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Item 02 - COUNCIL READING FILE_f_Preliminary Official Statement
4127-3642-5770.7 PRELIMINARY OFFICIAL STATEMENT DATED ______, 2021 NEW ISSUE – BOOK-ENTRY-ONLY NO RATING In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein. $[18,370,000]* CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) SPECIAL TAX BONDS, SERIES 2021 Dated: Date of Delivery Due: September 1, as shown on the inside cover page The City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Special Tax Bonds, Series 2021 (the “Bonds”) are being issued and delivered by City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) (the “District”) to (i) provide financing for certain public facilities and costs with respect thereto related to the development within the District, (ii) fund a reserve fund with respect to the Bonds, (iii) capitalize a portion of the interest on the Bonds through [______ 1, 2022] and (iv) pay the costs of issuance with respect to the Bonds. See “ESTIMATED SOURCES AND USES OF FUNDS” herein. The District has been formed by and is located in the City of San Luis Obispo, California (the “City”). The Bonds are authorized to be issued pursuant to the Mello -Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California), and pursuant to an Indenture, by and between the District and U.S. Bank National Association, as Trustee. The Bonds are special obligations of the District and are payable solely from Net Special Tax Revenues (as def ined herein), and the other assets pledged therefor under the Indenture, all as further described herein. Special Taxes (as defined herein) are to be levied according to the rate and method of apportionment approved by the City Council of the City and the qualified electors within the District. The City Council is the legislative body of the District. The Bonds are issuable in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Individual purchases of Bonds may be made in principal amounts of $5,000 and integral multiples thereof. Purchasers of Bonds will not receive certificates representing their beneficial ownership of the Bo nds but will receive credit balances on the books of their respective nominees. Interest on the Bonds will be payable on each March 1 and September 1, commencing September 1, 2021. Principal of and interest on the Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are expected to remit such payments to the beneficial owners of the Bonds. See “THE BONDS — General Provisions” and Appendix H — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein. The Bonds are subject to optional, extraordinary and mandatory redemption as described herein.* See “THE BONDS—Redemption Provisions.” NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. The Bonds are not rated by any rating agency. The purchase of the Bonds involves certain risks. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain risk factors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality of the Bonds. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Orrick Herrington & Sutcliffe, LLP, as Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the City and the District by the City Attorney, and by Orrick Herrington & Sutcliffe, LLP, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Stradling, Yocca, Carlson & Rauth, a Professional Corporation. It is anticipated that the Bonds will be available for delivery to DTC or its agent in book-entry form on or about ______ __, 2021. Piper Sandler Dated: ________ __, 2021 * Preliminary, subject to change. 4127-3642-5770.7 MATURITY SCHEDULE BASE CUSIP†: ______ Maturity Date (September 1) Principal Amount Interest Rate Yield Price CUSIP† No. $______ ___% Term Bonds due September 1, 20__, Yield: ___% Price: _____ CUSIP† Suffix ___ $______ ___% Term Bonds due September 1, 20__, Yield: ___% Price: _____ CUSIP† Suffix ___ † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2021 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP® numbers are provided for convenience of reference only. Neither the District nor the Underwriter takes any responsibility for the accuracy of such numbers. 4127-3642-5770.7 CITY OF SAN LUIS OBISPO CITY COUNCIL Heidi Harmon, Mayor Erica A. Stewart, Vice Mayor Carlyn Christianson, Councilmember Andy Pease, Councilmember Jan Howell Marx, Councilmember STAFF Derek J. Johnson, City Manager Brigitte Elke, Finance Director Michael Codron, Community Development Director J. Christine Dietrick, City Attorney Teresa Purrington, City Clerk SPECIAL SERVICES BOND COUNSEL Orrick Herrington & Sutcliffe LLP MUNICIPAL ADVISOR PFM Financial Advisors TRUSTEE U.S. Bank National Association SPECIAL TAX CONSULTANT Economic & Planning Systems, Inc. APPRAISER Integra Realty Resources MARKET ABSORPTION CONSULTANT The Gregory Group 4127-3642-5770.7 Except where otherwise indicated, all information contained in this Official Statement has been provided by the City and the District. No dealer, broker, salesperson or other person has been authorized by the City, the District, the Trustee or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by the City, the District, the Trustee or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part o f, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction , but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the District or any other parties described herein since the date hereof. All summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Refe rence is hereby made to such documents on file with the District for further information in connection therewith. Certain statements included or incorporated by reference in this Official Statement constitute “forward -looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as a “plan,” “expect,” “estimate,” “project,” “budget” or similar words. Such forward-looking statements include but are not limited to certain statements contained in the information under the captions “THE COMMUNI TY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” The achievement of certain results or other expectations contained in such forward -looking statements involve known and unknown risks, uncertainties and other factors which may cause act ual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Except as set forth in the District’s Continuing Disclosure Certificate, a form of which is attached hereto as Appendix G, neither the District nor the City plans to issue any updates or revisions to the forward - looking statements set forth in this Official Statement. See “CONTINUING DISCLOSURE.” A wide variety of other information, including financial information, concerning the City, is available from publications and websites of the City and others. No such information is a part of or incorporated into this Official Statement. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. TABLE OF CONTENTS Page i 4127-3642-5770.7 INTRODUCTION ................................................................................................................................................ 1 The District .................................................................................................................................................... 1 Landowners .................................................................................................................................................... 1 Security and Sources of Payment for the Bonds ............................................................................................ 3 Description of the Bonds................................................................................................................................ 3 Appraisal Report ............................................................................................................................................ 4 Market Absorption Study ............................................................................................................................... 4 Professionals Involved in the Offering .......................................................................................................... 4 Continuing Disclosure.................................................................................................................................... 4 Bond Owners’ Risks ...................................................................................................................................... 5 Other Information .......................................................................................................................................... 5 ESTIMATED SOURCES AND USES OF FUNDS ............................................................................................ 6 THE BONDS ........................................................................................................................................................ 6 General Provisions ......................................................................................................................................... 6 Redemption .................................................................................................................................................... 7 Debt Service Schedule ................................................................................................................................. 10 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS .................................................................. 10 General ......................................................................................................................................................... 10 Special Taxes ............................................................................................................................................... 11 Rate and Method of Apportionment ............................................................................................................ 12 Special Tax Calculation ............................................................................................................................... 14 Collection and Application of Special Taxes ............................................................................................... 16 Covenant for Superior Court Foreclosure .................................................................................................... 17 Special Tax Fund ......................................................................................................................................... 18 Reserve Fund ............................................................................................................................................... 18 Investment of Moneys .................................................................................................................................. 19 Additional Bonds ......................................................................................................................................... 19 THE COMMUNITY FACILITIES DISTRICT ................................................................................................. 21 General Information Regarding the District................................................................................................. 21 The Facilities ................................................................................................................................................ 22 Direct and Overlapping Debt ....................................................................................................................... 23 Property Values ............................................................................................................................................ 24 Market Absorption Study ............................................................................................................................. 25 Value-to-Lien Ratios .................................................................................................................................... 25 PROPERTY OWNERSHIP AND THE DEVELOPMENT ............................................................................... 31 Development Entitlements ........................................................................................................................... 31 Status of Development ................................................................................................................................. 36 Property Ownership ..................................................................................................................................... 36 Development Plan ........................................................................................................................................ 41 Plan of Finance ............................................................................................................................................ 45 SPECIAL RISK FACTORS ............................................................................................................................... 51 Risks of Real Estate Secured Investments Generally – Declines in Value .................................................. 52 Levy of the Special Tax ............................................................................................................................... 52 Collection of the Special Tax ....................................................................................................................... 52 Failure to Develop Properties....................................................................................................................... 53 Concentration of Property Ownership ......................................................................................................... 54 Exempt Properties ........................................................................................................................................ 54 Constitutional Limitations on Taxation and Appropriations ........................................................................ 55 Maximum Annual Special Tax .................................................................................................................... 58 Payment of the Special Tax is Not a Personal Obligation of the Owners .................................................... 58 TABLE OF CONTENTS (continued) Page ii 4127-3642-5770.7 Disclosures to Future Purchasers ................................................................................................................. 58 Parity Taxes and Special Assessments ......................................................................................................... 59 Depletion of Reserve Fund .......................................................................................................................... 59 Bankruptcy and Legal Delays ...................................................................................................................... 59 FDIC/Federal Government Interests In Properties ....................................................................................... 60 Geologic, Topographic and Climatic Conditions ......................................................................................... 61 Wildfires ...................................................................................................................................................... 61 Hazardous Substances .................................................................................................................................. 61 No Acceleration Provision ........................................................................................................................... 62 Bonds Are Limited Obligations ................................................................................................................... 62 Loss of Tax Exemption ................................................................................................................................ 63 Potential Early Redemption of Bonds from Special Tax Prepayments ........................................................ 63 Cybersecurity ............................................................................................................................................... 63 COVID-19 (Coronavirus) Pandemic............................................................................................................ 63 CONTINUING DISCLOSURE .......................................................................................................................... 64 Community Facilities District ...................................................................................................................... 64 Master Developer and Homebuilders ........................................................................................................... 64 TAX MATTERS................................................................................................................................................. 65 ABSENCE OF LITIGATION ............................................................................................................................ 67 ABSENCE OF RATINGS .................................................................................................................................. 67 CERTAIN LEGAL MATTERS ......................................................................................................................... 67 UNDERWRITING ............................................................................................................................................. 67 FINANCIAL INTERESTS ................................................................................................................................. 68 MUNICIPAL ADVISOR.................................................................................................................................... 68 ADDITIONAL INFORMATION ....................................................................................................................... 68 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ............................ A-1 APPENDIX B APPRAISAL REPORT...................................................................................................... B-1 APPENDIX C MARKET ABSORPTION STUDY .................................................................................. C-1 APPENDIX D FORM OF OPINION OF BOND COUNSEL ................................................................... D-1 APPENDIX E GENERAL INFORMATION CONCERNING THE CITY OF SAN LUIS OBISPO ............................................................................................................................. E-1 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE .................................F-1 APPENDIX G FORM OF DISTRICT CONTINUING DISCLOSURE CERTIFICATE ......................... G-1 APPENDIX H INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM ................................................................................ H-1 4127-3642-5770.7 LOCATION OF CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) 4127-3642-5770.7 City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Boundary Map 4127-3642-5770.7 [INSERT AERIAL PHOTO(S)] 1 4127-3642-5770.7 $[18,370,000]* CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) SPECIAL TAX BONDS, SERIES 2021 INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. The purpose of this Official Statement, which includes the cover page, the table of contents and the attached appendices, is to provide certain information concerning the issuance of the City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Special Tax Bonds, Series 2021 (the “Bonds”) by the City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) (the “District”), in the aggregate principal amount of $[18,370,000]*. The proceeds of the Bonds will be used to finance certain public facilities and costs with respect thereto related to the development within the District, to fund a reserve fund for the Bonds (the “Reserve Fund”), to capitalize a portion of the interest on the Bonds through [______ 1, 2022], to provide financing for certain administrative expenses of the District, and to pay costs of issuance of the Bonds. The Bonds are being issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq. of the Government Code of the State of California) (the “Act”), and pursuant to the Indenture (the “Indenture”), by and between the District and U.S. Bank National Association, as trustee (the “Trustee”). The Bonds are secured under the Indenture by a pledge of, constituting a lien on and security interest in, the Net Special Tax Revenues (as defined herein) and any other amounts held in the Special Tax Fund, the Bond Fund and the Reserve Fund established pursuant to the Indenture. The description and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE ⎯ Definitions” herein. The District The District is located west of U.S. Highway 101, east of Los Osos Valley Road and south of Madonna Road in the southwest quadrant of the City of San Luis Obispo (the “City”). The District is bounded by Madonna Road, Dalidio Drive and U.S. Highway 101. Presently, the District includes properties in varying stages of early development, including partially improved lots and unimproved lots that will ultimately consist of 281 detached single-family units, and 296 attached high density multifamily units, a hotel, retail commercial and office space, as well as open space and agricultural land. Only residential uses will be subject to the Special Tax within the District. Further, 22 for-rent units within the District will not be subject to the Special Tax. The District is being developed by MI San Luis Ranch, LLC (the “Master Developer”). Landowners As of November 29, 2020, the date of value of the Appraisal (defined herein), property within the District consisted of partially improved lots and lots under development. The Master Developer has entered into * Preliminary, subject to change. 2 4127-3642-5770.7 contracts for the sale of land within the District planned for development with five builder entities. 198 lots to be developed into detached single-family units have been sold to Presidio MI SLR 198, LLC (“SLR 198”), which is a joint venture between Merced Capital and Coastal Community Builders (“Coastal Community”). 83 lots to be developed into detached, single-family units have been sold to Presidio WH SLR 83, LLC (“WH 83”), which is a joint venture between Merced Capital and Williams Homes, Inc. (“Williams Homes”). The lots required to construct all 80 attached townhome units have been sold to WH SLR 80, LLC (“WH 80”), which is also joint venture between Merced Capital and Williams Homes. The lots required to construct all 96 condominium units have been sold to Presidio MI SLR 96, LLC (“SLR 96”) which is a joint venture between Merced Capital and Coastal Community. The lots required to construct 120 attached condominium units is was sold to Williams Communities, LLC (“Williams Communities”). SLR 198, WH 83, WH 80, SLR 96 and Williams Communities are collectively referred to herein as the “Homebuilders”. As of December 1, 2020, 57 of the 198 detached single-family units were conveyed to SLR 198 in blue top condition and the remaining lots are scheduled for takedown in three additional transfers annually on or about September 30 in each of the next three years. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT – Property Ownership.” Other than the 141 detached single family units under contract for sale to SLR 198, of the lots have been conveyed to the respective Homebuilders. The Master Developer is responsible for completion of in-tract development and will be reimbursed by the Homebuilders pursuant to cost sharing agreements. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” The District was formed to finance certain public facilities and costs with respect thereto related to the development within the District. A portion of the proceeds of the Bonds will be used to pay the costs of eligible facilities under the Act to be constructed by the Master Developer as described under the caption “THE COMMUNITY FACILITIES DISTRICT — The Facilities.” The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State of California (the “State”). Any local agency (as defined in the Act) may e stablish a community facilities district to provide for and finance the cost of eligible public facilities and services. The legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by two-thirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district and may levy and collect a special tax within such district to repay such indebtedness. Pursuant to the Act, the City Council adopted the necessary resolutions stating its intent to establish the District, to authorize the levy of special taxes on taxable property within the boundaries of the District, and to have the District incur bonded indebtedness for the purpose of financing authorized facilities (the “Facilities”). Following public hearings conducted pursuant to the provisions of the Act, the City Council adopted resolutions establishing the District and calling special elections to submit the levy of the special taxes and the incurring of bonded indebtedness to the qualified voters of the District. On April 2, 2019, at an election held pursuant to the Act, the landowner who comprised the qualified voters of the District (the Master Developer), authorized the District to incur bonded indebtedness in the aggregate principal amount of not to exceed $25,000,000 to be secured by the levy of Special Taxes (as defined below) on taxable property within the District for the purpose of financing the Facilities. At an election held pursuant to the Act on April 20, 2021, the landowners who comprised the qualified voters of the District and the City approved an amended and restated rate and method of apportionment of the special taxes for the District (the “Rate and Method”). The Rate and Method provides for a Special Tax (as defined in the Rate and Method) (the “Special Tax”) to be levied for the Annual Costs (as defined in the Rate and Method). The Special Tax will be levied against certain property within the District pursuant to the Act, the Ordinance approving the levy of Special Taxes and the Indenture and in accordance with the Rate and Method. 3 4127-3642-5770.7 Security and Sources of Payment for the Bonds The City has pledged under the Indenture to repay the Bonds and any additional bonds issued under the Indenture (the “Additional Bonds”) from Net Special Tax Revenues and any other amounts held in the Special Tax Fund, the Bond Fund and the Reserve Fund. Proceeds of any Additional Bonds may be applied to finance additional Facilities or to refund the Bonds or Additional Bonds previously issued under the Indenture . See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS —Additional Bonds.” The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. The term “Special Tax Revenues” is defined in the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which will be limited to the amount of said lien and interest and penalties thereon. “Administrative Expenses” is defined in the Indenture to mean costs directly related to the administration of the District, including, but not limited to: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Taxes and disclosures to Owners, the costs of the District related to an appeal of the Special Taxes, any amounts required to be rebated to the federal government in order for the District to comply with the tax covenants in the Indenture, an allocable share of the salaries of the City staff providing services on behalf of the District directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, and the costs of foreclosure of delinquent Special Taxes. Net Special Tax Revenues are the primary security for the repayment of the Bonds and any Additional Bonds. In the event that Net Special Tax Revenues are not paid when due, the only sources of funds available to pay the debt service on the Bonds and any Additional Bonds will be the amounts held by the Trustee for such purpose in the Special Tax Fund, the Bond Fund and the Reserve Fund. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. Description of the Bonds The Bonds will be issued and delivered as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), and will be available to actual purchasers of the Bonds (the “Beneficial Owners”) in the denominations of $5,000 and any integral multiples thereof under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. In the event that the book-entry only system described herein is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Indenture. See Appendix H — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein. Principal of, premium, if any, and interest on the Bonds is payable by the Trustee to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. In the event that the book-entry only system is no longer used with respect to the Bonds, the Beneficial Owners will become the registered owners of the Bonds 4 4127-3642-5770.7 and will be paid principal and interest by the Trustee, all as described herein. See Appendix H — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein. The Bonds are subject to optional redemption, mandatory redemption from Special Tax prepayments and mandatory sinking fund redemption as described herein.* For a more complete description of the Bonds and the basic documentation pursuant to which they are being sold and delivered, see “THE BONDS” and Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE” herein. Appraisal Report The District has obtained an appraisal of the Taxable Parcels (as defined herein) included in the District dated [February 9], 2020 with a date of value of [November 29], 2020 (the “Appraisal”). The Appraisal was prepared for the District by Integra Realty Resources (the “Appraiser”). Subjec t to the limitations set forth in the Appraisal, the Appraiser is of the opinion that, as of [November 29], 2020, the market value of the Taxable Parcels within the District was not less than $76,625,000 (the “Appraised Value”). See “THE COMMUNITY FACILITIES DISTRICT — Property Values” and “— Value-to-Lien Ratios.” A copy of the Appraisal is included as Appendix B to this Official Statement. Market Absorption Study The City hired The Gregory Group (the “Market Absorption Consultant”) to prepare a market absorption study of homes planned within the District, dated [December 2020] (the “Market Absorption Study”). The Market Absorption Study estimated the probable absorption schedules for the residential units proposed to be developed. A copy of the Market Absorption Study is included as Appendix C to this Official Statement. Professionals Involved in the Offering U.S. Bank National Association will act as Trustee under the Indenture and as the initial Dissemination Agent under the District Continuing Disclosure Certificate. Piper Sandler & Co. is the Underwriter of the Bonds. All proceedings in connection with the issuance and delivery of the Bonds are subject to the approval of Orrick Herrington & Sutcliffe LLP, Bond Counsel to the District. PFM Fina ncial Advisors is acting as Municipal Advisor for the City in connection with the Bonds. Integra Realty Resources is acting as the Appraiser to the District. Economic & Planning Systems, Inc. is acting as the Special Tax Consultant to the District. The Gregory Group is acting as the Market Absorption Consultant to the District. Certain legal matters will be passed on for the City and the City Attorney, and Orrick Herrington & Sutcliffe LLP as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by its counsel, Stradling, Yocca, Carlson & Rauth, a Professional Corporation. For information concerning respects in which certain of the above -mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the Bonds, see “FINANCIAL INTERESTS” herein. Continuing Disclosure The District will agree to provide, or cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system available on the Internet at http://emma.msrb.org (“EMMA”) certain annual financial information and operating data. The District will further agree to provide notice of certain listed events. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). See “CONTINUING DISCLOSURE” herein. See the form of District Continuing Disclosure Certificate attached as Appendix G * Preliminary, subject to change. 5 4127-3642-5770.7 hereto (the “District Continuing Disclosure Certificate”) for a description of the specific nature of the annual reports to be filed by the District and notices of listed events to be provided by the District. The Master Developer and the Homebuilders will each covenant for the benefit of the Bondholders to provide certain information relating to it, its development plan and its financing plan no later than March 31 and September 30 in each year, commencing September 30, 2021 (collectively, the “Disclosure Reports”), and to provide notices of the occurrence of certain enumerated events. The Disclosure Reports and notices will be filed with EMMA. See the form of Developer Continuing Disclosure Certificate attached as Appendix G hereto (the “Developer Continuing Disclosure Certificate”) for a description of the specific nature of the annual reports to be filed by the Master Developer and the Homebuilders and notices of listed events to be provided by the Master Developer and the Homebuilders. The obligations of the Master Developer will terminate upon the occurrence of certain events set forth in the Master Developer’s Continuing Disclosure Certificate, including when the property within the District owned by the Master Developer is developed to the planned development stage or until the obligation to provide such information and notices is otherwise terminated in accordance with the provisions of its Continuing Disclosure Certificate. The obligations of the Homebuilders will each terminate upon the occurrence of certain events as set forth in the applicable Continuing Disclosure Certificate for the Homebuilders, including when the property owned by the Homebuilders within the District, respectively, is no longer obligated to pay 20% or more of the Special Taxes within the District. Bond Owners’ Risks Certain events could affect the ability of the District to pay the principal of and interest on the Bonds when due. See the section of this Official Statement entitled “SPECIAL RISK FACTORS” for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the Bonds. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Bonds and the Indenture are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Indenture, the Bonds and the constitution and laws of the State as well as the proceedings of the City Council, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the Bonds, by reference to the Indenture. Copies of the Indenture, the District Continuing Disclosure Certificate and other documents and information referred to herein are available for inspection and (upon request and payment to the City of a charge for copying, mailing and handling) for delivery from the City at 990 Palm St., San Luis Obispo, CA 93401-3249, Attention: Esteban Cano. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 6 4127-3642-5770.7 ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the expected sources and uses of Bond proceeds. Sources: Principal Amount of the Bonds Plus Original Issue Premium Less: Underwriter’s Discount Total Uses: Interest Account of the Bond Fund(1) Acquisition Account of the Improvement Fund(2) Reserve Fund(3) Administrative Expense Fund Costs of Issuance Fund Total (1) To pay the interest on the Bonds through [___________, 2022]. (2) To pay the Master Developer for the Acquisition Facilities described under the caption “THE COMMUNITY FACILITIES DISTRICT—The Facilities.” (3) Equal to the initial Reserve Requirement. THE BONDS General Provisions The Bonds will be issued in fully registered form without coupons in denominations of $5,000 and any integral multiple thereof (“Authorized Denominations”). The Bonds will be dated the date of issuance thereof. The Bonds are scheduled to mature on September 1, in the years and in the principal amounts, and will bear interest at the rates per annum, shown on the inside front cover page of this Official Statement. Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months and will be payable on March 1 and September 1 of each year, commencing September 1, 2021 (each an “Interest Payment Date”). Interest on each Bond will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) such Bond is authenticated on or before an Interest Payment Date and after the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day (the “Record Date”) in which event interest thereon will be payable from such Interest Payment Date, (ii) such Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date or (iii) interest on such Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been previously paid or duly provided for. The interest on, and principal of and redemption premiums, if any, on the Bonds are payable in lawful money of the United States of America. Interest is payable by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date (except that interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date will, if and to the extent that amounts subsequently become available therefor, be payable on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee pursuant to the Indenture). Payment of principal of any Bond will be made only upon presentation and surrender thereof at maturity or upon earlier redemption at the Office of the Trustee. The Bonds will initially be issued in book-entry form, and DTC will act as securities depository. So long as the Bonds are held in book-entry form, principal of, premium, if any, and interest on the Bonds will be 7 4127-3642-5770.7 paid by the Trustee directly to DTC for distribution to the Beneficial Owners of the Bonds in accordance with procedures adopted by DTC. See Appendix H — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM.” The Bonds are not general obligations of the District but are special obligations of the District payable solely from Net Special Tax Revenues and the other amounts held under the Indenture in the Special Tax Fund, the Bond Fund and the Reserve Fund. Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, the State, or any political subdivision thereof, is pledged to the payment of the Bonds. See “SPECIAL RISK FACTORS — Bonds Are Limited Obligations.” Redemption* Optional Redemption. The Bonds maturing on or after September 1, 20__ shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date on or after September 1, 20__, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 20__ and March 1, 20__ % September 1, 20__ and March 1, 20__ September 1, 20__ and March 1, 20__ September 1, 20__ and thereafter Mandatory Redemption from Special Tax Prepayments. The Bonds are subject to mandatory redemption, in whole, or in part in Authorized Denominations, on any Interest Payment Date, from and to the extent of prepaid Special Taxes required to be applied thereto and any related proportional amounts in the Reserve Fund required to be applied thereto pursuant to the Indenture (see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Reserve Fund”) at the following respective Redemption Prices (expressed as percentages of the principal amount of the Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price Any Interest Payment Date from March 1, 20__ through March 1, 20__ % September 1, 20__ and March 1, 20__ September 1, 20__ and March 1, 20__ September 1, 20__ and thereafter See the caption “SPECIAL RISK FACTORS — Potential Early Redemption of Bonds from Special Tax Prepayments” for a discussion of the potential for a lower than expected yield on the Bonds as a result of a special mandatory redemption from prepayment of Special Taxes. Mandatory Sinking Fund Redemption. The Bonds maturing September 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20__, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20__ to be redeemed, * Preliminary, subject to change. 8 4127-3642-5770.7 without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 1) Principal Amount to be Redeemed If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on September 1, 20__ so optionally redeemed. If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Bonds maturing on September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District. The Bonds maturing September 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20__, at a Redemption Price equal to the principal amount of the Bonds maturing September 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (September 1) Principal Amount to be Redeemed If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the optional redemption provisions of the Indenture described above, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Bonds maturing on September 1, 20__ so optionally redeemed. If some but not all of the Bonds maturing on September 1, 20__ are redeemed pursuant to the mandatory redemption from Special Tax prepayments provisions of the Indenture, the principal amount of the Bonds maturing on September 1, 20__ to be redeemed by mandatory sinking fund redemption as described above on any subsequent September 1 shall be reduced by the aggregate principal amount of the Bonds maturing on 9 4127-3642-5770.7 September 1, 20__ so redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the District. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds to be redeemed from all Bonds not previously called for redemption (i) with respect to any optional redemption of Bonds, among maturities of the Bonds as directed in a Written Request of the District, and (ii) with respect to any redemption of Bonds from prepayments of Special Taxes, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable. The Trustee shall select for redemption the Bonds of the same Series with the same maturity by lot in any manner in which the Trustee, in its sole discretion, shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations, and such separate denominations shall be treated as separate Bonds that may be separately redeemed. Notice of Redemption. If the Bonds are held in book-entry form, notice of redemption will be mailed to DTC and not to the Beneficial Owners of the Bonds under the DTC book-entry system. Neither the District nor the Trustee is responsible for giving notice of redemption to the Beneficial Owners. See Appendix H — “INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM” herein. The Indenture provides that the Trustee on behalf and at the expense of the District will give notice of any redemption by first class mail to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice of redemption will state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole). The notice of redemption will require that the Bonds to be redeemed be surrendered at the Office of the Trustee for redemption at the Redemption Price and give notice that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, will affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, is held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof will have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds will cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds will be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. With respect to any notice of any optional redemption of Bonds, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice will state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District will not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption will not be made and the Trustee will, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. 10 4127-3642-5770.7 Debt Service Schedule The annual scheduled debt service schedule for the Bonds, assuming no early redemption other than mandatory sinking fund redemption, is set forth in the following table. Year Ending September 1 Principal Interest(1) Total TOTAL (1) Includes capitalized interest payments. Source: The Underwriter. SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General The Bonds are special obligations of the District, and, except as otherwise provided in the Indenture, they are payable solely from Net Special Tax Revenues. The Indenture defines “Net Special Tax Revenues” to mean Special Tax Revenues less amounts required to pay Administrative Expenses. The term “Special Tax Revenues” is defined in the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, including any prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes (which shall be limited to the 11 4127-3642-5770.7 amount of said lien and interest and penalties thereon). The Indenture defines the term “Special Taxes” as the special taxes described and defined in the Rate and Method as the “Special Tax” approved by the qualified electors of the District. “Administrative Expenses” is defined in the Indenture to mean c osts directly related to the administration of the District, including, but not limited to: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Taxes and disclosures to Owners, the costs of the District related to an appeal of the Special Taxes, any amounts required to be rebated to the federal government in order for the District to comply with the tax covenants in the Indenture, an allocable share of the salaries of the City staff providing services on behalf of the District directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto, and the costs of foreclosure of delinquent Special Taxes. Under the Rate and Method, Taxable Parcels are classified as Developed Parcels if a building permit has been obtained for such parcel by May 1 of the preceding fiscal year. Parcels designated for development of a single-family residence are classified as Final Map Parcels if the parcel is part of a Final Subdivision Map as of May 1 of the preceding fiscal year. Based on the development status within the District as of May 1, 2020, all of the Taxable Parcels expected to be developed into single family homes were classified as Final Map Parcels. The remaining property (consisting of the property planned for development into 296 multifamily units) is classified as Undeveloped Property. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” Under no circumstances may the amount of Special Taxes levied by the District in any year exceed the maximum rates approved by the qualified electors within the District, as set forth in the Rate and Method. A copy of the Rate and Method is attached to this Official Statement as Appendix A. In addition to the Net Special Tax Revenues, any other amounts held by the Trustee in the Special Tax Fund, the Bond Fund and the Reserve Fund are pledged pursuant to the Indenture to secure the payment of the principal of, premium, if any, and interest on the Bonds and any Additional Bonds in accordance with their respective terms, the Indenture and the Act. However, those a mounts are pledged subject to the provisions of the Indenture permitting the application thereof for the purposes set forth in the Indenture. Amounts on deposit in the Improvement Fund, the Costs of Issuance Fund, the Redemption Fund, the Administrative Expense Fund and the Rebate Fund are not pledged to the payment of any of the Bonds or any Additional Bonds. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE DISTRICT (EXCEPT TO THE LIMITED EXTENT SET FORTH IN THE INDENTURE), THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE NET SPECIAL TAX REVENUES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE AS MORE FULLY DESCRIBED HEREIN. Special Taxes Pursuant to the Act, the City Council adopted a resolution on February 19, 2019 stating its intention to establish the District and to levy a special tax within the District. In accordance with the provisions of the Act, the City Council established the District on April 2, 2019 for the purpose of, among other things, financing certain public infrastructure improvements necessary for the proposed development within the District. At a special election held on April 2, 2019, the then owner of the property within the District (the Master Developer) authorized the District to incur indebtedness in an amount not to exceed $25,000,000. At a special election held on April 20, 2021, the then owners of the property within the District approved the Rate and Method. The Rate and Method is set forth in Appendix A hereto. 12 4127-3642-5770.7 Pursuant to the Indenture, the District has covenanted that it will fix and levy the amount of Special Taxes in each Fiscal Year in accordance with the Rate and Method in an amount sufficient (subject to the limitations contained in the Rate and Method as to the Maximum Annual Special Taxes that may be levied) to yield Special Tax Revenues in the amount required for (i) the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the corresponding Bond Year, (ii) any necessary replenishment of the Reserve Fund, and (iii) the payment of Administrative Expenses estimated to be paid from such Special Tax Revenues, taking into account the balances in the funds and accounts established under the Indenture. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Certain Covenants Under the Indenture.” Notwithstanding this covenant, the amount of Special Taxes actually collected each year may be less than the amount described for a variety of differe nt reasons. See “SPECIAL RISK FACTORS — Levy of the Special Tax.” The Rate and Method establishes a minimum annual special tax (the “Minimum Annual Special Tax”) and a maximum annual special tax rate. The Minimum Annual Special Tax is the minimum amount of special tax that can be levied against taxable parcels at formation of the District, even if the land uses of those parcels should change before full development. The Bonds have been structured so that, beginning in Fiscal Year 2021-22, the Minimum Annual Special Tax equals at least 110% of debt service on the Bonds in each Bond Year net of estimated Administrative Expenses of $____ escalating 2% each fiscal year beginning July 1, 2022. The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rate and Method. See Appendix A ⎯ “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. Pursuant to the Act, the Special Taxes levied in any Fiscal Year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that Fiscal Year had there never been any such delinquencies or defaults. See “SPECIAL RISK FACTORS ⎯ Levy of the Special Tax” and “ ⎯ Exempt Properties.” Rate and Method of Apportionment General. The Rate and Method is to be applied by the District each year for the purpose of determining the amount of the Special Tax to be levied against each Taxable Parcel within the District. For purposes of the discussion of the Rate and Method only, terms with initial capital letters that are not otherwise defined in this Official Statement shall have the respective meanings assigned to them in the Rate and Method, a copy of which appears in Appendix A. Under the terms of the Indenture, prior to August 1 of each year, the District will ascertain from the County of San Luis Obispo Assessor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The District will levy the Special Taxes by August 10 of each Fiscal Year that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which the auditor of the County (the “Auditor”) will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the District will prepare, or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The Special Taxes levied in any Fiscal Year may not exceed the maximum rates authorized pursuant to the Rate and Method. See Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX” hereto. Although the Bonds have been structured so that, the Minimum Annual Special Tax equals at least 110% of debt service on the Bonds in each Bond Year net of estimated Administrative Expenses of $____ escalating 2% each fiscal year beginning July 1, 2022, there is no assurance that the proceeds of the Special 13 4127-3642-5770.7 Taxes will, in all circumstances, be adequate to pay the principal of and interest on the Bonds when due. See “SPECIAL RISK FACTORS — Levy of the Special Tax” herein. Special Tax Methodology. The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rate and Method, which the City Council and the qualified elector within the District have approved. The Rate and Method apportions the total amount of the Special Tax to be collected among the Taxable Parcels in the District as more particularly described below. The following is a synopsis of the provisions of the Rate and Method, which should be read in conjunction with the complete text of the Rate and Method which is attached as Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX.” The meaning of the defined terms used in this section are as set forth in Appendix A. This section provides only a summary of the Rate and Method, and is qualified by more complete and detailed information contained in the Rate and Method attached as Appendix A. As used in the Rate and Method, “Bonds” means the Bonds and any Additional Bonds. Determination of Annual Costs. Each year the Administrator of the District will determine the Annual Costs of the District for the upcoming Fiscal Year. The “Annual Costs” includes the following items, less any applicable credits for available revenues: a. Administrative Expenses for such Fiscal Year. b. Debt Service on Bonds issued for the District and other periodic costs on the Bonds, including but not limited to credit enhancement and any rebate payments on the Bonds. c. The amount needed to replenish Bond reserve funds. d. The amount needed to (1) cure any delinquencies and (2) to fund any foreseeable deficiency of the amount to be available for the payment of principal or interest on Bonds. e. pay-as-you-go construction expenditures for Facilities. The Annual Costs are the basis for the amount of the Special Tax to be levied within the District but in no event may the District levy a Special Tax in any year above the Maximum Annual Special Tax identified for each parcel in the Rate and Method. Parcels Subject to the Special Tax. The Administrator will prepare a list of the parcels subject to the Special Tax using records of the City and the County Assessor. The District will tax all parcels within the District except Tax-Exempt Parcels, as identified in the Rate and Method. Taxable Parcels that would otherwise become Tax-Exempt after formation of the District may be subject to assignment of the Minimum Special Tax Revenues described in the Rate and Method. Annual Special Tax Levy. The Special Tax will be levied each year by calculating the Annual Costs, which needs to be generated by the Taxable Parcels in the District; the Special Tax will be levied against each Taxable Parcel until the total scheduled Special Taxes equals the Annual Costs. The Rate and Method establishes a priority for which properties will be levied a Special Tax, with Developed Parcels receiving a Special Tax levy prior to Final Map Parcels and Undeveloped Parcels, all as described in the Rate and Method. For single-family detached property, Developed Parcels are Parcels for which a building permit has been obtained prior to May 1 of the preceding Fiscal Year. Termination of the Special Tax. The Special Tax will be levied and collected up to the maximum allowable amount for as long as needed to pay the principal of and interest on Bonds and other costs incurred in order to construct and acquire the authorized District-funded facilities and to pay the Annual Costs. The Rate and Method provides that the Special Tax may not be levied on any parcel in the District after Fiscal Year 2062-63. When all Authorized Facilities and other Annual Costs incurred by the District have been paid, the Special Taxes will cease to be levied. 14 4127-3642-5770.7 Prepayment of Special Taxes. The Rate and Method provides that property owners may permanently satisfy all or a portion of the Special Tax by prepayment. The amount of the prepayment required is to be calculated in accordance with the formula set forth in the Rate and Method, which is generally based on the Parcel’s share of the outstanding Bonds, remaining facilities costs, the Reserve Fund, fees, call premiums, negative arbitrage, and any expenses incurred by the District in connection with the p repayment and expected future facilities costs. Appendix A — “RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX — Section H.” Mandatory redemption of Bonds from Special Tax prepayments may result in the reduction in the otherwise expected yield on such Bonds if the Bonds were purchased at a price greater than par. See “SPECIAL RISK FACTORS — Potential Early Redemption of Bonds from Special Tax Prepayments.” Special Tax Calculation The Special Tax for each Fiscal Year is calculated based on the property development status as of May 1. Based on development as of December 1, 2020, 25 parcels will be classified as Developed Parcels and the remainder of the parcels planned for single family homes within the District would be classified as Final Map Parcels for the 2021-22 Fiscal Year. The remainder of the Taxable Parcels (planned for development into multifamily homes) would be classified as Undeveloped Parcels. As building permits are obtained, the property within the District will transition to Developed Parcels. The Maximum Annual Special Tax for the Final Map Parcels is equal to the planned Building Square Footage per Unit based on the Maximum Annual Special Tax per Unit times the number of Assigned Units for each Tax Category at the time of District formation. If the Building Square Footage decreases at the time a Building Permit is issued for any given parcel as compared to the Assigned Units at time of District Formation, the Maximum Annual Special Tax may decrease, but in no event will it decrease below the Minimum Annual Special Tax. Table 1 reflects the Fiscal Year 2021-22 Special Tax Revenues based on the Minimum Annual Special Tax and Maximum Annual Special Tax, and includes projected Maximum Annual Special Tax at full buildout in accordance with the development plan described in this Official Statement. Table 1 also reflects development status as of December 1, 2020, including recordation of final maps and building permits pulled. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 15 4127-3642-5770.7 TABLE 1 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) SPECIAL TAX CALCULATION (Fiscal Year 2021-22) Land Use Classes Acres Total Planned Units Building Permits Issued(1) Final Map Parcels Un- developed Parcels Maximum Annual Special Tax Rate per Unit/Acre(2) Minimum Annual Special Tax Rate per Unit/Acre(2) Fiscal Year 2021-22 Maximum Annual Special Tax Revenue Projected Maximum Annual Special Tax at Buildout(3) Low Density Residential (LDR) 1,850 square feet and greater 15.51 98 0 98 0 $3,300.36 $2,790.98 $273,516.04 $323,435.28 Less than 1,850 square feet 94 0 94 0 2,790.98 2,790.98 262,352.12 262,352.12 Workforce/Affordable Units 6 0 6 0 0.00 0.00 0.00 0.00 LDR Subtotal 15.51 198 0 198 0 $535,868.16 $585,787.40 Medium Density Residential (MDR) 1,600 square feet and greater 5.14 44 8 36 0 $2,790.98 $2,281.60 $104,465.44 $122,803.12 Less than 1,600 square feet 33 11 22 0 2,281.60 2,281.60 75,292.80 75,292.80 Workforce/Affordable Units 6 1 5 0 0.00 0.00 0.00 0.00 MDR Subtotal 5.14 83 20 63 0 $179,758.24 $198,095.92 High Density Residential (HDR) Townhomes Lot 5 0.32 8 0 0 8 $2,026.91 $2,026.91 $16,215.28 $16,215.28 Lot 6 1.66 36 0 0 36 2,026.91 2,026.91 72,968.76 72,968.76 Lot 7 1.67 34 0 0 34 2,026.91 2,026.91 68,914.94 68,914.94 Workforce/Affordable Units 2 0 0 2 0.00 0.00 0.00 0.00 HDR Subtotal 3.65 80 0 0 80 $158,098.98 $158,098.98 Condominiums Lot 1 0.32 60 0 0 60 $1,697.93 $1,697.93 $101,875.80 $101,875.80 Lot 2 1.66 34 0 0 34 1,697.93 1,697.93 57,729.62 57,729.62 Workforce/Affordable Units 2 0 0 2 0.00 0.00 0.00 0.00 Condominiums Subtotal 3.65 96 0 0 96 $159,605.42 $159,605.42 Efficiency Units Lot 3 0.32 100 0 0 100 $1,272.39 $1,272.39 $127,239.00 $127,239.00 Lot 2 1.66 14 0 0 14 1,272.39 1,272.39 17,813.46 17,813.46 Workforce/Affordable Units 6 0 0 6 0.00 0.00 0.00 0.00 Efficiency Units Subtotal 1.93 120 0 0 120 $145,052.46 $145,052.46 TOTAL 29.55 577 20 261 296 $1,175,383.26 $1,246,640.18 Footnotes on following page. 16 4127-3642-5770.7 Table 1 Footnotes (1) Based on the development status as of December 1, 2020. For Final Map Parcels, reflects units specified in recorded final tract map for which a building permit had not been received as of December 1, 2020. For Developed Parcels, reflects parcels for which a building permit had been received by December 1, 2020. For Undeveloped Parcels, reflects proposed number of multifamily units based on the Rate and Method. (2) Rates escalated to Fiscal Year 2021-22 values. (3) Based on current development plan as described in this Official Statement, based on Fiscal Year 2021 -22 Special Tax rates. (4) Workforce and affordable housing units are not subject to the Special Tax. Source: Economic & Planning Systems, Inc. The following table describes the share of special tax by property owner, based on property ownership as of April 1, 2021. For more information about property ownership within the District, see “PROPERTY OWNERSHIP AND THE DEVELOPMENT – Property Ownership.” TABLE 3 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) SHARE OF SPECIAL TAX BY PROPERTY OWNER (based on ownership and development status as of April 1, 2020) Property Owner Number of Taxable Units Estimated FY 2021-22 Special Tax Levy Percent of Total MI San Luis Ranch, LLC 138 $385,155 45% Presidio WH SLR 83 SFR, LLC 77 179,758 21 Presidio MI SLR 198, LLC 54 150,713 18 Presidio MI SLR 96, LLC 94 50,209 6 Presidio WH SLR 80 Towns, LLC 78 49,735 6 WH SLR 120 Condos, LLC 114 45,630 5 Totals 555 $861,200 100% Source: Economic & Planning Systems, Inc. Collection and Application of Special Taxes The Special Taxes are levied and collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes; provided, however, that the District may directly bill the Special Taxes, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on delinquent Assessor’s Parcels as permitted by the Act. The District has made certain covenants in the Indenture for the purpose of ensuring that the current maximum rates and method of collection of the Special Taxes are not altered in a manner that would impair the District’s ability to collect sufficient Special Taxes to pay debt service on the Bonds and Administrative Expenses when due. First, the District has covenanted that, to the extent it is legally permitted to do so, it will not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds and any Additional Bonds and if an initiative is adopted that purports to modify the Rate and Method in a manner that would adversely affect the security for the Bonds and any Additional Bonds, the District shall, to the extent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Bonds and any Additional Bonds. Second, the District has covenanted not to authorize owners of taxable parcels within the District to satisfy Special Tax obligations by the tender of Bonds and any Additional Bonds unless the District shall have first obtained a report of an Independent Consultant certifying that doing so would not 17 4127-3642-5770.7 result in the District having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds and any Additional Bonds when due. Although the Special Taxes constitute liens on Taxable Parcels within the District, they do not constitute a personal indebtedness of the owners of such property within the District. Moreover, other overlapping general obligation debt already exists on the property located within the District and other future special tax and assessment liens and overlapping general obligation debt could come into existence in the future in certain situations without the consent or knowledge of the City or the landowners therein. See “SPECIAL RISK FACTORS — Parity Taxes and Special Assessments” herein. There is no assurance tha t property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so, all as more fully described in the section of this Official Statement entitled “SPECIAL RISK FACTORS.” Under the terms of the Indenture, the Trustee shall establish and maintain a separate fund designated the “Special Tax Fund.” As soon as practicable after the receipt by the District of any Special Tax Revenues, but in any event no later than the date ten Business Days prior to the Interest Payment Date after such receipt, the District shall transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepa id Special Taxes that are to be applied to the payment of the redemption price of Bonds and any Additional Bonds in accordance with the provisions hereof shall be identified to the Trustee as such by the District and shall be deposited in the Redemption Fund. See “— Special Tax Fund” below, “THE BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments” and Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” Covenant for Superior Court Foreclosure Pursuant to Section 53356.1 of the Act, the District has covenanted in the Indenture that it will determine or cause to be determined, no later than September 15 of each year, whether or not any owners of property within the District are delinquent in the payment of Special Taxes and that, if such delinquencies exist, the District will order and cause to be commenced no later than November 1, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due. Notwithstanding the foregoing, the District is not required under the Indenture to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such Fiscal Year is less than 5% of the total Special Taxes levied in such Fiscal Year, and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the District determines that any single property owner is delinquent in excess of $5,000 in the payment of the Special Taxes, then the District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. Commencement of foreclosure proceedings will not assure a prompt and favorable resolution of Special Tax delinquencies. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited. See “SPECIAL RISK FACTORS — Bankruptcy and Legal Delays” and “— FDIC/Federal Government Interests in Properties.” Moreover, even if a judgment of foreclosure and order of sale is obtained, the District must cause a notice of levy to be issued. Under current law, the property owner has 120 days from the date of service of the notice of levy in which to redeem the subject property. If the proper ty owner fails to redeem the property and it is sold, the property owner’s only remedy is an action to set aside the sale, which action must be brought within 90 days of the date of sale. If such an action results in the setting aside of the foreclosure s ale, the judgment is revived, and the District would be entitled to receive interest on the revived judgment as if the sale had not been made. Under former law a property owner had a period of one year within which to redeem property to be sold, and the constitutionality of the legislation that eliminated the one year redemption period has not been tested. There can be no assurance that, even if the subject property is sold, the proceeds from such sale will be sufficient to pay the delinquent installments of the Special Tax. The Act does not require the District or any other governmental agency to purchase or otherwise acquire any Assessor’s Parcel being sold if there is no other 18 4127-3642-5770.7 purchaser at such sale. The Act does require that property being sold pursua nt to foreclosure under the Act must be sold for not less than the judgment amount (which must include reasonable attorneys’ fees, together with interest, penalties, and other authorized charges and costs) plus post judgment interest and authorized costs, unless a lower bid price is authorized by the Owners of not less than 75% by value of the Bonds and any Additional Bonds Outstanding. Special Tax Fund The Indenture provides that the Trustee will establish and maintain a separate fund designated the “Special Tax Fund.” The Indenture requires that the District transfer Special Tax Revenues (other than prepaid Special Taxes) to the Trustee for deposit into the Special Tax Fund as soon as practicable after the District’s receipt thereof, but in any event no later than ten Business Days prior to the Interest Payment Date after such receipt. No later than the Business Day immediately preceding each Interest Payment Date, after having made any requested transfers to the Administrative Expense Fund, as requested by the District, to have sufficient amounts available therein to pay Administrative Expenses, the Trustee is required by the Indenture to make transfers from the Special Tax Fund to the Interest Account in the Bond Fund, the Principal Account in the Bond Fund and the Reserve Fund in the amounts and in the priority specified in the Indenture. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE.” As soon as practicable after the District’s receipt of prepaid Special Taxes, but in any event no later than ten Business Days prior to the Interest Payment Date after such receipt, the District is required to transfer any prepaid Special Taxes to the Trustee and, in connection therewith, deliver to the Trustee a Written Certificate identifying such amounts as prepaid Special Taxes, identifying the portion of such prepaid Special Taxes so transferred that is to be applied to the Redemption Price of the Bonds and any Additional Bonds and identifying the portion of such prepaid Special Taxes that is to be applied to the payment of interest on the Bonds and any Additional Bonds to be so redeemed. The portion of such prepaid Special Taxes that is to be applied to the Redemption Price will be deposited by the Trustee in the Redemption Fund and will be applied to the redemption of the Bonds and any Additional Bonds pursuant to the Indenture. The portion of such prepaid Special Taxes that is to be applied to the payment of interest on the Bonds and any Additional Bonds to be so redeemed will be deposited by the Trustee in the Interest Account and will be applied to the payment of such interest. Reserve Fund The Indenture provides that the Trustee will establish and maintain a special fund designated the “Reserve Fund.” On the Closing Date, the Trustee will deposit in the Reserve Fund the amount specified under the caption “ESTIMATED SOURCES AND USES OF FUNDS.” The Trustee is also required, not later than the Business Day immediately preceding each Interest Payment Date, to transfer from the Special Tax Fun d (after the requisite transfers to the Administrative Expense Fund, the Interest Account and the Principal Account) the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve Requirement. The Indenture defines “Reserve Requirement” to mean, as of the date of any calculation, the least of (i) the least of (a) Maximum Annual Debt Service, and (b) 125% of Average Annual Debt Service, provided that upon the issuance of any Bonds, the Reserve Requirement shall be increased by an amount no greater than “10% of the proceeds of the issue” of such Bonds within the meaning of Section 148 of the Code. The Reserve Requirement shall not increase except upon issuance of Additional Bonds. Except as otherwise provided in the Indenture, all amounts deposited in the Reserve Fund are to be used and withdrawn by the Trustee solely for the purpose of (i) making transfers to the Interest Account in accordance with the Indenture in the event that, on the Business Day prior to an Interest Payment Date, amounts in the Interest Account are insufficient to pay the interest on the Bonds and any Additional Bonds due and payable on such Interest Payment Date, (ii) making transfers to the Principal Account in accordance with the Indenture in the event that, on the Business Day prior to a September 1 on which principal of the Bonds and any Additional Bonds is due and payable (including principal due and payable by reason of mandatory sinking fund redemption 19 4127-3642-5770.7 of the Bonds), amounts in the Principal Account are insufficient to pay such principal, and (iii) redeeming Bonds and any Additional Bonds in accordance with the Indenture as described in the following paragraph. Whenever Bonds are to be optionally redeemed or redeemed from Special Tax pre payments, a proportionate share (determined as provided below) of the amount on deposit in the Reserve Fund will, on the date on which amounts to redeem such Bonds are deposited in the Redemption Fund or otherwise deposited with the Trustee, be transferred by the Trustee from the Reserve Fund to the Redemption Fund or to such deposit held by the Trustee and will be applied to the redemption of said Bonds; provided that, such amount will be so transferred only if and to the extent that the amount remaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds to be redeemed). Such proportionate share will be equal to the largest integral multiple of the minimum Authorized Denomination for said Bonds that is not larger than the amount equal to the product of (i) the amount on deposit in the Reserve Fund on the date of such transfer, times (ii) a fraction, the numerator of which is the principal amount of Bonds to be so redeemed and the denominator of which is the principal amount of Bonds and any Additional Bonds to be Outstanding on the day prior to the date on which such Bonds are to be so redeemed. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay Outstanding Bonds and any Additional Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee will, upon receipt of a Written Request of the Community Facilities District, transfer the amount in the Reserve Fund to the Interest Account, Principal Account and/or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds and any Additional Bonds. If, as a result of the scheduled payment of principal of or interest on the Bonds and any Additional Bonds, the Reserve Requirement is reduced, the Trustee will transfer an amount equal to the amount of such reduction to the Interest Account. Investment of Moneys All moneys held by the Trustee in any of the funds or accounts established pursuant to the Indenture are required to be invested by the Trustee solely in Permitted Investments, as directed in writing by the District. As used in the Indenture, the phrase “Permitted Investments” includes a variety of investments, some of which may not be rated by a national rating service. See Appendix F — “SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE — Definitions.” Additional Bonds So long as any of the Bonds remain Outstanding, the District will not issue any obligations payable from Net Special Tax Revenues senior to the Bonds. The District may issue Additional Bonds or obligations payable on a parity with the Bonds, if, among other things: (i) upon the issuance of such Additional Bonds, no Event of Default will occur or be continuing under the Indenture; (ii) the proceeds of the Additional Bonds will be applied to finance additional Facilities and/or to refund the Bonds or Additional Bonds previously issued under the Indenture, pay Costs of Issuance incurred in connection with the issuance of such Additional Bonds, and/or make any requisite deposit to the Reserve Fund; (iii) In each year until the maturity date for the Additional Bonds, the Maximum Annual Special Tax for Taxable Parcels classified as Developed Parcels and Final Map Parcels (as such terms are defined in the Rate and Method) less projected Administrative Expenses is estimated to equal at least one hundred ten percent (110%) of the sum of the Annual Debt Service for each year on the Bonds, including such Additional Bonds; (iv) Immediately after the issuance of the Additional Bonds, the Value of all Taxable Parcels in the Community Facilities District, in aggregate, shall equal at least three (3) times the aggregate Lien. 20 4127-3642-5770.7 As used in the Indenture, “Value” means at the option of the District, either the current assessed valuation of each Taxable Parcel or the appraised value of the Taxable Parcel determined by an MAI appraiser. “Lien” is defined in the Indenture to mean the aggregate principal amount of all overlapping debt and bonds (including the Bonds) outstanding that are secured by a special tax levied pursuant to the Act or a special assessment levied on Taxable Parcels within the District, including any overlapping debt and bonds for community facilities districts or special assessment districts that are reasonably allocated to property within the District. The District may issue one or more series of Additional Bonds without complying with the provisions described in paragraph (iii) and (iv) above if, after the issuance and delivery of such Additional Bonds, either (i) none of the Bonds and Additional Bonds theretofore issued under the Indenture will be Outstanding or (ii) the Annual Debt Service in each Bond Year, calculated for all Bonds and Additional Bonds that will be Outstanding after the issuance of such Additional Bonds, will be less than or equal to Annual Debt Service in such Bond Year, calculated for all Bonds and Additional Bonds that are Outstanding immediately prior to the issuance of such Additional Bonds. The District may issue obligations payable from Net Special Tax Revenues on a basis subordinate to the Bonds. The Teeter Plan In 1949, the State Legislature enacted an alternative method for the distribution of secured property taxes to local agencies. This method, known as the “Teeter Plan,” is set forth in Sections 4701-4717 of the California Revenue and Taxation Code. Upon adoption and implementation of the Teeter Plan by a county board of supervisors, local agencies for which the county acts as “bank” and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While a county benefits from the penalties associated with these delinquent taxes when they are paid, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. The San Luis Obispo County Board of Supervisors has adopted the Teeter Plan. Once adopted, a county’s Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. See “CERTAIN RISKS TO BONDHOLDERS—Teeter Plan Termination.” Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then accumulated tax delinquencies (exc luding penalties) for that agency. In the case of the initial year distribution of special taxes and assessments (if a county has elected to include assessments), 100% of the special tax delinquencies (excluding penalties) are to be apportioned to the participating local agency which levied the special tax. After the initial distribution, each participating local agency receives annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or assessment is treated by the County as an interest-free offset against future advances of tax levies under the Teeter Plan. 21 4127-3642-5770.7 The Special Tax for the District will be submitted to the County for direct levy. By submitting the Special Tax to the County, the District has agreed to allow the District to participate in the County’s Teeter Plan. The County may make a determination regarding exclusion from the Teeter Plan on a district by district basis or a parcel by parcel basis. In addition, the County may not decide to include a particular parcel or district that had been included in its Teeter Plan in the previous year. The District can provide no assurance that the County will continue to include the District in the Teeter Plan. To the extent that the County’s Teeter Plan continues in existence and is carried out as adopted, the County’s Teeter Plan may help protect the Owners of the Bonds from the risk of delinquencies in Special Taxes. THE COMMUNITY FACILITIES DISTRICT General Information Regarding the District The District is a community facilities district organized by the City Council as the legislative body of the District under the Mello-Roos Act for the purpose of providing for the acquisition and construction of certain public improvements to meet the needs of new development related to the District. The City established the District on April 2, 2019, authorizing the issuance of up to $25,000,000 in bonded indebtedness. The qualified electors within the boundaries of the District, being the then owners of all property in the District, authorized the District to incur such bonded indebtedness to finance certain public facilities to meet the needs of new development within the District and approved the original rate and method of apportionment of the special tax and authorized the levy of the Special Tax. On April 20, 2021, the then owners of all of the property in the District, constituting the qualified electors of the District, approved an amended and restated rate and method of apportionment (the “Rate and Method”). The District expects that bonds will be issued to finance additional improvements for the benefit of the District from time to time. Such bonds will be issued only in accordance with the provisions of the Indenture. The District is located in the previously unincorporated portion of San Luis Obispo County west of U.S. Highway 101, east of Los Osos Valley Road and south of Madonna Road in the southwest quadrant of the City of San Luis Obispo (the “City”). The District is bounded by Madonna Road, Dalidio Drive and U.S. Highway 101. The District is being developed by MI San Luis Ranch, LLC (the “Master Developer”). The boundaries of the District are coterminous with the San Luis Ranch Specific Plan, which is a mixed-use community expected to include residential, commercial, office and hotel uses, agriculture and open space uses. The District includes approximately 131.4 gross acres with approximately 31.6 acres planned for residential use. Only residential property (other than for-rent multi-family units) will constitute Taxable Parcels within the District. Presently, the District includes properties in varying stages of early development, including partially improved lots and unimproved lots. Development within the District is planned to include 577 dwelling units, consisting of 281 single-family units and 296 for-sale multi-family units. The residential development will include 198 units of low-medium density residential, 83 units of medium density residential and 296 units of high density residential. The District is also expected to include 11.9 acres of commercial development, 4.2 acres of office use, 3.5 acres of hotel and conference center, 2.8 acres of public parks, 10.8 acres of regional roads, 50 acres of agriculture and 7.8 acres of internal open space. The maps appearing on the inside cover pages show the general location of the District. Of the 577 planned dwelling units, 22 are currently deed restricted for low income or workforce housing purposes. Low income and workforce housing units are not subject to the Special Tax. See Table 1 for a breakdown of expected taxable units by development type and size. As of [November 29, 2020], the date of value of the Appraisal (defined herein), property within the District consisted of partially improved lots and lots under development. 22 4127-3642-5770.7 As of April 1, 2021, the Master Developer has entered into contracts for the land within the District planned for development into 198 detached single-family units and 96 condominium units with homebuilder affiliates of Coastal Community Builders (“Coastal Community”), and into 83 detached single -family units, 80 attached townhome units and 120 attached condominium units with homebuilder affiliates of Williams Homes. As of April 1, 2021, all except 141 of the units entitled for development into detached single family homes under contract with an affiliate of Coastal Community has been conveyed to the respective Homebuilders. The Master Developer is responsible for completion of in-tract development and will be reimbursed by the Homebuilders pursuant to a cost sharing agreement. The residential property within the District is zoned R-1, R-2 and R-4 by the City allowing for low, medium and high-density residential development. Water and sewer service to the property within the District will be supplied by the City of San Luis Obispo. Electricity will be supplied by Pacific Gas & Electric, gas by Southern California Gas Company, telephone services by AT&T, and police and fire services by the City. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT – Development Entitlements” for more information about the status of development entitlements for the District. Like all of Southern California, the land within the District is subject to seismic activity. The District is located in “Zone 4” according to the Seismic Safety Commission, the highest risk zone in California . The District is located in a Fault-Rupture Hazard Zone as defined by the California Department of Conservation, Division of Mines and Geology. See “SPECIAL RISK FACTORS — Geologic, Topographic and Climatic Conditions.” In recent years, wildfires have caused extensive damage throughout the State. The last major wildfire in the vicinity of the City was the Chimney Fire in 2016, burning over 46 thousand acres by the time it was contained. Located within the County west of the City of Paso Robles, 49 residences and 21 other structures were destroyed in the Chimney Fire. While the District is not aware of any particular risk of wildfire within the District, there can be no assurances that wildfires won’t occur within the District. See “SPECIAL RISK FACTORS — Wildfires.” A portion of the property (consisting of 126 lots planned for development into single family homes) within the District is located within Flood Zone AE, or the 100-year flood plain. The Master Developer has received a conditional letter of map revision and expects to receive a final letter of map revision to classify all of the property within the District as Flood Zone X, or the 500-year flood plain, so that property within the District will not be required to obtain flood insurance. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT – Development Entitlements.” An aerial photo showing the taxable property within the District and a map showing the general location of the District and the surrounding area appears on the pages before page 1. More detai led information about the property therein is contained in Appendix B — “APPRAISAL REPORT,” and information about the ownership of such property is set forth under the caption “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” General information about the City is set forth in Appendix E. The Facilities The Bonds are issued for the purpose of financing the acquisition and construction of certain public capital improvements more particularly described in the Resolution of Formation adopted by the City Council of the City on April 2, 2019. The City entered into a Funding, Construction and Acquisition Agreement (the “Acquisition Agreement”) with the Master Developer on October 23, 2020, wherein the City agrees to use a portion of the proceeds of the Bonds to finance the acquisition from the Master Developer of those facilities set forth in the Acquisition Agreement. Such facilities consist of certain street improvements, storm drain systems, sewer systems, water systems, electronic, communication and gas systems, surface improvements, bridges and foundations and landscape improvements (collectively, the “Facilities”). Construction of the Facilities is required for development within the District to be completed. 23 4127-3642-5770.7 Proceeds from the Bonds are expected to finance some, but not all, of the Facilities eligible to be financed within the District, and the District expects to issue one or more series of bonds to finance the acquisition of additional facilities in the future. The following table reflects the expected Facilities to be financed, in part or in whole. TABLE 3 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) FACILITIES TO BE FUNDED Facilities Estimated Payment from Bonds Froom Ranch Way (Prado to Oceanaire) $10,321,654 SLR Fee: Prado Road Overpass and North Bound Ramps SLR Fee: Prado Road Southbound Ramps Total 12,600,000 2,800,000 $25,721,654 Source: Master Developer. Direct and Overlapping Debt The District is included within the boundaries of numerous overlapping local agencies providing governmental services. Some of these local agencies have outstanding bonds, and/or the authority to issue bonds, payable from taxes or assessments. The existing indebtedness payable from taxes and assessments that may be levied upon the property within the District is shown in Table 4 below. In addition to current debt, new community facilities districts and/or special assessment districts could be formed in the future encompassing all or a portion of the property within the District; and such districts or the agencies that formed them could issue more bonds and levy additional special taxes or assessments. TABLE 4 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) DIRECT AND OVERLAPPING DEBT SUMMARY (TAXABLE PROPERTY) Overlapping District Percent of Levy on Taxable Parcels in the District(1) Total Debt Outstanding(2) District Share of Total Debt Outstanding Estimated Share of Overlapping Debt Allocable to District Plus: The Bonds Estimated Share of Direct and Overlapping Debt Allocable to District (1) Based on the District’s estimated share of the Fiscal Year 2020-21 levy for each applicable overlapping district. (2) Based on overlapping tax and assessment debt as of December 1, 2020. Excludes debt secured by any tax or assessment established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof. Source: Economic & Planning Systems, Inc., San Luis Obispo County. As shown in Table 5, the projected average total effective tax rate for Fiscal Year 2021-22 for the planned residential units ranges from approximately 1.37% to approximately 1.48% of the sales prices identified in the Appraisal. 24 4127-3642-5770.7 TABLE 5 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) PROJECTED TOTAL EFFECTIVE TAX RATE FOR INDIVIDUALLY OWNED RESIDENTIAL PROPERTY LDR Lots MDR Lots Townhomes Condominium Efficiency Units Number of Taxable Units 192 77 78 94 114 Representative Home Price (1) $750,000 $690,000 $630,000 $505,000 $340,000 Homeowner’s Exemption ($7,000) ($7,000) ($7,000) ($7,000) ($7,000) Estimated Assessed Value $743,000 $683,000 $623,000 $498,000 $333,000 Ad Valorem Property Taxes (2) Base Property Tax 1.0000% $7,430 $6,830 $6,230 $4,980 $3,330 State Water Project 0.0040 $30 $27 $25 $20 $13 SL Coastal 2014 GO Bond 0.0390 $290 $266 $243 $194 $130 Cuesta CCD 2014 GO Bond 0.0193 $143 $131 $120 $96 $64 Subtotal Ad Valorem Property Tax Rate/Taxes 1.0623% $7,893 $7,255 $6,618 $5,290 $3,537 Direct Charges City of San Luis Obispo CFD No. 2019-1 (San Luis Ranch) Special Tax (3) $3,236 $2,736 $1,987 $1,987 $1,247 Subtotal Parcel Charges, Assessments and Special Taxes $3,236 $2,736 $1,987 $1,987 $1,247 Projected Total Property Taxes $11,128 $9,991 $8,605 $7,277 $4,785 Projected Total Effective Tax Rate (% of Sales Price) 1.48% 1.45% 1.37% 1.44% 1.41% (1) Based on the Appraisal. (2) Based on the Fiscal Year 2020-2021 ad valorem rates for the tax rate area encompassing the District. Rates subject to change in future years. (3) Maximum Annual Special Tax Rates for Fiscal Year 2021 -22 assuming building permit has been issued and structures are within the minimum size classification. Townhomes, condominiums and efficiency units fall within the "High Density Residential" classification of the Rate and Method. Source: Economic & Planning Systems, Inc. Property Values To provide information with respect to the value of the land within the District, the District engaged Integra Realty Resources to prepare the Appraisal. The principal of the Appraiser, who was actively involved in the preparation of the Appraisal, has an “MAI” designation from the Appraisal Institute and has prepared numerous appraisals for the sale of land secured municipal bonds. The Appraiser was selected by the District and has no material relationships with the City, the District or the owners of th e land within the District other than the relationship represented by the engagement to prepare the Appraisal and other similar engagements for the City. The Appraiser prepared its analysis and report in conformity with City -approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and Investment Advisory Commission. A copy of the Appraisal is included as Appendix B to this Official Statement. The purpose of the Appraisal was to estimate the “as is” market value of the fee simple estate, subject to special tax, of the property within the District. Subject to the contingencies, assumptions and limiting conditions set forth in the Appraisal, the Appraiser concluded that, as of November 29, 2020, the market value of the Taxable Parcels within the District was not less than $76,625,000. See Appendix B — “APPRAISAL REPORT.” Reference is made to Appendix B for a complete list and full discussion of the applicable contingencies, assumptions and limiting conditions and the methodology employed by the Appraiser. In the event that any of the contingencies, assumptions and limiting conditions are not actually realized, the value of the property within the District may be less than the amount reported in the Appraisal. In any case, there can be no assurance that any portion of the property within the District would actually sell for the amount indicated by the Appraisal. 25 4127-3642-5770.7 The Appraisal merely indicates the Appraiser’s opinion as to the market value of the property referred to therein as of the date and under the conditions specified therein. The Appraiser’s opinion reflects conditions prevailing in the applicable market as of the date of value. The Appraiser’s opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not adversely change in the future. The Appraiser has specifically consented to the inclusion of the Appraisal in this Official Statement. Market Absorption Study In connection with the issuance of the Bonds, the Absorption Analyst prepared the Market Absorption Study for the residential development within the District. Based on an analysis of the housing market demand- supply conditions in the general vicinity of the District as well as other macroeconomic and microeconomic factors that are expected to influence the absorption of the forthcoming products, in general, and the competitiveness of the proposed housing products in the marketplace, in particular, the Absorption Analyst estimated the dates when the property will be sold to production homebuilders and prepared an estimate of the schedule, by product type (including price range), at which the products will be absorbed in the marketplace. Information concerning the proposed housing mix supplied to the Absorption Analyst was provided by the Master Developer, and by reference to the requirements of the Specific Plan. Based on the assumptions and limiting conditions set forth in the Market Absorption Study, the Absorption Analyst has estimated the calendar year absorption schedules for the residential projects: TABLE 6 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) ABSORPTION ANALYSIS Units Sold per Year Product Type Homebuilder Open Date Number of Units(1) Weekly Absorption 2021 2022 2023 2024 Low Density Residential SLR 198 Feb 2021 192 1.00 45 52 52 43 Medium Density Residential WH 83 Feb 2021 77 0.75 34 39 4 0 High Density Residential – Townhomes WH 80 May 2021 78 1.00 33 45 0 0 High Density Residential – Condominiums SLR 96 May 2021 94 1.00 33 52 9 0 High Density Residential – Efficiency Units Williams Homes May 2021 88 1.25 41 47 0 0 529 1.00 186 255 65 43 Years to absorb: 3.71 (1) Excludes affordable and workforce housing units. Source: The Gregory Group. Value-to-Lien Ratios The value of the property within the District is significant because, in the event of a delinquency in the payment of Special Taxes, the District may foreclose only against delinquent parcels. Likewise, the ratio of the value of a parcel to its “share” of the Bonds is important because it provides an indication of the extent of the relative burden imposed on each parcel by the applicable Special Tax. As indicated above, the market value of the property within the District is not less than $76,625,000. The ratio of that value to the $[18,370,000] total principal amount of the Bonds is approximately 4.09*-to-1. This ratio does not include other overlapping general obligation debt within the District. At this time there is no other overlapping land secure d special tax or assessment debt within the District. See “— Direct and Overlapping Debt.” Taking the $[18,370,000] principal amount of the Bonds and other overlapping general obligation debt within the District into account, the ratio of the market value to the total amount of direct and overlapping bonded debt for the District of $[____] is * Preliminary, subject to change. 26 4127-3642-5770.7 approximately [___]*-to-1. Table 7 sets forth the appraised value-to-lien ratios of all the taxable property within the District by development status as of December 1, 2020, based on the Fiscal Year 2021-22 estimated Special Tax levy. Table 8 sets forth the appraised value-to-lien ratios of all the taxable property within the District by development status as of December 1, 2020, based on the Maximum Annual Special Tax as of Fiscal Year 2021-22. Taxable property within the District is classified as “Developed Parcels” for purposes of the Fiscal Year 2021-22 Special Tax levy if a building permit for such property is obtained by May 1, 2021. Taxable property expected to be developed into single family homes within the District is classified as “Final Map Parcels” for purposes of the Fiscal Year 2021-22 Special Tax levy if a building permit for such property is obtained by May 1, 2021. Based on the development status within the District as of May 1, 2020, all of the property in the District expected to be developed into single family homes constitutes Final Map Parcels for Fiscal Year 2020-21 and all of the property expected to be developed into multifamily purposes constitutes Undeveloped Parcels for Fiscal Year 2020-21. As of December 1, 2020, 19 building permits had been pulled for market rate single family homes and such property would be classified as Developed Parcels for Fiscal Year 2021 -22. It is expected that additional property within the District will have building permits issued prior to May 1, 2021, and will therefore also become Developed Parcels for calculation of the Fiscal Year 2021-22 Special Tax levy. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 27 4127-3642-5770.7 TABLE 7 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) ESTIMATED APPRAISED MARKET VALUE-TO-LIEN RATIOS ALLOCATED BY DEVELOPMENT STATUS AS OF DECEMBER 1, 2020 (Projected Fiscal Year 2021-22 Special Tax Levy)* Land Use Classes Acres Total Planned Units Building Permits Issued(1) Final Map Parcels Un- developed Parcels Fiscal Year 2021-22 Maximum Annual Special Tax Revenue Projected FY 2021-22 Special Tax Levy*(2) Allocation of Debt Based on FY 2021-22 Levy*(3) Allocated Appraised Value(4) Value-to-Lien Ratio*(5) Low Density Residential (LDR) 1,850 square feet and greater 15.51 98 0 98 0 $273,516 $273,516 $5,834,289 $17,107,174 2.93:1 Less than 1,850 square feet 94 0 94 0 262,352 262,352 5,596,155 16,408,922 2.93:1 Workforce/Affordable Units 6 0 6 0 0 0 0 0 LDR Subtotal 15.51 198 0 198 0 $535,868 $535,868 $11,430,444 $33,516,096 2.93:1 Medium Density Residential (MDR) 1,600 square feet and greater 5.14 44 8 36 0 $104,465 $104,465 $2,228,321 $6,449,124 2.89:1 Less than 1,600 square feet 33 11 22 0 75,292 75,292 1,606,048 4,836,843 3.01:1 Workforce/Affordable Units 6 1 5 0 0 0 0 0 MDR Subtotal 5.14 83 20 63 0 $179,758 $179,758 $3,834,369 $11,285,967 2.94:1 High Density Residential (HDR) Townhomes Lot 5 0.32 8 0 0 8 $16,215 $5,101 $108,808 $1,171,728 10.77:1 Lot 6 1.66 36 0 0 36 72,968 22,954 489,634 5,272,776 10.77:1 Lot 7 1.67 34 0 0 34 68,914 21,679 462,432 4,979,844 10.77:1 Workforce/Affordable Units 2 0 0 2 0 0 0 0 HDR Subtotal 3.65 80 0 0 80 $158,098 $49,735 $1,060,874 $11,424,348 10.77:1 Condominiums Lot 1 0.32 60 0 0 60 $101,875 $32,048 $683,606 $7,766,160 11.36:1 Lot 2 1.66 34 0 0 34 57,729 18,161 387,377 4,400,824 11.36:1 Workforce/Affordable Units 2 0 0 2 0 0 0 0 Condominiums Subtotal 3.65 96 0 0 96 $159,605 $50,209 $1,070,983 $12,166,984 11.36:1 28 4127-3642-5770.7 Land Use Classes Acres Total Planned Units Building Permits Issued(1) Final Map Parcels Un- developed Parcels Fiscal Year 2021-22 Maximum Annual Special Tax Revenue Projected FY 2021-22 Special Tax Levy*(2) Allocation of Debt Based on FY 2021-22 Levy*(3) Allocated Appraised Value(4) Value-to-Lien Ratio*(5) Efficiency Units Lot 3 0.32 100 0 0 100 $127,239 $40,027 $853,798 $5,973,700 7.00:1 Lot 2 1.66 14 0 0 14 17,813 5,604 119,532 836,318 7.00:1 Workforce/Affordable Units 6 0 0 6 0 0 0 0 Efficiency Units Subtotal 1.93 120 0 0 120 $145,052 $45,630 $973,330 $6,810,018 7.00:1 TOTAL 29.55 577 20 261 296 $1,175,383 $861,200 $18,370,000 $75,203,413 4.09:1 * Preliminary, subject to change. (1) Building permits issued through December 31, 2020 . (2) Annual levy is derived by first identifying annual costs, which is assumed to be $______ for debt service and $_____ for annu al administration costs of the District. Annual costs are then allocated to Tax Categories based upon taxation priorities established in the Rate and Method. (3) There are currently no overlapping assessment districts and/or other community facilities districts encumbering the District (excluding debt secured by any tax or assessment established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof). The Bonds are allocated based on a proportionate share of the estimated Fiscal Year 2021-22 Special Tax, as if no additional building permits are pulled before May 1, 2021. It is anticipated that additional building permits will be obtained, and homes sold to individual homeowners, by May 1, 2021, which will result in adjustments to the percentage of Special Tax paid by each owner. (5) Calculated by dividing the Allocated Appraised Market Value column by the Allocation of Debt Based on FY 2021-22 Levy column. Source: Economic & Planning Systems, Inc. 29 4127-3642-5770.7 TABLE 8 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) ESTIMATED APPRAISED MARKET VALUE-TO-LIEN RATIOS ALLOCATED BY DEVELOPMENT STATUS AS OF DECEMBER 1, 2020 (Maximum Special Tax Lien)* Land Use Classes Acres Total Planned Units Building Permits Issued(1) Final Map Parcels Un- developed Parcels Fiscal Year 2021-22 Maximum Annual Special Tax Revenue Allocation of Debt Based on FY 2021-22 Maximum Special Tax*(3) Allocated Appraised Value(4) Value-to-Lien Ratio*(5) Low Density Residential (LDR) 1,850 square feet and greater 15.51 98 0 98 0 $273,516 $4,263,884 $17,107,174 4.01:1 Less than 1,850 square feet 94 0 94 0 262,352 4,089,848 16,408,922 4.01:1 Workforce/Affordable Units 6 0 6 0 0 0 0 LDR Subtotal 15.51 198 0 198 0 $535,868 $8,353,732 $33,516,096 4.01:1 Medium Density Residential (MDR) 1,600 square feet and greater 5.14 44 8 36 0 $104,465 $1,628,528 $6,449,124 3.96:1 Less than 1,600 square feet 33 11 22 0 75,292 1,173,751 4,836,843 4.12:1 Workforce/Affordable Units 6 1 5 0 0 0 0 MDR Subtotal 5.14 83 20 63 0 $179,758 $2,802,279 $11,285,967 4.03:1 High Density Residential (HDR) Townhomes Lot 5 0.32 8 0 0 8 $16,215 $252,783 $1,171,728 4.64:1 Lot 6 1.66 36 0 0 36 72,968 1,137,521 5,272,776 4.64:1 Lot 7 1.67 34 0 0 34 68,914 1,074,326 4,979,844 4.64:1 Workforce/Affordable Units 2 0 0 2 0 0 0 HDR Subtotal 3.65 80 0 0 80 $158,098 $2,464,630 $11,424,348 4.64:1 Condominiums Lot 1 0.32 60 0 0 60 $101,875 $1,588,158 $7,766,160 4.89:1 Lot 2 1.66 34 0 0 34 57,729 899,956 4,400,824 4.89:1 Workforce/Affordable Units 2 0 0 2 0 0 0 Condominiums Subtotal 3.65 96 0 0 96 $159,605 $2,488,114 $12,166,984 4.89:1 30 4127-3642-5770.7 Land Use Classes Acres Total Planned Units Building Permits Issued(1) Final Map Parcels Un- developed Parcels Fiscal Year 2021-22 Maximum Annual Special Tax Revenue Allocation of Debt Based on FY 2021-22 Maximum Special Tax*(3) Allocated Appraised Value(4) Value-to-Lien Ratio*(5) Efficiency Units Lot 3 0.32 100 0 0 100 $127,239 $1,983,549 $5,973,700 3.01:1 Lot 2 1.66 14 0 0 14 17,813 277,697 836,318 3.01:1 Workforce/Affordable Units 6 0 0 6 0 0 0 Efficiency Units Subtotal 1.93 120 0 0 120 $145,052 $2,261,245 $6,810,018 3.01:1 TOTAL 29.55 577 20 261 296 $1,175,383 $18,370,000 $75,203,413 4.09:1 * Preliminary, subject to change. (1) Building permits issued through December 31, 2020 . (2) Annual levy is derived by first identifying annual costs, which is assumed to be $______ for debt service and $_____ for annual administration costs of the District . Annual costs are then allocated to Tax Categories based upon taxation priorities established in the Rate and Method. (3) There are currently no overlapping assessment districts and/or other community facilities districts encumbering the District (excluding d ebt secured by any tax or assessment established and levied on an individual Assessor’s Parcel pursuant to a contractual agreement or other voluntary consent by the owner thereof). The Bonds are allocated based on a proportionate share of the Maximum Special Tax for Fiscal Year 2021-22, as if no additional building permits are pulled before May 1, 2021. It is anticipated that additional building permits will be obtained, and homes sold to individual homeowners, by May 1, 2021, which will result in adjustments to the percentage of Special Tax paid by each owner. (5) Calculated by dividing the Allocated Appraised Market Value column by the Allocation of Debt Based on FY 2021-22 Levy column. Source: Economic & Planning Systems, Inc. 31 4127-3642-5770.7 PROPERTY OWNERSHIP AND THE DEVELOPMENT Representatives of the Master Developer and the Homebuilders have provided the information in this section regarding Master Developer and the Homebuilders and their development in the District. Neither the Underwriter nor the City has independently confirmed or verified the information in this section of the Offic ial Statement nor does any such party make any representation as to accuracy or adequacy of this information. Further, there may be material adverse changes in this information after the date of this Official Statement. The information in this section of the Official Statement regarding ownership of certain taxable property in the District has been included because it is considered relevant to an informed evaluation of the Bonds. The inclusion in this Official Statement of information related to Master Developer and the Homebuilders should not be construed to suggest that the Bonds, or the Special Taxes that will be used to pay the Bonds, are recourse obligations of Master Developer and the Homebuilders or any other property owner in the District. A property owner may sell or otherwise dispose of land within the District or a development or any interest therein at any time. No assurance can be given that the proposed development within the District will occur as described below. As the proposed land development progresses and parcels are sold, it is expected that the ownership of the land within the District will become more diversified. No assurance can be given that development of the land within the District will occur in a timely manner or in the configuration or intensity described herein, or that any landowner described herein will obtain or retain ownership of any of the land within the District. The Bonds and the Special Taxes are not personal obligations of Master Developer and the Homebuilders or any other current or subsequent property owners and, in the event that Master Developer or the Homebuilders or any other current or subsequent property owner defaults in the payment of the Special Taxes, the City may proceed with judicial foreclosure but has no direct recourse to the assets of such current or subsequent property owner. As a result, other than as provided in the Official Statement, no financial statements or information is, or will be, provided about the Master Developer, the Homebuilders or any other current or subsequent property owner. The Bonds are secured solely by the Net Special Tax Revenues and other amounts pledged under the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “SPECIAL RISK FACTORS.” Development Entitlements Specific Plan. On July 18, 2017, the City Council approved the Specific Plan for the development of the San Luis Ranch Project. As amended to date, the Specific Plan for the San Luis Ranch Project allows for the development of up to a maximum of 580 residential units, 150,000 square feet of commercial space, 100,000 square feet of office space, 200 hotel rooms, parks, open space and agriculture. Pursuant to the City’s General Plan, the San Luis Ranch Project must meet a fifty-percent requirement for open space and agriculture. Build out is projected to occur over a 7-year time frame. The San Luis Ranch Project is designed as a horizontal mixed-use project, identified as Special Focus Area SP-2 and consists of a Specific Plan, General Plan Amendment and Pre-Zone, Development Agreement, Memorandum of Understanding, Development Plan/Tentative Tract Map and annexation of the site into the City. The Development Agreement for the San Luis Ranch Project was approved by the City Council on July 17, 2018. The San Luis Ranch Project is intended to be consistent with the development parameters described in the City’s General Plan Land Use and Circulation Elements, which were updated in December 2014. Final subdivision maps have been approved for the entirety of the property within the District, creating 281 single family parcels and additional parcels for 296 multifamily units. As of December 1, 2020, a condominium map has been approved for 24 multifamily units. Additional condominium maps will be required in connection with the development of the multifamily units, but no discretionary approvals remain. 32 4127-3642-5770.7 Based on current tentative and final subdivision maps and zoning entitlements, the property within the District is entitled to be developed into 281 single-family units and 296 multi-family units, consisting of 198 units of low-medium density residential, 83 units of medium density residential and 296 units of high density residential. The San Luis Ranch Project is organized into six zones: Neighborhood General 10 (“NG-10”), Neighborhood General 23 (“NG-23”), Neighborhood General 30 (“NG-30”), Neighborhood Commercial (“NC”), Open Space (“OS”) and Agricultural (“AG”). See PROPOSED PROPERTY DEVELOPMENT – Development Plan and Status of Development” for further details on the zones. Each of these zones is highly interconnected with pedestrian connections, trails, bridges, a fitness loop and sidewalks. These zone boundaries were determined based upon the protection of approximately 50% of the San Luis Ranch Project Area as open space and agriculture. 33 4127-3642-5770.7 City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Planned Development in San Luis Ranch Source: San Luis Ranch Specific Plan, July 18, 2017 Adopted, August 21, 2018 Amended. 34 4127-3642-5770.7 Development Conditions/Building Permit Limitations. The San Luis Ranch Project has several development constraints. The Specific Plan recognizes the importance of preserving the view looking west from Highway 101 and requires that a significant portion of the existing agriculture and open space be preserve d in perpetuity. Under the City’s General Plan, the San Luis Ranch Project must meet a fifty-percent requirement for open space and agriculture. The City’s General Plan also requires development in the San Luis Ranch Project to maintain viewshed of Bishop Peak and Cerro San Luis, two mountains that are part of a chain of volcanic peaks and hills stretching from the City to Morro Bay. Additionally, the District currently includes 48 deed- restricted affordable and workforce housing units and will ultimately include 22 deed-restricted affordable and workforce housing units once the deed restrictions on 26 very low affordable housing units is removed. Affordable and workforce housing units are not subject to the Special Tax. Developer impact fees are required in order to develop the property within the San Luis Ranch Project. However, the Master Developer expects to pay all such fees with equity and/or financing. There are no required backbone facilities remaining to be built prior to the issuance of building permits. However, the improvements identified in Table 12 below must be completed prior to the issuance of certificates of occupancy. Development Agreement. On July 17, 2018, the City Council approved the Development Agreement for the San Luis Ranch Project. The Development Agreement vests certain rights of the property owner and of the City, commits each party to the agreement to subsequent actions before development may proceed within the San Luis Ranch Project. The Development Agreement also includes a Public Facilities Financing Plan (“PFFP”) that specifies the form and mechanisms of public financing to be used. Additionally, the Development Agreement requires the Master Developer to construct certain improvements in addition to those “in-tract” improvements required pursuant to the subdivision map(s). The Master Developer is required to construct and convey to the city identified infrastructure and community facilities concurrently with the development of the discrete uses of the San Luis Ranch Project to be served by each infrastructure element or community facility. Article 2.5 (commencing with Section 65864), of Chapter 4, Division 1, Title 7 of the State Government Code, pertaining to development agreements, has the general effect of authorizing development to continue in accordance with then existing General Plan, Specific Plan, zoning and subdivision regulations notwithstanding any subsequently enacted conflicting regulations, except for regulations the failure of which to enact would place the residents in a condition which is dangerous to their health or safety or both. Environmental Permits and Approvals. The California Environmental Quality Act (“CEQA”), constituting Division 13 of the State Public Resources Code (commencing with Section 21000) requires that an Environmental Impact Report (an “EIR”), detailing the significant environmental effects of the project and proposed mitigation measures, be prepared, considered and certified as complete by a public agency prior to its taking discretionary action on any project which may have a significant effect on the environment. On July 18, 2017, after statutorily required public notice, hearing and comment, the City Council certified as adequate and complete a final EIR/EIS for the Specific Plan for the development of the San Luis Ranch Project. A Supplement to the final EIR was prepared to address the amendment to the Specific Plan and certified in conjunction with the approval of that amendment on July 17, 2018. Additionally, an Addendum to the Final EIR was prepared in order to address minor modifications to the Transportation Impact Study that formed the basis for determining traffic-related impacts under CEQA. This addendum was approved in July 2018 and is a part of the CEQA record. No additional CEQA approvals are necessary for development within the District. The San Luis Ranch Project has received all required environmental permits, including a Section 404 Permit for the entire San Luis Ranch Project pursuant to Section 404 of the federal Clean Water Act. But for 35 4127-3642-5770.7 typical pre-construction and post-construction permit conditions (e.g., pre-construction surveys, agency notifications, etc.), all other permit conditions have been fulfilled. A portion of the property within the District consisting of 126 lots planned for detached single family homes is located within Flood Zone AE, or the 100-year flood plain. The Master Developer has received a conditional letter of map revision. The Master Developer has constructed all necessary infras tructure to bring the 126 lots out of the flood plain. The Master Developer has applied for and expects to receive a final letter of map revision to reclassify such 126 lots so that all of the property within the District is classified as Flood Zone X, or the 500-year flood plain. Until each parcel is reclassified by a final letter of map revision is received from the Federal Emergency Management Agency, the Master Developer has agreed in its Development Agreement to pay for any flood insurance that may be required for the homes in the District. The Master Developer does not anticipate that it will have any difficulty obtaining flood insurance at a reasonable cost for such homes prior to receipt of the letter of map revision. Water Supply. The City’s Utilities Department currently provides water supply, treatment and distribution for the City’s population. The City is utilizing its 2015 Water Master Plan, for which it has prepared a hydraulic model that analyzes the existing water system and effects of future development, including the San Luis Ranch Project. Corresponding recommendations are provided for the proposed San Luis Ranch Project backbone water system, which will include new 12-inch mains that extend through the site from Madonna Road to the existing line at Highway 101 across from Prado Road, as well as within the Froom Ranch Way Extension. The San Luis Ranch Project buildout will connect to the existing 8-inch mains at the end of Froom Ranch Way, at the end of Oceanaire Drive and at the end of Dalidio Drive. Prior to the issuance of a building permit for the construction of units, the development’s recycled water system will need to have an 8 inch recycled water main along San Luis Ranch Road from Madonna Road to Froom Ranch Way from Prefumo Creek to Highway 101, and a 14” recycled water main that extends easterly from the intersection of San Luis Ranch and Madonna Road up to the northeastern corner of the frontage along Madonna Road. Wastewater Treatment. The City’s wastewater collection and treatment are maintained by the City’s Utilities Department and are expected to be able to accommodate the projected demand created by the San Luis Ranch Project. Prior to the issuance of a building permit, the Master Developer’s sewer system will be required to construct or provide a 24-inch sewer main extending along the south boundary of the parcel within a new sewer easement from Lot 29 to the Laguna Lift Station, and will need to include associated improvements at the lift station to accommodate the proposed casing and sewer line. Solid Waste and Recycling. The City’s solid waste and recycling is managed by the City’s Utilities Department and operates through an exclusive franchise agreement with the San Luis Garbage Company. The City’s existing program is expected to be able to accommodate the increased demand created by the San Luis Ranch Project. Stormwater Management. The Specific Plan for the San Luis Ranch Project provides direction for stormwater management before and after development of the site. Development is required to conform to the requirements of the City for Post Construction Stormwater Treatment as well as general stormwater management requirements of the City, including new standards for Low Impact Development set forth by the State Regional Water Quality Control Board, through the use of bio swales, detention and retention basins, cisterns and other low impact methods for recharging the aquifer on site. Affordable Housing. As of April 1, 2021, 22 units are deed restricted as affordable and workforce housing units within the residential development of the District. Affordable and workforce housing units are not subject to the Special Tax. The commercial uses provided within the San Luis Ranch Project will also be required to provide an additional 34 units, which will either be provided on-site or through the payment of in lieu fees based on 5% of the construction costs. Per State law, providing 5% of very low-income units qualifies for a 20% bonus density. Since the San Luis Ranch Pr oject meets the state bonus density requirement, the San Luis Ranch Project was able to obtain 80 additional units, comprising a portion of the total 577 residential units. 36 4127-3642-5770.7 Utilities. All typical urban utility services will be available to the property w ithin the District. These utilities include electricity, natural gas, telecommunications, high-speed data access, cable television, water systems, wastewater, solid waste and recycling, and stormwater management. The City provides water, wastewater, solid waste and recycling, stormwater management, police and fire services. Pacific Gas & Electric will provide electricity services. AT&T will provide high-speed data access and the Southern California Gas Company will provide natural gas services to the property within the District. Charter Communications will provide cable service. “Will-Serve” Letters have been obtained for electric and natural gas services. Status of Development As of December 1, 2020, all of the property within the District had been mass-graded and developed to blue top condition, with all electric, sewer and water stubbed to the sites. All necessary backbone infrastructure including streets and the provision of public utilities, has been substantially completed. For remaining infrastructure, see Tables [12] and [13] below. As of December 1, 2020, 19 building permits had been issued by the City for the construction of market rate homes which will be subject to the Special Tax, including 4 model homes, with home construction underway for all building permits pulled. In addition, one building permit had been issued for a low income home not subject to the Special Tax. Property Ownership The proposed development plan within the District known as the San Luis Ranch Project is expected to be developed into 577 dwelling units consisting of 281 detached single family homes (with 198 zoned low density residential with average lot sizes of 3,200 square feet and 83 zoned medium density residential with average lot size of 2,400 square feet), and 296 attached residential units (with 80 townhomes, 96 condominiums and 120 efficiency units), commercial development, office use, hotel and conference center, public parks, agriculture and open space. After taking into account affordable and workforce housing units, 555 dwelling units will be subject to the Special Tax. The Master Developer acquired the property within the District in 2016 as a land developer. The Master Developer has entered into purchase and sale agreements (the “PSAs”) with 5 builders, all affiliates of Coastal Community and Williams Homes as homebuilders. As of April 1, 2021, the Master Developer has conveyed all of the property to the Homebuilders with the exception of 141 lots currently under contract for sale as described herein. The following table briefly describes the PSAs. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 37 4127-3642-5770.7 TABLE 9 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) PSA SUMMARY As of April 1, 2021 Product Type Purchaser/ Homebuilder Number of Units(1) Date of First Takedown Number of Units Taken Down Date of Final Takedown Low Density Residential Presidio 198 198 September 2020 57 September 2023 Medium Density Residential WH 83 83 September 2020 83 September 2020 High Density Residential – Townhomes WH 80 80 November 2020 80 November 2020 High Density Residential – Condominiums Presidio 96 96 December 2020 96 December 2020 High Density Residential – Efficiency Units Williams Communities 120 120 March 2021 577 316 (1) The District includes 22 deed restricted affordable and workforce housing units that are not subject to the Special Tax. Source: The Master Developer. The “Low Density Agreement” provides for the sale to Presidio MI SLR 198, LLC (“Presidio 198”), of 198 single-family residential lots with low density zoning in the District. Presidio 198 is a joint venture between Merced Capital (or an affiliate entity of Merced Capital) and Coastal Community Builders. Presidio 198 has made a non-refundable deposit equal to $250,000. Closing of the first phase of 57 lots occurred on September 30, 2020, with the remaining 141 lots to occur annually on or about September 30 in three additional takedowns. There are no remaining conditions to the closing of such 141 lots. Pursuant to a cost sharing arrangement, Coastal Community has agreed to reimburse the Master Developer for costs remaining to develop the lots to finished lot status. The “Condominium Agreement” provides for the sale to Presidio MI SLR 96, LLC (“Presidio 96”), of property planned for development into 96 multifamily attached residential units in the District, to be constructed as stacked condominium units. Presidio 96 is a joint venture between Merced Capital (or an affiliate entity of Merced Capital) and Coastal Community Builders. Closing of all 96 planned units occurred on December 1, 2020. Pursuant to a cost sharing arrangement, Coastal Community has agreed to reimburse the Master Developer for costs remaining to construct the infrastructure necessary to bring the property to finished buildable pads. The “Medium Density Agreement” provides for the sale to Presidio WH SLR 83 SFR, LLC (“WH 83”), of 83 single-family residential lots with medium density zoning in the District. WH 83 is a joint venture between Merced Capital (or an affiliate entity of Merced Capital) and William Homes. Closing of all 83 lots occurred on September 30, 2020. Pursuant to a cost sharing arrangement, Williams Homes has agreed to reimburse the Master Developer for costs remaining to develop the lots to finished lot status. The “Townhome Agreement” provides for the sale to WH SLR 80, LLC (“WH 80”), of property planned for development into 80 multifamily attached residential units in the District, to be constructed as townhomes. WH 80 is a joint venture between Merced Capital (or an affiliate entity of Merced Capital) and William Homes. Closing occurred on November 24, 2020. Pursuant to a cost sharing arrangement, Williams Homes has agreed to reimburse the Master Developer for costs remaining to construct the infrastructure necessary to bring the property to finished buildable pads. The “Efficiency Units Agreement” provides for the sale to Williams Communities, of property planned for development into 120 multifamily attached residential units in the District, to be constructed as townhomes. Williams Communities made a non-refundable deposit equal to $25,000 on January 8, 2021. An additional deposit in equal to $125,000 will be due at the close of the feasibility period on February 28. 2021. Closing occurred on March __, 2021. Pursuant to a cost sharing arrangement, Williams Homes has agreed to reimburse the Master Developer for costs remaining to construct the infrastructure necessary to bring the property to finished buildable pads. 38 4127-3642-5770.7 The following map reflects property ownership within the District as of April 1, 2021, based on sales to the Homebuilders. Source: Master Developer The Master Developer – MI San Luis Ranch, LLC. The current developer of the property in the District is MI San Luis Ranch, LLC a Delaware limited liability company, which is a wholly owned subsidiary of MI Entitlement IV, LLC, a Delaware limited liability company, which is in turn owned by Presidio Merced Land IV Passive, LLC, a Delaware limited liability company. Merced Capital and Presidio Residential Capital are affiliates of Presidio Merced Land IV Passive, LLC. In conjunction with Presidio Residential Capital, a real estate investment company f ocused on the residential housing sector, Merced Capital (“Merced Capital”) has invested with more than 25 builder partners across California, Arizona, Washington, Colorado, Nevada and Idaho, representing over 150 different projects. Founded in 1988, Merced Capital is an investment firm that has raised eighteen investment funds with an aggregate committed capital of over $4.5 billion. Merced Capital has over 27 years of experience in working in endowments, foundations, state and corporate pension plans, family offices and fund to funds. Merced Capital invests in a wide array of industries, with a particular emphasis on real estate. Merced Capital has current equity commitments in excess of $500 million to the residential construction industry. Merced Capital has a development management agreement with Presidio Residential Capital to locate and source potential development and homebuilding project opportunities in the Western United States and to manage the development, construction, and operations of such projects. Presidio’s responsibilities are detailed below. 1. Locate potential acquisition of development & homebuilding project opportunities for Merced, and, on approval by Merced, negotiate with residential real estate developers and builders for entering into joint venture agreements and property purchases (“Project Joint Ventures”). 39 4127-3642-5770.7 2. Manage the entitlement, development, construction, sale and related activities of all Project Joint Ventures, and update Merced regarding the progress thereof. 3. Review, analyze, and approve all material activities for each Project entity and its underlying real estate, including but not limited to, the following: • Analyze all new proposed projects: • Manage all existing Projects • Monitor all builders and developers and the Projects’ activities; taking necessary actions to benefit each of the Projects • Interact with each of the builders and developers on a daily or weekly basis • Interact with various jurisdictions • Interact with each of the builders and developers on a daily or weekly basis • Act as a signor on all bank accounts, with the ability to cut checks as necessary • Review all invoices and budgets prior to monthly equity contributions • Review all escrow closing statements prior to equity distributions • Perform site visits, model walks and visit competition 4. Prepare periodic Project Status Reports. 5. Maintain books of account with respect to all Project Joint Ventures, and provide such reports and financial information with respect to such Project Joint Ventures periodically. 6. Open savings, checking, money market or other bank accounts at such banks or similar institutions as appropriate. A sample of other residential development projects recently completed or underway by the Master Developer or its affiliates include the following: Project Location Units at Completion Type of Development Status Heritage Square Santa Maria, CA 296 Single Family Complete Legacy at La Ventana Santa Marcia, CA 120 Single Family Complete Templeton Ranch Templeton, CA 107 Single Family Complete Hartley Grove Hanford, CA 182 Single Family Complete Pine River Estates Visalia, CA 144 Single Family Complete Savannah Tulare, CA 231 Single Family Complete Sedona at Palo Verde Tulare, CA 106 Single Family Complete Tuscany Bakersfield, CA 116 Single Family Complete Viscaya Dinuba 124 Single Family Complete Chelsea West Visalia 145 Single Family Complete Source: The Master Developer. Coastal Community Builders. Coastal Community Builders, Inc., a California corporation headquartered in Pismo Beach, CA, is wholly owned by Gary Grossman and operating by the CCB management team. Founded by Gary Grossman in 1988, Coastal Community Builders sells single family atta ched and detached homes in communities targeted to entry level homebuyers, move up homebuyers and luxury homebuyers in the Central Coast region of California. company has grown from its humble beginnings to become a leader in new home construction, building over 3,000 homes on California’s Central Coast. Led by President Gary Grossman, Coastal Community Builders offers complete development capabilities including acquisition, entitlement and construction. Operating primarily in Central Coast Region of California, Coastal Community Builders is well versed in infill, hillside and greenfield development. 40 4127-3642-5770.7 Coastal Community Builders currently and historically has capitalized its projects with traditional commercial bank financing, institution equity and high net worth individual equity. To date, CCCB equity partners have invested over $150 million in CCB projects. A sample of other residential development projects recently completed or underway by Coastal Communities or its affiliates include the following: Project Location Units at Completion Type of Development Status Heritage Square Santa Maria, CA 296 Single Family Complete Legacy at La Ventana Santa Maria, CA 120 Single Family Complete Templeton Ranch Templeton, CA 107 Single Family Complete Skytt Mesa Solvang, CA 128 Single Family Complete Pac West Condos Pismo Beach, CA 36 Condos Complete Pac West Pismo Beach, CA 36 Single Family Complete SLO Terrace San Luis Obispo, CA 17 Single Family Complete Wadswoth Pismo Beach, CA 32 Single Family/Townhomes Complete Meadows at Rice Ranch Orcutt, CA 103 Single Family In process – 2023 Groves at Rice Ranch Orcutt, CA 77 Single Family In process – 2023 Source: Coastal Community. Williams Homes. Williams Homes Inc., a California corporation is headquartered in the City of Santa Clarita, California, is wholly owned by Lance Williams and is operated by the Williams management team. Co- Founded in 1996 by Lance Williams and Ray Watt, Williams Homes sells single family attached and detached homes in communities targeted to entry level homebuyers, move up homebuyers and luxury homebuyers in Southern and Central California, Idaho, and Montana. Led by Chairman and CEO Lance Williams (53), Williams Homes competitive advantage includes a fully vertically integrated management team capable of acquiring, entitling, and developing complex residential projects as well as delivering cutting edge energy efficient attached and detached new homes to its customers. Williams Homes for sale new home projects include urban infill, suburban infill, hillside and greenfield development. In 2019 Williams Homes delivered 285 homes for $185 million in revenue with an average sales price of $649,000. Over its twenty-two-year history, Williams Homes has delivered over 2,000 homes in 61 communities worth in excess of $1 billion and currently has in process or under construction over 1,500 homes with a completed value of approximately $1.1 billion. Williams Homes has a perfect record of project completion. Williams currently and historically has capitalized its projects with traditional commercial bank financing, institutional equity, and high net worth individual equity. To date, Williams equity partners have invested over $300 million in Williams projects. A sample of other residential development projects recently completed or underway by Williams Homes or its affiliates include the following: 41 4127-3642-5770.7 Project Location Units at Completion Type of Development Status The Farm Ventura, CA 163 Single Family Complete The Gardens Santa Maria, CA 126 Single Family Complete Trestles Santa Clarita, CA 137 Single Family Complete Harvest Glen Santa Maria, CA 139 Single Family Complete Senna Azusa, CA 70 Single Family Complete Arroyos @ Righetti San Luis Obispo, CA 113 Single Family In Process – 2021 Paseos @ Righetti San Luis Obispo, CA 86 Single Family In Process – 2021 Tovara West Sylmar, CA 125 Townhomes In process – 2021 Williams Ranch Santa Clarita, CA 497 Single Family In process – 2024 Creekside Fillmore, CA 125 Single Family In process – 2023 Source: Williams Homes. Although the information set forth in this Official Statement reflects the Master Developer’s and Homebuilders’ current development expectations, no assurance can be given that final home construction and conveyance to individual home buyers will be carried out as described in this Official Statement. Development Plan Unless otherwise indicated, the information provided in this section has been provided by the Master Developer and the Homebuilders and has been included because it may be considered relevant to an informed evaluation and analysis of the Bonds and the District. No assurance can be given, however, that the proposed development of the property within the District will occur in a timely manner or in the configuration or to the density described herein, or that the Master Developer, the Homebuilders, any owners or affiliates thereof, or any other current or subsequent property owners, will or will not retain ownership of its respective property within the District. The City, the District and the Underwriter can provide no assurances as to the accuracy of the information in this section. The Master Developer has secured entitlements for the San Luis Ranch Project, which is currently planned to be developed for 577 residential units, consisting of 281 single-family units and 296 multi-family units. The residential development will include 198 units of low-medium density residential, 83 units of medium density residential and 296 units of high density residential, in addition to 150,000 square feet of commercial development, 100,000 square feet of office space, 200 hotel rooms, public parks, agriculture and open space. As of April 1, 2021, 22 dwelling units are deed restricted as affordable and workforce housing units. Only market- rate residential property is subject to the Special Tax. The development plans take to create a multi-modal community, maintaining and promoting the City’s agricultural heritage, and providing open space and recreation areas. The San Luis Ranch Project is organized into six unique zones: NG-10, NG-23, NG-30, NC, OS and AG. The NG-10 zone allows for detached single-family residential units with the majority of lots averaging 3,200 square feet. The NG-23 zone allows for detached single-family residential units on lots averaging 2,400 to 3,000 square feet. The NG-30 zone allows for attached and detached units on lots as small as 1,000 square feet to lot sizes that can accommodate multi-family structures. The NC zone allows for commercial development, including a blend of retail, office, medical office, hotel, and horizontal mixed-use buildings. The OZ zone provides recreational areas and connections to community and neighborhood parks, pedestrian paths and habitat restoration areas. The AG zone includes agricultural uses, including a heritage and learning center and production facilities. The residential uses are generally to be located on the western portion of the San Luis Ranch Project, west of Froom Ranch Way and south of Dalidio Drive. Residential land uses will be accessible from local streets, with connections to Froom Ranch Way, Madonna and Prado Roads. As of December 1, 2020, all single family lots that have been conveyed to Homebuilders are permit ready. Backbone infrastructure is approximately 90% complete with the only outstanding work related to median and park landscaping/installation. The remaining 10% of backbone infrastructure will be completed in the next six months. Regional and off-site improvements are in process and are approximately 60% complete. All 42 4127-3642-5770.7 regional work is defined on Table 12 below and includes estimated completion dates. All regional and off-site work required to obtain Certificates of Occupancy is in process and will be completed approximately 60-90 days ahead of the anticipated first home closing. In-tract work for the single-family residences is divided into three phases. Phase 1 covers all of the 2,400 square foot lots. Phase 2 covers 94 of the 3,200 square foot lots and Phase 3 covers the remaining 104 3,200 square foot lots. Phase 1 and Phase 2 of the in -tract work are being completed concurrently. All wet utilities have been installed and dry utilities are approximately 50% installed with anticipated completion by the end of February. Surface improvements will begin the second week of February and will be complete by the end of March. Phase 3 of the in-tract work will begin in the 4th quarter of 2021 with completion by the end of the first quarter of 2022. Below is a development schedule for the San Luis Ranch Project: TABLE 10 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) BUILDOUT SCHEDULE Residential Build-Out(1) Year Dwelling Units Acres 1 196 8.0 2 86 15 3 175 15 4 120 4.0 Total 577 42 Non-Residential Build-Out(2) Commercial Office Hotel + Conference Center Year Square Feet Acres Square Feet Acres Rooms Acres 1 50,000 4.0 - - - - 2 50,000 4.0 25,000 1.05 200 3.50 3 50,000 4.0 25,000 1.05 - - 4 - - 25,000 1.05 - - 5 - - - - - - 6 - - 25,000 1.05 - - 7 - - - - - - Total 150,000 12.00 100,000 4.20 200 3.50 (1) Includes affordable and workforce housing units not subject to the Special Tax. (2) Nonresidential development within the District is not subject to the Special Tax. Source: Master Developer. The open space in the San Luis Ranch Project includes areas for active and passive recreation that connect to community and neighborhood parks, pedestrian paths and habitat restoration areas, accommodating trails, paths and playground equipment. The agriculture zone will also include a heritage and learning center and agricultural production facilities. The maps on page 33 and the following page reflect the zoning of development within the District reflecting planned development of 577 total residential units, as more particularly described in the preceding paragraphs. 43 4127-3642-5770.7 44 4127-3642-5770.7 City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Master Plan 45 4127-3642-5770.7 Plan of Finance Master Developer Plan of Finance. The infrastructure and development of the San Luis Ranch Project will be funded through a combination of the following sources: (1) Developer equity; (2) Financing; (3) Proceeds from sale of bonds; and (4) Proceeds from sales of lots to homebuilders. In addition to residential properties, the master planned community also includes approximately 119,000 square feet of retail space, approximately 90,000 square feet of office space, a 200-room hotel, an agricultural heritage center which will also include retail space and approximately 43-acres of agricultural land. Only the market-rate residential properties are subject to the Special Tax. The following table illustrates the name of the purchaser and the estimated closing date, which closing dates are subject to change: Property Type Purchaser Closing Date Ag and Ag Heritage Center Gary Grossman or assignee May 1, 2021 Office Presidio Paynter SLR Office, LLC June 26, 2021 Retail Presidio Paynter SLR Retail, LLC June 26, 2021 Hotel Somera Capital Management, LLC December 31, 2021 TABLE 11 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) MASTER DEVELOPER PLAN OF FINANCE Sources Equity $53,000,000 Land Sales $53,406,500 In-Tract Reimbursement $8,000,000 MFR On-Site Reimbursement $11,500,000 City Reimbursements $6,000,000 CFD Proceeds $18,500,000 Total Revenue (as of December 1, 2020) $150,406,500 Uses Land Acquisition $22,006,500 Permits, Fees, Bonds $7,700,000 Entitlement Costs $18,600,000 Site Development Costs $41,000,000 Off-Site Development Costs $37,000,000 In-Tracts SFR $8,000,000 Site Development – MFR $11,500,000 Other/Admin Costs $4,600,000 Total Development Costs $150,406,500 ___________________ Totals may not sum due to rounding. Source: Master Developer. Although the Master Developer expects to have sufficient funds available to complete its planned development in the District as described in this Official Statement, there can be no assurance that amounts necessary to finance the remaining land acquisition, development and home construction costs will be available from the Master Developer or any other source when needed. While the Master Developer has made such 46 4127-3642-5770.7 internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither the Master Developer, nor any of its related entities are under any legal obligation of any kind to expend funds or obtain loans for land acquisition or the development of and construction of homes on its property in the District. Any contributions by the Master Developer to fund the costs of such land acquisition or development are entirely voluntary. If and to the extent that internal funding, including but not limited to home sales revenues, are inadequate to pay the costs to complete the planned development by the Master Developer within the District and other financing by the Master Developer is not put into place, there could be a shortfall in the funds required to complete the planned development by the Master Developer of the property in the District. Backbone and Common Infrastructure. As described above, the Master Developer is underway on completing the onsite backbone and common infrastructure. The Master Developer has spent a total of $35,000,000 million on these improvements and anticipates spending the remainder of the contracts before the end of the year in the amount of $9,000,000 million. See “—Development Plan.” The following table reflects estimated costs of construction of all of the necessary infrastructure for the District other than subdivision improvements together with the estimated completion date. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 47 4127-3642-5770.7 TABLE 12 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) ESTIMATED COSTS AND COMPLETION DATES Facilities Estimated Cost District(1) Equity Land Sale Proceeds or Deposit Other Builder and 3rd Party Contributions Percent Complete Estimated Completion Date Backbone Infrastructure Froom Ranch Way – Prado to Oceanaire $11,000,000 $11,000,000 $0 $0 $0 60% May 2021 Froom Ranch Way – Oceanaire to Target Froom Ranch Way/LOVR Intersection 24” HDPE Sewer Line Madonna Road & Dalidio Intersection 900,000 2,200,000 2,100,000 2,600,000 0 0 0 0 135,000 440,000 1,050,000 2,600,000 0 0 0 0 765,000 1,760,000 1,050,000 0 20% 10% 50% 90% June 2021 July 2021 March 2021 March 2021 Dalidio Drive Protect Bike Path – Madonna to Oceanaire Retail Site (includes grading, storm drain) 4,550,000 1,200,000 4,750,000 0 0 0 4,550,000 720,000 4,750,000 0 0 0 0 480,000 0 100% 0% 100% Complete June 2021 Complete Other Commercial/Ag Sites Multi-family Site 1,875,000 600,000 0 0 1,875,000 600,000 0 0 0 0 100% 100% Complete Complete 3,200 SF lots – blue top (inc. storm drain) 4,930,000 0 4,930,000 0 0 100% Complete 2,400 SF lots – blue top (inc. storm drain) 1,650,000 0 1,650,000 0 0 100% Complete Sewer on Forest Road SLR Fee: Prado Overpass & NB Ramps SLR Fee: Prado SB Ramps 560,000 12,600,000 2,800,000 0 12,600,000 0 560,000 0 800,000 0 0 0 0 0 2,000,000 100% N/A N/A Complete 2023 2023 Other Costs: Mobilization, T&M, etc. Totals 2,100,000 $55,215,000 0 $23,600,000 2,100,000 $26,760,000 0 0 0 $6,055,000 N/A On-going (1) Includes the Bonds and one or more potential series of bonds. Source: Developer. 48 4127-3642-5770.7 Subdivision Improvements – SFR Lots. Remaining infrastructure for development of the District includes intract infrastructure such as underground utilities, subdivision roadways, street lighting, soundwalls and landscaping improvements. Such intract improvements are being constructed by the Master Developer. The Master Developer is funding the construction from equity and will be partially reimbursed from the Homebuilders. The total subdivision improvements in the District are estimated at $13,675,385 including all design, construction staking, plan check, inspection, habitat mitigation and other project related soft costs. As of December 1, 2020, all of the property within the District had been mass-graded and sewer, water, storm drains, streets, curbs, and gutters were 23% complete for 177 lots within the District. The subdivision costs and status of completion are summarized on the following table: TABLE 13 CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) SUBDIVISION IMPROVEMENTS COST SUMMARY Subdivision Improvements Estimated Cost Expenditures through December 1, 2020 Remaining Cost Percent Complete Estimated Completion Date Subdivision Improvements 2,400 sf lots – Sewer/Water (83 lots) $1,100,000 $900,000 $200,000 90% January 2021 2,400 sf lots – Dry Utilities (83 lots) $430,000 $0 $430,000 10% April 2021 2,400 sf lots – Surface Improvements (83 lots) $975,000 $0 $975,000 0% April 2021 3,200 sf lots – Sewer/Water (94 lots) $1,625,385 $850,000 $775,385 90% January 201 3,200 sf lots – Dry Utilities (94 lots) $515,000 $0 $515,000 10% April 2021 3,200 sf lots – Surface Improvements $2,950,000 $0 $2,950,000 0% April 2021 Sound Walls $425,000 $0 $425,000 0% June 2021 3,200 sf lots – Sewer/Water (remaining lots) $1,800,000 $0 $1,800,000 0% June 2022 3,200 sf lots – Dry Utilities (remaining lots) $575,000 $0 $575,000 0% August 2022 3,200 sf lots – Surface Improvements $2,000,000 $0 $2,000,000 0% September 2022 Landscaping – including park $1,280,000 $0 $1,280,000 10% August 2021 Totals $13,675,385 $1,750,000 $11,925,385 ________________ Totals may not foot due to rounding. Source: Developer. Subdivision Improvements – MFR Site. The three homebuilders of the multifamily site have entered into a cost sharing agreement with the developer (or designee) for the completion of site development. The cost sharing agreement establishes fair share percentage responsibilities for each homebuilder as follows: Entity Product Type % Presidio WH SLR 80 Towns, LLC Townhomes 35% Presidio MI SLR 96, LLC Condos 33% Williams Communities or assignee Efficiency Units 32% 49 4127-3642-5770.7 The Master Developer (or designee) is funding the construction from equity and will be fully reimbursed by the homebuilders. The total estimated cost of improvements for the multifamily site are $10,272,423 including all design, construction staking, plan check, inspection, habitat mitigation and other soft costs. The costs and status of completion are summarized on the following table: Subdivision Improvements Estimated Costs Expenditures through December 1, 2020 Remaining Costs Percent Complete Estimated Completion Date Grading $206,060 $184,037 $22,023 90% February 2021 Sewer $499,163 $370,761 $128,402 75% February 2021 Water System $655,921 $0 $655,921 0% March 2021 Gas $3,600 $0 $3,600 0% March 2021 Dry Utilities $396,000 $0 $396,000 0% April 2021 Storm Drain $1,048,285 $393,451 $654,834 40% March 2021 Surface Improvements $1,419,542 $0 $1,419,542 0% October 2021 Lighting $592,177 $0 $592,177 0% October 2021 Retaining Walls $179,070 $0 $179,070 0% July 2021 Landscaping and Irrigation $1,421,508 $0 $1,421,508 0% October 2021 Clubhouse $2,100,000 $0 $2,100,000 0% October 2021 Utility Fees $500,000 $0 $0 0% February 2021 Engineering, soft costs, etc. $1,251,097 $644,926 $606,171 75% On-going Totals $10,272,423 1,893,175 $8,679,248 To date, the Master Developer has paid the following impact fees: Roadway Maintenance Fee: $91,000 SFR Park In-Lie Fees: 1,696,805 Madonna and Oceanaire Pedestrian Crossing 150,000 Prado and Higuera Widening 75,000 Madonna Rd @ LOVR – Signal Optimization 25,000 Madonna and Oceanaire Turn Lane Extensions 25,000 LOVR & Auto Park Way Signalization 25,000 Prado Road Class 1 Path (NB Ramps to Higuera) 140,000 Bob Jones Trail (Madonna to Prado) 45,000 Bod Jones Trail (Fair Share Traffic Mitigation) 160,000 S. Higuera/Tank Farm Intersection 42,500 Higuera/South Right Turn Lane 125,000 Water Impact Fee for Irrigation Meters 103,534 Capacity Offset Fee for Wastewater 300,000 Total Impact Fees $3,003,839 The Master Developer will receive reimbursement for various impact fees from the City’s TIF program. TIF fees will be paid by the merchant builders at the time of issuance of Certificate of Occupancy. The City will reimburse the Master Developer on a bi-annual basis up to $2,000,000. In addition, the Master Developer will also be reimbursed bi-annual from the City for any Regional or off-site costs paid beyond the Master Developer’s fair share. This amount is currently estimated at $4,000,000. These reimbursements are reflected in Table 11 above. COVID-19 (Coronavirus) Pandemic. The development of the San Luis Ranch Project within the District is subject to disruption due to the COVID-19 pandemic and related public health and governmental authorities’ orders and actions. With housing construction considered an essential function, the Master Developer has largely continued, with certain modifications, its development within the District to date. See 50 4127-3642-5770.7 “RISK FACTORS—COVID-19 (Coronavirus) Pandemic” herein. The Master Developer does not report any material increase to the cost of material or labor related to COVID-19. The Master Developer cannot predict the ultimate effects of the COVID-19 outbreak and related public health and governmental authorities’ orders and actions (including, without limitation, the scope of restrictions under the current or any amended Stay Home Order), on Homebuilders’ ability to continue to sell and close units within the District. Such effects, if and as they arise, could have a material adverse effect on the ability to develop the District as planned, and no assurance can be provided that (a) the Master Developer will be able to complete in whole or in any part, or within any particular time, their planned development within the District; (b) the Master Developer and the Homebuilders will be able to avoid material increases in development costs or delays resulting from work stoppages, reduced attendance of workers, shortages or delays in the delivery of building materials, and/or delays in obtaining necessary inspections and approvals; or (c) the Homebuilders will be able to close any homes or not experience purchase contract cancellations, due to in each case public health or governmental restrictions, further spread of COVID-19, an economic downturn driven by the pandemic, or otherwise. Homebuilders Plan of Finance. SLR 198 - 3200 SF Lots. 57 of the 198 lots have been sold to Presidio SLR 198. SLR 198 currently has a $21,500,000 credit facility in place with [US Bank], secured by a deed of trust on the 57 lots, for the acquisition, development and construction of the lots. [US Bank reports that the SLR 198 is in good standing under the credit facility.] The facility provides sufficient capital for construction of 5 model homes and a maximum of 21 production units under construction at any given time which includes a maximum of 8 inventory (defined as units not under contract) units. SLR 198 expects to use proceeds from the sale of individual units to homeowners to replenish the credit facility from time to time and to reimburse the Master Developer for intract improvements. WH 83 - 2400 SF Lots. All 84 of the lots have been sold to WH 83. WH 83 currently has a $17,500,000 credit facility in place with [Farmers and Merchant Bank][legal name?], secured by a deed of trust on the 83 lots, for the acquisition, development and construction of the lots. [Farmers and Merchant Bank reports that the SLR 198 is in good standing under the credit facility.] The facility provides sufficient capital for construction of 4 model homes and a maximum of 16 production units under construction at any given time which includes a maximum of 12 inventory (defined as units not under contract) units during Phase 1. Phase 2 allows for an increase to 21 units construction which includes a maximum of 12 inventory units. WH 83 expects to use proceeds from the sale of individual units to homeowners to replenish the credit facility from time to time and to reimburse the Master Developer for intract improvements. WH 80 – Townhomes. The lots required to construct all 80 of the townhome units have been sold to WH 80. WH currently has a $16,000,000 credit facility in place with [Farmers and Merchant Bank], secured by a deed of trust on the property, for the acquisition, development and construction of the lots. [Farmers and Merchant Bank reports that the SLR 198 is in good standing under the credit facility]. The facility provides sufficient capital for construction of 3 model homes and a maximum of 9 production units under construction at any given time which includes a maximum of 9 inventory (defined as units not under contract) units during Phase 1. Phase 2 allows for an increase to 24 units under construction with 12 inventory units. WH 80 expects to use proceeds from the sale of individual units to homeowners to replenish the credit facility from time to time and to reimburse the Master Developer for intract improvements. SLR 96 - Stacked Flat Condos. The lots required to construct all 96 of the condo units have been SLR 96. SLR 96 currently has a $15,275,000 credit facility in place with [US Bank], secured by a deed of trust on the property, for the acquisition, development and construction of the lots. [US Bank reports that the SLR 198 is in good standing under the credit facility.] The facility provides sufficient capital for the construction of 24 total units of which 2 will be bought and leased-back to serve as model homes. SLR 96 expects to use 51 4127-3642-5770.7 proceeds from the sale of individual units to homeowners to replenish the credit facility from time to time and to reimburse the Master Developer for intract improvements. Williams Communities – Attached Condominium Units. The lots required to construct 120 attached condominium units is was sold to Williams Communities. Williams Communities expects to obtain a credit facility to finance the . Williams Communities expects to use proceeds from the sale of individual units to homeowners to replenish the credit facility from time to time and to reimburse the Master Developer for intract improvements. SPECIAL RISK FACTORS The principal source of payment of debt service on the Bonds will be payments of the Special Tax made with respect to the Taxable Parcels. As discussed under “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Taxes,” the Special Tax is to be levied annually against all such Taxable Parcels either at the maximum rate authorized by the Rate and Method or at such lower rates as are determined by the District Administrator to raise sufficient funds to comply with the agreements, conditions, covenants and terms contained in the Indenture, and in accordance with the Act. The Special Tax is to be collected on the tax roll of the District at the same time and in the same manner as general ad valorem real property taxes are collected. The Special Tax cannot be levied at a tax rate higher than the maximum tax rate even if the maximum tax rate will not produce sufficient Net Special Tax Revenues to pay the principal and interest then payable with respect to the Bonds. See discussions below under “— Levy of the Special Tax” and “— Collection of the Special Tax.” Payment of the Special Tax levied on a parcel is secured by a continuing lien against such parcel. In the event an installment of the Special Tax included in the tax bill for a Taxable Parcel is not paid when due, the District has covenanted to institute foreclosure proceedings in court to cause the parcel to be sold in order to attempt to recover the delinquent amount from the sale proceeds. Foreclosure and sale may not always result in the recovery of the full amount of delinquent installments of the Special Tax. See “— Collection of the Special Tax.” The sufficiency of the foreclosure sale proceeds to cover the delinquent amount depends in part upon the market for and the value of the parcel at the time of the sale. Sufficiency of the foreclosure sale proceeds to cover a delinquency may also depend upon the value of prior or parity liens and similar claims. Further, other governmental claims, such as hazardous substance claims, may affect the realizable value even though such claims may not rise to the status of liens. See “— Hazardous Substances.” Timely foreclosure and sale proceedings with respect to a Taxable Parcel may be forestalled or delayed by a stay in the event the owner of the parcel becomes the subject of bankruptcy proceedings. Not only may foreclosure and sale proceedings be forestalled or delayed, but the sale of a parcel may also be similarly affected by a bankruptcy stay. Further, should the stay not be lifted, payment of the Special Tax may be subordinated to bankruptcy law priorities. See “— Bankruptcy and Legal Delays.” Although bankruptcy proceedings may forestall or delay a foreclosure and sale or a tax sale of a delinquent Taxable Parcel, the Special Tax is secured by a lien which, assuming proper procedures are followed, may be enforced against the parcel. There may not be any recourse against a bankrupt property owner since the owner is not personally obligated to pay the Special Tax. Further, if proper disclosur e of the authorization of the Special Tax is not made to the owner, the willingness or ability of an owner to pay the Special Tax may be adversely affected. See “— Payment of the Special Tax is Not a Personal Obligation of the Owners.” The District is not obligated to advance funds to pay such debt service except from moneys on deposit in the Reserve Fund. See “— Bonds Are Limited Obligations.” Even if debt service is timely paid, interest on the Bonds may have to be included in the gross income of the owner of the Bonds by reason of some circumstance occurring subsequent to issuance of the Bonds, thereby reducing the after-tax yield. See “— Loss of Tax Exemption.” 52 4127-3642-5770.7 Risks of Real Estate Secured Investments Generally – Declines in Value Purchasers of the Bonds will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of property in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, wildfires and floods), which may result in uninsured losses. No assurance can be given that the individual property owners within the District will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption “— Bankruptcy and Legal Delays” for a discussion of certain limitations on the District’s ability to pursue judicial proceedings with respect to delinquent parcels within the District. Levy of the Special Tax The principal source of money with which to pay debt service on the Bonds is the proceeds derived from the annual levy and collection of the Special Tax applicable to the Taxable Parcels in the D istrict. The amount of the Special Tax that can be levied is limited to the maximum tax rates authorized pursuant to the Rate and Method. Additionally, pursuant to Section 53321(d) of the Government Code, the Special Tax levied against any Assessor’s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor’s parcel within the District by more than ten percent above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is possible that the District may not be able to increase the tax levy to the Special Tax on residential parcels in all years. The levies cannot be made at higher rates even if the failure to do so would result in insufficient Net Special Tax Revenues to pay the principal of and interest on the Bonds as the same become due and payable. The levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of a particular parcel and the amount of the levy of the Special Tax against such parcel. Thus, there will rarely, if ever, be a uniform relationship between the value of a parcel and its proportionate share of the debt service on the Bonds. The Special Tax levied in any particular Fiscal Year on a parcel is based upon the revenue needs of the District and the application of the Rate and Method. The application of the Rate and Method will, in turn, be dependent upon certain development factors with respect to each parcel by comparison with similar development factors with respect to the other parcels in the District. Thus, in addition to annual variations in the revenue needs of the District that must be met from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular parcel to vary from the Special Tax that might otherwise be expected: Reduction in the number of Taxable Parcels, for reasons such as acquisition of such parcels by a governmental entity and failure of the governmental entity to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining Taxable Parcels; and Failure of the owners of certain Taxable Parcels to pay the applicable Special Tax and delays in the collection of or inability to collect such Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining Taxable Parcels. Collection of the Special Tax The timely payment of the principal of and interest on the Bonds is ultimately dependent upon the timely payment of all Special Taxes. Any money on deposit in the Reserve Fund can be used to make such payment in the event of delinquencies, but the replenishment of the Reserve Fund will be dependent on the recovery of such 53 4127-3642-5770.7 delinquencies. The Indenture provides that the Special Tax is to be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable (or in such other manner as the City Council shall determine, including direct billing of the affected property owners) and, except as provided in the special covenant for foreclosure described under the caption “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure” and in the Act, is to be subject to the same proportionate penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem taxes on real property. Pursuant to the Act, in the event of any delinquency in the payment of the Special Tax, the District may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Such judicial foreclosure action is not mandatory. However, the District has covenanted for the benefit of the owners of the Bonds that it will institute foreclosure proceedings as authorized by the Act in order to enforce the lien of the delinquent installments of the Special Tax under certain circumstances. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure.” In the event that foreclosure proceedings are commenced, such foreclosure proceedings could be stayed by the commencement of bankruptcy proceedings by or against the owner of the property being foreclosed. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to Owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the District of the proceeds of sale if the Reserve Fund is depleted. The District may be unable to make full or timely payment of debt service on the Bonds if property owners in the District fail to pay installments of the Special Tax when due, if the Reserve Fund is depleted, or if the District is unable to sell foreclosed parcels for amounts sufficient to cover the delinquent installments of the Special Tax. COVID-19 (Coronavirus) Pandemic. In response to the coronavirus pandemic, on May 6, 2020, Governor Newsom issued Executive Order N-61-20 (the “Executive Order”), waiving penalties and interest on taxes on property on the secured or unsecured roll through May 6, 2021 under certain conditions, including: (i) the property is a residential property occupied by the taxpayer or the property is used for a small business, (ii) the taxes owed were not delinquent as of March 4, 2020, (iii) the taxpayer files for relief in a form prescribed by the tax collector, and (iv) the taxpayer demonstrates economic hardship to the satisfaction of the tax collector. The Executive Order may have an effect on the collection of penalties and interest on delinquent Special Taxes and may otherwise affect a property owner’s willingness to pay Special Taxes when due. The District can provide no assurance that additional actions will not be taken by the County, the State, or individual property taxpayers that may have a material adverse impact on the timing of Special Tax collection and the District’s ability to pay scheduled debt service on the Series 2021 Bonds when due. See “SPECIAL RISK FACTORS — COVID-19 (Coronavirus) Pandemic.” Failure to Develop Properties Development of property within the District may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of the Master Developer, the Homebuilders, or any other property owner to pay the Special Taxes prior to delinquency. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development. Development of land in the District is also subject to the availability of water. Finally, development of land is subject to economic considerations. 54 4127-3642-5770.7 As of December 1, 2020, 19 building permits had been pulled for construction of single family residential units. All of the single family residential units are classified as “Final Map Parcels” pursuant to the Rate and Method and the property was developed to finished lot condition. See “THE COMMUNITY FACILITIES DISTRICT” and “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” No assurance can be given that the proposed residential development will be partially or fully completed; and for purposes of evaluating the investment quality of the Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and unimproved. Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the Bond Owners should it be necessary for the District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development in the District as planned, or substantial delays in the completion of the development may reduce the value of the property within the District and increase the length of time during which Special Taxes will be payable from undeveloped property, and may affect the willingness and ability of the owners of property within the District to pay the Special Taxes prior to delinquency. There can be no assurance that land development operations within the District will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the Bonds when due. Bond Owners should assume that any event that significantly impacts the ability to develop land in the District would cause the property values within the District to decrease substantially from those estimated by the Appraiser and could affect the willingness and ability of the owners of land within the District to pay the Special Taxes prior to delinquency. Concentration of Property Ownership Based on development status and ownership status as of April 1, 2021, the Homebuilders and he Master Developer together would be responsible for 100% of the of the Fiscal Year 2021-22 Special Tax levied within the District. Although the District is under development and homes will be marketed to individual homeowners prior to the Fiscal Year 2021-22 Special Tax levy, the inability or refusal of the Master Developer or the Homebuilders to pay the Special Tax applicable to their property when due could result in the depletion of the Reserve Fund prior to reimbursement thereof from sale or foreclosure proceedings, and/or insufficient money with which to pay the principal of and interest on the Bonds as the same became due. Additionally, pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or default. As a result, while the Maximum Annual Special Taxes pursuant to the Rate and Method may be higher, Maximum Annual Special Taxes on parcels of residential parcels cannot be greater than 110% of the projected actual Special Tax levy on such parcels. Exempt Properties Certain properties are exempt from the Special Tax in accordanc e with the Rate and Method. In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property in the District acquired by a public entity through a negotia ted transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. In addition, the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that 55 4127-3642-5770.7 property is to be treated as if it were a special assessment. The constitutionality and operation of these provisions of the Act have not been tested. In particular, insofar as the Act requires payment of the Special Tax by a federal entity acquiring property in the District, it may be unconstitutional. If for any reason property in the District becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitation of the maximum authorized rates, the Special Tax will be reallocated to the remaining Taxable Properties in the District. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the timely payment of the Special Tax. Moreover, if a substantial portion of property in the District becomes exempt from the Special Tax because of public ownership, or otherwise, the Maximum Annual Special Tax which could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Bonds when due and a default occurs with respect to the payment of such principal and interest. Constitutional Limitations on Taxation and Appropriations Articles XIIIA and XIIIB of the California Constitution. On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Proposition 13 (the Jarvis/Gann Initiative), which added Article XIIIA to the California Constitution. The effect of Article XIIIA is to significantly limit the imposition of new ad valorem taxes, special taxes, transaction taxes, and sales taxes. On November 7, 1978, California voters approved Proposition 8, which made certain clarifications to Article XIIIA. Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the county assessor’s valuation of real property as shown on the 1975-76 tax bill under ‘full cash value’ or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two-thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem taxes, special taxes, transaction taxes, and sales taxes. In addition, Article XIIIA requires the approval of two-thirds of all members of the California Legislature to change any State laws resulting in increased tax revenues. Enactment of Article XIIIA has reduced the amount of general property tax revenues received by the City. This reduction in such revenues makes it less likely that the City or the District will have surplus funds, other than the Reserve Fund for the Bonds, with which to advance funds to make any payments or to cure any deficiency in the Interest Account or Principal Account of the Special Tax Fund, should the City or the District, as applicable, in the exercise of its discretion, choose to do so. If there are additional delinquencies after exhaustion of funds in the Reserve Fund for the Bonds, none of the City or the District has any obligation to transfer into the Interest Account or Principal Account of the Special Tax Fund the amount of any such delinquencies out of any surplus moneys of the City. On July 2, 1979, the Fifth District Court of Appeal rendered a 3-0 decision in the case of County of Fresno v. Malmstrom (94 Cal.App.3d 974), that determined that special assessments are not subject to the limitations of Article XIIIA (Proposition 13). The Court held the one percent tax limitation imposed by California Constitution Article XIIIA on ad valorem taxes does not apply to special assessments levied pursuant to the Improvement Act of 1911 (Streets and Highways Code, Section 5000 et seq., the relevant portions of 56 4127-3642-5770.7 which are incorporated in the 1915 Act) and the 1913 Act. The Court further held that because special assessments pursuant to such acts are not within the definition of “special taxes” in Article XIIIA, the Constitution does not require the levy of assessments and the issuance of bonds to be approved by a two-thirds vote of the qualified electors in an assessment district. On September 12, 1979, the California Supreme Court refused to hear an appeal of the lower court’s decision. At the November 6, 1979, general election, Proposition 4 (the Gann Initiative) was approved by the voters of California. Such proposition added Article XIIIB to the California Constitution. Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority, or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is the fiscal year 1978-79 and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance, and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amounts permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax rates or fee schedules over the subsequent two years. On December 17, 1980, the Third District Court of Appeal rendered a 3-0 decision in the case County of Placer v. Corin (113 Cal. App. 3d 443) that determined that special assessments are not subject to the limitation of Article XIIIB (Proposition 4). The Court held that the definition of “proceeds of taxes” imposed by California Constitution Article XIIIB does not apply to special assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was not appealed. The enactment of Article XIIIA of the California Constitution (Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the part of the City, under the 1915 Act, to levy and collect a special tax (in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one year) if other funds are not available to cover delinquencies. In early 1990, the U.S. Supreme Court struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XIIIA provides that property may only be a ssessed up to 2%, per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA. Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIIIA. Two cases involve residential property and one case involves commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA’s assessment rules and concluded that the West Virginia case did not apply to California’s laws. On June 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case. On October 7, 1991, the U.S. Supreme Court granted the plaintiff’s petition for a writ of certiorari and agreed to hear the Nordlinger v. Lynch case. On June 18, 1992, the U.S. Supreme Court affirmed the Nordlinger 57 4127-3642-5770.7 decision (112 U.S. 2326) of the California Court of Appeal, Second Appellate District, which previously held that Article XIIIA does not violate the U.S. Constitution. The City cannot predict whether any other pending or future challenges to the State’s present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate effect any decision regarding the State’s present system of property tax assessment will have on the City’s revenues or on the State’s financial obligations to local governments. Articles XIIIC and XIIID of the California Constitution. Proposition 218, a state ballot initiative known as the “Right to Vote on Taxes Act,” was approved by California voters on November 6, 1996. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996. Among other things, Proposition 218 imposed certain voting requirements and other limitations on the imposition of new or increased taxes, assessments, and property-related fees and charges. Under Proposition 218 (i) all taxes imposed by local governments are deemed to be either general taxes, or special taxes, (ii) no local government may impose, extend, or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote, and (iii) no local government may impose, extend, or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Special purpose districts, including community facilities districts and assessment districts, have no power to levy general taxes. The City believes that the issuance of the Bonds does not require the conduct of further proceedings under the Refunding Act, the 1915 Act, the 1913 Act, the Mello-Roos Act, or Proposition 218, as applicable, other than as described herein. Proposition 218 provides that the initiative power shall “not be prohibited or otherwise limited in matters reducing or repealing any local tax, assessment, fee or charge...” Thus, Proposition 218 removes limitations on the initiative power in matters of, among other things, the Special Taxes. Consequently, it is conceivable that the voters of the City or the District could, by future initiative, repeal, reduce, or prohibit the future impo sition or increase of any Special Tax, subject to overriding federal constitutional principles relating to impairment of contracts. Although the provisions of Article XIIIC have not been interpreted by the courts, the City believes that the initiative power cannot be used to reduce or repeal the unpaid Special Taxes that are pledged as security for payment of the Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the County Auditor with respect to the unpaid Special Taxes that are pledged as security for payment of the Bonds. The Appellate District, Division One, issued its opinion in 2014 in City of San Diego v. Melvin Shapiro, et al. (228 Cal. App. 4th 756) (the “San Diego Decision”). The case involved a Convention Center Facilities District (the “CCFD”) established by the City of San Diego. The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in the entire City of San Diego. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD. The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district. 58 4127-3642-5770.7 The facts of the San Diego Decision show that there were hundreds of thousands of registered voters within the CCFD (viz., all of the registered voters in the City of San Diego). There were no registered voters in the District at the time of formation. In the San Diego Decision, the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court’s holding does not apply to the Special Tax elections in the District. Moreover, Section 53341 of the Act provides that any “action or proceeding to attack, review, set aside, void or annul the levy of a special tax…shall be commenced within 30 da ys after the special tax is approved by the voters.” Similarly, Section 53359 of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. Voters in the District approved the Special Tax and the issuance of bonds on April 2, 2019. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings and court decisions, the City believes the Special Tax is being levied in accordance with the Rate and Method and the Act. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination. Maximum Annual Special Tax Within the limits of the Special Tax, the District may adjust the Special Tax levied on all property in the District to provide an amount required to pay interest on and principal of the Bonds, and the amount, if any, necessary to cure delinquencies and replenish the Reserve Fund to an amount equal to the Reserve Requirement for the respective Bonds and to pay Administrative Expenses. However, the amount of the Special Tax that may be levied against any property in the District is subject to the Maximum Annual Special Tax applicable to it. There is no assurance that the Maximum Annual Special Tax on the property in the District will be sufficient to pay the amounts required to be paid by the Indenture at all times. Additionally, pursuant to the Act, the Special Taxes levied in any fiscal year against any parcel of residential property in the District may not be increased as a consequence of delinquency or default by the owners of any other parcels within the District by more than 10% above the amount that would have been levied in that fiscal year had there never been any such delinquencies or defaults. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Special Taxes.” Payment of the Special Tax is Not a Personal Obligation of the Owners An owner of a Taxable Parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation only against the Taxable Parcel. If the value of a parcel is not sufficient, taking into account other obligations also payable thereby, to fully secure the Special Tax, the District has no recourse against the owner. Disclosures to Future Purchasers The District has recorded a notice of the Special Tax Lien in the Office of the County Recorder. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a parcel of land, a home or a commercial or industrial facility in the District or the lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello–Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. 59 4127-3642-5770.7 Parity Taxes and Special Assessments The ability or willingness of a property owner in the District to pay the Special Tax could be affected by the existence of other taxes and assessments imposed upon the property. The Special Tax and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special tax and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes, other special taxes, and certain special assessments regardless of when they are imposed upon the same property. The Special Tax has priority over all existing and future private liens imposed on the property. In addition, other public agencies whose boundaries overlap those of the District could, with or in some circumstances without the consent of the owners of the land in the District, impose additional taxes or assessment liens on the property in the District in order to finance public improvements to be located inside or outside of the District. The District has no control over the ability of other entities and districts to issue indebtedness secured by special tax or assessments payable from all or a portion of the property in the District. In addition, the City is not prohibited itself from establishing assessment districts, community facilities districts or other districts which might impose assessments or taxes against property in the District. In the event any additional improvements are financed pursuant to the establishment of an assessment district, community facilities district or other district, any taxes or assessments levied to finance such improvements will have a lien on a parity with the lien of the Special Tax. The imposition of additional liens on a parity with the Special Tax could reduce the ability or willingness of the property owners to pay the Special Tax and increase the possibility that foreclosure proceeds will not be adequate to pay delinquent Special Tax or the principal of and interest on the Bonds when due. Depletion of Reserve Fund The Reserve Fund is to be maintained at an amount equal to the Reserve Requirement. Money in said fund may be used to pay debt service on the Bonds in the event the proceeds of the levy and collection of the Special Tax against property in the District are insufficient. If funds in the Reserve Fund are used to pay debt service on the Bonds, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid pursuant to the Indenture. However, no replenishment from the proceeds of a levy of the Special Tax can occur as long as the proceeds that are collected from the levy of the Special Tax at the maximum tax rates, together with other available funds, remain insufficient to pay all such amounts. Thus it is possible that the Reserve Fund will be depleted by its use to pay such amounts and will not be replenished by the levy of the Special Tax. There is no assurance that the amount in the Reserve Fund will, at any particular time, be sufficient to pay all such amounts or that any amounts of the Reserve Requirement used for debt service on the Bonds will be fully replenished from the proceeds of the levy and collection of the Special Tax. Bankruptcy and Legal Delays The payment of the Special Tax and the ability of the District to foreclose the lien of a delinquent unpaid tax, as discussed in “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS,” may b e limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights or by the laws of the State of California relating to judicial foreclosure. In addition, the prosecution of a foreclosure action could be delayed due to crowded local court calendars or delays in the legal process. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel’s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights, by the application of equitable principles and by the exercise of judicial discretion in appropriate cases. Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, the bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure 60 4127-3642-5770.7 proceedings because federal bankruptcy laws may provide for an automatic stay of foreclosure and sale of tax sale proceedings. Any such delays could increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds and the possibility of delinquent tax installments not being paid in full. Moreover, if the value of the subject property is less than the lien of the Special Tax, such excess could be treated as an unsecured claim by the bankruptcy court. Further, should remedies be exercised under the federal bankruptcy laws against Taxable Parcels, payment of the Special Tax may be subordinated to bankruptcy law priorities. Thus, certain claims may have priority over the Special Tax in a bankruptcy proceeding even though they would not outside of a bankruptcy proceeding. Application of Net Special Tax Revenues by the District may also be limited by limited by bankruptcy, insolvency or other laws generally affecting creditors’ rights if the City or the District were to seek bankruptcy relief. If the District has possession of Net Special Tax Revenues (whether collected before or after commencement of its bankruptcy) and if the District does not voluntarily turn over such Net Special Tax Revenues to the Trustee, it is not entirely clear what procedures the Trustee or the holders of the Bonds would have to follow to attempt to obtain possession of such Net Special Tax Revenues, how much time it would take for such procedures to be completed, or whether such procedures would ultimately be successful. FDIC/Federal Government Interests In Properties The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the Federal Deposit Insurance Corporation (the “FDIC”), or other federal government entities such as Fannie Mae or Freddie Mac, has or obtains an interest. In the case of the FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the District may be constrained. The FDIC’s policy statement regarding the payment of state and local real property taxes (the “Policy Statement”) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, 1995. Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non-payment of taxes. The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County, California, in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale. In the case of Fannie Mae and Freddie Mac, in the event a Taxable Parcel is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or in the event a private deed of trust secured by a Taxable Parcel is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect 61 4127-3642-5770.7 delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution, in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a Taxable Parcel but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government’s mortgage interest. The District’s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest. Geologic, Topographic and Climatic Conditions The value of the property within the District can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements to property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides and floods and climatic conditions such as droughts. One or more of such conditions could occur and could result in damage to improvements of varying seriousness. Such damage could entail significant repair or replacement costs and such repair or replacement might never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Parcels may well be reduced. Wildfires In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. The last major wildfire in the vicinity of the City was the Chimney Fire in 2016, burning over 46 thousand acres by the time it was contained. Located within the County west of the City of Paso Robles, 49 residences and 21 other structures were destroyed in the Chimney Fire. While the District is not aware of any particular risk of wildfire within the District, there can be no assurances that wildfires won’t occur within the District. Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. Property damage due to wildfire could result in a significant decrease in the market value of property in the District and in the ability or willingness of property owners to pay Special Taxes. Hazardous Substances While governmental taxes, assessments, and charges are a common claim against the value of a Taxable Parcel, other less common claims may be relevant. One example is a claim with regard to a hazardous substance. In general, the owners and operators of a Taxable Parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) has 62 4127-3642-5770.7 anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the Taxable Parcels be affected by a hazardous substance is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of the property that is realizable upon a delinquency and foreclosure. While the District is not aware that the owner (or operator) of any of Taxable Parcels has such a current liability with respect to any of the Taxable Parcels, it is possible that such liabilities do currently exist and that the District is not aware of them. The Master Developer has also represented to the District that it is not aware of any substances currently classified as hazardous by the federal government or the State located on its property within the District. Further, it is possible that liabilities may arise in the future with respect to any of the Taxable Parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a Taxable Parcel that is realizable upon a delinquency. Tax Loss Reserve Fund – Teeter Plan Some California counties, including the County, operate under the provisions of Section 4701 through 4717, inclusive, of the Revenue and Taxation Code of the State of California, commonly referred to as the “Teeter Plan,” with respect to property tax collection and disbursement procedures. The Teeter Plan provides an alternative method of apportioning secured taxes whereby agencies levying taxes or assessments through county tax billings may receive from the county 100% of their taxes or assessments at the time they are levied. The Special Taxes are expected to be collected under the County’s Teeter Plan. So long as the County maintains its policy of collecting taxes and assessments pursuant to said procedures and the District meets the Teeter Plan Requirements, the District will receive 100% of the annual unpaid Special Taxes levied on the County’s secured property tax rolls without regard to actual collections. There is no assurance, however, that the County Board of Supervisors will maintain its policy of apportioning property taxes pursuant to the aforementioned procedures. The Board of Supervisors of the County may discontinue the procedures under the Teeter Plan altogether, or with respect to any tax or assessment levying agency in the County under certain circumstances. No Acceleration Provision The Indenture does not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture. Bonds Are Limited Obligations Neither the faith and credit nor the taxing power of the District (except to the limited extent set forth in the Indenture), the City, the State or any political subdivision thereof is pledged to the payment of the Bonds. The Bonds are limited obligations of the District; and, except as provided in the Indenture, they are payable solely from Net Special Tax Revenues and the other assets pledged therefore under the Indenture. Net Special Tax Revenues could be insufficient to pay debt service on the Bonds as a result of delinquencies in the payment of Special Taxes or the insufficiency of proceeds derived from the sale of land within the District following a delinquency in the payment of the applicable Special Tax. The District has no obligation to pay debt service on the Bonds in the event of insufficient Net Special Tax Revenues, except to the extent that money is available for 63 4127-3642-5770.7 such purpose in the Reserve Fund. The District’s only obligation with respect to delinquent Special Taxes is to pursue judicial foreclosure proceedings under the circumstances described in the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS — Covenant for Superior Court Foreclosure.” Loss of Tax Exemption As discussed under “TAX MATTERS,” interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance, as a result of acts or omissions of the District subsequent to the issuance of the Bonds in violation of the District’s covenants with respect to the Bonds. Should interest become includable in gross income, the Bonds are not subject to redemption by reason thereof and will remain outstanding until maturity or unless earlier redeemed pursuant to optional or mandatory redemption or redemption upon prepayment of the Special Tax. Potential Early Redemption of Bonds from Special Tax Prepayments Property owners within the District are permitted to prepay their Special Taxes at any time. Such payments will result in a mandatory redemption of Bonds from Special Tax prepayments on the Interest Payment Date for which timely notice may be given under the Indenture following the receipt of such Special Tax prepayment. The resulting redemption of Bonds purchased at a price greater than par could reduce the otherwise expected yield on such Bonds. See “THE BONDS — Redemption — Mandatory Redemption from Special Tax Prepayments.” Cybersecurity The City, like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropriating assets or information or causing operational disruption and damage. To date, the City has not experienced an attack on its computer operating systems which resulted in a breach of its cybersecurity systems that are in place. However, no assurances can be given that the City’s efforts to manage cyber threats and attacks will be successful or that any such attack will not materially impact the operations or finances of the City. COVID-19 (Coronavirus) Pandemic The spread of the novel strain of coronavirus called COVID-19 (“COVID-19”) is having significant negative impacts throughout the world, including in the City. The World Health Organization has declared the COVID-19 virus to be a pandemic, and states of emergency have been declared by the County, State and the United States. The purpose behind these declarations are to coordinate and formalize emergency actions across federal, state and local governmental agencies, and to proactively prepare for a wider spread of the virus. To date there have been several confirmed cases of COVID-19 in the City. Confirmed cases of COVID- 19 are growing throughout the State and health officials are expecting the number of confirmed cases to continue to grow. The outbreak has resulted in the imposition of restrictions on mass gatherings and widespread temporary closings of businesses, universities and schools. The U.S. is restricting certain non-US citizens and permanent residents from entering the country. In addition, stock markets in the U.S. and globally have been volatile, with significant declines attributed to COVID-19 concerns. The City initially closed certain non-essential functions of the City, while City Hall, Community Services Administration Office and public safety functions remained opened to service City residents and businesses. The City’s Building & Safety Department remained opened and continued to issue building permits and inspect unoccupied dwellings for the lots within the City. Other City Departments that serve businesses and 64 4127-3642-5770.7 residents within the District telecommuted and/or continued in-person work schedules to meet the needs of the community. City offices have begun to reopen in accordance with County Public Health Guidelines. Other public agencies serving the property and residents within the District may have taken similar actions in response to the COVID-19 pandemic, though the District and the City can provide no assurance regarding the actions of any other public agencies. Such actions may affect the Master Developer’s and the Homebuilders’ ability to complete their planned developments in the time periods and within cost estimates described in the Official Statement. See “PROPERTY OWNERSHIP AND THE DEVELOPMENT.” The COVID-19 pandemic is ongoing, and the ultimate geographic spread of the virus, the duration and severity of the outbreak, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impacts are uncertain. However, the impact of the COVID-19 outbreak could adversely impact development within the District, including, but not limited to, one or more of the following ways: (i) potential supply chain slowdowns or shutdowns resulting from the unavailability of workers in locations producing construction materials; (ii) slowdowns or shutdowns by local governmental agencies in providing governmental permits, inspections, title and document recordation, and other services and activities associated with real estate development; (iii) delays in construction where one or more members of the workforce becomes infected with COVID-19; (iv) continued extreme fluctuations in financial markets and contraction in available liquidity; (v) extensive job losses and declines in business activity across important sectors of the economy; (vi) declines in business and consumer confidence that negatively impact economic conditions or cause an economic recession; (vii) the failure of government measures to stabilize the financial sector and introduce fiscal stimulus to counteract the economic impact of the pandemic; (viii) delays in sales or fewer sales due to lower traffic at model home complexes and real estate offices; and (ix) delays in sales, or cancellations, due to mortgage lending issues. The ultimate adverse impact of COVID-19 on the District, the Master Developer or the Homebuilders’ operations, finances and ability to complete its development within the District as planned, homebuyers’ willingness and ability to pay Special Taxes when due, and the real estate market in general is unknown. CONTINUING DISCLOSURE Community Facilities District Pursuant to a Continuing Disclosure Certificate (the “District Continuing Disclosure Certificate”) with U.S. Bank National Association, in its capacity as Trustee and in its capacity as dissemination agent, the District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found on the Internet at www.emma.msrb.org (“EMMA”), on an annual basis certain financial information and operating data concerning the District. The District has further agreed to provide notice to EMMA of certain listed events. The District’s covenants have been made in order to assist the Underwriter in complying with the Rule. The full text of the form of the District Continuing Disclosure Certificate is set forth in Appendix G. The District has not previously entered into any undertaking with respect to the Rule. However, the City, as well as the San Luis Obispo Public Financing Authority (the “Authority”), each of which are entities with the City Council as the legislative body, have entered into continuing disclosure undertakings. [Describe any continuing disclosure failures in previous five years] The full text of the form of the District Continuing Disclosure Certificate is set forth in Appendix G. Master Developer and Homebuilders Each segment of the development will be constructed by different LLC’s often with common ownership. On an individual LLC level, as of December 1, 2020, the Master Developer, MI San Luis Ranch, LLC is the only entity which owns property that is expected to pay 20% or more of the special tax. 65 4127-3642-5770.7 Coastal Community Builders and Merced Capital (or an affiliate entity of Merced Capital), through their interest in multiple joint ventures (see “Presidio 198” and “Presidio 96” from Table 9 above) will be expected to pay 20% or more the special tax on a combined basis. Williams Homes and Merced Capital (or an affiliate entity of Merced Capital), through their interest in multiple joint ventures (see “WH 83” and “WH 80” from Table 9 above) will be expected to pay 20% or more the special tax on a combined basis. The Master Developer and the Homebuilders will each covenant for the benefit of the Bondholders to provide certain information relating to it, its development plan and its financing plan no later than March 31 and September 30 in each year, commencing September 30, 2021 (collectively, the “Disclosure Reports”), and to provide notices of the occurrence of certain enumerated events. The Disclosure Reports and notices will be filed with EMMA. See the form of Developer Continuing Disclosure Certificate attached as Appendix G hereto (the “Developer Continuing Disclosure Certificate”) for a description of the specific nature of the annual reports to be filed by the Master Developer and the Homebuilders and notices of listed events to be provided by the Master Developer and the Homebuilders. The obligations of the Master Developer will terminate upon the occurrence of certain events set forth in the Master Developer’s Continuing Disclosure Certificate, including when the property within the District owned by the Master Developer is developed to the planned development stage or until the obligation to provide such information and notices is otherwise terminated in accordance with the provisions of its Continuing Disclosure Certificate. The obligations of the Homebuilders will each terminate upon the occurrence of certain events as set forth in the applicable Continuing Disclosure Certificate for the Homebuilders, including when the property owned by the Homebuilders within the District, respectively, is no longer obligated to pay 20% or more of the Special Taxes within the District. [Neither the Developer nor the Homebuilders have previously entered into continuing disclosure undertakings.] [Confirm] TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D hereto. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. 66 4127-3642-5770.7 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be tre ated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a Beneficial Owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. In accuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownersh ip or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a Beneficial Owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the Beneficial Owner or the Beneficial Owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including 67 4127-3642-5770.7 but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the District or the Beneficial Owners to incur significant expense. The proposed form of Bond Counsel’s opinion with respect to the Bonds is attached as Appendix D. ABSENCE OF LITIGATION In connection with the issuance of the Bonds, the City Attorney of the City will deliver a certificate to the effect that, to the City Attorney’s actual knowledge, after due inquiry and investigation, there is no action, suit, proceeding or investigation at law or in equity before or by any court, public board or body, pending or threatened, or any unfavorable decision, ruling or finding, against or affecting the City or the Distr ict, which would adversely impact the ability of the City or the District to complete the transactions described in, or contemplated by, the Indenture or this Official Statement, restrain or enjoin the collection of the Special Taxes, or in any way contest or affect the validity of the Bonds, the Indenture, the Special Taxes, or the transactions described herein. ABSENCE OF RATINGS The District has not made, and does not contemplate making, application to any rating organization for a rating on the Bonds. CERTAIN LEGAL MATTERS Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, will render an opinion with respect to the validity and enforceability of the Indenture and as to the validity of the Bonds. A copy of the form of such approving opinion is attached hereto as Appendix D. Copies of such approving opinion will accompany each Bond. Bond Counsel has not undertaken any responsibility for the accuracy, completeness or fairness of the Official Statement or other offering materials relating to the Bonds and expresses no opinion relating thereto. Certain legal matters will be passed upon for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by its counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation. Although it is serving as Bond Counsel to the District in connection with the issuance and sale of the Bonds, Bond Counsel represents the Underwriter in connection with other financings and matters unrelated to the Bonds. UNDERWRITING The Bonds are being purchased by Piper Sandler & Co. (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a price of $________ ($_________ principal amount, plus original issue premium of $________ and less an Underwriter’s discount of $________). The Bond Purchase Agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in the Bond Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriter’s compensation is contingent upon the successful issuance of the Bonds. Under certain circumstances, the Underwriter may offer and sell Bonds to ce rtain dealers and others at prices lower than the offering prices stated on the inside front cover page hereof. The offering prices may be changed from time to time by the Underwriter. 68 4127-3642-5770.7 FINANCIAL INTERESTS The fees being paid to the Municipal Advisor, Bond Counsel, Disclosure Counsel, Underwriter, and Underwriter’s Counsel are contingent upon the issuance and delivery of the Bonds. MUNICIPAL ADVISOR The District has retained PFM Financial Advisors, as municipal advisor (the “Municipal Advisor”) for the sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. PFM Financial Advisors is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations and summaries and explanations of the Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statemen ts and their provisions. The execution and delivery of this Official Statement by the City Manager of the City has been duly authorized by the City Council of the City of San Luis Obispo acting in its capacity as the legislative body of the District. CITY OF SAN LUIS OBISPO COMMUNITY FACILITIES DISTRICT NO. 2019-1 (SAN LUIS RANCH) By: City Manager City of San Luis Obispo A-1 4127-3642-5770.7 APPENDIX A RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX B-1 4127-3642-5770.7 APPENDIX B APPRAISAL REPORT C-1 4127-3642-5770.7 APPENDIX C MARKET ABSORPTION STUDY D-1 4127-3642-5770.7 APPENDIX D FORM OF OPINION OF BOND COUNSEL [Date of Delivery] City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) San Luis Obispo, California City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Special Tax Bonds, Series 2021 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) (the “Issuer”) in connection with the issuance of $__________ aggregate principal amount of City of San Luis Obispo Community Facilities District No. 2019-1 (San Luis Ranch) Special Tax Bonds, Series 2021 (the “Bonds”), issued pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982 of the State of California (being Sections 53311 et seq. of the Government Code of the State of California) and all laws amendatory thereof and supplemental thereto, and an Indenture (the “Master Indenture”), dated as of ______, 2021 (the “Indenture”), between the Issuer and U.S. Bank National Association, as trustee (the “Trustee”). The Indenture provides that the Bonds are issued for the stated purpose of financing certain public facilities, funding a deposit to the debt service reserve account, funding capitalized interest and to paying the costs of issuance. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture; the Tax Certificate; opinions of counsel to the Issuer, and the Trustee; certificates of the Issuer, the Trustee and others; and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Issuer. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. D-2 4127-3642-5770.7 We call attention to the fact that the rights and obligations under the Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against joint powers authorities and community facilities districts in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or having the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the assets described in or as subject to the lien of the Trust Agreement or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such assets. We also express no opinion regarding the plans, specifications, maps, financial reports or other engineering or financial details of the proceedings, or upon the Rate and Method or the validity of the Special Tax levied upon any individual parcel. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement, dated ____________, 2021, or other offering material relating to the Bonds and express no opinion with respect t hereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding special tax obligations of the Issuer. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Issuer. The Indenture creates a valid pledge, to secure the payment of the principal of and interest on the Bonds, of the Net Special Tax Revenues and any other amounts held in the Special Tax Fund, the Bond Fund and the Reserve Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth in the Indenture. 3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per E-1 4127-3642-5770.7 APPENDIX E GENERAL INFORMATION CONCERNING THE CITY OF SAN LUIS OBISPO This appendix sets forth general information about the City of San Luis Obispo (“San Luis Obispo”) including information with respect to its finances. The following information concerning San Luis Obispo, the County of San Luis Obispo (the “County”) and, the State of California (the “State”) are included only for general background purposes. The Bonds are not obligations of the City, County or State or any political subdivision thereof and neither the faith and credit nor the taxing power of the City, County or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. General The City of San Luis Obispo, California (the “City”) is located approximately 235 miles south of downtown San Francisco and 200 miles north of Los Angeles, on the central coast of California. The City is situated along State Highway 101 and is the county seat of San Luis Obispo County. The City is located 315 feet above sea level in gentle mountain valley. San Luis Obispo has mild summers with an average high temperature of 70 degrees. San Luis Obispo County (the “County”) is the fifteenth largest county in the State and is located in mid coast of California. The County borders the Pacific Ocean, with Monterey County to the north, Santa Barbara County to the south and Kern County to the east. City Government The City operates under the “Council-Mayor-City Manager” form of government. The City Council has the authority to make and enforce all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Charter and the State Constitution. There are four Council members, who are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a two-year term and serves as an equal member of the Council. The City Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager. The City provides a wide range of municipal services, including police and fire protection, water and sewer utilities, street and parks maintenance, public transportation, parking, parks and recreation, planning, building and safety, and other general government services. Population The population in San Luis Obispo has seen little growth over the past decade and is influenced by a more transient student population. The population growth in the City, County and State is shown on the following chart. E-2 4127-3642-5770.7 POPULATION ESTIMATES City of San Luis Obispo, County of San Luis Obispo and State of California 2013-2020 Year(1) City of San Luis Obispo County of San Luis Obispo State of California 2013 45,505 273,882 38,269,864 2014 45,659 276,091 38,556,731 2015 45,875 276,880 38,870,150 2016 45,894 277,833 39,131,307 2017 46,092 278,585 39,398,702 2018 46,015 278,597 39,586,646 2019 45,937 278,355 39,695,376 2020 45,920 277,259 39,782,870 (1) January 1 estimate. Source: State of California, Department of Finance. Transportation Primary access to the City is provided by State Route 101, which is a major transportation corridor that extends in a general north-south direction from Los Angeles to San Francisco. San Luis Obispo can be accessed at various off-ramps from the highway. This network of roads provides access to the various neighborhoods and business areas dispersed throughout the community. Scenic Highway 1 merges with State Route 101 in San Luis Obispo and is a major route for tourists and visitors. The San Luis Obispo County Airport is within ten minutes from downtown San Luis Obispo. Commercial service is offered to San Francisco, Los Angeles, Denver, Seattle and Phoenix International Airports. Rail passenger service is provided by AMTRAK, which has a station in the City. Six trains daily pass through each direction and stop at the San Luis Obispo Station. Union Pacific Transportation Company provides freight rail service to the City. Local bus service is provided by SLO Transit and is linked to a trolley line which operates in the City’s downtown area, and to the County-run RTA bus service. Education and Community Facilities The City is adjacent to Cal Poly, one of the more prominent campuses in the California State University system. Cal Poly offers a wide variety of degree programs at both undergraduate and graduate levels. Cuesta College’s fall 2019 headcount was 15,475 with 3,884 students coming from outside of San Luis Obispo County. Cuesta Community College schedules day and evening courses where residents can complete a two- year degree, obtain vocational training or take genera l education courses. Current enrollment is approximately 4,515 full-time students. San Luis Coastal Unified School District provides 10 elementary schools, two middle schools, three senior high schools and two adult schools. The total enrollment is approximately 7,754 students. The boundaries of the San Luis Coastal Unified School District are significantly larger than the City. Medical facilities include Sierra Vista Regional Medical Center with approximately 164 licensed beds and a designated trauma center and French Hospital with approximately 103 licensed beds. E-3 4127-3642-5770.7 Recreational facilities in close proximity include 12 regional golf courses, Lake Lopez, Lake Nacimiento and Montana De Oro State Park; all within a 30-minute drive of the City’s downtown. Community facilities include the Performing Arts Center located on the campus of Cal Poly, Mission San Luis Obispo de Tolosa, San Luis Obispo County Historical Museum, the Repertory Theater, and the San Luis Obispo Museum of Art. The City has seven designated open spaces and owns 18 parks and 14 playgrounds. The City operates a 10-hole municipal golf course and the San Luis Obispo Swim Center that offers participants a full range of aquatic programs. E-4 4127-3642-5770.7 Employment The following table summarizes the labor force, employment and unemployment figures for the years 2015 through 2019 for the City, the County, the State and the United States. 2020 figures were not available. CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT RATE City of San Luis Obispo, San Luis Obispo County, State of California and United States 2015 through 2019(1) Year and Area Labor Force Employment(2) Unemployment Rate (%) Unemployment(3) 2015 City of San Luis Obispo 25,568 24,297 5.0% 25,568 San Luis Obispo County 139,604 133,044 4.7 139,604 State of California 18,893,152 17,723,266 6.2 18,893,152 United States 157,130,000 148,834,000 5.3 157,130,000 2016 City of San Luis Obispo 25,701 24,542 4.5% 25,701 San Luis Obispo County 140,365 134,383 4.3 140,365 State of California 19,102,726 18,065,043 5.4 19,102,726 United States 159,187,000 151,436,000 4.9 159,187,000 2017 City of San Luis Obispo 25,400 24,800 2.5% 25,400 San Luis Obispo County 142,100 137,000 3.6 142,100 State of California 19,312,000 18,393,100 4.8 19,312,000 United States 160,320,000 153,337,000 4.4 160,320,000 2018 City of San Luis Obispo 25,300 24,700 2.6 600 San Luis Obispo County 140,300 136,000 3.0 4,200 State of California 19,281,092 18,460,433 4.3 820,650 United States 162,075,000 155,761,000 3.9 6,314,000 2019 City of San Luis Obispo 25,400 24,800 2.4 600 San Luis Obispo County 140,900 136,900 2.9 4,000 State of California 19,408,271 18,623,900 4.0 784,375 United States 163,539,000 157,538,000 3.7 6,001,000 Note: Data is not seasonally adjusted. (1) Annual averages, unless otherwise specified. (2) Includes persons involved in labor-management trade disputes. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: U.S. Department of Labor – Bureau of Labor Statistics, California Employment Development Department. 2019 Benchmark. E-5 4127-3642-5770.7 Listed below are the major employers in the City. CITY OF SAN LUIS OBISPO - MAJOR EMPLOYERS – 2019 Employer Number of Employees Cal Poly State University 3,000 County of San Luis Obispo 2,920 Department of State Hospitals – Atascadero 2,000 P.G. & E. (Diablo Canyon) 1,866 California Men’s Colony 1,517 Tenet Health Care Corp. 1,305 Compass Health 1,200 Lucia Mar Unified School District 1,000 MindBody 929 San Luis Coastal Unified School District 760 Source: City of San Luis Obispo CAFR Fiscal Year Ending June 30, 2020. Tax Levy and Tax Collection Below is a chart which indicates the tax levy and collection records for the City for fiscal years 2010 through 2020. Fiscal Year Percent of Levy Collected Total Tax Collections to Tax Levy to Date 2010 100% $8,456,800 2011 100% 8,405,600 2012 100% 8,269,300 2013 100% 8,151,000 2014 100% 8,601,630 2015 100% 9,097,280 2016 100% 9,707,340 2017 100% 10,250,205 2018 100% 10,868,920 2019 100% 11,648,706 2020 100% 12,180,662 Source: City of San Luis Obispo CAFR Fiscal Year Ending June 30, 2020. E-6 4127-3642-5770.7 Largest Taxpayers The principal property taxpayers in the City for 2020 are as follows: Taxpayer 2020 Assessed Valuation % of Total Assessed Valuation Jamestown Premier SLO Retail $115,502,974 1.24% CAP VIII Mustang – LLC 94,501,067 1.02 Sierra Vista Hospital, Inc. 78,295,740 0.84 SLO Promenade DE LLC 68,806,495 0.74 Dignity Community Care 62,548,476 0.67 Irish Hills Plaza West II LLC 50,598,101 0.54 Charles Pasquini Jr Trust 43,901,568 0.47 DS Marigold LP 42,429,179 0.46 Costco Wholesale Corporation 36,519,170 0.39 BRE Atlas Property Owner LLC 33,159,218 0.36 TOTAL $626,261,988 6.73% Source: City of San Luis Obispo CAFR Fiscal Year Ending June 30, 2020. Construction Trends Below is a table indicating residential and non-residential building permits valuations for the City. CITY OF SAN LUIS OBISPO BUILDING PERMIT VALUATION (in thousands of dollars) Type 2016 2017 2018 2019 2020 Valuation ($000’s) Residential: $63,221 $39,941 $23,196 $36,956 $45,462 Non-Residential: 9,791 11,484 51,110 6,248 20,430 Total Valuation: $73,012 $51,425 $74,306 $43,204 $65,892 New Housing Units: Single Family 114 97 62 125 159 Multi Family 32 5 13 18 19 Total Units: 146 102 75 143 178 Note: Totals may not add to sums because of independent rounding. Source: City of San Luis Obispo CAFR Fiscal Year Ending June 30, 2020. E-7 4127-3642-5770.7 Taxable Sales The table below presents taxable sales for the years 2015 through 2019 for the City. TAXABLE SALES City of San Luis Obispo 2015 through 2019 (Dollars in Thousands) Year Total Retail Stores Taxable Transactions Total Outlets Taxable Transactions 2015 $1,284,577 $1,643,819 2016 1,283,894 1,646,917 2017 1,328,734 1,701,309 2018 1,343,782 1,775,666 2019 1,334,498 1,755,566 Source: City of San Luis Obispo CAFR Fiscal Year Ending June 30, 2020. F-1 4127-3642-5770.7 APPENDIX F SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE G-1 4127-3642-5770.7 APPENDIX G FORM OF DISTRICT CONTINUING DISCLOSURE CERTIFICATE G-2 4127-3642-5770.7 FORM OF DEVELOPER CONTINUING DISCLOSURE CERTIFICATE H-1 4127-3642-5770.7 APPENDIX H INFORMATION CONCERNING THE DEPOSITORY TRUST COMPANY AND ITS BOOK-ENTRY SYSTEM The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the District which the District believes to be reliable, but the District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Bonds. The 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 annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC ’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participant s of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also avail able to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of “AA+.” The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdi ngs, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 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 Bonds representing their ownership interests in Bonds, except in the event that use of the book -entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Ced e & Co. or such H-2 4127-3642-5770.7 other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participa nts, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time t o time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as prepayments, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being prepaid, DTC’s practice is to determine by lot the amount of the intere st of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 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 District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC ’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the District or the Trustee, on payable date in accordance with their respective holdings shown on DTC ’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the resp onsibility of Direct and Indirect Participants. A Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Bonds to the Trustee’s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The District 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 TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.