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Home My WebLink AboutCouncil Reading File - Draft Preliminary Official StatementSH DRAFT #4 2/22/18 PRELIMINARY OFFICIAL STATEMENT DATED MARCH __, 2018 REFUNDING–BOOK-ENTRY ONLY RATINGS: [Insured] Underlying [DAC Logo] S&P: Fitch: See “RATINGS” In the opinion of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, under existing statutes, regulations, rulings and court decisions, and subject to the matters described in “TAX MATTERS” herein, interest on the 2018 Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of 1986 from the gross income of the owners thereof for federal income tax purposes and is not included in the federal alternative minimum tax for individuals or, except as described herein, corporations. It is also the opinion of Bond Counsel that under existing law interest on the 2018 Bonds is exempt from personal income taxes of the State of California. See “TAX MATTERS” herein. $_________* SLO COUNTY FINANCING AUTHORITY NACIMIENTO WATER PROJECT REVENUE REFUNDING BONDS 2018 SERIES A Dated: Date of Issuance Due: September 1, as shown on inside cover page The SLO County Financing Authority (the “Authority”), a joint exercise of powers authority established pursuant to an agreement between the County of San Luis Obispo, California (the “County”) and the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”), is issuing $_________* principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”) to: (i) provide funds to refund all of the outstanding SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series A, maturing on September 1, 2018 through September 1, 2027, inclusive, September 1, 2032, September 1, 2038, and September 1, 2040, (collectively, the “Refunded 2007 Bonds”), that were issued to finance and refinance the costs of the acquisition, construction and equipping of certain public capital improvements within the County, generally comprising the Nacimiento Water Project (the “Nacimiento Project”); (ii) [purchase a municipal bond insurance policy for the 2018 Bonds; and (iii)] pay certain costs associated with the issuance of the 2018 Bonds, all as more fully described herein. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF FUNDS.” The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The 2018 Bonds are obligations of the Authority payable solely from and secured by Revenues consisting of gross water sales revenues of the Water Enterprises of the Participants (each as defined herein) payable to the Flood Control District pursuant to individual Water Delivery Entitlement Contracts, as amended (each, a “Delivery Contract”), between the Flood Control District and the respective Participant, and pledged to the payment of the Bonds pursuant to the terms and conditions of a Pledge Agreement, dated as of September 1, 2007 (the “Pledge Agreement”), by and between the Flood Control District and the This is a Preliminary Official Statement and the information contained herein is subject to change, completion and amendment without notice. Under no circumstances will this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities offered hereby by any person, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Authority. Pursuant to each Delivery Contract, the respective Participant pledges the gross water sales revenues of its Water Enterprise (as defined herein) to pay the obligations under its Delivery Contract, including its pro rata share of the costs of the Nacimiento Project, Additional Capital Project Costs, Capital Projects Installment Debt Service, Master Water Contract Costs, Capital Reserve Costs, Operation and Maintenance Variable Energy Costs (each as defined herein) and other costs associated with the Nacimiento Project, and each Participant is obligated to make its respective payments under its Delivery Contract to the Flood Control District regardless of the failure of the Flood Control District to deliver water to the respective Participant. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Pledge Agreement” and “–The Delivery Contracts.” The Authority previously issued 2007 Taxable Bonds and 2015 Bonds (each as defined herein) and may issue Additional Bonds secured on a parity with the 2007 Taxable Bonds, the 2015 Bonds and the 2018 Bonds. The 2007 Taxable Bonds, the 2015 Bonds, the 2018 Bonds, and any Additional Bonds are referred to as the “Bonds.” The 2018 Bonds will be issued in book-entry form only, in authorized denominations of $5,000 and integral multiples thereof and will be initially issued and registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the 2018 Bonds. Purchasers will not receive certificates representing their interests in the 2018 Bonds. Payments of principal of and interest on the 2018 Bonds will be made by the Trustee to DTC for subsequent disbursement to DTC Participants who will remit such payments to the beneficial owners of the 2018 Bonds. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.” The principal of the 2018 Bonds is payable on September 1 of each year as set forth on the inside cover page hereof. Interest on the 2018 Bonds is payable semiannually on each March 1 and September 1, commencing September 1, 2018. The 2018 Bonds are subject to optional and mandatory redemption as more fully described herein. See “THE 2018 BONDS–Redemption Provisions.” [The scheduled payment of principal of and interest on the 2018 Bonds will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the 2018 Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. See “BOND INSURANCE” and APPENDIX G– “SPECIMEN MUNICIPAL BOND INSURANCE POLICY.”] THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES OF THE AUTHORITY CONSISTING PRIMARILY OF PAYMENTS MADE BY THE PARTICIPANTS TO THE FLOOD CONTROL DISTRICT UNDER THE DELIVERY CONTRACTS AND RECEIVED BY THE AUTHORITY PURSUANT TO THE PLEDGE AGREEMENT. THE 2018 BONDS ARE NOT A DEBT OF THE AUTHORITY, THE FLOOD CONTROL DISTRICT, THE COUNTY OR THE STATE OF CALIFORNIA, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, OR INTEREST ON THE 2018 BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PLEDGE AGREEMENT. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. This cover page contains information for quick reference only. It is not a summary of this issue. Potential investors are advised to read the entire Official Statement to obtain information essential to making an informed investment decision with respect to the 2018 Bonds. For a discussion of certain risk factors associated with investment in the 2018 Bonds, see “CERTAIN RISKS TO BOND OWNERS” as well as other factors discussed throughout this Official Statement. The 2018 Bonds will be offered when, as and if executed, delivered, and received by the Underwriter, subject to the approval as to their legality by Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the County by County Counsel and for the Underwriter by Schiff Hardin LLP, San Francisco, California, Underwriter’s Counsel. It is anticipated that the 2018 Bonds in book-entry only form will be available through the facilities of DTC in New York, New York, on or about April __, 2018. RAYMOND JAMES Date of Official Statement: ________, 2018 _____________ * Preliminary, subject to change. MATURITY SCHEDULE $_________* SLO COUNTY FINANCING AUTHORITY NACIMIENTO WATER PROJECT REVENUE REFUNDING BONDS 2018 SERIES A $_______ Serial Bonds Maturity (September 1) Principal Amount Interest Rate Yield Price CUSIP No.† 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 $______ ___% Term 2018 Bonds Due September 1, 2040–Yield: ____%–Price: ____–CUSIP No.†: _______ ______________ * Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CGS. This data is not intended to create a database and does not serve in any way as a substitute for CGS database. The CUSIP® numbers are provided for convenience of reference only. None of the County, the Underwriter, their agents, or counsel is responsible for the selection or uses of the CUSIP® numbers, and no representation is made as to their correctness on the applicable Bonds or as included herein. The CUSIP® numbers of specific maturities is subject to change following the issuance of the 2018 Bonds as a result of various actions, including, but not limited to, a refunding in whole or in part or as the result of the procurement of a secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2018 Bonds. No dealer, broker, salesperson or other person has been authorized by the County or the Authority to give any information or to make any representation other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of the 2018 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 of the 2018 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 a representation of facts. Information contained in APPENDIX A–“THE PARTICIPANTS” has been obtained from the respective Participant. All other information set forth herein has been obtained from the County or the Authority and from other sources and is believed to be reliable but is not guaranteed as to accuracy or completeness. The information and expressions of opinions 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 County or the Authority since the date hereof. This Official Statement is submitted in connection with the sale of the 2018 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the County. All summaries of the documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. All capitalized terms used herein, unless noted otherwise, shall have the meanings prescribed in the Indenture and the Pledge Agreement. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with the Electronic Municipal Market Access site maintained by the Municipal Securities Rulemaking Board. Any statement made in this Official Statement involving any forecast or matter of estimates or opinion, whether or not expressly stated, is intended solely as such and not as a representation of fact. 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 (the “Securities Act”). Such forward-looking statements are generally identified by use of the words “plan,” “project,” “expect,” “estimate,” “budget” or other similar words. Such forward- looking statements include, but are not limited to, statements contained under the caption “PLAN OF REFUNDING” and in APPENDIX A–“THE PARTICIPANTS.” Such forward-looking statements refer to the achievement of certain results or other expectations or performance which involve known and unknown risks, uncertainties and other factors. These risks, uncertainties and other factors may cause actual results, performance or achievements to be materially different from any projected results, performance or achievements described or implied by such forward looking statements. Neither the County nor the Authority plans to issue updates or revisions to such forward-looking statements if or when the expectations, events, conditions or circumstances on which such statements are based, occur, or if actual results, performance or achievements are materially different from any results, performance or achievements described or implied by such forward-looking statements. The 2018 Bonds have not been registered with the Securities and Exchange Commission by reason of the provisions of Section 3(a)(2) of the Securities Act of 1933, as amended. The registration or qualification of the 2018 Bonds in accordance with applicable provisions of Securities Laws of the states in which these Bonds have been registered or qualified, and the exemption from registration or qualification in other states, shall not be regarded as a recommendation thereof. Neither these states nor any of their agencies have passed upon the merits of the securities or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, their 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. In connection with the offering of the 2018 Bonds, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the 2018 Bonds offered hereby at a level above that which might otherwise prevail in the open market. Such stabilization, if commenced, may be discontinued at any time. The Underwriter may offer and sell the 2018 Bonds to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. The County, the Flood Control District and each Participant maintains a website. Unless specifically indicated otherwise, the information presented on those websites is not incorporated by reference as part of this Official Statement and should not be relied upon in making investment decisions with respect to the 2018 Bonds. ________ (the “2018 Insurer”) makes no representation regarding the 2018 Bonds or the advisability of investing in the 2018 Bonds. In addition, the 2018 Insurer has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the 2018 Insurer, supplied by the 2018 Insurer and presented under the heading “BOND INSURANCE” and APPENDIX G–“SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” SLO FINANCING AUTHORITY James P. Erb, County Auditor-Controller-Treasurer-Tax Collector, Chair Wade Harton, County Administrator, Vice Chair Carl Nelson, San Luis Obispo County Pension Trust Executive Secretary, Member PARTICIPANTS Atascadero Mutual Water Company City of El Paso de Robles City of San Luis Obispo Templeton Community Services District SPECIAL SERVICES Norton Rose Fulbright US LLP Los Angeles, California Bond Counsel PFM Financial Advisors LLC Los Angeles, California Municipal Advisor U.S. Bank National Association Los Angeles, California Trustee Causey Demgen & Moore P.C. Denver, Colorado Verification Agent i TABLE OF CONTENTS Page Page INTRODUCTION ................................................ 1 General; Purpose; Authority for Issuance ............................................... 1 The Nacimiento Project ........................... 2 The Authority ........................................... 2 The Flood Control District ....................... 2 The Participants ....................................... 2 Security and Sources of Payment ............ 3 Additional Bonds ..................................... 5 Certain Risk Factors ................................. 5 Continuing Disclosure ............................. 5 Reference to Documents .......................... 6 PLAN OF REFUNDING ...................................... 6 ESTIMATED SOURCES AND USES OF FUNDS ................................................................. 8 THE AUTHORITY .............................................. 8 General ..................................................... 8 Governance and Management .................. 8 THE FLOOD CONTROL DISTRICT .................. 9 General ..................................................... 9 Nacimiento Dam ...................................... 9 THE 2018 BONDS ............................................. 11 General ................................................... 11 Redemption Provisions .......................... 11 Redemption Procedures ......................... 12 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ............................................. 14 General ................................................... 14 Flow of Funds ........................................ 14 Pledge Agreement .................................. 15 The Delivery Contracts .......................... 16 Reserve Fund ......................................... 26 Investments of Amounts on Deposit Under the Indenture .......................... 27 Existing Obligations of the Participants ........................................ 28 Additional Bonds ................................... 28 Indenture Events of Default and Remedies ........................................... 28 Limited Obligations ............................... 30 [BOND INSURANCE] ....................................... 30 DEBT SERVICE SCHEDULE ........................... 31 CERTAIN RISKS TO BOND OWNERS .......... 33 General ................................................... 33 Initiatives; Changes in Law ................... 33 Statutory and Regulatory Impact ........... 33 No Obligation to Tax ............................. 33 Drought .................................................. 34 Climate Change ...................................... 35 Earthquakes, Floods and Other Disasters ............................................ 35 Risks Associated with Bond Insurance .. 36 Investment of Funds ............................... 37 Limitations on Remedies and Bankruptcy ........................................ 38 Limited Liability of Authority to the Owners .............................................. 38 Changes in Law ..................................... 38 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ........................................... 38 Article XIII A of the California Constitution ....................................... 38 Article XIII B of the California Constitution ....................................... 39 Article XIII C and Article XIII D of the California Constitution ................ 40 Future Initiatives .................................... 43 FINANCIAL STATEMENTS ............................ 43 CONTINUING DISCLOSURE .......................... 43 Flood Control District ............................ 43 The Participants ..................................... 43 TAX MATTERS ................................................. 45 Tax Exemption ....................................... 45 Tax Accounting Treatment of Discount and Premium on Certain 2018 Bonds ....................................... 46 LITIGATION ...................................................... 47 Steinbeck Vineyards and Eidemiller ...... 47 General ................................................... 48 LEGAL MATTERS ............................................ 48 MUNICIPAL ADVISOR .................................... 48 RATINGS ........................................................... 49 VERIFICATION OF MATHEMATICAL COMPUTATIONS ............................................. 49 UNDERWRITING ............................................. 49 MISCELLANEOUS ........................................... 50 ii INDEX OF MAPS AND TABLES Page Map of Nacimiento Project .......................................................................................................................... iii Table 1 – Estimated Sources and Uses of Funds .......................................................................................... 7 Table 2 – Delivery Contract Payments ....................................................................................................... 18 Table 3 – Nacimiento Project and Bond Legal Structure ........................................................................... 23 Table 4 – Debt Service Schedule ................................................................................................................ 29 APPENDICES APPENDIX A–THE PARTICIPANTS ............................................................................................................. A-1 Appendix A1–Atascadero Mutual Water Company ........................... A1-1 Appendix A2–City of El Paso De Robles ........................................... A2-1 Appendix A3–City of San Luis Obispo .............................................. A3-1 Appendix A4–Templeton Community Services District .................... A4-1 APPENDIX B–SUMMARY OF THE DELIVERY CONTRACTS ......................................................................... B-1 APPENDIX C–SUMMARY OF PRINCIPAL LEGAL DOCUMENTS .................................................................. C-1 APPENDIX D–FORMS OF CONTINUING DISCLOSURE AGREEMENTS ......................................................... D-1 APPENDIX E–PROPOSED FORM OF BOND COUNSEL OPINION .................................................................. E-1 APPENDIX F–DTC AND THE BOOK-ENTRY ONLY SYSTEM ....................................................................... F-1 APPENDIX G–SPECIMEN MUNICIPAL BOND INSURANCE POLICY ............................................................. G-1 iii MAP OF NACIMIENTO PROJECT OFFICIAL STATEMENT $_________* SLO COUNTY FINANCING AUTHORITY NACIMIENTO WATER PROJECT REVENUE REFUNDING BONDS 2018 SERIES A INTRODUCTION This Introduction contains only a brief summary of the terms of the 2018 Bonds being offered and a brief description of this Official Statement. A full review should be made of the entire Official Statement, including the inside cover through the Appendices. All statements contained in this Introduction are qualified in their entirety by reference to the entire Official Statement. All capitalized terms used in this Official Statement and not otherwise defined herein have the meanings given to such terms as set forth in the Indenture (defined below). See APPENDIX C–“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS–DEFINITIONS.” General; Purpose; Authority for Issuance This Official Statement, which includes the cover page through the Appendices hereto (the “Official Statement”), provides certain information concerning the issuance by the SLO County Financing Authority (the “Authority”) of $_________* principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”). The proceeds from the issuance of the 2018 Bonds will be used to: (i) provide funds to effect a current refunding of all of the outstanding SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series A, maturing on September 1, 2018 through September 1, 2027, inclusive, September 1, 2032, September 1, 2038, and September 1, 2040 (the “Refunded 2007 Bonds”), which were issued to finance and refinance the costs of the acquisition, construction and equipping of certain public capital improvements within the County of San Luis Obispo, California (the “County”), generally comprising the Nacimiento Water Project (the “Nacimiento Project”); (ii) [purchase a municipal bond insurance policy for the 2018 Bonds; and (iii)] pay certain costs associated with the issuance of the 2018 Bonds, all as more fully described herein. See “PLAN OF REFUNDING” and “ESTIMATED SOURCES AND USES OF FUNDS.” The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust, dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). The Authority is a joint exercise of powers authority established pursuant to an agreement between the County and the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”). The 2018 Bonds are obligations of the Authority payable solely from and secured by Revenues consisting of gross water sales revenues of the Water Enterprises of the Participants (each as defined herein) payable to the Flood Control District pursuant to individual Water Delivery Entitlement Contracts, as amended (each, a “Delivery Contract”), between the Flood Control District and the respective Participant and _____________ * Preliminary, subject to change. 2 pledged to the Authority. Pursuant to each Delivery Contract, the respective Participant has covenanted to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, mapping, acquiring easements and right-of-way, and construction in connection with the Nacimiento Project, including Additional Capital Project Costs, Capital Projects Installment Debt Service, Master Water Contract Costs, Capital Reserve Costs, Operation and Maintenance Costs, Variable Energy Costs (each as defined herein) and other costs associated with the Nacimiento Project. Pursuant to a Pledge Agreement dated as of September 1, 2007 (the “Pledge Agreement”), by and between the Flood Control District and the Authority, the Flood Control District pledges the Capital Installment Debt Service, its Net Revenues and all amounts in the Water Fund (each as defined herein) to the Authority. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Pledge Agreement” and “–The Delivery Contracts.” The Nacimiento Project The Nacimiento Project consists of a multi-port sloping intake facility at Lake Nacimiento with a pump station, two intermediate pump stations, three storage tanks, a control system, and approximately 45 miles of transmission pipeline ranging from 36-inches to 12-inches in diameter, with the ability to deliver 15,750 acre-feet of raw water each year to communities within the County, including the Participants (defined below). The Nacimiento Project became operational on January 7, 2011. The Authority The Authority is a joint exercise of powers authority established pursuant to an agreement between the County and the Flood Control District. See “THE AUTHORITY.” The Flood Control District The Flood Control District was formed in 1945 through the enactment of the San Luis County Flood Control and Water Conservation District Act. See “THE FLOOD CONTROL DISTRICT.” The Participants The Participants to the Delivery Contracts are: (i) Atascadero Mutual Water Company (“AMWC”), (ii) City of El Paso de Robles (“Paso Robles”), (iii) City of San Luis Obispo (“SLO”), and (iv) Templeton Community Services District (“Templeton”). The County of San Luis Obispo Service Area 10, Zone A (“CSA 10”), Bella Vista MHP, LLC (“Bella Vista”), and SMR Mutual Water Company (“SMR”) have also entered into Water Delivery Entitlement Contracts with the Flood Control District, however, those contracts do not provide payments or security for the 2018 Bonds and none of CSA 10, Bella Vista, or SMR are Participants. The Flood Control District entered into a Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended, with AMWC (the “AMWC Delivery Contract”); a Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended, with Paso Robles (the “Paso Robles Delivery Contract”); a Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended, with SLO (the “SLO Delivery Contract”); and a Water Delivery Entitlement Contract, dated as of August 17, 2004, as amended, with Templeton (the “Templeton Delivery Contract” and collectively with the AMWC Delivery Contract, the Paso Robles Delivery Contract, the SLO Delivery Contract and the Templeton Delivery Contract, the “Original Water Delivery Entitlement Contracts”).Each Original Water Delivery Entitlement Contract was amended by the Memorandum of Understanding (First Amendment to 3 Nacimiento Project Water Delivery Entitlement Contract), the Second Amendment to the Nacimiento Project Water Delivery Entitlement Contract, and the Third Amendment (Full Allocation) to the Nacimiento Project Water Delivery Entitlement Contract (the “Third Amendment,” and as so amended, collectively, the “Existing Water Delivery Entitlement Contracts”), pursuant to which each Participant, CSA 10, Bella Vista, and SMR agreed to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Nacimiento Project. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” and APPENDIX A–“THE PARTICIPANTS.” The Flood Control District also entered into a Water Delivery Entitlement Contract, dated as of October 24, 2006, as amended (the “CSA 10 Delivery Contract”), by and between the Flood Control District and the County, acting on behalf of CSA 10; a Water Delivery Entitlement Contract, dated as of _____, 2016 with Bella Vista (the “Bella Vista Delivery Contract”); and a Water Delivery Contract, dated as of _____, 2016 with SMR (the “SMR Delivery Contract,” and collectively with the Existing Water Delivery Entitlement Contracts, the CSA 10 Delivery Contract, the Bella Vista Delivery Contract, the “Delivery Contracts”). CSA 10, Bella Vista, and SMR have no obligation with respect to the Bonds, and the CSA 10 Delivery Contract, the Bella Vista Delivery Contract, and the SMR Delivery Contract do not provide payments or security for the 2018 Bonds. Security and Sources of Payment The 2018 Bonds will be obligations of the Authority payable solely from and secured by the Revenues and any other amounts (including proceeds of the sale of the 2018 Bonds) held in the funds and accounts established pursuant to the Indenture (excepting the Rebate Fund); provided, however, that amounts on deposit in the Tax-Exempt Reserve Account are available to pay debt service solely on Bonds issued pursuant to the Indenture, the interest upon which is excluded from gross income for purposes of federal income taxation, including the 2015 Bonds and the 2018 Bonds (together, the “Tax-Exempt Bonds”). As defined in the Indenture, the term “Revenues” means: (i) all amounts derived from the Pledge Agreement, and (ii) investment income with respect to the funds and accounts established under the Indenture, except for investment earnings on the Rebate Fund. Pursuant to the Pledge Agreement, the Flood Control District has pledged the Water Revenues (defined herein) received from each Participant pursuant to the respective Delivery Contract to the Authority under the terms and conditions of the Pledge Agreement. The term “Water Revenues” means, collectively, the Capital Projects Installment Debt Service due from each Participant, including Delinquent Debt Service payments and the interest thereon, together with the Net Revenues of the Flood Control District. As provided in the Delivery Contracts, and in order to carry out and effectuate the pledge and lien contained therein, the Flood Control District has covenanted that all Water Revenues will be received by the Flood Control District in trust and deposited when and as received into the Nacimiento Water Fund, which fund the Flood Control District maintains and holds in trust separate and apart from other funds so long as any Bonds remain unpaid. During the term of the Pledge Agreement, the Flood Control District is required to withdraw amounts from the Nacimiento Water Fund on each Payment Date for deposit into the Revenue Fund to be applied by the Trustee to pay interest then coming due on and maturing or called principal of the 2018 Bonds. Revenues of each Participant consist principally of gross water sales revenues of the Participant’s Water Enterprise (as defined herein). See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts.” Under its Delivery Contract, the respective Participant has: (i) covenanted, inter alia, to pay its share of various capital expenses relating to the funding of design costs, engineering, planning, 4 environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building of the Nacimiento Project; (ii) severally and not jointly, pledged certain revenues (collectively, the “Capital Projects Installment Debt Service,” as more particularly defined in the Pledge Agreement) to be collected by their respective water enterprises (collectively, the “Water Enterprises”); (iii) pledged the gross water sales revenues of its respective Water Enterprise to the payment of total Nacimiento Project Construction Costs; (iv) established rates and charges sufficient to pay its obligations under its Delivery Contract; and (v) made certain other covenants with respect thereto. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts–Gross Pledge and Covenants of Participants” and APPENDIX B– “SUMMARY OF THE DELIVERY CONTRACTS.” 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, all of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the funds and accounts established pursuant to the Indenture (excepting the Rebate Fund) are pledged by the Authority to secure the full and timely payment of the principal of and interest and premium, if any, of the Bonds, and amounts owing to the respective Insurer of the 2007 Taxable Bonds and the 2015 Bonds (each defined below), in accordance with their terms and the provisions of the Indenture. Such pledge constitutes a lien on and security interest in such assets. The obligation of the Flood Control District to make payments to the Authority under the Pledge Agreement is a special obligation of the Flood Control District payable solely from Water Revenues, the Nacimiento Water Fund and other funds described in the Pledge Agreement, and does not constitute a debt of the Flood Control District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. Outstanding Parity Bonds. The Authority issued, and there will be Outstanding following the refunding of the Refunded 2007 Bonds, $34,250,000 principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Bonds, 2007 Series B (Taxable) (the “2007 Taxable Bonds”) and $107,115,000 principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2015 Series A (the “2015 Bonds”). The 2007 Taxable Bonds were issued by the Authority to construct the Nacimiento Project and are secured by Revenues on a parity with the 2015 Bonds, and the 2018 Bonds. The scheduled payment of the principal of and interest on the 2007 Taxable Bonds is insured by a financial guaranty insurance policy issued by National Public Finance Guarantee Corporation, successor to MBIA Insurance Corporation (the “2007 Insurer”) and scheduled payment of principal of and interest on the 2015 Bonds is guaranteed under a municipal bond insurance policy issued concurrently with the delivery of the 2015 Bonds by Build America Mutual Assurance Company (the “2015 Insurer”). Reserve Fund. Pursuant to the Indenture a reserve fund, which includes a Tax-Exempt Reserve Account and a Taxable Reserve Account (each a “Reserve Account” and together, the “Reserve Fund”) was established as security for the Tax-Exempt Bonds and the Taxable Bonds, within each Reserve Account funded in an amount equal to the applicable Reserve Requirement (as defined herein). Amounts on deposit in the Tax-Exempt Reserve Account are available to pay debt service solely on the 2015 Bonds and the 2018 Bonds (together, the “Tax-Exempt Bonds”). Amounts on deposit in the Taxable Reserve Account are available to pay debt service solely on the 2007 Taxable Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Reserve Fund.” [Bond Insurance.] 5 THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES OF THE AUTHORITY CONSISTING PRIMARILY OF PAYMENTS MADE BY THE PARTICIPANTS TO THE FLOOD CONTROL DISTRICT UNDER THE DELIVERY CONTRACTS AND RECEIVED BY THE AUTHORITY PURSUANT TO THE PLEDGE AGREEMENT. THE 2018 BONDS ARE NOT A DEBT OF THE AUTHORITY, THE FLOOD CONTROL DISTRICT, THE COUNTY OR THE STATE OF CALIFORNIA, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, OR INTEREST ON THE 2018 BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PLEDGE AGREEMENT. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. Additional Bonds The Authority may issue one or more series of Bonds secured by a pledge of Revenues on a parity with the 2007 Taxable Bonds, the 2015 Bonds, and the 2018 Bonds. “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–Additional Bonds.” Certain Risk Factors An investment in the 2018 Bonds involves risk. For a discussion of certain risk factors associated with investment in the 2018 Bonds, see “CERTAIN RISKS TO BOND OWNERS” as well as other factors discussed throughout this Official Statement. Continuing Disclosure Flood Control District. The Flood Control District has covenanted for the benefit of the beneficial owners of the 2018 Bonds to provide certain financial information and operating data relating to the Flood Control District by no later than March 31 of each year commencing with the report due on March 31, 2019 for the Fiscal Year ended June 30, 2018 (each a “Flood Control District Annual Report”), and to provide notices of the occurrence of certain specified events. The Annual Report and notices of specified events will be filed by the Flood Control District or Digital Assurance Certification, L.L.C., as dissemination agent to the Flood Control District with the Municipal Securities Rulemaking Board (the “MSRB”) through its Electronic Municipal Market Access (“EMMA”) site. See “CONTINUING DISCLOSURE” and APPENDIX D–“FORMS OF CONTINUING DISCLOSURE AGREEMENTS–SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT CONTINUING DISCLOSURE AGREEMENT.” These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12. Participants. Each Participant has covenanted to provide certain financial and operating data relating to such Participant by no later than nine months following the end of the fiscal year of each Participant commencing with the report due in 2019 for the respective fiscal year ended in 2018 (each a “Participant Annual Report”). Each Participant Annual Report will be filed by the Participant or the Flood Control District, as dissemination agent to each Participant, with the MSRB through its EMMA site. The fiscal year-end for AMWC is April 30 and the fiscal year-end for Paso Robles, SLO, and Templeton is June 30. See “CONTINUING DISCLOSURE” and APPENDIX D–“FORMS OF CONTINUING DISCLOSURE AGREEMENTS–PARTICIPANTS CONTINUING DISCLOSURE AGREEMENTS.” 6 Reference to Documents The summaries and descriptions in this Official Statement of the Indenture, the 2018 Bonds, the Escrow Agreement (defined herein), the Pledge Agreement, the Delivery Contracts, the Continuing Disclosure Agreements, and other agreements relating to the 2018 Bonds are qualified in their entirety by reference to such documents, and the descriptions herein of the 2018 Bonds are qualified in their entirety by the form thereof and the information with respect thereto included in such documents. All capitalized terms used herein, unless noted otherwise, shall have the meanings prescribed in the Indenture and the Pledge Agreement. See APPENDIX C–“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS–DEFINITIONS.” PLAN OF REFUNDING The proceeds of the 2018 Bonds will be used by the Authority to provide funds to (i) refund all of the outstanding Refunded 2007 Bonds; (ii) [purchase a municipal bond insurance policy for the 2018 Bonds]; and (iii) pay certain costs associated with the issuance of the 2018 Bonds. See also “ESTIMATED SOURCES AND USES OF FUNDS.” The Authority issued $157,845,000 original principal amount of the 2007 Series A Bonds pursuant to the Original Indenture, of which $22,505,000 aggregate principal amount is currently outstanding. A portion of the proceeds from the issuance of the 2018 Bonds will be deposited with the Trustee which, together with certain moneys on deposit under the Indenture, will be sufficient and will be used to pay when due and at a price equal to 100% of the principal amount of the Refunded 2007 Bonds thereof, plus accrued and unpaid interest through ________, 2018. (Remainder of this Page Intentionally Left Blank) 7 The Refunded 2007 Bonds consist of the following: $_________ SLO County Financing Authority Nacimiento Water Project Revenue Bonds 2007 Series A Dated Date: September 26, 2007 Redemption Date: ___________, 2018 Redemption Price: 100% Maturity (September 1) Principal Amount Interest Rate CUSIP† 2018 $3,295,000 5.00% 798693BF3 2019 175,000 5.00 798693EP8 2020 185,000 5.00 798693EQ6 2021 190,000 5.00 798693ER4 2022 200,000 5.00 798693ES2 2023 210,000 5.00 798693ET0 2024 225,000 5.00 798693EU7 2025 235,000 5.00 798693EV5 2026 245,000 5.00 798693EW3 2027 260,000 5.00 798693EX1 2032 1,505,000 5.00 798693EY9 2038 2,385,000 5.00 798693EZ6 2040 19,210,000 4.50 798693BT3 ______________ † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright 2018 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CGS. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. Upon the deposit of cash into the Redemption Account of the Revenue Fund held by the Trustee (the “Redemption Account”) established pursuant to the Indenture, the Refunded 2007 Bonds will no longer be deemed Outstanding under the Indenture. The amounts deposited in the Redemption Account will be held by the Trustee in cash and/or invested in noncallable direct obligations of the United States of America, and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America to which the direct obligation or guarantee the full faith and credit of the United States of America has been pledged (collectively, the “Government Securities”) that are irrevocably pledged solely to the payment of the Refunded 2007 Bonds. The principal of and interest on any such Government Securities, when received, will be sufficient to redeem the Refunded 2007 Bonds, including accrued interest thereon, on ________, 2018. 8 ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the 2018 Bonds are estimated to be applied as set forth in the following table: Table 1 Estimated Sources and Uses of Funds Sources of Funds: Par Amount of 2018 Bonds $_________.00* Net Original Issue Premium Funds held under the Indenture TOTAL ESTIMATED SOURCES Uses of Funds: Deposit to Escrow Fund(1) Costs of Issuance(2) Underwriter’s Discount TOTAL ESTIMATED USES OF FUNDS _______________ * Preliminary, subject to change. (1) See “PLAN OF REFUNDING.” (2) Includes fees of the County, Bond Counsel, the Municipal Advisor, the Verification Agent, the Trustee and the Escrow Agent, the premium for the municipal bond insurance policy, fees relating to the credit ratings, printing, accounting and other costs associated with the issuance of the 2018 Bonds. THE AUTHORITY General The Authority was created pursuant to a Joint Exercise of Powers Agreement, dated as of August 15, 2000 (the “Joint Powers Agreement”), between the County and the Flood Control District. The Joint Powers Agreement was entered into pursuant to the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title I of the California Government Code. The Authority was created to issue bonds for the purpose of financing all or a portion of the costs of the purchase, construction, expansion, improvement or rehabilitation of any real or other tangible property for the County and the Flood Control District and to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations to provide financing and refinancing for such capital improvements of the County and the Flood Control District. The Joint Powers Agreement may be amended at any time, or from time to time, except as limited by contract with the holders of bonds issued by the Authority or certificates of participation in payments to be made by the Authority or its members or by applicable regulations or laws of any jurisdiction having authority, including to provide for the addition of new parties. Governance and Management Pursuant to the Joint Powers Agreement, the Authority is administered by a three-member Board of Commissioners, two of whom are appointed by the County and one who is appointed by the Flood Control District. 9 The current Commissioners of the Authority are: Member Title James P. Erb, County Auditor- Controller-Treasurer-Tax Collector Chair Wade Horton, County Administrative Officer Vice Chair Carl Nelson, SLO Pension Trust Executive Secretary Member County Counsel serves as the Legal Advisor to the Authority. The Clerk/Recorder of the County currently serves as the Authority’s Secretary. THE FLOOD CONTROL DISTRICT General The Flood Control District was formed in 1945 pursuant to State Legislation through the enactment of the San Luis Obispo Flood Control and Water Conservation District Act. The Flood Control District is county-wide and has as its governing body the Board of Supervisors. Other key staff include: the Director of Public Works, and Public Works Finance Division Manager, Utilities Division Manager, and Water Systems Superintendent. The purposes of the Flood Control District are: • to provide for the control, disposition, and distribution of the flood and storm waters of the district and the flood and storm waters of the streams that flow into the Flood Control District; • to prevent the waste or diminution of the water supply to the Flood Control District; • to conserve flood and storm waters by spreading, storing, retaining, and causing these waters to percolate into district soils; • to retain these waters for beneficial use, such as the purchase and sale thereof within the Flood Control District; • to protect watercourses, watersheds, public highways, life and property from damage or destruction from these waters; and • to provide for recreation activities incidental to and in connection with said purposes. Nacimiento Dam Overview. Nacimiento Dam and reservoir (“Nacimiento”) is located in the northern part of the County and owned and operated by the Monterey County Water Resources Agency, as successor-in- interest to the Monterey County Flood Control and Water Conservation District (the “MCWRA”) for the combined goals of flood protection, water conservation, operation of the Salinas Valley Water Project, and recreation, with safety being the primary consideration. Nacimiento, completed in 1957, is an earthfill dam with a height of 215 feet above the streambed and a crest length of 1,650 feet. When Nacimiento is full (elevation 800 feet) it has a maximum storage capacity of 377,900 acre-feet, is 18 miles long, and has about 165 miles of shoreline. The maximum elevation during flood stage is 825 feet, with a maximum temporary capacity of 538,000 acre feet and a temporary surface area of 7,149 acres. 10 Master Water Contract. The Flood Control District and MCWRA entered into an agreement, dated October 19, 1959, as amended (collectively, the “Master Water Contract”), pursuant to which MCWRA agrees, among other things, to provide up to 17,500 acre feet of water per year from Nacimiento to the Flood Control District. Pursuant to the Master Water Contract, none of the Authority, the County, or the Flood Control District is liable for any maintenance costs for Nacimiento. Extensive repairs and upgrades were made to the Nacimiento spillway in the 1970s, and additional upgrades were completed in the early 2000s that included: a new gate system; raising and strengthening spillway chute walls; anchoring the chute walls with “sister” walls; strengthening and anchoring approach channel walls; modifying the High-Level Gate Operations System with an upgraded mechanical system; and strengthening the bridge pier with steel reinforced concrete. DSOD Review. In light of the lessons learned from the March 2017 failure of the Lake Oroville spillways incident, in September 2017, the State Division of Safety of Dams (the “DSOD”) released updated information on the 1,249 dams under its jurisdiction, including Nacimiento. The updated DSOD information (the “DSOD Update”) for each dam includes: (i) downstream hazard classifications; (ii) condition assessment; and (iii) reservoir restriction status, reflecting the most recent physical inspections and comprehensive re-evaluations by DSOD engineers and engineering geologists, and technical analyses performed by dam owners. • Downstream Hazard Classification. The downstream hazard classification identified for a dam is based solely on the size of the dam’s reservoir and population that would be impacted by a dam failure; it does not reflect the condition of the dam or its structures. The hazard classification is used in part to prioritize development of inundation maps and emergency action plans. Dams are classified as high hazard if at least one person is at risk downstream in the event of a dam failure, and extremely high hazard if the loss of human life is considerable. Using this standard, the Nacimiento downstream hazard is classified as high or extremely high hazard. • Condition Assessments. DSOD dam condition assessments are based on five condition ratings from the U.S. Army Corps of Engineers National Inventory of Dams, with some minor modifications. The ratings include satisfactory, fair, poor, unsatisfactory, and not rated. Dams rated as satisfactory have no identified deficiencies. Dams rated as fair, poor or unsatisfactory have at least one identified deficiency. Nacimiento was rated satisfactory, meaning it has no identified deficiencies, however, dam condition assessments may change from year to year as repair work is completed or new deficiencies are identified. • Reservoir Restrictions. The DSOD Update for Nacimiento did not contain any reservoir restrictions. Because Nacimiento is owned and operated by the MCWRA, none of the Authority, the County, or the Flood Control District has conducted an independent assessment of Nacimiento, nor do any of them have an obligation to so. The DSOD ordered MCWRA to complete minimum repairs (filling joints and cracks, replacing damaged concrete, removing raised edges on downstream slabs and walls, and ensuring spillway drains are functional). In September 2017, the MCWRA approved up to $500,000 for the repair work for Nacimiento and Lake San Antonio spillways. [Status of the repairs to be completed by December 2017 - To Come] If the condition of the Nacimiento spillway warranted, DSOD could order a reservoir reservation limiting the amount of water that could be stored in Nacimiento until spillway repairs were completed. 11 However, because the Master Water Contract essentially grants the Flood Control District rights to water that is “first in and last out” of Nacimiento, it is unlikely that any reservoir reservation which might be ordered by the DSOD would limit the amount of water available to the Flood Control District. None of the Authority, the County, or the Flood Control District can make any prediction as to the safety or condition of Nacimiento, nor can any assurances be given regarding the accuracy of the DSOD Update or the conclusions contained therein. THE 2018 BONDS General The 2018 Bonds will be dated their date of original delivery, will be issued in fully registered form, in denominations of $5,000 and any integral multiple thereof and will mature on the dates and in the principal amounts and bear interest at the rates as set forth on the inside cover of this Official Statement. Interest on the 2018 Bonds shall be payable semiannually on March 1 and September 1 of each year commencing September 1, 2018 (each, an “Interest Payment Date”). The 2018 Bonds, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the 2018 Bonds. Ownership interests in the 2018 Bonds may be purchased in book-entry only form. Purchasers will not receive securities certificates representing their interests in the 2018 Bonds purchased. Payments of principal of and interest on the 2018 Bonds will be paid by the Trustee to DTC, which is obligated in turn to remit such principal and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the 2018 Bonds. See APPENDIX F–“DTC AND THE BOOK-ENTRY ONLY SYSTEM.” Interest on the 2018 Bonds will be paid on each Interest Payment Date to the persons in whose name the ownership of the 2018 Bonds is registered on the registration books maintained by the Trustee for the registration of ownership and registration of transfer of the 2018 Bonds as of the close of business on the immediately preceding Record Date, such interest to be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date; or by wire transfer made on such Interest Payment Date to any Owner of $1,000,000 or more in aggregate principal amount of 2018 Bonds who has requested such transfer pursuant to written notice filed with the Trustee on or before the preceding Record Date. So long as the 2018 Bonds are registered in the name of the Cede & Co., all payments with respect to principal of, and interest on, the 2018 Bonds and all notices with respect to such 2018 Bonds will be made and given, respectively, to DTC. Redemption Provisions Optional Redemption for 2018 Bonds. The 2018 Bonds maturing before September 1, 20__ are not subject to optional redemption by the Flood Control District. The 2018 Bonds maturing on and after September 1, 20__ are subject, at the option of the Authority at the direction of the Flood Control District, to call and redemption from any available source of funds prior to their stated maturity on any date on or after September 1, 20__, as a whole or in part in the order directed by the Authority, from any source of available funds, at a redemption price equal to the 12 principal amount of the 2018 Bonds to be redeemed, without premium, plus accrued interest thereon to the date fixed for redemption. Mandatory Sinking Payment Redemption for 2018 Bonds. The 2018 Bonds maturing on September 1, 20__, are subject to mandatory redemption in part by lot, on September 1 in each year commencing September 1, 20__, and on each September 1 thereafter, up to and including September 1, 20__, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts: Sinking Fund Payment Date (September 1) Principal Amount † _____________ † Maturity. The 2018 Bonds maturing on September 1, 20__ (together with the 2018 Bonds maturing on September 1, 20__, the “Term 2018 Bonds”), are subject to mandatory redemption in part by lot, on September 1 in each year commencing September 1, 20__, and on each September 1 thereafter, up to and including September 1, 20__, from mandatory sinking fund payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the following principal amounts: Sinking Fund Payment Date (September 1) Principal Amount † _____________ † Maturity. If any such Term 2018 Bonds are redeemed pursuant to optional redemption, the total amount of all future sinking fund payments with respect to such Term 2018 Bonds are required to be reduced by the aggregate principal amount of such Term 2018 Bonds so redeemed, to be allocated among such payments on a pro rata basis in integral multiples of $5,000 principal amount (or on such other basis as the Authority may determine) as set forth in a written notice given by the Authority to the Trustee. Redemption Procedures Notice of Redemption. Notice of redemption of the 2018 Bonds is required to be mailed by the Trustee, by first-class mail, postage prepaid, to the respective Owners of any 2018 Bonds designated for redemption at their addresses appearing on the Registration Books and to the Securities Depositories and the Information Services at least 30 days but not more than 60 days prior to the redemption date. Each notice of redemption is required to state the redemption date, the place or places of redemption, the CUSIP numbers and numbers of the 2018 Bonds to be redeemed, and in the case of 2018 Bonds to be redeemed in part only, the respective Authorized Denominations of the principal amount thereof to be redeemed. Each such notice is also required to state that on said date there will become due and payable 13 on each of said 2018 Bonds the principal amount relating thereto or of said specified portion of the principal thereof in the case of a 2018 Bond to be redeemed in part only, plus accrued interest, if any, and through which date such interest will accrue, and that from and after such date interest thereon shall cease to accrue and shall require that such 2018 Bonds be then surrendered at the Principal Office of the Trustee. Neither the failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such 2018 Bonds or the cessation of accrual of interest as of the redemption date. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Authority shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of Authorized Denominations equal in aggregate principal amount or maturity amount, as applicable, representing the unredeemed portion of the Bonds so surrendered. [Conditional Notice. Any notice of optional redemption of the 2018 Bonds delivered in accordance with the Indenture may be conditional, and if any condition stated in such notice of redemption has not been satisfied on or prior to the redemption date: (i) said notice will be of no force and effect, (ii) the Authority will not be required to redeem such 2018 Bonds, (iii) the redemption will not be made and (iv) the Trustee will within a reasonable time thereafter give notice to the persons in the manner in which the conditional notice of redemption was given, that such condition or conditions were not met and that the redemption was cancelled.] Selection of 2018 Bonds for Partial Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2018 Bonds of a maturity, the Trustee shall select the 2018 Bonds to be redeemed from all 2018 Bonds of such maturity not previously called for redemption, as directed by the Authority, at the request of the Flood Control District, or, in the absence of such direction, by lot in any manner which the Authority in its sole discretion shall deem appropriate and fair. For purposes of such selection, all 2018 Bonds shall be deemed to be comprised of separate Authorized Denominations and such separate Authorized Denominations shall be treated as separate 2018 Bonds which may be separately redeemed. Effect of Notice of Redemption. If notice of redemption has been duly given as specified in the Indenture and moneys for the redemption (including the interest to the applicable date of redemption and including any applicable premium) have been set aside in the Redemption Account or any of the accounts therein, the 2018 Bonds will become due and payable on said date of redemption, and upon presentation and surrender thereof at the Principal Office of the Trustee, said 2018 Bonds will be paid at the redemption price thereof, together with interest accrued and unpaid to said date of redemption and premium, if any. Purchase in Lieu of Redemption. In lieu of redemption of any 2018 Bond, amounts on deposit in the Principal Account or Redemption Account may also be used and withdrawn by the Trustee at any time, upon the Written Request of the Authorized Representative, for the purchase of such 2018 Bond at public or private sale when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as the Authority may in its discretion determine, in accordance with all applicable laws, so long as such prices do not exceed par. 14 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS General The Bonds are obligations of the Authority payable solely from and secured by the Revenues and any other amounts (including proceeds of the sale of the 2018 Bonds) held in the funds and accounts established pursuant to the Indenture (except the Rebate Fund), which amounts are pledged by the Authority to secure the full and timely payment of the principal of and interest and premium, if any, of the 2018 Bonds; provided, however, that amounts on deposit in the Tax-Exempt Reserve Account are available to pay debt service solely on Tax-Exempt Bonds and amounts on deposit in the Taxable Reserve Account are available to pay debt service solely on Taxable Bonds. As defined in the Indenture, the term “Revenues” means: (i) all amounts derived from the Pledge Agreement, and (ii) investment income with respect to the funds and accounts established under the Indenture except for investment earnings on the Rebate Fund. Pursuant to the Pledge Agreement the Flood Control District has pledged the Water Revenues received from Participants under the Delivery Contracts to the Authority for payment of the Bonds. See “–Pledge Agreement” and “–The Delivery Contracts.” Flow of Funds Pursuant to the Indenture, the Authority has established with the Trustee a special fund designated the “Revenue Fund” which the Trustee maintains and holds in trust. Within the Revenue Fund, the Trustee will establish special accounts designated as the “Principal Account” and the “Interest Account” each of which are required to be held and maintained as separate and distinct funds and accounts. All Revenues, except for investment earnings on the Reserve Fund, are required to be promptly transferred to the Trustee by the Authority and deposited by the Trustee upon receipt thereof into the “Revenue Fund” and held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. On each Interest Payment Date, the Trustee is required to transfer all Revenues then in the Revenue Fund into the following funds and accounts the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any deposit is made to any account subsequent in priority: First: The Trustee shall deposit into the Interest Account an amount which, together with the amounts then on deposit therein including, with respect to amounts, if any, transferred by the Trustee from the Reserve Fund, is sufficient to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest coming due and payable on the Bonds on such Interest Payment Date and any amount of interest previously due and unpaid. Second: The Trustee shall deposit into the Principal Account, if necessary, an amount which, together with the amounts then on deposit therein, including amounts, if any, transferred from the Reserve Fund, shall be sufficient to cause the aggregate amount on deposit in the Principal Account to equal the amount of principal or mandatory sinking account payment coming due and payable on the Bonds within the Bond Year and any amount of principal previously due and unpaid. THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES OF THE AUTHORITY CONSISTING PRIMARILY OF PAYMENTS MADE BY THE PARTICIPANTS TO THE FLOOD CONTROL DISTRICT UNDER THE DELIVERY CONTRACTS AND RECEIVED BY THE AUTHORITY PURSUANT TO THE PLEDGE AGREEMENT. THE 2018 BONDS ARE NOT A DEBT OF THE AUTHORITY, THE FLOOD CONTROL DISTRICT, THE COUNTY OR THE STATE OF 15 CALIFORNIA, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, OR INTEREST ON THE 2018 BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PLEDGE AGREEMENT. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. Pledge Agreement Capitalized terms used in this section “–Pledge Agreement” and not otherwise defined shall have the meanings given to such terms as set forth in the Pledge Agreement. See also APPENDIX C–“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS–PLEDGE AGREEMENT.” Allocation of Water Revenues. Under the Pledge Agreement, the Flood Control District has irrevocably pledged to the Authority: (i) the Capital Projects Installment Debt Service due from each Participant, including delinquent Debt Service payments and interest thereon received by the Flood Control District pursuant to each Delivery Contract; (ii) Net Revenues collected from the operation of the Nacimiento Project; and (iii) all amounts on deposit in the Nacimiento Water Fund (collectively, the “Water Revenues”) to the payment of Municipal Obligations. See also “–The Delivery Contracts.” “Capital Projects Installment Debt Service” is defined in the Pledge Agreement to mean payments on debt or similar obligations incurred by the Flood Control District for the Nacimiento Project consisting of, in the aggregate, (i) principal and interest (or mandatory sinking fund payments, installments or lease or similar payments due) with respect to all Bonds at the time Outstanding in accordance with their terms, provided that capitalized interest funded from the proceeds of the Bonds need not be taken into account, (ii) annual costs of administering the Bonds, including the annual fees of the Trustee, and (iii) the costs, if any, of annual credit enhancement for the Bonds, whether or not based on a derivative structure as provided in Section 5922(a) of the Government Code. “Municipal Obligations” is defined in the Pledge Agreement to mean the amounts due with respect to the Bonds (including the 2018 Bonds), including any amounts due to the provider of a municipal bond insurance policy, an investment agreement, or any reserve surety. The Flood Control District has agreed and covenanted to maintain and hold in trust the Water Revenues separate and apart from other funds so long as any Bonds remain unpaid. “Net Revenues” is defined in the Pledge Agreement to mean the sum of (i) the proceeds of sale by the Flood Control District of Surplus Water, (ii) revenues received by the Flood Control District from Wheeling Customers, and (iii) revenues received by the Flood Control District from the sale of Reserve Water, less the costs of making such sales and collecting said revenues. Pursuant to the Pledge Agreement, the Flood Control District is required to withdraw amounts from the Nacimiento Water Fund five Business Days prior to each Interest Payment Date and each maturity date for the Bonds (each a “Payment Date”) for deposit into the Debt Service Fund held by the Trustee. Any moneys on deposit in the Nacimiento Water Fund not necessary to make any of the payments required above may be expended by the Flood Control District at any time for any purpose permitted by law. 16 Covenants Under the Pledge Agreement. The Flood Control District covenants, among other things, to: (i) faithfully observe and perform all agreements, conditions covenants and terms contained in the Tax Certificate in connection with the issuance of the Tax-Exempt Bonds; (ii) to preserve and protect the security and rights of the Authority to the payments due under the Delivery Contracts and defend such rights against all claims and demands of all persons; (iii) comply with and carry out all provisions of continuing disclosure agreements; and (iv) enforce its rights under each Delivery Contract in accordance with the terms thereof and use its best efforts to collect Capital Projects Installment Debt Service and Net Revenues in such time and amounts to permit payment of debt service on the Bonds in accordance with their terms. Net Contract. The Pledge Agreement is deemed and construed to be a net contract, and the Flood Control District is required during the term of the Pledge Agreement to make the payments due, free of any deductions and without abatement, diminution or set-off whatsoever. Limited Liability of Flood Control District. The Flood Control District is not required to pay or advance any moneys derived from any source of income other than Water Revenues, the Nacimiento Water Fund and the other funds provided in the Pledge Agreement for the payment of amounts due on the Bonds, or for the performance of any agreements or covenants required to be performed by it contained in the Pledge Agreement. The Flood Control District may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the Flood Control District for such purpose. THE OBLIGATION OF THE FLOOD CONTROL DISTRICT TO MAKE PAYMENTS TO THE AUTHORITY UNDER THE PLEDGE AGREEMENT IS A SPECIAL OBLIGATION OF THE FLOOD CONTROL DISTRICT PAYABLE SOLELY FROM REVENUES, THE NACIMIENTO WATER FUND AND OTHER FUNDS DESCRIBED IN THE PLEDGE AGREEMENT, AND DOES NOT CONSTITUTE A DEBT OF THE FLOOD CONTROL DISTRICT OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The Delivery Contracts Capitalized terms used in this Section “–The Delivery Contracts” and not otherwise defined shall have the meanings given to such terms as set forth in the Delivery Contracts. See also APPENDIX B– “SUMMARY OF THE DELIVERY CONTRACTS–Definitions.” General. In order to carry out and effectuate the pledge and lien contained in the Pledge Agreement, the Flood Control District agreed and covenanted that all payments made pursuant to the Delivery Contracts received by the Flood Control District are in trust and are required to be deposited when and as received into the Nacimiento Water Fund. The Flood Control District agrees and covenants to maintain and hold the Nacimiento Water Fund, in trust separate and apart from other funds so long as any Bonds remain unpaid. The Nacimiento Water Fund is maintained by the Flood Control District within the Treasury Pool of the County, into which the Flood Control District deposits all of its Net Revenues and all payments received by the Flood Control District under each Delivery Contract from the Participants. Pursuant to each Delivery Contract, the Participants, severally and not jointly, pledge the Capital Projects Installment Debt Service to be collected by their respective Water Enterprise and have made certain covenants with respect thereto. See APPENDIX B–“SUMMARY OF THE DELIVERY CONTRACTS– Water Enterprise Operation and Maintenance” and “–Participant’s Obligations Several and Not Joint; Step-Up Provisions and Reimbursement.” 17 For purposes of the Delivery Contracts, the 2018 Bonds constitute “Municipal Obligations.” The parties to each Delivery Contract respectively acknowledged that the total Nacimiento Project construction costs were $173.3 million. Each Delivery Contract is substantially similar in its material terms. For a summary of the Delivery Contracts, see APPENDIX B–“SUMMARY OF THE DELIVERY CONTRACTS.” The Delivery Contracts permit Participants to create liens on or payments from its Water Enterprise subordinate to its obligations payable under its Delivery Contract. Accordingly, SLO and Templeton have each executed loans with the SWRCB that are payable from “net revenues” of their respective Water Systems. Payments of Capital Projects Installment Debt Service made by SLO and Templeton pursuant to their respective Delivery Contracts are payable from and secured by a pledge of gross water sales revenues. See “–Gross Pledge and Covenants of Participants.” Term of Delivery Contracts. Each Delivery Contract remains in effect throughout the term provided by the Master Water Contract; provided, that if and when, through no fault of the Flood Control District, one or more provisions of the Master Water Contract is terminated or suspended in the manner and for a cause specified in the Master Water Contract, the obligations of Flood Control District to the Participants and to the Other Participants under the Delivery Contracts and under Like-Contracts will likewise be terminated or suspended; provided, however, that the Delivery Contracts may not be terminated, suspended or rescinded so long as there remain outstanding any Municipal Obligations incurred by the Flood Control District for the Nacimiento Project, including the 2018 Bonds. Obligation to “Take or Pay.” Neither the failure or refusal of any Participant to accept delivery of the water from the Nacimiento Project to which such Participant is entitled under the Delivery Contract or the failure of the Flood Control District to deliver such water will in any way relieve any Participant of its obligations to make payments to the Flood Control District pursuant to its Delivery Contract. Each Participant is obligated to pay all amounts due under its Delivery Contract without reduction or offset of any kind, whether or not the Nacimiento Project or any part thereof is then operating or operable or its service is suspended, interfered with, reduced or curtailed or terminated in whole or in part for any reason, and the Contract Payments of such Participant are not conditional upon the performance or nonperformance by any party to the Delivery Contract, or the Like–Contracts, for any reason whatsoever, provided, however, that any savings from non-operation of the Nacimiento Project is required to be apportioned among the Participants in accordance with the respective Unit Percentage Share of the Participants. The obligation of each Participant to make Delivery Contract Payments and other payments required to be made under the Delivery Contracts is incurred by each Participant for the benefit of holders of Municipal Obligations and is absolute and unconditional. Such payments are absolutely net, free of any deductions, and are not subject to any reduction, whether by offset, recoupment, counterclaim or others. Each Participant is required to make all such payments notwithstanding the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to the Nacimiento Project, commercial frustration of purpose, any change in the tax or other laws of the United State of the State, or any political subdivision thereof. Participant’s “Step-Up” Obligations. If for any reason a Participant or any Other Participant fails to pay its share of Capital Projects Installment Debt Service under its Delivery Contract or under its Like-Contract, the amount of the resulting Debt Service Shortfall will be paid, collectively, by all Non- Delinquent Participants. If there is more than one Delinquent Participant, the amount of the Debt Service Shortfall will be the sum of the unpaid amounts for each Delinquent Participant. When such a Debt Service Shortfall occurs, the Participant will be required to increase its Contract Payments for the particular Water Year by an amount equal to its pro rata share of the Debt Service Shortfall; provided, 18 however, that each Other Participant who is not a Delinquent Participant will be required by the Other Participant’s Like-Contract to also contribute to the Debt Service Shortfall so that the Participant, and all of the Other Participants who are not Delinquent Participants, shall each contribute to the Debt Service Shortfall in a proportion determined by dividing each said Non-Delinquent Participant’s Capital Projects Installment Debt Service share (under Article 16(C)(3) of the Delivery Contract and the Like-Contracts) by the aggregate of all the Participant’s Installment Debt Service shares of all Non-Delinquent Participants, including the Participant; and provided further, that the Participant in no event will be required under this paragraph to contribute to the Debt Service Shortfall by an amount in any Water Year exceeding the amount which is 25% of the share of Capital Projects Installment Debt Service allocated to the Participant pursuant to its Delivery Contract. “Step-Up” to Be Exhausted Before Recourse to Debt Service Reserve Fund/Surety Bond. Shortfalls in Total Participant Contract Payments are required to be remedied under the Delivery Contracts prior to any withdrawal from the Reserve Fund or under the reserve surety bond posted for the Municipal Obligations. Drawings on or under the debt service reserve fund or reserve surety bond will be delayed until and unless insufficient moneys are available from Non-Defaulting Participants. Participant Payments Due Under the Delivery Contracts. On or before April 1 of each Calendar Year, the Flood Control District is required to estimate the new or additional Nacimiento Project Costs for the Fiscal Year commencing on the immediately following July 1 and the result comprises the Total Participant Contract Payments due, collectively, from each Participant under its Delivery Contract and from the Other Participants under their respective Like-Contracts for the said Fiscal Year. Nacimiento Project Costs include: • Nacimiento Project Construction Costs – Includes the costs of constructing any portion of the Nacimiento Project, including design, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Nacimiento Project, and includes the costs attributable to environmental mitigation requirements, the costs attributable to the Reserved Capacity, and costs attributable to all other construction costs. • Additional Capital Project Costs – Costs expended or incurred by the Flood Control District for Capital Projects related to the Nacimiento Project, improvements or repairs thereto undertaken by the Flood Control District in addition to the Nacimiento Project, which is an Approved Additional Project, an Emergency Project or a Required Additional Project. • Capital Projects Installment Debt Service – See “–Capital Projects Installment Debt Service.” • Master Water Contract Costs incurred following the first date upon which an allocation of ad valorem property taxes as described under the caption APPENDIX B–“SUMMARY OF THE DELIVERY CONTRACTS–Contract Payments–Participant Credits Against Contract Payments.” • Capital Reserve Costs – See “–Capital Reserve Costs, and Operating and Maintenance Costs.” • Operation and Maintenance Costs – The reasonable and necessary current expenses of maintaining, repairing and operating the Nacimiento Facilities, including District administrative expenses directly attributable to the Nacimiento Facilities, but excluding the Capital Reserve Costs and the Capital Projects Installment Debt Service, all computed in accordance with generally accepted accounting principles applicable to enterprise funds of government agencies. 19 • Variable Energy Costs – The actual energy costs Nacimiento Facilities energy costs incurred by the Flood Control District in conveying and delivering: (i) the Delivery Entitlement and Surplus Water to the Participants and (ii) the respective Other Delivery Entitlements and surplus water to the Other Participants as defined under their respective Like-Contracts and as set forth in the Delivery Contracts. • Other Costs – Other annual or incidental costs associated with the Nacimiento Facilities. Nacimiento Project Costs are allocated by the Flood Control District among the Participants as described below: Capital Projects Installment Debt Service. The Flood Control District allocates Capital Projects Installment Debt Service among all Participants, according to the proportion of Nacimiento Project Construction Costs paid by the Participant and the Other Participants, as they may be adjusted for cash contributions (see APPENDIX B–“SUMMARY OF THE DELIVERY CONTRACTS”); provided, however, that the Capital Projects Installment Debt Service is required to further be allocated into a component representing principal of and interest on the 2018 Bonds, the 2015 Bonds, and other Tax-Exempt Bonds (collectively, the “Tax-Exempt Debt Service”) and a component representing the principal of and interest on the 2007 Taxable Bonds and other Taxable Bonds (collectively, the “Taxable Debt Service”). Nacimiento Capital Installment Debt Service Allocation Fiscal Year 2017-18 Percentage of Total Capital Installment Participant Tax-Exempt Bonds Taxable Bonds Debt Service Atascadero Mutual Water Company 0.00%† 98.74% __.__% City of Paso Robles 35.03 0.57 __.__ City of San Luis Obispo 62.87 0.69 __.__ Templeton Community Services District 2.10 0.00 __.__ TOTAL 100.00% 100.00% 100.00% _____________ † There is no outstanding Tax-Exempt Bonds Debt Service attributable to AMWC. Source: Flood Control District. Table 2 presents the Fiscal Year Capital Projects Debt Service Payments to be paid by each Participant for the 2018 Bonds and, the 2015 Bonds, that will be Outstanding following the refunding of the Refunded 2007 Bonds. See “PLAN OF REFUNDING.” Table 2 Delivery Contract Payments Total Fiscal Year Debt Service Date AMWC Paso Robles SLO Templeton Participants Payments† Taxable 2007 Bonds 2015 Bonds 2018 Bonds Total 6/30/2018 $4,880,731 6/30/2019 4,880,731 6/30/2020 8,093,356 6/30/2021 8,094,356 6/30/2022 8,101,481 6/30/2023 8,104,231 6/30/2024 8,097,481 6/30/2025 8,090,981 6/30/2026 8,089,106 6/30/2027 8,095,981 6/30/2028 8,096,606 6/30/2029 8,095,669 6/30/2030 8,095,500 6/30/2031 8,101,522 6/30/2032 8,090,400 6/30/2033 8,095,338 6/30/2034 8,097,463 6/30/2035 8,090,650 6/30/2036 8,098,175 6/30/2037 8,096,400 6/30/2038 8,094,625 6/30/2039 8,093,700 6/30/2040 – 6/30/2041 – TOTAL $171,674,483 ____________ † Includes credits from the levy of ad valorem property taxes, special assessments or special taxes. Each Delivery Contract permits any Participant to issue obligations to fund all or a portion of its Capital Projects Installment Debt Service by levying an ad valorem tax, special assessment or special tax. See APPENDIX B–“SUMMARY OF THE DELIVERY CONTRACTS–Contract Payments–Participant Credits Against Contract Payments.” Source: Flood Control District. 20 21 All other costs of operating and maintaining the Nacimiento Project, including Master Water Contract Costs, and any Additional Capital Projects are allocated among the Participants pro rata based on their Delivery Entitlement Share. These allocations are calculated by the Flood Control District each Fiscal Year for the Participants and the calculations of said allocations are made available to each Participant. The obligations of the Participants for any Approved Additional Project are established at the time of and by the agreement for each such Approved Additional Project. Delivery Entitlement Share As of Fiscal Year 2017-18 Participant Acre Feet Percentage Atascadero Mutual Water Company 3,244 20.597% City of Paso Robles 6,488 41.194 City of San Luis Obispo 5,482 34.806 Templeton Community Services District 406 2.578 County Service Area 10, Zone A 40 0.254 Bella Vista MHP, LLC 10 0.063 SMR Mutual Water Company 80 0.508 TOTAL 15,750 100.000% ______________ Source: Flood Control District. During the term of the Delivery Contracts, the Flood Control District is also required to proceed with due diligence to collect Total Participant Contract Payments as and when due, and deposit amounts collected into the Nacimiento Water Fund promptly upon receipt, and apply all other amounts comprising Total Participant Contract Payments in the following order of priority: First: To the payment of Master Water Contract Costs; Second: To the payment of Operation and Maintenance Costs; Third: To the payment of Variable Energy Costs; Fourth: To the payment of Additional Capital Project Costs; and Fifth: To the replenishment of Capital Reserves for the Nacimiento Project. Capital Reserve Costs, and Operating and Maintenance Costs. Each Water Year, the Flood Control District is required to determine the amount of Capital Reserves necessary for the Nacimiento Project and allocate Capital Reserve Costs and Operation and Maintenance Costs to each Participant and to CSA 10, Bella Vista, and SMR on the basis of the Unit Percentage Share attributable to the Units used by the Flood Control District to deliver the Delivery Entitlement to the Participants, and to CSA 10, Bella Vista, and SMR. Based upon the Fiscal Year 2017-18 budget, there was apportioned to each Participant, and to CSA 10, Bella Vista, and SMR the following proportional share of the said costs (expressed as a percentage) for each of the Units used to deliver water to such Participant and to CSA 10, Bella Vista, and SMR: 22 Capital Reserve and Operation and Maintenance Costs For Fiscal Year 2017-18(1) Participant Amount(2)Percent(3) Atascadero Mutual Water Company $637,122 19.90% City of Paso Robles 1,152,723 36.01 City of San Luis Obispo 1,295,882 40.48 Templeton Community Services District 85,700 2.68 County Service Area 10, Zone A(4) 9,457 0.30 Bella Vista MHP, LLC(4) 2,353 0.07 SMR Mutual Water Company(4) 17,659 0.55 TOTAL $3,200,896 100.00% _____________ (1) Based upon the Fiscal Year 2017-18 budget. (2) Excludes Variable Energy Costs that are billed quarterly based upon actual use, and debt service. (3) Column does not total due to rounding. (4) Payments made pursuant to the CSA 10, Bella Vista, and SMR Delivery Contracts do not provide payments or security for the 2018 Bonds. See “INTRODUCTION–The Participants.” Source: Flood Control District. Time and Amount of Delivery Contract Payments. Except as established in the Delivery Contracts as to Capital Projects Installment Debt Service, the Delivery Contract Payments made by the Participants to the Flood Control District commenced the first Fiscal Year during which the Delivery Entitlement became available to the Participant under its Delivery Contract, and in any event, promptly following receipt by the Participant of an invoice from the Flood Control District. The Delivery Contract Payments are determined by the Flood Control District as provided in each Delivery Contract and are paid by each Participant to the Flood Control District in accordance with the respective Delivery Contract, except and to the extent each Participant is entitled to an offsetting credit of SUMMARY OF THE DELIVERY CONTRACTS–Contract Payments–Participant Credits Against Contract Payments.” (i) On or before July 1 of each Fiscal Year, each Participant is required to pay a sum equal to 60% of the Participant’s Allocation of Capital Reserve Costs, and Operation and Maintenance Costs as calculated and allocated as provided in the Delivery Contracts; and (ii) On the immediately following January 1 within each Fiscal Year, each Participant is required to pay a sum equal to 40% of the Participant’s Allocation of Capital Reserve Costs and Operation and Maintenance Costs as calculated and allocated as provided in the Delivery Contracts; and (iii) On or before the 30th day following its receipt of an invoice from the Flood Control District as provided in the Delivery Contracts, each Participant is required to pay Variable Energy Costs as calculated and allocated as provided in the Delivery Contracts, for the Calendar Quarter most recently concluded; and (iv) On or before July 1 of each Fiscal Year, each Participant is required to pay a sum equal to the Participant’s Allocation of Capital Projects Installment Debt Service as calculated and allocated as provided in the Delivery Contracts; and (v) On or before July 1 of each Fiscal Year, each Participant shall pay a sum equal to the Participant’s allocation of remaining Nacimiento Project Costs, including Additional Capital Project Costs and Master Water Contract Costs as calculated and allocated as provided in the Delivery Contracts. 23 Gross Pledge and Covenants of Participants. Each Participant pledges under each Delivery Contract, respectively, the gross water sales revenues of the Participant’s Water Enterprise to secure the Participant’s obligations under the Delivery Contract, and covenants and agrees to establish, fix and collect rates and charges from the customers of Participant’s Water Enterprise at levels sufficient to produce revenues from the Participant’s Water Enterprise which are at least equal to: (i) The costs of operating and maintaining the Participant’s Water Enterprise; plus (ii) The Contract Payments, calculated in accordance with the Delivery Contract, including the amounts allocated to the Participant as the Participant’s share of Capital Projects Installment Debt Service; plus (iii) The Coverage Factor (defined as 125% of each Participants pro rata share of the Capital Projects Installment Debt Service, calculated for each Fiscal Year) for the amounts allocated to the Participant as the Participant’s share of Capital Projects Installment Debt Service, provided, however, that there will be credited towards compliance with the Coverage Factor requirement all Available Capital Reserves of the Participant. Under certain circumstances, the Participant may be required to pay a surcharge following the occurrence of any payment default by the Participant as provided in its Delivery Contract. Notwithstanding the provisions of paragraph (iii) above, each Participant will be permitted to withdraw and apply Available Capital Reserves for its operational and capital needs from time to time during any water year. As defined in each Delivery Contract, the term “Available Capital Reserves” means amounts maintained by the Participant for is Water Enterprise for capital reserves, including unreserved, unrestricted working capital balances in the funds established for the Water Enterprise, including allowances for contingencies, as of each Calculation Date. Financial Covenants under the Delivery Contract Punctual Payment; Compliance with Documents. The Flood Control District is required to punctually pay or cause to be paid the interest and principal to become due with respect to all of the Municipal Obligations, but solely from amounts paid to the Flood Control District under the Delivery Contracts, and the Participant shall punctually pay or cause to be paid the Capital Projects Installment Debt Service, in strict conformity with the terms of the Municipal Obligations, the Delivery Contract and the Legal Documents and will faithfully observe and perform all of the conditions, covenants and requirements of the Delivery Contract and the Legal Documents including any and all supplements thereto. Extension of Payment of Municipal Obligations. None of the Flood Control District or any Participant will directly or indirectly extend or assent to the extension of the maturity of any of the Municipal Obligations or the time of payment of any claims for interest by the purchaser or owner of such Municipal Obligations or by any other arrangement, and in case the maturity of any of the Municipal Obligations or the time of payment of any such claims for interest shall be extended, such Municipal Obligations or claims for interest shall not be entitled, in case of any default under the Legal Documents, to the benefits of the Delivery Contract, except subject to the prior payment in full of the principal of all of the Municipal Obligations then outstanding and of all claims for interest thereon which shall not have been so extended. The Flood Control District may issue obligations or cause obligations to be issued for the purpose of refunding any outstanding Municipal Obligations, and such issuance shall not be deemed to constitute an extension of maturity of the affected Municipal Obligations. 24 Against Encumbrances. None of the Flood Control District or any Participant will create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the revenues and other assets pledged under a Delivery Contract while any of the Municipal Obligations are outstanding, except the pledge created by the Legal Documents and the Delivery Contracts, any Additional Debt and any pledge, lien, charge or other encumbrance which is subordinate to the obligations under the Delivery Contract. Subject to this limitation, the Flood Control District expressly reserves the right to enter into one or more indentures or trust agreements, and reserves the right to issue other obligations or cause them to be issued for such purposes. Covenants to Maintain Tax-Exempt Status of Tax-Exempt Bonds. In the event that any Tax-Exempt Bonds attributable in whole or in part, to the Participant are issued and Outstanding, the Participant covenants and agrees not to use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property, the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, would cause the interest on any of the Tax-Exempt Bonds to become includable in the gross income, as defined in Section 61 of the Code, of the Owner thereof for federal income tax purposes. Nacimiento Project Shortages. In any year in which there is a shortage or interruption in water deliveries to the Participants due to drought or other temporary cause; or if there is a reduction in the supply of water from the Water Project under the Master Water Contract that threatens or causes a permanent shortage in the amount of water available for delivery to the Participants under the respective Delivery Contract, the Flood Control District is authorized to make reductions in the Delivery Entitlement Share for each Participant. The Flood Control District, its officers, agent or employees are not liable for any damage, direct or indirect, arising from shortages in the amount of water from the Water Project available to any Participant pursuant to its respective Delivery Contract caused by drought, the non-availability of water under the Master Water Contract, operation of the Water Project, operation of laws or any cause beyond the control of the Flood Control District. However, such reduction in water delivery does not entitle a Participant to make any reductions in its Capital Projects Installment Debt Service, see “–Obligation to “Take or Pay.” (Remainder of this Page Intentionally Left Blank) 25 $ Delivery Contracts Table 3 Nacimiento Project and Bond Legal Structure $ Pledge Agreement Indenture of Trust Master Water Contract $ $ H2O H2O Monterey County Water Resources Agency Flood Control District Participants Trustee Authority Bondholders $ 26 Reserve Fund The Reserve Fund is comprised of the Tax-Exempt Reserve Account and the Taxable Reserve Account. The Tax-Exempt Reserve Account secures the payment of Tax-Exempt Bonds only, and is not be available to pay debt service on any Taxable Bonds. The Taxable Reserve Account secures the payment of 2007 Taxable Bonds only, and is not be available to pay debt service on any Tax-Exempt Bonds. The Tax-Exempt Reserve Account and the Taxable Reserve Account are funded in amounts equal to the applicable Reserve Requirement, as described below. To date, there have been no delinquencies by any Participant in the payment of Capital Projects Installment Debt Service. Investment earnings on amounts in the Reserve Fund and Delinquent Debt Service Payments shall be deposited to the following funds and accounts and transferred in the following order: First: Reimbursement to the provider of any Reserve Surety for any drawings thereunder; Second: The Reserve Fund to the level of the Reserve Requirement; Third: The Interest Account, up to an amount sufficient to make payment on the Bonds on Tax-Exempt Bonds or Taxable Bonds, as applicable, on the next Interest Payment Date; and Fourth: The Principal Account. All or any portion of the applicable Reserve Requirement may be satisfied by the provision of a qualified surety bond, being a surety bond issued by an insurance company rated in one of the two highest categories (without regard to numerical or other modifiers) of any Rating Agency at the time such surety bond is obtained (a “Reserve Surety”), that, together with moneys on deposit in the applicable Reserve Account of the Reserve Fund, provides an aggregate amount equal to the applicable Reserve Requirement. In the event of replacement of cash and investments in the Tax-Exempt Reserve Account with a Reserve Surety, the Trustee is required to transfer any excess amounts then on deposit in the Tax-Exempt Reserve Account into a segregated account of the Revenue Fund, which monies are required to be applied either (i) to the payment within one year of the date of transfer of capital expenditures of the Authority or the Flood Control District permitted by law, or (ii) to the redemption of Tax-Exempt Bonds on the earliest succeeding date on which such redemption is permitted hereby, and pending such application shall be held either not invested in investment property (as defined in section 148(b) of the Code), or invested in such property to produce a yield that is not in excess of the yield on the Tax-Exempt Bonds; provided, however, that the Authority may by written direction to the Trustee cause an alternative use of such amounts if the Authority will first have obtained a written opinion of nationally recognized bond counsel substantially to the effect that such alternative use will not adversely affect the exclusion pursuant to section 103 of the Code of interest on the Tax-Exempt Bonds from the gross income of the owners thereof for federal income tax purposes. If the credit rating of the provider of any Reserve Surety is subsequently downgraded by any Rating Agency, the Authority is not required to replace such Reserve Surety. 27 So long as either the Tax-Exempt Reserve Account or the Taxable Reserve Account includes both cash/investments and a Reserve Surety, the Trustee shall, in the event of a Delinquent Debt Service Payment under the Pledge Agreement, apply all cash or the proceeds of investments to the payment of principal of and interest on the Bonds hereunder, prior to making a drawing against the Reserve Surety. Upon a draw on such Reserve Account of the Reserve Fund, the Trustee is required to accept Delinquent Debt Service Payments received from the Flood Control District for purposes of replenishing the applicable Reserve Account of the Reserve Fund or reimbursing the provider of the Reserve Surety. Tax-Exempt Reserve Account. In the event that on any Interest Payment Date, the full amount of the interest of or principal or redemption price of the Tax-Exempt Bonds required to be deposited on such Interest Payment Date, in the Interest Account, Principal Account or Redemption Account, as applicable, is not then on deposit therein, the Trustee is required on such Interest Payment Date to withdraw from the Tax-Exempt Reserve Account an amount equal to any such deficiency and notify the Authority and the Flood Control District of any such withdrawal. All money in or available under the Tax-Exempt Reserve Account is required to be used and withdrawn by the Trustee solely for the purpose of making transfers to the Interest Account and the Principal Account, in such order of priority, in the event of any deficiency at any time in any of such Account to pay debt service on the Tax-Exempt Bonds then Outstanding, except that so long as the Authority is not in default under the Indenture, any amount in the Tax-Exempt Reserve Account in excess of the Reserve Requirement (Tax-Exempt Bonds) is required to be withdrawn from the Tax-Exempt Reserve Account semiannually at least two Business Days prior to each Interest Payment Date and be deposited in the Interest Account and credited to the obligations of the Flood Control District under the Pledge Agreement relating to the Tax-Exempt Bonds. The term “Reserve Requirement (Tax-Exempt Bonds)” is defined in the Indenture to mean, as of any date of calculation, an amount equal to the least of (i) 125% of the average annual debt service on the Tax-Exempt Bonds for that and any subsequent Bond Year, (ii) 100% of the maximum annual debt service on the Tax-Exempt Bonds for that or any subsequent Bond Year, or (iii) 10% of the issue price of the Tax-Exempt Bonds. Upon the issuance of the 2018 Bonds, the Reserve Requirement (Tax-Exempt Bonds) will be $_______. The Tax-Exempt Reserve Account is currently invested in a Forward Delivery Agreement dated September 26, 2007, as amended by the Amendment No. 1 to Forward Delivery Agreement for the Reserve Fund, dated August 19, 2015, and as further amended by Amendment No. 2 to the Forward Delivery Agreement for the Reserve Fund, dated _____, 2018, each between the Authority and SunTrust Bank. This agreement provides for payment of a guaranteed rate per annum to the Authority in an amount equal to 5.015%. The Authority has and will continue to rebate earnings in excess of the Arbitrage Yield on the Tax-Exempt Bonds. Investments of Amounts on Deposit Under the Indenture Except as otherwise provided in the Indenture, all moneys in any of the Funds or Accounts established pursuant to the Indenture are required be invested solely in Permitted Investments, or, if any Funds or Account is held by the Trustee solely in Permitted Investments, as directed in writing by an Authorized Representative of the Flood Control District two Business Days prior to the making of such investment. Moneys in any funds and accounts are required to be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in the Indenture. Permitted Investments acquired as an investment of moneys in any fund established under the Indenture are required to be credited to such fund. For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund will be valued at the lesser of cost or market value 28 exclusive of accrued interest, if any, paid as part of the purchase price thereof. See APPENDIX C– “SUMMARY OF PRINCIPAL LEGAL DOCUMENTS–THE INDENTURE.” Existing Obligations of the Participants For a discussion of existing indebtedness of each Participant, see APPENDIX A–“THE PARTICIPANTS” and the discussion under the subheadings “–Outstanding Long-Term Indebtedness” therein. Additional Bonds In addition to the 2018 Bonds, the Trustee shall, upon Written Request of the Authority, by a supplement to the Indenture, establish one or more other Series of Bonds secured by the pledge made under the Indenture equally and ratably with any Bonds previously issued and delivered, in such principal amount as shall be determined by the Authority, but only upon compliance with the provisions of the Indenture and any additional requirements set forth in the applicable Supplemental Indenture. The Supplemental Indenture providing for the execution and delivery of such Additional Bonds shall specify the purposes for which such Additional Bonds are then proposed to be delivered, which shall be one or more of the following: (i) to provide moneys needed to provide for the Costs of the Nacimiento Project by depositing into the Proceeds Fund the proceeds of such Additional Bonds to be so applied; (ii) to provide for the payment or redemption of Bonds theretofore Outstanding under the Indenture, by depositing with the Trustee moneys and/or investments required for such purpose under the defeasance provisions of the Indenture; or (iii) to provide moneys needed to refund or refinance all or part of any other current or future obligations of the Authority with respect to the funding of the Nacimiento Project. See APPENDIX C–“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS.” Indenture Events of Default and Remedies Events of Default. The Indenture provides the following Events of Default: (i) if default by the Authority shall be made in the due and punctual payment of the principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for sinking fund redemption, by acceleration, or otherwise; (ii) if default shall be made in the due and punctual payment of any installment of interest on any Bonds when and as the same shall become due and payable; (iii) if default shall be made by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of 30 days after written notice thereof which grace period shall not be extended beyond 60 days, Trustee or the Owners of not less than 25% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if the failure stated in the notice can be corrected, but not within the applicable period, the Authority, the Trustee and such Owners shall not unreasonably withhold their consent to an extension of such time if corrective action is instituted by the Authority within the applicable period and diligently pursued until the default is corrected; (iv) the occurrence of an Event of Bankruptcy with respect to the Authority; and (v) the occurrence of a default under the Pledge Agreement. 29 Remedies Upon Default. The Bonds are subject to acceleration prior to their maturity. If an Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding shall be entitled, upon notice in writing to the Authority, to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. Any such declaration, however, is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of moneys due shall have been obtained or entered, the Authority shall deposit with the Trustee a sum sufficient to pay all the principal or redemption price of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority and the Trustee, or the Trustee if such declaration was made by the Trustee other than upon direction of the Bond Owners, may, on behalf of the Owners of all of the Bonds rescind and annul such declaration and its consequences and waive such default; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Subject to the terms of the Indenture regarding certain limitation on the Owners’ right to sue, any Owner shall have the right, for the equal benefit and protection of all Owners similarly situated: (i) by mandamus, suit, action or proceeding, to compel the Authority and its members, officers, agents or employees to perform each and every term, provision and covenant contained in the Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the Authority and the fulfillment of all duties imposed upon it by the Bond Law; (ii) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Owners, rights; or (iii) upon the occurrence of any Event of Default, by suit, action or proceeding in any court of competent jurisdiction, to require the Authority and its members and employees to account as if it and they were the trustees of an express trust. As provided in the Pledge Agreement, the Flood Control District covenants and agrees that it will enforce its rights under each of the Delivery Contracts, in accordance with the terms thereof, and, in particular, that it shall use its best efforts to collect Capital Projects Installment Debt Service and Net Revenues in such time and amounts as shall permit the payment of principal of and interest on the Bonds in accordance with their terms. In the event of a Debt Service Shortfall, the Flood Control District covenants and agrees to enforce its right to collect each Delinquent Debt Service Payment under the Delivery Contract with the Delinquent Participant and use its best efforts to remedy such Debt Service Shortfall by enforcing the step-up provisions of the Delivery Contracts with the Participants that are then not delinquent. As defined in the Pledge Agreement, the term “Delinquent Debt Service Payment” shall mean those payments of Capital Projects Installment Debt Service due under any Delivery Contract that are not, in fact, paid on the date upon which each payment of Capital Projects Installment Debt Service is required to be made by a Participant under a Delivery Contract (the “Due Date”). The term “Debt Service Shortfall” shall mean the aggregate amount of Delinquent Debt Service Payments due from Delinquent 30 Participants on the Due Date in question. The term “Delinquent Participant” shall mean any Participant which fails to meet its obligation for payment for Nacimiento Project Water under any Delivery Contract, as further described in the respective Delivery Contract. The Authority has no security interest in or mortgage on any Water Enterprise operated and to be operated by a Participant or any real property of the Flood Control District or any Participant and no default under the Pledge Agreement shall result in the loss of the respective Water Enterprise or any other property of the Flood Control District or the Participants. This limitation on remedies of the Authority shall be binding on successors in interest to the Authority’s rights under the Pledge Agreement. Limited Obligations THE 2018 BONDS ARE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES OF THE AUTHORITY CONSISTING PRIMARILY OF PAYMENTS MADE BY THE PARTICIPANTS TO THE FLOOD CONTROL DISTRICT UNDER THE DELIVERY CONTRACTS AND RECEIVED BY THE AUTHORITY PURSUANT TO THE PLEDGE AGREEMENT. THE 2018 BONDS ARE NOT A DEBT OF THE AUTHORITY, THE FLOOD CONTROL DISTRICT, THE COUNTY OR THE STATE OF CALIFORNIA, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION. THE AUTHORITY SHALL NOT BE OBLIGATED TO PAY THE PRINCIPAL OF, OR INTEREST ON THE 2018 BONDS, EXCEPT FROM THE FUNDS PROVIDED UNDER THE INDENTURE AND THE PLEDGE AGREEMENT. NEITHER THE FULL FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OF CALIFORNIA, OR ANY POLITICAL SUBDIVISION THEREOF, INCLUDING THE AUTHORITY IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE 2018 BONDS. THE AUTHORITY HAS NO TAXING POWER. The obligation of the Flood Control District to make the Installment Payments is a special obligation of the Flood Control District payable solely from Net Revenues and the funds described in the Installment Purchase Agreement and does not constitute a debt of the Flood Control District or of the State of California or of any political subdivision thereof in contravention of any constitutional or statutory debt limitation or restriction. [BOND INSURANCE] DEBT SERVICE SCHEDULE The following table presents the semi-annual and Fiscal Year debt service for the 2018 Bonds and the 2007 Taxable Bonds that will remain Outstanding following refunding of the Refunded 2007 Bonds. See “PLAN OF REFUNDING.” Table 4 Debt Service Schedule 2007 Taxable Bonds 2015 Bonds 2018 Bonds Total Fiscal Year Date Principal Interest Total Principal Interest Total Debt Service 3/1/2018 – $1,614,009 $1,614,009 – $2,440,366 $2,440,366 9/1/2018 $4,050,000 1,614,009 5,664,009 – 2,440,366 2,440,366 3/1/2019 – 1,510,603 1,510,603 – 2,440,366 2,440,366 9/1/2019 975,000 1,510,603 2,485,603 $3,295,000 2,440,366 5,735,366 3/1/2020 – 1,483,944 1,483,944 – 2,357,991 2,357,991 9/1/2020 1,030,000 1,483,944 2,513,944 3,465,000 2,357,991 5,822,991 3/1/2021 – 1,455,782 1,455,782 – 2,271,366 2,271,366 9/1/2021 1,085,000 1,455,782 2,540,782 3,650,000 2,271,366 5,921,366 3/1/2022 – 1,426,102 1,426,102 – 2,180,116 2,180,116 9/1/2022 1,145,000 1,426,102 2,571,102 3,840,000 2,180,116 6,020,116 3/1/2023 – 1,394,779 1,394,779 – 2,084,116 2,084,116 9/1/2023 1,210,000 1,394,779 2,604,779 4,030,000 2,084,116 6,114,116 3/1/2024 – 1,361,674 1,361,674 – 1,983,366 1,983,366 9/1/2024 1,280,000 1,361,674 2,641,674 4,230,000 1,983,366 6,213,366 3/1/2025 – 1,326,662 1,326,662 – 1,877,616 1,877,616 9/1/2025 1,350,000 1,326,662 2,676,662 4,445,000 1,877,616 6,322,616 3/1/2026 – 1,289,728 1,289,728 – 1,766,491 1,766,491 9/1/2026 1,425,000 1,289,728 2,714,728 4,680,000 1,766,491 6,446,491 3/1/2027 – 1,250,734 1,250,734 – 1,649,491 1,649,491 9/1/2027 1,505,000 1,250,734 2,755,734 4,895,000 1,649,491 6,544,491 3/1/2028 – 1,209,555 1,209,555 – 1,552,116 1,552,116 9/1/2028 1,585,000 1,209,555 2,794,555 5,105,000 1,552,116 6,657,116 3/1/2029 – 1,166,176 1,166,176 – 1,438,553 1,438,553 9/1/2029 1,675,000 1,166,176 2,841,176 5,315,000 1,438,553 6,753,553 3/1/2030 – 1,120,332 1,120,332 – 1,341,947 1,341,947 9/1/2030 1,770,000 1,120,332 2,890,332 5,555,000 1,341,947 6,896,947 3/1/2031 – 1,071,885 1,071,885 – 1,204,575 1,204,575 9/1/2031 1,870,000 1,071,885 2,941,885 5,800,000 1,204,575 7,004,575 3/1/2032 – 1,020,696 1,020,696 – 1,085,825 1,085,825 31 2007 Taxable Bonds 2015 Bonds 2018 Bonds Total Fiscal Year Date Principal Interest Total Principal Interest Total Debt Service 9/1/2032 1,980,000 1,020,696 3,000,696 6,065,000 1,085,825 7,150,825 3/1/2033 – 966,499 966,499 – 944,513 944,513 9/1/2033 2,090,000 966,499 3,056,499 6,350,000 944,513 7,294,513 3/1/2034 – 909,282 909,282 – 802,950 802,950 9/1/2034 2,210,000 909,282 3,119,282 6,635,000 802,950 7,437,950 3/1/2035 – 848,778 848,778 – 652,700 652,700 9/1/2035 2,330,000 848,778 3,178,778 6,950,000 652,700 7,602,700 3/1/2036 – 784,975 784,975 – 495,475 495,475 9/1/2036 2,460,000 784,975 3,244,975 7,270,000 495,475 7,765,475 3/1/2037 – 717,608 717,608 – 330,925 330,925 9/1/2037 2,595,000 717,608 3,312,608 7,605,000 330,925 7,935,925 3/1/2038 – 646,538 646,538 – 158,700 158,700 9/1/2038 2,745,000 646,538 3,391,538 7,935,000 158,700 8,093,700 3/1/2039 – 571,361 571,361 – – – 9/1/2039 11,820,000 571,361 12,391,361 – – – 3/1/2040 – 292,398 292,398 – – – 9/1/2040 12,385,000 292,398 12,677,398 – – – 3/1/2041 – – – – – – TOTAL $62,570,000 $50,880,200 $113,450,200 $107,115,000 $62,119,128 $169,234,128 32 33 CERTAIN RISKS TO BOND OWNERS The following information should be considered by potential investors in evaluating the credit quality of the 2018 Bonds. However, it does not purport to be an exhaustive list of the risks or other considerations which may be relevant to an investment in the 2018 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. General The payment of principal of and interest on the 2018 Bonds is secured solely by a pledge of the Revenues and certain funds under the Indenture. The realization of the Net Revenues sufficient to enable the Flood Control District to make the Installment Payments is subject to, among other things, the capabilities of management of the Flood Control District and the Participants, the ability of the Participants to provide water services to their users, and the ability of the Participants to establish and maintain water fees and charges sufficient to provide the required debt service coverage as well as pay for Operation and Maintenance Costs. Among other matters, drought, general and local economic conditions and changes in law and government regulations (including initiatives and moratoriums on growth) could adversely affect the amount of revenues realized by the Participants and ultimately the ability of the Participants to pay their Proportionate Share of Debt Service to the Flood Control District. Initiatives; Changes in Law In recent years several initiative measures have been proposed or adopted which affect the ability of local governments to increase taxes and rates. Article XIII A, Article XIII B, Article XIII C, Article XIII D, and Proposition 218, were adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the Participants or local districts to increase revenues or to increase appropriations which may affect the revenues of the Participants or their ability to expend its revenues. There is no assurance that the electorate or the State Legislature will not at some future time approve additional limitations which could affect the ability of the Participants to implement rate increases which could reduce their ability to make payments under the respective Delivery Contract and adversely affect the security for the 2018 Bonds. Statutory and Regulatory Impact Laws and regulations governing conservation, transmission, treatment and delivery of water are enacted and promulgated by government agencies on the federal, State and local levels. Compliance with these laws and regulations may be costly, and, as more stringent standards are developed, these costs will likely increase. In addition, claims against any Participant for violations of regulations with respect to its facilities and services could be significant. Such claims would be payable from the water revenues of such Participant or from other legally available sources of such Participant. No Obligation to Tax The obligation of each Participant to make payments under the applicable Delivery Contract does not constitute an obligation of such Participant for which it is obligated to levy or pledge any form of taxation, or for which such Participant has levied or pledged any form of taxations. The obligation of each Participant to make payments under the applicable Delivery Contract does not constitute a debt or 34 indebtedness of the Participants, the Authority, the State or any of its political subdivisions, within the meaning of any constitutional or statutory debt limitation. Drought Background. During a five-year period ending in 2016, the State of California experienced “exceptional drought conditions” (the most severe drought classification) according to the U.S. Drought Monitor. In addition, eight of the last 10 years had below average runoff, which resulted in chronic and significant shortages to municipal, industrial, agricultural, and wildlife refuge supplies, and historically low groundwater levels. As a result of those drought conditions, the Governor and the State Water Board issued Executive Orders, drought emergency regulations, and conservation standards to reduce potable urban water use. State Requirements. On April 20, 2015, a State appeals court ruled in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano 235 Cal.App.4th 1493 (4th Dist. 2015), that local water agencies cannot charge higher tiered rates to customers simply to encourage conservation. Instead, the court said that water agencies can only charge rates that reflect the proportional cost of service attributable to a given parcel. The court held that tiered rates that increase progressively in relation to usage can be consistent with Proposition 218 if the tiers correspond to the actual cost of providing water service at a given level of usage, and that Proposition 218 requires that water rates and other government fees be linked to the costs of providing the service and not to other factors such as a desire to encourage conservation. See also, “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Article XIII C and Article XIII D of the California Constitution.” In April 2017, following unprecedented water conservation and record amounts of precipitation, the Governor lifted the drought emergency Executive Orders and rescinded the emergency proclamations for all counties in the State except Fresno, Kings, Tulare, and Tuolumne where emergency drinking water projects continue to help address diminished groundwater supplies. State drought emergency regulations requiring urban water suppliers to stress-test water supplies, and to adopt and adhere to certain mandatory conservation measures were repealed. However, the Executive Order requiring permanent monthly water use reporting and banning wasteful water use practices, such as hosing of sidewalks, driveways, and other hardscapes, and strengthening local drought resilience plans remains in effect. Although the recent State drought emergency regulations were repealed, in any year there is a risk of renewed drought conditions. If drought emergency regulations are reinstated, the Flood Control District and the Participants could be required to impose water use restrictions on customers of the respective Water Enterprise due to drought-related orders or regulations imposed by the State in the future. [Monitor for 2018 Drought Emergency Declaration] Flood Control District. The storage capacity of the Nacimiento Reservoir is 377,900 acre feet (“AF”), with storage levels at 41.6% or 157,333 AF as of January 2018. The Nacimiento River Watershed, which feeds the Nacimiento Reservoir, has been a reliable watershed during periods of drought. Data dating to 1958 indicate that inflows to the Nacimiento Reservoir have exceeded the 17,500 acre-feet per year (“AFY”) entitlement of the Flood Control District in every year except 1976, with 15,041 AF of inflow. However, available storage in 1976 equal to 57,200 AF was sufficient to make up the difference. The Flood Control District expects that it will be able to deliver the total entitlement of 15,750 AFY to the Participants. The Master Water Contract requires that downstream releases from the Nacimiento Reservoir cease when storage capacity reaches 22,300 AF (which effectively reserves 35 that water for delivery to the Flood Control District). Since 1958, the capacity of the Nacimiento Reservoir has only declined to 22,300 AF five times, most recently in 1989. The Flood Control District does not believe that compliance with the SWRCB regulations will have a material adverse effect on the Water Revenues received from the Participants and pledged to the Authority to pay the principal of and interest on Bonds when due. See also, “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts–Obligation to “Take or Pay.” Participants. During the drought, each of the Participants adopted conservation measures consistent with the executive orders of the Governor. A description of the response of each Participant to the drought conditions is described under the subheading “–Drought and Conservation Measures” for each Participant in APPENDIX A–“THE PARTICIPANTS.” Climate Change The adoption by the State of the California Global Warming Solutions Act of 2006 (AB 32) and subsequent companion bills demonstrate the commitment by the State to take action and reduce greenhouse gases (“GHG”) to 1990 levels by 2020 and 80% below 1990 levels by 2050. The State Attorney General’s Office, in accordance with SB 375, now requires that local governments examine local policies and large-scale planning efforts to determine how to reduce greenhouse gas emissions. Climate change concerns are leading to new laws and regulations at the federal, State and local levels. Research suggests that the State will experience hotter and drier conditions, reductions in winter snow and increases in winter rains, sea level rise, significant changes to the water cycle, and an increased occurrence of extreme weather events. The compound impacts of which will affect economic systems throughout the State, including within the County. The Authority is unable to predict the impact that such laws and regulations, if adopted, and the effects of climate change will have on the revenues of the Participants, the effects, however, could be material. Earthquakes, Floods and Other Disasters [To Be Updated] From time to time, the Participants are subject to natural calamities that may adversely affect economic activity in the service areas of the Participants which therefore may have a negative impact on one or more Participant’s finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial interference to the Nacimiento Dam or to the Water Enterprises of the Participants, or that any Participant would have insurance or other resources available to make repairs to its Water Enterprises, possibly impacting net Revenues. Earthquake. The casualty and liability insurance of the Participants may not cover losses due to earthquake. If there were to be an occurrence of severe seismic activity in the service areas of the Participants, there could be substantial damage to and interference with one or more Participant’s Water Enterprises, which could impact the receipt of Net Revenues. Small earthquakes, in the range of magnitude 2.0 to 2.7 and smaller, occur quite often throughout and near the County. Larger earthquakes do occur occasionally, as evidenced by a magnitude 6.5 earthquake in December 2003 in the San Simeon-Hosgri fault zone approximately six miles from the community of San Simeon and the magnitude 6.0 earthquake in September 2004 on the San Andreas Fault just north of the Monterey County line. The Shoreline Fault zone, discovered in 2008, is located less than one mile off-shore from the Diablo Canyon Power Plant (the “DCPP”), a two reactor nuclear power plant operated by the Pacific Gas & Electric Company (“PG&E”) constructed in 1975, and is believed capable of producing up to a magnitude 6.5 earthquake. 36 The Los Osos Fault is generally adjacent to the service areas of the Participants, is identified under the State of California Alquist-Priolo Fault Hazards Act as being capable of causing surface rupture damage in the service areas of the Participants. This fault’s main strand lies near the intersection of Los Osos Valley Road and Foothill Boulevard. It is considered to present a high to very high fault rupture hazard to development and facilities in the Los Osos Valley, which lies west of the service areas of the Participants. Other faults identified as being capable of causing surface rupture damage in the vicinity of the service areas of the Participants are the West Huasna, Oceanic and Edna Faults. These faults are considered potentially active and present a moderate fault rupture hazard. Risk of Flooding. In accordance with the National Flood Insurance Reform Act requiring, among other things, that the Federal Emergency Management Agency (“FEMA”) assess its flood hazard map inventory at least once every five years. Portions of the County are located within zones that correspond to the boundaries of a 100-year floodplain. A 100-year floodplain is an area expected to be inundated during a flood event of the magnitude for which there is a 1% (or 1-in-100) probability of occurrence in any year. A Flood Insurance Study conducted by FEMA for the County noted that runoff in the streams is small, with appreciable flows occurring only during and immediately after precipitation. However, during large storms, streamflow increases rapidly, and flood waters can contain high amounts of debris, causing major flood damage. For many of the water courses that are located in the service areas of the Participants, areas that may be inundated in response to 100-year storm events are located adjacent to or near the stream or river channel. Since many of the watercourses are located in mountainous or remote areas with little or no development, flooding events along these rivers and streams generally result in minimal impacts. Other watercourses that are located in the service areas of the Participants, however, have floodplains that extend well beyond the defined stream or river channel. When a flood occurs along one of these watercourses, and it is located in or near an area that is urbanized, damage to property and infrastructure can be widespread. In the southern portion of the County, Arroyo Grande Creek, San Luis Obispo Creek, and their respective tributaries, are watercourses that pass through urbanized areas and that have caused major floods. The north coast area of the County also contains a number of short, steep-gradient creeks that can experience rapid increases in water flows in response to storm events in Cambria. Santa Rosa Creek is such a watercourse that has caused significant flooding events. The largest water course in the inland portion of the County is the Salinas River, which is located adjacent to numerous incorporated and unincorporated communities. Although the floodplain of Salinas River can be extensive, it is generally contained within the river channel. Other major inland water courses include the Estrella River and San Juan Creek. Due to the generally remote locates of these watercourses, flooding impacts are generally not significant. [Wild Fires] Risks Associated with Bond Insurance In the event of default of the payment of principal or interest with respect to the 2018 Bonds when all or some becomes due, any owner of the 2018 Bonds shall have a claim under the Policy for such payments. See “BOND INSURANCE” and APPENDIX H–“SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” However, in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments are to be made in such amounts and at such times as such payments would have been due had there not been any such acceleration. The Policy does not insure against redemption premium, if any. The payment of principal 37 and interest in connection with mandatory or optional prepayment of the 2018 Bonds by the Authority which is recovered by the Authority from the bond owner as a voidable preference under applicable bankruptcy law is covered by the insurance policy, however, such payments will be made by the 2018 Insurer at such time and in such amounts as would have been due absence such prepayment by the Authority unless the 2018 Insurer chooses to pay such amounts at an earlier date. Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the 2018 Insurer without appropriate consent. The 2018 Insurer may direct and must consent to any remedies and the consent of the 2018 Insurer may be required in connection with amendments to any applicable bond documents. In the event the 2018 Insurer is unable to make payment of principal and interest as such payments become due under the Policy, the 2018 Bonds are payable solely from the moneys received pursuant to the applicable bond documents. In the event the 2018 Insurer becomes obligated to make payments with respect to the 2018 Bonds, no assurance is given that such event will not adversely affect the market price of the 2018 Bonds or the marketability (liquidity) for the 2018 Bonds. The long-term insured rating on the 2018 Bonds is dependent in part on the financial strength of the 2018 Insurer and its claim paying ability. The financial strength and claims paying ability of the 2018 Insurer are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the 2018 Insurer and of the ratings on the 2018 Bonds insured by the 2018 Insurer will not be subject to downgrade and such event could adversely affect the market price of the 2018 Bonds or the marketability (liquidity) for the 2018 Bonds. See “RATINGS.” The obligations of the 2018 Insurer are contractual obligations and in an event of default by the 2018 Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. Neither the Authority nor the Underwriter have made independent investigation into the claims paying ability of the 2018 Insurer and no assurance or representation regarding the financial strength or projected financial strength of the 2018 Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Authority to pay principal and interest on the 2018 Bonds and the claims paying ability of the 2018 Insurer, particularly over the life of the investment. See “BOND INSURANCE” for further information provided by the 2018 Insurer and APPENDIX G–“SPECIMEN MUNICIPAL BOND INSURANCE POLICY” for the Policy, which includes further instructions for obtaining current financial information concerning the 2018 Insurer. Investment of Funds All funds and accounts held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See APPENDIX C–“SUMMARY OF PRINCIPAL LEGAL DOCUMENTS–THE INDENTURE–Investment of Moneys” attached hereto for a summary of the definition of Permitted Investments. All investments, including the Permitted Investments and those authorized by law from time to time for investments by public agencies, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, loss of market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture or by the Participants could have a material adverse effect on the security of the 2018 Bonds. 38 Limitations on Remedies and Bankruptcy In addition to the specific limitations on remedies contained in the applicable documents, the rights, obligations and remedies provided in the Indenture, the Pledge Agreement, and the Delivery Contracts are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The enforcement of the remedies provided in the Indenture, the Pledge Agreement, and the Delivery Contracts could prove both expensive and time consuming. In addition, the rights and remedies provided in the Indenture, the Pledge Agreement, and the Delivery Contracts may be limited by and are subject to provisions of the federal bankruptcy laws, as now or hereafter enacted, and to other laws or equitable principles that may affect creditors’ rights. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as APPENDIX E), will be similarly qualified. Limited Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the 2018 Bonds with respect to the payment when due of the Revenues by the Flood Control District pursuant to the Pledge Agreement, or with respect to the performance by the Flood Control District of other agreements and covenants required to be performed by it contained in the Pledge Agreement, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. Changes in Law There can be no assurance that the State Legislature will not at some future time enact legislation that will amend or create laws resulting in a reduction of moneys securing or available to pay the 2018 Bonds. Similarly, the State electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution which could have the effect of reducing moneys securing or available to pay the 2018 Bonds. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Described below are certain measures which have impacted or may in the future impact the Participants’ Capital Projects Installment Debt Service payments. Article XIII A of the California Constitution On June 6, 1978, California voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIII A to the California Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property 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 newly constructed, or when a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, 39 destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978, on bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition, and on bonded indebtedness for school facilities approved by 55% of the votes cast. Legislation enacted by the California Legislature to implement Article XIII A provides that all taxable property is shown at full assessed value as described above. In conformity with this procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of assessed value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for voter approved bonded indebtedness and pension liabilities are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIII A (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of “sites” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts will share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. The County is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIII A effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIII A has been amended to permit reduction of the base year value in the event of declining property values caused by damage, destruction or other factors, and to provide that there would be no increase in the “base year value” in the event of reconstruction of property damaged or destroyed in a disaster if certain conditions are met, or in the event of certain transfers between parents and children, between grandparents and grandchildren, between spouses, or in certain situations where the elderly or disabled acquire new residences. If property values decline due to recessionary or other factors, the County may review the assessed values of properties. The State Revenue and Taxation Code permits county assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently “recapture” such value (up to the pre-decline value of the property) at an annual rate higher or lower than 2%, depending on the assessor’s measure of the restoration of value of the damaged property. The California courts have upheld the constitutionality of this procedure. Article XIII B of the California Constitution On November 6, 1979, California voters approved Proposition 4, the Gann Initiative, which added Article XIII B to the California Constitution. In June 1990, Article XIII B was amended by the voters through their approval of Proposition 111. Article XIII B of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually 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 1978-79 fiscal year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to the governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. 40 Appropriations subject to Article XIII B include generally any authorization to expend during the fiscal year 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. Appropriations subject to limitation pursuant to Article XIII B do not include debt service on indebtedness existing or legally authorized as of January l, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the Federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January l, 1990 levels. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues and (iii) certain State subventions received by local governments. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by the County over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. As amended in June 1990, the appropriations limit for the County in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the County’s option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college (“K-14”) districts. Article XIII B permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter- approved change can only be effective for a maximum of four years. Each Participant has advised that it is of the opinion that its charges for water service are not subject to the limits of Article XIII B. Each Participant covenants in its Delivery Contract that it will prescribe rates and charges sufficient to provide payment of its Capital Projects Installment Debt Service in each year. See APPENDIX A–“THE PARTICIPANTS.” Article XIII C and Article XIII D of the California Constitution General. On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIII C and XIII D to the California Constitution, which contain a number of provisions affecting the ability of cities and counties to levy and collect both existing and future taxes, assessments, fees and charges. See also the discussion regarding Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano under the caption “CERTAIN RISKS TO BOND OWNERS–Drought.” Article XIII C. Article XIII C provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIII C does not define the terms “local tax,” “assessment,” “fee” or “charge.” On July 24, 2006, the Supreme Court held in Bighorn-Desert View Water Agency v. Verjil that the provisions of Article XIII C applied to rates and fees charged for domestic water use. In that decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override 41 statutory rate setting obligations. In any event, the County does not believe that Article XIII C grants to the voters within the County the power to repeal or reduce rates and charges in a manner that would be inconsistent with the contractual obligations of the County. No assurance can be given that the voters of the County will not, in the future, approve initiatives which seek to repeal, reduce or prohibit the future imposition or increase of assessments, fees or charges, including the fees and charges. The interpretation and application of Proposition 218 will likely be subject to further judicial determinations, and it is not possible at this time to predict with certainty the outcome of such determinations. Article XIII D. Article XIII D established procedural requirements for the imposition of assessments, defined to mean any levy or charge upon real property for a special benefit conferred upon real property, including standby charges. The procedural requirements include the conducting of a public hearing and an election, by mailed ballot, with notice to the record owner of each parcel subject to the assessment. If a majority of the ballots returned oppose the assessment, it may not be imposed. Article XIII D conditions the imposition or increase of any “fee” or “charge” upon there being no written majority protest after a required public hearing and, for fees and charges other than for sewer, water, refuse collection services or storm water, voter approval. Article XIII D defines “fee” or “charge” to mean levies (other than ad valorem or special taxes or assessments) imposed by a local government upon a parcel or upon a person as an incident of the ownership or tenancy of real property, including a user fee or charge for a “property-related service.” One of the requirements of Article XIII D is that before a property related fee or charge may be imposed or increased, a public hearing upon the proposed fee or charge must be held and mailed notice sent to the record owner of each identified parcel of land upon which the fee or charge is proposed for imposition. In the public hearing, if written protests of the proposed fee or charge are presented by a majority of the owners of affected identified parcel(s), an agency may not impose the fee or charge. In Howard Jarvis Taxpayers Association v. City of Los Angeles, the Court of Appeal held that fees for water that are based upon metered amounts used are charges for a commodity and not related to property ownership and, consequently, Article XIII D does not apply to such fees. However, in a decision rendered in February 2004, the California Supreme Court in Richmond et al. v. Shasta Community Services District, 32 Cal. 4th 409, upheld a Court of Appeals decision that water connection fees were not property related fees or charges subject to Article XIII D, while at the same time stating in dicta that fees for ongoing water service through an existing connection were property related fees and charges. In October 2004, the California Supreme Court granted review of the decision of the Fourth District Court of Appeal in Bighorn-Desert View Water Agency v. Beringson, 120 Cal. App. 4th 891 (2004), in which the appellate court had relied on Howard Jarvis Taxpayers Association v. City of Los Angeles and rejected the Supreme Court’s dicta in Richmond et al. v. Shasta Community Services District. On March 23, 2005, the California Fifth District Court of Appeal published Howard Jarvis Taxpayers Association v. City of Fresno, 127 Cal.App.4th 914 (5th Dist. 2005), holding that an “in lieu” fee which is payable to the general fund of the City of Fresno from its water utility and which is included in the water rate structure of the city was invalid. In reaching its decision, the court concluded that the city’s water rates were “property related” fees, governed by the limitations of Article XIII D. The City of Fresno requested a review of this decision by the California Supreme Court, which denied review. On July 24, 2006, the Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil. In dicta, the Supreme Court repeated its previous dicta in Richmond et al. v. Shasta Community Services District that fees and charges for ongoing water service through an existing connection were property related fees and charges under Article XIII D. 42 In addition to the procedural requirements of Article XIII D, under Article XIII D all property related fees and charges, including those which were in existence prior to the passage of Proposition 218 in November 1996, must meet the following substantive standards: (i) the revenues derived from the fee or charge cannot exceed the funds required to provide the property-related service; (ii) the revenues derived from the fee or charge must not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership must not exceed the proportional cost of the service attributable to the parcel; (iv) no fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question, fees or charges based on potential or future use of a service are not permitted, and standby charges, whether characterized as charges or assessments, must be classified as assessments and cannot be imposed without compliance with Section 4 of Article XIII D (relating to assessments); and (v) no fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services where the service is available to the public at large in substantially the same manner as it is to property owners. Article XIII D provides that nothing in Proposition 218 shall be construed to affect existing laws relating to the imposition of fees or charges as a condition of property development. Before any property related fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charge. A hearing must be held upon the proposed imposition or increase, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the fee or charge may not be imposed or increased. Moreover, except for fees or charges for sewer, water and refuse collection services, or fees for electrical and gas service, which are not treated as “property related” for purposes of Article XIII D, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area. The Authority and the Flood Control District are unable to predict the impact of a successful repeal or reduction of water rates and charges charged by any Participant on the financial condition of such Participant or the ability of such Participant to perform its obligations under its Delivery Contract. Further, the Authority and the Flood Control District are unable to predict whether the repeal or reduction of the rates and changes of any Participant would be detrimental to or inconsistent with the contractual obligations of the respective Participant. One might assert that Article XIII C cannot grant the voters within the Participants’ service area the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual obligations of the respective Participants, giving rise to an unconstitutional impairment of contract under the U.S. Constitution and the California Constitution. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the Bonds. Remedies available to beneficial owners of the Bonds in the event of a default by the Participants are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain. In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations of the Flood Control District and the Participants, respectively, under the Delivery Contracts are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel, the form of which is attached as Appendix E hereto, will be similarly qualified. 43 The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. Future Initiatives Article XIII A, Article XIII B, Article XIII C and Article XIII D were adopted as measures that qualified for the ballot through California’s initiative process. From time to time, other initiative measures could be adopted, which may place further limitations on the ability of the State, the County or local districts to increase revenues or to increase appropriations which may affect the County’s revenues or its ability to expend its revenues. FINANCIAL STATEMENTS Each of Paso Robles, SLO, and Templeton has provided its audited financial statements as of the fiscal year ended June 30, 2017, and for the fiscal year ended April 30, 2017 in the case of the Atascadero Mutual Water Company. See APPENDIX A–“THE PARTICIPANTS.” No auditor has reviewed or audited this Official Statement, or undertaken procedures to consent to the inclusion of its report with respect to any of the financial statements. CONTINUING DISCLOSURE The Authority has determined that no financial or operating data concerning the Authority is material to any decision to purchase, hold, or sell the 2018 Bonds and the Authority will not provide such information. Flood Control District The Flood Control District will enter into a Continuing Disclosure Agreement with Digital Assurance Certification, L.L.C., as dissemination agent to the Flood Control District, to be dated the date of delivery of the 2018 Bonds. The Flood Control District, covenants for the benefit of the beneficial owners of the 2018 Bonds to provide certain financial information and operating data relating to the Flood Control District by no later than March 31 each year commencing with the report due on March 31, 2019 for the Fiscal Year ended June 30, 2018 (each a “Flood Control District Annual Report”), and to provide notices of the occurrence of certain specified events. The Flood Control District Annual Report and notices of specified events will be filed by the Flood Control District or the dissemination agent to the Flood Control District, through the EMMA site which is maintained by the MSRB. Copies of the Flood Control District Annual Reports and notices of specified events since June 1, 2009 are available on the EMMA site. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934 (the “Rule”). The specific nature of the financial information and operating data and the notices of specified events is set forth in APPENDIX D–“FORMS OF CONTINUING DISCLOSURE AGREEMENTS–SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT CONTINUING DISCLOSURE AGREEMENT.” The Participants Each Participant has covenanted to provide certain financial and operating data relating to such Participant by no later than nine months following the end of the respective fiscal year of each Participant commencing with the report due in 2019 for its respective fiscal year ended in 2018 (each a “Participant 44 Annual Report”). Each Participant Annual Report will be filed by the Participant or the Flood Control District, as dissemination agent to each Participant, through EMMA. The fiscal year-end for AMWC is April 30 and the fiscal year-end for Paso Robles, SLO and Templeton is June 30. The specific nature of the financial and operating data to be provided is set forth in APPENDIX D–“FORMS OF CONTINUING DISCLOSURE AGREEMENTS–PARTICIPANTS CONTINUING DISCLOSURE AGREEMENTS.” AMWC. In connection with the Bonds, during the past five years, (i) although AMWC delivered its annual reports for the fiscal years ended April 30, 2013 to the former dissemination agent prior to the date nine months following the end of its fiscal year (i.e. January 31), the former dissemination agent failed to timely make the filings on EMMA; and (ii) AMWC failed to file certain information for any customer whose total billings represented 10% or more of the Gross Revenues of its Water Enterprise for the fiscal years ended April 30, 2013 and April 30, 2014. AMWC made a remedial filing of such information on July 30, 2015 and procedures were established, including the appointment of the Flood Control District as the 2018 Bonds Dissemination Agent for AMWC, that AMWC believes will be sufficient to ensure compliance with its continuing disclosure undertakings for the Bonds in the future. [To be Updated] Paso Robles. In connection with the Bonds, during the past five years, Paso Robles failed to: (i) timely file its annual reports for the fiscal years ended June 30, 2013 and 2014 by the date nine months following the end of its fiscal year (i.e. March 31); (ii) timely file historic operating results for its Water Enterprise for the fiscal year ended June 30, 2013; and (iii) file certain information for any customer whose total billings represented 10% or more of the Gross Revenues of its Water Enterprise for the fiscal years ended June 30, 2013 and June 30, 2014. Paso Robles made remedial filings on April 2, 2015 and July 13, 2015 of such information and procedures have been established, including the appointment of the Flood Control District as the 2018 Bonds Dissemination Agent for Paso Robles, that Paso Robles believes will be sufficient to ensure compliance with its continuing disclosure undertakings for the Bonds in the future. [To be Updated] SLO. In connection with the Bonds, during the past five years, SLO failed to: (i) timely file its annual report for the fiscal year ended June 30, 2014 by the date nine months following the end of its fiscal year (i.e. March 31); and (ii) file certain information for any customer whose total billings represented 10% or more of the Gross Revenues of its Water Enterprise (excluding California Polytechnic State University, San Luis Obispo) for the fiscal years ended June 30, 2013 and June 30, 2014. SLO made remedial filings of such information on August 5, 2015 and procedures have been established, including the appointment of the Flood Control District as the 2018 Bonds Dissemination Agent for SLO, that SLO believes will be sufficient to ensure compliance with its continuing disclosure undertakings for the Bonds in the future. [To be Updated] Templeton. In connection with the Bonds, during the past five years, although Templeton delivered its annual report and audited financial statements for the fiscal year ended June 30, 2014, to the former dissemination agent prior to the date nine months following the end of its fiscal year (i.e. March 31), the former dissemination agent failed to timely make the filing on EMMA. The Flood Control District has been appointed as the 2018 Bonds Dissemination Agent. Templeton believes this appointment will be sufficient to ensure compliance with its continuing disclosure undertakings for the Bonds in the future. [To be Updated] 45 TAX MATTERS Tax Exemption The delivery of the 2018 Bonds is subject to delivery of the opinion of Bond Counsel, to the effect that interest on the 2018 Bonds for federal income tax purposes under existing statutes, regulations, published rulings, and court decisions (1) will be excludable from the gross income, as defined in section 61 of the Internal Revenue Code of 1986, as amended to the date of initial delivery of the 2018 Bonds (the “Code”), of the owners thereof pursuant to section 103 of the Code, and (2) will not be included in computing the alternative minimum taxable income of the owners thereof who are individuals or, except as hereinafter described, corporations. The delivery of the 2018 Bonds is also subject to the delivery of the opinion of Bond Counsel, based upon existing provisions of the laws of the State of California that interest on the 2018 Bonds is exempt from personal income taxes of the State of California. The form of Bond Counsel’s anticipated opinion is included as APPENDIX E. The statutes, regulations, rulings, and court decisions on which such opinions will be based are subject to change. For taxable years that began before January 1, 2018, interest on the 2018 Bonds owned by a corporation will be included in such corporation’s adjusted current earnings for purposes of computing the alternative minimum tax on such corporation, other than an S corporation, a qualified mutual fund, a real estate investment trust, a real estate mortgage investment conduit, or a financial asset securitization investment trust. The alternative minimum tax on corporations has been repealed for taxable years beginning on or after January 1, 2018. In rendering the foregoing opinions, Bond Counsel will rely upon the representations and certifications of the Authority and the District made in a certificate of even date with the initial delivery of the 2018 Bonds pertaining to the use, expenditure, and investment of the proceeds of the 2018 Bonds and will assume continuing compliance with the provisions of the Indenture by the Authority and the District subsequent to the issuance of the 2018 Bonds. The Indenture and the Tax Certificate contain covenants by the Authority and the District with respect to, among other matters, the use of the proceeds of the 2018 Bonds and the facilities and equipment financed or refinanced therewith by persons other than state or local governmental units, the manner in which the proceeds of the 2018 Bonds are to be invested, the calculation and payment to the United States Treasury of any “arbitrage profits” and the reporting of certain information to the United States Treasury. Failure to comply with any of these covenants may cause interest on the 2018 Bonds to be includable in the gross income of the owners thereof from the date of the issuance of the 2018 Bonds. Except as described above, Bond Counsel will express no other opinion with respect to any other federal, State or local tax consequences under present law, or proposed legislation, resulting from the receipt or accrual of interest on, or the acquisition or disposition of, the 2018 Bonds. Prospective purchasers of the 2018 Bonds should be aware that the ownership of tax-exempt obligations such as the 2018 Bonds may result in collateral federal tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, certain foreign corporations doing business in the United States, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Prospective purchasers should consult their own tax advisors as to the applicability of these consequences to their particular circumstances. Bond Counsel’s opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the 46 representations and covenants of the Authority and the District described above. No ruling has been sought from the Internal Revenue Service (the “IRS”) or the State of California with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel’s opinion is not binding on the IRS or the State of California. The IRS has an ongoing program of auditing the tax-exempt status of the interest on municipal obligations. If an audit of the 2018 Bonds is commenced, under current procedures, the IRS is likely to treat the Authority as the “taxpayer,” and the owners of the 2018 Bonds would have no right to participate in the audit process. In responding to or defending an audit of the tax-exempt status of the interest on the 2018 Bonds, the Authority and the District may have different or conflicting interests from the owners of the 2018 Bonds. Public awareness of any future audit of the 2018 Bonds could adversely affect the value and liquidity of the 2018 Bonds during the pendency of the audit, regardless of its ultimate outcome. Existing law may change to reduce or eliminate the benefit to bondholders of the exclusion of interest on the 2018 Bonds from gross income for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the 2018 Bonds. Prospective purchasers of the 2018 Bonds should consult with their own tax advisors with respect to any proposed or future changes in tax law. Tax Accounting Treatment of Discount and Premium on Certain 2018 Bonds The initial public offering price of certain 2018 Bonds (the “Discount 2018 Bonds”) may be less than the amount payable on such 2018 Bonds at maturity. An amount equal to the difference between the initial public offering price of a Discount 2018 Bond (assuming that a substantial amount of the Discount 2018 Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes original issue discount to the initial purchaser of such Discount 2018 Bond. A portion of such original issue discount allocable to the holding period of such Discount 2018 Bond by the initial purchaser will, upon the disposition of such Discount 2018 Bond (including by reason of its payment at maturity), be treated as interest excludable from gross income, rather than as taxable gain, for federal income tax purposes, on the same terms and conditions as those for other interest on the 2018 Bonds described above. Such interest is considered to be accrued actuarially in accordance with the constant interest method over the life of a Discount 2018 Bond, taking into account the semiannual compounding of accrued interest, at the yield to maturity on such Discount 2018 Bond and generally will be allocated to an initial purchaser in a different amount from the amount of the payment denominated as interest actually received by the initial purchaser during the tax year. However, such interest may be required to be taken into account in determining the alternative minimum tax on corporations for taxable years that began before January 1, 2018, and the amount of the branch profits tax applicable to certain foreign corporations doing business in the United States, even though there will not be a corresponding cash payment. In addition, the accrual of such interest may result in certain other collateral federal income tax consequences to, among others, financial institutions, life insurance companies, property and casualty insurance companies, S corporations with subchapter C earnings and profits, individual recipients of Social Security or Railroad Retirement benefits, individuals otherwise qualifying for the earned income tax credit, owners of an interest in a FASIT, and taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry, or who have paid or incurred certain expenses allocable to, tax-exempt obligations. Moreover, in the event of the redemption, sale or other taxable disposition of a Discount 2018 Bond by the initial owner prior to maturity, the amount realized by such owner in excess of the basis of such Discount 2018 Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Discount 2018 Bond was held) is includable in gross income. 47 Owners of Discount 2018 Bonds should consult with their own tax advisors with respect to the determination of accrued original issue discount on Discount 2018 Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of Discount 2018 Bonds. It is possible that, under applicable provisions governing determination of state and local income taxes, accrued interest on Discount 2018 Bonds may be deemed to be received in the year of accrual even though there will not be a corresponding cash payment. The initial offering price of certain 2018 Bonds (the “Premium 2018 Bonds”) may be greater than the amount payable on such 2018 Bonds at maturity. An amount equal to the difference between the initial public offering price of a Premium Bond (assuming that a substantial amount of the Premium 2018 Bonds of that maturity are sold to the public at such price) and the amount payable at maturity constitutes premium to the initial purchaser of such Premium 2018 Bonds. The basis for federal income tax purposes of a Premium Bond in the hands of such initial purchaser must be reduced each year by the amortizable bond premium, although no federal income tax deduction is allowed as a result of such reduction in basis for amortizable bond premium. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of a Premium Bond. The amount of premium which is amortizable each year by an initial purchaser is determined by using such purchaser’s yield to maturity. Purchasers of the Premium 2018 Bonds should consult with their own tax advisors with respect to the determination of amortizable bond premium with respect to the Premium 2018 Bonds for federal income purposes and with respect to the state and local tax consequences of owning and disposing of Premium 2018 Bonds. LITIGATION Steinbeck Vineyards and Eidemiller The County, the Flood Control District, CSA-16-1, Paso Robles, AMWC, San Miguel Community Services District, and Templeton were named as a defendants in two lawsuits: Steinbeck et al v. County of San Luis Obispo et al (Santa Clara Superior Court Case No. 1-14-cv-265039) and Eidemiller v. County of San Luis Obispo (Santa Clara Superior Court Case No. 1-14-cv-269212) filed by landowners who claim superior overlying groundwater water rights as against the water supplier defendants. As of the date of this Official Statement, the two cases have been consolidated and the Court has divided the case into three phases. Phase 1 concerned plaintiffs’ prima facie case for quiet title, and the Court ruled that plaintiffs met their prima facie burden by proving that they each owned land within the watershed, thereby shifting the burden to defendants to prove their affirmative defenses (e.g. basin boundaries, prescription, treaty rights and pueblo rights). Phase 2 concerned basin boundaries, including AMWC and Templeton’s affirmative defense that they are located within a separate groundwater basin and a determination of the relevant exterior boundary of the basin. In this Phase, the Court ruled that AMWC and Templeton failed to prove that they pump groundwater from a basin separate from the main basin (i.e. the basin identified by the Department of Water Resources (DWR) in Bulletin 118 as the Paso Robles Area Subbasin (3-004.06)), and signed an order approving a stipulation by the parties that the boundary of the basin at issue is the outermost exterior boundary line as identified by DWR in Bulletin 118, i.e. the outermost exterior boundary line for the Paso Robles Area Subbasin (3-004.06) and the Atascadero Area Subbasin (3-004.11), recently recognized as a separate subbasin by DWR. Phase 3 concerns defendants’ (excluding AMWC who claims to be an overlying user) affirmative defense of prescription (i.e. that they possess prescriptive water rights as against plaintiffs within the basin) which is scheduled for trial on August 27, 2018. Discovery related to Phase 3 is ongoing. Depending on the results of Phase 3, there may be a further phase(s) related to additional affirmative defenses. 48 The Flood Control District does not believe that the resolution of this litigation will have a material adverse effect on the payments to be received from the affected Participants pursuant to the Delivery Contracts or the ability of the Authority to make payments, when due, on the 2018 Bonds. General At the time of delivery of the 2018 Bonds, County Counsel, as Counsel to the Authority and to the Flood Control District will deliver opinions to the initial Underwriter that there is no controversy or litigation now pending against the Authority or the Flood Control District or, to the knowledge of their officers, threatened, concerning the validity of the 2018 Bonds, the Master Water Contract, the pledge of Revenues, the Indenture, the Escrow Agreement, the Pledge Agreement, the Delivery Contracts or any other document relating to the 2018 Bonds to which the Authority, the Flood Control District, or any Participant is or will become a party, or the performance by any of the Authority, the Flood Control District, or any Participant of its respective obligations thereunder; or to restrain or enjoin the execution and delivery of the Indenture, the Escrow Agreement, or the Continuing Disclosure Agreement; or in any way contesting or affecting the validity of the 2018 Bonds. At the time of delivery of the 2018 Bonds, each Participant will deliver a certificate that there is no controversy or litigation now pending against such Participant, or to the knowledge of their officers, threatened, concerning the validity of the 2018 Bonds, the pledge of Water Revenues, the Pledge Agreement, the Delivery Contracts or any other document relating to the 2018 Bonds to which such Participant is or will become a party, or the performance by the Participant of its respective obligations thereunder; or to restrain or enjoin the execution and delivery of its Continuing Disclosure Agreement. LEGAL MATTERS Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel, will render an opinion with respect to the validity of the 2018 Bonds. The form of the legal opinion proposed to be delivered by Bond Counsel is included as APPENDIX E to this Official Statement. Bond Counsel undertakes no responsibility for the accuracy, completeness, or fairness of this Official Statement. Certain legal matters will be passed upon for the Authority and the Flood Control District by County Counsel, for the Underwriter by Schiff Hardin LLP, San Francisco, California, Underwriter’s Counsel, for AMWC by Ellis & Collins, Paso Robles, California, for the City of El Paso de Robles by the El Paso de Robles City Attorney; for the City of San Luis Obispo by the San Luis Obispo City Attorney, and for the Templeton Community Services District by District Counsel. Compensation paid to Bond Counsel and Underwriter’s Counsel is contingent on the delivery of the 2018 Bonds. MUNICIPAL ADVISOR The Authority has retained PFM Financial Advisors LLC, Los Angeles, California, as Municipal Advisor, in connection with the authorization and delivery of the 2018 Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent advisory service and is not engaged in underwriting or trading of securities. The Municipal Advisor will receive compensation that is contingent upon the sale, issuance and delivery of the 2018 Bonds. 49 RATINGS S&P Global Ratings (“S&P”) has assigned a rating of “___” to the 2018 Bonds with the understanding that the Bond Insurance Policy will be issued by the 2018 Insurer concurrently with the delivery of the 2018 Bonds. See “BOND INSURANCE” and APPENDIX G–“SPECIMEN MUNICIPAL BOND INSURANCE POLICY.” S&P and Fitch Ratings, Inc. (“Fitch”) have assigned the 2018 Bonds underlying ratings of “___,” and “___,” respectively. Any explanation of the significance of such ratings may only be obtained from the rating agency furnishing the same. The Authority furnished to S&P and Fitch certain information and materials concerning the 2018 Bonds and the Flood Control District. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions made by the rating agencies themselves. There is no assurance that any rating assigned to the 2018 Bonds by a rating agency will be maintained for any given period of time or that it will not be lowered or withdrawn entirely by such rating agency if in its judgment circumstances so warrant. Any downward revision or withdrawal of such rating may have an adverse effect on the market price or marketability of the 2018 Bonds. VERIFICATION OF MATHEMATICAL COMPUTATIONS Upon delivery of the 2018 Bonds the arithmetical accuracy of certain computations included in the schedules provided by the Underwriter on behalf of the Authority relating to the adequacy of forecasted receipts of principal and interest on the noncallable securities and cash to be held pursuant to the Escrow Agreement will be verified by Causey Demgen & Moore P.C., Denver, Colorado independent certified public accountants (the “Verification Agent”). Such verification shall be based solely upon information and assumptions supplied to the Verification Agent by the Underwriter. The Verification Agent has not made a study or evaluation of the information and assumptions on which such computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions or the achievability of the forecasted outcome. UNDERWRITING Raymond James & Associates, Inc. (the “Underwriter”), has agreed, subject to certain conditions precedent, to purchase the 2018 Bonds from the Authority pursuant to the terms and condition of a bond purchase contract between the Authority and the Underwriter. The 2018 Bonds may be offered and sold to certain dealers and others at prices lower than the offering prices stated on the inside cover hereof. The offering prices may be changed from time to time. The Underwriter has agreed to purchase the 2018 Bonds at a purchase price equal to $________, which represents the par amount of the 2018 Bonds, plus a net original issue premium in the amount of $________, less an Underwriter’s discount in the amount of $________. The bond purchase agreement relating to the 2018 Bonds provides that the Underwriter will purchase all of the 2018 Bonds if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in said bond purchase agreement, the approval of certain legal matters by counsel and certain other conditions. 50 MISCELLANEOUS The foregoing and subsequent summaries or descriptions of provisions of the 2018 Bonds and the Indenture and all references to other materials not purporting to be quoted in full, are only brief outlines of some of the provisions thereof. Reference is made to said documents for full and complete statements of the provisions of such documents. The appendices attached hereto are a part of this Official Statement. Copies, in reasonable quantity, of the Indenture, the Escrow Agreement, the Pledge Agreement, and the Delivery Contracts may be obtained upon request to the principal corporate trust office of the Trustee. The execution and delivery of this Official Statement has been duly authorized by the County. SLO COUNTY FINANCING AUTHORITY By: James P. Erb Chair of the Board of Commissioners A-i APPENDIX A THE PARTICIPANTS Information contained in this Appendix A is presented as general background data. The 2018 Bonds are payable solely from and secured by certain Revenues and any other amounts pledged therefor pursuant to the Indenture. The taxing power of the State of California, the County of San Luis Obispo or any political subdivision thereof is not pledged to the payment of the 2018 Bonds. For additional information regarding security for the 2018 Bonds, see “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS.” Audited financial information for each Participant can be found under the heading “AUDITED FINANCIAL STATEMENTS” within the Appendix for each Participant. Capitalized terms not otherwise defined in this Appendix A shall have the meanings ascribed to them in the body of this Official Statement. Atascadero Mutual Water Company ..................................................................................................... A1-1 City of El Paso de Robles ..................................................................................................................... A2-1 City of San Luis Obispo ........................................................................................................................ A3-1 Templeton Community Services District .............................................................................................. A4-1 A1-i APPENDIX A1 ATASCADERO MUTUAL WATER COMPANY TABLE OF CONTENTS Page Page ATASCADERO MUTUAL WATER COMPANY ............................................... A1-1 General .................................................... A1-1 Governance and Management ................ A1-1 Water Rights ........................................... A1-1 No Litigation Related to the 2015 Bonds ...................................................... A1-1 The Water System................................... A1-2 Water Supply .......................................... A1-3 Drought and Conservation Measures ..... A1-3 Water Connections.................................. A1-4 Water Deliveries ..................................... A1-4 Water Sales Revenues ............................. A1-5 Largest Customers .................................. A1-5 Future Water System Improvements ...... A1-8 FINANCIAL INFORMATION OF ATASCADERO MUTUAL WATER COMPANY ............................................... A1-8 Budgetary Process .................................. A1-8 Financial Statements ............................... A1-8 Operating Results ................................... A1-9 Management’s Discussion and Analysis ......................................... A1-9 Capital Improvement Program ............. A1-10 Investment Policy ................................. A1-10 Insurance ............................................... A1-10 Employees ............................................ A1-10 Pension ................................................. A1-10 AUDITED FINANCIAL STATEMENTS ....................................... A1-11 Tables Table A1-1–AMWC Water Connections ........................................................................................... A1-4 Table A1-2–AMWC Water Deliveries in Millions of Gallons Per Year ........................................... A1-4 Table A1-3–AMWC Water Sales Revenues ...................................................................................... A1-5 Table A1-4–AMWC Largest Water Customers ................................................................................. A1-5 Table A1-5A–AMWC Current Water Monthly Minimum Charges .................................................. A1-6 Table A1-5B–AMWC Consumption Charges ................................................................................... A1-6 Table A1-6–AMWC Rate Comparison .............................................................................................. A1-7 Table A1-7–AMWC Operating Results ............................................................................................. A1-9 A1-1 ATASCADERO MUTUAL WATER COMPANY General Atascadero Mutual Water Company (“AMWC”), a California corporation, was incorporated under the laws of the State of California (the “State”) in 1913 to acquire and hold water and water rights and construct and maintain waterworks and distribution facilities to furnish and distribute water for domestic and irrigation to its shareholders at cost. Pursuant to its bylaws, AMWC is permitted to sell, distribute, supply, or deliver water only to owners of property within the AMWC service area (the “AMWC Shareholders”), except as otherwise required by applicable laws or regulations. AMWC is one of the largest mutual water companies in the State and is responsible for meeting the water requirements of more than 31,000 customers. AMWC entered into a Delivery Contract with the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”), pursuant to which AMWC covenanted, inter alia, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Nacimiento Project. For additional financial information regarding AMWC, see the financial statements submitted by AMWC under the heading “AUDITED FINANCIAL STATEMENTS.” Governance and Management A five-person Board of Directors (the “AMWC Board”) elected by the AMWC Shareholders has authority to set rates, incur debt and make decisions relative to the operations of AMWC. Certain actions are subject to a vote of the shareholders. A General Manager, appointed by the AMWC Board, is responsible for the day-to-day administration of the organization and is responsible for the supervision of all staff. Water Rights AMWC has significant water rights in both the Salinas River (considered to be riparian water) and the Atascadero Area Groundwater Sub-basin of the Salinas Valley Basin, identified as Basin No. 3- 004.11 in the Department of Water Resources Bulletin 118 (together, the “Atascadero Basin”). AMWC has pre-appropriative (i.e. established prior to 1914) riparian rights to the waters of the Salinas River and has an appropriative license for these waters. In addition, AMWC has “overlying” water rights to the groundwater in the Atascadero Basin. No Litigation Related to the 2018 Bonds There is no litigation pending or, to AMWC’s knowledge, threatened in any way to restrain or enjoin the delivery of the 2018 Bonds, to contest the validity of the 2018 Bonds, or any proceeding with respect thereto. A1-2 The Water System Service Area. AMWC’s service area includes approximately 38 square miles covering the City of Atascadero and part of the unincorporated area of the County of San Luis Obispo (the “County”). The City of Atascadero covers approximately 26 square miles and is situated just north of the City of San Luis Obispo, along Highway 101, approximately 218 miles north of Los Angeles and 215 miles south of San Francisco. The portion of the County served by AMWC covers approximately 12 square miles. The greatest water demand is for single-family residential homes and associated landscaping, with relatively small industrial and commercial water demand. Water rates are the same for all classes of customers. Customer classifications and certain information per classification as of April 30, 2017 are summarized below: Customer Classification Number of Customers Percentage of Water Use Percentage of Revenue Single-Family Residential 9,523 71.8% 71.8% Multi-Family Residential 342 11.2 11.2 Commercial 714 10.1 10.1 Landscape 212 6.8 6.8 Industrial 26 0.1 0.1 Other 0 0.0 0.0 TOTAL 10,817 100.0% 100.0% Water Permits, Licenses and Other Regulations. AMWC has a water supply permit from the State of California Department of Water Resources. Under this permit, AMWC files reports annually on the quality of its water and is subject to annual inspections by the Department of Water Resources. Regulations regarding water quality standards have become more stringent, increasing the costs of delivering water. It is anticipated that this regulatory trend will continue, and AMWC is unable to evaluate the future impact on the operating and capital expenditures of AMWC. AMWC Water System. The AMWC water system (the “AMWC Water System”) consists of a water production system and a water distribution system. The water distribution system consists of approximately 250 miles of pipeline ranging in size from four to 24 inches, nine storage tanks ranging in size from 120,000 to 4.8 million gallons, eight booster stations, 20 pressure-reducing stations, 1,900 valves, 1,700 fire hydrants and nearly 11,000 service connections. The water production system consists of 17 active groundwater wells, one standby groundwater well, five water treatment buildings, and a groundwater recharge basin for water from the Nacimiento Project. The current pumping capacity of all active wells is 12.4 million gallons per day (gpd). Each of AMWC’s active wells, treatment buildings, booster stations, and storage tanks are equipped with a radio-controlled computer system for supervisory control and data acquisition (SCADA). All wells, treatment facilities, and booster stations are housed in secure buildings and have special valves, waste flushing systems, sand separators and other features. In 2007, AMWC purchased a 60-acre ranch that overlies the Atascadero Basin for the purpose of developing new water supply wells. The ranch is currently leased to a private party and is being used for cattle and hay production. In the Fiscal Year ended April 30, 2017, 1.45 billion gallons of water was delivered to AMWC customers. Lower annual water use over the past several years is a result of the recent drought and State- imposed water conservation measures. See “CERTAIN RISKS TO BOND OWNERS–Drought” in the front of this Official Statement. A1-3 Treatment System. The majority of the groundwater requires no treatment other than chlorination and the “natural filtration” that occurs when the water passes through sand and gravel formations. AMWC regularly takes samples and maintains chlorine residuals at the wells and throughout the distribution system to maintain disinfection levels. AMWC monitors the samples for all containments as required by the United States Environmental Protection Act, the Safe Drinking Water Act, and primary drinking water standards, and follows all guidelines according to national primary drinking water regulations. A group of property owners in the Paso Robles Basin has filed a quiet title action seeking an adjudication of water rights among AMWC, the City of El Paso de Robles, the Templeton Community Services District and other water purveyors and users. For the status of this action, see “LITIGATION– Steinbeck Vineyards #1, LLC et al v. County of San Luis Obispo et all” in the forepart of this Official Statement. Water Supply AMWC obtains its water by pumping water from two distinct yet interrelated groundwater sources, the Salinas River underflow and the Atascadero Basin. These existing groundwater supplies, together with water from the Nacimiento Project, are expected to meet all future water demands through 2025. The completion of the Nacimiento Project augmented the AMWC groundwater supply. Drought and Conservation Measures AMWC has had a tiered rate structure in place since the mid-1970s to encourage water conservation by its shareholders. Since 1992, AMWC has implemented a majority of the “Best Management Practices” for water conservation suggested by the California Urban Water Conservation Council, including among other things: rebates for toilet retrofit, sprinkler head retrofits, irrigation controller upgrades, turf conversions, high-efficiency clothes washers, and rainwater harvesting; outreach and education, including classroom presentations; annual water conserving landscape awards program; annual water conserving landscape tour; and tiered water rates. AMWC’s conservation program has been very effective and has reduced per capita water use in the AMWC service area from 239 gallons/day/person in 1988 to 129 gallons/day/person for its fiscal year ending April 30, 2016. Total annual water production has been reduced from 6,241 acre-feet/year in 1988 to 4,269 acre-feet/year for fiscal year ending April 30, 2016. Overall, the reductions in water use achieved by AMWC’s conservation program have more than offset a 8,075 population increase in its service area from 1988 through 2016. In February 2014, AMWC declared a Stage 2 water shortage condition due to the persistent drought conditions and to more tightly control outdoor water use. A Stage 2 water shortage condition has a use reduction goal of 15 - 35%. The State has imposed a 28% water conservation standard for AMWC for 2015 compared to 2013. AMWC rescinded its declaration of a Stage 2 water shortage condition in March 2017. AMWC has undertaken and will continue to undertake conservation measures to meet or exceed all applicable water conservation goals established by the State Water Resources Control Board and the Governor of the State. A1-4 Water Connections The following table shows the number of water connections to the AMWC Water System for the five most recent fiscal years expressed in equivalent dwelling units (“EDUs”). One EDU is equivalent to a 3/4” water meter. Table A1-1 AMWC Water Connections For Fiscal Years Ended April 30, 2013 through 2017 Fiscal Year Ended (April 30) Connections (in EDUs) % Increase/(Decrease) 2013 14,056 0.48% 2014 14,170 0.81 2015 14,296 0.88 2016 14,376 0.56 2017† 14,416 0.27 ______________ † Estimated. Source: AMWC. Water Deliveries The following table presents a summary of water deliveries (based on production records) for the AMWC Water System in millions of gallons per year for the five most recent fiscal years. Table A1-2 AMWC Water Deliveries in Millions of Gallons Per Year For Fiscal Years Ended April 30, 2013 through 2017 Fiscal Year Total Increase/(Decrease) 2013 1,930 10.93% 2014 1,939 0.47 2015 1,657 (14.54) 2016 1,391 (16.05) 2017† 1,448 4.10 ______________ † Estimated. Source: AMWC. A1-5 Water Sales Revenues The following table shows annual revenues from water sales for the five most recent fiscal years. Table A1-3 AMWC Water Sales Revenues For Fiscal Years Ended April 30, 2013 through 2017 Fiscal Year (April 30) Sales Revenues Increase/(Decrease) 2013 $7,396,830 10.98% 2014 7,678,207 3.80 2015 6,747,936(1)(12.12) 2016 5,826,783(1) (13.65) 2017† 6,872,707(2)17.95 ______________ † Estimated. (1) Explanation for decrease – To Come (2) Reflects increase in water rates adopted in May 2016. Source: AMWC. Largest Customers The following table sets forth the largest customers connected to the AMWC Water System as of April 30, 2017, as determined by total usage in 1,000 gallons. In the aggregate, the largest customers accounted for approximately 8.95% of water usage from the AMWC Water System. Table A1-4 AMWC Largest Water Customers For Fiscal Year Ended April 30, 2017 Customer User Class Use (in 1,000 gal) Atascadero Unified School District Public 30,251 Bordeaux House-Atascadero Multi-family 27,119 City of Atascadero Public 26,171 Egan Mark Trailer park 10,696 Dove Creek Community Association Public 7,771 Atascadero District Cemetery Landscape 7,626 9401 Jornada II LLC Multi-family 6,707 Martin Romaldo & Janice Commercial 5,028 Villa Margarita Inc. Trailer park 4,607 Rockview LLC Multi-family 3,566 TOTAL LARGEST USERS 129,602 ______________ Source: AMWC. Rates and Charges. AMWC water rates are comprised of a monthly minimum charge and a unit charge based on the amount of water used. AMWC also charges for disconnections and reconnections to the AMWC Water System and for construction meter rentals. AMWC currently charges connection fees for new connections to the AMWC Water System. A1-6 Monthly Minimum Charge. AMWC’s monthly minimum charge is paid by all customer classes and, with the exception of multiple unit customers, is based on meter size. The current monthly minimum charge is set forth in Table A1-5A below. Monthly minimum charges for multiple unit customers are based on the number of units. Table A1-5A AMWC Current Water Monthly Minimum Charges (Effective May 15, 2016) Meter Size (in inches) Monthly Minimum Charges 5/8 $20.00 3/4 20.00 1 25.00 1-1/2 30.00 2 50.00 3 175.00 4 220.00 6 350.00 Hydrant Meter 70.00 ______________ Source: AMWC. Consumption Charges. AMWC’s consumption charges are based on the number of gallons used and are calculated at the rates shown on the following table: Table A1-5B AMWC Consumption Charges Single Family Residential(1)Non-Single Family Residential(2) Tier Use Per 1,000 gallons Per 1,000 gallons Tier 1 1,000 to 10,000 gallons $2.10 $2.10 Tier 2 11,000 to 25,000 gallons 3.25 3.25 Tier 3 26,000 to 50,000 gallons 4.80 4.80 Tier 4 51,000 to 75,000 gallons 5.50 5.50 Tier 5 > 75,000 gallons 7.00 5.50 ______________ (1) Effective March 8, 2017 each single-family residence pays an additional 15% pumping surcharge. [Confirm] (2) Effective May 15, 2016. Non-single family residential includes commercial, irrigation, multi-family residential, [mobile home and recreational vehicle parks,] and industrial accounts. Source: AMWC. Nacimiento Project Surcharge. All accounts (except fire lines and accounts on standby) are charged $2.50 per month to pay their pro rata share of capital costs associated with the Nacimiento Project. A1-7 Water Service Charges. AMWC conducts and prepares an annual rate comparison survey of water purveyors located on the central coast of the State. The table below summarizes that data, based upon an assumed standard metered usage as of July 1, 2017: Table A1-6 AMWC Rate Comparison (Based on 11,000 Gallons Per Month) As of July 1, 2017 CENTRAL COAST SERVICE AREAS Community Total Monthly Charge(1)(2) AMWC(3) $46.75 Arroyo Grande 76.90 Grover Beach(4) 81.50 Heritage Ranch 56.81 Morro Bay 145.50 Nipomo 80.23 Paso Robles 72.45 Pismo Beach 78.31 Santa Margarita 81.37 San Luis Obispo(5) 140.75 Templeton 42.61 ______________ (1) Total charge is calculated based on 11,000 gallons per month of metered water based on average single-family use. Where several rates exist based on elevation or zone, the lowest rate is assumed. (2) Total monthly charge is the sum of monthly residential service charge and monthly commodity charge. Total monthly charges calculated using the inside city rate. Applicable base charges, service charges and surcharges are included in the calculation. The charges and taxes of the State Public Utilities Commission are not included. (3) Includes a $2.50 monthly surcharge for Nacimiento Project. (4) Includes a 1% utility tax applied to water portion of the bill. (5) Includes a 5% utility users tax applied to the water portion of the bill. Sources: AMWC. Collection Procedures. AMWC is on a monthly billing cycle for water service. Payment is due by the 30th day after the billing date and is considered delinquent if not paid by that date. If payment is not received, a delinquency message appears on the next monthly water bill for accounts with unpaid balances greater than $50. After 60 days, delinquent customers are billed a late fee and have 30 days to bring the delinquent account current. Water deliveries to accounts not paid in full within 90 days of the billing date are discontinued until all delinquent amounts are paid. Historically, revenue loss from uncollected accounts has been immaterial. Connection Fees. AMWC charges connection fees for development of new water resources to meet the requirements of community growth. Current connection fees for single family residential, commercial and industrial units vary depending on the size of the water meter provided and range in cost from $19,600 for a 3/4-inch meter to $588,000 for a 4-inch meter. A1-8 Future Water System Improvements Each year, AMWC prepares a five-year capital improvement plan. The current five-year capital improvement plan covers fiscal years 2017-18 through 2021-22. In addition, AMWC annually adopts a capital budget for projects to be completed during each fiscal year. For the fiscal year ending April 30, 2018, the capital budget is approximately $1.4 million and includes upgrading the supervisory control and data acquisition (SCADA) software and radios, replacing defective water main valves, replacing aging water service laterals and meters, installing new water service laterals and meters, upgrading fire hydrants, installing new fire hydrants, and numerous other projects. Many of these projects are expected to be undertaken in conjunction with and ahead of City of Atascadero and County road improvement projects. The cost of the capital projects for fiscal year 2017-18 are in addition to the ongoing expenses associated with the operation and maintenance of AMWC’s wells, booster stations, tanks, the distribution system, and the Nacimiento Water Project. Annual expenditures for capital projects for fiscal years 2017-18 through fiscal year 2021-22 average $1.1 million and include: replacing the water main under Highway 41 at Los Altos Avenue; constructing a booster station to serve the Random Oaks Zone; replacing aging vehicles; installing check and altitude control valves at the San Carlos tank; pressure reducing station upgrades; replacing compressors, backhoes, and other diesel equipment as required by AB 32; water main valve replacements; and numerous other projects. FINANCIAL INFORMATION OF ATASCADERO MUTUAL WATER COMPANY Budgetary Process The AMWC Board establishes and approves an annual budget prior to the beginning of each fiscal year. The five-year capital improvement plan is updated annually as part of the budget process. The AMWC Board reviews financial statements and investments monthly. All rates and charges are reviewed annually and any changes are subject to the approval of the AMWC Board. A 30-year cash flow projection (emphasizing the upcoming 10 years) is maintained and updated periodically. The AMWC Board also conducts an annual review and assessment of the levels of its two reserve funds. Financial Statements The most recent audited financial statements of AMWC prepared by Caliber Audit & Attest, LLP, independent certified public accountants, are included as Appendix B hereto. The independent auditor’s letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the business-type activities of AMWC as of April 30, 2017, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The summary operating results contained under the caption “–Operating Results” are derived from these financial statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. A1-9 Operating Results The following table is a summary of operating results of the AMWC, for the last five fiscal years. These results have been derived from the Financial Statements of AMWC but exclude certain receipts which are not included as Revenues under the Delivery Contract and certain non-cash items and include certain other adjustments. Table A1-7 AMWC Operating Results(1) Fiscal Years Ended April 30 2013 2014 2015 2016 2017 Revenues Water sales $7,396,830 $7,678,207 $6,747,936 $5,826,786 $6,872,707 Other revenue and income 1,709,963 3,274,483 3,484,103 2,653,821 1,523,047 TOTAL REVENUES 9,106,793 10,952,690 10,232,039 8,480,604 8,395,754 Operating Expenses(2) 8,198,312 8,816,657 7,495,030 9,564,579 9,012,301 Operating income (loss) 908,481 2,136,033 2,737,009 (1,083,975) (616,547) Non-Operating Revenue (expense) (21,701) (6,743) 513 (519,453) 34,667 Net income before income taxes 886,780 2,129,290 2,737,522 (1,603,428) (581,880) Income Tax Expense 14,915 14,426 15,287 14,407 14,800 Net income $871,865 $2,114,864 $2,722,235 ($1,617,835) ($596,680) ________________ (1) See also discussion under “–Management’s Discussion and Analysis.” (2) Includes depreciation and payments made to the Flood Control District pursuant to the AMWC Delivery Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” in the forefront of this Official Statement. Source: AMWC. Management’s Discussion and Analysis The following discussion relates to certain items in the table above. Total Revenues. Total revenues decreased by approximately 1% in fiscal year ended April 30, 2017 compared to fiscal year ended April 30, 2016 primarily due to decreased water meter sales. Water sales revenues for fiscal year ended April 30, 2017 were approximately 18% more than for fiscal year ended April 30, 2016, which is primarily attributed to the water rate increase adopted in May 2016. Operating Expenses. Operating expenses, including depreciation and excluding Nacimiento Project debt service, decreased approximately 6% in fiscal year ended April 30, 2017 compared to fiscal year ended April 30, 2016 primarily due to reduced energy costs resulting from higher water levels in wells, and AMWC not incurring variable energy costs associated with the Nacimiento Project due to AMWC electing not to receive water from the project during that fiscal year. Projected Operating Results. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the A1-10 date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Capital Improvement Program AMWC currently plans to replace and repair certain air tanks, rebuild pumps, replace tank roofs, construct transmission mains, construct recharge basins and recovery wells, construct a new administrative building, make improvements to its corporate yard, and effectuate certain other improvements to the AMWC Water System and its related facilities and grounds. Investment Policy AMWC investment policy requires AMWC to invest in insured and other secure investments, such as Treasury bills, notes and certificates of deposit. Such securities are stated in the audited financial statements at cost, adjusted for amortization of premiums and accretion of discounts over their remaining lives. Insurance AMWC is covered under various insurance policies, including general liability, property damage, workers’ compensation, automobile and excess liability policies. Employees For fiscal year 2017-18, AMWC has budgeted 21 full-time equivalent employees. Pension AMWC adopted a defined contribution pension plan in January 1, 1974. The pension plan is a qualified defined plan contribution pension trust under Section 401 of the Internal Revenue Code. AMWC reserves the right to terminate in trust at its discretion. Trustees of the pension trust are the AMWC Board of Directors. All full-time employees, with the exception of leased employees, with six months of service and who are at least 18 years or older are eligible to join. Each participant may contribute up to the maximum annual contribution limitation established under Internal Revenue Service Regulations. Participants who are over age 50 may contribute additional amounts.. AMWC makes a 3% safe harbor contribution, as well as a 4% matching contribution of the eligible employee’s annual compensation. Employer contributions to the plan for the years ended April 30, 2017 and 2016 were $122,203 and $121,124, respectively. Vesting of contributions is as follows: Years of Service Vested 1 year 25% 2 years 50 3 years 75 4 years or more 100 _____________ Source: AMWC. A1-11 AUDITED FINANCIAL STATEMENTS A2-i APPENDIX A2 CITY OF EL PASO DE ROBLES TABLE OF CONTENTS Page Page THE CITY OF EL PASO DE ROBLES ...... A2-1 General ......................................................... A2-1 Governance and Management ...................... A2-1 Land and Land Use ...................................... A2-1 Water Rights ................................................ A2-2 No Litigation Related to 2015 Bonds .......... A2-2 THE WATER SYSTEM OF THE CITY OF PASO ROBLES ........................................... A2-2 Service Area ............................................. A2-2 Water and Wastewater Facilities .............. A2-2 Water Permits, Licenses and Other Regulations ..................................... A2-3 Water System and Water Supply .............. A2-3 Drought and Conservation Measures ....... A2-4 Water Connections.................................... A2-4 Water Deliveries ....................................... A2-5 Water Sales Revenues ............................... A2-5 Largest Customers .................................... A2-6 Water System Rates and Charges ............. A2-6 Assessed Valuations, Tax Collections and Tax Delinquencies ..................... A2-8 Future Water System Improvements ........ A2-9 FINANCIAL INFORMATION OF THE CITY OF EL PASO DE ROBLES ...... A2-9 Budgetary Process .................................... A2-9 Financial Statements ................................. A2-9 Operating Results ................................... A2-10 Management’s Discussion and Analysis ........................................... A2-10 Outstanding Long-Term Indebtedness ... A2-10 Investment Policy ................................... A2-10 Insurance ................................................. A2-11 Pension Benefits ..................................... A2-11 Post-Retirement Benefits ........................ A2-13 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES ................................................. A2-13 Article XIII B .......................................... A2-13 Proposition 218 ....................................... A2-14 AUDITED FINANCIAL STATEMENTS ......................................... A2-14 Tables Table A2-1–Paso Robles Water Connections ...................................................................................... A2-4 Table A2-2–Paso Robles Water Deliveries ......................................................................................... A2-4 Table A2-3–Paso Robles Water Sales Revenues ................................................................................. A2-5 Table A2-4–Paso Robles Largest Water Customers ........................................................................... A2-6 Table A2-5–Paso Robles Connection Fees .......................................................................................... A2-7 Table A2-6–Paso Robles Water Rates ................................................................................................. A2-7 Table A2-7–Paso Robles Secured Assessed Valuations ...................................................................... A2-8 Table A2-8–Paso Robles Operating Results ...................................................................................... A2-10 A2-1 THE CITY OF EL PASO DE ROBLES General The City of El Paso de Robles (“Paso Robles”), a municipal corporation, was incorporated in 1889 and is located at the confluence of State Highway 101 and State Highway 46 in the central coast area of the State of California (the “State”), approximately 205 miles south of San Francisco and 220 miles north of Los Angeles. Paso Robles continues to be the fastest growing city within the County of San Luis Obispo and has become its second largest city. As of January 2017, the population of Paso Robles was estimated by the State Department of Finance to be 31,745. Paso Robles anticipates accommodating a population of up to approximately 42,500 residents by 2035. Paso Robles has previously entered into a Delivery Contract with the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”), pursuant to which Paso Robles covenanted, inter alia, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing and building the Nacimiento Project. For additional financial information regarding Paso Robles, see the financial statements submitted by Paso Robles under the heading “AUDITED FINANCIAL STATEMENTS.” Governance and Management Paso Robles is organized as a “general law” city with a city council/manager form of government. The mayor is elected at large every four years while the other four council members serve four year staggered terms. The city manager is appointed by the city council to enforce city laws, direct the operations of the city government, prepare and manage the budget and implement the programs initiated by the city council. Paso Robles is a full service city providing both police and fire services. In addition to police and fire services, Paso Robles provides library services, a wide range of recreation services, a full range of public works functions including landfill, airport, street maintenance, wastewater collection and treatment, water production. Land and Land Use Paso Robles is located in the northern portion of the County of San Luis Obispo in the upper Salinas River Valley. The Salinas River itself flows through the center of Paso Robles from south to north. The community is bounded by steep hills and canyons on the west, open rolling hills to the east, and relatively flat river valley topography to the north and south. Paso Robles is located in a rich agricultural area where ranchlands are transitioning to vineyards to support a growing wine industry. Paso Robles is centered on an identifiable downtown and surrounded by residential neighborhoods. The development pattern of Paso Robles is different on the east side of the Salinas River than on the west side. The older part of the community lies west of the Salinas River and Highway 101. This area includes many prominent buildings of architectural interest, which are developed along a traditional grid network of streets and alleys. However, the steep hills on the west side have limited growth in this area, and much of Paso Robles’ growth over the past 20 years has occurred on the east side of the Salinas River. The eastern portion of Paso Robles includes many newer developments, and is primarily residential in character. The total area within the corporate limits of Paso Robles is approximately 20.0 square miles, comprising a total of 12,739 acres. In 2003, Paso Robles established the maximum potential geographical boundaries to which Paso Robles could grow in the foreseeable future. A2-2 The existing sphere of influence (areas outside of Paso Robles current boundaries where growth may occur in the future) comprise approximately 243 acres of developable land. Water Rights Paso Robles has significant water rights in the Salinas River and pumps groundwater from its wells at this location. A group of property owners in the Paso Robles Basin has filed a quiet title action seeking an adjudication of water rights among the County, AMWC, the City of El Paso de Robles, the Templeton CSD and other water purveyors and users. For the status of this action see “LITIGATION–Steinbeck Vineyards #1, LLC et al v. County of San Luis Obispo et al” in the forepart of this Official Statement. No Litigation Related to the 2018 Bonds There is no litigation pending or, to Paso Robles’ knowledge, threatened in any way to restrain or enjoin the delivery of the 2018 Bonds, to contest the validity of the 2018 Bonds, or any proceeding of Paso Robles with respect thereto. THE WATER SYSTEM OF THE CITY OF EL PASO DE ROBLES Service Area Paso Robles’ service area is limited to its incorporated city limits, serving a population of approximately 31,745, with a combined 10,796 residential and commercial/industrial utility accounts, and [400] irrigation customers as of June 30, 2017. The service area served is approximately [20.0] square miles and topography varies from 660 feet above sea level at the Salinas River to more than 980 feet on the hillsides east of Golden Hill storage tanks. Water and Wastewater Facilities Paso Robles’ water system (the “Paso Robles Water System”) is composed of 19 active groundwater wells (seven relatively shallow wells located along the Salinas River Corridor and 12 deeper basin wells located throughout Paso Robles), two arsenic removal treatment systems, one micro-filtration water treatment plant, six booster stations (used to pump water to higher elevations) and four storage reservoirs with a total capacity of over 12 million gallons. It also includes approximately 172 miles of distribution mains. The storage reservoirs include: two 4-million gallon welded steel tanks; one 4-million gallon high density polyethylene (HDPE) lined earthen reservoir; and, a 150,000 gallon welded steel tank. Paso Robles also owns and operates a 4.9 million gallon per day capacity advanced secondary treatment plant (the “Paso Robles Wastewater Plant”), which discharges treated effluent to the Salinas River. The Paso Robles Wastewater Plant is composed of: two bar screens and a vortex grit removal system; two primary clarifiers; a Biological Nutrient Removal process; three circular clarifiers; a chloramination disinfection process, an effluent polishing channel; three digesters, a belt press, and drying beds; and a cogeneration facility. A2-3 Water Permits, Licenses and Other Regulations The Paso Robles water system (the “Paso Robles Water System”) is permitted and regulated by the State Department of Health Services pursuant to original Water Permit No. 04-06-05PA-005, System No. 401-007. The State Department of Health Services conducts annual system inspections and generates an annual engineering report. The most recent inspection was conducted on December 19, 2017. The State Water Resources Control Board, Division of Water Rights, regulates the river wells pursuant to permit No. 5956. The permit limits the annual diversion (extraction) from the river wells to 4,600 acre-feet per year (AFY), with a maximum flow of eight cubic feet per second. Production from the river wells needed to satisfy water demand over the last few years from the underflow wells has averaged approximately 2,935 AFY. Water System and Water Supply As of June 30, 2017, there were 10,796 active consumer connections compared to 10,733 as of June 30, 2016. Paso Robles has no affiliation with other existing water agencies except for its affiliation with the Flood Control District for the delivery of water from the Nacimiento Project. Historically, Paso Robles met the service-area customer needs using wells that pump groundwater and Salinas River water. Approximately half of the Paso Robles’ water was pumped from the Salinas River underflow and half from the deep groundwater basin. The surface water from the Nacimiento Project added 6,488 AFY of supply. In 2011, in conjunction with the County and the Water Conservation District, Paso Robles developed a groundwater management plan (an “AB 3030 Groundwater Management Plan”) to proscribe collective management of Paso Robles Groundwater Basin (the “Basin”). The purpose of the groundwater management plan includes: building upon the existing organization of local water purveyors, agricultural interests, and individual stakeholders to develop a regional understanding of the groundwater setting and groundwater management opportunities in the Basin; formulating groundwater management actions that lead to improved groundwater information gathering and data management within the Basin; identifying water supply and demand management projects and programs that can be implemented to improve long-term water supply reliability in the Basin; and establishing a regional and on-going approach to groundwater management that is accepted in the Basin and recognized by other local, State, and federal agencies and that can be used successfully to pursue grant funding to implement projects that support improved groundwater management. The quality of present groundwater meets existing regulatory requirements, with average total dissolved solids of 492.5 parts per million in 2006. Paso Robles plans to supplement its water from the Paso Robles Basin with water from the Nacimiento Project. Recycled Water. Paso Robles is constructing a recycled water system to provide water that has undergone tertiary treatment to serve irrigation demands and a drought-resilient supplemental water supply offset irrigation demands to recharge the Basin. Construction of a tertiary water treatment facility commenced in summer 2017 and is expected to be completed in [summer 2019]. The costs of this approximately $172 million project will be funded through the Paso Robles Sewer Enterprise Fund and low-interest loans from the State. Paso Robles has been named as a defendant in two lawsuits filed by landowners who claim superior overlying water rights as against Paso Robles and other water supplier defendants. For a description of Steinbeck v. County of San Luis Obispo et al, see “LITIGATION–Steinbeck Vineyards and Eidemiller” in the front of this Official Statement. Paso Robles is also a party in a second case A2-4 Eidemiller. The case was transferred to the Santa Clara County Superior Court and Phase I of trial for these two lawsuits is set for December 7, 2015. Phase I is scheduled to address the physical boundaries of the Paso Robles Basin that is subject to the litigation. Discovery has not yet been initiated in the cases. As of the date of this Official Statement, no water rights of individuals within the Paso Robles Basin have been adjudicated and no rulings have been made that affect the water rights of Paso Robles. Drought and Conservation Measures Paso Robles adopted a water conservation and water shortage contingency plan in June 2009, as updated in conservation measures in May 2015 that are intended to satisfy the new State regulations for water conservation due to the five-year Statewide drought. These measures, which became effective immediately, include reduction of watering days, elimination of water for median lawns, and if conservation goals are not met, implementation of tiered penalties for customers exceeding set water use levels. Water Connections The following table shows the growth in the number of water connections to the Paso Robles Water System for the five most recent fiscal years. Table A2-1 Paso Robles Water Connections For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Connections Increase/(Decrease) 2012-13 10,574 1.08% 2013-14 10,636 0.59 2014-15 10,682 0.43 2015-16 10,741 0.55 2016-17 10,796 0.51 ______________ Source: Paso Robles. (Remainder of this Page Intentionally Left Blank) A2-5 Water Deliveries The following table presents a summary of water deliveries for the Paso Robles Water System in cubic feet per year for the five most recent fiscal years. Since fiscal year 2012-13, there has been a decline in water deliveries due to conservation measures adopted by Paso Robles. Table A2-2 Paso Robles Water Deliveries For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Total Gallons (in hundreds) Increase/(Decrease) 2012-13 2,057,551 (22.12%) 2013-14 2,093,632 1.75% 2014-15 1,766,129(1)(15.64) 2015-16 1,485,317(2)(15.90) 2016-17 1,591,788 7.17 ______________ (1) Explanation for decrease – To Come. (2) Explanation for decrease – To Come. Source: Paso Robles. Water Sales Revenues The following table shows annual water sales revenues from water sales for the five most recent fiscal years. Table A2-3 Paso Robles Water Sales Revenues For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Sales Revenues Increase/(Decrease) 2012-13 $7,912,716† 41.80% 2013-14 9,614,495† 21.50 2014-15 9,412,457 (2.10) 2015-16 8,698,449 (7.59) 2016-17 10,260,315 17.96 ______________ † Reflects adopted rate increases. See “–Water System Rates and Charges” Effective January 1, 2012, Paso Robles adopted uniform consumption based rates, which increased each January 1, 2011 through January 1, 2016. Source: Paso Robles. A2-6 Largest Customers The following table sets forth the largest customers of the Paso Robles Water System as of June 30, 2017 as determined by annual usage in cubic feet. Table A2-4 Paso Robles Largest Water Customers As of June 30, 2017 Customer Amount % of Gross Revenues City of Paso Robles $472,992 4.61% Paso Robles School District 375,926 3.66 Firestone Walker Brewery 324,454 3.16 Dry Creek Village 228,225 2.22 Quail Run Mobile Estates 121,396 1.18 Goetz Manderley 86,768 0.85 Woodland Plaza II 51,340 0.50 Oak Park 2, LP 42,585 0.42 Bruce Roden 39,617 0.39 Mid-State Fair 39,115 0.38 TOTAL $1,782,418 17.37 All Others 8,477,897 82.63 TOTAL GROSS REVENUES $10,260,315 100.00% ______________ Source: Paso Robles. The 10 largest customers accounted for approximately 17.37% of water usage in the fiscal year ended June 30, 2017. Water System Rates and Charges Paso Robles’ water rates are comprised of a monthly unit (consumption) charge based on the amount of water used. Paso Robles also charges for connections to the Paso Robles Water System, and for metered construction water consumption. Connection Fee. Paso Robles charges connection fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. As of October 1, 2017, connection fees for single family residences and commercial and industrial units range from $19,066 to $1,461,788 depending upon the meter size installed. Paso Robles assesses a connection fee based on customer class and meter size. The fee is as follows: A2-7 Table A2-5 Paso Robles Connection Fees Fiscal Year Ended June 30, 2017 Meter Size (in inches) Connection Fee 3/4” $19,066 1” 31,840 1.5” 63,490 2” 101,622 3” 190,660 4” 317,830 6” 635,470 8” 1,016,790 10” 1,461,788 ______________ Source: Paso Robles. Unit Charge. Paso Robles’ user fee is entirely consumption based. A unit charge is based on the number of units equal to 100 cubic feet or 748 gallons used. The water rate for calendar year 2017 is $4.83 per unit and the final increase in the five-year rate plan is January 1, 2021 with a rate of $6.56 per unit. Consumption Charge. Effective January 1, 2012, Paso Robles adopted uniform consumption based rates, which increased each year from January 1, 2013 through January 1, 2017. Pursuant to Ordinance No. 1025, adopted on April 5, 2016, Paso Robles established five-year rate increases effective January 1 of each year commencing January 1, 2017. The historic, current and approved rates through calendar year 2021 for all customers are set forth in the following table: Table A2-6 Paso Robles Water Rates Effective Rate per Hundred Cubic Feet† Fixed Charge Per Month (January 1) Amount % Change Amount % Change 2013 $3.20 28.0% $_.__ $__._ 2014 3.70 15.6 _.__ __._ 2015 4.10 10.8 _.__ __._ 2016 4.40 7.3 _.__ __._ 2017 4.83 9.8 5.00 __._ 2018 5.26 8.9 6.25 25.0 2019 5.73 8.9 7.50 20.0 2020 6.14 7.2 8.75 16.7 2021 6.56 6.8 10.00 14.3 ______________ † One hundred cubic feet = 748 gallons. Source: Paso Robles. A2-8 If it is determined that water rate increases will be required in the future to meet coverage requirements, Paso Robles will implement those increases through the required public hearing process. See also “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS” and “CERTAIN RISKS TO BOND OWNERS–Drought” in the front of this Official Statement. Collection Procedures. Paso Robles is on a monthly billing cycle for water service. Payment is due by the fifth day of the following month and is considered delinquent if not paid by that date. If not paid by end of such day, the account is deemed delinquent and customers are assessed a 10% penalty. If the amount due is not paid within 10 days of the penalty date, water service is terminated. Prior to termination of service, Paso Robles provides a 48-hour notification on the door where service is to be terminated until paid. Termination notices are delivered to each such delinquent account two days prior to the discontinuance date. Customers receiving termination notices are currently assessed a $36 penalty fee. If service is discontinued, the customer must pay an additional $103.00 non-payment/restoration fee. Both fees are increase by the annual percentage increase of the CPI on July 1 of each year. Assessed Valuations, Tax Collections and Tax Delinquencies The following table summarizing the secured assessed valuation within Paso Robles during the five most recent fiscal years is provided for general information only. All Capital Projects Installment Debt Service Payments made by Paso Robles under its Delivery Contract are payable from its gross water sales revenues. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” in the front of this Official Statement. As a result of the County of San Luis Obispo’s implementation of the tax distribution system commonly referred to as the “Teeter Plan” and the participation by Paso Robles, beginning in the fiscal year ended June 30, 1994, Paso Robles receives 100% of its share of the 1% property tax levies without regard to delinquencies. There can be no assurance that the Teeter Plan or the participation of Paso Robles therein will be continued indefinitely. Table A2-7 Paso Robles Secured Assessed Valuation Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Total Secured Assessed Valuation† 2012-13 $3,339,102,289 2013-14 3,512,945,159 2014-15 3,766,224,011 2015-16 3,977,429,615 2016-17 4,200,930,981 ____________ † Secured property is generally real property, defined as land, mines, minerals, timber and improvements such as buildings, structures, crops, trees and vines. Source: San Luis Obispo County Assessor’s Office. Paso Robles’ 1% allocation of property tax revenues in the County of San Luis Obispo for the fiscal year ended June 30, 2017, as reported by the County of San Luis Obispo was $10,581,472, a 3.9% decrease over the prior year. A2-9 Future Water System Improvements The largest water system improvement is the construction of the water treatment plant. This plant will treat water received from the Nacimiento Project, and to then mix it with the other two sources of water prior to delivery to customers. Remaining system improvements in the five-year plan are considered basic repair or replacement of pipes and valves, well rehabilitation, when needed, and other incidental maintenance. FINANCIAL INFORMATION OF THE CITY OF PASO ROBLES Budgetary Process In fiscal year 1997-98, Paso Robles modified its budget preparation methodology and presentation format from a single year focus to a four year financial plan. The first effective year of the preparation and publication of the four year financial plan was fiscal year 1998-99. The purpose of preparing a four year financial plan, rather than a single year budget, was to accurately measure the budgetary impact of the resource allocation decisions made today against available resources two to four years into the future. Paso Robles, much like other California cities, found itself constantly in a reactionary mode when dealing with budget constraints which is the nature of single year budgeting formats. It was Paso Robles’ desire to become proactive by identifying budget constraints far enough in advance so that it might implement budgetary adjustments without negatively impacting the delivery of municipal services to the public and creating undue hardship and turmoil upon city staff and resources. Beginning in fiscal year 2009, the Paso Robles City Council receives a financial forecast update, twice per year (Winter/Spring). This forecast is designed as a mid-year update on the financial health of Paso Robles. This forecast was used extensively during the historic recession to assist the Paso Robles City Council in deciding how to reduce expenses, while attempting to continue to provide as many City services as possible. For expenditures, Paso Robles utilizes a “base budget” approach wherein the four year financial plan may only be modified by existing long term employee bargaining agreements and/or by the submission by the executive manager of a “new and expanded services request” and its subsequent approval by the Paso Robles City Council. This base budget approach is intended to focus analysis and decision making on the policy implications of budget decisions and their long term impact upon the availability and/or allocation of fiscal resources, rather than short term needs and fixes. The expenditure format in the four year financial plan provides for the prior two years actual expended, current year modified budget (as of date of preparation) and projections for the next four fiscal years. Financial Statements The most recent comprehensive annual financial report of Paso Robles prepared by Moss, Levy & Hartzheim L.L.P., independent certified public accountants, are included as Appendix B hereto. The independent auditor’s letter concludes that the comprehensive annual financial report present fairly, in all material respects, the financial position of the business-type activities of Paso Robles as of June 30, 2017, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The summary operating results contained under the caption “–Operating Results” are derived from these financial statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. A2-10 Operating Results The following table is a summary of operating results of Paso Robles Water System, for the last five fiscal years. These results have been derived from the Financial Statements of Paso Robles, and excludes certain receipts which are not included as Revenues under the Delivery Contract and certain non-cash items and includes certain other adjustments. Table A2-8 Paso Robles Paso Robles Water System Operating Results Fiscal Years Ended June 30 2013 2014 2015 2016 2017 Revenues Water sales $7,912,716 $9,614,495 $9,412,457 $8,698,449(1) $10,260,315(1) Interest income (41,191) 312,388 148,448 137,928 13,652 Developer impact fees(2) 1,897,132 1,270,876 1,215,612 1,809,520 1,629,780 Other revenue and income 14,761 (19,606) 1,415 71,745 12,170 TOTAL REVENUES 9,783,418 11,178,153 10,777,932 10,717,642 11,915,917 Maintenance, Operations, and Administration Costs(3) 9,793,529 10,859,372 6,350,826 10,725,691 10,443,607 Net Revenues ($10,111) $318,781 $4,427,106 ($8,049) 1,472,310 ______________ (1) Explanation for decrease in 2016 and increase in 2017 – To Come. (2) Represents connection fees. (3) Includes payments made to the Flood Control District pursuant to the Paso Robles Delivery Contract and excludes depreciation and amortization of assets. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” in the front of this Official Statement. Source: Paso Robles. Management’s Discussion and Analysis The following discussion relates to certain items in the table above. Gross Revenues. Paso Robles records revenues when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Thus, revenues are recognized when measurable and available. Paso Robles considers such revenues reported in the governmental funds to be available if the revenues are collected within 60 days after fiscal year-end. Outstanding Long-Term Indebtedness Paso Robles has no other outstanding long-term indebtedness payable from the revenues of the Paso Robles Water System. Investment Policy Cash balances from all funds are combined and invested pursuant to the City Council’s adopted Investment Policy and Government Code Section of the State. Authorized investments include securities of the United States or its agencies, certificates of deposit, the State of California Local Agency Investment Fund, bakers’ acceptances, negotiable certificates of deposit and repurchase agreements. The A2-11 earnings from these investments are allocated monthly to each fund based upon the closing balance of each fund at month end. All enterprise fund investments are considered to be liquid investments for cash flow and reporting purposes. Funds held by outside fiscal agents under the provisions of bond indentures are maintained separately and interest income earned on such funds are credited directly to the bond fund or reported as if the interest was credited directly to said funds. Insurance Paso Robles is a member of the California Joint Powers Insurance Authority, a risk sharing self- funded joint powers authority composed of 117 California public agencies. The California Joint Powers Insurance Authority arranges and administers programs for providing self-insured losses, purchases, excess insurance or reinsurance, and arranges for group purchased insurance for property and other lines of coverage. For general and auto liability, the California Joint Powers Insurance Authority provides $50 million per occurrence and $50 million in the aggregate. For workers’ compensation, the coverage is statutory plus $10 million per occurrence for employer’s liability. Paso Robles also participates in the non-auto property program offered by the California Joint Powers Insurance Authority, which provides full replacement coverage for buildings and facilities. Paso Robles is self-insured for property damage to its equipment and vehicles except for major equipment (i.e., fire trucks), which Paso Robles insures through its participation in a special insurance pool. Paso Robles also purchases specialty policies to cover pollution, legal liability, property, earthquake and flood, crime, and special event tenant user liability insurance. Pension Benefits Plan Description. Paso Robles includes two separate types of employer plans where all qualified permanent and probationary employees are eligible to participate, depending on the employee classification (i) Miscellaneous Employee Pension Plan, an agent multiple-employer defined benefit pension plan, and (ii) Safety (includes police and fire), a cost-sharing multiple employer defined benefit pension plan. Eligible employees of the Paso Robles Water System participate in the Miscellaneous Plan. Both types of pension plans are administered by the California Public Employees’ Retirement System (CalPERS), which acts as a common investment and administrative agent for its participating member employees. Benefit provisions under the plans are established by State statute and Paso Robles resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website (https://www.calpers.ca.gov/). Benefits Provided. For both plans, CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for nonduty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees’ Retirement Law. A2-12 The provisions and benefits in effect at June 30, 2017 for the Miscellaneous Plan, are summarized as follows: Miscellaneous Employee Tier Tier II Tier III (PEPRA) Hire date Prior to May 27, 2012 On or after May 27, 2012 On or after January 1, 2013 Benefit formula 2.5% @ 55 2.0% @ 60 2.0% @ 62 Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payment Monthly for life Monthly for life Monthly for life Retirement age 50-55 50-63 52.67 Monthly benefits, as a % of eligible compensation 2.00% to 2.50% 1.09% to 2.42% 1.00% to 2.50% Final compensation period One year Three year Three year Required employee contribution rate 8.00% 7.00% 6.25% Requirement employer contribution rate 23.655% 23.655% 23.655% Contributions. Section 20814(c) of the California Public Employees’ Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan is determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. Paso Robles is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For additional information regarding the plans, including actuarial methods and assumptions, discount rate, pension liability and expense, see Note 9 of the financial statements. Post-Employment Benefits Plan Description. In addition to pension benefits, the Paso Robles City Council has adopted resolutions making health care insurance benefits available for all retired full-time Paso Robles employees regardless of bargaining affiliation if they so desire. Providing health care benefits under the Paso Robles’ group health plan may provide benefits at a substantially lower cost than if the retirees purchased their own individual benefits. This obligation to make coverage available under the Paso Robles’ group health plan is discontinued at such time as the retiree reaches the age of 65 or receives health insurance coverage from another employer. Funding Policy. In accordance with adopted wage and benefit agreements, Paso Robles contributes toward retiree health insurance premiums as follows: (i) Management, Police, Fire and SEIU employees receive up to $500 per month. Management employees hired after January 1, 2012 will not receive this benefit. Paso Robles contributions may be used to defray premium cost for either Paso Robles provided plan(s) or other plans(s) secured by the retiree. Each retiree choosing to receive Paso Robles provided health care insurance must reimburse Paso Robles the full premium cost that exceeded Paso Robles’ contribution as detailed above. For additional information regarding post-employment benefits including the annual contributions, expense, and obligation, see Note 10 of the financial statements. A2-13 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIII B Article XIII B of the State 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 and population. Paso Robles is of the opinion that charges for Water Service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIII B. Paso Robles has covenanted in the Delivery Contract that it will establish, fix and collect rates and charges from the customers of the Paso Robles Water System at levels sufficient to produce revenue from the Paso Robles Water System which are at least equal to: the costs of operating and maintaining the Paso Robles Water System; plus the Contract Payments (as defined herein). Paso Robles is of the opinion that the water rates and use charges imposed by Paso Robles do not exceed the costs the that Paso Robles reasonably bears in providing such service. Proposition 218 Article XIII D requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a “fee” or “charge” as defined in Article XIII D, the local government’s ability to increase such fee or charge may be limited by a majority protest. See the discussion under “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Articles XIII C and XIII D of the California Constitution” in this Official Statement. AUDITED FINANCIAL STATEMENTS The following is the complete comprehensive annual financial report of Paso Robles for the fiscal year Ended June 30, 2017. Only the gross revenues of the Paso Robles Water System is pledged to pay the obligations of Paso Robles under its Delivery Contract. The inclusion of the complete comprehensive annual financial report of Paso Robles does not imply that any revenues of Paso Robles other than those of the Paso Robles Water System are pledged or available to make any payments under the Delivery Contract. A3-i APPENDIX A3 CITY OF SAN LUIS OBISPO TABLE OF CONTENTS Page Page THE CITY OF SAN LUIS OBISPO ........... A3-1 General ...................................................... A3-1 Governance and Management .................. A3-1 Land and Land Use ................................... A3-1 Water Rights ............................................. A3-2 No Litigation Related to 2018 Bonds ....... A3-3 THE WATER SYSTEM OF THE CITY OF SAN LUIS OBISPO .............................. A3-3 Service Area ............................................. A3-3 Water Facilities ......................................... A3-4 Water Permits, Licenses and Other Regulations ......................................... A3-4 Water System and Water Supply .............. A3-4 Drought and Conservation Measures ........ A3-4 Water Connections.................................... A3-5 Water Deliveries ....................................... A3-5 Water Sales Revenues ............................... A3-6 Largest Customers .................................... A3-6 Water System Rates and Charges ............. A3-7 Future Water System Improvements ........ A3-8 FINANCIAL INFORMATION OF THE CITY OF SAN LUIS OBISPO ........... A3-8 Budgetary Process .................................... A3-8 Investment Management Plan ................ A3-10 Financial Statements ............................... A3-10 Operating Results ................................... A3-10 Outstanding Long-Term SLO Water System Indebtedness ...................... A3-11 Insurance ................................................ A3-12 Pension and Post-Retirement Benefits ... A3-12 CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES................................................. A3-13 Article XIII B ......................................... A3-13 Proposition 218....................................... A3-14 AUDITED FINANCIAL STATEMENTS ......................................... A3-14 Tables Table A3-1–SLO Water System Estimated Active Accounts by Type of Customer ............................ A3-3 Table A3-2–SLO Water System Water Connections............................................................................ A3-5 Table A3-3–SLO Water System Water Deliveries in Acre Feet Per Year ........................................... A3-5 Table A3-4–SLO Water System Sales Revenues ................................................................................. A3-6 Table A3-5–SLO Water System Largest Customers by Water Use ..................................................... A3-6 Table A3-6–SLO Water System Water Sales Rates ............................................................................. A3-8 Table A3-7–SLO Water System Operating Results ........................................................................... A3-11 A3-1 THE CITY OF SAN LUIS OBISPO General The City of San Luis Obispo (“SLO”) is a charter city and municipal corporation of the State of California (the “State”). SLO was first incorporated in 1856 as a General Law City, and became a Charter City in 1876. SLO operates as a full-service city that provides police, fire, water, sewer, streets, transit, parking, planning, building, engineering and parks and recreation services to the community. SLO operates under the Council-Mayor-City Manager form of government. Council members 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 Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager. SLO is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and Highway 1. A number of federal and state regional offices and facilities are located in SLO, which also serves as the County of San Luis Obispo (the “County”) seat, including, the Regional Water Quality Control Board and Caltrans District offices. California Polytechnic State University, San Luis Obispo and Cuesta Community College are located in the County, not far outside of SLO’s city limits. The State Department of Finance estimated that SLO’s population as of January 1, 2017 was approximately 46,724. SLO is a party to a Delivery Contract with the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”), pursuant to which SLO covenanted, inter alia, to pay its pro rata share of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, razing, and building the Nacimiento Project. For additional financial information regarding SLO, see the excerpts of the financial statements submitted by SLO under the heading “AUDITED FINANCIAL STATEMENTS.” Governance and Management SLO has provided water service to its residents for over 100 years. During this time SLO has developed its water sources and treatment facilities (the “SLO Water System”) to satisfy SLO’s growing water needs. The operation of the SLO Water System is administered and managed by a separate Utilities Department, which includes a Water Division and a Wastewater Division as separate enterprise funds. The SLO Water System’s operation is aided by the use of computers, automated controls, and telemetry systems. Land and Land Use SLO’s existing water treatment plant is located on Stenner Creek Road, northwest of the California Polytechnic State University, San Luis Obispo campus. This facility was originally constructed in 1964 to provide treatment of surface water from Salinas and Whale Rock Reservoirs. Since 2011, this plant (the “SLO Water Plant”) also treats water from Nacimiento Reservoir. The SLO Water Plant was originally designed to treat up to 8 million gallons per day (mgd). The SLO Water Plant has been upgraded three times and is capable of treating 16.0 mgd, a level consistent with the SLO Water and Wastewater Element of the General Plan. A3-2 Water Rights The existing city water system is made up of raw water supply from Nacimiento, Whale Rock, and Salinas Reservoirs, four groundwater wells, and, the Stenner Canyon water treatment plant. Brief descriptions of the water sources are as follows: Nacimiento Reservoir. Since 1959, the Flood Control District has had an entitlement to 17,500 acre-feet per year (“AFY”) of water from the Nacimiento Reservoir for use in the County. Nacimiento Reservoir provides flood protection and is a source of supply for groundwater recharge for the Salinas Valley. The Nacimiento Reservoir is owned and operated by the Monterey County Water Resources Agency. Approximately 1,750 AFY have been designated for uses around the lake, leaving 15,750 acre feet for allocation to other areas within the County. SLO has a contractual entitlement to 5,482 AFY. Construction of the Nacimiento Project was substantially completed in December 2010 and water deliveries to SLO began in January 2011. In 2016, the Nacimiento Reservoir supplied 4,205 acre feet of water to SLO, constituting 94.12 % of the total supply for that year. [Update for 2017- To Come] Whale Rock Reservoir. The Whale Rock Reservoir, owned and operated by a joint exercise of powers agency formed by SLO and the State, is a 38,967 acre feet reservoir created by the construction of an earthen dam on Old Creek near the town of Cayucos. The State Department of Water Resources designed and completed the dam in 1961 to provide water to SLO, California Polytechnic State University, and the California Men’s Colony. The Whale Rock Dam captures water from a 20.3-square mile watershed and water is delivered to the three agencies through 17.6 miles of shared 30-inch pipeline and two pumping stations. The Whale Rock Reservoir is considered a backup supply and provides water during off-peak operations, when Salinas Reservoir has excessive turbidity problems following storm events, or to supplement supply when water demand exceeds delivery capacity from Salinas Reservoir. In 2016, the Whale Rock Reservoir supplied 254 acre feet of water, constituting 5.7% of the total supply for that year. [Update for 2017- To Come] Salinas Reservoir. The Salinas Dam was built in 1941 by the War Department to supply water to Camp San Luis Obispo and, secondarily, to meet the water needs of SLO. The Salinas Reservoir (Santa Margarita Lake) captures water from a 112-square mile watershed and can currently store up to 23,843 acre-feet. In 1947, the Salinas Dam and delivery system was transferred from the regular Army to the U.S. Army Corps of Engineers. Since 1965, the Flood Control District has operated this water supply for the exclusive use of SLO under a lease from the U.S. Army Corps of Engineers. Water from this reservoir is pumped through the Cuesta Tunnel (a one-mile long tunnel through the mountains of the Cuesta Ridge) and then flows by gravity to the SLO Water Plant . SLO has water rights to store up to 45,000 acre feet in the Salinas Reservoir. The original design of the dam included a gate in the spillway to increase the storage capacity. In 2016, due to drought conditions, the Salinas Reservoir supplied 8 acre feet of water, constituting 0.18% of the total supply for that year. [Update for 2017- To Come] Recycled Water. Recycled water is highly-treated wastewater approved for reuse by the California Department of Public Health for a variety of applications, including landscape irrigation and construction dust control. Completed in 2006, the SLO Water Reuse Project created the first new source of water for SLO since 1961 following construction of Whale Rock Dam. The project resulted in improvements at the SLO Water Resource Recovery Facility and an initial eight miles of distribution pipeline. The first delivery of recycled water to SLO took place in 2006. Current demand exists for approximately 1,000 acre feet of recycled water for landscape irrigation and other approved uses within SLO limits. In 2016, SLO delivered 193 acre feet for irrigation to construction projects, parks, the school district, and private development landscape areas. A3-3 Groundwater. SLO transitioned from its long-term utilization of groundwater for potable purposes in the 1990s with the most recent withdrawal occurring on one well in April 2015. This strategy allows for greater water supply resiliency as SLO is currently keeping its groundwater supplies in aquifer storage. Wells remain in an operable, standby position should the use of groundwater be required, while other existing well casings are being revitalized to provide greater drought resiliency. SLO is also working with a hydrogeologist to site a future well field for a potential groundwater program expansion and for possible siting for an indirect potable reuse system of highly treated wastewater. Currently SLO utilizes two non-potable wells. One is located at SLO Laguna Lake Golf Course and is used for irrigation use. The other is located at SLO Corporation Yard and provides for non-potable uses for SLO staff and temporarily for a select number of outside-SLO residents who rely on the well for non-potable use while recovering from the recent drought. In March 2017, SLO and the County formed the San Luis Obispo Valley Groundwater Basin Groundwater Sustainability Agency to work in a coordinated effort on the preparation of a Groundwater Sustainability Plan as required by the Sustainable Groundwater Management Act. No Litigation Related to the 2018 Bonds SLO is presently involved in certain matters of litigation that have arisen in the normal course of its city business. SLO management believes, based upon consultation of the SLO City Attorney, that these cases, in the aggregate, are adequately covered by insurance and not expected to result in a material adverse financial impact on SLO. THE WATER SYSTEM OF THE CITY OF SAN LUIS OBISPO Service Area The SLO Water System currently provides water within a service area which consists primarily of the incorporated boundaries of SLO, serving a population of approximately 46,724 as of January 1, 2017, as estimated by the State Department of Finance. In addition, the SLO Water System serves several users located outside city limits, including the California Polytechnic State University, under separate agreements. The following table shows active accounts in SLO by type of customer as of December 2017. Table A3-1 SLO Water System Estimated Active Accounts by Type of Customer As of December 2017 Type of Customer Active Accounts Percent Single Family 11,203 73% Multi-Family 1,877 12 Non-Residential 1,675 11 Dedicated Irrigation 575 4 Total 15,330 100% _______________ Source: SLO. A3-4 Water Facilities SLO’s existing water distribution facilities include 13 reservoirs/tanks, 10 booster pumping stations, 17 pressure regulating stations, and a total of approximately 191 miles of water mains, service lines, pressure regulators, and hydrants. SLO’s existing water storage facilities have a total nominal capacity of approximately 24 million gallons. The SLO Water System is divided into 16 pressure zones due to the wide range in ground elevations. The engineering estimate for the life expectancy of these facilities is 50 years. SLO operates the SLO Water Plant which is located approximately one mile north of Highway 1 along Stenner Creek Road. SLO’s current drinking water permit allows the SLO Water Plant to treat up to 16 mgd from its three surface water sources - Nacimiento Reservoir, Whale Rock Reservoir, and Salinas Reservoir. The SLO Water Plant was upgraded in 2008 to provide full-conventional treatment for the entire 16 mgd rated flow. The water is first oxidized and disinfected using ozone, then flows to rapid mixers where alum and polymer are added for coagulation and then to a ballasted flocculation process (Actiflo) which uses micro-sand to enhance removal of floc particles from the water. The water is then finally filtered, chlorinated and fluoride is added before the treated water is stored for use in the SLO water distribution system. Water Permits, Licenses and Other Regulations SLO’s water production and distribution system is permitted and regulated by the State Department of Health Services pursuant to amended Water Permit No. 04-06-94P-000, System No. 4010009. The State Department of Health Services conducts annual system inspections and generates an annual Engineering Report. The State Water Resources Control Board (the “SWRCB”), Division of Water Rights regulates the appropriation and use of water from Salinas and Whale Rock Reservoirs pursuant to permit numbers 5882 and 11390, respectively. Permit No. 11390 (Whale Rock) limits annual diversion to storage to 22,040 acre feet per year and the amount allowed for direct diversion to 16 cubic feet per second. Permit No. 5882 (Salinas) limits annual diversion to storage to 45,000 acre feet per year and the amount allowed for direct diversion to 12.4 cubic feet per second. Water System and Water Supply As of June 30, 2017, there were 15,357 consumer connections compared with 15,167 as of June 30, 2016. The SLO Water System consists of raw water supply from Nacimiento, Whale Rock, and Salinas Reservoirs, the Stenner Canyon Water Plant and two active groundwater wells. For additional water supply information, see “–Water Rights.” Historically, SLO has met its water supply demand primarily from surface water supplies and a small amount of groundwater. These water supplies are expected to meet all future water demands through 2035. Completion of the Nacimiento Project further augmented the SLO water supply with additional surface water supplies. Drought and Conservation Measures On May 5, 2015, the SWRCB adopted regulations that require water purveyors to reduce water use as a result of extreme drought conditions across the State. SLO was given a target reduction of 12%. Since the reduction was based on 2013 use levels, SLO was required to reduce water use to 101 gallons per capita, per day. In its rates for Fiscal Years 2015-16 and 2016-17, consumption reduction was taken into consideration and a drought surcharge was added to the rates. In June 2017, the drought declaration was rescinded. SLO had lowered its consumption by 20%. To date, use has increased by 5%. SLO has now turned its attention to water loss under the State’s new A3-5 regulations. One of the measures is an aggressive meter replacement program to eliminate old and inaccurate meters. [Status] Water Connections The following table shows the growth in the number of water connections, excluding recycled water connections, to the SLO Water System for the five most recent Fiscal Years. Table A3-2 SLO Water System Water Connections For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Connections Increase/(Decrease) 2012-13 14,767 (0.04%) 2013-14 14,842 0.51 2014-15 14,952 0.74 2015-16 15,167 1.43 2016-17 15,357 1.25 ______________ Source: SLO. Water Deliveries The following table presents a summary of historic water deliveries, excluding recycled water deliveries, for the SLO Water System in acre-feet per year for the five most recent Fiscal Years. Table A3-3 SLO Water System Water Deliveries in Acre Feet Per Year For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Total Increase/(Decrease) 2012-13 5,823 (2.93%) 2013-14 5,933 1.89 2014-15 5,955 0.37 2015-16 4,957 (16.80) 2016-17 5,039 1.60 ______________ Source: SLO. A3-6 Water Sales Revenues The following table shows annual water sales revenues from water sales, excluding recycled water sales, for the five most recent Fiscal Years. Table A3-4 SLO Water System Water Sales Revenues For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Sales Revenues Increase/(Decrease) 2012-13 $16,218,000 5.70% 2013-14 $18,507,750(1) 13.83 2014-15 $17,531,117(2) (8.09) 2015-16 $17,939,025(3) 2.32 2016-17 $18,196,937 1.43 ______________ (1) The increase in sales revenues for this Fiscal Year reflects higher per capita usage and the implementation of base fee equal to $[5.00] for users inside of SLO and equal to $[10.00] for users outside of SLO. [Confirm] (2) The approximately 5.3% decrease compared to Fiscal Year 2013-14 is due to the effects of the drought. (3) Introduction First year in which surcharges were implemented to offset losses in water sales. Largest Customers The following table sets forth the 10 largest customers of the SLO Water System as of June 30, 2017 as determined by water use. Table A3-5 SLO Water System Largest Water Customers by Water Use (As of June 30, 2017) Customers† Service Type Water Use (acre-feet) City of SLO – Parks & Golf Parks 60.5 Silver City Mobile Home Park Mobile Homes 47.0 Mustang Village Apartments 36.8 Sierra Vista Hospital Care Facilities 32.3 Creekside Community Mobile Homes 27.3 Laguna Lake Mobile Homes Mobile Homes 24.9 Irish Hills Hamlet Apartments 23.9 Embassy Suites Hotels 22.9 Chumash Village Mobile Homes 20.8 SLO Coastal Unified School District Schools 20.2 The Valencia Apartments Apartments 19.7 Madonna Road Apartments Apartments 19.4 _____________ † Does not include water users located outside SLO, including California Polytechnic State University, San Luis Obispo, the largest water customer (373 acre feet as of June 30, 2017). Source: SLO. A3-7 SLO serves several customers located outside its city limits, including California Polytechnic State University (the “University”), the largest customer of the SLO Water System. Under the agreement with the University, SLO charges rates based on the actual consumption of water, in accordance with a formula established by SLO which is based on rates charged to commercial users generally as modified to reflect the part of the rate structure which is applicable to the University. For the Fiscal Year ended June 30, 2017, the University used 373 acre feet of water supplied by the SLO Water System, for which it paid $827,578 which was approximately 5% of total revenues derived from water sales in that year. Water System Rates and Charges The SLO Water System receives revenues from three primary sources: (i) monthly water rates and service charges, (ii) development impact fees and (iii) miscellaneous sources including interest income. SLO’s current rate structure imposes charges based on consumption, and fixed components in form of a base fee. SLO water rates apply a flat (base) fee plus a volumetric charge based on a unit fee for the amount of water used. SLO also charges for disconnections and reconnections to the SLO Water System. In addition, SLO charges impact fees for new connections to the SLO Water System. SLO’s unit charge is based on the number of 100 cubic feet (“HCF”) used and calculated at the rate shown on the following schedule (as of July 2017). Quantity Cost/HCF Inside City Cost/HCF Outside City Base Fee $12.33 $24.66 Volumetric Charge 1-8 7.27 14.54 9+ 9.08 18.16 _______________ Source: SLO. Rate Increases. The SLO City Council reviews its water rate schedule on an annual basis, and adjusts water rates by resolution at a public meeting pursuant to Proposition 218. In Fiscal Year 2013-14, SLO implemented a base fee and reduced the volumetric rates from three to two tiers. In Fiscal Year 2015-16, the Council approved a drought surcharge on both the base fee and volumetric rate due to the then-ongoing drought conditions. SLO is in the process of reviewing its rate structure with rate recommendations being considered by the SLO City Council in June 2018. [Status] The following rates are expressed as the amount of water (per 100 cubic feet) used monthly. Fiscal Year Fee Increase 2012-13 9% 2013-14† 7.5% 2014-15 5.5% 2015-16 Base Fee: 44.5% – Volumetric: 0% Drought Surcharge applied 2016-17 Base Fee: 30.8% – Volumetric: 0% Drought Surcharge applied 2017-18 Base Fee: 23.5% – Volumetric: 5% _______________ † Change from three tiers to two tiers; implementation of base fee. A3-8 Table A3-6 SLO Water System Water Sales Rates As of July 1st Monthly Base Fee Monthly Consumption 0-8 ccf Monthly Consumption 9 ccf 2013-14 5.00 6.56 8.20 2014-15 5.28 6.92 8.65 2015-16 7.63 6.92 8.65 2015-16 DS* 0.37 0.98 1.23 2016-17 9.98 6.92 8.65 2016-17 DS* 0.74 1.10 1.37 2017-18 12.33 7.27 9.08 _______________ * DS – Drought Surcharge Source: SLO. Development Impact Fees. SLO charges development impact fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The 2017-18 Fiscal Year development impact fee for single family residences is $11,322.16. Non- residential projects are charged based on meter size and range between $19,247.68 (for a 1” meter) to $378,153.92 (for a 6” meter). Future Water System Improvements On May 5, 2015, the SLO City Council reviewed the 2015 Potable Water Distribution System Operations Master Plan. The recommendations in the Operations Master Plan will assist SLO in prioritizing both current and future water system needs. Implementation of the plan will eventually lead to the removal of assets such as pump stations and tanks. Additionally, the plan recommends numerous pressure zone consolidation projects to reduce operational and long-term infrastructure maintenance and replacement costs. The hydraulic model will be used to evaluate future development projects and contribute to the design of capital improvement projects. SLO has a proposed capital improvement budget for the next five years (Fiscal Years 20__-__ through 20__-__) in the amount of $35,000,000 including improvements to the SLO Water Plant, distribution systems, and fleet maintenance. Capital improvements are expected to be financed by a combination of grants, loans and water revenues. FINANCIAL INFORMATION OF THE CITY OF SAN LUIS OBISPO Budgetary Process SLO has received national recognition for its use of a two-year financial plan (a “Financial Plan”) and budgetary process that emphasizes long-range planning and effective program management. Significant features of SLO’s two-year Financial Plan include the integration of SLO Council goal-setting into the budgetary process and the extensive use of formal policies and measurable objectives. The Financial Plan includes operating budgets for two years and a Capital Improvement Plan (the “CIP”) covering five years. A3-9 Under this multi-year approach, appropriations continue to be made annually; however, the Financial Plan is the foundation for preparing the budget for the second year. Additionally, unexpended operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Management Policies. The overall goal of SLO’s Financial Plan is to establish and maintain effective management of SLO’s financial resources. Formal statements of budgetary policies and major objectives provide the foundation for achieving this goal. Key budget principles include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect SLO from future uncertainties; estimating revenues at realistic levels; making all current expenditures with current revenues; finding solutions to SLO’s financial challenges which maintain and promote a quality community; maintaining a traditional commitment to a strong General Fund; and complying with provisions of the State Constitution, SLO City Charter, municipal code and sound fiscal policy. Key revenue policies include: maintaining a diversified and stable revenue base; setting enterprise fund rates at levels that fully recover the total cost of providing services; charging fees for General Fund programs in accordance with adopted user fee cost recovery goals; and ensuring that new development pays its fair share of the cost of constructing necessary community facilities. Budget Process. The City Manager is responsible for preparing the budget and submitting it to the SLO City Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under SLO’s two-year budgetary process: First Year. The Financial Plan process begins with a SLO City Council goal-setting session to determine major objectives to be accomplished over the next two years. These are incorporated into the budget instructions issued to the operating departments, that are responsible for submitting initial budget proposals. After these proposals are comprehensively reviewed and a detailed financial forecast is prepared, the City Manager issues the Preliminary Financial Plan for public comment. A series of study sessions and public hearings are then held leading to SLO City Council adoption of the budget by July 1. Second Year. Before the beginning of the second year of the two-year cycle, the SLO City Council reviews the progress made during the first year, and approves appropriations for the second fiscal year. Mid-Year Reviews. The SLO City Council formally reviews SLO’s financial condition and amends appropriations, if necessary, in February of each year, based on the first six months of operations. Status Reports. On-line access to “up-to-date” financial information is provided to staff throughout the organization. Additionally, financial reports are prepared monthly to monitor SLO’s fiscal condition; more formal reports are issued to the SLO City Council on a quarterly basis. The status of major program objectives, including CIP projects, is formally reported to the SLO City Council on an ongoing basis. Accounting. Budgets are prepared for each fund in accordance with its respective basis of accounting. All governmental funds have legally adopted budgets including capital project funds. While budgets are prepared for SLO’s capital project funds, the CIP projects generally span more than one year A3-10 and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements. Administration. As provided under the SLO City Charter, the SLO City Council may amend or supplement the budget at any time after its adoption by majority vote of the SLO City Council. The SLO City Manager has the authority to make or approve administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect the budgeted year-end fund balances. The level for which expenditures are not to exceed appropriations is at the fund level. Investment Management Plan SLO’s investment management plan addresses a wide variety of investment practices, including primary investment objectives, investment authority, allowable invest vehicles, investment maturity terms eligible financial institutions, capital preservation and cash flow management. Under SLO’s policies, investments in its portfolio are intended to be held until maturity. Accordingly, investment terms are selected for consistency with SLO’s cash flow needs. SLO is authorized by its investment policy and the California Government Code to invest in securities issued or guaranteed by the federal government or its agencies, repurchase agreements, bankers’ acceptances, commercial paper, corporate notes and mutual funds, negotiable certificates of deposit, and the State Local Agency Investment Fund. Reports are issued quarterly to the Investment Oversight Committee by the SLO City Treasurer, providing detailed information regarding SLO’s investments and compliance with SLO policy. The Investment Oversight Committee, comprised of one SLO Council Member, the SLO City Manager, the SLO Assistant City Manager, the SLO Director of Finance/City Treasurer, the SLO Accounting Manager, and an appointed member from the SLO public at large meet quarterly to review SLO’s investment activities. At these meetings, the SLO City Treasurer reports to the committee on compliance with the Investment Management Plan. Under SLO’s investment policies, its primary investment objective is to achieve a reasonable rate of return on public funds while minimizing risk and preserving capital. In evaluating the performance of SLO’s portfolio in achieving this objective, it is expected that yields on SLO’s investments will regularly meet or exceed the average return on three-month U.S. Treasury Bills, and that the portfolio managed by the investment advisor will meet or exceed the BofA Merrill Lynch 0 to 5-year U.S. Treasury Bond Index. Financial Statements The most recent comprehensive annual financial report of SLO prepared by Glenn, Burdette, independent certified public accountants, are included under the heading “AUDITED FINANCIAL STATEMENTS.” The independent auditor’s letter concludes that the Comprehensive Annual Financial Report presents fairly, in all material respects, the financial position of the business-type activities of SLO as of June 30, 2017, and the respective changes in financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. The summary operating results contained under the caption “–Operating Results” are derived from these financial statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. Operating Results The following table is a summary of operating results of the SLO Water System, for the last five fiscal years. These results have been derived from the Financial Statements of SLO but exclude certain A3-11 receipts which are not included as Revenues under the Delivery Contract and certain non-cash items and include certain other adjustments. Table A3-7 SLO Water System Operating Results Fiscal Years Ended June 30th Operating Revenues 2013 2014 2015 2016 2017 Water sales $16,536,000 $18,856,722 $18,080,916 $18,595,154 $18,757,411 Development impact fees(1) $1,583,800 $819,477 $2,471,501 $1,542,268 $1,266,674 Other revenue $63,100 $215,915 $59,594 $53,731 $162,054 Total Revenues $18,182,900 $19,892,114 $20,612,011 $20,555,153 $20,186,039 Operating Expenses(2) $13,351,500 $13,996,427 $13,451,298 $14,056,603 $15,617,649 Net Revenues $4,831,400 $5,895,687 $7,160,713 $6,498,550 $4,568,390 ________________ (1) Includes development impact fees but excludes the value of physical facilities dedicated to SLO by developers. (2) Includes payments made to the Flood Control District pursuant to the SLO Delivery Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” in the forepart of this Official Statement. Excludes depreciation/amortization and loss on disposal of assets. Source: SLO. Gross Revenues. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Operations and Maintenance Costs. The water fund accounts for the provision of water services to the residents of SLO as well as some customers in the County of San Luis Obispo. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, improvements and debt service. Outstanding Long-Term SLO Water System Indebtedness As of June 30, 2017, SLO had outstanding obligations payable to the State Revolving Loan Fund in the aggregate outstanding amount of $3,767,598 million, $2,990,000 outstanding principal amount of City of San Luis Obispo 2012 Water Revenue Refunding Bonds and $12,975,000 outstanding principal amount of City of San Luis Obispo 2006 Water Revenue Bonds that are payable from net revenues of the SLO Water System. The term “net revenues” is defined in the State loan agreements and the bond indentures as all gross income and revenues received or receivable by SLO from the ownership or operation of the SLO Water System less operations and maintenance costs. As presented in Table A3-8, payments made to the Flood Control District pursuant to the SLO Delivery Contract are included as operations and maintenance costs of the Water System. The aggregate outstanding amount of the obligations as of June 30, 2017 was $19,732,598. A3-12 Insurance General Liability and Workers’ Compensation. SLO is a member of the California Joint Powers Insurance Authority (“CJPIA”), which provides joint protection programs and group purchased insurance for public entities covering liability, errors and omission losses, auto liability, employment practices liability, crime, pollution, workers’ compensation injuries and coverage for city-owned property. SLO has a retained limit of $500,000 per occurrence for liability and no retained limit for workers’ compensation. Liabilities of SLO are reported when it is probable that a loss has occurred and the amount of the loss can be reasonable estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines and damage awards. Accordingly, claims are reevaluated periodically to consider the effects of economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claim adjustment expenses regardless of whether or not they are attributable to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. During the past three fiscal years, none of the protection programs experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured coverage in 2016-17. CJPIA covers workers’ compensation claims up to a pooled limit of $2 million per occurrence and provides excess coverage to statutory limits with a group purchased commercial insurance policy. SLO pays an annual contribution to CJPIA and may share in any member refunds in the event that pooled funding exceeds the cost of pooled claims and claim-related expenses, or SLO may be required to pay additional contributions based upon CJPIA’s operating results. Financial statements of CJPIA may be obtained from its administrative office located at 8081 Moody Street, La Palma, California 90623, or by calling (562) 467-8700. Additional claims and lawsuits have been filed against SLO in the normal course of business. It is reasonably possible that SLO may be liable for claims not to exceed $500,000. In the opinion of management, the resolution of these matters will not have a material adverse effect on the financial condition of SLO. Pension and Post-Retirement Benefits SLO contributes to the California Public Employees’ Retirement System (“CalPERS”) pension plans to provide retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Eligible employees of the SLO Water System participate in the Miscellaneous Plan administered by CalPERS. Benefit provisions and all other requirements are established by State statute and city ordinance. The amount of SLO’s required annual contribution is determined actuarially. It is the policy of SLO to fund the annual contribution to ensure that the plan will be able to fully meet its obligation to retired employees on a timely basis. For the fiscal year ended June 30, 2017, SLO’s annual CalPERS pension cost for the SLO Water System was $501,600 for miscellaneous employees, which was equal to SLO’s annual required contribution and actual contributions. The unfunded actuarial accrued liability in the fiscal year ended June 30, 2017 was $9.4 million based on the Water Fund’s pro rata share of total payroll. The primary OPEB cost obligation of SLO is for retiree health benefits under its election to participate in the California Public Employees’ Retirement System (CalPERS) Health Benefit Program, A3-13 an agent multiple-employer defined benefit OPEB plan, under the “unequal contribution option.” SLO entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act (PEMHCA). The required monthly employer contribution in Fiscal Year 2016-17 is approximately $128 and was $125 per month in Fiscal Year 2015-16. Retirees pay the differential monthly amount of the premium, which varies depending on the health benefits they select. Additionally, SLO has established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000. For six former employees, SLO contributes to the cost of the retiree health insurance premiums if they elect to remain members of the SLO group health plan. This provision ceases upon the death of the employee or upon the retired employee reaching age 65. During the fiscal year ended June 30, 2009, SLO entered into an agreement with California Employers’ Retiree Benefit Trust (CERBT) to pre-fund the OPEB liability of SLO. Funding Policy. The contribution requirements of the plan members and SLO are established and may be amended by SLO. SLO prefunds the plan through CERBT by contributing at least 100% of the annual required contribution. The annual required contribution (the “ARC”) is an amount actuarially determined in accordance with the parameters of GASB standards. ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover the normal cost each year and amortize the unfunded actuarial liability over a period of 30 years. The ARC for Fiscal Year 2016-17 was 1,182,000 For Fiscal Year 2016-17, SLO contributed $1,432,000 to the plan, which fully funded the ARC. SLO paid $253,500 to the CalPERS Health Benefit Program and retirees during the year and $604,500 to the CERBT. CERBT is a tax-qualified irrevocable trust organized under Internal Revenue Code Section 115 and established to pre-fund retiree healthcare benefits. CERBT issues a publicly available financial report including GASB disclosure information in aggregate with other CERBT participating employers. That report may be obtained by contacting CalPERS, 400 P Street, Sacramento, California 95814. Annual OPEB Cost and Net OPEB Obligation. For the Fiscal Year ended June 30, 2017, the annual OPEB cost (expense) of $1,187,000 was equal to the annual required contribution and actual contributions totaled $1,432,000. Of the total actual contributions amount, the Water Fund was responsible for $43,600 (3.0%). For additional information regarding the pension plans and other post-employment benefits, see note 7 to the financial statements. CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIII B Article XIII B of the California State 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 and population. SLO is of the opinion that charges for water service do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIII B. A3-14 SLO has covenanted in the Delivery Contract that it will establish, fix and collect rates and charges from the customers of the SLO Water System at levels sufficient to produce revenue from the SLO Water System which are at least equal to: the costs of operating and maintaining the SLO Water System; plus the Contract Payments (as defined herein). SLO is of the opinion that the water rates and use charges imposed by SLO do not exceed the costs SLO reasonably bears in providing such service. Proposition 218 Article XIII D requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water or wastewater service is ultimately determined to be a “fee” or “charge” as defined in Article XIII D, the local government’s ability to increase such fee or charge may be limited by a majority protest. See the discussion under “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS–Articles XIII C and XIII D of the California Constitution” in this Official Statement. AUDITED FINANCIAL STATEMENTS The following is the complete comprehensive annual financial report of SLO for the Fiscal Year ended June 30, 2017. Only the gross revenues of the SLO Water System is pledged to pay the obligations of SLO under its Delivery Contract. The inclusion of the complete comprehensive annual financial report of SLO does not imply that any revenues of SLO other than those of the SLO Water System are pledged or available to make any payments under the Delivery Contract. A4-i APPENDIX A4 TEMPLETON COMMUNITY SERVICES DISTRICT TABLE OF CONTENTS Page Page TEMPLETON COMMUNITY SERVICES DISTRICT ................................................... A4-1 General ...................................................... A4-1 Governance and Management .................. A4-1 Land and Land Use ................................... A4-1 Water Rights ............................................. A4-1 No Litigation Related to 2018 Bonds ....... A4-1 THE WATER SYSTEM OF TEMPLETON COMMUNITY SERVICES DISTRICT ...... A4-2 Service Area ............................................. A4-2 Water System and Facilities ..................... A4-2 Water Permits, Licenses and Other Regulations ........................................... A4-2 Water System and Water Supply .............. A4-2 Drought and Conservation Measures ....... A4-3 Water Connections.................................... A4-3 Water Deliveries ....................................... A4-4 Water Sales Revenues ............................... A4-4 Largest Customers .................................... A4-4 Water System Rates and Charges ............. A4-5 Future Water System Improvements ........ A4-6 FINANCIAL INFORMATION OF TEMPLETON COMMUNITY SERVICES DISTRICT ................................ A4-6 Budgetary Process .................................... A4-6 Financial Statements ................................. A4-6 Operating Results ..................................... A4-6 Management’s Discussion and Analysis ................................................ A4-8 Outstanding Long-Term Templeton CSD Water System Indebtedness ...... A4-8 Investment Policy ..................................... A4-8 Insurance ................................................... A4-8 Employees and Employee Benefits .......... A4-8 Pension Benefits ....................................... A4-9 Post-Retirement Benefits ........................ A4-10 AUDITED FINANCIAL STATEMENTS ......................................... A4-10 Tables Table A-4-1–Templeton CSD Water Connections ............................................................................. A-4-3 Table A-4-2–Templeton CSD Water Deliveries in Acre Feet Per Year ............................................. A-4-4 Table A-4-3–Templeton CSD Water Sales Revenues ........................................................................ A-4-4 Table A-4-4–Templeton CSD Water Minimum Charge ..................................................................... A-4-5 Table A-4-5–Templeton CSD Water Sales Rates ............................................................................... A-4-6 Table A-4-6–Templeton CSD Operating Results ............................................................................... A-4-7 A4-1 TEMPLETON COMMUNITY SERVICES DISTRICT General Templeton Community Services District (“Templeton CSD”) operates a public water supply system, and is a party to a Delivery Contract with the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”) pursuant to which, inter alia, Templeton CSD has covenanted to pay its pro rata share (the “Templeton Share”) of various capital expenses relating to the funding of design costs, engineering, planning, environmental mitigation, equipping new facilities and/or construction efforts, accounting services, project administration and management, installation, grading, raising and building the Nacimiento Project. As of June 30, 2017, Templeton CSD provided water services to approximately 7,753 people. Templeton CSD also provides wastewater disposal services, storm water drainage, fire protection, street lighting, park and recreation services and a community center within its boundaries. For additional financial information regarding Templeton CSD, see the financial statements submitted by Templeton CSD under “AUDITED FINANCIAL STATEMENTS.” Governance and Management Templeton CSD was organized under the authorization of the California Government Code for the purpose of providing all permissible services of a community services district, and is governed by a five-member elected Board of Directors. Land and Land Use Templeton CSD serves an approximately 5.5 square mile service area with water service, which included approximately 40 miles of water lines and 2,823 water connections for the fiscal year ended June 30, 2017. Water Rights Since 1959, the Flood Control District has held the rights to 17,500 acre-feet per year of water from Lake Nacimiento. The Board of Directors of Templeton CSD requested and received 406-acre feet from this amount, which is equivalent to supplying water to 500 residential units. Templeton CSD has its own surface water and groundwater rights which are more fully described under “THE WATER SYSTEM OF TEMPLETON COMMUNITY SERVICES DISTRICT.” No Litigation Related to the 2018 Bonds There are pending lawsuits in which Templeton CSD is involved. The management and legal counsel for Templeton CSD estimate that the potential claims against Templeton CSD, not covered by insurance, resulting from such litigation would not materially affect the operations or financial condition of Templeton CSD. A4-2 THE WATER SYSTEM OF TEMPLETON COMMUNITY SERVICES DISTRICT Service Area Templeton CSD service area is located in the central coast area of the State. As of June 30, 2017, there were 2,823 active consumer connections, compared with 2,723 as of June 30, 2016. The average monthly water bill for residential, commercial and industrial customers for the fiscal year ended June 30, 2017 was $51.83. Water System and Facilities The Templeton CSD water system (the “Templeton CSD Water System”) consists of ____ miles of distribution pipelines, nine groundwater and two underflow wells. Most of its wells are equipped with sand separators. No sewers or sewage disposal facilities are located within 100 feet of the wells sites. Templeton CSD well water complies with primary and most secondary drinking water standards. Water Permits, Licenses and Other Regulations Templeton CSD possesses two permits and one license, which have been issued by the State Water Resources Control Board to pump water from the Salinas River. Permit 8964 authorizes Templeton CSD to directly divert from the Salinas River at a rate of 1.5 cubic feet per second (“cfs”) from October 1 to April 1 with a maximum diversion of 500 acre-feet per year. Permit 20785 authorizes Templeton CSD to directly divert from the Salinas River at a rate of 1.5 cfs from April 1 to May 15 with a maximum diversion of 133.7 acre-feet, but the total combined diversion under both permits cannot exceed 500 acre feet per year. Templeton CSD holds one license (License 4829) that authorizes it to divert from Paso Robles Creek at a rate of 0.26 cfs from April 1 to October 15. Water Supply The current water supply for Templeton CSD is from local groundwater wells and 406-acre feet from the Nacimiento Project. Groundwater Basin. Templeton CSD has traditionally met its service area customer needs during the summer months from groundwater through the primary water wells of Templeton CSD. These wells pump from the Atascadero Sub Basin (the “Atascadero Basin”). During winter months, the customer water needs are primarily met with water pumped from Salinas River wells under its permits and license. Templeton CSD currently has nine active well, one standby river well, and four storage tanks with a combined capacity of 2.7 million gallons all of which are available for use. Templeton CSD’s current pumping capacity is 1,875 gallons per minute (gpm) (does not include river wells). In calendar year 2017, 477.18 acre-feet were delivered to Templeton CSD customers from groundwater wells. Based upon monitoring for the period January 1 through December 31, 2016, the quality of the currently pumped groundwater meets existing State and federal regulatory requirements. A group of property owners in the Paso Robles Basin has filed a quiet title action seeking an adjudication of water rights among the County, AMWC, the City of El Paso de Robles, the Templeton CSD and other water purveyors and users. For the status of this action see “LITIGATION–Steinbeck Vineyards #1, LLC et al v. County of San Luis Obispo et al” in the forepart of this Official Statement. The water rights of individual water users within Atascadero Basin have not been adjudicated. A4-3 Drought and Conservation Measures Templeton CSD adopted Ordinance 2014-1 in March 2014 which comprehensively overhauled water conservation requirements. Also in March 2014, Templeton CSD entered into Stage 1 Conservation Requirements of the Ordinance. From April through the end of 2014, the District saw a reduction in water demand of about 15% as compared to 2013. On May 19, 2015, Templeton CSD adopted Ordinance No. 2015-2 amending its water conservation standards and requirements to authorize the board of directors to implement any water conservation measures mandated or necessitated by applicable State regulatory requirements by resolution. The revenue forecast of Templeton CSD for fiscal years 2016-17 and 2017-18 anticipate [Confirm] increases in revenue due to additional connections and the increase in water usage by existing customers due to the relaxation of conservation requirements. Water Connections The following table shows the growth in the number of water connections, excluding recycled water connections, to the Templeton CSD Water System for the five most recent fiscal years. Table A4-1 Templeton CSD Water Connections For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Connections Increase 2012-13 2,664 0.5% 2013-14 2,678 0.6 2014-15 2,694 0.8 2015-16 2,723 1.1 2016-17† 2,823 3.5 _______________ † Estimated. Source: Templeton CSD. A4-4 Water Deliveries The following table presents a summary of water deliveries, excluding recycled water deliveries, for the Templeton CSD Water System in acre-feet per year for the five most recent fiscal years. Table A4-2 Templeton CSD Water Deliveries in Acre Feet Per Year For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Total Increase/(Decrease) 2012-13 1,592 7.6% 2013-14 1,340 (15.8) 2014-15 1,251 (6.6) 2015-16 1,087 (13.1) 2016-17† 1,282 15.2 _______________ † Estimated. Source: Templeton CSD. Water Sales Revenues The following table shows annual water sales revenues from water sales, excluding recycled water sales, for the five most recent fiscal years. Table A4-3 Templeton CSD Water Sales Revenues For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Sales Revenues Increase/(Decrease) 2012-13 $1,821,048 11.8% 2013-14 1,908,828 4.8 2014-15 1,740,000(1)(8.8) 2015-16 1,637,559(2)(5.9) 2016-17† 1,737,155(3)5.7 _______________ † Estimated. (1) Explanation for decrease – [To Come] (2) Explanation for decrease - - [To Come] (3) Explanation for increase – [To Come] Source: Templeton CSD. Largest Customers The 10 largest customers of the Templeton CSD Water System accounted for approximately 9.8% of water sales from the Templeton CSD Water System, and less than 4.7% of total Templeton CSD revenues in the fiscal year ended June 30, 2017. The annual payments by these customers for fiscal year 2016-17 ranged from $28,604 to $9,299. A4-5 Water System Rates and Charges Templeton CSD water rates are comprised of a monthly minimum charge and a unit charge based on the amount of water used. Templeton CSD also charges for disconnections and reconnections to the Templeton CSD Water System, and for construction meter rentals. Templeton CSD currently charges connection fees for new connections to the Templeton CSD Water System. Monthly Minimum Charge. Templeton CSD’s monthly minimum charge is paid by all customer classes and, with the exception of multiple unit customers, is based on meter size. The monthly minimum charge is as follows: Table A4-4 Templeton CSD Water Monthly Minimum Charge Meter Size (in inches) Monthly Service Minimum Charge† Under 1” $17.05 1 26.85 1 ½ 38.45 2 48.25 3 75.85 4 150.70 6 195.25 _______________ † Multiple unit customers pay a monthly minimum charge for each additional unit. Source: Templeton CSD. Unit Charge. If water usage is less than 300 cubic feet, Templeton CSD charges a monthly minimum charge based on the number of cubic feet (CF) used and calculated at the rate shown on the following schedule. Quantity in CF Charge (per 100 CF) 0 – 300 $_.__ 301 – 2,000 2.13 2,001 – 4,000 2.84 4,001 – 8,000 3.69 8,001 & over 4.38 _______________ Source: Templeton CSD. A4-6 Rate Increases. The rate increases for residential customers for the last five years are set forth in the following table. Table A4-5 Templeton CSD Water Sales Rates For Fiscal Years Ended June 30, 2013 through 2017 Fiscal Year Water Monthly Minimum First 3 HCF Increase 2012-13 $16.10 $0.85 2013-14 17.05 0.95 2014-15 17.05 0.00 2015-16 17.05 0.00 2016-17 17.05 0.00 _______________ Source: Templeton CSD. Collection Procedures. Templeton CSD is on a monthly billing cycle for water service. Payment is due by the 20th of the month following the billing cycle, and is considered delinquent if not paid by that date. If payment is not received, a late notice is mailed to the customer and a one-time basic 10% penalty of the charge, rate, or fee due (collectively, the “charges”) is assessed. Thereafter, an additional 1% penalty per month is added to all delinquent mounts and basic penalties until such time as the delinquent charges and penalties are paid. Any account that is more than 15 days overdue is subject to shut-off. At least 48 hours before the scheduled shut-off of residential service, Templeton CSD is required to make a reasonable attempt to contact an adult residing at the premises, and if that cannot be accomplished, by giving notice by mail, in person, or by posting in a conspicuous location a notice of discontinuation of service. Customers that are still delinquent as of noon on the shut-off day will have their meters locked, and a $50.00 reconnection fee is added to the balance due. In order to restore service, the balance of the account, including past due amounts, the current due amount, and all fees must be paid in full. As of June 30, 2017, delinquent payments account for less than [1/2%] of total revenues of the Templeton CSD Water System. Connection Fees. Templeton CSD charges connection fees for improvement or expansion of water treatment and distribution facilities to meet the requirements of community growth. The current connection fee for single family residences and commercial and industrial units are $24.478 per water unit of use. Future Water System Improvements Templeton CSD projects capital improvements to the Templeton CSD Water System for existing users of approximately $11 million from fiscal year 2015-16 to fiscal year 2025-26, which are expected to be financed by a combination of grants, loans and revenues. Templeton CSD projects capital improvements to the Templeton CSD Water System to accommodate future growth of approximately 30% in the next 30 years which is also expected to be funded by connection fees, grants, loans and revenues. [Review and Update] A4-7 FINANCIAL INFORMATION OF TEMPLETON COMMUNITY SERVICES DISTRICT Budgetary Process Templeton CSD utilizes accounting principles appropriate for an Enterprise Fund to record its activities. Accordingly, revenues and expenses are recognized on an accrual basis of accounting. Templeton CSD’s books and records include a water fund, sewer fund, drainage fund, solid waste fund, fire fund, a parks and recreation fund, a street lighting fund, and an administrative fund. Financial Statements The most recent audited financial statements of Templeton CSD, prepared by Leaf & Cole, LLP, independent certified public accountants are included under the heading “AUDITED FINANCIAL STATEMENTS.” The independent auditor’s letter concludes that the audited financial statements present fairly, in all material respects, the financial position of the business-type activities of Templeton CSD as of June 30, 2017, and the respective changes in financial position, where applicable, and cash flows thereof for the year then ended, in accordance with accounting principles generally accepted in the United States of America. The summary operating results contained under the caption “–Operating Results” are derived from the audited financial statements (excluding certain non-cash items and after certain other adjustments) and are qualified in their entirety by reference to such statements, including the notes thereto. Operating Results The following table is a summary of operating results of the Templeton CSD Water System for the last five fiscal years. These results have been derived from the Templeton CSD Financial Statements but exclude certain receipts which are not included as Revenues under the Delivery Contract and certain non-cash items and include certain other adjustments. Table A4-6 Templeton CSD Water System Operating Results For Fiscal Years Ended June 30, 2013 through 2017 2012-13 2013-14 2014-15 2015-16 2016-17 Water sales $1,779,687 $1,908,828 $1,734,450 $1,602,180 $1,703,947 Service Charges 41,361 45,652 29,577 35,379 33,208 Operating Expenses† 1,607,204 1,861,489 1,529,586 1,521,446 1,494,708 Non-Operating Revenue 178,038 218,704 233,712 161,816 230,920 Net revenue $391,882 $311,695 $468,153 $277,929 $473,367 ____________ † Includes payments made to the Flood Control District pursuant to the Templeton Delivery Contract. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS–The Delivery Contracts” in the forefront of this Official Statement. Source: Templeton CSD Financial Statements. A4-8 Management’s Discussion and Analysis The following discussion relates to certain items in the table above. Gross Revenues. Templeton CSD recognizes revenue from user fees, service charges, program fees and rental fees as they are earned. Taxes and assessments are recognized as revenue based upon amounts collected on behalf of Templeton CSD by the County. Operations and Maintenance Costs. As part of the operation and maintenance of its water system, Templeton CSD routinely repairs line breaks, installs new services, monitors and records: tank levels, line pressures, chlorine levels and water demand flows. In addition, Templeton CSD routinely maintains and repairs: natural gas engines and electric motors for well pumps, five vehicles, one dump truck, backhoe, and other assorted equipment and machinery. Outstanding Long-Term Templeton CSD Water System Indebtedness As of June 30, 2017, Templeton CSD had outstanding a loan payable to the State Revolving Loan Fund that is payable from “net revenues” of the Templeton CSD Water System. The term “net revenues” is defined in the State loan agreement as all gross income and revenue received or receivable by Templeton CSD from the ownership or operation of the Templeton CSD Water System less operations and maintenance costs. This loan bears interest at 2.6% per annual, with annual payments of $138,764, and matures on March 4, 2022. The aggregate outstanding balance of this loan as of June 30, 2017 was $642,824. As shown in table A4-6, payments made pursuant to the Templeton Delivery Contract are included as operations and maintenance expenses of the Templeton CSD Water System. Investment Policy Templeton CSD is authorized to make investments authorized by Section 53652 of the California Government Code to invest in obligations of the United States Treasury, and its agencies and instrumentalities. The investment policy of Templeton CSD is more restrictive than the California Government Code. The policy only allows the Templeton CSD to invest in the California Local Agency Investment Fund, FDIC insured accounts and investments collateralized pursuant to Section 53652 of the California Government Code. Insurance Templeton CSD is a member of the Special District Risk Management Authority (SDRMA), a risk-pooling self-insurance authority, created under provisions of Sections 6500 et seq. of the California Government Code, to arrange and administer programs of insurance for pooling of self-insured loses and to purchase excess insurance coverage, Templeton CSD participates in the general and auto liability programs, public officials’ and employees’ errors and omissions, and employment practices, and maintains liability coverage at the total risk financing limit of $10 million with a combined single limit of $10 million per occurrence, subject to applicable deductibles. Employees and Employee Benefits As of June 30, 2017, Templeton CSD employed 18 full-time equivalent employees and had an average head count of 68 employees per month including part-time/temporary employees. A4-9 Pension Benefits Plan Descriptions. All qualified permanent and probationary employees are eligible to participate in the Miscellaneous Plan or the Safety Plan of Templeton CSD (All Plans) a cost-sharing multiple employer defined benefit pension plan administered by the California Public Employees’ Retirement System (“CalPERS”). Eligible Templeton CSD Water System employees participate in the Miscellaneous Plan. Benefit provisions under the plan are established by State statute and Local Government resolution. CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. The provisions and cost of the Templeton CSD Miscellaneous Plan and benefits in effect at June 30, 2017, are summarized as follows: Miscellaneous Plan On or After January 1, 2013 Prior to January 1, 2013 With Prior Service Without Prior Service Benefit formula 3.0% @ 60 2.5% @ 55 2.0% @ 62 Benefit vesting schedule 5 years service 5 years service 5 years service Benefit payments Monthly for life Monthly for life Monthly for life Retirement Age 50+ 50+ 52+ Monthly benefits, as a % of eligible compensation 2.0% to 3.0% 2.0% to 2.5% 1.0% to 2.5% Required employee contribution rates 8.0% 8.0% 6.25% Required employer contribution rates 12.657% 9.498% 6.555% ______________ Source: Templeton Financial Statements June 30, 2016. ______________ Source: Templeton Financial Statements June 30, 2016. Contribution Description. Section 20814(c) of the California Public Employees’ Retirement Law (the “PERL”) requires that the employer contribution rates for all public employers are determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS annual actuarial process. The plans actuarially determined rate is based on the estimated amount necessary to pay each plan’s allocated share of the risk pool’s costs of benefits earned by employees during the year and any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the measurement period ended June 30, 2016 (measurement date), the active employee contribution rate in the Miscellaneous Plan for employees hired prior to January 1, 2013 is 8.0% of annual payroll, and the employer’s contribution rate is 12.657% of annual payroll. The active employee contribution rate in the Miscellaneous Plan for those employees hired on or after January 1, 2013 is 6.25% of annual pay, and the average employer contribution rate is 6.555% of annual payroll. Employer contribution rates may change if plan contracts are amended. It is the responsibility of the employer to make necessary accounting adjustments to reflect the impact due to any employer paid member contributions or situations where members are paying a portion of the employer contribution. The contribution to the Miscellaneous Plan for the year ended June 30, 2017 was as follows: A4-10 Miscellaneous Plan Contributions Employer $169,404 Employee (Paid by Employer) – _____________ Source: Templeton Financial Statements June 30, 2016. For additional information regarding the plans, including, actuarial methods and assumptions, discount rate, pension liability and expense, see Note 7 of the Financial Statements. Post-Employment Benefits Templeton CSD provides retiree medical (including prescription drug benefits) coverage to eligible retirees and their eligible dependents through the CalPERS Health Program. Templeton CSD provides a maximum monthly contribution based on the amount provided to active employees (currently targeted at the cost for employee plus one coverage in the PERS Choice Plan). Templeton CSD’s contributions will continue for the lifetime of the retiree and any surviving eligible spouse. Eligibility for retiree health benefits requires retirement from Templeton CSD and commencement of pension benefits under PERS (typically on or after age 50 with at least five years of service). For additional information regarding post-employment benefits, see Note 6 of the Financial Statements. AUDITED FINANCIAL STATEMENTS The following are the complete financial statements of Templeton CSD for the Fiscal Year Ended June 30, 2017. Only the gross revenues of the Templeton CSD Water System are pledged to pay the obligations of Templeton CSD under its Delivery Contract. The inclusion of the complete financial statements of Templeton CSD does not imply that any revenues of Templeton CSD other than those of the Templeton CSD Water System are pledged or available to make any payments under the Delivery Contract. B-1 APPENDIX B SUMMARY OF THE DELIVERY CONTRACTS C-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS D-i APPENDIX D FORMS OF CONTINUING DISCLOSURE AGREEMENTS SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT CONTINUING DISCLOSURE AGREEMENT ................................. D-1 PARTICIPANTS CONTINUING DISCLOSURE AGREEMENTS Atascadero Mutual Water Company ....................................................................................................... D-9 City of El Paso de Robles ..................................................................................................................... D-16 City of San Luis Obispo ........................................................................................................................ D-23 Templeton Community Services District .............................................................................................. D-30 D-1 SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated April __, 2018, is executed and delivered by the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”) and Digital Assurance Certification, LLC in connection with the execution and delivery of $_________ principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”). The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the SLO County Financing Authority (the “Authority”) and U.S. Bank National Association, as trustee (the “Trustee”). The Flood Control District covenants and agrees on behalf of the Authority as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Flood Control District for the benefit of the Beneficial Owners of the 2018 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Disclosure Report” shall mean any Annual Disclosure Report provided by the Flood Control District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the Chairman of the Flood Control District or such other official as may be designated in writing to the Dissemination Agent (if other than the Flood Control District) from time to time. “Dissemination Agent” shall mean the Digital Assurance Certification, LLC (“D.A.C”), acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Flood Control District and which has filed with the Flood Control District a written acceptance of such designation. “Filing Date” shall mean March 31 of each Fiscal Year of the Flood Control District (or the next succeeding business day if such day is not a business day), commencing March 31, 2019. “Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Flood Control District and certified to the Trustee in writing by an Authorized Representative of the Flood Control District. D-2 “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement dated _________, 2018 relating to the 2018 Bonds. “Participating Underwriter” shall mean the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. “Specified Event” shall mean any of the events listed in Section 5(a) or Section 5(b) of this Disclosure Agreement and any other event legally required to be reported pursuant to the Rule. SECTION 3. Provision of Annual Disclosure Reports. (a) The Flood Control District shall provide, or shall cause the Dissemination Agent to provide, not later than the Filing Date, to the MSRB an Annual Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Disclosure Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in the Disclosure Agreement. If the fiscal year of the Flood Control District changes, it shall give notice of such change in the same manner as for a Specified Event under this Disclosure Agreement. (b) Not later than fifteen (15) Business Days prior to each Filing Date, the Flood Control District shall provide the Annual Disclosure Report to the Dissemination Agent (if other than the Flood Control District). The Flood Control District shall provide, or cause the preparer of the Annual Disclosure Report to provide, a written certificate with each Annual Disclosure Report furnished to the Dissemination Agent to the effect that such Annual Disclosure Report constitutes the Annual Disclosure Report required to be furnished to it hereunder. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Disclosure Report. (c) If the Flood Control District is unable to provide to the Annual Disclosure Report to the MSRB by the date required in subsection (a), the Flood Control District shall send a notice to the MSRB in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) If not previously filed by the Flood Control District, send a notice to the MSRB in substantially the form attached as Exhibit A, if the Flood Control District is unable to provide to the Annual Disclosure Report to the MSRB by the date required in subsection (a). (ii) File a report with the Flood Control District certifying that the Annual Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. D-3 SECTION 4. Content of Annual Disclosure Reports. (a) The Annual Disclosure Report shall contain or include by reference the following: (i) A statement of the amounts on deposit in the Nacimiento Water Fund; (ii) A summary of receipts of Water Revenues received from the Delivery Contracts by Participant and any delinquencies attributable to each Participant or Participants; (iii) The proceeds of sale by the Flood Control District of Surplus Water; (iv) Water Revenues received by the District from Wheeling Customers; (v) Water Revenues received by the Flood Control District from the sale of Reserve Water; and (vi) The costs of making such sales and collecting such revenues. (b) The presentation and format of the Annual Disclosure Reports may be modified from time to time as determined in the judgment of the Flood Control District to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Flood Control District to reflect changes in the business, structure, operations, legal form of the Flood Control District or any mergers, consolidations, acquisitions or dispositions made by or affecting the Flood Control District; provided that any such modifications shall comply with the requirements of the Rule. (c) In addition to any of the information expressly required to be provided under Sections 4(a) and 4(b), the Flood Control shall provide such other information, if any, necessary to the required statements, in light of the circumstances under which they were made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Flood Control District or related public entities, which have been made available to the public on the MSRB website. The Flood Control District shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Specified Events. (a) Pursuant to the provisions of this Disclosure Agreement, the Flood Control District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2018 Bonds not later than ten (10) business days after the occurrence of the event: (i) Principal and interest payment delinquencies; (ii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iii) Unscheduled draws on credit enhancements reflecting financial difficulties; (iv) Substitution of credit or liquidity providers, or their failure to perform; (v) Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); D-4 (vi) Tender offers; (vii) Defeasances; (viii) Rating changes; or (ix) Bankruptcy, insolvency, receivership or similar event of the obligated person. This event is considered to occur upon the happening of any of the following: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) The Flood Control District shall give, or cause to be given, notice to the MSRB of the occurrence of any of the following events described in this Section 5(b) with respect to the 2018 Bonds, if material, not later than ten (10) business days after the occurrence of the event: (i) Unless described in Section 5(a)(v) above, adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the 2018 Bonds or other material events affecting the tax status of the 2018 Bonds; (ii) Modifications to rights of the Bond holders; (iii) Optional, unscheduled or contingent 2018 Bond calls; (iv) Release, substitution, or sale of property securing repayment of the 2018 Bonds; (v) Non-payment related defaults; (vi) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or (vii) Appointment of a successor or additional trustee or the change of name of a trustee. (c) The Flood Control District acknowledges that it is required to make a determination whether a Specified Event in in Section 5(b) above is material under applicable federal securities laws in order to determine whether a filing with the MSRB is required under Section 5(b). Notwithstanding the foregoing, notice of Specified Events described in Section 5(a)(vii) and Section 5(b)(iii) above need not be given any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. D-5 SECTION 6. Termination of Reporting Obligation. The Flood Control District’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds. If such termination occurs prior to the final maturity of the 2018 Bonds, the Flood Control District shall give notice of such termination in the same manner as for a Specified Event under Section 5(c). SECTION 7. Dissemination Agent. The Flood Control District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Flood Control District. The initial Dissemination Agent shall be D.A.C. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Flood Control District may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), 4, 5(a) or 5(b), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the 2018 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the 2018 Bonds. (d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Flood Control District shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Flood Control District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event, and (ii) the Annual Disclosure Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Flood Control District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of a Specified Event, in D-6 addition to that which is required by this Disclosure Agreement. If the Flood Control District chooses to include any information in any Annual Disclosure Report or notice of occurrence of a Specified Event in addition to that which is specifically required by this Disclosure Agreement, the Flood Control District shall have no obligation under this Agreement to update such information or include it in any future Annual Disclosure Report or notice of occurrence of a Specified Event. SECTION 10. Remedies Upon Default. This Disclosure Agreement shall be solely for the benefit of the holders and beneficial owners from time to time of the 2018 Bonds. In the event of a failure of the Flood Control District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee, or any Holder or Beneficial Owner of the 2018 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by order of a court of competent jurisdiction in San Luis Obispo County, California, to cause the Flood Control District to comply with its obligations under this Disclosure Agreement, provided that any holder or beneficial owner seeking to require the Flood Control District to comply with this Disclosure Agreement shall first provide at least thirty (30) days prior written notice to the Flood Control District of the failure of the Flood Control District, giving reasonable detail of such failure. Failure by the Flood Control District or the Dissemination Agent to comply with any provision of this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Flood Control District to comply with the terms of this Disclosure Agreement shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Flood Control District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Flood Control District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the Flood Control District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. SECTION 12. Notices. Any notices or communications to the Participating Underwriter or the Dissemination Agent may be given as follows: To the Flood Control District: San Luis Obispo Flood Control and Water Conservation District County Government Center 1055 Monterey Street San Luis Obispo, CA 93408 Attention: Auditor-Controller Phone: 805-781-5040 If to the Trustee: U.S. Bank National Association 633 W. Fifth Street, 24th Floor Los Angeles, CA 90071 Phone: 213-615-6005 D-7 If to the Dissemination Agent: Digital Assurance Certification, LLC 390 North Orange Avenue, Suite 1750 Orlando, FL 32801-1674 Attention: Manager Phone: 888-824-2663 SECTION 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Flood Control District, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. SECTION 14. Record Keeping. The Flood Control District shall maintain records of Annual Disclosure Reports and notices of Specified Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure. SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:________________________________________ Chairman DIGITAL ASSURANCE CERTIFICATION, LLC, as Dissemination Agent By: Dissemination Agent D-8 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL DISCLOSURE REPORT Name of Obligated Party: San Luis Obispo County Flood Control and Water Conservation District Name of Bonds: SLO County Financing Authority Nacimiento Water Project Refunding Revenue Bonds 2018 Series A Date of Delivery: April __, 2018 NOTICE IS HEREBY GIVEN that the Flood Control District has not provided an Annual Disclosure Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of April __, 2018, with respect to the 2018 Bonds. [The Flood Control District anticipates that the Annual Disclosure Report will be filed by __________.] SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:___________________________________ [cc: Trustee] D-9 PARTICIPANTS CONTINUING DISCLOSURE AGREEMENTS ATASCADERO MUTUAL WATER COMPANY FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated April __, 2018, is executed and delivered by the Atascadero Mutual Water Company (the “Obligated Person”) and the San Luis Obispo County Flood Control and Water Conservation District (the “District”) in connection with the execution and delivery of $_________ principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”). The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the SLO County Financing Authority (the “Authority”) and U.S. Bank National Association, as trustee (the “Trustee”). The Obligated Person covenants and agrees on behalf of the Authority as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Person for the benefit of the Beneficial Owners of the 2018 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Disclosure Report” shall mean any Annual Disclosure Report provided by the Obligated Person pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the General Manager of the Obligated Person or such other official as may be designated in writing to the Dissemination Agent (if other than the Obligated Person) from time to time. “Dissemination Agent” shall mean the Flood Control District, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Obligated Person and which has filed with the Obligated Person a written acceptance of such designation. “Filing Date” shall mean January 31 of the Fiscal Year of the Obligated Person (or the next succeeding business day if such day is not a business day), commencing January 31, 2019. “Fiscal Year” shall mean the period beginning on May 1 of each year and ending on the next succeeding April 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Obligated Person and certified to the Trustee in writing by an Authorized Representative of the Obligated Person. D-10 “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement dated _________, 2018 relating to the 2018 Bonds. “Participating Underwriter” shall mean the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Disclosure Reports. (a) The Obligated Person shall provide, or shall cause the Dissemination Agent to provide, not later than the Filing Date, to the MSRB an Annual Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Disclosure Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in the Disclosure Agreement. If the fiscal year of the Obligated Person changes, it shall give notice of such change in the same manner as for a Specified Event under this Disclosure Agreement. (b) Not later than fifteen (15) days prior to each Filing Date, commencing January 15, 2019, the Obligated Person shall provide the Annual Disclosure Report to the Dissemination Agent (if other than the Obligated Person). The Obligated Person shall provide, or cause the preparer of the Annual Disclosure Report to provide, a written certificate with each Annual Disclosure Report furnished to the Dissemination Agent to the effect that such Annual Disclosure Report constitutes the Annual Disclosure Report required to be furnished under the Disclosure Agreement. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Disclosure Report. (c) The Flood Control District shall use its best efforts to assist the Obligated Person in preparing the Annual Disclosure Report for delivery to the Dissemination Agent no later than January 15 of each year. (d) Not later than the Filing Date, the Dissemination Agent shall provide written notice confirming whether or not such Annual Disclosure Report has been furnished by the Obligated Person. (e) If the Obligated Person is unable to provide the Annual Disclosure Report to the Dissemination Agent by the Filing Date of each year commencing January 31, 2019, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. D-11 (f) The Dissemination Agent shall: (i) If not previously filed by the Obligated Person, send a notice to the MSRB if the Participating Agency, is unable to provide to the Annual Filing to the MSRB by the date required in subsection (a); and (ii) to the extent information is known to it, file a report with the Obligated Person certifying that the Annual Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. SECTION 4. Content of Annual Disclosure Reports. The Annual Disclosure Report shall contain or include by reference the following: (a) The audited financial statements of the Obligated Person prepared in accordance with generally accepted accounting principles in effect from time to time. If any of such audited financial statements are not available by the time the Annual Disclosure Report is required to be filed pursuant to Section 3(a), the Annual Disclosure Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Disclosure Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or prior to the Filing Date, financial and operating data with respect to the Obligated Person for the preceding Fiscal Year, substantially similar to the financial and operating data in the Official Statement as follows: (i) Principal and interest payment delinquencies; (ii) Table A1-1 Water Connections; (iii) Table A1-2 Water Deliveries; (iv) Table A1-3 Water Sales Revenues; (v) Table A1-7 Operating Results; (vi) Information concerning any revisions to the adopted rates and charges which are generally imposed by the Obligated Person upon users within the service area of its Water Enterprise; and (vii) For any customer whose total billings in the preceding Fiscal Year represent 10% or more of Gross Revenues of the Water Enterprise: (A) the total amount of Gross Revenues derived from such customer; and (B) the percent of Gross Revenues represented by such customer for such Fiscal Year. (c) In addition to any of the information expressly required to be provided under Sections 4(a) and 4(b), the Obligated Person shall provide such other information, if any, necessary to the required statements, in light of the circumstances under which they were made, not misleading. (d) The presentation and format of the Annual Disclosure Reports may be modified from time to time as determined in the judgment of the Obligated Person to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Obligated Person to reflect changes in the business, structure, operations, legal form of the Obligated Person or any D-12 mergers, consolidations, acquisitions or dispositions made by or affecting the Obligated Person; provided that any such modifications shall comply with the requirements of the Rule. (e) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Obligated Person or related public entities, which have been made available to the public on the MSRB website. The Obligated Person shall clearly identify each such other document so included by reference. SECTION 5. Termination of Reporting Obligation. The Obligated Person’s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds. If such termination occurs prior to the final maturity of the 2018 Bonds, the Obligated Person shall give notice of such termination to the MSRB. SECTION 6. Dissemination Agent. The Obligated Person may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Obligated Person. The initial Dissemination Agent shall be the Flood Control District. SECTION 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Person may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), or 4, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the 2018 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the 2018 Bonds. (d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Obligated Person shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Obligated Person. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event, and (ii) the Annual Disclosure Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in D-13 quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Person from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of a Specified Event, in addition to that which is required by this Disclosure Agreement. If the Obligated Person chooses to include any information in any Annual Disclosure Report or notice of occurrence of a Specified Event in addition to that which is specifically required by this Disclosure Agreement, the Obligated Person shall have no obligation under this Agreement to update such information or include it in any future Annual Disclosure Report or notice of occurrence of a Specified Event. SECTION 9. Default. This Disclosure Agreement shall be solely for the benefit of the holders and beneficial owners from time to time of the 2018 Bonds. In the event of a failure of the Obligated Person to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of the Participating Underwriter or the Holders of at least twenty-five percent (25%) aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, shall), or any Holder or Beneficial Owner of the 2018 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by order of a court of competent jurisdiction in San Luis Obispo County, California, to cause the Obligated Person to comply with its obligations under this Disclosure Agreement, provided that any holder or beneficial owner seeking to require the Obligated Person to comply with this Disclosure Agreement shall first provide at least thirty (30) days prior written notice to the Obligated Person of the failure of the Obligated Person, giving reasonable detail of such failure. Failure by the Obligated Person to comply with any provision of this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Person to comply with the terms of this Disclosure Agreement shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. SECTION 10. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Person agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Obligated Person for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the Obligated Person under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. D-14 SECTION 11. Notices. Any notices or communications to the Obligated Person or the Dissemination Agent may be given as follows: Obligated Person: Atascadero Mutual Water Company P.O. Box 6075 5005 El Camino Real Atascadero, California, California 93423 Attention: General Manager Phone: 805-466-2428 Dissemination Agent: San Luis Obispo Flood Control and Water Conservation District County Government Center 1055 Monterey Street San Luis Obispo, CA 93408 Attention: Auditor-Controller Phone: 805-781-5040 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Flood Control District, the Trustee, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. SECTION 13. Record Keeping. The Obligated Person shall maintain records of Annual Disclosure Reports and notices of Specified Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but on and the same instrument. ATASCADERO MUTUAL WATER COMPANY By:________________________________________ Authorized Representative Accepted: SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT, as Dissemination Agent By:________________________________________ Chairman D-15 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL DISCLOSURE REPORT Name of Obligated Party: Atascadero Mutual Water Company Name of Bonds: SLO County Financing Authority Nacimiento Water Project Refunding Revenue Bonds 2018 Series A Date of Delivery: April __, 2018 NOTICE IS HEREBY GIVEN that the Obligated Person has not provided an Annual Disclosure Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of April __, 2018, with respect to the 2018 Bonds. [The Obligated Person anticipates that the Annual Disclosure Report will be filed by __________.] SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:___________________________________ [cc: Obligated Person] D-16 CITY OF EL PASO DE ROBLES FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated April __, 2018, is executed and delivered by the City of El Paso de Robles (the “Obligated Person”) and the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”) in connection with the execution and delivery of $_________ principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”). The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the SLO County Financing Authority (the “Authority”) and U.S. Bank National Association, as trustee (the “Trustee”). The Obligated Person covenants and agrees on behalf of the Authority as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Person for the benefit of the Beneficial Owners of the 2018 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Disclosure Report” shall mean any Annual Disclosure Report provided by the Obligated Person pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the Director of Finance of the Obligated Person of the Obligated Person or such other official as may be designated in writing to the Dissemination Agent (if other than the Obligated Person) from time to time. “Dissemination Agent” shall mean the Flood Control District, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Obligated Person and which has filed with the Obligated Person a written acceptance of such designation. “Filing Date” shall mean March 31 of the Fiscal Year of the Obligated Person (or the next succeeding business day if such day is not a business day), commencing March 31, 2019. “Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Obligated Person and certified to the Trustee in writing by an Authorized Representative of the Obligated Person. D-17 “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement dated ________, 2018 relating to the 2018 Bonds. “Participating Underwriter” shall mean the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Disclosure Reports. (a) The Obligated Person shall provide, or shall cause the Dissemination Agent to provide, not later than the Filing Date, to the MSRB an Annual Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Disclosure Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in the Disclosure Agreement. If the Fiscal Year of the Obligated Person changes, it shall give notice of such change in the same manner as for a Specified Event under this Disclosure Agreement. (b) Not later than fifteen (15) days prior to each Filing Date, commencing March 15, 2019, the Obligated Person shall provide the Annual Disclosure Report to the Dissemination Agent (of other than the Obligated Person). The Obligated Person shall provide, or cause the preparer of the Annual Disclosure Report to provide, a written certificate with each Annual Disclosure Report furnished to the Dissemination Agent to the effect that such Annual Disclosure Report constitutes the Annual Disclosure Report required to be furnished under the Disclosure Agreement. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Disclosure Report. (c) The Flood Control District shall use its best efforts to assist the Obligated Person in preparing the Annual Disclosure Report for delivery to the Dissemination Agent no later than March 15 of each year. (d) Not later than the Filing Date, the Dissemination Agent shall provide written notice confirming whether or not such Annual Disclosure Report has been furnished by the Obligated Person. (e) If the Obligated Person is unable to provide the Annual Disclosure Report to the Dissemination Agent by the Filing Date of each year commencing March 31, 2019, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. D-18 (f) The Dissemination Agent shall: (i) If not previously filed by the Obligated Person, send a notice to the MSRB if the Participating Agency, is unable to provide to the Annual Filing to the MSRB by the date required in subsection (a); and (ii) to the extent information is known to it, file a report with the Obligated Person certifying that the Annual Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. SECTION 4. Content of Annual Disclosure Reports. The Annual Disclosure Report shall contain or include by reference the following: (a) The audited financial statements of the Obligated Person prepared in accordance with generally accepted accounting principles in effect from time to time. If any of such audited financial statements are not available by the time the Annual Disclosure Report is required to be filed pursuant to Section 3(a), the Annual Disclosure Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Disclosure Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or prior to the Filing Date, financial and operating data with respect to the Obligated Person for the preceding Fiscal Year, substantially similar to the financial and operating data in the Official Statement as follows: (i) Principal and interest payment delinquencies; (ii) Table A2-1 Water Connections; (iii) Table A2-2 Water Deliveries; (iv) Table A2-3 Water Sales Revenues; (v) Table A2-7 Secured Assessed Valuation†; (vi) Table A2-8 Operating Results; (vii) Information concerning any revisions to the adopted rates and charges which are generally imposed by the Obligated Person upon users within the service area of its Water Enterprise; and (viii) For any customer whose total billings in the preceding Fiscal Year represent 10% or more of Gross Revenues of the Water Enterprise: (A) the total amount of Gross Revenues derived from such customer; and (B) the percent of Gross Revenues represented by such customer for such Fiscal Year. † This data is provided for informational purposes only. The Obligated Person is a party to a Nacimiento Project Water Delivery Entitlement Contract (the “Delivery Contract”) with the Flood Control District that permits the Obligated Person to issue additional “Municipal Obligations” to fund all or a portion of the Delivery Contract Payments with the levy of ad valorem property taxes, special assessments or special taxes. As of the date of this Disclosure Agreement, the Obligated Person had not levied any ad valorem property taxes, special assessments or special taxes to fund any of its Delivery Contract Payments. D-19 (c) In addition to any of the information expressly required to be provided under Sections 4(a) and 4(b), the Obligated Person shall provide such other information, if any, necessary to the required statements, in light of the circumstances under which they were made, not misleading. (d) The presentation and format of the Annual Disclosure Reports may be modified from time to time as determined in the judgment of the Obligated Person to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Obligated Person to reflect changes in the business, structure, operations, legal form of the Obligated Person or any mergers, consolidations, acquisitions or dispositions made by or affecting the Obligated Person; provided that any such modifications shall comply with the requirements of the Rule. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Obligated Person or related public entities, which have been made available to the public on the MSRB website. The Obligated Person shall clearly identify each such other document so included by reference. SECTION 5. Termination of Reporting Obligation. The obligations of the Obligated Person under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds. If such termination occurs prior to the final maturity of the 2018 Bonds, the Obligated Person shall give notice of such termination to the MSRB. SECTION 6. Dissemination Agent. The Obligated Person may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Obligated Person. The initial Dissemination Agent shall be the Flood Control District. SECTION 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Person may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), or 4, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the 2018 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the 2018 Bonds. (d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent. D-20 In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Obligated Person shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Obligated Person. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event, and (ii) the Annual Disclosure Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Person from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of a Specified Event, in addition to that which is required by this Disclosure Agreement. If the Obligated Person chooses to include any information in any Annual Disclosure Report or notice of occurrence of a Specified Event in addition to that which is specifically required by this Disclosure Agreement, the Obligated Person shall have no obligation under this Agreement to update such information or include it in any future Annual Disclosure Report or notice of occurrence of a Specified Event. SECTION 9. Default. This Disclosure Agreement shall be solely for the benefit of the holders and beneficial owners from time to time of the 2018 Bonds. In the event of a failure of the Obligated Person to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of the Participating Underwriter or the Holders of at least twenty-five (25%) aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, shall), or any Holder or Beneficial Owner of the 2018 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by order of a court of competent jurisdiction in San Luis Obispo County, California, to cause the Obligated Person to comply with its obligations under this Disclosure Agreement, provided that any holder or beneficial owner seeking to require the Obligated Person to comply with this Disclosure Agreement shall first provide at least thirty (30) days prior written notice to the Obligated Person of the failure of the Obligated Person, giving reasonable detail of such failure. Failure by the Obligated Person to comply with any provision of this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Person to comply with the terms of this Disclosure Agreement shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. SECTION 10. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Person agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Obligated Person for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the Obligated Person under this Section 10 shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. D-21 SECTION 11. Notices. Any notices or communications to the Obligated Person or the Dissemination Agent may be given as follows: Obligated Person: City of El Paso de Robles City Hall 1000 Spring Street Paso Robles, CA 93446 Attention: Director of Administrative Services Phone: 805-237-3888 Dissemination Agent: San Luis Obispo Flood Control and Water Conservation District County Government Center 1055 Monterey Street San Luis Obispo, CA 93408 Attention: Auditor-Controller Phone: 805-781-5040 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Flood Control District, the Trustee, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. SECTION 13. Record Keeping. The Obligated Person shall maintain records of Annual Disclosure Reports and notices of Specified Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but on and the same instrument. CITY OF EL PASO DE ROBLES By:________________________________________ Authorized Officer Accepted: SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT, as Dissemination Agent By:________________________________________ Chairman D-22 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL DISCLOSURE REPORT Name of Obligated Person: City of El Paso de Robles Name of Bonds: SLO County Financing Authority Nacimiento Water Project Refunding Revenue Bonds 2018 Series A Date of Delivery: April __, 2018 NOTICE IS HEREBY GIVEN that the Obligated Person has not provided an Annual Disclosure Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of April __, 2018, with respect to the 2018 Bonds. [The Obligated Person anticipates that the Annual Disclosure Report will be filed by __________.] SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:___________________________________ [cc: Obligated Person] D-23 CITY OF SAN LUIS OBISPO FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated April __, 2018, is executed and delivered by the City of San Luis Obispo (the “Obligated Person”) and the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”) in connection with the execution and delivery of $_________ principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A ((the “2018 Bonds”). The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the SLO County Financing Authority (the “Authority”) and U.S. Bank National Association, as trustee (the “Trustee”). The Obligated Person covenants and agrees on behalf of the Authority as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Person for the benefit of the Beneficial Owners of the 2018 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Disclosure Report” shall mean any Annual Disclosure Report provided by the Obligated Person pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the Public Works Department Administrator of the Obligated Person or such other official as may be designated in writing to the Dissemination Agent (if other than the Obligated Person) from time to time. “Dissemination Agent” shall mean the Flood Control District, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Obligated Person and which has filed with the Obligated Person a written acceptance of such designation. “Filing Date” shall mean March 31 of the Fiscal Year of the Obligated Person (or the next succeeding business day if such day is not a business day), commencing March 31, 2019. “Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Obligated Person and certified to the Trustee in writing by an Authorized Representative of the Obligated Person. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB D-24 are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement dated ________, 2018 relating to the 2018 Bonds. “Participating Underwriter” shall mean the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Disclosure Reports. (a) The Obligated Person shall provide, or shall cause the Dissemination Agent to provide, not later than the Filing Date, to the MSRB an Annual Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Disclosure Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in the Disclosure Agreement. If the Fiscal Year of the Obligated Person changes, it shall give notice of such change in the same manner as for a Specified Event under this Disclosure Agreement. (b) Not later than fifteen (15) days prior to each Filing Date, commencing March 15, 2019, the Obligated Person shall provide the Annual Disclosure Report to the Dissemination Agent (of other than the Obligated Person). The Obligated Person shall provide, or cause the preparer of the Annual Disclosure Report to provide, a written certificate with each Annual Disclosure Report furnished to the Dissemination Agent to the effect that such Annual Disclosure Report constitutes the Annual Disclosure Report required to be furnished under the Disclosure Agreement. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Disclosure Report. (c) The Flood Control District shall use its best efforts to assist the Obligated Person in preparing the Annual Disclosure Report for delivery to the Dissemination Agent no later than March 15 of each year. (d) Not later than the Filing Date, the Dissemination Agent shall provide written notice confirming whether or not such Annual Disclosure Report has been furnished by the Obligated Person. (e) If the Obligated Person is unable to provide the Annual Disclosure Report to the Dissemination Agent by the Filing Date of each year commencing March 31, 2019, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. (f) The Dissemination Agent shall: (i) If not previously filed by the Obligated Person, send a notice to the MSRB if the Participating Agency, is unable to provide to the Annual Filing to the MSRB by the date required in subsection (a); and D-25 (ii) to the extent information is known to it, file a report with the Obligated Person certifying that the Annual Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. SECTION 4. Content of Annual Disclosure Reports. The Annual Disclosure Report shall contain or include by reference the following: (a) The audited financial statements of the Obligated Person prepared in accordance with generally accepted accounting principles in effect from time to time. If any of such audited financial statements are not available by the time the Annual Disclosure Report is required to be filed pursuant to Section 3(a), the Annual Disclosure Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Disclosure Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or prior to the Filing Date, financial and operating data with respect to the Obligated Person for the preceding Fiscal Year, substantially similar to the financial and operating data in the Official Statement as follows: (i) Principal and interest payment delinquencies; (ii) Table A3-2 Water Connections; (iii) Table A3-3 Water Deliveries; (iv) Table A3-4 Water Sales Revenues; (v) Table A3-7 Secured Assessed Valuation†; (vi) Table A3-8 Operating Results; (vii) Information concerning any revisions to the adopted rates and charges which are generally imposed by the Obligated Person upon users within the service area of its Water Enterprise; and (viii) For any customer whose total billings in the preceding Fiscal Year represent 10% or more of Gross Revenues of the Water Enterprise: (A) the total amount of Gross Revenues derived from such customer; and (B) the percent of Gross Revenues represented by such customer for such Fiscal Year. (c) In addition to any of the information expressly required to be provided under Sections 4(a) and 4(b), the Obligated Person shall provide such other information, if any, necessary to the required statements, in light of the circumstances under which they were made, not misleading. ____________________________ † This data is provided for informational purposes only. The Obligated Person is a party to a Nacimiento Project Water Delivery Entitlement Contract (the “Delivery Contract”) with the Flood Control District that permits the Obligated Person to issue additional “Municipal Obligations” to fund all or a portion of the Delivery Contract Payments with the levy of ad valorem property taxes, special assessments or special taxes. As of the date of this Disclosure Agreement, the Obligated Person had not levied any ad valorem property taxes, special assessments or special taxes to fund any of its Delivery Contract Payments. D-26 (d) The presentation and format of the Annual Disclosure Reports may be modified from time to time as determined in the judgment of the Obligated Person to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Obligated Person to reflect changes in the business, structure, operations, legal form of the Obligated Person or any mergers, consolidations, acquisitions or dispositions made by or affecting the Obligated Person; provided that any such modifications shall comply with the requirements of the Rule. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Obligated Person or related public entities, which have been made available to the public on the MSRB website. The Obligated Person shall clearly identify each such other document so included by reference. SECTION 5. Termination of Reporting Obligation. The obligations of the Obligated Person under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds. If such termination occurs prior to the final maturity of the 2018 Bonds, the Obligated Person shall give notice of such termination to the MSRB. SECTION 6. Dissemination Agent. The Obligated Person may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Obligated Person. The initial Dissemination Agent shall be the Flood Control District. SECTION 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Person may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), or 4, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the 2018 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the 2018 Bonds. (d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Obligated Person shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or D-27 operating data being presented by the Obligated Person. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event, and (ii) the Annual Disclosure Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Person from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of a Specified Event, in addition to that which is required by this Disclosure Agreement. If the Obligated Person chooses to include any information in any Annual Disclosure Report or notice of occurrence of a Specified Event in addition to that which is specifically required by this Disclosure Agreement, the Obligated Person shall have no obligation under this Agreement to update such information or include it in any future Annual Disclosure Report or notice of occurrence of a Specified Event. SECTION 9. Default. This Disclosure Agreement shall be solely for the benefit of the holders and beneficial owners from time to time of the 2018 Bonds. In the event of a failure of the Obligated Person to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of the Participating Underwriter or the Holders of at least twenty-five (25%) aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, shall), or any Holder or Beneficial Owner of the 2018 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by order of a court of competent jurisdiction in San Luis Obispo County, California, to cause the Obligated Person to comply with its obligations under this Disclosure Agreement, provided that any holder or beneficial owner seeking to require the Obligated Person to comply with this Disclosure Agreement shall first provide at least thirty (30) days prior written notice to the Obligated Person of the failure of the Obligated Person, giving reasonable detail of such failure. Failure by the Obligated Person to comply with any provision of this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Person to comply with the terms of this Disclosure Agreement shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. SECTION 10. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Person agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Obligated Person for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the Obligated Person under this Section 10 shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. D-28 SECTION 11. Notices. Any notices or communications to the Obligated Person or the Dissemination Agent may be given as follows: Obligated Person: City of San Luis Obispo Utilities Department 879 Morro Street San Luis Obispo, CA 93401 Attention: Utilities Director Phone: 805-781-7215 Dissemination Agent: San Luis Obispo Flood Control and Water Conservation District County Government Center 1055 Monterey Street San Luis Obispo, CA 93408 Attention: Auditor-Controller Phone: 805-781-5040 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Flood Control District, the Trustee, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. SECTION 13. Record Keeping. The Obligated Person shall maintain records of Annual Disclosure Reports and notices of Specified Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but on and the same instrument. CITY OF SAN LUIS OBISPO By:________________________________________ Authorized Officer Accepted: SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT, as Dissemination Agent By:________________________________________ Chairman D-29 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL DISCLOSURE REPORT Name of Obligated Person: City of San Luis Obispo Name of Bonds: SLO County Financing Authority Nacimiento Water Project Refunding Revenue Bonds 2018 Series A Date of Delivery: April __, 2018 NOTICE IS HEREBY GIVEN that the Obligated Person has not provided an Annual Disclosure Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of April __, 2018, with respect to the 2018 Bonds. [The Obligated Person anticipates that the Annual Disclosure Report will be filed by __________.] SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:___________________________________ [cc: Obligated Person] D-30 TEMPLETON COMMUNITY SERVICES DISTRICT FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the “Disclosure Agreement”), dated April __, 2018, is executed and delivered by the Templeton Community Services District (the “Obligated Person”) and the San Luis Obispo County Flood Control and Water Conservation District (the “Flood Control District”) in connection with the execution and delivery of $_________ principal amount of SLO County Financing Authority Nacimiento Water Project Revenue Refunding Bonds, 2018 Series A (the “2018 Bonds”). The 2018 Bonds will be issued and secured pursuant to the terms of an Indenture of Trust, dated as of September 1, 2007 (the “Original Indenture”), previously supplemented and amended, and as further supplemented and amended by the Second Supplemental Indenture of Trust dated as of April 1, 2018 (the “Second Supplemental Indenture” and together with the Original Indenture, the “Indenture”), each by and between the SLO County Financing Authority (the “Authority”) and U.S. Bank National Association, as trustee (the “Trustee”). The Obligated Person covenants and agrees on behalf of the Authority as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the Obligated Person for the benefit of the Beneficial Owners of the 2018 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Disclosure Report” shall mean any Annual Disclosure Report provided by the Obligated Person pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. “Beneficial Owner” shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. “Disclosure Representative” shall mean the Finance Officer of the Obligated Person or such other official as may be designated in writing to the Dissemination Agent (if other than the Obligated Person) from time to time. “Dissemination Agent” shall mean the Flood Control District, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Obligated Person and which has filed with the Obligated Person a written acceptance of such designation. “Filing Date” shall mean March 31 of the Fiscal Year of the Obligated Person (or the next succeeding business day if such day is not a business day), commencing March 31, 2019. “Fiscal Year” shall mean the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Obligated Person and certified to the Trustee in writing by an Authorized Representative of the Obligated Person. “MSRB” shall mean the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB D-31 are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement dated ________, 2018 relating to the 2018 Bonds. “Participating Underwriter” shall mean the original underwriter of the 2018 Bonds required to comply with the Rule in connection with offering of the 2018 Bonds. “Rule” shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Disclosure Reports. (a) The Obligated Person shall provide, or shall cause the Dissemination Agent to provide, not later than the Filing Date, to the MSRB an Annual Disclosure Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Disclosure Report shall be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB, and may be submitted as a single document or as separate documents comprising a package and may cross-reference other information as provided in the Disclosure Agreement. If the Fiscal Year of the Obligated Person changes, it shall give notice of such change in the same manner as for a Specified Event under this Disclosure Agreement. (b) Not later than fifteen (15) days prior to each Filing Date, commencing March 15, 2019, the Obligated Person shall provide the Annual Disclosure Report to the Dissemination Agent (of other than the Obligated Person). The Obligated Person shall provide, or cause the preparer of the Annual Disclosure Report to provide, a written certificate with each Annual Disclosure Report furnished to the Dissemination Agent to the effect that such Annual Disclosure Report constitutes the Annual Disclosure Report required to be furnished under the Disclosure Agreement. The Dissemination Agent may conclusively rely upon such certification and shall have no duty or obligation to review such Annual Disclosure Report. (c) The Flood Control District shall use its best efforts to assist the Obligated Person in preparing the Annual Disclosure Report for delivery to the Dissemination Agent no later than March 15 of each year. (d) Not later than the Filing Date, the Dissemination Agent shall provide written notice confirming whether or not such Annual Disclosure Report has been furnished by the Obligated Person. (e) If the Obligated Person is unable to provide the Annual Disclosure Report to the Dissemination Agent by the Filing Date of each year commencing March 31, 2019, the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. (f) The Dissemination Agent shall: (i) If not previously filed by the Obligated Person, send a notice to the MSRB if the Participating Agency, is unable to provide to the Annual Filing to the MSRB by the date required in subsection (a); and D-32 (ii) to the extent information is known to it, file a report with the Obligated Person certifying that the Annual Disclosure Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. SECTION 4. Content of Annual Disclosure Reports. The Annual Disclosure Report shall contain or include by reference the following: (a) The audited financial statements of the Obligated Person prepared in accordance with generally accepted accounting principles in effect from time to time. If any of such audited financial statements are not available by the time the Annual Disclosure Report is required to be filed pursuant to Section 3(a), the Annual Disclosure Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Disclosure Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or prior to the Filing Date, financial and operating data with respect to the Obligated Person for the preceding Fiscal Year, substantially similar to the financial and operating data in the Official Statement as follows: (i) Principal and interest payment delinquencies; (ii) Table A4-1 Water Connections; (iii) Table A4-2 Water Deliveries; (iv) Table A4-3 Water Sales Revenues; (v) Table A4-7 Operating Results; (vi) Information concerning any revisions to the adopted rates and charges which are generally imposed by the Obligated Person upon users within the service area of its Water Enterprise; and (vii) For any customer whose total billings in the preceding Fiscal Year represent 10% or more of Gross Revenues of the Water Enterprise: (A) the total amount of Gross Revenues derived from such customer; and (B) the percent of Gross Revenues represented by such customer for such Fiscal Year. (c) In addition to any of the information expressly required to be provided under Sections 4(a) and 4(b), the Obligated Person shall provide such other information, if any, necessary to the required statements, in light of the circumstances under which they were made, not misleading. (d) The presentation and format of the Annual Disclosure Reports may be modified from time to time as determined in the judgment of the Obligated Person to conform to changes in accounting or disclosure principles or practices and legal requirements followed by or applicable to the Obligated Person to reflect changes in the business, structure, operations, legal form of the Obligated Person or any mergers, consolidations, acquisitions or dispositions made by or affecting the Obligated Person; provided that any such modifications shall comply with the requirements of the Rule. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Obligated Person or related public entities, which have D-33 been made available to the public on the MSRB website. The Obligated Person shall clearly identify each such other document so included by reference. SECTION 5. Termination of Reporting Obligation. The obligations of the Obligated Person under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 2018 Bonds. If such termination occurs prior to the final maturity of the 2018 Bonds, the Obligated Person shall give notice of such termination to the MSRB. SECTION 6. Dissemination Agent. The Obligated Person may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days written notice to the Obligated Person. The initial Dissemination Agent shall be the Flood Control District. SECTION 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Obligated Person may amend this Disclosure Agreement, and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) If the amendment or waiver relates to the provisions of Sections 3(a), or 4, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the 2018 Bonds, or the type of business conducted; (b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original execution and delivery of the 2018 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the Holders of the 2018 Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of a nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the 2018 Bonds. (d) Any amendment that modifies or increases the duties or obligations of the Dissemination Agent shall be agreed to in writing by the Dissemination Agent. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Obligated Person shall describe such amendment in the next Annual Disclosure Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Obligated Person. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Specified Event, and (ii) the Annual Disclosure Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. SECTION 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Obligated Person from disseminating any other information, using the means of dissemination D-34 set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Disclosure Report or notice of occurrence of a Specified Event, in addition to that which is required by this Disclosure Agreement. If the Obligated Person chooses to include any information in any Annual Disclosure Report or notice of occurrence of a Specified Event in addition to that which is specifically required by this Disclosure Agreement, the Obligated Person shall have no obligation under this Agreement to update such information or include it in any future Annual Disclosure Report or notice of occurrence of a Specified Event. SECTION 9. Default. This Disclosure Agreement shall be solely for the benefit of the holders and beneficial owners from time to time of the 2018 Bonds. In the event of a failure of the Obligated Person to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of the Participating Underwriter or the Holders of at least twenty-five (25%) aggregate principal amount of Outstanding Bonds and upon receipt of indemnity satisfactory to the Trustee, shall), or any Holder or Beneficial Owner of the 2018 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by order of a court of competent jurisdiction in San Luis Obispo County, California, to cause the Obligated Person to comply with its obligations under this Disclosure Agreement, provided that any holder or beneficial owner seeking to require the Obligated Person to comply with this Disclosure Agreement shall first provide at least thirty (30) days prior written notice to the Obligated Person of the failure of the Obligated Person, giving reasonable detail of such failure. Failure by the Obligated Person to comply with any provision of this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the Obligated Person to comply with the terms of this Disclosure Agreement shall be an action to compel performance. No person or entity shall be entitled to recover monetary damages under this Disclosure Agreement. SECTION 10. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Obligated Person agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorney’s fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Obligated Person for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The obligations of the Obligated Person under this Section 10 shall survive resignation or removal of the Dissemination Agent and payment of the 2018 Bonds. SECTION 11. Notices. Any notices or communications to the Obligated Person or the Dissemination Agent may be given as follows: Obligated Person: Templeton Community Services District 420 Crocker Street Templeton, CA 93456 Attention: General Manager Phone: 805-434-4900 D-35 Dissemination Agent: San Luis Obispo Flood Control and Water Conservation District County Government Center 1055 Monterey Street San Luis Obispo, CA 93408 Attention: Auditor-Controller Phone: 805-781-5040 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Authority, the Flood Control District, the Trustee, the Dissemination Agent, the Participating Underwriter and Holders and Beneficial Owners from time to time of the 2018 Bonds, and shall create no rights in any other person or entity. SECTION 13. Record Keeping. The Obligated Person shall maintain records of Annual Disclosure Reports and notices of Specified Events, including the content of such disclosure, the name of the entities with which such disclosure was filed and the date of filing of such disclosure. SECTION 14. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but on and the same instrument. TEMPLETON COMMUNITY SERVICES DISTRICT By:________________________________________ Authorized Officer Accepted: SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT, as Dissemination Agent By:________________________________________ Chairman D-36 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL DISCLOSURE REPORT Name of Obligated Person: Templeton Community Services District Name of Bonds: SLO County Financing Authority Nacimiento Water Project Refunding Revenue Bonds 2018 Series A Date of Delivery: April __, 2018 NOTICE IS HEREBY GIVEN that the Obligated Person has not provided an Annual Disclosure Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of April __, 2018, with respect to the 2018 Bonds. [The Obligated Person anticipates that the Annual Disclosure Report will be filed by __________.] SAN LUIS OBISPO COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT By:___________________________________ [cc: Obligated Person] E-1 APPENDIX E PROPOSED FORM OF BOND COUNSEL OPINION [To be provided by Bond Counsel] F-1 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2018 Bonds, payment of principal, redemption premium, if any, and interest with respect to the 2018 Bonds to DTC, its Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2018 Bonds and other related transactions by and between DTC, its Participants and the Beneficial Owners is based solely on the understanding of the County of such procedures and record keeping from information provided by DTC. Accordingly, no representations can be made concerning these matters and neither DTC, its 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 its Participants, as the case may be. The County, the Trustee and the Underwriter understand that the current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and that the current “Procedures” of DTC to be followed in dealing with Participants are on file with DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the 2018 Bonds. The 2018 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 certificate will be issued for each maturity of each Series of the 2018 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has 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 the 2018 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2018 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 holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2018 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants F-2 acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2018 Bonds, except in the event that use of the book-entry system for the 2018 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 the 2018 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2018 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 Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2018 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2018 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of the 2018 Bonds may wish to ascertain that the nominee holding the 2018 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 2018 Bonds within a maturity are being redeemed. DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in each issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 2018 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 issuer 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 the 2018 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments of principal of, premium, if any, and interest on the 2018 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 County 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 County, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest on the 2018 Bonds to Cede (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the County or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. F-3 DTC may discontinue providing its services as depository with respect to the 2018 Bonds at any time by giving reasonable notice to the County or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The County may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered. The foregoing information concerning DTC concerning and DTC’s book-entry system has been provided by DTC, and neither the County nor the Trustee take any responsibility for the accuracy thereof. NEITHER THE COUNTY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS WITH RESPECT TO THE PAYMENTS OR THE PROVIDING OF NOTICE TO DTC PARTICIPANTS, INDIRECT PARTICIPANTS OR BENEFICIAL OWNERS OR THE SELECTION OF BONDS FOR REDEMPTION. Neither the County nor the Trustee can give any assurances that DTC, DTC Participants, Indirect Participants or others will distribute payments of principal of, premium, if any, and interest on the 2018 Bonds paid to DTC or its nominee, as the registered Owner, or any redemption or other notice, to the Beneficial Owners or that they will do so on a timely basis or that DTC will serve and act in a manner described in this Official Statement. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply. The County and the Trustee cannot and do not give any assurances that DTC, the Participants or others will distribute payments of principal, interest or premium, if any, evidenced by the 2018 Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. Neither the County nor the Trustee are responsible or liable for the failure of DTC or any Participant to make any payment or give any notice to a Beneficial Owner with respect to the 2018 Bonds or an error or delay relating thereto. G-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY