may deem necessary m
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15 or advisable in order to consummate the lawful issuance and sale of the 2016 Bonds, LU
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16 including, without limitation, any and all actions in connection with obtaining a municipal
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17 bond insurance policy and/or a Reserve Account Credit Facility (as defined in the Indenture),,
18 for the 2016 Bonds, and to otherwise consummate the transactions contemplated by the p
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19 Indenture, the Installment Purchase Agreement, the Continuing Disclosure Agreement, the w
20 Bond Purchase Agreement and this Resolution, and such actions previously taken by such
21 officers, employees and agents are hereby ratified and confirmed.
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22 Section 8. This Mayor and Common Council hereby find and determines that the
23 transfer of title to the Sewer System Assets to the Authority under the terms of the Installment a
24 Purchase Agreement is in the best interests of the City, and hereby agrees to transfer such title
25 to the Authority.
26
27 Section 9. This Resolution shall take effect from and after its date of adoption.
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN
1 BERNARDINO (I) APPROVING THE ISSUANCE OF NOT TO EXCEED $45,000,000
2 AGGREGATE PRINCIPAL AMOUNT OF SEWER REVENUE BONDS, SERIES 2016 (CITY
OF SAN BERNARDINO SEWER FACILITIES PROJECT) OF THE CALIFORNIA
3 MUNICIPAL FINANCE AUTHORITY; (II) APPROVING THE FORM OF AN INDENTURE
OF TRUST AND AUTHORIZING THE EXECUTION AND DELIVERY OF AN
4 INSTALLMENT PURCHASE AGREEMENT, A CONTINUING DISCLOSURE
AGREEMENT, A BOND PURCHASE AGREEMENT AND OTHER RELATED
5 DOCUMENTS; (III)APPROVING THE DELIVERY OF AN OFFICIAL STATEMENT; AND
6 (IV)APPROVING CERTAIN ACTIONS IN CONNECTION THEREWITH 0
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7 I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor and a
8 Common Council of the City of San Bernardino at a o:CD
meeting thereof, held on the day of , 2016, by the following vote,
9 to wit:
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10 Council Members: AYES NAYS ABSTAIN ABSENT
11 MARQUEZ
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12 BARRIOS 7t
13 VALDIVIA z
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SHORETT Ce
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NICKEL
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17 RICHARD a
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18 MULVIHILL o
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Georgeann Hanna, CMC, City Clerk
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The foregoing Resolution is hereby approved this day of , 2016. E
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24 R. Carey Davis,Mayor
25 City of San Bernardino
Approved as to form:
26 Gary D. Saenz, City Attorney
27
By:
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OH&S 10/11/16 Draft
PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER_,2016
NEW ISSUE—BOOK-ENTRY ONLY RATINGS: S&P(Insured): "_" outlook) N
S&P(Underlying): "_" outlook) c
(See"RATINGS.") m
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In the opinion of Norton Rose Fulbright US LLP,Los Angeles, California under existing statutes, regulations, rulings and court
decisions, and assuming compliance with the tax covenants described herein, interest on the 2016 Bonds is excluded pursuant to section
103(a)of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not an item 0)
of tax preference for purposes of the federal alternative minimum tax.It is also the opinion of Bond Counsel that under existing law interest
on the 2016 Bonds is exempt from personal income taxes of the State of California. See "TAX MATTERS"herein. v
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CALIFORNIA MUNICIPAL FINANCE AUTHORITY
SEWER REVENUE BONDS,SERIES 2016 3
(CITY OF SAN BERNARDINO SEWER FACILITIES PROJECT) Cl)
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Dated: Date of Delivery Due: August 1,as shown on the inside cover d
The$ *aggregate principal amount of California Municipal Finance Authority Sewer Revenue Bonds,Series 2016(City c
of San Bernardino Sewer Facilities Project) (the "2016 Bonds") are being issued by the California Municipal Finance Authority (the N
"Authority")pursuant to Articles 1 through 4(commencing with Section 6500)of Chapter 5 of Division 7 of Title 1 of the Government Code
of the State of California(the"JPA Act")and an Indenture of Trust,dated as of December 1,2016(the"Indenture"),by and between the
Authority and U.S. Bank National Association, as trustee(the"Trustee"). The proceeds of the 2016 Bonds will be used to(i)finance the cA
acquisition and construction of additional capital assets of the City's sewer utility(the"Project")of the City of San Bernardino,California n
(the"City");(ii)fund a deposit to a common reserve account for the 2016 Bonds;and(iii)pay the costs of issuance of the 2016 Bonds. See o
"PLAN OF FINANCE." Capitalized terms used on this cover page and not otherwise defined shall have the meanings ascribed to them m
elsewhere in this Official Statement. See in particular APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —
INDENTURE"and"—INSTALLMENT PURCHASE AGREEMENT."
The 2016 Bonds are special obligations of the Authority payable solely from and secured by Project Revenues which consist of >
2016 Purchase Payments(as defined herein)to be made by the City of San Bernardino Municipal Water Department(the"Department"),on
behalf of the City,to the Authority under the Installment Purchase Agreement(as defined herein),and certain other moneys and securities y
held by the Trustee as provided in the Indenture. The 2016 Purchase Payments will be payable from and secured by a pledge of and lien on
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Net Revenues of the Sewer Fund(each as defined herein). As provided in the Installment Purchase Agreement, the City will irrevocably cn
pledge all Net Revenues to the payment of the 2016 Purchase Payments and Additional Purchase Payments. See "SECURITY AND c
SOURCES OF PAYMENT FOR THE 2016 BONDS" and APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — E
INSTALLMENT PURCHASE AGREEMENT."
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The 2016 Bonds will accrue interest from their date of delivery,and interest thereon will be payable on February 1 and August 1 of a)
each year, commencing on February 1, 2017. The 2016 Bonds will bear interest at the respective rates set forth on the inside cover page m
hereof. See"DESCRIPTION OF THE 2016 BONDS—General."
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The 2016 Bonds will be issued only in fully-registered form in denominations of$5,000 and any integral multiple thereof and,
when issued, will be registered in the name of Cede & Co., as the nominee of The Depository Trust Company, New York, New York
("DTC"). DTC will act as securities depository for the 2016 Bonds. Ownership interests in the 2016 Bonds may be purchased in book-entry
form only. So long as DTC or its nominee is the Owner of the 2016 Bonds,the principal,the redemption premium,if any,and interest on the m
2016 Bonds will be made as described in APPENDIX F—"INFORMATION REGARDING THE BOOK-ENTRY ONLY SYSTEM." coo
The 2016 Bonds are subject to optional and mandatory sinking fund redemption as described herein. See"DESCRIPTION
OF THE 2016 BONDS—Redemption of 2016 Bonds."
The City is the debtor in an ongoing Chapter 9 bankruptcy case("chapter 9")pending in the United States Bankruptcy Court for the 0�
Central District of California.The City believes that the chapter 9 proceedings will not adversely impact the issuance or timely repayment of
the 2016 Bonds, however, see "INTRODUCTION — Effect of City Chapter 9 Filing" and "RISK FACTORS — Effect of City of San
Bernardino Bankruptcy Case." Cl)
[The scheduled payment of principal of and interest on the 2016 Bonds when due will be guaranteed under an insurance policy to °
be issued concurrently with the delivery of the 2016 Bonds by ] M
[INSERT INSURER LOGO] r
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THE 2016 BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND aa)
SECURED SOLELY BY THE PROJECT REVENUES PLEDGED THEREFOR AND CERTAIN OTHER MONEYS AND E
SECURITIES HELD BY THE TRUSTEE AS PROVIDED IN THE INDENTURE. THE OBLIGATION OF THE CITY TO MAKE U
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` Preliminary,subject to change.
OHSUSA:765710013.5
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2016 PURCHASE PAYMENTS UNDER THE INSTALLMENT PURCHASE AGREEMENT DOES NOT CONSTITUTE AN
OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION
OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE FULL FAITH AND rn
CREDIT OF THE AUTHORITY, THE CITY, THE COUNTY OF SAN BERNARDINO (THE "COUNTY"), THE STATE OF
CALIFORNIA(THE"STATE"),OR ANY POLITICAL SUBDIVISION OF THE STATE NOR THE TAXING POWER OF THE m
CITY,THE COUNTY,THE STATE,OR ANY POLITICAL SUBDIVISION OF THE STATE IS PLEDGED TO THE PAYMENT O
OF THE PRINCIPAL OF OR INTEREST ON THE 2016 BONDS. THE AUTHORITY HAS NO TAXING POWER. NEITHER
THE 2016 BONDS NOR THE OBLIGATION OF THE CITY TO MAKE 2016 PURCHASE PAYMENTS CONSTITUTES AN
INDEBTEDNESS OF THE AUTHORITY,THE CITY,THE COUNTY,THE STATE,OR ANY POLITICAL SUBDIVISION OF >
THE STATE WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR W
RESTRICTION. °'
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This cover page contains information for general reference only. Potential purchasers must read the entire Official
Statement to obtain information essential to making an informed investment decision. V1
The 2016 Bonds are offered when,as,and if delivered to and received by the Underwriter,subject to the approval of legality by 3
Norton Rose Fulbright US LLP,Los Angeles,California,acting as Bond Counsel to the Authority. Certain legal matters will be passed upon to
for the Authority by Jones Hall,A Professional Law Corporation, San Francisco,California,for the City by the City Attorney,and for the
City by Orrick,Herrington& Sutcliffe LLP as Disclosure Counsel. Orrick, Herrington& Sutcliffe LLP is also serving as counsel to the M
Underwriter. It is anticipated that the 2016 Bonds will be available for delivery through the book-entry facilities of DTC in New York,New ti
York on or about December 2016.
RAYMOND JAMES °
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Dated: November 2016 L
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MATURITY SCHEDULE*
CALIFORNIA MUNICIPAL FINANCE AUTHORITY
SEWER REVENUE BONDS, SERIES 2016 m
(CITY OF SAN BERNARDINO SEWER FACILITIES PROJECT)
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Base CUSIP No.t >
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Maturity Date Principal Interest Price or Maturity Date Principal Interest Price or
(August 1) Amount Rate Yield CUSIPt (August 1) Amount Rate Yield CUSIPt
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$ %Term Bonds due August 1,20_-Price or Yield: %CUSIP No. t m
$ %Term Bonds due August 1,20_-Price or Yield: %CUSIP No. t
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Preliminary,subject to change. (00
t CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on ~
behalf of the American Bankers Association by S&P Capital IQ. Copyright(c) 2016 CUSIP Global Services. All rights m
reserved. CUSIP®data herein is provided by CUSIP Global Services. This data is not intended to create a database and does E
not serve in any way as a substitute for the CGS database. CUSIP®numbers are provided for convenience of reference only.
None of the City, the Department, the Authority, the Underwriter or their agents or counsel assume responsibility for the r
accuracy of such numbers. Q
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No dealer,broker, salesperson, or other person has been authorized by the City or the Authority to give any
information or to make any representations other than those contained herein and, if given or made, such other
kav� information or representations must not be relied upon as having been authorized by the City or the Authority. This
Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any m
sale of the 2016 Bonds by a person in any jurisdiction in which it is unlawful for such person to make an offer,
solicitation,or sale. _
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This Official Statement is not a contract with the purchasers of the 2016 Bonds. Statements contained in
this Official Statement that involve estimates,forecasts or matters of opinion,whether or not expressly so described 4)
herein,are intended solely as such and are not to be construed as a representation of facts.
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The information set forth herein has been furnished by the City and by other sources that are believed to be
reliable. The Underwriter has provided the following sentence for inclusion in this Official Statement. The 3
Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its U)
responsibility to investors under the federal securities law as applied to the facts and circumstances of this c
transaction,but the Underwriter does not guarantee the accuracy or completeness of such information.
The information and expressions of opinion herein are subject to change without notice and neither the c
delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any N
implication that there has been no change in the affairs of the City, the Department, the Authority, or any other m
parties described herein since the date hereof. All summaries of the 2016 Bonds, the Indenture, the Installment
Purchase Agreement, and other documents summarized herein are made subject to the provisions of such H
documents respectively and do not purport to be complete statements of any or all of such provisions. c
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This Official Statement is submitted in connection with the issuance of the 2016 Bonds referred to herein
and may not be reproduced or used,in whole or in part,for any other purpose.
' THE 2016 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2016 BONDS 3
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. in
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2016 BONDS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY m
OFFER AND SELL THE 2016 BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS N
ACTING AS AGENT AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE
INSIDE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME
TO TIME BY THE UNDERWRITER. m
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The City and the Authority each maintain a website. However, the information presented at such websites in
is not part of this Official Statement,is not incorporated by reference herein, and must not be relied upon in making
an investment decision with respect to the 2016 Bonds.
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CALIFORNIA MUNICIPAL FINANCE AUTHORITY N
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Board of Directors m
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Robert Adams
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Paula Connors
Justin McCarthy
Deborah Moreno
Faye K.Watanabe
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CITY OF SAN BERNARDINO
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Elected Officials y
R.Carey Davis,Mayor
Virginia Marquez, Councilmember
Benito J.Barrios,Councilmember
John Valdivia,Mayor Pro Tempore co
=$ Fred Shorett,Councilmember N
Henry Nickel,Councilmember 0
Bessine L.Richard,Councilmember L
James Mulvihill,Councilmember in
David C.Kennedy, Treasurer
Georgeann"Gigi"Hanna,City Clerk o
Gary D. Saenz,City Attorney m
Board of Water Commissioners aci
Toni Callicott,President °7
Judith Valles, Vice President y
Wayne Hendrix,Commissioner m
Louis A.Fernandez, Commissioner vn
David E.Mlynarski,Commissioner °c
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City of San Bernardino Municipal Water Department Management
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Stacey R.Aldstadt—General Manager m
Robin L.Ohama—Deputy General Manager c
Miguel Guerrero,PE—Director of Water Utility in
John A.Claus—Director of Water Reclamation (Sewer Enterprise)
Terri Willoughby—Director of Finance aci
Jennifer L. Shepardson—Director of Environmental Regulatory Compliance d
SPECIAL SERVICES N
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Bond Counsel Disclosure Counsel .2
Norton Rose Fulbright US LLP Orrick,Herrington&Sutcliffe LLP p
Los Angeles,California Los Angeles,California !
Municipal Advisor Trustee
Urban Futures,Inc. U.S.Bank National Association °o
Orange,California Los Angeles,California
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TABLE OF CONTENTS
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INTRODUCTION...........................................................................................................................................................................1
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General...................................................................................................................................................................................1 d
The2016 Bonds.....................................................................................................................................................................l
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Security and Sources of Payment for the 2016 Bonds...........................................................................................................2 2
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RateCovenant........................................................................................................................................................................3 N
AdditionalObligations...........................................................................................................................................................4 3
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TheAuthority.........................................................................................................................................................................4 to
Municipal Water Department and the Sewer Enterprise........................................................................................................5 c
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Effectof City Chapter 9 Filing..............................................................................................................................................6 et
ContinuingDisclosure...........................................................................................................................................................6
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Forward-Looking Statements.................................................................................................................................................6 N
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Miscellaneous........................................................................................................................................................................7 •d
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PLANOF FINANCE.......................................................................................................................................................................7
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ESTIMATED SOURCES AND USES OF FUNDS........................................................................................................................9
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DESCRIPTIONOF THE 2016 BONDS.........................................................................................................................................9 m
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General...........................................................................................................: .................................................9
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Redemptionof 2016 Bonds..................................................................................................................................................10 >
SECURITY AND SOURCES OF PAYMENT FOR THE 2016 BONDS.....................................................................................12 L
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Pledges of Project Revenues and Net Revenues..................................................................................................................12 d
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TheSewer Fund...................................................................................................................................................................13 0
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Reserve Fund................................................................................................... S
....................................................................16 °
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Sewer Rate Stabilization Fund.....................................................................................
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Investments..........................................................................................................................................................................18 m
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RateCovenant......................................................................................................................................................................18 N
Covenantto Budget.............................................................................................................................................................18 .�
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Issuance of Additional Obligations Under the Installment Purchase Agreement.................................................................18
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Issuance of Additional Bonds Under the Indenture.............................................................................................................19
DEBTSERVICE SCHEDULE......................................................................................................................................................20 N
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BONDINSURANCE....................................................................................................................................................................21 U
THESEWER ENTERPRISE........................................................................................................................................................21 0I
General.................................................................................................................................................................................21 LO
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Management........................................................................................................................................................................24 c
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Employees............................................................................................................................................................................25
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Operations,Service Area and Principal Customers.............................................................................................................26
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Contractswith Other Agencies............................................................................................................................................29
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Customers............................................................................................................................................................................31 E
Example Monthly Sewer Bill Comparison..........................................................................................................................38
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Billing and Collection Procedures........................................................................................................ .............................39
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Basisof Budget and Accountin g..........................................................................................................................................40 >
Investment of Funds......................................................................................................................................................... 41 X
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ReservePolicy;Sewer Fund................................................................................................................................................41 >
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Capital Improvement Plan............................. to
Anticipated Additional Obligations;Financing Plan for the Sewer Enterprise CIP.............................................................45 0
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Environmental Compliance..................................................................................................................................................45
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HistoricOperating Results...................................................................................................................................................45 c
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FinancialProjections............................................................................................................................................................50 7
Management's Discussion and Analysis..............................................................................................................................51
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OutstandingIndebtedness....................................................................................................................................................52 04
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Employees'Retirement Benefits..........................................................................................................................................52 m
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Other Post-Employment Healthcare Benefits......................................................................................................................56
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Insurancefor the Sewer Enterprise......................................................................................................................................58 c
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SEWER ENTERPRISE REGULATORY REQUIREMENTS......................................................................................................59 m
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General.................................................................................................................................................................................59
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® State Regulations.................................................................................................................................................................59 v
ProposedRegulations...........................................................................................................................................................59 L
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THEAUTHORITY.......................................................................................................................................................................59
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RISKFACTORS...........................................................................................................................................................................60 0
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SpecialObligations..............................................................................................................................................................60
SewerEnterprise Demand....................................................................................................................................................61 L
Sewer Enterprise Expenses and Collections........................................................................................................................61
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Constitutional Limit on Fees and Charges...........................................................................................................................61
Rate-Setting Process Under Proposition 218.......................................................................................................................62 Y
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Limitationson Remedies.....................................................................................................................................................62 W
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Effect of City of San Bernardino Bankruptcy Case.............................................................................................................63 m
NaturalDisasters..................................................................................................................................................................65 to
Statutoryand Regulatory Compliance.................................................................................................................................68
DamSafety..........................................................................................................................................................................68 p
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FutureLegislation................................................................................................................................................................68 in
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PotentialImpact of Climatic Change...................................................................................................................................69 c
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Uncertainties of Projections,Forecasts and Assumptions....................................................................................................69
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CleanWater Factory............................................................................................................................................................69
Absence of Secondary Market for the 2016 Bonds..............................................................................................................70
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Lossof Tax Exemption on 2016 Bonds...............................................................................................................................70 E
Economic,Political,Social,and Environmental Conditions................................................................................................70 R
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(continued)
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CONSTITUTIONAL LIMITATIONS ON TAXES AND SEWER TREATMENT RATES AND CHARGES...........................71
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ArticleXIIIA.......................................................................................................................................................................71 >
ArticleXIIIB........................................................................................................................................................................71
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ArticleXIIIC........................................................................................................................................................................71 >
Article XIIID.......................................................................................................................................................................73
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Proposition26......................................................................................................................................................................74 3
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Initiative,Referendum and Charter Amendments................................................................................................................74 to
TAXMATTERS...........................................................................................................................................................................74 c
TaxExemption.....................................................................................................................................................................74 v
Tax Accounting Treatment of Bond Premium.....................................................................................................................76
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OtherTax Consequences.....................................................................................................................................................76 N
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CONTINUINGDISCLOSURE.....................................................................................................................................................77 a)
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LITIGATION................................................................................................................................................................................78
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TheAuthority ...............................................................78
TheCity and the Sewer Enterprise.......................................................................................................................................79 m
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CERTAIN LEGAL MATTERS.....................................................................................................................................................80
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MUNICIPALADVISOR..............................................................................................................................................................80 >
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RATINGS......................................................................................................................................................................................80 L
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UNDERWRITING........................................................................................................................................................................81
FINANCIALSTATEMENTS.......................................................................................................................................................81 0
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MISCELLANEOUS......................................................................................................................................................................82 p
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APPENDIX A ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF SAN BERNARDINO L
ANDSAN BERNARDINO COUNTY.......................................................................................................................A-1
APPENDIX B COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DEPARTMENT FOR THE FISCAL
YEARENDED JUNE 30,2015...................................................................................................................................B-1
APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.....................................................................................0-1
APPENDIX D FORM OF BOND COUNSEL OPINION..........................................................................................................D-1 E
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APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT..............................................................................E-1
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APPENDIX F INFORMATION REGARDING THE BOOK-ENTRY ONLY SYSTEM.........................................................F-1
APPENDIX G FORM OF MUNICIPAL BOND INSURANCE POLICY.................................................................................G-1 .2
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OFFICIAL STATEMENT
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CALIFORNIA MUNICIPAL FINANCE AUTHORITY
SEWER REVENUE BONDS,SERIES 2016
(CITY OF SAN BERNARDINO SEWER FACILITIES PROJECT)
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INTRODUCTION rn
This introduction is not a summary of this Official Statement. It is only a brief description of and
guide to, and is qualified by, more complete and detailed information contained in the entire Official y
Statement, including the cover page, the inside cover page and appendices hereto and the documents c
described herein. All statements contained in this introduction are qualified in their entirety by reference
to the entire Off cial Statement. References to and summaries of the laws of the State of California (the
"State') and any documents, reports, and other instruments referred to herein do not purport to be c
complete and such references are qualified in their entirety by reference to each such law, document, N
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report, or instrument. All capitalized terms used in this Official Statement and not otherwise defined
herein have the meanings set forth in the Indenture or the Installment Purchase Agreement, each as in
defined herein. See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —
INDENTURE"and "-INSTALLMENT PURCHASE AGREEMENT."
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General
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The $ * aggregate principal amount of California Municipal Finance Authority Sewer
Revenue Bonds, Series 2016 (City of San Bernardino Sewer Facilities Project) (the "2016 Bonds") are
being issued by the California Municipal Finance Authority (the "Authority") pursuant to Articles 1
through 4(commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code un
of the State of California (the "JPA Act"), and an Indenture of Trust, dated as of December 1, 2016 (the =
"Indenture"), by and between the Authority and U.S. Bank National Association, as trustee (the
"Trustee"). c
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The proceeds of the 2016 Bonds will be used to (i) finance the acquisition and construction of
additional capital assets of the City's sewer utility (the "Project") of the City of San Bernardino, N
California(the"City"); (ii) fund a deposit to a common reserve account for the 2016 Bonds; and(iii)pay
the costs of issuance of the 2016 Bonds. See "PLAN OF FINANCE" and "ESTIMATED SOURCES
AND USES OF FUNDS."
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The 2016 Bonds m
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The 2016 Bonds will accrue interest from their date of delivery, and interest thereon will be
payable on February 1 and August 1 of each year, commencing on February 1, 2017. The 2016 Bonds 0i
will bear interest at the rates set forth on the inside cover page hereof. See "DESCRIPTION OF THE �?
2016 BONDS—General"and APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."
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The 2016 Bonds are being issued only in fully-registered form in denominations of$5,000 and �
any integral multiple thereof and, when issued, will be registered in the name of Cede & Co., as the ti
nominee of The Depository Trust Company,New York,New York("DTC"). DTC will act as securities
depository for the 2016 Bonds. Ownership interests in the 2016 Bonds may be purchased in book-entry
form only. So long as DTC or its nominee is the Owner of the 2016 Bonds, the principal,the redemption
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premium, if any, and interest on the 2016 Bonds will be made as described in APPENDIX F —
"INFORMATION REGARDING THE BOOK-ENTRY ONLY SYSTEM." o
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The 2016 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity
as described herein. See"DESCRIPTION OF THE 2016 BONDS—Redemption of 2016 Bonds."
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Security and Sources of Payment for the 2016 Bonds
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The 2016 Bonds are special obligations of the Authority and, as and to the extent set forth in the
Indenture, are payable solely from and secured by a pledge, charge and lien upon the Project Revenues,
which consist of 2016 Purchase Payments (as defined below) to be made by the City of San Bernardino 3
Municipal Water Department (the "Department"), on behalf of the City under the Installment Purchase
Agreement(as defined below),and certain other moneys and securities held by the Trustee as provided in
the Indenture. The Project Revenues will consist primarily of 2016 Purchase Payments (as defined
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below) to be made by the Department, on behalf of the City, to the Authority under the Installment
Purchase Agreement, dated as of December 1, 2016 (the "Installment Purchase Agreement"), by and
between the City and the Authority. c°•,
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The 2016 Purchase Payments will be payable from and secured by a pledge of and lien on Net
Revenues of the Sewer Fund (each as defined herein). As provided in the Installment Purchase
Agreement, the City will irrevocably pledge all Net Revenues to the payment of the 2016 Purchase
Payments and Additional Purchase Payments. Such pledge together with the City's obligation to pay any m
Bonds or Contracts (each as defined herein) shall constitute a first lien on Net Revenues and, subject to
the Installment Purchase Agreement,the other funds and accounts created under the Installment Purchase c
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Agreement for the payment of the 2016 Purchase Payments and all other Contracts and Bonds in
accordance with the terms of the Installment Purchase Agreement and of the Indenture. As defined in the
Installment Purchase Agreement, the term "2016 Purchase Payments" means the installment payments 3
scheduled to be paid by the City pursuant to the Installment Purchase Agreement. in
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The City is a party to the Installment Purchase Agreement and the Continuing Disclosure
Agreement and is acting through the Department. The Department is a semi-autonomous unit of the City M
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that has specific powers granted to it under the City Charter. See "Municipal Water Department and the
Sewer Enterprise" below. References to, and obligations of, the City under the Installment Purchase m
Agreement are, except as noted, expected to be performed by the Department, secured by and payable cn
from the Sewer Fund as more particularly described in the Installment Purchase Agreement. The Sewer ,
Enterprise, as more particularly described herein, is the City's sewer utility (including all buildings,
systems, plants, works, facilities or undertakings used for or useful in the treatment of wastewater). The E
Sewer Enterprise does not include the City's collection system. The collection system charge is not part
of Revenues or Net Revenues. U)
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The Department is responsible for both sewage treatment and disposal and water service in the .2
City. The delivery and sale of water is separate enterprise of the City, managed by the Department, not p
included in the Sewer Enterprise,and its revenues do not secure the 2016 Purchase Payments or the 2016
Bonds. The City owns the Sewer Enterprise and operates the Sewer Enterprise through the Department. M,
See"THE SEWER ENTERPRISE"below.
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The City is the county seat of San Bernardino County (the "County"). The City encompasses
approximately 59.6 square miles in the San Bernardino foothills and the eastern portion of San
Bernardino Valley, approximately 60 miles east of the City of Los Angeles. See APPENDIX A —
"ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF SAN BERNARDINO E
® AND SAN BERNARDINO COUNTY." U
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' Under the Installment Purchase Agreement, the City will agree and covenant that all Revenues y
(as defined herein) will be received by the City in trust under the Installment Purchase Agreement and o
will be deposited when and as received in the Sewer Fund, which fund has been established under the m
City Charter and which fund the City will agree, as provided in the Installment Purchase Agreement, to 3
maintain and to hold separate and apart from other funds so long as any Installment Payments (including
the 2016 Purchase Payments),Bonds or Contracts remain unpaid. As defined in the Installment Purchase
Agreement, the term "Installment Payments" means the installment payments, lease payments or other
payments of interest and principal scheduled to be paid by the City pursuant to the Contracts, if any. 2
Moneys in the Sewer Fund will be used and applied by the City as provided in the Installment Purchase cCD
Agreement.
3
See"SECURITY AND SOURCES OF PAYMENT FOR THE 2016 BONDS." in
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[The scheduled payment of principal of and interest on the 2016 Bonds when due will be °
guaranteed under an insurance policy (the "Policy") to be issued concurrently with the delivery of the
2016 Bonds by (the"Bond Insurer").]
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THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE
SOLELY FROM AND SECURED SOLELY BY THE PROJECT REVENUES PLEDGED
THEREFOR AND CERTAIN OTHER MONEYS AND SECURITIES HELD BY THE TRUSTEE Cn
AS PROVIDED IN THE INDENTURE. THE OBLIGATION OF THE CITY TO MAKE 2016 =
PURCHASE PAYMENTS UNDER THE INSTALLMENT PURCHASE AGREEMENT DOES m
NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS 3
OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE
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CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE FULL >�
FAITH AND CREDIT OF THE AUTHORITY, THE CITY, THE COUNTY, THE STATE, OR
ANY POLITICAL SUBDIVISION OF THE STATE NOR THE TAXING POWER OF THE CITY, 3
THE COUNTY, THE STATE, OR ANY POLITICAL SUBDIVISION OF THE STATE IS in
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. o
THE AUTHORITY HAS NO TAXING POWER. NEITHER THE BONDS NOR THE C
OBLIGATION OF THE CITY TO MAKE 2016 PURCHASE PAYMENTS CONSTITUTES AN
INDEBTEDNESS OF THE AUTHORITY, THE CITY, THE COUNTY, THE STATE, OR ANY m
POLITICAL SUBDIVISION OF THE STATE WITHIN THE MEANING OF ANY m
CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
As of the date of issuance of the 2016 Bonds, the only long-term indebtedness secured by Net c
Revenues will be the 2016 Purchase Payments relating to the 2016 Bonds and a loan from the San E
Bernardino Valley Municipal Water District of $1.2 million for the Department's UV System
Rehabilitation Project, which matures on November 1, 2019 and is payable in four equal installments of in
$300,000. This loan is an unsecured obligation payable from the Sewer Fund. 'R
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Rate Covenant O�
The City will covenant in the Installment Purchase Agreement to fix, prescribe and collect rates, M
fees, charges and connection fees for sewer service of the Sewer Enterprise which will be at least c
sufficient to yield, during each Fiscal Year, Net Revenues equal to one hundred ten percent (110%) of
Debt Service for such Fiscal Year. See "SECURITY AND SOURCES OF PAYMENT FOR THE 2016 0
BONDS —Rate Covenant." For information on the possible limitation on the ability of the Department, u
on behalf of the City to comply with the rate covenant as a consequence of Proposition 218 (as defined
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herein), see"RISK FACTORS—Rate-Setting Process Under Proposition 218"and"CONSTITUTIONAL E
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LIMITATIONS ON TAXES AND SEWER TREATMENT RATES AND CHARGES —Article XIIIC"
and"—Article XIIID."
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As defined in the Installment Purchase Agreement,the term"Debt Service"means, for any Fiscal
Year, the sum of (1) the interest paid or payable during such Fiscal Year on all outstanding Bonds,
assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are
prepaid or paid from sinking fund payments as scheduled (except to the extent that such interest is to be
paid from the proceeds of the sale of any Bonds), (2) those portions of the principal amount of all
outstanding serial Bonds maturing in such Fiscal Year, and (3) those portions of the principal amount of
all outstanding term Bonds required to be prepaid or paid in such Fiscal Year•, provided,that(a) if any of L
such Bonds are Capital Appreciation Bonds or if the Installment Payments due under any of such
Contracts are evidenced by Capital Appreciation Certificates, then the Accreted Value amount shall be to
deemed a principal payment,and interest that is compounded and paid as Accreted Value shall be deemed Q;
due on the scheduled redemption or payment date of such Capital Appreciation Bond or Capital °
Appreciation Certificate, (b) if any of such Bonds or if the Installment Payments due under any such
Contracts bear interest payable pursuant to a variable interest rate formula,the interest rate on such Bonds
or such Contracts for periods when the actual interest rate cannot yet be determined, shall be assumed to c°v
be equal to the current SIFMA Index Rate plus 2.0%, and(c) if 20% or more of the original principal of
such Bonds or the Installment Payments due under such Contracts is not due until the final stated maturity
of such Bonds or the Installment Payments due under such Contracts is not due until the final stated co
maturity of such Bonds or the Installment Payments due under such Contracts, such principal may, at the
option of the City,be treated as if it were due based upon a level amortization of such principal over the m
term of such Bonds or Installment Payments, provided that the full amount of such principal shall be
included in the calculation of Debt Service in the event the date of calculation is within 12 months of the
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' actual maturity date of such Bonds or Installment Payment due under such Contract. a�
Additional Obligations a)
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The 2016 Purchase Payments securing payment of the 2016 Bonds will be payable from Net o
Revenues. Pursuant to the Installment Purchase Agreement, the City may at any time issue obligations
the Installment Payments pursuant to which, as the case may be, are payable from the Net Revenues on a M
parity with the payment by the City of the 2016 Purchase Payments, subject to satisfaction of the
conditions specified in the Installment Purchase Agreement. See "SECURITY AND SOURCES OF m
PAYMENT FOR THE 2016 BONDS — Issuance of Additional Obligations Under the Installment
Purchase Agreement," "THE SEWER ENTERPRISE— Capital Improvement Plan" and "— Anticipated
Additional Obligations;Financing Plans for the Sewer Enterprise CIP."
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The Authority
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Under the JPA Act, certain California cities, including the City, counties and special districts
have entered into a joint exercise of powers agreement(the "JPA Agreement") forming the Authority for ;�
the purpose of exercising to powers common to the members and exercising the additional powers p�
granted to the Authority by the JPA Act and any other applicable provisions of California law. Under the
JPA Agreement, the Authority may issue bonds, notes or any other evidence of indebtedness, for any M
purpose or activity permitted under the JPA Act or any other applicable law. See"THE AUTHORITY." °o
The Authority does not and will not in the future monitor the financial condition of the City or the
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Department or otherwise monitor payment of the 2016 Bonds or compliance with the documents relating
thereto. w;
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Municipal Water Department and the Sewer Enterprise
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The Department is responsible for sewage treatment and disposal. The Department operates two m
enterprise funds: the Sewer Utility Enterprise Fund (the "Sewer Fund" as defined herein) and the Water
Utility Enterprise Fund (the "Water Fund"), each as referred to in the audited financial statements of the
Department. See APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE
DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30, 2015." As used herein, and defined in
the Indenture, the "Sewer Enterprise" means the entire sewer utility (including all buildings, systems, •2
plants, works, facilities or undertakings used for or useful in the treatment of wastewater) of the City as N
such utility now exists,together with all improvements and extensions to such system later constructed or
acquired, and including buildings and facilities for administration and/or customer service used jointly 3
with the City's water utility. The Sewer Enterprise does not include the City's collection system. The
collection system charge is not part of Revenues or Net Revenues. The City owns the Sewer Enterprise M
and operates the Sewer Enterprise through the Department. The City has, and will have, obligations of °
the Water Fund outstanding from time to time. There is no cross-collateralization of obligations of Sewer `t
Fund and the Water Fund. `O
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The Sewer Enterprise provides sewer treatment services to a service area (the "Service Area") 0
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that includes approximately 64,000 connections in the City and portions of unincorporated San
Bernardino County and to the City of Loma Linda ("Loma Linda"), and the East Valley Water District N
(the `EVWD"). The Department's sewer treatment services are provided to residential and
commercial/industrial customers in the City,as well as residential and commercial/industrial customers of C
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its two partner local agencies,the EVWD and Loma Linda. See"Contracts with Other Agencies"below.
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The Department and its governing Board of Water Commissioners(the"Board")were established a
on May 8, 1905 by the Mayor and the governing board of the City (called the Common Council) in
accordance with the provisions specified in the City Charter. The Board consists of five members, each
appointed by the Mayor. The City Charter gives the Board a semi-autonomous authority to manage the
Department independent of the Common Council. o
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Under the City Charter, the Common Council has the power to acquire, establish, construct,
reconstruct, maintain, operate, manage, repair, improve or finance any building, system, plant, works, F_
facilities or undertaking used for or useful in the treatment or disposal of sewage and the reclamation of m
effluent therefrom, or storm water, including drainage. The City Charter further provides that the Mayor
and Common Council shall levy charges for sewer service which, if so ordered by the Mayor and
Common Council, may be collected together with or separately from charges for water service and all c
charges received for sewer service and all other income and receipts derived from the operations of the E
sewer system, including any sewage treatment and effluent reclamation works, or arising from the sewer
system or such works shall be paid into the Sewer Fund. in
The City's sewer service billing is composed of a regional treatment charge and a collection .2
system charge. The Department bills and collects the total charge. Local collection system charges,which p
are not of Revenues, are then transferred to the City's Public Works Department. The collection system
charge is not part of Revenues or Net Revenues. Like sewer collection facilities,the Department has not M
to date had any obligation with respect to stormwater facilities or capture. See "THE SEWER °o
ENTERPRISE—General."
Ln
The Board appoints the general manager of the Department, who is responsible for day-to-day
operation of the Department. Stacey R. Aldstadt was appointed General Manager in 2005. The Sewer
Enterprise is under the direction of John A. Claus —Director of Water Reclamation (Sewer Enterprise). E
Q See"THE SEWER ENTERPRISE-Management."
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The Sewer Enterprise provides sewer treatment services though the City's Margaret H. Chandler
Water Reclamation Plant ("WRP"), which the Department has operated since 1973. The WRP is a 33 0
MGD (millions of gallons per day of flow) Regional Secondary Treatment facility that provides co
wastewater treatment services for the City, Loma Linda, EVWD, and unincorporated San Bernardino
County areas. The WRP uses primary and secondary treatment processes to meet the discharge standards }
specified in the National Pollutant Discharge Elimination Permit (NPDES) issued to the Department by
the State of California Regional Water Quality Control Board. Secondary treated wastewater from the CD
WRP is discharged to an offsite tertiary treatment facility which is jointly owned by the City and the City .y
of Colton, but operated by the City. That facility, the Rapid Infiltration and Extraction (RIX) facility
receives approximately 33 MGD of secondary treated wastewater from the WRP and from the City of
Colton's separate treatment facility. The RIX uses percolation basins and ultra-violet disinfection as 3
further treatment processes to meet the State of California Title 22 tertiary standards, in addition to the in
discharge standards specified in a separate NPDES permit issued to the RIX facility. RIX treated
wastewater consistently meets or exceeds required discharge standards and is often superior in quality to
effluent produced through conventional tertiary facilities. It discharges to the Santa Ana River in --
substantial compliance with these permit requirements. o
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The WRP recently completed the installation of a co-generation facility which uses the methane v
gas produced during the treatment processes as a source of energy to fuel two 750-watt generators which
supply electricity to the WRP. This minimizes the amount of electricity required to be purchased for the n
operation of the WRP.
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See "THE SEWER ENTERPRISE" and "SEWER ENTERPRISE REGULATORY a,
REQUIREMENTS."
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Effect of City Chapter 9 Filing
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The City is the debtor in an ongoing Chapter 9 bankruptcy case("chapter 9"), Case No. 6:12-bk- �n
28006 MJ,pending in the United States Bankruptcy Court for the Central District of California. The City o
believes that the pending chapter 9 proceedings will not adversely impact the issuance or timely
repayment of the 2016 Bonds. However, no guaranty can be provided by the City and Bond Counsel is
not providing an opinion and has expressed no view regarding the potential impact of the City's
bankruptcy on Net Revenues. See the caption "RISK FACTORS — Effect of City of San Bernardino m
Bankruptcy Case"for a discussion of the potential impacts of the City's chapter 9 bankruptcy case.
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Continuing Disclosure
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The Department, on behalf of the City has agreed to provide, or cause to be provided, certain a)
annual financial information and operating data and notice of certain Notice Events as described in the �
Continuing Disclosure Agreement(as defined herein). The form of the Continuing Disclosure Agreement
is attached hereto as APPENDIX E —"FORM OF CONTINUING DISCLOSURE AGREEMENT. The .2
Authority has not undertaken any similar obligation with respect to the 2016 Bonds, and any obligation p
for continuing disclosure with respect to the 2016 Bonds, has been undertaken solely by the Department,
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on behalf of the City. See"CONTINUING DISCLOSURE"herein. M
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Forward-Looking Statements ti
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Certain statements contained in this Official Statement reflect not historical facts but forecasts
and "forward-looking statements." All forward-looking statements are predictions and are subject to
known and unknown risks and uncertainties. No assurance can be given that the future results discussed E
herein will be achieved, and actual results may differ materially from the forecasts described herein. In
a
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this respect, the words "estimate," "project," "anticipate," "expect," "intend," "believe" and similar
expressions are intended to identify forward-looking statements. All projections, forecasts, assumptions, c
expressions of opinions, estimates and other forward-looking statements are expressly qualified in their m
entirety by the cautionary statements set forth in this Official Statement. 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 the actual results, performance, or achievements
described to be materially different from any future results, performance, or achievements expressed or m
implied by such forward-looking statements. No updates or revisions to these forward-looking statements U
are expected to be issued if or when the expectations, events, conditions, or circumstances on which such �n
statements are based change. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. vn
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Miscellaneous °
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Copies of the Indenture and the Installment Purchase Agreement may be obtained from the
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Trustee at U.S. Bank National Association, 700 South Flower Street, Suite 500, Los Angeles, California N
90017. m
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PLAN OF FINANCE
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The net proceeds of the 2016 Bonds will be used to(i) finance the acquisition and construction of m
additional capital assets of the Sewer Enterprise as described below(the"Project"),(ii)fund a deposit to a
common reserve account for the 2016 Bonds; and(iii) pay the costs of issuance of the 2016 Bonds. See c
"ESTIMATED SOURCES AND USES OF FUNDS." d
The Department expects the Project to include the following capital improvements: 3
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Project Name Estimated Cost o
Primary Influent Flow Equalization $12,500,000
Clean Water Factory—Phase I(construction) 13,500,000 c
Centralized Partial Oxidation Gas Turbine 5,000,000
Department Administration Building 2,125,000 00
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Customer Service Relocation 000,000 M
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$34,125,000
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The following is a summary description of these projects.
Primary Influent Flow Equalization. The Department has designed this project to increase the
WRP's.treatment capacity and improve operational efficiency by reducing existing swings in extreme
flow rates and better controlling downstream processes thereby reducing operating costs.
Clean Water Factory—Phase T The Department has designed the Clean Water Factory project 'n
to treat effluent from the WRP to a quality approved for recharge and convey the recycled water to the c
Waterman Basins,the East Twin Creek Spreading Grounds,and the Devil Canyon and Sweetwater Basins
for surface spreading in the northern portion of the Service Area. The Department expects that the Clean m
Water Factory will treat a side stream of San Bernardino Water Reclamation Plant effluent to a quality n
approved for direct non-potable use and convey the tertiary treated recycled water to customers that can
benefit from anon-potable water supply. See"THE SEWER ENTERPRISE—Clean Water Factory"and
"RISK FACTORS — Clean Water Factory." Currently, the Department does not use recycled water
within its Service Area. Q
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Centralized Partial Oxidation Gas Turbine(POGT). The Department has designed this project to w
increase efficiency in operations and energy consumption, and supplement gas turbine operations at the c
WRP and RIX. Upon completion, the POGT will enhance the Sewer Enterprise's geothermal heating m
operations and enable its operations to comply with the new [emissions] limits established by the
Southern California Air Quality Management District The POGT incorporates an additional gas turbine
engine to convert some of the WRP's methane output, a byproduct of wastewater treatment, into
hydrogen (112). The exhaust from the POGT is blended and fed into the Department's existing
cogeneration (Cogen) engine (which generates heat and power), currently driven by methane output, in 2
order to reduce certain nitrogen oxide (NOx) emissions. Upon completion, the Department expects the
centralized POGT to feed all six of the Department's digester gas-fueled engines.
3
Department Administration Building. Currently,various divisions of the Department are located in
in several, non-contiguous buildings which are leased or owned by the City. Construction of the a)
administration building at the main Chandler Avenue complex will eliminate the need for leased space r°
and will consolidate staff. The costs of this project will be split between the Sewer Fund and the Water v
Fund,with the Water Fund expected to contribute approximately$9,500,000 in addition to the amount in
the table above. N
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Customer Service Relocation. The Department's Customer Service staff are currently located in 4,
the San Bernardino City Hall. Due to seismic concerns, all City Hall staff are being located to other
N
facilities. The Department has acquired a building at 1350 "E" Street which will be used to house
Customer Service staff. This building requires major renovations in order to be functional. The costs of 0
to
this project will be split between the Sewer Fund and the Water Fund, with the Water Fund expected to 3
contribute approximately$2,000,000 in addition to the amount in the table above.
These projects involve replacement, upgrading and increasing the capacity of existing facilities.
There are no current or anticipated environmental considerations that would adversely affect the 3
completion of these projects within the contemplated budgets or current timelines. in
0
For a list of additional capital improvements pending for the Sewer Enterprise, see "THE
SEWER ENTERPRISE — Capital Improvement Plan" and "— Anticipated Additional Obligations;
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Financing Plans for the Sewer Enterprise CIP." F
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The funds deposited in the Acquisition Fund will not be available for the payment of debt service
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on to the 2016 Bonds.
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ESTIMATED SOURCES AND USES OF FUNDS
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The following table details the estimated sources and uses of the proceeds of the sale of the 2016 °m
Bonds and other available funds.
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Estimated Sources:
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Principal Amount of the 2016 Bonds $ can
Net Original Issue Premium/(Discount) L
Total Sources $ 3
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Estimated Uses: Q,
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Acquisition Fund $
[Common Reserve Account]
Costs of Issuance Fund
Total Uses $ d
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Costs of Issuance for the 2016 Bonds including underwriter's discount,bond insurance and N
reserve policy premiums, fees of legal counsel and advisors to the Department and the
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Authority and other costs of issuing the 2016 Bonds. p
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DESCRIPTION OF THE 2016 BONDS
General
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The 2016 Bonds will accrue interest from their date of delivery, and interest thereon will be �n
payable on February 1 and August 1 of each year, commencing on February 1, 2017 (each, an "Interest o
Payment Date"). The 2016 Bonds will bear interest at the rates set forth on the inside cover page hereof. S
The 2016 Bonds will be issued as fully-registered bonds in denominations of$5,000 and any integral
multiple thereof and,when issued,will be registered in the name of Cede&Co., as the nominee of DTC. F
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DTC will act as securities depository for the 2016 Bonds. Ownership interests in the 2016 Bonds may be m
purchased in book-entry form only. So long as DTC or its nominee is the Owner of the 2016 Bonds,
principal of, redemption premium, if any, and interest on the 2016 Bonds will be made as described in ,
APPENDIX F—"INFORMATION REGARDING THE BOOK-ENTRY ONLY SYSTEM." c
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Interest on the 2016 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 N
preceding each such Interest Payment Date, such interest to be paid by check or draft of the Trustee
mailed by first-class mail,postage prepaid, on each Interest Payment Date to the Owner at the address of
such Owner as it appears on the Registration Books as of the preceding Record Date; provided,however, pi
that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of
Outstanding 2016 Bonds filed with the Trustee prior to any Record Date, interest on such 2016 Bonds M
will be paid to such Owner on each succeeding Interest Payment Date by wire transfer of immediately °o
available funds to an account in the continental United States designated in such written request(any such
written request will remain in effect until rescinded in writing by such Owner). Principal of and premium h
(if any) on any 2016 Bond will be paid upon presentation and surrender thereof, at maturity, at the
corporate Trust Office of the Trustee. The principal of and interest and premium (if any) on the 2016
Bonds will be payable in lawful money of the United States of America. As defined in the Indenture,the E
term "Record Date" for the 2016 Bonds means, with respect to any Interest Payment Date, the fifteenth
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(15th)calendar day of the month immediately preceding such Interest Payment Date, whether or not such
day is a Business Day. _
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DTC may discontinue providing its services as depository with respect to the 2016 Bonds at any
time by giving written notice to the Authority or the Trustee. Under such circumstances, in the event that
a successor depository is not obtained,bonds are required to be printed and delivered. The Authority may
decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor
securities depository). In that event,bonds will be printed and delivered to DTC. The Indenture provides
terms for the transfer and exchange of 2016 Bonds otherwise on the registration books maintained by the
Trustee. The Trustee may require the Bond Owner requesting such transfer or exchange to pay any tax or
other governmental charge required to be paid with respect to such transfer. 3
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See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE."
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Redemption of 2016 Bonds
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Optional Redemption of 2016 Bonds. The 2016 Bonds maturing on or before August 1, 20_ �°,�
are not subject to optional redemption prior to their maturity. The 2016 Bonds maturing on or after d
August 1, 20_are subject to redemption in whole, or in part among maturities on such basis as the City %_
CD
may designate and by lot within a maturity, at the option of the City, on any date on or after August 1, N
20_, from any available source of funds, at a redemption price equal to 100%of the principal amount of
the 2016 Bonds to be redeemed,plus accrued interest to the date of redemption,without premium. 0
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Mandatory Sinking Account Redemption of 2016 Bonds. The 2016 Bonds maturing on August
1, 20 are subject to mandatory redemption, in part, from sinking account payments set forth in the m
' following schedule commencing August 1,20_,and on August 1 in each year thereafter to and including
August 1, 20_ at a redemption price equal to the principal amount thereof to be redeemed (without (D
premium),together with interest accrued thereon to the date fixed for redemption.
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2016 Term Bonds maturing on August 1,20_ E
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Redemption Date Principal Amount =
(August 1) To be Redeemed m
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*Maturity "
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The 2016 Bonds maturing on August 1, 20_are subject to mandatory redemption, in part, from .2
sinking account payments set forth in the following schedule commencing August 1,20_,and on August O�
1 in each year thereafter to and including August 1, 20 at a redemption price equal to the principal �e,
amount thereof to be redeemed (without premium), together with interest accrued thereon to the date
fixed for redemption. °o
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2016 Term Bonds maturing on August 1,20_
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Redemption Date Principal Amount m
(August 1) To be Redeemed
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*Maturity
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If some but not all of the 2016 Bonds have been optionally redeemed pursuant to the Indenture, N
the total amount of Sinking Account payments to be made subsequent to such redemption will be reduced a)
in an amount equal to the principal amount of the 2016 Bonds so redeemed by reducing each such future
Sinking Account payment on a pro rata basis(as nearly as practicable) in integral multiples of$5,000,as
shall be designated pursuant to written notice filed by the Authority with the Trustee.
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Notice of Redemption. So long as DTC is acting as securities depository for the 2016 Bonds,
notice of redemption, containing the information required by the Indenture, will be mailed by first class
to
mail, postage prepaid, by the Trustee to DTC (not to the Beneficial Owners of any Bonds designated for N
redemption), not less than at least 20 but nor more than 60 days prior to the redemption. The Indenture c
provides that the Trustee on behalf and at the expense of the Authority will mail (by first-class mail) m
notice of any redemption to the respective Owners of any 2016 Bonds designated for redemption,at their CD
respective addresses appearing on the Registration Books, and to the Securities Depositories and to the
Information Services, at least 20 but not more than 60 days prior to the date fixed for redemption;
provided, however, that neither failure to receive any such notice so mailed nor any defect therein will L
affect the validity of the proceedings for the redemption of such 2016 Bonds or the cessation of the 3
accrual of interest thereon, and so long as DTC is acting as securities depository for the 2016 Bonds, in
notice of redemption, containing the information required by the Indenture, will be mailed by first class o
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mail,postage prepaid,by the Trustee to DTC(not to the Beneficial Owners of any 2016 Bonds designated
for redemption). Such notice will state the date of the notice,the Redemption Date,the redemption place =
and the redemption price and will designate the CUSIP numbers,the 2016 Bond numbers(but only if less m
than all of the Outstanding 2016 Bonds are to be redeemed) and the maturity or maturities in the event of
redemption of all of the 2016 Bonds of such maturity or maturities in whole of the 2016 Bonds to be
redeemed,and will require that such 2016 Bonds be then surrendered at the Corporate Trust Office for
redemption at the redemption price, giving notice also that further interest on such 2016 Bonds will not
accrue from and after the redemption date. With regard to optional redemption in the event that funds m
required to pay the redemption price are not on deposit under the Indenture at the time the notice of v
redemption is sent, such notice may include a statement to the effect that the redemption is conditioned N_
upon the receipt of the appropriate funds required to pay the redemption price by the Trustee on or.prior
U
to the redemption date. 0
Notice of redemption may be rescinded by the Authority prior to the specified date for
redemption by notice of such rescission given by the Trustee to the City and, as applicable, to DTC, the o
MSRB, to the Securities Depositories and to the Information Services in the same manner the original c
notice was provided. Lo
Partial Redemption of 2016 Bonds. In the event only a portion of any 2016 Bond is called for
redemption, then upon surrender of such 2016 Bond the Authority will execute and the Trustee will E
authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2016 Bond or 2016 C
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Bonds of the same maturity date, of Authorized Denominations in aggregate principal amounts equal to
the unredeemed portion of the 2016 Bond to be redeemed.
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Effect of Redemption. From and after the date fixed for redemption, if funds available for the
payment of the principal of and interest (and premium, if any) on the 2016 Bonds so called for
redemption will have been duly provided, such 2016 Bonds so called will cease to be entitled to any
benefit under the Indenture other than the right to receive payment of the principal,interest accrued to the
Redemption Date,and premium,if any,and no interest will accrue thereon from and after the Redemption 2
Date specified in such notice.
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All 2016 Bonds redeemed in whole or in part pursuant to the Indenture will be canceled by the 3
Trustee and destroyed,and the Trustee will certify in writing as to their destruction. n
SECURITY AND SOURCES OF PAYMENT FOR THE 2016 BONDS °
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Pledges of Project Revenues and Net Revenues t0
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Pursuant to the Indenture, the 2016 Bonds are special obligations of the Authority payable from
and secured by the pledge of the Project Revenues and certain other moneys and securities held by the
Trustee as provided in the Indenture. The term"Project Revenues," as applied to the 2016 Bonds,means
all 2016 Purchase Payments received by or due to be paid to the Authority pursuant to the Installment 0
Purchase Agreement and the interest or profits from the investment of money in the Purchase Payment 0
Fund pursuant to the Indenture. To secure the pledge of the Project Revenues,the Authority will transfer,
convey, and assign to the Trustee, for the benefit of the Owners, all of the Authority's right to receive C
2016 Purchase Payments from the Department, on behalf of the City. See APPENDIX C—"SUMMARY a0'�
OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE."
The 2016 Purchase Payments will be payable from and secured by a pledge of and lien on Net
Revenues of the Sewer Fund. As provided in the Installment Purchase Agreement, the City will (n
irrevocably pledge all Net Revenues to the payment of the 2016 Purchase Payments and Additional 0
Purchase Payments. Such pledge together with the obligation of the City to pay any Bonds or Contracts 10
will constitute a first lien on Net Revenues and, subject to the Installment Purchase Agreement,the other
funds and accounts created under the Installment Purchase Agreement for the payment of the 2016 m
Purchase Payments and all other Contracts and Bonds in accordance with the terms of the Installment =
Purchase Agreement and of the Indenture. All money in the Purchase Payment Fund will be used and
withdrawn by the Trustee in accordance with the Indenture. The collection system charge is not part of
Revenues or Net Revenues. m
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The following flow of funds illustrates the flow of funds comprising Net Revenues under the 2
Installment Purchase Agreement, the payment, as 2016 Purchase Payments, into the Purchase Payment
Fund under the Indenture,and the resulting flow of funds under the Indenture:
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Flow of Funds 0
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Deposits deducted from m
Revenues(1) Revenues
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O&M Costs Sewer Rate Stabilization Fund
withdrawals added to
Revenues L
Net Revenues 3
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Reserve Fund
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Additional Purchase Payments
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Surplus(Z)
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1 Revenues includes Current Revenues as defined by the Installment Purchase Agreement plus transfers to the 0)
Sewer Fund from amounts on deposit in the Sewer Rate Stabilization Fund less amounts transferred to the 0
Sewer Rate Stabilization Fund.
2 Surplus revenues may be expended by the City for any Sewer Enterprise purpose permitted by law,but only
if enough funds have been set aside to cover the next debt service payment on outstanding bonds. L
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The Indenture provides for the transfer and assignment, in trust, by the Authority to the Trustee,
for the benefit of the Owners from time to time of the Bonds, all of the Project Revenues and all of the N
right, title and interest of the Authority in and to the Installment Purchase Agreement (other than the m
Unassigned Rights). The Trustee will be entitled to and will receive all of the Purchase Payments, and E
any Purchase Payments collected or received by the Authority will be deemed to be held, and to have
been collected or received, by the Authority as the agent of the Trustee and will forthwith be paid by the in
Authority to the Trustee.
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The City is a party to the Installment Purchase Agreement and the Continuing Disclosure Oi
Agreement and is acting through the Department. References to, and obligations of, the City under the
Installment Purchase Agreement are, except as noted, expected to be performed by the Department,
secured by and payable from the Sewer Fund as more particularly described in the Installment Purchase °o
Agreement.
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The Sewer Fund
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The City accounts for the operations and maintenance of the Sewer Enterprise through an E
enterprise fund known as the Sewer Utility Enterprise Fund(the"Sewer Fund"herein). The Sewer Fund U
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was established pursuant to Sections 143 and 149 of the City Charter. The City Charter provides that out
of the Sewer Fund shall be paid all warrants drawn thereon duly authorized by the Board. As provided in o
the Installment Purchase Agreement, the City will agree and covenant that all Revenues will be received m
by the City in trust under the Installment Purchase Agreement and will be deposited when and as received
in the Sewer Fund, which fund has been established under the City Charter and which fund the City will
agree,as provided in the Installment Purchase Agreement,to maintain and to hold separate and apart from
other funds so long as any Installment Payments (including the 2016 Purchase Payments), Bonds or m
Contracts remain unpaid. Moneys in the Sewer Fund will be used and applied by the City as provided in
the Installment Purchase Agreement. CD
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The Department, on behalf of the City will, from the moneys in the Sewer Fund, pay all 3
Operation and Maintenance Costs as provided in the Installment Purchase Agreement. All remaining in
moneys in the Sewer Fund will be set aside at the following times for the transfer to the following
respective special funds in the following order of priority; and all moneys in each of such funds will be °
held in trust and will be applied, used and withdrawn only for the purposes set forth in the Installment
Purchase Agreement. tD
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(a) Purchase Payment Fund. On or before each 2016 Purchase Payment Date until
the 2016 Bonds have been paid or provision for their payment has been made as provided in the 0,
Indenture, the City shall, from the moneys in the Sewer Fund,transfer to the Trustee for deposit Cn
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in the Purchase Payment Fund the 2016 Purchase Payment due and payable on that 2016 a
Purchase Payment Date. The City shall also, from the moneys in the Sewer Fund,transfer to the C
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Trustee and any other trustee or payee with respect to Bonds and Contracts, for deposit in the
respective payment fund, without preference or priority, and in the event of any insufficiency of
such moneys ratably without any discrimination or preference, any other Debt Service in >)
accordance with the provisions of any Bond or Contract.
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No deposit need be made in the Purchase Payment Fund if the amount in the Purchase �n
Payment Fund is at least equal to the amount of the 2016 Purchase Payment due and payable on C
said 2016 Purchase Payment Date.
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All money in the Purchase Payment Fund shall be used and withdrawn by the Trustee in
accordance with the Indenture.
(b) Reserve Fund. On or before each 2016 Purchase Payment Date until the 2016
Bonds have been paid or provision for their payment has been made as provided in the Indenture,
the City shall, from the remaining moneys in the Sewer Fund, thereafter, without preference or E
priority, and in the event of any insufficiency of such moneys ratably without any discrimination
or preference,transfer to the Trustee for deposit in the Reserve Fund and such other reserve funds y
and/or accounts, if any, as may have been established in connection with Bonds or Contracts
other than the Installment Purchase Agreement,that sum, if any, necessary to restore the Reserve .2
Fund to an amount equal to the Reserve Requirement and/or such other reserve funds or accounts p�
to an amount equal to the amount required to be maintained therein; provided, however, that the
City may meet the Reserve Requirement by obtaining a Reserve Account Credit Facility pursuant M
to the Indenture. See "Reserve Fund"below for a description of the Common Reserve Account °o
within the Reserve Fund that will secure the 2016 Bonds and future Bonds under certain ti
conditions. "'
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No transfer of moneys for deposit to the Reserve Fund in connection with the 2016
Purchase Payments need be made if the amount contained therein is at least equal to the Reserve E
' fir✓ Requirement.
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(c) Additional Purchase Payments. On or before each 2016 Purchase Payment Date in
until the 2016 Bonds have been paid or provision for their payment has been made as provided in o
the Indenture, the City shall, from the remaining moneys in the Sewer Fund, thereafter, without m
preference or priority, and in the event of any insufficiency of such moneys ratably without any
discrimination or preference, transfer to the applicable payee as provided in the Installment
Purchase Agreement and any similar provisions established in connection with Bonds or
Contracts other than the Installment Purchase Agreement, that sum, if any, necessary to pay all
Additional Purchase Payments then due and payable and any corresponding payments then due
and payable under any Bond or Contract other than the Installment Purchase Agreement.
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(d) Surplus. Subject to the following sentence,moneys on deposit in the Sewer Fund 3
on each 2016 Purchase Payment Date not necessary to make any of the payments required above, in
may be expended by the City for any Sewer Enterprise purpose permitted by law. Moneys on a;
deposit in the Sewer Fund on any date other than a 2016 Purchase Payment Date may be °
expended by the City on such date for any Sewer Enterprise purpose permitted by law, provided
that the amount needed to pay (i) the 2016 Purchase Payment due on the next succeeding 2016 t°
Purchase Payment Date, (ii) any Installment Payments due on the next succeeding Installment c°�
Payment Date and(iii)(without duplication)the debt service on any outstanding Bonds due in the
succeeding six-month period, in each case, shall have been set aside and deposited in the
Purchase Payment Fund or any similar fund or account relating to any outstanding Bond or N
Contract,as the case may be.
0
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As defined in the Installment Purchase Agreement,the term"Revenues"means Current Revenues
plus transfers to the Sewer Fund from amounts on deposit in the Sewer Rate Stabilization Fund but only
to the extent specified in the Installment Purchase Agreement, less amounts transferred to the Sewer Rate
' Stabilization Fund(other than the initial deposit therein). See"Sewer Rate.Stabilization Fund"below.
a�
The term "Current Revenues" means all income, rents, rates, fees, charges, and other moneys
derived from the ownership or operation of the Sewer Enterprise, including, without limiting the o
generality .of the foregoing, all income rents, rates fees charges (including standby, capacity and S
�
connection charges), business interruption insurance proceeds or other moneys derived by the City from
the furnishing and supplying of sewer or other services, facilities and commodities or byproducts sold,
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furnished or supplied through the facilities of or in the conduct or operation of the business of the Sewer m
Enterprise, and including, without limitation, all earnings and income derived from the investment of all in
such money and derived from the investment of all money in the Sewer Fund and investment earnings on
the operating reserves to the extent that the use of such earnings is limited to the Sewer Enterprise by or m
pursuant to law; (ii)the proceeds derived by the City directly or indirectly from the lease of a part of the F
Sewer Enterprise; (iii) any amount received from the levy or collection of taxes which are solely
available and are earmarked for the support of the operation of the Sewer Enterprise; and(iv)all proceeds v)
of insurance covering business interruption loss relating to the Sewer Enterprise. Notwithstanding the R
foregoing, Current Revenues shall not include: (a) in all cases, customers' deposits or any other deposits
or advances subject to refund until such deposits or advances have become the property of the City; (b) O�
any advances or contributions in aid of construction; (c) amounts paid to developers, or to reimburse
developers, for capital improvements to the Sewer Enterprise; and (d) the proceeds of borrowings. The
term "Net Revenues" means, for any Fiscal Year, the Revenues for such Fiscal Year less the Operation °o
and Maintenance Costs for such Fiscal Year.
LO
ti
The term"Operation and Maintenance Costs"means costs spent or incurred for maintenance and
operation of the Sewer Enterprise calculated in accordance with generally accepted accounting principles,
including (among other things) the reasonable expenses of management and repair and other expenses
necessary to maintain and preserve the Sewer Enterprise in good repair and working order, and including
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® administrative costs of the City that are charged directly or apportioned to the Sewer Enterprise,including
but not limited to salaries and wages of employees,payments to the Public Employees Retirement System o
or any other pension system or plan, payments for post-retirement healthcare benefits, overhead, m
insurance, taxes (if any), fees of auditors, accountants, attorneys, consultants or engineers and insurance
premiums, and including all other reasonable and necessary costs of the City or charges (other than Debt
Service payments) required to be paid by it to comply with the terms of the 2016 Bonds or of the
Installment Purchase Agreement or any Contract or of any resolution or indenture authorizing the CD
issuance of any Bonds or of such Bonds, but excluding in all cases depreciation, replacement and
obsolescence charges or reserves therefor and amortization of intangibles or other bookkeeping entries of
a similar nature.
I 3
See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS." vn
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Reserve Fund °
v
The Reserve Fund and the Reserve Accounts therein will be held and administered by the
Trustee, and will be used solely for the purpose of paying the Series of Bonds secured by the Reserve
Accounts in the manner provided in the Indenture. In connection with the issuance of the 2016 Bonds,
the Authority will establish the Common Reserve Account, and the 2016 Bonds will be secured by the
Common Reserve Account as a Common Reserve Series under the Indenture. As provided in the
Indenture, the Common Reserve Account will thereafter be maintained at all times at the Reserve
Requirement. As defined in the Indenture,the term"Reserve Requirement"means,(a)with respect to the o
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Common Reserve Series, the least of(i) 10% of the issue price of the Common Reserve Series, (ii) the
Maximum Annual Debt Service on the Common Reserve Series, and (iii) 125% of the average annual
debt service on the Common Reserve Series, and (b) with respect to any other Series of Bonds, such
amount as shall be specified in the Supplemental Indenture authorizing the issuance of such Series of
Bonds. Future issues of Bonds, if any, may or may not participate in the Common Reserve Account as a
Common Reserve Series of Bonds, and may be issued with no debt service reserve account and no claim cn
to any account of the Reserve Fund,nor any Reserve Account Credit Facility or Facilities on deposit in an o
account thereof.
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L
At the option of the Authority, at the request of the City, amounts on deposit in a Reserve
Account may be substituted at any time, in whole or in part,by the deposit with the Trustee of a Reserve m
Account Credit Facility or Facilities in a stated amount equal to the amounts so substituted. Any amounts
released from a Reserve Account as a result of such substitution will be transferred to the City and applied ,
for any lawful purpose of the Sewer Enterprise consistent with the Tax Certificate. [The City and the c
Authority have elected to fund the Common Reserve Account with a Reserve Account Credit Facility.] E
The term"Reserve Account Credit Facility" means a letter of credit, insurance policy, surety bond, other
credit facility provided to the Trustee by a bank, insurance company or other financial institution whose
senior unsecured debt obligations are, or whose claims-paying ability is, at the time of the delivery of
such Reserve Account Credit Facility,rated in one of the top two rating categories (without giving effect
to any numerical or other modifiers) by any Rating Agency, which provides for payment when due, in O�
accordance with the terms thereof, of the principal or redemption price of and/or interest on one or more
Series of Bonds. As provided in the Indenture,the Trustee will deposit in each Reserve Account proceeds
of the sale of each Series of Bonds to be secured thereby or Reserve Account Credit Facility or Facilities, °o
or any combination of the foregoing, in such amount as will be necessary to bring the amount on deposit
therein to the Reserve Requirement for such Series of Bonds. The Indenture does not require the
replacement of all or any portion of a Reserve Account Credit Facility following the rating thereon being
downgraded, suspended or withdrawn nor any other action to alternatively satisfy the applicable Reserve m
Requirement. _
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i
Each Reserve Account will be replenished in the following priority: first,to make all payments
required under all reimbursement agreements with the providers of Reserve Account Credit Facilities o
credited to such Reserve Account (and if there is not sufficient money on deposit in such Reserve m
Account to make all such payments, then on a pro rata basis to each provider); and second, after all such
payments are made in full,the amount necessary to make the money and Reserve Account Credit Facility
or Facilities or any combination of the foregoing deposited in or credited to such Reserve Account equal
to the aggregate Reserve Requirements of the Bonds secured by such Reserve Account. If at any time v
there is not sufficient money to make all of the foregoing payments, such payments will be made to the
extent of available money into each Reserve Account in the same ratio as the principal amount of the
Outstanding Bonds secured thereby bears to the aggregate principal amount of all Outstanding Bonds
secured by the Reserve Fund.
m
In the event of a deficiency in the Purchase Payment Fund for Bonds secured by a Reserve
Account, the Trustee will make up such deficiency from such Reserve Account in the following priority: °
j first, by the withdrawal of cash held therein; second, by the sale or redemption of Permitted Investments
j' held therein; and third, from draws upon the Reserve Account Credit Facility or Facilities credited C°
thereto, on a pro rata basis, in sufficient amounts to make up such deficiency. Such draws will be made
i; �
at such times and under such conditions as provided in such Reserve Account Credit Facility or Facilities.
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Subject to the paragraph immediately below, each Reserve Account may be drawn upon for the 0)
sole purpose of paying the principal and redemption price of and interest on the Bonds secured by such
,! Reserve Account. Money set aside from time to time with the Trustee for the payment of such principal, o
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redemption price,or interest will be held in trust equally and ratably for the Owners.
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If at any time no event of default has occurred and is continuing and the amount on deposit in a
Reserve Account is greater than the applicable Reserve Requirement, the Trustee will, upon receipt of a
Written Request of the Authority, withdraw such excess and apply such amount as directed in such
Written Request of the Authority.
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'" Sewer Rate Stabilization Fund
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The Sewer Rate Stabilization Fund is required to be established and is maintained pursuant to the
Installment Purchase Agreement; however, no minimum balance is required by the Installment Purchase m
Agreement. Transfers in and out of this fund serve as a revolving mechanism to mitigate potential
fluctuations in the rates for the Sewer Enterprise operations, and maintain stable debt service coverage
ratios for the Outstanding Obligations. c
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From time to time the City may deposit in the Sewer Rate Stabilization Fund established under
the Installment Purchase Agreement, from Current Revenues, such amounts as the City shall determine, N
provided that deposits for each Fiscal Year may be made until (but not after) two hundred seventy(270)
days following the end of such Fiscal Year. As of June 30, 2016, the amount designated for sewer rate .2
stabilization was $2;708,073. Upon the delivery of the 2016 Bonds,the City will transfer such amount to p
the Sewer Rate Stabilization Fund established under the Installment Purchase Agreement.
M
The Department, on behalf of the City may withdraw amounts from the Sewer Rate Stabilization c
Fund for transfer to the Sewer Fund in accordance with the Installment Purchase Agreement,for inclusion
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in Revenues for any Fiscal Year, such withdrawals to be made until (but not after) two hundred seventy
(270) days after the end of such Fiscal Year. Notwithstanding the foregoing, no deposit of Current
Revenues to the Sewer Rate Stabilization Fund may be made to the extent such Current Revenues were
included in the report of an Independent Certified Public Accountant or an Independent Financial E
Consultant submitted in accordance with the terms of the Installment Purchase Agreement regarding the U
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issuance of Additional Obligations, and withdrawal of the Current Revenues to be deposited in the Sewer
Rate Stabilization Fund from Revenues described in such report would cause noncompliance with the o
terms of the Installment Purchase Agreement. Amounts on deposit in the Sewer Rate Stabilization Fund m
are not pledged to the payment of any Installment Payments (including the 2016 Purchase Payments) or
the payment of debt service on the 2016 Bonds.
Investments
U
All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture
will be invested by the Trustee solely in Permitted Investments as defined in the Indenture. Obligations
purchased as an investment of moneys in any fund will be deemed to be part of such fund or account. All
moneys held in the Sewer Fund will be invested in Qualified Investments and the investment earnings in
thereon will remain on deposit in such fund, except as otherwise provided in the Installment Purchase
Agreement Indenture. See APPENDIX C — "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS — °
INDENTURE"and"—INSTALLMENT PURCHASE AGREEMENT." `r
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Rate Covenant c°,i
The City will covenant in the Installment Purchase Agreement to fix, prescribe and collect rates,
fees,charges and connection fees for the Sewer Enterprise which will be at least sufficient to yield,during
each Fiscal Year,Net Revenues equal to one hundred ten percent(110%) of Debt Service for such Fiscal
Year. The City may make adjustments from time to time in such rates, fees, charges and connection fees m
and may make such classification thereof as it deems necessary,but shall not reduce the rates and charges
then in effect unless the Net Revenues from such reduced rates, fees, charges and connection fees will at c
all times be sufficient to meet the requirements of such covenant. For information on the possible
limitation on the City's ability to comply with the rate covenant described above as a consequence of
Proposition 218, see "RISK FACTORS — Rate-Setting Process Under Proposition 218" and a�
"CONSTITUTIONAL LIMITATIONS ON TAXES AND SEWER TREATMENT RATES AND
CHARGES—Article XIIIC"and"—Article XIIID." a
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Covenant to Budget
_
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The City will covenant in the Installment Purchase Agreement that it will include in the annual m
budget for Sewer Fund for each Fiscal Year the Installment Payments due in that Fiscal Year. The City
will furnish to the Trustee(who shall have no duty to review such budget), copies of each final budget of N
the Sewer Fund by September 1 of each year. The covenants on the part of the City are deemed by the
City to be duties imposed by law and it shall be the duty of each and every public official of the City to E
take such action and do such things as are required by law in the performance of the official duty of such
officials to enable the City to carry out and perform the covenants and agreements in the Installment in
Purchase Agreement agreed to be carried out and performed by the City. i
.2
Issuance of Additional Obligations Under the Installment Purchase Agreement p
i
ui
Pursuant to the Installment Purchase Agreement, the City may at any time issue any Bonds, or
arrange with the Authority the issuance of any Bonds, the payments pursuant to which, or execute any c
Contract the Installment Payments pursuant to which, as the case may be, are payable from the Net
Revenues on a parity with the payment by the City of the 2016 Purchase Payments, subject to satisfaction
of the conditions specified in the Installment Purchase Agreement including, without limitation, that
either(i)Net Revenues for the most recent audited Fiscal Year or for any unaudited twelve-month period
during the eighteen months preceding the date of issuance or execution of such Additional Obligations .Ec
shall have been equal to at least one hundred ten percent (110%) of the Maximum Annual Debt Service
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' on all outstanding Bonds and Contracts and on such Additional Obligations, plus all amounts due on
Policy Costs during the then current Fiscal Year, as evidenced by a Certificate of the City or (ii) the c
estimated Revenues and Net Revenues for the first Fiscal Year in which no interest on such Additional m
Obligations is capitalized, as evidenced by a Certificate of the City and a report prepared by an
Independent Certified Public Accountant or an Independent Financial Consultant, filed with the Trustee
(which calculation shall take into account only adopted rates and charges),are sufficient to satisfy the rate
covenant under the Installment Purchase Agreement(i.e., 110%of Maximum Annual Debt Service on all
outstanding Bonds, Contracts, and Additional Obligations, plus all amounts due on Policy Costs during
the then current Fiscal Year).
L
As defined in the Installment Purchase Agreement, the term "Additional Obligations" means all 3
additional Bonds to be issued, and/or Contracts to be executed,by the City or the Authority in accordance in
with such terms. The term"Contracts"means the Installment Purchase Agreement and any amendments Q;
and supplements thereto,and all contracts of the City authorized and executed by the City,the Installment h
Payments under which are payable on a parity with the 2016 Purchase Payments and which are secured
by a parity pledge and lien on the Net Revenues, but excluding contracts entered into for operation and tD
maintenance of the Sewer Enterprise. The term "Bonds" means all revenue bonds or notes or other cm
obligations of the City authorized, executed, issued and delivered by the City, or any revenue bonds or
notes or other obligations payable from revenues generated by any Contract, in each case the payments of
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I!' which are on a parity with the 2016 Purchase Payments and which are secured by a parity pledge of and
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lien on the Net Revenues. The term "Maximum Annual Debt Service" means, at any point in time, the =
maximum amount of Debt Service in the then current or any future Fiscal Year,as calculated by the City. m
The term "Policy Costs" means repayments of any draw under Reserve Account Credit Facility and any
expenses related thereto and any accrued interest.
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See APPENDIX C—"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS—INSTALLMENT
PURCHASE AGREEMENT—Additional Bonds and Contracts."
3
m
Notwithstanding the foregoing provisions, there are no limitations on the ability of the City to 0
execute any Contract or to issue any Bonds, or arrange with the Authority to execute any Contract or to
issue any Bonds at any time to refund any outstanding Bonds or any outstanding Contracts,provided that M
during the period in which Bonds or Contracts (other than the refunding or refunded Bonds and F
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Contracts)will be outstanding,the Debt Service due in each Fiscal Year following such refunding will be m
less than what the Debt Service due in such Fiscal Year would have been without such refunding. There c=`n
shall be no limitations on the ability of the City to incur debt or other obligations payable from Net ,
Revenues on a basis subordinate to the payment by the City of the 2016 Purchase Payments.
E
Issuance of Additional Bonds Under the Indenture
R
Pursuant to the Indenture, the Authority may at any time issue Additional Bonds payable from
Project Revenues as provided in the Indenture and secured by a pledge of and charge and lien upon ."
Project Revenues as provided in the Indenture equal to the pledge, charge and lien securing the p�
Outstanding Bonds (including the 2016 Bonds) theretofore issued under the Indenture, subject to
satisfaction of the conditions specified in the Indenture including, without limitation, that (i) such M
Additional Bonds shall be applied solely for(A)the purpose of financing the completion of the Project or °o
financing an Additional Project, including payment of all costs incidental to or connected with such ti
financing,-and/or(B)the purpose of refunding any Bonds then Outstanding, or any Contract, or any other ti
obligation of the City relating to the Sewer Enterprise as the City may determine,including payment of all 4;
costs incidental to or connected with such refunding; and (ii) the provisions of the Installment Purchase a)
Agreement set forth above under the caption "Issuance of Additional Obligations Under the Installment E
Purchase Agreement" shall have been satisfied and either (A) the Installment Purchase Agreement shall
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have been amended so as to modify the 2016 Purchase Payments payable by the City thereunder by an
amount at least sufficient to pay the interest on and principal of such Additional Bonds as the same c
become due or (B) the City shall have entered into a Related Contract providing for the City to make m
Purchase Payments in amounts sufficient to pay the interest on and principal of such Additional Bonds,
and in each case such amendment or such Related Contract shall be consistent with the terms of the
Installment Purchase Agreement set forth above under the caption "Issuance of Additional Obligations �
Under the Installment Purchase Agreement." m
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See APPENDIX C —"SUMMARY OF PRINCIPAL LEGAL DOCUMENTS —INDENTURE—
Conditions for the Issuance of Additional Bonds" and "— Procedure for the Issuance of Additional
Bonds." 3
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The Indenture does not limit the issuance of any bonds of the Authority payable from Project
Revenues and secured by a pledge of and charge and lien upon Project Revenues if after the issuance and °
delivery of such bonds none of the Bonds theretofore issued under the Indenture will be Outstanding. e'
Nothing in the Indenture limits in any way the power and authority of the Authority to incur other
obligations payable from other lawful sources. c°•,
as
DEBT SERVICE SCHEDULE
m
The following table sets forth the amounts required in each Fiscal Year for the payment of
principal of and interest on 2016 Bonds,assuming no optional redemptions. o
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as
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d
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3
d
0
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0
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Table 1 N
Debt Service Schedule(l)
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Fiscal Year Outstanding Total Debt
Ending June 30 Obligations(') Principal Interest Service
2017 °'
2018 4)
2019
2020 --
2021 -- N
L
2022 -- a)
2023 -- Cn
2024 --
2025 -- a)
0
2026 --
2027
2028 --
0
2029 -- N
2030
2031 --
2032 -- M
2033 -- v
2034 -- o
2035 -- m
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2036 --
2037 -- aci
2038 --
2039 --
2040 -- 3
2041 -- °'
Cn
2042 -- O
2043 -- c
2044 --
co
2045 -- c
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} 2046 -- m
Total(z):
Debt service on the Valley District loan of$1.2 million for the UV System Rehabilitation Project. This loan is an unsecured +-
c
obligation payable from the Sewer Fund.
(Z) Amounts have been rounded;total may not equal the sum of the components. d
Source: The Department.
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BOND INSURANCE
[To Come] 0I
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THE SEWER ENTERPRISE
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General n
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The Department is responsible for water service and sewage treatment and disposal. The
Department operates two enterprise funds: the Sewer Utility Enterprise Fund (the "Sewer Fund" herein)
and the Water Utility Enterprise Fund (the "Water Fund"), each as referred to in the audited financial
statements of the Department. The City owns the Sewer Enterprise and operates the Sewer Enterprise Y
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through the Department. The Water Enterprise and its revenues do not secure the 2016 Purchase ,_(3,
Payments or the 2016 Bonds. o
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The Department's sewage disposal system consists of two main components: regional sewage
treatment facilities at the WRP and the collection system within City limits. The Sewer Enterprise does
not include the City's collection system.
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The City's sewer service billing is composed of a regional treatment charge for costs of the WRP
and RIX, and a collection system charge. The Department bills and collects the total charge. Local
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collection system charges, which are not of Revenues, are then transferred to the City's Public Works
Department.
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The WRP serves about 89,000 customers, of which about 57,000 are located within the City's
boundaries. Of these,the City's collection system serves about 63,377 customers, of which about 38,218
are located within the City's boundaries. The WRP also treats sewage from the EVWD and Loma Linda.
See "Contracts with Other Agencies" below. The Sewer Enterprise includes these regional sewage
treatment facilities. The WRP receives sewage from the collection system within the Service Area. As Cq
described herein, the RIX receives approximately 33 MGD of secondary treated wastewater from the
WRP and Colton's treatment facility. a,
A substantial portion of the use of the WRP and the RIX is attributable to the following local c
agencies involved in the cooperative use and development of the City's regional sewage treatment m
facilities: a�
AVWN c
• East Valley Water District: The EVWD serves an area east and north of the City,
' including the City of Highland. In 1958, the EVWD entered into a joint powers
agreement with the City for treatment and disposal of sewage from the EVWD at the
WRP. in
0
• City of Loma Linda: Loma Linda is a general law city located east and south of the City.
The City provides sewage treatment and disposal to Loma Linda under a joint powers
agreement similar to that of the EVWD. In 1965,Loma Linda entered into a joint powers
agreement with the City for treatment and disposal of sewage from Loma Linda at the m
WRP. a
The EVWD is pursuing the development of a sewage treatment plant which, if developed and c
completed, would negate in whole or in part its partnering with the City for treatment of EVWD sewage E
at the WRP. See "Contracts with Other Agencies" below. The Department has projected that if the
EVWD begins treating its own wastewater,the Department will lose at least $4.5 million annually for 20
years for loss of use of a portion of the WRP which was sized to serve this partnering agency. For a
description of litigation concerning the treatment plant and the potential for competing treatment facilities 2
this party to a WRP JPA Agreement(as defined Below), see"LITIGATION." O�
The Department and its governing body, the Board, were established on May 8, 1905 by the M
Mayor and the governing board of the City (called the Common Council) in accordance with the c
provisions specified in the City Charter. The Department has Charter defined powers, with full authority
LO
for administration of the Water Enterprise and delegated authority for the Sewer Enterprise. The
Department has served the community since 1905. The Department has grown through the years to
include: water supply, water reclamation, geothermal heating supply, and administrative support. The
Department is governed by its five-member Board,appointed by the Mayor. The current members of the E
Board are: U
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Name Office End of Term a
Toni Callicott President September 16,2019 m
Judith Valles Vice President December 4,2016
Wayne Hendrix Commissioner April 6,2021
Louis A.Fernandez Commissioner September 16,2019
i
David E. Mlynarski Commissioner May 19,2020 �
a�
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Under the City Charter, the Common Council has the power to acquire, establish, construct, in
j reconstruct, maintain, operate, manage, repair, improve or finance any building, system, plant, works, 3
facilities or undertaking used for or useful in the collection, treatment or disposal of sewage and the
reclamation of effluent therefrom,or storm water,including drainage. Like sewer collection facilities,the Cn
Department has not to date had any obligation with respect to stormwater facilities or capture. o
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v
The City Charter further provides that the Mayor and Common Council shall levy charges for
V_
sewer service treatment and collection which, if so ordered by the Mayor and Common Council, may be c
collected together with or separately from charges for water service and all charges received for sewer N
N
service and all other income and receipts derived from the operations of the sewer system, including any m
L
sewage treatment and effluent reclamation works, or arising from the sewer system or said works shall be
paid into the Sewer Fund. Said charges shall be at least sufficient to pay the following amounts in the a
order set forth: (a) the necessary and reasonable maintenance and operation costs of the sewer system, o
P including any sewage treatment and effluent reclamation works (which include the reasonable expenses m
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of billing and collection of service charges,management, repair and other expenses necessary to maintain
and preserve the sewer system and said works in good repair and working order); (b) the principal and
interest on bonds issued for sewer purposes; and (c) any payment specifically authorized or required by
the Mayor and Common Council in any ordinance or resolution providing for the issuance of said bonds.
CD
3
The Common Council, upon recommendations from the Board, has the power and authority to in
establish charges for sewer service treatment and collection without the review or approval of any other 0
governmental body,to refuse or terminate sewer service treatment and collection to delinquent customers,
and to require full payment of delinquent amounts and reconnection fees to resume service. The City
Charter gives the Board semi-autonomous authority to manage the Department, including the certain m
operations of the Sewer Enterprise. In 1974, the Mayor and Common Council transferred responsibility
for management and operation of the water reclamation (treatment) plant to the Board. The City sewer cn
service billing is composed of a regional treatment charge and a collection system charge. The
Department bills and collects the total charge. Local collection system charges are then transferred to the m
City's Public Works Department. The collection system charge is not part of Revenues or Net Revenues.
CD
M
The City's Public Works Department, in coordination with the Department, maintains the City's N
sewage collection system. The Public Works Department, Engineering Division is responsible for the
U
inspection and construction management of sewers among other City infrastructure. The Operations &
Maintenance Division, and Sewer Line Maintenance Section maintains sewer main lines among other Di
City infrastructure. The Operations & Maintenance Division maintains all streets, sidewalks, curbs,
gutters, street signs, traffic signals, street lights, storm drains and sewer main lines within the City. An c
amended City Charter will be on the ballot on November 8, 2016. Its impact on the Department is o
substantially limited to a realignment under which the Department would assume responsibility for all
Ln
sewer operations, including the collection system of waste pipes and related facilities. Collection system
charges will remain separate and not part of Revenues or Net Revenues. See APPENDIX A —
"ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY OF SAN BERNARDINO
AND SAN BERNARDINO COUNTY."
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' Moneys held in the Sewer Fund shall be kept separate and apart from other moneys of the City.
See"RISK FACTORS—Effect of City of San Bernardino Bankruptcy Case." C
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Operations of the Department are directed by the Board and its general manager. The City
Charter provides that the City Manager shall not be responsible for the administration of the Department. d
The Board appoints the general manager of the Department, who is responsible for day-to-day operation
of the Department.
Management
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The Department is under the direction of Stacey R. Aldstadt, General Manager and Robin L. 3
Ohama,Deputy General Manager. Terri Willoughby is the Department's Director of Finance. in
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Stacey R. Aldstadt — General Manager. Ms. Aldstadt was appointed General Manager in July
2005. Ms. Aldstadt began working for the Department in 1997 as Deputy General Manager. Ms.
Aldstadt is a member of the State Bar of California, State Bar of Texas (currently inactive status) and r
admitted to several federal district courts; and member, American Water Works Association. She is �°,
Chairperson of the Colton/San Bernardino Regional Tertiary Treatment and Water Reclamation Joint
Powers Authority; Secretary for the Lytle Creek Water Conservation Association; and Commissioner of
the West End Water Development, Treatment and Conservation Joint Powers Authority. Ms. Aldstadt co
attended the University of Houston, where she received both her bachelor's degree and law degree. After
passing the California bar exam in 1990,Ms. Aldstadt practiced law in Riverside, California with the law m
firms Thompson&Colegate and Redwine& Sherrill. Her practice areas included contract,personnel and
general liability litigation. In 1996, she became a Deputy City Attorney for the City, advising the
Department,among other departments,and handling complex litigation matters. >
Robin L. Ohama — Deputy General Manager. Ms. Ohama was named as Deputy General 3
Manager in October 2005. As Deputy General Manager, Ms. Ohama assists the General Manager and
Water Division and Sewer Division Directors in the administration of water and water reclamation n
services of the Department. She directly manages administrative services for the Department which
includes Purchasing, Customer Service, and Human Resources. With extensive management experience
L
in both the public and private sectors, Ms. Ohama previously worked as a Human Resources Division r_
Chief for the County of San Bernardino. She also was employed as the Department Administrator for m
Occupational Health Services for the Inland Empire Kaiser Permanente medical facilities. Ms. Ohama
also served as Medical Liaison for the State Compensation Insurance Fund, the state's largest workers'
compensation carrier. Ms. Ohama attended the University of Southern California where she received her
Bachelor of Arts degree in both English and Journalism. She then went on to earn a Juris Doctorate E
degree from Western State University College of Law.
U)
Terri Willoughby—Director of Finance. Ms. Willoughby was appointed Director of Finance in cc
July 2014. Ms. Willoughby has worked in the public sector for twenty years, working for the County of .2
Riverside, and cities of Riverside,Barstow and Menifee in capacities ranging from Assistant Controller to p
Finance Director. Ms. Willoughby was previously the Southern California board representative for the
California Society of Municipal Finance Officers, and is currently active in the organization. Ms. ri
Willoughby also volunteers her time as the Treasurer of the Riverside Road Runners, a non-profit c
organization in Riverside, CA. Ms. Willoughby attended California State University, San Bernardino
where she earned a bachelor's degree in Business Administration with a concentration in Accounting in
1993 and a Masters in Public Administration in 2007.
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The Sewer Enterprise is under the direction of John A. Claus—Director of Water Reclamation. E
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John A. Claus — Director of Water Reclamation. Mr. Claus was appointed Director of Water v,
Reclamation in January 2008.As Director,Mr.Claus oversees the operation and maintenance of the WRP c
and the RIX and other assets of the Sewer Enterprise. Mr. Claus is responsible for maintaining m
compliance with all required State and Federal regulations, including the National Pollutant Discharge
Elimination System (NPDES) permits issued by the California Regional Water Quality Control Board.
{ Mr. Claus has been involved in the operation,maintenance, and management of wastewater agencies and
facilities since 1988. Mr. Claus entered the U.S.Navy immediately after high school and served six years
as a Gas Turbine Systems Technician. He began his career in the wastewater field at the Yucaipa Valley •2
Water District, where he worked as a Laboratory Technician and then as a Treatment Plant Operator. in
After working for the district for six years,he joined the City of Riverside in 1994,where over the span of
nearly ten years, he held the positions of Wastewater Process Control Supervisor,Wastewater Operations 3
Manager, and Wastewater Systems Manager. Prior to his employment with the Department, Mr. Claus in
worked in the engineering consulting industry with the firm of Carollo Engineers for three years. He was a,
responsible for the development of plant operations manuals, performing process troubleshooting and
process start-ups, and conducting operator training in the wastewater industry. Mr. Claus attended the �-
University of Redlands, where he received his Bachelor's Degree in Business Administration and
Management. He holds a Grade V Wastewater Treatment Plant Operator Certificate, issued by the
California State Water Resources Control Board. He is a member of the Water Environment Federation aNi
and the California Water Environment Association.
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Employees c
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The Department has a staff of 280, including the Board. Primary functions and staffing are as
follows: _
CD
Administration: 88 Administration of the Department, including Management,
Environmental and Regulatory Compliance, Finance and 3
Accounting, Human Resources, Customer Service, Information in
Technology and Purchasing. o
Water Enterprise: 108 Operate, monitor and regulate wells, reservoirs and treatment
plants.
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Sewer Enterprise: 84 Utilize modern wastewater treatment processes to maintain
compliance with required discharge limits. m
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There is some overlap of duties among Department employees between the Water Enterprise and
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the Sewer Enterprise with a roughly 60/40 proportion of headcount and costs between the two divisions.
m
Department employees are unrepresented but terms of employment are reflected in part in a
Memorandum of Understanding with the Department. The Department enjoys good relations with its
employees and has not experienced a work stoppage. p
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Board members, management and eligible staff of the Department are provided pension benefits C,
as part of the City's Miscellaneous Plan (the "Miscellaneous Plan"), an Agent Multiple-Employer c
Defined Benefit Pension Plan administered by the California Public Employees' Retirement System
("Ca1PERS"). The Department is part of the City's Ca1PERS Miscellaneous Plan. Additionally, certain Ln
other post-employment healthcare benefits ("OPEB") are provided to employees of the Department. For
more information including a description of the Miscellaneous Plan, OPEB, plan liabilities, costs to the
d
Sewer Fund, and projections, see "THE SEWER ENTERPRISE—Employees' Retirement Benefits" and E
"— Other Post-Employment Healthcare Benefits." See also, Notes 7 and 8 in APPENDIX B —
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"COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DEPARTMENT FOR THE FISCAL
YEAR ENDED JUNE 30,2015." _
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Additional services for the collection system of waste pipes and related facilities are provided by
employees of the City's Public Works Department, including the Operations & Maintenance Division,
and Sewer Line Maintenance Section.
Operations,Service Area and Principal Customers
m
The Service Area includes approximately 64,000 connections in the City and portions of
L
unincorporated San Bernardino County and the partnering agencies, Loma Linda and the EVWD. The
3
Department's sewer treatment services are provided to residential and commercial/industrial customers in
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the City, as well as residential and commercial/industrial customers of its two partner local agencies, the
EVWD and Loma Linda. See "Contracts with Other Agencies" below. The WRP serves about 89,000
customers,of which about 57,000 are located within the City's boundaries. Of these,the City's collection `!
system serves about 63,377 customers, of which about 38,218 are located within the City's boundaries.
r
The Sewer Enterprise's largest source of revenue is sewer service charges from customers in the City,and
from Loma Linda and the EVWD. See "LITIGATION - The City and the Enterprise." Service charges
account for virtually all of operating income and about 90%total Sewer Fund revenues. a)
V)
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The customers of the WRP for fiscal years ended June 30,2013 through June 30,2015 are shown
in the table below. For fiscal year 2014-15, residential and multi-family customers account for m
approximately 63%of total customers. CD
_
Table 2 >
City of San Bernardino Municipal Water Department
Treatment Plant Customers a�
(Fiscal Years 2012-13 through 2014-15)
0
2012-13 2013-14 2014-15 %Share S
City 38,010 37,947 38,218 60.30% M
EVWD 20,051 19,519 19,531 30.82 L
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Loma Linda 5,248 5,248 5,628 8.88 m
_
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Source:The Department. N
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No single City customer accounted for more than 2%of the gross revenues of the Sewer Fund. E
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The maps below shows the Service Area and an aerial view of the WRP. in
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Contracts with Other Agencies a
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Regional WRP JPA Agreements. The City has joint powers agreements with the EVWD (as m
successor to the East San Bernardino County Water District) and Loma Linda (the "WRP JPA
Agreements") for wastewater treatment at the WRP. The agreement with the EVWD was originally
approved in 1958, and that with Loma Linda was originally approved in 1965. Each has been amended
subsequently. The terms of the WRP JPA Agreements are essentially similar. Neither has a stated term,
and each provides that it can only be amended and modified by mutual consent and is to continue in effect
until terminated by mutual consent of the parties. Currently, the EVWD disputes that it has an obligation
under its WRP JPA Agreement to convey its wastewater to City facilities for treatment. For a description L
of litigation with respect to actions by the EVWD and the Valley District with respect to their respective
actions to jointly propose and develop a sewage treatment plant,see"LITIGATION." in
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The WRP JPA Agreements establish certain rules and requirements with respect to the discharge °
of sewage into their respective sewer systems, including requirements that the EVWD and Loma Linda
abide by,and require their customers to abide by,the City's rules and regulations regarding sewer service.
0
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Under the WRP JPA Agreements, all costs attributable to regional facilities will be shared by the
parties to these and other agreements in proportion to the number of equivalent dwelling units served by
each party. The regional cost per dwelling unit equivalent will be determined by the City at the close of
each fiscal year by dividing the total regional costs (as defined in the WRP JPA Agreements) by the
number of regional dwelling unit equivalents. Each agency is responsible for the costs of the number of a
m
dwelling unit equivalents attributable to its customers. Each agency agrees to impose regional capacity a,
fees through the term of the agreement. The regional capacity fee shall increase in proportion to the most
recently published 12 month increase in CPI. As provided in the Regional WRP JPA Agreements, funds
' collected from such source shall be used exclusively to finance the expansion of capital improvements or
additions to the regional treatment facilities. Each party has agreed that the City will not make treatment
capacity in the regional facility available to any future user unless such future user has paid a regional �n
capacity charge of an amount equal to or greater than the regional capacity charge then in effect. p
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Uniform r al rates for �
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Treatment+individual system
costs+regional capacity fees M
for new connections Regional faciliftes,costs
aliocated on basis of EDUs
(paid monthly}
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Additional admin costs `n
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(customer service,billiM
collection( +'
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' Certain expenses are allocated only within the City as expenses associated with the Department's N
customer service, billing, and cashiering services. These services are most appropriately allocated only c
within the City because the Department only provides them for the City customers. The Department does m
not provide them for EVWD and Loma Linda customers. Recognition of recovery of Department-only
expenses only from the City customers is done by an addition to the Monthly Charge in addition to the
systemwide average percentage increase. Conversely, the Monthly Charge applicable to EVWD and
Loma Linda will be lower than that applicable to the City.
Under the WRP JPA Agreements, the City, the EVWD, and Loma Linda all agree to adopt
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uniform regional sewer rate ordinances or resolutions to fix the charges applicable to regional facilities L
and treatment charges and a uniform base fee for treatment capacity. Each party also agrees to implement 3
a uniform system of assigning dwelling unit equivalents to its customers. Each party has the right to levy in
charges in addition to the regional monthly rate for their respective customers. Regional charges are a;
restricted to regional facilities.
Each party agrees to impose a regional capacity fee on all new connections within its Service
Area. Funds collected from such regional capacity fees are to be used exclusively to finance the
expansion of capital improvements or additions to regional treatment facilities. The City cannot make
treatment capacity in the regional facility available to any future customer unless that future customer has
paid a regional capacity fee of any amount equal to or greater than the regional capacity fee then in effect.
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As compensation to the City for services rendered in providing treatment capacity and treating a
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and disposing of wastes from the EVWD and Loma Linda, the EVWD and Loma Linda have agreed to
pay to the Department at the end of each monthly period, or other period established by each party for
imposing and collecting sewer service charges, the aggregate of regional facilities and treatment charges
' and regional capacity fees under the WRP JPA Agreements. Any amount of such payment which is in
dispute shall be paid to the City with a notation that it is paid under protest and shall be repaid at a later 3
time if so decided by any appropriate court of law. Payments required under the WRP JPA Agreements in
shall be paid within 30 days of the due date. Payments not made within 30 days of the due date will bear o
interest at the current prevailing prime rate of interest until paid.
L
San Bernardino/Colton Regional Tertiary Treatment and Water Reclamation Authority. On
August 2, 1994, the City, through the Department, formed a joint powers authority with the City of m
Colton to construct, operate, use and maintain tertiary wastewater treatment, disposal and water
reclamation systems, including the Regional Rapid Infiltration and Extraction Facility ("RIX"). This N
authority is governed by a separate board consisting of four members; two appointed by the City,through c
the Board, and two appointed by the City Council of the City of Colton. Construction of RIX was E
administered by the Santa Ana Watershed Project Authority and was substantially completed in 1996, at
which time administration and operation was turned over to the City. un
The RIX provides further treatment of effluent from the WRP and from the City of Colton's .2
separate treatment facility in order to meet State of California Title 22 tertiary treatment standards and the p�
discharge standards specified in a separate NPDES permit issued to the RIX facility. It discharges are Ln
released to the Santa Ana River in substantial compliance with these permit requirements. M
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The City and the City of Colton each have a measurable equity interest in the net position of RIX
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in proportion to their contributions, which are based on an 80% / 20% split, respectively. Annual
revenues (in the form of contributions from the two member cities) are equal to annual expenses. For a
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description of certain environmental issues and threatened litigation, see"LITIGATION."
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Customers
The following table sets forth the historical number of connections to the Sewer Enterprise for m
each year from Fiscal Years 2010-11 through 2014-15.
as
Table 3
City of San Bernardino Municipal Water Department
Historical Number of Sewage Treatment Connections 2
Fiscal Years 2010-11 through 2014-15 CD
(Unaudited)
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3
User Type 2010-11 2011-12 2012-13 2013-14 2014-15 Cn
San Bernardino Residential 32,447 32,571 32,563 32,537 32,874
San Bernardino Nonresidential 5,416 5,412 5,447 5,410 5,344 °
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EVWD Residential 18,700 18,813 18,925 18,404 18,480
EVWD Nonresidential 1,138 1,128 1,126 1,115 1,051
Loma Linda Residential 4,648 4,443 4,663 4,656 5,040 0
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Loma Linda Nonresidential 584 589 585 592 588
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Source:The Department. Cn
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The Sewer Enterprise's principal source of revenues is sewer service charges from the City, and 0
from Loma Linda and the EVWD, including residents and non-residential enterprises. The following
table sets forth the historical sources of revenues of the Sewer Fund for Fiscal Years 2010-11 through
2014-15. The table includes sewer rate revenues under the current rate schedule, not including the rates
effective on October 1,2016,and to be effective on July 1,2017.
Table 4 3:
City of San Bernardino Municipal Water Department 1n
0
Historical Sources of Sewer Enterprise Revenues
Fiscal Years 2010-11 through 2014-15
a
(Unaudited) _
(D
m
%of =
User Type 2010-11 2011-12 2012-13 2013-14 2014-15 2014-15 in
San Bernardino
Residential $7,053,263 $7,650,142 $7,922,936 $8,111,634 $8,056,827 33.22%
San Bernardino m
Nonresidential 7,131,988 7,877,416 8,332,214 8,033,072 7,240,533 29.85 M
EVWD Residential 3,645,721 4,019,127 4,188,434 4,149,836 4,093,625 16.88 N_
EVWD Nonresidential 2,070,233 2,492,375 2,434,118 2,725,075 2,571,813 10.60 ;
U
Loma Linda Residential 870,734 933,648 1,063,124 991,387 997,242 4.11 E
Loma Linda 0I
Nonresidential 1,048,402 1,258,747 1,549,643 1,330,102 1,294,612 5.34 ,n
Total $21,820,341 $24,231,455 $25,490,469 $25,341,106 $24,254,652 100.00%
0
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Source:The Department. `'
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The following table sets forth the 10 largest customers of the Sewer Enterprise for Fiscal Year
2014-15, which customers provided approximately 6.54% of the total Sewer Enterprise revenues
($24,254,652)for such Fiscal Year.
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Table 5 N
City of San Bernardino Municipal Water Department
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Top Ten Sewage Treatment Customers m
(Fiscal Year 2014-15)
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Customer Revenues Percent of Total
Farmdale Creamery,Inc. $ 420,205 1.73%
Cott Beverage 329,155 1.36
County of San Bernardino 323,520 1.33
Patton State Hospital 202,653 0.84
Housing Authority of the County of San Bernardino 172,232 0.71 3
San Bernardino City Unified School District 172,145 0.71 0
St.Bernardine Hospital/CHW 107,797 0.44
Co-West Commodities 97,898 0.40
0
Pama Management Company 94,078 0.39
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Cal State University San Bernardino 83,312 0.34 °
Top Ten Customers Total $2,002,995 6.54% c
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Source:Statistical Section(Unaudited)of the Department's Comprehensive Annual Financial Report for Fiscal Year 2014-15.
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Establishment of Sewer Service Charges a
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The primary sources of moneys deposited in the Sewer Fund are sewer service charges from the m
City, and from Loma Linda and the EVWD. The City sewer service billing is composed of a regional
treatment charge and a collection system charge. The Department bills and collects the total charge.
Local collection system charges are then transferred to the City's Public Works Department. The City 0
a
establishes a uniform regional treatment charge for all customers served by the WRP.The agencies served L
by contract pay the regional treatment costs by charging their customers the regional treatment charge and
remitting the total of such charges attributable to their customers to the City. Regional treatment charges to
to Loma Linda and EVWD are calculated by the partnering agency, remitted to the Department and upon 0
receipt confirmed by the Department based on volume of effluent and reported revenues.
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Rates and charges for sewage treatment are reviewed and changes recommended by the Board.
co
Rates are adopted by the Mayor and Common Council and are required by the City Charter to be 0
established in amounts sufficient to meet the obligations of the Sewer Fund.The Common Council,upon
recommendations from the Board, has the power and authority to establish charges for sewer service
without the review or approval of any other governmental body, to refuse or terminate sewer service to
delinquent customers, and to require full payment of delinquent amounts and reconnection fees to resume E
service.
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The Department has defined two categories of sewer customers—residential and
commercial/industrial. Residential customers are single-family residences, duplexes, or triplexes charged
on a unit basis. All other customers, including apartments, trailer courts, and commercial/industrial 0i
customers, are charged on the basis of flow and strength. The flow portion of charges to nonresidential !'
customers is based on water consumption as reflected by water meter readings for the billing period, and c
may be reduced for the purpose of establishing charges subject to seasonal or consumptive use approved °
by the Board.
r.
Sewer service charges to City utility customers are collected on a combined municipal utility bill
that also includes water rates and charges and storm drain fees. Bills are distributed on a bi-monthly basis
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for most customers and on a monthly basis for higher consumption residential, commercial and industrial
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' customers. Like sewer collection facilities, the Department has not to date had any obligation with
respect to stormwater facilities or capture.
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The Department completed a Sewer Treatment Rate Study on September 21, 2015 (the "Rate
Study") and the Common Council approved sewer rate increases on September 24, 2015. The
Department and City implemented a three-step increase in sewer treatment fees, rates and charges of
approximately 8.5% for implementation on October 1, 2015 and July 1, 2016,respectively; and 3.25%to
be effective on July 1, 2017. The Department's prior, most recent Sewer Treatment Rate Study was
completed in approximately 2010, and the Common Council last implemented a two-phase sewer
treatment adjustment in January 2012. L
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3
The Rate Study reviewed projected sewer treatment revenue requirements for the six-year study Cn
period for Fiscal Years 2015-16 through 2020-21; presented a schedule of sewer treatment rates effective
through the end of Fiscal Year 2017-18 for the Board and Common Council to consider in the first half of
ti
2015,and outlined potentially changing conditions with financial implications,with recommendations for
ongoing monitoring of these items. t°
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Additional local collection rates are also levied to cover costs of the sewage collection system;
such revenues are paid to the City's Public Works Department. The Sewer Enterprise does not include Q,
the City's collection system. The collection system charge is not part of Revenues or Net Revenues.
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The following table sets forth a schedule of current sewer rates charged,and to be charged, for all 0 co
residential,commercial,and industrial use.
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Table 6
City of San Bernardino Municipal Water Department
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Current Sewer Rate Schedule m
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Rates,Effective On: y
Customer Class 10/1/2015 7/1/2016 7/1/2017 Unit of Charge(l)
Monthly Charge(San Bernardino) m
Residential $20.65 $22.38 $23.10 $/Month/Account
Multi-Family(2 Units) 41.31 44.76 46.20 $/Month/Account m
Multi-Family(3 Units) 61.96 67.14 69.29 $/Month/Account
Multi-Family,Mobile Home Parks(4 or more 3.18 3.42 3.52 $/Month/Account 3
units)
Non-Residential 3.18 3.42 3.52 $/Month/Account to
Industrial 1.67 1.78 1.83 $/Month/Account
Monthly Charge(EVWD and Loma Linda)
Residential 19.18 20.85 21.55 $/Month/Account v
Multi-Family(2 Units) 38.37 41:72 43.10 $/Month/Account
Multi-Family(3 Units) 57.55 62.58 64.64 $/Month/Account c
Multi-Family,Mobile Home Parks(4 or more 1.71 1.90 1.97 $/Month/Account tt
units)
Non-Residential 3.18 3.42 3.52 $/Month/Account
CD
Industrial 0.20 0.26 0.28 $/Month/Account
Usage Charge(All Customers) rn
Multi-Family(4+Units),Mobile Home Parks 1.36 1.48 . 1.53 $/hcf
Retail,Commercial,Light Industrial 2.28 2.47 2.55 $/hcf 0
Auto Repair,Car Wash 1.41 1.53 1.58 $/hcf a)
Offices,Motels(without Restaurants) 1.63 1.77 1.83 $/hcf
Restaurants,Hotels 2.93 3.18 3.28 $/hcf
Laundromats 1.63 1.77 1.83 $/hcf CD
Hospitals,Convalescent Homes 1.46 1.58 1.63 $/hcf
Schools,Churches,Nursery Schools 1.19 1.29 1.33 $/hcf
Domestic Liquid Waste 0.043 0.047 0.049 $/gallon
Industrial N
Discharge Flow 977.00 1,060.00 1,094.00 $/MG c
Biochemical Oxygen Demand Charge 391.00 424.00 438.00 $/1,000 lbs
L
Suspended Solids Charge 694.00 753.00 778.00 $/1,000 lbs
c
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(1) $/hcf is per hundred cubic feet("hcf');$/MG is per millions of gallons of flow; $/1,000 LBS is calculated by weight in pounds of m
biochemical oxygen demand and suspended solids in wastewater.
Source:The Department. Cn
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The following is a summary of categories of sewer rates:
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2
Sewer Service Charges: Table 6 above shows the current sewer service charges and the total f6
charges by type of customer. Service charges account for virtually all of operating income and about 90%
total Sewer Fund revenues. .2
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The most recent sewer treatment rate schedules became effective on October 1, 2015 and July 1, of
2016. Further rate increases are approved with an effective date of July 1,2017. Currently, single-family M
residential customers and two- and three-unit multi-family customers within the City pay flat monthly c
service charges. In addition, all other non-industrial customers pay a usage charge that depends on the °
amount of metered water consumption.This usage charge depends on the type of customer. Rates for the LO
City's industrial customers are based on the amount of flow, biochemical oxygen demand ("BOD") and
total suspended solids("TSS")discharged.
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The key sources of sewer revenues other than sewer treatment rates are the following, which are
typically billed separately from service charges: _
0
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Connection Fees: Each application for a permit to connect any property to a public sewer is
required to be accompanied by a connection fee designated for construction and improvement of the
WRP,to provide additional capacity to meet increased demand,in an amount as described below.
0
Residential — for each single family house and for each dwelling unit in a duplex or
triplex,the current conection fee is$3,500 per unit. rn
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Multiple residential and non-residential — for multiple dwellings in excess of three
units,mobile home parks,motels,hotels and commercial, institutional and industrial connections,
and any other type of connection, currently the Department will estimate the amount of sewage
effluent resulting from the connection at a gallon per day basis, and will set the connection fee at
an amount equal to approximately$12.45 per gallon.
Sewer connection fees represent the cost of connecting (i.e. a residence) to the existing system. �°,
Sewer capacity fees (discussed immediately below) are charged when a property is deemed to cause the 0
need for additional capacity beyond the existing system. These fees are applicable to development within
the City, Loma Linda, and the EVWD service areas. These fees are based on the value of the capital m
facilities necessary to serve new customers and are established by the City and also implemented by
EVWD and Loma Linda. °
m
CD
Sewer Capacity Fees. These are one-time fees payable at the time of development or change in =
use that represent a proportionate share of the cost of sewer treatment capacity. Capacity fees are charged
when a property is deemed to cause the need for additional capacity beyond the existing system. Capacity
fee revenues dropped substantially during the economic downturn but have rebounded to some extent in 3
recent years. in
0
Brine Line Discharge and Permits. The Department receives fees in connection with its
operation of the Santa Ana Regional Interceptor("SARI") station, which is operated under an agreement
with the San Bernardino Valley Municipal Water District ("Valley District") for the discharge of brine
wastewater. m
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0
Septic Receiving Fees. The Department receives approximately $100,000 per year from septic m
customers that deliver sewage to the WRP.
m
Industrial Waste Income. The Department receives approximately $90,000 per year in industrial m
waste income.
m
Interest Income. The Department invests its capital and operating reserves and earns interest
income on these reserves.In Fiscal Year 2014-15,interest income was approximately$510,000. 0
i
Capital Grants. The Department aggressively P ursues grant funding for capital projects. Grant
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funding is competitive and is difficult to obtain. Historically, the Sewer Enterprise has utilized grant c
funding when possible for capital projects.
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Advance Rights. In 1984, the City adopted a resolution that provided for financing of additional
capacity in the WRP by advance sales of capacity rights to property owners for a limited time. The right is
a guarantee of sewer capacity and can be resold only through the City or applied towards the capacity fee E
at the time of connection. The City sold approximately 19,000 single-family equivalent dwelling units of U
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sewer capacity rights. Such sales were made for cash, term purchase agreements, or letters of credit.
Revenue from these sales have been used to fund growth-related capital projects. Any remaining funds o
are reflected in restricted asset accounts. m
a�
The projected Fiscal Year 2015-16 Sewer Enterprise revenues are less than the past couple of a
years. The average water consumption per single-family residential connection decreased from 21
hundred cubic feet("hcf')/month in 2013 to 16 hcf/month in 2015.
U
The following table sets forth a schedule of historic, current and pending sewer treatment rates ai
charged,and to be charged.
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Example Monthly Sewer Bill Comparison N
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The following table compares example monthly residential sewer bills with those for other local m
utilities. The comparison includes both sewer treatment, provided by the Department, and sewer
collection,currently provided by the City. This table shows that the Department's monthly sewer bill for
the average residential customer is lower than most neighboring agencies, subject to footnote 6,even after
Of
the approved rate increases of 8.5%, 8.5% and 3.5%, respectively, effective on October 1, 2015 and July a)
1,2016, and to be effective on July 1,2017. The table shows currently available information about sewer .2
rates that will be in effect as of later in 2015 and where known, includes in the table notes information
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about future rate increases that have already been adopted. This table separately identifies rates for sewer L
collection and treatment, as some but not all utilities have separate charges. It is important to note that 3
most of the neighboring sewer systems have either adopted rate increases that will take effect in the in
future,or are currently reviewing their sewer rates.
0
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Table 8 `r
City of San Bernardino Municipal Water Department `°
Monthly Single-Family Residential Bill Comparisons) 04
m
Utility Treatment Collection(2) Total a)
rn
San Bernardino(2) N
Effective 1011115 $20.65 $9.00 $29.65
c
Effective 7/1/16 22.38 9.45 31.83 0
m
Effective 7/1/17 23.10 9.92 33.02 m
Other Jurisdictions(') c
Rialto(3) N/A N/A 50.72 >
EVWD(4) 19.18 15.36 34.54
Riverside(5) N/A N/A 33.62
Colton(6) N/A N/A 33.00 3:
Loma Linda(4) 19.18 10.97 30.15 (n
Redlands N/A N/A 23.24 °c
Fontana() 14.39 7.37 21.76
Cucamonga Valley Water District(') 14.39 5.73 20.12
L
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(�) Rates effective as approved and effective as of 2015."N/A"means that treatment and collection rates are not broken m
out separately.
(Z) The Sewer Enterprise does not include the City's collection system. The collection system charge is not part of
Revenues or Net Revenues. +
(3) Rialto's rate increased to$60.19 in 2015.
(4) Includes the proposed Department sewer treatment rate increase effective in 2015 EVWD and Loma Linda's sewer N
collection rate was calculated by FG Solutions,LLC by subtracting the Department's sewer treatment charge from
the total charge. *'
(5) Riverside's rate will increase to$39.59 as of July 1,2017.
(6) Colton's rate will increase to$34.33 as of July 1,2017.
U
(7) Sewer treatment provided by Inland Empire Utilities Agency(IEUA).IEUA has adopted treatment rate increases to O
$15.89 effective 10/1/15,with gradual increases to $20 by Fiscal Year 2019-20. IEUA also collects property tax
revenues not shown in this table. The two utilities served by IEUA appear to have lower sewer treatment rates than ui
other utilities.However,not illustrated is the fact that IEUA collects property tax revenues in addition to user charge ry
revenues.For example,IEUA's Fiscal Year 2014-15 budget showed$62.8 million of user charge revenues and$40.1 c
million of property tax revenues. o
Source: The Department.
Ln
tD
I,-
Comparisons with other jurisdictions can be useful, but they do not in themselves explain why u
utility rates are set at the levels they are. Each utility is unique and has its own set of circumstances that E
influence rate setting. In particular, the following are not apparent from a monthly bill comparison: (i)
age of infrastructure and needed capital investments in order to maintain service and comply with
a
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regulatory mandates; (ii) the condition of the infrastructure and the extent to which a utility chooses to
fir✓ invest in repairs and replacements to its infrastructure; (iii)whether a utility is currently deferring capital c
investment and whether large capital expenditures loom in the future; (iv) how efficient a utility is in CO
providing service; and(v)whether rate increases are currently deferred or anticipated.
_
m
Billing and Collection Procedures d
CD
Sewer service charges to City utility customers are collected on a combined municipal utility bill
that also includes water rates and charges and storm drain fees. Like sewer collection facilities, the m
Department has not to date had any obligation with respect to stormwater facilities or capture.
a�
3
Bills are distributed on a bi-monthly basis for most customers and on a monthly basis for higher in
consumption residential, commercial and industrial customers. Accounts are deemed delinquent and
eligible for disconnect at 45 days following the billing cycle. The Department operates to minimize and
prevent delinquencies in customer payment of accounts. Current Department procedures include a
required minimum of a 2-month average bill security deposit for customers who do not pass a set credit
check, a reassessment of deposit and an additional deposit (equivalent to a 3-month average bill, or the N
maximum allowed by law, whichever is greater) upon disconnection of service for non-payment, limited
time given for payment extensions, the grant of extensions to Customer of Record only, scheduling
delinquent accounts for disconnection as soon as the account is eligible for disconnection, and placing
property liens on owner accounts unpaid balances, or upon receiving a notice of foreclosure. In the case
of closed accounts, current Department procedures include sending accounts to a collection agency C
m
promptly after 60 days in order to procure payment on unpaid balances and,in the more extreme cases,by CD
utilizing the California Interagency Intercept Collection (IIC) Program facilitated by the Franchise Tax =
Board that intercepts (offsets) income tax refunds when individuals have delinquent debts owed to >
government agencies and California colleges. Failure to receive a bill does not relieve a consumer of
liability for payment. Unpaid bills shall be considered a debt to the City. Any person, firm or corporation 3
failing or refusing to pay such indebtedness shall be liable to an action on the part of the City, for the in
collection of all unpaid charges. o
_
The following table sets forth information related to accounts receivable and number of shut-offs.
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Table 9 N
City of San Bernardino Municipal Water Department
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0
Sewer Customer Accounts Receivable and Shut-Offs By Fiscal Year m
Fiscal Years 2010-11 through 2014-15
(Unaudited)
m
2010-11 2011-12 2012-13 2013-14 2014-15
U
Number of Accounts 62,933 62,956 63,309 62,714 63,377
Sewer Revenue(l) $23,433,833 $25,888,729 $26,414,654 $25,670,774 $24,734,425 �
Accounts Receivable $5,681,248 $6,612,142 $7,041,416 $7,627,361 $6,365,070
Accounts Receivable Over 120 Days(2) $226,648 $217,147 $194,994 $156,940 $148,998 3
%of Total Sewer Revenues(3) 0.6% 0.5% 0.5% 0.4% 0.4% Cn
Number of Shut-Offs(4) 4,505 4,802 4,834 4,241 4,141
am
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(ll Audited.
izl Amounts are as of June 30 and represent the receivable portion of billed customer accounts as of the end of each Fiscal Year.
tG
X31 Percentage of Accounts Receivable over 120 days as compared to Total Sewer Revenues. `-
0
(4) Shut-Offs for non-payment may include multiple shut-offs associated with the same account throughout the Fiscal Year. N
N
Sources: The Department's Comprehensive Annual Financial Reports for the indicated Fiscal Years 2010-11 through 2014-15 with respect to d
"Sewer Revenue." The Department,for all other line items.
Source:The Department.
N
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Basis of Budget and Accounting o0
m
The Department reports its activities as enterprise funds,which are used to account for operations m
that are financed and operated in a manner similar to a private business enterprise,where the intent of the a'D
Department is that the costs (including depreciation) of providing goods or services to the general public
on a continuing basis be financed or recovered primarily through user charges. Operating revenues and
expenses are recognized on the accrual basis. Operating revenues are recognized in the accounting period
in which they are earned, and expenses are recognized in the period incurred, regardless of when the o
related revenues are received.
v
L
The Department's Sewer Utility Enterprise Fund (the Sewer Fund herein) is used to account for
the operations of the Sewer Enterprise and related revenues and expenses. The budget process generally m
follows this outline. in
July-August Planning: Evaluate previous budget year processes; Discuss improvements,
Plan for necessary process revisions; E
E
m
September-December Preparation: Create calendar with budget process deadlines; Create salary in
assumptions memo including CPI, Ca1PERS, and estimated merit increases; 7a
Update section organization charts and personnel worksheets with current
personnel; Populate prior year actual expenses, current budget, and projected p�
expenses; u,
M
January-February Focus: Distribute budget packets; Staff to update current year projections and c
proposed budget amounts;Review proposed capital projects;
Ln
March-May Assembly and Workshops: Return completed worksheets by calendar
deadlines; Compile and audit submitted budget information; Division
director's review; Make adjustments and recommendations; General =
Manager review of completed budget with staff;
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June Final Sten: Presentation to the Board; Discussion, adoption, and execution of
approved budget.
0
m
The Department has an established policy to allow for amendments to its operating and capital 3
improvement budgets to accommodate the acceptance of federal, state, or local grants, revisions to
currently funded programs or other revisions as approved by the General Manager and/or the Board.
0
Capital improvement amendments for projects previously approved by the Board may be
approved by the General Manager provided they do not increase the overall capital budget for the Sewer
Enterprise. In the event the priority of an optional project rises to a level requiring funding, the General
Manager has authority to reallocate its funds from another project within the same funding group. 3
m
W
Table 12 sets forth a summary statement of the amended Sewer Fund budgets for Fiscal Years
2014-15 through 2016-17. The Department's Sewer Fund budget for Fiscal Year 2016-17 was adopted
on June 21,2016.
Investment of Funds c°•i
m
In order to provide for the safety of the liquid assets within the Sewer Fund, the Department has
co
established a bank account and investment portfolio within the City treasury as required by the City
Charter. Representatives of the City Treasurer's office and the Department are signatories to these
accounts. The City Charter specifically grants to the Board the power to control and order the m
expenditure of these funds and limits the withdrawal of these funds for the payment of demands
authenticated by the Board. See Note 3 in APPENDIX B — "COMPREHENSIVE ANNUAL .
FINANCIAL REPORT OF THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
As provided in the Installment Purchase Agreement, all moneys held by the City in the Sewer 3
Fund shall be invested in Qualified Investments and the investment earnings thereon shall remain on a)
deposit in such fund, except as otherwise provided therein. See APPENDIX C — "SUMMARY OF n
PRINCIPAL LEGAL DOCUMENTS—INSTALLMENT PURCHASE AGREEMENT."
L
Reserve Policy; Sewer Fund
m
m
The Department's financial plan for the Sewer Enterprise includes the establishment of reserve
funds in accordance with the Department's adopted Reserve Policy. Reserve funds are established to m
ensure financial stability and to have sufficient funding available to meet the operating, capital and debt =
service cost obligations of the Sewer Fund. The Department has committed to the following funds in its m
E
Reserve Policy,adopted by the Board in February 2013. 0
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N
• Operating Reserve: The purpose of this reserve is to ensure adequate cash flow is R
available to meet day-to-day expenses. Funding is derived from Current Revenues and '2
budget transfers. The target balance is 45 days of the operating expenses budgeted for the p
Sewer Fund. As of June 30, 2016, $2,647,959 was on deposit in this reserve, which is !
approximately 12.3% of budgeted operating expenses under the Department's Sewer r,
Fund budget for Fiscal Year 2016-17. c
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• Rate Stabilization Reserve: The purpose of this reserve is to offset revenue risk associated
with low service demand years. Should Current Revenues not be sufficient to fund '
r
expenses, this reserve normalizes revenues without the need to immediately increase
rates. Should revenues exceed expenses, this reserve is replenished. Staff shall identify s
cost reduction areas to reduce expenses before use of this reserve. Funding is derived
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from Current Revenues or transfers from other reserves as authorized by the Board. The
minimum target balance for the Sewer Fund is 10% of annual sewer revenue. As of June c
30, 2016, $2,708,073 was on deposit in this reserve. Upon the delivery of the 2016 m
Bonds, the City will transfer such amount to the Sewer Rate Stabilization Fund 3
established under the Installment Purchase Agreement. See "SECURITY AND
SOURCES OF PAYMENT FOR THE 2016 BONDS—Sewer Rate Stabilization Fund."
• Emergency Replacement Reserve: The purpose of this reserve is to minimize the impact
of unforeseen capital asset and operating expenses. Use of these funds is limited to N
significant capital asset acquisitions, repairs and improvements, and emergency operating L
costs. The target balance of this reserve is 3% of the total recorded value of Sewer
Enterprise capital assets as of the previous fiscal year. The Board shall have authority cn
over the use of these funds. In the event of an emergency, the General Manager shall Q;
have authority over the use of these funds but is required to report the emergency
expenditures to the Board at the next regularly scheduled meeting of the Board following
the emergency event. As of June 30,2016, $4,714,582 was on deposit in this reserve.
0
N
• Capital Replacement Reserve: The purpose of this reserve is to provide funding in
support of the capital program for the Sewer Enterprise. Funding originates from Current
Cn
Revenues. The target balance is assessed on an annual basis as part of the budgeting
process to adjust for emerging capital needs. The use of these funds is approved as part of
the annual budgeting process. The Board may also authorize transfers and use of these m
funds on an as-needed basis. As of June 30, 2016, $7,730,401 was on deposit in this CD
reserve. The Adopted Fiscal Year 2016-17 Budget includes the expenditure of
$6,121,072 and targets$2,835,000 for deposit in this fund. '
Q
• Unrestricted Fund Balance. There is no minimum balance established for Unrestricted
3
Funds, but the Department to keep this balance above $0. As of June 30, 2015,
Cn
$10,635,783 was on deposit with the Department as undesignated reserves of the Sewer °c
Fund. =a
L
From time to time, the Department may have other externally restricted reserves, such as the
Common Reserve Account for the 2016 Bonds, funded according to the agreements imposing such
restrictions. No amounts set aside for these restricted reserves shall be available for designation to other in
reserves,and amounts shall be used only in accordance with their permitted use.
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C
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See APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE m
DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
U)
Capital Improvement Plan R
.2
The Department completed its 5-Year Sewer Fund Capital Improvement Program (the "Sewer O�
Enterprise CIP") for the Sewer Enterprise serves as the basis for a long term financial plan. The
Department has routinely updated its Sewer Enterprise CIP as part of its budget process and rate studies. M
0
0
The Sewer Enterprise CIP is established to address current and future system needs in a cost
effective manner. Components of the current Sewer Enterprise Master Plan have been adopted into the
current Sewer Enterprise CIP. See"PLAN OF FINANCE"herein. The following table shows categories
of projects with the estimated cost of expenditures in the Sewer Enterprise CIP for the period of Fiscal
Years 2016-17 through 2020-21. Final Sewer Enterprise CIP project costs will be refined as the Sewer t
U
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Enterprise CIP progresses. The budget for each project and program is established and approved by the
Board. See"Basis of Budget and Accounting"above.
0
m
The projected capital improvements represent a larger annual expenditure than what the
Department historically has executed. Department staff anticipate that two additional engineering staff are
needed to deliver the projects that constitute the Sewer Enterprise CIP. Finally, an annual capital
expenditure for equipment and capitalized labor is included.
U
The following table sets forth categories of projects with the estimated cost of expenditures in the
Sewer Enterprise CIP for the period of Fiscal Years 2016-17 through 2020-21. The projections for these N
projects over this period require annual expenditures of approximately $4 million to $37 million, with
total expenditures for the period shown of approximately$67 million. n
rn
Table 10 °
City of San Bernardino Municipal Water Department
Projected Sewer Enterprise Capital Improvements(')
N
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
a)
Capital Expenditure Category 2016-17 2017-18 2018-19 2019-20 2020-21 Total
Replacement/Rehabilitation $ 3,620,000 $ 3,884,500 $1,280,875 $ 601,500 $ 863,750 $10,250,625
New System Assets 3,375,000 12,082,000 4,585,000 570,000 2,910,000 23,522,000 0
Clean Water Factory(Ph 1-3)(2) 2,000,000 18,250,000 -- -- -- 20,250,000 m
RIX—New System Assets 24,000 -- -- -- 24,000 48,000 a)
RIX—Facilities Rehabilitation 308,000 391,200 397,600 250,400 -- 1,347,200 0
Plus Engineering Staff 300,000 300,000 300,000 300,000 300,000 1,500,000 >
Plus Overhead 443,040 452,340 461,840 471,540 481,440 2,310,200
Plus Capitalized Labor(3)(4) 1,558,660 1,591,390 1,624,810 1,658,930 1,693,770 8,127,560 i-
Total $11,628,700 $36,951,430 $8,650,125 $3,852,370 $6,272,960 $67,355,585
()) Excludes projects expected to be funded with proceeds of the 2016 Bonds(see"PLAN OF FINANCE"and"ESTIMATED SOURCES 0
AND USES OF FUNDS")and projects and amounts to be funded by non-Department agencies or developers. Capital Expenditures
projected include inflation adjusted dollars at an inflation rate of 2.1%per year.
(2) Clean Water Factory Phases 4-8(full scale design and construction)is not included in this table. See"Clean Water Factory"below and i
"RISK FACTORS—Clean Water Factory." a
(3) m
These costs are excluded from Operation and Maintenance Costs shown in Table 14 and included as capital expenses in this table;based on C
Fiscal Year 2014-15 budget including inflation adjusted dollars at an inflation rate of 2.1%per year. cc
(4) Capital costs that are paid from the Department's operating budget.
Source:The Department. C
N
Not included in the Sewer Enterprise CIP projections are Department projects that are funded by 0)
outside agencies or that are funded by developers, since these capital projects are not expected to affect to
U)
sewer treatment rates. _
U
The Sewer Enterprise CIP assumes Fiscal Year 2015-16 dollars, and projected costs include an
annual inflation rate of 2.1% due to anticipated increases in construction costs over time and the expected
execution of the Sewer Enterprise CIP.
CDr
0
The Sewer Enterprise CIP is expected to be funded with various funding sources available to the
City. See"Anticipated Additional Obligations;Financing Plan for the Sewer Enterprise CIP"below. LO
ti
Replacement/Rehabilitation of System Assets and New System Assets both refer to improvements aaai
at the WRP. Similarly, improvements at the RIX facility are categorized as either New System Assets or E
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Facilities Rehabilitation. RIX costs are limited to the Department's 80% share of the total RIX project
cost.The remaining 20%is covered by the City of Colton and is not included in the projections herein. o
m
Clean Water Factory. Southern California is facing an unprecedented water crisis. This crisis 3
j stems from the effects of climate change, continuing population growth, severe drought in the Colorado
River Basin, the threat of failing levees, and endangered species issues in the Bay Delta. The
Department's primary source of groundwater, the Bunker Hill Groundwater Basin is not an unlimited
supply of water, and in the past few years during time of extreme drought,basin groundwater levels have
dropped to historic lows, and overall basin levels are trending down. These conditions are severely
Cn
testing the region's ability to provide clean water, both now and in the future. In its recent Recycled
Water Policy statement,the SWRCB encouraged local and regional water agencies to move toward local 3
water sustainability by emphasizing water recycling,water conservation,improved maintenance of supply
infrastructure and the capture and use of storm water and dry-weather urban runoff. A principal a;
component of the current Sewer Enterprise CIP is the proposed Clean Water Factory project. The project °
is designed to establish a reliable, sustainable source of clean water. The project was not feasible until
after 2000,due to high groundwater in the Bunker Hill Basin and the prohibitive costs of reverse osmosis. `°
0
N
The Clean Water Factory is a 20-year program that will involve the planning, design, and
construction of new advanced water treatment facilities, wastewater treatment facilities, pump stations,
transmission lines and pipelines. The Department has designed the Clean Water Factory project to treat
N
effluent from the WRP to a quality approved for recharge, and to convey the recycled water to the
Waterman Basins,the East Twin Creek Spreading Grounds,and the Devil Canyon and Sweetwater Basins 0
m
for surface spreading in the northern portion of the Service Area. The Department expects that the Clean
Water Factory will treat a side stream of WRP effluent to a quality approved for direct non-potable use
and convey the tertiary treated recycled water to customers that can benefit from a non-potable water m
supply. The Clean Water Factory project also includes property and easement acquisition, discretionary
permitting, financing, facility startup, testing, operation and maintenance of new facilities, significant 3
public education and community engagement.
m
0
Projects associated with Phases 1 — 3 of the Department's Clean Water Factory are shown in E
Table 10. Not included in Table 10 are Phase 1 costs to be funded with a portion of the proceeds of
Series 2016 Bonds in the amount $13,500,000. These initial phases include preliminary engineering, F
pilot testing of the advanced purification pilot plant, and design/construction of the related tertiary m
treatment facilities. As projected herein,the expenditures for the Clean Water Factory attributable to the
Sewer Fund represent the single largest component, approximately $20.3 million, or 30% of the overall ,
Sewer Enterprise CIP for Fiscal Years 2016-17 through 2020-21. Clean Water Factory expenditures d
following Fiscal Year 2017-18 [total an additional approximately $200 through Fiscal Year 2024-25], E
resulting in approximately$115 million in projected Clean Water Factory expenditures through 2034-35.
See "RISK FACTORS —Clean Water Factory." Phases 4 - 8 (design and construction of the full-scale Cn
facility)is not yet included in Sewer Enterprise CIP projections or rate projections herein.
Water reuse is proven, safe, reliable, and is currently in use in other communities in the United Oi
States and around the world. The Clean Water Factory is a significant water and wastewater capital LO
improvement program that is expected, upon full implementation, to create [up to 20,000 acre-feet] of
locally controlled water by the end of calendar year 2035. See "Anticipated Additional Obligations; c
Financing Plan for the Sewer Enterprise CIP"above and"RISK FACTORS—Clean Water Factory." ti
LO
Sewer service charges for Fiscal Year 2020-21 and beyond are not part of the 2016 Rate Case.
Clean Water Factory expenditures for the Sewer Fund are rate dependent.The Department anticipates that m
additional increases will be necessary after Fiscal Year 2019-20. The Department expects to perform cost r
of service analysis to prepare a new rate case for recommended rate adjustments for the Sewer Fund to
V
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address future capital program costs, operation and maintenance expenditures, and Clean Water Factory
capital expenditures. See"RISK FACTORS—Clean Water Factory." _
0
m
Anticipated Additional Obligations;Financing Plan for the Sewer Enterprise CIP
0
m
The Sewer Enterprise CIP includes the costs described in Table 10 above. The Department
aggressively pursues grant funding for capital projects and has utilized grant funding when possible for U
capital projects. In addition, the Department anticipates issuing debt to fund much of the Sewer
Enterprise CIP. In general, debt issuances will be sized and timed to fund the Sewer Enterprise CIP,
co
minimize rate increases, and meet reserve requirements as necessary. For the Clean Water Factory
project, the Department expects to use a combination of debt, and State grants and loans to complete the 3
project. cn
The Department currently anticipates that debt proceeds would fund approximately _% of the
estimated capital project costs through Fiscal Year 2020-21. Debt service payments would be paid
through rate revenue and other non-rate revenues. Additional Obligations may include additional loans
from CIEDB,the State Water Resources Control Board("SWRCB"),and other direct loans,the payments N
with respect to which are expected to be on parity in right of payment to the City's obligation to make
2016 Purchase Payments. The remaining portion of the current Sewer Enterprise CIP is expected to be
funded with federal and State grants (approximately _%) and pay-go funding (approximately _%). N
Pursuant to the Installment Purchase Agreement, the City may incur additional Obligations, payments
with respect to which will be on parity with the City's obligation to make 2016 Purchase Payments, 0
subject to satisfaction of the conditions specified in the Installment Purchase Agreement. CD
I �
See "SECURITY AND SOURCES OF PAYMENT FOR THE 2016 BONDS — Issuance of d
Additional Obligations Under the Installment Purchase Agreement."
3
Environmental Compliance in
0
The projects in the Sewer Enterprise CIP are generally subject to the California Environmental _
Quality Act, as amended (Division 13 of the California Public Resources Code) ("CEQA"). Under
CEQA,a project which may have a significant effect on the environment and which is to be carried out or
approved by a public agency must comply with a comprehensive environmental review process. m
_
0
As part of its regular planning and budgetary process, the City prepares separate environmental Cn
documents for each Sewer Enterprise CIP project and evaluates the project under the City's
environmental impact review procedures, which were developed in compliance with federal and State m
E
laws and local regulations. The Department performs and completes CEQA review and analysis for a)
Sewer Enterprise CIP projects as and when required. M Cn
Except for the Clean Water Factory project, the Sewer Enterprise CIP involves replacement, .2
upgrading and increasing capacity of existing facilities. There are no current or anticipated environmental p
considerations that would adversely affect the completion of the Sewer Enterprise CIP within the
contemplated budget or current timeline. M
0
0
Historic Operating Results T_
m
The following table shows the Sewer Fund's statements of revenues, expenses, and changes in
fund net position for Fiscal Years 2011-12 through 2014-15, excerpted from the Department's audited
financial statements,and Fiscal Year 2015-16,unaudited. E
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• Table 11 N
City of San Bernardino Municipal Water Department
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0
Statements of Revenues,Expenses,and Changes in Fund Net Position m
For the Sewer Fund
Fiscal Years 2011-12 through 2014-15 Audited and 2015-16 Unaudited
a�
Projected
2011-12 2012-13 2013-14 2014-15 2015-16 L)
OPERATING REVENUES:
Charges for Services(') $ 24,250,417 $ 25,261,792 $ 25,350,989 $24,399,415 $25,000,000 to
Other Operating Revenues 1,638,312 1,152,861 319,785 335,010 350,000
TOTAL OPERATING REVENUES 25,888,729 26,414,653 25,670,774 24,734,425 25,350,000
OPERATING EXPENSES: to
Administration and Customer Service 2,754,625 2,387,122 2,671,438
Utility Administration 1,598,854 1,653,263 449,769 638,613 945,804 c
Plant Operations 9,770,245 9,448,306 8,907,163 8,697,724 9,660,541
Maintenance 3,257,127 3,392,868 3,146,275 2,906,853 3,312,317 �-
Environmental Control 557,828 592,589 621,055 594,777 632,254 W
Distribution
Engineering -- 527,294 534,226 404,549 N
General,Administration and Overhead 2,224,773 2,801,450 2,141,332 990,463 922,147 m
4,645,127 4,408,721 3,426,515 2,870,550 2,800,000 `-
i Depreciation and Amortization CD
TOTAL OPERATING EXPENSES 22,053,954 22,297,197 21,974,028 19,620,328 21,349,050
OPERATING INCOME(LOSS) 3,834,775 4,117,456 3,696,746 5,114,097 4,000,950
NONOPERATING REVENUES(EXPENSES): 0
0
Investment Income 812,885 340,689 443,836 481,211 866,214 m
a>
Rental Income 21,907 22,574 20,669 700 45,000 �
Noncapital Grant Funds -- - -
Gain(Loss)on Asset Disposition (31,114) (11,644) (16,244) -- - j
Gain(Loss)on Joint Venture-RIX -- (1,222,459) 345,884 350,000 m
Interest Expense and Fiscal Charges (1,147,810) (828,129) (557,049) (227,165) (300,000)
Amortization of Issuance Costs (28,528) (94,188) -
CD
Other (89,523) (59,992) 202,078 498,247 335,000 (D
TOTAL-NON OPERATING REVENUES 0
(EXPENSES) (462,183) (630,690) (1,129,169) 1,098,877 1,296,214
NET INCOME(LOSS)BEFORE CAPITAL v
CONTRIBUTIONS 3,372,592 3,486,766 2,567,577 6,212,974 5,297,164
CAPITAL CONTRIBUTIONS: -
Acquisition Fees m
(' Capacity Fees 196,375 1,065,443 814,325 938,131 1,300,000 =
EPA Grants
Other Capital Restricted Fees 474,836 409,957 174,851 134,710 N
TOTAL CAPITAL CONTRIBUTIONS 671,211 1,475,400 989,176 1,072,841 1,300,000 C
CHANGE IN NET POSITION 4,043,803 4,962,166 3,556,753 7,285,815 6,597,164 E
Net Position,Beginning of Year 100,089,728 101,662,841 101,621,707 84,101,171 91,386,986 y
Prior Period Adjustment(See Note 15)(�) (2,470,690) 1,670,848 M
Net Position,End of Year $101,662,841 $108,295,855 $105,178,460 $91,386,986 $97,984,150 to
U
(1) The 2014-15 and projected Fiscal Year 2015-16 Charges for Services are less than previous amounts. Such results were considered as part of theme
Department's recent rate study. 0
(2) During the year the Department implemented GASB 68 resulting in recording a net pension liability and deferred outflow of resources as a prior
period adjustment. See Note 15 in Appendix B.
Source:The Department's Comprehensive Annual Financial Reports for Fiscal Years 2011-12 through 2014-15. The Department for Fiscal Year 2015-
16(unaudited). For Fiscal Year 2014-15 see APPENDIX B-"COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DEPARTMENT FOR c
CD
THE FISCAL YEAR ENDED JUNE 30,2015." This statement is a summary statement only.The complete Comprehensive Annual Financial Report of
the Department,including the Notes to the Financial Statements therein,is an integral part of this statement. n LO
Accompanying the Independent Auditor's Report in Appendix B is the Department's
Management Discussion and Analysis,which is not audited,but is supplementary information required by _
the Government Accounting Standards Board. The Management Discussion and Analysis presents a
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summary and overview of the Department's financial condition. Such Management Discussion and
Analysis should be reviewed in conjunction with the information presented below to obtain an o
understanding of the Department's financial condition. See, also, "Management's Discussion and m
Analysis"below.
a�
The following table shows the Sewer Fund budgets for Fiscal Years 2014-15 through 2016-17, a�
actual results for Fiscal Year 2014-15 and projected results for Fiscal Year 2015-16. In each year, the
Department controlled spending and delayed some hiring because of expected declines in revenue.
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' Table 12 N
City of San Bernardino Municipal Water Department
0
Sewer Fund Budgets Fiscal Years 2014-15 through 2016-17, m
Actual Results for Fiscal Year 2014-15 and Projected Results for Fiscal Year 2015-16
_
a�
Fiscal Year Fiscal Year Fiscal Year Fiscal Year >
2014-15 Fiscal Year 2015-16 2015-16 2016-17
Budget 2014-15 Budget Projected Budget
U
(Amended) Actual (Amended) Actual (Original) •2
L
OPERATING REVENUES:
Charges for Services $27,743,000 $24,399,415 $26,792,731 $25,000,000 $30,626,880
Other Operating Revenues 280,000 335,010 288,000 335,010 288,000
TOTAL OPERATING REVENUES 28,023,000 24,734,425 27,080,731 25,350,000 30,914,880
OPERATING EXPENSES:
Administration and Customer Service 2,704,669 2,387,122 2,771,148 2,671,438 2,729,974 c
Utility Administration 912,409 638,613 929,482 945,804 1,001,835
Plant Operations 9,802,253 8,697,724 9,763,244 9,660,541 11,097,227
Maintenance 3,646,725 2,906,853 3,774,469 3,312,317 3,864,489 m
Environmental Control 659,500 594,777 613,859 632,254 673,739 c
Engineering and Water Quality Control 581,262 534,226 599,088 404,549 543,277 N
j General,Administration and Overhead 3,281,600 990,463 3,026,600 922,147 2,636,200 N
a)
Depreciation and Amortization 4,500,000 2,870,550 4,500,000 2,800,000 4,500,000
TOTAL OPERATING EXPENSES 26,088,418 19,620,328 25,977,890 21,349,050 27,046,741 tR
OPERATING INCOME(LOSS) 1,934,582 5,114,097 1,102,841 4,000,950 3,868,139
NONOPERATING REVENUES(EXPENSES): 0
Investment Income 510,000 481,211 510,000 866,214 510,000 M
Rental Income 23,000 700 23,000 45,000 23,000 3
Noncapital Grant Funds -- -- -- -- _
Gain(Loss)on Asset Disposition - -- - -- j
Gain(Loss)on Joint Venture-RIX 345,884 350,000
Interest Expense and Fiscal Charges (600,887) (227,165) (635,196) (300,000) (4,000)
Other - 498,247 335,000 -- 3
TOTAL NON OPERATING REVENUES a)
(EXPENSES) (67,887) 1,098,877 (102,196) 1,296,214 529,000 to
NET INCOME(LOSS)BEFORE CAPITAL o
1,866,695 6,212,974 1,000,645 5,297,164 4,397,139
CONTRIBUTIONS �
CAPITAL CONTRIBUTIONS: cLa
Acquisition Fees -- - - -
Capacity fees 700,000 938,131 700,000 1,300,000 700,000 CD
00
EPA Grants - -
Other Capital Restricted Fees 588,500 134,710 588,500 -- 588,500
TOTAL CAPITAL CONTRIBUTIONS 1,288,500 1,072,841 1,288,500 1,300,000 1,288,500 ,
CHANGE IN NET POSITION 3,155,195 7,285,815 2,289,145 6,597,164 5,685,639 c
Net Position,Beginning of year 84,101,171 84,101,171 91,386,986 91,386,986 93,676,131 E
Net Position,End of Year $87,256,366 $91,386,986 $93,676,131 $97,984,150 $99,361,770 W
to
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,
Source:The Department.
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The following table shows the operating revenues and expenses and debt service coverage of the o
Sewer Fund for Fiscal Years 2011-12 through 2015-16. 1
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Financial Projections
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Table 15 sets forth the Department's projected Revenues, Maintenance and Operation Costs,Net m
Revenues, debt service and debt service coverage of the Sewer Enterprise for the Fiscal Years 2016-17
through 2020-21 and includes the approved rate increases of 8.5%, 8.5%and 3.5%,respectively, effective
on October 1,2015 and July 1,2016,and to be effective on July 1,2017.The projections are based on the
assumptions described in the footnotes to the table. m
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The financial forecast represents the Department's estimate of projected financial results based ai
upon its judgment of the probable occurrence of future events. The assumptions set forth in the following N
paragraphs and in the footnotes to Table 15 are material in the development of the Department's financial 3
projections,and variations in the assumptions may produce substantially different financial results.Actual in
operating results achieved during the projection period may vary from those presented in the forecast and
such variations may be material.
The Department has determined the following factors to be relevant to its projections and °
assumptions with respect to sewer service charges and revenues: °
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to
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• Customer growth. Financial projections assume 1.0% annual customer growth through
Fiscal Year 2020-21. Customer growth increases the size of the customer base and growth rates co
exceeding 1.0% per year will result in higher connection fee revenue and rate revenues. Conversely,
customer growth less than 1.0%per year could result in lower revenues than projected. 0
• Capital project cost certainty. The Sewer Enterprise CIP contains estimates of future
project costs. The actual costs will not be known until the projects are designed,bid,and built. m
" Inflation rates. The projected rates are based on a 2.1%annual inflation rate. Changes in
inflation rates will have financial implications. N
0
• Interest rates. Interest rates that differ from assumptions will have financial implications.
The interest rate assumption in these projections for investment income is 1% based on recent historical
L
and projected performance.
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Table 14
City of San Bernardino Municipal Water Department
0
Projected Net Revenues and Debt Service Coverage m
Fiscal Years 2015-16 through 2019-20
(Unaudited)
w
Fiscal Year
m
2015-16 Fiscal Year Fiscal Year Fiscal Year Fiscal Year v
Year-End 2016-17 2017-18 2018-19 2019-20 s'
DESCRIPTION Estimate Projected Projected Projected Projected
L
Revenues as
Operating Revenues(l) $25,350,000 $30,914,880 $32,294,620 $33,713,030 $34,047,280
Interest Income on Operating Funds 866,214 750,000 750,000 750,000 750,000 Cn
Other Non-Operating Revenues 430,000 25,000 25,000 25,000 25,000
Capacity Fee Revenue(2) 1,300,000 1,000,000 1,000,000 1,000,000 1,000,000 h
Total System Revenues 27,946,214 32,689,880 34,069,620 35,488,030 35,822,280 v
Operation and Maintenance Costs(3) N
Enterprise Expenses(3) 21,349,050 26,277,560 26,889,550 27,511,140 28,149,150
Total Operation and Maintenance Costs 21,349,050 26,277,560 39,018,135 27,511,140 28,149,150 m
Net Revenues 6,597,164 6,412,320 7,180,070 7,976,890 7,673,130
N
Debt Service(4) o
co
Debt Service Coverage14l
c
(1) Assumes the rates which became effective on October 1,2015 and the recently approved increases of 8.5%and 3.5%,respectively,effective
on July 1,2016,and to be effective on July 1,2017. Sewer service charges for Fiscal Year 2020-21 and beyond are not part of the 2016 Rate
Case.The Department anticipates that additional increases will be necessary after Fiscal Year 2019-20 and expects to perform cost of service L
analysis to prepare a new rate case for recommended rate adjustments for the Sewer Fund to address future capital program costs,operation and
maintenance expenditures,and Clean Water.Factory capital expenditures. See"Capital Improvement Plan—Clean Water Factory."Above and
"RISK FACTORS—Clean Water Factory."
(2) One-time fees payable at the time of development that represent a proportionate share of the cost of sewer treatment capacity.Capacity Fee 0
revenues dropped substantially during the economic downturn but have rebounded to some extent in recent years.
(3) Calculated in accordance with the Installment Purchase Agreement. Operation and Maintenance Costs exclude depreciation and
amortization. Non-Operating Expenses of"Gain/Loss on Asset Disposition"and"Interest Expense and Fiscal Charges"are not included.
The Department expects for the next three years to make similar contributions to fund the annual normal and actuarial CaIPERS and OPEB
costs as described below under the captions"Employees'Retirement Benefits"and"Other Post-Employment Healthcare Benefits." m
(4) Assumes debt service on the 2016 Bonds;preliminary,subject to change.
Source:The Department. t%
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Management's Discussion and Analysis m
M
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The Department completed a Sewer Treatment Rate Study on September 21, 2015, and the
Common Council approved sewer rate increases on September 24, 2015. The Department and City
implemented a three-step increase in sewer treatment fees, rates and charges of approximately 8.5% for p
implementation on October 1,2015 and July 1 2016 respectively;and 3.25%on July 1,2017.
u,
M
Actual operating revenues projected for Fiscal Year 2015-16 are anticipated to be less than c
projected in the Fiscal Year 2015-16 adopted budget. The Department completed a Sewer Treatment
Rate Study on September 21, 2015, and the Common Council approved sewer rate increases on is
September 24,2015. The Department and City implemented a three-step increase in sewer treatment fees, ~
u
rates and charges of approximately 8.5%, implemented on October 1,2015 and July 1,2016,respectively;
and 3.25%on July 1,2017. E
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During Fiscal Year 2014-15, total revenues for the Sewer Enterprise decreased by less than 1%
from the prior year,while total expenses decreased almost 17%during the same time period. Total capital o
assets increased by $8.6 million in Fiscal Year 2014-15,with approximately$6.1 million in construction m
in progress completed and placed in service.The Sewer Enterprise net position decreased$10.3 million to
$91,387 million in Fiscal Year 2014-15. The primary cause of this decrease was a prior period adjustment
of $21.1 million due to the implementation of new pension reporting standards related to the
Department's pension obligations.The net investment in capital assets increased$18.3 million,due to the a)
completion of several long-term capital projects within the period.
a�
Coverage for the Sewer Fund was 1.16x as of June 30, 2014, and 1.75x as of June 30, 2015.
Coverage levels in Table 13 reflect actual previous rate adjustments. Prior to the rate adjustment effective 3
in October, 2015, and July 2016, the Common Council last implemented a two-phase sewer treatment in
adjustment in January 2012. a)
0
ti
The Service Area's local economy has been affected by the recent recession, both to a greater 7
extent and for a longer period than surrounding cities. This has affected the Department as increased
residential and commercial vacancies have led to a declining customer base. However, as the local real N
estate and employment markets improve, this customer base should begin to recover. The City's
unemployment rate is currently 6.6%, down from 7.8% in the prior year. Local economists also project
continued improvement in the labor market and are forecasting that the region's unemployment rate will y
drop to 6.1% by the end of 2020. The economic outlook for the Service Area looks promising, as the
economy is improving regionally which will translate into improved economic conditions for Department m
customers within the Service Area. aD
c
See APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE
DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
'✓ m
Outstanding Indebtedness
0
As of the date of issuance of the 2016 Bonds, the only long-term indebtedness secured by Net E
Revenues will be the 2016 Purchase Payments relating to the 2016 Bonds and a loan from the San Valley
L
District of $1.2 million for the Department's UV System Rehabilitation Project, which matures on
November 1, 2019 and is payable in four equal installments of $300,000. This loan is an unsecured m
obligation payable from the Sewer Fund.
See APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE
DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015." E
The City has no general obligation bonds outstanding with respect to the Sewer Fund, no plans
for such indebtedness,and no plans to obtain authorization from the voters to issue such indebtedness.
2
Employees' Retirement Benefits p
i
General The City contributes to the State of California Public Employees' Retirement System M
("CaIPERS"), which acts as a common investment and administrative agent for cities in the State. c
CaIPERS provides retirement and disability benefits, annual cost-of living adjustments,and death benefits
to plan members and beneficiaries. Benefit provisions and all other requirements are established by state Ln
statute and the terms of current memoranda or agreements with City employee associations. Copies of r'
CaIPERS annual financial report may be obtained from their executive office: 400 P Street, Sacramento,
CA, 95814 or on their website: www.calpers.ca.gov. The information on such website is not incorporated E
herein by such reference or otherwise.
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The Department is part of the City's CalPERS Miscellaneous Plan, therefore all related
information included in this Official Statement and in Note 7 in APPENDIX B — "COMPREHENSIVE c
ANNUAL FINANCIAL REPORT OF THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE m
30, 2015" refers to the City as a whole unless specifically indicated otherwise. The Department is 3
obligated to contribute amounts necessary to provide for normal and unfunded liability allocated to the
Water Enterprise's portion of the City's required contribution to the Miscellaneous Plan as determined by
Ca1PERS actuaries. m
U
The defined pension benefit is payable monthly for life, in an amount that varies. Two types of
Cn
contributions are made for covered employees under the CalPERS Miscellaneous Plan. The first
contribution represents the amount the City is required to make (the employer rate). The second 3
represents an amount, which is made by the employee (the member rate). The employer rate is an in
actuarially established rate, is set by CalPERS, and changes from year to year. The Department has a;
partnered with its employees to manage the costs of pensions,and Department employees have for several
years by agreement contributed to the member rate.
The Governor, in September 2012, signed Assembly Bill No. 340 ("AB 340") and Assembly Bill
No. 197 ("AB 197"), which enacted the California Public Employees' Pension Reform Act of 2013
("PEPRA"). AB 340 (1) increases the retirement age for new State, school, and city and local agency
employees depending on job function, (ii) caps the annual CalPERS pension benefit payout, (iii) co
addresses numerous abuses of the system, and (iv) requires State, school, and certain city and local =
agency employees to pay at least half of the costs of their CalPERS pension benefits. PEPRA applies to C
m
all public employers except the University of California, charter cities and charter counties(except to the
extent they contract with Ca1PERS). Among other things, AB 340 also enacted pension spiking reform
for new and existing employees, required three-year averaging of final compensation for new employees, >
and provided employers with new authority to negotiate cost-sharing agreements with current employees.
AB 340 also contained limitations on the use of retired annuitants, requiring that an annuitant have a six-
month break in service prior to returning to work. 3
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CalPERS predicts that the impact of AB 340 on employers, including the City, and employees
will vary, based on each employer's current level of benefits. To the extent that the new formulas lower
retirement benefits, employer contribution rates could decrease over time as current employees retire and
a�
employees subject to the new formulas make up a larger percentage of the workforce. This change would, m
in some circumstances, result in a lower retirement benefit for employees than they currently earn.
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Additionally, CalPERS has noted that changes arising from AB 340 could ultimately have an adverse
impact on public sector recruitment in areas that have historically experienced recruitment challenges due
to higher pay for similar jobs in the private sector. E
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The legislation created mandatory benefits tiers for new employees who have not worked for in
another CalPERS agency hired beginning January 1, 2013 ranging from 2.0% at age 50 to a maximum of �a
2.7% at age 57 for police safety and fire safety employees and 1.1% at age 50 to a maximum of 2.4% at
age 62 for miscellaneous employees. O�
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The City has implemented the PEPRA provisions. Employees pay their costs (the member rate M
above) of CalPERS pension benefits, as they have since 2010. The Department is currently working with °o
its employees to partner further in cost sharing.
cn
The latest CalPERS actuarial valuation of the City's Miscellaneous Plan is dated October 2015 n
with respect to the fiscal year ended June 30, 2014 (the "2014 CalPERS Report"). The Department's
membership consists of the following as of June 30,2013:
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Retirees and beneficiaries receiving benefits 123 N
Active plan members 246 0
Total plan members 369 m
See Note 7 in APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
a�
All Sewer Enterprise employees are members of the City's Miscellaneous Plan. The Sewer Fund
is allocated its portion of the City's required contribution to the Miscellaneous Plan as determined by
Ca1PERS actuaries. The Department contributed 100% of its allocated required contributions of
$755,803, $1,152,061 and $1,297,308 to Ca1PERS for the fiscal years ended June 30, 2013, 2014, and °S
3
2015,respectively. The Department budgeted to make contributions of$1,824,446 for Fiscal Year 2015-
16 and $2,021,112 for Fiscal Year 2016-17. See Note 7 in APPENDIX B — "COMPREHENSIVE a)
ANNUAL FINANCIAL REPORT OF THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE
30,2015"for information about the City's Miscellaneous Plan,its liabilities and funding.
v P
The following table sets forth the schedule of funding progress for the City's Miscellaneous Plan
as of valuations completed for June 30, 2009 through 2014. The Department's share of this liability is (n
1 currently approximately 37%,with the Sewer Fund's share of this liability at approximately 15%. Q
to
Table 15
City of San Bernardino 0
Miscellaneous Plan Schedule of Funding Progress
Valuations Completed for June 30,2009 through 2014 c
(Unaudited)
Unfunded �
Actuarial Actuarial
Actuarial Market Accrued Accrued AAL Less CD
Valuation Value of Value of Liability Funded Liability Market Value W
Date Assets Assets (AAL) Ratio (UAAL) of Assets Covered C
(June 30) (A) (B) (C) (Market) (C)—(A) (C)—(B) Payroll
2009 $391,359,614 $246,644,984 $144,714,630 63.0% ($246,644,984) ($101,930,354) $51,175,225
2010 406,903,699 274,500,317 132,403,382 67.5 (274,500,317) (142,096,935) 50,283,620 y
2011 427,257,567 324,463,658 102,793,909 75.9 (324,463,658) (221,669,749) 49,852,713 m
2012 446,677,440 316,290,288 130,387,152 70.8 (316,290,288) (185,903,136) 47,801,727 c
39 974 288
s�
4 4 (346,176,839)
2013 462,716,487 346,176,839 116,539,648 7 .8 �
41,170 684
2014 501,077,609 391,353,584 109,724,025 78.1 (391,353,584) (281,629,559) ,
c
Source: 2014 Ca1PERS Report. E
CD
At its April 17, 2013, meeting, CalPERS' Board of Administration (the "Board of
Administration") approved a recommendation to change the Ca1PERS amortization and smoothing
CZ
policies. Prior to this change, Ca1PERS employed an amortization and smoothing policy that spread
investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year 0
period. After this policy change, Ca1PERS commenced an amortization and smoothing policy that pays !
for all gains and losses amortized over a 20-year period with a five-year ramp-up and five-year ramp- M
down period.The new amortization and smoothing policy was used for the first time in the June 30, 2013, o
actuarial valuations in setting employer contribution rates for fiscal year 2015-16.
ti
LO
On February 18, 2014, the Board of Administration approved new demographic actuarial
assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit
groups, is a new 20-year mortality projection reflecting longer life expectancies and that longevity will E
continue to increase. Because retirement benefits will be paid out for more years, the cost of those v
a
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' benefits will increase as a result. The Board of Administration also assumed earlier retirements for Police
3%@50, Fire 3%@55, and Miscellaneous 2.7%@55 and 3%@60, which will increase costs for those c
groups. The Department has liabilities in connection with the City's Miscellaneous Plan only. As a result m
of these changes, rates are expected to increase beginning in fiscal year 2016-17 (based on the June 30,
2014 valuation)with full impact in Fiscal Year 2020-21.
a�
On November 18, 2015, the Board of Administration adopted a funding risk mitigation policy
intended to incrementally lower its discount rate — its assumed rate of investment return —in years of
good investment returns, help pay down the pension fund's unfunded liability, and provide greater �n
predictability and less volatility in contribution rates for employers. The policy establishes a mechanism
to reduce the discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage 3
points in years when investment returns outperform the existing discount rate, currently 7.5%,by at least N
four percentage points. Ca1PERS staff modeling anticipates the policy will result in a lowering of the Q;
discount rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the °
t, pension system by lowering the volatility of investment returns. More information about the funding risk `r
mitigation policy can be accessed through Ca1PERS' web site at the following website address:
https://www.calpers.ca.gov/page/newsroomicalpers-news/2015/adopts-funding-risk-mitigation-policy. N
The reference to this website is provided for reference and convenience only. The information contained
within the website may not be current, has not been reviewed by the City, the Department or the
Authority and is not incorporated in this Official Statement by reference. N
v
The table below provides a recent history of the employer contribution rates for the 0
Miscellaneous Plan, as determined by the 2014 Ca1PERS Report. It does not account for prepayments or 3
benefit changes made in the middle of the year.
m
>
Table 16
City of San Bernardino 3
Miscellaneous Plan Historic Contribution Rates
Fiscal Years 2011-12 Through 2016-17 0
E
�a
Employer Normal Total Employer
'y Fiscal Year Cost Unfunded Rate Contribution Rate
2011-12 10.180% 7.068% 17.248% m
2012-13 9.979 7.376 17.355
2013-14 10.608 7.578 18.186 N
2014-15 10.284 9.885 20.169
2015-16 10.201 14.008 24.209
2016-17 10.335 15.709 26.044 w;
Source: 2014 CaIPERS Report. N
R
2
Current projections are for a total employer contribution rate of 28.4% in Fiscal Year 2017-18
increasing to 34.4% in Fiscal Year 2021-22. The estimated rate for 2017-18 is based on a projection of 0i
the most recent information available,including an estimated 2.4%investment return for fiscal year 2014-
15. The Department expects that its employer contributions will increase materially in the future. These c
projected costs are included in the projections set forth in Table 14. c
Ln
ti
The projected employer contribution rates (before cost sharing) assume Ca1PERS earns 2.4% for ti
Fiscal Year 2014-15 and 7.50% every fiscal year thereafter, and assuming that all other actuarial y
c
assumptions will be realized and that no further changes to assumptions, contributions, benefits, or
funding will occur during the projection period. The projected contribution rates do not reflect that the C
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AV plan's normal cost will decline over time as new employees are hired into PEPRA and other lower cost
! benefit tiers. 0
0
m
Reporting obligations under Governmental Accounting Standards Board Statement No. 68
(including as amended by Statement No. 71, "GASB 68") commenced with financial statements for the
fiscal year ended June 30, 2015. The Department implemented this Statement in the fiscal year ending tY
June 30, 2015. Under GASB 68, an employer reports the net pension liability, pension expense and a)
deferred outflows/deferred inflows of resources related to pensions in its financial statements as part of its 2
financial position. The result of the implementation of these standards decreased the Department's net in
position at July 1, 2014 by $49,016,946, of which $21,077,289 was attributed to the Sewer Fund,
"} resulting in recording a net pension liability and deferred outflow of resources as a prior period
a�
adjustment. W
rn
Other Post-Employment Healthcare Benefits ti
7t
General The City provides retiree healthcare benefits, also known as other post-employment
r
benefits ("OPEB"), to all qualifying Department retirees and their spouses in accordance with current
memoranda of understanding with employee associations. Department employees are eligible for retiree
health benefits if they retire from the Department on or after age 50 with at least 10, 12 or 15 years of
service and are eligible for a PERS pension. The latest actuarial valuation of the plan occurred June 30, Cn
2014.
c
0
The contribution requirements of plan members and the Department are established and may be m
amended by the Board. The required .contribution is based on projected pay-as-you-go financing
requirements,with an additional amount to prefund benefits as may be determined annually by the Board. d
{ The Department has established an irrevocable trust to which pre-funding contributions are made. The
Department pays up to the entire cost of health benefits for eligible retirees and their spouses, subject to 3
the City's vesting schedule. OPEB is currently limited to Department employees only, and references to m
liabilities and contributions in this Official Statement and the Department's financial statements relate o
only to the Department.
L
R
The Department's OPEB cost(expense)is calculated based on the annual required contribution of L
the employer ("ARC"), an amount actuarially determined in accordance with the parameters of GASB m
Statement 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to
cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a m
period not to exceed thirty years. The following table shows the components of the Department's annual
OPEB cost for the year,the amount actually contributed to the plan, and changes in the Department's net E
OPEB obligation:
m
Actual required contribution(ARC) $2,707,000 ii
Interest on new OPEB obligation 22,032 .2
Amortization of net OPEB obligation (30,000) p�
Annual OPEB cost(expense) 2,699,032
Contributions made 2,256,321 M
Increase in net OPEB obligation 442,711 °o
Net OPEB obligation-beginning of year 352,510
Net OPEB obligation-end of year 795,221
The Department's annual OPEB cost, the percentage of annual OPEB cost contributed to the
plan,and the net OPEB obligation for Fiscal Year 2014-15 and the two preceding years were as follows: s
U
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3 Table 17
City of San Bernardino Municipal Water Department o
Annual OPEB Cost Contributed m
Fiscal Years 2012-13 through 2014-15
Percentage of 0
Annual OPEB Annual OPEB
i; Year Ended Cost Paid Contribution Cost Contributed OPEB Obligation 2
6/30/2013 $2,361,000 $ 573,621 24% $1,787,379 rn
6/30/2014 2,438,000 3,872,869 159 352,510 L
6/30/2015 2,699,032 2,256,321 84 795,221 3
m
Cn
Source: The Department.
O
See Note 8 in APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
#' o
The Department contributed 100% of its allocated required contributions to the Department's N
OPEB Trust for the fiscal years ended June 30, 2013, 2014, 2015, and 2016, with $1,310,233, $708,167, '
and $732,048 allocated to the Sewer Fund for the fiscal years ended June 30, 2014, 2015, and 2016, Cn
respectively. The Department budgeted to make contributions of $715,951 for Fiscal Year 2016-17. N
Projected OPEB costs are included in the projections set forth in Table 14. o
m
As of June 30, 2014, the most recent actuarial valuation date, the plan was 38.2% funded. The
actuarial accrued liability for benefits was $35,012,000,the actuarial value of assets was $13,380,000 and
the unfunded actuarial accrued liability("UAAL")was $21,632,000.The covered payroll (annual payroll
of active employees covered by the plan) was $15,531,000 and the ratio of the UAAL to the covered L
a�
payroll was 139.3%.
co
Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and °c
assumptions about the probability of occurrence of events far into the future. Examples include
assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined =
regarding the funded status of the plan and the annual required contributions of the employer are subject m
to continual revision as actual results are compared with past expectations and new estimates are made =
about the future. The schedule of funding progress presents multi-year trend information about whether
the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial accrued
y' liabilities for benefits.
E
d
Projections of benefits for financial reporting purposes are based on the substantive plan(the plan a
as understood by the employer and the plan members) and include the types of benefits provided at the 0
time of each valuation and the historical pattern of sharing of benefit costs between the employer and plan
members to that point. The actuarial methods and assumptions used include techniques that are designed
to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of 0i
assets,consistent with the long-term perspective of the calculations.
M
r
In the June 30, 2014, actuarial valuation, the entry age actuarial cost method was used. The
actuarial assumptions included a rate of return of 6.25% and annual healthcare cost trend rates of 7.5% LO
initially, reduced by Increments to an ultimate rate of 5% in 2021. Both rates included a 3% inflation rC°
assumption.The actuarial value of assets was determined using techniques that spread the effects of short-
term volatility in the market value of investments over a five-year period. The UAAL is being amortized
as a level percentage of projected payroll on a closed basis.The remaining amortization period at June.30,
2015,was 19 years. w
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Table 18
City of San Bernardino Municipal Water Department
0
OPEB Schedule of Funding Progress m
aD
UAAL as a
m
Actuarial %of >
Actuarial Actuarial Accrued Unfunded Funded Covered n:
Valuation Value of Liability AAL Ratio Covered Payroll
Date Assets(a) (AAL)(b) (UAAL)(b-a) (alb) Payroll(c) (b-a)/c '2 2
6/30/2010 $ -- $28,676,000 $28,676,000 0.0% $12,619,000 227.2%
6/30/2012 8,556,000 28,831,000 20,275,000 29.7 14,765,000 137.3 L
6/30/2014 13,380,000 35,012,000 21,632,000 38.2 15,531,000 139.3
3
as
Source: The Department. "
am
O
See Note 8 in APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015"for additional information.
T
O
Insurance for the Sewer Enterprise
'i
As provided in the Installment Purchase Agreement, the Department is required to procure and
maintain or cause to be procured and maintained insurance on the Sewer Enterprise with responsible �
insurers in such amounts and against such risks (including damage to or destruction of the Sewer o
Enterprise) as are usually covered in connection with facilities similar to the Sewer Enterprise, so long as m
such insurance is available from reputable insurance companies and obtainable at a reasonable cost. The
Department is further required to procure and maintain such other insurance as it shall deem advisable or
necessary to protect its interests,which insurance shall afford protection in such amounts and against such
risks as are usually covered in connection with municipal wastewater systems similar to the Sewer v
Enterprise.
The Department maintains casualty insurance on many of the assets of the Sewer Enterprise,
including, among other assets, treatment plants, pump stations, administration buildings, garages,
warehouses, concession buildings, and labs. Neither the Department, nor the City's Public Works L
Department currently maintains property insurance for the pipelines of the Sewer Enterprise because such a)
m
insurance is not available at commercially reasonable rates, but is insured under its liability policy for c
damage to property as a result of a pipe break. in
The Department currently maintains earthquake insurance on buildings and plant facilities of the m
Sewer Enterprise; however,the Department is not obligated under the Installment Purchase Agreement to
maintain earthquake insurance on the Sewer Enterprise, and may elect to discontinue such coverage at its
discretion.
2
Claims and expenses attributable to the Sewer Enterprise are recorded in the Sewer Fund. In o
most cases, significant losses are covered by insurance for major events except workers' compensation, 1
for which the Department retains risk of loss in conjunction with the City's risk management program for
workers compensation. Settlement amounts have not exceeded insurance coverage for the current year or o
the prior three years. Insurance coverage has been increased over the past several years. °
ti
The following approximate aggregate liabilities of the Sewer Fund for the year ended June 30,
2015 was $239,673. See Note 11 in APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL
REPORT OF THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
a
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�rrrarrrrar
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SEWER ENTERPRISE REGULATORY REQUIREMENTS
0
General m
m
0
The City provides sewer collection and treatment services to its customers through two separate
City departments. The Department provides sewer treatment services, and the City's Public Works
Department provides sewer collection services. The Sewer Enterprise does not include the City's
collection system. The collection system charge is not part of Revenues or Net Revenues. 2
a�
As part of routine operations and maintenance activities, the Department transfers treated water
between storage facilities and discharges water to the environment. These transfers and discharges are
regulated under the Federal Clean Water Act through general and facility-specific National Pollutant N
Discharge Elimination System ("NPDES") permits issued by the SWRCB. Such permits contain
CD
numerical effluent limitations, monitoring, reporting, and notification requirements for water discharges h
from the facilities and pipelines of the Water Enterprise.
°
The WRP and RIX operations are regulated by the Clean Water Act under the direction of the n°,
EPA. The EPA has delegated permitting authority to the State Department of Environmental a
Conservation,which administers the State Pollution Discharge Elimination System("SPDES").
N
State Regulations
a
As an operator of a municipal wastewater system, the City is responsible for complying with m
various State requirements, including CEQA, with respect to the operational requirements, design and
construction standards for its operators. Failure to meet these standards may subject the City to civil or >
criminal sanctions. The City is currently in compliance with all applicable State regulations.
a�
Proposed Regulations
Other regulations, including regulations that are in effect but whose compliance are not yet
mandated and regulations that are currently proposed, will continue to impact the operation of the Sewer
Enterprise and its associated costs. Also, the costs of proposed new regulations are currently unknown. F
See"RISK FACTORS—Statutory and Regulatory Compliance." m
C
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THE AUTHORITY
C
The Authority was formed pursuant to the JPA Act and the JPA Agreement for the purpose of m
exercising to powers common to the members and exercising the additional powers granted to the aa)
Authority by the JPA Act and any other applicable provisions of State law. Under the JPA Agreement,
the Authority may issue bonds, notes or any other evidence of indebtedness, for any purpose or activity
permitted under the JPA Act or any other applicable law. u
None of the Authority, any Authority member or any person executing the 2016 Bonds is liable 0�
personally on the 2016 Bonds or subject to any personal liability or accountability by reason of their M
issuance. The 2016 Bonds are limited obligations of the Authority, payable solely from and secured by c
the pledge of the Project Revenues and other funds provided for in the Indenture with respect to such °
2016 Bonds. Neither the Authority, its members, the State, nor any of its political subdivisions will be Ln
directly, indirectly, contingently or morally obligated to use any other moneys or assets to pay all or any
portion of the debt service due on the 2016 Bonds, to levy or to pledge any form of taxation whatever
therefor or to make any appropriation for their payment. The 2016 Bonds are not a pledge of the faith and E
credit of the Authority, its members, the State, or any of its political subdivisions, nor do they constitute U
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indebtedness within the meaning of any constitutional or statutory debt limitation. The Authority has no
taxing power. o
ED
The Authority will not be required to advance any moneys derived from any source other than the 3
Project Revenues and certain other moneys and securities held by the Trustee as provided in the m
Indenture, whether for the payment of the principal of or interest on the 2016 Bonds or for any other
purpose of the Indenture. Q
U
.y
The Authority may sell and deliver obligations other than the 2016 Bonds. These obligations will in
be secured by instruments separate and apart from the Installment Purchase Agreement and the Indenture, L
and the holders of such other obligations of the Authority will have no claim on the security for the 2016 3
Bonds. Likewise, the Owners of the 2016 Bonds will have no claim on the security for such other Cn
obligations that may be issued by the Authority. a)
0
ti
Neither the Authority nor its independent contractors has furnished, reviewed, investigated or
verified the information contained in this Official Statement other than the information contained in this
T
section and the section entitled "LITIGATION—The Authority."The Authority does not and will not in
the future monitor the financial condition of the City or the Department or otherwise monitor payment of
the 2016 Bonds or compliance with the documents relating thereto. Any commitment or obligation for
continuing disclosure with respect to the 2016 Bonds or the City or the Department has been undertaken Cn
by the Department,on behalf of the City. See"CONTINUING DISCLOSURE"herein.
0
m
RISK FACTORS c�
c
Investment in the 2016 Bonds involves risks that may not be appropriate for certain investors.
The following is a discussion of certain risk factors that should be considered, in addition to other W
matters set forth herein, in evaluating the 2016 Bonds for investment. The information set forth below
0 %..
does not purport to be an exhaustive listing of the risks and other considerations that may be relevant to c,
an investment in the 2016 Bonds. In addition, the order in which the following information is presented is o
not intended to reflect the relative importance of any such risks.
L
Special Obligations
m
The 2016 Bonds are special obligations of the Authority and, as and to the extent set forth in the
Indenture, are payable solely from and secured by a pledge, charge and lien upon the Project Revenues,
which consist of 2016 Purchase Payments to be made by the Department on behalf of the City under the
Installment Purchase Agreement,and certain other moneys and securities held by the Trustee as provided
E
in the Indenture. The full faith and credit of the Authority and the City is not pledged for the payment of m
the principal of or interest on the 2016 Bonds. The 2016 Bonds are not payable from and secured by a
legal or equitable pledge of, or charge, lien or encumbrance upon, any of the property of the Authority or
the City or any of its income, receipts, or revenues except the Project Revenues and such other funds as .2
provided in the Indenture. The Authority has no other source of revenues from which to pay debt service p
on the 2016 Bonds. The Authority has no taxing power.
M
The obligation of the City to pay the 2016 Purchase Payments securing the 2016 Bonds is a c
special obligation of the City and is not secured by a legal or equitable pledge or charge or lien upon any
property of the City or any of its income or receipts, except the Net Revenues under the Installment
Purchase Agreement. The obligation of the City to make the 2016 Purchase Payments does not constitute
an obligation of the City to levy or pledge any form of taxation or for which the City has levied or
CD
pledged any form of taxation. The City is obligated under the Installment Purchase Agreement to make E
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# ' the 2016 Purchase Payments solely from Net Revenues payable under the Installment Purchase
Agreement.
0
m
Sewer Enterprise Demand
c
d
There can be no assurance that the local demand for the services provided by the Sewer
Enterprise will be maintained at levels described in this Official Statement under the heading "THE
SEWER ENTERPRISE." Any factor which results in a decline in the level of demand for wastewater .2
services, or other adverse changes in demographics within the boundaries of the City could cause the
co
demand for related wastewater services,to decline, from time to time,or over the term of the 2016 Bonds.
Reduction in the level of demand could require an increase in rates or charges in order to produce Net
Revenues sufficient to comply with the City's rate covenant in the Installment Purchase Agreement. A in
significant decline in demand might create a situation in which the City could not increase Sewer
Enterprise rates and charges sufficiently to offset the decrease in customers or usage. This would reduce
the City's ability to make the 2016 Purchase Payments, which could in turn adversely impact the
Authority's ability to make payments of the principal of and interest on the 2016 Bonds as and when due.
0
N
Further, among other factors affecting demand, Sewer Enterprise use is affected by economic
conditions. Economic recession and its associated impacts such as job losses, income losses,and housing
foreclosures or vacancies affect aggregate levels of wastewater services. Among other matters, general
and southern California economic conditions and changes in law and government regulations could
adversely affect the amount of operating revenues to the Sewer Fund. There can be no assurance that an 0
m
entity with regulatory authority over the Sewer Enterprise will not adopt further restrictions on operation 3
of the Sewer Enterprise.
Sewer Enterprise Expenses and Collections
a�
The operation and maintenance expenditures related to the Sewer Enterprise are expected to
increase in the next five years. See "THE SEWER ENTERPRISE — Financial Projections." However, o
there can be no assurance that the projected future Operation and Maintenance Costs of the Sewer,
Enterprise will actually be as projected by the Department and described in this Official Statement.
L
L
Changes in technology,demographic changes, lifestyle changes and new regulatory requirements, m
and increases in the cost of energy or other expenses, could reduce Net Revenues, and each could require
substantial increases in rates or charges in order to comply with the rate covenant for the Sewer Enterprise m
under the Installment Purchase Agreement. Also, any such rate increases could increase the likelihood of
nonpayment by users of wastewater services,from the City and could also decrease demand from such
purchasers and may impact the City's ability to make the 2016 Purchase Payments, which could in turn
adversely impact the Authority's ability to make payments of the principal of and interest on the 2016 N
Bonds as and when due.
U
Constitutional Limit on Fees and Charges pi
S
If a portion of the Sewer Enterprise rates or connection charges were determined by a court to M
exceed the reasonable costs of providing service,any fee which the City charges may be considered to be c
a "special tax," which under Article XIIIA of the California Constitution must be authorized by a two-
thirds vote of the affected electorate. This limitation is applicable to the rates for service provided by the
Sewer Enterprise. The reasonable cost of service provided by the Sewer Enterprise has been determined
by the State Controller to include depreciation and allowance for the cost of capital improvements, _
a�
including debt service. In addition, the California courts have determined that fees such as connection E
fees (capacity charges) will not be special taxes if they approximate the reasonable cost of constructing U
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enterprise improvements contemplated by the local agency imposing the fee. Such court determinations
have been codified in the California Government Code(Section 66000 et seq.). o
m
The City believes that the rates and use charges imposed by the City in connection with the Sewer 3
Enterprise do not exceed the costs it reasonably bears in providing such services.
a�
Under Article XIIIB of the California Constitution, state and local government entities have an
annual "appropriations limit" which limits their ability to spend certain moneys called "appropriations •2
subject to limitation,"which consists of tax revenues, certain state subventions and certain other moneys, W
including user charges to the extent they exceed the costs reasonably borne by the entity in providing the
service for which it is levying the charge. In general terms, the "appropriations limit" is to be based on 3
certain fiscal year 1978-79 expenditures,and is to be adjusted annually to reflect changes in the consumer in
price index,population and services provided by these entities. Among other provisions of Article XIIIB,
if an entity's revenues in any year exceed the amount permitted to be spent, the excess would have to be °
returned by revising tax rates or fee schedules over the subsequent two years.
See, also "CONSTITUTIONAL LIMITATIONS ON TAXES AND SEWER TREATMENT
RATES AND CHARGES."
N
Rate-Setting Process Under Proposition 218
N
As described in this Official Statement, the City will covenant in the Installment Purchase m
Agreement to fix, prescribe and collect rates, fees, charges consistent with its rate covenant under the Q
Installment Purchase Agreement. The City may make adjustments from time to time in such rates, fees,
charges and connection fees and may make such classification thereof as it deems necessary,but shall not
reduce the rates and charges then in effect unless the Net Revenues from such reduced rates,fees, charges W
and connection fees will at all times be sufficient to meet the requirements of such covenant. However, v
Proposition 218, which added Articles XIIIC and XIIID to the California Constitution, affects the City's
ability to impose future rate increases, and no assurance can be given that future rate increases will not o
encounter majority protest opposition or be challenged by initiative action authorized under Proposition E
218. If future proposed rate increases cannot be imposed as a result of majority protest or initiative, the
Sewer Enterprise might thereafter be unable to generate Net Revenues in the amounts required by the F
Installment Purchase Agreement to pay the 2016 Purchase Payments, which could in turn adversely m
impact the Authority's ability to make payments of the principal of and interest on the 2016 Bonds. See
"CONSTITUTIONAL LIMITATIONS ON TAXES AND SEWER TREATMENT RATES AND
CHARGES—Article XIIIC"and'—Article XIIID." c
as
E
Limitations on Remedies a)
E5
Cn
The enforceability of the rights and remedies of the Owners and the obligations of the City may i
become subject to the following: the federal bankruptcy code and applicable bankruptcy, insolvency, .2
reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights p
generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement
under state law of certain remedies;the exercise by the United States of America of the powers delegated
to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional o
situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the h
interest of servicing a significant and legitimate public purpose. Bankruptcy proceedings, or the
exercising of powers by the federal or state government, if initiated, could subject the Owners to judicial
discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks
of delay,limitation,or modification of their rights. E
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The Indenture provides that if any Event of Default shall occur,then, and in each and every such N
case during the continuance of such Event of Default,the Trustee may, and at the written direction of the o
Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding, as provided, m
and upon being indemnified to the Trustee's satisfaction, shall, upon written notice to the Authority and
the City,pursue any available remedy at law or in equity to enforce the payment of the principal of and
interest and premium(if any) on the Bonds,and to enforce any rights of the Trustee under or with respect
to the Indenture; provided, that, such remedies shall not include any remedy of acceleration. Any
remedies available to the Owners of the 2016 Bonds upon the occurrence of an Event of Default under the 2
Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and CD
delay and could prove both expensive and time consuming to obtain.
3
Holders of 2016 Bonds do not, and will not have a right to the remedy of acceleration under the in
Indenture or the Installment Purchase Agreement. a;
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If the City fails to comply with its covenants under the Installment Purchase Agreement to pay
the 2016 Purchase Payments,there can be no assurance of the availability of remedies adequate to protect
the interests of the holders of 2016 Bonds.
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Effect of City of San Bernardino Bankruptcy Case W
Y)
On August 1, 2012, the City filed a petition for relief under chapter 9 of the United States
Bankruptcy Code(the"Bankruptcy Code")in the United States Bankruptcy Court for the Central District m
of California (the "Bankruptcy Court"), Case No. 6:12-bk-28006 MJ (the "Bankruptcy Case"). For the m
reasons described below, the City believes that the Bankruptcy Case will be concluded in a manner that
will not adversely affect the issuance or timely repayment of or security for the 2016 Bonds, but no >�
assurances can be given regarding such outcome.
aD
The City filed its initial chapter 9 plan of adjustment and disclosure statement in the Bankruptcy
Case on May 29, 2015, and a first amended chapter 9 plan of adjustment and disclosure statement on p
November 25, 2015. On March 30,2016,the City filed its second amended chapter 9 plan of adjustment
(the "Plan") and disclosure statement. On May 27, 2016, the City files its third amended chapter 9 plan
and on July 7,2016 the Bankruptcy Court approved the form of disclosure statement, and set October 14, _
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2016,for the hearing on confirmation of the Plan. m
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M
The City's obligation to make 2016 Purchase Payments under the Installment Purchase
Agreement is payable from and secured by a pledge of and lien on Net Revenues from its ownership and
operation of the Sewer Enterprise. The City believes that the Net Revenues are"special revenues"within
the meaning of the Bankruptcy Code. "Special revenues"are defined by the Bankruptcy Code to include,
among other revenue, receipts derived from the ownership, operation, or disposition of projects or co
systems of the debtor that are primarily used or intended to be used primarily to provide utility or other ci
services. Although the filing of the Bankruptcy Case operated as an automatic stay against any action to
recover a claim against or obtain money or other property from or enforce a lien against the City, under 0
O
the Bankruptcy Code the automatic stay does not extend to application of pledged "special revenues" in
excess of necessary operating expenses of the project or system from which they are derived Although M
the pledge of and lien on Net Revenues constitutes a consensual lien, rather than a statutory lien, a c
consensual lien on "special revenues" remains effective after commencement of a chapter 9 case, as
would a statutory lien. ti
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The City notes that many issues under chapter 9 of the Bankruptcy Code, including issues
relevant to the impairment of obligations payable from and secured by "special revenues," have not yet E
Ibeen the subject of reported appellate decisions,and certain commentators and parties in other cases have U
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taken positions that could result in impairment of such obligations and liens were such positions adopted in
by the courts. Nevertheless, for the reasons discussed above and below, the City believes that its pledge o
of and lien on Net Revenues as security for payment of the 2016 Purchase Payments (and therefore the m
2016 Bonds) will be recognized, given effect, and enforced throughout and after conclusion of the
Bankruptcy Case.
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As stated, the protection afforded by the Bankruptcy Code to pledges of and liens on "special m
revenues"after the commencement of a case extends only to"special revenues"that are not needed to pay .0
necessary operating expenses of the project or system from which they were derived. It is not clear in
precisely which expenses would constitute necessary operating expenses,and the definitions of Operation
and Maintenance Costs and Net Revenues in the transaction documents would not be controlling. 3
Consequently, a court could reduce Net Revenues available to pay Owners of the 2016 Bonds during the N
pendency of the Bankruptcy Case, or any subsequent chapter 9 case initiated by the City, if it concludes o
that expenses not deducted by the Installment Purchase Agreement to calculate Net Revenues r,
nevertheless are necessary operating expenses.
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Further, the City did not seek, and thus did not receive, an order from the Bankruptcy Court
approving the pledge of and lien on Net Revenues for the 2016 Purchase Payments or the City's entry
into the Installment Purchase Agreement. Under the Bankruptcy Code, the Bankruptcy Court may avoid
a transfer of property(including the pledge of and lien on Net Revenues granted to secure payment of the
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2016 Purchase Payments)by the City during the pendency of the Bankruptcy Case, unless the transfer is =
authorized under the Bankruptcy Code or by the Bankruptcy Court. In addition,while"special revenues"
m
are exempt from an automatic stay,they are not exempt from a possible stay for cause with City consent,
if a creditor challenges the pledge of and lien on Net Revenues granted to secure the 2016 Purchase
Payments, either as a whole or in part. The City has no intention to consent to such a stay. In addition, v
the City believes that the pledge and lien granted by it to secure payment of the 2016 Purchase Payments
are authorized under the Bankruptcy Code, because chapter 9 provides that a bankruptcy court may not W
interfere with the political or governmental powers of a political subdivision such as the City (unless the cn
City approves a plan of adjustment to that effect or consents to such action), and nothing in the a
Bankruptcy Code prohibits the City from granting such pledge and lien. There is no binding judicial S
precedent that addresses the relevant Bankruptcy Code provisions, so the Bankruptcy Court could reach a o
different conclusion. If the pledge and lien are not authorized under the Bankruptcy Code, then the
L
Bankruptcy Court would be authorized to avoid or subordinate the pledge and lien (either in whole or in m
part). Nonetheless,the City believes that the Bankruptcy Court would not avoid the pledge and lien, even
if it were authorized to do so, for the same reasons that it believes the Bankruptcy Court would not
approve a Plan that does not give full effect to the pledge and lien,as described below.
E
With respect to the Bankruptcy Court's review of one petitioner's challenges to the sufficiency of m
the City' desire to effect a Pendency Plan by giving an official statement of its intent to adjust its debt and cis
taking actions to approve a Pendency Plan,the Bankruptcy Court reasoned that it is a matter of California
constitutional law that the City may not use funds belonging to the Water Department for general fund
purposes and that absent the clear ability of the general fund to repay a borrowing of those funds within Oi
one year, Article XVI, Section 18 of the California Constitution prohibits a city from incurring a debt ini,
any year that exceeds the available revenues of the city for that year without the approval of a two-thirds M
vote of qualified voters. Since the inception of the Bankruptcy Case,no creditor of the City has otherwise
asserted that the Bankruptcy Court consider a claim against any enterprise fund of the City, such as the
LO
Sewer Fund. Throughout the case the City has timely paid regularly scheduled principal and interest on ti
its enterprise fund bond obligations and only deferred payments on its pension obligation bonds.
m
The City could propose and the Bankruptcy Court could approve a revised Plan that alters the =
priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources,
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covenants (including tax-related covenants), and other terms or provisions of the Installment Purchase y
?� Agreement, if the Bankruptcy Court concludes (a "fairness conclusion") that the alterations are fair, o
equitable, not unfairly discriminatory and are part of a plan that is in the best interests of creditors and m
otherwise complies with the Bankruptcy Code. The City has no intention to propose such a Plan or 3
consent to a stay of its application of Net Revenues to pay 2016 Purchase Payments(although it may not
be legally barred from doing so). Even if it did consent to such a stay or propose such a Plan, the City
believes that neither the stay nor the fairness conclusion required to approve a Plan would be warranted
under prevailing conditions, because (1) under California law, the City may not apply revenues from U
ownership and operation of the Sewer Enterprise for any purpose other than operation, maintenance, and �n
improvement of the Sewer Enterprise, including debt service on indebtedness incurred for that purpose,
(2)the Bankruptcy Code does not impair the power of a state to control a municipality in the state in the 3
exercise of a political or governmental power, including expenditures made in the exercise of that power, in
and accordingly the City believes that it has no legal power to propose a Plan that would divert revenue Q;
from the Sewer Fund to pay obligations of the City that are not expenses of the Sewer Fund, and (3)
revenues for the Sewer Fund have been and are projected to be sufficient to pay all expenses of the Sewer --
Fund, including the 2016 Purchase Payments. There can be no assurance that the Owners of the 2016 `O
Bonds would be successful in opposing such a Plan or imposition of a stay, should the City seek to
propose such a Plan or impose such a stay. d
d
The City's bankruptcy, and the economic and political factors leading to it, have resulted in o
significant adverse impacts to the City, including a severe reduction in some City services. The City's =
Recovery Plan, which is being implemented concurrently with its chapter 9 plan, lays out a plan to m
improve services funded by the General Fund and to increase General Fund revenues. The City has CD
successfully annexed into the County Fire District effective July 1,2016 and has contracted refuse service
to a private company effective in May 1,2016 representing annual savings to the General Fund of roughly m
� - $12 million. While the City has reached agreements with all of its major creditors,the failure of the City m
<, to confirm the Plan and otherwise successfully emerge from the Bankruptcy Case could negatively impact
3
the City's ability to fully implement its Recovery Plan.
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Whatever the outcome of the present Bankruptcy Case, there can be no assurance that the City
v
will not seek relief as a debtor in another chapter 9 bankruptcy case during the term of the 2016 Bonds. If
the City again files a petition for relief under chapter 9 in the future, as in the City's current bankruptcy m
proceeding, the City may be able to alter the priority, interest rate, principal amount, payment terms, m
collateral maturity dates, payment sources, covenants (including tax-related covenants), and other terms
or provisions of its bonds and bond related agreements, if the bankruptcy court concludes under then
prevailing conditions that the alterations are fair, equitable, not unfairly discriminatory and are part of a
plan that is in the best interests of creditors and otherwise complies with the Bankruptcy Code. There E
may be other possible effects of a bankruptcy of the City that could result in delays or reductions in
payments on the 2016 Bonds. cCnn
I;
Natural Disasters .2
O
The financial stability of the Sewer Enterprise can be adversely affected by a variety of factors,
particularly those which may affect infrastructure and other public improvements and private
improvements and the continued habitability and enjoyment of such improvements. The City, like many °o
California communities, may be subject to unpredictable seismic activity, fires, flood, or other natural
disasters. Southern California is a seismically active area. Seismic activity, wildfires and other natural
disasters represents a potential risk for damage to buildings, roads, bridges and property within the City.
Although the City has implemented disaster preparedness plans and made improvements to the Sewer
Enterprise in connection with such natural disasters,there can be no assurance that these or any additional =
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measures will be adequate in the event that a natural disaster occurs, nor that costs of preparedness
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measures will be as currently anticipated. Further, damage to components of the Sewer Enterprise could
cause a material increase in costs for repairs or a corresponding material adverse impact on Net Revenues. o
As provided in the Installment Purchase Agreement, the Department is required to procure and maintain CO
or cause to be procured and maintained insurance on the Sewer Enterprise with responsible insurers in
such amounts and against such risks (including damage to or destruction of the Sewer Enterprise) as are
usually covered in connection with facilities similar to the Sewer Enterprise, so long as such insurance is
available from reputable insurance companies and obtainable at a reasonable cost. The Department is
further required to procure and maintain such other insurance as it shall deem advisable or necessary to
protect its interests, which insurance shall afford protection in such amounts and against such risks as are N
usually covered in connection with municipal wastewater systems similar to the Sewer Enterprise. The
Department maintains casualty insurance on many of the assets of the Sewer Enterprise,including,among a:
other assets, treatment plants, pump stations, administration buildings, garages, warehouses, concession cn
buildings, and labs. The Department currently maintains earthquake insurance on buildings and plant a;
facilities of the Sewer Enterprise; however, the Department is not obligated under the Installment
Purchase Agreement to maintain earthquake insurance on the Sewer Enterprise, and may elect to --
discontinue such coverage at its discretion. Neither the Department, nor the City's Public Works
Department currently maintains property insurance for the pipelines of the Sewer Enterprise because such N
insurance is not available at commercially reasonable rates, but is insured under its liability policy for m
damage to property as a result of a pipe break.
N
Earthquake. Many California communities, including the City and the Service Area, are subject
to periodic earthquake activity. In addition, land susceptible to seismic activity may be subject to CO°
liquefaction during the occurrence of such event. The City is surrounded by earthquake faults.According
to the Safety Element of the City's General Plan, the City is located between several active fault zones
including: the San Andreas Fault,the San Jacinto Fault,the Glen Helen Fault, and the Loma Linda Fault.
If an earthquake were to substantially damage or destroy taxable property within the City, the assessed
valuation of such property would be reduced. Although the City believes that no active or inactive fault (D
3
lines pass through, or near, the City, if there were to be an occurrence of severe seismic activity in the
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City, there could be an impact on the cost or the ability to provide water and wastewater services until o
repairs could be made, possibly diminishing Net Revenues. Earthquakes or other natural disasters could S
interrupt operation of the Sewer Enterprise and thereby interrupt the ability of the City to realize Net
Revenues sufficient to pay the 2016 Purchase Payments securing the payment of principal of and interest Q
on the 2016 Bonds. The Sewer Enterprise has not experienced any significant losses of facilities or m
services as a result of earthquakes.
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In anticipation of such potential disasters, the City designs and constructs all facilities of the
Sewer Enterprise to the seismic codes in effect at the time of design of the project. Building codes require E
that some of these factors be taken into account, to a limited extent, in the design of improvements, a)
including the Sewer Enterprise. Some of these factors may also be taken into account,to a limited extent, in
in the design of other infrastructure and public improvements neither designed nor subject to design 1
approval by the City. Design criteria in any of these circumstances are established upon the basis of a
variety of considerations and may change, leaving previously-designed improvements unaffected by more O�
stringent subsequently established criteria. In general, design criteria reflect a balance at the time of LO
protection and the future costs of lack of protection, based in part upon a present perception of the
probability that the condition will occur and the seriousness of the condition should it occur. Conditions °o
may occur and may result in damage to improvements of varying seriousness, such that the damage may
LO
entail significant repair or replacement costs and that repair or-replacement may never occur either to
because of the cost or because repair or replacement will not facilitate habitability or other use,or because
other considerations preclude such repair or replacement. Under any of these circumstances, the actual
value of public and private improvements within the City in general may well depreciate or disappear,
notwithstanding the establishment of design criteria for any such condition.
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Groundwater in the Bunker Hill Basin generally flows in a southwesterly direction from the San
Bernardino Mountains to the San Jacinto Fault. The San Jacinto Fault acts as a barrier, or underground c
dam, causing the groundwater behind the fault to rise toward land surface in the form of high m
groundwater. In addition to the rising water associated with the groundwater barrier,this area of the basin
also experiences a"pressure effect"caused by the higher water surface elevation along the foothills. This m
high groundwater area is located within the City and is commonly referred to as the "Pressure Zone" or
the "Area of Historic High Groundwater" (the "AHHG"). In the past, water levels in the AHHG have
risen high enough to cause artesian conditions (groundwater pooling above land surface). Groundwater
levels which are this shallow frequently cause basements to flood, adversely affect the load-bearing N
capacity of streets, disrupt underground utilities and may cause "liquefaction" during an earthquake.
Liquefaction occurs when saturated, sandy soil turns into a"quicksand" state during an earthquake. When 3
liquefaction occurs, the ground no longer provides support to underground utilities or overlying in
structures, allowing them to sink or to float. In some cases, the foundational supports have been Q;
compromised, resulting in buildings toppling over. Liquefaction can be mitigated by removing the water
from the soil or by changing the soil characteristics through grouting or other methods. The Department --
can make no predictions or offer any assurances with respect to such potential damages. Necessary c
repairs, or any portion thereof, could be charged to the Department as Operation and Maintenance Costs, cm
senior in right of payment to 2016 Purchase Payments, rather than allocated as eligible expenditures of
the City's General Fund or Road Fund.
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Like sewer collection facilities,the Department has not to date had any obligation with respect to
stormwater facilities or capture. o°p
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Wildfires. The City is susceptible to wildland fires due to the steep terrain and highly flammable m
chaparral vegetation of the foothills of the San Bernardino Mountains and high winds that correspond >�
with seasonal dry periods. The characteristics of the San Bernardino Mountains and winds in the area
result in large uncontrollable fires on a recurring basis. Major fires have endangered the City on 3
numerous occasions and in several instances, have spread into the City causing extensive damage, most �
recently in 2003 with the Old Waterman Canyon fire, the largest fire in recent history, which destroyed o
approximately 330 residential properties, and the Panorama fire in 1980, which destroyed 345 structures
and killed four people. Many of the areas burned during the Panorama fire were again burned in 2003.
L
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The danger from wildland fires in foothill locations is increased by the number of structures and m
encroachment of new development in the hillside areas. Specific concerns include the density of
development, spacing of structures, brush clearance, building materials, access to buildings by fire
equipment, adequacy of evacuation routes, property maintenance, and water availability. The capacity of
the water systems to provide sufficient water to fight fires is also a significant issue. Other areas in E
southern California are burned off periodically by way of controlled burns to remove older vegetation.
The controlled burn process is used very carefully in the San Bernardino Mountains because of the in
unpredictability and force of the winds in the area that could make controlled burns a potential hazard. cu
Facilities comprising the Sewer Enterprise generally consist of pipelines and connections, flow O�
control facilities, and pumping stations, which are not typically vulnerable to damage by wildfires. The
above ground facilities within the Sewer Enterprise are designed to be tolerant to damage by wildfires
through the use of fire resistant material where possible, such as concrete and masonry blocks. In °o
addition, the Department works closely with the City's fire department to ensure that proper vegetative r-
clearances are maintained in and around the properties and facilities of the Sewer Enterprise. The 0
Department watches for wildfires that may threaten the facilities of the Sewer Enterprise and operations
and maintenance crews are dispatched to ensure that all above-ground facilities remain safe and
operational. Further, during fires, the Department works closely with the City's fire department and law
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i enforcement officers to monitor and protect facilities of the Sewer Enterprise to ensure continuous
operation.
0
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Wind. According to the Safety Element of the City's General Plan, the City is subject to
extremely high winds,which have resulted in significant property damage. For example,portions of roofs
and block walls have been broken and blown away and public utility structures such as power lines and
traffic signals have been damaged. The most significant wind problems occur at the canyon mouths and
valleys extending downslope from the San Bernardino Mountains. The highest velocities are associated
with downslope canyon and Santa Ana winds (90-100 mph). Santa Ana wind conditions are a reversal of
the prevailing southwesterly winds and usually occur on a region-wide basis during late summer and early L
fall. Santa Ana winds are dry, warm winds that flow from the higher desert elevations in the north 3
through the mountain passes and canyons. Of the major fires in the San Bernardino Mountains, all have in
occurred during periods of high winds. The high wind velocity and property damage potential have
resulted in the northern half of the City adjacent to the mountains being classified by the City as a"High I°
Wind Area." In this area of the City, stringent conditions for the construction of buildings and public `r
facilities are applied. tO
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Drought Risks. The ability of the Department to operate effectively can be affected by the water (A
supply available to the City,which is situated in an and and semi-desert environment. If the water supply
or availability for sale decreases significantly, whether by operation of mandatory supply restrictions,
N
prohibitively high water costs or otherwise, Sewer Enterprise use and charges could diminish, and Net
Revenues available to pay the 2016 Purchase Payments may be adversely affected. C
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Statutory and Regulatory Compliance
>
' The Sewer Enterprise is subject to a variety of federal and State statutory and regulatory
requirements. The City's failure to comply with applicable laws and regulations could result in 3
significant fines and penalties. Such claims are payable from assets of the Sewer Enterprise or from other
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legally available sources. In addition to claims by private parties, changes in the scope and standards for o
public agency systems such as that operated by the Department may also lead to administrative orders
issued by federal or State regulators. Future compliance with such orders can also impose substantial
additional costs on the Sewer Enterprise. No assurance can be given that the cost of compliance with
such laws, regulations, and orders would not adversely affect the ability of the Department to generate m
Net Revenues sufficient to pay the debt service on account of any obligation on a parity with the 2016
Purchase Payments including, without limitation, the 2016 Purchase Payments, which could in turn N
adversely impact the Authority's ability to make payments of the principal of and interest on the 2016
Bonds. See"SEWER ENTERPRISE REGULATORY REQUIREMENTS." E
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Dam Safety y
The DSOD supervises the safety of the storage reservoirs in the State. The Department has one .2
covered storage reservoir, the Perris Hill Reservoir, under the jurisdiction of the DSOD. DSOD may p
impose operating restrictions on dams and reservoirs that adversely affect the operation of the Sewer
Enterprise. See"SEWER ENTERPRISE REGULATORY REQUIREMENTS—Permits and Licenses." M
0
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Future Legislation ti
0
The City is subject to various laws, rules and regulations adopted by the local, State and federal
governments and their agencies. The City is unable to predict the adoption or amendment of any such
(D
laws, rules or regulations, or their effect on the operations of the Sewer Enterprise or financial condition E
of the Sewer Fund. U
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' Potential Impact of Climatic Change y
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The issue of climate change has become an important factor in water resources planning in the m
State, and it is being considered during planning for water supplies and systems. Many studies cite 3
evidence that increasing concentrations of greenhouse gases have caused and will continue to cause a rise
in temperatures around the world, which will result in a wide range of changes in climate patterns. 0
Moreover,they cite evidence that a warming trend occurred during the latter part of the 20th century and
will likely continue through the 21 st century. These changes could have a direct effect on water resources U
in the State,and numerous studies on climate and water in the State have been conducted to determine the
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potential impacts. Based on these studies, global warming could result in the following types of water
resources impacts in the State,including impacts on water supplies and systems: 3
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• Sea level rise and an increase in saltwater intrusion into groundwater, a)
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• Changes in the timing, intensity,and variability of precipitation, and an increased amount It
of precipitation falling as rain instead of as snow,
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• Reductions in the average annual snowpack due to a rise in the snowline and a shallower
snowpack in the low-and medium-elevation zones,and a shift in snowmelt runoff to earlier in the year,
• Long-term changes in watershed vegetation and increased incidence of wildfires that 0
could affect water quality, o
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• Increased water temperatures with accompanying adverse effects on some fisheries,
• Increases in evaporation and concomitant increased irrigation need,and
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`p Chan ges in urban and agricultural water demand.
However, other than the general trends listed above, there is no clear scientific consensus on c
exactly how global warming will quantitatively affect water supplies or wastewater services with respect
to the Sewer Enterprise. L
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Uncertainties of Projections,Forecasts and Assumptions
Compliance with certain of the covenants in the Installment Purchase Agreement and the
Indenture is based upon assumptions and projections including, but not limited to, those described under
"THE SEWER ENTERPRISE — Financial Projections." Projections and assumptions are inherently °D
subject to significant uncertainties. Inevitably, some assumptions will not be realized and unanticipated 0
events and circumstances may occur and actual results are likely to differ,perhaps materially, from those N
projected. Accordingly, such projections are not necessarily indicative of future performance, and the
City assumes no responsibility for the accuracy of such projections. See also "INTRODUCTION — 0
Forward-Looking Statements." !
Clean Water Factory o
0
Among current Sewer Enterprise CIP projects,the Clean Water Factory is the most significant in m
cost and scope. Project costs for the Clean Water Factory described in this Official Statement are based
upon preliminary estimates by the Department, as are projected schedules for the completion of project
components, plans and designs, construction costs, and funding sources. The amount of capital E
contributions as described in this Official Statement are also based upon preliminary estimates by the
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Department assuming system capacities and respective costs of service. Accordingly, actual results are
subject to adjustment and may vary, and costs may be higher or lower than such estimates. This is true o
including for the estimates of the cost of the contracts for services and tasks needed to complete the first m
phase of the Clean Water Factory. In addition,completion of the Clean Water Factory includes certain
assumptions (which the Department considers to be reasonable), and Department goals. In the event the
costs of the first phase of the Clean Water Factory exceed the Department's original estimates, delays or
unforeseen obstacles are faced, additional capital contributions may be necessary in order to pay for the
total costs of the first phase of the Clean Water Factory. The exact amount of any such additional capital
contributions will depend upon(a)the actual costs of the first phase of the Clean Water Factory incurred
to date where costs and funding are different than anticipated,(b)any unanticipated additional costs of the
first phase of the Clean Water Factory needed to complete the first phase of the Clean Water Factory, (c)
approval of a rate case to address future capital program costs in Fiscal Years 2020-21. and later Fiscal cn
Years, and(d) whether any bonds, loans or grants will differ from those projected to finance costs of the a;
first phase of the Clean Water Factory. Such variables also apply to the timing, costs and funding of later
phases of construction of the Clean Water Factory(expected through 2035),which is projected to begin to
be expended in [Fiscal Year 2021-22], however, such estimates are currently more subject to change than
those with respect to phase one because of the extended time frame. See"THE SEWER ENTERPRISE— N
Clean Water Factory" and "- Capital Improvement Plan" for additional information on the Clean Water a
Factory. As with each component of the Sewer Enterprise CIP, the achievement of projected results,
completion, and other expectations involves known and unknown risks, uncertainties, and other factors N
that may hinder the Department's ability to meet the Sewer Enterprise CIP schedule set forth herein.
"THE SEWER ENTERPRISE — Capital Improvement Plan" and Table 10 under that heading and "— m
Anticipated Additional Obligations; Financing Plans for the Sewer Enterprise CIP."
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Absence of Secondary Market for the 2016 Bonds a',
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There can be no guarantee that there will ever be a secondary market for purchase or sale of the �
2016 Bonds or, if a secondary market exists, that the 2016 Bonds can be sold for any particular price.
Occasionally, because of general market conditions or because of adverse history or economic prospects o
connected with a particular issue, secondary marketing practices in connection with a particular issue are c—c
suspended or terminated. Additionally, prices of issues for which a market is being made will depend
upon then prevailing circumstances. Such prices could be substantially different from the original
L
purchase price. m
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Loss of Tax Exemption on 2016 Bonds �
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As discussed under the caption "TAX MATTERS," interest on the 2016 Bonds could become E
included in gross income for purposes of federal income taxation, retroactive to the date the 2016 Bonds
were issued, as a result of future acts or omissions of the City or the Authority in violation of their
respective covenants in the Indenture and the Installment Purchase Agreement.
2
Economic,Political,Social,and Environmental Conditions O�
Prospective investors are encouraged to evaluate current and prospective economic, political, M
social, and environmental conditions as part of an informed investment decision. Changes in economic, c
political, social, or environmental conditions on a local, state, federal, and/or international level may
adversely affect investment risk generally. Such conditional changes may include(but are not limited to) Lo
fluctuations in business production, consumer prices, or financial markets, unemployment rates,
technological advancements, shortages or surpluses in natural resources or energy supplies, changes in
law, social unrest, fluctuations in the crime rate,political conflict,acts of war or terrorism, environmental E
damage,and natural disasters.
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10 CONSTITUTIONAL LIMITATIONS ON TAXES AND
SEWER TREATMENT RATES AND CHARGES c
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Article XIIIA
m
Article XIIIA of the California Constitution provides that the maximum ad valorem tax on real m
property cannot exceed 1% of the "full cash value," which is defined as "the county assessor's valuation
of real property as shown on the 1975-76 tax bill under `full cash value' or,thereafter,the appraised value .2
of real property when purchased,newly constructed, or a change in ownership has occurred after the 1975 m
assessment," subject to exceptions for certain circumstances of transfer or reconstruction and except with m
respect to certain voter approved debt. The "full cash value" is subject to annual adjustment to reflect 3
increases, not to exceed 2%per year, or decreases in the consumer price index or comparable local data, in
or to reflect reduction in property value caused by damage,destruction or other factors.
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Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes,
while generally precluding the imposition of any additional ad valorem, sales or transaction tax on real
property. As amended, Article XIIIA exempts from the 1% tax limitation any taxes above that level N
required to pay debt service on certain voter-approved general obligation bonds for the acquisition or
improvement of real property. In addition, Article XIIIA requires the approval of two-thirds of all
members of the State Legislature to change any State laws resulting in increased tax revenues. m
N
Under California law, any fee that exceeds the reasonable cost of providing the service for which m
the fee is charged is a"special tax,"which under Article XIIIA must be authorized by a two-thirds vote of
the electorate. Under Article XIIID, fees and charges for water, sewer, and refuse collection services are
ldpftl subject to majority protest, but are not subject to the two-third vote requirement of Article XIIIA. The >
reasonable cost of providing water services has been determined by the State Controller to include
depreciation and allowance for the cost of capital improvements. In addition, the California courts have 3
determined to date that fees such as capacity fees will not be special taxes if they approximate the in
reasonable cost of constructing the water or wastewater capital improvements contemplated by the local o
agency imposing the fee.
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Article XIIIB _
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Article XIIIB of the California Constitution limits the annual appropriations of proceeds of taxes
by State and local government entities to the amount of appropriations of the entity for the prior fiscal m
year,as adjusted for changes in the cost of living,changes in population,and changes in services rendered
by the entity. User fees and charges are considered proceeds of taxes only to the extent they exceed the 4)
reasonable costs incurred by a governmental entity in supplying the goods and services for which such
fees and charges are imposed. Cnn
To the extent that assessments,fees,and charges collected by the City are used to pay the costs of .2
maintaining and operating the Sewer Enterprise and payments due on the 2016 Bonds, and including the p
funding of the Common Reserve Account at the Reserve Requirement, the City believes as of the date
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hereof that such moneys should not be subject to the annual appropriations limit of Article XIIIB.
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Article XHIC
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On November 5, 1996, the voters of the State approved Proposition 218, a constitutional
initiative, entitled the"Right to Vote on Taxes Act" ("Proposition 218"). Proposition 218 added Articles
XIIIC and XIIID to the California Constitution and contained a number of interrelated provisions E
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affecting the ability of local governments, including the City,to levy and collect both existing and future
taxes,assessments,fees,and charges.
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Section 1 of Article XIIIC requires majority voter approval for the imposition, extension, or
increase of general taxes and Section 2 thereof requires two-thirds voter approval for the imposition,
extension, or increase of special taxes. These voter approval requirements of Article XIIIC reduce the
flexibility of the City to raise revenues by the levy of general or special taxes and, given such voter
approval requirements, no assurance can be given that the City will be able to enact, impose, extend, or
increase any such taxes in the future to meet increased expenditure requirements.
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As concerns the Department, the City has not enacted, imposed, extended, or increased any tax 3
since the effective date of Proposition 218. V)
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Section 3 of Article XIIIC expressly extends the initiative power to give voters the power to
reduce or repeal local taxes, assessments, fees, and charges, regardless of the date such taxes, d
assessments,fees,or charges were imposed. Section 3 expands the initiative power to include reducing or
T
repealing assessments,fees,and charges,which had previously been considered administrative rather than
legislative matters and therefore beyond the initiative power. This extension of the initiative power is not
limited by the terms of Article XIIIC to fees imposed after November 6, 1996, the effective date of
Proposition 218, and absent other legal authority could result in the reduction in any existing taxes,
assessments,or fees and charges imposed prior to November 6, 1996.
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"Fees"and"charges"are not expressly defined in Article XIIIC or in SB 919,the Proposition 218 m
Omnibus Implementation Act enacted in 1997 to prescribe specific procedures and parameters for local c
jurisdictions in complying with Article XIIIC and Article XIIID ("SB 919"). Such terms are, however, >
defined in Article XIIID, discussed below. On July 24, 2006, the California Supreme Court ruled in
} Bighorn-Desert View Water Agency v. Virjil (Kelley) (the "Bighorn Decision") that charges for ongoing 3
water delivery are property-related fees and charges within the meaning of Article XIIID and are also fees
or charges within the meaning of Section 3 of Article XIIIC. The California Supreme Court held that 0
such water service charges may,therefore,be reduced or repealed through a local voter initiative pursuant
to Section 3 of Article XIIIC. a
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In the Bighorn Decision, the Supreme Court did state that nothing in Section 3 of Article XIIIC m
authorizes initiative measures that impose voter-approval requirements for future increases in fees or
charges for water delivery. The Supreme Court stated that water providers may determine rates and
charges upon proper action of the governing body and that the governing body may increase a charge that
was not affected by a prior initiative or impose an entirely new charge. E
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The Supreme Court further stated in the Bighorn Decision that it was not holding that the cn
initiative power is free of all limitations and was not determining whether the initiative power is subject to
the statutory provision requiring that water and wastewater service charges be set at a level that will pay
debt service on bonded debt and operating expenses. Such initiative power could be subject to the p
limitations imposed on the impairment of contracts under the contract clause of the United States
Constitution. Additionally, SB 919 provides that the initiative power provided for in Proposition 218 M
"shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased c
before or after November 5, 1996(the date of adoption of Proposition 218),assumes the risk of,or in any n
LO
way consents to, any action by initiative measure that constitutes an impairment of contractual rights"
protected by the United States Constitution. No assurance can be given that the voters of the City will
not, in the future, approve initiatives that repeal, reduce or prohibit the future imposition or increase of
assessments, fees or charges, including the City's water service fees and charges,which are the source of E
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' Net Revenues to make the 2016 Purchase Payments and, in turn,payments of the principal of and interest
on the 2016 Bonds,and other Outstanding Obligations. c
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Notwithstanding the fact that water service charges may be subject to reduction or repeal by voter
initiative undertaken pursuant to Section 3 of Article XIIIC, the City will covenant to levy and charge
rates that meet the requirements of the Installment Purchase Agreement in accordance with applicable 4)
law. Under the Installment Purchase Agreement, the City will covenant to impose rates and charges at m
specified levels. No assurance can be provided that the City will be able to meet such covenant if any 2
proposed increased service charges cannot be imposed as a result of a majority protest under Proposition
218. L
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Article XIIID in
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Article XIIID defines a"fee"or"charge"as any levy other than an ad valorem tax, special tax, or
assessment, imposed upon a parcel or upon a person as an incident of property ownership, including a
user fee or charge for a property-related service. A "property-related service" is defined as "a public
service having a direct relationship to a property ownership." As discussed above, in the Bighorn N
Decision, the California Supreme Court held that a public water agency's charges for ongoing water
delivery are fees and charges within the meaning of Article XIIID. Article XIIID requires that any Q
agency imposing or increasing any property-related fee or charge must provide written notice thereof to Cn
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 o
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increased if a majority of owners of the identified parcels file written protests against it. As a result, the
local government's ability to increase such fee or charge may be limited by a majority protest.
[While the City Attorney currently believes,based upon the judicial precedent in place during the
period of these prior rate increases, that a reviewing court could reasonably uphold the validity of those 3
increases; neither the City nor the City Attorney can provide any assurances as to the outcome of a a)
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challenge to the prior increases in the City's sewer service charges, treatment rates and charges that were O
not approved in accordance with the notice and hearing requirements of Article XIIID if one were
brought.] a
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In addition, Article XIIID also includes a number of limitations applicable to existing, new, or m
increased fees and charges, including provisions to the effect that (i) revenues derived from the fee or
charge shall not exceed the funds required to provide the property-related service; (ii)such revenues shall
not be used for any purpose other than that for which the fee or charge was imposed; (iii)the amount of a
fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the E
proportional cost of the service attributable to the parcel; and(iv) no such fee or charge may be imposed a'
for a service unless that service is actually used by,or immediately available to,the owner of the property
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in question. Property-related fees or charges based on potential or future use of a service are not
permitted.
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Article XIIID establishes procedural requirements for the imposition of assessments, which are
defined as any charge upon real property for a special benefit conferred upon the real property. Standby M
charges are classified as assessments. Procedural requirements for assessments under Article XIIID c
include conducting a public hearing and mailed protest procedure,with notice to the record owner of each
parcel subject to the assessment. The assessment may not be imposed if a majority of the ballots returned h
oppose the assessment,with each ballot weighted according to the proportional financial obligation of the
affected parcel. [The City and the City Attorney believe that as of the date of this Official Statement that
current sewer fees and charges that are subject to Proposition 218 materially comply with the provisions E
' thereof.] U
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Should it become necessary to increase the sewer service charges, treatment rates and charges N
above current levels, the City would be required to comply with the requirements of Article X1111) in o
connection with such proposed increase. m
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[The City believes that current sewer capacity fees are not subject to Proposition 218.
Furthermore, as of the date of this Official Statement, the City and the City Attorney are unaware of any
legal challenges to this position.]
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The interpretation and application of Proposition 218 will ultimately be determined by the courts
or through implementing legislation with respect to a number of the matters described above, and it is not
possible at this time to predict with certainty the outcome of such determination or the nature or scope of 3
any such legislation. i)
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Proposition 26 °
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Proposition 26, a State ballot initiative aimed at restricting regulatory fees and charges, was
approved by the California voters on November 2, 2010. Proposition 26 broadens the definition of"tax"
in Article XIIIC of the California Constitution to include levies, charges and exactions imposed by local
governments, except for charges imposed for benefits or privileges or for services or products granted to
the payor(and not provided to those not charged)that do not exceed their reasonable cost;regulatory fees
that do not exceed the cost of regulation; fees for the use of local governmental property; fines and
penalties imposed for violations of law; real property development fees; and assessments and property- m
related fees imposed under Article XIIID of the California Constitution. California local taxes are subject
to approval by two-thirds of the voters voting on the ballot measure for authorization. Proposition 26
applies to charges imposed or increased by local governments after the date of its approval. a�
The City believes that Proposition 26 does not apply to its sewer treatment rates and charges
because such rates and charges are within various exceptions to Proposition 26.]
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Initiative,Referendum and Charter Amendments E
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Under the California Constitution,the voters of the State have the ability to initiate legislation and c
require a public vote on legislation passed by the State Legislature through the powers of initiative and m
referendum, respectively. For example, Article XIIIA, Article XIIIB and Articles XIIIC and XIIID and
Proposition 26 were adopted pursuant to the State's constitutional initiative process. Under the City N
Charter, the voters of the City can restrict or revise the powers of the City through the approval of a
charter amendment. From time to time,other initiative measures could be adopted or legislative measures
E
could be approved by the Legislature, which may place limitations on the ability of the City to increase }:
revenues or to increase appropriations. Such measures may further affect the City's ability to collect in
taxes, assessments or fees and charges, which could have an effect on Sewer Enterprise revenues. The
City is unable to predict whether any such initiatives or charter amendments might be submitted to or .2
approved by the voters, the nature of such initiatives or charter amendments, or their potential impact on p
the City or the Sewer Enterprise.
Cl)
TAX MATTERS c
Tax Exemption
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The Tax Code imposes certain requirements that must be met subsequent to the issuance and m
delivery of the 2016 Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of E
the Tax Code from the gross income of the owners thereof for federal income tax purposes. U
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' Noncompliance with such requirements could cause the interest on the 2016 Bonds to be included in the
gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of o
the 2016 Bonds. Each of the Authority and the City will covenant to maintain the exclusion of the m
interest on the 2016 Bonds from the gross income of the owners thereof for federal income tax purposes.
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In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under 0
existing statutes, regulations, rulings and court decisions, interest on the 2016 Bonds is exempt from
personal income taxes of the State of California and, assuming compliance with the covenants mentioned .2
herein, interest on the 2016 Bonds is excluded pursuant to section 103(a) of the Tax Code from the gross
income of the owners thereof for federal income tax purposes. In the further opinion of Bond Counsel, L
under existing statutes,regulations, rulings and court decisions,the 2016 Bonds are not"specified private 3
activity bonds" within the meaning of section 57(a)(5) of the Tax Code and, therefore, interest on the
2016 Bonds will not be treated as an item of tax preference for purposes of computing the alternative a;
minimum tax imposed by section 55 of the Tax Code. Receipt or accrual of interest on 2016 Bonds ti
owned by a corporation may affect the computation of the alternative minimum taxable income. A 5t
corporation's alternative minimum taxable income is the basis on which the alternative minimum tax
imposed by section 55 of the Tax Code will be computed. c°v
Pursuant to the Installment Purchase Agreement and the Indenture and in the Tax Certificate a,
Pertaining to Arbitrage and Other Matters under Sections 103 and 141-150 of the Internal Revenue Code N
of 1986,to be delivered by the Authority and the City in connection with the issuance of the 2016 Bonds,
each of the Authority and the City will make representations relevant to the determination of, and will 0
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make certain covenants regarding or affecting,the exclusion of interest on the 2016 Bonds from the gross
income of the owners thereof for federal income tax purposes. In reaching its opinions described in the
immediately preceding paragraph,Bond Counsel will assume the accuracy of such representations and the
present and future compliance by each of the Authority and the City with such covenants.
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Except as stated in this section above, Bond Counsel will express no opinion as to any federal or �n
state tax consequence of the receipt of interest on, or the ownership or disposition of, the 2016 Bonds. o
Furthermore, Bond Counsel will express no opinion as to any federal, state or local tax law consequence S
with respect to the 2016 Bonds, or the interest thereon, if any action is taken with respect to the 2016 M
Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. F-
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Bond Counsel has not undertaken to advise in the future whether any event after the date of issuance of m
the 2016 Bonds may affect the tax status of interest on the 2016 Bonds or the tax consequences of the
co
ownership of the 2016 Bonds. ,
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Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based E
upon its review of existing statutes, regulations, published rulings and court decisions and the
representations and covenants of the Authority and the City described above. No ruling has been sought
from the Internal Revenue Service(the "Service")with respect to the matters addressed in the opinion of R
Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing
program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the 2016 of
Bonds is commenced, under current procedures the Service is likely to treat the Authority as the ,f,
"taxpayer," and the owners would have no right to participate in the audit process. In responding to or
defending an audit of the tax-exempt status of the interest on the 2016 Bonds, the Authority may have c
different or conflicting interests from the owners. Public awareness of any future audit of the 2016 Bonds
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could adversely affect the value and liquidity of the 2016 Bonds-during the pendency of the audit,
regardless of its ultimate outcome.
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Existing law may change to reduce or eliminate the benefit to bondholders of the exemption of E
interest on the 2016 Bonds from personal income taxation by the State of California or of the exclusion of M
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the interest on the 2016 Bonds from the gross income of the owners thereof for federal income tax
purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the o
value and marketability of the 2016 Bonds. Prospective purchasers of the 2016 Bonds should consult m
with their own tax advisors with respect to any proposed or future change in tax law.
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A copy of the form of opinion of Bond Counsel relating to the 2016 Bonds is included in
Appendix D hereto.
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Tax Accounting Treatment of Bond Premium
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To the extent that a purchaser of a 2016 Bond acquires that 2016 Bond at a price in excess of its
"stated redemption price at maturity" (within the meaning of section 1273(a)(2) of the Tax Code), such
excess will constitute "bond premium" under the Tax Code. Section 171 of the Tax Code, and the
Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax-exempt
obligation must be amortized over the remaining term of the obligation(or a shorter period in the case of
certain callable obligations); the amount of premium so amortized will reduce the owner's basis in such
obligation for federal income tax purposes,but such amortized premium will not be deductible for federal
income tax purposes. Such reduction in basis will increase the amount of any gain (or decrease the
amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable
disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is m
determined by using such purchaser's yield to maturity. The rate and timing of the amortization of the
bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain o
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when its 2016 Bond is sold or disposed of for an amount equal to or in some circumstances even less than
the original cost of the 2016 Bond to the owner.
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Persons considering the purchase of 2016 Bonds with initial bond premium should consult with
their own tax advisors with respect to the determination of amortizable bond premium on such 2016
Bonds for federal income tax purposes and with respect to the state and local tax consequence of owning �
and disposing of such 2016 Bonds. o
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Other Tax Consequences
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Although interest on the 2016 Bonds may be exempt from California personal income tax and m
excluded from the gross income of the owners thereof for federal income tax purposes, an owner's
federal, state or local tax liability may be otherwise affected by the ownership or disposition of the 2016 N
Bonds. The nature and extent of these other tax consequences will depend upon the owner's other items
of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the
E
2016 Bonds should be aware that (i) section 265 of the Tax Code denies a deduction for interest on
indebtedness incurred or continued to purchase or carry the 2016 Bonds and the Tax Code contains
additional limitations on interest deductions applicable to financial institutions that own tax-exempt
obligations (such as the 2016 Bonds), (ii)with respect to insurance companies subject to the tax imposed
by section 831 of the Tax Code, section 832(b)(5)(B)(i)reduces the deduction for loss reserves by 15%of pi
the sum of certain items, including interest on the 2016 Bonds, (iii) interest on the 2016 Bonds earned by
certain foreign corporations doing business in the United States could be subject to a branch profits tax M
imposed by section 884 of the Tax Code, (iv)passive investment income, including interest on the 2016 c
Bonds, may be subject to federal income taxation under section 1375 of the Tax Code for Subchapter S
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corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than
25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86
of the Tax Code requires recipients of certain Social Security and certain Railroad Retirement benefits to
take into account, in determining the taxability of such benefits, receipts or accruals of interest on the E
2016 Bonds and(vi)under section 32(i)of the Tax Code, receipt of investment income, including interest
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on the 2016 Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond
Counsel will express no opinion regarding any such other tax consequences. c
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CONTINUING DISCLOSURE
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The Authority has determined that no financial or operating data concerning the Authority is
material to an evaluation of the offering of the 2016 Bonds or to any decision to purchase, hold or sell
2016 Bonds and the Authority will not provide any such information. The Authority shall have no `?
liability to the Owners of the 2016 Bonds or any other person with respect to Rule 15c2-12(b)(5) adopted m
by the SEC under the Securities Exchange Act of 1934,as amended(the"Rule"). co
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Pursuant to the Continuing Disclosure Agreement of the City (the "Continuing Disclosure
co
Agreement"),the Department,on behalf of the City,has agreed to provide, or cause to be provided,to the
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Municipal Securities Rulemaking Board in the manner prescribed by the SEC certain annual financial o
information and operating data and notice of certain Notice Events (as described in the Continuing e!
Disclosure Agreement). The form of the Continuing Disclosure Agreement is attached hereto as
APPENDIX E—"FORM OF CONTINUING DISCLOSURE AGREEMENT. The annual report is to be N
filed by the Department not later than the date in each year that is the first day of the month following the
eighth month after the end of the Department's Fiscal Year (which currently would be June 30),
commencing with the report for the 2015-16 Fiscal Year(the"Annual Report"), and is to include audited m
financial statements of the Department, including the financial results of the Sewer Fund, or audited
financial statements of the City, including the financial results of the Sewer Fund. The covenants of the a
m
City acting by and through the Department, in the Continuing Disclosure Agreement have been made in
order to assist the Underwriter in complying with the Rule. A failure by the Department, on behalf of the
City, to comply with any of the covenants therein is not an event of default under the Indenture or the >
Installment Purchase Agreement.
The City and its related entities have each entered into a number of continuing disclosure CD
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agreements in connection with bonds previously issued by the City and its related entities. One of the o
bond issues relates to a debt secured by revenues of the Sewer Enterprise(the"1998 Sewer Certificates of
Participation"). During the past five ears the City and its related entities failed to comply with the
p )• g P years, Y p Y ca
majority of their obligations under such continuing disclosure undertakings. These failures are F
attributable in part to the City's bankruptcy (See the caption "RISK FACTORS —Effect of City of San m
Bernardino Bankruptcy Case")and, accordingly,the City until recently had not prepared audited financial
statements since Fiscal Year 2012-13. The audited financial statements for the Fiscal Year 2013-14 were
released on June 9, 2016 with the auditors including a going concern qualification in such audit. [The =
audited financial statements for the Fiscal Year 2014-2015 are expected to be released by the end of E
September.] The missing or late continuing disclosure filings of the City and its related entities are
described below [The amendments were all posted on or before October 1,2016.] N
• The City and its related entities filed the City's audited financial statements late for the .2
Fiscal Years 2010-11,2011-12 and 2012-13, including in certain cases more than 340 days late for Fiscal p'
Year 2010-11, more than 540 days late for Fiscal Year 2011-12 and more than 730 days late for Fiscal
Year 2012-13. [The audited financial statements for the Fiscal Year 2013-14 were filed on September_, M
2016.] °o
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• The City and its related entities have consistently filed incomplete annual operating data (r'o
and has consistently failed to provide such operating data on a timely basis. ~
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• The City and its related entities have failed to report unscheduled debt service reserve E
draws and other events of default on a timely basis.
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• The City and its related entities have failed to report ratings changes applicable to
insurers and The
bond ratings on a timely basis. _
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• The City and its related entities have failed to report the City's bankruptcy filing. See the 3
caption"RISK FACTORS—Effect of City of San Bernardino Bankruptcy Case."
a�
With regards to the 1998 Sewer Certificates of Participation, the City filed the audited 0
financial statements for the Sewer Enterprise more than 100 days late for Fiscal Year 2011-12 and more
than 150 days late for Fiscal Year 2013-14. If the City had included the balance in the reserve account for CD
the 1998 Sewer Certificates of Participation, the City would have filed its annual operating data for the L
1998 Sewer Certificates of Participation on time for the last five years with the exception of the annual 3
operating data for the Fiscal Year 2011-12. The reserve fund balance information was corrected for the Cn
annual operating reports for the last five years in a corrective filing on January 4, 2016. Under the rn
continuing disclosure undertaking for the 1998 Sewer Certificates of Participation, the audited financial
statements and annual operating data for the Sewer Enterprise was due within 210 days after the end of d
each Fiscal Year. The audited financial statements and annual operating data are due under the t°
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Continuing Disclosure Agreement within eight months (approximately 240 days) after the end of each N
Fiscal Year.
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As described in the Continuing Disclosure Agreement,the Department will undertake compliance
of the City's obligations under the Continuing Disclosure Agreement. Unlike the delay in release of the
City's financial statements described above, the Department has produced audited financial statements of =
m
the Department, including the financial results of the Sewer Fund, during the pendency of the City's
_ bankruptcy proceedings. For example, Department released to the public its audited financial statements
on January 27, 2016 for the Fiscal Year 2014-15, March 5, 2015 for the Fiscal Year 2013-14, February >
26, 2014 for the Fiscal Year 2012-13, April 12, 2013 for the Fiscal Year 2011-12 and January 10, 2012
for the Fiscal Year 2010-11. Management of the Department expects that it can produce and file with the
Municipal Securities Rulemaking Board the audited financial statements for the Sewer Fund and the other N
required information by the required date under the Continuing Disclosure Agreement. o
In addition,the Department has engaged Urban Futures, Inc. to act as Dissemination Agent under
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the Continuing Disclosure Agreement. As part of its services as Dissemination Agent,Urban Futures has F
agreed to develop and maintain a database to monitor,track and review reporting and filing requirements m
as outlined in the Continuing Disclosure Agreement.
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Furthermore,the Board adopted disclosure policies and procedures for the Department in October
2016 designed to ensure timely and complete compliance with the Department's undertakings under the E
Rule. The Department's Director of Finance,together with the Dissemination Agent,Urban Futures,Inc., a)
have initially assumed primary responsibility for compliance. The City's Finance Director, the
Department's Director of Finance and two other staff members participated in a continuing disclosure 6
training on August 8,2016.
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LITIGATION
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The Authority °o
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To the knowledge of the Authority, there is no material litigation pending or threatened against
the Authority concerning the validity of the 2016 Bonds or any proceedings of the Authority taken with
respect to the issuance thereof.
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Ar The City and the Sewer Enterprise
As of the date of this Official Statement, there is no litigation pending against the City or the m°
Department or, to the knowledge of its respective executive officers, threatened, seeking to restrain or
enjoin the issuance, sale, execution,or delivery of the 2016 Bonds or the Installment Purchase Agreement
or in any way contesting or affecting the validity of the 2016 Bonds or the Installment Purchase
Agreement or the authorizations or any proceedings of the City or the Department taken with respect to
the issuance or sale thereof, or the pledge or application of any moneys or security provided for the U
payment of the 2016 Bonds or the Installment Purchase Agreement or the use of the proceeds of the 2016
Bonds.
a�
3
There are no pending lawsuits that, in the opinion of the City Attorney, challenge the validity of
the 2016 Bonds, the corporate existence of the City or the Department, or the title of the executive M
officers thereof to their respective offices. In connection with this review, attention has been given to not CD
only litigation pending against the City,but also litigation pending against the Department. The Office of
the City Attorney has prepared the following summary, as of the date of this Official Statement,of certain
claims and lawsuits for which the estimated loss to the City as of such date exceeds $1 million pending
against the Sewer Fund for construction claims and certain other alleged liabilities arising during the
ordinary course of operations of the Sewer Enterprise:
In August 2016, the Department was notified that three environmental groups intend to sue the
City, the City of Colton and the San Bernardino/Colton Regional Tertiary Treatment and Water 0
m
Reclamation Authority with respect to the alleged impacts of temporary maintenance shutdowns at RIX
on the endangered Santa Ana suckerfish. The 60-day notice of intent to file a lawsuit was filed by the
Center for Biological Diversity, the San Bernardino Valley Audubon Society and the Sierra Club.
i Particularly in times of drought, the suckerfish is dependent upon the release of water from the RIX to
maintain flow and surface water in portions of the Santa Ana River. By halting discharges deemed
necessary to maintaining surface flows of the Santa Ana River, the maintenance shutdown operations of
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the RIX is alleged to be stranding and killing threatened fish, violating the Endangered Species Act and o
driving the fish closer to extinction, according to the notice. The environmental groups assert that since
2014, more than 100 Santa Ana sucker deaths have been documented in three instances when wastewater
discharges into the river were halted. The halting of water flow from the RIX are the result of shutdowns,
necessary to perform required maintenance to ensure that discharged wastewater meets Clean Water Act m
permit standards. The Department cannot predict the outcome of the proposed litigation, but expects to
continue to work with the United States Fish and Wildlife Service for a managed solution to these
required maintenance shutdowns.
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The City is currently plaintiff in litigation against the EVWD and the Valley District with respect
to their respective actions to jointly propose and develop a sewage treatment plant,currently referred to as U)
the Sterling Natural Resource Center, the operations of which would be redundant, in part, to the ;
operations and capacity of the WRP in the City, and the Rapid Infiltration and Extraction (RIX) Tertiary
Treatment Facility in Colton, which is jointly owned by Colton and the City, but operated by the City. O�
Currently, EVWD wastewater is treated first at the WRP and the RIX Tertiary Treatment Facility. The Ln
City opposes the Sterling project and asserts that (i) defects in the Environmental Impact Report for the M
Sterling project, citing potential public health, water quality, environmental and cost concerns, (ii) the °o
lack of governmental authority by the EVWD, as a water district, to provide wastewater treatment and I-
disposal services, and (iii) circumvention of critical public processes with oversight over the delivery of ti
services. The City asserts that in order for the Sterling project to proceed, the local agencies must obtain
authorization from the San Bernardino County Local Agency Formation Commission ("LAFCO").
LAFCO is a state mandated local agency established to oversee the boundaries of cities and special =
' districts, and to review local agency proceedings in order to encourage orderly boundaries and the
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efficient delivery of services. As proposed, Sterling Natural Resource Center has been described as an up
to 10 mgd wastewater treatment facility with a cost of$128 —300 million which would discharge treated =
wastewater into the local groundwater basin. The Sterling project is in its preliminary stages for planning m
and development, however, the Department has projected that if the EVWD begins treating its own
wastewater, the Sewer Fund will lose at least $4.5 million annually for 20 years for loss of use of a }
portion of the WRP which was sized to serve this partnering agency.
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The WRP JPA Agreement with EVWD provides that it can only be amended and modified by
mutual consent and is to continue in effect until terminated by mutual consent of the parties. Currently,
EVWD disputes that it has an obligation under the WRP JPA Agreement with EVWD to convey its L
wastewater to City facilities for treatment. This dispute could be the subject of litigation relating to
EVWD's obligations under the WRP JPA Agreement with EVWD. In the event of a EVWD's in
withdrawal of its wastewater to City facilities for treatment and resulting decline in flow to and billings rn
by the WRP, operational inefficiencies and related costs resulting from a decline in capacity would be °
allocated among remaining users of the WRP. v
[In addition to the matters summarized above under this heading, in the ordinary course of
operations,the Department is subject to claims and litigation from outside parties. After consultation with
legal counsel, the Department believes the ultimate outcome of such matters, if any, will not materially (,
affect the operations of the Sewer Enterprise or the financial condition of the Sewer Fund.] `n
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CERTAIN LEGAL MATTERS 0
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The validity of the 2016 Bonds and certain other legal matters are subject to the approving c
opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel to the Authority. A
complete copy of the proposed form of Bond Counsel opinion is contained in APPENDIX D hereto.
Certain legal matters will be passed upon for the Authority by Jones Hall, A Professional Law 3
Corporation, San Francisco, California, for the City by the City Attorney, and for the City by Orrick, in
Herrington& Sutcliffe LLP as Disclosure Counsel. Orrick,Herrington& Sutcliffe LLP is also serving as o
counsel to the Underwriter. Except for the City Attorney, such counsel will receive compensation
contingent upon the sale and delivery of the 2016 Bonds.
c
MUNICIPAL ADVISOR m
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Urban Futures,Inc.,Orange,California(the"Municipal Advisor")has assisted the City in matters (n
relating to the planning, structuring, and sale of the 2016 Bonds and the preparation of this Official
Statement, and has provided general financial advisory services to the City with respect to the sale of the °'
E
2016 Bonds. The Municipal Advisor provides financial advisory services only and does not engage in the
underwriting,marketing, or trading of municipal securities or other negotiable instruments. The payment N
of fees of the Municipal Advisor is contingent upon the closing of the 2016 Bond transaction.
2
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RATINGS p
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S&P Global Ratings ("S&P") is expected to assign the 2016 Bonds its municipal bond rating of M
outlook) with the understanding that the Policy insuring the payment when due of the o
principal of and interest on the 2016 Bonds will be issued by concurrently with the delivery of the
2016 Bonds. S&P has assigned to the 2016 Bonds an underlying municipal bond rating of"_." Such
ratings reflect only the views of such rating agencies, and an explanation of the significance of the ratings
may be obtained by contacting them at: Standard & Poor's, 55 Water Street, New York, New York
CD
10041. Such ratings are not a recommendation to buy, sell or hold the 2016 Bonds. There is no assurance E
that such ratings will continue for any given period of time or that such ratings will not be revised U
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' downward or withdrawn entirely by such organizations, if in their judgment circumstances so warrant.
Any such downward revision or withdrawal of such ratings may have an adverse effect on the market o
price of the 2016 Bonds. m
There is no assurance such ratings will continue for any given period of time or that such ratings
will not be revised downward or withdrawn entirely by the rating agencies, if in the judgment of such 0)
rating agencies, circumstances so warrant. Any such downward revision or withdrawal of such ratings
may have an adverse effect on the market price of the 2016 Bonds. None of the Department,the City or
the Authority undertakes any obligation to oppose any downward revision, suspension or withdrawal.
UNDERWRITING 3
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The 2016 Bonds are being purchased by Raymond James &Associates, Inc. (the"Underwriter")
pursuant to a Bond Purchase Agreement, dated _, 2016 (the "Purchase Agreement"), by and rp
among the Authority, the City and the Underwriter. The Underwriter has agreed, subject to certain a
conditions, to purchase the 2016 Bonds at a purchase price of$ (equal to the original principal
amount thereof, plus a net original issue premium of $ less an Underwriter's discount of
$ The Underwriter is committed to purchase all of the 2016 Bonds if any are purchased.
In connection with this offering,the Underwriter may overallot or effect transactions that stabilize
or maintain the market price of the 2016 Bonds at a level above that which might otherwise prevail in the
open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may m
offer and sell the 2016 Bonds to certain dealers and dealer banks and banks acting as agent at prices lower
than the public offering price stated on the inside cover page hereof and said public offering price may be c
changed from time to time by the Underwriter.
f �
FINANCIAL STATEMENTS 3
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' The Department prepares financial statements annually in conformity with generally accepted o
accounting principles for governmental entities, which are audited by an independent certified public S
accountant. The Department's most recent financial statements, for the Fiscal Year ended June 30,20155
were audited by Davis Farr LLP, certified public accountants (the "Independent Auditor"), as stated in i
their report. The Department's basic financial statements contained in the Department's CAFRs include m
the financial statements of the Sewer Fund. The Department's CAFR's also include information relating
to the Water Fund. The 2016 Bonds are not secured by any amounts from the Water Fund. The most
recent audited financial statements of the Department with an unqualified auditor's opinion is included as
Appendix B hereto. See APPENDIX B — "COMPREHENSIVE ANNUAL FINANCIAL REPORT OF
THE DEPARTMENT FOR THE FISCAL YEAR ENDED JUNE 30,2015."
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Accompanying the Independent Auditor's Report in Appendix B is the Department's
Management Discussion and Analysis,which is not audited,but is supplementary information required by .2
the Government Accounting Standards Board. p
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Investors are encouraged to read the entire Official Statement including such financial statements M
in order to obtain information essential to the making of an informed investment decision. o
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The Independent Auditor did not review this Official Statement. The City did not request the LO
consent of the independent auditors to append the Department's financial statements to this Official
Statement. Accordingly, the independent auditors did not perform any procedures relating to any of the
information in this Official Statement. E
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MISCELLANEOUS a
References are made herein to certain documents and reports which are brief summaries thereof m
which do not purport to be complete or definitive and reference is made to such documents and reports for
full and complete statements of the contents thereof. Copies of the Indenture and the Installment
Purchase Agreement may be obtained from the Trustee at U.S. Bank National Association, 700 South
Flower Street, Suite 500, Los Angeles, California 90017. The Appendices are integral parts of this w
Official Statement and must be read together with all other parts of this Official Statement. 0
(D
This Official Statement is not to be construed as a contract or agreement between the Authority,
the City or the Department and the purchasers or Owners of any of the Bonds. The information and 3
expressions of opinion herein are subject to change without notice and neither the delivery of this Official Cn
Statement nor any sale made hereunder shall, under any circumstances, create any implication that there
has been no change in the financial condition, results of operations, or any other affairs of the City, the
Department, the Sewer Enterprise, or the Authority since the date hereof. Any statements in this Official
Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not
as representations of fact. N
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This Official Statement has been duly approved, executed and delivered by the Authority and the
City.
N
CALIFORNIA MUNICIPAL FINANCE m
AUTHORITY
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By:
Chairperson,Board of Commissioners
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CITY OF SAN BERNARDINO M
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By: U)
Stacey R.Aldstadt—General Manager c
Municipal Water Department E
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APPENDIX A
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ECONOMIC AND DEMOGRAPHIC INFORMATION FOR m
THE CITY OF SAN BERNARDINO AND SAN BERNARDINO COUNTY
m
The information in this Appendix A is descriptive of the City of San Bernardino (the "City') and 0
San Bernardino County(the "County'). The following information concerning the City and the County is N
included only for the purpose of supplying general information regarding the community. The 2016 2
Bonds are not a debt of the County and the County has not participated in the preparation of this cn
Appendix A. The information in this Appendix A is subject to change without notice, and neither delivery
of this Official Statement nor any sale thereafter of the 2016 Bonds shall under any circumstances imply 3
that there has not been any change in the affairs of the City, the County or the Department or in any other
information contained herein since the date of the Official Statement. The 2016 Bonds are payable solely
from the sources described herein (see "SECURITY AND SOURCES OF PAYMENT FOR THE 2016 °
BONDS'). No taxing power of the City, the County, the State of California (the "State'), nor any `r
political subdivision of the State, is pledged to the payment of the 2016 Bonds. to
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General
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The County is located in Southern California and was established by an act of the State co
Legislature on May 23, 1853, forming the County from the eastern part of Los Angeles County. The
County encompasses an area of over 22,000 square miles, making it geographically the largest county in o
m
the nation and includes twenty-four incorporated communities. The County is bordered on the west by
Los Angeles and Kern County,on the north by Inyo County and on the south by the Riverside County.
>
The City is the county-seat of the County. Incorporated in 1857, it is one of the largest cities in
the Inland Empire. The economy of the City is largely shaped by the logistics and transportation 3
industries,government and the United States military. rn
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The City encompasses approximately 59.6 square miles in the San Bernardino foothills and the =
eastern portion of San Bernardino Valley, approximately 60 miles east of the City of Los Angeles. The
L
January 1, 2016 population of the City was estimated by the California Department of Finance to be m
215,491. m
_
The City operates under and is governed by the laws of the State and its City Charter as
periodically amended since the original City Charter was adopted by the electorate in 1905. The most
recent City Charter was passed in 2004. An amended City Charter will be on the ballot on November 8, E
E
2016. Its impact on the Department is substantially limited to a realignment under which the Department t?
would assume responsibility for all sewer operations, all sewer operations,including the collection system y
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of waste pipes and related facilities (provided, however, that collection system charges will remain
separate and not part of Revenues or Net Revenues). The City currently has a full-time, elected Mayor, a 2
City Manager, an elected City Attorney, City Clerk and City Treasurer, and seven elected p
Councilmembers. The Mayor and Common Council of the City is the governing body of the City.
S
Charter amendments subject to voter approval would provide that the City Clerk, City Attorney and City ri
Treasurer would no longer be elected, rather designated by appointment. The Mayor and the Common c
Council would be elected by plurality and provisions for run-off elections would be eliminated. ti
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Department heads, boards, commissions, committees would be appointed by the Common Council and
Mayor,rather than by the Mayor alone. ~
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' Population
The following table shows the population estimates of the City, County and State from 2007 m
through 2016.
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POPULATION ESTIMATES
City of San Bernardino,San Bernardino County and State of California
m
2007 through 2016
m
City of San Bernardino San Bernardino County State of California N
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Year(') Population Change Population Change Population Change (1)
2007 206,904 1.8% 1,989,690 1.5% 36,399,676 0.8% o
2008 207,748 0.4 2,009,594 1.0 36,704,375 0.8
2009 208,318 0.3 2,019,432 0.5 36,966,713 0.7
2010 209,656 0.6 2,033,141 0.7 37,223,900 0.7 c
2011 210,842 0.6 2,054,735 1.1 37,536,835 0.9 N
2012 211,727 0.4 2,070,374 0.8 37,881,357 0.9
2013 212,286 0.3 2,086,559 0.8 38,239,207 1.0
2014 212,675 0.2 2,100,700 0.7 38,567,459 0.9
2015 213,861 0.6 2,121,088 1.0 38,907,642 0.9 c
2016 215,491 0.8 2,139,570 0.9 39,255,883 0.9 m
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° As of January 1.
Source: 2007-10,2011-16(2000 and 2010 DRU Benchmark):California Department of Finance for January 1. y
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Personal Income
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' The following table shows of per capita personal income for the County, the State and the United S
States from 2005 through 2014.
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PER CAPITA PERSONAL INCOME") w
San Bernardino County, c
State of California,and United States m
2005 through 2014
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County of
Year San Bernardino California United States
2005 $27,579 $39,046 $35,904
2006 28,489 41,693 38,144 rn
2007 29,352 43,182 39,821
2008 30,017 43,786 41,082
2009 29,144 41,588 39,376 to
2010 29,314 42,411 40,277 c
2011 30,491 44,852 42,453
2012 31,064 47,614 44,266
2013 31,683 48,125 44,438 `r0
2014 32,892 49,985 46,049 c
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Per capita personal income is the total personal income divided by the total mid-year population estimates of the rn
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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Building Activity
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The annual building permit valuations and number of permits for new dwelling units issued from
2011 through 2015 for the County and the City are shown in the following tables.
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BUILDING PERMITS AND VALUATIONS N
San Bernardino County o
(Dollars in Thousands) _
2011 through 2015 0
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2011 2012 2013 2014 2015 m
Valuation($000's)
Residential $341,317 $ 480,704 $ 666,166 $ 708,471 $1,056,572 }
Non-Residential 361,662 562,616 768,169 958,267 1,146,723
Total $702,979 $1,043,320 $1,434,335 $1,666,738 $2,203,295 E
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Units m
Single Family 1,075 1,214 1,874 1,937 2,753
Multiple Family 409 596 1,439 1,266 1,159 tt
Total 1,484 1,810 3,313 3,203 3,912 0i
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Note: Totals may not add to sum because of rounding. G
Source:Construction Industry Research Board. p
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BUILDING PERMITS AND VALUATIONS
City of San Bernardino a
(Dollars in Thousands) m
2011 through 2015
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2011 2012 2013 2014 2015 CD
Valuation($000's)
Residential $ 6,688 $ 7,249 $ 12,061 $ 36,608 $ 36,100
Non-Residential 48,151 87,364 156,460 112,312 138,704 in
Total $54,839 $94,613 $168,521 $148,920 $174,804
Units d
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Single Family 24 18 38 62 38
Multiple Family 0 0 0 50 47 c
Total 24 18 38 112 85 v
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Note: Totals may not add to sum because of rounding.
Source:Construction Industry Research Board. N
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Employment in
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The following table summarizes the labor force, employment and unemployment figures for the r_
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City,County and State from 2011 through 2015. m
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CIVILIAN LABOR FORCE,EMPLOYMENT AND UNEMPLOYMENT RATE
City of San Bernardino,San Bernardino County and State of California
2011 through 2015") L
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Unemployment in
Year Area Labor Force Employment Unemployment Rate(%) 0
2011 City of San Bernardino 84,900 69,800 15,100 17.8%
San Bernardino County 857,800 743,300 114,500 13.4 L
State of California 18,417,900 16,249,600 2,168,300 11.8 m
2012 City of San Bernardino 84,800 71,300 13,500 15.9%
San Bernardino County 862,200 759,800 102,500 11.9
State of California 18,519,000 16,589,700 1,929,300 10.4
2013 City of San Bernardino 84,500 73,000 11,500 13.6%
San Bernardino County 865,100 778,100 87,000 10.1 W
State of California 18,596,800 16,933,300 1,663,500 8.9 3
in
2014 City of San Bernardino 83,600 75,100 8,500 10.2%
San Bernardino County 911,400 838,200 73,200 8.0
State of California 18,811,400 17,397,100 1,414,300 7.5 p
2015 City of San Bernardino 83,800 76,900 6,900 8.2% !
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San Bernardino County 926,600 866,800 59,800 6.5 %,
State of California 18,981,800 17,798,600 1,183,200 6.2 c
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1�1 Data is based on annual averages,unless otherwise specified,and is not seasonally adjusted. L.
Source: U.S.Department of Labor-Bureau of Labor Statistics,California Employment Development Department.March 2015 Benchmark. f`
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Industry y
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The following table summarizes the average annual industry employment in the County from m
2011 through 2015.
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LABOR FORCE AND INDUSTRY EMPLOYMENT ANNUAL AVERAGES
San Bernardino County
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2011 through 2015
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2011 2012 2013 2014 2015 0)
Farm 2,500 2,400 2,400 2,600 2,000
Mining and Logging 600 800 900 1,000 1,000 vn
Construction 25,000 26,800 27,400 30,100 32,500 Q;
Manufacturing 46,500 47,300 48,300 51,200 54,300 d°ti
Wholesale Trade 29,400 31,600 34,000 35,900 38,100
Retail Trade 76,900 81,000 82,800 83,900 84,900 t°
Transportation,Warehousing and Utilities 47,600 52,000 53,500 58,800 63,500
Information 4,500 5,300 5,300 5,000 4,900 m
Financial Activities 20,900 21,000 21,300 21,800 22,400
Professional and Business Services 73,700 73,500 74,900 78,400 82,300
Educational and Health Services 91,100 94,700 102,100 105,300 109,600 c
Leisure and Hospitality 55,100 57,100 60,900 64,300 68,200 m°
Other Services 20,300 20,900 20,900 21,500 22,400
Government 113,300 112,500 114,000 116,100 119,500 C
Total All Industries 607,400 626,900 648,700 675,900 705,600 ai
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Note: Items may not add to total due to independent rounding. 3
Source:California Employment Development Department,Labor Market Information Division.March 2015 Benchmark. (D
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Largest Employers
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The following table lists the largest employers in the County as of June 30, 2013 (due to the a)
unavailability offiscal year 2015 and 2014 data). _
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LARGEST EMPLOYERS
San Bernardino County
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As of June 30,2013 m
as
%of Total
Number of County y
Employer Description Employees") Employees
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1. San Bernardino County County Government 19,000 2.00%
2. Stater Bros.Market Grocery retail and headquarters 18,221 1.92 y
3. U.S.Army,Fort Irwin&Nat.Training Ctr. Military 13,805 1.45
4. Loma Linda University University and research 13,805 1.45
5. U.S.Marine Corp Air Ground Combat Center Military 12,486 1.31
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6. United Parcel Service Inc. Freight company distribution center 8,600 0.91
7. San Bernardino City Unified School District Primary&secondary education 8,574 0.90 c
8. Ontario International Airport Public airport 7,695 0.81
9. Loma Linda University Medical Center Hospital and healthcare 6,147 0.65
10. Kaiser Permanente Hospital and healthcare 6,000 0.63 t°
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Due to the unavailability of fiscal year 2015 and 2014 data,fiscal year 2013 data was used instead. d
Source:San Bernardino County`Comprehensive Annual Financial Report'for the year ending June 30,2015. L
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The following table lists the largest employers in the City as of June 30,2015. c
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LARGEST EMPLOYERS
City of San Bernardino
�* As of June 30,2015 a',
Number of 3
Employer Employeesttl N
1. Stater Brothers 18,000 c
2. County of San Bernardino 17,395
3. San Bernardino City Unified School District 12,629
4. California State University,San Bernardino 3,012 F
5. Saint Bemardine Medical Center 1,400 m
6. Community Hospital of San Bernardino 1,200
7. City of San Bernardino 1,067
8. San Bernardino Community College District 862
9. The Sun Newspaper 526
10. Blood Bank of San Bernardino 340 m
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Source:San Bernardino City Economic and Development Department. N
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Commercial Activity
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Summaries of annual taxable sale date for the County and the City for years 2010 through 2014
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are shown in the following tables. c
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TAXABLE SALES in
San Bernardino County o
2010 through 2014 m
(Dollars in Thousands)
3
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Retain and Food Total Outlets
Retain and Food Taxable Total Taxable
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Year Permits Transactions Permits Transactions 9
2010 34,068 $17,308,880 47,562 $24,687,862
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2011 34,140 18,736,053 47,791 27,322,980
2012 35,095 19,980,937 48,936 29,531,921
2013 32,986 21,173,875 46,632 31,177,823 m
2014 34,455 22,240,376 48,349 33,055,967 c
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Note: In 2009,retail permits expanded to include permits for food services.
Source:"Taxable Sales in California(Sales&Use Tax)"-California State Board of Equalization. to
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TAXABLESALES
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City of San Bernardino Cl)
2010 through 2014 N
(Dollars in Thousands) o
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Retail and Food Total Outlets
Retail and Food Taxable Total Taxable
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Year Permits Transactions Permits Transactions
2010 5,082 $1,757,939 6,232 $2,091,723 (D
2011 4,996 1,923,398 6,156 2,284,943 �
2012 5,098 2,049,832 6,258 2,422,215 U)
2013 4,401 2,171,867 5,498 2,568,376 0 c
2014 4,673 2,273,215 5,808 2,737,021
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Note: In 2009,retail permits expanded to include permits for food services. d
Source:"Taxable Sales in California(Sales&Use Tax)"-California State Board of Equalization. m
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APPENDIX B
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COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE DEPARTMENT m
FOR THE FISCAL YEAR ENDED JUNE 30,2015
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The Comprehensive Annual Financial Report attached as Appendix B includes
information relating to the Water Utility Enterprise Fund. The 2016 Bonds are payable
solely from the sources described herein (see "SECURITY AND SOURCES OF
PAYMENT FOR THE 2016 BONDS") and are not secured by any amounts from the 3
Water Utility Enterprise Fund. cn
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APPENDIX C
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SUMMARY OF PRINCIPAL LEGAL DOCUMENTS m
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' APPENDIX D
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FORM OF BOND COUNSEL OPINION m
I As a condition to the delivery of the 2016 Bonds, Norton Rose Fulbright US LLP, Los Angeles,
California, Bond Counsel to the Authority, is expected to render its final approving opinion with respect
to the 2016 Bonds in substantially the following form:
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APPENDIX E
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FORM OF CONTINUING DISCLOSURE AGREEMENT m
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THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as
of December 1, 2016, is by and between CITY OF SAN BERNARDINO, a municipal corporation and m
Charter City organized and existing under the laws of the State of California (the "City"), acting by and
through the CITY OF SAN BERNARDINO MUNICIPAL WATER DEPARTMENT (the 2
"Department"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized
and existing under the laws of the United States of America,as Trustee(the"Trustee").
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WITNESSETH : in
WHEREAS, the California Municipal Finance Authority (the "Authority") has issued the ti
California Municipal Finance Authority Sewer Revenue Bonds, Series 2016 (City of San Bernardino
Sewer Facilities Project) (the"2016 Bonds"), in the aggregate principal amount of$ ,pursuant
to the Indenture, dated as of December 1, 2016 (the "Indenture"), by and between the Authority and the
Trustee;and
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WHEREAS, this Disclosure Agreement is being executed and delivered by the City, acting by
and through the Department, and the Trustee for the benefit of the owners and Beneficial Owners of the D
2016 Bonds and in order to assist the underwriters of the 2016 Bonds in complying with Securities and 0 co
Exchange Commission Rule 15c2-12(b)(5); Q
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WHEREAS,the Department has been created by the City Charter of the City to act on behalf of >
the City with regard to the Sewer Enterprise and accordingly, the Department has agreed to undertake
compliance with all of the obligations required under this Disclosure Agreement on behalf of the City; 3
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NOW, THEREFORE, for and in consideration of the mutual promises and covenants herein
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contained,the parties hereto agree as follows: E
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Section 1. Definitions. Unless the context otherwise requires, the terms defined in this F
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Section shall for all purposes of this Disclosure Agreement have the meanings herein specified. m
Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture.
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"Annual Report" means any Annual Report provided by the Department, on behalf of the City, c
pursuant to,and as described in, Sections 2 and 3 hereof.
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"Annual Report Date" means the date in each year that is the first day of the month following N
the eighth month after the end of the Department's fiscal year, which date, as of the date of this
Disclosure Agreement, is March 1. U
"Audited Financial Statements" means audited financial statements of the Department, 0i
including the financial results of the Sewer Fund, or audited financial statements of the City including the
financial results of the Sewer Fund. o
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"Beneficial Owner" means any person that has or shares the power, directly or indirectly, to
make investment decisions concerning the ownership of any 2016 Bonds(including persons holding 2016 ti
Bonds through nominees,depositories or other intermediaries).
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"City" means the City of San Bernardino, California, a charter city and municipal corporation
organized and existing under the laws of the State.
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"Department"means the City of San Bernardino Municipal Water Department.
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"Disclosure Representative" means the Director of Finance of the Department, or his or her
designee, or such other person as the Department, on behalf of the City, shall designate in writing to the
Trustee from time to time. 2
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"Dissemination Agent" means Urban Futures, Inc., or any successor Dissemination Agent
designated in writing by the Department, on behalf of the City, and which has filed with the Trustee a
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written acceptance of such designation. Cn
"Indenture" means the Indenture, dated as of December 1, 2016, by and between the Authority rn
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and U.S. Bank National Association, as originally executed and as it may be amended or supplemented
from time to time in accordance with its terms. o
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"Listed Events" means any of the events listed in subsection (a) or subsection (b) of Section 4
hereof.
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"MSRB" means 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 o
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otherwise rwise designated by
the MSRB or the Securities and Exchange Commission filings with the MSRB CU
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1 are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, _
jcurrently located at http://emma.msrb.org. w
"Official Statement" means the Official Statement, dated November _, 2016, relating to the
2016 Bonds.
"Participating Underwriter" means Raymond James & Associates, Inc. and any other original
underwriter of the 2016 Bonds required to comply with the Rule in connection with the offering of the
2016 Bonds.
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"Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under
the Securities Exchange Act of 1934,as the same may be amended from time to time. m
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"Trustee" means U.S. Bank National Association, as Trustee under the Indenture, or any w
successor thereto as Trustee thereunder,substituted in its place as provided therein. m
Section 2. Provision of Annual Reports. (a)The Department, on behalf of the City, shall, m
or shall cause the Dissemination Agent to,provide to the MSRB an Annual Report that is consistent with U
the requirements of Section 3 hereof, by not later than the Annual Report Date, commencing with the 0
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Annual Report for the 2015-16 Fiscal Year. The Annual Report may include by reference other
information as provided in Section 3 hereof;provided,however,that the Audited Financial Statements, if M
any, may be submitted separately from the balance of the Annual Report, and later than the date required
above for the filing of the Annual Report if they are not available by that date. If the Department's fiscal °
year changes,it shall,or it shall instruct the Dissemination Agent to,give notice of such change in a filing LO
with the MSRB.
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(b) Not later than 15 business days prior to the date specified in subsection(a)of this Section E
for the providing of the Annual Report to the MSRB,the Department,on behalf of the City, shall provide
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the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination
Agent). If by such date, the Dissemination Agent has not received a copy of the Annual Report, the o
Dissemination Agent shall contact the Department to determine if the Department is in compliance with m
the first sentence of this subsection(b).
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(c) The Dissemination Agent shall:
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(i) provide each Annual Report received by it to the MSRB, as provided herein,
within one business day of receipt thereof from the Department; and a,
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(ii) file a report with the Department and (if the Dissemination Agent is not the
Trustee) the Trustee certifying that such Annual Report has been provided pursuant to this in
Disclosure Agreement and stating the date it was provided to the MSRB.
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(d) If by ten business days prior to the date specified in subsection(a) of this Section for the d
providing of the Annual Report to the MSRB,the Trustee has not received a copy of the Annual Report, �0
the Trustee shall contact the Department and the Dissemination Agent to determine if the Department is
in compliance with the first sentence of this subsection(b). W
(e) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB Cn
by the date required in subsection(a) of this Section,the Trustee shall, in a timely manner, send a notice
to the MSRB in substantially the form attached as Exhibit A. 0
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Section 3. Content of Annual Reports. The Annual Report shall contain or incorporate by
reference the following: >
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(a) The Audited Financial Statements for the prior fiscal year, prepared in accordance with 3
generally accepted accounting principles as promulgated from time to time by GASB and all statements
and interpretations issued by the Financial Accounting Standards Board which are not in conflict with the Cn
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statements issued by GASB. If the Audited Financial Statements are not available by the time the Annual S
Report is required to be filed pursuant to Section 3(a),the Annual Report shall contain unaudited financial
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statements and the Audited Financial Statements shall be filed in the same manner as the Annual Report =
when they become available. m
(b) Unless contained in the Audited Financial Statements,the following information: m
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(i) An update of the information contained in Table 3 in the Official Statement for m
the most recently completed fiscal year.
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(ii) An update of the information contained in Table 4 in the Official Statement for m
the most recently completed fiscal year. 'U
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(iii) An update of the information contained in Table 5 in the Official Statement for 0i
the most recently completed fiscal year.
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(iv) An update of the information contained in Table 6 in the Official Statement, for °
the most recently completed fiscal year. m
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(v) An update of the information contained in Table 7 in the Official Statement, for
the most recently completed fiscal year. E
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(vi) An update of the information contained in Table 9 in the Official Statement, for
the most recently completed fiscal year. c
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(vii) An update of the information contained in Table 10 in the Official Statement, for
the most recently completed fiscal year.
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(viii) An update of the information contained in Table 13 in the Official Statement to
reflect historical debt service coverage for the most recently completed fiscal year (an update of 2
the projections is not required). CD
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(ix) The principal amount of 2016 Bonds Outstanding as of the December 31 next
preceding the Annual Report Date. co
(x) The balance in the Common Reserve Account, and a statement of the Reserve o
Requirement,as of the December 31 next preceding the Annual Report Date.
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(c) In addition to any of the information expressly required to be provided under the N
preceding paragraphs (a) and (b), the Department, on behalf of the City, shall provide such further
information, if any, as may be necessary to make the specifically required statements, in the light of the
circumstances under which they are made,not misleading. Cn
Any or all of the items listed above may be included by specific reference to other documents, m
including official statements of debt issues of the City or related public entities, that have been made
available to the public on the MSRB's website. The Department, on behalf of the City, shall clearly
.rom,%, identify each such other document so included by reference. >
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Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, (D the Department, on behalf of the City, shall give, or cause to be given, notice of the occurrence of any of
the following events with respect to the 2016 Bonds in a timely manner not later than ten business days m
after the occurrence of the event:
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(i) Principal and interest payment delinquencies. _
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(ii) Unscheduled draws on debt service reserves reflecting financial difficulties.
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(iii) Unscheduled draws on credit enhancements reflecting financial difficulties.
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(iv) Substitution of credit or liquidity providers,or their failure to perform. d
(v) Adverse tax opinions or issuance by the Internal Revenue Service of proposed or m
final determination of taxability or of a Notice of Proposed Issue(IRS Form 5701 @
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(vi) Tender offers.
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(vii) Defeasances. °
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(viii) Rating changes. ti
(ix) Bankruptcy,insolvency,receivership or similar event of the City.
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' For purposes of the event identified in paragraph(ix),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 o
person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal m
law in which a court or governmental authority has assumed jurisdiction over substantially all of the
assets or business of the City, or if such jurisdiction has been assumed by leaving the existing
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 City. (D
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(b) Pursuant to the provisions of this Section, the Department, on behalf of the City, shall 3
give,or cause to be given,notice of the occurrence of any of the following events with respect to the 2016 in
Bonds,if material,in a timely manner not later than ten business days after the occurrence of the event:
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(i) Unless described in paragraph (v) of subsection (a) of this Section, material
notices or determinations by the Internal Revenue Service with respect to the tax
status of the 2016 Bonds or other material events affecting the tax status of the poi
2016 Bonds. N
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(ii) Modifications to rights of holders of the 2016 Bonds.
(iii) Optional,unscheduled or contingent 2016 Bond calls. m
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(iv) Release,substitution,or sale of property securing repayment of the 2016 Bonds.
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(v) Non-payment related defaults.
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(vi) The consummation of a merger, consolidation, or acquisition involving the City
or the sale of all or substantially all of the assets of the City other than in the m
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
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actions,other than pursuant to its terms. E
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(vii) Appointment of a successor or additional trustee or the change of name of a
trustee. m
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(c) The Trustee shall, within one business day of obtaining actual knowledge of the
occurrence of any of the Listed Events, contact the Disclosure Representative and inform such person of
the event.
(d) Whenever the Department obtains knowledge of the occurrence of a Listed Event 2
described in subsection (b) of this Section, the Department shall determine if such event would be 0
material under applicable Federal securities law. i
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(e) Whenever the Department obtains knowledge of the occurrence of a Listed Event
described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in °
subsection(b) of this Section would be material under applicable Federal securities law,the Department,
on behalf of the City, shall, or shall cause the Dissemination Agent to, file a notice of the occurrence of
such Listed Event with the MSRB,within ten business days of such occurrence.
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(f) Notwithstanding the foregoing, notice of Listed Events described in paragraph (vii) of in
subsection(a) of this Section and(iii) of subsection(a) of this Section need not be given any earlier than c
the notice (if any) of the underlying event is given to holders of affected 2016 Bonds pursuant to the m
Indenture. °'
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Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant
to this Disclosure Agreement must be submitted in electronic format, accompanied by such identifying m
information as is prescribed by the MSRB.
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Section 6. Termination of Reporting Obligation. The Department's and the City's
obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption 3
or payment in full of all of the 2016 Bonds. If such termination occurs prior to the final maturity of the in
2016 Bonds, the Department, on behalf of the City, shall give, or cause to be given, notice of such
termination in a filing with the MSRB.
Section 7. Dissemination Agent. The Department,on behalf of the City,may, from time to r
time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this C°,,
Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a
successor Dissemination Agent. The Dissemination Agent may resign by providing 30 days' written
notice to the Department. The initial Dissemination Agent shall be Urban Futures, Inc. If at any time Cn
there is not any other designated Dissemination Agent,the Trustee shall be the Dissemination Agent.
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Section 8. Amendment, Waiver. Notwithstanding any other provision of this Disclosure m
Agreement,the Department, on behalf of the City, and the Trustee may amend this Disclosure Agreement
(and the Trustee shall agree to any amendment so requested by the Department, on behalf of the City, so >
long as such amendment does not adversely affect the rights or materially increase the obligations of the W
Trustee), and any provision of this Disclosure Agreement may be waived, provided that the following 3
conditions are satisfied: ai
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(a) if the amendment or waiver relates to the provisions of subsection(a)of Section 2 hereof, __
Section 3 hereof or subsection (a) or (b) of Section 4 hereof, it may only be made in connection with a
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change in circumstances that arises from a change in legal requirements, change in law, or change in the F
identity, nature or status of an obligated person with respect to the 2016 Bonds, or the type of business m
conducted;
(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of
nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the
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primary offering of the 2016 Bonds, after taking into account any amendments or interpretations of the
Rule,as well as any change in circumstances;and N
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(c) the proposed amendment or waiver(i) is approved by Owners of the 2016 Bonds in the
manner provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) p
does not, in the opinion of nationally recognized bond counsel, materially impair the interests of Owners i
or Beneficial Owners of the 2016 Bonds.
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In the event of any amendment or waiver of a provision of this Disclosure Agreement, the
Department, on behalf of the City, shall describe such amendment or waiver in the next Annual Report,
and shall include, as applicable,a narrative explanation of the reason for the amendment or waiver and its
impact on the type (or in the case of a change of accounting principles, on the presentation) of financial
information or operating data being presented by the Department, on behalf of the City. In addition, if the E
amendment relates to the accounting principles to be followed in preparing financial statements (i)notice
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of such change shall be given in a filing with the MSRB, and(ii)the Annual Report for the year in which v,
the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative c
form) between the financial statements as prepared on the basis of the new accounting principles and m
those prepared on the basis of the former accounting principles. 3
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Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed
to prevent the Department, on behalf of the City, from disseminating any other information, using the
means of dissemination set forth in this Disclosure Agreement or any other means of communication, or
including any other information in any Annual Report or notice required to be filed pursuant to this
Disclosure Agreement, in addition to that which is required by this Disclosure Agreement. If the
Department, on behalf of the City, chooses to include any information in any Annual Report or notice in 3
addition to that which is specifically required by this Disclosure Agreement,the Department,on behalf of in
the City, shall have no obligation under this Disclosure Agreement to update such information or include a)
it in any future Annual Report or notice of occurrence of a Listed Event or any other event required to be
reported.
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Section 10. Default. In the event of a failure of the Department, on behalf of the City, the N
Trustee or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the
Trustee may(and,at the written direction of any Participating Underwriter or the Owners of at least 25% W
of the aggregate principal amount of Outstanding 2016 Bonds, shall, upon receipt of indemnification co
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reasonably satisfactory to the Trustee), or any Owner or Beneficial Owner of the 2016 Bonds may, take
such actions as may be necessary and appropriate, including seeking mandate or specific performance by C
court order,to cause the Department,on behalf of the City,the Trustee or the Dissemination Agent,as the m
case may be, to comply with its obligations under this Disclosure Agreement. A default under this a=i
Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy m
under this Disclosure Agreement in the event of any failure of the Department, on behalf of the City, the a:
Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to 3
compel performance.
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Section 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. _
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Article VI of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure
Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent shall be E
entitled to the protections and limitations from liability afforded to the Trustee thereunder. Neither the m
Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or
notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services T
provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the c
Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in E
this Disclosure Agreement To the extent permitted by law, the Department, on behalf of the City, agrees
to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless N
against any loss, expense and liabilities which it may incur in the exercise or performance of its powers Ia
and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against
any claim of liability,and which are not due to its negligence or its willful misconduct.The obligations of O�
the Department, on behalf of the City, under this Section shall survive resignation or removal of the Ln
Dissemination Agent and the termination of this Disclosure Agreement. M
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Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the
Authority, the Department, the City, the Trustee, the Dissemination Agent, the Participating Underwriter
and the Owners and Beneficial Owners from time to time of the 2016 Bonds, and shall create no rights in
any other person or entity.
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Section 13. Counterparts. This Disclosure Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall constitute but one and the same c
instrument. m
IN WITNESS WHEREOF,the parties hereto have executed this Disclosure Agreement as of the
date first above written. m
CITY OF SAN BERNARDINO, acting by
and through the City of San Bernardino
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Municipal Water Department
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By:
Director of Finance °
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U.S.BANK NATIONAL ASSOCIATION,as 04
Trustee
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By:
Authorized Signatory C
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ACCEPTED AND AGREED TO: c
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� URBAN FUTURES,INC.,as L
Dissemination Agent 3
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By:
Authorized Signatory a
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® EXHIBIT A
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NOTICE OF FAILURE TO FILE ANNUAL REPORT M
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Name of Issuer: California Municipal Finance Authority
Name of Issue: California Municipal Finance Authority Sewer Revenue Bonds, Series 2016 4'
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(City of San Bernardino Sewer Facilities Project) 4)
Obligated Person: City of San Bernardino Municipal Water Department, on behalf of the City of
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San Bernardino
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Date of Issuance: December 2016
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NOTICE IS HEREBY GIVEN that the City of San Bernardino, a municipal corporation and o
Charter City organized and existing under the laws of the State of California(the "City"), acting by and !T_
through the City of San Bernardino Municipal Water Department(the"Department"),has not provided an co
Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure N
Agreement, dated as of December 1, 2016, by and between the City, acting by and through the
Department, and U.S. Bank National Association, as Trustee. [The Department anticipates that such
Annual Report will be filed by ]
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Dated: m
U.S.BANK NATIONAL ASSOCIATION,as c
Trustee,on behalf of the City of San Bernardino >
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Municipal Water Department
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cc: California Municipal Finance Authority
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' APPENDIX F
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INFORMATION REGARDING THE BOOK-ENTRY ONLY SYSTEM m
The following description of DTC and its book-entry system has been provided by DTC and has
not been verified for accuracy or completeness by the City or the Authority, and neither the City nor the
Authority shall have any liability with respect thereto. Neither the City nor the Authority shall have any
responsibility or liability for any aspects of the records maintained by DTC relating to or payments made
on account of beneficial ownership, or for maintaining, supervising, or reviewing any records maintained
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by DTC relating to beneficial ownership, of interests in the 2016 Bonds.
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The Depository Trust Company("DTC"),New York,NY,will act as securities depository for the in
2016 Bonds. The 2016 Bonds 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 bond will be issued for each maturity of the 2016 Bonds, in
the aggregate principal amount of such issue,and will be deposited with DTC.
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DTC, the world's largest securities depository, is a limited-purpose trust company organized N
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
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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
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3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money an
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 m
pledges between Direct Participants' accounts. This eliminates the need for physical movement of L
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 vn
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 c
system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, v
trust companies, and clearing corporations that clear through or maintain a custodial relationship with a m
Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's in
rating of 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, provided that nothing a)
contained in such website is incorporated into this Official Statement. W
Purchases of 2016 Bonds under the DTC system must be made by or through Direct Participants,
which will receive a credit for the 2016 Bonds on DTC's records. The ownership interest of each actual 1�
purchaser of each 2016 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect .2
Participants' records. Beneficial Owners will not receive written confirmation from DTC of their of
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
2016 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their
ownership interests in 2016 Bonds, except in the event that use of the book-entry system for the 2016
Bonds is discontinued.
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To facilitate subsequent transfers, all 2016 Bonds deposited by Direct Participants with DTC are w
registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be c
requested by an authorized representative of DTC. The deposit of 2016 Bonds with DTC and their m
registration in the name of Cede&Co. or such other DTC nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the 2016 Bonds; DTC's records c=,
reflect only the identity of the Direct Participants to whose accounts such 2016 Bonds are credited,which
may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible m
for keeping account of their holdings on behalf of their customers. 2
Conveyance of notices and other communications by DTC to Direct Participants, by Direct v�
Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial 3
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 2016 Bonds may wish to take y
certain steps to augment the transmission to them of notices of significant events with respect to the 2016 c
Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture and the
Installment Purchase Agreement. For example, Beneficial Owners of 2016 Bonds may wish to ascertain
that the nominee holding the 2016 Bonds for their benefit has agreed to obtain and transmit notices to 0
Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses w
to the registrar and request that copies of notices be provided directly to them.
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Redemption notices shall be sent to DTC. If less than all of the 2016 Bonds within an issue are
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being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct _
Participant in such issue to be redeemed.
m
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 3
2016 Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures.Under
its usual procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record m
date.The Omnibus Proxy assigns Cede&Co.'s consenting or voting rights to those Direct Participants to
whose accounts 2016 Bonds are credited on the record date (identified in a listing attached to the
Omnibus Proxy). cn
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Redemption proceeds, distributions, and dividend payments on the 2016 Bonds will be made to E
Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's o
practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail F
information from the Authority or the Trustee, on payable dates in accordance with their respective m
holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by N
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 m
and not of DTC,the Trustee, or the Authority, subject to any statutory or regulatory requirements as may E
be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to .2
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Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the in
responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will �a
be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the
responsibility of Direct and Indirect Participants. O�
DTC may discontinue providing its services as depository with respect to the 2016 Bonds at any `O
M
time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event o
that a successor depository is not obtained,bonds are required to be printed and delivered. The Authority °
may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor
securities depository). In that event,bonds will be printed and delivered to DTC. ►�
The information in this Official Statement concerning DTC and DTC's book-entry system has m
been obtained from sources that the Authority and the City believes to be reliable, but the Authority and
the City take no responsibility for the accuracy thereof.
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APPENDIX G N
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