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2023-08-15 Executed Bond Documents for Cultural Arts District Parking Structure
List of Executed Bond Documents for the Cultural Arts District Parking Structure 00.1 Broker's Opinion of Value (BOV) ‐ SLO Marsh Street Parking Structure_July 2023 00.2 Fidelity National Title Report for Marsh Street Parking Structure ‐ Policy No FSLC‐512300388 00.3 Broker's Opinion of Value (BOV) ‐ SLO Palm Street Parking Sturctures_June 2023 00.4 Index of Transcript Documents 01. Ground Lease 02. Lease Agreement together with Memorandum of Lease Agreement and Assignment 03. Indenture 04. Continuing Disclosure Certificate 05. Preliminary Official Statement, together with Rule 15c2‐12 Certificate 06. Bond Purchase Contract 07. Official Statement 07a. Signature page to Official Statement 08. Request to Trustee 09. Resolution No. 11443 (2023 SERIES) certified by the Secretary of the Authority 10. Proof of Publication re Notice of Public Hearing 11. Joint Exercise of Powers Agreement certified by the Secretary of the Authority 12. Registry of Public Agencies filed with the Secretary of State 13. Incumbency and Signature Certificate of the Authority 14. Written Request to Trustee 15. Certificate of the Authority 16. Tax Certificate 17. IRS Form 8038‐G 18. CDIAC Reports 19. Opinion of City Attorney of the City as Counsel to the Authority 20. Resolution No. 11442 (2023 SERIES) certified by the City Clerk 21. Incumbency and Signature Certificate of the City 22. Certificate of the City 23. Written Request No. 1 for Disbursements from COI Fund 24. Certificate of Insurance 25. Policy of title insurance issued by Chicago Title Company 26. Opinion of City Attorney of the City 27. Certificate of U.S. Bank Trust Company, National Association 28. Incumbency certificate and extracts from By‐laws of Trustee 29. Trustee's Receipt of Proceeds 30. Opinion of Dorsey & Whitney LLP as counsel to the Trustee 31. Receipt for Bonds 32. Specimen Bonds 33. Underwriter's closing memorandum 34. Rating Letter of S&P Global Ratings 35. Opinion of Stradling Yocca Carlson & Rauth as counsel to the Underwiter 36. Final Opinion 37. Supplemental Opinion 38. Reliance Letter to Trustee 39. DTC Blanket Issuer Letter of Representations 40. Recording Instructions to Title Company 41. Interested Parties List 42. Docusign Certificates of Completion Commercial Broker Price Opinion - Marsh Street Parking Structure, San Luis Obispo, CA Property Analysis by McCarty Davis Commercial Real Estate Prepared for: City of San Luis Obispo, Greg Cleary 641 Higuera St., Suite 201 Property: 871 Marsh Street, Marsh Street Parking Structure, San Luis Obispo, CA San Luis Obispo, CA 93401 Update 6/30/2023 805-543-1801 www.mccartydavis.com Facts and Assumptions about the subject property Analysis and Market Assumptions: Cost/sq.ft of purchasing comparable land $90.00 Cost/sq.ft. of parking structure shell $300.00 Concrete Cost/sq.ft. of developing office/improvements $120.00 City Rate for Lease:$1.75 Sq. Ft. Gross Cost of In Lieu Parking Fee per space $24,000.00 Functional Life of the building (in years)60 Zoning Downtown Commercial C-D Property Assumptions Analysis Conclusions: Year built:1991 Effective Building Age 2.75 estimated.In considering methods of valuation, economic valuation has not kept up with what it costs to produce parking structures. Construction costs remain high Property Facts due to lingering post covid supply change issues, higher material costs Square Footage multi level 215,838 per city records and labor shortages, therefore replacement costs have been the basis for this Size of land area 130,601 per city records valuation. Size of Retail 4,000 Size of office (assumption)15,000 S.F. Basis for Leasable Rent 130,610 " It is our opinion that replacement costs are the weighted factor for Size of First Floor N/A determining values for insurance purposes" Site Coverage 165.27% Parking Spaces 520 Parking Ratio (sq. ft./number of spaces)415 Percent of Retail:3.06% Percent of Office:11.48% Information contained herein has been obtained from the owner of the property or from other sources deemed reliable. We have no reason to doubt its accuracy, but we do not guarantee it. Estimated Value Range for Insurance Purposes $62,000,000--$64,000,000 (excludes land) Marsh Street Parking Structure, San Luis Obispo, CA Analysis - Calculate Value Range based on three analysis A. Economic (if the property were leased, what purchase price does the projected income justify?) B. Reproduction (what would it cost to reproduce the same product) C. Supporting Data Two scenarios were developed to provide economic valuation data A. Economic Evaluation: (i)Proforma RENT, Projected, hypothetical Say, the number of spaces were rented out privately ( 100% of the spaces). (i)Leasable Space: (leased by number of spaces)520 spaces Gross Annual Income* (i)Leasable Rent:$325 Say, per space $2,028,000 (i)Projected $641,000 Operating cost (from City) Less Expenses Less vacancy factor N/A $0.00 Projected Annual Rent NOI $1,387,000 (ii)Current (ii)Monthly Rent/Yearly Rent $367,900 Office: rent included:$84,000.00 $451,900 subtotal Retail:$315,000.00 $766,900 subtotal Less Expenses 174%$641,000 Operating costs Less vacancy factor N/A $0.00 Projected Annual Rent NOI $125,900 Estimate value based on Cap Valuations Cap rate 6.00%6.50%7.00%7.50% Projected Valuation (i)Property Value $23,116,667 $21,338,462 $19,814,286 $18,493,333 (i)Value per s.f. of Building $107 $99 $92 $86 (i)Value per space $44,455 $41,036 $38,104 $35,564 Current Rent Valuation (ii)Property Value (as these are neg nbrs they do not apply)$2,098,333 $1,936,923 $1,798,571 $1,678,667 (ii)Value per s.f. of Building $107.10 $98.86 $91.80 $85.68 (ii)Value per space $44,455.13 $41,035.50 $38,104.40 $35,564.10 Economic valuation is not a good index as the revenues for parking are artificially low and do not represent fair market. Marsh Street Parking Structure, San Luis Obispo, CA B. Reproduction Evaluation: Land Value (Functional Value)$11,754,090 Building Shell Value:$64,751,400 Build-out Retail Value $1,800,000 Build-out office/Retail $480,000 Special Equipment TBD Sub total:$78,305,490 Less Depreciation/Renovation/Repairs:($3,000,000)($13.90)projected estimate by City for repairs Est. Building Value:$75,305,490 $63,551,400 Value not including land for insurance purposes 349$ Cost per sq. ft. 122,214$ Value per space Comments and notes to Reproduction Evaluation Land prices have increased over the last years. Building costs have risen given increased expenses for materials, labor and fees. The building entitlement process has been more complex and time consuming. Existing buildings are gaining inherent value just in their entitlement. Palm Street Parking Structure, San Luis Obispo, CA C. Supporting Data (Supporting Data From Recent Bids and Historical Insurance Valuations) Property Subject Supporting Data Supporting Data Supporting Data Marsh Street Parking Garage Cultural Arts District Palm Street Parking Garage Marsh Street Parking Garage Status Year Built 1991 To Be Constructed Year Built 1988 Year Built 1991 Zoning CDT CDT CDT CDT Lot Size 215,838 233,917 41,000 215,838 Bldg. Size 130,601 47,000 122,600 130,601 Number of Spaces 520 403 417 520 Valuation Price $50,467,420 $41,000,000 $9,975,000 $21,903,000 Value/sq. ft.$386 $872 $81 $168 Value/space $97,053 $101,737 $23,921 $42,121 Comments:Parking Structure Parking Structure Parking Structure Parking Structure (Valuation Rounded)Parking Structure Parking Structure Parking Structure Office and Retail Projected value based contributing revenue on Current Bid Current Bid Insurance Value 2020 Insurance Value 2020 Commercial Broker Price Opinion - Palm Street Parking Structure, San Luis Obispo, CA Property Analysis by McCarty Davis Commercial Real Estate Prepared for: City of San Luis Obispo, Greg Cleary 641 Higuera St., Suite 201 Property: 842 Palm Street, Palm Street Parking Structure, San Luis Obispo, CA San Luis Obispo, CA 93401 Update 6/30/2023 805-543-1801 www.mccartydavis.com Facts and Assumptions about the subject property Analysis and Market Assumptions: Cost/sq.ft of purchasing comparable land $90.00 Cost/sq.ft. of parking structure shell $300.00 Concrete Cost/sq.ft. of developing office/improvements $120.00 City Rate for Lease:$1.75 Sq. Ft. Gross Cost of In Lieu Parking Fee per space $24,000.00 Functional Life of the building (in years)60 Zoning Downtown Commercial C-D Property Assumptions Analysis Conclusions: Year built:1988 Effective Building Age 5 In considering methods of valuation, economic valuation has not kept up with what it costs to produce parking structures. Construction costs remain high Property Facts due to lingering post covid supply change issues, higher material costs Square Footage multi level 122,600 per city records and labor shortages, therefore replacement costs have been the basis for this Size of land area 41,000 per city records valuation. Size of Retail N/A Size of office (assumption)N/A S.F. Basis for Leasable Rent 122,600 " It is our opinion that replacement costs are the weighted factor for Size of First Floor N/A determining values for insurance purposes" Site Coverage 299.02% Parking Spaces 417 Parking Ratio (sq. ft./number of spaces)294 Percent of Retail:N/A Percent of Office:N/A Information contained herein has been obtained from the owner of the property or from other sources deemed reliable. We have no reason to doubt its accuracy, but we do not guarantee it. (excludes land) Estimated Value Range for Insurance Purposes $34,000,000-$36,000,000 Palm Street Parking Structure, San Luis Obispo, CA Analysis - Calculate Value Range based on three analysis A. Economic (if the property were leased, what purchase price does the projected income justify?) B. Reproduction (what would it cost to reproduce the same product) C. Supporting Data Two scenarios were developed to provide economic valuation data A. Economic Evaluation: (i)Proforma RENT, Projected, hypothetical Say, the number of spaces were rented out privately ( 100% of the spaces). (i)Leasable Space: (leased by number of spaces)417 spaces Gross Annual Income* (i)Leasable Rent:$325 Say, per space $1,626,300 (i)Projected $499,000 Operating cost (from City) Less Expenses Less vacancy factor N/A $0.00 Projected Annual Rent NOI $1,127,300 (ii)Current (ii)Monthly Rent/Yearly Rent $367,900 Projected based on proforma space Less Expenses 136%$499,000 Operating cost Less vacancy factor N/A $0.00 Projected Annual Rent NOI -$131,100 Estimate value based on Cap Valuations Cap rate 6.00%6.50%7.00%7.50% Projected Valuation (i)Property Value $18,788,333 $17,343,077 $16,104,286 $15,030,667 (i)Value per s.f. of Building $153 $141 $131 $123 (i)Value per space $45,056 $41,590 $38,619 $36,045 Current Rent Valuation (ii)Property Value (as these are neg nbrs they do not apply)($2,185,000)($2,016,923)($1,872,857)($1,748,000) (ii)Value per s.f. of Building $153.25 $141.46 $131.36 $122.60 (ii)Value per space $45,055.96 $41,590.11 $38,619.39 $36,044.76 Economic valuation is not a good index as the revenues for parking are artificially low and do not represent fair market. Palm Street Parking Structure, San Luis Obispo, CA B. Reproduction Evaluation: Land Value (Functional Value)$3,690,000 Building Shell Value:$36,780,000 Build-out office Value NA Build-out office Retail NA Special Equipment TBD Sub total:$40,470,000 Less Depreciation/Renovation/Repairs:($3,065,000)($25.00) Est. Building Value:$37,405,000 $33,715,000 Value not including land for insurance purposes 305$ Cost per sq. ft. 80,851$ Value per space Comments and notes to Reproduction Evaluation Land prices have increased over the last years. Building costs have risen given increased expenses for materials, labor and fees. The building entitlement process has been more complex and time consuming. Existing buildings are gaining inherent value just in their entitlement. Palm Street Parking Structure, San Luis Obispo, CA C. Supporting Data (Supporting Data From Recent Bids and Historical Insurance Valuations) Property Subject Supporting Data Supporting Data Supporting Data Palm Street Parking Garage Cultural Arts District Palm Street Parking Garage Marsh Street Parking Garage Status Year Built 1988 To Be Constructed Year Built 1988 Year Built 1991 Zoning CDT CDT CDT CDT Lot Size 41,000 233,917 41,000 215,838 Bldg. Size 122,600 47,000 122,600 130,601 Number of Spaces 417 403 417 520 Valuation Price $35,000,000 $41,000,000 $9,975,000 $21,903,000 Value/sq. ft.$285 $872 $81 $167.71 Value/space $83,933 $101,737 $23,921 $42,121.15 Comments:Parking Structure Parking Structure Parking Structure Parking Structure (Valuation Rounded)Parking Structure Parking Structure Parking Structure Office and Retail Projected value contributing revenue on Current Bid Current Bid Insurance Value 2020 Insurance Value 2020 4162-4965-5370.1 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INDEX OF TRANSCRIPT DOCUMENTS Documents are dated September 13, 2023 unless otherwise indicated. BASE LEGAL DOCUMENTS 1.Ground Lease, dated as of September 1, 2023, by and between the City of San Luis Obispo (the “City”) and the San Luis Obispo Public Financing Authority (the “Authority”). (recorded in Official Records, County of San Luis Obispo) 2.Lease Agreement, dated as of September 1, 2023 (the “Lease Agreement”), by and between the City and the Authority, together with Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, by and among the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). (Memorandum of Lease Agreement and Assignment recorded in Official Records, County of San Luis Obispo) 3.Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City and the Trustee. 4.Continuing Disclosure Certificate, executed by the City. 5.Preliminary Official Statement, dated August 23, 2023, together with the 15c2-12 Certificate of the Authority and the City. 6.Bond Purchase Contract, dated August 30, 2023, by and among Raymond James & Associates, Inc. (the “Underwriter”), the Authority and the City. (Underwriter’s Counsel) 7.Official Statement, dated August 30, 2023. 8.Request to Trustee, executed by the City of San Luis Obispo Capital Improvement Board and acknowledged and agreed to by U.S. Bank Trust Company, National Association, relating to the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds. AUTHORITY DOCUMENTS 9.Resolution No. 11443 (2023 SERIES) entitled, “A Resolution of the Board of Directors of the San Luis Obispo Public Financing Authority Authorizing the Execution and Delivery of a Ground Lease, A Lease Agreement, an Indenture, and a Bond Purchase Contract in Connection With the Issuance of San Luis Obispo 2 4162-4965-5370.1 Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, Authorizing the Issuance of Such Bonds in an Aggregate Principal Amount of Not to Exceed $50,000,000, Authorizing the Distribution of an Official Statement in Connection Therewith and Authorizing the Execution of Necessary Documents and Certificates and Related Actions,” adopted by the Board of Directors of the Authority on August 15, 2023, certified by the Secretary of the Authority. (Bond Counsel/Authority) 10.Notice of Public Hearing, published on August 10, 2023, in the New Times. (City) 11.Joint Exercise of Powers Agreement, effective September 15, 2014, by and between the City and the Parking Authority of the City of San Luis Obispo, certified by the Secretary of the Authority. 12.Registry of Public Agencies, filed with the Secretary of State of the State of California on July 24, 2023. 13.Incumbency and Signature Certificate of the Authority. 14.Written Request to Trustee, pursuant to Section 3.01 of the Indenture. 15.Certificate of the Authority. 16.Tax Certificate, executed by the Authority and the City. 17.Information Return for Tax-Exempt Governmental Obligations, Form 8038-G. 18.Report of Proposed Debt Issuance and Report of Final Sale, filed with the California Debt and Investment Advisory Commission. 19.Opinion of J. Christine Dietrick, Esq., City Attorney of the City of San Luis Obispo, serving as General Counsel to the Authority. CITY DOCUMENTS 20.Resolution No. 11442 (2023 SERIES) entitled, “A Resolution of the City Council of the City of San Luis Obispo Authorizing the Execution and Delivery by the City of a Ground Lease, a Lease Agreement, an Indenture, a Bond Purchase Contract and a Continuing Disclosure Certificate in Connection With the Issuance of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, Approving the Issuance of Such Bonds in an Aggregate Principal Amount of Not to Exceed $50,000,000, Authorizing the Distribution of an Official Statement in Connection With the Offering and Sale of Such Bonds and Authorizing the Execution of Necessary Documents and Certificates and Related Actions,” adopted by the City Council of the City of San Luis Obispo (the “City”) on August 15, 2023, as certified by the City Clerk of the City Council of the City. 21.Incumbency and Signature Certificate of the City. 3 4162-4965-5370.1 22.Certificate of the City. 23.Written Request No. 1 for Disbursements from Costs of Issuance Fund. 24.Certificate regarding insurance, together with evidence of Insurance in accordance with Section 5.01 of the Lease Agreement. (City) 25.Policy of title insurance issued by Chicago Title Company (the “Title Company”), in accordance with Section 5.02 of the Lease Agreement. 26.Opinion of J. Christine Dietrick, Esq., City Attorney of the City. TRUSTEE DOCUMENTS 27.Certificate of U.S. Bank Trust Company, National Association. 28.Incumbency certificate and extracts from By-Laws of U.S. Bank Trust Company, National Association. 29.Trustee’s Receipt of Proceeds. 30.Opinion of Dorsey & Whitney LLP, as Counsel to the Trustee. UNDERWRITER DOCUMENTS 31.Receipt for Bonds. 32.Specimen Bonds. 33.Underwriter’s closing memorandum. (Underwriter) 34.Rating Letter of S&P Global Ratings. 35.Opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, as counsel to the Underwriters. BOND COUNSEL AND DISCLOSURE COUNSEL OPINIONS 36.Final Opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. 37.Supplemental Opinion of Orrick, Herrington & Sutcliffe LLP. 38.Reliance Letter of Orrick, Herrington & Sutcliffe LLP regarding Final Opinion, addressed to the Trustee. MISCELLANEOUS 39.DTC Blanket Letter of Representations. 4 4162-4965-5370.1 40.Recording Instructions addressed to the Title Company, dated September 8, 2023. 41.Interested Parties List. 42.DocuSign Certificates of Completion. * * * * EXECUTION COPY 4142-7460-2566.13 LEASE AGREEMENT by and between CITY OF SAN LUIS OBISPO and SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Dated as of September 1, 2023 TABLE OF CONTENTS Page i 4142-7460-2566.13 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION ....................................................... 2 Section 1.01. Definitions ................................................................................................................... 2 Section 1.02. Rules of Construction .................................................................................................. 4 ARTICLE II LEASE OF LEASED PROPERTY; TERM................................................................ 5 Section 2.01. Lease of the Leased Property ...................................................................................... 5 Section 2.02. Occupancy; Term ........................................................................................................ 5 ARTICLE III RENTAL PAYMENTS ............................................................................................... 6 Section 3.01. Rental Payments .......................................................................................................... 6 Section 3.02. Base Rental Payments ................................................................................................. 6 Section 3.03. Additional Rental Payments ........................................................................................ 6 Section 3.04. Fair Rental Value ........................................................................................................ 7 Section 3.05. Payment Provisions ..................................................................................................... 7 Section 3.06. Appropriations Covenant ............................................................................................ 7 Section 3.07. Rental Abatement ........................................................................................................ 7 Section 3.08. Prepayment .................................................................................................................. 8 ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS ...................... 8 Section 4.01. Quiet Enjoyment ......................................................................................................... 8 Section 4.02. Net-Net-Net Lease ....................................................................................................... 8 Section 4.03. Right of Entry .............................................................................................................. 8 Section 4.04. Maintenance and Utilities ............................................................................................ 9 Section 4.05. Additions to the Leased Property ................................................................................ 9 Section 4.06. Installation of City’s Equipment ................................................................................. 9 Section 4.07. Mechanics’, Etc. Liens ................................................................................................ 9 Section 4.08. Other Liens ................................................................................................................ 10 ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN ....................................... 10 Section 5.01. Public Liability and Property Damage Insurance; Workers’ Compensation Insurance ................................................................................................................... 10 Section 5.02. Title Insurance ........................................................................................................... 11 Section 5.03. Additional Insurance Provision; Form of Policies .................................................... 11 Section 5.04. Self-Insurance ............................................................................................................ 11 Section 5.05. Damage or Destruction .............................................................................................. 12 TABLE OF CONTENTS (continued) Page ii 4142-7460-2566.13 Section 5.06. Net Proceeds of Title Insurance ................................................................................ 12 Section 5.07. Eminent Domain ....................................................................................................... 13 ARTICLE VI REPRESENTATIONS; COVENANTS .................................................................... 13 Section 6.01. Representations of the City ....................................................................................... 13 Section 6.02. Representation of the Authority ................................................................................ 13 Section 6.03. Recordation ............................................................................................................... 13 Section 6.04. Use of the Leased Property ....................................................................................... 14 Section 6.05. Other Liens ................................................................................................................ 14 Section 6.06. Taxes ......................................................................................................................... 14 Section 6.07. No Liability; Indemnification .................................................................................... 14 Section 6.08. Further Assurances .................................................................................................... 15 ARTICLE VII LEASE DEFAULT EVENTS AND REMEDIES .................................................... 15 Section 7.01. Lease Default Events and Remedies ......................................................................... 15 Section 7.02. Waiver ....................................................................................................................... 18 ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE ........................................................................................................... 18 Section 8.01. Amendments .............................................................................................................. 18 Section 8.02. Assignment and Subleasing....................................................................................... 19 Section 8.03. Substitution or Release of the Leased Property ......................................................... 19 ARTICLE IX MISCELLANEOUS .................................................................................................. 20 Section 9.01. Assignment to Trustee ............................................................................................... 20 Section 9.02. Validity and Severability ........................................................................................... 20 Section 9.03. Notices ....................................................................................................................... 21 Section 9.04. Section Headings ....................................................................................................... 21 Section 9.05. Governing Laws ........................................................................................................ 21 Section 9.06. Electronic Signature .................................................................................................. 21 Section 9.07. Execution in Counterparts ......................................................................................... 21 Exhibit A DESCRIPTION OF THE PROPERTY ...................................................................A-1 Exhibit B DESCRIPTION OF THE PROJECT ...................................................................... B-1 4142-7460-2566.13 LEASE AGREEMENT THIS LEASE AGREEMENT (this “Lease Agreement”), dated as of September 1, 2023, is by and between the CITY OF SAN LUIS OBISPO, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), as lessee, and the SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), as lessor. RECITALS WHEREAS, the Authority is a joint exercise of powers authority duly organized and operating pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California; WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California authorizes and empowers joint powers authorities to issue bonds to assist local agencies in financing projects and programs consisting of certain public improvements or working capital or liability and other insurance needs whenever a local agency determines that there are significant public benefits from so doing; WHEREAS, the City desires to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”); WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; WHEREAS, the Capital Improvement Board previously issued its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”) pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and redeeming prior obligations of the City; WHEREAS, the City proposes to refinance the 2012 Lease to allow for the redemption of the 2012 Bonds; WHEREAS, the Authority is empowered pursuant to the aforementioned Article 4 to issue its bonds and to apply the proceeds thereof to assist in financing the Project and the refinancing of the 2012 Lease to allow for the redemption of the 2012 Bonds; WHEREAS, in order to finance the Project and to redeem the 2012 Bonds, the City is leasing certain real property, and the improvements thereto (the “Leased Property”), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Leased Property back from the Authority pursuant to this Lease Agreement; WHEREAS, the Leased Property comprises the property described in Exhibit A attached hereto excepting therefrom the retail, commercial and office space commonly known as 837 Marsh Street and Suites 101 through 105 of 860 Pacific Street; WHEREAS, in order to provide the funds necessary to finance the Project and to redeem the 2012 Bonds, the Authority is issuing $45,780,000 aggregate principal amount of its San Luis Obispo Public 2 4142-7460-2566.13 Financing Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 (the “Bonds”), payable from the base rental payments to be made by the City pursuant to this Lease Agreement; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Lease Agreement do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Lease Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained herein and for other valuable consideration, the parties hereto do hereby agree as follows: ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION Definitions. Unless the context otherwise requires, the terms defined in this Section shall, for all purposes of this Lease Agreement, have the meanings herein specified, which meanings shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. “Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 hereof. “Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. “Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Base Rental Deposit Date” has the meaning given to such term in Section 3.02 hereof. “Base Rental Payments” means all amounts payable to the Authority from the City as Base Rental Payments pursuant to Section 3.02 hereof. “Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023. “City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Code” means the Internal Revenue Code of 1986. “Closing Date” means September 13, 2023. 3 4142-7460-2566.13 “Fiscal Year” means 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 City. “Ground Lease” means the Ground Lease, dated as of September 1, 2023, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and hereof. “Indenture” means the Indenture, dated as of September 1, 2023, by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee, as originally executed and as it may be amended or supplemented from time to time in accordance with the provisions thereof. “Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. “Lease Agreement” means this Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, as the same may be amended or supplemented pursuant to the provisions hereof. “Lease Default Event” means any event or circumstance specified in Section 7.01 hereof as a Lease Default Event. “Leased Property” means the real property described in Exhibit A hereto and any improvements thereto excepting therefrom the retail, commercial and office space commonly known as 837 Marsh Street and Suites 101 through 105 of 860 Pacific Street. “Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Leased Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. “Outstanding” has the meaning ascribed to such term in the Indenture. “Permitted Encumbrances” means with respect to the Leased Property, as of any particular time (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or that the City may, pursuant to provisions of Section 6.06 hereof, permit to remain unpaid, (b) this Lease Agreement, (c) the Ground Lease, (d) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Leased Property for the purposes for which it was acquired or is held by the City, (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions that exist of record as of the Closing Date, (f) any license with respect to the use of, or lease agreement for, the solar equipment and footprint thereof as may be entered into by the City in support of a loan by the State of California Energy Commission that the City certifies in writing does not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date that the City certifies in writing do not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture. 4 4142-7460-2566.13 “Project” means costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, as described in Exhibit B hereto, all or a portion of the costs of which are to be financed with proceeds of the Bonds. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. “Rental Period” means the period from the Closing Date through December 31, 2024 and, thereafter, the twelve-month period commencing on January 1 of each year during the term of the Lease Agreement. “Scheduled Termination Date” means December 1, 2053. “State” means the State of California. “Trustee” means U.S. Bank Trust Company, National Association, as trustee under the Indenture, or any successor thereto as trustee thereunder substituted in its place as provided therein. “Written Certificate” and “Written Request” of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Rules of Construction. (a) The terms defined herein expressed in the singular shall, unless the context otherwise indicates, include the plural and vice versa. (b)The use herein of the masculine, feminine or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine or neuter gender, as appropriate. (c)References herein to a document shall include all amendments, supplements or other modifications to such document, and any replacements, substitutions or novation of, that document. (d)Any term defined herein by reference to another document shall continue to have the meaning ascribed thereto whether or not such other document remains in effect. (e)The use herein of the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation.” (f)Headings of Articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (g)All references herein to designated “Articles,” “Sections,” “Exhibits,” “subsections,” “paragraphs,” “clauses,” and other subdivisions are to the designated Articles, Sections, Exhibits, subsections, paragraphs, clauses, and other subdivisions of this Lease Agreement. (h)The words “hereof” (except when preceded by a specific Section or Article reference) “herein,” “hereby,” “hereunder,” “hereinabove,” “hereinafter,” and other equivalent words and phrases 5 4142-7460-2566.13 used herein refer to this Indenture and not solely to the particular portion hereof in which any such word is used. ARTICLE II LEASE OF LEASED PROPERTY; TERM Lease of the Leased Property. (a) The Authority hereby leases to the City and the City hereby leases from the Authority the Leased Property, on the terms and conditions hereinafter set forth, and subject to all Permitted Encumbrances. (b)The parties intend and agree that the leasing of the Leased Property by the City to the Authority under the Ground Lease does not affect or result in a merger of the City’s leasehold estate in the Leased Property as lessee under this Lease Agreement and its leasehold or fee estate, as applicable, in the Leased Property as lessor under the Ground Lease, and the Authority will continue to have a leasehold estate in the Leased Property under the Ground Lease throughout the terms of both leases. This Lease Agreement constitutes a sublease with respect to the Leased Property. The leasehold interest in the Leased Property granted by the City to the Authority pursuant to the Ground Lease is independent of this Lease Agreement and this Lease Agreement is not an assignment or surrender of the leasehold interest in the Leased Property granted to the Authority under the Ground Lease. Occupancy; Term. (a) The City shall take possession of the Leased Property on the Closing Date. (b)The term of this Lease Agreement shall commence on the Closing Date and shall end on the Scheduled Termination Date, unless such term is extended or sooner terminated as hereinafter provided. (c)If all of the Leased Property shall be taken under the power of eminent domain, and the City does not elect to cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, as provided in clause (i) of Section 5.07(c) hereof but, rather, elects to deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds, as provided in clause (ii) of Section 5.07(c) hereof, then, on the date that possession thereof shall be so taken, the term of this Lease Agreement shall terminate. (d)If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with Article X of the Indenture, then, on the date of such payment or deemed payment, the term of this Lease Agreement shall terminate. (e)If on the Scheduled Termination Date, the Rental Payments payable hereunder shall have been abated at any time and for any reason, then the term of this Lease Agreement shall be extended until the date upon which all such Rental Payments shall have been paid in full, except that the term of this Lease Agreement shall in no event be extended more than ten years beyond the Scheduled Termination Date. (f)Upon the termination of the term of this Lease Agreement (other than as provided in Section 7.01 hereof), and the first date upon which the Bonds are no longer Outstanding, all right, title and interest in and to the Leased Property shall vest in the City. Upon any such termination or 6 4142-7460-2566.13 expiration, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. ARTICLE III RENTAL PAYMENTS Rental Payments. (a) Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. (b)The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. (c)If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of this Lease Agreement, as so extended. Base Rental Payments. (a) The City, subject to the provisions of Section 3.07 hereof, shall pay Base Rental Payments to the Authority. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. (b)If the term of this Lease Agreement shall have been extended pursuant to Section 2.02 hereof, the Base Rental Payments shall be established so that the Base Rental Payment payable on each Base Rental Deposit Date after the Scheduled Termination Date shall be equal to the principal, if any, of and interest on the Bonds remaining due and payable on such Base Rental Deposit Date; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Leased Property. Additional Rental Payments. (a) The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (i)all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Leased Property or the respective interests or estates of the Authority or the City therein; (ii)insurance premiums for all insurance required pursuant to Article V hereof; and (iii)all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. (b)Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in 7 4142-7460-2566.13 any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Fair Rental Value. The parties hereto have agreed and determined that the fair rental value of the Leased Property is not less than $3,197,625.00 as of the Closing Date. In making such determinations of fair rental value, consideration has been given to the uses and purposes that may be served by the Leased Property and the benefits therefrom that will accrue to the City and the general public. Payments of the Rental Payments for the Leased Property during each Rental Period shall constitute the total rental for said Rental Period. Payment Provisions. Each installment of Base Rental Payments payable hereunder shall be paid in lawful money of the United States of America to or upon the order of the Authority at the Principal Office of the Trustee, or such other place or entity as the Authority shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment that shall not be paid by the City when due and payable under the terms of this Lease Agreement shall bear interest from the date when the same is due hereunder until the same shall be paid a rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due hereunder or refunded at the time of such determination. Appropriations Covenant. The City shall take such action as may be necessary to include all Rental Payments due hereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The covenants on the part of the City herein contained shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in this Lease Agreement agreed to be carried out and performed by the City. Rental Abatement. (a) Except as otherwise specifically provided in this Section, during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate this Lease Agreement by virtue of any such interference, and this Lease Agreement shall continue in full force and effect. The City and the Authority shall, in a reasonable manner and in good faith, determine the amount of such abatement; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Leased Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall provide the Trustee with a certificate setting forth the amount of abatement and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. (b)Notwithstanding the foregoing, to the extent that Net Proceeds of any rental interruption insurance are available for the payment of Rental Payments, Rental Payments shall not be 8 4142-7460-2566.13 abated as provided in subsection (a) of this Section but, rather, shall be payable by the City as a special obligation payable solely from such Net Proceeds. Prepayment. (a) The City may cause all or a portion of the Bonds to be optionally redeemed pursuant to Section 4.02 of the Indenture by prepaying on any date on or after December 1, 2033, all or a portion of the Base Rental Payments from any source of available funds, which prepayment shall be accomplished by the City’s paying an amount sufficient to cause such Bonds to be redeemed pursuant to Section 4.02 of the Indenture on such prepayment date. (b)The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in Article X of the Indenture sufficient to make such Base Rental Payments when due or to make such Base Rental payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to subsection (a) of this Section, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with subsection (a) of this Section. (c)If less than all of the Base Rental Payments are prepaid pursuant to this Section then, as of the date of such prepayment pursuant to subsection (a) of this Section, or the date of a deposit pursuant to subsection (b) of this Section, the principal and interest components of the Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of Base Rental Payments, the Leased Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Leased Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. (d)If all of the Base Rental Payments are prepaid in accordance with the provisions of this Lease Agreement then, as of the date of such prepayment pursuant to subsection (a) of this Section, or deposit pursuant to subsection (b) of this Section, the term of this Lease Agreement shall be terminated. (e)Before making any prepayment pursuant to this Article, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 days prior to the prepayment date, unless such notice shall be waived by the Authority and the Trustee. ARTICLE IV QUIET ENJOYMENT; MAINTENANCE; ALTERATIONS; LIENS Quiet Enjoyment. The Authority hereby covenants and agrees that it will not take any action to prevent the City, so long as the City is keeping and performing the covenants and agreements herein contained, from having quiet and peaceable possession and enjoyment of the Leased Property during the term hereof. Net-Net-Net Lease. This Lease Agreement shall be deemed and construed to be a “net-net-net lease” and the City hereby agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever and notwithstanding any dispute between the City and the Authority. Right of Entry. The Authority shall have the right to enter upon and to examine and inspect the Leased Property during reasonable business hours (and in emergencies at all times) for any 9 4142-7460-2566.13 purpose connected with the Authority’s rights or obligations under this Lease Agreement, and for all other lawful purposes. Maintenance and Utilities. Throughout the term of this Lease Agreement, as part of the consideration for rental of the Leased Property, all improvement, repair and maintenance of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Leased Property. Additions to the Leased Property. Subject to Section 4.07 hereof, the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Leased Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Leased Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Leased Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made pursuant to this Section, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such additions, modifications and improvements. Installation of City’s Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Leased Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Leased Property resulting from the installation, modification or removal of any such items; and the Leased Property, upon completion of any installations, modifications or removals made pursuant to this Section, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such installations, modifications or removals. Nothing in this Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this Section under a conditional sale or lease purchase contract, or subject to a vendor’s lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Leased Property. Mechanics’, Etc. Liens. In the event the City shall at any time during the term of this Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Leased Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Leased Property and that may be secured by a mechanics’, materialmen’s or other lien against the Leased Property or the Authority’s interest therein, and shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contest is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. 10 4142-7460-2566.13 Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. ARTICLE V INSURANCE; NET PROCEEDS; EMINENT DOMAIN Public Liability and Property Damage Insurance; Workers’ Compensation Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of this Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations under this subsection may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of Section 5.04 hereof. (b)The City shall maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as provided in Section 5.05 hereof. The City’s obligations under this subsection may be satisfied by self- insurance, provided that such self-insurance complies with the provisions of Section 5.04 hereof. (c)The City shall maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Property as a result of any of the hazards required to be covered pursuant to subsection (b) of this Section in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Property that resulted in the receipt of such Net Proceeds, there is 11 4142-7460-2566.13 substantial interference with the City’s right to the use or occupancy of the Property. The City’s obligations under this subsection may not be satisfied by self-insurance. (d)The insurance required by this Section other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes hereof. (e)The insurance required by this Section 5.01 may be maintained as part of or in conjunction with any other insurance coverage carried or required to be carried by the City, which insurance may insure the Leased Property and other properties of the City, provided that such insurance complies with the requirements of by this Section 5.01. Title Insurance. The City shall provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property (b) the Authority’s ground leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate hereunder in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. The Net Proceeds of such title insurance shall be applied as provided as provided in Section 5.06 hereof. Additional Insurance Provision; Form of Policies. (a) The City shall pay or cause to be paid when due the premiums for all insurance policies required by Section 5.01 hereof, and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City. (b)The City shall cause to be delivered to the Trustee, within 90 days following the close of each Fiscal Year, a schedule of the insurance policies being maintained in accordance herewith and a Written Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of this Article. The Trustee shall be entitled to rely upon said Written Certificate of the City as to the City’s compliance with this Article. The Trustee shall not be responsible for the sufficiency of coverage or amounts of such policies. Self-Insurance. Any self-insurance maintained by the City pursuant to this Article shall comply with the following terms: (a)the self-insurance program shall be approved in writing by the City’s professionally qualified risk manager or by an independent insurance consultant; (b)the self-insurance program shall include an actuarially sound claims reserve fund out of which each self-insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi-annual basis by the City’s professionally qualified risk manager or by an independent insurance consultant and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of the City’s professionally qualified risk manager or such independent insurance consultant, as applicable; and 12 4142-7460-2566.13 (c)in the event the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City’s professionally qualified risk manager or by an independent insurance consultant, shall be maintained. Damage or Destruction. (a) If the Leased Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b)If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. (c)If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Leased Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Leased Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. Net Proceeds of Title Insurance. (a) If a defect in title to the Leased Property results in the creation of a right to receive Net Proceeds under any policy of title insurance with respect to the Leased Property or any portion thereof, the City shall, within 30 days of the creation of such right, notify the Trustee in writing of the City’s determination as to whether or not such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. 13 4142-7460-2566.13 (b)If the City determines that such title defect will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, such Net Proceeds shall be remitted to the City and used for any lawful purpose thereof. (c)If the City determines that such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) within 60 days of the creation of such right to receive such Net Proceeds, cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered such Net Proceeds to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. Eminent Domain. (a) If all or a portion of the Leased Property shall be taken under the power of eminent domain, the City shall, no later than 45 days prior to the day that possession thereof shall be so taken, notify the Trustee in writing of the City’s determination as to whether or not such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof. (b)If the City determines that such taking will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, any award made in eminent domain proceedings for such taking shall be remitted to the City and used for any lawful purpose thereof. (c)If the City determines that such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to Section 3.07 hereof, then the City shall (i) no later than 60 days prior to the day that possession thereof shall be so taken, cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, Section 8.03 hereof, or (ii) immediately upon receipt thereof, deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to Section 4.01 of the Indenture, of all or a portion of the Outstanding Bonds. ARTICLE VI REPRESENTATIONS; COVENANTS Representations of the City. The City represents and warrants (a) that the City has the full power and authority to enter into, to execute and to deliver this Lease Agreement and to perform all of its duties and obligations hereunder, and has duly authorized the execution and delivery of this Lease Agreement, and (b) the Leased Property will be used in the performance of essential governmental functions. Representation of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver this Lease Agreement and the Indenture, and to perform all of its duties and obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Lease Agreement and the Indenture. Recordation. The City shall record, or cause to be recorded, with the San Luis Obispo County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a 14 4142-7460-2566.13 memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 of the Indenture. Use of the Leased Property. The City will not use, operate or maintain the Leased Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Leased Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Leased Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner that does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Leased Property or its interest or rights under this Lease Agreement. Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Taxes. (a) The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Leased Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such installments as are required to be paid during the term of this Lease Agreement as and when the same become due. (b)After giving notice to the Authority and the Trustee, the City or any sublessee may, at the City’s or such sublessee’s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Leased Property will be materially endangered or the Leased Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss that may result from nonpayment, in form satisfactory to the Authority. No Liability; Indemnification. (a) The Authority and its directors, officers, agents and employees, shall not be liable to the City or to any other party whomsoever for any death, injury or damage that may result to any person or property by or from any cause whatsoever in, on or about the Leased Property. To the extent permitted by law, the City shall, at its expense, indemnify and hold the Authority and the Trustee and all directors, members, officers and employees thereof harmless against and from any and all claims by or on behalf of Person arising from the acquisition, construction, occupation, use, operation, maintenance, possession, conduct or management of or from any work done in or about the 15 4142-7460-2566.13 Leased Property or from the subletting of any part thereof, including any liability for violation of conditions, agreements, restrictions, laws, ordinances, or regulations affecting the Leased Property or the occupancy or use thereof, but excepting the negligence or willful misconduct of the persons or entity seeking indemnity. The City also covenants and agrees, at its expense, to pay and indemnify and save the Authority and the Trustee and all directors, officers and employees thereof harmless against and from any and all claims arising from (i) any condition of the Leased Property and the adjoining sidewalks and passageways, (ii) any breach or default on the part of the City in the performance of any covenant or agreement to be performed by the City pursuant to this Lease Agreement, (iii) any act or negligence of licensees in connection with their use, occupancy or operation of the Leased Property, or (iv) any accident, injury or damage whatsoever caused to any person, firm or corporation in or about the Leased Property or upon or under the sidewalks and from and against all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any claim referred to in this Section, but excepting the negligence or willful misconduct of the person or entity seeking indemnity. In the event that any action or proceeding is brought against the Authority or the Trustee or any director, member, officer or employee thereof, by reason of any such claim, the City, upon notice from the Authority or the Trustee or such director, member, officer or employee thereof, covenants to resist or defend such action or proceeding by counsel reasonably satisfactory to the Authority or the Trustee or such director, member, officer or employee thereof. (b)In no event shall the Authority be liable for any incidental, indirect, special or consequential damage in connection with or arising out of this Lease Agreement or the City’s use of the Leased Property. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Lease Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided in this Lease Agreement. ARTICLE VII LEASE DEFAULT EVENTS AND REMEDIES Lease Default Events and Remedies. (a) If (i) the City shall fail (A) to pay any Rental Payment payable hereunder when the same becomes due and payable, time being expressly declared to be of the essence in this Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained herein to be kept or performed by the City, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority, or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, (ii) except as otherwise provided in Article VIII hereof, the City’s interest in this Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, (iii) the City or the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute, or (iv) the City shall fail to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event 16 4142-7460-2566.13 hereunder if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, such failure or event shall constitute a Lease Default Event under this Lease Agreement. (b)Upon the occurrence of any Lease Default Event hereunder, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (i)To terminate this Lease Agreement in the manner hereinafter provided on account of such Lease Default Event, notwithstanding any re-entry or re-letting of the Leased Property as hereinafter provided for in subparagraph (ii) hereof, and to re-enter the Leased Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Leased Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of such Lease Default Event, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. Neither notice to pay Rental Payments or to deliver up possession of the Leased Property given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under this Lease Agreement shall of itself operate to terminate this Lease Agreement, and no termination of this Lease Agreement on account of a Lease Default Event hereunder shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate this Lease Agreement. The City covenants and agrees that no surrender of the Leased Property or of the remainder of the term hereof or any termination of this Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (ii)Without terminating this Lease Agreement, (A) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions hereof to be kept or performed by the City, regardless of whether or not the City has abandoned the Leased Property, or (B) to exercise any and all rights of entry and re-entry upon the Leased Property. In the event the Authority does not elect to terminate this Lease Agreement in the manner provided for in subparagraph (i) hereof, the City shall remain liable and agrees to keep or perform all covenants and conditions herein contained to be kept or performed by the City and, if the Leased Property is not re-let, to pay the full amount of the Rental Payments to the end of the term of this Lease Agreement or, in the event that the Leased Property is re-let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and/or Rental Payment deficiency punctually at the same time and in the same manner as hereinabove provided for the payment of Rental Payments hereunder, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments herein specified, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property. Should the Authority elect to re-enter as herein provided, the City hereby irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re-let the Leased Property, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such use and 17 4142-7460-2566.13 period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions herein contained. The City agrees that the terms of this Lease Agreement constitute full and sufficient notice of the right of the Authority to re-let the Leased Property in the event of such re-entry without effecting a surrender of this Lease Agreement, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of this Lease Agreement irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, upon the occurrence of a Lease Default Event hereunder, the right to terminate this Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in subparagraph (i) hereof. The City further agrees to pay the Authority the cost of any alterations or additions to the Leased Property necessary to place the Leased Property in condition for re-letting immediately upon notice to the City of the completion and installation of such additions or alterations. The City hereby waives any and all claims for damages caused or that may be caused by the Authority in re-entering and taking possession of the Leased Property as herein provided and all claims for damages that may result from the destruction of or injury to the Leased Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Leased Property. (c)In addition to the other remedies set forth in this Section, upon the occurrence of a Lease Default Event hereunder, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by this Lease Agreement or by law. The provisions of this Lease Agreement and the duties of the City and of its board, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions: (i)Accounting. By action or suit in equity to require the City and its board, officers and employees and its assigns to account as the trustee of an express trust. (ii)Injunction. By action or suit in equity to enjoin any acts or things that may be unlawful or in violation of the rights of the Authority. (iii)Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided herein. (d)Each and all of the remedies given to the Authority hereunder or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege hereunder shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used in this Section shall include, but not be limited to, re-letting by means of the operation by the Authority of the Leased Property. If any statute or rule of law validly shall limit the remedies given to the Authority hereunder, 18 4142-7460-2566.13 the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. (e)In the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of this Lease Agreement, the City agrees to pay a reasonable amount as and for attorney’s fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority hereunder. (f)Notwithstanding anything to the contrary contained in this Lease Agreement, the Authority shall have no right upon a default by the City hereunder, a Lease Default Event hereunder or otherwise to accelerate Rental Payments. (g)Notwithstanding anything herein to the contrary, the termination of this Lease Agreement by the Authority on account of a Lease Default Event hereunder shall not effect or result in a termination of the lease of the Leased Property by the City to the Authority pursuant to the Ground Lease. Waiver. Failure of the Authority to take advantage of any default on the part of the City shall not be, or be construed as, a waiver thereof, nor shall any custom or practice that may grow up between the parties in the course of administering this instrument be construed to waive or to lessen the right of the Authority to insist upon performance by the City of any term, covenant or condition hereof, or to exercise any rights given the Authority on account of such default. A waiver of a particular default shall not be deemed to be a waiver of any other default or of the same default subsequently occurring. The acceptance of Rental Payments hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease Agreement. ARTICLE VIII AMENDMENTS; ASSIGNMENT AND SUBLEASING; SUBSTITUTION OR RELEASE Amendments. (a) This Lease Agreement and the Ground Lease, and the rights and obligations of the Authority and the City hereunder and thereunder, may be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, but only with the prior written consent of the Owners of a majority of the aggregate principal amount the Bonds then Outstanding, provided that no such amendment shall (i) extend the payment date of any Base Rental Payment or reduce any Base Rental Payment, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the aggregate principal amount the Bonds, the consent of the Owners of which is required for the execution of any amendment of this Lease Agreement or the Ground Lease, without the prior written consent of the Owners of all the Bonds then Outstanding. (b)This Lease Agreement and the Ground Lease, and the rights and obligations of the City and the Authority hereunder and thereunder, may also be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i)to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed herein or therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to 19 4142-7460-2566.13 surrender any right or power reserved herein or therein to or conferred herein or therein on the Authority or the City; (ii)to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained herein or therein or in regard to questions arising hereunder or thereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and that shall not materially adversely affect the rights or interests of the Owners; (iii)to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds or maintain any federal interest subsidies expected to be received with respect to any Bonds; or (iv)[Reserved]; (v)to provide for the substitution or release of a portion of the Leased Property in accordance with the provisions of Section 8.03 hereof; or (vi)to make such other changes herein or therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and that shall not materially adversely affect the interests of the Owners. Assignment and Subleasing. Neither this Lease Agreement nor any interest of the City hereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation of law or otherwise; provided, however, that the Leased Property may be subleased in whole or in part by the City, provided that any such sublease shall be subject to all of the following conditions: (a)this Lease Agreement and the obligation of the City to make all Rental Payments hereunder shall remain the primary obligation of the City; (b)the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c)any sublease of the Leased Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under this Lease Agreement, including, the right to re-enter and re-let the Leased Property or terminate this Lease Agreement upon a Lease Default Event hereunder; and (d)the City shall furnish the Authority and the Trustee with an Opinion of Bond Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Substitution or Release of the Leased Property. The City shall have the right to substitute alternate real property for any portion of the Leased Property or to release a portion of the Leased Property from this Lease Agreement. The City shall bear all costs and expenses incurred in connection with any substitution or release. A substitution or release under this Section 8.03 will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. Each substitution or release of any portion of the Leased Property is subject to the following conditions, which are conditions precedent to such a substitution or release: 20 4142-7460-2566.13 (a)the City and the Authority must have executed, and the Trustee must have consented to, amendments to the Ground Lease and this Lease Agreement that contain the amended description of the Leased Property as constituted after the substitution and release, and the City must have caused the amendments to be duly recorded with San Luis Obispo County Clerk/Recorder; (b)the City must have filed with the Trustee a Written Certificate of the City certifying that (1) the sum of Base Rental Payments plus Additional Rental Payments due under the Lease Agreement in any Rental Period is not in excess of the annual fair-rental value of the Leased Property as constituted after the substitution or release, (2) the Leased Property as constituted after the substitution or release has a useful life equal to or greater than the remaining term of the Bonds, and (3) the City has beneficial use and occupancy of the Leased Property as constituted after such substitution or release; (c)the City must have obtained or caused to be obtained an ALTA or CLTA owner’s title-insurance policy or policies (or an amendment or endorsement to an existing policy or policies) with respect to the Leased Property as constituted after the substitution or release, in substantially the same form as required by Section 5.02 and in an amount at least equal to the principal amount of the Bonds then Outstanding. (d)The City must have filed or caused to be filed with the Trustee an Opinion of Counsel to the effect that the substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income-tax purposes. ARTICLE IX MISCELLANEOUS Assignment to Trustee. The City understands and agrees that, upon the execution and delivery of the Indenture (which is occurring simultaneously with the execution and delivery hereof), certain right, title and interest of the Authority in and to this Lease Agreement will be sold, assigned and transferred to the Trustee for the benefit of the Owners of the Bonds. The City hereby consents to such sale, assignment and transfer. Upon the execution and delivery of the Indenture, references in the operative provisions hereof to the Authority shall be deemed to be references to the Trustee, as assignee of the Authority. Validity and Severability. If for any reason this Lease Agreement shall be held by a court of competent jurisdiction to be void, voidable or unenforceable by the Authority or by the City, or if for any reason it is held by such a court that any of the covenants and conditions of the City hereunder, including the covenant to pay Rental Payments, is unenforceable for the full term hereof, then and in such event this Lease Agreement is and shall be deemed to be a lease agreement under which the Rental Payments are to be paid by the City annually in consideration of the right of the City to possess, occupy and use the Leased Property, and all of the terms, provisions and conditions of this Lease Agreement, except to the extent that such terms, provisions and conditions are contrary to or inconsistent with such holding, shall remain in full force and effect. 21 4142-7460-2566.13 Notices. All written notices, statements, demands, consents, approvals, authorizations, offers, designations, requests or other communications hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Authority: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Trustee: U.S. Bank Trust Company, National Association 633 W 5th Street, 24th Floor Los Angeles, California 90071 Attention: Global Corporate Trust Services Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Lease Agreement. Governing Laws. This Lease Agreement shall be governed by and construed in accordance with the laws of the State. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Lease Agreement may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Lease Agreement using an electronic signature, it is signing, adopting, and accepting this Lease Agreement and that signing this Lease Agreement using an electronic signature is the legal equivalent of having placed its handwritten signature on this Lease Agreement on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Lease Agreement in a usable format. Execution in Counterparts. This Lease Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 22 4142-7460-2566 IN WITNESS WHEREOF, the parties hereto have caused this Lease Agreement to be executed by their respective officers thereunto duly authorized, all as of the day and year first written above. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, as Lessor By: Emily Jackson, Treasurer CITY OF SAN LUIS OBISPO, Lessee By: Derek Johnson, City Manager DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B A-1 4142-7460-2566.13 EXHIBIT A DESCRIPTION OF THE PROPERTY APN/Parcel ID: 003-527-030 All of that real property situated in the City of San Luis Obispo, County of San Luis Obispo, State of California, described as follows, and any improvements thereto: All of Block 100 of the Mission Vineyard Tract in the City of San Luis Obispo, as shown on that certain map recorded in Book A of Maps, at Page 143, in the Office of the County Recorder, County of San Luis Obispo, State of California. Excepting therefrom all of Lots 1, 2 and 8; the Northwesterly 11 feet of Lot 3; the Northwesterly 105.4 feet of the Northeasterly 40 feet of Lot 6; the Southwesterly 35 feet of Lot 7; the Northeasterly 19.3 feet of Lots 12 and 13; and the Marsh Street right of way, as it exists on this date, adjacent to said Block 100. Being pursuant to that certain Notice of Merger and Certificate of Subdivision Compliance, recorded August 3, 2000, as Instrument No. 2000-043947, of Official Records. Also excepting therefrom a portion of the hereinabove described lands all minerals and mineral rights, interests, and royalties, including, without limiting, the generality thereof, oil, gas and other hydrocarbon substances, as well as metallic or other solid minerals, in and under the property; however, grantor or successors and assigns, shall not have the right for any purpose whatsoever to enter upon, into, or through the surface of the property in connection therewith, as reserved in that certain Corporation Grant Deed executed by The United States Postal Service, recorded November 25, 1998, as Instrument No. 1998- 079108, of Official Records, as re-recorded on May 25, 2000, as Instrument No. 2000-028769, of Official Records. B-1 4142-7460-2566.13 EXHIBIT B DESCRIPTION OF THE PROJECT The acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City of San Luis Obispo’s Cultural Arts District and other public capital improvements throughout the City. EXECUTION COPY 4132-8330-4518.12 INDENTURE by and among SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY and CITY OF SAN LUIS OBISPO and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE Dated as of September 1, 2023 Relating to San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 TABLE OF CONTENTS Page i 4132-8330-4518.12 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY ................... 2 Section 1.01. Definitions ...................................................................................................... 2 Section 1.02. Rules of Construction ..................................................................................... 8 Section 1.03. Equal Security ................................................................................................ 9 ARTICLE II THE BONDS ............................................................................................................... 9 Section 2.01. Authorization of Bonds .................................................................................. 9 Section 2.02. Terms of Bonds ............................................................................................ 10 Section 2.03. Execution of Bonds ...................................................................................... 11 Section 2.04. Authentication of Bonds ............................................................................... 11 Section 2.05. Registration Books ....................................................................................... 11 Section 2.06. Transfer and Exchange of Bonds ................................................................. 11 Section 2.07. Book-Entry System ...................................................................................... 12 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen ................................................ 14 Section 2.09. Temporary Bonds ......................................................................................... 14 ARTICLE III DELIVERY OF BONDS; APPLICATION OF AMOUNTS ................................... 15 Section 3.01. Issuance of the Bonds ................................................................................... 15 Section 3.02. Issuance of the Bonds; Application of Proceeds .......................................... 15 Section 3.03. Costs of Issuance Fund ................................................................................. 15 Section 3.04. Project Fund ................................................................................................. 15 ARTICLE IV REDEMPTION OF BONDS..................................................................................... 16 Section 4.01. Extraordinary Redemption ........................................................................... 16 Section 4.02. Optional Redemption ................................................................................... 16 Section 4.03. Mandatory Sinking Fund Redemption ......................................................... 16 Section 4.04. Notice of Redemption .................................................................................. 17 Section 4.05. Selection of Bonds for Redemption ............................................................. 18 Section 4.06. Partial Redemption of Bonds ....................................................................... 18 Section 4.07. Effect of Notice of Redemption ................................................................... 18 ARTICLE V PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS ................................ 18 Section 5.01. Pledge and Assignment ................................................................................ 18 Section 5.02. Payment Fund ............................................................................................... 19 Section 5.03. Redemption Fund ......................................................................................... 20 Section 5.04. [Reserved]. ................................................................................................... 20 Section 5.05. Rebate Fund.................................................................................................. 20 Section 5.06. [Reserved] .................................................................................................... 20 Section 5.07. Investments................................................................................................... 20 TABLE OF CONTENTS (continued) Page ii 4132-8330-4518.12 ARTICLE VI NET PROCEEDS AND TITLE INSURANCE; COVENANTS .............................. 21 Section 6.01. Application of Net Proceeds ........................................................................ 21 Section 6.02. Title Insurance .............................................................................................. 22 Section 6.03. Punctual Payment ......................................................................................... 23 Section 6.04. Compliance with Indenture .......................................................................... 23 Section 6.05. Compliance with Ground Lease and Lease Agreement ............................... 23 Section 6.06. Observance of Laws and Regulations .......................................................... 23 Section 6.07. Other Liens ................................................................................................... 23 Section 6.08. Prosecution and Defense of Suits ................................................................. 24 Section 6.09. Recordation .................................................................................................. 24 Section 6.10. Tax Covenants .............................................................................................. 24 Section 6.11. Continuing Disclosure .................................................................................. 24 Section 6.12. Notifications Required by the Act ................................................................ 24 Section 6.13. Further Assurances ....................................................................................... 24 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES ............................................................ 25 Section 7.01. Events of Default .......................................................................................... 25 Section 7.02. Action on Default ......................................................................................... 25 Section 7.03. Other Remedies ............................................................................................ 26 Section 7.04. Remedies Not Exclusive .............................................................................. 26 Section 7.05. Application of Amounts After Default ......................................................... 26 Section 7.06. Power of Trustee to Enforce ......................................................................... 26 Section 7.07. Owners’ Direction of Proceedings ............................................................... 27 Section 7.08. Limitation on Owners’ Right to Sue ............................................................ 27 Section 7.09. Termination of Proceedings ......................................................................... 27 Section 7.10. No Waiver of Default ................................................................................... 27 ARTICLE VIII THE TRUSTEE ......................................................................................................... 28 Section 8.01. Duties and Liabilities of Trustee .................................................................. 28 Section 8.02. Qualifications; Removal and Resignation; Successors ................................ 28 Section 8.03. Liability of Trustee ....................................................................................... 29 Section 8.04. Right to Rely on Documents and Opinions .................................................. 30 Section 8.05. Accounting Records and Financial Statements ............................................ 32 Section 8.06. Preservation and Inspection of Documents .................................................. 32 Section 8.07. Compensation and Indemnification of the Trustee ...................................... 32 ARTICLE IX SUPPLEMENTAL INDENTURES .......................................................................... 33 Section 9.01. Supplemental Indentures .............................................................................. 33 Section 9.02. Effect of Supplemental Indenture ................................................................. 34 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ..................................... 34 TABLE OF CONTENTS (continued) Page iii 4132-8330-4518.12 Section 9.04. Amendment of Particular Bonds .................................................................. 34 ARTICLE X DEFEASANCE ......................................................................................................... 34 Section 10.01. Discharge of Indenture ................................................................................. 34 Section 10.02. Bonds Deemed to Have Been Paid ............................................................... 35 Section 10.03. Unclaimed Moneys ...................................................................................... 36 ARTICLE XI MISCELLANEOUS .................................................................................................. 36 Section 11.01. Successor Deemed Included in all References to Predecessor ..................... 36 Section 11.02. Limitation of Rights ..................................................................................... 36 Section 11.03. Destruction of Bonds .................................................................................... 36 Section 11.04. Severability of Invalid Provisions ................................................................ 36 Section 11.05. Notices .......................................................................................................... 37 Section 11.06. Evidence of Rights of Owners...................................................................... 37 Section 11.07. Disqualified Bonds ....................................................................................... 38 Section 11.08. Money Held for Particular Bonds ................................................................ 38 Section 11.09. Funds and Accounts ..................................................................................... 38 Section 11.10. Business Days .............................................................................................. 38 Section 11.11. Waiver of Personal Liability ........................................................................ 39 Section 11.12. Conclusive Evidence of Regularity .............................................................. 39 Section 11.13. Partial Invalidity ........................................................................................... 39 Section 11.14. Governing Laws ........................................................................................... 39 Section 11.15. Electronic Signature ..................................................................................... 39 Section 11.16. Execution in Counterparts ............................................................................ 39 EXHIBIT A PERMITTED INVESTMENTS ..............................................................................A-1 EXHIBIT B FORM OF BOND ................................................................................................... B-1 4132-8330-4518.12 INDENTURE THIS INDENTURE (this “Indenture”), dated as of September 1, 2023, is by and among the SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), the CITY OF SAN LUIS OBISPO, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), and U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as Trustee (the “Trustee”). W I T N E S S E T H: WHEREAS, the Authority is a joint exercise of powers authority duly organized and operating pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California; WHEREAS, Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California authorizes and empowers joint powers authorities to issue bonds to assist local agencies in financing projects and programs consisting of certain public improvements or working capital or liability and other insurance needs whenever a local agency determines that there are significant public benefits from so doing; WHEREAS, the City desires to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements (the “Project”); WHEREAS, the City previously entered into a lease agreement (the “2012 Lease”) with the City of San Luis Obispo Capital Improvement Board (the “Capital Improvement Board”) for the purpose of refinancing certain outstanding obligations of the City; WHEREAS, the Capital Improvement Board previously issued its City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”) pursuant to an Indenture of Trust dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee, in the aggregate principal amount of $5,050,000 for the purpose of refinancing prior leases and redeeming prior obligations of the City; WHEREAS, the City proposes to refinance the 2012 Lease to allow for the redemption of the 2012 Bonds; WHEREAS, the Authority is empowered pursuant to the aforementioned Article 4 to issue its bonds and to apply the proceeds thereof to assist in financing the Project and the refinancing of the 2012 Lease to allow for the redemption of the 2012 Bonds; WHEREAS, the Authority desires to assist the City with the financing of the Project and the redemption of the 2012 Bonds; WHEREAS, in order to finance the Project and to redeem the 2012 Bonds, the City is leasing certain real property, and the improvements thereto (the “Leased Property”), to the Authority pursuant to a Ground Lease, dated as of the date hereof, and the City is subleasing the Leased Property back from the Authority pursuant to a Lease Agreement, dated as of the date hereof (the “Lease Agreement”); 2 4132-8330-4518.12 WHEREAS, in order to provide the funds necessary to finance the Project and to redeem the 2012 Bonds, the Authority and the City desire to provide for the issuance of $45,780,000 aggregate principal amount of its San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), payable from the Base Rental Payments to be made by the City pursuant to the Lease Agreement; WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, each of the Authority and the City has authorized the execution and delivery of this Indenture; WHEREAS, the Authority and the City have determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the Authority, authenticated and delivered by the Trustee and duly issued, the valid and binding special obligations of the Authority, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture has been in all respects duly authorized; and WHEREAS, all acts, conditions and things required by law to exist, to have happened and to have been performed precedent to and in connection with the execution and entering into of this Indenture do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the parties hereto are now duly authorized to execute and enter into this Indenture. NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, and premium, if any, and interest on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued and received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the Authority and the City do hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY Section 1.01.Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any certificate, opinion or other document herein mentioned, have the meanings herein specified. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Lease Agreement. “Act” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code. “Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to Section 3.03 of the Lease Agreement. “Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the scheduled principal amount of 3 4132-8330-4518.12 the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). “Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. “Authorized Denominations” means, with respect to the Bonds, $5,000 and integral multiples thereof. “Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Base Rental Payments” means all amounts payable to the Authority by the City as Base Rental Payments pursuant to Section 3.02 of the Lease Agreement. “Beneficial Owners” means those Persons for which the Participants have caused the Depository to hold Book-Entry Bonds. “Bond Year” means the twelve-month period beginning on December 1 each year and extending to the next succeeding November 30, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on December 1, 2023. “Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023. “Book-Entry Bonds” means the Bonds registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of Section 2.07. “Business Day” means a day that is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. “Capital Improvement Board” means the City of San Luis Obispo Capital Improvement Board. “Cede & Co.” means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to Book-Entry Bonds. “City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Closing Date” means the date upon which the Bonds are delivered to the Original Purchaser, being September 13, 2023. “Code” means the Internal Revenue Code of 1986. 4 4132-8330-4518.12 “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated as of September 1, 2023, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Costs of Issuance” means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with this Indenture, the Lease Agreement, the Ground Lease, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. “Costs of Issuance Fund” means the fund by that name established pursuant to Section 3.03 hereof. “Defeasance Securities” means (a) non-callable direct obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America (“United States Treasury Obligations”), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. “Depository” means DTC, and its successors as securities depository for any Book-Entry Bonds, including any such successor appointed pursuant to Section 2.07 hereof. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. “Electronic Means” means e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder. “Event of Default” means any event or circumstance specified in Section 7.01 hereof. “Fair Market Value” means, with respect to any investment, the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment 5 4132-8330-4518.12 fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. “Ground Lease” means the Ground Lease, dated as of September 1, 2023, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof and of the Lease Agreement. “Indenture” means this Indenture, dated as of September 1, 2023, by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee, as originally executed and as it may from time to time be amended or supplemented by any Supplemental Indenture. “Independent Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by or acceptable to the City, and who, or each of whom: (a) is in fact independent and not under domination of the City; (b) does not have any substantial interest, direct or indirect, with the City; and (c) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. “Interest Account” means the Interest Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. “Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. “Lease Agreement” means the Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Lease Default Event” means an event of default pursuant to and as described in Section 7.01 of the Lease Agreement. “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. “Letter of Representations” means the Letter of Representations from the Authority to the Depository, in which the Authority makes certain representations with respect to issues of its securities for deposit by the Depository. “Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer perform the function of a securities rating agency for any reason, the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.07 hereof. “Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City in writing; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and 6 4132-8330-4518.12 exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the Authority and the City by the Trustee in writing. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. “Original Purchaser” means the original purchaser of the Bonds from the Authority. “Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of Section 11.07 hereof, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with Section 10.01 hereof, and (c) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee, or that have been paid without surrender thereof, pursuant to Section 2.08 hereof. “Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. “Participant” means any entity that is recognized as a participant by DTC in the book-entry system of maintaining records with respect to Book-Entry Bonds. “Participating Underwriters” has the meaning ascribed thereto in the Continuing Disclosure Certificate. “Payment Fund” means the fund by that name established in accordance with Section 5.02 hereof. “Permitted Investments” is defined in Exhibit A attached hereto. “Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. “Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. “Principal Payment Date” means a date on which the principal of the Bonds becomes due and payable as a result of the maturity thereof or by mandatory sinking fund redemption. “Project” means the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements. “Project Costs” means all costs of constructing and installing the Project, including but not limited to (a) all costs which the Authority or the City shall be required to pay to a seller or any other Person under the terms of any contract or contracts for the purchase of the Project, (b) all costs which the Authority or the City shall be required to pay a contractor or any other Person for the acquisition, construction and installation of the Project, (c) obligations of the Authority or the City incurred for 7 4132-8330-4518.12 services (including obligations payable to the Authority or the City for actual out-of-pocket expenses of the Authority or the City) in connection with the acquisition, construction and installation of the Project, including reimbursement to the Authority or the City for all advances and payments made in connection with the Project prior to or after issuance of the Bonds, (d) the actual out-of-pocket costs of the Authority or the City for test borings, surveys, estimates and preliminary investigations therefor, as well as for the performance of all other duties required by or consequent to the proper acquisition, construction and installation of the Project, including administrative expenses under the Lease Agreement and hereunder relating to the acquisition, construction and installation of the Project, and (e) any sums required to reimburse the Authority or the City for advances made by the Authority or the City for any of the above items or for any other costs incurred and for work done by the Authority or the City that are properly chargeable to the Project. “Project Fund” means the fund by that name established pursuant to Section 3.04 hereof. “Rebate Fund” means the fund by that name established pursuant to Section 5.05 hereof. “Rebate Requirement” has the meaning ascribed thereto in the Tax Certificate. “Record Date” means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. “Redemption Fund” means the fund by that name established pursuant to Section 5.03 hereof. “Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05 hereof. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. “Rental Period” means the period from the Closing Date through December 31, 2024 and, thereafter, the twelve-month period commencing on January 1 of each year during the term of the Lease Agreement. “Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds pursuant to this Indenture. “S&P” means S&P Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. “Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to Section 5.02 hereof. “State” means the State of California. 8 4132-8330-4518.12 “Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. “Tax Certificate” means the Tax Certificate executed by the Authority at the time of issuance of the Bonds, relating to the requirements of Section 148 of the Code, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. “Tax-Exempt” means, with respect to interest on any obligations of a state or local government, including interest on the Bonds, that such interest is excluded from the gross income of the holders thereof for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax under the Code. “Trustee” means U.S. Bank Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee hereunder substituted in its place as provided herein. “Verification Report” means, with respect to the deemed payment of Bonds pursuant to Section 10.02(a) hereof, a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of clause (ii)(B) of subsection (a) of Section 10.02(a) hereof. “Written Certificate” and “Written Request” (a) of the Authority mean, respectively, a written certificate or written request signed in the name of the Authority by an Authorized Representative of the Authority, and (b) of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. “2012 Bond Fund” means the fund established by that name under Section 5.01 of the 2012 Indenture. “2012 Bonds” means the City of San Luis Obispo Capital Improvement Board 2012 Lease Revenue Refunding Bonds, issued pursuant to an Indenture of Trust, dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank National Association, as trustee. “2012 Indenture” means the Indenture of Trust, dated as of June 1, 2012, by and between the Capital Improvement Board and U.S. Bank Trust Company, National Association, as successor in interest to U.S. Bank National Association, as trustee, for the purpose of issuing the 2012 Bonds. “2012 Lease” means the Lease Agreement, dated as of June 1, 2012 between the City and the Capital Improvement Board. Section 1.02.Rules of Construction. (a) The terms defined herein expressed in the singular shall, unless the context otherwise indicates, include the plural and vice versa. (b)The use herein of the masculine, feminine or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine or neuter gender, as appropriate. 9 4132-8330-4518.12 (c)References herein to a document shall include all amendments, supplements or other modifications to such document, and any replacements, substitutions or novation of, that document. (d)Any term defined herein by reference to another document shall continue to have the meaning ascribed thereto whether or not such other document remains in effect. (e)The use herein of the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation.” (f)Headings of Articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (g)All references herein to designated “Articles,” “Sections,” “Exhibits,” “subsections,” “paragraphs,” “clauses,” and other subdivisions are to the designated Articles, Sections, Exhibits, subsections, paragraphs, clauses, and other subdivisions of this Indenture. (h)The words “hereof” (except when preceded by a specific Section or Article reference) “herein,” “hereby,” “hereunder,” “hereinabove,” “hereinafter,” and other equivalent words and phrases used herein refer to this Indenture and not solely to the particular portion hereof in which any such word is used. Section 1.03.Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Authority, the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, and premium, if any, and interest on all Bonds that may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Authority or the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. THE BONDS Section 2.01.Authorization of Bonds. (a) The Authority hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Act and other applicable laws of the State. (b)The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. (c)Notwithstanding anything to the contrary contained herein, if, as a result of the limitations contained in Section 3.07 of the Lease Agreement, Base Rental Payments cannot be paid by the City in an amount sufficient to pay the principal of, or interest on, the Bonds otherwise payable on any date, such principal or interest shall be deemed not to be payable on such date, the nonpayment thereof on such date shall not constitute a default or an Event of Default under this Indenture and such principal or 10 4132-8330-4518.12 interest shall become payable on the date on which such Base Rental Payments becomes payable under and pursuant to the Lease Agreement. Section 2.02.Terms of Bonds. (a) The Bonds shall be designated “San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023.” The aggregate principal amount of Bonds that may be issued and Outstanding under this Indenture shall not exceed $45,780,000, except as may be otherwise provided in Section 2.08 hereof. The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $45,780,000, shall mature on December 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts as follows: Maturity Date (December 1) Principal Amount Interest Rate 2024 $920,000 5.000% 2025 970,000 5.000 2026 1,025,000 5.000 2027 1,080,000 5.000 2028 1,135,000 5.000 2029 1,195,000 5.000 2030 870,000 5.000 2031 915,000 5.000 2032 965,000 5.000 2033 1,015,000 5.000 2034 1,065,000 5.000 2035 1,120,000 5.000 2036 1,175,000 5.000 2037 1,235,000 5.000 2038 1,300,000 5.000 2039 1,370,000 5.000 2040 1,440,000 5.000 2041 1,510,000 5.000 2042 1,590,000 5.000 2043 1,670,000 5.000 2048T 9,725,000 5.000 2053T 12,490,000 5.000 T Term Bond. (b)Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, 11 4132-8330-4518.12 on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of the Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (c)The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (d)The Bonds shall be in substantially the form set forth in Exhibit B hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03.Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. Section 2.04.Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Bonds, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.05.Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as herein provided. Section 2.06.Transfer and Exchange of Bonds. (a) Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate 12 4132-8330-4518.12 principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. (b)The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. (c)The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period commencing on the date five days before the date of selection of Bonds of such Series for redemption and ending on the date of mailing notice of such redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.07.Book-Entry System. (a) Prior to the issuance of a Series of Bonds, the Authority may provide that such Series of Bonds shall initially be issued as Book-Entry Bonds, and in such event, the Bonds of such Series for each maturity date shall be in the form of a separate single fully registered Bond (which may be typewritten); provided, however, that if different CUSIP numbers are assigned to Bonds of a Series maturing in a single year or, if Bonds of the same Series maturing in a single year are issued with different interest rates, additional bond certificates shall be prepared for each such maturity. Upon initial issuance, the ownership of each such Bond of such Series shall be registered in the Registration Books in the name of the Nominee, as nominee of the Depository. The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books. (b)With respect to Book-Entry Bonds, the Authority, the City and the Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of which such a Participant holds an interest in such Book-Entry Bonds. Without limiting the immediately preceding sentence, the Authority, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in Book-Entry Bonds, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any notice with respect to Book-Entry Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in Book- Entry Bonds of a maturity to be redeemed in the event such Book-Entry Bonds are redeemed in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any amount with respect to principal of, or premium, if any, or interest on Book-Entry Bonds, or (v) any consent given or other action taken by the Depository as Owner. (c)The Authority, the City and the Trustee may treat and consider the Person in whose name each Book-Entry Bond is registered in the Registration Books as the absolute Owner of such Book-Entry Bond for the purpose of payment of principal of, and premium, if any, and interest on such Bond, for the purpose of selecting any Bonds, or portions thereof, to be redeemed, for the purpose of giving notices of redemption and other matters with respect to such Book-Entry Bond, for the purpose of registering transfers with respect to such Book-Entry Bond, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the Authority, the City and the Trustee shall not be affected by any notice to the contrary. 13 4132-8330-4518.12 (d)In the event of a redemption of all or a portion of a Book-Entry Bond, the Depository, in its discretion (i) may request the Trustee to authenticate and deliver a new Book-Entry Bond, or (ii) if the Depository is the sole Owner of such Book-Entry Bond, shall make an appropriate notation on the Book- Entry Bond indicating the date and amounts of the reduction in principal thereof resulting from such redemption, except in the case of final payment, in which case such Book-Entry Bond must be presented to the Trustee prior to payment. (e)The Trustee shall pay all principal of, and premium, if any, and interest on the Book- Entry Bonds only to or “upon the order of” (as that term is used in the Uniform Commercial Code as adopted in the State) the respective Owner, as shown in the Registration Books, or such Owner’s respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the obligations with respect to payment of principal of, and premium, if any, and interest on the Book-Entry Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the Registration Books, shall receive an authenticated Book-Entry Bond. Upon delivery by the Depository to the Owners, the Authority, the City and the Trustee of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Indenture shall refer to such nominee of the Depository. (f)In order to qualify the Book-Entry Bonds for the Depository’s book-entry system, the Authority shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the Authority, the City or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Bonds other than the Owners, as shown on the Registration Books. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to the Depository. In addition to the execution and delivery of a Letter of Representations by the Authority, the Authority, the City and the Trustee shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify Book-Entry Bonds for the Depository’s book-entry program. (g)In the event the Authority determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Bonds and that such Bonds should therefore be made available, and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Bonds. In such event, the Trustee shall transfer and exchange certificated Bonds as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Bonds, or (ii) the Depository shall no longer so act and gives notice to the Trustee of such determination, then the Authority shall discontinue the Book-Entry system with the Depository. If the Authority determines to replace the Depository with another qualified securities depository, the Authority shall prepare or direct the preparation of a new single, separate, fully-registered Bond of the appropriate Series for each maturity date of such Book-Entry Bonds, registered in the name of such successor or substitute qualified securities depository or its nominee. If the Authority fails to identify another qualified securities depository to replace the Depository, then the Book-Entry Bonds shall no longer be restricted to being registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of Sections 2.06, 2.08 and 2.09. Whenever the Depository requests the Authority to do so, the Authority shall cooperate with the Depository in taking appropriate action after reasonable notice (i) to make available one or more separate certificates evidencing the Book- Entry Bonds to any Participant having Book-Entry Bonds credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Book- Entry Bonds. 14 4132-8330-4518.12 (h)Notwithstanding any other provision of this Indenture to the contrary, if the Depository is the sole Owner of the Bonds of a Series, so long as any Book-Entry Bond is registered in the name of the Nominee, all payments of principal of, and premium, if any, and interest on such Book-Entry Bond of such Series and all notices with respect to such Book-Entry Bond shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. (i)In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the Authority, the City or the Trustee, with respect to any consent or other action to be taken by Owners of Book-Entry Bonds, the Trustee shall establish a record date for such consent or other action and give the Depository notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. (j)Prior to any transfer of Book-Entry Bonds outside the Depository’s book-entry system, the Authority shall provide or cause to be provided to the Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations, including any cost basis reporting obligations under Section 6045 of the Code. Section 2.08.Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Authority, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Authority. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Authority, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate principal amount in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Authority may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses that may be incurred by the Authority and the Trustee. Any Bond of such Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Authority whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.09.Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such Authorized Denominations as may be determined by the Authority, shall be in fully-registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Authority and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Authority issues temporary Bonds of a Series it shall execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver, in exchange for such temporary Bonds of such Series, an equal aggregate principal amount of definitive Bonds of such Series and maturities in Authorized Denominations. Until so exchanged, the temporary Bonds of a Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. 15 4132-8330-4518.12 DELIVERY OF BONDS; APPLICATION OF AMOUNTS Section 3.01.Issuance of the Bonds. The Authority may, at any time, execute the Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Bonds and deliver the Bonds to the Original Purchaser upon receipt of a Written Request of the Authority and upon receipt of the purchase price therefor. Section 3.02.Issuance of the Bonds; Application of Proceeds. On the Closing Date, the proceeds of the sale of the Bonds received by the Trustee, $49,317,157.21 shall be deposited by the Trustee as follows: (a)The Trustee shall deposit the amount of $275,020.54 in the Costs of Issuance Fund; (b)the Trustee shall deposit the amount of $47,000,000.00 in the Project Fund; and (c)the Trustee shall transfer the amount of $2,042,136.67 to U.S. Bank Trust Company, National Association for deposit to the 2012 Bond Fund maintained under the 2012 Indenture, to provide for the refunding of the 2012 Bonds. Section 3.03.Costs of Issuance Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Costs of Issuance Fund.” On the Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b)The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made and instructions for such payment, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Costs of Issuance Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On the last Business Day that is no later than six months after the Closing Date, the Trustee shall transfer any amount remaining in the Costs of Issuance Fund to the Project Fund and, upon making such transfer, the Costs of Issuance Fund shall be closed. Section 3.04.Project Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Project Fund.” Within the Project Fund, the Trustee may establish and maintain a separate account designated for the respective Series of Bonds. On the Closing Date, the Trustee shall deposit in the Project Fund the amount required to be deposited therein pursuant to Section 3.02 hereof. (b)The moneys in the Project Fund shall be used and withdrawn by the Trustee from time to time to pay the Project Costs upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made and instructions for such payment, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Project Fund, and (v) that such amounts have not been the subject of a prior disbursement from the Project Fund, in each case together with a statement or invoice for each amount requested thereunder. (c)Upon the filing of a Written Certificate of the City stating (i) that the Project has been completed and that all costs of the Project have been paid, or (ii) that the Project has been substantially completed and that all remaining costs of the Project to be paid from the Project Fund have been 16 4132-8330-4518.12 determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaining in the Project Fund (less any such retention) is equal to or greater than $25,000, transfer the portion of such amount equal to the largest integral multiple of $5,000 that is not greater than such amount to the Redemption Fund, to be applied to the redemption of Bonds, and (B) after making the transfer, if any, required to be made pursuant to the preceding clause (A), transfer all of the amount remaining in the Project Fund (less any such retention) to the Interest Account, to be applied to the payment of interest on the Bonds; provided, however, that, if, prior to such transfers, the Trustee receives (I) a Written Request of the City directing the Trustee make an alternate disposition of all or a portion of such amount remaining in the Project Fund (less any such retention), and (II) an Opinion of Bond Counsel to the effect that such disposition would not, in and of itself, adversely affect the exclusion of interest on the Tax-Exempt Bonds from gross income for federal income tax purposes, the Trustee shall make such alternate disposition of such remaining amount or portion thereof in accordance with such Written Request of the City. REDEMPTION OF BONDS Section 4.01.Extraordinary Redemption. The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Leased Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions hereof, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. Section 4.02.Optional Redemption. The Bonds maturing on or after December 1, 2034 shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 2033, from and to the extent of prepaid Base Rental Payments paid pursuant to subsection (a) of Section 3.08 of the Lease Agreement, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Section 4.03.Mandatory Sinking Fund Redemption. The Bonds maturing December 1, 2048 shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2044, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed 2044 $1,755,000 2045 1,845,000 2046 1,940,000 2047 2,040,000 2048†2,145,000 † Maturity Date. If some but not all of the Bonds maturing on December 1, 2048, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 2048, to be redeemed shall be reduced by the 17 4132-8330-4518.12 aggregate principal amount of the Bonds maturing on December 1, 2048, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2048, are optionally redeemed, the principal amount of Bonds maturing on December 1, 2048, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2048, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. The Bonds maturing December 1, 2053 shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2049, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed 2049 $2,255,000 2050 2,370,000 2051 2,490,000 2052 2,620,000 2053†2,755,000 † Maturity Date. If some but not all of the Bonds maturing on December 1, 2053 are redeemed pursuant to Section 4.01 hereof, the principal amount of Bonds maturing on December 1, 2053 to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053 so redeemed pursuant to Section 4.01 hereof, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2053 are redeemed pursuant to Section 4.02 hereof, the principal amount of Bonds maturing on December 1, 2053 to be redeemed pursuant to this Section shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053 so redeemed pursuant to Section 4.02 hereof, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. Section 4.04.Notice of Redemption. The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any 18 4132-8330-4518.12 optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of Section 10.02 hereof, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Section 4.05.Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any redemption pursuant to Section 4.01 hereof, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable and (b) with respect to any optional redemption of Bonds of a Series pursuant to Section 4.02 hereof, as directed in a Written Certificate of the City. The Trustee shall promptly notify the Authority and the City in writing of the numbers of the Bonds so selected for redemption on such date. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds that may be separately redeemed. Section 4.06.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 the same Series in Authorized Denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Section 4.07.Effect of Notice of Redemption. (a) Notice having been mailed as aforesaid, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. (b)If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. (c)All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. PLEDGE AND ASSIGNMENT; FUNDS AND ACCOUNTS Section 5.01.Pledge and Assignment. (a) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, in 19 4132-8330-4518.12 order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of this Indenture and the Act, the Authority hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, this Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. (b)The Authority hereby assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of this Indenture. (c)The Trustee shall be entitled to and shall receive all of the Base Rental Payments, and any Base Rental Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. Section 5.02.Payment Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Payment Fund.” Within the Payment Fund, the Trustee shall establish and maintain a separate account designated the “Interest Account” and a separate account designated the “Principal Account.” (b)All Lease Revenues received by the Trustee shall be deposited by the Trustee in the Payment Fund; provided, however, that Net Proceeds, other than those constituting proceeds of rental interruption insurance received with respect to the Leased Property, shall not be deposited in the Payment Fund but, rather, shall be applied as provided in Section 6.01 or Section 6.02 hereof, as applicable. (c)The Trustee, on each Interest Payment Date, shall transfer from the Payment Fund to each Interest Account an amount equal to the interest on the related Series of Bonds coming due on such Interest Payment Date. Moneys in each Interest Account shall be withdrawn and used by the Trustee for the purpose of paying interest on the related Series of Bonds as and when due and payable. In the event that, on such Interest Payment Date, amounts in any Interest Account are insufficient to pay the interest on the Bonds due and payable on such Interest Payment Date, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. (d)The Trustee, on each Principal Payment Date, shall transfer from the Payment Fund to each Principal Account an amount equal to the principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, coming due on such date. Moneys in each Principal Account shall be withdrawn and used by the Trustee for the purpose of paying principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, as and when due and payable. In the event that, on such Principal Payment Date, amounts in any Principal Account are insufficient to pay the principal due and payable on such Principal Payment Date, including principal due and payable by reason of mandatory sinking fund 20 4132-8330-4518.12 redemption of such Bonds, the Trustee shall apply available funds therein in accordance with the provisions of Section 7.05 hereof. Section 5.03.Redemption Fund. The Trustee shall establish and maintain a special fund designated the “Redemption Fund.” The Trustee shall deposit in the Redemption Fund any amounts required to be deposited therein pursuant to Section 6.01 or Section 6.02 hereof. Amounts in the Redemption Fund shall be disbursed therefrom by the Trustee for the payment of the Redemption Price of, and accrued interest on, Bonds redeemed pursuant to Section 4.01 hereof or Section 4.02 hereof. Section 5.04.[Reserved]. Section 5.05.Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the “Rebate Fund.” There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Authority or a Written Request of the City. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Authority or the City, and shall have no liability or responsibility to enforce compliance by the Authority or the City with the terms of the Tax Certificate. The Trustee may conclusively rely upon the determinations, calculations and certifications of the Authority or the City required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the calculations of the Authority or the City. (b)Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon receipt by the Trustee of a Written Request of the City, be withdrawn by the Trustee and remitted to the City. Section 5.06.[Reserved]. Section 5.07.Investments. (a) Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City received by the Trustee no later than two Business Days prior to the making of such investment. Moneys in all such funds and accounts shall 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 this Indenture. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to this Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (6) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. (b)Any interest or profits received with respect to investments held in any of the funds or accounts established under this Indenture shall be retained therein; provided, however, that any interest or profits received with respect to investments held in the Project Fund shall be credited to the Interest Account of the Payment Fund. 21 4132-8330-4518.12 (c)Permitted Investments acquired as an investment of moneys in any fund or account established under this Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund or account shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each June 15 and December 15. In determining the market value of Permitted Investments, the Trustee may use and rely upon any generally recognized pricing information service (including brokers and dealers in securities) available to it. (d)[Reserved]. (e)Investments (except investment agreements) in any fund or account established hereunder shall be valued, exclusive of accrued interest not less often than annually nor more often than monthly. All investments of amounts deposited in any fund or account established hereunder shall be valued at the market value thereof. (f)Any interest or profits received with respect to investments held in any of the funds or accounts established under this Indenture shall be retained therein. (g)The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments are credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. (h)Each of the Authority and the City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Authority or the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, each of the Authority and the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish the Authority and the City periodic cash transaction statements, which shall include details for all investment transactions made by the Trustee hereunder. NET PROCEEDS AND TITLE INSURANCE; COVENANTS Section 6.01.Application of Net Proceeds. (a) If the Leased Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of this Section, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Leased Property or the affected portion thereof in accordance with the provisions hereof. (b)The Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Leased Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Leased Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may, pursuant to a Written Request of the City, be invested by the 22 4132-8330-4518.12 Trustee in Permitted Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement. (c)Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Leased Property or the portions of the Leased Property that were damaged or destroyed. If the City does intend to replace or repair the Leased Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account referred to above. (d)If such damage, destruction or loss was such that there resulted a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments results from such damage or destruction pursuant to Section 3.07 of the Lease Agreement, then the City shall be required either to (i) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Leased Property or the portions thereof that have been damaged to the condition that existed prior to such damage or destruction, or (ii) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, pursuant to Section 4.01 hereof (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in the remaining, non-abated Base Rental Payments being sufficient to pay, as and when due, the principal of and interest on the Bonds that will remain Outstanding after such redemption. If the City is required to apply funds from the insurance proceeds and other legally available funds to the redemption of Bonds in accordance with clause (ii) above, the City shall direct the Trustee, in a Written Request of the City, to transfer the funds to be applied to such redemption to the Redemption Fund and the Trustee shall transfer such funds to the Redemption Fund. Any proceeds of any insurance, including the proceeds of any self-insurance remaining after the portion of the Leased Property that was damaged or destroyed is restored to and made available to the City in substantially the same condition and annual fair rental value as that that existed prior to the damage or destruction as required by clause (i) above, or the redemption of Bonds as required by clause (ii) above, in each case as evidenced by a Written Certificate of the City to such effect, shall be paid to the City to be used for any lawful purpose, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Leased Property after such damage or destruction is at least equal to the sum of the then unpaid principal components of Base Rental Payments, be paid to the City to be used for any lawful purpose. (e)The proceeds of any award in eminent domain shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to Section 4.01 hereof. Section 6.02.Title Insurance. Net Proceeds of any policy of title insurance received by the Trustee in respect of the Leased Property shall be applied and disbursed by the Trustee as follows: (a)if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (b)if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Property and will result in an abatement in whole or in part of Rental Payments payable by the City under the Lease 23 4132-8330-4518.12 Agreement, then the City shall, in a Written Request of the City, direct the Trustee to, and the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in Section 4.01 hereof. Section 6.03.Punctual Payment. The Authority shall punctually pay or cause to be paid the principal of, and premium, if any, and interest on the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of the Lease Revenues and other assets pledged for such payment as provided in this Indenture and received by the Authority or the Trustee. Section 6.04.Compliance with Indenture. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in this Indenture required to be complied with, kept, observed and performed by it. Section 6.05.Compliance with Ground Lease and Lease Agreement. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all the agreements, conditions, covenants and terms contained in the Ground Lease and the Lease Agreement required to be complied with, kept, observed and performed by it and, together with the Trustee, shall enforce the Ground Lease and the Lease Agreement against the other party thereto in accordance with their respective terms. Section 6.06.Observance of Laws and Regulations. Each of the Authority and the City shall faithfully comply with, keep, observe and perform all valid and lawful obligations or regulations now or hereafter imposed on it by contract, or prescribed by any law of the United States of America or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of each and every franchise, right or privilege now owned or hereafter acquired by it, including its right to exist and carry on its businesses, to the end that such franchises, rights and privileges shall be maintained and preserved and shall not become abandoned, forfeited or in any manner impaired. Section 6.07.Other Liens. (a) The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained herein, or from its obligation hereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. (b)So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created hereunder, other than the pledge and lien hereof. (c)Neither the Authority nor the Trustee shall encumber the Leased Property other than in accordance with the Ground Lease, the Lease Agreement and this Indenture. 24 4132-8330-4518.12 Section 6.08.Prosecution and Defense of Suits. The City shall promptly, upon request of the Trustee, take such action from time to time as may be necessary or proper to remedy or cure any cloud upon or defect in the title to the Leased Property or any part thereof, whether now existing or hereafter developing, shall prosecute all actions, suits or other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee and every Owner harmless from all cost, damage, expense or loss, including attorneys’ fees, which they or any of them may incur by reason of any such cloud, defect, action, suit or other proceeding. Section 6.09.Recordation. The City shall record, or cause to be recorded, with the Riverside County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to Section 5.01 hereof. Section 6.10.Tax Covenants. (a) Neither the Authority nor the City shall take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, each of the Authority and the City shall comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Bonds. (b)In the event that at any time the Authority or the City is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Authority or the City shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c)Notwithstanding any provisions of this Section, if the Authority or the City shall provide to the Trustee an Opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.11.Continuing Disclosure. The City shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default hereunder; provided, however, that the Trustee may (and, at the written direction of the Participating Underwriters or the Owners of at least 25% of the aggregate principal amount of Outstanding Bonds, and upon receipt of indemnification reasonably satisfactory to the Trustee, shall) or any Owner or Beneficial Owner of the Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.12.Notifications Required by the Act. If at any time the Trustee fails to pay principal or interest due on any scheduled payment date for the Bonds, the Trustee shall notify the Authority in writing of such failure or withdrawal, as applicable, and, in accordance with Section 6599.1(c) of the Act, the Authority shall notify the California Debt and Investment Advisory Commission of such failure or withdrawal, as applicable, within 10 days of the failure or withdrawal, as applicable. Section 6.13.Further Assurances. Each of the Authority and the Trustee shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably 25 4132-8330-4518.12 necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the rights and benefits provided in this Indenture, the Ground Lease and the Lease Agreement. EVENTS OF DEFAULT AND REMEDIES Section 7.01.Events of Default. The following events shall be Events of Default: (a)Except as provided in Section 2.01(c), failure to pay any installment of principal of any Bond as and when the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; (b)failure to pay any installment of interest on any Bond as and when the same shall become due and payable; (c)the occurrence and continuation of a Lease Default Event; (d)failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee, the City or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the Authority, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; (e)failure by the City to observe and perform any of the covenants, agreements or conditions on its part in this Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the City, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; or (f)the commencement by the Authority or the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02.Action on Default. In each and every case during the continuance of an Event of Default, the Trustee may or, at the written direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, shall exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by this Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the 26 4132-8330-4518.12 specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in Section 7.03 hereof. Section 7.03.Other Remedies. If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: (a)by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained herein or in the Bonds; (b)by suit in equity to enjoin any acts or things that are unlawful or violate the rights of the Trustee or the Owners; or (c)by suit, action or proceeding in any court of competent jurisdiction, to require the Authority or the City, or both, to account as if it or they were the trustee or trustees of an express trust. Section 7.04.Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee is intended to be exclusive of any other remedy, and each such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing in law or in equity or by statute or otherwise and may be exercised without exhausting and without regard to any other remedy conferred by any law. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 7.05.Application of Amounts After Default. If an Event of Default shall occur and be continuing, all Lease Revenues and any other funds thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee as follows and in the following order: (a)to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; (b)to the payment of all amounts then due for interest on the Bonds, ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable, with interest on the overdue interest at the rate borne by the respective Bonds; and (c)to the payment of all amounts then due for principal of the Bonds, ratably without preference or priority of any kind, according to the amounts of principal of the Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. Section 7.06.Power of Trustee to Enforce. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Indenture. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of 27 4132-8330-4518.12 any Owner thereof, or to authorize the Trustee to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.07.Owners’ Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder; provided, however, that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and, provided, further, that the Trustee shall have the right to decline to follow any such direction that in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Section 7.08.Limitation on Owners’ Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Act or any other applicable law with respect to such Bond, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners, or to enforce any right under the Bonds, this Indenture, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners, subject to the provisions of this Indenture. Section 7.09.Termination of Proceedings. If any action, proceeding or suit to enforce any right or to exercise any remedy is abandoned or determined adversely to the Trustee or any Owner, then, subject to any such adverse determination, the Trustee, such Owner, the Authority and the City shall be restored to their former positions, rights and remedies as if such action, proceeding or suit had not been brought or taken. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or any Owner, then in every such case the Trustee, such Owner, the Authority and the City, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Trustee, the Owners, the Authority and the City shall continue as though no such proceedings had been taken. Section 7.10.No Waiver of Default. No delay or omission of the Trustee or of any Owner to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein, and every power and remedy given by this Indenture to the Trustee or to the Owners may be exercised from time to time and as often as may be deemed expedient. 28 4132-8330-4518.12 THE TRUSTEE Section 8.01.Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default that has not been cured or waived, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Section 8.02.Qualifications; Removal and Resignation; Successors. (a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, which is (or if such trust company, national banking association or bank is a member of a bank holding company system, its parent bank holding company is) (i) a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, national banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b)The Authority and the City may, by an instrument in writing, upon at least 30 days’ notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with subsection (a) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. (c)The Trustee may at any time resign by giving written notice of such resignation by first- class mail, postage prepaid, to the Authority and the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of subsection (a) of this Section, the Trustee shall resign immediately in the manner and with the effect specified in this Section. (d)Upon removal or resignation of the Trustee, the Authority and the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in subsection (a) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court 29 4132-8330-4518.12 may thereupon, after such notice, if any, as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Authority or the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the successor Trustee shall, within 15 days after such acceptance, mail, by first-class mail postage prepaid, a notice of the succession of such Trustee to the trusts hereunder to the Owners at the addresses shown on the Registration Books. (e)Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, national banking association or bank shall be eligible under subsection (a) of this Section, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03.Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Authority or the City, as applicable, and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. (b)The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Authority, the City or others in accordance with this Indenture. (c)The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. (d)No provision of this Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. (e)The Trustee may execute any of its powers or duties hereunder through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. 30 4132-8330-4518.12 (f)The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (g)The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. (h)Before taking action under Article VII, under this Article or upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. (i)The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (j)The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (k)The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (l)The Trustee shall not be liable for the failure to take any action required to be taken by it hereunder if and to the extent that the Trustee’s taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. (m)The Trustee shall not be deemed to have knowledge of an Event of Default hereunder unless it has actual knowledge thereof. (n)The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. (o)The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions hereof. Section 8.04.Right to Rely on Documents and Opinions. (a) The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b)The Trustee shall have the right to accept and act upon a Written Request of the City delivered using Electronic Means. If the City elects to deliver a Written Request of the City to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s 31 4132-8330-4518.12 understanding of such Written Request shall be deemed controlling. The City understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the City that purport to have been sent by an Authorized Representative of the City have been sent by such Authorized Representative. The City shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the City to the Trustee and that the City is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the City. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the City delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent Written Request of the City. The City agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the City to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the City, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the City to the Trustee and that there may be more secure methods of transmitting Written Requests of the City than the method selected by the City, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the City provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the City that purports to have been sent by an Authorized Representative of the City delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (c)The Trustee shall have the right to accept and act upon a Written Request of the Authority delivered using Electronic Means. If the Authority elects to deliver a Written Request of the Authority to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The Authority understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the Authority that purport to have been sent by an Authorized Representative of the Authority have been sent by such Authorized Representative. The Authority shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the Authority to the Trustee and that the Authority is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the Authority. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the Authority delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent Written Request of the Authority. The Authority agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the Authority to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the Authority, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the Authority to the Trustee and that there may be more secure methods of transmitting Written Requests of the Authority than the method selected by the Authority, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the Authority provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and 32 4132-8330-4518.12 limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the Authority that purports to have been sent by an Authorized Representative of the Authority delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (d)Whenever in the administration of the duties imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the Authority or Written Certificate of the City, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. (e)The Trustee may consult with counsel, who may be counsel to the Authority or the City, with regard to legal questions, including with respect to compliance herewith of amendments hereto or to the Lease Agreement or the Ground Lease, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Section 8.05.Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with prudent corporate trust industry standards, in which accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Lease Revenues received by it and all funds and accounts established by it pursuant to this Indenture. Such books of record and account shall be available for inspection by the Authority and the City during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the Authority and the City a monthly accounting of the funds and accounts it holds under this Indenture; provided, however, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (a) has a balance of zero, and (b) has not had any activity since the last reporting date. Section 8.06.Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during business hours and upon reasonable notice to the inspection of the Authority, the City, the Owners and their agents and representatives duly authorized in writing. Section 8.07.Compensation and Indemnification of the Trustee. The City shall pay to the Trustee from time to time all reasonable compensation pursuant to a pre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre-approved fee letter and other disbursements pursuant to a pre-approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors and employees harmless against any costs, suits, judgments, damages, liabilities, claims, expenses, including legal fees and expenses, and liabilities that it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and that are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the resignation or removal of the Trustee and the discharge and satisfaction of this Indenture. 33 4132-8330-4518.12 SUPPLEMENTAL INDENTURES Section 9.01.Supplemental Indentures. (a) This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 11.07 hereof. No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under this Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, this Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, this Indenture, except as expressly provided in this Indenture, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) modify or amend this Section without the prior written consents of the Owners of all Bonds then Outstanding. (b)This Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners hereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: (i)to add to the covenants and agreements of the Authority or the City in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Authority or the City; (ii)to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture or in regard to questions arising hereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder; (iii)to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Tax-Exempt Bonds; and (iv)[Reserved]; (v)in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder. (c)Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority or the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners at the respective addresses shown on the 34 4132-8330-4518.12 Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02.Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Authority, the City, the Trustee and the Owners shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03.Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the effective date of any Supplemental Indenture pursuant to this Article may and, if the Authority or the City so determines, shall bear a notation by endorsement or otherwise in form approved by the Authority and the City as to any modification or amendment provided for in such Supplemental Indenture and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, a suitable notation shall be made on such Bond. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Authority and the City, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Authority and authenticated by the Trustee and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, such a new Bond in equal principal amount of the same Series, interest rate and maturity shall be exchanged for such Owner’s Bond so surrendered. Section 9.04.Amendment of Particular Bonds. The provisions of this Article shall not prevent any Owner from accepting any amendment or modification as to any particular Bond owned by it, provided that due notation thereof is made on such Bond. DEFEASANCE Section 10.01.Discharge of Indenture. (a) If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Authority hereunder shall thereupon cease, terminate and become void and this Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto that are not required for the payment of the principal of and interest and premium, if any, on the Bonds. (b)Subject to the provisions of subsection (a) of this Section, when any Bond shall have been paid and if, at the time of such payment, each of the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided herein, and all 35 4132-8330-4518.12 agreements, covenants and other obligations of the Authority and the City hereunder shall cease, terminate, become void and be completely discharged and satisfied as to such Bond. (c)Notwithstanding the discharge and satisfaction of this Indenture or the discharge and satisfaction of this Indenture in respect of any Bond, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of this Indenture, the obligation of the City to indemnify the Trustee pursuant to Section 8.07 shall remain in effect and be binding upon the City. Section 10.02.Bonds Deemed to Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01 hereof. Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 hereof if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.03 hereof, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with Section 4.03 hereof, (ii) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, together with the money, if any, deposited therewith, will provide moneys that shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owner of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to this subsection in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds. (b)No Bond shall be deemed to have been paid pursuant to clause (ii) of subsection (a) of this Section unless the Authority or the City shall have caused to be delivered to the Authority, the City and the Trustee (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of subsection (a) of this Section resulting in such deemed payment, which escrow agreement shall be in form and in substance acceptable to the Authority, the City and the Trustee, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (iii) a copy of an Opinion of Bond Counsel, dated the 36 4132-8330-4518.12 date of such deemed payment and addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in this Indenture, this Indenture has been discharged in respect of such Bond and all agreements, covenants and other obligations of the Authority and the City hereunder as to such Bond have ceased, terminated, become void and been completely discharged and satisfied. (c)The Trustee may seek and is entitled to rely upon (i) an Opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to clause (ii) of subsection (a) of this Section have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in subsection (b) of this Section. Section 10.03.Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment and discharge of the principal of, or premium or interest on, any Bond that remain unclaimed for two years after the date when such principal, premium or interest has become payable, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the date when such principal, premium or interest become payable, shall, at the Written Request of the Authority, be repaid by the Trustee to the Authority as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owner of such Bond shall look only to the Authority for the payment of such principal, premium or interest. The Trustee shall hold any such moneys uninvested. MISCELLANEOUS Section 11.01.Successor Deemed Included in all References to Predecessor. Whenever the Authority, the City or the Trustee is named or referred to herein, such reference shall be deemed to include the successor to the powers, duties and functions that are presently vested in the Authority, the City or the Trustee, and all agreements, conditions, covenants and terms required hereby to be observed or performed by or on behalf of the Authority, the City or the Trustee shall bind and inure to the benefit of the respective successors thereof whether so expressed or not. Section 11.02.Limitation of Rights. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Trustee, the Authority, the City and the Owners, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Trustee, the Authority, the City and the Owners. Section 11.03.Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Authority of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.04.Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The Authority hereby declares that it would have entered into this Indenture and each and every other Section, subsection, paragraph, sentence, 37 4132-8330-4518.12 clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.05.Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the Authority: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the City: San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, California 93401 Phone: (805) 781-7114 Attention: Secretary/City Clerk If to the Trustee: U.S. Bank Trust Company, National Association 633 W 5th Street, 24th Floor Los Angeles, California 90071 Attention: Global Corporate Trust Services Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 11.06.Evidence of Rights of Owners. (a) Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Authority, the City and the Trustee if made in the manner provided in this Section. (b)The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person 38 4132-8330-4518.12 signing such request, consent or other instrument acknowledged to him or her the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. (c)The ownership of Bonds shall be proved by the Registration Books. (d)Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Authority, the City or the Trustee in accordance therewith or reliance thereon. Section 11.07.Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds that are actually known by the Trustee to be owned or held by or for the account of the Authority or the City or any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided, however, that if 100% of the Bonds are so owned or held, such Bonds shall be deemed to be Outstanding. Bonds so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Authority or the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the Authority shall specify in a Written Certificate of the Authority delivered to the Trustee that Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the Authority. Upon request of the Trustee, the City shall specify in a Written Certificate of the City delivered to the Trustee that Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the City. Section 11.08.Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners entitled thereto, subject, however, to the provisions of Section 10.03 hereof but without any liability for interest thereon. Section 11.09.Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with prudent corporate trust industry standards to the extent practicable, and with due regard for the requirements hereof and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish any such additional funds or accounts as it deems necessary to perform its obligations hereunder. Section 11.10.Business Days. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the nominal date provided in this Indenture and, unless otherwise specifically provided in this Indenture, no interest shall accrue for the period from and after such nominal date 39 4132-8330-4518.12 Section 11.11.Waiver of Personal Liability. Notwithstanding anything contained herein to the contrary, no member, officer or employee of the Authority or the City shall be individually or personally liable for the payment of any moneys, including without limitation, the principal of or interest on the Bonds, but nothing contained herein shall relieve any member, officer or employee of the Authority or the City from the performance of any official duty provided by any applicable provisions of law, by the Lease Agreement or hereby. Section 11.12.Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.13.Partial Invalidity. If any one or more of the agreements, conditions, covenants or terms required herein to be observed or performed by or on the part of the Authority, the City or the Trustee shall be contrary to law, then such agreement or agreements, such condition or conditions, such covenant or covenants or such term or terms shall be null and void to the extent contrary to law and shall be deemed separable from the remaining agreements, conditions, covenants and terms hereof and shall in no way affect the validity hereof or of the Bonds, and the Owners shall retain all the benefit, protection and security afforded to them under any applicable provisions of law. The Authority, the City and the Trustee hereby declare that they would have executed this Indenture, and each and every Article, Section, paragraph, subsection, sentence, clause and phrase hereof and would have authorized the execution, authentication, issuance and delivery of the Bonds pursuant hereto irrespective of the fact that any one or more Articles, Sections, paragraphs, subsections, sentences, clauses or phrases hereof or the application thereof to any Person or circumstance may be held to be unconstitutional, unenforceable or invalid. Section 11.14.Governing Laws. This Indenture and the Bonds shall be construed and governed in accordance with the laws of the State. Section 11.15.Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Indenture may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Indenture using an electronic signature, it is signing, adopting, and accepting this Indenture and that signing this Indenture using an electronic signature is the legal equivalent of having placed its handwritten signature on this Indenture on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Indenture in a usable format. Section 11.16.Execution in Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 40 4132-8330-4518 IN WITNESS WHEREOF, the Authority has caused this Indenture to be signed in its name by its representative thereunto duly authorized, the City has caused this Indenture to be signed in its name by its representative thereunto duly authorized and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Emily Jackson, Treasurer CITY OF SAN LUIS OBISPO By: Derek Johnson, City Manager U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: Authorized Officer DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B A-1 4132-8330-4518.12 EXHIBIT A PERMITTED INVESTMENTS “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any investment direction from the City as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State and constitute Permitted Investments), but only to the extent that the same are acquired at Fair Market Value: (a) Defeasance Securities; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farm Credit System Financial Assistance Corporation, Rural Economic Community Development Administration (formerly Farmers Home Administration), General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, Federal Housing Administration and Federal Financing Bank; (c) direct obligations for any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated “Aaa” by Moody’s and “AAA” by S&P issued by Fannie Mae or Federal Home Loan Mortgage Corporation (FHLMC); obligations of the Resolution Funding Corporation (REFCORP); and senior debt obligations of the Federal Home Loan Bank System; (d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody’s, or which deposit accounts are collateralized by Federal Securities for amounts above FDIC insurance limits and maturing no more than 360 days after the date of purchase, including those of the Trustee or its affiliates; (e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody’s and which matures not more than 270 days after the date of purchase; (f) investments in a money market fund rated AAAm or AAAm-G or better by S&P, excluding such funds with a floating net asset value but including funds for which the Trustee or its affiliates provide investment advisory or other management services; (g) investments in the Local Agency Investment Fund (established under Section 16429.1 of the California Government Code), provided that such investment is held in the name and to the credit of the Trustee, and provided further that the Trustee may restrict such investment if required to keep moneys available for the purposes of the Indenture; (h) shares in a State of California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53601 of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended; A-2 4132-8330-4518.12 (i) U.S. dollar denominated deposit accounts, federal funds, certificates of deposit (including those placed by a third party pursuant to a separate agreement between the District and the Trustee), trust funds, trust accounts, other deposit products, overnight bank deposits, interest bearing deposits, interest bearing money market accounts and banker’s acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-l+” by S&P and maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank or (ii) which are fully insured by the Federal Deposit Insurance Corporation; and (j) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody’s or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant and with the prior approval of S&P, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. B-1 4132-8330-4518.12 EXHIBIT B FORM OF BOND No. R- ***$*** SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 Interest Rate Maturity Date Dated Date CUSIP September 13, 2023 REGISTERED OWNER: PRINCIPAL AMOUNT: The San Luis Obispo Public Financing Authority (the “Authority”) hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the “Registered Owner”), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on June 1 and December 1 in each year, commencing December 1, 2023 (the “Interest Payment Dates”), until payment of such Principal Amount in full. This Bond is one of a series of a duly authorized issue of bonds designated “San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023” (the “Bonds”) in the aggregate principal amount of $45,780,000. The Bonds are issued pursuant to the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City of San Luis Obispo (the “City”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. The Indenture is entered into, and this Bond is issued under, the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code (the “Act”) and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available B-2 4132-8330-4518.12 therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. The principal of the Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Pursuant to and as more particularly provided in the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge constitutes a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are subject to redemption on the dates, at the Redemption Prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Bond or any portion thereof shall be given as provided in the Indenture. The Bonds are issuable as fully-registered Bonds without coupons in Authorized Denominations ($5,000 and integral multiples thereof). Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be so surrendered for transfer, the Authority shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Indenture and the rights and obligations of the Authority, the City the Trustee and the Owners may be modified or amended in the manner, to the extent, and upon the terms provided in the Indenture. B-3 4132-8330-4518.12 The Indenture contains provisions permitting the Authority to make provision for the payment of the principal of and the interest and premium, if any, on any of the Bonds so that such Bonds shall no longer be deemed to be Outstanding under the terms of the Indenture. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. IN WITNESS WHEREOF, the Authority has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of its representative thereunto duly authorized, attested by the manual or facsimile signature of the Secretary of the Authority, all as of the Dated Date identified above. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Executive Director ATTEST: Secretary B-4 4132-8330-4518.12 CERTIFICATE OF AUTHENTICATION This is one of the Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Signatory B-5 4132-8330-4518.12 ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto __________________________________ whose address and social security or other tax identifying number is ____________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ______________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. 4153-0889-6841.1 CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of San Luis Obispo (the “City”), on behalf of itself and the San Luis Obispo Public Financing Authority (the “Authority”), in connection with the issuance of the Authority’s Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued under an Indenture dated as of September 1, 2023 (the “Indenture”) between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees, on behalf of itself and the Authority, as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” means any Annual Report provided by the City under, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Dissemination Agent” means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means, for purposes of the listed events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule. “Fiscal Year” means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other 12-month period selected and designated by the City. “Listed Events” means any of the events listed in Section 5(a) hereof. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. “Official Statement” means the final official statement dated August 30, 2023, prepared with respect to the Bonds. “Participating Underwriter” means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Report Date” means March 1 of each year. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4153-0889-6841 SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Report Date, commencing March 1, 2024, with the report for Fiscal Year 2022-2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 business days prior to the Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Report Date if not available by the Report Date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City under the Indenture. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the City prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed under the preceding clause (a), the Annual Report shall contain information showing: (i) information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year; DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 3 4153-0889-6841 (ii) information showing the aggregate principal amount of long-term bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the close of the most recent completed Fiscal Year; (iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year; (iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year; (v) with respect to the top 10 property taxpayers in the City, information showing the identity of each such taxpayer, and the total assessed valuation of properties owned by each such taxpayer. (vi) information concerning the sales and use tax revenue collected by the City for the most recently completed Fiscal Year; (vii) information concerning the transient occupancy tax revenue collected by the City for the most recently completed Fiscal Year; (viii) a statement on whether the County of San Luis Obispo used the Teeter Plan to assess and collect tax during the most recently completed Fiscal Year; and (x) information concerning parking fund revenues and operating expenses. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (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 City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4 4153-0889-6841 6. Tender offers; 7. Defeasances; 8. Rating changes; or 9. Bankruptcy, insolvency, receivership or similar event of the obligated person. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the 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. 10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties. (b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: 1. Unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. Modifications to rights of Bond holders; 3. Bond calls; 4. Release, substitution, or sale of property securing repayment of the Bonds; 5. Non-payment related defaults; 6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or 7. Appointment of a successor or additional trustee or the change of name of a trustee. 8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 5 4153-0889-6841 (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws. (d) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. SECTION 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, 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 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended under the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 6 4153-0889-6841 shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(a). SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City 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 attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 7 4153-0889-6841 SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: September 13, 2023 CITY OF SAN LUIS OBISPO By: Derek Johnson, City Manager DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B A-1 4153-0889-6841.1 CONTINUING DISCLOSURE EXHIBIT A FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Name of Obligated Person: CITY OF SAN LUIS OBISPO Name of Bond Issue: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Date of Issuance: September 13, 2023 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the Issuer, dated the Date of Issuance. The Issuer anticipates that the Annual Report will be filed by _____________. Dated: _______________ CITY OF SAN LUIS OBISPO By [to be signed only if filed] DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B Th i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t a n d t h e i n f o r m a t i o n c o n t a i n e d h e r e i n a r e s u b j e c t t o c o m p l e t i o n a n d a m e n d m e n t . U n d e r n o c i r c u m s t a n c e s s h a l l t h i s P r e l i m i n a r y O f f i c i a l S t a t e m e n t c o n s t i t u t e a n o f f e r t o s e l l o r t h e s o l i c i t a t i o n o f a n o f f e r t o bu y , n o r s h a l l t h e r e b e a n y s a l e o f t h e s e s e c u r i t i e s , i n a n y j u r i s d i c t i o n i n w h i c h s u c h o f f e r , s o l i c i t a t i o n o r s a l e w o u l d b e u n l a w f u l p r i o r t o t h e r e g i s t r a t i o n o r q u a l i f i c a t i o n u n d e r t h e s e c u r i t i e s l a w s o f s u c h j u r i s d i c t i o n . PRELIMINARY OFFICIAL STATEMENT DATED AUGUST 23, 2023 NEW ISSUE ‑ FULL BOOK‑ENTRY RATING: S&P: AA (See “RATING” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein. $46,845,000* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 Dated: Date of Delivery Due: December 1, as shown on the inside cover The San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”) are being issued by the San Luis Obispo Public Financing Authority (the “Authority”) to provide funds to (i) finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, (ii) redeem the 2012 Bonds (as defined herein) and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Bonds. See “THE PLAN OF FINANCE” herein. Interest on the Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2023. The Bonds will be issued as fully-registered bonds without coupons and 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 for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form through DTC participants and no physical delivery of the Bonds will be made to purchasers, except as otherwise described herein. Payment of principal, premium, if any, and interest will be made by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), to DTC which is obligated to remit such payments to its participants for subsequent disbursement to the Beneficial Owners of the Bonds. See Appendix F—“DTC DESCRIPTION” hereto. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are being issued pursuant to an Indenture dated as of September 1, 2023 (the “Indenture”) between the Authority and the Trustee. The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City of San Luis Obispo (the “City”) or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Bonds. Lease Revenues consist primarily of Base Rental Payments to be received by the Authority from the City pursuant to a Lease Agreement between the Authority, as lessor, and the City, as lessee. Such Base Rental Payments are calculated to be sufficient to pay the principal of and interest on the Bonds when due. Base Rental Payments are payable from any source of legally available funds in each year that the City has use and possession of the Leased Property. No debt service reserve fund will be established for the Bonds. The Bonds are subject to optional redemption and extraordinary redemption prior to maturity as more fully described herein. See “THE BONDS—Redemption” herein. The Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Lease Revenues. Neither the full faith and credit of the Authority, the City nor any member of the Authority is pledged for the payment of the principal of or interest on the Bonds or for the payment of Base Rental Payments. Neither the payment of the principal of or interest on the Bonds nor the obligation to make Base Rental Payments constitutes a debt, liability or obligation of the Authority, the City or any member of the Authority for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation. The Authority has no taxing power. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision on the Bonds. The Bonds are offered when, as and if issued, subject to the approval of validity of the Bonds and certain other legal matters by Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, and subject to certain other conditions. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Certain legal matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Raymond James & Associates, Inc. (the “Underwriter”) by its counsel, Stradling Yocca Carlson & Rauth, A Professional Corporation. It is expected that the Bonds will be available for delivery through the DTC book-entry only system in New York, New York on or about September 13, 2023. Date of Official Statement: _____________. * Preliminary; subject to change. $46,845,000* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 MATURITY SCHEDULE* Maturity Date (December 1) Principal Amount Interest Rate Yield Price CUSIP Number† 2024 $ 945,000 2025 990,000 2026 1,050,000 2027 1,100,000 2028 1,155,000 2029 1,220,000 2030 895,000 2031 940,000 2032 990,000 2033 1,040,000 2034 1,095,000 2035 1,150,000 2036 1,210,000 2037 1,270,000 2038 1,335,000 2039 1,405,000 2040 1,480,000 2041 1,555,000 2042 1,635,000 2043 1,715,000 $9,995,000* ___% Term Bond due December 1, 2048; Yield ___%; CUSIP† Suffix ___ $12,675,000* ___% Term Bond due December 1, 2053; Yield ___%; CUSIP† Suffix ___ * Preliminary; subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2023 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, change. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of its responsibilities to investors under, the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information set forth herein has been furnished by the Authority and the City and other sources as noted that the Authority and the City believe reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority and the City since the date hereof. This Official Statement, including any supplement or amendment thereto, is intended to be deposited with one or more nationally recognized municipal securities information repositories. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF ANY OF THE BONDS, BY ANY PERSON IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. In making an investment decision, potential investors must rely on their own examination of the Authority and the City and the terms of the offering, including the merits and risks involved. The Bonds have not been registered or qualified under the securities laws of any state. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Official Statement. Any representation to the contrary is a criminal offense. The summaries and references to the Indenture, the Continuing Disclosure Certificate and statutes and other documents do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such document and statute. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exemptions from the registration requirements contained in such Acts. The City maintains a website. Unless specifically indicated otherwise, the information presented in the website is not incorporated by reference as part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. CITY OF SAN LUIS OBISPO, CALIFORNIA City Council and San Luis Obispo Public Financing Authority Governing Board Erica A. Stewart, Mayor/Chair Jan Marx, Vice Mayor/Vice Chair Emily Francis, Council Member/Director Andy Pease, Council Member/Director Michelle Shoresman, Council Member/Director City and Authority Staff Derek Johnson, City Manager/Executive Director Emily Jackson, Finance Director/Chief Financial Officer J. Christine Dietrick, Esq., City Attorney/General Counsel Trustee U.S. Bank Trust Company, National Association Municipal Advisor PFM Financial Advisors LLC San Francisco, California Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP [THIS PAGE INTENTIONALLY LEFT BLANK] TABLE OF CONTENTS Page Page -i- INTRODUCTION ............................................. 1 Purpose ........................................................ 1 Sources of Payment for the Bonds .............. 1 The Authority .............................................. 2 The City ....................................................... 2 Summaries Not Definitive; Definitions ............................................ 2 Continuing Disclosure ................................. 3 Other General Fund Obligations ................. 3 THE LEASED PROPERTY .............................. 3 General ........................................................ 3 Description of Leased Property ................... 3 Additions to the Leased Property, Substitution or Release of Property ................................................. 4 THE PLAN OF FINANCE ................................ 4 Cultural Arts District Parking Structure ................................................ 4 Refunding .................................................... 7 ESTIMATED SOURCES AND USES OF PROCEEDS ................................................. 8 THE BONDS ..................................................... 8 General ........................................................ 8 Redemption ................................................. 9 Notice of Redemption ............................... 11 Effect of Redemption ................................ 11 SOURCES OF PAYMENT FOR THE BONDS ..................................................... 11 General ...................................................... 11 Base Rental Payments ............................... 12 Additional Rental Payments ...................... 12 No Debt Service Reserve Fund ................. 13 Insurance ................................................... 13 Damage or Destruction of the Leased Property .................................. 14 Remedies Upon Default ............................ 15 RISK FACTORS ............................................. 15 No Pledge of Revenues or Lien on Assets of the City ................................ 15 Additional Obligations of the City ............ 16 Abatement ................................................. 16 Risk of Uninsured Loss ............................. 17 Limited Recourse on Default..................... 17 No Acceleration Upon Default .................. 17 Bankruptcy ................................................ 18 Risk of Tax Audit; Loss of Tax Exemption ........................................... 19 Limited Secondary Market ........................ 19 Hazardous Substances ............................... 19 Cyber Security ........................................... 20 Natural Disasters and Other Events .......... 20 Environmental Focus and Climate Change ................................................ 21 Pandemic and Infectious Disease .............. 22 Dependence on State for Certain Revenues ............................................. 22 Changes in Law ......................................... 23 City Pension Benefit Liability ................... 23 No Liability of Authority to the Owners ................................................ 23 CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS ....................... 23 Article XIIIA of the State Constitution ........................................ 23 Article XIIIB of the State Constitution ........................................ 24 Articles XIIIC and XIIID of the State Constitution ............................... 25 Proposition 22 ........................................... 26 Proposition 26 ........................................... 26 Proposition 62 ........................................... 27 Unitary Property ........................................ 27 Future Initiatives ....................................... 28 THE AUTHORITY ......................................... 28 THE CITY ....................................................... 28 CITY FINANCIAL INFORMATION ............ 29 Budgetary Process ..................................... 29 Financial Statements ................................. 33 General Fund Balance Sheet ..................... 33 General Fund Revenues, Expenditures and Changes in Fund Balances..................................... 35 Recent Developments................................ 37 Taxes and Other Revenues ........................ 38 Sales and Use Taxes .................................. 39 Property Taxes .......................................... 41 Transient Occupancy Tax ......................... 44 Other Taxes and Revenues ........................ 44 TABLE OF CONTENTS (continued) Page -ii- Parking Rates (Specific to Parking Enterprise) ........................................... 45 Outstanding General Fund Debt and Other Obligations ................................ 46 Direct and Overlapping Bonded Debt ..................................................... 48 Employee Relations ................................... 50 Insurance ................................................... 50 Employee Retirement System ................... 51 City Investment Policy and Portfolio ........ 57 TAX MATTERS .............................................. 58 CERTAIN LEGAL MATTERS....................... 60 MUNICIPAL ADVISOR ................................. 60 LITIGATION ................................................... 60 CONTINUING DISCLOSURE ....................... 60 RATING .......................................................... 60 UNDERWRITING .......................................... 61 MISCELLANEOUS ........................................ 61 APPENDIX A – AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 APPENDIX B – CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D – PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F – DTC DESCRIPTION -1- OFFICIAL STATEMENT $46,845,000* SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INTRODUCTION This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined herein shall have the respective meanings assigned to them elsewhere in this Official Statement. Purpose The purpose of this Official Statement, including the appendices hereto, is to furnish information regarding the issuance and sale by the San Luis Obispo Public Financing Authority (the “Authority”) of $46,845,000* aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to the provisions of a resolution of the Authority adopted on August 15, 2023 (the “Resolution”) and an Indenture dated as of September 1, 2023 (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee thereunder (the “Trustee”). The Bonds will be issued in full conformity with the Constitution and laws of the State of California (the “State”), including the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the California Government Code, as amended from time to time. The primary purpose of issuing the Bonds is to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District (the “Series 2023 Project”) and to redeem the outstanding principal amount of the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”). See “THE PLAN OF FINANCE” herein. Proceeds of the Bonds will also be used to pay costs incurred in connection with the issuance, sale and delivery of the Bonds. Pursuant to a Ground Lease (the “Ground Lease”), between the City of San Luis Obispo (the “City”), as lessor and the Authority, as lessee, the City will lease to the Authority the real property and the improvements thereon (the “Leased Property”). Concurrently, the Authority will lease the Leased Property to the City pursuant to a Lease Agreement (the “Lease Agreement”), between the Authority, as lessor and the City, as lessee. See “THE LEASED PROPERTY” herein. Sources of Payment for the Bonds The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues (hereafter defined) and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Authority will assign to the Trustee all of the Lease Revenues and all of the rights of the Authority in the Lease Agreement, except for certain rights to indemnification set forth therein. * Preliminary, subject to change. -2- The Base Rental Payments (as further defined herein) are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City has covenanted under the Lease Agreement to take such action as may be necessary to include all Rental Payments (as further defined herein) due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. However, during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. See “RISK FACTORS—Abatement” herein. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. The City has assumed responsibility under the Lease Agreement for the operation, maintenance and repair of the Leased Property, and is required to maintain or cause to be maintained insurance on the Leased Property, including title insurance, fire and extended coverage, comprehensive public liability and property damage insurance, and rental income interruption insurance with respect to property damage risks in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any rental period. See “SOURCES OF PAYMENT FOR THE BONDS” herein. No debt service reserve fund will be established for the Bonds. The Authority The Authority is a joint exercise of powers authority established pursuant to an agreement between the City and the City of San Luis Obispo Parking Authority (the “Parking Authority”). See “THE AUTHORITY” herein. The City For certain information concerning the City, including the City’s current financial situation, see “CITY FINANCIAL INFORMATION” herein and Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Summaries Not Definitive; Definitions Brief descriptions of the Bonds, the Authority, the City, the Series 2023 Project and the Leased Property are included in this Official Statement, together with summaries of the Indenture, the Lease Agreement and the Ground Lease. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds, the Indenture, the Lease Agreement and the Ground Lease are qualified in their entirety by reference to the actual documents or with respect to the Bonds, the form of which is included in the Indenture. Copies of all such documents are available for inspection at the corporate trust office of the Trustee in Los Angeles, California. Definitions of certain capitalized terms used in this Official Statement and not otherwise defined herein or in Appendix C hereto shall have the meanings set forth in the Indenture and the Lease Agreement. The summaries of and references contained herein to the Indenture, the Bonds, the Lease Agreement, -3- Ground Lease, statutes and other documents do not purport to be comprehensive or definitive and are qualified by reference to each such document, instrument or statute. Continuing Disclosure The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data and to provide notices of the occurrence of certain enumerated events in order to assist the Raymond James & Associates, Inc. (the “Underwriter”) in complying with Securities Exchange Commission Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” herein. Other General Fund Obligations The City has other obligations payable from its general fund and may enter into additional obligations payable from its general fund in the future. For additional detail, see Note 6 (“Long-Term Debt”) in Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. THE LEASED PROPERTY General The City will lease all of the Leased Property summarized below to the Authority pursuant to the Ground Lease, and the Authority will lease back all of the Leased Property to the City pursuant to the Lease Agreement. The Leased Property consists of a number of essential City properties and the sites thereof. The Leased Property includes site development, landscaping, utilities, equipment, furnishings, improvements and appurtenant, and related facilities located on the real property, including any future improvements made to such Leased Property. The City covenants that so long as the Leased Property is available for use and occupancy, the City will take such actions as may be necessary to include all Base Rental Payments and Additional Rental Payments with respect to each Leased Property asset in its annual budgets and to make the necessary annual appropriations therefor. The value of each facility of the Leased Property is based upon estimates of value from sources the City believes to be reliable. The actual market value may differ materially from the estimated value listed below. The Authority has only a leasehold interest in the Leased Property and is not authorized to sell any such asset. The City represents and agrees in the Lease Agreement that the annual Base Rental Payments represent the fair rental value of the respective Leased Assets. Description of Leased Property Pursuant to the Lease Agreement, the City will sublease from the Authority the Leased Property, which consists of the facilities described below. Marsh Street Parking Structure. The City is leasing a portion of its parking structure located at 871 Marsh Street, an approximately 215,838 square foot, 4 floor concrete building with 520 parking spaces and 19 electric vehicle (EV) charging stations. The structure also includes 4,000 square feet of retail space and 15,000 square feet of office space that are excluded from the Leased Property. The property is within the 100-year flood plain according to the Federal Emergency Management Agency. The structure was built in 1991. The approximate value of land and improvements is in excess of $70,000,000 based on a commercial broker price opinion the City received from McCarty Davis Commercial Real Estate on June 30, 2023. -4- No other property of the City or the Authority will initially be subject to the Lease Agreement. Under the Lease Agreement and the Indenture, the City may change or substitute other capital facilities for the Leased Property subject to the provisions described therein. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT— Amendments; Assignment and Subleasing; Substitution or Release—Substitution and Release of Property” hereto. Additions to the Leased Property, Substitution or Release of Property The City may amend the Lease Agreement to add additional real property to the Leased Property, substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon completion of the conditions set forth in the Lease Agreement. In order to effect such release and substitution, the City is required to provide the Authority and the Trustee, among other things, (a) an ALTA policy of title insurance insuring the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances in an amount which, together with the amount of title insurance applicable to the unreleased portion of the Leased Property, equals at least the aggregate principal amount of Bonds then outstanding, and (b) an opinion of bond counsel stating that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. A substitution or release of Leased Property under the Lease Agreement will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. THE PLAN OF FINANCE Cultural Arts District Parking Structure A portion of the proceeds of the Bonds will be used to finance the costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of the City’s Cultural Arts District Parking Structure, an approximately 163,000 square foot, 5-story building, with approximately 397 parking spaces. The Cultural Arts District Parking Structure will be located at 609 Palm Street, with access on Palm Street and Nipomo Street, adjacent to a new San Luis Obispo Repertory Theatre site with two performance spaces expected to open in early 2027. The City is also in the preliminary planning stages to potentially include 12 housing units on the property, adjacent to the structure, to be developed by an as of yet undetermined party. The diagrams on the following pages represent the location of the Cultural Arts District Parking Structure and other nearby parking structures. Contractors and Schedule. Construction of the Cultural Arts District Parking Structure is being completed in two phases. The first phase, consisting of demolition of tree protection, demolition of vacant residential buildings, and demolition of an existing surface-level parking structure, is underway. The City expects to award the construction contract for the second phase, consisting of vertical construction of the Cultural Arts District Parking Structure, to the contractor(s) submitting the lowest responsive responsible bid based upon a guaranteed maximum price procurement approach. Construction is expected to commence in December 2023 and be completed in late 2025. Environmental and Land Use Approvals. Projects undertaken by the City, including the Cultural Arts District Parking Structure, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) (“CEQA”). Under CEQA, a public agency is required, following preparation of an initial study, to determine whether an environmental impact report (an “EIR”), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared. The City prepared an EIR for the Cultural Arts District Parking Structure that was certified on July 17, 2018. In addition, the City prepared an addendum in July 2019 due to certain changes to the zoning and land use designations. All other land use approvals necessary to proceed with the Cultural Arts District Parking Structure have been obtained or are expected to be obtained in due course. -5- -6- -7- Refunding * A portion of the proceeds of the Bonds, together with other available moneys, will be applied to redeem the 2012 Bonds. The 2012 Bonds will be redeemed on or about October 3, 2023 (the “Redemption Date”) pursuant to the legal documents under which the 2012 Bonds were issued. At any time prior to the sale of the Bonds to the underwriter, the City may elect not to refund the 2012 Bonds. The decision to refund the 2012 Bonds will be based upon market conditions, bond structure, or other factors at the time of pricing, and the City’s internal guidelines for issuing refunding bonds. Electing to refund the 2012 Bonds is at the sole and absolute discretion of the City. The City issued the 2012 Bonds in the aggregate principal amount of $5,050,000 for the purpose of refunding three series of lease revenue bonds originally issued in 2001. The 2012 Bonds are currently outstanding in the aggregate principal amount of $2,415,000, which will be redeemed in full, on a current basis on the Redemption Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest coming due and payable on the redemption date. In order to accomplish the refinancing plan, a portion of the net proceeds of the Bonds, together with certain other funds on hand with respect to the 2012 Bonds, will be transferred to U.S. Bank Trust Company, N.A., acting as the current trustee for the 2012 Bonds (the “2012 Trustee”). Moneys deposited to redeem the 2012 Bonds will be held by the 2012 Trustee as cash in an amount expected to be sufficient, together with certain other amounts, to pay the principal of and interest on the 2012 Bonds to be paid on the Redemption Date. The 2012 Bonds that may be redeemed in whole upon issuance of the Bonds are set forth in the following table. Maturity Date (December 1) Principal Amount Interest Rate CUSIP 798641 2023 $305,000 4.00% LC4 2024 315,000 4.00 LD2 2025 325,000 4.00 LE0 2026 345,000 4.00 LF7 2027 360,000 4.00 LG5 2028 375,000 4.00 LH3 2029 390,000 4.00 LJ9 * Preliminary, subject to change. -8- ESTIMATED SOURCES AND USES OF PROCEEDS * The proceeds of the sale of the Bonds are estimated to be applied as shown below: Sources of Funds: Principal Amount of Bonds $ [Plus/Less] [Net] Original Issue [Premium/Discount] Other Funds on Hand Total Sources $ Uses of Funds: Refunding of 2012 Bonds Underwriter’s Discount Deposit to Costs of Issuance Fund(1) Deposit to Project Fund Total Uses $ _______________ (1) Costs of Issuance includes rating fees, legal fees, advisory fees, printing costs and other miscellaneous expenses. THE BONDS General The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall mature on December 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts set forth on the inside cover page hereof. The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular * Preliminary, subject to change. -9- business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds provided in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. Redemption* The Bonds are subject to optional redemption and extraordinary redemption as described below. Optional Redemption The Bonds maturing on or after December 1, 20__, shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 20__, from and to the extent of prepaid Base Rental Payments, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Extraordinary Redemption The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Leased Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. See “SOURCES OF PAYMENT FOR THE BONDS— Insurance” herein. See also Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Rental Payments—Prepayment” hereto. Mandatory Sinking Fund Redemption The Bonds maturing December 1, 20__, shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal * Preliminary, subject to change. -10- amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__, are optionally redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. The Bonds maturing December 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on June 1 in each year, commencing December 1, 20__, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed $ † † Maturity Date. If some but not all of the Bonds maturing on December 1, 20__, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 20__, are optionally redeemed, the principal amount of Bonds maturing on December 1, 20__, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 20__, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. -11- Notice of Redemption The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Effect of Redemption Notice having been mailed, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture shall be canceled upon surrender thereof and destroyed. SOURCES OF PAYMENT FOR THE BONDS General The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The term “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease -12- Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Under the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Base Rental Payments Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. Additional Rental Payments In addition to the Base Rental Payments, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the following: (i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; -13- (ii) insurance premiums for all insurance required pursuant to Article V hereof; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. No Debt Service Reserve Fund No debt service reserve fund will be established for the Bonds. Insurance General Liability Insurance. The Lease Agreement requires the City to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations to provide general liability insurance may be satisfied by self-insurance in accordance with the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain” hereto. Casualty Insurance. The Lease Agreement requires the City to maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The City’s obligations under this subsection may be satisfied by self-insurance in accordance with the Lease Agreement. Rental Interruption Insurance. The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Leased Property as a result of any of the hazards required to be covered by the casualty insurance policy in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Leased Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City’s right to the use or occupancy -14- of the Leased Property. The City’s obligations to provide rental interruption insurance may not be satisfied by self-insurance. The insurance required under the Lease Agreement other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City. Title Insurance. The Lease Agreement requires the City to provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property (b) the Authority’s ground leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. Damage or Destruction of the Leased Property If the Leased Property or any portion thereof is damaged or destroyed, the City will, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement. If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to the Lease Agreement, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the extraordinary redemption (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the -15- Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. See “RISK FACTORS—Abatement” herein and Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Damage or Destruction.” Remedies Upon Default If the City defaults under the Lease Agreement, the Authority may enforce its remedies thereunder. In general, remedies under the Lease Agreement include the right (i) to maintain such Lease Agreement in full force and effect and receive all rent from the City as it becomes due or re-enter and re-let the Leased Property, or (ii) to terminate such Lease Agreement and the City’s right of possession and recover damages recoverable at law. The Indenture provides that any Holder of the Bonds may by legal action compel the Authority to carry out its duties under the Lease Agreement, including maintaining and enforcing its rights under the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE” hereto. An abatement of rental in accordance with the terms of the Lease Agreement due to damage, destruction or eminent domain is not an event of default under the Lease Agreement and none of the foregoing remedies is available. See “RISK FACTORS— Abatement” herein. The Bonds are not subject to acceleration under any circumstances or for any reason, including without limitation upon the occurrence and continuance of an Event of Default under the Indenture. See “RISK FACTORS—No Acceleration Upon Default” herein. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. No Pledge of Revenues or Lien on Assets of the City The Base Rental Payments are not secured by any pledge of or lien on taxes or other revenue of the City, but are payable from all funds lawfully available to the City. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other obligations before making Base Rental Payments. The same result could occur if, because of State constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. The obligation of the City to pay the Base Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay Base Rental Payments and additional payments does not constitute a debt of the City, the State or any of its political subdivisions, and does not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. -16- Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to make Base Rental Payments from any source of legally available funds (subject to certain exceptions and conditions), and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments in its annual budgets and annually to appropriate amounts necessary to make such Base Rental Payments. The City is also liable for other obligations payable from any source of legally available funds. See “—Additional Obligations of the City” below, “CITY FINANCIAL INFORMATION” herein and Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Additional Obligations of the City The City has a significant amount of obligations payable from its general fund, including but not limited to debt obligations, pension obligations, lease obligations and other obligations related to post employment retirement benefits as well as certain other liabilities (the “General Fund”). See Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. The Lease Agreement does not prohibit the City from incurring additional lease and other obligations payable from the City’s General Fund. In that regard, the City may, from time to time, incur various General Fund obligations to finance public improvements, which may also include lease obligations payable from its General Fund. To the extent such additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. Abatement The Base Rental Payments due under the Lease Agreement shall be abated proportionately during any period in which by reason of any damage or destruction (other than by eminent domain) there is substantial interference with the use and occupancy by the City of the Leased Property by the City, in the proportion in which the initial cost of that portion of the Leased Property rendered unusable bears to the initial cost of the whole of the Leased Property. Such abatement shall commence with such damage or destruction and end when use and occupancy or possession is restored. The Base Rental Payments due under the Lease Agreement shall also be abated during any period in which by reason of eminent domain there is substantial interference with the use and occupancy by the City of the Leased Property by the City. It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, at the time of such abatement, the value of the Leased Property may be substantially higher or lower than its value at the time of issuance of the Bonds. Such a circumstance could have an effect on the amount of rental abated under the Lease Agreement and could have a material adverse effect on the security for and payment of the Bonds. If damage, destruction or eminent domain proceedings with respect to the Leased Property results in abatement of the Base Rental Payments related to such Leased Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), eminent domain proceeds, if any, and moneys available in the Payment Fund are insufficient to make all payments of principal of and interest on the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Holders of the Bonds for nonpayment under such circumstances. -17- Risk of Uninsured Loss The City covenants under the Lease Agreement to maintain certain insurance policies on the Leased Property. See “SOURCES OF PAYMENT FOR THE BONDS” herein. These insurance policies do not cover all types of risk. For example, the City is not required to maintain earthquake or flood insurance. The Leased Property could be damaged or destroyed due to an earthquake or other casualty for which the Leased Property is uninsured. Additionally, a portion of the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances, an abatement of Base Rental Payments could occur and could continue indefinitely. Moreover, there can be no assurance that the providers of the City’s liability and rental interruption insurance, among others, will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. There can also be no assurances that amounts received as proceeds from insurance of the Leased Property will be sufficient to redeem the Bonds. Under the Lease Agreement, the City may obtain certain types of casualty insurance which provide for such a deductible as the City deems adequate and prudent. Should the City be unable to meet such deductible expenses, the availability of General Fund revenues to make Base Rental Payments will be correspondingly affected. Limited Recourse on Default If the City defaults on its obligations to make Base Rental Payments with respect to the Leased Property, the Trustee, as assignee of the Authority, may (subject to the restrictions described in the Lease Agreement) retain the Lease Agreement and hold the City liable for all Base Rental Payments on an annual basis and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Alternatively, the Trustee may terminate the Lease Agreement with respect to the Leased Property and proceed against the City to recover damages pursuant to the Lease Agreement. However, the Trustee may not sell or foreclose the Leased Property to obtain money for payment of the principal of or interest on the Bonds in the event of a default. See also “—No Acceleration Upon Default” below. Due to the specialized nature of the Leased Property, no assurance can be given that the Trustee will be able to re-let any portion of the Leased Property so as to provide rental income sufficient to make principal and interest payments with respect to the Bonds in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Bonds. In addition, due to the governmental function of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect thereto. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. No Acceleration Upon Default If the City defaults on its obligations to make Base Rental Payments, the Trustee may have limited ability to re-let the Leased Property so as to preserve the tax exempt nature of the interest on the Bonds. In the event of default, there is no remedy of acceleration of any Base Rental Payments which have not come due and payable in accordance with the Lease Agreement. The City will continue to be liable for lease payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee is required to seek a separate judgment each year for that year’s defaulted Base Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest. -18- Bankruptcy The City and the Authority are considered “municipalities” and therefore are not subject to the involuntary procedures of the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the Bankruptcy Code, the City or the Authority may seek voluntary protection from its creditors for purposes of adjusting its debts. A City or Authority bankruptcy petition could have a material adverse effect on the payment of the Bonds. The following paragraphs present a discussion of certain potential consequences surrounding a potential City or Authority bankruptcy. It is not intended to be an exhaustive discussion of all potential adverse consequences or potential outcomes. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Among the adverse effects of such a bankruptcy might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or the Holders of the Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the Plan is fair and equitable. In addition, if the Lease Agreement were considered a true lease under the Bankruptcy Code, the City could either reject the Lease Agreement or assume the Lease Agreement despite any provision of the Lease Agreement which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease Agreement, the Trustee, on behalf of the Holders of the Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or the Holders of the Bonds. Moreover, such rejection would terminate the Lease Agreement and the City’s obligation to make payments thereunder. If the Lease Agreement were instead considered a secured financing transaction under the Bankruptcy Code, it is possible that the Holders would have a secured claim for the value of the leasehold interest (as determined by the bankruptcy court) and an unsecured claim for any balance. The legal status of the Lease Agreement under the Bankruptcy Code is uncertain as there is currently no binding legal authority on the proper treatment of lease-leaseback transactions such as the one securing the Bonds. The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have priority of payment superior to that of the Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the Authority’s debt without the consent of the Trustee or all of the Holders of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the plan is fair and equitable. -19- Bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit have brought scrutiny to municipal securities. Specifically, in the City of San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the City of San Bernardino, the City of Stockton and the City of Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal and interest. Risk of Tax Audit; Loss of Tax Exemption The Internal Revenue Service (the “IRS”) has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes. It is possible that the Bonds or other tax-exempt obligations of the City may be selected for examination under such program. There is no assurance that an IRS examination of the Bonds or other tax-exempt obligations of the City will not adversely affect the market value of the Bonds. See “TAX MATTERS” herein. As discussed under the caption “TAX MATTERS,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the City has covenanted in the Lease Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986 (the “Code”). Interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the Authority in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until prepaid under the optional redemption provisions of the Indenture. Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds could be sold for any particular price. Hazardous Substances The existence or discovery of hazardous materials may limit the beneficial use of the Leased Property. In general, the owners and lessees of the Leased Property may be required by law to remedy conditions of such parcel relating to the release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition on the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. Further, it is possible that the beneficial use of the Leased Property may be limited in the future resulting from the current existence on the Leased Property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the -20- future resulting from the current existence on the Leased Property of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Leased Property. The City is unaware of the existence of hazardous substances on the Leased Property site which would materially interfere with the beneficial use thereof. Cyber Security The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including, without limitation, hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City. For a description of the City’s cybersecurity policies and practices, see Appendix B—“CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO—Cyber Security.” Natural Disasters and Other Events If a severe natural disaster occurred in or around the City, there could be substantial damage to and interference with the City’s right to use and occupy all or a portion of the Leased Property, which could result in abatement of Base Rental Payments. See “RISK FACTORS—Abatement” herein. The City has implemented the City’s General Plan Climate Adaptation and Safety Element which was updated in 2023 provides policies and programs to help reduce the risk associated with natural disasters and other events. However, the City is not required to maintain earthquake or flood insurance on the Leased Property. In addition, a severe natural disaster could require additional emergency response by the City and the City can give no assurances regarding the impact of such emergency response on the City’s operations and finances. The following describes certain potential natural disasters that may occur within the City. Earthquake. The City, like all southern California communities, may be subject to unpredictable seismic activity. The Los Osos Fault identified under the California Alquist-Priolo Fault Hazards Act, is adjacent to the City, with the main strand under the intersection of Los Osos Valley Road and Foothill Boulevard. Other known faults nearby the City have the capability to produce strong ground motion in the City. Seismic activity could lead to a reduction of assessed values in the City. In addition, an occurrence of severe seismic activity in the area of the Leased Property may result in substantial damage to and/or interference with the City’s right to use and occupy all or a portion of the Leased Property, leading to the abatement of Base Rental Payments. There is no requirement under the Lease Agreement that the City maintain earthquake insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain earthquake insurance with respect to the Leased Property. The City relies on a combination of insurance and general reserves as well as the expectation that some disaster relief funds would be available to address any resulting damage from seismic activity. There is no assurance that, in the event of a significant seismic event disaster relief funds and other sources would be available or sufficient for the repair or replacement of the Leased Property. -21- Wildfire. In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. The City of San Luis Obispo has experienced significant wildfires in the past including the 1985 “Las Pilitas Fire” which originated East of the City and burned into city limits. In more recent history, the most significant wildfire the city has encountered was the approximately 90-acre “Bridge Fire” in 2020 that occurred in the South Hills Open Space which geographically sits in the center of the city. Fortunately, no structures were damaged, or injuries sustained due to this fire. Flooding. Portions of the City, including the Leased Property, are within 100-year flood plains, according to Federal Emergency Management Agency maps. Parts of the City are considered to be susceptible to flood events from either a major storm or a dam failure resulting from a significant earthquake or other event. Though the City does not believe that damage to nearby dams could directly cause damage to the Leased Property, the City cannot predict if any such damage to the dams would adversely affect the City’s financial condition, the value of the Leased Property, or the ability of the City to make the Base Rental Payments. For information about the City’s financial obligation with respect to certain nearby dams, see “CITY FINANCIAL INFORMATION—Recent Developments.” Recent storm events in January and March 2023 caused widespread flooding and other storm- related damage within the City. For information regarding the effects of the recent storms, see “CITY FINANCIAL INFORMATION—Recent Events.” There is no requirement under the Lease Agreement that the City maintain flood insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain flood insurance with respect to the Leased Property. Events of Force Majeure. Operation of the Leased Property may also be at risk from other events of force majeure, such as damaging storms, extreme drought, explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional information regarding the required insurance coverages under the Lease Agreement, See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.” Environmental Focus and Climate Change Atmospheric greenhouse gas concentrations have reached a level that guarantees substantial and unavoidable impacts for the foreseeable future. These impacts are expected to include, among other things, an increase in the frequency and severity of extreme weather events and may contribute to an increased incidence of wildfires in the City and elsewhere in the State. As the effects of climate change continue, it is expected that extreme weather events such as drought, wildfires, floods and heat waves will impact the City. Although the City is actively implementing a climate action plan as described in more detail in Appendix B, the City cannot predict the timing, extent, or severity of climate change and its impact on the City’s operations and finances. However, over time, the costs could be significant and could have a material effect on the City’s finances by requiring greater expenditures to respond to the effects of climate change. Also, additional actions to address climate change may be necessary and the City can give no assurances regarding the impact of such actions on the City’s operations and finances. -22- Pandemic and Infectious Disease In March 2020, the World Health Organization and the President of the United States separately declared the outbreak of a respiratory disease caused by a novel coronavirus (“COVID-19”) to be a public health emergency. On March 13, 2020, the Governor of California (the “Governor”) declared a state of emergency for the State of California because of the effects of COVID-19. Subsequently, in response to a rise in COVID-19 infections in the State, the Governor issued a number of executive orders intended to help limit the spread of COVID-19 and mitigate injury and the loss of life, including limitations imposed on business operations, social gatherings, travel, and other activities. As of February 28, 2023, the Governor terminated the state of emergency relating to COVID-19 and there are currently no COVID-19 related operating limits imposed by executive order of the Governor for any business or other establishment in the State. Like other public agencies, the COVID-19 pandemic had a significant impact on the City’s operations and budget. To address the economic uncertainty brought on by the pandemic, the City immediately implemented its Fiscal Health Contingency Plan (FHCP), triggering a number of measures to control expenditures. Similar to other agencies, the City modified its operations by transitioning to remote work where possible, and modified delivery of services to the public. Modified service delivery included but was not limited to: enhanced cleaning of facilities, increased wastewater testing to assist the County in determining the prevalence of COVID in certain areas, moratoriums on water shutoffs due to non-payment, deferral of parking rate increases, and provision of fare-free rides on the City’s fixed route transit service. For information concerning the financial effect of COVID-19 on the City, see “CITY FINANCIAL INFORMATION—Recent Developments.” A continued spread of COVID-19 or future outbreak of COVID-19 or variants thereof or another infectious disease, or the fear of any such outbreak, and measures taken to prevent or reduce it, could adversely impact State, national and global economic activities and, accordingly, adversely impact the financial condition and operations of the City, and the extent of impact could be material. The City cannot predict the duration of any pandemic, any reinstatement or expansion of stay-at-home orders and travel or other restrictions and warnings, or what impact those orders would have on the City’s revenues. Additionally, the City cannot predict what further impact any pandemic may have on the City’s general financial condition or operations, or the assessed values of property within the City. Dependence on State for Certain Revenues Nearly half of the City’s revenues are collected and disbursed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). As a result, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various State of California official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website, and neither the Authority nor the City takes responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. -23- Changes in Law There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State resulting in a reduction of the General Fund revenues of the City and, consequently, having an adverse effect on the security for the Bonds. City Pension Benefit Liability Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rate of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods and differences between actual and anticipated investment experience of the California Public Employees’ Retirement System (“CalPERS”). Any of these factors could give rise to additional liability of the City to CalPERS as a result of which the City would be obligated to make additional payments to CalPERS over the amortization schedule for full funding of the City’s obligations to CalPERS. In 2017, CalPERS made some significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies and in 2018, the City Council adopted Fiscal Health Response Plan (FHRP) to provide a framework for responding to the long-term fiscal impacts of the CalPERS policy changes. The FHRP has enabled the City to make $16.6 million in additional discretionary payments to expedite paydown of its unfunded pension liability. The City expects its pension benefit liability to increase in future years as a result of general market conditions which have significantly impacted CalPERS investments, resulting in a -7.5% return in FY 2021-22. See also “CITY FINANCIAL INFORMATION— Employee Retirement System” herein. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority shall not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS While the Lease Agreement does not obligate the City to impose any new taxes or increase any existing taxes to pay Base Rental Payments, limitations on the City’s ability to impose taxes or appropriate funds could adversely affect the City’s ability to raise and spend revenues. In such event, City funds which would otherwise be available absent such limitation might not be available to make Base Rental Payments. The following is a description of certain legal limitations related to the City’s ability to impose taxes or appropriate funds. Article XIIIA of the State Constitution Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters prior to July 1, 1978 or (2) any 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. Section 2 -24- of Article XIIIA defines “full cash value” to mean “the County assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. The voters of the State subsequently approved various measures which further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reassessment under Article XIIIA. This amendment could serve to reduce the property tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new residence. In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of “new construction” seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990. Article XIIIA has also been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster. County assessors may “recapture” the reduced assessed valuation of such property up to its pre- decline value, depending on the county assessor’s measurement of the value subsequently restored to such property. Article XIIIB of the State Constitution Article XIIIB 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 for the prior Fiscal Year, as adjusted for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The “base year” for establishing this appropriations limit is the 1978-79 fiscal year, and the limit is adjusted annually to reflect changes in population, consumer prices and certain increases or decreases in the cost of services provided by the applicable public agency. Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a Fiscal Year the proceeds of taxes levied by or for the entity and the proceeds of State subventions, exclusive of certain State subventions, refunds of taxes, and benefit payments from retirement, unemployment insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues, most State subventions and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost reasonably borne by such entity) and (2) the investment of tax revenues. Article XIIIB provides that if a governmental entity’s revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two years. -25- Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose. Furthermore, in 1990, Article XIIIB was amended to exclude from the appropriations limit “all qualified capital outlay projects, as defined by the Legislature” from proceeds of taxes. The Legislature has defined “qualified capital outlay project” to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City’s long-term General Fund lease obligations (including the Base Rental Payments) are generally excluded from the City’s appropriations limit. Articles XIIIC and XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. Further, any general purpose tax which the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years after November 5, 1996. The voter approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Article XIIID 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 or refuse collection services, voter approval. Article XIIID 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 XIIID 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. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or -26- charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s operations could be adversely affected. The City believes its fees, charges, assessments and taxes are in compliance with Articles XIIIC and XIIID. Proposition 22 In November 2010, the voters of the State adopted Proposition 22 (“Proposition 22”), which prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash–flow or budget balancing purposes to the State general fund or any other State fund. It further prevents the State from temporarily shifting property taxes from cities, counties and special districts to schools and community college districts through the Education Revenue Augmentation Fund, a shift that resulted in diversion of City property taxes periodically since Fiscal Year 1992-93 until the passage of Proposition 22. Proposition 26 On November 2, 2010, the voters of the State approved Proposition 26 (“Proposition 26”), which revises certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re- categorizes many State and local fees as taxes, requires local governments to obtain two–thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two–thirds of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010, with a majority vote which would have required a two-thirds vote if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote. Proposition 26 amends Article XIIIC of the State Constitution to state that a “tax” means a levy, charge or exaction of any kind imposed by a local government, except: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Article XIIID. Fees, charges and payments that are made pursuant to a voluntary contract that are not “imposed by a local government” are not considered taxes and are not covered by Proposition 26. Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. -27- If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two–thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a 50% voter requirement. Proposed local government fees that are not subject to Proposition 26 are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of property owners. Proposition 62 A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 General Election which (1) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax imposed by a local governmental entity on or after March 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local governmental or district to impose any general tax. The Santa Clara decision did not address the question of whether or not it should be applied retroactively. In response to the Santa Clara decision, the California Legislature adopted Assembly Bill 1362, which provided that the Santa Clara decision should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor, hence the application of the Santa Clara decision on a retroactive basis remains unclear. Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. However, Proposition 218, as a constitutional amendment and supersedes many of the provisions of Proposition 62. The City does not believe that it imposes any tax or fee which is subject to the provisions of Proposition 62. Unitary Property AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the fiscal year ended June 30, 1989, will be based on a uniform rate within each county and allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year State assessed revenue; and (b) if county wide revenues -28- generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 22, 26, and 62 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting the City’s revenues or the City’s ability to expend revenues. THE AUTHORITY The San Luis Obispo Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated September 8, 2014, by and between the City and the Parking Authority in accordance with provisions of the California Joint Exercise of Powers Act. The Authority was created for the purpose of providing financing for public capital improvements of the City and the Parking Authority. The Authority has no independent staff and consequently will be dependent upon the City’s officers and employees to administer the Bonds on its behalf. The Governing Board of the Authority is comprised of the members of the City Council of the City. THE CITY The City is a charter city, incorporated on February 19, 1856 and chartered on May 1, 1876 under the laws of the State of California. The City is located on the central coast of California, about 200 miles northwest of Los Angeles and 235 miles southeast of San Francisco. The City is the county seat of the County, and had a population estimated at 47,788 as of January 1, 2023. The City is the largest city in the County. The City operates under a council-mayor-city manager form of government. City Council members are elected at large for staggered four-year terms; the Mayor serves a two-year term. The City Manager, the City Attorney, and all advisory boards, committees and commissions are appointed by the City Council. The City Manager serves as the administrative head of the City, and is responsible for the day-to-day operations of the City staff, implementing the policies of the City Council. Current City Council members are: Member Term Expires Erica A. Stewart (Mayor) 12/2024 Jan Marx (Vice Mayor) 12/2024 Emily Francis 12/2026 Andy Pease 12/2024 Michelle Shoresman 12/2026 The City is a “full-service” city, providing public safety, public utilities, transportation, leisure, cultural, social and community development services to its residents. For additional demographic information regarding the City and the County, see Appendix B hereto. -29- CITY FINANCIAL INFORMATION Budgetary Process The City of San Luis Obispo uses a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. The City’s two-year Financial Plan includes the integration of Council goal-setting into the budgetary process and the 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. 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 the City’s Financial Plan is to establish and maintain effective management of the City’s financial resources. Key budget policies include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; matching all current expenditures with current revenues; finding solutions to the City’s financial challenges which maintain and promote a quality community; maintaining the City’s traditional commitment to a strong General Fund; and complying with provisions of the State Constitution, 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. Financial Plan Policies. The Financial Plan includes formal policies that cover areas such as fund balance and reserves, investments (see “—City Investment Policy and Portfolio” herein), capital improvement management, debt management, capital financing, human resource management, and productivity. These policies, summarized below, are incorporated in full in the City’s Financial Plan. Fund Balance and Reserves. The City’s policy on fund balance and reserves requires the City to maintain a minimum fund balance of at least 20% of operating expenditures in the General Fund in order to adequately provide for economic uncertainties, contingencies for unseen needs and cash flow requirements. The City’s fund balance as a percent of General Fund operating expenditures was 23.27% and 23.5% as of June 30, 2021 and June 30, 2022 respectively. The budgeted percentage of fund balance for the current year is 23.0% as of June 30, 2023. Revenue Stabilization Reserve—General Fund. In addition to the requirement to maintain a minimum fund balance of 20% of operating expenditures in the General Fund, with adoption of the 2023-25 Financial Plan, the City Council established a Revenue Stabilization Reserve which can be used to counteract any adverse revenue forecast during a period of economic uncertainty related to the City’s largest tax revenue sources. For 2023-25, the reserve has been set at $2 million. CalPERS and Unfunded Liabilities. With adoption of the 2023-25 Financial Plan, the City Council established a policy outlining the City’s long-term commitment to payment of its unfunded pension liability, additional discretionary payments (ADPs), and the needed prioritization to hold the shortened timeline. This policy provides guidance relative to the prioritized use of unassigned General Fund balance as follows: 1. Additional discretionary payments to CalPERS, 2. Infrastructure investments, and 3. Emerging Health and Safety needs of the community. The policy -30- further notes the City’s commitment to ADPs to CalPERS and adding an annual inflator equal to increases in payroll whenever CalPERS reaches its discount rate or larger rates of return based on what is presented in the latest five-year forecast; and indicates that whenever CalPERS does not reach its adopted discount rate, the City commits to first use any unassigned fund balance to counteract the investment loss CalPERS experienced. Capital Improvement Management. The City’s policy on capital improvement management requires the City to prepare a CIP that balances existing facility maintenance with new projects that expand the City’s fixed assets. The CIP Review Committee, headed by the Assistant City Manager, provides governance of the CIP by evaluating and prioritizing capital projects based upon an established set of criteria to ensure alignment with Major City Goals, the General Plan, strategic growth objectives and needs for services provided within the City. The committee is responsible for assessing the City’s fiscal and staff capacity to deliver projects; recommending to the City Manager the projects and associated budgets that should be included in the biennial financial plan; considering requests for new projects that may be requested outside of financial plan development to address emergent needs; and evaluating the re-prioritization of projects as needs and conditions change in order to ensure consistency with project evaluation criteria, ability to deliver projects, and City priorities. The City’s Planning Commission also reviews the draft CIP for consistency with the City’s General Plan and provides its findings to the City Council before the CIP is adopted. With each two-year Financial Plan, the City prepares five- year CIP program recommendations for City Council approval. The budget set forth in the 2023- 25 Financial Plan includes a two-year CIP investment of $183 million, and a planned CIP investment of $465 million over the five-year plan to maintain or replace existing assets and build new assets to address the needs of the community. Debt Management. The City’s policy on debt management requires the City to prepare an internal feasibility analysis for each long-term financing to review the impact on current and future budgets for debt service and operations, as well as the reliability of revenues to support debt service. Under this policy, the City is required to monitor its compliance with bond covenants and federal arbitrage regulations, will seek an investment grade rating on any direct debt and will seek credit enhancement where necessary for marketing purposes and cost-effectiveness. Capital Financing. The City’s policy on capital financing requires the City to consider debt financing only for one-time capital improvement projects and only when the project’s useful life will exceed the term of the financing and project revenues or specific resources will be sufficient to service the long-term debt. This policy provides further guidelines to evaluate the appropriateness of using pay-as-you-go financing versus long-term financing to fund capital improvements. Human Resource Management. The City’s policy on human resource management requires the City to fully appropriate the resources needed for authorized regular staffing and provides guidelines for the limited use of supplemental staff. The policy also provides criteria for the use of independent contractors and overtime management. Productivity. The City’s policy on productivity provides a process to review operations with the goal of delivering services in the most cost-effective manner possible. Productivity issues reviewed in the process include evaluating new technology and capital investments, developing skills and abilities of City employees and evaluating the ability of the private sector to perform the same level of service at a lower cost. -31- Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City’s two-year budgetary process: First Year. The Financial Plan process begins with a 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, who are responsible for submitting initial budget proposals. After these proposals are reviewed and a 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 Council adoption of the budget by June 30. Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, makes adjustments as necessary, and approves appropriations for the second Fiscal Year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent operating program appropriations lapse at the end of the second year. Fiscal Year 2021- 22, was the first year of the two-year cycle. Mid-Year Reviews. The Council formally reviews the City’s financial condition and amends appropriations, if necessary, each February. Status Reports. On-line access to “up-to-date” financial information is provided to City staff. Comprehensive financial reports are prepared monthly to monitor the City’s fiscal condition. Additionally, more focused reports are issued monthly on transient occupancy tax and quarterly reports are prepared on the performance of investments and the portfolio’s overall compliance with the City’s investment policy. The status of major program objectives and goals, including CIP projects, is formally reported to the 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 the City’s capital project funds, the CIP projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements for capital projects. Administration. As provided under the City Charter, the City Council may amend or supplement the budget at any time after its adoption by majority vote of the Council. The 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. Comparison of General Fund Budgets; Forecast. The table below sets forth a comparison of the City’s General Fund budgets for the current and prior fiscal years as well as a forecast through 2027-28. -32- TABLE 1 CITY OF SAN LUIS OBISPO GENERAL FUND FIVE-YEAR FORECAST FOR FISCAL YEARS 2021-22 THROUGH 2027-28 2023-25 Financial Plan General Fund Five‐Year Forecast (In Thousands) (A) Actual 2021-22 (B) Budget 2022-23(1) (C) Budget 2023‐24 (D) Forecast 2024‐25 (E) Projected 2025-26 (F) Projected 2026-27 (G) Projected 2027-28 Tax & Franchise Revenue Sales & Use Tax 51,665 52,163 53,340 54,573 55,988 57,465 59,127 Sales Tax General 22,247 21,524 22,579 23,166 23,768 24,410 25,118 Public Safety (Prop 172) 529 497 499 509 519 530 540 Measure G20 28,889 30,142 30,262 30,898 31,701 32,525 33,468 Property Tax 20,711 21,473 22,000 22,652 23,332 24,032 24,752 Transient Occupancy Tax 10,651 10,704 10,704 10,918 11,136 11,359 11,586 Utility Users Tax 5,420 5,544 5,710 5,882 6,058 6,240 6,365 Franchise Fees 1,978 1,800 1,854 1,910 1,967 2,026 2,067 Business Tax Certificates 2,823 3,158 3,252 3,317 3,417 3,519 3,590 Cannabis Tax 999 1,100 1,100 1,450 1,650 1,700 1,733 Total Tax & Franchise Revenue $ 94,247 $ 95,942 $ 97,960 $ 100,702 $ 103,549 $ 106,340 $ 109,220 Fees for Service & Other Revenue Police Services 555 688 612 612 624 637 649 Fire Services 1,502 1,458 1,578 1,578 1,609 1,642 1,674 Development Review 6,117 6,335 6,276 6,585 6,783 6,986 7,126 Parks & Recreation 1,718 1,969 2,022 2,069 2,110 2,152 2,174 Business Licenses 498 446 459 468 477 487 497 Cannabis Licenses 127 210 208 233 237 242 247 Other Revenues 466 711 2,188 2,269 2,376 2,473 2,574 Subventions & Grants 2,068 777 665 682 440 441 442 Storm Reimbursement ‐ ESTIMATE(2) 4,208 4,208 Total Fees & Other Revenue $ 13,052 $ 12,593 $ 18,214 $ 18,703 $ 14,657 $ 15,059 $ 15,383 Total Revenue $ 107,299 $ 108,535 $ 116,174 $ 119,405 $ 118,206 $ 121,400 $ 124,604 Use of Funds Staffing 67,639 65,401 67,427 70,620 71,968 73,672 75,279 Contract Services 7,836 9,575 9,380 9,249 8,822 8,998 9,178 Other Operating Expenditures 9,555 9,976 9,858 9,943 9,537 9,728 9,922 Cost Allocation (4,717) (4,462) (5,419) (5,582) (5,694) (5,808) (5,924) Encumbrances from prior year 2,542 Storm Expenditures ‐ ESTIMATE(2) 4,500 4,500 Total Operating Expenditure $ 80,313 $ 87,533 $ 85,746 $ 84,229 $ 84,633 $ 86,591 $ 88,456 Debt Service 1,997 1,992 1,854 1,769 1,761 1,550 1,549 Capital 30,575 22,484 29,728 27,269 27,868 28,488 29,123 Transfers Out/(In)(3) 923 296 1,490 1,487 1,896 2,263 2,678 Total Expenditure $ 113,808 $ 112,305 $ 118,817 $ 114,754 $ 116,157 $ 118,890 $ 121,806 CalPERS Additional Discretionary Payment (using prior year fund balance) 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Beginning Fund Balance (After CalPERS ADP) $ 45,118 $ 36,609 $ 30,840 $ 26,196 $ 28,847 $ 28,896 $ 29,406 Revenue Over/(Under) Expenses $ (6,509) $ (3,770) $ (2,643) $ 4,651 $ 2,049 $ 2,509 $ 2,797 Ending Fund Balance $ 38,609 $ 32,840 $ 28,196 $ 30,847 $ 30,896 $ 31,406 $ 32,203 General Fund Reserve (see line 45) 12,014 13,727 11,596 14,526 14,651 15,077 15,516 Revenue Stabilization Reserve 2,000 2,000 2,000 2,000 2,000 2,000 2,000 115 Pension Trust Fund 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Restricted based on Audit 19,232 13,468 12,600 12,200 12,200 12,200 12,200 Undesignated Fund Balance $ 3,364 $ 1,644 $ 0 $ 121 $ 45 $ 129 $ 487 _________________ Source: City of San Luis Obispo 2023-25 Financial Plan. (1) FY 2022-23 budget includes approved carryover and budget amendments made throughout the year. (2) The 2022-23 Adopted Budget did not include expenses paid from the operating reserve in response to storm events in January and March of 2023. Unplanned storm response expenditures will be paid for out of the General Fund reserve. See “RISK FACTORS– Natural Disasters and Other Events” herein. (3) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” -33- Financial Statements Accounting Policies. The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. The operation of each fund is accounted for with a separate set of self-balancing accounts. The various funds are grouped into broad categories, as follows: Governmental Funds (General, Local Revenue Measure Sub-Fund, Special Revenue, Capital Projects and Debt Service), Proprietary Funds (Enterprise Funds, including the Water, Sewer, Parking, and Transit funds) and Fiduciary Funds (Custodial). Basis of Accounting. All Governmental Funds and Fiduciary Funds use the modified accrual basis of accounting. The Proprietary Funds use the accrual basis of accounting. Audited Financial Statements. The City’s most recent audited financial statements for the Fiscal Year ending June 30, 2022, are attached as Appendix A to this Official Statement, which were prepared by the City and audited by Badawi & Associates, Certified Public Accountants, Berkeley, California (the “Auditor”). The financial statements should be read in their entirety. The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City or the General Fund. In addition, the Auditor has not reviewed this Official Statement. General Fund Balance Sheet Set forth on the following page are the City’s General Fund balance sheets for the Fiscal Years 2019-20 through 2021-22. -34- TABLE 2 CITY OF SAN LUIS OBISPO GENERAL FUND BALANCE SHEET AS OF JUNE 30 FOR FISCAL YEARS 2019-20 THROUGH 2022-23 Assets: 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Cash and investments $ 33,437,815 $ 39,956,449 $ 34,540,875 $ 33,570,000 Receivables: Taxes 5,936,633 12,110,685 11,473,880 11,500,000 Accounts 1,042,550 1,410,544 1,004,373 685,000 Accrued interest 122,010 87,395 210,686 200,000 Other 87,333 76,791 63,568 75,000 Due from other funds 148,712 45,813 -- -- Prepaid items -- 41,155 90,797 101,500 Loans receivable -- -- 240,637 240,600 Leases receivable -- -- 1,251,050 1,121,000 Total Assets $ 40,775,053 $ 53,728,832 $ 48,875,866 $ 47,493,100 Liabilities, Deferred Inflows of Resources and Fund Balances: Liabilities Accounts payable $ 2,964,457 $ 1,665,320 $ 2,325,910 $ 2,000,000 Accrued liabilities 2,909,403 2,702,968 1,593,058 1,600,000 Due to other funds 49,694 -- -- -- Other liabilities 91,803 220,688 212,617 200,000 Unearned revenue 1,108,400 2,021,785 2,471,916 1,800,000 Total Liabilities $ 7,123,757 $ 6,610,761 $ 6,603,501 $ 5,600,000 Deferred Inflows of Resources Lease related -- -- $ 1,225,534 $ 1,121,000 Unavailable revenue -- -- 301,325 -- Total deferred inflows of resources -- -- $ 1,526,859 $ 1,121,000 Fund Equity and other Credits Fund balances: Nonspendable $ -- $ 41,155 $ 90,797 $ -- Committed to general governmental programs 10,384,119 9,299,971 5,696,864 8,000,000 Committed to risk management 1,498,078 1,955,966 1,845,935 500,000 Committed to contingency fund 10,251,000 11,830,380 12,014,000 13,700,000 Assigned to subsequent years expenditures 4,395,492 18,678,807 12,741,186 10,000,000 Unassigned 7,122,607 5,311,792 8,356,724 8,572,100 Total Fund Balances $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 40,772,100 _______________ Source: City of San Luis Obispo Audited Financial Statements. -35- General Fund Revenues, Expenditures and Changes in Fund Balances The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. In Fiscal Year 2022-23, the major General Fund revenues are estimated as follows: Taxes and Franchise Fees 87% Charges for Services 9% Subventions and Grants 1% In Fiscal Year 2022-23, the major General Fund expenditures are estimated as follows: Public Safety 42% General Government 22% Community Development 16% Leisure, Cultural and Social Services 11% Set forth below is a statement of revenues, expenditures and changes in fund balances for the City’s General Fund for the last three fiscal years. -36- TABLE 3 CITY OF SAN LUIS OBISPO STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Revenues Taxes and franchise fees(1) $ 59,366,052 $ 70,470,941 $ 93,919,985 $ 98,200,000 Fines, forfeitures and penalties 239,048 223,882 173,915 100,000 Use of money and property(2) 1,161,703 (12,521) (1,455,527) 1,300,000 Subventions and grants(3) 1,460,410 3,626,087 2,596,930 1,400,000 Charges for services 11,319,551 11,742,215 10,682,921 10,400,000 Other revenues 1,231,038 697,104 481,313 1,300,000 Total revenues $ 74,777,802 $ 86,747,708 $ 106,399,537 $ 112,700,000 Expenditures General Government $ 14,503,410 $ 13,041,242 $ 17,190,472 $ 19,300,000 Public Safety 30,174,346 31,643,320 39,656,509 37,100,000 Transportation 3,440,849 3,866,286 4,818,976 6,800,000 Leisure, Cultural and Social Services 8,416,687 9,091,647 10,156,139 9,800,000 Community Development 8,821,689 9,854,482 12,726,420 13,900,000 Capital Outlay – Direct LRM(4) 4,711,633 4,727,261 1,996,731 640,000 Total expenditures $ 70,068,614 $ 72,224,238 $ 86,545,247 $ 87,540,000 Excess of revenues over (under) expenditures $ 4,709,188 $ 14,523,470 $ 19,854,290 $ 25,160,000 Other financing sources (uses): Transfers in $ 3,347,367 $ 7,128,857 $ 3,942,248 $ 4,587,325 Transfers out(4) (6,108,418) (8,332,098) (30,416,749) (27,954,000) Total other financing sources (uses) $ (2,761,051) $ (1,203,241) $ (26,474,501) $ (23,366,675) Net Change in Fund Balance $ 1,948,137 $ 13,320,229 $ (6,620,211) $ 1,793,325 Fund balance - July 1, as restated $ 31,703,159 $ 33,797,840 $ 47,365,717 $ 40,745,506 Fund balance - June 30 $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 42,538,831 _______________ (1) For a breakdown of each component of taxes and franchise fees, see the following table. (2) This includes adjustments for the Fair Market Value of City investments, which were negative adjustments in FY 2020-21 and 2021-22. (3) The increases in FY 2020-21 and FY 2021-22 reflect receipt of Coronavirus Aid, Relief, and Economic Security Act (CARES) funding, as well as mutual aid reimbursements to offset overtime expenditures in the Fire Department, resulting from mutual aid provided to other agencies in support of multiple fires throughout the state. (4) Capital Outlay expenditures represent direct project expenditures from the Local Revenue Measure sub-fund. Beginning in FY 2021-22, the entire Capital Budget was transferred out of the General Fund and into the Capital Outlay Funds and this included in the “Transfers Out” line. There are some historical project balances remaining in the Local Revenue Measure sub- fund, explaining expenditures in FY 2021-22 through FY 2023-24. (5) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— “AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” Source: City of San Luis Obispo Audited Financial Statements. -37- Recent Developments Storm Response. Storm events in January and March 2023 caused widespread flooding and other storm-related damage. The City activated its Emergency Operations Center (“EOC”) and Department Operations Center (“DOC”) for both storm events, to coordinate response to the storms and protect public health and safety. The City expended approximately $4 million on initial storm response efforts including debris removal from the public right-of-way and waterways; emergency protective measures including repair to roads degraded by the storms, traffic control to restrict access to certain areas of the city, costs to support EOC and DOC operations; and staff time. The City is still assessing the costs associated with the recent storm events, but it is estimated that the costs could be significant. To fund storm response efforts, the City has forecasted use of $9 million from its operating reserve over the course of FY 2022-23 and FY 2023-24, and has programmed an additional $2.75 million into its Capital Improvement Plan for FY 2023- 24 to make permanent repairs to damaged areas. The City is contracting with E&Y (formerly Ernst & Young) to provide disaster recovery technical assistance in order to maximize reimbursement for storm related costs from FEMA and the California Office of Emergency Services and is working closely with both agencies to review damages and develop projects for consideration of reimbursement. With the effects of climate change, it is likely that these storm events will increase in severity and frequency. The City has implemented an emergency services plan to respond to and mitigate the effects of storms and flooding. See “RISK FACTORS—Natural Disasters and Other Events” herein. Dam Repairs. The Nacimiento Dam and Reservoir (“Nacimiento”), located in the northern part of San Luis Obispo County (the “County”), was evaluated by the State Division of Safety of Dams, which classified Nacimiento as having an extremely high downstream hazard and mandated certain emergency repairs to be made to Nacimiento. The Monterey County Flood Control and Water Conservation District, the owner and operator of Nacimiento, has completed required repairs at no cost to the City of San Luis Obispo. Completed repairs permit the full operation of Nacimiento and water storage and delivery to the City. The San Antonio dam and spillway were recently analyzed, and major repairs are necessary at this facility. As a recipient of Nacimiento water, the City may have a responsibility to share in the costs to repair the San Antonio Spillway. It is currently estimated that the City’s portion of the repair costs will be $6 million-$7 million. Dams at Whale Rock Reservoir (“Whale Rock”) and the Salinas Reservoir (“Salinas”) have undergone inspection to evaluate dam safety. Whale Rock Reservoir requires minor repairs to the underdrains of the spillway, with repairs estimated to cost approximately $350,000. The City is responsible for 55.05% of this cost and all other operating and capital costs at Whale Rock, with the State of California being responsible for the remaining 44.95%. Project construction is anticipated to be complete in October of 2023, prior to the beginning of the rainy season. Salinas Dam, which is currently owned by the United States Army Corps of Engineers, had a semi-quantitative risk assessment performed in 2019. This assessment resulted in a provisional Dam Safety Action Classification rating of Level IV (Low Urgency) and requires no immediate repairs under federal standards. If the dam was required to be transferred to a local entity, which is preferred by the Army Corps of Engineers, it would fall under the jurisdiction of the California Division of Safety of Dams and would require a retrofit to meet State seismic safety standards. If transferred to local ownership, it is envisioned that repair funding to bring the dam into compliance with California state standards would be provided by the State or Federal entities. Covid-19 Response. Despite being economically affected by the COVID-19 pandemic, the City ended FY 2019-20, FY 2020-21 and FY 2021-22 in a solid financial position, with most major revenue sources performing well or above initial downward adjusted assumptions. In FY 2020-21, the City invested $4,748,515 into COVID-19 relief efforts. These efforts were funded through a combination of local sales tax revenue, CARES Act funding and General Fund balance. -38- Despite the unbudgeted costs related to COVID-19, the City ended FY 2020-21 with operating savings due to its strict adherence to cost saving measures identified in the FHCP. With adoption of the 2021-23 Financial Plan, the City Council established a Major City Goal of ‘Economic Recovery, Resiliency and Fiscal Sustainability’ which specifically called out efforts to support economic recovery from the pandemic. Fitch Ratings’ analysts have previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city’s capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.” Throughout the COVID-19 pandemic, the federal government enacted certain relief acts, stimulus bills and funding measures to assist local governments impacted by COVID-19. To date, the City has received $17,218,963 in funding passed through various agencies, including US Treasury and the State. This amount does not include transit ARPA funding that has been allocated to the City but not drawn down. Taxes and Other Revenues Taxes and other sources of revenue received by the City are listed in the table below. Certain general taxes currently imposed by the City are affected by Proposition 218. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIC And Article XIIID of the State Constitution” herein. The following table presents the tax revenues and franchise revenues of the City’s General Fund for the last three fiscal years. -39- TABLE 4 CITY OF SAN LUIS OBISPO GENERAL FUND TAX AND FRANCHISE REVENUES BY SOURCE 2019-20 2020-21 2021-22 2022-23 Estimate 2022-23 % of Total Sales and use tax-general $ 16,571,064 $ 19,642,604 $ 21,718,004 $ 22,000,000 22.4 Sales and use tax-Local Revenue Measure(1) 7,554,375 12,779,713 29,172,258 30,700,000 31.2 Sales tax- Prop 172 416,459 425,136 529,299 500,000 0.5 Property tax 12,913,661 13,727,986 14,166,259 15,200,000 15.4 Transient occupancy tax (“TOT”) 6,325,841 6,960,035 10,650,762(2) 10,700,000 10.9 Utility users tax 5,439,144 5,225,979 5,338,325 6,100,000 6.2 Property tax in lieu of VLF 5,290,215 5,660,661 5,994,592 6,300,000 6.4 Franchise fees 1,888,414 1,796,829 1,978,295 2,100,000 2.2 Business tax 2,995,263 3,782,115 2,823,163 3,200,000 3.3 Cannabis tax(3) 998,875 1,000,000 1.0 Real property transfer tax 388,075 469,883 550,153 400,000 0.4 Total Tax and Franchise Revenues $ 59,782,511 $ 70,470,941 $ 93,919,985 $ 98,200,000 100.0% _______________ Source: City of San Luis Obispo. Numbers may not add due to rounding. (1) The increase in Local Revenue Measure receipts in FY 2020-21 and FY 2021-22 is due to implementation of a new voter approved sales tax measure (Measure G-20, approved in November 2020) in April 2021. Measure G-20 increased the local sales tax from 0.5 percent to 1.5 percent. The increased tax rate will be in place until ended by voters. (2) The increase in TOT revenue in FY 2021-22 surpasses a recovery from earlier declines in TOT revenue caused by the Covid- 19 pandemic. See “CITY FINANCIAL INFORMATION—Transient Occupancy Tax” herein. (3) Prior to 2021-22, Cannabis tax was recorded in Sales and Use Tax – General. Sales and Use Taxes Sales and use taxes represent the largest source of tax revenue to the City. This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein for a description of certain limitations on the collection of taxes. State Sales and Use Tax Law. The City collects 1.0% of taxable sales in the City (minus certain administrative costs imposed by the CDTFA, as defined below) pursuant to the Bradley-Burns Uniform Local Sales and Use Tax (the “Sales and Use Tax Law”). Local Revenue Measure. In November 2020, the qualified voters of the City passed Measure G-20 with 58.23% voter approval. Effective April 1, 2021, this 1 1/2 percent sales tax increased the local sales tax by 1 percent and replaced the 2014 local sales tax measure. Measure G-20 will be in place until ended by voters and there is no specific designation for these tax revenues. Sales Tax Rates. Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City’s share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows. -40- TABLE 5 CITY OF SAN LUIS OBISPO SALES TAX RATES AS OF JULY 1, 2023 State (General Fund) 3.6875% State (Fiscal Recovery Fund) 0.25 State (Local Revenue Fund) 1.5625 State (Local Public Safety Fund) 0.50 Local (City and County Operations) 1.00 Local (County transportation funds) 0.25 Local (Local Revenue Measure) 1.50 Total Sales Tax Rate 8.75% _______________ Source: California Department of Tax and Fee Administration Application of Sales Tax. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, as identified by the California Department of Tax and Fee Administration (“CDTFA” formerly the State Board of Equalization). Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA. According to the CDTFA, it distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year’s like quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the CDTFA to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. -41- The CDTFA receives an administrative fee based on the cost of services provided by the CDTFA to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. History of Taxable Transactions. The following table presents a summary of historic taxable sales reported within the City for calendar year 2017 through calendar year 2022 and the first quarter of 2023. TABLE 6 CITY OF SAN LUIS OBISPO TAXABLE RETAIL SALES (DOLLARS IN THOUSANDS) 2017 2018 2019 2020 2021 2022 2023 (Q1) Motor Vehicle and Parts Dealers $ 301,326 $ 300,576 $ 296,732 $ 304,610 $ 383,092 $ 362,228 $ 77,698 Home Furnishings and Appliance Stores 72,375 74,243 66,208 59,781 74,116 71,736 15,555 Building Material and Garden Equipment and Supplies Dealers 125,990 129,582 127,607 137,471 145,463 149,993 35,226 Food and Beverage Stores 63,843 64,364 65,855 69,447 70,965 72,044 17,679 Gasoline Stations 83,481 94,570 95,193 66,485 98,307 121,521 22,768 Clothing and Clothing Accessories Stores 90,141 91,876 82,217 58,493 82,305 78,665 15,713 General Merchandise Stores 185,391 182,784 184,645 176,221 207,707 235,959 51,043 Food Services and Drinking Places 191,831 190,571 194,381 137,876 202,468 228,881 53,890 Other Retail Group 149,428 149,593 149,006 148,906 179,825 196,627 44,242 Total retail stores $ 1,263,806 $ 1,278,160 $ 1,261,845 $ 1,159,290 $ 1,444,247 $ 1,517,654 $ 333,813 All other outlets 232,639 235,809 267,630 213,575 362,059 341,915 81,606 Total $ 1,496,445 $ 1,513,969 $ 1,529,475 $ 1,372,865 $ 1,806,306 $ 1,859,569 $ 415,418 _______________ Source: California Department of Tax and Fee Administration The closure of retail businesses and the fitness, entertainment, and dining industry in response to the COVID-19 pandemic impacted taxable sales within the city in calendar year 2020. However, quick action by congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, protection from rent and utility payments lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The City invested heavily in supporting its business community by implementing parklets for outdoor dining, grants to small businesses, and various promotions to support local commerce. This resulted in taxable sales tracking slightly higher than projected at the end of the third quarter of FY 2020-21 and positioned the City well once vaccination rates increased and restrictions were lifted as seen with a significant increase in taxable sales in 2021. Property Taxes General. Property taxes represent the second largest source of tax revenue to the City. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. Property taxes have historically been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13 in 1978, property tax revenues were curtailed when -42- they were reduced by two-thirds and thereafter limited to 2% annual increases or the CPI, whichever was less. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Teeter Plan. San Luis Obispo County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), pursuant to Sections 4701 through 4717 of the State Revenue and Taxation Code, which applies to taxes levied for the City. Under the Teeter Plan, the County guarantees that the City will receive 100% of the taxes levied for it. Any delinquencies are borne by the County, which in return collects and retains all penalties and interest which accrue on the delinquent taxes. Consequently, the City’s tax receipts do not reflect any delinquencies. The Teeter Plan, once adopted by a county, remains in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes levied by that agency exceed 3%. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. -43- Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. Assessed Valuation History. The summary below presents a 10-year history of the assessed value of property within the City. TABLE 7 CITY OF SAN LUIS OBISPO ASSESSED VALUATION FISCAL YEARS 2012-13 THROUGH 2022-23 Fiscal Year Secured Roll Gross Value Nonunitary Utilities Unsecured Roll TOTAL 2012-13 $ 5,964,248,670 $ 5,382,272 $ 279,327,968 $ 6,248,958,910 2013-14 6,153,784,758 5,300,173 295,750,397 6,454,835,328 2014-15 6,512,370,260 5,032,204 297,325,321 6,814,727,785 2015-16 6,965,233,454 4,883,115 305,427,553 7,275,544,122 2016-17 7,393,890,993 5,269,573 303,122,262 7,702,282,828 2017-18 7,844,131,236 4,369,188 331,183,030 8,179,683,454 2018-19 8,688,541,007 4,231,993 359,588,899 9,052,361,899 2019-20 9,156,811,458 3,990,145 360,372,662 9,521,174,265 2020-21 9,872,892,242 4,194,503 371,969,399 10,249,056,144 2021-22 10,449,275,830 4,154,621 369,153,263 10,822,583,714 2022-23 11,352,719,604 3,840,493 414,262,072 11,770,822,169 _______________ Source: HdL, Coren & Cone 2022/23 Roll Summary table Major Property Taxpayers. The following table shows the top 10 local secured property taxpayers for the current fiscal year. TABLE 8 CITY OF SAN LUIS OBISPO TOP TEN LOCAL SECURED TAXPAYERS FISCAL YEAR 2022-23 Property Owner Industry or Type Number of Parcels Secured Assessed Valuation % of Total 1. Jamestown Premier San Luis Obispo Retail Commercial 10 $ 116,755,505 1.06% 2. CAP VIII - Mustang Village LLC Residential 5 100,005,897 0.91% 3. Sierra Vista Hospital Inc. Institutional 8 83,107,362 0.76% 4. San Luis Obispo Promenade DE LLC Commercial 10 56,100,000 0.51% 5. Charles Pasquini Jr Trust Et Al Commercial 4 53,422,118 0.49% 6. Irish Hills Plaza East LLC Commercial 6 53,213,898 0.48% 7. Vintage at San Luis Obispo Alderwood Residential 2 51,000,000 0.46% 8. Hotel San Luis Obispo LLC Commercial 1 37,529,832 0.34% 9. Costco Wholesale Corporation Commercial 1 38,444,903 0.35% 10. Laurel Creek Industrial 4 35,195,481 0.32% 51 $ 624,774,996 5.69% _______________ Source: California Municipal Statistics, Inc. -44- Transient Occupancy Tax Transient occupancy tax (“TOT”) receipts are estimated at $10,700,000 in Fiscal Year 2022-23 (9.5% of 2022-23 estimated General Fund revenues). The City’s transient occupancy tax is imposed on overnight visitors who occupy a room or rooms in a hotel, inn, motel, bed & breakfast, or other lodging facility within the City’s limits for stays of less than 30 consecutive days. The amount of the tax is 10% of the total rental amount and was increased from 9% to 10% on October 1, 1993. This increase was not approved by majority vote of the electorate, but is not governed by Proposition 62 because the City is a charter city. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 62” herein. The tax does not have a sunset provision. COVID-19 travel restrictions and the curtailment of classes at California Polytechnic University impacted the city’s hospitality industry and decreased transient occupancy tax receipts for the City. TOT revenue in FY 2019-20 decreased by $1.7 million compared to FY 2018-19 (the most significantly impacted revenue source in that year). Though TOT increased slightly in FY 2020-21, it remained 14% under FY 2018-19 levels. In FY 2021-22, tourism along the central coast made a strong comeback, as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs in FY 2021-22 ($1.6 million over projections for the year), driven largely by high room rates. Other Taxes and Revenues Utility Users Tax. The City levies a utility users tax which is estimated at $6,100,000 in Fiscal Year 2022-23 (5.4% of estimated General fund revenues). Adopted by the voters in 2012, the City levies a 5% tax on all residences and businesses using telephone, electricity, natural gas and water utilities, and a 4.8% rate for video and telecommunications. Although the tax is collected for the City by the utility companies, it is a tax on the user, not the utility. The utility users tax does not have a sunset provision. Vehicle License Fee. The State imposes the vehicle license fee, which is the fee paid annually in lieu of personal property taxes on a vehicle, and distributed to cities and counties. The vehicle license fee is based on vehicle value (originally in the amount of 2% of the market value of the vehicle) and declines as the vehicle ages. Since 1998 the fee has been incrementally reduced from 2% of a vehicle’s current estimated value, but any such reductions were “backfilled” to local governments by the State from other sources. However, under the 2004-05 State Budget, the VLF was permanently reduced to 0.65% of the estimated value, and backfill by the State to local governments was eliminated, and instead will be met by an increased property tax apportionment to cities and counties. This amounts to approximately $6 million annually as a revenue neutral swap for the City. TABLE 9 CITY OF SAN LUIS OBISPO STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS FISCAL YEARS 2017-18 THROUGH 2022-23 Source 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Motor Vehicle In-Lieu $4,637,253 $4,961,080 $5,290,215 $5,660,661 $5,994,592 $6,283,397 _______________ Source: City of San Luis Obispo. -45- Parking Rates (Specific to Parking Enterprise) The City has budgeted revenues of its Parking Fund for payment of debt service on the portion of the Bonds purposed toward the construction of the Cultural Arts District Parking Structure. The Parking Fund is not pledged for the payment of the Bonds. The City’s Parking Fund implements the Access and Parking Management Plan and directs the operations and maintenance of the City’s parking facilities. Parking Fund revenues include rates and fees charged for parking services, property lease income, and one-time incomes such as Parking In-Lieu fee payments. According to City Fiscal Policies, rates must be sufficient to cover operations, capital asset improvements and maintenance, debt obligations, and to maintain appropriate reserve levels to keep the fund healthy and prepared for unforeseen and long-term funding needs. Actual Parking Fund revenues for FY 2021-22 are $5,164,226 and are budgeted to reach $6,530,750 in FY 2022-23. The City projects Parking Fund revenues to rise to $10,203,324 in FY 2023-24. The City Council has approved two parking rate increases to hourly paid parking effective July 1, 2023 and July 1, 2025 as shown in the table below. Based on the City’s forecast for Fiscal Year 2024-25 and projections for later fiscal years, the City expects that the City’s Parking Fund revenues will be sufficient to offset the City’s obligation to make lease payments on the portion of the debt service of the Bonds relating to the construction of the Cultural Arts District Parking Structure. TABLE 10 CITY OF SAN LUIS OBISPO PARKING RATE INCREASES Parking Hourly Rate Changes Parking Spots Subject to Rate Pre-July 1, 2023 Parking Rate Increase Effective July 1, 2023 Increase Effective July 1, 2025 Hourly Rate – Parking Meters Tier 1 (Super Core) 389 $2.00 $4.00 $5.00 Tier 2 (Core) 147 $2.00 $4.00 $5.00 Tier 3 (Outlaying Areas) 585 $1.50 $3.00 $3.00 Hourly Rate – Parking Structures Hourly 1,127 $1.50 $3.00 $3.00 _______________ Source: City of San Luis Obispo. TABLE 11 CITY OF SAN LUIS OBISPO PROJECTED PARKING REVENUES FISCAL YEARS 2021-22 THROUGH 2027-28 2021-22(1) 2022-23(2) 2023-24 2024-25 2025-26 2026-27 2027-28 Parking Meters $2,210,191 $2,268,500 $4,876,000 $4,876,000 $5,688,700 $5,688,700 $5,688,700 Parking Structures $999,138 $1,328,450 $3,242,100 $3,388,400 $3,655,700 $3,655,700 $3,667,300 _______________ Source: City of San Luis Obispo. (1) Audited Actual revenues. (2) Budgeted revenues. Although the City’s Parking Fund is not pledged to the payment of any debt, the City has previously allocated debt service payments for certain outstanding bonds to the Parking Fund. The following table reflects historical revenues and expenses of the City’s Parking Fund for the last ten years. Such table does not reflect the impact of the previously mentioned parking rate increases. -46- TABLE 12 CITY OF SAN LUIS OBISPO PARKING FUND GROSS REVENUES AND OPERATING EXPENSES LAST 10 FISCAL YEARS Fiscal Year Gross Revenues(1) Operating Expenses(2) Net Revenue Available for Debt Service 2013-14 $4,122,860 $2,488,797 $1,634,063 2014-15 4,905,494 2,409,027 2,496,467 2015-16 4,606,249 2,757,299 1,848,950 2016-17 4,659,562 2,671,028 1,988,534 2017-18 6,651,038 2,998,555 3,652,483 2018-19(3) 5,443,038 3,100,113 2,342,925 2019-20 3,840,059 3,080,588 759,471 2020-21 2,768,419 3,093,183 (324,764) 2021-22 4,890,317 3,552,603 1,337,714 2022-23(4) 7,359,163 4,464,311 2,894,852 _______________ Source: City of San Luis Obispo. (1) Does not reflect parking rate increases that are effective July 1, 2023 and July 1, 2025. (2) Operating expenses exclude depreciation. (3) The City refinanced certain prior obligations, resulting in new debt of $16,905,000, of which $5,156,025 is allocated to the Parking Fund. (4) Unaudited. Outstanding General Fund Debt and Other Obligations For additional information regarding the City’s outstanding General Fund debt and lease obligations, see Appendix A hereto. Lease-Purchase Financing. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533, through September 5, 2023. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. Energy Sources Conservation State Loan. In 2014, the City obtained a note in the amount of $850,775 for purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. Long-Term Obligations. The City is currently obligated to make lease payments supporting debt service on the following outstanding lease revenue bonds. The table below does not include the Bonds currently being issued, which are payable in whole or in part from lease payments secured by General Fund revenue sources. -47- TABLE 13 CITY OF SAN LUIS OBISPO DESCRIPTION OF OUTSTANDING DEBT AS OF JULY 1, 2023 Bonds Purpose Date of Issuance Original Principal Amount Outstanding Principal Amount (as of 06/30/2023) Final Maturity Capital Improvement Board 2012 Refunding Lease Revenue Bonds(1) Refunding June 7, 2012 $5,050,000 $2,415,000 Dec. 1, 2029 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Los Osos Valley Road Interchange Project), Series 2014 Los Osos Valley Rd Interchange October 23, 2014 $7,580,000 $6,275,000 Nov. 1, 2044 San Luis Obispo Public Financing Authority Lease Revenue Refunding Bonds, Series 2018 Refunding May 8, 2018 $16,905,000 $12,350,000(1) June 1, 2039 _______________ Source: City of San Luis Obispo. (1) Expected to be refunded with the proceeds of the Bonds. (2) This amount represents the total outstanding principal amount for the 2018 Series Bonds. The City’s Water, Sewer, Parking, Transit and General Fund are budgeted towards these payments and after such budgeted offset, the General Fund’s share of this outstanding amount is $8,089,250. -48- TABLE 14 CITY OF SAN LUIS OBISPO GENERAL FUND DEBT SERVICE AS OF JULY 1, 2023 Fiscal Year Series 2012(1) Series 2014 Series 2018 Series 2023* Total Debt Service* Less: Parking Fund Offset*(2) Total Net Debt Service* 2024 $ 69,067 $ 420,531 $ 1,439,656 $ 1,508,810 $ 3,438,064 $ 1,947,905 $ 1,490,159 2025 369,000 422,731 1,438,256 2,735,813 4,965,800 3,174,481 1,791,319 2026 364,750 419,631 1,436,006 2,732,313 4,952,700 3,170,295 1,782,405 2027 369,750 421,231 1,101,506 2,732,188 4,624,675 3,068,147 1,556,528 2028 373,750 423,556 1,096,256 2,735,188 4,628,750 3,069,546 1,559,204 2029 371,875 421,731 1,099,506 2,736,188 4,629,300 3,071,537 1,557,763 2030 374,125 424,681 1,100,756 2,735,188 4,634,750 3,070,919 1,563,831 2031 422,253 1,100,006 2,732,188 4,254,447 3,067,690 1,186,757 2032 423,963 1,102,256 2,736,938 4,263,157 3,073,126 1,190,031 2033 419,950 1,097,256 2,734,313 4,251,519 3,068,976 1,182,543 2034 420,675 1,091,706 2,734,313 4,246,694 3,067,283 1,179,411 2035 421,050 1,090,344 2,736,688 4,248,082 3,069,243 1,178,839 2036 420,713 1,096,763 2,736,313 4,253,789 3,070,826 1,182,963 2037 419,650 281,831 2,733,188 3,434,669 2,819,147 615,522 2038 418,213 278,225 2,732,188 3,428,626 2,817,047 611,579 2039 420,900 279,450 2,733,063 3,433,413 2,818,295 615,118 2040 417,700 2,735,563 3,153,263 2,735,563 2041 419,000 2,734,563 3,153,563 2,734,563 2042 419,700 2,734,938 3,154,638 2,734,938 2043 419,800 2,736,438 3,156,238 2,736,438 2044 419,300 2,733,938 3,153,238 2,733,938 2045 418,200 2,732,313 3,150,513 2,732,313 2046 2,736,188 2,736,188 2,736,188 2047 2,735,313 2,735,313 2,735,313 2048 2,734,563 2,734,563 2,734,563 2049 2,733,688 2,733,688 2,733,688 2050 2,732,619 2,732,619 2,732,619 2051 2,732,022 2,732,022 2,732,022 2052 2,732,403 2,732,403 2,732,403 2053 2,733,556 2,733,556 2,733,556 2054 2,735,275 2,735,275 2,735,275 _______________ Source: City of San Luis Obispo. * Preliminary, subject to change. (1) Expected to be refunded with the proceeds of the Bonds. (2) Reflects portion of debt service that the City has allocated or expects to allocate, on a budgetary basis, to the City’s Parking Fund, to the extent parking revenues are available for such purpose. The Parking Fund is not pledged to the payment of debt service on any such bonds and the offset reflects only the City’s current expected budgetary allocation. Direct and Overlapping Bonded Debt Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., effective August 19, 2022 for debt issued as of June 30, 2022. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily -49- obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within the City; and (3) the third column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in column 2. TABLE 15 CITY OF SAN LUIS OBISPO STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT AS OF AUGUST 19, 2022 2021-22 Assessed Valuation: $10,485,899,151 Overlapping Tax and Assessment Debt Total Debt 6/30/22 % Applicable(1) City’s Share of Debt 6/30/22 San Luis Obispo Community College District $ 163,735,000 16.652% $ 27,265,152 San Luis Coastal Unified School District 148,855,000 51.836 77,160,478 City of San Luis Obispo Community Facilities District No. 2019-1 19,660,000 100.000 19,660,000 Total Overlapping Tax and Assessment Debt $ 124,085,630 Direct and Overlapping General Fund Debt San Luis Obispo County General Fund Obligations $ 22,396,208 16.720% $ 3,744,646 San Luis Obispo County Pension Obligation Bonds 29,843,112 16.720 4,989,768 City of San Luis Obispo Lease Revenue Bonds 24,251,532 100.000 24,251,532(2) Total Gross Direct and General Fund Overlapping Debt $ 32,985,946 Less: City of San Luis Obispo obligations supported by enterprise revenues (4,560,900) Total Net Direct And Overlapping General Fund Debt $ 28,425,046 Total Gross Direct Debt $ 24,251,532 Total Net Direct Debt $ 19,690,632 Total Overlapping Debt $ 132,820,044 Gross Combined Total Debt $ 157,071,576(3) Net Combined Total Debt $ 152,510,676 _______________ (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district’s assessed value that is within the boundaries of the city divided by the district’s total taxable assessed value. (2) Includes share of San Luis Obispo County Financing Authority lease revenue bonds ($1,871,532). (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to 2021-22 Assessed Valuation: Overlapping Tax and Assessment Debt ................................................... 1.18% Total Gross Direct Debt ($24,251,532) ................................................. 0.23% Total Net Direct Debt ($19,690,632) ..................................................... 0.19% Gross Combined Total Debt .................................................................... 1.50% Net Combined Total Debt ....................................................................... 1.45% _______________ Source: California Municipal Statistics, Inc. -50- Employee Relations The City has 462.75 authorized full-time equivalent staff positions for Fiscal Year 2022-23. City employees are represented by four labor organizations, the principal of which is the San Luis Obispo City Employees’ Association, which represents approximately 44% of all City employees in a variety of classifications. There have been no work stoppages by City employees. Approximately 75% of all regular City employees are covered under negotiated agreements, summarized and with the expiration dates set forth below: Bargaining Units Number of Employees Agreement Expiration Date San Luis Obispo City Employees’ Association 204.25 June 30, 2025 Police Officers’ Association 67 June 30, 2024 Police Staff Officers’ Association 17 June 30, 2027 Firefighters(1) 56.5 December 31, 2023 _______________ (1) Both the city and Fire negotiating teams are currently in active discussions and making preparations to begin official negotiations in early September 2023. Management and Confidential employees of the City are not represented and make up the remaining 25% of the regular City employees. The resolutions covering Management and Confidential employees expire June 30, 2025. The City has fostered collaborative and strong labor relations with the three represented police and fire bargaining units. Efforts are underway to cultivate positive interactions with the City’s general unit, the San Luis Obispo City Employees’ Association (SLOCEA) while the parties navigate two outstanding grievances and prepare for one unfair labor practice hearing tentatively scheduled in late December 2023. The City does not expect such grievances will have a material adverse effect on the financial condition of the City. Insurance A summary of insurance coverage for the City, effective as of June 30, 2022, is provided below. General Liability and Workers’ Compensation. The City 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. The City has a retained limit of $500,000 per occurrence for liability and a retained limit of $500,000 per occurrence for workers’ compensation. Liabilities of the City are reported to CJPIA when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the actuarial 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 (reserve amount set on each claim) 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. -51- 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 2021-22. 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. The City 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 the City 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 the City in the normal course of business. It is reasonably possible that the City 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 the City. See Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022—Note 13: Risk Management” hereto. Employee Retirement System Retirement Plan. General. The City contributes to the California Public Employees’ Retirement System (“CalPERS”) under an agent-multiple employer public employee retirement plan (for miscellaneous members, the “Miscellaneous Plan”) and cost-sharing employer public employee retirement plans (for safety members, the “Safety Plans”) that acts as a common investment and administrative agent for participating entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. Copies of CalPERS’ annual financial report are available from their Executive Office, 400 P Street, Sacramento, California 95814. CalPERS is a separate and distinct legal entity from the City and serves as an independent fiduciary in managing the City’s retirement plan assets. Eligibility. All full-time and part-time benefited City employees are eligible to participate in the retirement program. Benefits vest after five years of service. In addition to basic retirement benefits, the retirement program also provides death and survivor’s benefits. These benefit provisions and all other requirements are established by State statute and City ordinance. About CalPERS. Along with over 3,000 other cities and local agencies, the City contracts with CalPERS for its “defined benefit” retirement plan, which covers all of its regular employees (except in rare circumstances, temporary employees are not covered by the CalPERS plan). Due to changes made by the City and through legislation, there are several CalPERS retirement benefit programs. The City enacted a 2nd Tier benefit plan program which provides a lower level of benefits than the original plan. This plan is available to eligible new employees who are hired after August 30, 2012 (for sworn fire personnel plan members) and after December 6, 2012 for miscellaneous and sworn police safety plan members. A 3rd Tier program was created following the enactment of the Public Employee Pension Reform Act (AB 340) in January 2013. Under this program, employees who are considered new to the CalPERS retirement program are enrolled as required by the new law. The 3rd Tier program provides the lowest level of benefit of the three plans that are now in effect. The following chart summarizes these benefits which reflect the benefit earned each year, as a percentage of the employees qualifying salary and the normal retirement age for the program: -52- 1st Tier 2nd Tier 3rd Tier Miscellaneous 2.7% @ 55 2% @ 60 2% @ 62 Fire Sworn 3% @ 50 3% @ 55 2.7% @ 57 Police Sworn 3% @ 50 2% @ 50 2.7% @ 57 Contribution Rates. All employees contribute the full amount of the required member contribution. For safety employees, the required contribution is either 8%, 9% or 13.75% of annual covered salary depending on the plan they participate in. For safety employees, the required contribution is either 9% or 13.75% of annual covered salary depending on the plan they participate in. For miscellaneous plan members the required contribution is either 7% or 8% of annual covered salary depending upon which plan they participate in. The City’s required contribution to CalPERS is shown below for Fiscal Years 2020-21 and 2021-22. As of the Fiscal Year 2017-18 contribution, CalPERS no longer determines the employer contribution toward the Unfunded Liability as a percentage of payroll, but as a flat dollar contribution. The employer contribution toward the Normal Cost is still provided as a percentage of payroll: Fiscal Year 2020-21 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 10.623% $ 6,020,512 Safety Plan Tier 1 25.54 5,330,744 Police Safety Tier 2 19.825 13,198 Fire Safety Tier 2 22.397 26,207 Police Safety Tier 3 13.884 26,528 Fire Safety Tier 3 13.884 2,481 *CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2021-22 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.95% $ 6,819,439 Safety Plan Tier 1 25.59 6,029,105 Police Safety Tier 2 19.88 16,086 Fire Safety Tier 2 22.47 33,223 Police Safety Tier 3 13.98 31,825 Fire Safety Tier 3 13.98 3,197 *CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2022-23 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.65% $ 7,337,577 Safety Plan Tier 1 25.64 6,697,068 Police Safety Tier 2 19.87 16,915 Fire Safety Tier 2 22.48 35,296 Police Safety Tier 3 13.66 33,517 Fire Safety Tier 3 13.66 1,300 *CalPERS provides a blended rate for all 3 tiers. Annual Pension Cost and Required Contribution. For the Fiscal Year ended June 30, 2022, the City’s annual pension cost for the employer’s contribution to CalPERS was $7,709,918 for miscellaneous employees and $7,167,638, for safety employees. The required employer contribution was determined as part of the actuarial valuation dated June 30, 2019 using the entry age normal actuarial cost method. PERS reports that the lag time is necessary due to -53- the amount of time needed for them to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year. The actuarial assumptions included: (i) 7.15% investment rate of return (net of investment and administrative expenses); (ii) projected salary increases that vary by duration of service ranging from 3.1% to 20% for both miscellaneous and safety members; (iii) an inflation factor of 2.5% compounded annually, and (iv) 2.5% annual cost-of-living adjustments for miscellaneous and safety members. The unfunded liability is amortized as a “level percent of pay.” Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the amortization period. In 2017, CalPERS made significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies. As a result, the City had to reduce ongoing expenditures by $8.9 million (across all funds) in order to address and increase its pension contributions in line with new CalPERS requirements. To provide a framework to respond to the long-term fiscal impacts of the significant increases in required pension contributions to the CalPERS retirement system, the City Council adopted a Fiscal Health Response Plan (FHRP), containing three key components, which began implementation with adoption of the FY 2018-19 Financial Plan Supplement and continued through FY 2020-21. The three components of the FHRP included: identification of new revenues, identification of operating reductions and new ways of doing business, and employee concessions. Over the three years of the FHRP, the City negotiated in good faith with its represented and unrepresented bargaining groups to achieve approximately $1.9M of ongoing employee concessions. The employee concessions aimed at a recipe of increasing the employee contribution to CalPERS (“retirement cost-sharing”) by three (3%) percent of pay and offsetting that employee burden by providing a 4% cost- of-living adjustment over a two-year period and continuing the annual City health insurance cost-sharing contribution. Ultimately, the City was able to successfully negotiate retirement cost-sharing with all groups except the San Luis Obispo City Employees Association. In addressing unfunded pension liability as it related to employee concessions, the Council adopted policies such as the Fiscal Sustainability Policy, Compensation Philosophy, and Labor Relations Objectives to provide guidance and address and implement the concept of “shared responsibility.” This concept acknowledges the responsibility of the City, and its employees, to share the burden of pension and health costs, including addressing unfunded liabilities, while recognizing that increasing the employee share of this cost may impact the City’s ability to attract and retain well-qualified employees that ultimately deliver programs and services to the community. With that in mind, employee concessions were proposed as a significant component of the FHRP. To date, implementation of the concessions has resulted in employees from all bargaining groups, except members of the San Luis Obispo City Employees’ Association, paying an additional three (3%) percent of retirement cost sharing ongoing. Implementation of the components noted above have contributed to the City’s ability to address increased CalPERS contributions and make a total of $16.6 million in additional discretionary payments in order to paydown its pension liability. The City’s commitment to paying down its pension debt by making additional discretionary payments (ADPs) has helped to make progress on improving the plan’s overall funded status. Unfortunately, the CalPERS 2022 investment loss of 7.5% has adversely impacted the City’s funded status (as well as that of other PERS agencies throughout California). The ADPs that the City has made have helped to make progress in paying down the unfunded pension liabilities. As of 2021, the funded status of the City’s pension had reached 70.1%, a significant -54- improvement compared to 64.4% in 2015. Absent the ADPs, the funded status in 2021 would have been 68.5%. Unfortunately, the CalPERS -7.5% investment return in FY 2021-22 significantly impacted the City’s funded status (as well as that of other PERS agencies). The City’s current unfunded liability (UFL) is approximately $180 million. This UFL is addressed through ongoing regular payments to CalPERS and paydown is expedited by the City’s ability to make ADPs. Actuarial Analysis Feedback provided by the City’s independent Actuary is that the City is taking appropriate action to make progress in paying down the unfunded pension liabilities, but that market conditions impacting CalPERS investments hinder progress. Three-Year Trend Information. The following table provides three-year trend information on the City’s annual pension cost and the funded status of the Tier 1 plans. TABLE 16 CITY OF SAN LUIS OBISPO THREE-YEAR TREND INFORMATION FOR CALPERS Actuarial Valuation Date Accrued Liability (AL) Market Value of Assets (MVA)(1) Unfunded Accrued Liabilities (UAL) Funded Ratio (MVA/AL) Annual Covered Payroll Safety Plan Tier 1 6/30/19 $ 205,097,380 $ 127,661,453 $ 77,435,927 62.2% 7,147,567 6/30/20 210,170,278 128,700,330 81,469,948 61.2 6,639,579 6/30/21 220,803,796 153,350,001 67,453,795 69.5 6,075,621 Police Safety Tier 2 6/30/19 773,047 674,344 98,703 87.2 591,136 6/30/20 1,009,449 871,774 137,675 86.4 718,135 6/30/21 1,402,421 1,413,979 (11,558) 100.8 765,882 Fire Safety Tier 2 6/30/19 1,812,170 1,699,660 112,510 93.8 1,236,389 6/30/20 2,425,936 2,231,886 194,050 92.0 1,433,450 6/30/21 3,242,867 3,416,497 (173,630) 105.4 1,395,894 Police Safety Tier 3 6/30/19 1,339,239 1,210,679 128,560 90.4 1,884,193 6/30/20 2,007,628 1,807,181 200,447 90.0 2,273,360 6/30/21 2,856,793 2,977,745 (120,952) 104.2 2,203,505 Fire Safety Tier 3 6/30/19 62,298 57,953 4,345 93.0 393,854 6/30/20 190,169 180,065 10,104 94.7 495,399 6/30/21 373,349 407,669 (34,320) 109.2 485,767 Miscellaneous Plan 6/30/19 234,600,386 144,624,229 89,976,157 61.6 21,212,049 6/30/20 240,866,177 147,848,333 93,017,844 61.4 23,168,222 6/30/21 255,715,513 177,819,133 77,896,380 69.5 23,905,476 _______________ Source: CalPERS actuarial valuation reports as of June 30, 2021 for the respective plans. The June 30, 2022 valuation reports are expected to be made available by CalPERS in August or September 2023. -55- Net Pension Liability. The City recognizes a net pension liability for the Miscellaneous Plan, measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability was measured as of June 30, 2021, using an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The changes in net pension liability for the Miscellaneous Plan is provided below: TABLE 17 CITY OF SAN LUIS OBISPO CHANGES IN NET PENSION LIABILITY – MISCELLANEOUS PLAN FISCAL YEAR 2020-21 & 2021-22 Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2020 $ 237,568,349 $ 148,289,275 $ 89,279,074 Changes during the year: Service Cost 3,939,785 3,939,785 Interest on total pension liability 16,589,680 16,589,680 Differences between expected and actual experience (755,414) (755,414) Contribution – employer 8,246,755 (8,246,755) Contribution – employee 2,056,274 (2,056,274) Net investment income 32,904,570 (32,904,570) Benefit payments, including refunds of employee contributions (13,518,666) (13,518,666) -- Administrative changes (148,132) 148,132 Net Changes 6,255,385 29,540,801 (23,285,416) Balance at June 30, 2021 $ 243,823,734 $ 177,830,076 $ 65,993,658 _______________ Source: City of San Luis Obispo Audited Financial Statements The City recognizes a net pension liability for each of the Safety Plans, measured as a proportionate share of the net pension liability of the CalPERS Safety Risk Pool. The net pension liability of each of the Safety Plans was measured as of June 30, 2021, and the total pension liability for each Safety Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the Safety Plans relative to the projected contributions of all participating employers in the CalPERS Safety Risk Pool, actuarially determined. The City’s proportionate share of the net pension liability for the Safety Plans as of June 30, 2022 was $58,571,330. The City’s percentage share of the net pension liability for the Safety Plans as of June 30, 2020 and June 30, 2021, based on the reports available from CalPERS, were as follows: TABLE 18 CITY OF SAN LUIS OBISPO CHANGES IN NET PENSION LIABILITY – SAFETY PLAN Proportionate Share Percentage share at 6/30/20 0.72250% Percentage share at 6/30/21 1.08299% Change – Increase/(Decrease) 0.36049% _______________ Source: City of San Luis Obispo Audited Financial Statements. -56- Other Post-Employment Benefits. The City’s primary Other Post-Employment Benefits (“OPEB”) are for retiree health benefits under the City’s election to participate in the CalPERS Health Benefit Program. The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act. The required employer contribution is $149.00 per month per retiree in calendar year 2022 and $151.00 per month per retiree in calendar year 2023. Retirees pay the differential monthly amount of the premium, which varies depending on the health benefits they select. Additionally, the City has established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000 (together with the City’s participation in the CalPERS Health Benefit Program, the “Plan”). One retiree remains eligible for this benefit. The City pays one-half of the retiree health insurance premiums for this retiree. During the Fiscal Year ended June 30, 2009, the City entered into an agreement with California Employers’ Retiree Benefit Trust (“CERBT”) to pre-fund the City’s OPEB liability. The contribution requirement of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution (the “ARC”) including fully funding the implied subsidy. The ARC is an amount actuarially determined in accordance with the parameters of GASB standards. The City’s 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 liability over a period of 30 years. For Fiscal Year 2021-22, the City contributed $949,000 to the Plan, which fully funded the annual required contribution. The City paid a total of $340,000 to the CalPERS Health Benefit Program and retirees during the year and $229,000 to the CERBT. In addition, the City contributed an additional $360,000 to prefund benefits and pay down a portion of the implied subsidy of the Plan. 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, CA 95814. For the Fiscal Years ended June 30, 2020, 2021 and 2022, the City’s annual OPEB costs (expense) of $1,190,000, $921,000 and $949,000, respectively, were equal to the annual required contribution. Trend and funding status information is as follows, based on the Plan’s most recent actuarial valuation date of June 30, 2021. -57- TABLE 19 CITY OF SAN LUIS OBISPO OPEB COSTS 2020 THROUGH 2022 Fiscal Year Ending June 30 Annual OPEB Cost (AOC) Actual Contributions % of AOC Contributed Net OPEB Obligation (Asset) 2022 $ 949,000 $ 949,000 100% $ -- 2021 921,000 921,000 100% -- 2020 1,190,000 1,190,000 100% -- Actuarial accrued liability (AAL) $ 14,884,000 Actuarial value of plan assets 10,177,000 Unfunded AAL $ 4,707,000 Funded ratio (actuarial value of plan assets/AAL) 68.4% Covered payroll (active plan members) $ 30,033,000 UAAL as % of covered payroll 15.7% City Investment Policy and Portfolio The City’s primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Safety, liquidity and yield are the factors considered, in priority order, in determining individual investment placements. In April 2013, an Investment Oversight Committee was formed to advise the City Treasurer on investment policy and compliance. Investment policies are reviewed and approved annually by the City Council and the Investment Oversight Committee, consisting of the Mayor, City Manager, City Treasurer, staff, and a member of the public meet quarterly with an investment advisor to review compliance. The composition of investments in the City pool will vary from time-to-time depending on cash flow needs of the City, the maturity of investments, purchases of new securities, and due to fluctuations in interest rates. All investments are in compliance with the City’s investment policy. As of March 31, 2023, 55% of the investments within the City pool were in highly liquid instruments. The average duration of the investments managed by the City’s contracted investment advisor was 2.05 years. As of March 31, 2023, the investments in the City pool were as follows: TABLE 20 CITY OF SAN LUIS OBISPO INVESTMENT POOL SUMMARY OF ASSETS HELD Local Agency Investment Fund – Money Market Fund City & CIB $ 44,807,639 JP Morgan Chase – Money Market 50,000,000 PFMAM Managed Investments 100,649,077 Pacific Premier Bank – Collateralized Certificate of Deposit 1,000,000 Pacific Premier Bank – Money Market 1,026,162 TOTAL INVESTMENTS $ 197,482,878 Bank Balance $ 25,952,182 TOTAL TREASURY BALANCE $ 223,435,060 _______________ Source: City of San Luis Obispo. -58- TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual, or receipt of interest on, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or -59- the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the beneficial owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, beneficial owners would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or the beneficial owners to incur significant expense. Payments on the Bonds generally will be subject to U.S. information reporting and possibly to “backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate beneficial owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number (“TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a beneficial owner’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain beneficial owners (including among others, -60- corporations and certain tax-exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS. CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Certain matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Underwriter’s Counsel. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Orrick, Herrington & Sutcliffe LLP, Bond Counsel and Disclosure Counsel, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. MUNICIPAL ADVISOR The City has retained PFM Financial Advisors LLC, of San Francisco, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. LITIGATION There is no action, suit, or proceeding known by the Authority or the City to be pending or threatened at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds, the Indenture, the Lease Agreement, the Ground Lease or any proceedings of the Authority or the City taken with respect to the execution or delivery thereof. CONTINUING DISCLOSURE The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than nine months after the end of the City’s fiscal year (which is currently June 30) in each year commencing with the report for the fiscal year ended June 30, 2023 (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events. The Annual Report and event notices will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of material events by the City is set forth in Appendix E— “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” In the past five years, the City has from time to time failed to link certain bond CUSIPS to its timely filed audited financial statements. Such errors have been corrected. RATING S&P Global Ratings has assigned the rating of “AA” to the Bonds. Certain information was supplied by the Authority and the City to the rating agency to be considered in evaluating the Bonds. Such rating express only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. There is no assurance that such rating will continue for any given period of time or that it will not -61- be reduced or withdrawn entirely by the rating agency if in its judgment circumstances so warrant. The Authority, the City and the Trustee undertake no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds. UNDERWRITING The Bonds were purchased by Raymond James & Associates, Inc. (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a purchase price of $________ (calculated as the principal amount of the Bonds, plus a net original issue premium of $________ and less an Underwriter’s discount of $________). The initial public offering prices set forth on the cover page may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof. MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds and of statutes and other documents contained in this Official Statement do not purport to be complete, and reference should be made to the Bonds and such statutes and other documents for full and complete statements of their provisions. The preparation and distribution of this Official Statement have been authorized by the Authority and the City. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Executive Director CITY OF SAN LUIS OBISPO By: City Manager [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 [THIS PAGE INTENTIONALLY LEFT BLANK] San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 73 **DRAFT**v1 1 “The Greys in Between”, the 3-legged sculpture at the center of the newly completed roundabout at Orcutt and Tank Farm, was created by artist Anila Quayyum Agha. The permanent public art installation was commissioned by the City of San Luis Obispo’s Public Art Program in partnership with the San Luis Obispo Museum of Art. In exploring the intersections of race, class, culture, and religion, “The Greys in Between” celebrates minority and immigrant peoples’ contributions to our society and signifies San Luis Obispo as a community committed to being a welcoming place for all. Drawing from symbols found in South Asian art and architecture, Agha used her large lit sculpture to show the relationships that exist between light and darkness, fact and fiction, community and solitude. “The Greys in Between” honors diversity and inclusion, while also inviting viewers to reflect on these different states of being. For more information about the City’s use of roundabouts, visit www.slocity.org/roundabouts. Photo credit: Steven Heraldo About the Cover 74 **DRAFT**v1 ANNUAL COMPREHENSIVE FINANCIAL REPORT Fiscal Year Ended June 30, 2022 ERICA A. STEWART, MAYOR CARLYN CHRISTIANSON, VICE MAYOR MICHELLE SHORESMAN, COUNCIL MEMBER ANDY PEASE, COUNCIL MEMBER JAN MARX, COUNCIL MEMBER DEREK JOHNSON, CITY MANAGER Prepared by the Department of Finance Brigitte Elke, Finance Director Debbie Malicoat, Accounting Manager/Controller Tavy Garcia, Senior Accountant Traci Kawaguchi, Accountant City of San Luis Obispo, California www.slocity.org 75 **DRAFT**v1 76 **DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page Introductory Section Transmittal Memorandum ..................................................................................................................................................... vii-xxiii Report Purpose and Organization ............................................................................................................................................... vii Profile of the City of San Luis Obispo ........................................................................................................................................ ix Factors Affecting Financial Condition ........................................................................................................................................ xi Financial Condition Overview .................................................................................................................................................... xv Relevant Financial Policies ....................................................................................................................................................... xvii Major Initiatives ........................................................................................................................................................................ xxi Award for Excellence in Financial Reporting .......................................................................................................................... xxii Acknowledgments ...................................................................................................................................................................xxiii Directory of Officials and Advisory Bodies ................................................................................................................................ xxiv City Council ............................................................................................................................................................................. xxiv Advisory Bodies ...................................................................................................................................................................... xxiv Appointed Officials and Department Heads ............................................................................................................................ xxiv Mission Statement ........................................................................................................................................................................ xxv Organizational Values ....................................................................................................................................................... xxvi-xxvii Organization of the City of San Luis Obispo ............................................................................................................................ xxviii GFOA Certificate ....................................................................................................................................................................... xxix Financial Section Independent Auditors’ Report .......................................................................................................................................................1-4 Management’s Discussion and Analysis ..................................................................................................................................... 5-31 Overview of the Financial Statements .......................................................................................................................................... 5 The Financial Year in Review ...................................................................................................................................................... 8 Overall Year-End Financial Statements ..................................................................................................................................... 21 2022-23 Budget Highlights......................................................................................................................................................... 29 i 77 **DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 2 Page Basic Financial Statements Government-wide Financial Statements: Statement of Net Position ........................................................................................................................................................ 35 Statement of Activities ....................................................................................................................................................... 36-37 Fund Financial Statements: Balance Sheet – Governmental Funds ..................................................................................................................................... 38 Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position ...................................................................................................................... 39 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds ...................................................................................................................................................... 40-41 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-wide Statement of Activities ................................................................................................... 42 Statement of Fund Net Position Business-Type Activities – Enterprise Funds .................................................................. 43-44 Statement of Revenues, Expenses and Changes in Fund Net Position Business-Type Activities – Enterprise Funds .................................................................................................................................................................. 45 Statement of Cash Flows Business-Type Activities – Enterprise Funds ............................................................................ 46-47 Statement of Fiduciary Net Position - Fiduciary Funds .......................................................................................................... 48 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ....................................................................................... 49 Notes to the Basic Financial Statements ................................................................................................................................ 51-99 Required Supplementary Information Section Budgetary Comparison Schedule – General Fund ............................................................................................................. 103-108 Schedule of the Changes in the Net Pension Liability and Related Ratios – Miscellaneous Agent Multiple – Employer Plan ................................................................................................................................... 110-111 Schedule of the Pension Plan Contributions – Miscellaneous Agent Multiple – Employer Plan ...................................... 112-113 Schedule of the City’s Proportionate Share of the Net Pension Liability – Safety Cost-Sharing Plan .............................. 114-115 Schedule of the City’s Pension Contributions – Safety Cost-Sharing Plan ....................................................................... 116-117 Schedule of the Changes in the Net OPEB Liability and Related Ratios ................................................................................. 118 Schedule of Employer OPEB Contributions ............................................................................................................................. 119 Notes to Required Supplementary Information ........................................................................................................................ 120 ii 78 **DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 3 Page Other Supplementary Information and Combining and Individual Fund Statements and Schedules Local Transaction Tax Measure Funding Schedule ........................................................................................................... 123-125 Nonmajor Governmental Funds ........................................................................................................................................ 127-130 Combing Balance Sheet – Nonmajor Governmental Funds .............................................................................................. 132-137 Combining Statement of Revenues, Expenditures and Changes in Fund Balance - Nonmajor Governmental Funds ................................................................................................................................... 138-143 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Downtown Business Improvement District Fund ................................................................................................................. 144 Transportation Development Act (TDA) Fund ..................................................................................................................... 145 Tourism Business Improvement District Fund ...................................................................................................................... 146 Gas Tax Fund ........................................................................................................................................................................ 147 Community Development Block Grant (CDBG) Fund ......................................................................................................... 148 Law Enforcement Grants Fund ............................................................................................................................................. 149 Public Art Contributions Fund .............................................................................................................................................. 150 SB1 Road Repair Fund ......................................................................................................................................................... 151 SB1186 ASP Certify ............................................................................................................................................................. 152 Debt Service Fund ................................................................................................................................................................. 153 Custodial Funds ................................................................................................................................................................. 155-159 Combining Statement of Fiduciary Net Position – Custodial Funds .............................................................................. 156-157 Combining Statement of Changes in Fiduciary Net Position – Fiduciary Funds............................................................ 158-159 Statistical Section Statistical Section – Overview (Unaudited) .............................................................................................................................. 163 Financial Trends: Net Position by Component – Last Ten Fiscal Years ............................................................................................................ 164 Changes in Net Position – Last Ten Fiscal Years ........................................................................................................... 165-166 Fund Balances of Governmental Funds – Last Ten Fiscal Years ................................................................................... 167-168 Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years ................................................................................................................................................. 169-171 General Fund Operating Expenditure Trends by Type – Last Ten Fiscal Years ................................................................... 172 iii 79 **DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 4 Page Revenue Capacity: Governmental Activities Tax and Franchise Revenues by Source – Last Ten Fiscal Years ................................................. 173 Assessed and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years ........................................................... 174 Property Tax Rates – Last Ten Fiscal Years .......................................................................................................................... 175 Principal Property Taxpayers – Current Year and Nine Years Ago ...................................................................................... 176 Secured Property Tax Roll Levies and Collections – Last Ten Fiscal Years ......................................................................... 177 Schedule of Taxable Sales and Permits by Category – Last Ten Calendar Years ................................................................. 178 Historical Sales and Use Tax Rates ....................................................................................................................................... 179 Schedule of Business Tax Certificates Issued ....................................................................................................................... 180 Debt Capacity: Per Capital Outstanding Debt by Type – Last Ten Fiscal Years ........................................................................................... 181 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita Last Ten Fiscal Years ........................................................................................................................................................ 182 Direct and Overlapping Long-Term Debt – Fiscal Year Ended June 30, 2021 ..................................................................... 183 Computation of Legal Debt Margins – Last Ten Fiscal Years .............................................................................................. 184 Revenue Bond Coverage: Water Fund – Last Ten Fiscal Years ..................................................................................................................................... 185 Parking Fund – Last Ten Fiscal Years .................................................................................................................................. 186 Demographic and Economic Information: Demographic and Economic Statistics – Last Ten Fiscal Years ........................................................................................... 187 Principal Employers – Current Year and Nine Years Ago .................................................................................................... 188 Regular Authorized Positions – Last Ten Fiscal Years ......................................................................................................... 189 Operating Information: Operating Indicators and Capital Asset Statistics by Function – Last Ten Fiscal Years ................................................ 190-193 Water System Statistical Data ............................................................................................................................................... 194 Water and Sewer Rates – Last Ten Fiscal Years ............................................................................................................ 195-196 Water System Ten Largest Users – Fiscal Year Ended June 30, 2021 .................................................................................. 197 iv 80 **DRAFT**v1 INTRODUCTORY SECTION v 81 **DRAFT**v1 vi 82 **DRAFT**v1 City of San Luis Obispo, Finance and Information Technology, 990 Palm Street, San Luis Obispo, CA, 93401‐3249, 805.781.7130, slocity.org Date TO: The Honorable Mayor and Members of the City Council and Citizens of the City of San Luis Obispo FROM: Derek Johnson, City Manager Brigitte Elke, Finance Director SUBJECT: TRANSMITTAL MEMORANDUM FOR ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2021-22 We are pleased to submit the City of San Luis Obispo’s 2021-22 Annual Comprehensive Financial Report (ACFR). Section 810 of the City’s Charter requires that an audit of the City financial records be conducted each year by an independent certified public accountant. Such an audit has been performed and this report is being published as part of the requirement for the fiscal year ended June 30, 2022, within applicable timelines. Though the audit is conducted by an independent certified public account firm, City management assumes full responsibility for the completeness and reliability of the information contained in this report. We attest that, to the best of our knowledge, the data presented is accurate in all material respects and all statements and disclosures needed for the reader to obtain a thorough understanding of the City’s financial activities have been included. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control and review framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient and reliable information for the preparation of the City’s financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. However, it is critically reviewed by the auditors annually and Finance staff throughout the year to assure compliance with applicable GASB rules and best practices in government accounting. Additionally, the City’s governing body receives reports on a quarterly basis and additional reports in accordance with State requirements are posted online on the City’s website at www.slocity.org. REPORT PURPOSE AND ORGANIZATION Audited Financial Statements The City’s financial statements were audited by Badawi and Associates, a firm of licensed certified public accountants currently under contract with the City. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and vii 83 **DRAFT**v1 TRANSMITTAL MEMORANDUM disclosures in the financial statements; assessing the overall accounting principles used and significant estimates1 made by management; and evaluating the overall financial statement presentation. The independent auditor concluded that the City’s financial statements present fairly2, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2022. They also fairly represent the respective changes in financial position, and, where applicable, cash flows in accordance with accounting principles generally accepted in the United States of America. The independent auditors’ report is presented as the first component of the financial section of this report beginning on page 1. “Single Audit” for Federal Grant Programs. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of Federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls3 and compliance with legal requirements, with special emphasis on the administration of Federal awards (such as Transit funding). This audit has been completed and will be filed and distributed to appropriate agencies to meet Federal requirements and deadlines. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors beginning on page 5. Organization of the Annual Comprehensive Financial Report The report is presented in three sections: introductory, financial, and statistical. SECTION ONE - The Introductory section includes this transmittal memorandum and other information to familiarize the reader with the City, including a directory of officials and advisory bodies, the City's mission statement and organizational values, and charts. SECTION TWO - The Financial section consists of six parts: 1) the independent auditors’ report; 2) Management’s Discussion and Analysis; 3) the basic financial statements including the government-wide financial statements; 4) fund financial statements; 5) notes to the financial statements; and 6) required supplementary information; and additional statements and schedules including the local transaction tax information, non-major governmental funds, and agency funds. SECTION THREE - The Statistical section includes selected unaudited financial and demographic information generally presented on a multi-year basis. This information includes financial trends, revenue trends, debt capacity, demographics, and economic and operating information. This section also contains important information for the benefit of the required bond disclosures and rating agencies. 1 Significant estimates included in the financial statements are made in conformity with GAAP. 2 The Term “present fairly” means that the financial statements give a reasonable view of the financial results, financial position, and cash-flow of the reporting entity. 3 Internal controls are systematic measures instituted by an organization to conduct its business in an orderly and efficient manner; safeguard its assets and resources; deter and detect errors, fraud, and theft; ensure accuracy and completeness of its accounting data; produce reliable and timely financial and management information; and ensure adherence to its policies and plans. viii 84 **DRAFT**v1 TRANSMITTAL MEMORANDUM As required by GAAP, these financial statements present the City (the primary government) and its component units (entities for which the government is financially accountable). Blended component units (although legally separate entities) are in substance part of the government's operations, and so data from these units are combined with data of the primary government. The City has two component units, the San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority, both of which provide financing for the construction and acquisition of City facilities. The Board/Authority is comprised solely of members of the City Council. Activities of the Board/Authority are accounted for in the applicable City governmental or enterprise funds. PROFILE OF THE CITY OF SAN LUIS OBISPO With a population of 47,653, the City is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and scenic Highway 1. The City serves as the commercial, governmental, and cultural hub of San Luis Obispo County. San Luis Obispo is the county seat and a number of Federal and State regional offices and facilities are located within the City and California Polytechnic State University and Cuesta College are in its sphere of influence. One of California’s oldest communities, the City began with the founding of Mission San Luis Obispo de Tolosa in 1772 by Father Junipero Serra as the fifth mission in the California chain of 21 missions. It was first incorporated in 1856 as a General Law City and became a Charter City in 1876. As a Charter City, San Luis Obispo has more local authority than cities that incorporate under the general laws of the State of California. The Charter is the City’s governing document, and any changes must be approved by the voters. The City’s Charter has been amended several times since its adoption, most recently in August 2011. Form of Government As set forth in the City Charter, the City operates under the “Council-Mayor-City Manager” form of government. The City Council has the authority to make and enforce all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Charter and the State Constitution. There are four Council members, who are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a two- year term and serves as an equal member of the Council. The City Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager. City Services The City provides a wide range of municipal services, including police and fire protection, water and sewer utilities, street and parks maintenance, public transportation, parking, parks and recreation, planning, building and safety, and other general government services. Financial data for all funds through which services are provided by the City have been included in this report. Several municipal services are provided through other governmental agencies or private utility companies, including: Service Agency Courts, Health and Social Services County of San Luis Obispo Elementary and Secondary Schools San Luis Coastal Unified School District Community College San Luis Obispo County Community College District Solid Waste Collection and Disposal San Luis Garbage Company Gas, Electric and Telephone Private Utility Companies ix 85 **DRAFT**v1 TRANSMITTAL MEMORANDUM The City is also a member of a Joint Powers Authority called Central Coast Community Energy (3CE) which sources clean and renewable electricity at competitive prices for the community and is delivered through the grid by PG&E. CCCE follows a Community Choice Aggregator or “CCA” model, a community-focused, “not-for- profit” model that allows for greater commitment to clean and renewable energy while supporting community reinvestment for affordable and fair rates and equitable access to clean-energy resources. It is locally controlled and governed by board members who represent the communities served by 3CE. Becoming a member of 3CE was an integral part of the City’s Major City Goal for Climate Action. For more information visit: www.3cenergy.org Budgetary Policy and Control Though the City adopts a two-year Financial Plan, annual budgets are legally appropriated by the City Council by resolution and are prepared for each fund in accordance with its basis of accounting. As provided under the City Charter, the City Manager is responsible for preparing the budget and for its implementation after adoption. Financial reports are presented to the City Council and posted online on a quarterly basis. At mid-year, staff prepares a more in-depth status report for the City Council for the first six months of the fiscal year in addition to any fund balance information and long-term forecast based on the audited annual comprehensive financial report. Since the City uses a two-year Financial Plan, operating appropriations not expended during the first year may be carried forward into the second year for specific purposes with the approval of the City Manager. When applicable, these amounts are shown as assigned for subsequent year expenditures in the financial statements. At the end of the second year of the two-year plan, operating appropriations lapse unless they are committed by contract or purchase order. Multi-year budgets are adopted for capital projects as necessary but revert to fund balance after three years of non-activity. The City Council has the legal authority to amend the budget at any time during the fiscal year. The City Manager has the authority to make administrative adjustments to the appropriated budget if those changes will have neither a significant policy impact nor affect budgeted year-end fund balances. The City's budgetary policies are more fully described in Note 1 of the financial statements. Expenditure and budgeting details are maintained by the City for each fund and department by program area at the line-item level. Budgetary control is exercised through a computerized Enterprise Resource Planning (ERP) system, which interfaces with the City's general ledger. The system maintains an ongoing record of budget balances throughout the year based on actual expenditures and purchase order obligations. Open purchase orders at year-end are reported as assigned fund balance. The ERP system also maintains the City’s list of fixed assets. It is the City's policy to maintain an operating reserve in the General Fund of at least 20% of operating expenditures which is reflected in the committed fund balance. This policy objective has been achieved for fiscal year 2021-22. The City maintains a similar policy for working capital balances in the water, sewer, and parking enterprise funds. The Fleet Replacement Fund reserve policy is $500,000 and the Information Technology (IT) Replacement Fund reserve policy is $400,000 which have been met for 2021-22. With the 2021-22 fiscal year, the City also adopted a capital reserve in its Capital Outlay Fund of 20% of budgeted capital investments from the Local Revenue Measure for the fiscal year. This reserve will be adjusted with each budget adoption, funded from the local transactions tax, and is reflected in the Capital Outlay Fund. x 86 **DRAFT**v1 TRANSMITTAL MEMORANDUM FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operated in 2021-22. Ongoing Global Pandemic Though a gradual re-opening began in Spring of 2021, the City Council adopted its two-year Financial Plan for 2021-23 and the 2021-22 budget considering the effects of the worldwide pandemic brought on by COVID-19. Given the ongoing uncertainty regarding economic recovery, workforce reintegration and beginning issues with supply chain shortfalls, the budget approach, while cautiously optimistic based on better than anticipated results in 2020-21, remained relatively conservative in its forecasting. However, the investments into the adopted major city goals remained strong and concentrated on assisting the community with the recovery from the depth of the pandemic as well as addressing emerging trends and needs. The following goals were adopted, and specific work programs implemented to deliver on the community’s ambitions: Economic Recovery, Resiliency & Fiscal Sustainabiltiy Diversity, Equity, Inclusion Housing and Homelessness Climate Action, Open Space, and Sustainable Transportation As the year unfolded, the City’s major revenue sources continued to recover and grow, providing a much- improved fiscal outlook and the City’s ability to deliver on goals and objectives, as well as certain deliverables set forth in the adopted Fiscal Health Response Plan that stipulated significant additional payments toward the City’s unfunded pension liability. Several other factors played into the City’s financial condition throughout the year and at 2021-22 year-end: 1.Strong tax revenue including increased levels of Sales and Use Tax, Property Tax as well as record high Transient Occupancy Tax. The 2020 voter approved local transaction tax went into effect on April 1, 2021, and FY 2021-22 was the first full fiscal year with the increased tax rate. This local revenue measure has now become the City’s largest single tax revenue. The revenue picture forming during the first six months of the fiscal year allowed for significant adjustments at mid-year to address community needs and emerging issues in a timely fashion and as they were developing. 2.State & Local Fiscal Recovery Funds under the American Rescue Plan Act (ARPA). The Congressional American Rescue Plan Act approved $350 billion for state, local, territorial, and Tribal governments in form of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As an entitlement city, San Luis Obispo received $13.5 million in funding directly from the U.S. Treasury. The funding was received on July 6, 2021 and June 30, 2022, respectively. The City will use $10 million of the funding to replenish the revenue loss experienced in 2020 and pay for general government services. The remaining funding will be used in accordance with the U.S. Treasury Final Rule and was approved by the City Council via the 2022-23 Budget Supplement resolution in June 2022. None of the funding was used in FY 2021-22 and remains available for spending through 2026 per Council action which is as follows: xi 87 **DRAFT**v1 TRANSMITTAL MEMORANDUM 3.Emerging Needs & Investment in Homelessness response and Diversity, Equity, and Inclusion The City’s two-year Financial Plan invested in response to homelessness and housing and well as Diversity, Equity, and Inclusion through Major City Goals and extensive work programs to fulfill the objectives adopted by the City Council. Due to the City’s fiscal outlook at mid-year, further investments were possible, and the adopted budget amended. The following are examples of the investments with the full report available at: Mid-Year 2021-22 Downtown Safety Enhancements Capital $375,000 Crisis Communication Planning Operating $50,000 Mission Plaza Landscape & Lighting Capital $120,000 Convert Mobile Crisis Unit to Permanent4 Operating $- Railroad Square Safe Parking Operating $64,633 Public Safety Customer Engagement Operating $17,000 Additional Pressure Washing Operating $25,000 Central Resident Inquiry Platform Operating $40,000 Additional Fire Inspection Personnel Operating $33,410 The total budget augmentation amounted to $8.3 million including a $3.9 million grant to the SLO Rep Theater for the new theater location on Monterey and Palm Street. Of the additions, $6.7 million were one-time investments and do not have an ongoing budgetary impact. Throughout the 2021-22 Fiscal Year, the City organization was asked to remain flexible and adjust to the changing conditions that the pandemic and continued directives, as well as the re-opening of business and travel activities presented. The local colleges returned to in-person sessions; all indicating a “normalization” of economic and service activities. Some of the programs implemented the previous year continued such as sidewalk dining, the tenant improvement program, shop local promotions, augmented childcare options, and virtual holiday activities. 4 The Mobile Crisis Unit was fully budgeted in FY2021-22 and this action integrated it into the budget ongoingly. xii 88 **DRAFT**v1 TRANSMITTAL MEMORANDUM For additional information regarding the City’s ongoing investments in the City’s economic vitality please visit: https://www.slocity.org/business/economic-development. Economic Indicators for San Luis Obispo in General Local Economic Environment Historically, and prior to the pandemic-driven conditions, the City has experienced a relatively stable economy, largely insulated from economic downturns in other parts of the State or the nation due to major State and federal employers such as the California Polytechnic State University (Cal Poly), California Men’s Colony, California Department of Transportation (Cal Trans) District 5 offices, the Regional Water Control Board, and Camp San Luis. It is also the County seat with significant county administrative offices and the regional courts. Employment. Due to the local economic environment and a large government presence and diversity, employment in the San Luis Obispo County region has historically been relatively stable. As noted above, the State has a major university, correctional facility, and other regional offices located in the community. The County government and school districts are also major employers. Other major employers include two major hospital facilities, several engineering and software companies, and Pacific Gas and Electric. The announcement to prolong the use of the Diablo Canyon Nuclear Power Plan presents an opportunity to continue jobs for trained professionals in the region. Of course, the historically solid base of employment in the County was not immune from the impacts of the pandemic; especially due to the full closure of Cal Poly and the change in the hospitality industry that relies on the student population. The California Employment Development Department (EDD) reported the unemployment rate in San Luis Obispo County at 11.5% in June 2020, down from a high of 14.8% in April 2020 and the height of the “stay at home” orders. However, after July 2020, the unemployment rate started to trend downward and with the gradual reopening, renewed travel activity, and the return of the colleges to on-campus teaching, the unemployment rate went from 5.5% in July 2021 to 2.6% at the end of the fiscal year according to the U.S. Bureau of Labor Statistics. Key Revenue Sources. As the commercial, governmental, and cultural hub of San Luis Obispo County, the City is fortunate to attract a diverse array of strong revenue sources. The top three revenue sources for the City are Sales & Use Tax, Property Tax, and Transient Occupancy Tax (TOT). The 2020 voter approved local transaction tax of one-and-a-half cent (Local Revenue Measure) went into effect in April 2021 to provide for an array of City services including infrastructure. In just over one year, this Local Revenue Measure has become the largest single tax revenue to the City, growing from $12 million to over $29 million. Of additional note in this fiscal year is the return of travel activity, especially for a drive-to market such as the City of San Luis Obispo. As people began enjoying time away from home, the City’s tourism industry bounced back and reached levels of activity not seen before. The related TOT ended the year well above the anticipated budget at its highest level to date at $10.6 million. All in all, the City’s Sales Tax revenue, strengthened by the new Local Revenue Measure, ended the year well above the adopted budget. Property Tax remained strong and experienced a further increase over previous fiscal years. The City’s fee revenues mostly provided the budgeted cost recovery, but development activities, though still strong, lagged and had to be adjusted downward. xiii 89 **DRAFT**v1 TRANSMITTAL MEMORANDUM Long-Term Financial Planning. The City engages in a number of activities focused on long-term financial planning to gauge and adjust to current economic conditions and trends. Different scenarios are developed considering a multitude of information and resources. This effort was even more elaborate in FY 2021-22 due to the uncertainties surrounding the pandemic and gradual re-opening to pre-pandemic activity and assisted the City’s response to the unprecedented economic environment. Long-Term Fiscal Forecast. Before the two-year Financial Plan and budget process begins, the City Council reviews long-term fiscal forecasts for the General and the Enterprise Funds to help set the stage for sustainable decision-making. The purpose of the forecast is to consider long-term fiscal health and to identify the funds’ ability – on an order of magnitude basis – to maintain current services and existing assets and look at the opportunity to fund new initiatives. The 2022-27 forecast was completed in April 2021, before the City Council considered the 2021-23 Financial Plan. The City continued its cautiously optimistic approach given the multitude of remaining uncertainties, but due to a much better fiscal standing was able to adjust the budget at mid-year with a multitude of efforts to address community needs and further investments to assist with economic vitality after the depth of the pandemic. For more information on the Council action at mid-year 2021-22, please visit: 2021-22 Mid-Year Report. CalPERS and the City’s Unfunded Liability With the 2018-19 three-year Fiscal Health Response plan, the City had prepared a path to pay-down the City’s pension liability over a 20-year term, shortening the duration of prescribed payments and saving around $19 million in payments due. It did so by aligning its expenditures with the revenue forecast that would allow for additional annual payments. A first payment of $4.2 million was made in April 2019 and a second payment of equal amount was scheduled for April 2020. Due to the state of the health emergency, the City Council decided to retain any unassigned fund balance until the fiscal situation could be better assessed. It did so again in February 2021 when the next payment of $3 million was scheduled and uncertainties with pandemic driven restrictions continued. Given the City’s commitment to the additional payments and the year-end results, the previously earmarked amounts for the past three fiscal years were paid through unassigned fund balance, making good on $10.2 million in additional funding toward the City’s pension liability. An additional $2.2 million was paid through the City’s four enterprise funds as well as the Whale Rock Reservoir custodial fund and Tourism Business Improvement District Fund. In July 2021, CalPERS announced having ended the 2020-21 Fiscal Year with a 21.3% investment gain. This result triggered the previously adopted Risk Mitigation policy, lowering the future discount rate to 6.8%. The CalPERS board ratified the discount rate in November 2021, and it will become effective for the City with the 2023-24 fiscal year. Given this new reality, further influenced by a 6.1% investment loss at June 30, 2022, staff is reviewing its long-term strategy to gauge the appropriate level of additional payments moving forward and plans on including the strategy as a fiscal policy going forward. FINANCIAL CONDITION OVERVIEW Despite the background of economic uncertainty, changes in doing business, as well as new challenges stemming from the pandemic, the City ended the fiscal year 2021-22 in a better fiscal position than originally anticipated. All major revenue sources recovered or exceeded pre-pandemic levels and service fees recovered with the re- opening of venues and an immediate bounce back once restrictions were lifted. Though the Fiscal Health Contingency Plan was deactivated with the new Financial Plan, it assisted greatly in counter-acting the situation during the depth of the pandemic and allowed the City to invest in the community and situate it perfectly for an xiv 90 **DRAFT**v1 TRANSMITTAL MEMORANDUM immediate recovery. The ultimate fiscal result was greatly supported by the additional local transaction tax that was in effect for the first full year in FY 2021-22, generating an additional $19 million in General Fund revenue. At June 30, 2022, the total General Fund balance was $40.7 million; a decrease of $6 million over 2020-21 despite the additional $10.2 million payment to CalPERS. This decrease was deliberate and funded a variety of one time costs such as pilot programs to address homelessness. Additionally, the City continued investing heavily in the economic vitality of the community and made substantial investment at mid-year to address emerging needs as well as new challenges such as labor and supply chain shortages. The table below shows the levels of fund balance in accordance with GASB 54 and the City’s policy pertaining to fund balance assignments. Fund Balance & Reserve Policy General Fund – Fund Balance per June 30, 2022 Non-spendable $90,797 Committed Contingency Fund – 20% policy level $12,014,000 General government programs $5,696,864 Risk Management $1,845,935 Assigned to: Encumbrances SLO Rep Theater grant $4,270,529 $3,940,000 115 Trust Fund $2,000,000 CalPERS Payment $2,000,000 Development Services $530,657 Unassigned $8,356,724 Total Fund Balance $40,745,506 Continue to Focus on Sustainability and Long-term Fiscal Health With its Major City Goal for Economic Recovery, Resiliency & Fiscal Sustainability, the City continues its commitment to long-term fiscal health. The goal program aims to, in collaboration with local partners, continue to assist with economic recovery for all from the pandemic and sustain a thriving local economy by supporting local businesses, arts and culture, downtown vitality. It commits to practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure. Revenue Base Growth. Since the Great Recession, the US had experienced an unprecedented long-term expansion that continued into the latter part of 2019-20. Sales tax (including the local Transaction tax), Property Tax and Transient Occupancy Tax (TOT) had accounted for 69% of all funding sources in the General Fund. All of these revenues showed slow but steady growth over the past several years with Property Tax seeing the largest increase. However, all of this came to an abrupt halt with the onset of COVID-19 and the resulting global pandemic that placed the national and local economy on temporary halt. The forecast was uncertain as the pandemic ultimately influenced the entire 2020-21 fiscal year. However, quick action by Congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, and protection from rent and utility payments, lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The beginning trends of xv 91 **DRAFT**v1 TRANSMITTAL MEMORANDUM the migration to online shopping were accelerated and sales tax revenue did not see the originally anticipated decline. Property tax remained strong as the real estate market continued to deliver. Tourism did clearly take a hit but continued to see activity and bounced back due to pent-up demand in the last quarter into the summer months. Development related fee revenue continued to see significant growth as development activity remained at unprecedented levels in the City, with two Community Facilities Districts beginning construction and housing continuing as a major City goal. These trends largely continued to accelerate during FY 2021-22 with travel activities returning strongly, retail shopping re-discovered, and housing markets retaining momentum. Only development began to tighten due to inflationary pressures and resulting monetary policy from the Federal Reserve to counter-act inflation. Labor shortages as well as supply chain challenges began to take a toll in the third quarter of the Fiscal Year and will be influencing the second year of the Financial Plan greatly. Containment of Operating Costs. The City’s efforts to control costs are ongoing while also addressing the need to remain an attractive employer and provide the services the community expects. The City has an extensive policy framework that allows immediate and nimble action to address adverse changes in economic and fiscal condition and will continue to activate as needed. The City’s implementation of a 2nd and 3rd tier retirement benefit program continues to change the City’s annual retirement contributions as 72% of the workforce is now enrolled in those retirement plan tiers. This is an increase of 15% over last year. These actions have been instrumental in helping the City contain current costs and long-term liabilities related to retirement benefit programs; furthermore, two of the City’s bargaining units as well as the Management & Confidential group pay additional contributions toward the City’s pension obligation. Infrastructure and Facilities Maintenance. As a growing city, San Luis Obispo has seen the need for capital expenditures grow steadily over the past decade. The need to maintain, repair or replace its current infrastructure is met with the need to build amenities for the community at large and the City’s Local Revenue Measure plays a vital part. The City plans on using 75 to 85% of the revenue for infrastructure improvements and enhancements and the Public Works department is gearing up to deliver the projects. For a list of projects delivered in FY 2021- 22 see page 5 in the Management Discussion and Analysis. The funding is allocated to projects in coordination of a number of adopted plans including the General Plan, Bicycle Transportation Plan, Downtown Concept Plan, and Mission Plaza Concept Plan. Each plan represents hours of community input and a vision to maintain and improve San Luis Obispo now and into the future. Ongoing Commitment to Local Transaction Tax Measure Priorities (Local Revenue Measure) The City remains committed to the priorities for the use of the local transaction tax measure as identified by the community. They include public safety, senior services, code enforcement, neighborhood street paving, open space preservation, traffic congestion relief and flood protection. The following table summarizes how the local transaction tax measure funds were used during fiscal year 2021-22. The voter approved increase took effect on April 1, 2021, and the table below reflects the first complete year with the new level of Local Revenue Measure in place and revenue amounting to $29 million. Total uses of the funding during 2020-21 amounted to $32.5 million, with an additional $2 million encumbered through purchase orders or contracts; the remaining balances of these resources are designated for future year expenditures. A more detailed schedule of local transaction tax measure sources and uses is provided in the Financial Section of this report beginning on page 123. xvi 92 **DRAFT**v1 TRANSMITTAL MEMORANDUM Local Sales Tax Measure Revenue & Uses Summary 2021-22 Revenues: Sales and use tax - Measure G add-on tax $ 29,172,258 Use of money and property ($283,748) Total Revenues $28,888,510 Uses: Operating Programs ($6,912,660) Capital Projects ($25,578,957) Total Uses ($32,491,617) Change in Fund Balance ($3,603,107) Prior Sales Tax Measure Balance $9,299,971 Encumbered or designated for carryover for future year expenditures ($1,958,912) Net available for future year appropriations (note 1) $ 3,737,952 Note 1: Council took action on October 4, 2022 (R-11367) to allocate $2.1 million of the available fund balance *Detail of transfers and expenditures is included with other supplementary information in the financial statements, which can be found beginning on page 121. RELEVANT FINANCIAL POLICIES The City of San Luis Obispo has adopted a comprehensive set of budget and financial policies to provide guidance for all fiscal matters and resource allocations. The policies are reviewed, amended, and updated with each Financial Plan adoption and as needed throughout the year. The policies cover virtually every aspect of financial management but several of these policies are particularly relevant to the understanding of the City’s financial performance in 2021-22. Debt Administration Policies The City’s Capital Financing and Debt Management policies contain general guidelines for refinancing of outstanding debt. These guidelines call for periodic review of all outstanding debt to determine refinancing opportunities, particularly to create economic benefit such as lower debt service payment or reduction of principal. The City always evaluates various options when considering the issuance of debt in order to benefit from the best long-term terms and conditions. Information on the City’s outstanding debt issues and other long-term liabilities is provided in Note 7 in the notes to the financial statements. In February 2022, Fitch Ratings, a nationally recognized statistical rating organization, reviewed the City’s financials, its fiscal outlook, and the current rating. On February 22, 2022, Fitch Ratings subsequently concluded that there should be no change to the existing rating at AA+ with a stable rating outlook. Fitch Ratings’ long xvii 93 **DRAFT**v1 TRANSMITTAL MEMORANDUM term credit ratings are assigned on an alphabetic scale from AAA to D. The City’s AA+ bond rating means that the City’s investment grade is “quality”. Specifically, current lease revenue bonds (LRBs) issued by the San Luis Obispo Public Financing Authority remain at an 'AA’ rating and the LRBs issued by the City of San Luis Obispo Capital Improvement Board at an 'AA' rating. At this time, the City of San Luis Obispo has no general obligation debt. Fitch Ratings’ analysts had previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city's capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.” Budgetary Policies The City of San Luis Obispo has a policy that requires the adoption of a balanced budget over the two-year period of the Financial Plan. This means that operating revenues must fully cover operating expenditures, including debt service. Additionally, ending fund balance (or working capital in the enterprise funds) must meet minimum policy reserve levels. Under this policy it is allowable for total expenditures to exceed revenues in any given year but only when fund balance is used to pay for capital improvement plan projects or other “one-time,” non-recurring expenditures. Fund Balance and Reserve Policies The City’s policies recognize the importance of long-range planning in managing the City’s fiscal affairs in order to provide for stable operations, promote more orderly spending patterns, and assure the City’s long-term fiscal health. The reserves contained in the General Fund and Enterprise Funds play a pivotal role in this strategy. The reserve policies call for a minimum fund balance of at least 20% of operating expenditures in the General Fund and a working capital level of 20% of operating expenses in the Water, Sewer, and Parking Enterprise Funds. The policies also require the Fleet Management and Information Technology Replacement Funds to provide for the timely replacement of vehicles and equipment as well as IT equipment and software and a reserve is retained in these funds to safeguard against unforeseen and unfunded issues. All reserve policies continue to be met. To further strengthen the Water and Sewer fund against revenue fluctuations, both funds carry a Rate Stabilization reserve of 10% of sales revenue for Water and 5% of sales revenue for Sewer. Long-Term Liabilities and Maintenance of Infrastructure With the 2017-19 Financial Plan, the City began to incorporate the use of one-time funds above policy reserve to unfunded pension liabilities and infrastructure into the City’s fiscal policies. Additionally, the City began addressing the long-term needs of its capital assets and categorizing asset maintenance, asset replacement, and new assets driven by new development. The City Council received a first presentation of the long-term needs of its infrastructure in early 2018 and the assessment continued into FY 2019-20 with the beginning stages of the SLOForward effort. It culminated in the City Council’s decision to place a measure on the November 2020 ballot for a 1.5 cent local transaction tax measure to supplant the 2006 enacted half-cent measure. The measure was successfully approved by 58% of the voters and the new local transaction tax went into effect on April 1, 2021. The immediate increase in this revenue stream is part of the favorable financial condition of the City at fiscal year-end and greatly assisted in additional economic recovery efforts at the tail end of the COVID19 restrictions xviii 94 **DRAFT**v1 TRANSMITTAL MEMORANDUM and continued investment in the City’s extensive infrastructure. This Local Revenue Measure has now become the City’s largest tax revenue and the City remains committed to the majority of the funds being used to maintain, replace, and renew its growing infrastructure needs. Pension and Other Post-Employment Benefits The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multiple- employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. The amount of the City’s required annual contribution is determined actuarially and is reported to the City via the Annual Valuation Reports provided by CalPERS for each retirement plan. It is the policy of the City to fully fund the annual contribution to ensure that the plan will fully meet its obligation to retired employees on a timely basis. Prepaying the City’s unfunded liability will also reduce overall annual cost depending on whether approved actuarial assumptions are realized and are not adjusted by the CalPERS Board. As part of its cost reduction strategy, the City has implemented 2nd Tier and the state mandated 3rd Tier retirement benefit programs for new hires while also requiring all employees to pay at least the full amount of the member share of the annual retirement contribution. Beginning in 2018-19, and increasing in 2019-20, the City negotiated further concessions with employee groups to pay into CalPERS which will help lessen pension impacts to the City’s budget. The City continues to monitor legal developments and legislation that could positively or negatively impact the City’s finances and plans to counteract any adverse investment results with additional payments to CalPERS. The City has also established a Section 115 Trust fund with the California Employer’s Pension Prefunding Trust (CEPPT), and based on the audited financials, plans on making its first contribution of $2.4 million in FY 2022- 23. xix 95 **DRAFT**v1 TRANSMITTAL MEMORANDUM All employees currently pay the full employee contribution and the additional contributions agreed to are listed in the chart below: Police (Sworn) Employee Contribution Levels to PERS Retirement (Percent of Salary) Safety PERS Tier Jul-20 Tier 1 (3% @ 50) 15% Tier 2 (2% @ 50) 15% Tier 3 (2.7% @ 57) 16.75% Police (Non-Sworn) Employee Contribution Levels to PERS Retirement (Percent of Salary) Miscellaneous PERS Tier Jul-20 Tier 1 (2.7% @ 55) 14% Tier 2 (2% @ 60) 13% Tier 3 (2% @ 62) 10% Fire (Sworn) Employee Contribution Levels to PERS Retirement Safety PERS Tier Jul-20 Tier 1 (3% @ 50) 12% Tier 2 (2% @ 50) 12% Tier 3 (2.7% @ 57) 16.75% Employee Contribution Levels (includes appointed officials, department heads, unrepresented management, unrepresented confidential and non-sworn fire employees) to PERS Retirement Miscellaneous PERS Tier Jul-20 Tier 1 (2.7% @ 55) 11% Tier 2 (2% @ 60) 10% Tier 3 (2% @ 62) 10% Other Post-Employment Benefits (OPEB). The City’s primary OPEB cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program under the “unequal contribution option.” When the City joined the CalPERS health plan in 1993, it immediately experienced an increase in the plan choices available along with a significant reduction in rates. Due to CalPERS purchasing power, the City continues to experience competitive health care rates. However, as a condition of joining the CalPERS health program, the City agreed to contribute the minimum monthly amount required by law towards retiree health care xx 96 **DRAFT**v1 TRANSMITTAL MEMORANDUM coverage for both active and retired employees. This allows retired employees to purchase health insurance at the same rate offered to active employees. Additionally, the City had established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000. There is only one employee remaining who receives one-half of the retiree health insurance premiums paid by the City through the City's group health plan. This provision ceases upon the death of the retired employee or upon the retired employee reaching age 65. These OPEB benefits were financed on a pay-as-you-go basis in the past. As directed by Council in May 2008, the City began fully pre-funding the OPEB obligation via an irrevocable trust in 2008-09. Additional information on the City’s retirement and post-employment benefits can be found in Note 8 in the notes to the financial statements. MAJOR INITIATIVES The City continued its efforts on a number of significant initiatives in 2021-22 as adopted with the 2021-23 Financial Plan. As such, the Major City Goals drive the City’s strategic direction while maintaining the established core services the community expects and is accustomed to. For additional information on the City’s strategic initiatives go to 2021-23 Financial Plan Economic Recovery, Resiliency & Fiscal Sustainability In collaboration with local partners, continue to support economic recovery for all from the COVID pandemic and support a thriving local economy by supporting local businesses, arts and culture, downtown vitality, practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure. Housing and Homelessness To expand housing options for all, continue to facilitate the production of housing, including the necessary supporting infrastructure, with an emphasis on affordable and workforce housing. Collaborate with local non-profit partners and the county, the state, and federal governments to discover and implement comprehensive and effective strategies to reduce chronic homelessness. Diversity, Equity, Inclusion (DEI) In response to our commitment to making San Luis Obispo a more welcoming and inclusive city for all, continue to develop programs and policies to support diversity, equity, and inclusion initiatives and advance the recommendations of the DEI Task Force. Climate Action, Open Space, and Sustainable Transportation To proactively address the climate crisis, continue to update and implement the Climate Action Plan for carbon neutrality, including preservation and enhancement of open space and the urban forest, alternative and sustainable transportation, and planning and implementation for resilience. xxi 97 **DRAFT**v1 TRANSMITTAL MEMORANDUM GASB Pronouncements for FY 2021-22 GASB Statement No. 87 - Leases This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. More detail is provided under Note 6 in the Financial Statements that follow. GASB Statement 97 – Certain Component Unit Criteria, and Accounting & Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. As disclosed in Note 10, the City’s 457 plans do not meet the definition of a pension plan as they are voluntary contribution plans available to employees who choose to contribute and have no required City contribution. AWARD FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its ACFR for the fiscal year ended June 30, 2021. The Award Program The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of State and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized annual comprehensive financial report whose contents conform to program standards. This report must satisfy both U.S. generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. The City has received a Certificate of Achievement each year since 1984. Staff believe that the City’s current ACFR continues to conform to the Certificate of Achievement program requirements and will submit it to GFOA to determine its eligibility for another certificate. xxii 98 **DRAFT**v1 TRANSMITTAL MEMORANDUM Value of Program Participation. There are benefits to participating in these programs beyond simply receiving recognition for the City’s efforts. For example, by striving to meet program standards and goals, the City produces better reports. Additionally, as part of the review process, comments for improvement from other municipal finance professionals who review the reports from a “fresh” perspective are received. Staff believes that this results in continuous improvements in reporting the City’s financial results to elected officials, staff, and other interested parties such as bondholders, credit agencies, and the public at-large. ACKNOWLEDGMENTS The preparation and development of this report would not have been possible without the year-round dedication of the Finance Department staff and their special efforts, working in conjunction with the City's independent auditors, to produce this document. We would like to take this opportunity to compliment all those staff members within the Finance Department and in the other departments as well as our independent auditors who were associated with the preparation of this report. We would also like to thank the City Council for the continued support and dedication in planning and conducting the financial operations of the City in a fiscally responsible and progressive manner. xxiii 99 **DRAFT**v1 DIRECTORY OF OFFICIALS AND ADVISORY BODIES CITY COUNCIL Erica A. Stewart Mayor Carlyn Christianson Vice Mayor Andy Pease Council Member Jan Marx Council Member Michelle Shoresman Council Member ADVISORY BODIES Active Transportation Committee Administrative Review Board Architectural Review Commission Construction Board of Appeals Council Compensation Committee Cultural Heritage Committee Housing Authority Human Relations Commission Investment Oversight Committee Mass Transportation Committee Parks and Recreation Commission Personnel Board Planning Commission Promotional Coordinating Committee Revenue Enhancement Oversight Commission Tourism Business Improvement District Board Tree Committee APPOINTED OFFICIALS AND DEPARTMENT HEADS Appointed Officials Derek Johnson City Manager J. Christine Dietrick City Attorney Department Heads Shelly Stanwyck Assistant City Manager Greg Hermann Deputy City Manager Michael Codron Director of Community Development Brigitte Elke Director of Finance Keith Aggson Fire Chief Nickole Domini Director of Human Resources Richard Scott Police Chief Aaron Floyd Director of Utilities Greg Avakian Director of Parks & Recreation Matt Horn Director of Public Works xxiv 100 **DRAFT**v1 MISSION STATEMENT SAN LUIS OBISPO STYLE Quality with Vision WHO ARE WE? People Serving People A team that puts high value on each citizen it serves. Providers of programs that meet basic service needs of each citizen. Enhancers of the quality of life for the community as a whole. WHAT DO WE STAND FOR? Quality in all Endeavors – Pride in Results Service to the community – the best – at all times. Respect – for each other and for those we serve. Value – ensuring delivery of service with value for cost. Community involvement – the opportunity to participate in attaining the goals of the City. WHERE ARE WE GOING? Into the Future with a Design Planning and managing for levels of service consistent with the needs of the citizens. Offering skills development and organizational direction for employees in order to improve the delivery of municipal services. Developing sources of funding and establishing a sound financial management program which will result in fiscal independence and flexibility in the delivery of City services. Providing the residents of the City with accurate and timely information on issues which affect them, and encouraging the full utilization of City services. Promoting the City as a regional trade, recreational and tourist center and improving the quality of life for residents and visitor. xxv 101 **DRAFT**v1 ORGANIZATIONAL VALUES We, as an organization, embrace opportunities to improve our services and the quality and effectiveness of our relationships with the community and our teams. The following values guide and inspire our efforts. Shared Vision, Mission and Goals We have a sense of common purpose and direction pursued with passion and translated into concrete actions. Service We are dedicated to the best use of resources to fulfill identified community goals and needs. Leadership and Support We recognize that the ability to lead can be found at all levels and that to create an environment to succeed requires leading by example. Communication We foster open and clear discussion that encourages the willingness to speak up and to listen, within a framework of respect and understanding. Team Players We encourage effective working relationships within and between departments and the public to address issues and achieve valuable results. Honesty, Respect and Trust We honor commitments, acknowledge legitimate differences of opinion and accept decisions reached with integrity. Initiative and Accountability We take personal responsibility to do what needs to be done and report the results in a straightforward manner. Innovation and Flexibility We are open to change and willing to try new ways to fulfill the organization’s vision, mission, and goals more effectively. xxvi 102 **DRAFT**v1 Employee Development and Recognition We encourage and support each employee to improve relevant job skills and celebrate personal and team accomplishments. Stewardship and Ethics We promote public trust by using City resources wisely, and through consistent fulfillment of these values. xxvii 103 **DRAFT**v1 Patrol Fire, Medical & Haz Mat Natural Resources Recruitment Assistant City Manager Traffic Safety Emergency Response Economic Development Labor Relations Investigations Hazard Prevention Cultural Activities Fair Employment Neighborhood Services Fire Inspections City Clerk Services Risk Management Animal Regulation Disaster Planning General Administration Human Relations Information Technology GIS Management Budget Recreation Programs Water Engineering Long Range Planning Purchasing Ranger Services Sewer Transportation Development Review Accounting & Revenue Park Planning Utilities Resource Creek & Flood Protection Building & Safety Support Services Golf Course Conservation Maintenance Services:CDBG Administration Finance Administration Public Art Whale Rock Reservoir Streets, Parks, Bldgs Housing Community Development Administration Dept Reporting to the Assistant City Manager Utilities Human Resources Parks & Recreation Public Works Community Services RESIDENTS ADVISORY BODIES CITY MANAGER MAYOR & CITY COUNCIL DeptAppointed by the City Council Appointed by the City Manager CITY ATTORNEY Police Fire Finance xxviii 10 4 ** D R A F T * * v 1 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of San Luis Obispo California For its Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2021 Executive Director/CEO xxix 105 **DRAFT**v1 xxx 106 **DRAFT**v1 FINANCIAL SECTION xxxi 107 **DRAFT**v1 xxxii 108 **DRAFT**v1 INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Report on the Audit of the Financial Statements Opinions We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of San Luis Obispo, California (City) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. In our opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management for the Financial Statements The City’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 109 **DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 2 In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control– related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, pension plan and OPEB plan information on pages 5-31 and 103-120 be presented to supplement the basic financial statements. 2 110 **DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 3 Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The local sales tax measure funding schedule, combining and individual nonmajor fund financial statements and budgetary comparison schedules, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules on pages 123-159 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory and statistical sections but does not include the financial statements and our auditor's report thereon. Our opinions on the financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. 3 111 **DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2021, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Badawi and Associates, CPAs Berkeley, California December 20, 2022 4 112 **DRAFT**v1 Management’s Discussion and Analysis Overview of the Financial Statements The discussion and incorporated analysis in this document are intended to serve as an introduction to the City’s basic financial statements, which include the following components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to financial statements. This report also contains required supplementary information (RSI) as well as other supplemental financial information. Government-wide Financial Statements. This set of statements is designed to provide readers with a broad overview of the City’s finances, in a manner similar to private-sector business reporting. The Statement of Net Position presents financial information on all the City’s assets/deferred outflows of sources and liabilities/deferred inflows of sources, with the difference reported as net position. In the private sector, it is similar to a balance sheet. Over time, increases or decreases in net financial position may serve as a useful indicator of whether the financial position of the City is improving or declining. In conformance with GASB 68, the Statement of Net Position reported for fiscal year 2021-22 considers the City’s long-term pension liabilities, effectively decreasing the City’s net financial position. The Statement of Activities presents changes in the government’s net position during the most recent fiscal year. All changes in net position are reported during the period when the underlying events giving rise to the change occur, regardless of the timing of the related cash flow. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenue pertaining to uncollected taxes. The City’s government-wide financial statements distinguish the functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their cost through user fees or that are required by grantor agencies or City policies to be accounted for in this fashion (business-type activities). The governmental activities include: (1) public safety, (2) transportation, (3) leisure, cultural and social services, (4) community development and (5) general government support services such as legal services, elections, human resources, risk management, finance, and information technology. The business-type activities of the City include: (1) water, (2) sewer, (3) parking operations and the (4) transit program. As required by U.S. Generally Accepted Accounting Principles (GAAP), these financial statements present the City (the primary government) and its component units (entities for which the government is considered to be financially accountable). Blended component units, although legally separate entities, are in substance, part of the government's operations and data from these units are combined with data of the primary government. The San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority are reported as blended component units in these statements. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement 5 113 **DRAFT**v1 Management’s Discussion and Analysis Board or San Luis Obispo Public Financing Authority. The City has no component units that require discrete presentation in accordance with Governmental Accounting Standards Board (GASB) standards. Pension Obligation. Pursuant to GASB Statement No. 68 (GASB 68), Accounting and Financial Reporting for Pensions, the City reports on the unfunded pension liability on the full accrual basis of accounting in the government- wide financial statements. The reports also include note disclosure requirements and supplementary schedules as required by GASB 68. The measurement date for fiscal year 2021-22 pension liabilities is as of the fiscal year ended June 30, 2021. This date reflects a one-year lag and was used so that these financial statements could be issued in an expedient manner. Activity (i.e., contributions made by the City) occurring during fiscal year 2021-22 are reported as deferred outflows of resources in accordance with GASB Statement No. 71. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: (1) governmental funds, (2) proprietary funds, and (3) fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information reflects financial resources available in the near future to finance the City’s programs. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financial decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds organized according to their purpose (general, special revenue, debt services, and capital projects). Information is presented in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances. The General Fund and Capital Outlay Fund are both considered major funds. Data from the non-major governmental funds are combined into one aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements in the supplementary information section in this report. Of the major funds, the City adopts an annual appropriated budget for the General Fund. A budgetary comparison statement has been provided as required supplementary information to demonstrate compliance with the budget. Budgetary information for non-major governmental funds with annual budgets has been provided with the fund financial statements in the supplementary information section in this report. Proprietary Funds. Proprietary funds are generally used to account for services for which the City charges customers; either outside customers or internal units/divisions of the City. Proprietary funds provide the same type of information as shown in the government-wide financial statements, only in more detail. 6 114 **DRAFT**v1 Management’s Discussion and Analysis The only type of proprietary fund the City maintains is enterprise funds. The Water, Sewer, Parking, and Transit Funds are presented as business-type activities in the government-wide financial statements. The City considers all four of its enterprise funds to be major funds. Fiduciary Funds. Custodial funds are the only type of fiduciary funds maintained by the City. These are used to account for resources held for the benefit of parties outside the primary government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. An example of a custodial fund may include donations provided to the City to be utilized for specific purposes as well as other funds held in trust of another entity to be utilized for a specific purpose. A specific example is the Hazardous Materials Task Force Fund, created to provide special fire services around the County, which is funded by multiple county and city agencies. The accounting used for fiduciary funds is much like that used for proprietary funds. The Custodial Funds are presented with the fund financial statements in the supplementary information section. Notes to the Financial Statements. The notes provide additional information that is essential to the reader for a full understanding of the data provided in the government-wide and fund financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information including budgetary comparison schedules, reporting of the local transaction tax measure (Measure G and G-20) and more detailed information concerning the City’s net pension liability, schedule of contributions to the pension plan and progress in funding its obligation to provide other post-employment benefits (OPEB). Statistical Information. The statistical section presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information indicates about the City’s overall financial health. This information has been adjusted over time to also serve as required bond disclosure information. 7 115 **DRAFT**v1 Management’s Discussion and Analysis The Financial Year in Review The following information provides a narrative overview and analysis of the financial activities of the City of San Luis Obispo (City) for the fiscal year that ended June 30, 2022. It should be read in conjunction with the accompanying transmittal memorandum and the basic financial statements. The 2021-22 City budget, representing the first of the two-year adopted Financial Plan, was prepared just when the gradual re-opening of the economy began to take shape. In many ways, FY 2021-22 therefore marked a transition year for the City organization. It restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role in finding a balance between the delivery of service and programs and capital infrastructure to serve a growing community and remaining an attractive employer in a rapidly changing and dynamic labor market; all trends that have become a part of the recovery from the pandemic and its influence on worldwide all the way to City economics. Year-End Expenditures – General Fund Overall, the General Fund finished the year in a positive position and experienced about 8% in net expenditure budget savings. The savings can be associated mainly with staffing vacancies as the overall labor market experienced the great “resignation/reshuffle”. In addition to the increased turnover due to labor market trends, the City also approved over 60 new positions with the 2021-23 Financial Plan to meet growing needs of the community and challenges related to Major City Goals. While most of these new positions were approved to hire on July 1, 2021 many were not hired until much later in the year due to the time required for recruitment. In some cases, the salary savings were re-purposed to hire temporary or consultant staffing to assist with the workload in the interim. FY 2021-22 also included a very ambitious Major City Goal work plan, and many efforts were not fully achieved by year-end due to the staffing vacancies and emerging priorities that emanated from factors outside the City’s control. While many factors account for annual budget fluctuations, the graph below provides a high-level illustration of the year-over-year growth in the General Fund Operating Expenditures. Prior to FY 2021-22, average operating budget growth hovered around 2.9% per year which was about 2.3% lower than the average annual CPI (Los Angeles Riverside) for the same period (5.2%). Growth spiked in FY 2021-22 due to a number of factors discussed below, thus increasing the six-year average to 4.8%. 1. The passage of Measure G-20 increased the local transaction tax from half to one-and-a-half cent. The local sales tax measure was approved to specifically offset increasing costs and the infrastructure needs of a growing city. While most of this new funding was allocated to the Capital Improvement Plan (CIP), there are also needs on the operating side to deliver the CIP and maintain the City’s growing infrastructure in addition to delivering a multitude of services and programs throughout the community. 2. A “catch-up” on costs of services. Over the 12 months ended June 2022, the Consumer Price Index for All Urban Consumers increased 9.1%. The 9.1% increase index was the largest 12-month increase since the 12- month period ending November 1981. FY 2021-22 includes some of these increases, but the base budget will increase even more significantly with the 2022-23 Budget. Economic Growth Tax RevenueCity Expenditures 8 116 **DRAFT**v1 Management’s Discussion and Analysis Mid-Year Adjustments Given the 2020-21 audited financial results and the better-than-anticipated revenue picture at mid-year, the City was able to immediately address emerging needs and make further investments in capital infrastructure and assets. The following adjustments need to be considered when looking at the Financial Statements and the required supplementary information and budgetary comparison schedules (page 103 – 108). GENERAL FUND One-time Budget Appropriations 2021-22 SLO Rep Challenge Grant Operating 3,950,000 Vehicles for New Maintenance Positions Capital 210,000 Bob Jones Bike Trail Vegetation Management Operating 25,000 Downtown Safety Enhancements Capital 375,000 Crisis Communications Planning Operating 50,000 Transfer of Mitigation Fee Payment Operating 10,000 Litigation Support Operating 120,000 Council Hearing Room - Auto Tracking Camera Operating 30,000 Covid Tests Operating 30,000 Golf Course Pro Shop Flood Damage Repairs Capital 275,000 Reimbursement Agreement for 600 Tank Farm Capital 1,545,000 Mission Plaza Landscape & Lightning Improvements Capital 120,000 Total $ 6,740,000 Several of these one-time investments bridged immediate and emerging needs that turn into longer-term funding obligations. They will have to be carefully reviewed and ongoing funding could require trade-offs the City Council and City Management will have to consider with the new Financial Plan. 9 117 **DRAFT**v1 Management’s Discussion and Analysis General Fund Operating Budget Additions1 FY 21-22 One-time Contingency: Benchmark Study Adjustments One-time 250,000 Part-time Fire Inspector (0.5 FTE) (Revenue Offset) Ongoing 11,025 Housing/Homelessness Contract Position Operating $40,000 Increased Mission Plaza Maintenance Ongoing $27,000 Additional Pressure Washing Ongoing $25,000 Additional Pruning/Watering Ongoing $200,000 Additional Streets Maintenance Staff Ongoing $60,750 CAPSLO Programming – Safe Parking One-Time $64,633 Centralized Resident Inquiry Platform Ongoing $40,000 Public Safety Customer Engagement Ongoing $17,000 Mobile Data Computers One-Time $14,200 Additional Farmers’ Market Support Ongoing $15,000 Contract Volunteer Coordinator P&R One-Time $32,850 Emergency Manager Ongoing $38,627 Parks Maintenance Beautification Gardener Ongoing $48,600 $884,685 Detailed department information and variances explanations can be found in the year-end report that the City Council considered on October 4, 2022 , but overall, the General Fund departments ended the year within the appropriated budget at $66.5 million . As mentioned above, many departments ended the year with significant savings due to vacancies. The overall expenditure actual of $87.3 million includes the CalPERS annual payment for unfunded liabilities as well as the Additional Discretionary Payment (ADP) of $10.2 million ($12.4 million when combining all funds) that was made in March 2022. This amount reflects three years’ worth of allocations as prescribed by the City’s Fiscal Health Response Plan. The payments were originally scheduled to be made annually but were delayed due to the onset of the pandemic and the ensuing uncertainties as to the revenue sources of the City to preserve liquidity to maintain its services to the community. The City Council therefore decided to leave the amounts earmarked annually in fund balance until such time that there was more certainty that the effects of the pandemic were largely mitigated, and the City’s overall financial condition allowed for the payment. Also included in the final expenditures are the contractual and purchasing commitments entered into in FY2021-22. This amount is subsequently marked as assigned fund balance as portrayed on page 38. Though the City Council could take action regarding these commitments, they are often tied to contractual obligations the City has or are connected to work efforts already under way. 1 The ongoing services and programs are fully integrated into the 2022-23 budget and the long-term forecast. 10 118 **DRAFT**v1 Management’s Discussion and Analysis * Shown separately in order to reflect a more accurate year-over-year comparison for departments. Line 17 includes the FY 2021-22 one-time $10.2 million additional down payment to CalPERS from the General Fund (R-11307). This cost is distributed annually between the departments based on calculated weights. Year-End Revenue – General Fund Sales and Use Tax Revenue: Sales and use tax revenue far exceeded the City’s (and its Sales Tax consultant’s) projections for the year. This is consistent with trends across the state. High consumer spending accelerated by savings accumulation and pent-up demand continued with the gradual opening of the economy, the return of students to in- class sessions, and renewed travel activity. High inflation through labor and supply chain issues intertwined with Federal Reserve monetary policy to counteract inflation and a war driving gas prices to all-time highs, all greatly impacted sales tax. A highly vulnerable revenue stream, sales tax remains a cautionary tale. Although unemployment rates remain low, fuel price instability, stock market woes, and rising consumer prices (as raw materials and components are more expensive) could further weaken consumer confidence and households will likely pull back on discretionary purchases as 2023 arrives. International supply chain issues show a steady recovery, but employee costs and labor shortages may impact future spending patterns, especially in the City’s tourism realm as household income realities catch up with pent-up demand from the pandemic lock-down. The graph below shows the change in sales tax by major business group for Q1 2022 (January-March 2022). For the full report, visit slocity.org/finance. FY 2020‐21 FY 2022‐23 Actual Budget Actual Funds Available % Budget 1 Internal Services 2 Administration/IT 7,060,343$ 9,758,782$ 8,720,808$ 1,037,974$ 11%9,620,216$ 3 City Attorney 897,198$ 1,395,133$ 1,357,168$ 37,965$ 3%1,132,935$ 4 Finance 1,533,386$ 1,999,107$ 1,878,681$ 120,426$ 6%2,010,387$ 5 Non‐dept, Support Services 1,528,100$ 1,689,430$ 647,282$ 1,042,148$ 62%2,912,928$ 6 Human Resources 1,215,799$ 1,620,810$ 1,608,917$ 11,894$ 1%1,480,118$ 7 Public Safey 8 Fire 11,621,200$ 12,192,029$ 12,082,810$ 109,219$ 1%11,585,358$ 9 Police 13,902,407$ 15,394,812$ 15,180,032$ 214,780$ 1%16,324,782$ 10 Community Services Group (CSG) 11 CSG Administration 321,209$ 698,691$ 577,508$ 121,183$ 17%496,566$ 12 Community Development 5,941,116$ 7,563,761$ 6,621,942$ 941,818$ 12%5,968,524$ 13 Parks & Recreation 3,653,727$ 4,800,963$ 4,158,021$ 642,942$ 13%4,758,728$ 14 Public Works 11,359,789$ 14,338,105$ 13,332,656$ 1,005,449$ 7%14,662,503$ 15 Solid Waste (Utilities)117,439$ 332,271$ 170,662$ 161,610$ 49%282,743$ 16 Total 59,151,714$ 71,783,893$ 66,336,486$ 5,447,407$ 8%71,235,788$ 17 CalPERs Unfunded Liability* 9,586,928$ 20,837,422$ 20,837,422$ 0%11,815,513$ 18 Total 68,738,643$ 92,621,316$ 87,173,909$ 5,447,407$ 6%83,051,301$ In d e x Department FY 2021‐22 11 119 **DRAFT**v1 Management’s Discussion and Analysis Local Transaction Tax (Local Revenue Measure): The local transaction tax largely mirrors the sales tax trends. FY 2021-22 marks the first full year that the City collected the additional 1% tax from Measure G-20. As a result, annual collection increased to about $29 million from this revenue source, making it the largest tax revenue for the City. For a more detailed account of the Local Revenue Measure, see pages 123 to 125. Property Tax: Property tax revenue continues to increase, and the City recorded an all-time high in FY 2021-22, nearly 4% higher than the prior year due to an attractive and flourishing real estate market. The main reason for growth is the transfer of ownership and the increase in Taxable Assessed Value of homes in the community largely supported by record-low mortgage rates in 2021. As rates now increase, the housing market is beginning to cool, and sales prices begin to plateau. Data shows that number of home sales were down 30.3% in July 2022 compared to July 2021, but the median sale price was up 13.3%2 . The County Assessor’s Office anticipates an additional 4% growth in 2022-23 based on Proposition 13 increases and assessed valuations of homes. Transient Occupancy Tax (TOT): Tourism along the central coast made a strong comeback in FY 2021-22 as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs largely driven by high room rates. The City received about $1.6 million more than its revenue projections for the year. However, as inflation and gas prices increase and pent-up demand declines, the City’s tourism program together with the countywide tourism office expect to see a growth plateau and a possible decline in FY 2022-23. Utility User Tax (UUT): UUT was slightly below the budgeted amount in FY 2021-22. Utility User Taxes have historically been considered a stable tax revenue source for local governments; however, that changed in 2017, when the Federal Communications Commission reclassified broadband internet, voicemail, and text messaging to a nontaxable classification of communication. The result has been declining or stagnant UUT revenue for telecommunications for most local governments. Increased taxes due to increased energy costs (particularly over the last year) have helped offset the decline in telecommunications taxes. As a result, the City collected nearly $200,000 more than what was collected in the previous year. The City has further benefited from its UUT Administration contract with a third-party vendor. Staff time has been reduced nearly tenfold on collection, enforcement, and other administrative duties required of this tax. Additionally, the vendor helped collect over $25,000 in penalties from delinquent businesses over the last fiscal year, neutralizing the cost of the contract. 2 “San Luis Obispo County Housing Market.” Redfin, 20 Aug. 2022, https://redfin.com/county/342/CA/San-Luis- Obispo-County/housing-market. 12 120 **DRAFT**v1 Management’s Discussion and Analysis Business Tax: Business taxes are collected at the beginning of the fiscal year and are based on the gross receipts of the previous calendar year. FY 2021-22 revenues were lower than the previous fiscal year because businesses remitted payment based on their 2020 gross receipts, the year most impacted by COVID-19 and the economic shutdown. Staff had anticipated the decline in revenue and the year-end result slightly surpassed the budgeted forecast. Cannabis Tax: Cannabis tax revenues stabilized in FY 2021-22 now that two retail locations are operating in the City, Cal Poly is fully open, and tourism is returning to pre-pandemic levels. Interestingly, the monthly remittal amounts were nearly the same across the entire fiscal year, unlike sales and transient occupancy taxes which fluctuate seasonally. Staff will closely monitor this revenue during the next fiscal year to determine how variables such as new operators entering the market will impact total cannabis sales within the City. Audits and periodic inspections will continue to be a part of the City’s operations to ensure compliance with state and local regulations. General Government: General Government revenue includes all of the City’s non-departmental revenue such as business licenses, interest earnings, and rent revenue. It also includes grant and subvention revenue which often fluctuates significantly from year to year. For example, in 2021-22 the City received over $1.0 million in Mutual Aid reimbursement. This revenue offsets the Fire Department’s overtime expenditures incurred from sending aid to multiple fires throughout the state. The most notable variance in this category was a negative $1.7 million Fair Market Value (FMV) adjustment. The FMV adjustment is essentially an accounting process that makes it possible to reassess the fair value of the City’s assets when there is a considerable difference between the market and the current book value of the City’s monetary assets. General Fund Revenue compared to previous year and final budget *Gas Tax (SB1) is reflected in this schedule of revenues however it is recorded as a transfer from the Gas Tax Fund in the fund financial statements. Development Review Revenue Though high development activity continued into FY 2021-22, several of the fees collected in Community Development for Planning and Building services did not reach the anticipated budget. Most notably, Building Permits, 2021 Actuals 2022 Budget 2022 Actuals 2022 Variance % Received Tax and Franchise Revenue 72,785,610$ 89,230,869$ 96,491,194$ 7,260,326$ 108.1% Tax and Franchise Revenue 72,785,610$ 89,230,869$ 96,491,194$ 7,260,326$ 108.1% Local Revenue Measure G 12,779,713$ 25,810,000$ 29,172,258$ 3,362,258$ 113.0% Sales Tax (Bradley Burns)20,067,740$ 20,790,779$ 22,247,303$ 1,456,524$ 107.0% Property Tax 19,858,530$ 20,157,153$ 20,711,004$ 553,851$ 102.7% Transient Occupancy Tax 6,960,035$ 9,051,000$ 10,650,762$ 1,599,762$ 117.7% Utility User Tax 5,225,979$ 5,383,000$ 5,338,325$ (44,675)$ 99.2% Business Tax 2,937,176$ 2,832,000$ 2,823,163$ (8,837)$ 99.7% Franchise Fees 1,796,829$ 1,575,000$ 1,978,295$ 403,295$ 125.6% Gas Tax 1,038,124$ 1,223,937$ 1,130,063$ (93,874)$ 92.3% Cannabis Tax 844,939$ 1,000,000$ 998,875$ (1,125)$ 99.9% Gas Tax (SB1)851,408$ 915,000$ 911,849$ (3,151)$ 99.7% Safety Prop 172 425,136$ 493,000$ 529,299$ 36,299$ 107.4% Fees for Service and Other Revenue 15,897,980$ 13,695,038$ 11,855,961$ (1,839,076)$ 86.6% Development Review 7,089,762$ 6,971,140$ 5,964,790$ (1,006,350)$ 85.6% Parks & Recreation 1,616,445$ 1,626,151$ 1,694,241$ 68,090$ 104.2% Fire 1,500,759$ 1,443,440$ 1,498,428$ 54,988$ 103.8% Grants & Subventions 3,200,951$ 1,274,368$ 2,028,668$ 754,300$ 159.2% Other Revenue 1,357,008$ 1,184,751$ (533,074)$ (1,717,825)$ ‐45.0% Police 600,406$ 619,744$ 577,441$ (42,304)$ 93.2% Business Licenses (Incl Cannabis)532,649$ 575,443$ 625,468$ 50,025$ 108.7% 13 121 **DRAFT**v1 Management’s Discussion and Analysis while the second highest total for building permits in the City’s history and the highest total in FY 2020-21, began to notice the slow-down associated with supply chain issues, inflation, and increased interest rates. Infrastructure Plan Check and Inspections realized the most significant gap in the revenue projections as several anticipated projects did not complete the plan review process during the FY2021-22. In addition, there were approximately $1 million associated with future phases of the Avila Ranch project that were not submitted in FY 2021-22 as previously forecasted. Other Revenue This Revenue category includes rents & leases, fines & forfeitures, damage to City property, and miscellaneous revenues not easily categorized. It also reports on the City’s Interest on Investments which experienced large losses due to the largest Fair Market Value adjustments on investments experienced in 40 years. See Note 2 – Cash and Investments. Detail for the Local Revenue Measure The City’s Local Revenue Measure (half percent transaction tax) is a sub-fund of the General Fund. The activities reflected in the Financial Statements of this report are provided for information regarding the use of the Measure’s according to the community’s priorities and the recommendation of the Revenue Enhancement Oversight Commission, a City Council advisory body, overseeing the allocations. For FY 2021-22, the following revenues and expenditures were recorded: General Fund Budgetary Highlights A detailed budgetary comparison schedule for the year ended June 30, 2022, is presented as required supplementary information following the notes to the financial statements. The final budget amounts include changes that were approved by the City Council through June 30, 2022. The following summarizes the original budget compared with the adjusted final budget for fiscal year 2021-22. The adjusted final budget includes Council approved adjustments as well as administrative budget adjustments in Budget Actual Revenue Transaction Tax 25,810,000$ 29,172,258$ Investment Income (283,748) Total 25,810,000$ 28,888,510$ Expenditures Budget Actual Encumbrances Carryover Operating Programs 6,912,660$ 6,912,660$ -$ -$ Capital Programs Community Safety and Emergency Preparedness 2,755,697 848,909 609,179 1,297,609 Creek and Flood Protection 1,074,772 741,423 119,342 214,007 Safe and Clean Public Areas 1,334,564 419,810 183,161 731,593 Economic Development and Business Retention 1,154,716 410,161 7,500 737,055 Youth/Senior Services and Recreation Facilities 3,996,965 1,775,775 41,997 2,179,193 Street Maintenance and Transportation 11,723,238 4,791,725 1,756,116 5,175,396 Open Space/Natural Areas Preservation and Maint. 1,819,605 1,190,577 98,057 530,971 Other Services and Projects 1,975,179 913,890 89,672 971,617 Total Expenditures 32,747,396$ 18,004,930$ 2,905,024$ 11,837,441$ 2021-22 Local Revenue Measure Budget to Actual 14 122 **DRAFT**v1 Management’s Discussion and Analysis accordance with the City’s adopted fiscal policies and procedures. As outlined on page 103, the City Council took action at mid-year to address emerging needs and community interest which resulted in significant budget adjustments for the fiscal year. As discussed below, differences between the original budget and the final amended budget reflect the following key changes: Revenue budgets were increased by $9.4 million primarily for sales, transaction and transient occupancy tax. Overall expenditure budgets were also augmented by $17.1 million for the General Fund. The increases were made to respond to emerging needs and community services as outlined above. Budgets were also increased for encumbrances and carryover of purchase commitments that had not yet been executed at the end of the prior fiscal year as well as the additional payment to CalPERS towards the City’s unfunded liabilities. The following table compares the actual results for revenues, expenditures, and fund balance with the final budget for the General Fund. As the table shows, revenues exceeded the final budget by over $4.2 million, while expenditures ended below the final budget by approximately $6.9 million. The net other sources and uses ended above budget by $3.8 million resulting in an ending fund balance that was $7.2 million greater than anticipated. BUDGETARY HIGHLIGHTS General Fund Original Budget Final Budget Positive (Negative) Variance Revenues 92,799,078$ 102,188,180$ 9,389,102$ Expenditures 76,294,603 93,440,299 (17,145,696) Other sources (uses)(18,937,662) (22,632,216) (3,694,554) Beginning fund balance 47,365,717 47,365,717 - Ending fund balance 44,932,530$ 33,481,382$ (11,451,148)$ General Fund 2021-22 2021-22 Actual Positive (Negative) Variance Revenues 102,188,180$ 106,399,537$ 4,211,357$ Expenditures 93,440,299 86,545,247 6,895,052 Other sources (uses)(22,632,216) (26,474,501) (3,842,285) Beginning fund balance 47,365,717 47,365,717 - Ending fund balance 33,481,382$ 40,745,506$ 7,264,124$ Ending fund balance Nonspendable - 90,797 90,797 Restricted - - - Committed - 19,556,799 19,556,799 Assigned - 12,741,186 12,741,186 Unassigned - 8,356,724 8,356,724 Total ending fund balance 33,481,382$ 40,745,506$ 7,264,124$ BUDGET - ACTUAL COMPARISON 15 123 **DRAFT**v1 Management’s Discussion and Analysis Year-End – Business-Type Activities The City’s business-type activities are financed through rates for services and should be self-sufficient in covering their expenses with their sales and services revenue. Also called Enterprise funds, the City has four such entities with Water, Sewer, Parking, and Transit. While two of the City’s four Enterprise funds fared well through the pandemic years and moved seamlessly back into the re-opening period, two of them remained subdued and only seeing a return to more normalized activity toward the end of the fiscal year. Following is an analysis of each fund and their fiscal standing at the end of 2021-22 and like the Governmental Funds, all of the Enterprise funds were affected by the Fair Market Value Adjustments indicated in Note 2 – Cash and Investments. Water Fund Water Revenue was $6.7 million more than budgeted primarily due to high development activity and the related impact fees. Staff continues to refine the methodology behind development impact fee projections; but the cyclical nature of development makes forecasting challenging. Water service charges surpassed budget by $1.1 million due to a dry winter which resulted in increased irrigation needs within the community. Additionally, staff had budgeted conservatively for water service charges in FY 2021-22 to account for uncertainties associated with continued COVID- 19 impacts. Though the Water Fund began seeing the influences of supply chain issues related to raw material and chemicals as well as increases in utilties toward the end of the fiscal year, it was able to manage its expenses and remain under budgeted allocations. As inflation continues to remain at high levels further driving the factors influencing the Fund’s operation, the effects will be more pronounced in the coming fiscal year. Budget Actual Variance % Service Charges and Base Fees 22,645,942$ 23,269,764$ 24,622,357$ 1,352,593$ 106% 24,123,079$ Investment and Property Revenue 585,004 407,600 (714,713) (1,156,998) ‐175%50,000 Other Revenue 414,589 339,780 222,451 121,316 65%209,000 State Grants 326,440 256,395 1,621,599 1,365,204 632% 1,395,000 Cal Poly Capacity & Resilience 535,180 223,000 114,317 (108,683) 51%259,490 COVID Rate Relief Program ‐ ‐ (225,016) (225,016) ‐ Development Impact Fees 4,746,439 ‐ 5,160,020 5,160,020 ‐ Federal Stimulus Grants ‐ ‐ 226,994 226,994 ‐ Total 29,253,595$ 24,496,539$ 31,028,009$ 6,735,429$ 127% 26,036,569$ Water Fund Revenue FY 21 Actual FY 2021‐2022 FY 23 Forecasted Budget Budget Actual Funds Available % Staffing *4,142,776$ 5,551,424$ 5,174,679$ 376,745$ 7%4,961,606$ Contract Services 10,066,890 11,620,462 10,700,008 920,454 8%11,393,356 Other Operating Expenses 770,887 1,286,281 967,819 318,462 25%1,449,507 Utilities 564,395 676,872 531,769 145,103 21%688,885 General Government 1,729,965 1,722,409 1,722,409 ‐ 0%1,535,175 TOTAL 17,274,913$ 20,857,448$ 19,096,684$ 1,760,764$ 8%20,028,529$ *Exclusive of GASB 68/75 adjustments FY 21 Actual FY 2022‐23 BudgetWater Fund Operating Expenses FY 2021‐22 16 124 **DRAFT**v1 Management’s Discussion and Analysis Sewer Fund Sewer development impact fees exceeded budget by approximately $3.7 million, reflective of continued development in the City and changes associated with construction timelines. Sewer service charges and base fees were more than budgeted by $1.1 million as staff budgeted conservatively for Sewer service charges in FY 2021-22 considering ongoing pandemic influences and impacts and the moratorium for service shut-off due to non-payment was not lifted until December 2021. As reflected in the Statement of Cash Flows, cash was impacted in the Sewer Fund due to the timing of debt proceeds received for the Water Resource Recovery Facility (WRRF) project reimbursements. Last fiscal year, debt proceeds were lower due to delays in funding related to the construction timeline and project costs carrying over to FY 2021- 22. In addition, State Grants was $4.6M below anticipated budget primarily due to the timing of WRRF construction and reimbursement requests associated with grant awards. Like the Water Fund, the Sewer Fund began feeling the effects of inflation and related labor and supply chain issues toward the end of the fiscal year. However, staff had taken action early to make sure materials related to the WRRF upgrade were already on site and most of the work was able to proceed. Overall, the Fund was able to maintain within its allocated expense budget achieving an overall savings of $1.5 million with significant savings in staffing costs. Parking Fund As part of the mid-year budget process, the Parking Fund forecast was adjusted to estimate revised revenues for FY 2021-22 due to the economic impacts and parking activities following the height of COVID-19, and adjustments in parking operations. When preparing budget adjustments, staff used a conservative approach considering the limitations COVID-19, the re-opening of the economy and renewed travel activity may have on parking revenue. Ultimately, Parking programs returned to pre-COVID activity levels quicker than anticipated and revenue actuals exceeded the revised projections by year-end by 10%. On-street parking revenue in June 2021 was nearly identical to revenue received in February 2020 prior to the COVID pandemic. Similarly, parking structure usage quickly returned to pre-COVID levels beginning in May 2021 when the Farmer’s Market was reestablished and non-city staff who work in the downtown area began to utilize the long-term parking program. These are positive indicators of a Parking Budget Actual Variance % Service Charges and Base Fees 16,942,094$ 18,004,047$ 19,109,600$ 1,105,553$ 106% 18,634,189$ Development Impact Fees 3,836,955 ‐ 3,685,008 3,685,008 ‐ Other Revenue 541,862 382,000 603,873 223,981 159%291,000 Investment and Property Revenue 9,607 401,514 (1,024,551) (1,437,268) ‐258%50,000 Grants 258,467 4,784,288 97,413 (4,686,875) 2%‐ Cal Poly Capacity & Resilience 243,568 243,568 243,568 ‐ 100%243,568 Total 21,832,552$ 23,815,417$ 22,714,910$ (1,109,602)$ 95% 19,218,757$ FY 2021‐2022 FY 23 Forecasted BudgetSewer Fund Revenue FY 21 Actual Budget Actual Funds Available % Staffing*4,424,073$ 5,775,389$ 5,183,631$ 591,758$ 10%4,889,494$ Contract Services 3,517,931 1,999,295 1,574,248 425,047 21%863,361 Other Operating Expenditures 1,182,999 1,542,872 1,357,622 185,250 12%1,741,111 Utilities 540,553 790,227 539,357 250,870 32%937,710 General Government 1,632,521 1,712,752 1,712,752 ‐ 0%2,573,783 TOTAL 11,298,077$ 11,820,535$ 10,367,610$ 1,452,925$ 12%11,005,459$ *Exclusive of GASB 68/75 adjustments FY 2020‐21 FY 2022‐23Sewer Fund Operating Expenses FY 2021‐22 17 125 **DRAFT**v1 Management’s Discussion and Analysis Fund moving toward fiscal sustainability into the new fiscal year. The Parking fund also experienced the effects from the Fair Market Value adjustments which is included under “Other Revenue” however, other miscellaneous revenues such as rents & leases were able to counteract some of the downward adjustments of $445,207. Due to the revenue shortfall and gradual recovery to pre-pandemic levels, Parking managed its expenses while also grappling with labor market challenges influencing the re-staffing of its programs. It therefore ended the year within the allocated budget with savings stemming from salary savings that in turn necessitated the use of contract services to maintain the services. Transit Fund In FY 2021-22, the Transit Program looked to the Federal Urbanized Area Grant Funding program (5307 funds) to supplement the Transit Fund, paying for 50% of the operating costs while the remaining funds were state and local transit funds. The City secured Federal grant funding from the American Rescue Plan Act (ARPA) for 100% of operational costs beginning in FY 2022-23 for three fiscal years, and will address driver wages, allow for the purchase of additional zero emission buses, and support other capital projects. The reduction in service levels resulted in cost savings that helped to offset lost fare revenues. The unused balance of annual allocations of Federal 5307 and State Transit Development Act (TDA) Funds have been deferred for future use in FY 2022-23. The variance in the table below is due to both State and Federal grant disbursement timing where it is normal for full revenues to be realized in the Fall or based on receipts of reimbursements. Budget Actuals Variance % Parking Meters 1,265,085$ 1,940,863$ 2,210,191$ 269,328$ 114% 2,268,500$ Parking Fines 654,284 657,606 928,909 271,303 141% 793,500 Parking Structures 346,300 835,294 1,109,187 273,893 133% 1,328,450 Long Term Parking 422,381 547,795 623,639 75,844 114% 844,900 Other Revenue 380,778 569,578 685,822 116,244 120% 595,400 Total 3,068,827$ 4,551,136$ 5,557,749$ 1,006,613$ 122% 5,830,750$ FY 2021‐2022 Forecasted BudgetFY 21 ActualsParking Fund Revenue Budget Actual Funds Available % Staffing*1,126,434$ 2,022,327$ 1,574,054$ 448,273$ 22%1,917,920$ Contract Services 847,922 1,129,895 1,008,835 121,060 11%584,065 Other Operating Expenditures 200,385 362,989 374,319 (11,330) ‐3%401,525 Utilities 117,581 211,301 170,905 40,396 19%221,933 General Government 710,211 869,887 869,887 ‐ 0%‐ TOTAL 3,002,533$ 4,596,400$ 3,998,000$ 598,399$ 13%3,125,444$ *Exclusive of GASB 68/75 adjustments FY 2020‐21 FY 2022‐23Parking Fund Expenses FY 2021‐22 Budget Actuals Variance % Federal 2,805,689$ 4,093,659$ 1,877,362$ (2,216,297)$ 46% 7,248,297$ Local (Bus Fare)328,184 687,500 710,457 22,957 103%850,000 Other Revenue/ Interest Revenue 4,047 30,826 (131,428) (162,254) ‐426%6,500 State 351,998 2,743,064 1,332,876 (1,410,188) 49% 2,040,941 Total 3,489,918$ 7,555,049$ 3,789,267$ (3,765,782)$ 50% 10,145,738$ Forecasted Budget FY 2021‐2022FY 2020‐21 ActualsTransit Fund Revenue 18 126 **DRAFT**v1 Management’s Discussion and Analysis The Transit Fund operating costs are typically split equally between state and federal funding sources after deducting the mandated 20% farebox recovery. The state provides TDA funds based on the adopted budget and federal funds are based upon actual costs. When the Transit Fund has savings there will be a reduction in federal funds being reimbursed which shows as a reduction in revenues. The largest expense for the Fund is in contract services as the operation of the transit service as well as maintenance is contracted out. Ridership Recovery Budget Actual Funds Available % Staffing*313,020$ 422,212$ 334,738$ 87,474$ 21%298,896$ Contract Services 2,611,522 3,788,402 2,666,078 1,122,324 30%2,895,950 Other Operating Expenditures 220,003 496,424 353,858 142,566 29%684,513 General Government 321,727 226,183 226,183 ‐ 0%365,544 TOTAL 3,466,272$ 4,933,221$ 3,580,857$ 1,352,364$ 27%4,244,903$ *Exclusive of GASB 68/75 adjustments FY 2020‐21 FY 2022‐23Transit Fund Expenses FY 2021‐22 19 127 **DRAFT**v1 Management’s Discussion and Analysis Combined Program Expenses and Revenue for Business Type Activities Revenue Sources: Operating revenues for services increased by $6 million with Parking and Transit revenue beginning to normalize to pre-pandemic levels while Water and Sewer services remained strong throughout the year with the pandemic restrictions lifted in December 2021. Program Expenses: As outlined in the prior section, the program expenses for the proprietary funds decreased from the previous year leading to a 10% increase in ending Net Position across all funds. Summary of Changes in Net Position 2021-22 2020-21 Revenues: Program Revenues: Charges for services 59,140,271$ 52,740,882$ Operating grants and contributions 5,156,782 3,742,594 Investment earnings (1,207,118) 577,722 Miscellaneous and other 585,101 519,677 Total revenues 63,675,036 57,580,875 Program expenses: Public utilities 33,468,921 36,534,518 Transportation 8,368,389 8,080,778 Total expenses 41,837,310 44,615,296 Increase (decrease) in net position before transfers 21,837,726 12,965,579 Transfers (1,685,314) (1,992,911) Change in net position 20,152,412 10,972,668 Net position - beginning of year 217,715,565 206,322,415 Prior year restatement 2,516,509 420,482 Net position - end of year 240,384,486$ 217,715,565$ Business-Type Activities 20 128 **DRAFT**v1 Management’s Discussion and Analysis Overall Year-End Financial Statements When evaluating the overall Financials, several influencing factors should be considered. While GASB Statement No. 87 as well as the integration of the outstanding housing related loans will continue to be a part of the Financial Statements going forward, the Fair Market Value adjustments currently seen will likely adjust in the latter part of 2023 into 2024 as inflation begins to flatten and monetary policy counteracting it begins to ease. GASB Statement No. 87 This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. Within the City’s Financial Statements, Note 6 lists the applicable lease receivables. Housing Loans and Fee Deferrals The City administers an extensive housing program for workforce and low-income housing. Through the program, it has extended loans and impact fee deferrals to low-income housing developers such as the Housing Authority of San Luis Obispo, Transitions Mental Health, and People’s Self-Help Housing (to name a few). The loans are long-term in nature, include a modest interest rate, and will become due in future years. The loans are disclosed in the City’s financial statement under the respective governmental funds as loans receivables and restricted within fund balance. Detailed information can be found in Note 4 – Loans Receivables. Fair Market Value Adjustments The City follows the practice of pooling cash and investments for all funds under its direct daily control. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance. Investments are stated at fair value, based on quoted market prices in accordance with GASB standards and is adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. Due to the worldwide pandemic brought on by COVID-19 and the subsequent effects on inflationary trends, the Federal Reserve’s monetary policy to counteract inflation has lead to the largest fair market value adjustment in 40 years. The City’s investments were not immune to the adjustments and the effects are reflected in the Financial Statements under “Use of money and property” in all funds based on the City’s mentioned practices. More information on the City’s investments can be found in Note 2 – Cash & Investments. The following outlines financial highlights for the year which are detailed in the table on page 23 of the Management Discussion and Analysis. Per the City’s Statement of Net Position, total City-wide assets increased by approximately $136.1 million or 21.2%. The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows at June 30, 2022 by $418 million (net position). They include again the disclosure of the City’s net unfunded pension liability which decreased by $23.2 million to $66 million as of June 2021 largely due the 2021 interest gain of 21.3%. The City’s net pension liability is measured as the total pension liability of $243.8 million less the 21 129 **DRAFT**v1 Management’s Discussion and Analysis pension’s fiduciary net position of $177.8 million. This picture will likely change with the experienced losses at the end of June 2022 but will be counter-acted by the City’s additional discretionary payments made in FY 2021- 22 and anticipated in FY 2022-23. In governmental activities, amounts received from various sources were slightly below previous year-end results, but the City’s cash and investment balances increased by $24 million; prepaid expenses increased slightly as well and cash held with fiscal agent remained stagnant from 2020-21. Of note is the increase in Loans Receivables of over $4.5 million from the City’s Housing program. In business-type activities, total assets increased from $337 million to $435 million. Of note is the lease receivable amount of $37 million in the Parking Fund due to the reporting of leases under GASB 87. The Sewer Fund increased its construction in progress by almost $40 million as the upgrade of the Water Resource Recovery Facility is ongoing. This $140 million multi-year construction project is scheduled to be completed at the end of 2023. City-wide liabilities increased by $11.6 million during the fiscal year with the decrease in the Governmental funds being offset by an almost $40 million increase in the business-type activities. The decrease in governmental funds is mostly due to the decrease in net unfunded pension liabilities while the increase in the business-type activities reflects new long-term debt obligations. The City’s governmental funds altogether reported combined ending fund balances of $100.5 million. Roughly 78% or $87.5 million is not available for new spending and is reflected as restricted, committed or assigned in the Financial Statements. The total General Fund balance decreased by 15% to $40.7 million due to the additional $10.2 million payment toward the City’s unfunded pension liability with CalPERS (Note 8 – Pension Plans). The Fund balance combines the following levels as outlined in the City’s Fund Balance & Reserve Policy and in accordance with GASB 54: non-spendable, restricted, committed, assigned and unassigned . 22 130 **DRAFT**v1 Management’s Discussion and Analysis Government-wide Overall Financial Analysis Statement of Net Position Net position may serve over time as useful indicator of a government’s financial position. The following is the condensed statement of net position for the fiscal years ended June 30, 2021 and 2022. For the Fiscal Year ending on June 30, 2022, the City’s combined total assets and deferred outflows of resources were greater than its liabilities and deferred inflows of resources by $418 million. The largest portion of the City’s net position reflects its investment in capital assets in the amount of $351.7 million (e.g. land, buildings, infrastructure, machinery, and equipment), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Just over $44.5 million of the City’s net position is subject to restrictions imposed by external parties and its use is determined by those restrictions and contractual obligations. The governmental and business-type activities each contributed $22 million to the combined net position resulting in a total net position of $418 million at June 30, 2022. Information about changes in net position for fiscal years 2021-22 and 2020-21 is summarized below. Reasons for the changes are discussed in the following sections for governmental activities and business-type activities. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Current and other assets 128,456,785$ 100,429,898$ 118,049,970$ 95,663,836$ 246,506,755$ 196,093,734$ Capital Assets 214,799,171 205,190,494 317,277,636 241,196,715 532,076,807 446,387,209 Total assets 343,255,956 305,620,392 435,327,606 336,860,551 778,583,562 642,480,943 Total Deferred Outflows of Resources 36,401,908 25,815,578 6,080,805 4,088,384 42,482,713 29,903,962 Current liabilities 25,318,783 11,006,354 17,393,178 16,047,477 42,711,961 27,053,831 Noncurrent liabilities 123,973,399 161,634,631 140,126,065 106,481,087 264,099,464 268,115,718 Total liabilities 149,292,182 172,640,985 157,519,243 122,528,564 306,811,425 295,169,549 Total Deferred Inflows of Resources 52,069,013 3,053,401 43,504,682 704,806 95,573,695 3,758,207 Net position: Net investment in capital assets 193,984,593 184,205,733 157,728,990 160,750,886 351,713,583 344,956,619 Restricted 41,770,187 35,137,179 2,684,781 2,493,859 44,454,968 37,631,038 Unrestricted (57,458,111) (63,601,328) 79,970,715 54,470,820 22,512,604 (9,130,508) Total Net Position 178,296,669$ 155,741,584$ 240,384,486$ 217,715,565$ 418,681,155$ 373,457,149$ CONDENSED STATEMENT OF NET POSITION Governmental Activities Business-Type Activities Total 23 131 **DRAFT**v1 Management’s Discussion and Analysis Governmental Activities. The City’s net position in the Governmental activities increased by $22 million to $178.3 million on June 30, 2022 based on very strong tax revenues and expenditure savings in all of its operation that were able to absorb the losses experienced by large fair market value adjustments seen under investment earnings. Governmental Revenues: Revenues are divided into charges for services and general revenues including applicable taxes as listed in the following table. Charges for services are revenues directly related to service activity while operating and capital grants and contributions, and related investment earnings are a mechanism of cost recovery. The total governmental revenue increased from fiscal year 2020-21 by $12.7 million or 13% based on the re-opening of the economy, strong purchasing and a rapidly returning travel and tourism activities. This increase achieved despite the reduction in charges for services from development related activities and lower revenue from capital grants and contributions revenue3. Fiscal Year 2021-22 saw the first full year of the local transaction tax at the augmented level, adding an additional $18 million to the revenue total. Charges for services decreased from the previous year primarily due to a decline in development related activity. Building and planning reviews, permits and inspection activity can vary significantly from year to year. Similarly, grant revenues, particularly for capital projects, such as the Marsh Street Bridge rehabilitation or the Taft to Pepper section of the Railroad Safety Trail were higher in the prior fiscal year. 3 Contribution revenue is grants, donations, transfers and other miscellaneous funding. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Revenues: Program Revenues: Charges for services 18,920,886$ 24,096,385$ 59,140,271$ 52,740,882$ 78,061,157$ 76,837,267$ Operating grants and contributions 3,647,813 3,601,973 5,156,782 3,742,594 8,804,595 7,344,567 Capital grants and contributions 1,531,157 5,688,200 - - 1,531,157 5,688,200 General Revenues:- - Sales taxes (Including local Sales Tax) 51,419,561 32,847,453 51,419,561 32,847,453 Property taxes 14,716,412 14,197,869 14,716,412 14,197,869 Transient occupancy tax 10,650,762 6,960,035 10,650,762 6,960,035 Utility users tax 5,338,325 5,225,979 5,338,325 5,225,979 Property tax in lieu of VLF 5,994,592 5,660,661 5,994,592 5,660,661 Other taxes and fees 5,800,333 5,578,944 5,800,333 5,578,944 Investment earnings (1,638,993) 435,243 (1,207,118) 577,722 (2,846,111) 1,012,965 Miscellaneous and other 1,213,401 1,019,626 585,101 519,677 1,798,502 1,539,303 Total revenues 117,594,249 105,312,368 63,675,036 57,580,875 181,269,285 162,893,243 - - Program expenses:- - Public safety 41,132,177 35,323,339 41,132,177 35,323,339 Public utilities 33,468,921 36,534,518 33,468,921 36,534,518 Transportation 10,395,516 8,040,919 8,368,389 8,080,778 18,763,905 16,121,697 Culture and recreation 12,407,720 11,122,003 12,407,720 11,122,003 Community development 15,506,092 11,918,019 15,506,092 11,918,019 General Government 20,982,321 17,276,491 20,982,321 17,276,491 Interest on long-term debt 699,284 731,045 699,284 731,045 Total expenses 101,123,110 84,411,816 41,837,310 44,615,296 142,960,420 129,027,112 - - Increase (decrease) in net position before transfers 16,471,139 20,900,552 21,837,726 12,965,579 38,308,865 33,866,131 Transfers 1,685,314 1,992,911 (1,685,314) (1,992,911) - - Change in net position 18,156,453 22,893,463 20,152,412 10,972,668 38,308,865 33,866,131 Net position - beginning of year 155,741,584 133,430,668 217,715,565 206,322,415 373,457,149 339,753,083 Prior year restatement 4,398,632 (582,547) 2,516,509 420,482 6,915,141 (162,065) Net position - end of year 178,296,669$ 155,741,584$ 240,384,486$ 217,715,565$ 418,681,155$ 373,457,149$ SUMMARY OF CHANGES IN NET POSITION Governmental Activities Business-Type Activities Total 24 132 **DRAFT**v1 Management’s Discussion and Analysis General revenues are used to pay costs of providing program services such as public safety, parks and open space, streetlights and traffic signals, recreation opportunities, Diversity, Equity, and Inclusion (DEI) programs as well as economic development, and environmental sustainability. Top Governmental Activity Revenue Sources. As shown in the graph below, the City’s top five tax revenues accounted for almost 75% of total revenues, with service charges accounting for another 16% and ancillary revenue making up the remainder. Despite ongoing pandemic condition and restrictions, most of the City’s main revenue sources performed well and above initial expectations. Next to the local transaction tax, Transient Occupancy Tax ended the fiscal year at record levels, surpassing $10 million in annual revenue. This is indicative of the City gaining from being a drive-to market and benefiting from the travel activity that followed the pandemic related restrictions. Investment in tourism marketing and programs designed to bring people to San Luis Obispo paid dividends and continue to experience strong lodging and retail activity. Governmental Activities Program Expenses: Program expenses increased from the prior fiscal year, ending 2021-22 at $101 million. As mentioned in the Fiscal Year in Review section above, FY 2021-22 marked a transition year for the City organization as it restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. Increases happened across all programs with Revenues 2021-22 2020-21 Inc / (Dec) % Charges for services 18,920,886$ 22,090,479$ (3,169,593)$ -14% Operating grants and contributions 3,647,813 3,626,087 21,726 1% Capital grants and contributions 1,531,157 7,093,611 (5,562,454) -78% General Revenues: Sales taxes (Including local transaction tax)51,419,561 32,847,453 18,572,108 57% Property taxes 14,716,412 14,197,869 518,543 4% Transient occupancy tax 10,650,762 6,960,035 3,690,727 53% Utility users tax 5,338,325 5,225,979 112,346 2% Property tax in lieu of VLF 5,994,592 5,660,661 333,931 6% Other taxes and fees 5,800,333 5,578,944 221,389 4% Investment earnings (1,638,993) 219,611 (1,858,604) -846% Miscellaneous and other 1,213,401 1,366,458 (153,057) -11% Total governmental revenues 117,594,249$ 104,867,187$ 12,727,062$ 12% GOVERNMENTAL ACTIVITY CHANGE IN REVENUE 25 133 **DRAFT**v1 Management’s Discussion and Analysis the most significant ones seen in Community Development, General Government with new initiatives regarding DEI and homelessness, and Public Safety with the new Emergency Management and Mobile Crisis Unit. The following chart compares program fee revenues and expenses which is useful when reviewing the costs of various governmental activities: Financial Analysis of Governmental Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The following funds have been classified as either governmental or proprietary fund types. Governmental Funds. The focus of the City’s governmental funds is on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance serves as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of June 30, 2022, the City’s governmental funds reported combined ending fund balances of $100.5 million or an increase of $10 million compared to the prior fiscal year. The total fund balance of the governmental funds consists of the following: o Non-spendable fund balance represents prepaid items. Approximately $100,000 was held in non- spendable at fiscal year-end. o Restricted fund balance of $34 million, including reserves for debt service or capital outlay, impact fees programs, general government programs, housing and the net balance of the local transaction tax that increased during the last quarter of the fiscal year once pandemic restrictions were lifted. 26 134 **DRAFT**v1 Management’s Discussion and Analysis o Committed fund balance amounted to $19.5 million accounting for the City’s reserve funds as prescribed by its Fund Balance and Reserve policies. o Assigned fund balance of $16.7 million includes the amounts to be used for specific purposes of the City but do not meet the criteria to be classified as restricted or committed. Funds in this category include contingency funds (20% minimum reserve) and funds to be used for Development Services.as well as purchase orders and encumbrances that have been rolled over into fiscal year 2022-23 in accordance with the City’s budget policies. Fund balance has been assigned to an additional discretionary payment to CalPERS, the newly established Section 115 Trust Fund, and the contingency funds in the IT Replacement and Fleet funds amounting to $4.9 million. o Unassigned fund balance of $22 million of which $13.7 million are in the City’s Capital Outlay Fund for investments in the City’s expansive infrastructure. Some of the General Fund’s $8.3 million in unassigned fund balance was already appropriated for 2022-23 by the Council with the year-end report4. Of the $8.3 million, $2.8 million was approved as carryover into the 2022-23 budget and $2 million was used to establish a Revenue Stabilization Reserve to help insulate the City from large fluctuations in tax revenue. These actions left $3.3 million truly unassigned; however, the five-year forecast relies on $2 million to remain in order to have a balanced five-year budget outlook. Major Governmental Funds. In the fiscal year 2021-22 the City maintained two major funds: the General Fund and the Capital Outlay Fund. Changes in both are highlighted in the Financial Highlights section above. Non-Major Governmental Funds. The City has numerous non-major governmental funds including the Debt Service Fund and various Special Revenue Funds or Capital Projects Funds. These funds are presented in the basic financial statements in the aggregate. A significant number of these funds represent activity for capital projects. On June 30, 2022, these funds had an aggregate fund balance of almost $46 million. Of this total, $34 million is restricted for payment of debt service or specific future capital projects and related funding needs. More information about the aggregated non-major funds can be found in the combining and individual fund statements and schedules immediately following the required supplementary information. Proprietary Funds. The City’s four enterprise funds provide the same type of information found in the government- wide financial statements, but in more detail. Highlights of the annual activity for these funds have already been presented in the discussion of the business-type activities. Capital Assets and Debt Administration Capital Assets. Capital assets, including infrastructure, are those assets that are used in the performance of the City’s functions. As of June 30, 2022 the City’s investment in capital assets for its governmental and business type activities amounts increased to $490 million (net of accumulated depreciation). The investment in capital assets includes things such as: open space, park improvements, buildings and associated improvements, vehicles and equipment, streets, bikeways, water, wastewater, and storm drain systems. 4 Council Agenda Item 6a, October 4, 2022 and Resolution No. 11367 http://opengov.slocity.org/WebLink/DocView.aspx?id=164377&dbid=0&repo=CityClerk 27 135 **DRAFT**v1 Management’s Discussion and Analysis Major capital asset5 expenditures during the fiscal year included the following: $37.7 million for the Water Resource Recovery Facility Sewer lift stations: Airport, Buckley, Foothill, Calle Joaquin $847,000 for Water Treatment Plant Energy Efficiency Waterline improvements Meadow Park Pathway Maintenance Orcutt/Tank Farm roundabout construction Parks & Recreation office rehabilitation Railroad Safety Bridge/Trail Taft to Pepper Parks and Recreation Interior Office Rehabilitation Emerson Park Fitness Court Long-Term Debt. At June 30, 2022, the City’s long-term debt had increased by $40.7 million and $142.7 million outstanding. The increase is due to large debt finance projects in the Water and Sewer funds adding $46 million to the business-type activities long-term debt. Within governmental activities, several loans were paid off, lowering the debt burden by $1.3 million from the previous year. The California Government Code provides for a limit on debt secured by real property of 3.75% based on market value. The City’s debt management policy, however, sets a lower debt limit of 2% of assessed valuation. As of June 30, 2022, 2% of the assessed valuation was $234 million6. As of June 30, 2022, the City did not have any general obligation debt subject to the limit. Additional information about the City’s long-term debt can be found in Note 7 to the basic financial statements. 5 Additional information on the City’s capital assets can be found in Note 5 on page 67 to the basic financial statements. 6 Based on the San Luis Obispo County Assessor’s 2021-22 Annual Valuation report. Capital Assets (Net of Depreciation) 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Nondepreciable capital assets 43,547,370$ 41,769,864$ 132,025,105$ 91,238,405$ 175,572,475$ 133,008,269$ Depreciable capital assets (net of accumulated depreciation ) 169,708,981 162,999,121 145,011,649 147,232,029 314,720,630 310,231,150 Total Capital Assets 213,256,351$ 204,768,985$ 277,036,754$ 238,470,434$ 490,293,105$ 443,239,419$ Governmental Business-Type Total Activities Activities Long- Term Debt 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Lease-revenue bonds 18,954,856$ 20,038,779$ 15,307,178$ 16,772,171$ 34,262,034$ 36,810,950$ Lease-purchase financing 390,420 734,673 - - 390,420 734,673 Claims & Liabilities - - - - - - Installment sale agreement - - 4,257,343 4,919,407 4,257,343 4,919,407 Loans 139,961 232,111 99,918,648 56,229,546 100,058,609 56,461,657 Leases 125,003 - - 125,003 - Compensated absences 3,104,605 3,016,523 526,111 613,247 3,630,716 3,629,770 22,714,845$ 24,022,086$ 120,009,280$ 78,534,371$ 142,724,125$ 102,556,457$ Governmental Business-Type Total Activities Activities 28 136 **DRAFT**v1 Management’s Discussion and Analysis Pension Obligations and Outlook With the development of the 2017-19 Financial Plan, it became apparent that the City was facing a structural budget gap due to increases in pension cost. Starting in 2018-19, it implemented an aggressive three-year Fiscal Health Response Plan to pay down the pension obligation. The plan included multiple one-time additional payments to CalPERS to reduce the unfunded liability payment term from 30 to 20 years and the City made it’s first $4.2 additional payment in April of 2019. At the onset of the pandemic, the City had successfully built-up sufficient fund balance in its General Fund to make the second scheduled payment of $4.2 million to CalPERS for 2019-20. However, the City Council decided to retain this funding to cover anticipated revenue shortfalls and to assist with economic recovery efforts as the shut-down of the economy and shelter-at-home directives had just taken place and the future looked precarious. With the prolonged duration of the pandemic and slow reopening of the economy, the third payment scheduled in Spring of 2021 was also postponed. However, due to the prudent approach to its expenditures, the investment in the recovery efforts for the community, and a strong revenue recovery in the 4th quarter, the City was able to catch up on the earmarked payments to CalPERS and improve the City’s funding ratio to 75%. In July 2021, CalPERS reported a 21.3% net return on investments for the 12-month period that ended June 30, 2021. Under the Funding Risk Mitigation Policy, approved by the CalPERS Board of Administration in 2015, the double- digit return triggered a reduction in the discount rate used to calculate employer and Public Employees’ Pension Reform Act (PEPRA) members contributions. The discount rate, or assumed rate of return, has now dropped from 7% to 6.8% ongoing. The lowering of the discount rate will increase both employee and employer normal cost and also influence the unfunded liability. However, the double-digit gains should largely mitigate the impact of the lower discount rate on the unfunded liability. The City will see the effects of the change to the discount rate with the 2023- 24 contributions. 2022-23 Budget Highlights As adopted in June 2022, the second year of the Financial Plan provides investments into Council adopted strategic initiatives and 74 established service programs while maintaining a carefully balanced budget. These ambitious work plans continue to bring new challenges. Several of the challenges that the City addresses with the second-year budget are some of the most pernicious issues facing society, but the solutions are neither easy nor inexpensive. In order to make progress and achieve meaningful outcomes, the organization must stay focused and disciplined. Workforce – the Great Reshuffle First dubbed the “Great Resignation” is now more accurately labeled the “Great Reshuffle.” Globally, millions of people are reconsidering and reconfiguring their careers and lives and leveraging the current labor market to find opportunities and positions that fit with their desired lifestyle. The City is not immune from this phenomenon and has seen record number of transitions. The City of San Luis Obispo is committed to provide competitive compensation to continue to attract and retain talented, qualified, and experienced employees who provide the high-quality public services the community requires and expects. In order to do so, the City will need to prioritize competitive compensation. To that end, the City Council received and filed the 2021 Benchmark Compensation Report for the San Luis Obispo City Employees’ Association (SLOCEA) and Unrepresented Management and Confidential Bargaining Units on February 1, 2022. Immediate action was taken to address compensation shortfalls found by the report on April 19, 2022 for confidential and unrepresented management. As of the writing of this message, the City has negotiated a tentative agreement with labor partners on the potential wage and benefit increases identified in the benchmark study in addition to cost of living agreements over three years. 29 137 **DRAFT**v1 Management’s Discussion and Analysis The increases in General Fund revenue forecasts allowed Council to quickly address this need and the Council approved negotiation parameters for equity adjustments and cost of living increases are now included in the 2022-23 Supplemental Budget. Moving forward, the City will need to be flexible and creative in order to attract and retain well-qualified employees. More broadly, there is a need region-wide for a concerted strategy to attract and retain employees and the absence of an effective strategy likely portends less than optimum growth and, in the case of the City, struggles to meet service demands. Investment into the Community The City’s ongoing services have been developed over many years with the input from the community, resulting in programs that provide the envisioned quality of life in San Luis Obispo. After years of “tightening the belt” to face challenges and pension obligations head-on, the 2021-23 Financial Plan allowed the City to allocate much needed resources back into ongoing services, programs and infrastructure and this effort continues with the Financial Plan Supplement and 2022-23 budget. Capital While the City has made considerable progress on delivering capital projects, it is constrained by unprecedented conditions that are affecting the entire nation. These obstacles include labor market shortages, significant construction activity in our area due to Federal stimulus monies (increasing local competition for design, inspection, and construction services), supply chain issues, and inflation. While the construction phase of projects is often the community’s first view of the improvements that are being made, it is really the result of months and sometimes years of planning, outreach, study, and design work that must be completed prior to making visible progress on a project. In light of this, the City must ensure that operating resources are right sized to deliver projects and continue meaningful progress for the community in the maintenance and improvements to its infrastructure. Long-Term Outlook and the Path Ahead In many ways, the 2022-23 Supplemental Budget will mark a transition period for the City organization. The 2021- 23 Financial Plan restored the work postponed by the pandemic and allowed the City to re-invest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role as an attractive employer and finding a balance between the delivery of service and programs and capital programs. Due to the current economic and geo-political circumstances, uncertainty continues to be the one certainty in economic forecasting. However, the updated long-term forecast considers many of the current trends and conditions and remains balanced but this and future Councils will need to be mindful that expansion of programs or new programs will likely require tradeoffs. The effect of uncertainty meant that for the 21-23 Financial Plan, the budget included $3.08 million of one-time General Funds in order to balance the budget for needed programs such as DEI Grant Funding, Mobile Crisis Unit and other services. Many of the services and programs likely require ongoing and dedicated funding to maintain services levels to achieve the intended impact and funding these one-time expenses should be carefully considered. The City will need to remain agile and cautious as it moves through this challenging economic and fiscal climate. As we embark on another year of this “strange routine”, we will need to remain focused and committed to making San Luis Obispo the kind of resilient, dynamic, and sustainable community we want to live and thrive in and advance the key initiatives and tasks the Council set forth in the City’s Major City Goals. 30 138 **DRAFT**v1 Management’s Discussion and Analysis For information on the 2022-23 Financial Plan Supplement and the appropriated budget including the allocation of the Local Revenue Measure, please visit: https://www.slocity.org/government/department-directory/finance/city-budget Utility Rates. The City adopts its water and sewer rates with the two-year Financial Plan and in accordance with Proposition 218 requirements. As such, notifications were sent to all rate payers in April 2021 and the rates subsequently adopted in a public hearing by the City Council. Parking Rates. The Parking Fund, hit hardest by the pandemic restrictions, nevertheless began its recovery in 2021- 22 and in the first months of 2022-23 appears to be seeing pre-COVID19 demand. It continues to assist economic recovery by offering free parking during holiday times to bring people to downtown. In June 2023, the City Council also adopted fee increases for parking meters and structure parking in preparation for the debt issuance to build the City’s cultural district garage. Requests for Additional Information This financial report is designed to provide a general overview of the City’s finances for all those interested. The City also prepares a Popular Annual Financial Report that can be found on the City’s website under the Finance Department’s online documents. Questions concerning any of the information provided in this report should be addressed to the Department of Finance, 990 Palm Street, San Luis Obispo, CA 93401. 31 139 **DRAFT**v1 32 140 **DRAFT**v1 BASIC FINANCIAL STATEMENTS 33 141 **DRAFT**v1 34 142 **DRAFT**v1 Governmental Activities Business-Type Activities Total Assets Current assets: Cash and investments 99,356,588$ 105,676,349$ 205,032,937$ Taxes receivable 11,639,323 - 11,639,323 Accounts receivable 1,465,191 9,090,763 10,555,954 Accrued interest receivable 2,887,198 840,342 3,727,540 Prepaid items and other assets 651,218 - 651,218 Lease receivables 129,740 167,582 297,322 Loans receivable 12,327,527 2,274,934 14,602,461 Total current assets 128,456,785 118,049,970 246,506,755 Noncurrent assets: Cash and investments held by fiscal agent 421,510 437,884 859,394 Investment in joint venture - 2,831,432 2,831,432 Lease receivables 1,121,310 36,971,566 38,092,876 Nondepreciable capital assets 43,547,370 132,025,105 175,572,475 Depreciable capital assets (net of accumulated depreciation) 169,708,981 145,011,649 314,720,630 Total noncurrent assets 214,799,171 317,277,636 532,076,807 Total assets 343,255,956 435,327,606 778,583,562 Deferred Outflows of Resources Other post-employment benefits related 1,391,750 687,662 2,079,412 Pension related 34,811,636 5,217,738 40,029,374 Unamortized loss on refunding of debt 198,522 175,405 373,927 Total deferred outflows of resources 36,401,908 6,080,805 42,482,713 Liabilities Current liabilities: Accounts payable 4,558,580 8,452,754 13,011,334 Accrued salaries 1,597,094 211,651 1,808,745 Unearned revenue 15,237,246 5,191,916 20,429,162 Interest payable 82,324 165,194 247,518 Other liabilities 212,617 - 212,617 Compensated absence - due within one year 2,111,566 157,833 2,269,399 Long-term debt - due within one year 1,519,356 3,213,830 4,733,186 Total current liabilities 25,318,783 17,393,178 42,711,961 Noncurrent liabilities: Compensated absence - due in more than on year 993,039 368,278 1,361,317 Long-term debt - due in more than one year 18,090,884 116,269,339 134,360,223 Net OPEB liability 2,551,999 1,260,937 3,812,936 Net pension liability 102,337,477 22,227,511 124,564,988 Total noncurrent liabilities 123,973,399 140,126,065 264,099,464 Total liabilities 149,292,182 157,519,243 306,811,425 Deferred Inflows of Resources Other post-employment benefits related 1,786,911 882,909 2,669,820 Pension related 49,056,568 5,649,701 54,706,269 Lease related 1,225,534 36,972,072 38,197,606 Total deferred inflows of resources 52,069,013 43,504,682 95,573,695 Net Position Net investment in capital assets 193,984,593 157,728,990 351,713,583 Restricted Debt service 2,540,255 437,884 2,978,139 Transportation projects 9,314,755 2,246,897 11,561,652 Affordable housing programs 13,526,749 - 13,526,749 Impact fee programs 9,669,643 - 9,669,643 Parkland development programs 3,256,800 - 3,256,800 Public art programs 798,038 - 798,038 Tourism programs 1,147,881 - 1,147,881 Subsequent year expenditures 864,848 - 864,848 Claims 651,218 - 651,218 Unrestricted (57,458,111) 79,970,715 22,512,604 Total net position 178,296,669$ 240,384,486$ 418,681,155$ City of San Luis Obispo, California Statement of Net Position June 30, 2022 The accompanying notes are an integral part of these financial statements. 35 143 **DRAFT**v1 Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental activities: Public safety 41,132,177$ 3,197,692$ 965,923$ -$ Transportation 10,395,516 636,874 2,220,788 453,162 Culture and recreation 12,407,720 4,046,439 497 - Community development 15,506,092 10,509,106 151,581 - General government 20,982,321 530,775 309,024 1,077,995 Interest on long-term debt 699,284 - - - Total governmental activities 101,123,110 18,920,886 3,647,813 1,531,157 Business-type activities: Water 20,892,863 29,894,129 1,848,593 - Sewer 12,576,058 23,642,048 97,413 - Parking 4,517,125 4,890,317 538 - Transit 3,851,264 713,777 3,210,238 - Total business-type activities 41,837,310 59,140,271 5,156,782 - Total primary government 142,960,420$ 78,061,157$ 8,804,595$ 1,531,157$ General revenues and transfers: General sales and use taxes Transaction and use tax - Local Revenue Measure Property tax (including real property transfer tax) Transient occupancy tax (TOT) Utility users tax Property tax-in-lieu of vehicle license fees Franchise taxes Business tax Cannabis Tax Total taxes Unrestricted investment earnings Other revenue Income from investment in joint venture Transfers Total general revenues and transfers Change in net position Net position, beginning of year Prior year restatements Net position, beginning of year, as restated Net position, end of year Program Revenues City of San Luis Obispo, California Statement of Activities For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 36 144 **DRAFT**v1 Governmental Activities Business-type Activities Total (36,968,562)$ -$ (36,968,562)$ (7,084,692) - (7,084,692) (8,360,784) - (8,360,784) (4,845,405) - (4,845,405) (19,064,527) - (19,064,527) (699,284) - (699,284) (77,023,254) - (77,023,254) - 10,849,859 10,849,859 - 11,163,403 11,163,403 - 373,730 373,730 - 72,751 72,751 - 22,459,743 22,459,743 (77,023,254) 22,459,743 (54,563,511) 22,247,303 - 22,247,303 29,172,258 - 29,172,258 14,716,412 - 14,716,412 10,650,762 - 10,650,762 5,338,325 - 5,338,325 5,994,592 - 5,994,592 1,978,295 - 1,978,295 2,823,163 - 2,823,163 998,875 - 998,875 93,919,985 - 93,919,985 (1,638,993) (1,207,118) (2,846,111) 1,213,401 - 1,213,401 - 585,101 585,101 1,685,314 (1,685,314) - 95,179,707 (2,307,331) 92,872,376 18,156,453 20,152,412 38,308,865 155,741,584 217,715,565 373,457,149 4,398,632 2,516,509 6,915,141 160,140,216 220,232,074 380,372,290 178,296,669$ 240,384,486$ 418,681,155$ Net Revenues (Expenses) and Changes in Net Position 37 145 **DRAFT**v1 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Assets Cash and investment 34,540,875$ 14,807,005$ 50,008,708$ 99,356,588$ Taxes receivable 11,473,880 - 165,443 11,639,323 Accounts receivable 1,004,373 74,493 322,757 1,401,623 Other receivables 63,568 - - 63,568 Accrued interest receivable 210,686 - 2,676,512 2,887,198 Prepaid items 90,797 - - 90,797 Cash and investments held by fiscal agent - - 421,510 421,510 Loans receivable 240,637 - 12,086,889 12,327,526 Lease receivable 1,251,050 - - 1,251,050 Total assets 48,875,866$ 14,881,498$ 65,681,819$ 129,439,183$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable 2,325,910$ 1,143,842$ 1,088,828$ 4,558,580$ Accrued liabilities 1,593,058 - 4,036 1,597,094 Unearned revenue 2,471,916 - 12,765,330 15,237,246 Other liabilities 212,617 - - 212,617 Total liabilities 6,603,501 1,143,842 13,858,194 21,605,537 Deferred Inflows of Resources: Lease related 1,225,534 - - 1,225,534 Unavailable revenue 301,325 - 5,780,599 6,081,924 Total deferred inflows of resources 1,526,859 - 5,780,599 7,307,458 Fund balance: Nonspendable 90,797 - 8,681 99,478 Restricted for: Debt service - - 2,540,255 2,540,255 Transportation projects - - 8,051,050 8,051,050 Affordable housing programs - - 9,893,314 9,893,314 Impact fee programs - - 8,935,786 8,935,786 Parkland development programs - - 3,107,198 3,107,198 Public art programs - - 798,038 798,038 Tourism programs - - 1,147,881 1,147,881 Public safety program - - 864,848 864,848 Committed to: General government programs 5,696,864 - - 5,696,864 Risk management 1,845,935 - - 1,845,935 Contingency fund 12,014,000 - - 12,014,000 Assigned to: CalPERS pension payment 2,000,000 - - 2,000,000 Contingency fund - - 900,000 900,000 Establishment of Section 115 Trust 2,000,000 - - 2,000,000 Development services 530,657 - 9,795,975 10,326,632 SLO Repertory Theater Grant 3,940,000 - - 3,940,000 General government programs 4,270,529 - - 4,270,529 Subsequent year expenditures - 13,737,656 - 13,737,656 Unassigned 8,356,724 - - 8,356,724 Total fund balance 40,745,506 13,737,656 46,043,026 100,526,188 Total liabilities, deferred inflows of resources and fund balance 48,875,866$ 14,881,498$ 65,681,819$ 129,439,183$ City of San Luis Obispo, California Balance Sheet Governmental Funds June 30, 2022 The accompanying notes are an integral part of these financial statements. 38 146 **DRAFT**v1 Total fund balance - governmental funds 100,526,188$ Capital assets at estimated historical cost $ 330,212,574 Accumulated depreciation (116,956,223) 213,256,351 6,081,924 1,391,750 34,811,636 198,522 560,422 Lease revenue bonds 17,819,100$ Lease purchase financing 390,420 Compensated absences 3,104,605 Conservation loan 139,930 Bond premium 1,260,790 Accrued interest payable 82,324 (22,797,169) Net pension liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (102,337,477) Net OPEB liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (2,551,999) (1,786,911) (49,056,568) Total net position - governmental activities 178,296,669$ Long-term liabilities, including related interest payable, are not due and payable in the current period and therefore are not reported in the funds. Deferred inflow of resources, pension related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred inflow of resources, OPEB related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds. City of San Luis Obispo, California Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position June 30, 2022 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Other long-term assets are not available to pay for current period expenditures and therefore are not reported in the governmental funds. Deferred outflows of resources, pension related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred outflows of resources, OPEB related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred amounts related to the refunding of long-term debt were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. Unavailable revenue recorded in the fund financial statements resulting from activities in which revenues were earned but funds were not available are reclassified as revenues in the Government-Wide Financial Statements. The accompanying notes are an integral part of these financial statements. 39 147 **DRAFT**v1 Total net change in fund balance - governmental funds 8,709,833$ Expenditures for capital outlay - governmental funds $ 14,932,670 Depreciation expense (6,602,831) 8,329,839 Repayments of long-term debt are recognized as expenditures in the governmental funds. In the government-wide statements, repayments of long-term liabilities are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were:1,467,402 (11,678) it is due. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The difference between interest expense paid and interest accrued was:1,694 85,448 Changes in actuarially determined claim liabilities for uninsured claims do not provide current financial resources and are not reported in the governmental funds. 72,321 governmental funds. In the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was:(88,082) 512,234 23,414,472 1,309,367 Pension expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (25,045,115) OPEB expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (601,282) Total change in net position - governmental activities 18,156,453$ Current year employer pension contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Current year employer OPEB contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Compensated absences are measured by the amounts paid during the period in the Capital outlay net of depreciation expense and disposal. Interest on long-term debt is recognized as an expenditure in the governmental funds when Change in unamortized discount/premium (netted with debt) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2022 Deferred amounts related to the refunding of long-term debt were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. This amount is to be amortized over the life of the long-term debt. This amount is the current year net amortization expense. Revenues that are not considered to be available are reported as unavailable revenues in the governmental funds, however, these amounts are recognized in the Government- Wide Statement of Activities. This amount represents the change in unavailable revenues. City of San Luis Obispo, California The accompanying notes are an integral part of these financial statements. 40 148 **DRAFT**v1 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Revenues: 22,247,303$ -$ -$ 22,247,303$ 29,172,258 - - 29,172,258 14,716,412 - - 14,716,412 10,650,762 - - 10,650,762 5,338,325 - - 5,338,325 5,994,592 - - 5,994,592 1,978,295 - - 1,978,295 2,823,163 - - 2,823,163 998,875 - - 998,875 173,915 - - 173,915 (1,455,527) (2,903) (692,797) (2,151,227) 2,596,930 1,477,476 2,371,786 6,446,192 10,751,046 9,000 6,897,082 17,657,128 413,188 363,342 259,491 1,036,021 Total revenues 106,399,537 1,846,915 8,835,562 117,082,014 Expenditures: Current: General government 17,190,472 - 7,440 17,197,912 Public safety 39,656,509 - 264,699 39,921,208 Transportation 4,818,976 - 312,156 5,131,132 Leisure, cultural and social services 10,156,139 - 284,404 10,440,543 Community development 12,726,420 514,482 1,826,616 15,067,518 Debt service: Principal - - 1,467,402 1,467,402 Interest and fiscal charges - - 774,747 774,747 Capital outlay: Public safety 16,178 - 232,435 248,613 Transportation 976,123 8,165,271 4,512,455 13,653,849 Leisure, cultural and social services 170,729 3,126,097 636,637 3,933,463 Community development 17,672 583,643 - 601,315 General government 816,029 286,929 516,835 1,619,793 Total expenditures 86,545,247 12,676,422 10,835,826 110,057,495 Revenues over (under) expenditures 19,854,290 (10,829,507) (2,000,264) 7,024,519 City of San Luis Obispo, California Statements of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2022 Sales and use tax - general Transaction and use tax - Local Revenue Measure Property tax (including real property transfer tax) Transient occupancy tax Utility users tax Property tax in lieu of VLF Franchise taxes Business tax Cannabis Tax Miscellaneous Fines, forfeitures and penalties Use of money and property Subventions and grants Charges for services The accompanying notes are an integral part of these financial statements. 41 149 **DRAFT**v1 Page 2 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Other Financing Sources (Uses): Transfers in 3,942,248$ 22,098,191$ 9,232,840$ 35,273,279$ Transfers out (30,416,749) (644,267) (2,526,949) (33,587,965) Total other financing sources (uses)(26,474,501) 21,453,924 6,705,891 1,685,314 Net change in fund balance (6,620,211) 10,624,417 4,705,627 8,709,833 Fund balance, beginning of year 47,118,071 3,113,239 41,177,283 91,408,593 Prior year restatements 247,646 - 160,116 407,762 Fund balance, beginning of year, as restated 47,365,717 3,113,239 41,337,399 91,816,355 Fund balance, end of year 40,745,506$ 13,737,656$ 46,043,026$ 100,526,188$ City of San Luis Obispo, California Statements of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 42 150 **DRAFT**v1 Water Sewer Parking Transit Totals Assets Current assets: Cash and investment 33,073,104$ 52,727,181$ 14,128,393$ 5,747,671$ 105,676,349$ Accounts receivable 4,398,755 2,785,425 29,280 1,877,303 9,090,763 Lease Receivables - - 167,582 - 167,582 Accrued interest receivable 245,438 190,379 393,894 10,631 840,342 Total current assets 37,717,297 55,702,985 14,719,149 7,635,605 115,775,036 Noncurrent assets: 433,565 278 4,041 - 437,884 Investment in joint venture 2,831,432 - - - 2,831,432 Loan Receivables 1,476,189 798,745 - - 2,274,934 Lease Receivables - - 36,971,566 - 36,971,566 Capital assets: Land 945,926 2,176,114 5,947,455 - 9,069,495 Infrastructure 108,647,893 93,826,165 28,282,818 110,972 230,867,848 Buildings and improvements 19,139,492 5,074,388 1,101,218 5,212,278 30,527,376 Equipment 6,118,066 5,976,085 1,823,586 9,021,099 22,938,836 Construction in progress 17,303,911 103,110,782 2,457,859 83,058 122,955,610 Total capital assets 152,155,288 210,163,534 39,612,936 14,427,407 416,359,165 Less accumulated depreciation (63,371,214) (51,023,333) (14,999,323) (9,928,541) (139,322,411) Capital assets, net of accumulated depreciation 88,784,074 159,140,201 24,613,613 4,498,866 277,036,754 Total noncurrent assets 93,525,260 159,939,224 61,589,220 4,498,866 319,552,570 Total assets 131,242,557 215,642,209 76,308,369 12,134,471 435,327,606 Deferred Outflows of Resources Pension related 2,383,634 2,162,794 526,173 145,137 5,217,738 290,042 301,984 77,327 18,309 687,662 70,786 6,739 97,880 - 175,405 2,744,462 2,471,517 701,380 163,446 6,080,805 City of San Luis Obispo Statement of Net Position Business-Type Activities - Enterprise Funds June 30, 2022 Total deferred outflow of resources Cash and investments held by fiscal agent Other post-employment benefits related Unamortized loss on refunding of debt Enterprise Funds The accompanying notes are an integral part of these financial statements. 43 151 **DRAFT**v1 Page 2 Water Sewer Parking Transit Totals Liabilities Current liabilities: Accounts payable 1,131,492$ 6,544,127$ 306,689$ 470,446$ 8,452,754$ Accrued liabilities 89,113 75,376 29,662 17,500 211,651 Compensated absences 81,979 63,356 9,486 3,012 157,833 Unearned revenue - 190,752 700,000 4,301,164 5,191,916 Interest payable 64,865 32,915 67,414 - 165,194 Current portion of long-term debt 1,624,674 1,022,058 567,098 - 3,213,830 Total current liabilities 2,992,123 7,928,584 1,680,349 4,792,122 17,393,178 Noncurrent liabilities: Compensated absences 191,285 147,831 22,133 7,029 368,278 Lease revenue bonds 9,527,139 293,094 4,172,799 - 13,993,032 Installment sale agreement - 3,569,862 - - 3,569,862 State loan/note payable 11,583,434 83,954,380 3,168,631 - 98,706,445 Net pension liability 9,830,803 9,394,348 2,446,700 555,660 22,227,511 591,852 508,157 130,120 30,808 1,260,937 Total noncurrent liabilities 31,724,513 97,867,672 9,940,383 593,497 140,126,065 Total liabilities 34,716,636 105,796,256 11,620,732 5,385,619 157,519,243 Deferred Inflows of Resources Pension related 2,550,380 2,353,872 602,738 142,711 5,649,701 365,502 392,960 100,623 23,824 882,909 Lease related - - 36,972,072 - 36,972,072 2,915,882 2,746,832 37,675,433 166,535 43,504,682 Net Position Net investment in capital assets 66,119,613 70,307,546 16,802,965 4,498,866 157,728,990 Restricted: Debt service 433,565 278 4,041 - 437,884 Transportation projects - - - 2,246,897 2,246,897 Unrestricted 29,801,323 39,262,814 10,906,578 - 79,970,715 Total net position 96,354,501$ 109,570,638$ 27,713,584$ 6,745,763$ 240,384,486$ Other post-employment benefits related Total deferred inflow of resources City of San Luis Obispo Statement of Net Position Business-Type Activities - Enterprise Funds June 30, 2022 Enterprise Funds Net other post-employment benefits liability The accompanying notes are an integral part of these financial statements. 44 152 **DRAFT**v1 Water Sewer Parking Transit Total Operating revenues: Charges for sales and service 24,511,658$ 19,825,026$ 3,943,018$ 710,457$ 48,990,159$ Impact fees 5,160,020 3,685,008 - - 8,845,028 Fines and forfeitures - 1,425 928,909 - 930,334 Other revenues 222,451 130,589 18,390 3,320 374,750 Total operating revenues 29,894,129 23,642,048 4,890,317 713,777 59,140,271 Operating expenses: Salaries and benefits 3,374,350 3,444,226 1,128,657 229,282 8,176,515 Supplies and maintenance 1,499,588 1,896,979 545,224 353,857 4,295,648 Contract services 10,700,008 1,574,248 1,008,835 2,666,079 15,949,170 General government 1,722,409 1,712,752 869,887 226,183 4,531,231 Depreciation 2,863,988 3,559,830 688,790 375,863 7,488,471 Total operating expenses 20,160,343 12,188,035 4,241,393 3,851,264 40,441,035 Operating income (loss) 9,733,786 11,454,013 648,924 (3,137,487) 18,699,236 Nonoperating revenues (expenses) Use of money and property (714,713) (1,024,551) 666,894 (134,748) (1,207,118) Grants 1,848,593 97,413 538 3,210,238 5,156,782 Interest expense and fiscal charges (732,520) (388,023) (275,732) - (1,396,275) Income (loss) from investment in joint venture 585,101 - - - 585,101 Total nonoperating revenues (expenses) 986,461 (1,315,161) 391,700 3,075,490 3,138,490 Income (loss) before transfers and capital contributions 10,720,247 10,138,852 1,040,624 (61,997) 21,837,726 Capital Contributions Transfers out (794,769) (655,312) (235,233) - (1,685,314) Total transfers (794,769) (655,312) (235,233) - (1,685,314) Change in net position 9,925,478 9,483,540 805,391 (61,997) 20,152,412 Net position, beginning of year 84,800,287 99,201,571 26,905,947 6,807,760 217,715,565 Prior year restatements 1,628,736 885,527 2,246 - 2,516,509 Net position, beginning of year, as restated 86,429,023 100,087,098 26,908,193 6,807,760 220,232,074 Net position, end of year 96,354,501$ 109,570,638$ 27,713,584$ 6,745,763$ 240,384,486$ Enterprise Funds City of San Luis Obispo, California Statement of Revenues, Expenses, and Changes in Fund Net Assets Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 45 153 **DRAFT**v1 Water Sewer Parking Transit Total Cash flows from operating activities: Cash received from customers 29,124,164$ 23,929,298$ 4,894,662$ 2,710,830$ 60,658,954$ (12,057,282) (3,839,076) (1,433,120) (3,000,375) (20,329,853) (1,722,409) (1,712,752) (869,887) (226,183) (4,531,231) (5,390,029) (5,432,177) (1,618,671) (339,057) (12,779,934) Net cash provided by (used in) operating activities 9,954,444 12,945,293 972,984 (854,785) 23,017,936 Operating grants received 1,848,593 288,165 700,538 3,210,238 6,047,534 Transfers to other funds (794,769) (655,312) (235,233) - (1,685,314) 1,053,824 (367,147) 465,305 3,210,238 4,362,220 Cash flows from capital and related financing activities: (4,955,323) (40,437,426) (581,164) (80,878) (46,054,791) Principal paid on debt financing (1,574,854) (991,973) (550,486) - (3,117,313) Interest paid on debt financing (873,993) (392,496) (304,792) - (1,571,281) Proceeds from issuance of debt 2,275,261 42,592,565 - - 44,867,826 Net cash used in capital and related financing activities (5,128,909) 770,670 (1,436,442) (80,878) (5,875,559) Cash flows from investing activities: Use of money and property (755,835) (1,042,658) 139,980 (136,978) (1,795,491) Net cash provided by investing activities (755,835) (1,042,658) 139,980 (136,978) (1,795,491) 5,123,524 12,306,158 141,827 2,137,597 19,709,106 28,383,145 40,421,301 13,990,607 3,610,074 86,405,127 33,506,669$ 52,727,459$ 14,132,434$ 5,747,671$ 106,114,233$ Enterprise Funds City of San Luis Obispo, California Statement of Cash Flows Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 Cash payments to suppliers for goods and services Cash payments to General Fund for interfund services Cash payments to employees for services Acquisition and construction of capital assets Cash flows from noncapital financing activities: Net change in cash and cash equivalents Cash and cash equivalents, beginning of year, as restated Cash and cash equivalents, end of year Net cash provided by (used in) noncapital financing activities The accompanying notes are an integral part of these financial statements. 46 154 **DRAFT**v1 City of San Luis Obispo, California Statement of Cash Flows Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 Page 2 Water Sewer Parking Transit Total Operating income (loss) 9,733,786$ 11,454,013$ 648,924$ (3,137,487)$ 18,699,236$ Depreciation 2,863,988 3,559,830 688,790 375,863 7,488,471 Accounts receivable (769,965) 287,250 4,345 931,620 453,250 Accounts payable 142,314 (367,849) 120,939 19,561 (85,035) Unearned revenue - - - 1,065,433 1,065,433 (166,288) (195,391) (31,007) (1,095) (393,781) (1,705,210) (1,636,347) (419,007) (99,208) (3,859,772) (144,181) (156,213) (40,000) (9,472) (349,866) Net cash provided by (used in) operating activities 9,954,444$ 12,945,293$ 972,984$ (854,785)$ 23,017,936$ Reconciliation of cash and investments to the balance sheet: Cash and cash equivalents 33,073,104$ 52,727,181$ 14,128,393$ 5,747,671$ 105,676,349$ 433,565 278 4,041 - 437,884 Total cash and investments 33,506,669$ 52,727,459$ 14,132,434$ 5,747,671$ 106,114,233$ Noncash investing, capital, and financing activities: None Enterprise Funds Deferred OPEB and net OPEB liability Cash and investments held by fiscal agent Reconciliation of operating income (loss) to net cash provided by (used in) operating activities: Adjustments to reconcile operating income (loss) to net cash provided by (used in) operating activities: Change in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accrued salaries and compensated absences Deferred pensions and net pension liability The accompanying notes are an integral part of these financial statements. 47 155 **DRAFT**v1 Custodial Funds Assets Current assets: Cash and investment 8,729,369$ Accounts receivable 16,549 Accrued interest receivable 10,789 Capital assets, net of accumulated depreciation 789,639 Total assets 9,546,346 Liabilities Accounts payable 385,905 Compensated absence 54,086 Accrued Salaries 10,887 Other liabilities 2,000 Total liabilities 452,878 NET POSITION Restricted for Individuals, organizations, and other governments 9,093,468 Total Net Position 9,093,468$ City of San Luis Obispo, California Statement of Fiduciary Net Position Fiduciary Funds June 30, 2022 The accompanying notes are an integral part of these financial statements. 48 156 **DRAFT**v1 Custodial Funds ADDITIONS: Assessment revenue 152,848$ Charges for services 1,014,126 Charges for public programming 39,951 Contribution from developers 1,704,858 Other revenue 1,647,991 Use of money and property (137,980) Total additions 4,421,794 DEDUCTIONS: Administration expenses 258,616 Contractual services 1,347,589 Materials and supplies 89,444 Public programming 65,750 Use of developer deposits 416,978 Depreciation 63,459 Total deductions 2,241,836 Change in net position 2,179,958 NET POSITION: Beginning of year, as restated 6,913,510 End of year 9,093,468$ City of San Luis Obispo Statement of Changes in Fiduciary Net Position Fiduciary Funds For the year ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 49 157 **DRAFT**v1 50 158 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page Note 1: Summary of Significant Accounting Policies 1 Description of the Reporting Entity 1 Government-wide and Fund Financial Statements 1 Measurement Focus, Basis of Accounting and Basis of Presentation 1 Assets, Liabilities, and Net Position or Fund Balance 3 Reconciliation of Government-wide and Fund Financial Statements 6 Budgets and Budgetary Accounting 6 Fair Value Measurements 8 Note 2: Cash and Investments 8 Funds with Fiscal Agent 8 Investments 9 Note 3: Property Taxes 13 Note 4: Loan Receivable 14 Note 5: Capital Assets 15 Note 6: Leases 16 Note 7: Long Term Debt 18 Summary of Long-Term Debt 18 Governmental Activities Summary: 19 Revenue Bonds 19 Lease-Purchase Financing 20 2014 Energy Sources Conservation State Loan 21 Business-Type Activities Summary: 21 Revenue Bonds 21 Loans 23 Installment Sale Agreements 24 Note 8: Pension Plans 24 Agent-Multiple Employer Plan 25 General Information about the Pension Plan 25 Net Pension Liability 26 Changes in the Net Pension Liability 28 Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 29 Cost-Sharing Employer Plan 29 General Information about the Pension Plan 29 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 31 51 159 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements Table of Contents June 30, 2022 Page 2 Page Payable to the Pension Plan 34 Note 9: Other Post-Employment Benefits (OPEB) 35 General Information about OPEB 35 Net OPEB Liability 35 Changes in the Net OPEB Liability 37 OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB 38 Payable to the OPEB Plan 39 Note 10: Deferred Compensation Plan 39 Note 11: Interfund Transactions 39 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements 40 Whale Rock Commission 40 San Luis Obispo Regional Transit Authority 41 San Luis Obispo Council of Governments 41 Nacimiento Water Supply Project 41 Note 13: Risk Management 42 California Joint Powers Insurance Authority 42 Self-Insurance Programs of the Authority 43 Adequacy of Protection 43 Self-Insurance 43 Note 14: Commitments and Contingencies 44 Litigation 44 Grant Awards 44 Regional Transit Authority Pension Expense 44 Note 15: Construction and Other Significant Commitments 45 Note 16: Fund Balance Deficiency 45 Note 17: Subsequent Events 45 Note 18: New Accounting Standards 45 Accounting Standards Adopted 45 New Accounting Standards 46 Note 19: Prior Period Adjustments 47 52 160 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Note 1: Summary of Significant Accounting Policies The basic financial statements of the City of San Luis Obispo (City) have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant policies: Description of the Reporting Entity The City is a California charter city. It was incorporated on February 19, 1856 and chartered on May 1, 1876. It is organized in accordance with the Council-Mayor-City Manager form of government. With a population of approximately 45,920, the City provides a broad range of municipal services, including police and fire protection, parks and recreation, water and sewer utilities, street maintenance, public transportation, parking, planning, and building and safety. As required by GAAP, these financial statements present the City (the primary government) and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of the government's operations which creates the need to include their financial information with that of the primary government. The City has no component units that require discrete presentation in accordance with GASB standards. Blended Component Unit. The City has identified The San Luis Obispo Capital Improvement Board (the Board) and the San Luis Obispo Public Financing Authority (the Authority) as blended component units in accordance with GASB standards. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds and consist of the issuance of debt secured by the lease of property. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement Board or San Luis Obispo Public Financing Authority. Government-wide and Fund Financial Statements The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely primarily on fees and charges for services. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. The indirect expense allocation transfers general support services to operating programs based on the most current Cost Allocation Plan. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary funds and fiduciary funds. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 53 161 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 2 Note 1: Summary of Significant Accounting Policies (Continued) As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the government’s enterprise funds and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 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 to be 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 generally considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. An exception to this timeframe is made to allow for the recognition of the final property tax distributions received from the County, if necessary, as well as for sales tax revenues received in September. This later provision is made in order for the City’s revenue stream to match that recognized by the State of California. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. Major Funds and Other Funds. GASB Standards define major funds and require that the City’s major governmental funds be identified and presented separately in the fund financial statements. All other funds, called non-major funds, are combined and reported in a single column, regardless of their fund type. Major funds are defined as funds that have assets, liabilities, revenues, or expenditures/expenses equal to ten percent of their fund- type total and at least five percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds. The City reports the following major governmental funds: General Fund. This fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Capital Outlay Fund. This fund was established to account for all of the City’s construction projects and capital purchases in excess of $25,000 with the exception of those funded through non-major capital project funds and Enterprise Funds. Financing is provided primarily through transfers in from the General Fund, and from State and Federal Grants. The only proprietary funds the City reports are the Enterprise Funds, all of which are major funds. Proprietary funds are accounted for on the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports the following major enterprise funds: Water Fund. This fund accounts for the provision of water services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. Sewer Fund. This accounts for the provision of wastewater collection and treatment services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. Parking Fund. This fund accounts for activities related to the implementation of the Access and Parking Management Plan, including the operation of municipal parking lots, parking structures, parking meters and residential parking districts. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. 54 162 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 3 Note 1: Summary of Significant Accounting Policies (Continued) Transit Fund. This fund accounts for the operation and maintenance of the City's transit system. Although user fees are not the primary funding source for the operation of the system, the State of California and the Federal government, which provide the major funding sources for the system, require that local transit systems be accounted for on an enterprise fund basis. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The City has established eight Custodial Funds, which are used to account for funds held by the City as an agent for Whale Rock Commission, Jack House Committee, County Task Force, individual donations, Boysen Ranch, San Luis Ranch Community Facilities District and San Luis Coastal Unified School District and San Luis Obispo County Public Access, Inc. Public Access Television. Custodial funds are accounted for using the accrual basis of accounting. See supplementary information for a complete list of Custodial Funds. Assets, Liabilities, and Net Position or Fund Balance Cash, Cash Equivalents and Investments. The City pools cash resources of its various funds to facilitate cash management. Cash in excess of current requirements is invested and reported as investments. It is the City’s intent to hold investments until maturity. However, the City may, in response to market conditions, sell investments prior to maturity in order to improve the quality, liquidity or yield of the portfolio. The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Cash and investments held by fiscal agents are treated as cash equivalents for purposes of the statement of cash flows. Money markets and non-negotiable certificates of deposit are reported at amortized cost. All other investments are stated at fair value. Receivables and Payables. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds”. All receivables are shown net of any allowance for uncollectible accounts if material. Charges for utility services rendered but unbilled as of June 30 are accrued and are recognized as revenues. Prepaids and Inventories. The City has no significant inventories. The cost of any inventoriable item has been recorded as an expenditure or expense at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepayments in the governmental funds are accounted for using the consumption method. Restricted Assets. Certain proceeds of debt financings, as well as resources set aside for their repayment, are classified as restricted assets on the balance sheet because they are maintained in separate trust bank accounts and their use is limited by applicable debt covenants. Notes 2 and 5 have additional information on funds held by fiscal agents. 55 163 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 4 Note 1: Summary of Significant Accounting Policies (Continued) Capital Assets. Capital assets, which include property, plant, equipment and infrastructure assets (such as streets, sidewalks and bridges), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements, and in the proprietary funds statement of net position. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement would be reported at acquisition value rather than fair value. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend assets’ lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of the business- type activities is included as part of the capitalized value of the assets constructed. Detailed information on the City’s capital assets can be found in Note 4. Property, plant and equipment of the City are depreciated using the straight line method over the following estimated useful lives: Deferred Outflows and Inflows of Resources. The City recognizes deferred outflows and inflows of resources in the Statement of Net Position. A deferred outflow of resources is defined as a consumption of net assets by the City that is applicable to a future reporting period. The City has deferred outflows of resources related to pensions, other post-employment benefits (OPEB), and unamortized loss on refunding of debt. A deferred inflow of resources is defined as an acquisition of net assets by the City that is applicable to a future reporting period. The City has deferred inflows of resources related to pensions and OPEB. Compensated Absences. City employees are granted vacation and sick leave in varying amounts. In the event of termination, employees are reimbursed for the total value of their accumulated vacation days. Employees are reimbursed for 10% to 30% of the accumulated sick leave only upon retirement and only after at least 10 years of service. In selected cases, similar accumulated sick leave reimbursements may be available after 20 years of continuous employment. An employee's estate is reimbursed for 30% of the employee's accumulated sick leave in the event of death while in the City's employ. A liability for compensated absences is accrued in the government-wide and proprietary funds financial statements. Long-Term Obligations. In the government-wide financial statements, and proprietary funds in the fund financial statements, long- term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary funds statement of net position. Bond premiums and discounts and deferred amounts on refunding are deferred and amortized over the life of the bonds. Deferred amounts on refunding are reported separately from assets and liabilities in the Statement of Net Position. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred. In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the period they originate. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Assets Years Infrastructure 20-100 Buildings and structures 20-50 Improvements other than buildings 10-100 Equipment 3-21 56 164 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 5 Note 1: Summary of Significant Accounting Policies (Continued) Net Pension Liability. The City recognizes a net pension liability, which represents the excess of the total pension liability over the fiduciary net position of the pension reflected in the actuarial reports provided by the California Public Employees’ Retirement System (CalPERS) plans (Plans). The net pension liability is measured as of the City’s prior fiscal year-end. Changes in the net pension liability are recorded, in the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of resources depending on the nature of the change. The changes in the net pension liability that are recorded as deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs and differences between expected or actual experience) are amortized over the weighted average remaining service life of all participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which they are incurred. For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s CalPERS Plans and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Projected earnings on pension investments are recognized as a component of pension expense General fund is the governmental fund used to liquidate the pension liabilities of the governmental activities. Other Post-Employment Benefits (OPEB) Liability. For purposes of measuring net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan), and additions to or deductions from the OPEB Plan’s fiduciary net position, have been determined on the same basis as they are reported by the California Employer’s Retiree Benefit Trust Program (CERBT). For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with benefit terms. Investments are reported at fair value. General fund is the governmental fund used to liquidate the OPEB liabilities of the governmental activities. Generally accepted accounting principles require that the reported OPEB results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date June 30, 2021 Measurement Date June 30, 2021 Measurement Period July 1, 2020 to June 30, 2021 Fund Equity. In the fund financial statements, fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be spent. Fund balance is reported in five components in accordance with GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions – nonspendable, restricted, committed, assigned and unassigned. The City Council may take action via minute order to add, delete or amend a fund balance commitment that is not required as a condition of a bond covenant or other external, legal requirement. Nonspendable. This component includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted. This component consists of amounts that have constraints placed on them either externally by third-parties (creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate payment of resources (from external resource providers) and includes legally enforceable requirements (compelled by external parties) that those resources be used only for the specific purposes stipulated in the legislation. Committed. This component consists of amounts that can only be used for specific purposes pursuant to constraints imposed by minute order authorized by the City Council. Those committed amounts established by minute order cannot be used for any other purpose unless the City Council adopts a new minute order so directing. With respect to encumbered amounts, the City may take steps to cancel the order for goods or services and thereby terminate the obligation. 57 165 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 6 Note 1: Summary of Significant Accounting Policies (Continued) Assigned. This component consists of amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. The City Manager or Director of Finance are authorized by City Council, via formal action at regular public meetings, to assign amounts to a specific purpose. Constraints imposed on the use of assigned amounts can be removed with no formal Council actions. Unassigned. This component is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. The General Fund is the only fund that reports a positive unassigned fund balance amount. Other governmental funds may report negative unassigned fund balance, which occurs when a fund has a residual deficit after allocation of fund balance to the nonspendable, restricted, or committed categories. Fund Balance Spending Practice. The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when more than one amount is available for a specific purpose. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned) are available for use, it is the City’s policy to use committed resources first, then assigned, and then unassigned as they are needed. Reconciliation of Government-wide and Fund Financial Statements A reconciliation between total fund balance of the governmental funds and total net position of the governmental activities as reported in the government-wide statement of net position is presented in the basic financial statements. A reconciliation between total net change in fund balance of the governmental funds and total change in net position of governmental activities as reported in the government-wide statement of activities is presented in the basic financial statements. There are no differences between total net position of the proprietary funds and total net position of the business-type activities as reported in the government-wide statement of net position. Budgets and Budgetary Accounting Overview. The City has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. Significant features of the City's two-year Financial Plan include the integration of 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 (CIP) covering five years. 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 the City's Financial Plan is to link what the City wants to accomplish over the next two years with the resources required to do so. Formal statements of budgetary policies and major objectives provide the foundation for achieving this goal. Key budget principles include: maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; making current expenditures with current revenues; maintaining the City's traditional commitment to a strong General Fund; and complying with provisions of the State constitution, 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 in the Water, Sewer and Parking Funds; and at policy levels for cost recovery in the Transit Fund; 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. 58 166 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 7 Note 1: Summary of Significant Accounting Policies (Continued) Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City's two-year budgetary process: First Year. The Financial Plan process begins with City Council goal setting to determine major objectives to be accomplished over the next two years. As part of this process, community groups, interested individuals, and Council advisory bodies present their recommendations to the Council. Goals approved by the City Council are incorporated into the budget instructions issued to the operating departments, who 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 Council adoption of the Financial Plan and Budget prior to the start of the fiscal year. Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, adjusts as necessary and approves appropriations for the second fiscal year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent and unencumbered operating appropriations lapse at the end of the second year. The fiscal year which ended June 30, 2022 was the first year of the 2021-23 two-year cycle. Mid-Year Reviews. The Council formally reviews the City's financial condition and amends appropriations, if necessary, each February. Status Reports. Financial reports are prepared monthly to monitor the City's fiscal condition; more formal reports are posted to the City's website on a quarterly basis. Additionally, more focused reports are issued on key revenues, such as sales tax, transient occupancy tax and quarterly reports on investments. The status of major goals and program objectives, including Construction in Progress (CIP) projects, are also formally reported to the Council on an ongoing basis. Accounting and Budget Administration. Budgets are prepared for each fund in accordance with its respective basis of accounting consistent with U.S. Generally Accepted Accounting Principles (GAAP). All governmental funds have legally adopted budgets annually. While budgets are prepared for the City's capital projects funds, the capital projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented for capital projects funds in the accompanying other supplementary information following the basic financial statements. As provided under the City Charter, the Council may amend or supplement the budget at any time after its adoption by majority vote of the Council members. The legal level of budgetary control – the level at which expenditures are not to exceed appropriations – is the fund level. For management control purposes, the City Manager has the authority to make or approve administrative adjustments to the budget provided those changes will not have a significant policy impact nor affect budgeted year-end fund balances. Department heads have the authority to transfer line-item budgets within the department within a fund. During fiscal year 2022 several supplemental budget appropriations were made to reflect the inclusion of costs related to prior year encumbered amounts as well as the rollover of unspent capital appropriations. Additional appropriations were added to fund a prepayment made to the retirement system as well as to provide additional resources for the Community Development Department to ensure that it maintained a development review process that complied with State law considering the increased demand for services. These adjustments were material when compared to the original appropriations. Both the original and final amended budgets of the General Fund are presented as required supplementary information following the notes to the financial statements. Budget information for non-major governmental funds with annual budgets is presented in other supplementary information following the notes to the financial statements. 59 167 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 8 Note 1: Summary of Significant Accounting Policies (Continued) Encumbrances. The City uses an encumbrance system as an extension of normal budgetary accounting for the other governmental funds. Under this system, purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of applicable appropriations. Encumbrances outstanding at year-end are recorded as restricted, committed, or assigned fund balances since they do not constitute expenditures or liabilities. Unencumbered appropriations lapse at year-end. Encumbered appropriations are carried forward in the ensuing year’s budget. Indirect Cost Reimbursement. All of the City's general government and engineering programs are accounted and budgeted for in the General Fund. However, some of these support service programs also benefit the City's enterprise and custodial fund operations, and accordingly, payments are made from these funds to reimburse the General Fund for these services. The payments are based on a Central Service Cost Allocation Plan prepared for this purpose, which distributes these shared costs in a uniform, consistent manner in accordance with GAAP. Fair Value Measurements As defined in GASB Statements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City uses valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. GASB Statements establish a hierarchy of inputs to valuation techniques used to measure fair value. That hierarchy has three levels: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 — Observable inputs, other than Level 1 prices, for the asset or liability, either directly or indirectly. Level 3 — Unobservable inputs for the asset or liability. For fiscal year ended June 30, 2022, the application of valuation techniques applied to the City’s financial statements has been consistent. Note 2: Cash and Investments The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund's average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to such funds. Funds with Fiscal Agent The City has monies held by trustees or fiscal agents pledged to the payment or security of certain bonds. The California Government Code provides that these funds, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments its trustees or fiscal agents may make. These ordinances, resolutions, or indentures are generally more restrictive than the City's general investment policy. In no instance have additional types of investments been authorized which are not permitted by the City's investment policy. 60 168 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 9 Note 2: Cash and Investments (Continued) Investments The City is authorized by its investment policy, in accordance with Section 53601 of the California Government Code, to invest in the following instruments: Treasury bills and notes Government Sponsored Enterprises Commercial paper Repurchase agreements Bankers' acceptances Corporate medium-term notes Negotiable certificates of deposit Collateralized bank deposits Money market mutual funds State Local Agency Investment Fund (LAIF) Investments are stated at fair value, based on quoted market prices, in accordance with GASB standards. Investment income has been adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. While U.S. generally accepted accounting principles require recording any increases or decreases in the market value of the City’s investments, it is the City’s policy to make all investment decisions based on holding them through maturity, and therefore the City may not realize the gains or losses resulting from the fair value adjustment. As such, changes in market value generally do not affect the long-term results of the portfolio, but they can result in significant fluctuations from year-to-year. The fair value of the City’s position in the State LAIF pool is the same as the value of the pool shares. The State LAIF pool credit quality is unrated. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The State Treasurer’s Office audits the fund annually. At June 30, 2022, cash and investments consisted of the following: Fair Value Percent of Portfolio Cash and cash equivalents 43,770,453$ 20.39% Investments: State Local Agency Investment Fund 68,226,726 31.79% U.S. Treasury Bond / Note 56,725,859 26.43% Federal Agency Bond / Note 22,151,948 10.32% Corporate Note 13,692,137 6.38% Municipal Bond/Note 2,081,845 0.97% Asset-Backed Securities 1,688,832 0.79% Negotiable Certificates of Deposit 3,354,299 1.56% Non-Negotiable Certificates of Deposit 2,025,090 0.94% Money Market Funds 904,511 0.42% Total investments 170,851,247 79.61% Total cash and investments 214,621,700$ 100.00% 61 169 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 10 Note 2: Cash and Investments (Continued) At June 30, 2022, cash and investments are reflected in the financial statements as following: Investment Fair Value Measurements. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. Investment securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Investment securities classified in Level 2 of the fair value hierarchy are valued using matrix pricing or market corroborated pricing. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. The following is a summary of the fair value measurements as of June 30, 2022: Custodial Credit Risk – Deposits with Financial Institutions. The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover deposits. Deposits with financial institutions, including non-negotiable certificates of deposit, totaled $45,787,008 at June 30, 2022 and were insured or collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. Governmental Funds Business-Type Funds Fiduciar y Funds Total Cash and investments 99,356,588$ 105,676,349$ 8,729,369$ 213,762,306$ Cash and investments held by fiscal agents 421,510 437,884 - 859,394 Total cash and investments 99,778,098$ 106,114,233$ 8,729,369$ 214,621,700$ Government-Wide Statement of Net Position Fair Value Investments by fair value hierarchy U.S. Treasury Bond / Note 56,725,859$ -$ 56,725,859$ -$ Federal Agency Bond / Note 22,151,948 - 22,151,948 - Corporate Note 13,692,137 - 13,692,137 - Municipal Bond/Note 2,081,845 - 2,081,845 - Asset-Backed Securities 1,688,832 - 1,688,832 - Negotiable Certificates of Deposit 3,354,299 - 3,354,299 - Total investments by fair value hierarchy 99,694,920 -$ 99,694,920$ -$ Investments not subject to fair value hierarchy State Local Agency Investment Fund 68,226,726 Non-Negotiable Certificates of Deposit 2,025,090 Money Market Funds 904,511 Total investments not subject to fair value hierarchy 71,156,327 Total investments measured at fair value 170,851,247$ Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) 62 170 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 11 Note 2: Cash and Investments (Continued) The California Government Code requires California financial institutions to secure the City's deposits by pledging government securities as collateral. The market value of the pledged securities must equal 110% of the City's deposits. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes equal to 150% of the City's deposits or letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105% in excess of the total amount of deposits. Custodial Credit Risk - Investments. This is the risk that in the event of the failure of a counterparty, the City will not be able to recover the value of its investments that are in the possession of an outside party. All of the City’s investments in securities are insured or registered and held by a counterparty in the City’s name in accordance with the City’s policies. Interest Rate Risk. This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In accordance with its policies in the Investment Management Plan, the City mitigates interest rate risk by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market before maturity. Investing operating funds primarily in shorter-term securities. The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be invested in securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a maturity over one year, with no more than 10% of the portfolio invested in securities with a maturity over five years. Maturities using the segmented time distribution method for those investments requiring this disclosure are as follows: Investments held by fiscal agents are structured with maturity dates that correspond to the payment of final debt service of the respective bond indenture. Credit Risk. This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk include: Limiting investments to the safest types of securities. As noted above, the California Government Code limits the investment vehicles available to local agencies. The credit risk of these securities is measured by the assignment of a rating by a nationally recognized statistical rating organization. The table below presents the rating for each investment type as provided by Standard & Poor’s except as noted. Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business. Fair Value Less Than One Month One Month to One Year One to Five Years Over Five Years State Local Agency Investment Fund 68,226,726$ -$ 68,226,726$ -$ -$ U.S. Treasury Bond / Note 56,725,859 - 15,296,323 41,429,536 - Federal Agency Bond / Note 22,151,948 - 4,529,113 17,622,835 - Corporate Note 13,692,137 - 4,083,726 9,608,411 - Municipal Bond/Note 2,081,845 - - 2,081,845 - Asset-Backed Securities 1,688,832 - 38,679 1,650,153 - Negotiable Certificates of Deposit 3,354,299 - 3,354,299 - - Non-Negotiable Certificates of Deposit 2,025,090 - 2,025,090 - - Money Market Funds 904,511 904,511 - - - Total maturities 170,851,247$ 904,511$ 97,553,956$ 72,392,780$ -$ Cash in banks and on hand 43,770,453 214,621,700$ 63 171 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 12 Note 2: Cash and Investments (Continued) The following table identifies the Standard & Poor’s credit quality ratings for those investments requiring this disclosure as of June 30, 2022: Concentration Credit Risk. The City’s policies contained in the Investment Policy and Management Plan provide guidelines (by type of investment that limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment portfolio so that potential losses on individual securities will be minimized. The City’s Investment Management Plan outlines the following criteria related to portfolio diversification: No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any financial institution. No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial institutions. Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15% of the total assets of the institution; and negotiable certificates of deposit will only be placed with institutions with total assets in excess of $200 million and that maintain a ratio of equity to total assets of at least 5%. Foreign Currency Risk. The City does not hold any investment that is based on foreign currency exchange rates. Type of Investment Rating Total Federal Agency Bonds / Notes AA+22,151,948$ Corporate Notes AA 3,772,200 A+3,716,448 A 3,160,474 A-2,519,382 BBB+523,633 Total Corporate Notes 13,692,137 Municipal Bond/Note AAA 584,228 AA+291,627 AA 227,666 AA-978,324 Asset-Backed Securities AAA 1,688,832 Negotiable Certificates of Deposit A-1+1,144,808 A-1 2,209,491 Total Negotiable Certificates of Deposit 3,354,299 Not Applicable: U.S. Treasury Bonds / Notes 56,725,859 Not Rated: State Local Agency Investment Fund 68,226,726 Non-Negotiable Certificates of Deposit 2,025,090 Money Market Mutual Funds 904,511 Total Investments 170,851,247$ 64 172 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 13 Note 3: Property Taxes Property taxes in the State of California (State) are administered for all local agencies at the county level, and consist of secured, unsecured and utility tax rolls. The following is a summary of major policies and practices relating to property taxes: Property Valuation. Valuations are established by the Assessor of the County of San Luis Obispo (County) for the secured and unsecured property tax rolls; the utility property tax roll is valued by the State Board of Equalization. Under the provisions of Article XIIIA of the State Constitution (Proposition 13 adopted by the voters on June 6, 1978), properties are assessed at 100% of full value. Proposition 13 also modified the value of taxable real property for fiscal 1979 by rolling back values to fiscal 1976 levels. From this base of assessment, subsequent annual increases in valuation are limited to a maximum of 2%. However, increases to full value are allowed for property improvements or upon change in ownership. Personal property is excluded from these limitations and is subject to annual reappraisal. Tax Levies. Under the provisions of Proposition 13, the countywide tax levy for general revenue purposes is limited to 1% of full market value, which results in a tax rate of $1.00 per $100 assessed valuation. Tax rates for voter approved indebtedness are excluded from this limitation. Tax Levy Dates. All lien dates attach annually on January 1 preceding the fiscal year for which the taxes are levied. The fiscal year begins July 1 and ends June 30 of the following year. Taxes are levied on both real and unsecured personal property as it exists at that time. The lien against real estate as well as the tax on personal property is not relieved by subsequent renewal or change in ownership. Tax Collections. The County Treasurer/Tax Collector is responsible for all property tax collections. Taxes and assessments on the secured and utility rolls, which constitute a lien against the property, may be paid in two installments: the first installment is due on November 1 of the fiscal year and is delinquent if not paid by December 10; and the second installment is due on March 1 of the fiscal year and is delinquent if not paid by April 10. Unsecured personal property taxes do not constitute a lien against real property. However, if the taxes become delinquent the lien is attached against anything the individual owns, which could include real property. Payment must be made in one installment, which is delinquent if not paid by August 31 of the fiscal year. Significant penalties are imposed by the County for late payments. Teeter Plan. In 1993-94 the City elected to receive property tax revenue in accordance with the alternative method of distribution prescribed by Sections 4701-4717 of the California Revenue and Taxation Code, which is commonly known as the “Teeter Plan” whereby the County remits 100% of taxes levied without regard to delinquencies. The County then pursues collection, retaining any delinquent taxes and related penalties and interest. Tax Levy Apportionments. Due to the nature of the countywide maximum levy, it is not possible to identify general purpose tax rates for specific entities. Under State legislation adopted after the passage of Proposition 13, apportionments to local agencies are made by the County Auditor Controller based primarily on two factors: the ratio that each agency represented of the total County wide levy for the three years prior to fiscal 1979; and subsequent adjustments to these apportionments and transfers to the “Educational Revenue Augmentation Fund” (ERAF) as determined by the State. City Property Tax Distribution Policy. Property taxes are recorded in the General Fund as general-purpose revenue. Transfers are made from the General Fund as needed to support expenditures in the Capital Outlay, Open Space Protection, Fleet Replacement, Information Technology Replacement, Major Facility Replacement and Debt Service Funds. Property taxes receivable at June 30, 2022 have been accrued since they will be collected within 60 days subsequent to year-end. 65 173 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 14 Note 4: Loan Receivable Loans receivable, including accrued interest comprised balances from the following programs, all of which are discussed on the following pages. A. Affordable Housing Loans - The City’s Affordable Housing Fund provides grants and loans to certain development projects that meet the City’s affordability criteria. As of June 30, 2022, the Fund has 17 loans for affordable housing developments with interest rates ranging from 0% to 4% and repayment terms of 30 to 57 years. These loans had a remaining principal balance of $8.5 million; 4 loans for $669,063 are forgivable if certain criteria are met. The Fund has secured more than 450 affordable housing units for City residents. B. BEGIN Homeownership Loan - The City has provided deferred payment loans utilizing funding from the State of California under the BEGIN program. On June 30, 2022, the Fund had two outstanding loans utilizing this program with a principal balance of $130,000. These loans are provided for a term of 30 years with an annual interest rate of 3%. C. Down Payment Assistance - The Fund has provided down payment assistance loans to individuals purchasing affordable housing units. As of June 30, 2022, the Affordable Housing Fund had eight outstanding down payment assistance loans with a principal balance of $381,155. These loans are provided for a term of 30 years with an annual interest rate of 3%. D. Impact Fee Deferral Loan – The City has provided certain affordable housing developments with loans equal to the amount of certain impact fees. These loans are reflected in the respective impact fee funds. As of June 30, 2022, the total principal outstanding was $4,487,674. These loans are provided for a term of 55 years with an annual interest rate of 3%. E. Community Development Block Grant (CDBG) Fund Loans – The City has provided loans from the City’s allocation of CDBG funding for certain affordable housing developments. As of June 30, 2022, the CDBG Fund had $1,112,944 principal outstanding on the loans. The loans have terms of 30 years and annual interest rates of 3% to 4%. Total Balance Description Loan Receivable Interest Receivable June 30, 2022 Governmental Funds: Affordable Housing Loan 8,490,688$ 1,608,237$ 10,098,925$ BEGIN Homeownership Loan 130,000 48,775 178,775 Down Payment Assistance 381,155 69,328 450,483 CDBG 1,112,944 648,481 1,761,425 Impact Fee Loan 2,212,740 175,711 2,388,451 Total governmental funds 12,327,527 2,550,532 14,878,059 Enterprise Funds: Impact Fee Loan 2,274,934 278,913 2,553,847 Total enterprise funds 2,274,934 278,913 2,553,847 Total Primary Government 14,602,461$ 2,829,445$ 17,431,906$ 66 174 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 15 Note 5: Capital Assets GASB standards require that the City report in the government-wide statements the value of all capital assets net of accumulated depreciation, including infrastructure assets, in accordance with GAAP. Infrastructure assets are defined as long-lived capital assets that are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. The minimum requirement for compliance with GASB standards is to provide infrastructure valuations for all assets constructed, acquired, or placed into service on or after July 1, 1980. Relevant assets for the City were valued at one of two dates: 1) the original date of construction, if available, or 2) the incorporation date of the City. Each asset was reviewed to determine the adequacy of the data to value the asset prior to July 1, 1980 using historical cost or estimated historical cost. Capital assets activity for the fiscal year ended June 30, 2022 was as follows: Balance Balance June 30, 2021 Additions Deletions Transfers Adjustments June 30, 2022 Governmental activities: Capital assets not being depreciated: Land 32,263,736$ -$ -$ -$ -$ 32,263,736$ Construction in progress 8,859,498 14,980,282 (16,990) (13,185,786) - 10,637,004 Public art 646,630 - - - - 646,630 Total capital assets not - being depreciated 41,769,864 14,980,282 (16,990) (13,185,786) - 43,547,370 Capital assets being depreciated: Infrastructure 201,307,747 - - 4,402,519 - 205,710,266 Accumulated Depreciation (70,327,468) (3,340,085) - - (763,910) (74,431,463) Buildings and improvements 41,071,359 - - 7,433,755 - 48,505,114 Accumulated Depreciation (21,770,258) (1,606,739) - - 806,458 (22,570,539) Equipment 30,980,665 - - 1,349,512 - 32,330,177 Accumulated Depreciation (18,262,924) (1,618,942) - - (73,170) (19,955,036) Capital assets being amortized: Right of use - Lease asset - 157,527 - - - 157,527 Accumulated Amortization - (37,065) - - - (37,065) Total capital assets being depreciated/amortized, net 162,999,121 (6,445,304) - 13,185,786 (30,622) 169,708,981 Governmental activities, capital assets, net 204,768,985$ 8,534,978$ (16,990)$ -$ (30,622)$ 213,256,351$ Business-type activities: Capital assets not being depreciated: Land 9,069,495$ -$ -$ -$ -$ 9,069,495$ Construction in progress 82,168,910 46,158,398 (93,545) (5,278,153) - 122,955,610 Total capital assets not being depreciated 91,238,405 46,158,398 (93,545) (5,278,153) - 132,025,105 Capital assets being depreciated: Infrastructure 227,144,816 - - 4,770,092 (1,047,060) 230,867,848 Accumulated Depreciation (102,024,535) (5,578,768) - - (473,101) (108,076,404) Buildings and improvements 30,156,529 (7,303) 50,000 328,150 30,527,376 Accumulated Depreciation (15,225,339) (601,014) - - (134,991) (15,961,344) Equipment 21,761,714 - - 458,061 719,061 22,938,836 Accumulated Depreciation (14,581,156) (1,308,689) - - 605,182 (15,284,663) Total capital assets being depreciated, net 147,232,029 (7,488,471) (7,303) 5,278,153 (2,759) 145,011,649 Business-type activities, capital assets, net 238,470,434 38,669,927 (100,848) - (2,759) 277,036,754 Total Government-wide 443,239,419$ 47,204,905$ (117,838)$ -$ (33,381)$ 490,293,105$ 67 175 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 16 Note 5: Capital Assets (Continued) Depreciation expense was charged to functions/programs as follows: Note 6: Leases Pursuant to GASB 87, the City has the following lease receivables: James Town On 11/5/2013, the City entered into a lease with James Town Premier SL Retail, L.P. or commercial retail space located at the Marsh Street parking structure. Under the lease, the lessee pays the City $11,310 per month from 2/1/2014 – 1/31/2015 and with 3% increase each year from 2/1/2015 – 1/31/2024. The lease term has one 5-year extension option. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.5%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $165,652 of lease revenue and $11,983 of interest revenue under the lease. Crown Castle On 9/19/2017, the City entered into a lease with Crown Castle NG West LLC to utilize City utility poles for communications equipment. Under the lease, the initial annual pole fee shall consist of $1,000 for each city pole which Crown Castle’s facilities are to be installed pursuant to this agreement and is payable to city upon execution and delivery of this agreement and prior to Crown Castle installing any portion of the network or any facilities. The term ends on 9/1/2047 with 3% increase annually. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.5%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $8,564 of lease revenue and $5,743 of interest revenue under the lease. Garden Street On 8/1/2015, the City entered into a lease with Garden Street SLO Partners, L.P for the right to use land formerly a surface parking lot in order to build a hotel. Under the lease, the lessee pays the City $171,600 or the “Base Annual Rent Floor”, which is the amount of Landlord’s annual net revenue from the operation of Parking Lot 2 on the premises in the period of twelve months ended on the last day of the last full calendar month ended two months prior to the rent commencement date. The amount of base rent shall be increased as of the first day of each rent adjustment period commencing with the rent adjustment period that begins on the first day of the third lease year and on the first day of each subsequent rent adjustment period. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 1%, which is the 5- year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $394,729 of lease revenue and $367,683 of interest revenue under the lease. Governmental activities: Public safety 531,827$ Transportation 2,501,557 Culture and recreation 242,933 Community development 111,618 General government 3,214,896 Total depreciation - governmental activities 6,602,831 Business-type activities: Water 2,863,988 Sewer 3,559,830 Parking 688,790 Transit 375,863 Total depreciation - business-type activities 7,488,471 Total Government-wide 14,091,302$ 68 176 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 17 Note 6: Leases (Continued) Laguana AT&T On 9/16/2009, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater that ends on 9/30/2029. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $40,785 of lease revenue and $5,994 of interest revenue under the lease. Laguna SBA On 2/1/2005, the City entered into a lease with SBA 2012 TC Assets, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $25,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends in 2025. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $45,734 of lease revenue and $3,680 of interest revenue under the lease. Santa Rosa St On 5/13/2011, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Santa Rosa Park. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends on 5/13/2031. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $73,432 of lease revenue and $14,114 of interest revenue under the lease. The future revenue payments as of June 30, 2022 are as follows: Year Ending June 30, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2023 167,582$ 6,335$ 1,197$ 5,717$ -$ 368,693$ 31,013$ 5,392$ 38,545$ 2,537$ 58,985$ 12,969$ 297,322$ 401,643$ 2024 102,280 917 1,448 5,682 - 369,703 32,744 4,750 40,968 1,312 62,299 11,806 239,739 394,170 2025 - - 1,698 5,607 - 368,693 34,530 4,047 43,499 4 65,810 10,509 145,537 388,860 2026 - - 1,994 5,537 - 368,693 36,412 3,319 - - 69,426 9,175 107,832 386,724 2027 - - 2,292 5,457 - 368,693 38,354 2,552 - - 73,183 7,768 113,829 384,470 2028-2032 - - 16,544 25,702 - 1,845,484 127,475 2,647 - - 333,279 15,460 477,298 1,889,293 2033-2037 - - 26,937 21,739 - 1,844,474 - - - - - - 26,937 1,866,213 2038-2042 - - 40,470 15,651 - 1,844,474 - - - - - - 40,470 1,860,125 2043-2047 - - 57,878 6,799 - 1,844,474 - - - - - - 57,878 1,851,273 2048-2052 - - 14,070 1 - 1,845,484 - - - - - - 14,070 1,845,485 2053-2057 - - - - - 1,844,474 - - - - - - - 1,844,474 2058-2062 - - - - 161,351 1,842,865 - - - - - - 161,351 1,842,865 2063-2067 - - - - 986,479 1,807,993 - - - - - - 986,479 1,807,993 2068-2072 - - - - 1,353,075 1,748,798 - - - - - - 1,353,075 1,748,798 2073-2077 - - - - 1,732,118 1,669,339 - - - - - - 1,732,118 1,669,339 2078-2082 - - - - 2,161,637 1,569,604 - - - - - - 2,161,637 1,569,604 2083-2087 - - - - 2,695,176 1,445,748 - - - - - - 2,695,176 1,445,748 2088-2092 - - - - 3,248,775 1,295,791 - - - - - - 3,248,775 1,295,791 2093-2097 - - - - 3,869,169 1,113,664 - - - - - - 3,869,169 1,113,664 2098-2102 - - - - 4,634,199 897,046 - - - - - - 4,634,199 897,046 2103-2107 - - - - 5,426,984 643,007 - - - - - - 5,426,984 643,007 2108-2112 - - - - 6,313,092 344,758 - - - - - - 6,313,092 344,758 2113-2115 - - - - 4,287,231 43,275 - - - - - - 4,287,231 43,275 Total 269,862$ 7,252$ 164,528$ 97,892$ 36,869,286$ 27,335,227$ 300,528$ 22,707$ 123,012$ 3,853$ 662,982$ 67,687$ 38,390,198$ 27,534,618$ TotalJames Town Crown Castle Garden St Laguna ATT Laguna SBA Santa Rosa St 69 177 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 18 Note 7: Long Term Debt Summary of Long-Term Debt The following is a summary of the City's long-term debt transactions for the year ended June 30, 2022: Compensated absences in the governmental funds are generally liquidated by the General Fund on a pay as you go basis. For detail of estimated claims and liabilities, see Note 11. The San Luis Obispo Capital Improvement Board (Board) and the San Luis Obispo Public Financing Authority (Authority) have entered into a number of lease agreements with the City of San Luis Obispo wherein the City is obligated to make all debt service payments. The transactions between the Board/Authority have been eliminated from these financial statements. Balance Balance Due Within June 30, 2021 Additions Deductions June 30, 2022 One Year Governmental activities: 2012 Lease revenue refunding bonds 2,970,000$ -$ (270,000)$ 2,700,000$ 285,000$ 2014 Lease revenue bonds 6,635,000 - (175,000) 6,460,000 185,000 2018 Lease revenue refunding bonds 9,212,575 - (553,475) 8,659,100 569,850 Add: Unamortized bond premium 1,221,204 - (85,448) 1,135,756 - Total revenue bonds 20,038,779 - (1,083,923) 18,954,856 1,039,850 Lease liability - 157,527 (32,524) 125,003 32,257 Lease-purchase financing 734,673 - (344,253) 390,420 354,175 Conservation Loan 232,111 - (92,150) 139,961 93,074 Total long-term debt, governmental activities 21,005,563$ 157,527$ (1,552,850)$ 19,610,240$ 1,519,356$ Compensated absences 3,016,523$ 3,121,720$ (3,033,638)$ 3,104,605$ 2,111,566$ Business-type activities: 2012 Water revenue refunding bonds 1,080,000 - (530,000) 550,000 550,000 2018 Lease revenue refunding bonds 4,852,425 - (291,525) 4,560,900 300,150 2018 Water revenue refunding bonds 8,785,000 - (455,000) 8,330,000 470,000 Add: Unamortized bond premium 2,054,746 - (188,468) 1,866,278 - Total revenue bonds 16,772,171 - (1,464,993) 15,307,178 1,320,150 Loans 56,229,546 44,867,826 (1,178,724) 99,918,648 1,212,201 Installment sale agreements 4,919,407 - (662,064) 4,257,343 681,479 Total long-term debt, business-type activities 77,921,124 44,867,826 (3,305,781) 119,483,169 3,213,830 Compensated absences 613,247 449,589 (536,725) 526,111 157,833 Total Government-wide 102,556,457$ 48,596,662$ (8,428,994)$ 142,724,125$ 7,002,585$ 70 178 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 19 Note 7: Long Term Debt (Continued) Governmental Activities Summary: Revenue Bonds 2012 Refunding Lease Revenue Bonds. In 2012, the Board issued refunding lease revenue bonds in the amount of $5,050,000 to refinance the outstanding 2001 lease revenue bonds, Series C. The purpose of these bonds was to purchase property and build athletic fields, purchase property for police station expansion, and purchase Downtown Plan properties. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on December 1 through December 1, 2029 that range from $210,000 to $390,000. At June 30, 2022, the principal amount outstanding on the bonds was $2,700,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2022. In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2022, the unamortized premium was $142,771. 2014 Lease Revenue Bonds. In 2014, the Authority issued lease revenue bonds in the amount of $7,580,000 to finance the expansion of the Los Osos Valley Road interchange at U.S. 101. The bonds bear interest from 3.00% to 4.00% and are due in annual installments on November 1 through November 1, 2044 that range from $145,000 to $410,000. At June 30, 2022, the principal amount outstanding on the bonds was $6,460,000. In the Statement of Net Position, the 2014 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2014 bonds. At June 30, 2022, the unamortized premium was $126,857. 2018 Lease Revenue Refunding Bonds. In 2018, the Authority issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $11,072,775 was used for financing governmental activities related to the original bonds and the remainder was used for business-type activities. The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from $255,000 to $1,250,000. At June 30, 2022, the principal amount outstanding that pertains to governmental activities was $8,659,100 of the total $13,220,000 outstanding. In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2022, the unamortized premium for governmental activities was $866,128. The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the following 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments). Lease Liability (Cuesta Peak) On October 23, 2003, the City entered into a 22-year Lease Agreement as lessee of a site for City radio equipment. The City pays the landlord $16,857.96 annually with a 4% increase. An initial lease liability was recorded in the amount of $157,527. As of June 30, 2022, the value of the lease liability is $125,003. The City is required to make monthly payments of $670 and increase annually by 5% in October of each year. The lease has an interest rate of 3.04%. The value of the right to use asset as of June 30, 2022 of $157,527 with accumulated amortization of $37,065 is included in the intangible assets on the capital assets activities table found in Note 5 above. 71 179 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 20 Note 7: Long Term Debt (Continued) At June 30, 2022, the aggregate maturities of the aforementioned governmental activities revenue bonds were as follows: At June 30, 2022, the aggregate maturities of the aforementioned governmental lease liability was as follows: Lease-Purchase Financing Fire Truck. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The gross amount of assets under this lease is $673,095 with $90,732 accumulated depreciation included in equipment at June 30, 2021. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533 beginning December 5, 2018 through September 5, 2023. At June 30, 2022, the principal amount outstanding is $178,389. Motorola Radios. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The gross amount of assets under this lease is $636,240 with $212,080 accumulated depreciation as it was placed in service at year end. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. At June 30, 2022, the principal amount outstanding was $212,031. For the Year Ending June 30, Principal Interest Total 2023 1,039,850$ 715,750$ 1,754,365$ 2024 1,091,050 674,056 1,755,600 2025 1,133,975 630,214 1,765,106 2026 1,178,450 578,566 1,764,189 2027 1,021,775 524,744 1,546,519 2028-2032 4,992,400 1,941,690 6,934,090 2033-2037 4,144,450 1,008,511 5,152,961 2038-2042 2,032,150 428,645 2,460,795 2043-2045 1,185,000 72,300 1,257,300 17,819,100$ 6,574,476$ 24,393,576$ For the Year Ending June 30, Principal Interest Total 2023 32,257$ 3,637$ 35,894$ 2024 34,901 2,411 37,312 2025 37,694 1,074 38,768 2026 20,151 2 20,153 125,003$ 7,124$ 132,127$ 72 180 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 21 Note 7: Long Term Debt (Continued) At June 30, 2022, the aggregate maturities of the aforementioned governmental activities lease-purchase financing were as follows: 2014 Energy Sources Conservation State Loan In 2014, the City obtained a note in the amount of $850,775 for the purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. At June 30, 2022, the principal amount outstanding is $139,961. At June 30, 2022, the aggregate maturities of the aforementioned governmental activities conservation loan is as follows: Business-Type Activities Summary: Revenue Bonds 2012 Water Revenue Refunding Bonds. In 2012, the City issued water revenue refunding bonds in the amount of $4,960,000 to refund the 2002 water revenue bonds, which were originally issued to fund water system improvements. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on June 1 through June 1, 2023 that range from $340,000 to $550,000. At June 30, 2022, the principal amount outstanding on the bonds was $550,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2022. In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2022, the unamortized premium was $96,234. The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $573,200 and $6,723,041, respectively. For the Year Ending June 30, Principal Interes t Total 2023 354,175$ 3,986$ 358,161$ 2024 36,245 289 36,534 390,420$ 4,275$ 394,695$ For the Year Ending June 30, Principal Interest Total 2023 93,074$ 1,168$ 94,242$ 2024 46,887 235 47,122 139,961$ 1,403$ 141,364$ 73 181 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 22 Note 7: Long Term Debt (Continued) 2018 Lease Revenue Refunding Bonds. In 2018, the Authority issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $5,832,225 was used for financing business-type activities related to the original bonds and the remainder was used for governmental activities. The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from $255,000 to $1,250,000. At June 30, 2022, the principal amount outstanding that pertains to business-type activities was $4,560,900 of the total $13,220,000 outstanding. In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2022, the unamortized premium that pertains to business-type activities was $458,944. The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the next 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments). 2018 Water Revenue Refunding Bonds. In 2018, the City issued water revenue refunding bonds the in the amount of $10,095,000 to refund the 2006 water revenue bonds, which were originally issued to fund improvements to the water treatment plant. The bonds bear interest from 4% to 5% and are due in annual installments on June 1 through June 1, 2035 that range from $455,000 to $845,000. At June 30, 2022, the principal amount outstanding on the bonds was $8,330,000. The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $889,700 and $6,723,041, respectively. In the Statement of Net Position, the bonds include the related unamortized premium which is being amortized and charged to expense over the term of the bonds. At June 30, 2022, the unamortized premium was $1,311,100. At June 30, 2022, the aggregate maturities of the business-type revenue bonds were as follows: For the Year Ending June 30, Principal Interest Total 2023 1,320,150$ 633,238$ 1,953,388 2024 808,950 575,732 1,384,682 2025 846,025 538,424 1,384,449 2026 886,550 496,122 1,382,672 2027 813,225 451,794 1,265,019 2028-2032 4,737,600 1,604,980 6,342,580 2033-2037 3,845,550 406,180 4,251,730 2038-2039 182,850 9,542 192,392 13,440,900$ 4,716,012$ 18,156,912$ 74 182 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 23 Note 7: Long Term Debt (Continued) Loans 2001 CIEDB State Loan. In 2001, the City obtained a note in the amount of $7,765,900 to go towards expanding the Marsh Street parking structure. The note bears an interest rate of 3.37% due in semi-annual installments on February 1 and August 1 through August 31, 2031 that range from $169,000 to $396,000. At June 30, 2022, the principal amount outstanding on the loan was $3,470,379. 2009 Infrastructure and Economic Development Bank Loan– Tank Farm Lift Station. In 2009, the City obtained a note in the amount of $10,000,000 to go towards the Tank Farm lift station and main sewer project. The note bears an interest rate of 3.25% due in annual installments on December 1 through December 1, 2037 that range from $212,600 to $520,744. At June 30, 2022, the principal amount outstanding on the loan was $6,626,416. The City has pledged future sewer system revenues, net of specific operating expenses, to repay the loan. The loan is payable solely from sewer customer net revenues. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $532,596 and $10,304,284, respectively. 2018 Clean Water State Revolving Fund Loan. In 2018, the City Council approved the Clean Water State Revolving Fund loan agreement between the City of San Luis Obispo and the California State Water Resources Control Board for a $140 million loan for the Water Resource Recovery Facility Project. The City will receive $4 million in principal forgiveness and the remaining $136 million will be repaid over 30 years. The applicable interest rate was set at 1.8%. As of June 30, 2022, the City had partially drawn down the loan and had an outstanding principal balance of $77,650,275. 2020 CIEDB State Loan. In 2020, the City obtained a note in the amount of $14,300,000 for improvements to the City’s Water Treatment Plant to provide enhanced reliability and energy and operational efficiencies. The note bears an interest rate of 2.5% and a term of 20 years. At June 30, 2022, the City had partially drawn down the loan and had an outstanding principal balance of $12,171,578. At June 30, 2022, the aggregate maturities of the aforementioned business-type loans were as follows: For the Year Ending June 30, Principal Interest Total 2023 1,212,201$ 641,190$ 1,853,391$ 2024 3,211,641 1,967,763 5,179,404 2025 3,280,590 1,895,817 5,176,407 2026 3,352,693 1,822,214 5,174,907 2027 3,426,480 1,746,888 5,173,368 2028-2032 18,301,173 7,541,107 25,842,280 2033-2037 18,253,321 5,414,014 23,667,335 2038-2042 16,310,457 3,624,403 19,934,860 2043-2047 14,615,022 2,236,669 16,851,691 2048-2052 17,955,069 2,270,809 20,225,879 99,918,648$ 29,160,874$ 129,079,522$ 75 183 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 24 Note 7: Long Term Debt (Continued) Installment Sale Agreements 2008 Suntrust Bond. In 2008, the Board entered into an installment sale contract financing $2,050,000 to finance the Tank Farm lift station. The terms state an interest rate of 4.2% due in annual installments through 2023 that range from $372,900 to $607,200. At June 30, 2022, the principal amount outstanding on the loan was $350,000. US Bancorp 2014 Wastewater Lease. In 2013, the Board entered into an installment sale contract financing $7,479,000 to finance the acquisition and installation of improvements to its water reclamation facility. The note bears an interest rate of 2.8994% due in annual installments on June 1 and December 1 through December 1, 2028 that range from $372,900 to $607,200. At June 30, 2022, the principal amount outstanding on the loan was $3,907,343. At June 30, 2022, the aggregate maturities of the aforementioned business-type installment sale agreements were as follows: There are a number of limitations and restrictions contained in the various bond indentures. City management believes that the City has complied with the indenture requirements. Security for revenue bonds is paid from receipts or net income and amounts in funds or accounts established under bond indentures. Note 8: Pension Plans The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees. The City participates in one agent multiple-employer plan for its miscellaneous employees (Miscellaneous Plan) and one cost-sharing multiple-employer plan for its safety employees (Safety Plan). The Miscellaneous Plan is described in the first section of the footnote under Agent- Multiple Employer Plan and the Safety Plan follows and is described in the second section of the footnote under Cost-Sharing Employer Plan. A summary of the government-wide balances for all Plans at June 30, 2022 are as follows: For the Year Ending June 30, Principal Interest Total 2023 681,479$ 117,026$ 798,505$ 2024 706,312 94,628 800,940 2025 541,575 75,364 616,939 2026 557,280 59,431 616,711 2027 573,441 43,035 616,476 2028-2029 1,197,256 34,968 1,232,224 4,257,343$ 424,452$ 4,681,795$ Net Pension Deferred Outflows Deferred Inflows Pension Liability of Resources of Resources Expense Miscellaneous Plan 65,993,658$ 16,642,794$ 16,789,383$ 4,429,353$ Safety Plan 58,571,330 23,386,580 37,916,886 22,198,982 Total Government-Wide 124,564,988$ 40,029,374$ 54,706,269$ 26,628,335$ 76 184 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 25 Note 8: Pension Plans (Continued) Agent-Multiple Employer Plan General Information about the Pension Plan Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City 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. 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 for Tier 1 employees. Tier 2 and PEPRA employees are based on a three-year average 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 non-duty 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 the plan are applied as specified by the Public Employees’ Retirement Law. The Miscellaneous Plan’s provisions and benefits by tier in effect at June 30, 2022, are summarized as follows: While the City's Miscellaneous Plan is not closed to new entrants, the component option of 2.7% @ 55 is closed to new entrants. Classic Members as defined by CalPERS entering the City's Miscellaneous Plan would enter the 2% @ 60 option while New Members as defined by CalPERS entering the City Miscellaneous Plan would enter the 2% @ 62 option. Prior to On or after On or after Hire date December 6, 2012 December 6, 2012 January 1, 2013 Benefit formula 2.7% @ 55 2% @ 60 2% @ 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 - 55 50 - 63 52 - 67 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.092% to 2.418% 1.0% to 2.5% Required employee contribution rates 7.520%7.520%7.00% Required employer contribution rates 9.950%9.950%9.950% Required unfunded accrued liability payment - (1)- (1)6,819,439$ (1) -Combined with on or after January 1, 2013 Tiers within the Miscellaneous Plan 77 185 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 26 Note 8: Pension Plans (Continued) Employees Covered. As of the measurement date June 30, 2021, the following employees were covered by the benefit terms for the Miscellaneous Plan: 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 July 1 following notice of a change in the rate. Funding contributions for the Plan are 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. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employees that are classified as unrepresented management or unrepresented confidential contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution. During the measurement period, the City contributions totaled $8,246,755. Net Pension Liability The City’s net pension liability for the Miscellaneous Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions. The total pension liability in the June 30, 2020 actuarial valuation was determined using the following actuarial assumptions: Miscellaneous Plan Inactive employees or beneficiaries currently receiving benefits 418 Inactive employees entitled to but not yet receiving benefits 422 Active employees 319 Total 1,159 Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increase Mortality (1) Post Retirement Benefit Increase 7.15% Entry-Age Normal Cost Method June 30, 2021 Miscellaneous Plan June 30, 2020 (1) The mortatily table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. Contract COLA up to 2.50% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter Derived using CalPERS' Membership Data for all Funds Varies by Entry Age and Service 2.50% 78 186 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 27 Note 8: Pension Plans (Continued) Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15% will be applied to all plans in the Public Employees Retirement Fund (PERF). The cash flows used in the testing were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best- estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS considered both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The table below reflects the long-term expected real rate of return by asset class. Assumed Asset Real Return Real Return Asset Class (a)Allocation Years 1 - 10 (b)Years 11+ (c) Global Equity 50.0%4.80%5.98% Fixed Income 28.0%1.00%2.62% Inflation Assets -0.77%1.81% Private Equity 8.0%6.30%7.23% Real Assets 13.0%3.75%4.93% Liquidity 1.0%--0.92% (a) In the CalPERS's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short- term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities (b) An expected inflation of 2.0% used for this period (c) An expected inflation of 2.92% used for this period Miscellaneous Plan 79 187 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 28 Note 8: Pension Plans (Continued) Changes in the Net Pension Liability The changes in the Net Pension Liability for the Miscellaneous Plan follows: Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City for the Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Pension Plan Fiduciary Net Position. Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Plan Net Total Fiduciary Pension Pension Net Liability/ Liability Position (Asset) Balance at June 30, 2020 237,568,349$ 148,289,275$ 89,279,074$ Changes during the year: Service cost 3,939,785 - 3,939,785 Interest on the total pension liability 16,589,680 - 16,589,680 Differences between expected and actual experience (755,414) - (755,414) Contribution - employer - 8,246,755 (8,246,755) Contribution - employee - 2,056,274 (2,056,274) Net investment income - 32,904,570 (32,904,570) Benefit payments, including refunds of employee contributions (13,518,666) (13,518,666) - Administrative expense - (148,132) 148,132 Net changes 6,255,385 29,540,801 (23,285,416) Balance at June 30, 2021 243,823,734$ 177,830,076$ 65,993,658$ Miscellaneous Plan 1% Decrease 6.15% Net Pension Liability 96,151,600$ Current Discount Rate 7.15% Net Pension Liability 65,993,658$ 1% Increase 8.15% Net Pension Liability 40,892,112$ 80 188 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 29 Note 8: Pension Plans (Continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2022, the City’s pension expense for the Miscellaneous Plan was $4,429,353. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: The deferred outflows of resources related to contributions subsequent to the measurement date of $15,923,929 will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Payable to the Pension Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2022. Cost-Sharing Employer Plan General Information about the Pension Plan Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 15,923,929$ -$ Changes in assumptions Differences between expected and actual experiences 718,865 (511,732) Net differences between projected and actual earnings on plan investments - (16,277,651) Total 16,642,794$ (16,789,383)$ Miscellaneous Plan Measurement Period Ended June 30 Amount 2022 (3,649,106)$ 2023 (4,018,154) 2024 (3,915,060) 2025 (4,488,198) (16,070,518)$ Miscellaneous Plan 81 189 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 30 Note 8: Pension Plans (Continued) The City participates in five tiers of the safety cost-sharing multiple-employer plan. The Safety Plan tiers consist of Safety Tier 1 (police and fire), Police Tier 2, Fire Tier 2, Police PEPRA and Fire PEPRA. 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. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty 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. The Plan’s provisions and benefits within each tier in effect at June 30, 2022, are summarized as follows: The Safety Tier 1 is closed to new entrants. Police Fire Police Fire Prior to Prior to On or after On or after Hire date December 6, 2012 August 30, 2012 December 6, 2012 August 30, 2012 Benefit formula 3.0% @ 50 3.0% @ 50 2.0% @ 50 3.0% @ 55 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 55 50-55 50 - 55 Monthly benefits, as a % of eligible compensation 3.00%3.00% 2.0% to 2.7% 2.4% to 3% Required employee contribution rates 8.990%8.990%8.950%8.990% Required employer contribution rates 25.590%25.590%19.880%22.470% Required unfunded accrued liability payment 6,029,105$ -$ (1)16,086$ 33,223$ Police PEPRA Fire PEPRA On or after On or after Hire date January 1, 2013 January 1, 2013 Benefit formula 2.7% @ 57 2.7% @ 57 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Retirement age 50-57 50-57 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 2.0% to 2.7% Required employee contribution rates 13.750%13.750% Required employer contribution rates 13.980%13.980% Required unfunded accrued liability payment 31,825$ 3,197$ (1) - Combined with Police Tier 1 Safety Tier 1 Safety Tier 2 82 190 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 31 Note 8: Pension Plans (Continued) 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 July 1st following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30th 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. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Members of the Police Officers Association contribute 3% of pay toward the cost of the City's share of the annual required contribution. Members of the International Association of Firefighters, Local 3523 contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution. For the year ended June 30, 2022, the contributions recognized as part of pension expense were $8,069,806. Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2022, the City reported a net pension liability for its proportionate share of the Plan’s net pension liability of $58,571,330. The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2021, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability as of the measurement dates of June 30, 2020 and 2021 was as follows: For the year ended June 30, 2022, the City recognized pension expense of $22,198,982 for the Safety Plan. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Proportionate Share Percentage share at 6/30/2020 0.72250% Percentage share at 6/30/2021 1.08299% Change - Increase/(Decrease)0.36049% Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 12,756,585$ -$ Changes in assumptions - Differences between expected and actual experiences 10,006,862 Differences between projected and actual investment - earnings - 34,861,200 Net Difference between employer's contributions and proprtionate chare of contributions 604,494 729,122 Change in employer's proportion 18,639 2,326,564 Total 23,386,580$ 37,916,886$ Safety Plan 83 191 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 32 Note 8: Pension Plans (Continued) Pension contributions subsequent to the measurement date of $12,756,585 are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Actuarial Assumptions. The total pension liabilities in the June 30, 2020 actuarial valuations for the Safety Plan was determined using the following actuarial assumptions: Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress-tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based in the testing, none of the tested plans run out of assets. Therefore, the current 7.15 percent discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best- estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Measurement Period Ended June 30 Amount 2023 (4,365,560)$ 2024 (5,682,875) 2025 (7,645,141) 2026 (9,593,315) (27,286,891)$ Safety Plan Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increases Post Retirement Benefit Increase Mortality (1) Varies by Entry Age and Service Contract COLA up to 2.50% until Purchasing Power Protection Allowance Floor on Purchasing Power applies Derived using CalPERS' membership data for all funds (1) The mortatily table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. 7.15% 2.50% Safet y Plan June 30, 2020 June 30, 2021 Entry-Age Normal Cost Method 84 192 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 33 Note 8: Pension Plans (Continued) In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund (PERF) cash flows. Taking into account historical returns of all the Public Employees Retirement Funds’ asset classes (which includes the agent plan and two cost-sharing plans or PERF A, B, and C funds), expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each PERF fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate. The following presents the City’s proportionate share of the net pension liability, calculated using the discount rate for the Plans as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Assumed Asset Real Return Real Return Asset Class (a)Allocation Years 1 - 10 (b)Years 11+ (c) Global Equity 50.0% 4.80% 5.98% Fixed Income 28.0% 1.00% 2.62% Inflation Assets -0.77% 1.81% Private Equity 8.0%6.30% 7.23% Real Assets 13.0% 3.75% 4.93% Liquidity 1.0%--0.92% (a) In the CalPERS's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short- term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities (b) An expected inflation of 2.0% used for this period (c) An expected inflation of 2.92% used for this period Safety Plan 1% Decrease 6.15% Net Pension Liability 88,201,347$ Current Discount Rate 7.15% Net Pension Liability 58,571,330$ 1% Increase 8.15% Net Pension Liability 34,233,930$ 85 193 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 34 Note 8: Pension Plans (Continued) Pension Plan Fiduciary Net Position. Detailed information about each safety plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2022 Defined Contribution Pension Plan The City makes bi-weekly contributions to a 401a retirement plan (Plan) for each department head. The current contribution on behalf of each Participant equals 1% of base earnings up to the maximum allowable by law. In addition, each Participant may contribute up to 14% of earnings to the Plan. Prior to August 2018, non-department head management employees also participated in the Plan and received a 1% employer contribution. Employees are fully vested in the City’s contributions (and interest allocated to the employee’s account) at all times. The Plan is administered by Public Agency Retirement Services (PARS). The Plan assets are held in trust for the exclusive benefit of the Participants or their Beneficiaries. The City has the right at any time to terminate the Plan by resolution of the City Council. During the fiscal year, the City contributed $18,542 to the Plan and Participants contributed $118,507. There were no Plan forfeitures. As of June 30, 2022, the City had $5,337 payable to the Plan. The City makes bi-weekly contributions to 401a retirement plans (Appointed Officials Plans) for the City Manager and City Attorney. Employees are fully vested in the City’s contributions (and interest allocated to the employee’s account) at all times. The Appointed Officials Plans are administered by Mission Square Retirement. The Plan assets are held in trust for the exclusive benefit of the Participants or their Beneficiaries. The City has the right at any time to terminate the Plan by resolution of the City Council. During the fiscal year, the City contributed $25,372 to the Appointed Officials Plans. There were no Plan forfeitures. As of June 30, 2022, the City had $1,039 payable to the Plan. In the year 2022, The City evaluated the requirements of GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans and determined that plan didn’t meet the criteria to be reported as a fiduciary activity, as required by the above mentioned GASB Statements. 86 194 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 35 Note 9: Other Post-Employment Benefits (OPEB) General Information about OPEB Plan Description. The City’s primary other post-employment benefits (OPEB) cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program, an agent multiple-employer defined benefit OPEB plan, under the “unequal contribution option.” The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act (PEMHCA). During the fiscal year ended June 30, 2009, the City entered into an agreement to participate in an irrevocable trust to provide a funding mechanism for retiree health benefits. The Trust, California Employers’ Retiree Benefit Trust (CERBT), is administered by CalPERS and managed by a separately appointed board, which is not under control of the City Council. This Trust is not considered a component unit of the City. Benefits Provided. The City provides post-employment heath care insurance, in accordance with Memorandums of Understanding, to all employees who retire from the City upon or after attaining age 50 with at least 5 years of service or disability retirement. Miscellaneous retires who are PEPRA new hires are eligible at age 52. For each retiree enrolled in a CalPERS medical plan, the employer will pay the required statutory PEMHCA minimum, which is $143 per month per retiree in calendar year 2021 and $149 per month per retiree in calendar year 2022. This amount will increase with the health care component of CPI, as announced by the CalPERS Board each year. The retiree must pay the difference between the premium amount, which depends upon the medical plan benefits selected, and the employer-paid minimum. In addition, the City pays 50% of the premium up to the retiree’s age of 65 for one grandfathered executive management retiree hired prior to August 2000. There is no OPEB provided to terminated vested employees. The employer-paid amount will continue to a surviving spouse if the retiree elects a CalPERS survivor annuity. There are no required employee contributions, although the retiree must pay the difference between the premium and the employer-paid amount. The employer is contributing the full Actuarially Determined Contribution. Employees Covered. At June 30, 2021, the measurement date, the following number of employees were covered by the benefit terms: Contributions. The contribution requirements of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution. For the measurement period, the City’s contributions totaled $921,000. Net OPEB Liability The City’s net OPEB liability for the Plan is measured as the total OPEB liability less the Plan’s fiduciary net position. The net OPEB liability of the Plan is measured as of June 30, 2021 using an actuarial valuation as of June 30, 2021. The principal assumptions and methods used to determine the net liability are described below. OPEB Plan Inactive employees or beneficiaries currently receiving benefits 196 Inactive employees entitled to but not yet receiving benefit payments 211 Active employees 418 Total 825 87 195 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 36 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Change in Assumptions. See the note below for the change in assumptions for the measurement date June 30, 2021. Discount Rate. The discount rate used to measure the total OPEB liability was 6.25% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, the actuary performed a stress-test on the Plan that would most likely result in a discount rate that would be different from the actuarially-assumed discount rate. Based on the test, the Plan will not run out of assets. Therefore, the current 6.25% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 6.25% is applied to the Plan. The stress-test results are presented in the detailed actuarial report, which can be obtained from the City. Investments. The following table reflects the long-term expected real rate of return of the Plan’s investments by asset class. The rates of return are presented as geometric means developed over a twenty year period. These rates of return are net of administrative expenses. Actuarial Valuation Date June 30, 2021 Measurement Date June 30, 2021 Contribution Policy Contributes full ADC Actuarial Assumptions: Discount Rate and 6.25% at June 30, 2021 and 6.75% at June 30, 2020 expected Long-Term Rate of Expected City contributions projected to keep Return on Assets sufficient plan assets to pay all benefits from trust General Inflation 2.50% annually Mortality, Retirement, Disability, Rates from CalPERS 2000-2019 Experience Study Termination Mortality Improvement Post-retirement mortality projected fully generational with Society of Actuaries Scale MP-2021 Salary Increases Aggregate - 2.75% Merit - CalPERS 2000-2019 Experience Study Medical Trend Non-Medicare - 6.5% for 2023, decreasing to an ultimate rate of 3.75% in 2076 and later years. Medicare - 5.65% (non-Kaiser) for 2023, decreasing to an ultimate rate of 3.75% in 2076 and later years Participation at Retirement Currently covered: 70% Currently waived: 15% Current Expected Target Real Rate Asset Class Allocation *of Return Global Equity 59.0%4.56% Fixed Income 25.0%0.78% TIPS 5.0%-0.08% Commodities 3.0%1.22% REITs 8.0%4.06% Assumed Long-Term Rate of Inflation 2.50% Expected Long-Term Net Rate of Return, Rounded 6.25% The long-term expected real rates of return are presented as geometric means. *Policy target effective October 1, 2018 OPEB Plan 88 196 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 37 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Changes in the Net OPEB Liability The changes in the net OPEB liability for the June 30, 2021 measurement date are as follows: Sensitivity of Net OPEB Liability to Changes in the Discount Rate. The following presents the net OPEB liability at the current discount rate, as well as what the net OPEB liability would be if it were calculated using a hypothetical discount rate that is one percentage point lower or one percentage point higher than the current rate. Total Plan Fiduciary Net OPEB Liability Net Position OPEB Liability Balance at June 30, 2020 12,766,729$ 7,991,098$ 4,775,631$ Changes during the year: Service cost 423,364 - 423,364 Interest on the total OPEB liability 867,422 - 867,422 Changes in assumptions 507,115 - 507,115 Differences between Expected and actual experience 349,893 - 349,893 Net plan to plan resource movement - - - Contribution - employer - 921,000 (921,000) Contribution - employee - - - Net investment income - 2,196,724 (2,196,724) Benefit payments, including refunds of employee contributions (678,789) (678,789) - Administrative expense - (7,235) 7,235 Net changes 1,469,005 2,431,700 (962,695) Balance at June 30, 2021 14,235,734$ 10,422,798$ 3,812,936$ OPEB Plan 1% Decrease 5.25% Net OPEB Liability 5,684,195$ Current Discount Rate 6.25% Net OPEB Liability 3,812,936$ 1% Increase 7.25% Net OPEB Liability 2,264,616$ 89 197 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 38 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Sensitivity of Net OPEB Liability to Changes in Healthcare Cost Trend Rates. The following presents the net OPEB liability at current healthcare cost trend rates, as well as what the net OPEB liability would be if it were calculated using hypothetical healthcare cost trend rates that are one percentage point lower or one percentage point higher than the current rate. OPEB Plan Fiduciary Net Position. Detailed information about the OPEB Plan’s fiduciary net position is available in the separately issued CalPERS financial reports on the CERBT. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2022, the City’s OPEB expense was $251,416. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: OPEB contributions subsequent to the measurement date of $1,309,367 are reported as deferred outflows of resources and will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: OPEB Plan 1% Decrease Net OPEB Liability 2,093,874$ Current Trend Net OPEB Liability 3,812,936$ 1% Increase Net OPEB Liability 5,934,516$ Deferred Outflows Deferred Inflows of Resources of Resources OPEB contributions subsequent to measurement date 1,309,367$ -$ Changes in assumptions 461,316 153,802 Differences between expected and actual experiences 308,729 1,322,804 Net differences between projected and actual earnings on plan investments - 1,193,214 Total 2,079,412$ 2,669,820$ Fiscal Year Ended June 30 Amount 2023 (469,827)$ 2024 (455,829) 2025 (463,180) 2026 (507,190) 2027 (175,703) Thereafter 171,954 (1,899,775)$ 90 198 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 39 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Payable to the OPEB Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. Note 10: Deferred Compensation Plan All employees of the City are eligible to participate in a City sponsored deferred compensation plan (457 Plan). The 457 Plan provides for the deferral of a portion of the employees’ compensation until retirement, termination, or certain other covered events. The assets of the 457 Plan are held in trust for the exclusive benefit of Plan Participants or Beneficiaries. Deferred contribution(s) by a participant in any taxable year will not exceed the lessor of (1) the applicable dollar amount provided under Section 457(b)(2) of the Internal Revenue Code (adjusted for cost of living under Section 457(e)(15) of the Internal Revenue Code), or (2) 100% of the participant’s includible compensation. A participant who has attained age 50 before the close of the calendar year may elect Age 50 Plus Catch-up Contributions and commence making such contributions to his/her Participant Deferral Account. The City has the right at any time to terminate the 457 Plan by resolution of the City Council. In the year 2022, The City evaluated the requirements of GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans and determined that plan didn’t meet the criteria to be reported as a fiduciary activity, as required by the above mentioned GASB Statements. Note 11: Interfund Transactions There is no interfund receivable and payable balances as of June 30, 2022. Interfund transfers for the year ended June 30, 2022 consist of the following: Interfund receivables and payables include temporary negative cash balances that result from the timing of cash flows at year end and the time lag between the dates that transactions are recorded in the accounting system and payment between funds are made. Liquidation of interfund receivables and payables typically occurs in the first quarter of the subsequent fiscal year. Interfund balances between governmental funds are not included in the government-wide Statement of Net Position. Interfund transfers are used to move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due or to move unrestricted revenues to finance various programs that the government must account for in other funds in accordance with budgetary authorizations. This may include amounts provided as matching funds for various grant programs. Non-Major General Capital Outlay Governmental Transfer Out Fund Fund Funds Total General Fund -$ 21,621,221$ 8,795,528$ 30,416,749$ Capital Outlay Fund 497,600 - 146,667 644,267 Non-Major Governmental Fund 1,759,334 476,970 290,645 2,526,949 Water Fund 794,769 - - 794,769 Sewer Fund 655,312 - - 655,312 Parking Fund 235,233 - - 235,233 Total 3,942,248$ 22,098,191$ 9,232,840$ 35,273,279$ Transfer In 91 199 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 40 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements The City participates in three multi-governmental organizations: the Whale Rock Commission, the San Luis Obispo Regional Transit Authority, and the San Luis Obispo Council of Governments. The City also has an operating agreement related to Nacimiento Water Supply Project. The following provides a general description of each of these agencies and operating agreements along with a summary of financial information and indebtedness: Whale Rock Commission General Description. The Whale Rock Commission (Commission) was established on December 12, 1960 to govern the operations of the Whale Rock Reservoir. The Commission is composed of six voting members and two non-voting members: three voting members are appointed by the City; one is appointed by California Polytechnic State University; one by California Men's Colony; and one by the Director of Finance, State of California. The two non-voting members are position appointments: the Director of Water Resources, State of California; and the Water Superintendent, City of San Luis Obispo. The Commission is authorized by its respective agencies to establish policies for the operation of the Reservoir, to contract for the sale of excess water, and to approve the annual budget. The City, in accordance with established policies of the Commission, operates and maintains the Reservoir; prepares and recommends the annual budget; and maintains the fiscal records and funds of the Commission. The Whale Rock Custodial Fund is used to account for the Commission's ongoing operating activities. Ownership in the Reservoir is as follows: 55.05%, City of San Luis Obispo; 33.71%, California Polytechnic State University; and 11.24%, California Men's Colony. The City's share of the Commission's expenses is recorded as expenses of the Water Fund. All receipts and disbursements of the Commission are included in an Custodial Fund. Financial Information and Indebtedness. In 1959, the City issued general obligation bonds to secure a future water supply to City residents. Some of the proceeds from the bonds were used to participate with the State of California in the development of the Reservoir. Participation, which is in proportion to the original investment, includes continued operation and maintenance of the facilities. Such indebtedness was directly attributable to provision of water service, and as such, all related indebtedness was recorded in the City's Water Enterprise Fund. These bonds matured in August 1999. The City's original investment in the Reservoir project aggregates $3,900,000 and was amortized on a straight-line basis over thirty- five years. Separate financial statements are available from the Whale Rock Commission, 879 Morro Street, San Luis Obispo, CA 93401. The following segment financial information for the Whale Rock Commission and the Water Fund’s related investment in the joint venture is presented as of and for the year ended June 30, 2022: City's Investment Joint Venture in Joint Ventur e Total assets 5,258,221$ 2,894,651$ Total liabilities 114,839 63,219 Fund balance 5,143,382$ 2,831,432$ Total revenues 2,394,659$ 1,318,260$ Total expenditures 1,332,112 733,328 Excess of revenues over expenditures 1,062,547$ 584,932$ 92 200 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 41 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) San Luis Obispo Regional Transit Authority General Description. The City is a member of the San Luis Obispo Regional Transit Authority (Authority), which was established on February 27, 1990, to operate a joint public transportation system. The Authority is composed of the Cities of Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, and San Luis Obispo, as well as the County of San Luis Obispo. The Authority is governed by a Board of Directors comprised of representatives of each of the seven cities, in addition to the five members of the Board of Supervisors. Each member of the Board has one vote. The Board has the authority to establish policies for the operation of the transit system and to adopt an annual budget. Each member makes an annual contribution to the agency for funding the adopted budget. Financial Information. The City allocates a portion of its Transportation Development Act funds directly to the Authority. During 2021-22 the City contributed approximately $588,596 of these funds to the Authority. The City's share of assets, liabilities, and fund equity has not been calculated by the Authority and therefore is not known to the City; however, based on the City's limited financial participation in the Authority, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from the Authority, 179 Cross Street, Suite A, San Luis Obispo, CA 93401. San Luis Obispo Council of Governments General Description. The San Luis Obispo Council of Governments (SLOCOG) was formed in 1968 through a joint powers agreement among the incorporated cities and the County of San Luis Obispo. It acts as the regional transportation planning agency for the county and is the metropolitan planning organization and the congestion management agency for the region. The governing board consists of twelve delegates, each with one vote that includes the five members of the County Board of Supervisors and one representative from each of the seven cities in the County. Financial Information. A portion of the City's Transportation Development Act funds are directly allocated to the SLOCOG. The City's share of assets, liabilities, and fund equity has not been calculated by SLOCOG and therefore is not known to the City; however, based on the City's limited financial participation in SLOCOG, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from SLOCOG, 1114 Marsh Street, San Luis Obispo, CA 93401. Nacimiento Water Supply Project General Description. In 2004, the Council adopted a resolution approving an agreement with the San Luis Obispo County Flood Control and Water Conservation District (District) for the design, construction, and operations of the facilities required for the delivery of 5,482 acre-feet of water per year to the City of San Luis Obispo from the Nacimiento Water Supply Project (Project). The agreement includes conditions relative to the costs associated with the project and how these costs will be shared and paid by the participants in the project. Each project participant, including the City, has entered into an agreement to provide for the development, financing, construction, operation and maintenance of the Project. The agreement is a “take-or-pay” obligation: the City is obligated to pay amounts specified in the agreement whether or not water is delivered. The City is required to pay an amount equal to 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 Project. The City is also required to pay for its share of operating and maintenance costs. The City records these payments as operating expenses in its water enterprise fund. 93 201 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 42 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) The City is required to make payments under its agreement solely from the revenues of its water system. The City agreed to establish and collect rates and charges from the customers of the City’s water enterprise fund at levels sufficient to produce revenues equal to: (1) the costs of operating and maintaining the City’s water enterprise; plus (2) the contract payments, calculated in accordance with the delivery contract including the amounts allocated as the City’s share of capital projects installment debt service; plus (3) the coverage factor for the amounts allocated as the City’s share of capital projects installment debt service; and (4) under certain circumstances, that the City understands and agrees that the delivery contract may impose a surcharge following the occurrence of any payment default. Financial Information. In September 2007, the District sold water revenue bonds in the amount of $196 million for the construction of the Project. In addition, the District sold water revenue bonds in the amount of $182 million. These bonds were refinanced in May 2018. Based on the City’s share of construction costs, debt service and operating and maintenance, the following summarizes the City’s Project obligations for 2021-22 and five-year projections for the 2018 bonds that will remaining outstanding following the refunding. Separate financial statements are available from the San Luis Obispo County Flood Control and Water Conservation District, 1050 Monterey Street, San Luis Obispo, CA 93401. Note 13: Risk Management California Joint Powers Insurance Authority The City is a member of the California Joint Powers Insurance Authority (Authority). The Authority is composed of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group purchased insurance for property and other lines of coverage. The California JPIA began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a nine-member Executive Committee. Each member pays an annual contribution to cover estimated losses for the coverage period. This initial funding is paid at the beginning of the coverage period. After the close of the coverage period, outstanding claims are valued. A retrospective deposit computation is then conducted annually thereafter until all claims incurred during the coverage period are closed on a pool-wide basis. This subsequent cost reallocation among members based on actual claim development can result in adjustments of either refunds or additional deposits required. The total funding requirement for self-insurance programs is estimated using actuarial models and prefunded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below. Actual 2022 4,610,790$ Projected: 2023 4,609,730 2024 4,619,370 2025 4,621,210 2026 4,622,040 2027-31 23,089,920 2032-36 23,101,490 2037-41 18,565,360 Nacimiento Water Supply Obligations 94 202 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 43 Note 13: Risk Management (Continued) Self-Insurance Programs of the Authority General Liability and Workers’ Compensation. The City 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. The City has a retained limit of $500,000 per occurrence for liability and no retained limit for workers’ compensation. Liabilities of the City 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 re-evaluated 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 claim’s 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 2020-21. 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. The City 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 the City 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 the City in the normal course of business. It is reasonably possible that the City 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 the City. Adequacy of Protection During the past three fiscal years, none of the above programs of protection experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage from coverage in 2020- 21. Self-Insurance The City retains the risk for workers’ compensation losses incurred prior to joining the California Joint Powers Insurance Authority. Several member agencies of the now dissolved Central Coast Cities Self-Insurance Fund continue to participate in a non-risk sharing arrangement for claims management and the purchase of excess insurance. The participating agencies share a set of common guidelines and annually set aside premiums to pay their individual losses within their self-insured retentions. Losses are debited and investment income is credited to specific member accounts. The City has not incurred any losses in excess of insurance coverage. Claims liabilities in the governmental funds are generally liquidated by the General Fund. 95 203 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 44 Note 13: Risk Management (Continued) The last actuarial study to determine the undiscounted outstanding claims liability was completed for the year ended June 30, 2022. The liability was estimated based on the actuarial study and considered claims asserted and paid, and the time limitations for filing claims. There are no estimates for claims incurred but not reported because the time limit for filing claims has elapsed. The estimated asset at June 30, 2022 is calculated as follows: Note 14: Commitments and Contingencies Litigation The City is presently involved in certain matters of litigation that have arisen in the normal course of conducting City business. City management believes, based upon consultation with the 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 the City. Grant Awards Under the terms of Federal and State grants, audits may be required, and certain costs may be questioned as not being appropriate expenditures under the terms of the grants. Such audits could lead to requests for reimbursement to the grantor agencies. City management believes disallowances, if any, will be immaterial. Regional Transit Authority Pension Expense The City is presently a member agency of the San Luis Obispo Regional Transit Authority (SLORTA) (see Note 14), a duly established Joint Powers Authority (JPA) comprised of all local cities and the County of San Luis Obispo. The City’s contractual contribution to that entity is approximately 18% of the total expense. The City was advised that the Regional Transit Authority was working with CalPERS to determine whether it is required to enroll certain previously unenrolled transit employees in the CalPERS pension system and whether the entity may be liable for obligations related to the failure to enroll those employees and make contributions on their behalf. On December 10, 2019 the County Board of Supervisors approved a contract for participation of the JPA in the San Luis Obispo County Pension Trust and the Employees Retirement Plan. The current amount of potential CalPERS unfunded liability for the JPA may reach as high as $4 million. It is not anticipated that the City’s annual payment to the JPA will increase to satisfy this unfunded liability. Self-insurance activity as of and for the year ended June 30, 2022 is summarized is as follows: Interest earnings 2,455$ Claims expense (8,568) Estimated liability for reported claims and settlement expenses (286,622) Assets on deposit 847,044 Estimated unpaid claims asset 560,422$ Changes in the balances of claim assets during the past two fiscal years are as follows: Estimated unpaid claims asset June 30, 2020 803,567$ Claim payments and related expenditures reimbursement (441,021) Change in estimated claims asset June 30, 2021 120,677 Interest earnings 4,878 Estimated unpaid claims asset June 30, 2021 488,101 Claim payments and related expenditures reimbursement 55,979 Change in estimated claims asset June 30, 2022 13,887 Interest earnings 2,455 Estimated unpaid claims asset June 30, 2022 560,422$ 96 204 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 45 Note 15: Construction and Other Significant Commitments Construction and other significant commitments as of June 30, 2022, including encumbrances outstanding at year-end, are as follows: Long-term construction contracts are billed and paid on a percentage completion basis by construction phase. Note 16: Fund Balance Deficiency As of June 30, 2022, the City had no fund with negative fund balance. Note 17: Subsequent Events Events subsequent to June 30, 2022 have been evaluated through December 20, 2022, which is the date that the financial statements are available to be issued. Management identified no subsequent events that required disclosure. Note 18: New Accounting Standards Accounting Standards Adopted In GASB Statement No. 87, Leases – The objective of this statement is to recognize in the financial statements certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. GASB Statement 89, Accounting for Interest Cost Incurred before the End of a Construction Period – The objective of this statement is to (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This statement establishes accounting requirements for interest cost incurred before the end of a construction period. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. The requirements of this statement did not apply to the City for the current fiscal year. GASB Statement No. 92, Omnibus 2020 - The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. GASB Statement 93, Replacement of Interbank Offered Rates – The objective of this Statement is to address the accounting and financial reporting implications that result from the elimination of the London Interbank Offered rate General Fund 3,524,689$ Special Revenue Funds 85,030 Capital Project Funds 4,643,698 Enterprise Funds: Water 2,549,243 Sewer 36,750,388 Parking 445,846 Transit 2,126,016 Total 50,124,910$ 97 205 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 46 Note 18: New Accounting Standards (Continued) (LIBOR) that is notably used in most agreements in which variable payments made or received depend on an interbank offered rate (IBOR). As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate or adding or changing fallback provisions related to the reference rate. The requirements of this statement did not apply to the City for the current year. GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 – The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. GASB Statement No. 99, Omnibus 2022 – The primary objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB Statements and (2) accounting and financial reporting for financial guarantees. The requirements of this Statement did not apply to the City for the current fiscal year. New Accounting Standards The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB Statements: GASB Statement 91, Conduit Debt Obligations – The objective of this statement is to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. The requirements of this Statement are effective for the City’s year ending June 30, 2023. GASB Statement 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements – The objective of this Statement is to improve financial reporting by addressing issues related to public-private and public- public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government (the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. The requirements of this Statement are effective for the City’s year ending June 30, 2023. GASB Statement No. 96, Subscription-Based Information Technology Arrangements – The objective of this statement is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The requirements of this Statement are effective for the City’s year ending June 30, 2023. 98 206 **DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 47 Note 18: New Accounting Standards (Continued) GASB Statement No. 100, Accounting Changes and Error Corrections-an Amendment of GASB Statement No. 62 – The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The requirements of this Statement are effective for the City’s year ending June 30, 2024. GASB Statement No. 101, Compensated Absences – The primary objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The requirements of this Statement are effective for the City’s year ending June 30, 2025. Note 19: Prior Period Adjustments During 2022, prior period adjustments were made to correct payroll errors and to properly record the loan receivables in Affordable Housing Fund, CDBG Fund, Impact Fee Funds, Water Fund and Sewer Fund, which the City expensed or not recorded in the past years. Governmental Activities Business- type Activities General Fund Non-Major Governmental Fund Water Fund Sewer Fund Parking Fiduciary Funds Net Position as previously reported at June 30, 2021 155,741,584$ 217,715,565$ 47,118,071$ 41,177,283$ 84,800,287$ 99,201,571$ 26,905,947$ 6,888,633$ Prior Period Adjustments: Loan Receivables 3,558,933 2,274,934 - 160,116 1,476,189 798,745 - - Cash 247,646 17,176 247,646 - 4,539 10,391 2,246 310 Accrued interest 592,053 224,399 - - 148,008 76,391 - - Correction of GASB 84 - 49,134 24,567 24,567 24,567 24,567 - 24,567 Net Position as restated at June 30, 2021 160,140,216$ 220,232,074$ 47,365,717$ 41,361,966$ 86,453,590$ 100,111,665$ 26,908,193$ 6,913,510$ Government-wide Statements Fund Statements 99 207 **DRAFT**v1 100 208 **DRAFT**v1 REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED) 101 209 **DRAFT**v1 102 210 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund For the Fiscal Year Ended June 30, 2021 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) REVENUES: Taxes and franchise fees: Sales and use tax - general 18,387,000$ 20,790,779$ 22,247,303$ 1,456,524$ Transaction and use tax - Local Revenue Measure 24,279,000 25,810,000 29,172,258 3,362,258 Property tax 14,396,883 14,215,765 14,716,412 500,647 Transient occupancy tax 7,213,000 9,051,000 10,650,762 1,599,762 Utility users tax 5,565,000 5,383,000 5,338,325 (44,675) Property tax in lieu of VLF 5,796,000 5,941,388 5,994,592 53,204 Franchise taxes 1,575,000 1,575,000 1,978,295 403,295 Business tax 2,426,000 2,832,000 2,823,163 (8,837) Cannabis Tax 1,300,000 1,000,000 998,875 (1,125) Total taxes 80,937,883 86,598,932 93,919,985 7,321,053 Fines, forfeitures and penalties 229,096 209,096 173,915 (35,181) Use of money and property 495,000 230,000 (1,455,527) (1,685,527) Subventions and grants: Other State and Federal grants 900,000 4,935,697 2,067,631 (2,868,066) Other subventions and grants 336,000 493,000 529,299 36,299 Total subventions and grants 1,236,000 5,428,697 2,596,930 (2,831,767) 103 211 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 2 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) Charges for services: Public safety: Police 533,196 506,105 468,144 (37,961) Fire: Medical emergency recovery 498,476 475,560 478,674 3,114 Fire safety/hazardous materials permits 900,010 940,010 1,000,075 60,065 Other fire revenues 5,890 (10,631) 26,067 36,698 Community development: Planning and zoning fees 1,305,000 1,305,000 1,383,043 78,043 Construction plan and check inspections 3,955,000 3,951,284 4,507,348 556,064 Infrastructure plan check and inspections (291,721) (291,721) 197,874 489,595 Fire plan check and inspections - - (3,929) (3,929) Culture and recreation: Adult athletic fees 256,200 259,800 232,412 (27,388) Youth athletic fees 770,935 770,935 866,805 95,870 Rental and use fees 289,649 289,649 305,902 16,253 Aquatics 189,378 189,378 273,546 84,168 Golf course 260,543 260,543 220,087 (40,456) General government: Other service charges 757,443 604,443 726,873 122,430 Total charges for services 9,429,999 9,250,355 10,682,921 1,432,566 Impact Fees - - 68,125 68,125 Other revenues 471,100 471,100 413,188 (57,912) Total Revenues 92,799,078 102,188,180 106,399,537 4,211,357 104 212 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 3 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) Expenditures: Public Safety: Police protection: Administration 2,186,391 2,436,920 1,880,726 556,194 Investigations 3,458,235 4,119,375 3,621,224 498,151 Neighborhood services 274,535 297,704 284,409 13,295 Support services 2,920,629 3,417,769 3,315,494 102,275 Patrol services 9,508,130 11,517,804 12,616,286 (1,098,482) Traffic safety 885,312 1,031,932 863,845 168,087 Total police protection 19,233,231 22,821,505 22,581,984 239,521 Fire and environmental safety: Administration 1,221,830 1,493,080 1,397,025 96,055 Emergency response 11,034,040 13,653,788 13,924,054 (270,266) Fire Apparatus Services 468,759 526,567 502,880 23,687 Hazard protection 871,697 1,063,119 965,976 97,143 Training 392,703 185,008 143,900 41,108 Disaster preparedness 50,069 115,434 97,605 17,829 Mobile Crisis Unit - 263,311 43,085 220,226 Total fire and environmental safety 14,039,098 17,300,308 17,074,525 225,783 Total public safety 33,272,329 40,121,813 39,656,509 465,304 Transportation: Transportation planning and engineering 1,016,643 1,163,539 1,123,041 40,498 Street and sidewalk maintenance 2,009,761 2,019,992 1,796,108 223,884 Traffic signals and street lights 569,934 597,520 598,015 (495) Creek and flood protection 1,448,876 1,563,631 1,301,812 261,819 Total transportation 5,045,214 5,344,682 4,818,976 525,706 105 213 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 4 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) Culture and Recreation: Recreation programs: Recreation administration 781,671 899,033 872,935 26,098 Aquatics/Sinsheimer park facilities 651,167 684,067 568,014 116,053 Children's services 1,272,354 1,384,098 1,228,850 155,248 Facilities 284,066 321,958 299,765 22,193 Special events 10,500 8,600 1,008 7,592 Recreational sports 655,001 708,683 516,824 191,859 Golf course 705,094 805,838 831,862 (26,024) Ranger services 818,243 954,994 803,371 151,623 Maintenance programs: Swim center maintenance 592,191 615,215 601,262 13,953 Parks and landscape maintenance 3,327,234 3,494,417 3,553,119 (58,702) Tree maintenance 492,709 380,741 334,499 46,242 Cultural and social service programs: Human relations Human relations 572,086 571,416 212,279 359,137 Cultural activities 347,632 347,632 332,351 15,281 Total leisure, cultural and social services 10,509,947 11,176,692 10,156,139 1,020,553 Community Development: Planning: Commissions and communities 34,939 34,939 13,395 21,544 Community development administration 994,382 1,141,294 903,001 238,293 Long-range planning (656,102) (575,147) 751,455 (1,326,602) Development review 2,038,597 2,381,429 1,839,094 542,335 Natural resource protection 1,008,766 1,066,623 1,017,359 49,264 Construction regulation: Building and safety 2,296,644 3,634,026 3,235,364 398,662 CIP project engineering 2,159,868 2,940,360 2,664,647 275,713 Economic health: Community promotion 437,898 422,612 415,604 7,008 Economic development 1,294,993 1,164,443 869,369 295,074 Housing 962,157 987,983 1,017,132 (29,149) Total community development 10,572,142 13,198,563 12,726,420 472,143 106 214 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 5 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) General Government: Legislation: Council 215,501 241,611 245,855 (4,244) General administration: City administration 2,129,156 2,256,453 2,077,196 179,257 Public works administration 923,458 1,060,927 1,069,343 (8,416) Legal services: City attorney 1,330,474 1,412,670 1,374,705 37,965 City clerk services: Administration and records 574,916 642,094 601,382 40,712 Organization support services: Human resource administration 5,916,713 6,372,946 6,175,678 197,268 Finance and administration 2,276,820 2,364,395 2,557,005 (192,610) Revenue management 420,193 493,732 438,580 55,152 Accounting 1,136,747 1,156,943 1,110,033 46,910 Finance non-departmental 377,658 1,569,473 288,297 1,281,176 Network services 3,374,515 3,310,079 3,204,644 105,435 Wellness program 18,251 16,415 10,134 6,281 Building and vehicle maintenance: Buildings 1,428,128 1,508,715 1,359,287 149,428 Vehicle and equipment maintenance 1,489,883 1,552,441 1,395,775 156,666 Total general government before cost reimburseme 21,612,413 23,958,894 21,907,914 2,050,980 Cost reimbursement (Note 3 to RSI)(4,717,442) (4,717,442) (4,717,442) - Total general government 16,894,971 19,241,452 17,190,472 2,050,980 Capital Outlay: Public safety - 15,869 16,178 (309) Transportation - 2,457,476 976,123 1,481,353 Culture and recreation - 418,213 170,729 247,484 Community development - 19,327 17,672 1,655 General government - 1,446,557 816,029 630,528 Total capital outlay - 4,357,097 1,996,731 2,360,366 Total Expenditures 76,294,603 93,440,299 86,545,247 6,895,052 Excess of Revenues Over Expenditures 16,504,475 8,747,881 19,854,290 11,106,409 107 215 **DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 6 Original Budget Final Budget Actual Variance With Final Budget Positive (Negative) Other Financing Sources (Uses) Transfers in 18,800,657 18,800,657 3,942,248 (14,858,409) Transfers out (37,738,319) (41,432,873) (30,416,749) 11,016,124 Total other financing uses (18,937,662) (22,632,216) (26,474,501) (3,842,285) Net Change in Fund Balance (2,433,187) (13,884,335) (6,620,211) 7,264,124 Fund Balance, Beginning of the Year, as restated 47,365,717 47,365,717 47,365,717 Fund Balance, End of Year 44,932,530$ 33,481,382$ 40,745,506$ 108 216 **DRAFT**v1 109 217 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Measurement Period 2020-21 2019-20 2018-19 2017-18 Total pension liability: Service Cost 3,939,785$ 3,681,240$ 4,042,717$ 4,328,129$ Interest on total pension liability 16,589,680 16,160,011 15,531,812 14,778,918 Difference between expected and actual experience (755,414) 1,869,474 2,966,923 1,445,049 Changes in assumptions - - - (1,292,326) Benefit payments, including refunds of employee contributions (13,518,666) (12,892,847) (12,061,701) (10,740,816) Net change in total pension liability 6,255,385 8,817,878 10,479,751 8,518,954 Total pension liability - beginning 237,568,349 228,750,471 218,270,720 209,751,766 Total pension liability - ending (a) $ 243,823,734 237,568,349$ 228,750,471$ 218,270,720$ Plan fiduciary net position: Contributions - employer 8,246,755$ 7,709,918$ 9,361,882$ 6,693,987$ Contributions - employee 2,056,274 1,889,583 1,775,245 1,820,697 Net investment income 32,904,570 7,205,266 9,124,520 10,820,033 Benefit payments (13,518,666) (12,892,847) (12,061,701) (10,740,816) Net plan to plan resource movement - - - (316) Administrative expense (148,132) (203,824) (97,394) (200,184) Other miscellaneous income/(expense)- - 316 (380,153) Net change in plan fiduciary net position 29,540,801 3,708,096 8,102,868 8,013,248 Plan fiduciary net position - beginning 148,289,275 144,581,179 136,478,311 128,465,063 Plan fiduciary net position - ending (b)177,830,076$ 148,289,275$ 144,581,179$ 136,478,311$ Net pension liability (asset) - ending (a) - (b)65,993,658$ 89,279,074$ 84,169,292$ 81,792,409$ Plan fiduciary net position as a percentage of the total pension liability 72.93% 62.42% 63.20% 62.53% Covered payroll 23,675,396 21,795,380 22,951,725 23,736,588 Net pension liability as percentage of covered payroll 278.74%409.62% 366.72% 344.58% * Fiscal year 2015 was the first year of implementation. Therefore, only eight years are shown. Information is required only for measurement periods for which GASB 68 is applicable. The current measurement period is the year ended June 30, 2021. Benefit changes . The figures above include any liability impact that may have resulted from voluntary benefit changes that occurred after the June 30, 2019 valuation. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the June 30, 2019 valuation date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary. Changes in assumptions . None in 2019 or 2020 or 2021. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. City of San Luis Obispo, California Schedule of the Changes in the Net Pension Liability and Related Ratios Miscellaneous Agent Multiple-Employer Plan June 30, 2022 Last 10 Years * 110 218 **DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2016-17 2015-16 2014-15 2013-14 4,124,832$ 3,580,882$ 3,578,172$ 3,703,087$ 14,197,897 13,688,523 13,193,597 12,756,967 694,843 (1,160,933) (2,433,791) - 11,219,603 - (3,057,724) - (10,161,053) (9,476,508) (8,808,668) (8,258,611) 20,076,122 6,631,964 2,471,586 8,201,443 189,675,644 183,043,680 180,572,094 172,370,651 209,751,766$ 189,675,644$ 183,043,680$ 180,572,094$ 6,776,849$ 6,122,173$ 5,027,356$ 4,631,254$ 1,841,331 1,666,606 1,509,834 1,664,654 13,053,453 677,557 2,673,657 17,746,607 (10,161,053) (9,476,508) (8,808,668) (8,258,611) (2,936) - - - (172,935) (72,044) (133,042) - - - - - 11,334,709 (1,082,216) 269,137 15,783,904 117,130,354 118,212,570 117,943,433 102,159,529 128,465,063$ 117,130,354$ 118,212,570$ 117,943,433$ 81,286,703$ 72,545,290$ 64,831,110$ 62,628,661$ 61.25% 61.75% 64.58% 65.32% 21,841,841 20,499,668 19,769,997 19,235,818 372.16% 353.89%327.93% 325.58% 111 219 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Acuarially determined contribution 8,390,908$ 8,069,806$ 7,709,918$ 7,093,882$ Contributions in relation to the actuarially determined contribution (15,923,929) (8,069,806) (7,709,918) (9,361,882) Contribution deficiency (excess)(7,533,021)$ -$ -$ (2,268,000)$ Covered payroll 26,238,385 23,675,396 21,795,380 22,951,725 Contributions as percentage of covered payroll 60.69% 34.09% 35.37% 40.79% Actuarial Cost Method Entry Age Normal Amortization Method Amortization Period Asset Valuation Method Inflation 2.50% Salary Increases Varies by Entry Age and Service Payroll Growth 2.750% Discount Rate 7.15% Net of Pension Plan Investment and Administrative Expenses Retirement Age Mortality City of San Luis Obispo, California Schedule of the Pension Plan Contributions Miscellaneous Agent Multiple-Employer Plan June 30, 2022 For details, see June 30, 2018 CalPERS Funding Valuation Report For details, see June 30, 2018 CalPERS Funding Valuation Report The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. Last 10 Years * The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2020-21 contributions rates are as follows: * Fiscal year 2014 was the first year of implementation. Therefore, only nine years are shown. Information is required only for measurement periods for which GASB 68 is applicable. The current measurement period is the year ended June 30, 2021. 112 220 **DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2013-14 6,693,987$ 6,776,849$ 6,122,173$ 5,027,356$ 4,631,254$ (6,693,987) (6,776,849) (6,122,173) (5,027,356) (4,631,254) -$ -$ -$ -$ -$ 23,736,588 21,841,841 20,499,668 19,769,997 19,235,818 28.20% 31.03% 30.97% 25.43% 24.08% 113 221 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Measurement Period 2020-2021 2019-2020 2018-2019 2017-18 Proportion of the Collective Net Pension Liability 1.08299% 0.7225% 0.7212% 1.2261% Proportionate Share of the Collective Net Pension Liability 58,571,330$ 78,611,581$ 73,897,967$ 71,940,534$ Covered payroll 10,744,808$ 9,488,971$ 11,197,562$ 11,246,306$ Proportionate share of the net pension liability as percentage of covered payroll 545.11% 828.45% 659.95% 639.68% Plan fiduciary net position as a percentage of the total pension liability 88.29% 75.26% 75.26% 75.26% *-Fiscal year 2015 was the first year of implementation, therefore only eight years are shown. The CalPERS discount rate was increased from 7.5% to 7.65% in fiscal year 2016, and then decreased from 7.65% to 7.15% in fiscal year 2018. The CalPERS mortality assumptions were adjusted in fiscal year 2019. City of San Luis Obispo, California Schedule of the City's Proportionate Share of the Net Pension Liability Safety Cost-Sharing Plan As of June 30, 2022 Last 10 Years * 114 222 **DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2016-17 2015-16 2014-15 2013-14 1.1943% 1.2510% 1.3654% 1.3754% 71,364,346$ 64,792,760$ 56,260,280$ 51,592,420$ 10,614,437$ 10,643,123$ 10,849,863$ 10,768,119$ 672.33% 608.78% 518.53% 479.12% 73.31% 74.06% 78.40% 79.82% 115 223 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Contractually required contribution (actuarially determined)7,860,585$ 7,631,620$ 7,167,638$ 6,416,780$ Contribution in relation to the actuarially determined contributions (12,756,585) (7,631,620) (7,167,638) (8,348,780) Contribution deficiency (excess)(4,896,000)$ -$ -$ (1,932,000)$ Covered payroll 12,207,346$ 10,744,808$ 9,488,971$ 11,197,562$ Contributions as a percentage of covered payroll 104.50% 71.03% 75.54% 74.56% The Plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the measurement period. The Plan’s proportionate share of aggregate contributions is based on the Plan’s proportion of fiduciary net position as well as any additional side fund (or unfunded liability) contributions made by the employer during the measurement period. *- Fiscal year 2015 was the first year of implementation, therefore only nine years are shown City of San Luis Obispo, California Schedule of the City's Pension Contributions Safety Cost-Sharing Plan As of June 30, 2022 Last 10 Years * 116 224 **DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2013-14 5,910,345$ 5,549,915$ 5,074,217$ 4,350,871$ 4,226,211$ (5,910,345) (6,299,915) (5,824,217) (4,650,871) (5,161,211) -$ (750,000)$ (750,000)$ (300,000)$ (935,000)$ 11,246,306$ 10,614,437$ 10,643,123$ 10,849,863$ 10,768,119$ 52.55% 59.35% 54.72% 42.87% 47.93% 117 225 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 2017-18 Measurement Period 2020-21 2019-20 2018-19 2017-18 2016-17 Total OPEB liability: Service Cost 423,364$ 415,244$ 477,538$ 463,629$ 450,125$ Interest on total OPEB liability 867,422 841,590 935,528 891,794 856,436 Difference between expected and actual experience 349,893 - (2,085,962) - - Changes in assumptions 507,115 (203,416) 21,857 - - Benefit payments, including refunds of employee contributions (678,789) (678,882) (677,824) (765,000) (827,500) Net change in total OPEB liability 1,469,005 374,536 (1,328,863) 590,423 479,061 Total OPEB liability - beginning 12,766,729 12,392,193 13,721,056 13,130,633 12,651,572 Total OPEB liability - ending (a)14,235,734$ 12,766,729$ 12,392,193$ 13,721,056$ 13,130,633$ Plan fiduciary net position: Contributions - employer 921,000$ 1,656,882$ 677,824$ 1,221,000$ 1,493,996$ Net investment income 2,196,724 259,704 392,852 439,828 469,883 Benefit payments (678,789) (678,882) (677,824) (765,000) (827,500) Administrative expense (7,235) (3,472) (1,364) (10,170) (2,387) Net change in plan fiduciary net position 2,431,700 1,234,232 391,488 885,658 1,133,992 Plan fiduciary net position - beginning 7,991,098 6,756,866 6,365,378 5,479,720 4,345,728 Plan fiduciary net position - ending (b)10,422,798$ 7,991,098$ 6,756,866$ 6,365,378$ 5,479,720$ Plan net OPEB liability - ending (a) - (b)3,812,936$ 4,775,631$ 5,635,327$ 7,355,678$ 7,650,913$ Plan fiduciary net position as a percentage of the total OPEB liability 73.22% 62.59% 54.53% 46.39% 41.73% Covered-employee payroll 40,691,438$ 33,077,056$ 33,429,600$ 33,790,437$ 33,722,592$ Plan net OPEB liability as percentage of covered payroll 9.37% 14.44% 16.86% 21.77% 22.69% Changes in assumptions. As of June 30, 2021 measurement date, the assumption adds 1. Discount rate was updated based on newer capital market assumptions 2. Medical plan election at retirement assumption was updated 3. Inflation rate decreased from 2.75% to 2.50%, which decreased the discount rate, medical trend, and aggregate salary increases by 0.25% 4. Demographic assumptions updated to CalPERS 2000-2019 Experience Study 5. Mortality improvement scale was updated to Scale MP-2021. As of June 30, 2020 measurement date, the assumption removed the ACA excise tax. As of June 30, 2019 measurement date, the mortality improvement scale was updated to Scale MP-2019. Medical plan at retirement estimated using weighted premium of recent retirees; updated based on retirements during 2015-2019. * Fiscal year 2018 was the first year of implementation. Information is required only for measurement periods for which GASB 75 is applicable. Benefit changes . The figures shown do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2020 measurement date. Prepared for the City of San Luis Obispo OPEB Plan an Agent Multiple-Employer Defined Benefit OPEB Plan As of June 30, 2022 Last 10 Years * Schedule of Changes in the Net OPEB Liability and Related Ratios 118 226 **DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 2017-18 1,309,367$ 921,000$ 1,190,000$ 1,154,000$ 1,221,000$ (1,309,367)$ (921,000) (1,656,882) (677,824) (1,221,000) Contribution deficiency (excess)-$ -$ (466,882)$ 476,176$ -$ Covered-employee payroll 38,691,777$ 40,691,438$ 33,077,056$ 33,429,600$ 33,790,437$ 3.38% 2.26% 3.60% 3.45% 3.61% Contributions paid as of June 30, 2022 are deferred to June 30, 2023. Valuation date June 30, 2019 Actuarial Cost Method Entry Age Normal, Level % of pay Amortization Method Level % of pay Amortization Period Average 12.1 years remaining fixed period for 2021/22 Asset Valuation Method Investment gains and losses spread over 5-year rolling period Discount Rate General Inflation Medical Trend Mortality CalPERS 1997-2015 experience study Mortality Improvement The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2021-22 are as follows: Non-Medicare - 7.25% for 2021, decreasing to an ultimate rate of 4.0% in 2076 Medicare - 6.3% for 2021, decreasing to an ultimate rate of 4.0% in 2076 Post-retirement mortality projected fully generational with Scale MP-2019 * Fiscal year 2018 was the first year of implementation. Information is required only for measurement periods for which GASB 75 is applicable. 6.75% 2.75% Prepared for the City of San Luis Obispo Miscellaneous Plan an Agent Multiple-Employer Defined Benefit OPEB Plan As of June 30, 2022 Last 10 Years * Schedule of Employer OPEB Contributions Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contributions as a percentage of covered payroll 119 227 **DRAFT**v1 City of San Luis Obispo, California Notes to Required Supplementary Information June 30, 2022 Budgetary Comparison Schedule 1. The budget is prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. 2. Outstanding encumbrances from the prior fiscal year are not reflected in the original budget column but are included in the final budget amounts. 3. All the City’s general government and engineering programs are initially accounted and budgeted for in the General Fund. However, certain of these support service programs also benefit the City’s enterprise and agency fund operations, and accordingly, transfers are made from these funds to reimburse the General Fund for these services. The transfers are based on a Cost Allocation Plan prepared for this purpose which distributes the shared costs in a uniform, consistent manner in accordance with U.S. generally accepted accounting principles. Excess of Expenditures Over Appropriations 1. At June 30, 2022 expenditures exceeded appropriations in the General Fund as noted below. Department/Division Budget Variance Police Protection: Patrol services 1,098,482$ Fire and environmental safety: Emergency response 270,266 Culture and Recreation: Golf course 26,024 Transportation: Traffic signals and street lights 495 Recreation programs: Maintenance programs: Parks and landscape maintenance 58,702 Planning: Long-range planning 1,326,602 Organization support services: Finance and administration 192,610 Housing 29,149 General Government: Council 4,244 General Administration: Public works administration 8,416 Capital Outlay: Public safety 309 120 228 **DRAFT**v1 OTHER SUPPLEMENTARY INFORMATION AND COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 121 229 **DRAFT**v1 122 230 **DRAFT**v1 Revenues Budget Actual Local Transaction and Use Tax 25,810,000$ 29,172,258$ Investment Income (283,748) 25,810,000$ 28,888,510$ Expenditures Transfer Out for Operating Programs: Protect Financial Stability (FTE = 3.5) 328,811$ 328,811$ Community Safety and Emergency Preparedness (FTE = 8) 1,417,636 1,417,636 Creek and Flood Protection (FTE = 6) 632,567 632,567 Address Homelessness (FTE = 1) 810,647 810,647 Safe and Clean Public Areas (FTE = 3) 371,021 371,021 Economic Development and Business Retention 998,688 998,688 Youth/Senior Services and Recreation Facilities (FTE = 3.5) 341,009 341,009 Street Maintenance and Transportation (FTE = 5.6) 1,016,455 1,016,455 Open Space/Natural Areas Preservation and Maint. (FTE = 5) 741,007 741,007 Other Services and Projects 254,819 254,819 6,912,660$ 6,912,660$ Transfer Out for 2021-22 Capital Projects Community Safety and Emergency Preparedness 2,119,473$ 2,119,473$ Creek and Flood Protection 960,000 960,000 Safe and Clean Public Areas 805,000 805,000 Economic Development and Business Retention 1,140,555 1,140,555 Youth/Senior Services and Recreation Facilities 3,234,000 3,234,000 Street Maintenance and Transportation (incl bike and ped improvements) 9,021,975 9,021,975 Open Space/Natural Areas Preservation and Maintenance 1,490,000 1,490,000 Other Services and Projects 1,365,464 1,365,464 Allocation to Capital Reserve 3,426,208 3,426,208 23,562,674$ 23,562,674$ Expenditures on Legacy Projects (projects funded before 2021-22) Legacy Projects 3,975,195$ 2,016,283$ Net Change in Fund Balance (3,603,107)$ Fund Balance Beginning of Year 9,299,971$ Fund Balance End of Year 5,696,864$ Encumbered for Legacy Projects (1,958,912)$ Available Fund Balance (note 1) 3,737,952$ Note 1: Council took action on October 4, 2022 (R-11367) to allocate $2.1 million of the available fund balance. City of San Luis Obispo Local Transaction Tax Measure Funding Schedule For the Fiscal Year Ended June 30, 2022 123 231 **DRAFT**v1 Page 2 Capital Programs: Budget Actual Encumbrances Carryover Community Safety and Emergency Preparedness Fire Hydrant Replacement 40,000 39,976 - 24 IT Replacements - Annual Asset Maintenance Account 1,703,757 511,052 120,507 1,072,198 Police Station Replacement 262,520 29,950 232,570 0 Fleet Replacement: Police 340,000 109,589 116,367 114,045 Fleet Replacement: Fire 295,000 129,034 133,236 32,730 Community Safety Emergency Response Communication Equip 89,420 29,309 6,500 53,611 Fire Station #3 & #4 Remodel Space Study and Design 25,000 - - 25,000 2,755,697 848,909 609,179 1,297,609 Creek and Flood Protection Pismo/Johnson/San Luis Creek Bank Stabilization 235,000 104,166 88,811 42,023 Broad and Leff Culvert Repair 7,613 7,612 - 1 Storm Drains Annual Asset Maintenance 822,159 629,646 30,530 161,983 Woodbridge Groundwater Runoff Diversion 10,000 - - 10,000 1,074,772 741,423 119,342 214,007 Safe and Clean Public Areas Downtown Safety Enhancements 400,000 208,581 51 191,368 Sidewalk Annual Asset Maintenance 287,613 89,993 2,465 195,155 Mission Plaza Restroom Replacements and Enhancements 377,435 110,918 167,068 99,449 Bob Jones Trail and Railroad Safety Trail Solar Lighting 100,000 - - 100,000 Downtown Cleaning Equipment 21,368 4,500 16,868 Street Lights - Annual Asset Maintenance 73,148 5,818 13,577 53,753 Street and Pathway Lighting 75,000 - - 75,000 1,334,564 419,810 183,161 731,593 Economic Development and Business Retention Open SLO 200,000 65,015 7,500 127,485 Banner Arm - Bench Rests - Signs 100,000 20,878 - 79,122 Annual Public Art Maintenance and Projects 92,500 62,800 - 29,700 Neighborhood Greenways Public Art 11,216 - - 11,216 Downtown Public Art Installations 211,000 172,738 - 38,262 Mission Plaza Maintenance Improvements 275,000 88,730 - 186,271 Mission Plaza Arbor Refurbishment 15,000 - - 15,000 Downtown Zig‐Zag Lighting 250,000 - - 250,000 1,154,716 410,161 7,500 737,055 Youth/Senior Services and Recreation Facilities Meadow Park Pathways Refurbishment 220,035 220,035 - - Laguna Lake Golf Course Maintenance 40,000 28,430 - 11,570 Golf Course Pro Shop Flood Damage Repairs 120,000 26,778 - 93,222 Parks Major Maintenance - Annual Asset Maintenance 1,977,135 1,198,349 15,517 763,269 Parks and Recreation Master Plan Implementation 200,000 - - 200,000 Playground Equipment Replacement - Annual Asset Maint.110,000 - - 110,000 Parks and Recreation Interior Office Rehabilitation 150,000 150,000 - - North Broad Street Neighborhood Park Construction 175,000 - - 175,000 Major Facilities Maintenance - Annual Asset Maintenance 1,004,795 152,183 26,480 826,132 3,996,965 1,775,775 41,997 2,179,193 City of San Luis Obispo Local Transaction Tax Measure Funding Schedule, continued Includes Legacy Projects and projects funded by Capital Reserve Local Revenue Measure Funded Projects 124 232 **DRAFT**v1 Page 3 Street Maintenance and Transportation Ped and Bike Pathway Inventory and Pavement Condition 82,407 39,544 4,699 38,164 Neighborhood Greenway Plan Implementation ‐ Phase II 744,775 338,562 379,028 27,186 South Street Median Landscaping 36,676 22,596 11,090 2,990 Avila Ranch ‐ Buckley Extension Class I Bike Lane 1,665,000 56,989 96 1,607,915 Pedestrian Crossing Improvements 363,773 33,149 24,344 306,280 Curb Ramps 1,000,000 616,142 200,848 183,010 2021 Downtown Pavement Improvements Project 2,630,095 2,573,536 - 56,559 Active Transportation Plan Implementation 400,107 106,312 229,912 63,884 Monterey at Santa Rosa Paving and Signal Proect 1,000,000 9,770 230 990,000 Roadway Sealing 2022 238,160 10,360 - 227,800 Street Reconstruction and Resurfacing - Annual Asset Maint.413,118 83,484 147,490 182,143 Mid-Higuera Bypass 110,000 11,546 42,154 56,300 Traffic Signs and Striping Maintenance 62,919 43,770 - 19,149 California Taft Roundabout 300,000 1,721 68,040 230,240 Orcutt/Tank Roundabout Construction 1,069,494 707,019 97,262 265,214 Prado Road Interchange 500,000 - - 500,000 Prado Road Bridge & Road Widening 427,780 26,260 401,520 - Higuera Street Paving 24,634 5,299 - 19,335 Transportation Safety & Operations 59,119 16,930 - 42,189 Marsh at Santa Rosa Replacement 74,250 32,531 2,011 39,709 Traffic Safety Implementation 149,469 14,440 16,390 118,639 Railroad Safety Trail Taft to Pepper 156,706 34,956 121,750 0 Broad Street Corridor Access Improvements 35,000 5,402 - 29,598 Neighborhood Traffic Improvements 179,756 1,410 9,252 169,094 11,723,238 4,791,725 1,756,116 5,175,396 Open Space/Natural Areas Preservation and Maintenance Urban Forest Maintenance 721,610 453,782 75,168 192,660 Open Space - Annual Asset Maintenance 166,395 72,482 4,137 89,776 Laguna Lake Dredging 653,003 634,918 - 18,085 Open Space Acquisition 278,597 29,395 18,752 230,450 1,819,605 1,190,577 98,057 530,971 Other Services and Projects Fleet Replacement: Public Works 631,000 9,289 59,619 562,092 Roundabout Public Art Installations 300,000 217,500 - 82,500 Parking Lot Maintenance - Annual Asset Maintenance 279,583 109,577 - 170,006 Multi-space On-Street Pay Stations 17,000 17,000 - - Fleet Services Vehicle Lift 9,616 9,616 - - Capital Projects Engineering Staff (6 FTE)500,000 412,928 - 87,072 Multisite Energy Management 137,980 137,980 - - Electric Vehicle Charing Stations 100,000 - 30,053 69,947 1,975,179 913,890 89,672 971,617 Total Capital Expenditures 25,834,735$ 11,092,269$ 2,905,025$ 11,837,441$ Local Transaction Tax Measure Funding Schedule, continued For the Fiscal Year Ended June 30, 2022 City of San Luis Obispo Local Revenue Measure Funded Projects Includes Legacy Projects and projects funded by Capital Reserve 125 233 **DRAFT**v1 126 234 **DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 The City maintains the following nonmajor governmental funds: Special Revenue Funds The City has established the following ten special revenue funds in order to account for the proceeds from revenue sources that are restricted or committed to expenditures for specified purposes. Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. Downtown Business Improvement District (BID) Fund. This fund has been established to account for the receipt of a surcharge derived from a supplemental assessment upon businesses within the Downtown Business Improvement District’s boundaries. Pursuant to the provisions of the Municipal Code, this surcharge is equal to $150.00 per year. Expenditures from the fund are limited to four basic purposes: decorating public places within the downtown; promoting public events in the downtown core; promoting trade activities; and improving parking in the downtown core. Transportation Development Act (TDA) Fund. The State of California has designated 1/4% of the sales tax levied statewide for local transportation purposes. Funding for this program was provided during the 1971 legislative session with the enactment of the Transportation Development Act, which extended the State sales tax to include purchases of gasoline. Revenues allocated to the City of San Luis Obispo under this program are divided into two categories: Article 3 funds, which are restricted for the improvement and maintenance of street systems including pedestrian and bicycle facilities; and Article 4 funds, which are restricted for public transit systems and are recorded directly in the Transit Fund. Under the City's Financial Plan policies, all TDA Article 3 revenues are allocated for alternative transportation purposes. The purpose of this fund is to account for these revenues. Tourism Business Improvement District (BID) Fund. This fund has been established to account for the receipt of a surcharge derived from assessments upon the lodging establishments within the City. The surcharge is equal to 2% of gross room rents. Expenditures from the fund are limited to the marketing and promotion of tourism. Gas Tax Fund. Portions of the tax rate per gallon levied by the State of California on all gasoline purchases are allocated to cities throughout the State on a population basis. These funds are restricted for expenditures by the State of California for street-related purposes only. Under the City's Financial Plan policies, all gas tax revenues are transferred to the General Fund for street maintenance purposes. Community Development Block Grant (CDBG) Fund. This fund has been established to account for federal funds received by the City specifically to benefit low and moderate income persons, aid in the elimination of blight, and meet other community development needs as allowed by block grant regulations. Law Enforcement Grants Fund. This fund has been established to account for public safety grant funds. Public Arts Contribution Fund. Public contributions to the public art program are accounted for in this fund along with the expenditures for public art projects funded by this revenue source. SB1 Road Repair Fund. This fund has been established to account for stable and ongoing funding for maintenance and improvements to transportation infrastructure as provided through Senate Bill 1 (2017), the Road Repair and Accountability Act. SB1186 CASP Certify Fund. This fund has been established as Senate Bill 1186 (2012) requires local agencies to collect an additional fee when issuing a permit for the purpose of increasing certified access specialist (CASp) services and compliance with 127 235 **DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 2 construction-related accessibility requirements. The first priority is to spend the funds on the training and retention of CASps in order to meet the needs of the public in the jurisdiction. The funds may also be spent on activities or programs that facilitate accessibility compliance. Capital Projects Funds The following eleven capital project funds are used by the City to account for the financial resources used in the construction or acquisition of major capital facilities or equipment (with the exception of those financed primarily through proprietary funds). Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles on a multi- year project basis. Accordingly, budgetary comparisons for the capital projects funds are not presented in the accompanying other supplementary information. Parkland Development Fund - Quimby. This fund was established to account for parkland in-lieu fees in accordance with the AB 1191 Act, also known as the Quimby Act; it authorizes the City to require residential subdivisions to dedicate land for parks or pay fees in lieu of dedication. Impact fees may be collected to pay for park land (for projects not involving a subdivision), park improvements, community centers, recreation facilities, trails, open space, etc. Open Space Protection Fund. This fund was established to account for projects funded as part of the City’s open space protection program to enhance open space and agricultural conservation on lands within and surrounding the City, improve passive recreational and nature study opportunities, and restore and enhance wildlife habitat. Projects in this fund will be financed with General Fund contributions, outside contributions, and State and Federal grants. Airport Area Impact Fee Fund. This fund was established to account for interim annexation fees collected for the specific plan and related infrastructure master plans for annexing the airport area to the City. Los Osos Valley Road (LOVR) Sub-Area Fee Fund. This fund was established to account for the LOVR add-on impact fee created for the expansion of capacity for the LOVR interchange at US 101 for construction, project management, and inspection. Though the project has been completed, the City has an existing reimbursement agreement with Costco Wholesale Corporation for improvements already constructed at the LOVR interchange. Fleet Replacement Fund. This fund was established to account for the financing and replacement of vehicles for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings and sales of surplus property. Information Technology Replacement Fund. This fund was established in FY 12-13 to account for the financing and replacement of information technology for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Major Facility Replacement Fund. This fund accounts for the financing and replacement of major facilities for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Affordable Housing Program Fund. This fund accumulates revenues from inclusionary housing fees for capital projects related to 128 236 **DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 3 affordable housing programs and projects. Transportation Impact Fee Fund. This fund was established to account for construction projects related to transportation facilities and travel lanes within the City that will be financed primarily with transportation impact fees. Infrastructure Fund. This fund was established to provide financing to infrastructure projects that have a wide community benefit. Financing is primarily provided through operating transfers from the General Fund. Parkland Development Impact Fee – Citywide Fund. This fund was created to account for impact fees that were established for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city. OASP Park Development Fund. This fund was established to account for impact fees created for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city but more specifically by the Orcutt Area residents as the location of this park projects are in the Orcutt Area. MASP Park Development Fund. This fund was established to account for impact fees created for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city but more specifically by the Margarita Area residents as the location of this park projects are in the Margarita Area. OASP Transportation Impact Fee Fund. This fund was established to account for construction projects that will be financed primarily with transportation impact fees within the Orcutt Area Specific Plan in accordance with its Development Agreement Fire Impact Fee Fund. This fund was established to account for fire department related construction projects that will be financed primarily with public safety development impact fees. Police Impact Fee Fund. This fund was established to account for police department related construction projects that will be financed primarily with public safety development impact fees. Park Improvement Impact Fee – Citywide Fund. This fund was established to account for construction projects related to park improvements that will be financed primarily with park in-lieu fees. SLR Transportation Impact Fee. This fund was established to account for construction projects that will be financed primarily with transportation impact fees within the San Luis Ranch development, in accordance with its Development Agreement. Public Safety Equipment Replacement Fund. This fund accounts for the financing and replacement of public safety equipment. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Debt Service Fund The City has established one debt service fund to account for the payment and accumulation of resources related to governmental activities long-term debt principal and interest for the following debt issues. Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. The following governmental activity debt issuances are serviced by this fund. 129 237 **DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 4 Capital Improvement Board 2012 Refunding Lease Revenue Bonds. In May 2012 the Board issued $5,050,000 of 2012 Lease Revenue Refunding Bonds. These bonds were issued to refinance the outstanding 2001 Lease Revenue Bonds, Series C, which will be redeemed on December 1, 2029. The 2001 bonds were used to purchase property and build athletic fields; purchase property for police station expansion; purchase Downtown Plan properties. The Board has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. Public Financing Authority 2014 Lease Revenue Bonds. In 2014 the Authority issued $7,580,000 of 2014 Lease Revenue Bonds. These bonds were issued to finance the expansion of the Los Osos Valley Road interchange at U.S. 101. Debt service related to the interchange is recorded in the Debt Service Fund. The Authority has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. 2017 Fire Engine and Street Sweeper. Lease-purchase financing was obtained in order to purchase a fire engine and street sweeper. Debt service obligations are recorded in the Debt Service Fund. 2018 Street Sweeper. Lease-purchase financing was obtained in order to purchase a street sweeper. Debt service obligations are recorded in the Debt Service Fund. 2018 Fire Truck. Lease-purchase financing was obtained in order to purchase a fire truck. Debt service obligations are recorded in the Debt Service Fund. Public Financing Authority 2018 Lease Revenue Bonds. In 2018 the Authority issued $11,072,775 of 2018 Lease Revenue Refunding Bonds. These bonds were issued to refinance the outstanding 2005 Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds. The original bonds were used to accomplish several high priority capital improvement projects including the headquarters fire station, seismic safety and HVAC improvements to City Hall, Mission Plaza expansion, and various properties and street lighting system purchases. Further, the bonds were used to purchase a parking structure and office building and to the finance the construction of the Public Safety Communications and Emergency Operations Center project. The Authority has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. 2020 Motorola Radio Lease. Lease-purchase financing was obtained in order to purchase new Motorola radios and related equipment for public safety departments. Debt service obligations are recorded in the Debt Service Fund. 130 238 **DRAFT**v1 131 239 **DRAFT**v1 Downtown BID Transportation Development Act (TDA) Tourism BID Gas Tax Assets Cash and investment 29$ 8,681$ 1,113,272$ -$ Accounts receivable - - 257,536 - Tax receivable - - - - Accrued interest receivable - - 1,982 - Cash held by fiscal agent - - - - Loans receivable - - - - Total assets 29$ 8,681$ 1,372,790$ -$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ 220,873$ -$ Accrued liabilities - - 4,036 - Unearned revenue - - - - Total liabilities - - 224,909 - Deferred Inflows of Resources: Unavailable revenue - - - - Fund balance: Nonspendable - 8,681 - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs - - - - Parkland development programs - - - - Public art programs - - - - Tourism programs - - 1,147,881 - Public safety program - - - - Assigned to: Contingency fund - - - - Subsequent years expenditures 29 - - - Total fund balance 29 8,681 1,147,881 - 29$ 8,681$ 1,372,790$ -$ City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds June 30, 2022 Special Revenue Funds Total liabilities, deferred inflows of resources, and fund balance 132 240 **DRAFT**v1 Community Development Block Grant (CDBG) Law Enforcement Grants Public Art Contributions SB1 Road Repair SB1186 CASP Certify Parkland In-Lieu Fee Open Space Protection 108,574$ 55,000$ 804,244$ 740,408$ 111,845$ 3,117,272$ 12,920$ - 65,221 - - - - - - - - 165,443 - - - 648,482 - 1,433 1,277 211 12,429 29 - - - - - - - 1,112,944 - - - - 143,044 - 1,870,000$ 120,221$ 805,677$ 907,128$ 112,056$ 3,272,745$ 12,949$ -$ 52,300$ 7,639$ -$ -$ 15,945$ -$ - - - - - - - - 863 - - - - - - 53,163 7,639 - - 15,945 - 1,761,425 - - - - 149,602 - - - - - - - - - - - - - - - - - - 907,128 112,056 - - 108,575 - - - - - - - - - - - - - - - - - - 3,107,198 - - - 798,038 - - - - - - - - - - - - 67,058 - - - - - - - - - - - - - - - - - - 12,949 108,575 67,058 798,038 907,128 112,056 3,107,198 12,949 1,870,000$ 120,221$ 805,677$ 907,128$ 112,056$ 3,272,745$ 12,949$ Special Revenue Funds Capital Projects Funds 133 241 **DRAFT**v1 City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds, continued Airport Area Impact Fee LOVR Sub- Area Fee Fleet Replacement Info Tech Replacement Assets Cash and investment 674,261$ 583,299$ 2,612,864$ 3,886,420$ Accounts receivable - - - - Tax receivable - - - - Accrued interest receivable 1,275 1,066 3,587 - Cash held by fiscal agent - - - - Loans receivable - - - - Total assets 675,536$ 584,365$ 2,616,451$ 3,886,420$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ 1,896$ 6,155$ Accrued liabilities - - - - Unearned revenue - - - 600,000 Total liabilities - - 1,896 606,155 Deferred Inflows of Resources: Unavailable revenue - - - - Fund balance: Nonspendable - - - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs 675,536 584,365 - - Parkland development programs - - - - Public art programs - - - - Tourism programs - - - - Public safety program - - - - Assigned to: Contingency fund - - 500,000 400,000 Subsequent years expenditures - - 2,114,555 2,880,265 Total fund balance 675,536 584,365 2,614,555 3,280,265 675,536$ 584,365$ 2,616,451$ 3,886,420$ June 30, 2022 Total liabilities, deferred inflows of resources, and fund balance Capital Projects Funds 134 242 **DRAFT**v1 Affordable Housing Transportation Impact Fee Infrastructure Public Safety Development Impact Fee Parkland Development Impact Fee- Citywide OASP Park MASP Park 3,812,404$ 7,793,366$ 13,988,177$ -$ 656,891$ 2,039,747$ 1,665,767$ - - - - - - - - - - - - - - 1,806,969 114,635 - - 59,515 3,804 3,148 - - - - - - - 9,001,843 1,164,368 - - 446,826 - - 14,621,216$ 9,072,369$ 13,988,177$ -$ 1,163,232$ 2,043,551$ 1,668,915$ -$ 776,798$ -$ -$ -$ -$ -$ - - - - - - - 2,964,467 - 9,200,000 - - - - 2,964,467 776,798 9,200,000 - - - - 1,872,010 1,263,705 - - 505,203 - - - - - - - - - - - - - - - - - 7,031,866 - - - - - 9,784,739 - - - - - - - - - - 658,029 2,043,551 1,668,915 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,788,177 - - - - 9,784,739 7,031,866 4,788,177 - 658,029 2,043,551 1,668,915 14,621,216$ 9,072,369$ 13,988,177$ -$ 1,163,232$ 2,043,551$ 1,668,915$ Capital Projects Funds 135 243 **DRAFT**v1 City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds, continued OASP Transportation Impact Fee Fire Impact Fee Police Impact Fee Park Improvement Impact Fee- Citywide Assets Cash and investment 1,389,630$ 199,861$ 245,017$ 1,006,860$ Accounts receivable - - - - Tax receivable - - - - Accrued interest receivable 2,625 7,383 2,812 3,137 Cash held by fiscal agent - - - - Loans receivable - 78,276 56,781 82,807 Total assets 1,392,255$ 285,520$ 304,610$ 1,092,804$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ -$ -$ Accrued liabilities - - - - Unearned revenue - - - - Total liabilities - - - - Deferred Inflows of Resources: Unavailable revenue - 85,301 59,164 84,189 Fund balance: Nonspendable - - - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs 1,392,255 200,219 245,446 1,008,615 Parkland development programs - - - - Public art programs - - - - Tourism programs - - - - Public safety program - - - - Assigned to: Contingency fund - - - - Subsequent years expenditures - - - - Total fund balance 1,392,255 200,219 245,446 1,008,615 1,392,255$ 285,520$ 304,610$ 1,092,804$ June 30, 2022 Capital Projects Funds Total liabilities, deferred inflows of resources, and fund balance 136 244 **DRAFT**v1 SLR Transportation Impact Fee Public Safety Equipment Replacement Fund Debt Service Total Nonmajor Governmental Funds 458,142$ 805,012$ 2,118,745$ 50,008,708$ - - - 322,757 - - - 165,443 713 - - 2,676,512 - - 421,510 421,510 - - - 12,086,889 458,855$ 805,012$ 2,540,255$ 65,681,819$ -$ 7,222$ -$ 1,088,828$ - - - 4,036 - - - 12,765,330 - 7,222 - 13,858,194 - - - 5,780,599 - - - 8,681 - - 2,540,255 2,540,255 - - - 8,051,050 - - - 9,893,314 458,855 - - 8,935,786 - - - 3,107,198 - - - 798,038 - - - 1,147,881 - 797,790 - 864,848 - - - 900,000 - - - 9,795,975 458,855 797,790 2,540,255 46,043,026 458,855$ 805,012$ 2,540,255$ 65,681,819$ Capital Projects Funds 137 245 **DRAFT**v1 Downtown BID Transportation Development Act (TDA) Tourism BID Gas Tax Revenues: Use of money and property -$ -$ (23,302)$ -$ Subventions and grants - 53,681 - 1,130,064 Charges for services 227,202 - 2,127,375 - Other revenues - - 7,616 - Total revenues 227,202 53,681 2,111,689 1,130,064 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development 222,141 - 1,604,475 - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Total expenditures 222,141 - 1,604,475 - Excess (deficiency) of revenues over (under) expenditures 5,061 53,681 507,214 1,130,064 Other financing sources (uses): Transfers in - - - - Transfers out - (45,000) (37,887) (1,130,064) Total other financing sources (uses) - (45,000) (37,887) (1,130,064) Net change in fund balance 5,061 8,681 469,327 - (5,032) - 678,554 - Fund balance (deficit), end of year 29$ 8,681$ 1,147,881$ -$ Fund balance, beginning of year, as restated Special Revenue Funds City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 138 246 **DRAFT**v1 Community Development Block Grant (CDBG) Law Enforcement Grants Public Art Contributions SB1 Road Repair SB1186 ASP Certify Parkland In-Lieu Fee Open Space Protection -$ -$ (16,319)$ (23,626)$ (2,609)$ (84,394)$ (467)$ - 165,983 - 935,475 - - - - 802 99,698 - 28,977 117,604 - 36,482 - - - - 8,915 - 36,482 166,785 83,379 911,849 26,368 42,125 (467) - - - - - - - - 163,145 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 914,730 - - - - - 296,242 - - 340,395 - - 163,145 296,242 914,730 - 340,395 - 36,482 3,640 (212,863) (2,881) 26,368 (298,270) (467) - - 442,500 - - - - (36,482) - - - - - (6,900) (36,482) - 442,500 - - - (6,900) - 3,640 229,637 (2,881) 26,368 (298,270) (7,367) 108,575 63,418 568,401 910,009 85,688 3,405,468 20,316 108,575$ 67,058$ 798,038$ 907,128$ 112,056$ 3,107,198$ 12,949$ Capital Projects FundsSpecial Revenue Funds 139 247 **DRAFT**v1 City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds, continued For the Fiscal Year Ended June 30, 2022 Airport Area Impact Fee LOVR Sub- Area Fee Fleet Replacement Info Tech Replacement Revenues: Use of money and property (21,171)$ (12,091)$ (34,561)$ (5,227)$ Subventions and grants - - - - Charges for services 1,508 126,726 - 179,677 Other revenues - - 53,307 - Total revenues (19,663) 114,635 18,746 174,450 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - 10,853 505,982 Public safety - - 232,435 - Transportation 201,495 - - - Leisure, cultural and social services - - - - Total expenditures 201,495 - 243,288 505,982 Excess (deficiency) of revenues over (under) expenditures (221,158) 114,635 (224,542) (331,532) Other financing sources (uses): Transfers in - - 1,615,000 1,075,640 Transfers out - - - (208,290) Total other financing sources (uses) - - 1,615,000 867,350 Net change in fund balance (221,158) 114,635 1,390,458 535,818 Fund balance, beginning of year, as restated 896,694 469,730 1,224,097 2,744,447 Fund balance (deficit), end of year 675,536$ 584,365$ 2,614,555$ 3,280,265$ Capital Projects Funds 140 248 **DRAFT**v1 Affordable Housing Transportation Impact Fee Infrastructure Public Safety Development Impact Fee Parkland Development Impact Fee- Citywide OASP Park MASP Park (37,152)$ (236,024)$ (4,774)$ -$ (13,138)$ (51,551)$ (38,915)$ - - 86,583 - - - - 411,875 1,715,909 - - 121,734 130,976 74,989 153,171 - - - - - - 527,894 1,479,885 81,809 - 108,596 79,425 36,074 - - - - - - - - - - - - - - - 312,156 - - - - - - - - - - 284,404 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,380,160 9,422 - - - - - - - - - - - - 3,692,316 9,422 - - 284,404 - 527,894 (2,212,431) 72,387 - 108,596 (204,979) 36,074 - - 2,757,545 - - - - (87,000) (280,000) (476,971) (188,355) - - - (87,000) (280,000) 2,280,574 (188,355) - - - 440,894 (2,492,431) 2,352,961 (188,355) 108,596 (204,979) 36,074 9,343,845 9,524,297 2,435,216 188,355 549,433 2,248,530 1,632,841 9,784,739$ 7,031,866$ 4,788,177$ -$ 658,029$ 2,043,551$ 1,668,915$ Capital Projects Funds 141 249 **DRAFT**v1 City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds, continued For the Fiscal Year Ended June 30, 2022 OASP Transportation Impact Fee Fire Impact Fee Police Impact Fee Park Improvement Impact Fee- Citywide Revenues: Use of money and property (29,353)$ (16,497)$ (19,445)$ (20,015)$ Subventions and grants - - - - Charges for services 728,999 64,597 89,876 190,868 Other revenues - - - - Total revenues 699,646 48,100 70,431 170,853 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Total expenditures - - - - Excess (deficiency) of revenues over (under) expenditures 699,646 48,100 70,431 170,853 Other financing sources (uses): Transfers in - 85,996 102,359 - Transfers out - - - - Total other financing sources (uses) - 85,996 102,359 - Net change in fund balance 699,646 134,096 172,790 170,853 Fund balance, beginning of year, as restated 692,609 66,123 72,656 837,762 Fund balance (deficit), end of year 1,392,255$ 200,219$ 245,446$ 1,008,615$ Capital Projects Funds 142 250 **DRAFT**v1 SLR Transportation Impact Fee Public Safety Equipment Replacement Fund Debt Service Total Nonmajor Governmental Funds (2,187)$ -$ 21$ (692,797)$ - - - 2,371,786 457,690 - - 6,897,082 - - - 259,491 455,503 - 21 8,835,562 - - 7,440 7,440 - 101,554 - 264,699 - - - 312,156 - - - 284,404 - - - 1,826,616 - - 1,467,402 1,467,402 - - 774,747 774,747 - - - 516,835 - - - 232,435 6,648 - - 4,512,455 - - - 636,637 6,648 101,554 2,249,589 10,835,826 448,855 (101,554) (2,249,568) (2,000,264) 10,000 929,344 2,214,456 9,232,840 - (30,000) - (2,526,949) 10,000 899,344 2,214,456 6,705,891 458,855 797,790 (35,112) 4,705,627 - - 2,575,367 41,337,399 458,855$ 797,790$ 2,540,255$ 46,043,026$ Capital Projects Funds 143 251 **DRAFT**v1 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Charges for services Assessments 245,000$ 245,000$ 227,202$ (17,798)$ Total Revenues 245,000 245,000 227,202 (17,798) Expenditures: Current Community development 245,000 245,000 222,141 22,859 Total Expenditures 245,000 245,000 222,141 22,859 Excess of Revenues Over Expenditures - - 5,061 5,061 Net Change in Fund Balance - - 5,061 5,061 Fund Balance, Beginning of Year (5,032) (5,032) (5,032) - Fund Balance, End of Year (5,032)$ (5,032)$ 29$ 5,061$ Downtown Business Improvement District Fund City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Budget 144 252 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 45,900$ 45,900$ 53,681$ 7,781$ Total Revenues 45,900 45,900 53,681 7,781 Excess of Revenues Over Expenditures 45,900 45,900 53,681 7,781 Other Financing Uses: Operating transfers out (45,900) (97,129) (45,000) 52,129 Net Change in Fund Balance - (51,229) 8,681 59,910 Fund Balance, Beginning of Year - - - - Fund Balance, End of Year -$ (51,229)$ 8,681$ 59,910$ Transportation Development Act (TDA) Budget 145 253 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property 1,400$ 1,400$ (23,302)$ (24,702)$ Assessments 1,442,600 1,442,600 2,127,375 684,775 Total Revenues 1,444,000 1,444,000 2,111,689 667,689 Expenditures: Current Community development 1,451,127 1,858,227 1,604,475 253,752 Total Expenditures 1,451,127 1,858,227 1,604,475 253,752 Excess of Revenues Over (Under) Expenditures (7,127) (414,227) 507,214 921,441 Other Financing Uses: Operating transfers out (28,852) (28,852) (37,887) (9,035) Net Change in Fund Balance (35,979) (443,079) 469,327 912,406 Fund Balance, Beginning of Year 678,554 678,554 678,554 - Fund Balance, End of Year 642,575$ 235,475$ 1,147,881$ 912,406$ Tourism Business Improvement District Fund Budget 146 254 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 1,223,937$ 1,223,937$ 1,130,064$ (93,873)$ Total Revenues 1,223,937 1,223,937 1,130,064 (93,873) Excess of Revenues Over Expenditures 1,223,937 1,223,937 1,130,064 (93,873) Other Financing Uses: Operating transfers out (1,223,937) (1,223,937) (1,130,064) 93,873 Net Change in Fund Balance - - - - Fund Balance, Beginning of Year - - - - Fund Balance, End of Year -$ -$ -$ -$ Gas Tax Budget 147 255 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants -$ -$ -$ -$ Total Revenues - - 36,482 36,482 Expenditures: Current Community development - - - - Total Expenditures - - - - Excess of Revenues Over (Under) Expenditures - - 36,482 36,482 Other Financing Uses: Operating transfers out - - (36,482) (36,482) Net Change in Fund Balance - - - - Fund Balance, Beginning of Year 108,575 108,575 108,575 - Fund Balance, End of Year 108,575$ 108,575$ 108,575$ -$ Community Development Block Grant (CDBG) Fund Budget 148 256 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 113,000$ 113,000$ 165,983$ 52,983$ Charges for services 2,142 - 802 802 Total Revenues 115,142 113,000 166,785 53,785 Expenditures: Public Safety - 36,043 163,145 (127,102) Total Expenditures - 36,043 163,145 (127,102) Excess of Revenues Over (Under) Expenditures 115,142 76,957 3,640 (73,317) Other Financing Uses: Operating transfers out - - - - Net Change in Fund Balance 115,142 76,957 3,640 (73,317) Fund Balance, Beginning of Year 63,418 63,418 63,418 - Fund Balance, End of Year 178,560$ 140,375$ 67,058$ (73,317)$ Budget Law Enforcement Grants Fund 149 257 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property 2,100$ 2,100$ (16,319)$ (18,419)$ Other revenues 15,000 15,000 99,698 84,698 Total Revenues 17,100 17,100 83,379 66,279 Expenditures: Capital Projects 442,500 522,278 296,242 226,036 Total Expenditures 442,500 522,278 296,242 226,036 Excess of Revenues Over (Under) Expenditures (425,400) (505,178) (212,863) 292,315 Other Financing Uses: Operating transfers in 442,500 442,500 - Net Change in Fund Balance (425,400) (62,678) 229,637 292,315 Fund Balance, Beginning of Year 568,401 568,401 568,401 - Fund Balance, End of Year 143,001$ 505,723$ 798,038$ 292,315$ Budget Public Art Contributions Fund 150 258 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ (23,626)$ (23,626)$ Subventions and grants 915,000 915,000 935,475 20,475 Total Revenues 915,000 915,000 911,849 (3,151) Expenditures: Capital Projects 914,731 1,470,525 914,730 555,795 Total Expenditures 914,731 1,470,525 914,730 555,795 Excess of Revenues Over (Under) Expenditures 269 (555,525) (2,881) 552,644 Net Change in Fund Balance 269 (555,525) (2,881) 552,644 Fund Balance, Beginning of Year 910,009 910,009 910,009 - Fund Balance, End of Year 910,278$ 354,484$ 907,128$ 552,644$ Budget SB1 Road Repair Fund 151 259 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ (2,609)$ (2,609)$ Charges for services - - 28,977 28,977 Total Revenues - - 26,368 26,368 Net Change in Fund Balance (85,461) (85,461) 26,368 111,829 Fund Balance, Beginning of Year 85,688 85,688 85,688 - Fund Balance, End of Year 227$ 227$ 112,056$ 111,829$ SB1186 CASP Certify Budget 152 260 **DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ 21$ 21$ Total Revenues - - 21 21 Expenditures: General Government - - 7,440 (7,440) Principal 1,453,459 1,453,459 1,467,402 (13,943) Interest and fiscal charges 760,996 760,996 774,747 (13,751) Total Expenditures 2,214,455 2,214,455 2,249,589 (35,134) Excess of Revenues Over (Under) Expenditures (2,214,455) (2,214,455) (2,249,568) (35,113) Other Financing Uses: Operating transfers in 2,214,456 2,214,456 2,214,456 - Total other Financing Uses:2,214,456 2,214,456 2,214,456 - Net Change in Fund Balance 1 1 (35,112) (35,113) Fund Balance, Beginning of Year 2,575,367 2,575,367 2,575,367 - Fund Balance, End of Year 2,575,368$ 2,575,368$ 2,540,255$ (35,113)$ Budget Debt Service Fund 153 261 **DRAFT**v1 154 262 **DRAFT**v1 City of San Luis Obispo, California Custodial Funds For the Fiscal Year Ended June 30, 2022 The City of San Luis Obispo has established the following agency funds, which are used to account for funds held by the City as an agent for private donations and programs operated jointly with other local agencies: Whale Rock Fund. This fund was established to account for the financial activities of the Whale Rock Commission, a joint venture providing water service to the City, the California Polytechnic State University, and the California Men's Colony. Jack House Fund. This fund was established to account for the financial activities of the Jack House Committee, which includes the rehabilitation and use of a use of the historic Jack House property. Hazardous Materials Task Force Fund. This fund was established to account for the financial activities of the County task force. General Agency Fund. This fund was established to account for a broad category of funds, including donations, provided to the City to be utilized for specific purposes. Boysen Ranch Conservation Easement Fund. This fund was established to account for contributions toward obtaining a conservation easement on the Boysen Ranch property. Cable Television Public, Educational and Government Funds (PEG) for the City of San Luis Obispo, San Luis Coastal Unified School District (SLCUSD) and San Luis Obispo County Public Access, Inc. Public Access Television (PAT). These funds account for collections by Charter Communications from its customers for PEG access equipment and facilities. The City of San Luis Obispo, SLCUSD and PAT annually receive equal shares of collections, restricted for approved uses as stipulated in the cable franchise agreement. San Luis Ranch CFD Fund. This fund was established to account for the financial activities of the San Luis Ranch Community Facilities District (CFD). The CFD is the City's first Mello-Roos district. Property taxes collected on properties within the CFD will be used to pay for debt service on the related infrastructure constructed within the district. 155 263 **DRAFT**v1 Hazardous Whale Jack Materials Task Rock Fund House Fund Force Fund ASSETS Cash and investments 4,443,600$ 18,948$ 149,534$ Receivables: Accounts 16,549 - - Interest 8,433 36 288 Prepaid items - - - Capital assets 789,639 - - Total assets 5,258,221 18,984 149,822 LIABILITIES Accounts payable 48,122 - 2,477 Compensated absence 54,086 - - Accrued Salaries 10,631 - 256 Other liabilities 2,000 - - Total liabilities 114,839 - 2,733 NET POSITION Restricted for Individuals, organizations, and other governments 5,143,382 18,984 147,089 Total net position 5,143,382$ 18,984$ 147,089$ City of San Luis Obispo Combining Statement of Fiduciary Net Position Custodial Funds For the year ended June 30, 2022 156 264 **DRAFT**v1 General Boysen Ranch Total Agency Conservation PEG City of San Luis Ranch PEG Custodial Fund Easement San Luis Obispo CFD SLCUSD Funds 3,052,972$ 407,308$ 115,989$ 145,667$ 395,351$ 8,729,369$ - - - - - 16,549 - 770 213 308 741 10,789 - - - - - - - - - - - 789,639 3,052,972 408,078 116,202 145,975 396,092 9,546,346 25,302 2,844 - - 307,160 385,905 - - - - - 54,086 - - - - - 10,887 - - - - - 2,000 25,302 2,844 - - 307,160 452,878 3,027,670 405,234 116,202 145,975 88,932 9,093,468 3,027,670$ 405,234$ 116,202$ 145,975$ 88,932$ 9,093,468$ 157 265 **DRAFT**v1 Hazardous Whale Jack Materials Task Rock Fund House Fund Force Fund ADDITIONS: Assessment revenue -$ -$ -$ Charges for services 949,126 - 65,000 Charges for public programming - - - Contribution from developers - - - Other revenue 1,552,897 319 9 Use of money and property (107,364) (470) (4,377) Total additions 2,394,659 (151) 60,632 DEDUCTIONS: Administration expenses 186,697 - 12,679 Contractual services 1,004,354 - 24,336 Materials and supplies 77,602 - 11,842 Public programming - - - Use of developer deposits - - - Depreciation 63,459 - - Total deductions 1,332,112 - 48,857 Net increase (decrease) in fiduciary net position 1,062,547 (151) 11,775 NET POSITION: Beginning of year, as restated 4,080,835 19,135 135,314 End of year 5,143,382$ 18,984$ 147,089$ City of San Luis Obispo Combining Statement of Changes in Fiduciary Net Position Custodial Funds For the year ended June 30, 2022 158 266 **DRAFT**v1 General Boysen Ranch Total Agency Conservation PEG City of San Luis Ranch PEG Custodial Fund Easement San Luis Obispo CFD SLCUSD Funds -$ -$ -$ 152,848$ -$ 152,848$ - - - - - 1,014,126 - - - - 39,951 39,951 1,704,858 - - - - 1,704,858 - - 39,766 55,000 - 1,647,991 - (10,273) (3,587) (2,633) (9,276) (137,980) 1,704,858 (10,273) 36,179 205,215 30,675 4,421,794 - - - 59,240 - 258,616 - 11,739 - - 307,160 1,347,589 - - - - - 89,444 - - 65,750 - - 65,750 416,978 - - - - 416,978 - - - - - 63,459 416,978 11,739 65,750 59,240 307,160 2,241,836 1,287,880 (22,012) (29,571) 145,975 (276,485) 2,179,958 1,739,790 427,246 145,773 - 365,417 6,913,510 3,027,670$ 405,234$ 116,202$ 145,975$ 88,932$ 9,093,468$ 159 267 **DRAFT**v1 160 268 **DRAFT**v1 STATISTICAL SECTION (UNAUDITED) 161 269 **DRAFT**v1 162 270 **DRAFT**v1 City of San Luis Obispo, California Statistical Section Overview For the Fiscal Year Ended June 30, 2022 This part of the City of San Luis Obispo’s annual comprehensive financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Contents Financial Trends – Schedules 1-6. These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity – Schedules 7-13. These schedules contain information to help the reader assess the government’s most significant local revenue sources, sales and property taxes. Debt Capacity – Schedules 14-19. These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information – Schedules 20-22. These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating Information – Schedules 23-26. These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the government provides and the activities it performs. 163 271 **DRAFT**v1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Governmental activities: Net investment in capital assets 142,239,500$ 145,266,043$ 150,430,226$ 163,449,992$ 165,100,426$ 171,472,251$ 174,431,254$ 177,335,648$ 184,387,289$ 193,984,593$ Restricted 2,374,800 4,825,662 2,350,838 2,762,387 2,268,499 421,954 20,458,677 29,901,136 35,603,121 41,770,187 Unrestricted 29,927,200 (66,610,104) (57,421,778) (49,031,893) (41,496,841) (49,909,657) (72,041,172) (73,806,116) (62,369,688) (57,458,111) Total governmental activities net position 174,541,500$ 83,481,601$ 95,359,286$ 117,180,486$ 125,872,084$ 121,984,548$ 122,848,759$ 133,430,668$ 157,620,722$ 178,296,669$ Business-type activities: Net investment in capital assets 123,510,200$ 119,116,303$ 125,801,845$ 128,390,611$ 131,149,516$ 136,694,402$ 139,659,544$ 149,617,018$ 160,750,886$ 153,643,418$ Restricted 2,254,200 2,248,979 2,261,213 2,278,392 2,276,526 1,558,795 500,645 4,037,611 2,493,859 2,684,781 Unrestricted 41,712,200 35,224,987 42,117,143 49,495,220 53,421,102 50,866,147 57,379,689 53,983,005 53,159,080 84,056,287 Total business-type activities net position 167,476,600$ 156,590,269$ 170,180,201$ 180,164,223$ 186,847,144$ 189,119,344$ 197,539,878$ 207,637,634$ 216,403,825$ 240,384,486$ Primary government (City wide totals): Net investment in capital assets 265,749,700$ 264,382,346$ 276,232,071$ 291,840,603$ 296,249,942$ 308,166,653$ 314,090,798$ 326,952,666$ 345,138,175$ 347,628,011$ Restricted 4,629,000 7,074,641 4,612,051 5,040,779 4,545,025 1,980,749 20,959,322 33,938,747 38,096,980 44,454,968 Unrestricted 71,639,400 (31,385,117) (15,304,635) 463,327 11,924,261 956,490 (14,661,483) (19,823,111) (9,210,608) 26,598,176 Total primary government net position 342,018,100$ 240,071,870$ 265,539,487$ 297,344,709$ 312,719,228$ 311,103,892$ 320,388,637$ 341,068,302$ 374,024,547$ 418,681,155$ City of San Luis Obispo, California Schedule 1 Net Assets by Component Last Ten Fiscal Years (Accrual basis of accounting) 164 27 2 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Expenses: Governmental activities: Public safet y 28,859,200$ 29,651,702$ 26,881,732$ 29,318,821$ 31,806,692$ 42,097,557$ 34,320,108$ 34,670,383$ 35,226,779$ 41,132,177$ Transportation 8,551,500 8,975,047 11,457,311 8,792,028 9,668,840 9,229,042 7,546,278 7,416,335 8,137,479 10,395,516 Culture and recreation 10,078,700 10,239,853 10,332,740 9,808,545 9,824,262 11,125,792 9,469,520 10,063,304 11,122,003 12,407,720 Community development 8,866,900 10,183,782 10,960,778 12,900,275 14,656,604 13,457,993 12,573,953 11,882,018 11,918,019 15,506,092 General Government - - - - - - 22,429,785 22,058,724 17,276,491 20,982,321 Interest on long-term debt 1,217,200 1,221,205 1,015,011 1,351,468 1,170,984 1,488,183 702,885 839,661 731,045 699,284 Total governmental activities expenses 57,573,500 60,271,589 60,647,572 62,171,137 67,127,382 77,398,567 87,042,529 86,930,425 84,411,816 101,123,110 Business-type activities: Water 17,019,000 17,575,961 17,128,041 18,136,120 19,069,967 19,523,736 20,986,430 22,914,013 21,469,967 20,892,863 Sewer 10,189,400 10,647,255 10,132,214 10,842,451 11,683,262 14,158,612 13,967,717 13,100,905 15,064,551 12,576,058 Parking 3,678,600 3,636,607 3,556,637 3,900,052 3,791,493 4,098,840 4,088,681 4,145,364 4,057,242 4,517,125 Transit 3,903,900 4,059,138 3,994,194 4,088,423 4,076,871 4,355,103 4,320,976 4,384,344 4,023,536 3,851,264 Total business-type activities expenses 34,790,900 35,918,961 34,811,086 36,967,046 38,621,593 42,136,291 43,363,804 44,544,626 44,615,296 41,837,310 Total primary government expenses 92,364,400$ 96,190,550$ 95,458,658$ 99,138,183$ 105,748,975$ 119,534,858$ 130,406,333$ 131,475,051$ 129,027,112$ 142,960,420$ Program Revenues: Governmental activities: Charges for services: Public safety 1,599,000$ 1,589,278$ 1,697,748$ 1,673,800$ 1,771,383$ 1,881,725$ 1,633,223$ 3,045,294$ 3,991,193$ 3,197,692$ Transportation 221,200 1,321,323 1,270,787 1,691,757 1,793,010 1,669,563 2,399,692 531,424 91,509 636,874 Culture and recreation 1,926,800 3,048,274 2,155,411 2,048,780 3,501,837 3,487,225 4,078,539 2,508,565 3,430,224 4,046,439 Community development 4,126,400 4,981,211 7,210,132 7,974,880 8,144,128 7,355,831 9,941,951 11,812,417 15,929,420 10,509,106 General Government - - - - - - 1,391,940 760,606 654,039 530,775 Operating grants and contributions 2,814,700 2,412,469 2,509,323 2,667,058 2,488,706 4,015,502 2,990,211 4,828,837 3,601,973 3,647,813 Capital grants and contributions 1,991,900 3,680,440 7,911,867 9,355,707 40,531 39,781 47,234 2,504,722 5,688,200 1,531,157 Total governmental activities program revenues 12,680,000 17,032,995 22,755,268 25,411,982 17,739,595 18,449,627 22,482,790 25,991,865 33,386,558 24,099,856 Business-type activities: Charges for services: Water 18,148,200$ 19,755,909$ 20,446,730$ 19,884,850$ 20,180,931$ 22,202,069$ 24,026,385$ 25,666,777$ 28,340,076$ 29,894,129$ Sewer 16,212,000 17,151,212 18,007,064 16,460,140 16,272,533 16,753,094 18,674,547 19,042,384 21,501,546 23,642,048 Parking 4,693,400 3,998,730 4,905,494 7,408,729 4,666,970 5,226,780 5,443,038 3,293,941 2,567,908 4,890,317 Transit 682,700 688,585 649,899 659,471 666,296 703,451 776,808 633,566 331,352 713,777 Operating grants and contributions 2,673,500 2,458,640 3,148,651 2,888,820 4,180,386 3,099,618 3,259,975 4,712,832 3,742,594 5,156,782 Capital grants and contributions 731,300 82,359 60,063 - - - - - - - Total business-type activities programs revenues 43,141,100 44,135,435 47,217,901 47,302,010 45,967,116 47,985,012 52,180,753 53,349,500 56,483,476 64,297,053 Total primary government program revenues 55,821,100$ 61,168,430$ 69,973,169$ 72,713,992$ 63,706,711$ 66,434,639$ 74,663,543$ 79,341,365$ 89,870,034$ 88,396,909$ Net Revenues (Expenses): Governmental activities (44,893,500)$ (43,238,594)$ (37,892,304)$ (36,759,155)$ (49,387,787)$ (58,948,940)$ (64,559,739)$ (60,938,560)$ (51,025,258)$ (77,023,254)$ Business-type activities 8,350,200 8,216,474 12,406,815 10,334,964 7,345,523 5,848,721 8,816,949 8,804,874 11,868,180 22,459,743 Total primary government (36,543,300)$ (35,022,120)$ (25,485,489)$ (26,424,191)$ (42,042,264)$ (53,100,219)$ (55,742,790)$ (52,133,686)$ (39,157,078)$ (54,563,511)$ Schedule 2 City of San Luis Obispo, California Changes in Net Position, Last Ten Fiscal Years (Accrual Basis of Accounting) 165 27 3 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 2 City of San Luis Obispo, California Changes in Net Position, Last Ten Fiscal Years (Accrual Basis of Accounting) General Revenues and Other Changes in Net Position: Governmental activities: Sales and use taxes 20,736,000$ 22,180,173$ 22,408,980$ 24,676,377$ 24,068,665$ 24,559,570$ 26,444,775$ 24,125,439$ 32,847,453$ 51,419,561$ Property taxes 9,176,600 8,960,010 9,631,890 10,186,858 10,756,477 11,425,510 12,238,357 13,301,736 14,197,869 14,716,412 Transient occupancy tax 5,572,400 6,063,232 6,805,742 7,127,756 7,381,989 7,514,289 8,061,087 6,325,841 6,960,035 10,650,762 Utility users tax 4,916,100 5,345,342 5,211,207 5,413,720 5,539,407 5,627,356 4,919,892 5,439,144 5,225,979 5,338,325 Property tax in-lieu of vehicle license fees 3,533,200 3,645,692 3,849,341 4,113,244 4,353,912 4,637,253 4,961,080 5,290,215 5,660,661 5,994,592 Other taxes and fees 4,607,600 4,779,570 4,993,285 4,800,592 3,929,377 5,006,594 4,332,557 4,883,677 5,578,944 5,800,333 Investment earnings 237,100 566,931 467,348 825,760 997,995 164,434 1,618,354 3,368,951 435,818 (1,638,993) Miscellaneous and other 349,900 679,127 707,781 - - - 146,579 1,001,369 1,019,626 1,213,401 Gain (loss) on disposal of capital assets (11,000) - - - - - - - - - Prior period adjustment 2,657,100 (833,234) - - - - - - 745,285 - Cumulative change in accounting principle (GASB 65)(345,400) - - - - - - - - - Transfers 115,100 (73,771) (329,452) 1,436,048 1,051,563 1,198,027 2,456,035 1,889,900 1,992,911 1,685,314 Total governmental activities 51,544,700 51,313,072 53,746,122 58,580,355 58,079,385 60,133,033 65,178,716 65,626,272 74,664,581 95,179,707 Business-type activities Investment earnings 73,500$ 364,551$ 361,627$ 845,906$ 182,261$ 320,471$ 2,516,216$ 2,880,634$ 577,250$ (1,207,118)$ Cumulative change in accounting principle (842,600) - - - - - - - - - Income from investment in joint venture - - - 239,200 206,700 209,300 (25,469) 153,949 519,677 585,101 Prior period adjustment - - - - - - - - (907,350) - Transfers (115,100) 73,771 329,452 (1,436,048) (1,051,563) (1,198,027) (2,456,035) (1,889,900) (1,992,911) (1,685,314) Total business-type activities (884,200) 438,322 691,079 (350,942) (662,602) (668,256) 34,712 1,144,683 (1,803,334) (2,307,331) Total primary government 50,660,500$ 51,751,394$ 54,437,201$ 58,229,413$ 57,416,783$ 59,464,777$ 65,213,428$ 66,770,955$ 72,861,247$ 92,872,376$ Change in net position: Governmental activities 6,651,200$ 8,074,478$ 15,853,818$ 21,821,200$ 8,691,598$ 1,184,093$ 618,977$ 4,687,712$ 23,639,323$ 18,156,453$ Business-type activities 7,466,000 8,654,796 13,097,894 9,984,022 6,682,921 5,180,465 8,851,661 9,949,557 10,064,846 20,152,412 Total primary government 14,117,200$ 16,729,274$ 28,951,712$ 31,805,222$ 15,374,519$ 6,364,558$ 9,470,638$ 14,637,269$ 33,704,169$ 38,308,865$ 166 27 4 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 General fund: Reserved ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Unreserved: Nonspendable: Prepaid items 2,777,000 3,191,055 60,181 56,020 3,173,248 3,520,473 51,636 - 41,155 90,797 Restricted for: (Note 1) Debt service 331,600 312,037 303,126 489,056 128,102 159,724 - - - - Committed to: (Note 1) General government programs 1,768,200 4,973,497 3,942,459 4,468,863 9,428,034 8,693,113 - - 9,299,971 5,696,864 Contingency Fund - - - - - - - - 11,830,380 12,014,000 Risk management - - - - - - - - 1,955,966 1,845,935 Assigned to: Contingency Fund - 10,458,000 10,486,931 11,092,782 10,902,368 10,171,464 13,418,400 10,251,000 - - Establishment of Section 115 Trust - - - - - - - 1,400,000 2,000,000 2,000,000 Revenue stabilization - - - - - - - 1,000,000 - - Development Services - - 1,848,386 382,396 41,110 596,796 531,000 899,277 710,657 530,657 Public Safety - - 97,239 - - - - 1,096,215 929,344 - Risk management - - - - - - - 1,498,078 - - City Attorney - - - - 100,000 100,000 - 100,000 100,000 - CalPERS pension payment - - - - - - - - 10,200,000 2,000,000 Subsequent years expenditures - - - 2,716,534 - - 9,908,932 10,284,119 4,738,806 8,210,529 Unassigned 14,060,900 1,382,590 7,828,485 10,419,881 2,723,292 6,334,870 6,185,574 7,122,607 5,311,792 8,356,724 Total general fund 18,937,700 20,317,179 24,566,807 29,625,532 26,496,154 29,576,440 30,095,542 33,651,296 47,118,071 40,745,506 For the Fiscal Year Ended June 30 Schedule 3 City of San Luis Obispo, California Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 167 27 5 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 For the Fiscal Year Ended June 30 Schedule 3 City of San Luis Obispo, California Fund Balances, Governmental Funds Last Ten Fiscal Years (Modified Accrual Basis of Accounting) All other governmental funds: Reserved ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ ‐$ Unreserved reported in: Nonspendable - - - - 5,642 (71,687) 292,641 - - 8,681 Restricted for: (Note 1) Debt service 2,043,200 2,043,222 2,140,980 2,119,724 2,119,611 1,653,109 1,791,026 2,226,898 2,575,367 2,540,255 Public safety programs 22,900 27,145 16,886 23,492 20,786 3,073 - 32,332 63,418 864,848 Transportation projects - - - - - - 8,151,487 9,371,824 10,519,994 8,051,050 Affordable housing programs - - - - - - 2,944,549 8,698,494 9,292,304 9,893,314 Impact fee programs - - - - - - 1,870,656 3,126,925 7,466,378 8,935,786 Parkland development programs - - - - - - 3,528,662 4,709,560 3,405,468 3,107,198 Public art programs - - - - - - 620,934 591,097 568,401 798,038 Tourism programs - - - - - - 456,023 322,975 678,554 1,147,881 Committed to: Affordable housing programs 1,254,900 2,946,847 2,601,882 2,562,825 5,054,332 3,974,629 - - - - Assessment district programs - - - - - - - - - - Capital outlay 1,326,000 6,045,091 3,632,641 2,954,223 - - - - - - General government programs 4,743,552 1,084,221 7,463,605 - 8,092,594 - - - - Impact Fees Programs 3,542,700 411,592 9,410,273 549,349 8,795,074 595,256 - - - - Open space programs 194,300 1,582,425 983,402 1,265,620 588,743 2,363,347 - - - - Parkland development programs 1,209,600 - - - 2,728,883 - - - - - Contingency fund - - - - - 519,885 - - - - Public art programs 347,400 - - - - - - - - - Assigned to: Contingency fund - - - - 900,000 900,000 900,000 900,000 900,000 900,000 Subsequent years expenditures 5,413,900 3,552,319 2,606,757 3,559,851 5,846,873 5,861,455 6,382,294 8,521,320 8,826,420 23,533,631 Unassigned (2,500) 1,039 (83) - - - (318,422) (149,162) (5,782) - Total all other governmental funds 15,352,400 21,353,232 22,476,959 20,498,689 26,059,944 23,891,661 26,619,850 38,352,263 44,290,522 59,780,682 Total all governmental funds 34,290,100$ 41,670,411$ 47,043,766$ 50,124,221$ 52,556,098$ 53,468,101$ 56,715,392$ 72,003,559$ 91,408,593$ 100,526,188$ Note: The City implemented GASB Statement No. 54 in the 2010-11 fiscal year which requires the City to use new designations of ending fund balances. 168 27 6 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Revenues: Sales and use - general 14,242,200$ 15,405,808$ 15,272,683$ 17,498,218$ 16,737,005$ 17,055,085$ 17,805,482$ 16,571,064$ 20,067,740$ 22,247,303$ Sales and Use - local transaction tax 6,493,800 6,774,365 7,136,297 7,178,159 7,331,660 7,504,485 8,325,230 7,554,375 12,779,713 29,172,258 Prop. 172 Public Safety tax 327,700 391,567 409,590 405,066 405,512 397,488 314,063 416,459 425,136 529,299 Property tax 9,176,600 8,960,010 9,631,890 10,186,858 10,756,477 11,425,510 12,238,357 12,913,661 13,727,986 14,166,259 Transient Occupancy 5,572,400 6,063,232 6,805,742 7,127,756 7,381,989 7,514,289 8,061,087 6,325,841 6,960,035 10,650,762 Utility users tax 4,916,100 5,345,342 5,211,207 5,413,720 5,539,407 5,627,356 4,919,892 5,439,144 5,225,979 5,338,325 Property tax in-lieu of VLF (Note 1)3,533,200 3,645,692 3,849,341 4,113,244 4,353,912 4,637,253 4,961,080 5,290,215 5,660,661 5,994,592 Franchise fees 2,552,300 2,636,599 2,790,077 1,537,922 1,557,128 1,597,655 1,428,296 1,888,414 1,796,829 1,978,295 Business tax 2,055,300 2,142,971 2,203,208 2,491,516 2,372,249 2,663,686 2,630,499 2,995,263 3,782,115 2,823,163 Cannabis tax - - - - - - - - - 998,875 Real property transfer 256,300 287,560 298,191 366,088 332,314 347,765 273,762 388,075 469,883 550,153 Fines, forfeitures and penalties 159,700 150,185 184,320 172,353 139,534 199,374 155,269 239,048 223,882 173,915 Use of money and property 237,100 566,931 467,348 825,760 260,169 164,434 1,996,382 2,005,968 219,507 (2,151,227) Vehicle License Fees (Note 1)19,300 - - - - - - - - - Subventions and grants 4,603,140 5,989,881 10,858,570 11,771,980 2,624,753 4,156,333 3,110,689 7,538,893 10,719,698 6,446,192 Charges for services 8,106,600 11,167,033 12,450,887 13,622,945 15,173,707 14,672,746 18,394,586 17,828,561 22,090,479 17,657,128 Other revenues 526,500 357,469 217,710 242,744 446,456 634,391 590,796 708,579 717,440 506,722 Total revenues 62,778,240 69,884,645 77,787,061 82,954,329 75,412,272 78,597,850 85,205,470 88,103,560 104,867,083 117,082,014 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) 169 27 7 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) Expenditures: Current: General Government 8,723,300$ 9,362,031$ 10,534,463$ 12,409,567$ 11,824,360$ 12,709,324$ 13,769,778$ 14,503,410$ 13,041,242$ 17,197,912$ Public safety 23,973,400 24,798,500 24,356,077 26,468,454 28,091,747 28,862,906 31,714,220 30,216,995 31,714,578 39,921,208 Transportation 2,798,200 2,882,241 2,969,111 3,317,177 3,780,804 3,565,022 3,495,909 3,710,943 4,450,572 5,131,132 Culture and recreation 6,790,300 7,155,619 7,250,398 7,428,198 7,712,834 8,571,184 8,636,582 8,416,687 9,458,448 10,440,543 Community development 7,777,400 8,389,957 10,047,272 10,770,827 10,300,894 10,815,667 10,677,334 10,477,062 11,101,465 15,067,518 Debt service: Principal 1,543,000 1,534,668 3,856,325 1,792,849 2,101,296 15,665,904 1,974,050 1,605,239 1,602,039 1,467,402 Interest 1,192,700 1,048,671 1,063,820 1,349,216 1,215,504 1,524,180 809,977 993,697 808,586 774,747 Capital: Public safety 457,700 892,351 2,371,865 1,220,759 1,772,454 506,491 706,918 182,235 107,965 248,613 Transportation 5,228,300 4,859,863 14,302,937 15,038,306 4,161,966 6,419,137 6,441,229 6,412,541 11,452,720 13,653,849 Leisure, cultural and social services 395,500 1,272,510 2,399,211 1,463,269 1,499,704 981,768 597,187 1,213,682 537,118 3,933,463 Community development (Note 2)70,900 939,017 123,258 149,537 2,078,181 525,105 1,568,147 785,517 105,142 601,315 General government 429,700 145,199 1,684,045 590,263 633,682 1,192,424 4,695,978 2,081,482 2,492,435 1,619,793 Total expenditures 59,380,400 63,280,627 80,958,782 81,998,422 75,173,426 91,339,112 85,087,309 80,599,490 86,872,310 110,057,495 Excess of revenues over(under) expenditures 3,397,840 6,604,018 (3,171,722) 955,907 238,846 (12,741,262) 118,161 7,504,070 17,994,773 7,024,519 170 27 8 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (Modified accrual basis of accounting) Other Financing Sources(Uses): Issuance of debt/refunding debt -$ 850,775$ 8,372,323$ 688,500$ 1,141,468$ 12,472,698$ 673,095$ -$ -$ -$ Cost of debt issuance (11,500) - - - - - - - - - Transfers in 8,407,600 13,834,998 11,682,079 12,747,578 15,739,036 19,815,144 9,064,256 9,455,785 15,460,955 35,273,279 Transfers out (8,292,500) (13,908,769) (12,011,531) (11,311,530) (14,687,473) (18,617,117) (6,608,221) (7,565,885) (13,468,044) (33,587,965) Total other financing sources(uses)103,600 777,004 8,042,871 2,124,548 2,193,031 13,670,725 3,129,130 1,889,900 1,992,911 1,685,314 Net change in fund balance 3,501,440$ 7,381,022$ 4,871,150$ 3,080,455$ 2,431,877$ 929,463$ 3,247,291$ 9,393,970$ 19,987,684$ 8,709,833$ Debt service as a percentage of noncapital expenditures 6.62%5.98%8.92%5.20%5.37%26.64%4.08%3.86%3.46%2.36% Notes: 1. Beginning in 2005-06 the State implemented a "VLF swap," under which an equal amount of Vehicle License Fees was "swapped" for an equal amount of revenues to be collected on the property tax roll. 2. Community Development Block Grant (CDBG) expenditures are included in the Community Development total for purposes of this schedule. 3. Prior to 2021-22, cannabis tax was included in business tax 171 27 9 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Staffing: Salaries and wages: Regular salaries 23,214,900$ 23,242,170$ 23,804,510$ 24,790,947$ 26,944,188$ 26,666,447$ 27,520,149$ 28,601,004$ 29,014,941$ 31,823,078$ Temporary salaries 1,812,700 2,191,214 2,137,487 1,964,521 1,793,360 1,711,755 1,898,331 1,882,307 2,294,603 1,855,690 Overtime 3,309,000 3,018,181 3,222,698 3,473,489 3,604,336 4,420,756 4,241,294 3,292,469 4,527,789 4,412,287 Benefits: Retirement 7,661,900 7,637,931 7,943,827 9,323,782 10,394,523 10,570,883 15,150,755 12,593,753 13,344,252 24,665,892 Group health/disability insurance 3,463,500 3,387,101 3,319,117 3,828,238 4,129,004 4,638,471 4,193,021 4,291,139 4,040,575 4,327,121 Medicare 384,400 393,913 408,889 418,704 455,966 469,688 477,925 481,571 505,450 537,516 Unemployment Reimbursements 28,800 31,634 48,588 5,159 150,929 61,972 - 61,240 101,575 17,484 Total staffing 39,875,200 39,902,144 40,885,116 43,804,840 47,472,306 48,539,972 53,481,475 51,203,483 53,829,185 67,639,069 Contract services 5,208,900 5,725,290 5,903,638 6,271,607 6,962,949 6,940,018 6,557,939 6,444,957 8,044,482 7,836,218 Other operating expenditures Communications & utilities 1,842,300 2,034,997 1,945,243 2,192,384 2,023,057 2,190,695 2,444,564 2,115,821 2,494,018 3,780,633 Rents & leases 139,600 197,104 159,718 164,729 170,288 171,909 180,478 160,045 88,615 168,585 Insurance: General liability & property 1,320,700 1,425,450 1,646,605 1,847,422 1,273,133 1,658,319 1,600,962 2,196,462 1,323,824 2,071,193 Workers compensation 918,000 1,405,916 1,631,585 2,019,722 1,627,423 2,145,046 2,422,843 2,611,827 2,037,611 2,181,044 Other operating expenditures 2,910,900 2,991,619 3,635,542 3,079,347 3,345,191 3,017,537 3,575,930 4,902,050 4,256,574 5,589,217 Total operating expenditures 7,131,500 8,055,086 9,018,693 9,303,604 8,439,092 9,183,506 10,224,777 11,986,205 10,200,642 13,790,672 Minor capital 99,400 195,473 78,414 92,853 203,098 90,346 - - 1,070 - Total program expenditures 52,315,000 53,877,993 55,885,861 59,472,903 63,077,445 64,753,842 70,264,191 69,634,645 72,075,379 89,265,958 Reimbursed expenditures (3,732,100) (3,897,420) (3,451,208) (4,008,992) (4,164,747) (4,264,633) (3,981,789) (4,277,664) (4,578,402) (4,717,442) Total general fund operating expenditures 48,582,900$ 49,980,573$ 52,434,653$ 55,463,911$ 58,912,698$ 60,489,209$ 66,282,402$ 65,356,981$ 67,496,977$ 84,548,516$ Schedule 5 City of San Luis Obispo, California General Fund Operating Expenditures by Type Last Ten Fiscal Years (Modified Accrual Basis of Accounting) 172 28 0 ** D R A F T * * v 1 Fiscal Sales Local Property Transient Utility Property Franchise Business Other Year and Use Sales (Note 2) (Note 1) Occupancy Users in-lieu of VLF Fees Tax Taxes Total 2012-13 14,242,200$ 6,493,800$ 9,176,600$ 5,572,400$ 4,916,100$ 3,533,200$ 2,552,300$ 2,055,300$ 349,900$ 48,891,800$ 2013-14 15,405,808 6,774,365 8,960,010 6,063,232 5,345,692 3,645,692 2,636,599 2,142,971 679,127 51,653,496 2014-15 15,272,683 7,136,297 9,631,890 6,805,742 5,211,207 3,849,341 2,790,077 2,203,208 707,781 53,608,226 2015-16 17,498,218 7,178,159 10,186,858 7,127,756 5,413,720 4,113,244 1,537,922 2,491,516 771,154 56,318,547 2016-17 16,737,005 7,331,660 10,756,477 7,381,989 5,539,407 4,353,912 1,557,128 2,372,249 737,826 56,767,653 2017-18 17,055,085 7,504,485 11,425,510 7,514,289 5,627,356 4,637,253 1,597,655 2,663,686 745,253 58,770,572 2018-19 18,119,545 8,325,230 12,238,357 8,061,087 4,919,892 4,961,080 1,428,296 2,630,499 273,762 60,957,748 2019-20 16,571,064 7,554,375 12,913,661 6,325,841 5,439,144 5,290,215 1,888,414 2,995,263 388,075 59,366,052 2020-21 20,067,740 12,779,713 14,197,869 6,960,035 5,225,979 5,660,661 1,796,829 3,782,115 425,136 70,896,077 2021-22 22,247,303 29,172,258 14,716,412 10,650,762 5,338,325 5,994,592 1,978,295 2,823,163 998,875 93,919,985 Notes: 1. Property tax revenues are presented net of SB2557 County administrative fees (approximately 3% of total property tax revenues). The City has elected to receive its property tax revenues based on the Teeter Plan method of collection whereby the County remits 100% of taxes levied, pursues collection and retains any delinquent taxes and related penalties and interest. 2. In November 2014 voters in San Luis Obispo reauthorized the local half-percent sales and use tax measure (Measure G) . In November 2020 voters in San Luis Obispo replaced the local half-percent sales and use tax with a 1.5% local sales and use tax (Measure G-20). (Accrual Basis of Accounting) Schedule 6 City of San Luis Obispo, California Governmental Activities Tax and Franchise Revenues by Source Last Ten Fiscal Years 173 28 1 ** D R A F T * * v 1 Fiscal Year Homeowners Secured Roll Nonunitary Unsecured Total Direct Market Value of Market Exemptions Gross Value Utilities Roll TOTAL Tax Rate (Note 1) Value 2012-13 41,572,300$ 5,963,182,500$ 5,382,272$ 279,203,900$ 6,261,931,900$ 1.00% 6,261,931,900$ 100% 2013-14 41,327,300 6,152,693,400 5,300,173 295,626,200 6,467,600,400 1.00% 6,467,600,400 100% 2014-15 41,185,200 6,512,370,260 5,032,204 297,325,321 6,814,727,785 1.00% 6,814,727,785 100% 2015-16 41,518,400 6,965,233,454 4,883,115 305,427,553 7,275,544,122 1.00% 7,275,544,122 100% 2016-17 42,109,709 7,393,890,993 5,269,573 303,122,262 7,702,282,828 1.00% 7,702,282,828 100% 2017-18 42,702,377 7,844,131,236 4,369,188 331,183,030 8,179,683,454 1.00% 8,179,683,454 100% 2018-19 43,352,906 8,688,541,007 4,231,993 359,588,899 9,052,361,899 1.00% 9,052,361,899 100% 2019-20 43,335,854 9,156,811,458 3,990,145 360,372,662 9,521,174,265 1.00% 9,521,174,265 100% 2020-21 43,445,185 9,872,892,242 4,194,503 371,969,399 10,249,056,144 1.00% 10,249,056,144 100% 2021-22 43,644,354 10,449,275,830 4,154,621 369,153,263 10,822,583,714 1.00% 10,822,583,714 100% Notes: 1. Valuations are established by the County Assessor of the County of San Luis Obispo, except for property owned by private utility companies, which is valued by the State of California. The City assumes that Market Values are equal to total Assessed Valuation. 2. For comparison purposes, gross assessed valuations include homeowners' exemptions. Although these exemptions reduce property tax collections, the revenue loss is reimbursed by the State of California. As such, gross assessed valuation is the revenue base used in establishing property tax-related revenues. Source: HdL, Coren & Cone ACFR 2021-22 report - 2021/22 Roll Summary table. Gross Assessed Valuation (Notes 1 and 2) Schedule 7 City of San Luis Obispo, California Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 174 28 2 ** D R A F T * * v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Proposition 13 maximum tax rate (Note 2)1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 Voter approved indebtedness: State Water Bond 0.00400 0.00400 0.00400 0.00374 0.00400 0.00400 0.00400 0.00400 0.00400 0.00400 Cuesta Community College 2014 A & A1 0.01925 0.01925 0.01925 0.01925 0.01925 0.01925 0.01925 San Luis Coastal Usd 2014 Series A & B 0.04900 0.04900 0.04900 0.04900 0.04900 0.03900 0.03900 Total (Notes 1 and 3)1.00400 1.00400 1.00400 1.07199 1.07225 1.07225 1.07225 1.07225 1.06225 1.06225 Notes: 1. Property tax rates are levied per $100 of assessed valuation. The tax rate information provided is for Tax Rate Area 003-000, which is the largest tax rate area in the City. 2. The passage of Proposition 13 on June 6, 1978 established a maximum County-wide levy for general revenue purposes of 1% of market value. Voter-approved tax rates for the retirement of long-term liabilities were excluded from this limit. 3. It is not possible to identify tax rates for individual agencies however, the following is a summary of derived property tax allocations within Tax Rate Area 003-000 for Fiscal Year 2020-21 Source: HdL, Coren & Cone ACFR 2021-22 report - Direct & Overlapping Property Tax Rates table Base ERAF Net Rate Allocation Apportionment San Luis Coastal Unified School District 36.10 0.00 36.10 San Luis Obispo County - General Fund 30.32 (8.08)22.24 City of San Luis Obispo 18.36 *(3.48)14.88 San Luis Obispo Community College District 6.42 0.00 6.42 County School Services 3.81 0.00 3.81 City/County Library 1.98 (0.32)1.66 Port San Luis Harbor 1.63 (0.44)1.19 Other Agencies 1.38 (0.32)1.06 Education Revenue Augmentation Fund (ERAF)0.00 12.64 12.64 Total 100%0%100% *The County further adjusts the 18.4% base rate for revenue shifts to school districts as directed by the State as part of their cuts to local agencies, resulting in an effective rate for the City of approximately 14.9%. Source: HdL, Coren & Cone ACFR 2021-22 report - Property Tax Dollar Breakdown, San Luis Obispo County Assessor 2021-22 Post ERAF TRA Allocation Factors Schedule 8 City of San Luis Obispo, California Property Tax Rates Last Ten Fiscal Years 175 28 3 ** D R A F T * * v 1 Number of Secured Percent of Total Number of Secured Percent of Total Owner Parcels Assessed Value Rank City Assessed Value Parcels Assessed Value Rank City Assessed Value Jamestown Premier San Luis Obispo Retail 10 114,335,307$ 1 1.13% 6 39,034,594$ 4 0.65% CAP VIII - Mustang Village LLC 5 98,067,585 2 0.97% Sierra Vista Hospital Inc.8 84,245,815 3 0.83% 7 74,813,684 1 1.25% Charles Pasquini Jr Trust Et Al 8 71,913,177 4 0.71% 9 58,431,143 2 0.98% San Luis Obispo Promenade DE LLC 10 71,033,371 5 0.70% Irish Hills Plaza East LLC 6 52,170,496 6 0.51% Hotel San Luis Obispo LLC 1 36,793,953 7 0.36% Costco Wholesale Corporation 1 37,514,208 8 0.37% 1 32,579,819 7 0.55% Avila Ranch Developers 2 34,121,707 9 0.34% BRE Atlas Property Owner LLC 1 34,078,042 10 0.34% CSHV Mustang Village LLC 3 50,915,983 3 0.85% Irish Hills Plaza West LLC 6 38,981,753 5 0.65% JM Wilson Promenade Properties II LLC 10 32,700,000 6 0.55% Target Corporation 1 25,963,966 8 0.43% Mustang-UCAL LLC 1 25,883,874 9 0.43% Marigold Center LLC 9 25,647,889 10 0.43% Total 52 634,273,661$ 6.26% 53 404,952,705$ 6.77% Source: HdL, Coren & Cone ACFR 2021-22 and 2012-13 reports - Top Ten Property Taxpayers table. Schedule 9 City of San Luis Obispo, California Principal Property Tax Payers Current Year and Nine Years Ago 2021-22 2012-13 176 28 4 ** D R A F T * * v 1 Total Secured Current Year Percent Fiscal Tax Levy Current Year Percent Delinquencies Delinquent Year (Notes 1 and 2)Collections Collected (Note 3)(Note 3) 2011-12 8,269,300$ 8,269,300$ 100%0 0 2012-13 8,151,000 8,151,000 100%0 0 2013-14 8,601,630 8,601,630 100%0 0 2014-15 9,097,280 9,097,280 100%0 0 2015-16 9,707,340 9,707,340 100%0 0 2016-17 10,250,205 10,250,205 100%0 0 2017-18 10,868,920 10,868,920 100%0 0 2018-19 11,648,706 11,648,706 100%0 0 2019-20 12,180,662 12,180,662 100%0 0 2020-21 12,957,910 12,957,910 100%0 0 2021-22 13,628,729 13,628,729 100%0 0 Notes: 1. The secured property tax roll is composed of ad valorem taxes as well as special assessments, and is calculated by the San Luis Obispo County Auditor-Controller. The San Luis Obispo County Tax Collector is responsible for all property tax roll collections within the City of San Luis Obispo. The amount reported is before the SB2557 County administrative fees of approximately 3% of total property tax revenues. 2. The secured levy does not include supplemental assessments, unsecured tax revenues, or prior year adjustments, which can be significant. For example, in 2012-13 revenue to the City from supplemental assessments was $99,500 and $215,100 from unsecured. A one-time refund was received from the County Auditor-Controller, refunding $632,800 representing prior overcharges for the SB2557 fee. Property tax revenues totaled $8,740,762. 3. The City has elected the Teeter Plan method of property tax collection, whereby the County remits 100% of taxes levied and pursues collection and retains any delinquent taxes and related penalties and interest. Source: San Luis Obispo County Auditor-Controller - 2021-22 Property Tax Estimates and Delinquencies Report Schedule 10 City of San Luis Obispo, California Secured Property Tax Roll Levies and Collections Last Ten Fiscal Years 177 28 5 ** D R A F T * * v 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales In Thousands of Dollars Apparel stores 71,723$ 73,170$ 73,241$ 75,037$ 72,522$ 74,300$ 72,735$ 71,058$ 50,586$ 73,407$ General merchandise stores 171,667 173,940 179,551 182,530 179,478 182,184 179,353 181,492 173,776 203,468 Food and drug stores 39,704 40,638 41,985 43,799 43,473 46,065 47,138 48,805 49,999 49,169 Eating & drinking palces 142,844 147,953 159,828 172,341 178,362 184,366 184,909 188,430 138,499 198,831 Building materials & farm tools 111,633 126,123 133,143 140,258 142,370 159,569 162,295 163,186 165,484 179,518 Auto dealers & supplies 227,510 269,602 287,880 304,905 306,812 319,977 323,272 322,174 325,247 403,977 Service stations 107,588 103,094 101,510 88,116 78,033 83,481 94,320 95,367 67,374 99,609 Other retail stores 263,571 262,668 267,764 277,591 282,844 278,792 279,760 263,986 243,728 302,445 Total retail stores 1,136,240 1,197,188 1,244,902 1,284,577 1,283,894 1,328,734 1,343,782 1,334,498 1,214,693 1,510,424 All other outlets 278,271 293,532 311,225 359,242 363,023 372,575 431,884 421,068 513,322 653,595 Total 1,414,511 1,490,720 1,556,127 1,643,819 1,646,917 1,701,309 1,775,666 1,755,566 1,728,015 2,164,019 Source: HdL, Coren & Cone ACFR 2021-22 report - Taxable Sales by Category table Schedule 11 City of San Luis Obispo, California Schedule of Taxable Sales and Permits by Category Last Ten Calendar Years 178 28 6 ** D R A F T * * v 1 Effective End State Local City LRM Combined Date Date Jurisdiction Transportation Fund Rate (Note 4 & 6)Rate 8/1/1933 6/30/1935 (Note 2)2.50%2.50% 7/1/1935 6/30/1943 3.00%3.00% 7/1/1943 6/30/1949 2.50%2.50% 7/1/1949 12/31/1961 3.00%3.00% 1/1/1962 7/31/1967 3.00%1.00%4.00% 8/1/1967 6/30/1972 4.00%1.00%5.00% 7/1/1972 6/30/1973 3.75%0.25%1.00%5.00% 7/1/1973 9/30/1973 4.75%0.25%1.00%6.00% 10/1/1973 3/31/1974 3.75%0.25%1.00%5.00% 4/1/1974 11/30/1989 4.75%0.25%1.00%6.00% 12/1/1989 12/31/1990 5.00%0.25%1.00%6.25% 1/1/1991 7/14/1991 4.75%0.25%1.00%6.00% 7/15/1991 12/31/2000 6.00%0.25%1.00%7.25% 1/1/2001 12/31/2001 5.75%0.25%1.00%7.00% 1/1/2002 6/30/2004 6.00%0.25%1.00%7.25% 7/1/2004 3/31/2007 (Note 3)6.25%0.25%0.75% (Note 3)7.25% 4/1/2007 3/31/2009 6.25%0.25%0.75%0.50% 7.75% 4/1/2009 6/30/2011 7.25%0.25%0.75%0.50% 8.75% 7/1/2011 12/31/2012 6.25%0.25%0.75%0.50% 7.75% 1/1/2013 12/31/2016 6.50%0.25%0.75% (Note 5) 0.50% 8.00% 1/1/2017 3/31/2021 6.00%0.25%1.00%0.50% 7.75% 4/1/2021 current 6.00%0.25%1.00% (Note 6) 1.50% 8.75% Notes: 1. The Bradley-Burns Uniform Local Sales and Use Tax Law was enacted in 1955. The law authorizes cities and counties to impose a sales and use tax. Effective January 1, 1962, all cities and counties have adopted ordinances for the State Board of Equalization to collect the local tax. 2. Sales tax only. The use tax was enacted effective July 1, 1935. 3. In March 2004, a State ballot measure was passed issuing deficit reduction bonds for State purposes. Funding was provided effective July 1, 2004 by repealing 25% of the local 1% sales tax and then adopting a new 1/4-cent sales tax dedicated to repayment of the deficit reduction bonds. Cities and counties would then be "made whole" by the State from increased property tax allocations via reduced contributions to ERAF. This "triple flip" is theoretically revenue-neutral, and as such, the effective rate for revenue purposes remains at 1%. 4. In November 2006, voters in San Luis Obispo approved a local revenue measure (LRM) increasing the City tax rate by 1/2%, which became effective April 1, 2007. The sales tax measure has a sunset provision of 8 years. The local Sales Tax was extended as Measure G in the November 2014 election for 8 years. 5. Proposition 30, The Schools and Local Public Safety Protection Act of 2012 , was approved by California voters in November 2012 to temporarily increase the sales and use tax by 0.25%. The sales and use tax imposed by Proposition 30 expired December 31, 2016. 6. In November 2020, voters in San Luis Obispo approved a local revenue measure (LRM) increasing the local sales tax to 1.5% with an effective date of April 1, 2021. The local sales tax measure has no sunset provision and replaced the 2014 Measure G. Source: State Board of Equalization, State of California Schedule 12 City of San Luis Obispo, California Historical Sales and Use Tax Rates 179 287 **DRAFT**v1 No. of No. of Certificates Percent Certificates Percent Construction 897 10.7%888 12.0% Manufacturing 129 1.5%128 1.7% Transportation/Utilities 49 0.6%45 0.6% Wholesale 126 1.5%122 1.7% Retail 1167 13.9%941 12.7% Professional 1,185 14.2% 1,074 14.5% Residential Rental 2,694 32.2% 2,097 28.4% Commercial Rental 303 3.6%300 4.1% Services 1,821 21.8% 1,787 24.2% Total business certificates issued 8,371 100% 7,382 100% Home occupations 667 8.0%661 9.0% Located outside City limits 1,932 23.1% 1,767 23.9% Located in Downtown Business Improvement District 553 6.6%546 7.4% Source: City of San Luis Obispo Finance Department - Revenue Division Fiscal Years Ended June 30, 2022 and 2021 Schedule of Business Tax Certificates Issued City of San Luis Obispo, California Schedule 13 20212022 180 288 **DRAFT**v1 Percentage of Fiscal Lease Purchase Lease Lease Purchase Installment Total Primary Per Gross Assessed Year Bonds Financing Loans Liability Bonds Financing Sales Agreement Loans Government Capita Value 2012-13 23,574,900$ 823,400$ 2,025,100$ -$ 28,625,150$ -$ 1,620,000$ 20,309,200$ 76,977,750$ 1,690$ 1.23% 2013-14 22,152,010 711,622 850,775 - 27,083,025 - 8,979,000 19,446,784 79,223,216 1,742 1.27% 2014-15 28,556,715 1,127,606 766,092 - 25,983,320 - 8,481,043 18,559,851 83,474,627 1,836 1.28% 2015-16 27,762,893 1,374,773 679,314 - 25,323,405 - 7,932,327 17,647,622 80,720,334 1,741 1.16% 2016-17 26,328,540 1,898,652 591,647 - 24,072,708 - 7,366,468 16,709,160 76,967,175 1,660 0.99% 2017-18 23,484,450 1,599,769 503,101 - 21,815,204 - 6,783,114 15,743,808 69,929,446 1,497 0.91% 2018-19 22,171,441 1,413,937 413,667 - 19,542,657 - 6,181,902 14,750,783 64,474,387 1,385 0.79% 2019-20 21,084,777 1,381,486 323,380 - 18,185,089 - 5,562,462 26,133,837 72,671,031 1,583 0.76% 2020-21 20,038,779 734,673 232,111 - 16,772,171 - 4,919,407 56,229,546 98,926,687 2,102 0.97% 2021-22 18,954,856 390,420 139,961 125,003 15,307,178 - 4,257,343 99,918,648 139,093,409 2,919 1.29% Source: City of San Luis Obispo Finance Department Schedule 14 City of San Luis Obispo, California Per Capita Outstanding Debt By Type Last Ten Fiscal Years Business-Type ActivitiesGovernmental Activities 181 28 9 ** D R A F T * * v 1 Service Ratio of Net Total Taxable General Payable from Net Bonded Debt Net Bonded Assessed Bonded Enterprise Bonded to Assessed Debt per Fiscal Year Population Value Debt Revenues Debt Value Capita 2012-13 45,541 6,261,931,900$ 0 0 0 0.0%0 2013-14 45,473 6,467,600,400 0 0 0 0.0%0 2014-15 45,484 6,814,727,785 0 0 0 0.0%0 2015-16 46,117 7,275,544,122 0 0 0 0.0%0 2016-17 46,724 7,702,282,828 0 0 0 0.0%0 2017-18 46,548 8,179,683,454 0 0 0 0.0%0 2018-19 46,802 9,052,361,899 0 0 0 0.0%0 2019-20 45,920 9,521,174,265 0 0 0 0.0%0 2020-21 47,063 10,249,056,144 0 0 0 0.0%0 2021-22 47,653 10,822,583,714 0 0 0 0.0%0 Notes: 1. Valuations are established by the County Assessor of the County of San Luis Obispo, except for property owned by private utility companies, which is valued by the State of California. 2. See Schedule of Demographic and Economic Statistics for population data. 3. Personal income information is not available. Net Bonded Debt is expressed as a ratio to Assessed Value. Source: HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table Demographics changed from FY to Calendar Year Schedule 15 City of San Luis Obispo, California Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capital Last Ten Fiscal Years 182 29 0 ** D R A F T * * v 1 Amount Applicable Percent Applicable to the City of to the City of San Luis Obispo San Luis Obispo (1)as of June 30, 2022 Direct long-term debt: City of San Luis Obispo 2018 Water Revenue Refunding Bonds 100.000% 8,330,000$ City of San Luis Obispo 2012 Refunding Revenue Bonds (2001) 100.000% 2,700,000 City of San Luis Obispo 2012 Water Revenue Refunding Bonds (2002) 100.000% 550,000 City of San Luis Obispo 2014 LOVR Lease Revenue Bonds 100.000% 6,460,000 City of San Luis Obispo 2018 Lease Revenue Bonds 100.000% 8,659,100 City of San Luis Obispo Lease liability 100.000%125,003 City of San Luis Obispo Lease-purchase financing 100.000%390,420 City of San Luis Obispo energy conservation loan 100.000%139,961 City of San Luis Obispo Unamortized bond premium 100.000%1,135,756 28,490,240 Overlapping long-term debt (percentage of overlapping agency's assessed valuation located within boundaries of the City): San Luis Obispo County General Fund Obligations 16.720%3,744,646 San Luis Obispo County Pension Obligations 16.720%4,989,768 City of San Luis Obispo Lease Revenue Bonds 100.000%24,251,532 32,985,946 Less: City of San Luis Obispo obligations supported by enterprise revenues 4,495,706 Total gross direct and overlapping long-term debt 28,490,240 Less self-supporting issues: City of San Luis Obispo 2018 Water Revenue Refunding Bonds 8,330,000 City of San Luis Obispo 2012 Water Revenue Refunding Bonds (2002) 550,000 Total self-supporting issues 8,880,000 Net direct and overlapping long-term debt 19,610,240$ Ratio of long-term debt to assessed valuation and population Gross Assessed Valuation 9,521,174,265$ Population 47,063 Percent of Gross Per Capita Amount Assessed Valuation Long-Term Debt Direct and Overlapping Debt: Gross $28,490,240 0.3%$605.36 Net 19,610,240 0.2%417 Direct Debt: Gross $28,490,240 0.3%$605.36 Net 19,610,240 0.2%417 Source: California Municipal Statistics, Inc., HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table Schedule 16 City of San Luis Obispo, California Direct and Overlapping Long-Term Debt Fiscal Year Ended June 30, 2022 (1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. 183 291 **DRAFT**v1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Legal debt limit 234,822$ 241,812$ 244,175$ 272,833$ 288,836$ 306,738$ 339,464$ 357,044$ 384,339$ 405,847$ Total debt applicable to limit Legal debt margin 234,822 241,812 244,175 272,833 288,836 306,738 339,464 357,044 384,339 405,847 Total debt applicable to the limit as a percentage of debt limit 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%0.00%0.00%0.00%0.00% Legal Debt Margin Calculation for Fiscal Year 2020-21 Gross Assessed Valuation 10,822,583,714$ Legal Debt Limit - 3.75% of Gross Assessed Valuation 405,846,889$ Long-term Debt: Revenue Bonds Secured by Capital Leases 22,380,000$ Water Revenue Bonds 8,880,000 31,260,000 Less deductions allowed by law: Revenue Bonds Secured by Capital Leases 22,380,000 Water Revenue Bonds 8,880,000 31,260,000 Total debt applicable to computed limit $0 Legal debt margin 405,846,889$ Note: The California Government Code provides for a legal debt limit of 15% of gross assessed valuation based on 25% of market value, or a legal debt limit of 3.75%. The City's debt management policy, however, sets a more restrictive debt limit of 2% of assessed valuation. Schedule 17 City of San Luis Obispo, California Computation of Legal Debt Margin Last Ten Fiscal Years (Amounts Expressed in Thousands) 184 29 2 ** D R A F T * * v 1 Less Operating & Net Revenue Coverage Fiscal Operating Development Other Maintenance Available for With Year Revenues Impact Fees Revenues Expenses Bond Debt Service Principal Interest Total Coverage Impact Fees 2012-13 18,250,700$ (1,578,100)$ 97,500$ (13,353,300)$ 3,416,800$ 1,096,215$ 995,419$ 2,091,634$ 163% 239% 2013-14 19,676,199 (819,477) 215,915 (13,996,427)5,076,210 1,160,700 964,148 2,124,848 239% 277% 2014-15 20,552,417 (2,471,501) 59,594 (13,451,298)4,689,212 1,285,686 906,775 2,192,461 214% 327% 2015-16 20,137,422 (1,543,268) 53,731 (14,056,603)4,591,282 1,245,486 881,318 2,126,804 216% 288% 2016-17 19,873,517 (1,266,674) 410,484 (14,754,114)4,263,213 1,290,748 837,657 2,128,405 200% 260% 2017-18 21,997,054 (2,131,345) 325,268 (16,250,751)3,940,226 1,336,267 792,337 2,128,604 185% 285% 2018-19 23,992,758 (3,745,666) 948,324 (15,995,459)5,199,957 2,281,739 858,471 3,140,210 166% 285% 2019-20 25,666,777 (3,723,460) 663,838 (19,485,472)3,121,683 1,367,920 637,348 2,005,268 156% 341% 2020-21 28,340,076 (4,744,361) 65,386 (17,765,625)5,895,476 960,390 527,682 1,488,072 396% 715% 2021-22 29,671,678 (5,160,020) 222,451 (17,296,355)7,437,754 1,001,055 489,266 1,490,321 499% 845% Notes: 2. The City refinanced its 2005 Refunding Lease Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds into the 2018 Lease Revenue Bonds. 4. Net revenues available for debt service exclude development impact fees. 5. Operating expenses exclude depreciation and amortization. Source: City of San Luis Obispo Utilities Department City of San Luis Obispo, California Schedule 18 3. Principal and interest amounts do not include the subordinate private placement loan retired in 2013. Bonded Debt Service Requirements 1. Debt service requirements include 2012 Refunding Revenue Bonds and 2018 Refunding Revenue Bonds Last Ten Fiscal Years Revenue Bond Coverage - Water Fund 185 29 3 ** D R A F T * * v 1 Net Revenue Fiscal Gross Operating Available for Year Revenues Expenses Bond Debt Service Principal Interest Total Coverage 2012-13 4,726,000$ (2,440,600)$ 2,285,400$ 663,500$ 386,000$ 1,049,500$ 218% 2013-14 4,122,860 (2,488,797) 1,634,063 690,600 361,822 1,052,422 155% 2014-15 4,905,494 (2,409,027) 2,496,467 447,962 504,407 952,369 262% 2015-16 4,606,249 (2,757,299) 1,848,950 466,185 501,631 967,816 191% 2016-17 4,659,562 (2,671,028) 1,988,534 481,981 487,407 969,388 205% 2017-18 6,651,038 (2,998,555) 3,652,483 498,058 469,314 967,372 378% 2018-19 5,443,038 (3,100,113) 2,342,925 381,250 226,931 608,181 385% 2019-20 3,840,059 (3,080,588) 759,471 237,900 201,866 439,766 173% 2020-21 2,768,419 (3,093,183) (324,764) 247,050 192,350 439,400 -74% 2021-22 4,890,317 (3,552,603) 1,337,714 257,725 182,468 440,193 304% Notes: 1. In 1994 the Capital Improvement Lease Revenue Bonds were refinanced resulting in new debt of $11,780,000, of which $7,421,400 is designated for the Parking Fund. In 2004 the 1994 bonds were refinanced with a maturity date of 2014. In 2006 Lease Revenue Bonds were issued resulting in new debt of $16,160,000, of which $8,726,400 is allocated to the Parking Fund. 3. Operating expenses exclude depreciation. Source: City of San Luis Obispo Finance Department. 2. The City refinanced its 2005 Refunding Lease Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds into the 2018 Lease Revenue Bonds. Resulting in new debt of $16,905,000, of which $5,156,025 is allocated to the Parking Fund. Bonded Debt Service Requirements Schedule 19 City of San Luis Obispo, California Revenue Bond Coverage - Parking Fund Last Ten Fiscal Years 186 29 4 ** D R A F T * * v 1 Personal Public Elementary and Cuesta College Calendar Income Median Secondary School Full Time Enrollment Unemployment Year Population (1) in 000's (2) Age (2) Enrollment (3)SLO Campus (4) Rate (2) 2012 45,541 1,163$ 24.5 7,368 5,651 6.7% 2013 45,473 1,242 25.3 7,366 5,751 5.7% 2014 45,484 1,191 25.0 7,636 5,116 5.9% 2015 46,117 1,211 25.0 7,638 5,402 4.9% 2016 46,724 1,270 25.4 7,718 4,757 4.5% 2017 46,548 1,300 26.1 7,755 4,988 3.2% 2018 46,802 1,398 26.5 7,813 4,515 2.5% 2019 45,920 1,505 26.2 7,801 4,627 2.4% 2020 47,063 1,625 26.7 7,491 1,114 7.7% 2021 47,653 1,717 26.7 7,537 2,174 5.0% Sources: 1. Beginning in 2020, population data source is US Census 2. HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table 3. CA Dept of Education DataQuest: Enrollment Reports for San Luis Coastal Unified, by Academic Year start date 4. https://www.cuesta.edu/about/depts/research/Enrollment_Management.html Post Term FTES Dashboard, 320 Year Reported by academic year start date Schedule 20 City of San Luis Obispo, California Demographic and Economic Statistics For The Last Ten Calendar Years 187 29 5 ** D R A F T * * v 1 Percentage Percentage Number of Total City Number of Total City Employer Employees Rank Employment Employees Rank Employment Cal Poly State University 3,100 1 12.45%3,145 1 11.00% County of San Luis Obispo 2,920 2 11.73%2,800 2 9.79% Dept. of State Hospitals - Atascadero 2,140 3 8.59% Pacific Gas & Electric Company 1,950 4 7.83%1,700 4 5.94% California Men's Colony 1,500 5 6.02%2,000 3 6.99% Tenet Health Central Coast 1,305 6 5.24% Compass Health 1,200 7 4.82% San Luis Coastal Unified School District 1,200 8 4.82%902 6 3.15% Dignity Health Central Coast 1,000 9 4.02% Lucia Mar Unified School District 1,000 10 4.02% Cal Poly Foundation (Corporation)1,400 5 4.90% Mindbody 544 7 1.90% Rabobank California Department or Transportation 500 8 1.75% Cuesta Community College 439 9 1.53% Community Action Partnership 400 10 1.40% Total 17,315 69.54%13,830 48.35% Source for the 2021-22 employers information is Pacific Business Times Top Employers of San Luis Obispo County List. 2012-13 data is from the City's ACFR. Schedule 21 City of San Luis Obispo, California Principal Employers Current Year and Nine Years Ago 2021-22 2012-13 188 296 **DRAFT**v1 Function 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Public Safety Police Sworn 57.0 60.0 60.0 61.0 61.0 61.5 61.5 64.5 65.0 64.0 Non-sworn 25.5 25.5 25.5 25.5 25.5 24.0 24.0 24.0 25.5 27.0 Fire Sworn 44.0 49.0 49.0 50.0 47.0 47.0 47.0 47.0 47.0 47.0 Non-sworn 6.8 4.0 4.0 4.0 10.0 10.0 10.0 10.0 9.5 10.5 Public Utilities 61.9 64.8 64.8 67.1 69.1 69.1 69.1 69.1 69.9 70.6 Transportation 31.8 28.9 28.9 36.8 36.8 36.8 36.8 36.8 37.1 43.3 Culture and recreation 32.0 34.0 34.0 35.0 35.0 35.0 35.0 34.0 33.0 43.0 Community Development 43.8 39.5 40.0 51.0 51.0 47.4 47.9 47.5 47.5 54.5 General Government 52.2 56.0 56.0 57.0 61.0 61.0 62.3 64.8 72.3 87.8 Total 355.0 361.7 362.2 387.4 396.4 391.8 393.6 397.7 406.8 447.7 Ratio of Sworn Police Personnel per 1,000 Population:* 1.25 1.32 1.32 1.33 1.31 1.34 1.31 1.34 1.34 1.34 Ratio of Sworn Fire Personnel per 1,000 Population:* 0.97 1.08 1.08 1.06 1.01 0.99 1.00 1.02 0.99 0.99 *Does not include the Cal Poly student and faculty population served. Note: See Schedule of Demographic and Economic Statistics for population data. Source: City of San Luis Obispo Finance Department Schedule 22 City of San Luis Obispo, California Regular Authorized Positions Last Ten Fiscal Years 189 29 7 ** D R A F T * * v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Function/Program: Police: Calls for police/fire service 32,074 34,751 36,236 34,659 36,515 38,300 39,620 39,103 37,825 37,335 40,907 44,183 Incident numbers issued 27,595 29,991 31,156 29,277 31,048 32,542 33,360 32,730 31,471 31,472 35,695 38,290 Police reports written 7,661 8,322 9,192 8,665 8,435 8,852 8,675 7,735 6,999 6,297 5,852 6,637 Violations cited 5,939 8,119 7,213 5,793 6,648 7,673 7,649 7,524 5,874 4,020 3,445 3,735 Citations issued 5,380 7,718 6,665 5,275 6,204 7,038 7,030 6,752 5,287 3,660 3,056 3,349 Collision reports 728 669 643 625 630 587 608 609 623 481 419 483 Violent crimes:*126 134 117 158 237 173 177 178 191 187 201 225 Willful homicide*2 1 000001012 Forcible rape*27 24 18 31 44 29 38 44 55 39 37 25 Robbery*35 34 19 26 25 13 21 23 33 34 24 33 Aggravated assault*64 74 79 101 168 131 118 111 103 114 139 165 Property crimes:*640 714 804 713 542 637 731 644 728 728 793 885 Burglary**372 330 414 328 206 225 251 172 244 277 284 272 Motor vehicle theft*54 107 81 63 71 87 95 94 74 74 117 174 Larceny-theft:*1,260 1,345 1,476 1,384 1,162 1,335 1,730 1,516 1,493 1,387 1,219 1,398 Over $400*214 277 309 322 265 325 385 378 410 377 392 439 $400 and under*1,046 1,068 1,167 1,062 897 1,010 1,345 1,138 1,083 1,010 827 959 Fire: Medical responses (Note 1)2,799 2,856 2,985 3,232 3,417 3,540 4,538 4,248 3,715 3,884 3,544 3,857 Fire suppression responses (Note 1)101 102 95 105 111 151 143 163 122 127 133 136 Hazardous materials responses (Note 1 and 3)23 17 21 15 21 22 21 17 25 29 98 133 Other responses (Note 1)1,528 1,552 1,812 1,840 1,929 2,158 1,799 1,785 2,100 2,140 1,745 2,097 Total service responses 4,451 4,527 4,913 5,192 5,478 5,871 6,501 6,213 5,962 6,180 5,520 6,223 Fire Suppression Training Hours 9,150 7,602 9,061 8,782 8,149 6,714 6,348 7,719 8,410 10,835 11,033 16,015 Fire and life-safety inspections (Note 4)2,489 2,431 2,494 644 2,476 2,516 3,756 3,738 2,002 3,128 1,871 2,092 Arson investigations (Note 2)22 18 49 44 17 44 8 12 24 21 13 5 Education activities (# of people)20,106 23,120 23,377 23,945 23,697 23,680 23,575 23,540 2,690 2,700 2,031 2,000 Public Utilities: Water/Sewer customer accounts 14,734 14,695 14,742 14,899 14,953 15,167 15,188 15,505 15,555 15,672 15,958 16,256 Miles of sewerline 137 137 137 137 137.6 137.6 138 143 143 146 148 148 Miles of waterline 185 185 187 187 *187 191 197 187 190 191 191 191 Water service line repairs and renewals (incl. recycled water)86 50 66 58 60 50 50 57 38 48 35 47 Sewer main stoppages 9 7 12 15 13 11 4 10 8 11 14 Acre feet of water delivered - Nacimiento 981 2,321 663 1506 839 3574 3817 3753 3484 1470 2449 4460 Acre feet of water delivered - Salinas 2,640 2,149 2,378 1,444 1,986 8 273 853 790 2,165 1,337 650 Acre feet of water delivered - Whale Rock 1,277 2,875 3,212 2,615 1,375 949 924 800 1,556 1,641 399 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years 190 29 8 ** D R A F T * * v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years Transportation: Signals and lights: Intersections with traffic signals 67 70 68 70 70 70 70 70 72 73 Traffic signal service requests 80 85 80 85 90 60 71 59 93 145 Streetlights operated & maintained 2,230 2,300 2,300 2,300 2,300 2,280 2,280 2,280 2,400 2,477 Streetlight service requests 500 180 175 45 50 13 8 11 33 47 Roadways: Estimated miles of paved streets 130 132 132 133 133 133 133 134 197 134 137 135 Pavement condition index 74 72 71 72 72 71 71 70 73 70 73 70 Traffic collisions 597 621 593 660 720 531 482 501 431 441 259 361 Parking spaces provided (lot, garage & street)3,067 3,065 3,071 3,119 3,176 2,953 2,892 2,871 2,865 2,865 2,765 2,817 Parking citations written 30,278 26,515 28,690 23,957 20,690 24,213 23,348 21,647 24,415 21,240 17,748 39,254 Total transit passengers 1,045,299 1,118,519 1,109,600 1,122,000 1,099,274 1,209,708 1,131,716 945,288 981,995 715,380 179,456 528,000 Leisure, Cultural and Social Services (Note 5): Open space acres maintained 3,420 3,510 3,510 3,510 3,510 3,510 3,510 3,775 4,040 4,040 4,040 4,040 Open space easement acres 161 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,500 3,500 3,500 3,500 Trail mileage 40 45 47 49 49 52 52 55 55 56 62 65 Total golf rounds played 32,228 34,699 33,067 34,766 33,674 30,572 28,196 35,670 24,662 16,428 24,222 17,991 Acres of park landscape maintained 157 157 157 157 157 157 157 500 570 530 106 106 City Maintained Trees 18,700 18,700 18,700 18,700 19,000 20,000 20,000 20,000 20,000 20,000 12,970 12,970 Children's services program enrollment totals 1,664 1,755 1,605 2,338 2,360 2,115 2,115 1,950 2,050 1,775 1,483 1,611 Annual Senior Center Membership 14,500 265 331 350 315 192 248 Facility permits processed 1,806 1,803 1,269 1,416 836 1,305 1,073 864 909 650 298 455 Annual aquatics attendance (total)56,676 56,042 67,000 73,903 83,107 68,403 96,687 97,701 87,690 55,202 51,235 62,224 Adult athletic teams registered 245 320 325 338 320 325 325 362 292 184 112 168 Youth athletic participants registered 1,320 1,400 1,300 1,200 1,350 1,300 1,150 1,115 1,140 618 611 1,083 Special event applications processed 68 78 84 103 103 77 101 88 95 40 2 37 Banner permits processed 72 86 76 82 47 87 56 45 81 78 48 26 Instructional class enrollments 1,628 1,400 1,308 1,424 1,751 1,151 1,724 1,439 1,118 595 626 1,212 191 29 9 ** D R A F T * * v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years Community Development (Note 6): Housing characteristics: Single family units (annually cumulative)10,951 10,969 10,994 11,133 11,230 11,306 11,413 11,510 11,693 11,853 12,072 2-4 units (annually cumulative)2,634 2,650 2,656 2,692 2,695 2,789 2,851 2,865 2,869 2,888 2,928 5 or more unit structures (annually cumulative)5,596 5,596 5,647 5,767 5,804 6,038 6,097 6,148 6,209 6,309 6,524 Mobile homes (annually cumulative)1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,483 1,483 1,483 Total (annually cumulative)20,578 20,663 20,697 20,779 21,074 21,211 21,615 21,843 22,005 22,254 22,533 23,007 Building permits issued (Note 7):442 463 566 511 597 584 584 623 Residential: Single family residential incl. condos 7 13 48 59 114 97 62 125 159 171 253 202 Multi-family residential (includes second units & ADUs)3 10 6 8 32 5 13 18 19 17 33 16 Non-residential 7 5 7 9 27 13 14 10 15 12 2 3 Additions, alterations, demolitions 499 459 530 458 460 522 545 502 381 510 371 366 Other improvements (motel rooms)1 Total 516 487 591 534 633 637 634 655 575 710 659 587 Approximate value of building permits (in thousands) Residential: Single family residential 6,085$ 3,278$ 15,698$ 15,412$ 36,722$ 26,441$ 15,024$ 19,707$ 24,300$ 28,026$ 50,758$ 35,824$ Multi-family residential 926$ 3,847$ 1,560$ 6,744$ 26,499$ 13,500$ 8,172$ 17,249$ 21,162$ 33,606$ 10,545$ 56,085$ Non-residential 16,608$ 5,142$ 1,935$ 15,310$ 9,791$ 11,484$ 51,110$ 6,248$ 20,430$ 16,981$ 17,475$ 22,665$ Other permits: Additions, alternations, demolitions (incl. swimming pools)15,948$ 16,589$ 20,761$ 19,139$ 22,897$ 30,230$ 27,711$ 14,928$ 34,596$ 60,812$ 78,780$ 29,207$ Total 39,567$ 28,856$ 39,954$ 56,605$ 95,909$ 81,655$ 102,017$ 58,132$ 100,488$ 139,425$ 157,558$ 143,783$ Building inspections conducted 10,210 13,685 10,543 8,996 6,641 7,195 10,745 9,974 7,537 8,670 7,959 10,470 Home occupation permits processed/applied for 126 117 142 129 113 163 144 112 112 131 133 140 Development permit applications received 172 148 217 311 293 253 236 215 215 338 269 282 192 30 0 ** D R A F T * * v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years General Government: Business tax certificates issued: Located outside City limits 1,569 1,670 1,670 1,472 1,602 2,018 1,699 1,872 1,948 1,839 1,913 1,932 Total certificates issued 6,873 7,086 7,086 6,934 7,805 7,597 8,118 8,230 8,205 7,675 7,732 8,371 Citywide recruitments (total)42 59 91 105 129 103 103 97 99 86 90 155 Fleet vehicles maintained City-wide fleet & equipment assets 290 290 290 290 300 318 323 339 338 340 345 347 Replaces prior category Telephone lines managed 1,003 1,024 981 995 1,037 1,005 998 907 971 963 1,071 1,101 Cell phones & modems supported 351 338 344 383 460 453 476 492 481 487 464 538 IT users supported 450 498 498 490 511 515 467 471 488 475 487 511 6. Beginnig in 2016-17, building permit data reported in terms of calendar years, in alignment with State-mandated reporting requirements. Beginning in 2019-20 all Community Development Indicators are reported by calendar year. 7. Excludes special permits such as plumbing, mechanical, electrical, signs, and grading as well as plan check permits. Source: City of San Luis Obispo Departments 1. In Fiscal year 2010-11, numbers reported used observed code from Spillman rather than condition code. 2. Police Department Conducts Arson Investigations, Fire Department Conducts Cause and Origin Investigations. Reported number is Cause and Origin Investigations 3. Beginning in 2020-21, the Fire Department includes all "Hazardous Condition" calls for service as categorized by the National Fire Incident Reporting System (NFIRS). Previously only chemical or flammible liquid spills were captured under this function. Moving forward this function also includes electrical and biological hazards among others. 4. Beginning in 2020, the fire department began utilizing new mobile inspection software that uses a different inspection methodology counting the building rather than the number of individual units within the building. 5. Leisure, Culture and Social Services Indicators for FY 19-20 were lower compared to previous years due to COVID-19 program closures and capacity restrictions. 193 30 1 ** D R A F T * * v 1 Fiscal Historic Increase/ Sales Increase/ Deliveries Increase/ Year Connections (Decrease) Revenues (Decrease) In Acre Feet (Decrease) 2009-10 14,875 2.64% 13,025,900$ 4.65% 5,612 -11% 2010-11 14,777 -0.66% 13,302,800 2.13% 5,909 5% 2011-12 14,537 -1.62% 15,291,008 14.95% 5,999 2% 2012-13 14,758 1.52% 16,163,012 5.70% 5,823 -3% 2013-14 14,899 0.01% 18,398,901 13.83% 5,933 2% 2014-15 14,847 0.01% 17,530,717 -4.72% 5,354 -10% 2015-16 15,167 1.40% 17,939,024 2.33% 4,957 -7% 2016-17 15,357 1.25% 18,196,937 1.44% 5,039 2% 2017-18 15,505 0.96% 19,159,169 5.29% 5,530 10% 2018-19 15,555 0.32% 19,577,182 2.18% 5,074 -8% 2019-20 15,672 0.75% 21,519,632 9.92% 5,191 2% 2020-21 15,958 1.82% 22,757,325 5.75% 5,602 8% 2021-22 16,256 1.87% 24,129,231 6.03% 5,732 2% Source: City of San Luis Obispo Utilities Department. Schedule 24 City of San Luis Obispo, California Water System Statistical Data 194 302 **DRAFT**v1 As of Monthly Single family June 30 of Each Year Consumption Price per hcf*Multi-family dwelling Commercial Landscape dwelling Multi-family dwelling Commercial 2013 Base Fee 5.00$ $7.43 min. charge per $7.43 min. charge per $7.43 min. charge per 0-8 hcf 6.25 dwelling unit dwelling unit dwelling unit 8 + hcf 7.82 $8.19/unit volume charge ** $8.19/unit volume charge ** $8.19/unit volume charge 2014 Base Fee 5.28$ $7.73 min. charge per $7.73 min. charge per $7.73 min. charge per 1-8 hcf 6.56 dwelling unit dwelling unit dwelling unit 8 + hcf 8.20 $8.52/unit volume charge** $8.52/unit volume charge** $8.52/unit volume charge 2015 Base Fee 9.98$ $7.96 min. charge per $7.96 min. charge per $7.96 min. charge per 1-8 hcf 6.92 dwelling unit dwelling unit dwelling unit 8 + hcf 8.65 $8.77/unit volume charge** $8.77/unit volume charge** $8.77/unit volume charge 2016 Base Fee 9.98$ $8.32 min. charge per $8.32 min. charge per $8.32 min. charge per Base Fee Drought Surcharge 0.74 dwelling unit dwelling unit dwelling unit 1-8 hcf 6.92 $9.17/unit volume charge** $9.17/unit volume charge** $9.17/unit volume charge Drought Surcharge 1.10 9 + hcf 8.65 Drought Surcharge 1.37 2017 Base Fee 9.98$ $8.57 min. charge per $8.57 min. charge per $8.57 min. charge per Base Fee Drought Surcharge 0.74 dwelling unit dwelling unit dwelling unit 1-8 hcf 6.92 $9.44/unit volume charge** $9.44/unit volume charge** $9.44/unit volume charge Drought Surcharge 1.10 9 + hcf 8.65 Drought Surcharge 1.37 2018 Base Fee 12.33$ $8.57 min. charge per $8.57 min. charge per $8.57 min. charge per 1-8 hcf 7.27 dwelling unit dwelling unit dwelling unit 9 + hcf 9.08 $9.44/unit volume charge** $9.44/unit volume charge** $9.44/unit volume charge 2019***Residential SFR Base Fee 20.61$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 5.90 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 6.87 $6.73/unit volume charge $8.17/unit volume charge $10.02/unit volume charge $7.85/unit volume charge** $7.85/unit volume charge** $7.85/unit volume charge** 13 +12.59 2020 Residential SFR Base Fee 21.74$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.22 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.25 $7.10/unit volume charge $8.62/unit volume charge $10.57/unit volume charge $8.28/unit volume charge** $8.28/unit volume charge** $8.28/unit volume charge** 13 +13.28 Schedule 25 City of San Luis Obispo, California Water and Sewer Rates Last Ten Fiscal Years Water Rates (Note 1)Sewer Rates (Monthly) 195 30 3 ** D R A F T * * v 1 As of Monthly Single family June 30 of Each Year Consumption Price per hcf*Multi-family dwelling Commercial Landscape dwelling Multi-family dwelling Commercial Schedule 25 City of San Luis Obispo, California Water and Sewer Rates Last Ten Fiscal Years Water Rates (Note 1)Sewer Rates (Monthly) 2021 Residential SFR Base Fee 22.52$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.44 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.51 $7.36/unit volume charge $8.93/unit volume charge $10.95/unit volume charge $8.58/unit volume charge $8.58/unit volume charge $8.58/unit volume charge 13 +13.76 2022 Residential SFR Base Fee 23.31$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.67 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.77 $7.62/unit volume charge $9.24/unit volume charge $11.33/unit volume charge $8.88/unit volume charge $8.88/unit volume charge $8.88/unit volume charge 13 +14.24 *hcf = 100 cubic feet ** Total monthly volume charge capped based on average winter water consumption. *** Beginning FY 18-19, different rate structures for SFR, Multi-Family, Commercial, and Landscape ****See table below *****2020-21 rate increase deferred to February 1, 2021 due to COVID-19 Notes: 1. Rates are for services inside the City, outside the City rates are double. 2. Third tier applies only to single-family residential customers. Source: City of San Luis Obispo Utilities Department As of Water Sewer June 30 of Each Year Base charge Base Charge 2021*****3/4 inch or less 22.52$ 20.43$ 1-inch 37.60 34.12 1.5-inch 75.04 68.02 2-inch 120.06 108.88 3-inch 225.27 204.28 4-inch 375.50 340.53 6-inch 750.82 680.85 8-inch 1,201.35 1,089.40 10-inch - 1,566.17 2022 3/4 inch or less 23.31$ 21.15$ 1-inch 38.92 35.31 1.5-inch 77.67 70.40 2-inch 124.26 112.69 3-inch 233.15 211.43 4-inch 388.64 352.45 6-inch 777.10 704.68 8-inch 1,243.40 1,127.53 10-inch - 1,620.99 Base fee charges for Multi-Family, Non-Residential, Irrigation Meter Size 196 30 4 ** D R A F T * * v 1 Service Water Use Percent of Name Type (acre-feet) Total City of San Luis Obispo Parks Landscape 60.50 17.3% Silver City Mobile Home Park Mobile Homes 46.95 13.4% ELL-CAP 97-Laguna Lake Mobile Homes 42.42 12.1% Creekside Community Mobile Homes 33.83 9.7% Dignity Health #366 Care Facilities 31.29 8.9% City of San Luis Obispo Golf Landscape 30.58 8.7% SLO Coastal Unified School 28.06 8.0% Sierra Vista Hospital Care Facilities 27.12 7.7% CAP VIII - Mustang Village LLC Apartments 25.35 7.2% Embassy Suites Hotel 24.42 7.0% Total 350.52 100.00% Source: City of San Luis Obispo - Utilities Department Fiscal Year Ended June 30, 2022 Water System - Ten Largest Water Users City of San Luis Obispo, California Schedule 26 197 305 **DRAFT**v1 [THIS PAGE INTENTIONALLY LEFT BLANK] 306 **DRAFT**v1 B-1 APPENDIX B CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provisions or limitations and the City is not obligated to levy any ad valorem taxes therefor or to use any other funds of the City to pay the Bonds or the interest thereon. The following information with respect to the County is presented for information purposes only. The following information regarding the City and the surrounding area is presented as general background data. The Bonds are payable solely from the sources described in this Official Statement (see “SOURCES OF PAYMENT FOR THE BONDS”). General The City of San Luis Obispo, California (the “City”) is located approximately 235 miles south of downtown San Francisco and 200 miles north of Los Angeles, on the central coast of California. The City is situated along State Route 101 and is the county seat of San Luis Obispo County. The City is located 315 feet above sea level in gentle mountain valley. San Luis Obispo has mild summers with an average high temperature of 78 degrees. San Luis Obispo County (the “County”) is the twenty-fourth largest county in the State and is located on the central coast of California. The County borders the Pacific Ocean, with Monterey County to the north, Santa Barbara County to the south and Kern County to the east. Population The following table summarizes the population estimates for the City, the County and State of California as of January 1, for the years 2019 through 2023. TABLE B-1 CITY OF SAN LUIS OBISPO 2019 THROUGH 2023 POPULATION ESTIMATES (as of January 1) Calendar Year City of San Luis Obispo County of San Luis Obispo State of California 2019 45,972 277,850 39,605,361 2020 45,916 276,818 39,648,938 2021 47,163 278,723 39,286,510 2022 47,247 279,751 39,078,674 2023 47,788 278,348 38,940,231 _______________ Source: State Department of Finance. Employment The following table summarizes the labor force, employment and unemployment data from 2018 through 2022 (the most current data available) for the City, the County, the State of California and the United States. B-2 TABLE B-2 LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, STATE OF CALIFORNIA AND UNITED STATES 2018 THROUGH 2022 Area Labor Force Employment Unemployment Rate 2018 City of San Luis Obispo 25,300 24,600 2.6 San Luis Obispo County 140,108 135,892 3.0 California 19,288,540 18,467,259 4.2 United States 162,075,000 155,761,000 3.9 2019 City of San Luis Obispo 25,300 24,700 2.5 San Luis Obispo County 139,905 135,854 2.9 California 19,415,066 18,620,302 4.1 United States 163,539,000 157,538,000 3.7 2020 City of San Luis Obispo 24,600 22,700 7.7 San Luis Obispo County 134,416 123,926 7.9 California 18,966,111 17,041,823 10.1 United States 160,742,000 147,795,000 8.1 2021 City of San Luis Obispo 24,700 23,500 5.0 San Luis Obispo County 135,428 128,208 5.3 California 18,977,110 17,587,983 7.3 United States 161,204,000 152,581,000 5.3 2022 City of San Luis Obispo 25,000 24,400 2.6 San Luis Obispo County 137,204 133,048 3.0 California 19,241,972 18,437,956 4.2 United States 164,287,000 158,291,000 3.6 _______________ Source: U.S. Department of Labor – Bureau of Labor Statistics and State of California Employment Development Department The County comprises the San Luis Obispo-Paso Robles Metropolitan Statistical Area (the “MSA”), reported by the State Employment Development Department. The following table summarizes employment information for the MSA, including unemployment rate and employment by industry. B-3 TABLE B-3 METROPOLITAN STATISTICAL AREA (SAN LUIS OBISPO COUNTY) CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CALENDAR YEARS 2018 THROUGH 2022 ANNUAL AVERAGES 2018 2019 2020 2021 2022 Civilian Labor Force(1) 140,100 140,000 134,400 135,400 137,200 Employment 135,900 135,900 123,900 128,200 133,000 Unemployment 4,200 4,100 10,500 7,200 4,200 Unemployment Rate 3.0% 2.9% 7.8% 5.3% 3.0% Wage and Salary Employment(2) Agriculture 5,200 5,000 4,800 5,000 5,700 Natural Resources/Mining/Construction 7,900 8,300 8,500 9,100 9,000 Manufacturing 7,700 7,800 7,300 7,900 8,200 Wholesale Trade 2,700 2,700 2,500 2,600 2,600 Retail Trade 14,300 14,000 12,900 13,500 13,800 Trans., Warehousing, Utilities 4,100 4,100 3,700 3,700 3,800 Information 1,200 1,200 1,100 1,200 1,300 Financial and Insurance 2,300 2,200 2,300 2,300 2,200 Real Estate, Rental & Leasing 1,600 1,700 1,500 1,600 1,800 Professional and Business Services 10,900 11,200 10,500 11,000 10,900 Educational and Health Services 17,700 18,200 17,000 17,500 18,100 Leisure and Hospitality 19,200 19,800 15,400 17,400 19,600 Other Services 4,000 4,100 3,300 3,400 3,700 Federal Government 500 500 600 600 600 State Government 10,800 10,800 10,600 10,200 10,400 Local Government 13,100 13,100 12,400 12,400 12,800 Total All Industries(3) 123,200 124,700 114,400 119,400 124,500 _______________ (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. The principal employers in the County are shown in the following table. B-4 TABLE B-4 COUNTY OF SAN LUIS OBISPO PRINCIPAL EMPLOYERS FISCAL YEAR 2021-22 Employer Name Number of Employees Rank % of Total County Employment Cal Poly State University 3,100 1 12.45% County of San Luis Obispo 2,920 2 11.73 Dept. of State Hospitals - Atascadero 2,140 3 8.59 Pacific Gas & Electric Company 1,950 4 7.83 California Men’s Colony 1,500 5 6.02 Tenet Health Central Coast 1,305 6 5.24 Compass Health 1,200 7 4.82 San Luis Coastal Unified School District 1,200 8 4.82 Dignity Health Central Coast 1,000 9 4.02 Lucia Mar Unified School District 1,000 10 4.02 TOTAL: 17,315 69.54% _______________ Source: City of San Luis Obispo Audited Financial Statements, obtained from the Pacific Coast Business Times (The List). The Diablo Canyon nuclear power plant (“Diablo Canyon”), a principal employer in the County and located in the community of Avila Beach, was to cease operations in 2025 under a plan approved by the State Public Utilities Commission in January 2018. In September 2022, Governor Newsom signed SB 846, enabling Pacific Gas and Electric (PG&E) to extend operations beyond 2025 and in March 2023 the Nuclear Regulatory Commission (NRC) authorized PG&E to continue operating Diablo Canyon while the NRC considers renewal of its license. The initial plan to close Diablo Canyon included a program to retain skilled workers through 2025 and funding to retrain workers displaced by the closure. Despite the continued operation of Diablo Canyon, the City will retain the funding provided via SB 1090 for employee retention. Per Capita Income The following table summarizes the per capita income for the City, the County, the State and the United States for the period 2017 through 2021. TABLE B-5 CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, CALIFORNIA AND UNITED STATES PER CAPITA INCOME CALENDAR YEARS 2017 THROUGH 2021 Year City of San Luis Obispo San Luis Obispo County State of California United States 2017 $ 29,748 $ 35,982 $ 35,046 $ 32,397 2018 31,914 36,924 37,124 33,831 2019 34,357 38,308 39,393 35,672 2020 36,232 38,686 38,576 35,384 2021 39,464 42,831 42,396 38,332 _______________ Source: U.S. Census Bureau. B-5 Commercial Activity Taxable sales within the City are shown in Table 6 under “CITY FINANCIAL INFORMATION— Sales and Use Taxes” herein. Preliminary total taxable sales during calendar year 2022 in the City were reported to be $1,859,569,000, a 2.9% increase over the total taxable sales of approximately $1,806,306,000 reported during calendar year 2021. Construction Activity The following tables show a three-year summary of the number and valuation of building permits issued in the City. Building permits are issued for various projects ranging from the relatively simple (e.g., water heaters, window change outs, reroofing, etc.) to the more complex projects (e.g., additions and new buildings). Plan reviews are typically required for the more complex projects where it is necessary to review proposed design documents for code compliance. Table B-6 shows the number of plan check applications conducted by the Building Division over the last 3 years. Development activity remained relatively steady in 2022. TABLE B-6 CITY OF SAN LUIS OBISPO PLAN CHECK APPLICATIONS SUBMITTED 2020-2022 2020 2021 2022 Plan Check Applications Submitted 1,438 1,426 1,386 _______________ Source: Community Development Department, 2022 Table B-7 depicts the number of building permits issued over the past 3 years. In 2022, 266 permits were issued for new residential projects, representing 562 new residential units. TABLE B-7 CITY OF SAN LUIS OBISPO BUILDING PERMITS ISSUED, 2020-2022 2020 2021 2022 permits units permits units permits units New Single Family 252 252 198 198 162 162 New Accessory Dwelling Units (ADUs)1 44 60 62 93 73 97 New Multi Family & New Mixed Use 22 153 47 326 31 303 Demolitions2 25 -8 22 -3 11 -4 New Commercial 2 0 3 0 10 0 Residential Additions / Alterations 220 0 199 0 214 0 Commercial Additions / Alterations 89 0 99 0 122 0 Total 654 457 630 614 623 558 _______________ Source: Community Development Department, 2022 1 ADU unit totals come from ADU permits and single-family permits. 2 Includes units lost from demolitions. B-6 Construction valuation is a good indicator of the level of private investment in building construction. Table B-8 depicts the annual construction valuation over the past 3 years. Valuation data shows a substantial increase in commercial valuation while residential valuation remained relatively steady. The total valuation increased by approximately $41.9 million from 2021 to 2022. This increase is despite a decrease in total number of issued permits. This is an indicator that the cost of construction has increased since 2021. TABLE B-8 CITY OF SAN LUIS OBISPO VALUATION OF CONSTRUCTION, 2020-2022 2020 2021 2022 Single Family 53,949,613 34,211,415 32,464,875 Multi Family 8,225,494 46,933,301 43,655,086 Commercial 17,475,937 1,229,510 33,950,000 Residential Additions / Alterations 7,834,680 6,459,062 8,741,375 Commercial Additions / Alterations 11,178,790 6,722,907 18,711,218 Total Valuation $ 98,664,514 $ 95,556,195 $ 137,522,554 _______________ Source: Community Development Department, 2022 Climate Action and Response The City adopted and is now implementing its Climate Action Plan in 2022 for Community Recovery (2020) with the goal of achieving carbon neutrality within the City by 2035. Through the Climate Action Plan, the City is decreasing transportation emissions by improving bike and pedestrian facilities, installing electric vehicle chargers and upgrading public transit to make community members more likely to adopt alternative forms of transportation. The City is also implementing measures to divert organic waste from the landfill (a source of methane emissions), as well as an initiative to plant 10,000 new trees and to protect and manage its open space lands for carbon sequestration. In addition, the City has implemented a project titled “Resilient SLO” that resulted in the adoption of the Climate Adaptation and Safety Element of the City’s General Plan in 2023, which identifies and prioritizes the actions that are necessary for preparing the community for climate change impacts, focusing on finding the best ways to develop community resilience based on a range of potential physical hazards that are negatively affected by climate change such as floods, extreme heat and wildfires. Cyber Security To date, the City is not aware of any significant cyber security events affecting the City or its funds. The City has cybersecurity policies and practices in place designed to protect the confidentiality, integrity and availability of City data and resources, including personally identifiable information and sensitive information. At a high level, these policies are organized into several areas, including risk assessment (with internal analysis and quarterly external expert security assessment) and monitoring at various levels, a comprehensive incident response plan, strong access controls and multifactor authentication mechanisms, network security defenses based on zero trust methodologies, encryption of sensitive data, employee awareness training, regular backups of critical information, and compliance with applicable regulations. Further, the City carries cyber liability coverage which covers privacy incidents, network security incidents, media incidents and cyber crime with certain exclusions, for both first party and third party liability. B-7 Education and Community Facilities The City is adjacent to California Polytechnic State University, San Luis Obispo (“Cal Poly”), one of the more prominent campuses in the California State University system. Cal Poly offers a wide variety of degree programs at both undergraduate and graduate levels. Undergraduate and graduate enrollment at Cal Poly was 22,287 students for the 2022-23 academic year. In FY 2021-22, Cal Poly employed 3,100 people. Cuesta Community College schedules day and evening courses where residents can complete a two-year degree, obtain vocational training or take general education courses. Fall 2022 enrollment was 14,002 full-time students. San Luis Coastal Unified School District provides 10 elementary schools, two middle schools, three senior high schools and an adult school (the “District”). The District also provides a full-day, six- week program from mid-June through the end of July that is open to all current San Luis Coastal kindergarten through high school students free of charge. The total District enrollment is approximately 7,500 students. The boundaries of the San Luis Coastal Unified School District are significantly larger than the City. Medical facilities include Sierra Vista Regional Medical Center with approximately 164 licensed beds in addition to a designated trauma center and the only dedicated pediatric unit in San Luis Obispo County, and French Hospital with approximately 112 acute care beds. Recreational facilities in close proximity include 12 golf courses within a 30 minute drive of the City’s downtown, Lake Lopez, Lake Nacimiento and Montana De Oro State Park. Community facilities include the Performing Arts Center located on the campus of Cal Poly, Mission San Luis Obispo de Tolosa, San Luis Obispo County Historical Museum and San Luis Obispo Art Center. The City has 12 designated open space areas and owns 22 parks and 14 playgrounds. The City operates a 10-hole municipal golf course and the San Luis Obispo Swim Center that offers participants a full range of aquatic programs. Transportation Primary access to the City is provided by State Route 101, which is a major transportation corridor that extends in a general north-south direction from Los Angeles to San Francisco. San Luis Obispo can be accessed at various off-ramps from the highway. This network of roads provides access to the various neighborhoods and business areas dispersed throughout the community. The San Luis Obispo County Airport is within ten minutes from downtown. Commercial service is offered to Dallas, Denver, Los Angeles, Phoenix, Portland, San Diego, San Francisco and Seattle International Airports. Rail passenger service is provided by AMTRAK, which has a station in the City. Union Pacific Transportation Company provides freight rail service to the City. Local bus service is provided by SLO Transit and is linked to a trolley line which operates seasonally in the City’s downtown area, and to the San Luis Obispo Regional Transit Authority-run bus service. [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS Certain provisions of the Lease Agreement, the Ground Lease and the Indenture, not previously discussed in this Official Statement, are summarized below. These summaries do not purport to be complete or definitive and are qualified in their entirety by reference to the full terms of the documents. CERTAIN DEFINITIONS The following are definitions of certain of the terms defined in the Lease Agreement or the Indenture, to which reference is hereby made. The following definitions are equally applicable to both the singular and plural forms of the terms defined herein. Capitalized terms not otherwise defined herein will have the meaning assigned to such term in the Indenture or, if not defined therein, in the Lease Agreement. “Act” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code. “Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to the Lease Agreement. “Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the scheduled principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). “Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. “Authorized Denominations” means, with respect to the Bonds, $5,000 and integral multiples thereof. “Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Base Rental Deposit Date” means the date no later than the fifth Business Day next preceding each Interest Payment Date. “Base Rental Payments” means all amounts payable to the Authority by the City as Base Rental Payments pursuant to the Lease Agreement. “Bond Year” means the twelve-month period beginning on December 1 in each year and extending to the next succeeding November 30, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on December 1, 2023. C-1 “Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, issued under the Indenture. “Book-Entry Bonds” means the Bonds registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of the Indenture. “Business Day” means a day that is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. “Capital Improvement Board” means the City of San Luis Obispo Capital Improvement Board. “City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Closing Date” means the date upon which the Bonds are delivered to the Original Purchaser. “Costs of Issuance” means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with the Indenture, the Lease Agreement, the Ground Lease, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. “Costs of Issuance Fund” means the fund by that name established pursuant to the Indenture. “Defeasance Securities” means (a) non-callable direct obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America (“United States Treasury Obligations”), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. “Depository” means DTC, and its successors as securities depository for any Book-Entry Bonds, including any such successor appointed pursuant to the Indenture. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. “Event of Default” means any event or circumstance specified as an Event of Default in the Indenture. “Fair Market Value” means, with respect to any investment, the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, C-2 the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. “Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period selected and designated as the official fiscal year period of the City. “Holder” means any person who is the registered owner of any Outstanding Bond. “Indenture” means the Indenture, dated as of September 1, 2023 by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee. “Independent Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by or acceptable to the City, and who, or each of whom: (a) is in fact independent and not under domination of the City; (b) does not have any substantial interest, direct or indirect, with the City; and (c) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. “Interest Account” means the Interest Account by that name within the Payment Fund established pursuant to the Indenture. “Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. “Lease Agreement” means the Lease Agreement, dated as of the date of the Indenture by and between the City, as lessee, and the Authority, as lessor. “Lease Default Event” means an event of default pursuant to and as described in the Lease Agreement as a Lease Default Event. “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. “Leased Property” means the certain real property described in Exhibit A of the Lease Agreement, situated in the City of San Luis Obispo, County of San Luis Obispo, State of California, and the improvements thereto. “Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer C-3 perform the function of a securities rating agency for any reason, the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. “Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Leased Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture. “Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City in writing; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the Authority and the City by the Trustee in writing. “Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. “Original Purchaser” means the original purchaser of the Bonds from the Authority. “Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of the Indenture relating to disqualified bonds, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance—Discharge of Indenture,” and (c) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee, or that have been paid without surrender thereof, pursuant to the provisions of the Indenture concerning mutilated, lost or destroyed Bonds. “Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. “Payment Fund” means the fund by that name established in the Indenture. “Permitted Encumbrances” means with respect to the Leased Property, as of any particular time (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or that the City may, pursuant to the provisions of the Lease Agreement, permit to remain unpaid, (b) the Lease Agreement, (c) the Ground Lease, (d) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Leased Property for the purposes for which it was acquired or is held by the City, (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions that exist of record as of the Closing Date, (f) any license with respect to the use of, or lease agreement for, the solar equipment and footprint thereof as may be entered into by the City in support of a loan by the State of California Energy Commission that the City certifies in writing does not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date that the C-4 City certifies in writing do not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture. “Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (provided that the Trustee shall be entitled to rely upon any investment direction from the City as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State and constitute Permitted Investments), but only to the extent that the same are acquired at Fair Market Value: (a) Defeasance Securities; (b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farm Credit System Financial Assistance Corporation, Rural Economic Community Development Administration (formerly Farmers Home Administration), General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, Federal Housing Administration and Federal Financing Bank; (c) direct obligations for any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated “Aaa” by Moody’s and “AAA” by S&P issued by Fannie Mae or Federal Home Loan Mortgage Corporation (FHLMC); obligations of the Resolution Funding Corporation (REFCORP); and senior debt obligations of the Federal Home Loan Bank System; (d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody’s, or which deposit accounts are collateralized by Federal Securities for amounts above FDIC insurance limits and maturing no more than 360 days after the date of purchase, including those of the Trustee or its affiliates; (e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody’s and which matures not more than 270 days after the date of purchase; (f) investments in a money market fund rated AAAm or AAAm-G or better by S&P, excluding such funds with a floating net asset value but including funds for which the Trustee or its affiliates provide investment advisory or other management services; (g) investments in the Local Agency Investment Fund (established under Section 16429.1 of the California Government Code), provided that such investment is held in the name and to the credit of the Trustee, and provided further that the Trustee may restrict such investment if required to keep moneys available for the purposes of the Indenture; (h) shares in a State of California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53601 of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended; (i) U.S. dollar denominated deposit accounts, federal funds, certificates of deposit (including those placed by a third party pursuant to a separate agreement between the Authority and the Trustee), C-5 trust funds, trust accounts, other deposit products, overnight bank deposits, interest bearing deposits, interest bearing money market accounts and banker’s acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-l+” by S&P and maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank or (ii) which are fully insured by the Federal Deposit Insurance Corporation; and (j) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody’s or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant and with the prior approval of S&P, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. “Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. “Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to the Indenture. “Project” means the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements. “Record Date” means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. “Redemption Fund” means the fund by that name established pursuant to the Indenture. “Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant to the Indenture. “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture. “Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. “Rental Period” means the period from the Closing Date through December 31, 2024 and, thereafter, the twelve-month period commencing on January 1 of each year during the term of the Lease Agreement. C-6 “Scheduled Termination Date” means the date on which the lease ends in accordance with the provisions of the Lease Agreement. “Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds pursuant to the Indenture. “S&P” means S&P Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. “State” means the State of California. “Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. “Trustee” means U.S. Bank Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee under the Indenture substituted in its place as provided therein. “Written Certificate” and “Written Request” of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. GROUND LEASE Lease of the Leased Property; Rental Lease of Property. The City leases to the Authority, and the Authority leases from the City, for the benefit of the Owners of the Bonds, the Leased Property, on the terms and conditions set forth in the Ground Lease, subject only to Permitted Encumbrances, to have and to hold for the term of the Ground Lease. Rental. (a) The Authority shall pay to the City as and for rental of the Leased Property under the Ground Lease, the sum set forth in the Ground Lease (the “Ground Lease Payment”). The Ground Lease Payment shall be paid from the proceeds of the Bonds; provided, however, that in the event the available proceeds of the Bonds are not sufficient to enable the Authority to pay such amount in full, the remaining amount of the Ground Lease Payment shall be reduced to an amount equal to the amount of such available proceeds. (b) The City shall deposit the Ground Lease Payment in one or more separate funds or accounts to be held and administered for the purpose of financing the Project. The Authority and the City find and determine that the amount of the Ground Lease Payment does not exceed the fair market value of the leasehold interest in the Leased Property that is conveyed under the Ground Lease by the City to the Authority. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Leased Property under the Ground Lease. C-7 Quiet Enjoyment The parties intend that the Leased Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. Subject to any rights the City may have under the Lease Agreement (in the absence of a Lease Default Event) to possession and enjoyment of the Leased Property, the City covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Leased Property during the term of the Ground Lease and will, at the request of the Authority and at the City’s cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. Special Covenants and Provisions Waste. At all times that the Authority is in possession of the Leased Property, it shall not commit, suffer or permit any waste on the Leased Property, and shall not willfully or knowingly use or permit the use of the Leased Property for any illegal purpose or act. Further Assurances and Corrective Instruments. Each of the City and the Authority shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements to the Ground Lease and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Property leased by the Ground Lease or intended so to be or for carrying out the expressed intention of the Ground Lease, the Indenture and the Lease Agreement. Waiver of Personal Liability. (a) All liabilities under the Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint powers authority, and the City releases each and every director, officer and employee of the Authority of and from any personal or individual liability under the Ground Lease. No director, officer or employee of the Authority shall at any time or under any circumstances be individually or personally liable under the Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority under the Ground Lease. (b) All liabilities under the Ground Lease on the part of the City shall be solely liabilities of the City as a city and municipal corporation, and the Authority releases each and every member, officer and employee of the City of and from any personal or individual liability under the Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under the Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City under the Ground Lease. Taxes. The City shall pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property at any reasonable time to inspect the same. Representations and Warranties of the City. The City represents and warrants as follows: (a) the City has the full power and authority to enter into, to execute and to deliver the Ground Lease, and to perform all of its duties and obligations under the Ground Lease, and has duly authorized the execution of the Ground Lease; (b) except for Permitted Encumbrances, the Leased Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which C-8 would prohibit or materially interfere with the use of the Leased Property for governmental purposes as contemplated by the City; and (c) all taxes, assessments or impositions of any kind with respect to the Leased Property, except current taxes, have been paid in full. Representations and Warranties of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver the Ground Lease, and to perform all of its duties and obligations under the Ground Lease, and has duly authorized the execution and delivery of the Ground Lease. Restrictions on City Except with respect to Permitted Encumbrances, the City shall not mortgage, sell, encumber, assign, transfer or convey the Leased Property or any portion thereof during the term of the Ground Lease. Improvements Title to all improvements made on the Leased Property during the term of the Ground Lease shall vest in the City. Term; Termination Term. The term of the Ground Lease shall commence on the Closing Date and remain in full force and effect from such date to and including Scheduled Termination Date, unless such term is extended or sooner terminated as provided in the Ground Lease. Extension; Early Termination. If, on the Scheduled Termination Date, the Bonds shall not be fully paid, or provision therefor made in accordance with the provisions of the Indenture described under the heading “DEFEASANCE,” or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of the Ground Lease shall be automatically extended until the date upon which all such Rental Payments shall have been paid in full and all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture described under the heading “DEFEASANCE,” except that the term of the Ground Lease shall in no event be extended more than ten years beyond the Scheduled Termination Date. If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture described under the heading “DEFEASANCE,” and the Indenture discharged in accordance with its terms, then the term of the Ground Lease shall terminate. Miscellaneous Amendments; Substitution and Release. The Ground Lease may be amended, supplemented or otherwise modified only in accordance with the provisions of the Lease Agreement. The City shall have the right to substitute alternate real property for the Leased Property or to release portions of the Leased Property as provided in the Lease Agreement. Assignment. The Authority and City acknowledge that the Authority has assigned and transferred certain of its right, title and interest in and to the Ground Lease to the Trustee pursuant to the Indenture. The City consents to such assignment. C-9 LEASE AGREEMENT Lease of Property; Term The Authority leases to the City and the City leases from the Authority the Leased Property, on the terms and conditions set forth in the Lease Agreement, and subject to all Permitted Encumbrances. The parties intend and agree that the leasing of the Leased Property by the City to the Authority under the Ground Lease does not affect or result in a merger of the City’s leasehold estate in the Leased Property as lessee under the Lease Agreement and its leasehold or fee estate, as applicable, in the Leased Property as lessor under the Ground Lease, and the Authority will continue to have a leasehold estate in the Leased Property under the Ground Lease throughout the terms of both leases. The Lease Agreement constitutes a sublease with respect to the Leased Property. The leasehold interest in the Leased Property granted by the City to the Authority pursuant to the Ground Lease is independent of the Lease Agreement and the Lease Agreement is not an assignment or surrender of the leasehold interest in the Leased Property granted to the Authority under the Ground Lease. Term; Occupancy. The City shall take possession of the Leased Property on the Closing Date. The term of the Lease Agreement shall commence on the Closing Date and shall end on the Scheduled Termination Date, unless such term is extended or sooner terminated as provided in the Lease Agreement. If all of the Leased Property shall be taken under the power of eminent domain, and the City does not elect to cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, the Lease Agreement as described under the heading “AMENDMENTS; ASSIGNMENTS AND SUBLEASING; SUBSTITUTION OR RELEASE— Substitution or Release of the Leased Property,” as provided in clause (i) of paragraph (c) of the Lease Agreement described under the heading “INSURANCE; NET PROCEEDS; EMINENT DOMAIN— Eminent Domain,” but, rather, elects to deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to the provisions of the Indenture relating to extraordinary redemption, of all or a portion of the Outstanding Bonds, as provided in clause (ii) of paragraph (c) of the Lease Agreement described under the heading “INSURANCE; NET PROCEEDS; EMINENT DOMAIN—Eminent Domain,”, then, on the date that possession thereof shall be so taken, the term of the Lease Agreement shall terminate. If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture relating to defeasance, then, on the date of such payment or deemed payment, the term of the Lease Agreement shall terminate. If on the Scheduled Termination Date, the Rental Payments payable under the Lease Agreement shall have been abated at any time and for any reason, then the term of the Lease Agreement shall be extended until the date upon which all such Rental Payments shall have been paid in full, except that the term of the Lease Agreement shall in no event be extended more than ten years beyond the Scheduled Termination Date. Upon the termination of the term of the Lease Agreement (other than as provided in the provisions of the Lease Agreement described under the heading “THE LEASE AGREEMENT—Lease Default and Remedies—Lease Default Events and Remedies”), and the first date upon which the Bonds C-10 are no longer Outstanding, all right, title and interest in and to the Leased Property shall vest in the City. Upon any such termination or expiration, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Rental Payments Rental Payments. Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. If the term of the Lease Agreement shall have been extended pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Lease of Property; Term— Occupancy; Term,” the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of the Lease Agreement, as so extended. Base Rental Payments. The City, subject to the provisions of the Lease Agreement described under “LEASE AGREEMENT—Rental Payments—Rental Abatement,” shall pay Base Rental Payments to the Authority. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. If the term of the Lease Agreement shall have been extended pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Lease of Property; Term— Occupancy; Term,” the Base Rental Payments shall be established so that the Base Rental Payment payable on each Base Rental Deposit Date after the Scheduled Termination Date shall be equal to the principal, if any, of and interest on the Bonds remaining due and payable on such Base Rental Deposit Date; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Leased Property. Additional Rental Payments. (a) The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: (i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Leased Property or the respective interests or estates of the Authority or the City therein; C-11 (ii) insurance premiums for all insurance required pursuant to of the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain”; and (iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of the Lease Agreement. (b) Amounts constituting Additional Rental Payments payable under the Lease Agreement shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Fair Rental Value. The parties hereto have agreed and determined that the fair rental value of the Leased Property is not less than the amount indicated in the Lease Agreement. In making such determinations of fair rental value, consideration has been given to the uses and purposes that may be served by the Leased Property and the benefits therefrom that will accrue to the City and the general public. Payments of the Rental Payments for the Leased Property during each Rental Period shall constitute the total rental for said Rental Period. Payment Provisions. Each installment of Base Rental Payments payable under the Lease Agreement shall be paid in lawful money of the United States of America to or upon the order of the Authority at the Principal Office of the Trustee, or such other place or entity as the Authority shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment that shall not be paid by the City when due and payable under the terms of the Lease Agreement shall bear interest from the date when the same is due under the Lease Agreement until the same shall be paid a rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due under the Lease Agreement or refunded at the time of such determination. Appropriations Covenant. The City shall take such action as may be necessary to include all Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The covenants on the part of the City contained in the Lease Agreement shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City. Rental Abatement. (a) Except as otherwise specifically provided in the provisions of the Lease Agreement summarized under this heading (“– Rental Abatement”), during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall C-12 continue in full force and effect. The City and the Authority shall, in a reasonable manner and in good faith, determine the amount of such abatement; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Leased Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall provide the Trustee and the Insurer with a certificate setting forth the amount of abatement and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. (b) Notwithstanding the foregoing, to the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments, Rental Payments shall not be abated as provided in the Lease Agreement summarized in paragraph (a) above but, rather, shall be payable by the City as a special obligation payable solely from such Net Proceeds. Prepayment. The City may cause all or a portion of the Bonds to be optionally redeemed pursuant to the Indenture by prepaying on any date on or after December 1, 20__, all or a portion of the Base Rental Payments from any source of available funds, which prepayment shall be accomplished by the City’s paying an amount sufficient to cause such Bonds to be redeemed pursuant to the Indenture on such prepayment date. The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in the provisions of the Indenture relating to defeasance, sufficient to make such Base Rental Payments when due or to make such Base Rental payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to the preceding paragraph, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with the preceding paragraph. If less than all of the Base Rental Payments are prepaid pursuant to the provisions of the Lease Agreement described under the heading “‒Prepayment,” then, as of the date of such prepayment pursuant to the first paragraph above, or the date of a deposit pursuant to the preceding paragraph above, the principal and interest components of the Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of Base Rental Payments, the Leased Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Leased Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. If all of the Base Rental Payments are prepaid in accordance with the provisions of the Lease Agreement then, as of the date of such prepayment pursuant to the first paragraph above, or deposit pursuant to the second paragraph above, the term of the Lease Agreement shall be terminated. Before making any prepayment pursuant to the provisions of the Lease Agreement relating to rental payments, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 days prior to the prepayment date, unless such notice shall be waived by the Authority and the Trustee. C-13 Quiet Enjoyment; Maintenance; Alterations; Liens Quiet Enjoyment. The Authority covenants and agrees that it will not take any action to prevent the City, so long as the City is keeping and performing the covenants and agreements contained in the Lease Agreement, from having quiet and peaceable possession and enjoyment of the Leased Property during the term of the Lease Agreement. Net-Net-Net Lease. The Lease Agreement shall be deemed and construed to be a “net-net-net lease” and the City agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever and notwithstanding any dispute between the City and the Authority. Right of Entry. The Authority shall have the right to enter upon and to examine and inspect the Leased Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority’s rights or obligations under the Lease Agreement, and for all other lawful purposes. Maintenance and Utilities. Throughout the term of the Lease Agreement, as part of the consideration for rental of the Leased Property, all improvement, repair and maintenance of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Leased Property. Additions to Leased Property. Subject to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Quiet Enjoyment; Maintenance; Alterations; Liens—Mechanics’, Etc. Liens,” the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Leased Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Leased Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Leased Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made pursuant to this paragraph, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such additions, modifications and improvements. Installation of City’s Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Leased Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Leased Property resulting from the installation, modification or removal of any such items; and the Leased Property, upon completion of any installations, modifications or removals made pursuant to this paragraph, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such installations, modifications or removals. Nothing in the Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this paragraph under a conditional sale or lease purchase C-14 contract, or subject to a vendor’s lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Leased Property. Mechanics’, Etc. Liens. In the event the City shall at any time during the term of the Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Leased Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Leased Property and that may be secured by a mechanics’, materialmen’s or other lien against the Leased Property or the Authority’s interest therein, and shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contest is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Lease Agreement, or from its obligation thereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Insurance; Net Proceeds; Eminent Domain General Liability and Casualty Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed $100,000) resulting from a single accident or event. Such general liability insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. The Net Proceeds of such general liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations under this paragraph may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Self-Insurance.” C-15 (b) The City shall maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as provided in the Lease Agreement. The City’s obligations under this paragraph may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement. (c) The insurance required by the Lease Agreement summarized under this heading shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. (d) The insurance required by the Lease Agreement summarized under this heading may be maintained as part of or in conjunction with any other insurance coverage carried or required to be carried by the City, which insurance may insure the Leased Property and other properties of the City, provided that such insurance complies with the requirements of by the Lease Agreement summarized under this heading. Title Insurance. The City shall provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property, (b) the Authority’s leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. The Net Proceeds of such title insurance shall be applied as described in the provisions of the Lease Agreement under “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Net Proceeds of Title Insurance.” Additional Insurance Provision; Form of Policies. (a) The City shall pay or cause to be paid when due the premiums for all insurance policies required by the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain— General Liability and Casualty Insurance,” and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee and the Insurer shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City; provided, however, that the City shall not agree to any adjustment, compromise or settlement without the Insurer’s written consent. (b) The City shall cause to be delivered to the Trustee, within 90 days following the close of each Fiscal Year, a schedule of the insurance policies being maintained in accordance with the Lease Agreement and a Written Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain.” Neither the Trustee nor the Insurer shall be responsible for the sufficiency of coverage or amounts of such policies. Self-Insurance. Any self-insurance maintained by the City pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain” shall comply with the following terms: C-16 (a) the self-insurance program shall be approved in writing by the Insurer and the City’s professionally certified risk manager or by an independent insurance consultant; (b) the self-insurance program shall include an actuarially sound claims reserve fund out of which each self-insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi-annual basis by the City’s professionally certified risk manager or by an independent insurance consultant and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of the City’s professionally certified risk manager or such independent insurance consultant, as applicable; and (c) in the event the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City’s professionally certified risk manager or by an independent insurance consultant, shall be maintained. Damage or Destruction. (a) If the Leased Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” (b) If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. (c) If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (i) apply sufficient funds from the Net Proceeds of any casualty insurance, including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Leased Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Leased Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT— Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for application to the redemption, pursuant to the extraordinary redemption provisions of the Indenture (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal C-17 (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. Net Proceeds of Title Insurance. (a) If a defect in title to the Leased Property results in the creation of a right to receive Net Proceeds under any policy of title insurance with respect to the Leased Property or any portion thereof, the City shall, within 30 days of the creation of such right, notify the Trustee in writing of the City’s determination as to whether or not such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” (b) If the City determines that such title defect will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” such Net Proceeds shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (i) within 60 days of the creation of such right to receive such Net Proceeds, cause alternate property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (ii) immediately upon receipt thereof, deliver or cause to be delivered such Net Proceeds to the Trustee for the application to the redemption, pursuant to the extraordinary redemption provisions of the Indenture, of all or a portion of the Outstanding Bonds. Eminent Domain. (a) If all or a portion of the Leased Property shall be taken under the power of eminent domain, the City shall, no later than 45 days prior to the day that possession thereof shall be so taken, notify the Trustee in writing of the City’s determination as to whether or not such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” (b) If the City determines that such taking will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” any award made in eminent domain proceedings for such taking shall be remitted to the City and used for any lawful purpose thereof. (c) If the City determines that such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (A) no later than 60 days prior to the day that possession thereof shall be so taken, cause alternate property to be substituted for all C-18 or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (B) as soon as practicable after receipt thereof, deliver or cause to be delivered any award made such eminent domain proceedings to the Trustee for the application to the redemption, pursuant to the extraordinary redemptions provisions of the Indenture, of all or a portion of the Outstanding Bonds. Representations; Covenants Representations of the City. The City represents and warrants (a) that the City has the full power and authority to enter into, to execute and to deliver the Lease Agreement and to perform all of its duties and obligations thereunder, and has duly authorized the execution and delivery of the Lease Agreement, and (b) the Leased Property will be used in the performance of essential governmental functions. Representation of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver the Lease Agreement and the Indenture, and to perform all of its duties and obligations thereunder, and has duly authorized the execution and delivery of the Lease Agreement and the Indenture. Recordation. The City shall record, or cause to be recorded, with the San Luis Obispo County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to the Indenture. Use of the Leased Property. The City will not use, operate or maintain the Leased Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by the Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Leased Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Leased Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner that does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Leased Property or its interest or rights under the Lease Agreement. Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Indenture, or from its obligation thereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Taxes. The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Leased Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such C-19 installments as are required to be paid during the term of the Lease Agreement as and when the same become due. After giving notice to the Authority and the Trustee, the City or any sublessee may, at the City’s or such sublessee’s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Leased Property will be materially endangered or the Leased Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss that may result from nonpayment, in form satisfactory to the Authority. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Lease Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided in the Lease Agreement. Lease Default Events and Remedies If (i) the City shall fail (A) to pay any Rental Payment payable under the Lease Agreement when the same becomes due and payable, time being expressly declared to be of the essence in the Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained in the Lease Agreement to be kept or performed by the City, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority, or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event under the Lease Agreement if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, (ii) except as otherwise provided in the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property”, the City’s interest in the Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, (iii) the City or the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute, or (iv) the City shall fail to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event under the Lease Agreement if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, such failure or event shall constitute a Lease Default Event under the Lease Agreement. C-20 Upon the occurrence of any Lease Default Event under the Lease Agreement, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: (a) To terminate the Lease Agreement in the manner provided therein on account of such Lease Default Event, notwithstanding any re-entry or re-letting of the Leased Property as provided therein for in the following paragraph (ii) below, and to re-enter the Leased Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Leased Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of such Lease Default Event, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. Neither notice to pay Rental Payments or to deliver up possession of the Leased Property given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under the Lease Agreement shall of itself operate to terminate the Lease Agreement, and no termination of the Lease Agreement on account of a Lease Default Event under the Lease Agreement shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate the Lease Agreement. The City covenants and agrees that no surrender of the Leased Property or of the remainder of the term of the Lease Agreement or any termination of the Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. (b) Without terminating the Lease Agreement, (A) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City, regardless of whether or not the City has abandoned the Leased Property, or (B) to exercise any and all rights of entry and re-entry upon the Leased Property. In the event the Authority does not elect to terminate the Lease Agreement in the manner provided for in the preceding paragraph (i) above, the City shall remain liable and agrees to keep or perform all covenants and conditions contained in the Lease Agreement to be kept or performed by the City and, if the Leased Property is not re-let, to pay the full amount of the Rental Payments to the end of the term of the Lease Agreement or, in the event that the Leased Property is re-let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and/or Rental Payment deficiency punctually at the same time and in the same manner as provided in the Lease Agreement for the payment of Rental Payments under the Lease Agreement, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments specified in the Lease Agreement, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property. Should the Authority elect to re-enter as provided in the Lease Agreement, the City irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re-let the Leased Property, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Leased C-21 Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The City agrees that the terms of the Lease Agreement constitute full and sufficient notice of the right of the Authority to re-let the Leased Property in the event of such re-entry without effecting a surrender of the Lease Agreement, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of the Lease Agreement irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, upon the occurrence of a Lease Default Event under the Lease Agreement, the right to terminate the Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in the preceding paragraph (i) above. The City further agrees to pay the Authority the cost of any alterations or additions to the Leased Property necessary to place the Leased Property in condition for re-letting immediately upon notice to the City of the completion and installation of such additions or alterations. Under the Lease Agreement, the City waives any and all claims for damages caused or that may be caused by the Authority in re-entering and taking possession of the Leased Property as provided in the Lease Agreement and all claims for damages that may result from the destruction of or injury to the Leased Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Leased Property. In addition to the other remedies set forth in the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT‒Lease Default Events and Remedies” above, upon the occurrence of a Lease Default Event under the Lease Agreement, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by the Lease Agreement or by law. The provisions of the Lease Agreement and the duties of the City and of its board, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions: (i) Accounting. By action or suit in equity to require the City and its board, officers and employees and its assigns to account as the trustee of an express trust. (ii) Injunction. By action or suit in equity to enjoin any acts or things that may be unlawful or in violation of the rights of the Authority. (iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided in the Lease Agreement. Each and all of the remedies given to the Authority under the Lease Agreement or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege under the Lease Agreement shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used in the the Lease Agreement as described under the heading “LEASE AGREEMENT—Lease Default Events and Remedies” above, but not be limited to, re-letting by means of the operation by the Authority of the Leased Property. If any statute or rule of law validly shall limit the remedies given to the Authority under C-22 the Lease Agreement, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. In the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of the Lease Agreement, the City agrees to pay a reasonable amount as and for attorney’s fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority under the Lease Agreement. Notwithstanding anything to the contrary contained in the Lease Agreement, the Authority shall have no right upon a default by the City under the Lease Agreement, a Lease Default Event under the Lease Agreement or otherwise to accelerate Rental Payments. Notwithstanding anything in the Lease Agreement to the contrary, the termination of the Lease Agreement by the Authority on account of a Lease Default Event under the Lease Agreement shall not effect or result in a termination of the lease of the Leased Property by the City to the Authority pursuant to the Ground Lease. Amendments; Assignment and Subleasing; Substitution or Release Amendments. (a) The Lease Agreement and the Ground Lease, and the rights and obligations of the Authority and the City thereunder, may be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, but only with the prior written consent of the Owners of a majority of the aggregate principal amount the Bonds then Outstanding, provided that no such amendment shall (i) extend the payment date of any Base Rental Payment or reduce any Base Rental Payment, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the aggregate principal amount the Bonds, the consent of the Owners of which is required for the execution of any amendment of the Lease Agreement or the Ground Lease, without the prior written consent of the Owners of all the Bonds then Outstanding. (b) The Lease Agreement and the Ground Lease, and the rights and obligations of the City and the Authority thereunder, may also be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: (i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved therein to or conferred therein on the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained therein or in regard to questions arising thereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and that shall not materially adversely affect the rights or interests of the Owners; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds or maintain any federal interest subsidies expected to be received with respect to any Bonds; or C-23 (iv) to provide for the substitution or release of a portion of the Leased Property in accordance with the provisions of the Lease Agreement as described under the heading “LEASE AGREEMENT ‒ Amendments; Assignments And Subleasing; Substitution Or Release ‒ Substitution or Release of the Lease Property” below; or (v) to make such other changes therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and that shall not materially adversely affect the interests of the Owners. Assignment and Subleasing. Neither the Lease Agreement nor any interest of the City thereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation of law or otherwise; provided, however, that the Leased Property may be subleased in whole or in part by the City, provided that any such sublease shall be subject to all of the following conditions: (a) the Lease Agreement and the obligation of the City to make all Rental Payments thereunder shall remain the primary obligation of the City; (b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; (c) any sublease of the Leased Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under the Lease Agreement, including, the right to re-enter and re-let the Leased Property or terminate the Lease Agreement upon a Lease Default Event thereunder; and (d) the City shall furnish the Authority and the Trustee with an Opinion of Bond Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Substitution or Release of the Leased Property. The City shall have the right to substitute alternate real property for any portion of the Leased Property or to release a portion of the Leased Property from the Lease Agreement. The City shall bear all costs and expenses incurred in connection with any substitution or release. A substitution or release under this paragraph will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. Each substitution or release of any portion of the Leased Property is subject to the following conditions, which are conditions precedent to such a substitution or release: (a) the City and the Authority must have executed, and the Trustee must have consented to, amendments to the Ground Lease and the Lease Agreement that contain the amended description of the Leased Property as constituted after the substitution and release, and the City must have caused the amendments to be duly recorded with San Luis Obispo County Clerk/Recorder; (b) the City must have filed with the Trustee a Written Certificate of the City certifying that (1) the sum of Base Rental Payments plus Additional Rental Payments due under the Lease Agreement in any Rental Period is not in excess of the annual fair-rental value of the Leased Property as constituted after the substitution or release, (2) the Leased Property as constituted after the substitution or release has a useful life equal to or greater than the remaining term of the Bonds, and (3) the City has beneficial use and occupancy of the Leased Property as constituted after such substitution or release; C-24 (c) the City must have obtained or caused to be obtained an ALTA or CLTA owner’s title-insurance policy or policies (or an amendment or endorsement to an existing policy or policies) with respect to the Leased Property as constituted after the substitution or release, in substantially the same form as required by the provisions of the Lease Agreement described under the heading “THE LEASE AGREEMENT—INSURANCE; NET PROCEEDS; EMINENT DOMAIN—Title Insurance” and in an amount at least equal to the principal amount of the Bonds then Outstanding. (d) The City must have filed or caused to be filed with the Trustee an Opinion of Counsel to the effect that the substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income-tax purposes. THE INDENTURE The Indenture provides for, among other things, the issuance, execution and delivery of the Bonds and sets forth the terms thereof, the creation of certain of the funds and accounts described in the Lease Agreement, certain covenants of the Authority, defines events of default and remedies therefor, and sets forth the rights and responsibilities of the Trustee. Certain provisions of the Indenture setting forth the terms of the Bonds, the redemption provisions thereof and the use of the proceeds of the Bonds are set forth elsewhere in this Official Statement. See “THE BONDS.” Liens and Encumbrances The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Indenture, or from its obligation under the Indenture to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created under the Indenture, other than the pledge and lien thereof. Neither the Authority nor the Trustee shall encumber the Leased Property other than in accordance with the Ground Lease, the Lease Agreement and the Indenture. Pledge and Assignment; Funds and Accounts Pledge and Assignment. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, C-25 the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. Through the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture. The Trustee shall be entitled to and shall receive all of the Base Rental Payments, and any Base Rental Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. Payment Fund. All Lease Revenues received by the Trustee shall be deposited by the Trustee in the Payment Fund; provided, however, that Net Proceeds, other than those constituting proceeds of rental interruption insurance received with respect to the Leased Property, shall not be deposited in the Payment Fund but, rather, shall be applied as provided in the Indenture as described under the headings “THE INDENTURE– Net Proceeds and Title Insurance; Covenants—Application of Net Proceeds,” or “– Title Insurance,” as applicable. The Trustee, on each Interest Payment Date, shall transfer from the Payment Fund to each Interest Account an amount equal to the interest on the related Series of Bonds coming due on such Interest Payment Date. Moneys in each Interest Account shall be withdrawn and used by the Trustee for the purpose of paying interest on the related Series of Bonds as and when due and payable. In the event that, on such Interest Payment Date, amounts in any Interest Account are insufficient to pay the interest on the Bonds due and payable on such Interest Payment Date, the Trustee shall apply available funds therein in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULTS AND REMEDIES—Application of Amounts After Default.” The Trustee, on each Principal Payment Date, shall transfer from the Payment Fund to each Principal Account an amount equal to the principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, coming due on such date. Moneys in each Principal Account shall be withdrawn and used by the Trustee for the purpose of paying principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, as and when due and payable. In the event that, on such Principal Payment Date, amounts in any Principal Account are insufficient to pay the principal due and payable on such Principal Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall apply available funds therein in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULTS AND REMEDIES— Application of Amounts After Default.” C-26 Redemption Fund. The Trustee shall establish and maintain a special fund designated the “Redemption Fund.” The Trustee shall deposit in the Redemption Fund (i) amounts received from the City in connection with the City’s exercise of its right pursuant to the provisions described in the Lease Agreement to cause Bonds to be optionally redeemed, and (ii) amounts required to be deposited therein pursuant to the provisions of the Indenture described under the headings “THE INDENTURE—Net Proceeds and Title Insurance; Covenants—Application of Net Proceeds” or “—Title Insurance.” Amounts in the Redemption Fund shall be disbursed therefrom by the Trustee for the payment of the Redemption Price of, and accrued interest on, Bonds redeemed pursuant to the extraordinary or optional redemption provisions of the Indenture. Investments. Except as otherwise provided under the Indenture, all moneys in any of the funds or accounts established pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City received by the Trustee no later than two business days prior to the making of such investment. Moneys in all such funds and accounts shall 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. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to the Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (6) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. Net Proceeds and Title Insurance; Covenants Application of Net Proceeds. If the Leased Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of the Indenture, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Leased Property or the affected portion thereof in accordance with the provisions of the Indenture. The Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Leased Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Leased Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may, pursuant to a Written Request of the City, be invested by the Trustee in Permitted Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement. Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Leased Property or the portions of the Leased Property that were damaged or destroyed. If the City does intend to replace or repair the Leased Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account referred to above If such damage, destruction or loss was such that there resulted a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments results from such damage or destruction pursuant to the provisions of the Lease Agreement C-27 described under the heading “THE LEASE AGREEMENT—RENTAL PAYMENTS—Rental Abatement,” then the City shall be required either to (i) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Leased Property or the portions thereof that have been damaged to the condition that existed prior to such damage or destruction, or (ii) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, pursuant to the provisions described under the heading “REDEMPTION OF BONDS— Extraordinary Redemption” (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in the remaining, non-abated Base Rental Payments being sufficient to pay, as and when due, the principal of and interest on the Bonds that will remain Outstanding after such redemption. If the City is required to apply funds from the insurance proceeds and other legally available funds to the redemption of Bonds in accordance with clause (ii) above, the City shall direct the Trustee, in a Written Request of the City, to transfer the funds to be applied to such redemption to the Redemption Fund and the Trustee shall transfer such funds to the Redemption Fund. Any proceeds of any insurance, including the proceeds of any self-insurance remaining after the portion of the Leased Property that was damaged or destroyed is restored to and made available to the City in substantially the same condition and annual fair rental value as that that existed prior to the damage or destruction as required by clause (i) above, or the redemption of Bonds as required by clause (ii) above, in each case as evidenced by a Written Certificate of the City to such effect, shall be paid to the City to be used for any lawful purpose, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Leased Property after such damage or destruction is at least equal to the sum of the then unpaid principal components of Base Rental Payments. The proceeds of any award in eminent domain shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to the Indenture. Title Insurance. Net Proceeds of any policy of title insurance received by the Trustee in respect of the Leased Property shall be applied and disbursed by the Trustee as follows: (a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof; or (b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Property and will result in an abatement in whole or in part of Rental Payments payable by the City under the Lease Agreement, then the City shall, in a Written Request of the City, direct the Trustee to, and the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in the extraordinary redemption provisions of the Indenture. Events of Default and Remedies Events of Default. The following events shall be Events of Default under the Indenture: (a) except as otherwise provided in the Indenture, failure to pay any installment of principal of any Bond as and when the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; C-28 (b) failure to pay any installment of interest on any Bond as and when the same shall become due and payable; (c) the occurrence and continuation of a Lease Default Event; (d) failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee, the City or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the Authority, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; (e) failure by the City to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the City, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; or (f) the commencement by the Authority or the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Action on Default. In each and every case during the continuance of an Event of Default, the Trustee may or, at the written direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, shall exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by the Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULT AND REMEDIES—Other Remedies.”Other Remedies If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: (a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained in the Indenture or the Bonds;by suit in equity to enjoin any acts or things that are unlawful or violate the rights of the Trustee or the Owners; orby suit, action or proceeding in any court of competent jurisdiction, to require the Authority or the City, or both, to account as if it or they were the trustee or trustees of an express trust.Application of Amounts After Default. If an Event of Default shall occur and C-29 be continuing, all Lease Revenues and any other funds thereafter received by the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order: (a) to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; (b) to the payment of all amounts then due for interest on the Bonds, ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable, with interest on the overdue interest at the rate borne by the respective Bonds; and (c) to the payment of all amounts then due for principal of the Bonds, ratably without preference or priority of any kind, according to the amounts of principal of the Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. Limitation on Owner’s Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Act or any other applicable law with respect to such Bond, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners, or to enforce any right under the Bonds, the Indenture, the Act or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners, subject to the provisions of the Indenture. The Trustee Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default that has not been cured or waived, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.Qualifications; Removal and Resignation; Successors. (a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, which is (or if such trust company, national C-30 banking association or bank is a member of a bank holding company system, its parent bank holding company is) 1. a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this paragraph the combined capital and surplus of such trust company, national banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.(b) The Authority and the City may, by an instrument in writing, upon at least 30 days’ notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with paragraph (a) above, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. (b) The Trustee may at any time resign by giving written notice of such resignation by first- class mail, postage prepaid, to the Authority and the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of paragraph (a) above, the Trustee shall resign immediately in the manner and with the effect specified in this section (“Qualifications; Removal and Resignation; Successor”). (c) Upon removal or resignation of the Trustee, the Authority and the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in paragraph (a) above. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice, if any, as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Written Request of the Authority or the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon acceptance of appointment by a successor Trustee as provided in this paragraph, the successor Trustee shall, within 15 days after such acceptance, mail, by first-class mail postage prepaid, a notice of the succession of such Trustee to the trusts thereunder to the Owners at the addresses shown on the Registration Books. C-31 (d) Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, national banking association or bank shall be eligible under paragraph (a) above, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding. Liability of TrusteeThe recitals of facts in the Indenture and in the Bonds contained shall be taken as statements of the Authority or the City, as applicable, and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. (b) The Trustee makes no representations as to the validity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Authority, the City or others in accordance with the Indenture. (c) The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. (d) No provision of the Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. (e) The Trustee may execute any of its powers or duties under the Indenture through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. (f) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (g) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. (h) Before taking action under the provisions of the Indenture described under the heading “THE INDENTURE—Events of Default”, under this section (“Liability of Trusteeor upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. (i) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. C-32 (j) The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (k) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (l) The Trustee shall not be liable for the failure to take any action required to be taken by it under the Indenture if and to the extent that the Trustee’s taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. (m) The Trustee shall not be deemed to have knowledge of an Event of Default under the Indenture unless it has actual knowledge thereof. (n) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. (o) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions of the Indenture. Amendment of the Indenture The Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners thereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture . No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under the Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, the Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, the Indenture, except as expressly provided in the Indenture, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) modify or amend the provisions of the Indenture described in this section (“Amendment of the Indenture”) without the prior written consents of the Owners of all Bonds then Outstanding. The Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners thereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the Authority or the City in the Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign C-33 additional security for the Bonds (or any portion thereof), or to surrender any right or power in the Indenture reserved to or conferred upon the Authority or the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture or in regard to questions arising under the Indenture that the Authority or the City may deem desirable or necessary and not inconsistent herewith, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners under the Indenture; (iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Tax- Exempt Bonds; and (iv) in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners of the Bonds. Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority or the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Defeasance Discharge of Indenture. If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated in the Indenture and therein, then the Owners shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority under the Indenture shall thereupon cease, terminate and become void and the Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto that are not required for the payment of the principal of and interest and premium, if any, on the Bonds. Subject to the provisions of the preceding paragraph, when any Bond shall have been paid and if, at the time of such payment, each of the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in the Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then the Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority and the City under the Indenture shall cease, terminate, become void and be completely discharged and satisfied as to such Bond. Notwithstanding the discharge and satisfaction of the Indenture or the discharge and satisfaction of the Indenture in respect of any Bond, those provisions of the Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be C-34 binding upon the Trustee and the Owners and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of the Indenture, the obligation of the City to indemnify the Trustee pursuant to the provisions of the Indenture described under the heading “THE TRUSTEE—Compensation and Indemnification of the Trustee” shall remain in effect and be binding upon the City. Bonds Deemed to Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning and with the effect provided in the Indenture described under the heading “THE INDENTURE— Defeasance—Discharge of Indenture.” Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance— Discharge of Indenture” if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the provisions of the Indenture described under the heading “REDEMPTION OF BONDS—Mandatory Sinking Fund Redemption,” notice of redemption of such Bond on said redemption date, said notice to be given in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance—Discharge of Indenture,” (ii) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, together with the money, if any, deposited therewith, will provide moneys that shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owner of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this section (“Bonds Deemed to Have Been Paid”) and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to this paragraph in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds. (b) No Bond shall be deemed to have been paid pursuant to clause (ii) above unless the Authority or the City shall have caused to be delivered to the Authority, the City and the Trustee (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of paragraph (a) above, resulting in such deemed payment, which escrow agreement shall be in form and in substance acceptable to the Authority, the City and the Trustee, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (iii) a copy of an Opinion of Bond Counsel, dated the date of such deemed payment and addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in the C-35 Indenture, the Indenture has been discharged in respect of such Bond and all agreements, covenants and other obligations of the Authority and the City thereunder as to such Bond have ceased, terminated, become void and been completely discharged and satisfied. (c) The Trustee may seek and is entitled to rely upon (i) an Opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to clause (ii) of paragraph (a) above have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in paragraph (b) above. C-36 D-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION Upon issuance of the Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially the following form: September __, 2023 San Luis Obispo Public Financing Authority San Luis Obispo, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the San Luis Obispo Public Financing Authority (the “Authority”) in connection with issuance of $__________ aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), issued pursuant to an Indenture, dated as of September 1, 2023 (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Lease Agreement, the Ground Lease, the Tax Certificate, certificates of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, D-2 moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities such as the Authority and the City in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or to have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Lease Agreement, the Ground Lease or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion or view with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding limited obligations of the Authority. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. 3. The Ground Lease and the Lease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority. 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. We observe that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of San Luis Obispo (the “City”), on behalf of itself and the San Luis Obispo Public Financing Authority (the “Authority”), in connection with the issuance of the Authority’s Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued under an Indenture dated as of September 1, 2023 (the “Indenture”) between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees, on behalf of itself and the Authority, as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: “Annual Report” means any Annual Report provided by the City under, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Dissemination Agent” means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means, for purposes of the listed events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule. “Fiscal Year” means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other 12-month period selected and designated by the City. “Listed Events” means any of the events listed in Section 5(a) hereof. “MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. “Official Statement” means the final official statement dated _____ _, 2023, prepared with respect to the Bonds. “Participating Underwriter” means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Report Date” means March 1 of each year. E-2 “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Report Date, commencing March 1, 2024, with the report for Fiscal Year 2022-2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 business days prior to the Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Report Date if not available by the Report Date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City under the Indenture. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the City prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) To the extent not contained in the audited financial statements filed under the preceding clause (a), the Annual Report shall contain information showing: E-3 (i) information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year; (ii) information showing the aggregate principal amount of long-term bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the close of the most recent completed Fiscal Year; (iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year; (iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year; (v) with respect to the top 10 property taxpayers in the City, information showing the identity of each such taxpayer, and the total assessed valuation of properties owned by each such taxpayer. (vi) information concerning the sales and use tax revenue collected by the City for the most recently completed Fiscal Year; (vii) information concerning the transient occupancy tax revenue collected by the City for the most recently completed Fiscal Year; (viii) a statement on whether the County of San Luis Obispo used the Teeter Plan to assess and collect tax during the most recently completed Fiscal Year; and (x) information concerning parking fund revenues and operating expenses. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (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 City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. (a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; E-4 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); 6. Tender offers; 7. Defeasances; 8. Rating changes; or 9. Bankruptcy, insolvency, receivership or similar event of the obligated person. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the 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. 10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties. (b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: 1. Unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. Modifications to rights of Bond holders; 3. Bond calls; 4. Release, substitution, or sale of property securing repayment of the Bonds; 5. Non-payment related defaults; 6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or 7. Appointment of a successor or additional trustee or the change of name of a trustee. E-5 8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws. (d) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. SECTION 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, 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 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended under the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the E-6 amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(a). SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City 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 attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: September __, 2023 CITY OF SAN LUIS OBISPO By: Finance Director CONTINUING DISCLOSURE EXHIBIT A FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Name of Obligated Person: CITY OF SAN LUIS OBISPO Name of Bond Issue: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Date of Issuance: September __, 2023 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the Issuer, dated the Date of Issuance. The Issuer anticipates that the Annual Report will be filed by _____________. Dated: _______________ CITY OF SAN LUIS OBISPO By [to be signed only if filed] E-7 [THIS PAGE INTENTIONALLY LEFT BLANK] F-1 APPENDIX F DTC DESCRIPTION The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of principal of, premium, if any, and interest on the Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds, and other related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the City and the Authority believe to be reliable, but the City and the Authority do not take responsibility for the completeness or accuracy thereof. The City and the Authority cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of principal, premium, if any, and interest with respect to the Bonds or (b) certificates representing ownership interests in or other confirmation of ownership interests in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity (and each yield in the case of bifurcated maturities) of the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has 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; provided that nothing contained in such website is incorporated into this Official Statement. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as F-2 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 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of 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 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City and the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City, the Authority 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, the City or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, the Authority 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 The City and the Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC. NEITHER THE CITY, THE AUTHORITY 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. DTC (or a successor securities depository) may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City and the Authority. The City and the Authority, in their sole discretion and without the consent of any other person, may terminate the services of DTC (or a successor securities depository) with respect to the Bonds. The City and the Authority undertake no obligation to investigate matters that would enable the City and the Authority to make such a determination. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply. THE CITY, THE AUTHORITY AND THE UNDERWRITERS CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL, INTEREST OR PREMIUM, IF ANY, WITH RESPECT TO THE 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. THE CITY, THE AUTHORITY AND THE UNDERWRITERS ARE NOT 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 Bonds OR AN ERROR OR DELAY RELATING THERETO. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City and the Authority deem reliable, but the City and the Authority take no responsibility for the accuracy thereof. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City, the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The City and the Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Bonds may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee’s receipt of such request. [THIS PAGE INTENTIONALLY LEFT BLANK] SA N L U I S O B I S P O P U B L I C F I N A N C I N G A U T H O R I T Y LE A S E R E V E N U E B O N D S ( C U L T U R A L A R T S D I S T R I C T P A R K I N G P R O J E C T ) , S E R I E S 2 0 2 3 4863-8439-4606/200545-0054 $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 August 30, 2023 BOND PURCHASE CONTRACT San Luis Obispo Public Financing Authority 990 Palm Street San Luis Obispo, CA 93401 Attention: Treasurer City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Attention: City Manager Ladies and Gentlemen: Raymond James & Associates, Inc. (the “Underwriter”) offers to enter into this Bond Purchase Contract (this “Purchase Contract”) with the City of San Luis Obispo (the “City”) and the San Luis Obispo Public Financing Authority (the “Authority”) with regard to the Bonds (as defined below), which Purchase Contract, upon the acceptance hereof by the City and the Authority, will be binding upon the Authority, the City, and the Underwriter. This offer is made subject to the written acceptance of this Purchase Contract by the Authority and the City and the delivery of such acceptance to the Underwriter at or prior to 11:59 p.m., Pacific time, on the date hereof, and, if it is not so accepted, such offer may be withdrawn by the Underwriter upon written notice to the City and the Authority by the Underwriter at any time before its acceptance. Each of the Authority and the City acknowledges and agrees that (i) the purchase and sale of the Bonds (as defined below) pursuant to this Purchase Contract is an arm’s-length commercial transaction between the Authority and the City, collectively, and the Underwriter, (ii) in connection therewith and with the discussions, undertakings, and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as a principal and is not acting as the agent or fiduciary of the Authority or the City, (iii) the Underwriter has not assumed an advisory or a fiduciary responsibility in favor of the Authority or the City with respect to the offering contemplated hereby or the discussions, undertakings, and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the Authority or the City on other matters) and the Underwriter has no obligation to the Authority or the City with respect to the offering contemplated hereby except the obligations expressly set forth in this Purchase Contract, and (iv) the Authority and the City have consulted their own legal, financial, and other advisors to the extent they have deemed appropriate. 1. Upon the terms and conditions and upon the basis of the representations, warranties, and agreements hereinafter set forth, the Underwriter hereby agrees to purchase from the Authority for 2 4863-8439-4606/200545-0054 reoffering to the public, and the Authority hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the $45,780,000 aggregate principal amount of the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The purchase price of the Bonds shall be $49,317,157.21 (representing the par amount of the Bonds, less an Underwriter’s discount of $170,481.44 and plus an original issue premium of $3,707,638.65). The Preliminary Official Statement with respect to the Bonds, dated August 23, 2023 (the “Preliminary Official Statement”), as amended to conform to the terms of this Purchase Contract, and dated the date hereof, and with such changes and amendments as are mutually agreed to by the Authority, the City, and the Underwriter, including the cover page, the appendices, and all information incorporated therein by reference, is herein collectively referred to as the “Official Statement.” The Authority represents that it has deemed the Preliminary Official Statement to be final as of its date, except for revision or addition of the offering price(s), yield(s) to maturity, selling compensation, aggregate denominational amount and maturity value, denominational amount and maturity value per maturity, delivery date, rating(s), and other terms of the Bonds that depend upon the foregoing as provided in and pursuant to Rule 15c2-12 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (the “Rule”), by delivering a certificate to the Underwriter substantially in the form of Exhibit B attached hereto. 2. The Bonds shall mature on the dates and in the amounts, and will bear interest at the rates, set forth in Exhibit A hereto and as further described in the Official Statement. The Bonds shall be issued under and pursuant to the Indenture, dated as of September 1, 2023 (the “Indenture”), by and between the Authority and U.S. Bank Trust Company, National Association (the “Trustee”). The proceeds of the Bonds will be used to (i) finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, (ii) redeem the outstanding City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”), and (iii) pay costs incurred in connection with the issuance, sale and delivery of the Bonds. Capitalized terms used herein without definition shall have the meanings given to such terms in the Indenture. 3. (a) The Underwriter shall make a bona fide public offering of all the Bonds at not in excess of the respective initial public offering prices to be set forth on the inside cover page of the Official Statement. The Underwriter reserves the right to change such initial offering prices as the Underwriter deems necessary in connection with the marketing of the Bonds and to offer and sell the Bonds to certain dealers (including dealers depositing such bonds into investment trusts) and others at prices lower than the initial offering prices set forth on the cover page of the Official Statement. The Underwriter also reserves the right to (i) overallot or effect transactions that stabilize or maintain the market prices of the Bonds at levels above those which might otherwise prevail in the open market and (ii) discontinue such stabilizing, if commenced, at any time. “Public offering” shall include an offering to a representative number of institutional investors or registered investment companies, regardless of the number of such investors to which the Bonds are sold. (b) The Underwriter agrees to assist the City and the Authority in establishing the issue price of the Bonds and shall execute and deliver to the City and the Authority at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit C, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Underwriter, the City and the Authority and Bond Counsel (as defined below), to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds. All actions to be taken by the City and the Authority under this section to establish the issue price of the Bonds may be taken on behalf of the City and the 3 4863-8439-4606/200545-0054 Authority by the City and the Authority’s municipal advisor, PFM Financial Advisors LLC (the “Municipal Advisor”) and any notice or report to be provided to the Authority may be provided to the Authority’s Municipal Advisor. (c) Except as otherwise set forth in Exhibit A attached hereto, the City and the Authority will treat the first price at which 10% of each maturity of the Bonds (the “10% test”), identified under the column “10% Test Used” in Exhibit A, is sold to the public as the issue price of that maturity. At or promptly after the execution of this Purchase Contract, the Underwriter shall report to the City and the Authority the price or prices at which it has sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Underwriter agrees to promptly report to the City and the Authority the prices at which it sells the unsold Bonds of that maturity to the public. That reporting obligation shall continue, whether or not the Closing Date (as defined below) has occurred, until either (i) the Underwriter has sold all Bonds of that maturity or (ii) the 10% test has been satisfied as to the Bonds of that maturity, provided that, the Underwriter’s reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the City and the Authority or Bond Counsel. For purposes of this section, if Bonds mature on the same date but have different interest rates, each separate CUSIP number within that maturity will be treated as a separate maturity of the Bonds. (d) The Underwriter confirms that it has offered the Bonds to the public on or before the date of this Purchase Contract at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A attached hereto, except as otherwise set forth therein. Exhibit A also sets forth, identified under the column “Hold the Offering Price Used,” as of the date of this Purchase Contract, the maturities, if any, of the Bonds for which the 10% test has not been satisfied and for which the City, the Authority and the Underwriter agree that the restrictions set forth in the next sentence shall apply, which will allow the City and the Authority to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriter will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (A) the close of the fifth (5th) business day after the sale date; or (B) the date on which the Underwriter has sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Underwriter will advise the City and the Authority promptly after the close of the fifth (5th) business day after the sale date whether it has sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. (e) The Underwriter confirms that: (A) any selling group agreement and any third-party distribution agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer who is a member of the selling group and each broker- dealer that is a party to such third-party distribution agreement, as applicable: 4 4863-8439-4606/200545-0054 (1) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter, and (ii) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter; (2) to promptly notify the Underwriter of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below); and (3) to acknowledge that, unless otherwise advised by the dealer or broker-dealer, the Underwriter shall assume that each order submitted by the dealer or broker-dealer is a sale to the public. (B) any selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Underwriter or the dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Underwriter or the dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Underwriter or the dealer and as set forth in the related pricing wires. (f) The City and the Authority acknowledge that, in making the representations set forth in this section, the Underwriter will rely on (i) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (ii) in the event that a third-party distribution agreement was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires. The City and the Authority further acknowledge that the Underwriter shall not be liable for the failure of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a third-party distribution agreement, to comply with its corresponding agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering- price rule, if applicable to the Bonds. (g) The Underwriter acknowledges that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: 5 4863-8439-4606/200545-0054 (A) “public” means any person other than an underwriter or a related party; (B) “underwriter” means (i) any person that agrees pursuant to a written contract with the City and the Authority (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third- party distribution agreement participating in the initial sale of the Bonds to the public); and (C) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (i) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (D) “sale date” means the date of execution of this Purchase Contract by the City, the Authority, and the Underwriter. 4. The Authority and the City, respectively, hereby authorize the use by the Underwriter of (i) the Indenture, (ii) the Lease Agreement, dated as of September 1, 2023 (the “Lease Agreement”), by and between the Authority, as lessor, and the City, as lessee, (iii) the Ground Lease, dated as of September 1, 2023 (the “Ground Lease”), by and between the City, as lessor, and the Authority, as lessee, (iv) the Continuing Disclosure Certificate, dated as of the Closing Date (the “Continuing Disclosure Certificate”), to be executed by the City in connection with the Bonds, (v) the Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023 (the “Memorandum of Lease Agreement and Assignment”), by and among the City, the Authority, and the Trustee, (vi) the Escrow Agreement, dated as of September 1, 2023 (the “Escrow Agreement”), between the City and U.S. Bank Trust Company, National Association, as Escrow Agent (the “Escrow Agent”), and (vii) the Official Statement, and any supplements or amendments thereto, and the information contained in each of such documents, in connection with the public offering and sale of the Bonds. The Authority and the City consent to the use by the Underwriter prior to the date hereof of the Preliminary Official Statement in connection with the public offering of the Bonds. The Authority will deliver to the Underwriter, within seven (7) business days after the date of this Purchase Contract and in sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, copies of the Official Statement in final form (including all documents incorporated by reference therein) and any amendment or supplement thereto in such quantities as the Underwriter may reasonably request in order to comply with the obligations of the Underwriter pursuant to the Rule and the rules of the Municipal Securities Rulemaking Board. As soon as practicable following receipt thereof from the Authority, the Underwriter shall deliver the Official Statement to the Municipal Securities Rulemaking Board. 5. At 8:00 a.m., California time, on September 13, 2023, or at such other time or on such other business day as shall have been mutually agreed upon by the Authority and the Underwriter (the “Closing Date”), the Authority will cause the Trustee to authenticate and deliver to the Underwriter 6 4863-8439-4606/200545-0054 through the facilities of The Depository Trust Company (“DTC”) in New York, New York, or at such other place as the Authority and the Underwriter may mutually agree upon, the Bonds in fully- registered book-entry form, duly executed and registered in the name of Cede & Co., as nominee of DTC, and, subject to the terms and conditions hereof, the Underwriter will accept such delivery and pay the purchase price of the Bonds by wire transfer payable in immediately available funds to or upon the order of the Authority. Such delivery of and payment for the Bonds is referred to herein as the “Closing.” The Bonds shall be made available for inspection by the Underwriter at least one business day before the Closing. 6. The Authority represents, warrants, and covenants to the Underwriter that: (a) The Authority is a joint powers authority under Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code duly organized and validly existing under and by virtue of the Constitution and the laws of the State of California (the “State”). (b) The Authority has the legal right and power to issue and deliver the Bonds and to execute and deliver, and to perform its obligations under, the Indenture, the Ground Lease, the Lease Agreement, the Memorandum of Lease Agreement and Assignment and this Purchase Contract (collectively, the “Authority Documents”). The Authority has duly authorized the issuance and delivery of the Bonds and the execution and delivery of, and performance of its obligations under, the Authority Documents and, as of the date hereof, such authorizations are in full force and effect and have not been amended, modified, or rescinded. When executed and delivered by the respective parties thereto, the Authority Documents will constitute legal, valid, and binding obligations of the Authority in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, debt adjustment, receivership, fraudulent conveyance or transfer, moratorium, reorganization, arrangements or other laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State or other laws or equitable principles affecting the enforcement of creditors’ rights generally. The Authority has complied, and will at the Closing be in compliance in all material respects, with its obligations under the Authority Documents. (c) The Bonds will be paid from Revenues consisting primarily of Base Rental Payments, as defined in and pursuant to the Indenture, which payments have been duly and validly authorized pursuant to applicable law. (d) The Bonds will be issued in accordance with the Indenture and will conform in all material respects to the descriptions thereof contained in the Official Statement. The Indenture creates a valid pledge of, first lien upon, and security interest in, the pledged Revenues. (e) The information in the Preliminary Official Statement was as of its date, and the information in the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing Date will be (excluding any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter) true and correct in all material respects, and the information therein did not and does not contain any misstatement of any material fact and did not and does not omit any statement necessary to make the statements, in the light of the circumstances in which such statements were made, not misleading. 7 4863-8439-4606/200545-0054 (f) The Authority covenants with the Underwriter that for twenty-five days after the Closing Date (the “Delivery Period”), if any event occurs that might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Authority shall notify the Underwriter thereof, and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Authority will cooperate with the Underwriter and the City in the preparation of an amendment or supplement to the Official Statement, at the expense of the Authority and the City, in a form and in a manner approved by the Underwriter (provided, that this requirement for approval shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). (g) During the Delivery Period, the Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter (provided, that this consent requirement shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale, or distribution of the Bonds. (h) If the Official Statement is supplemented or amended, the Official Statement, as so supplemented or amended, as of the date of such supplement or amendment, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except no representation is made with respect to any information regarding DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter). (i) The Authority is not, in any manner which would materially adversely affect the transactions contemplated by the Authority Documents, in breach of or in default under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which the Authority is a party, and no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any of the foregoing. (j) The authorization, execution, and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, do not and will not conflict with or constitute a breach of or default by the Authority under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which it is bound or by which its properties may be affected. (k) No authorization, consent, or approval of, or filing or registration with, any Governmental Authority (as defined below) or court is, or under existing requirements of law will be, 8 4863-8439-4606/200545-0054 necessary for the valid execution and delivery of, or performance by the Authority of its obligations under, the Authority Documents, other than any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds. All authorizations, consents, or approvals of, or filings or registrations with, any Governmental Authority or court necessary for the valid issuance of, and performance by the Authority of its obligations under, the Bonds will have been duly obtained or made prior to the issuance of the Bonds (except no representation is made regarding any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds). As used herein, the term “Governmental Authority” refers to any legislative body or governmental official, department, commission, board, bureau, agency, instrumentality, body, or public benefit corporation. (l) The Authority shall furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and shall use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the Authority shall not be required to execute a general or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction, and the Underwriter shall be responsible for all costs relating to such qualification or determination under Blue Sky or other securities laws. (m) There is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of the Authority, threatened (i) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices; (ii) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the Authority’s execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to pledge the Revenues pursuant to the Indenture; (iii) that may result in any material adverse change relating to the Authority that will materially adversely affect the Authority’s ability to apply Revenues pursuant to the Indenture to pay the Bonds when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (n) Other than in the ordinary course of its business or as contemplated by the Official Statement, between the date of this Purchase Contract and the Closing Date the Authority will not, without the prior written consent of the Underwriter, offer or issue any certificates, bonds, notes, or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by a pledge of the Revenues. 9 4863-8439-4606/200545-0054 (o) The Authority will refrain from taking any action, or permitting any action to be taken, with regard to which the Authority may exercise control, that results in the loss of the tax- exempt status of the interest on the Bonds. (p) Any certificate signed by any official or other representative of the Authority and delivered to the Underwriter pursuant to this Purchase Contract shall be deemed a representation and warranty by the Authority to the Underwriter as to the truth of the statements therein made. 7. The City represents, warrants, and covenants to the Underwriter that: (a) The City is a municipal corporation of the State duly organized and validly existing under and by virtue of the Constitution and laws of the State and has the legal right and power to execute, deliver, and perform its obligations under the Indenture, the Ground Lease, the Lease Agreement, the Continuing Disclosure Certificate, the Memorandum of Lease Agreement and Assignment, the Escrow Agreement, and this Purchase Contract (collectively, the “City Documents”). (b) The City has the legal right and power to execute and deliver, and to perform its obligations under, the City Documents. The City has duly authorized the execution and delivery of, and the performance of its obligations under, the City Documents and as of the date hereof such authorizations are in full force and effect and have not been amended, modified, or rescinded. When executed and delivered by the respective parties thereto, the City Documents will constitute legal, valid, and binding obligations of the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, debt adjustment, receivership, fraudulent conveyance or transfer, moratorium, reorganization, arrangements or other laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State or other laws or equitable principles affecting the enforcement of creditors’ rights generally. The City has complied, and will at the Closing be in compliance in all respects, with its obligations under the City Documents. (c) The information in the Preliminary Official Statement was as of its date, and the information in the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing Date will be (excluding any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter) true and correct in all material respects, and the information therein did not and does not contain any misstatement of any material fact and did not and does not omit any statement necessary to make the statements, in the light of the circumstances in which such statements were made, not misleading. (d) To assist the Underwriter in complying with the Rule, the City will undertake, pursuant to the Continuing Disclosure Certificate, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement. The Official Statement describes the incidences during the last five years in which the City and its related entities have failed to comply with previous undertakings to provide annual continuing disclosure reports and notices of material events. (e) The City covenants with the Underwriter that, during the Delivery Period, if any event occurs that might or would cause the Official Statement, as then supplemented or amended, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, 10 4863-8439-4606/200545-0054 the City shall notify the Underwriter thereof, and if in the opinion of the Underwriter such event requires the preparation and publication of a supplement or amendment to the Official Statement, the City will cooperate with the Underwriter and the Authority in the preparation of an amendment or supplement to the Official Statement, at the expense of the Authority and the City, in a form and in a manner approved by the Underwriter (provided, that this requirement for approval shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). (f) During the Delivery Period, the City will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter (provided, that this consent requirement shall not bar the City’s and Authority’s publication of such supplement or amendment if the City and the Authority determines that the publication is required by applicable laws and regulations; and provided further that the City, Authority and Underwriter shall meet and confer regarding any amendment or supplement to the Official Statement proposed by the Authority or City to which the Underwriter objects). The City will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise affecting the use of the Official Statement in connection with the offering, sale, or distribution of the Bonds. (g) If the Official Statement is supplemented or amended, the Official Statement as so supplemented or amended, as of the date of such supplement or amendment, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except no representation is made with respect to any information regarding DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter). (h) The City is not, in any manner which would materially adversely affect the transactions contemplated by the City Documents, in breach of or in default under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which the City is a party, and no event has occurred and is continuing that, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any of the foregoing. (i) The authorization, execution, and delivery by the City of the City Documents, and compliance by the City with the provisions thereof, do not and will not conflict with or constitute a breach of or default by the City under any applicable constitutional provision, law, or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, consent, or other agreement to which it is bound or by which its properties may be affected. (j) No authorization, consent, or approval of, or filing or registration with, any Governmental Authority or court is, or under existing requirements of law will be, necessary for the valid execution and delivery of, or performance by the City of its obligations under, the City Documents, other than any authorization, consent, approval, filing, or registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds (except no representation is made regarding any authorization, consent, approval, filing, or 11 4863-8439-4606/200545-0054 registration as may be required under the Blue Sky or securities laws of any state in connection with the offering, sale, or issuance of the Bonds). (k) The City will furnish such information, execute such instruments, and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds; provided, however, that the City shall not be required to execute a general consent or special consent to service of process or qualify to do business in connection with any such qualification or determination in any jurisdiction, and the Underwriter shall be responsible for all costs relating to such qualification or determination under Blue Sky or other securities laws. (l) There is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body and notice of which has been receive by the City, pending or, to the best knowledge of the City, threatened (i) in any way questioning the existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting, or seeking to prohibit, restrain, or enjoin the Authority’s issuance of the Bonds or the execution or delivery of any of the City Documents, or the payment or collection by the Authority of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds pursuant to the Indenture, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby or any proceeding of the City taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation; (iii) that may result in any material adverse change relating to the City that will materially adversely affect the City’s ability to pay Base Rental Payments when due; or (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (m) Other than in the ordinary course of its business or as contemplated by the Official Statement, between the date of this Purchase Contract and the Closing Date the City will not, without the prior written consent of the Underwriter, offer or issue any certificates, bonds, notes, or other obligations for borrowed money or incur any material liabilities, direct or contingent, payable from or secured by the City’s General Fund. (n) The financial statements of, and other financial information regarding, the City contained in the Official Statement fairly present the financial position and results of the operations of the City as of the dates and for the periods therein set forth, and, to the best of the City’s knowledge, the audited financial statements have been prepared in accordance with generally accepted accounting principles consistently applied. (o) The City will refrain from taking any action, or permitting any action to be taken, with regard to which the City may exercise control, that results in the loss of the tax-exempt status of the interest on the Bonds. 12 4863-8439-4606/200545-0054 (p) Any certificate signed by any official or other representative of the City and delivered to the Underwriter pursuant to this Purchase Contract shall be deemed a representation and warranty by the City to the Underwriter as to the truth of the statements therein made. 8. The Underwriter has entered into this Purchase Contract in reliance upon the representations, warranties, and covenants of the Authority and the City contained herein and in the Authority Documents and City Documents to which each of the Authority or the City, as applicable, is a party, and the performance by the Authority and the City of their respective obligations hereunder, both as of the date hereof and as of the Closing Date. The Underwriter’s obligations under this Purchase Contract are and shall be subject to the following further conditions: (a) The representations and warranties of the Authority and the City contained herein shall be true, complete, and correct in all material respects on the date hereof and at and as of the Closing, as if made at and as of the Closing, and the statements made in all certificates and other documents delivered to the Underwriter at the Closing pursuant hereto shall be true, complete, and correct in all material respects at the Closing; the Authority and the City shall be in compliance in all material respects with each of the agreements made by it in this Purchase Contract (unless such agreements are waived by the Underwriter); there shall not have occurred an adverse change in the financial position, results of operations, or financial condition of the City that materially adversely affects the ability of the City to pay Base Rental Payments when due or otherwise perform any of its obligations under the City Documents; and there shall not have occurred an adverse change in the financial position of the Authority that materially adversely affects the ability of the Authority to make payments of principal of and interest on the Bonds when due or otherwise perform any of its obligations under the Authority Documents. (b) At the time of the Closing, the Authority Documents and the City Documents shall be in full force and effect, and shall not have been amended, modified, or supplemented (except as may be agreed to in writing by the Underwriter); all actions that, in the opinion of Orrick, Herrington & Sutcliffe LLP, Sacramento, California, Bond Counsel (“Bond Counsel”), shall be necessary in connection with the transactions contemplated hereby shall have been duly taken and shall be in full force and effect; and the City shall perform or shall have performed its obligations required under or specified in the City Documents to be performed at or prior to the Closing and the Authority shall perform or shall have performed its obligations required under or specified in the Authority Documents to be performed at or prior to the Closing. (c) At the time of the Closing, the Official Statement (as amended and supplemented) shall be true and correct in all material respects, and shall not omit any statement or information necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) Except as disclosed in the Official Statement or in a schedule delivered to the Underwriter at the Closing, no decision, ruling, or finding shall have been entered by any court or Governmental Authority since the date of this Purchase Contract (and not reversed on appeal or otherwise set aside) that has any of the effects described in Section 8(f) hereof. (e) (i) No default by the City or the Authority shall have occurred and be continuing in the payment of the principal of or premium, if any, or interest on any bond, note, or other evidence of indebtedness issued by the City or the Authority, respectively, and (ii) no bankruptcy, 13 4863-8439-4606/200545-0054 insolvency, or other similar proceeding in respect of the City or the Authority shall be pending or, to the knowledge of the City or the Authority, contemplated. (f) The Underwriter may terminate this Purchase Contract by written notification to the Authority and the City if at any time after the date hereof and prior to the Closing: (i) legislation shall have been enacted by the United States or the State or shall have been reported out of committee or be pending in committee, or a decision shall have been rendered by a court of the United States or the Tax Court of the United States, or a ruling shall have been made or a regulation, proposed regulation, or a temporary regulation shall have been published in the Federal Register or any other release or announcement shall have been made by the Treasury Department of the United States or the Internal Revenue Service, with respect to Federal or State taxation upon revenues or other income or payments of the general character to be derived by the City or upon interest received on obligations of the general character of the Bonds, which, in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City), materially adversely affects the market for the Bonds; or (ii) in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City or its municipal advisor), any of the following events materially adversely affects the market for the Bonds: (a) the United States shall have become engaged in hostilities that have resulted in a declaration of war or a national emergency or the President of the United States of America shall have committed the armed forces of the United States of America to combat so as to adversely affect the financial markets in the United States of America, (b) any other calamity or crisis in the financial markets of the United States or elsewhere which did not exist on, or has escalated since, the dated date of this Purchase Contract, (c) the sovereign debt rating of the United States is downgraded by any major credit rating agency or a payment default occurs on United States Treasury obligations, or (d) a default with respect to the debt obligations of, or the institution of proceedings under any federal bankruptcy laws by or against, any state of the United States or any city, county, or other political subdivision located in the United States having a population of over 500,000; or (iii) there shall have occurred a general suspension of trading on the New York Stock Exchange or other major exchange, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the Securities and Exchange Commission or any other Governmental Authority having jurisdiction, or a general banking moratorium shall have been declared by Federal, California, or New York authorities having jurisdiction and being in force; or (iv) there shall have occurred an adverse change in the financial position, results of operations, or financial condition of the City that, in the reasonable opinion of the Underwriter (after consultation with, and receipt of advice from, the City), materially adversely affects the market for the Bonds; or (v) any legislation, ordinance, rule, or regulation shall be introduced in, or be enacted by, any governmental body, department, or agency of the State, or a decision by any court of competent jurisdiction within the State or any court of the United States shall be rendered that, in the reasonable opinion of the Underwriter, materially adversely affects the market price of the Bonds; or 14 4863-8439-4606/200545-0054 (vi) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, or a stop order, ruling, regulation, or official statement by, or on behalf of, the Securities and Exchange Commission or any other governmental agency having jurisdiction of the subject matter shall be issued or made to the effect that the issuance, offering, or sale of obligations of the general character of the Bonds, or the issuance, offering, or sale of the Bonds, including all underlying obligations, as contemplated hereby or by the Official Statement, is in violation or would be in violation of, or that obligations of the general character of the Bonds, or the Bonds, are not exempt from registration under, any provision of the federal securities laws, including the Securities Act of 1933, as amended and as then in effect, or that the Indenture needs to be qualified under the Trust Indenture Act of 1939, as amended and as then in effect; or (vii) additional material restrictions not in force as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange, which restrictions materially adversely affect the ability of underwriters to trade obligations of the general character of the Bonds; or (viii) there shall have occurred, or any notice shall have been given of any intended review, downgrading, suspension, withdrawal, or negative change in credit watch status by any national rating service to any of the Authority’s or the City’s obligations secured in a like manner, which, in the Underwriter’s reasonable opinion, materially adversely affects the marketability or market price of the Bonds; or (ix) the commencement of any action, suit, or proceeding described in Section 6(n) or 7(m) that, in the judgment of the Underwriter, materially adversely affects the market price of the Bonds; or (x) any event occurring, or information becoming known that, in the reasonable judgment of the Underwriter, makes any statement or information contained in the Official Statement, as of its date, untrue in any material adverse respect, or has the effect that the Official Statement, as of its date, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (g) At or prior to the Closing, the Underwriter shall receive the following documents: (1) the opinion of Bond Counsel, dated the Closing Date, in substantially the form included in the Official Statement as Appendix D, addressed to the Authority (and accompanied by reliance letters to the Underwriter, the City, and the Trustee); (2) a supplemental opinion of Bond Counsel, in form and substance satisfactory to the Underwriter, dated the Closing Date and addressed to the Underwriter, to the effect that: (i) the statements in the Official Statement under the captions “THE BONDS” (excluding therefrom all information pertaining to DTC and its book-entry only system, as to which no opinion is expressed), “SOURCES OF PAYMENT FOR THE BONDS,” and “TAX MATTERS,” and in Appendix C—“ SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS,” excluding any material that may be treated as included under 15 4863-8439-4606/200545-0054 such captions and appendices by any cross-reference, insofar as such statements expressly summarize provisions of the Bonds, the Indenture, the Ground Lease, the Lease Agreement and Bond Counsel’s final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the Closing Date, provided that Bond Counsel need not express any opinion with respect to any financial or statistical data contained therein or with respect to the book-entry system in which the Bonds are initially delivered; (ii) the Purchase Contract and the Continuing Disclosure Certificate have been duly executed and delivered by the City and the Authority, as applicable, and are the valid and binding agreements of the City and the Authority, as applicable, enforceable in accordance with their respective terms, except that the rights and obligations under the Purchase Contract and the Continuing Disclosure Certificate are subject to bankruptcy, insolvency, reorganization, receivership, arrangement, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against governmental entities such as the Authority and the City, and provided that no opinion is expressed with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in such documents, nor is any opinion required with respect to the state or quality of title to or interest in any real or personal property described in the Ground Lease, the Lease Agreement or as subject to the lien of the Indenture, or the accuracy or sufficiency of the descriptions contained therein of, or the remedies available to enforce liens on, any such property; and provided further that no opinion, conclusion or view is required to be expressed regarding the adequacy of the Continuing Disclosure Certificate for purposes of Securities and Exchange Commission Rule 15c2-12; and (iii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; (3) an opinion dated the Closing Date and addressed to the Underwriter and the Trustee, of the City Attorney, as counsel to the City, to the effect that: (i) the City is a municipal corporation and chartered city duly organized and validly existing under and by virtue of the laws of the State; (ii) the resolution of the City approving and authorizing the execution and delivery of the City Documents (the “City Resolution”) was duly adopted at a meeting of the City Council of the City that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the City Resolution is in full force and effect and has not been modified, amended, or rescinded as of the Closing Date; (iii) the City Documents have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the City enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting enforcement or creditors’ rights or by the application of equitable principles if equitable remedies are sought; 16 4863-8439-4606/200545-0054 (iv) the execution and delivery by the City of the City Documents, and compliance by the City with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the City is subject to or by which it is bound; (v) the Preliminary Official Statement did not as of its date, and the Official Statement does not as of the date of the Official Statement, and at all times subsequent to the date of the Official Statement up to and including the Closing Date will not (excluding therefrom financial statements and other statistical data included in the Official Statement, and any information with respect to DTC and the book-entry only system, or prices and yields for the Bonds, or any other information provided by the Underwriter, as to which no view need be expressed) contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (vi) except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the City, or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the City or the titles of the officers of the City to their respective offices; (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the Authority’s issuance of the Bonds or the execution or delivery of any of the City Documents, or the payment to or collection by the Authority of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby or any proceeding of the City taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation; (c) that may result in any material adverse change relating to the City that could materially adversely affect the City’s ability to perform its obligations under the City Documents; or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vii) no authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the City is required for the valid authorization, execution, and delivery by the City of the City Documents; (4) an opinion of the City Attorney of the City, serving as General Counsel to the Authority, in form and substance satisfactory to the Underwriter, dated the Closing Date, addressed to the City and the Underwriter, to the effect that: (i) the Authority is a joint powers authority under Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code duly organized and validly existing under and by virtue of the Constitution and the laws of the State; (ii) the resolution of the Authority approving and authorizing the execution and delivery of the Authority Documents and approving the Official Statement (the “Authority Resolution”) was duly adopted at a meeting of the governing board of the Authority that 17 4863-8439-4606/200545-0054 was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Authority Resolution is in full force and effect and has not been modified, amended, or rescinded as of the Closing Date; (iii) the Bonds and the Authority Documents have been duly authorized, executed and delivered by the Authority and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the Authority enforceable against the Authority in accordance with the respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or tother laws affecting enforcement of creditors’ rights or by the application of equitable principles if equitable remedies are sought; (iv) the execution and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the Authority is subject to or by which it is bound; (v) except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices, (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to make the pledges set forth in the Indenture, (c) that may result in any material adverse change relating to the Authority that could materially adversely affect the Authority’s ability to perform its obligations under the Authority Documents, or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (vi) no authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the Authority is required for the valid authorization, execution, and delivery by the Authority of the Authority Documents; (5) a letter (which may be combined with the supplemental opinion of Bond Counsel referenced in (2) above) from Orrick, Herrington & Sutcliffe LLP, Sacramento, California, disclosure counsel to the City and the Authority (“Disclosure Counsel”), dated the Closing Date, addressed to the Underwriter, to the effect that, in such capacity, based upon its participation in the preparation of the Official Statement as counsel to the City and the Authority and without having undertaken to determine independently the fairness, accuracy, or completeness of the statements contained in the Preliminary Official Statement or the Official Statement, such counsel has no reason 18 4863-8439-4606/200545-0054 to believe that the Preliminary Official Statement as of its date or the Official Statement as of its date and as of the Closing Date (excluding therefrom the reports, CUSIP numbers, financial, accounting, statistical, economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, any determinations regarding valuation, real estate, and environmental matters, any statements about compliance with prior continuing disclosure undertakings, relationships among the parties, or any information about book-entry, DTC, Cede & Co., the Underwriter or underwriting; and the information included in the Appendices thereto, as to which no view need be expressed) contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (6) A certificate, dated the Closing Date, signed by a duly authorized officer of the Authority, satisfactory in form and substance to the Underwriter, to the effect that: (i) the Authority Resolution was duly adopted at a regular meeting of the Authority, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter; (ii) the representations, warranties and covenants of the Authority contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the Authority, and the Authority has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the Authority at or prior to the Closing Date; (iii) no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the information and statements contained in the Preliminary Official Statement under the caption “THE AUTHORITY” did not as of its date and as of the date of this Purchase Contract, and the information and statements contained in the Official Statement under the caption “THE AUTHORITY” did not as of its date and as of the Closing Date, contain any untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (v) the Authority is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (7) A certificate, dated the Closing Date, signed by a duly authorized officer of the City, satisfactory in form and substance to the Underwriter, to the effect that: 19 4863-8439-4606/200545-0054 (i) the City Resolution was duly adopted at a regular meeting of the City Council of the City, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof and has not been amended, modified or supplemented, except as agreed to by the Underwriter; (ii) the representations, warranties and covenants of the City contained in this Purchase Contract are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the City, and the City has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the City at or prior to the Closing Date; (iii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iv) the information and statements contained in the Preliminary Official Statement did not as of its date and as of the date of this Purchase Contract, and the information and statements contained in the Official Statement did not as of its date and as of the Closing Date (other than information in the Preliminary Official Statement under the caption “UNDERWRITING” and the Official Statement under the caption “UNDERWRITING” and information regarding DTC and its book-entry only system) contain any untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (v) the City is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (8) a certificate, dated the date of the Preliminary Official Statement, from the Authority and the City, in the form attached hereto as Exhibit B; (9) an opinion of counsel to the Trustee, dated the Closing Date, addressed to the Underwriter, the Authority, and the City, to the effect that: (i) the Trustee is a national banking association and is validly existing, duly qualified to do business and in good standing under the laws of each jurisdiction in which the performance of its duties under the Indenture and the Memorandum of Lease Agreement and Assignment (collectively, the “Trustee Documents”) would require such qualification and has the requisite power and authority to execute, deliver and perform its obligations under the Trustee Documents; (ii) the Trustee is duly eligible and qualified to act as Trustee under the Indenture; 20 4863-8439-4606/200545-0054 (iii) the Trustee has all requisite power, authority and legal right to execute and deliver the Trustee Documents and to perform its obligations under the Trustee Documents, and has taken all necessary corporate action to authorize the execution and delivery of and the performance of its obligations under the Trustee Documents; (iv) the Trustee has duly executed and delivered the Trustee Documents. Assuming the due authorization, execution and delivery thereof by the other parties thereto, the Trustee Documents are the legal, valid, and binding agreements of the Trustee enforceable against the Trustee in accordance with their terms, except to the extent enforceability thereof may be subject to (A) bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights and remedies heretofore or hereafter enacted, and (B) the application of equitable principles and the exercise of judicial discretion in appropriate cases; (v) the Bonds have been duly authenticated by the Trustee; and (vi) to the knowledge of such counsel, the execution and delivery by the Trustee of the Trustee Documents and the performance of the obligations of the Trustee under the Trustee Documents by the Trustee, will not contravene the Articles of Association or Bylaws of the Trustee, or any law, regulation or ruling of any court or governmental authority to which the Trustee is subject. (10) a certificate, dated the Closing Date, signed by a duly authorized officer of the Trustee, to the effect that; (i) the Trustee is a national banking association organized and existing under and by virtue of the laws of the United States of America, having the necessary power to enter into, accept, and administer the trusts created under the Indenture and to authenticate the Bonds; (ii) the Trustee Documents have been duly authorized, executed, and delivered by a duly authorized officer of the Trustee, and the execution, delivery, and performance of the Trustee Documents has been duly authorized by all necessary action of the Trustee; (iii) the Trustee Documents constitute the legal, valid, and binding obligations of the Trustee enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, or other laws affecting the enforcement of creditors’ rights generally and by the application of equitable principles, if equitable remedies are sought; (iv) the Bonds have been duly authenticated by a duly authorized officer of the Trustee; (v) no consent, approval, authorization, or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the execution and delivery of the Trustee Documents or the performance by the Trustee of its duties and obligations under the Trustee Documents; (vi) the execution and delivery by the Trustee of the Trustee Documents and compliance with the terms thereof will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution, or any 21 4863-8439-4606/200545-0054 other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order, or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties (except that no representation, warranty, or agreement need be made with respect to any federal or State securities or blue sky laws or regulations); (vii) the Trustee’s action in executing and delivering the Trustee Documents will not contravene the articles or bylaws of the Trustee and is in full compliance with, and does not conflict with, any applicable law or governmental regulation currently in effect, and such action does not conflict with or violate any contract to which the Trustee is a party or any administrative or judicial decision by which the Trustee is bound; and (viii) there is no action, suit, proceeding, or investigation, at law or in equity, before or by any court or governmental agency, public board, or body that has been served on the Trustee, or to the best knowledge of the Trustee, threatened against the Trustee which in the reasonable judgment of the Trustee would affect the existence of the Trustee or in any way contesting or affecting the validity or enforceability of the Trustee Documents or contesting the powers of the Trustee or its authority to enter into and perform its obligations thereunder; (11) a letter from Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, counsel to the Underwriter (“Underwriter’s Counsel”), dated the Closing Date, addressed to the Underwriter, in form and substance acceptable to the Underwriter; (12) certified copies of the City Resolution, the Authority Resolution, and an incumbency resolution of the Trustee; (13) copies each of the Authority Documents, the City Documents, and the Official Statement, duly executed and delivered by the respective parties thereto; (14) evidence that the rating on the Bonds of “AA” from S&P Global Ratings, a Standard & Poor’s Financial Services LLC business, is in full force and effect on the Closing Date; (15) copies of the statements with respect to the sale of the Bonds required to be delivered to the California Debt and Investment Advisory Commission; (16) evidence that a debt management policy which complies Section 8855 of the California Government Code has been adopted by both the City and the Authority; (17) a copy of the Blanket Letter of Representations to DTC relating to the Bonds signed by the Authority; (18) a copy of an ALTA or CLTA title insurance policy in an amount equal to the principal amount of the Bonds, insuring the City’s leasehold interest in the Property, subject only to permitted encumbrances or such other encumbrances approved in writing by the Underwriter; (19) A certificate regarding compliance with certain tax matters with respect to the maintenance of the tax-exempt status of the Bonds, duly executed by the City, together with Form 8038-G, duly executed by the City; 22 4863-8439-4606/200545-0054 (20) Specimen Bonds, duly executed by the Trustee; and (21) such additional legal opinions, certificates, proceedings, instruments, and other documents as the Underwriter, Underwriter’s Counsel, or Bond Counsel may reasonably request to evidence compliance by the City and the Authority with legal requirements, the accuracy, as of the time of Closing, of the Authority and the City’s representations herein contained, and the due performance or satisfaction by the City and the Authority at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City and the Authority. If the City or the Authority shall be unable to satisfy the conditions to the Underwriter’s obligations contained in this Purchase Contract or if the Underwriter’s obligations shall be terminated for any reason permitted by this Purchase Contract, this Purchase Contract shall terminate and none of the City, the Authority, or the Underwriter shall have any further obligation hereunder. 9. The performance by each of the Authority and the City of its obligations is conditioned upon (i) the performance by the Underwriter of its obligations hereunder and (ii) receipt by the Authority, the City, and the Underwriter of opinions and certificates being delivered at the Closing by persons and entities other than the Authority and the City. 10. No expenses and costs of the City or the Authority incident to the performance of the Authority’s or the City’s obligations in connection with the authorization, issuance, and sale of the Bonds to the Underwriter, such as the costs of preparation (including word processing, printing, and reproduction), distribution and delivery of the Preliminary Official Statement, the Official Statement, and this Purchase Contract, in reasonable quantities, fees of rating agencies, fees and expenses of any municipal advisor to the City, and fees and expenses of Bond Counsel or Disclosure Counsel for the City shall be paid by the Underwriter. Except as indicated above, all out-of-pocket expenses of the Underwriter, including the California Debt and Investment Advisory Commission fee, traveling, advertising expenses, any costs and expenses incurred in connection with the preparation and distribution of any blue sky surveys or any legal investment memoranda, fees and expenses of Underwriter’s Counsel and other expenses and the fees and expenses of the Underwriter, shall be paid by the Underwriter. 11. Any notice or other communication to be given to the City under this Purchase Contract may be given by delivering the same in writing to the City of San Luis Obispo, 990 Palm Street, San Luis Obispo, California 93401, Attention: City Manager, or to such other person as the City Manager may designate in writing. Any notice or other communication to be given to the Authority under this Purchase Contract may be given by delivering the same in writing to the San Luis Obispo Public Financing Authority, 990 Palm Street, San Luis Obispo, California 93401, Attention: Treasurer, or to such other person as the Treasurer may designate in writing. Any notice or other communication to be given to the Underwriter under this Purchase Contract may be given by delivering the same in writing to Raymond James & Associates, Inc., One Embarcadero Center, Suite 650, San Francisco, California 94111, Attention: Emily Giles, Managing Director. The approval of the Underwriter when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Underwriter and delivered to the Authority. 12. For all purposes of this Purchase Contract, a default shall not be deemed to be continuing if it has been cured, waived, or otherwise remedied. This Purchase Contract shall be governed by and construed in accordance with the laws of the State applicable to contracts made and performed within the State. 23 4863-8439-4606/200545-0054 13. This Purchase Contract may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. 14. This Purchase Contract when accepted by the Authority and the City in writing shall constitute the entire agreement among the City, the Authority, and the Underwriter and is made solely for the benefit of the City, the Authority, and the Underwriter (including the successors or assigns of the Underwriter approved by the City and the Authority). No other person shall acquire or have any right hereunder or by virtue hereof. All of the representations, warranties, and agreements of the City and the Authority contained in this Purchase Contract shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Underwriter (but, if the Underwriter does discover by its investigation that the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the Underwriter shall so notify the City and the Authority); (b) the delivery of and payment for the Bonds; and (c) any termination of this Purchase Contract. 3:41 A-1 4863-8439-4606/200545-0054 EXHIBIT A $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Maturity Date (December 1) Principal Amount Interest Rate Yield Price 10% Test Used Hold the Offering Price Used 2024 $ 920,000 5.000% 3.130% 102.210 X 2025 970,000 5.000 3.000 104.253 X 2026 1,025,000 5.000 2.980 106.147 X 2027 1,080,000 5.000 2.920 108.191 X 2028 1,135,000 5.000 2.940 109.891 X 2029 1,195,000 5.000 2.990 111.321 X 2030 870,000 5.000 3.050 112.541 X 2031 915,000 5.000 3.090 113.762 X 2032 965,000 5.000 3.130 114.867 X 2033 1,015,000 5.000 3.140 116.144 X 2034 1,065,000 5.000 3.210 115.482C X 2035 1,120,000 5.000 3.300 114.637C X 2036 1,175,000 5.000 3.390 113.799C X 2037 1,235,000 5.000 3.490 112.877C X 2038 1,300,000 5.000 3.590 111.964C X 2039 1,370,000 5.000 3.740 110.612C X 2040 1,440,000 5.000 3.850 109.632C X 2041 1,510,000 5.000 3.950 108.750C X 2042 1,590,000 5.000 4.020 108.138C X 2043 1,670,000 5.000 4.080 107.617C X 2048T 9,725,000 5.000 4.280 105.901C X 2053T 12,490,000 5.000 4.360 105.224C X C Priced to the first optional redemption date of December 1, 2033 at par. T Term Bond. Redemption Extraordinary Redemption. The Bonds will be subject to redemption, in whole or in part, on any date, in denominations of $5,000 and integral multiples thereof (“Authorized Denominations”), from and to the extent of any Net Proceeds received with respect to all or a portion of the Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. Optional Redemption. The Bonds maturing on or after December 1, 2034 will be subject to optional redemption, in whole or in part, in Authorized Denominations, on any date on or after December 1, 2033 from and to the extent of prepaid Base Rental Payments paid pursuant to the Lease A-2 4863-8439-4606/200545-0054 Agreement, at a redemption price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds maturing December 1, 2048 will be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2044, at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts and on the respective dates set forth in the following table: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed 2044 $1,755,000 2045 1,845,000 2046 1,940,000 2047 2,040,000 2048† 2,145,000 † Maturity Date. If some but not all of the Bonds maturing on December 1, 2048 are redeemed as provided under the caption “Extraordinary Redemption,” the principal amount of Bonds maturing on December 1, 2048 to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2048 so redeemed from Net Proceeds, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in denominations of $5,000 and integral multiples thereof, as determined by the Trustee, notice of which determination will be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2048 are redeemed as provided under the caption “Optional Redemption,” the principal amount of Bonds maturing on December 1, 2048 to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2048 so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. A-3 4863-8439-4606/200545-0054 The Bonds maturing December 1, 2053 will be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2049, at a redemption price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts and on the respective dates set forth in the following table: Sinking Fund Redemption Date (December 1) Principal Amount to be Redeemed 2049 $2,255,000 2050 2,370,000 2051 2,490,000 2052 2,620,000 2053† 2,755,000 † Maturity Date. If some but not all of the Bonds maturing on December 1, 2053 are redeemed as provided under the caption “Extraordinary Redemption,” the principal amount of Bonds maturing on December 1, 2053 to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053 so redeemed from Net Proceeds, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in denominations of $5,000 and integral multiples thereof, as determined by the Trustee, notice of which determination will be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2053 are redeemed as provided under the caption “Optional Redemption,” the principal amount of Bonds maturing on December 1, 2053 to be redeemed pursuant to this section will be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053 so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Certificate of the City. B-1 4863-8439-4606/200545-0054 EXHIBIT B CERTIFICATE AS TO FINALITY OF PRELIMINARY OFFICIAL STATEMENT SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 The San Luis Obispo Public Financing Authority (the “Authority”) and the City of San Luis Obispo (the “City”), acting through the undersigned authorized officer of the Authority and the City, hereby certify and represent as follows: (1) The undersigned is a duly appointed and acting representative of the Authority and the City, and as such is duly authorized to execute and deliver this Certificate on behalf of the Authority and the City. (2) This Certificate is delivered in connection with the offering and sale of the above- captioned bonds (the “Bonds”) to enable Raymond James & Associates, Inc., as the underwriter for the Bonds, to assist the Authority and the City in connection with this financing, in order to comply with Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “Rule”). (3) In connection with the offering and sale of the Bonds, there has been prepared a Preliminary Official Statement, dated August 23, 2023 (including the front cover, the inside front cover, the introduction and all appendices thereto, the “Preliminary Official Statement”), setting forth information concerning the Bonds, the Authority and the City. (4) The Preliminary Official Statement is, except for Permitted Omissions (defined below), deemed final within the meaning of the Rule. As used herein, “Permitted Omissions” shall mean the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates and other terms of the Bonds depending on such matters all with respect to the Bonds. Dated: August 23, 2023 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By Treasurer CITY OF SAN LUIS OBISPO By City Manager C-1 4863-8439-4606/200545-0054 EXHIBIT C CERTIFICATE OF THE UNDERWRITER with reference to $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Dated: _______, 2023 The undersigned, on behalf of Raymond James & Associates, Inc. (“Raymond James”) hereby certifies as set forth below with respect to the sale and delivery of the above-captioned obligations (the “Bonds”). 1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A. 2. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) Raymond James offered the Hold-the-Offering-Price Maturities to the Public for purchase at the respective initial offering prices listed in Schedule A (the “Initial Offering Prices”) on or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule B. (b) As set forth in the Bond Purchase Contract, dated August 30, 2023, by and among Raymond James, as the Underwriter (as defined below), the City of San Luis Obispo and the Issuer (as defined below), Raymond James has agreed in writing that: (i) for each Maturity of the Hold-the- Offering-Price Maturities, it would neither offer nor sell any of the Bonds of such Maturity to any person at a price that is higher than the Initial Offering Price for such Maturity during the Holding Period for such Maturity (the “hold-the-offering-price rule”); and (ii) any selling group agreement shall contain the agreement of each dealer who is a member of the selling group, and any third-party distribution agreement shall contain the agreement of each broker-dealer who is a party to the third- party distribution agreement, to comply with the hold-the-offering-price rule. Pursuant to such agreement, no Underwriter has offered or sold any Maturity of the Hold-the-Offering-Price Maturities at a price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the Holding Period. 3. Defined Terms. (a) General Rule Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “10% Test Used.” (b) Hold-the-Offering-Price Maturities means those Maturities of the Bonds identified in Schedule A hereto under the column “Hold the Offering Price Used.” C-2 4863-8439-4606/200545-0054 (c) Holding Period means, with respect to a Hold-the-Offering-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date (which Sale Date is August 30, 2023), or (ii) the date on which Raymond James has sold at least 10% of such Hold-the-Offering-Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold-the-Offering-Price Maturity. (d) Issuer means the San Luis Obispo Public Financing Authority. (e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities. (f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (g) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is August 30, 2023. (h) Underwriter means: (i) any person that agrees pursuant to a written contract with the Issuer and the City of San Luis Obispo (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public; and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Raymond James’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer and the City of San Luis Obispo with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Orrick, Herrington & Sutcliffe LLP, in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer or the City of San Luis Obispo from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. Except as expressly set forth above, the certifications set forth herein may not be relied upon or used by any third party or for any other purpose. RAYMOND JAMES & ASSOCIATES, INC. By: Name: Dated: ______, 2023 C-3 4863-8439-4606/200545-0054 SCHEDULE A SALE PRICES OF THE GENERAL RULE MATURITIES AND INITIAL OFFERING PRICES OF THE HOLD-THE-OFFERING-PRICE MATURITIES (Attached) C-4 4863-8439-4606/200545-0054 SCHEDULE B PRICING WIRE OR EQUIVALENT COMMUNICATION (Attached) NEW ISSUE FULL BOOK ENTRY RATING: S&P: AA See “RATING” herein) In the opinion of Orrick, Herrington & Sutcliffe llp, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. See “TAX MATTERS” herein. 45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 Dated: Date of Delivery Due: December 1, as shown on the inside cover The San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”) are being issued by the San Luis Obispo Public Financing Authority (the “Authority”) to provide funds to i)finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements, (ii)redeem the 2012 Bonds (as defined herein) and (iii)pay costs incurred in connection with the issuance, sale and delivery of the Bonds. See “THE PLAN OF FINANCE” herein. Interest on the Bonds will be payable on June 1 and December 1 of each year, commencing December 1, 2023. The Bonds will be issued as fully-registered bonds without coupons and 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 for the Bonds. Purchases of beneficial interests in the Bonds will be made in book-entry form through DTC participants and no physical delivery of the Bonds will be made to purchasers, except as otherwise described herein. Payment of principal, premium, if any, and interest will be made by U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), to DTC which is obligated to remit such payments to its participants for subsequent disbursement to the Beneficial Owners of the Bonds. See Appendix F—“DTC DESCRIPTION” hereto. The Bonds will be issuable in denominations of $5,000 or any integral multiple thereof. The Bonds are being issued pursuant to an Indenture dated as of September 1, 2023 (the “Indenture”) between the Authority and the Trustee. The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City of San Luis Obispo (the “City”) or the State of California (the “State”), or any political subdivision thereof, is pledged to the payment of the Bonds. Lease Revenues consist primarily of Base Rental Payments to be received by the Authority from the City pursuant to a Lease Agreement between the Authority, as lessor, and the City, as lessee. Such Base Rental Payments are calculated to be sufficient to pay the principal of and interest on the Bonds when due. Base Rental Payments are payable from any source of legally available funds in each year that the City has use and possession of the Leased Property. No debt service reserve fund will be established for the Bonds. The Bonds are subject to optional redemption and extraordinary redemption prior to maturity as more fully described herein. See “THE BONDS—Redemption” herein. The Bonds are limited obligations of the Authority and are not secured by a legal or equitable pledge of, or charge or lien upon, any property of the Authority or any of its income or receipts, except the Lease Revenues. Neither the full faith and credit of the Authority, the City nor any member of the Authority is pledged for the payment of the principal of or interest on the Bonds or for the payment of Base Rental Payments. Neither the payment of the principal of or interest on the Bonds nor the obligation to make Base Rental Payments constitutes a debt, liability or obligation of the Authority, the City or any member of the Authority for which any such entity is obligated to levy or pledge any form of taxation or for which any such entity has levied or pledged any form of taxation. The Authority has no taxing power. This cover page contains certain information for general reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision on the Bonds. The Bonds are offered when, as and if issued, subject to the approval of validity of the Bonds and certain other legal matters by Orrick, Herrington & Sutcliffe llp, Bond Counsel to the Authority, and subject to certain other conditions. Orrick, Herrington & Sutcliffe llp has also served as Disclosure Counsel. Certain legal matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Raymond James & Associates, Inc. (the Underwriter”) by its counsel, Stradling Yocca Carlson & Rauth, A Professional Corporation. It is expected that the Bonds will be available for delivery through the DTC book-entry only system in New York, New York on or about September 13, 2023. Date of Official Statement: August 30, 2023. 45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 MATURITY SCHEDULE Maturity Date December 1) Principal Amount Interest Rate Yield Price CUSIP Number† 798641) 2024 $ 920,000 5.000% 3.130% 102.210 BT2 2025 970,000 5.000 3.000 104.253 BU9 2026 1,025,000 5.000 2.980 106.147 BV7 2027 1,080,000 5.000 2.920 108.191 BW5 2028 1,135,000 5.000 2.940 109.891 BX3 2029 1,195,000 5.000 2.990 111.321 BY1 2030 870,000 5.000 3.050 112.541 BZ8 2031 915,000 5.000 3.090 113.762 CA2 2032 965,000 5.000 3.130 114.867 CB0 2033 1,015,000 5.000 3.140 116.144 CC8 2034 1,065,000 5.000 3.210 115.482C CD6 2035 1,120,000 5.000 3.300 114.637C CE4 2036 1,175,000 5.000 3.390 113.799C CF1 2037 1,235,000 5.000 3.490 112.877C CG9 2038 1,300,000 5.000 3.590 111.964C CH7 2039 1,370,000 5.000 3.740 110.612C CJ3 2040 1,440,000 5.000 3.850 109.632C CK0 2041 1,510,000 5.000 3.950 108.750C CL8 2042 1,590,000 5.000 4.020 108.138C CM6 2043 1,670,000 5.000 4.080 107.617C CN4 9,725,000 5.000% Term Bond due December 1, 2048; Yield 4.280%; Price 105.901C; CUSIP† Suffix CP9 12,490,000 5.000% Term Bond due December 1, 2053; Yield 4.360%; Price 105.224C; CUSIP† Suffix CQ7 CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (“CGS”) is managed on behalf of the American Bankers Association by FactSet Research Systems Inc. Copyright© 2023 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP numbers are provided for convenience of reference only. None of the Authority, the City, the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. C Priced to the first optional redemption date of December 1, 2033 at par. Certain statements included or incorporated by reference in this Official Statement constitute “forward- looking statements.” Such statements are generally identifiable by the terminology used such as “plan,” “expect,” estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The City does not plan to issue any updates or revisions to those forward-looking statements if or when its expectations, or events, conditions or circumstances on which such statements are based, change. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of its responsibilities to investors under, the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of facts. The information set forth herein has been furnished by the Authority and the City and other sources as noted that the Authority and the City believe reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority and the City since the date hereof. This Official Statement, including any supplement or amendment thereto, is intended to be deposited with one or more nationally recognized municipal securities information repositories. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE BONDS, NOR SHALL THERE BE ANY SALE OF ANY OF THE BONDS, BY ANY PERSON IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. In making an investment decision, potential investors must rely on their own examination of the Authority and the City and the terms of the offering, including the merits and risks involved. The Bonds have not been registered or qualified under the securities laws of any state. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Official Statement. Any representation to the contrary is a criminal offense. The summaries and references to the Indenture, the Continuing Disclosure Certificate and statutes and other documents do not purport to be comprehensive or definitive and are qualified in their entireties by reference to each such document and statute. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon exemptions from the registration requirements contained in such Acts. The City maintains a website. Unless specifically indicated otherwise, the information presented in the website is not incorporated by reference as part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. CITY OF SAN LUIS OBISPO, CALIFORNIA City Council and San Luis Obispo Public Financing Authority Governing Board Erica A. Stewart, Mayor/Chair Jan Marx, Vice Mayor/Vice Chair Emily Francis, Council Member/Director Andy Pease, Council Member/Director Michelle Shoresman, Council Member/Director City and Authority Staff Derek Johnson, City Manager/Executive Director Emily Jackson, Finance Director/Treasurer J. Christine Dietrick, Esq., City Attorney/General Counsel Trustee U.S. Bank Trust Company, National Association Municipal Advisor PFM Financial Advisors LLC San Francisco, California Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP TABLE OF CONTENTS Page Page i- INTRODUCTION ............................................. 1 Purpose ........................................................ 1 Sources of Payment for the Bonds .............. 1 The Authority .............................................. 2 The City ....................................................... 2 Summaries Not Definitive; Definitions ............................................ 2 Continuing Disclosure ................................. 3 Other General Fund Obligations ................. 3 THE LEASED PROPERTY .............................. 3 General ........................................................ 3 Description of Leased Property ................... 3 Additions to the Leased Property, Substitution or Release of Property ................................................. 4 THE PLAN OF FINANCE ................................ 4 Cultural Arts District Parking Structure ................................................ 4 Refunding .................................................... 7 ESTIMATED SOURCES AND USES OF PROCEEDS................................................. 7 THE BONDS ..................................................... 8 General ........................................................ 8 Redemption ................................................. 9 Notice of Redemption ............................... 10 Effect of Redemption ................................ 11 SOURCES OF PAYMENT FOR THE BONDS ..................................................... 11 General ...................................................... 11 Base Rental Payments ............................... 12 Additional Rental Payments ...................... 12 No Debt Service Reserve Fund ................. 12 Insurance ................................................... 12 Damage or Destruction of the Leased Property .................................. 14 Remedies Upon Default ............................ 14 RISK FACTORS ............................................. 15 No Pledge of Revenues or Lien on Assets of the City ................................ 15 Additional Obligations of the City ............ 15 Abatement ................................................. 16 Risk of Uninsured Loss ............................. 16 Limited Recourse on Default..................... 16 No Acceleration Upon Default .................. 17 Bankruptcy ................................................ 17 Risk of Tax Audit; Loss of Tax Exemption ........................................... 18 Limited Secondary Market ........................ 19 Hazardous Substances ............................... 19 Cyber Security ........................................... 19 Natural Disasters and Other Events .......... 19 Environmental Focus and Climate Change ................................................ 21 Pandemic and Infectious Disease .............. 21 Dependence on State for Certain Revenues ............................................. 22 Changes in Law ......................................... 22 City Pension Benefit Liability ................... 22 No Liability of Authority to the Owners ................................................ 23 CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS ....................... 23 Article XIIIA of the State Constitution ........................................ 23 Article XIIIB of the State Constitution ........................................ 24 Articles XIIIC and XIIID of the State Constitution ............................... 24 Proposition 22 ........................................... 25 Proposition 26 ........................................... 25 Proposition 62 ........................................... 26 Unitary Property ........................................ 27 Future Initiatives ....................................... 27 THE AUTHORITY ......................................... 27 THE CITY ....................................................... 28 CITY FINANCIAL INFORMATION ............ 28 Budgetary Process ..................................... 28 Financial Statements ................................. 33 General Fund Balance Sheet ..................... 33 General Fund Revenues, Expenditures and Changes in Fund Balances..................................... 35 Recent Developments................................ 37 Taxes and Other Revenues ........................ 38 Sales and Use Taxes .................................. 39 Property Taxes .......................................... 41 Transient Occupancy Tax ......................... 44 Other Taxes and Revenues ........................ 44 TABLE OF CONTENTS continued) Page ii- Parking Rates (Specific to Parking Enterprise) ........................................... 45 Outstanding General Fund Debt and Other Obligations ................................ 46 Direct and Overlapping Bonded Debt ..................................................... 48 Employee Relations ................................... 50 Insurance ................................................... 50 Employee Retirement System ................... 51 City Investment Policy and Portfolio ........ 57 TAX MATTERS .............................................. 58 CERTAIN LEGAL MATTERS....................... 60 MUNICIPAL ADVISOR ................................. 60 LITIGATION ................................................... 60 CONTINUING DISCLOSURE ....................... 60 RATING .......................................................... 60 UNDERWRITING .......................................... 61 MISCELLANEOUS ........................................ 62 APPENDIX A – AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 APPENDIX B – CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS APPENDIX D – PROPOSED FORM OF BOND COUNSEL OPINION APPENDIX E – FORM OF CONTINUING DISCLOSURE CERTIFICATE APPENDIX F – DTC DESCRIPTION 1- OFFICIAL STATEMENT 45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INTRODUCTION This Introduction is qualified in its entirety by reference to the more detailed information included and referred to elsewhere in this Official Statement. The offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Introduction and not otherwise defined herein shall have the respective meanings assigned to them elsewhere in this Official Statement. Purpose The purpose of this Official Statement, including the appendices hereto, is to furnish information regarding the issuance and sale by the San Luis Obispo Public Financing Authority (the “Authority”) of 45,780,000 aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to the provisions of a resolution of the Authority adopted on August 15, 2023 (the “Resolution”) and an Indenture dated as of September 1, 2023 (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee thereunder (the “Trustee”). The Bonds will be issued in full conformity with the Constitution and laws of the State of California (the “State”), including the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the California Government Code, as amended from time to time. The primary purpose of issuing the Bonds is to finance costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District (the “Series 2023 Project”) and to redeem the outstanding principal amount of the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”). See “THE PLAN OF FINANCE” herein. Proceeds of the Bonds will also be used to pay costs incurred in connection with the issuance, sale and delivery of the Bonds. Pursuant to a Ground Lease (the “Ground Lease”), between the City of San Luis Obispo (the City”), as lessor and the Authority, as lessee, the City will lease to the Authority the real property and the improvements thereon (the “Leased Property”). Concurrently, the Authority will lease the Leased Property to the City pursuant to a Lease Agreement (the “Lease Agreement”), between the Authority, as lessor and the City, as lessee. See “THE LEASED PROPERTY” herein. Sources of Payment for the Bonds The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues hereafter defined) and the other assets pledged under the Indenture. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Authority will assign to the Trustee all of the Lease Revenues and all of the rights of the Authority in the Lease Agreement, except for certain rights to indemnification set forth therein. The Base Rental Payments (as further defined herein) are designed to be sufficient in both time and amount to pay, when due, the principal of and interest on the Bonds. The City has covenanted under the 2- Lease Agreement to take such action as may be necessary to include all Rental Payments (as further defined herein) due thereunder as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. However, during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. See “RISK FACTORS—Abatement” herein. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. The City has assumed responsibility under the Lease Agreement for the operation, maintenance and repair of the Leased Property, and is required to maintain or cause to be maintained insurance on the Leased Property, including title insurance, fire and extended coverage, comprehensive public liability and property damage insurance, and rental income interruption insurance with respect to property damage risks in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any rental period. See “SOURCES OF PAYMENT FOR THE BONDS” herein. No debt service reserve fund will be established for the Bonds. The Authority The Authority is a joint exercise of powers authority established pursuant to an agreement between the City and the City of San Luis Obispo Parking Authority (the “Parking Authority”). See “THE AUTHORITY” herein. The City For certain information concerning the City, including the City’s current financial situation, see CITY FINANCIAL INFORMATION” herein and Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Summaries Not Definitive; Definitions Brief descriptions of the Bonds, the Authority, the City, the Series 2023 Project and the Leased Property are included in this Official Statement, together with summaries of the Indenture, the Lease Agreement and the Ground Lease. Such descriptions do not purport to be comprehensive or definitive. All references herein to the Bonds, the Indenture, the Lease Agreement and the Ground Lease are qualified in their entirety by reference to the actual documents or with respect to the Bonds, the form of which is included in the Indenture. Copies of all such documents are available for inspection at the corporate trust office of the Trustee in Los Angeles, California. Definitions of certain capitalized terms used in this Official Statement and not otherwise defined herein or in Appendix C hereto shall have the meanings set forth in the Indenture and the Lease Agreement. The summaries of and references contained herein to the Indenture, the Bonds, the Lease Agreement, Ground Lease, statutes and other documents do not purport to be comprehensive or definitive and are qualified by reference to each such document, instrument or statute. 3- Continuing Disclosure The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data and to provide notices of the occurrence of certain enumerated events in order to assist the Raymond James & Associates, Inc. (the “Underwriter”) in complying with Securities Exchange Commission Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE” herein. Other General Fund Obligations The City has other obligations payable from its general fund and may enter into additional obligations payable from its general fund in the future. For additional detail, see Note 6 (“Long-Term Debt”) in Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. THE LEASED PROPERTY General The City will lease all of the Leased Property summarized below to the Authority pursuant to the Ground Lease, and the Authority will lease back all of the Leased Property to the City pursuant to the Lease Agreement. The Leased Property consists of a number of essential City properties and the sites thereof. The Leased Property includes site development, landscaping, utilities, equipment, furnishings, improvements and appurtenant, and related facilities located on the real property, including any future improvements made to such Leased Property. The City covenants that so long as the Leased Property is available for use and occupancy, the City will take such actions as may be necessary to include all Base Rental Payments and Additional Rental Payments with respect to each Leased Property asset in its annual budgets and to make the necessary annual appropriations therefor. The value of each facility of the Leased Property is based upon estimates of value from sources the City believes to be reliable. The actual market value may differ materially from the estimated value listed below. The Authority has only a leasehold interest in the Leased Property and is not authorized to sell any such asset. The City represents and agrees in the Lease Agreement that the annual Base Rental Payments represent the fair rental value of the respective Leased Assets. Description of Leased Property Pursuant to the Lease Agreement, the City will sublease from the Authority the Leased Property, which consists of the facilities described below. Marsh Street Parking Structure. The City is leasing a portion of its parking structure located at 871 Marsh Street, an approximately 215,838 square foot, 4 floor concrete building with 520 parking spaces and 19 electric vehicle (EV) charging stations. The structure also includes 4,000 square feet of retail space and 15,000 square feet of office space that are excluded from the Leased Property. The property is within the 100-year flood plain according to the Federal Emergency Management Agency. The structure was built in 1991. The approximate value of land and improvements is in excess of $70,000,000 based on a commercial broker price opinion the City received from McCarty Davis Commercial Real Estate on June 30, 2023. No other property of the City or the Authority will initially be subject to the Lease Agreement. Under the Lease Agreement and the Indenture, the City may change or substitute other capital facilities for the Leased Property subject to the provisions described therein. See Appendix C—“SUMMARY OF 4- CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT— Amendments; Assignment and Subleasing; Substitution or Release—Substitution and Release of Property” hereto. Additions to the Leased Property, Substitution or Release of Property The City may amend the Lease Agreement to add additional real property to the Leased Property, substitute alternate real property for any portion of the Property or to release a portion of the Property from the Lease Agreement, upon completion of the conditions set forth in the Lease Agreement. In order to effect such release and substitution, the City is required to provide the Authority and the Trustee, among other things, (a) an ALTA policy of title insurance insuring the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances in an amount which, together with the amount of title insurance applicable to the unreleased portion of the Leased Property, equals at least the aggregate principal amount of Bonds then outstanding, and (b) an opinion of bond counsel stating that such substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. A substitution or release of Leased Property under the Lease Agreement will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. THE PLAN OF FINANCE Cultural Arts District Parking Structure A portion of the proceeds of the Bonds will be used to finance the costs of the acquisition, design, engineering, fabrication, construction, improvement and installation of the City’s Cultural Arts District Parking Structure, an approximately 163,000 square foot, 5-story building, with approximately 397 parking spaces. The Cultural Arts District Parking Structure will be located at 609 Palm Street, with access on Palm Street and Nipomo Street, adjacent to a new San Luis Obispo Repertory Theatre site with two performance spaces expected to open in early 2027. The City is also in the preliminary planning stages to potentially include 12 housing units on the property, adjacent to the structure, to be developed by an as of yet undetermined party. The diagrams on the following pages represent the location of the Cultural Arts District Parking Structure and other nearby parking structures. Contractors and Schedule. Construction of the Cultural Arts District Parking Structure is being completed in two phases. The first phase, consisting of demolition of tree protection, demolition of vacant residential buildings, and demolition of an existing surface-level parking structure, is underway. The City expects to award the construction contract for the second phase, consisting of vertical construction of the Cultural Arts District Parking Structure, to the contractor(s) submitting the lowest responsive responsible bid based upon a guaranteed maximum price procurement approach. Construction is expected to commence in December 2023 and be completed in late 2025. Environmental and Land Use Approvals. Projects undertaken by the City, including the Cultural Arts District Parking Structure, are generally subject to the California Environmental Quality Act, as amended (Division 13 of the California Public Resources Code) (“CEQA”). Under CEQA, a public agency is required, following preparation of an initial study, to determine whether an environmental impact report an “EIR”), a negative declaration or a mitigated negative declaration is required for a project. If there is substantial evidence that significant environmental effects may occur, an EIR is required to be prepared. The City prepared an EIR for the Cultural Arts District Parking Structure that was certified on July 17, 2018. In addition, the City prepared an addendum in July 2019 due to certain changes to the zoning and land use designations. All other land use approvals necessary to proceed with the Cultural Arts District Parking Structure have been obtained or are expected to be obtained in due course. 5- 6- 7- Refunding A portion of the proceeds of the Bonds, together with other available moneys, will be applied to redeem the 2012 Bonds. The 2012 Bonds will be redeemed on or about October 3, 2023 (the “Redemption Date”) pursuant to the legal documents under which the 2012 Bonds were issued. The City issued the 2012 Bonds in the aggregate principal amount of $5,050,000 for the purpose of refunding three series of lease revenue bonds originally issued in 2001. The 2012 Bonds are currently outstanding in the aggregate principal amount of $2,415,000, which will be redeemed in full, on a current basis on the Redemption Date, at a Redemption Price equal to 100% of the principal amount thereof, together with interest coming due and payable on the redemption date. In order to accomplish the refinancing plan, a portion of the net proceeds of the Bonds, together with certain other funds on hand with respect to the 2012 Bonds, will be transferred to U.S. Bank Trust Company, N.A., acting as the current trustee for the 2012 Bonds (the “2012 Trustee”). Moneys deposited to redeem the 2012 Bonds will be held by the 2012 Trustee as cash in an amount expected to be sufficient, together with certain other amounts, to pay the principal of and interest on the 2012 Bonds to be paid on the Redemption Date. The 2012 Bonds to be redeemed in whole upon issuance of the Bonds are set forth in the following table. Maturity Date December 1) Principal Amount Interest Rate CUSIP 798641 2023 $305,000 4.00% LC4 2024 315,000 4.00 LD2 2025 325,000 4.00 LE0 2026 345,000 4.00 LF7 2027 360,000 4.00 LG5 2028 375,000 4.00 LH3 2029 390,000 4.00 LJ9 ESTIMATED SOURCES AND USES OF PROCEEDS The proceeds of the sale of the Bonds are estimated to be applied as shown below: Sources of Funds: Principal Amount of Bonds $45,780,000.00 Plus Original Issue Premium 3,707,638.65 Other Funds on Hand 405,600.00 Total Sources $49,893,238.65 Uses of Funds: Refunding of 2012 Bonds $2,447,736.67 Underwriter’s Discount 170,481.44 Deposit to Costs of Issuance Fund(1) 275,020.54 Deposit to Project Fund 47,000,000.00 Total Uses $49,893,238.65 1) Costs of Issuance includes rating fees, legal fees, advisory fees, printing costs and other miscellaneous expenses. 8- THE BONDS General The Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Bond shall have more than one maturity date. The Bonds shall be dated as of the Closing Date, shall mature on December 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts set forth on the inside cover page hereof. The Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address that is, on the Record Date, shown for the Nominee in the Registration Books. The Bonds shall be executed in the name and on behalf of the Authority with the manual or facsimile signature of an Authorized Representative of the Authority attested by the manual or facsimile signature of the Secretary of the Authority. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the Authority who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Authority, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Authority as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Authority by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the Authority although at the nominal date of such Bonds any such Person shall not have been such officer of the Authority. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be available for inspection and copying by the Authority and the City during regular business hours and upon reasonable notice; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds provided in the Indenture. Interest on the Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Except as otherwise provided in the Letter of Representations, interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date, or by wire transfer at the written request of an Owner of not less than $1,000,000 aggregate principal amount of Bonds, which written request is received by the Trustee on or prior to the Record Date. Notwithstanding the foregoing, interest on any Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. 9- Redemption The Bonds are subject to optional redemption and extraordinary redemption as described below. Optional Redemption The Bonds maturing on or after December 1, 2034, shall be subject to optional redemption, in whole or in part in Authorized Denominations on any date on or after December 1, 2033, from and to the extent of prepaid Base Rental Payments, at a Redemption Price equal to the principal amount of the Bonds to be redeemed, plus accrued interest thereon to the date of redemption, without premium. Extraordinary Redemption The Bonds shall be subject to redemption, in whole or in part, on any date, in Authorized Denominations, from and to the extent of any Net Proceeds received with respect to all or a portion of the Leased Property and deposited by the Trustee in the Redemption Fund in accordance with the provisions of the Indenture, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium. See “SOURCES OF PAYMENT FOR THE BONDS— Insurance” herein. See also Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Rental Payments—Prepayment” hereto. Mandatory Sinking Fund Redemption The Bonds maturing December 1, 2048, shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2044, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date December 1) Principal Amount to be Redeemed 2044 $1,755,000 2045 1,845,000 2046 1,940,000 2047 2,040,000 2048† 2,145,000 Maturity Date. If some but not all of the Bonds maturing on December 1, 2048, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 2048, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2048, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2048, are optionally redeemed, the principal amount of Bonds maturing on December 1, 2048, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2048, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. 10- The Bonds maturing December 1, 2053 shall be subject to mandatory sinking fund redemption, in part, on December 1 in each year, commencing December 1, 2049, at a Redemption Price equal to the principal amount thereof, plus accrued interest thereon to the date fixed for redemption, without premium, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date December 1) Principal Amount to be Redeemed 2049 $2,255,000 2050 2,370,000 2051 2,490,000 2052 2,620,000 2053† 2,755,000 Maturity Date. If some but not all of the Bonds maturing on December 1, 2053, are extraordinarily redeemed, the principal amount of Bonds maturing on December 1, 2053, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053, so extraordinarily redeemed, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis, in amounts equal to Authorized Denominations, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Authority and the City. If some but not all of the Bonds maturing on December 1, 2053, are optionally redeemed, the principal amount of Bonds maturing on December 1, 2053, to be redeemed shall be reduced by the aggregate principal amount of the Bonds maturing on December 1, 2053, so optionally redeemed, such reduction to be allocated among redemption dates in Authorized Denominations, as designated by the City in a Written Request of the City. Notice of Redemption The Trustee on behalf and at the expense of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers, Series and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such Series, maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of the Indenture, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the Authority shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of 11- redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. Effect of Redemption Notice having been mailed, and moneys for the Redemption Price, and the interest to the applicable date fixed for redemption, having been set aside with the Trustee, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions of the Indenture shall be canceled upon surrender thereof and destroyed. SOURCES OF PAYMENT FOR THE BONDS General The Bonds shall be special obligations of the Authority, payable solely from the Lease Revenues and the other assets pledged therefor hereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The term “Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Under the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, 12- irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Bonds are special obligations of the Authority, payable, as provided in the Indenture, solely from Lease Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Authority, the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The Lease Revenues consist of all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, any Net Proceeds and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Base Rental Payments Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, will be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. Additional Rental Payments In addition to the Base Rental Payments, the Lease Agreement requires the City to pay, as Additional Rental Payments, such amounts as will be required for the following: i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Property or the respective interests or estates of the Authority or the City therein; ii) insurance premiums for all insurance required pursuant to Article V hereof; and iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of this Lease Agreement. Amounts constituting Additional Rental Payments payable hereunder shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. No Debt Service Reserve Fund No debt service reserve fund will be established for the Bonds. Insurance General Liability Insurance. The Lease Agreement requires the City to maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct 13- or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and 3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed 100,000) resulting from a single accident or event. Such public liability and property damage insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. Such liability insurance may be maintained as part of or in conjunction with any other liability insurance coverage carried or required to be carried by the City. The Net Proceeds of such liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations to provide general liability insurance may be satisfied by self-insurance in accordance with the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain” hereto. Casualty Insurance. The Lease Agreement requires the City to maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement (excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The City’s obligations under this subsection may be satisfied by self-insurance in accordance with the Lease Agreement. Rental Interruption Insurance. The Lease Agreement requires the City to maintain rental interruption insurance to cover the Authority’s loss, total or partial, of Base Rental Payments resulting from the loss, total or partial, of the use of any part of the Leased Property as a result of any of the hazards required to be covered by the casualty insurance policy in an amount not less than the product of two times the maximum amount of Base Rental Payments scheduled to be paid during any Rental Period. The Net Proceeds of such rental interruption insurance shall be applied to the payment of Rental Payments during the period in which, as a result of the damage or destruction to the Leased Property that resulted in the receipt of such Net Proceeds, there is substantial interference with the City’s right to the use or occupancy of the Leased Property. The City’s obligations to provide rental interruption insurance may not be satisfied by self-insurance. The insurance required under the Lease Agreement other than self-insured as provided shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City. Title Insurance. The Lease Agreement requires the City to provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure a) the fee interest of the City in the Leased Property (b) the Authority’s ground leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. 14- Damage or Destruction of the Leased Property If the Leased Property or any portion thereof is damaged or destroyed, the City will, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement. If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Property and an abatement in whole or in part of Rental Payments pursuant to the Lease Agreement, then the City shall (i) apply sufficient funds from the Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate real property to be substituted for all or a portion of the Property pursuant to the Lease Agreement, or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for the application to the extraordinary redemption (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal (including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. See “RISK FACTORS—Abatement” herein and Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—THE LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Damage or Destruction.” Remedies Upon Default If the City defaults under the Lease Agreement, the Authority may enforce its remedies thereunder. In general, remedies under the Lease Agreement include the right (i) to maintain such Lease Agreement in full force and effect and receive all rent from the City as it becomes due or re-enter and re-let the Leased Property, or (ii) to terminate such Lease Agreement and the City’s right of possession and recover damages recoverable at law. The Indenture provides that any Holder of the Bonds may by legal action compel the Authority to carry out its duties under the Lease Agreement, including maintaining and enforcing its rights under the Lease Agreement. See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS—INDENTURE” hereto. An abatement of rental in accordance with the terms of the Lease Agreement due to damage, destruction or eminent domain is not an event of default 15- under the Lease Agreement and none of the foregoing remedies is available. See “RISK FACTORS— Abatement” herein. The Bonds are not subject to acceleration under any circumstances or for any reason, including without limitation upon the occurrence and continuance of an Event of Default under the Indenture. See RISK FACTORS—No Acceleration Upon Default” herein. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. No Pledge of Revenues or Lien on Assets of the City The Base Rental Payments are not secured by any pledge of or lien on taxes or other revenue of the City, but are payable from all funds lawfully available to the City. The City has the capacity to enter into other obligations which may constitute additional charges against its revenues. In the event the City’s revenue sources are less than its total obligations, the City could choose to fund other obligations before making Base Rental Payments. The same result could occur if, because of State constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues. The obligation of the City to pay the Base Rental Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay Base Rental Payments and additional payments does not constitute a debt of the City, the State or any of its political subdivisions, and does not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Although the Lease Agreement does not create a pledge, lien or encumbrance upon the funds of the City, the City is obligated under the Lease Agreement to make Base Rental Payments from any source of legally available funds (subject to certain exceptions and conditions), and the City has covenanted in the Lease Agreement to take such action as may be necessary to include all Base Rental Payments in its annual budgets and annually to appropriate amounts necessary to make such Base Rental Payments. The City is also liable for other obligations payable from any source of legally available funds. See “—Additional Obligations of the City” below, “CITY FINANCIAL INFORMATION” herein and Appendix A— AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. Additional Obligations of the City The City has a significant amount of obligations payable from its general fund, including but not limited to debt obligations, pension obligations, lease obligations and other obligations related to post employment retirement benefits as well as certain other liabilities (the “General Fund”). See Appendix A— AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022” hereto. The Lease Agreement does not prohibit the City from incurring additional lease and other obligations payable from the City’s General Fund. In that regard, the City may, from time to time, incur various General Fund obligations to finance public improvements, which may also include lease obligations payable from its General Fund. To the extent such additional obligations are incurred by the City, the funds available to make Base Rental Payments may be decreased. 16- Abatement The Base Rental Payments due under the Lease Agreement shall be abated proportionately during any period in which by reason of any damage or destruction (other than by eminent domain) there is substantial interference with the use and occupancy by the City of the Leased Property by the City, in the proportion in which the initial cost of that portion of the Leased Property rendered unusable bears to the initial cost of the whole of the Leased Property. Such abatement shall commence with such damage or destruction and end when use and occupancy or possession is restored. The Base Rental Payments due under the Lease Agreement shall also be abated during any period in which by reason of eminent domain there is substantial interference with the use and occupancy by the City of the Leased Property by the City. It is not possible to predict the circumstances under which such an abatement of rental may occur. In addition, there is no statute, case or other law specifying how such an abatement of rental should be measured. For example, at the time of such abatement, the value of the Leased Property may be substantially higher or lower than its value at the time of issuance of the Bonds. Such a circumstance could have an effect on the amount of rental abated under the Lease Agreement and could have a material adverse effect on the security for and payment of the Bonds. If damage, destruction or eminent domain proceedings with respect to the Leased Property results in abatement of the Base Rental Payments related to such Leased Property and if such abated Base Rental Payments, if any, together with moneys from rental interruption or use and occupancy insurance (in the event of any insured loss due to damage or destruction), eminent domain proceeds, if any, and moneys available in the Payment Fund are insufficient to make all payments of principal of and interest on the Bonds during the period that the Leased Property is being replaced, repaired or reconstructed, then all or a portion of such payments of principal and interest may not be made. Under the Lease Agreement and the Indenture, no remedy is available to the Holders of the Bonds for nonpayment under such circumstances. Risk of Uninsured Loss The City covenants under the Lease Agreement to maintain certain insurance policies on the Leased Property. See “SOURCES OF PAYMENT FOR THE BONDS” herein. These insurance policies do not cover all types of risk. For example, the City is not required to maintain earthquake or flood insurance. The Leased Property could be damaged or destroyed due to an earthquake or other casualty for which the Leased Property is uninsured. Additionally, a portion of the Leased Property could be the subject of an eminent domain proceeding. Under these circumstances, an abatement of Base Rental Payments could occur and could continue indefinitely. Moreover, there can be no assurance that the providers of the City’s liability and rental interruption insurance, among others, will in all events be able or willing to make payments under the respective policies for such loss should a claim be made under such policies. There can also be no assurances that amounts received as proceeds from insurance of the Leased Property will be sufficient to redeem the Bonds. Under the Lease Agreement, the City may obtain certain types of casualty insurance which provide for such a deductible as the City deems adequate and prudent. Should the City be unable to meet such deductible expenses, the availability of General Fund revenues to make Base Rental Payments will be correspondingly affected. Limited Recourse on Default If the City defaults on its obligations to make Base Rental Payments with respect to the Leased Property, the Trustee, as assignee of the Authority, may (subject to the restrictions described in the Lease Agreement) retain the Lease Agreement and hold the City liable for all Base Rental Payments on an annual 17- basis and will have the right to re-enter and re-let the Leased Property. In the event such re-letting occurs, the City would be liable for any resulting deficiency in Base Rental Payments. Alternatively, the Trustee may terminate the Lease Agreement with respect to the Leased Property and proceed against the City to recover damages pursuant to the Lease Agreement. However, the Trustee may not sell or foreclose the Leased Property to obtain money for payment of the principal of or interest on the Bonds in the event of a default. See also “—No Acceleration Upon Default” below. Due to the specialized nature of the Leased Property, no assurance can be given that the Trustee will be able to re-let any portion of the Leased Property so as to provide rental income sufficient to make principal and interest payments with respect to the Bonds in a timely manner, and the Trustee is not empowered to sell the Leased Property for the benefit of the Owners of the Bonds. In addition, due to the governmental function of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and re-letting with respect thereto. Any suit for money damages would be subject to limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. No Acceleration Upon Default If the City defaults on its obligations to make Base Rental Payments, the Trustee may have limited ability to re-let the Leased Property so as to preserve the tax exempt nature of the interest on the Bonds. In the event of default, there is no remedy of acceleration of any Base Rental Payments which have not come due and payable in accordance with the Lease Agreement. The City will continue to be liable for lease payments as they become due and payable in accordance with the Lease Agreement if the Trustee does not terminate the Lease Agreement, and the Trustee is required to seek a separate judgment each year for that year’s defaulted Base Rental Payments. Any such suit for money damages would be subject to limitations on legal remedies against cities in California, including a limitation on enforcement of judgments against funds or property needed to serve the public welfare and interest. Bankruptcy The City and the Authority are considered “municipalities” and therefore are not subject to the involuntary procedures of the United States Bankruptcy Code (the “Bankruptcy Code”). However, pursuant to Chapter 9 of the Bankruptcy Code, the City or the Authority may seek voluntary protection from its creditors for purposes of adjusting its debts. A City or Authority bankruptcy petition could have a material adverse effect on the payment of the Bonds. The following paragraphs present a discussion of certain potential consequences surrounding a potential City or Authority bankruptcy. It is not intended to be an exhaustive discussion of all potential adverse consequences or potential outcomes. In the event the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Among the adverse effects of such a bankruptcy might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have a priority of payment superior to that of Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the City’s debt (a “Plan”) without the consent of the Trustee or the Holders of the Bonds, which Plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the Plan is fair and equitable. 18- In addition, if the Lease Agreement were considered a true lease under the Bankruptcy Code, the City could either reject the Lease Agreement or assume the Lease Agreement despite any provision of the Lease Agreement which makes the bankruptcy or insolvency of the City an event of default thereunder. In the event the City rejects the Lease Agreement, the Trustee, on behalf of the Holders of the Bonds, would have a pre-petition claim that may be limited under the Bankruptcy Code and treated in a manner under a Plan over the objections of the Trustee or the Holders of the Bonds. Moreover, such rejection would terminate the Lease Agreement and the City’s obligation to make payments thereunder. If the Lease Agreement were instead considered a secured financing transaction under the Bankruptcy Code, it is possible that the Holders would have a secured claim for the value of the leasehold interest (as determined by the bankruptcy court) and an unsecured claim for any balance. The legal status of the Lease Agreement under the Bankruptcy Code is uncertain as there is currently no binding legal authority on the proper treatment of lease-leaseback transactions such as the one securing the Bonds. The Authority is a public agency and, like the City, is not subject to the involuntary procedures of the Bankruptcy Code. The Authority may also seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority were to become a debtor under the Bankruptcy Code, the Authority would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely affect the payments under the Indenture. Among the adverse effects might be: (1) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority; (2) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (3) the existence of unsecured or court-approved secured debt which may have priority of payment superior to that of the Holders of the Bonds; and (4) the possibility of the adoption of a plan for the adjustment of the Authority’s debt without the consent of the Trustee or all of the Holders of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim of the Holders if the bankruptcy court finds that the plan is fair and equitable. Bankruptcies in the City of Stockton, the City of San Bernardino and the City of Detroit have brought scrutiny to municipal securities. Specifically, in the City of San Bernardino bankruptcy, the Court held that in the event of a municipal bankruptcy, payments on pension obligation bonds were unsecured obligations and not entitled to the same priority of payments made to the related pension system. A variety of events including, but not limited to, additional rulings adverse to the interests of bond owners in the City of San Bernardino, the City of Stockton and the City of Detroit bankruptcy cases or additional municipal bankruptcies, could prevent or materially adversely affect the rights of Owners to receive payments on the Bonds in the event the City files for bankruptcy. Accordingly, in the event of bankruptcy, it is likely that Owners may not recover their principal and interest. Risk of Tax Audit; Loss of Tax Exemption The Internal Revenue Service (the “IRS”) has an ongoing program of examining tax-exempt obligations to determine whether, in the view of the IRS, interest on such obligations is properly excluded from gross income for federal income tax purposes. It is possible that the Bonds or other tax-exempt obligations of the City may be selected for examination under such program. There is no assurance that an IRS examination of the Bonds or other tax-exempt obligations of the City will not adversely affect the market value of the Bonds. See “TAX MATTERS” herein. As discussed under the caption “TAX MATTERS,” in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds, the City has covenanted in the Lease Agreement not to take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the 19- Internal Revenue Code of 1986 (the “Code”). Interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued, as a result of acts or omissions of the City or the Authority in violation of the Code. Should such an event of taxability occur, the Bonds are not subject to early redemption and will remain outstanding to maturity or until prepaid under the optional redemption provisions of the Indenture. Limited Secondary Market As stated herein, investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risk of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds could be sold for any particular price. Hazardous Substances The existence or discovery of hazardous materials may limit the beneficial use of the Leased Property. In general, the owners and lessees of the Leased Property may be required by law to remedy conditions of such parcel relating to the release or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well-known and widely applicable of these laws, but State laws with regard to hazardous substances are also similarly stringent. Under many of these laws, the owner or lessee is obligated to remedy a hazardous substance condition on the property whether or not the owner or lessee had anything to do with creating or handling the hazardous substance. Further, it is possible that the beneficial use of the Leased Property may be limited in the future resulting from the current existence on the Leased Property of a substance currently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the current existence on the Leased Property of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method in which it is handled. All of these possibilities could significantly limit the beneficial use of the Leased Property. The City is unaware of the existence of hazardous substances on the Leased Property site which would materially interfere with the beneficial use thereof. Cyber Security The City, like many other public and private entities, relies on computer and other digital networks and systems to conduct its operations. As a recipient and provider of personal, private or other sensitive electronic information, the City is potentially subject to multiple cyber threats, including, without limitation, hacking, viruses, ransomware, malware and other attacks. No assurance can be given that the City’s efforts to manage cyber threats and attacks will be successful in all cases, or that any such attack will not materially impact the operations or finances of the City. For a description of the City’s cybersecurity policies and practices, see Appendix B—“CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO—Cyber Security.” Natural Disasters and Other Events If a severe natural disaster occurred in or around the City, there could be substantial damage to and interference with the City’s right to use and occupy all or a portion of the Leased Property, which could 20- result in abatement of Base Rental Payments. See “RISK FACTORS—Abatement” herein. The City has implemented the City’s General Plan Climate Adaptation and Safety Element which was updated in 2023 provides policies and programs to help reduce the risk associated with natural disasters and other events. However, the City is not required to maintain earthquake or flood insurance on the Leased Property. In addition, a severe natural disaster could require additional emergency response by the City and the City can give no assurances regarding the impact of such emergency response on the City’s operations and finances. The following describes certain potential natural disasters that may occur within the City. Earthquake. The City, like all southern California communities, may be subject to unpredictable seismic activity. The Los Osos Fault identified under the California Alquist-Priolo Fault Hazards Act, is adjacent to the City, with the main strand under the intersection of Los Osos Valley Road and Foothill Boulevard. Other known faults nearby the City have the capability to produce strong ground motion in the City. Seismic activity could lead to a reduction of assessed values in the City. In addition, an occurrence of severe seismic activity in the area of the Leased Property may result in substantial damage to and/or interference with the City’s right to use and occupy all or a portion of the Leased Property, leading to the abatement of Base Rental Payments. There is no requirement under the Lease Agreement that the City maintain earthquake insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain earthquake insurance with respect to the Leased Property. The City relies on a combination of insurance and general reserves as well as the expectation that some disaster relief funds would be available to address any resulting damage from seismic activity. There is no assurance that, in the event of a significant seismic event disaster relief funds and other sources would be available or sufficient for the repair or replacement of the Leased Property. Wildfire. In recent years, wildfires have caused extensive damage throughout the State. In some instances, entire neighborhoods have been destroyed. Several of the fires that occurred in recent years damaged or destroyed property in areas that were not previously considered to be at risk from such events. Some commentators believe that climate change will lead to even more frequent and more damaging wildfires in the future. The City of San Luis Obispo has experienced significant wildfires in the past including the 1985 “Las Pilitas Fire” which originated East of the City and burned into city limits. In more recent history, the most significant wildfire the city has encountered was the approximately 90-acre “Bridge Fire” in 2020 that occurred in the South Hills Open Space which geographically sits in the center of the city. Fortunately, no structures were damaged, or injuries sustained due to this fire. Flooding. Portions of the City, including the Leased Property, are within 100-year flood plains, according to Federal Emergency Management Agency maps. Parts of the City are considered to be susceptible to flood events from either a major storm or a dam failure resulting from a significant earthquake or other event. Though the City does not believe that damage to nearby dams could directly cause damage to the Leased Property, the City cannot predict if any such damage to the dams would adversely affect the City’s financial condition, the value of the Leased Property, or the ability of the City to make the Base Rental Payments. For information about the City’s financial obligation with respect to certain nearby dams, see “CITY FINANCIAL INFORMATION—Recent Developments.” Recent storm events in January and March 2023 caused widespread flooding and other storm- related damage within the City. For information regarding the effects of the recent storms, see “CITY FINANCIAL INFORMATION—Recent Events.” 21- There is no requirement under the Lease Agreement that the City maintain flood insurance with respect to the Leased Property, and the City cannot provide any assurances that it will decide to obtain or continue to maintain flood insurance with respect to the Leased Property. Events of Force Majeure. Operation of the Leased Property may also be at risk from other events of force majeure, such as damaging storms, extreme drought, explosions, strikes, sabotage, riots and spills of hazardous substances, among other events. The City cannot predict what force majeure events may occur in the future. For additional information regarding the required insurance coverages under the Lease Agreement, See Appendix C—“SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.” Environmental Focus and Climate Change Atmospheric greenhouse gas concentrations have reached a level that guarantees substantial and unavoidable impacts for the foreseeable future. These impacts are expected to include, among other things, an increase in the frequency and severity of extreme weather events and may contribute to an increased incidence of wildfires in the City and elsewhere in the State. As the effects of climate change continue, it is expected that extreme weather events such as drought, wildfires, floods and heat waves will impact the City. Although the City is actively implementing a climate action plan as described in more detail in Appendix B, the City cannot predict the timing, extent, or severity of climate change and its impact on the City’s operations and finances. However, over time, the costs could be significant and could have a material effect on the City’s finances by requiring greater expenditures to respond to the effects of climate change. Also, additional actions to address climate change may be necessary and the City can give no assurances regarding the impact of such actions on the City’s operations and finances. Pandemic and Infectious Disease In March 2020, the World Health Organization and the President of the United States separately declared the outbreak of a respiratory disease caused by a novel coronavirus (“COVID-19”) to be a public health emergency. On March 13, 2020, the Governor of California (the “Governor”) declared a state of emergency for the State of California because of the effects of COVID-19. Subsequently, in response to a rise in COVID-19 infections in the State, the Governor issued a number of executive orders intended to help limit the spread of COVID-19 and mitigate injury and the loss of life, including limitations imposed on business operations, social gatherings, travel, and other activities. As of February 28, 2023, the Governor terminated the state of emergency relating to COVID-19 and there are currently no COVID-19 related operating limits imposed by executive order of the Governor for any business or other establishment in the State. Like other public agencies, the COVID-19 pandemic had a significant impact on the City’s operations and budget. To address the economic uncertainty brought on by the pandemic, the City immediately implemented its Fiscal Health Contingency Plan (FHCP), triggering a number of measures to control expenditures. Similar to other agencies, the City modified its operations by transitioning to remote work where possible, and modified delivery of services to the public. Modified service delivery included but was not limited to: enhanced cleaning of facilities, increased wastewater testing to assist the County in determining the prevalence of COVID in certain areas, moratoriums on water shutoffs due to non-payment, deferral of parking rate increases, and provision of fare-free rides on the City’s fixed route transit service. For information concerning the financial effect of COVID-19 on the City, see “CITY FINANCIAL INFORMATION—Recent Developments.” 22- A continued spread of COVID-19 or future outbreak of COVID-19 or variants thereof or another infectious disease, or the fear of any such outbreak, and measures taken to prevent or reduce it, could adversely impact State, national and global economic activities and, accordingly, adversely impact the financial condition and operations of the City, and the extent of impact could be material. The City cannot predict the duration of any pandemic, any reinstatement or expansion of stay-at-home orders and travel or other restrictions and warnings, or what impact those orders would have on the City’s revenues. Additionally, the City cannot predict what further impact any pandemic may have on the City’s general financial condition or operations, or the assessed values of property within the City. Dependence on State for Certain Revenues Nearly half of the City’s revenues are collected and disbursed by the State (such as sales tax and motor-vehicle license fees) or allocated in accordance with State law (most importantly, property taxes). As a result, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the Department of Finance, under the heading “California Budget.” An impartial analysis of the budget is posted by the Office of the Legislative Analyst at In addition, various State of California official statements, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, The information referred to is prepared by the respective State agency maintaining each website, and neither the Authority nor the City takes responsibility for the continued accuracy of these internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. Changes in Law There can be no assurance that the electorate of the State will not at some future time adopt additional initiatives or that the Legislature will not enact legislation that will amend the laws or the Constitution of the State resulting in a reduction of the General Fund revenues of the City and, consequently, having an adverse effect on the security for the Bonds. City Pension Benefit Liability Many factors influence the amount of the City’s pension benefit liability, including, without limitation, inflationary factors, changes in statutory provisions of applicable law, changes in the levels of benefits provided or in the contribution rate of the City, increases or decreases in the number of covered employees, changes in actuarial assumptions or methods and differences between actual and anticipated investment experience of the California Public Employees’ Retirement System (“CalPERS”). Any of these factors could give rise to additional liability of the City to CalPERS as a result of which the City would be obligated to make additional payments to CalPERS over the amortization schedule for full funding of the City’s obligations to CalPERS. In 2017, CalPERS made some significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies and in 2018, the City Council adopted Fiscal Health Response Plan FHRP) to provide a framework for responding to the long-term fiscal impacts of the CalPERS policy changes. The FHRP has enabled the City to make $16.6 million in additional discretionary payments to expedite paydown of its unfunded pension liability. The City expects its pension benefit liability to increase in future years as a result of general market conditions which have significantly impacted CalPERS 23- investments, resulting in a -7.5% return in FY 2021-22. See also “CITY FINANCIAL INFORMATION— Employee Retirement System” herein. No Liability of Authority to the Owners Except as expressly provided in the Indenture, the Authority shall not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the Base Rental Payments by the City, or with respect to the performance by the City of other agreements and covenants required to be performed by it contained in the Lease Agreement or the Indenture, or with respect to the performance by the Trustee of any right or obligation required to be performed by it contained in the Indenture. CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS While the Lease Agreement does not obligate the City to impose any new taxes or increase any existing taxes to pay Base Rental Payments, limitations on the City’s ability to impose taxes or appropriate funds could adversely affect the City’s ability to raise and spend revenues. In such event, City funds which would otherwise be available absent such limitation might not be available to make Base Rental Payments. The following is a description of certain legal limitations related to the City’s ability to impose taxes or appropriate funds. Article XIIIA of the State Constitution Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the voters prior to July 1, 1978 or (2) any 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. Section 2 of Article XIIIA defines “full cash value” to mean “the County assessor’s valuation of real property as shown on the 1975-76 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. The voters of the State subsequently approved various measures which further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, do not constitute a “purchase” or “change of ownership” triggering reassessment under Article XIIIA. This amendment could serve to reduce the property tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or “severely disabled homeowners” who sell their residence and buy or build another of equal or lesser value within two years in the same city, to transfer the old residence’s assessed value to the new residence. In the November 1990 election, the voters approved an amendment of Article XIIIA to permit the State Legislature to exclude from the definition of “new construction” seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990. 24- Article XIIIA has also been amended to permit reduction of the “full cash value” base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the “full cash value” base in the event of reconstruction of property damaged or destroyed in a disaster. County assessors may “recapture” the reduced assessed valuation of such property up to its pre- decline value, depending on the county assessor’s measurement of the value subsequently restored to such property. Article XIIIB of the State Constitution Article XIIIB 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 for the prior Fiscal Year, as adjusted for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The “base year” for establishing this appropriations limit is the 1978-79 fiscal year, and the limit is adjusted annually to reflect changes in population, consumer prices and certain increases or decreases in the cost of services provided by the applicable public agency. Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a Fiscal Year the proceeds of taxes levied by or for the entity and the proceeds of State subventions, exclusive of certain State subventions, refunds of taxes, and benefit payments from retirement, unemployment insurance and disability insurance funds. “Proceeds of taxes” include, but are not limited to, all tax revenues, most State subventions and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost reasonably borne by such entity) and (2) the investment of tax revenues. Article XIIIB provides that if a governmental entity’s revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two years. Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose. Furthermore, in 1990, Article XIIIB was amended to exclude from the appropriations limit “all qualified capital outlay projects, as defined by the Legislature” from proceeds of taxes. The Legislature has defined “qualified capital outlay project” to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City’s long-term General Fund lease obligations (including the Base Rental Payments) are generally excluded from the City’s appropriations limit. Articles XIIIC and XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 adds Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City’s General Fund, require a two-thirds vote. Further, any general purpose tax which the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election held within two years after November 5, 1996. The voter approval requirements of Article XIIIC reduce the flexibility of the City to 25- raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments which exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments must confer a “special benefit,” as defined in Article XIIID, over and above any general benefits conferred, (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected party, and (iv) a prohibition against fees and charges which are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Article XIIID 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 or refuse collection services, voter approval. Article XIIID 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 XIIID 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. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City’s General Fund. If such repeal or reduction occurs, the City’s operations could be adversely affected. The City believes its fees, charges, assessments and taxes are in compliance with Articles XIIIC and XIIID. Proposition 22 In November 2010, the voters of the State adopted Proposition 22 (“Proposition 22”), which prohibits the State, even during a period of severe fiscal hardship, from delaying the distribution of tax revenues for transportation, redevelopment, or local government projects and services and prohibits fuel tax revenues from being loaned for cash–flow or budget balancing purposes to the State general fund or any other State fund. It further prevents the State from temporarily shifting property taxes from cities, counties and special districts to schools and community college districts through the Education Revenue Augmentation Fund, a shift that resulted in diversion of City property taxes periodically since Fiscal Year 1992-93 until the passage of Proposition 22. Proposition 26 On November 2, 2010, the voters of the State approved Proposition 26 (“Proposition 26”), which revises certain provisions of Articles XIIIA and XIIIC of the California Constitution. Proposition 26 re- categorizes many State and local fees as taxes, requires local governments to obtain two–thirds voter approval for taxes levied by local governments, and requires the State to obtain the approval of two–thirds 26- of both houses of the State Legislature to approve State laws that increase taxes. Furthermore, pursuant to Proposition 26, any increase in a fee beyond the amount needed to provide the specific service or benefit is deemed to be a tax and the approval thereof will require a two-thirds vote. In addition, for State-imposed charges, any tax or fee adopted after January 1, 2010, with a majority vote which would have required a two-thirds vote if Proposition 26 were effective at the time of such adoption is repealed as of November 2011 absent the re-adoption by the requisite two-thirds vote. Proposition 26 amends Article XIIIC of the State Constitution to state that a “tax” means a levy, charge or exaction of any kind imposed by a local government, except: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law, including late payment fees, fees imposed under administrative citation ordinances, parking violations, etc.; (6) a charge imposed as a condition of property development; or (7) assessments and property related fees imposed in accordance with the provisions of Article XIIID. Fees, charges and payments that are made pursuant to a voluntary contract that are not “imposed by a local government” are not considered taxes and are not covered by Proposition 26. Proposition 26 applies to any levy, charge or exaction imposed, increased, or extended by local government on or after November 3, 2010. Accordingly, fees adopted prior to that date are not subject to the measure until they are increased or extended or if it is determined that an exemption applies. If the local government specifies how the funds from a proposed local tax are to be used, the approval will be subject to a two–thirds voter requirement. If the local government does not specify how the funds from a proposed local tax are to be used, the approval will be subject to a 50% voter requirement. Proposed local government fees that are not subject to Proposition 26 are subject to the approval of a majority of the governing body. In general, proposed property charges will be subject to a majority vote of approval by the governing body although certain proposed property charges will also require approval by a majority of property owners. Proposition 62 A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 General Election which (1) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, 2) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction, (3) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed, (4) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (5) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (6) requires that any tax imposed by a local governmental entity on or after March 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. 27- Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and, by implication, upheld a parallel provision requiring a majority vote in order for a local governmental or district to impose any general tax. The Santa Clara decision did not address the question of whether or not it should be applied retroactively. In response to the Santa Clara decision, the California Legislature adopted Assembly Bill 1362, which provided that the Santa Clara decision should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, 1995. Assembly Bill 1362 was vetoed by the Governor, hence the application of the Santa Clara decision on a retroactive basis remains unclear. Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State’s electorate. However, Proposition 218, as a constitutional amendment and supersedes many of the provisions of Proposition 62. The City does not believe that it imposes any tax or fee which is subject to the provisions of Proposition 62. Unitary Property AB 454 (Chapter 921, Statutes of 1987) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the fiscal year ended June 30, 1989, will be based on a uniform rate within each county and allocated as follows: (a) each jurisdiction will receive up to 102% of its prior year State assessed revenue; and (b) if county wide revenues generated from Unitary Property are less than the previous year’s revenues or greater than 102% of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Articles XIIIA, XIIIB, XIIIC and XIIID and Propositions 22, 26, and 62 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. From time to time other initiative measures could be adopted, further affecting the City’s revenues or the City’s ability to expend revenues. THE AUTHORITY The San Luis Obispo Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated September 8, 2014, by and between the City and the Parking Authority in accordance with provisions of the California Joint Exercise of Powers Act. The Authority was created for the purpose of providing financing for public capital improvements of the City and the Parking Authority. 28- The Authority has no independent staff and consequently will be dependent upon the City’s officers and employees to administer the Bonds on its behalf. The Governing Board of the Authority is comprised of the members of the City Council of the City. THE CITY The City is a charter city, incorporated on February 19, 1856 and chartered on May 1, 1876 under the laws of the State of California. The City is located on the central coast of California, about 200 miles northwest of Los Angeles and 235 miles southeast of San Francisco. The City is the county seat of the County, and had a population estimated at 47,788 as of January 1, 2023. The City is the largest city in the County. The City operates under a council-mayor-city manager form of government. City Council members are elected at large for staggered four-year terms; the Mayor serves a two-year term. The City Manager, the City Attorney, and all advisory boards, committees and commissions are appointed by the City Council. The City Manager serves as the administrative head of the City, and is responsible for the day-to-day operations of the City staff, implementing the policies of the City Council. Current City Council members are: Member Term Expires Erica A. Stewart (Mayor) 12/2024 Jan Marx (Vice Mayor) 12/2024 Emily Francis 12/2026 Andy Pease 12/2024 Michelle Shoresman 12/2026 The City is a “full-service” city, providing public safety, public utilities, transportation, leisure, cultural, social and community development services to its residents. For additional demographic information regarding the City and the County, see Appendix B hereto. CITY FINANCIAL INFORMATION Budgetary Process The City of San Luis Obispo uses a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. The City’s two-year Financial Plan includes the integration of Council goal-setting into the budgetary process and the 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. 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 the City’s Financial Plan is to establish and maintain effective management of the City’s financial resources. Key budget policies include: continuing basic services at current levels and adequately funding them; maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; matching all current expenditures with current revenues; finding solutions to the City’s financial challenges which maintain and promote a quality community; maintaining the City’s traditional commitment to a strong General Fund; 29- and complying with provisions of the State Constitution, 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. Financial Plan Policies. The Financial Plan includes formal policies that cover areas such as fund balance and reserves, investments (see “—City Investment Policy and Portfolio” herein), capital improvement management, debt management, capital financing, human resource management, and productivity. These policies, summarized below, are incorporated in full in the City’s Financial Plan. Fund Balance and Reserves. The City’s policy on fund balance and reserves requires the City to maintain a minimum fund balance of at least 20% of operating expenditures in the General Fund in order to adequately provide for economic uncertainties, contingencies for unseen needs and cash flow requirements. The City’s fund balance as a percent of General Fund operating expenditures was 23.27% and 23.5% as of June 30, 2021 and June 30, 2022 respectively. The budgeted percentage of fund balance for the current year is 23.0% as of June 30, 2023. Revenue Stabilization Reserve—General Fund. In addition to the requirement to maintain a minimum fund balance of 20% of operating expenditures in the General Fund, with adoption of the 2023-25 Financial Plan, the City Council established a Revenue Stabilization Reserve which can be used to counteract any adverse revenue forecast during a period of economic uncertainty related to the City’s largest tax revenue sources. For 2023-25, the reserve has been set at $2 million. CalPERS and Unfunded Liabilities. With adoption of the 2023-25 Financial Plan, the City Council established a policy outlining the City’s long-term commitment to payment of its unfunded pension liability, additional discretionary payments (ADPs), and the needed prioritization to hold the shortened timeline. This policy provides guidance relative to the prioritized use of unassigned General Fund balance as follows: 1. Additional discretionary payments to CalPERS, 2. Infrastructure investments, and 3. Emerging Health and Safety needs of the community. The policy further notes the City’s commitment to ADPs to CalPERS and adding an annual inflator equal to increases in payroll whenever CalPERS reaches its discount rate or larger rates of return based on what is presented in the latest five-year forecast; and indicates that whenever CalPERS does not reach its adopted discount rate, the City commits to first use any unassigned fund balance to counteract the investment loss CalPERS experienced. Capital Improvement Management. The City’s policy on capital improvement management requires the City to prepare a CIP that balances existing facility maintenance with new projects that expand the City’s fixed assets. The CIP Review Committee, headed by the Assistant City Manager, provides governance of the CIP by evaluating and prioritizing capital projects based upon an established set of criteria to ensure alignment with Major City Goals, the General Plan, strategic growth objectives and needs for services provided within the City. The committee is responsible for assessing the City’s fiscal and staff capacity to deliver projects; recommending to the City Manager the projects and associated budgets that should be included in the biennial financial plan; considering requests for new projects that may be requested outside of financial plan development to address emergent needs; and evaluating the re-prioritization of projects as needs and conditions change in order to ensure consistency with project evaluation criteria, ability to deliver projects, and City priorities. The City’s Planning Commission also reviews the draft CIP for consistency with the City’s General Plan and provides its findings to the City Council before the CIP is adopted. With each two-year Financial Plan, the City prepares five- year CIP program recommendations for City Council approval. The budget set forth in the 2023- 30- 25 Financial Plan includes a two-year CIP investment of $183 million, and a planned CIP investment of $465 million over the five-year plan to maintain or replace existing assets and build new assets to address the needs of the community. Debt Management. The City’s policy on debt management requires the City to prepare an internal feasibility analysis for each long-term financing to review the impact on current and future budgets for debt service and operations, as well as the reliability of revenues to support debt service. Under this policy, the City is required to monitor its compliance with bond covenants and federal arbitrage regulations, will seek an investment grade rating on any direct debt and will seek credit enhancement where necessary for marketing purposes and cost-effectiveness. Capital Financing. The City’s policy on capital financing requires the City to consider debt financing only for one-time capital improvement projects and only when the project’s useful life will exceed the term of the financing and project revenues or specific resources will be sufficient to service the long-term debt. This policy provides further guidelines to evaluate the appropriateness of using pay-as-you-go financing versus long-term financing to fund capital improvements. Human Resource Management. The City’s policy on human resource management requires the City to fully appropriate the resources needed for authorized regular staffing and provides guidelines for the limited use of supplemental staff. The policy also provides criteria for the use of independent contractors and overtime management. Productivity. The City’s policy on productivity provides a process to review operations with the goal of delivering services in the most cost-effective manner possible. Productivity issues reviewed in the process include evaluating new technology and capital investments, developing skills and abilities of City employees and evaluating the ability of the private sector to perform the same level of service at a lower cost. Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City’s two-year budgetary process: First Year. The Financial Plan process begins with a 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, who are responsible for submitting initial budget proposals. After these proposals are reviewed and a 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 Council adoption of the budget by June 30. Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, makes adjustments as necessary, and approves appropriations for the second Fiscal Year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent operating program appropriations lapse at the end of the second year. Fiscal Year 2021- 22, was the first year of the two-year cycle. Mid-Year Reviews. The Council formally reviews the City’s financial condition and amends appropriations, if necessary, each February. 31- Status Reports. On-line access to “up-to-date” financial information is provided to City staff. Comprehensive financial reports are prepared monthly to monitor the City’s fiscal condition. Additionally, more focused reports are issued monthly on transient occupancy tax and quarterly reports are prepared on the performance of investments and the portfolio’s overall compliance with the City’s investment policy. The status of major program objectives and goals, including CIP projects, is formally reported to the 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 the City’s capital project funds, the CIP projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented in the accompanying basic financial statements for capital projects. Administration. As provided under the City Charter, the City Council may amend or supplement the budget at any time after its adoption by majority vote of the Council. The 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. Comparison of General Fund Budgets; Forecast. The table below sets forth a comparison of the City’s General Fund budgets for the current and prior fiscal years as well as a forecast through 2027-28. 32- TABLE 1 CITY OF SAN LUIS OBISPO GENERAL FUND FIVE-YEAR FORECAST FOR FISCAL YEARS 2021-22 THROUGH 2027-28 2023-25 Financial Plan General Fund Five Year Forecast In Thousands) A) Actual 2021-22 B) Budget 2022-23(1) C) Budget 2023 24 D) Forecast 2024 25 E) Projected 2025-26 F) Projected 2026-27 G) Projected 2027-28 Tax & Franchise Revenue Sales & Use Tax 51,665 52,163 53,340 54,573 55,988 57,465 59,127 Sales Tax General 22,247 21,524 22,579 23,166 23,768 24,410 25,118 Public Safety (Prop 172) 529 497 499 509 519 530 540 Measure G20 28,889 30,142 30,262 30,898 31,701 32,525 33,468 Property Tax 20,711 21,473 22,000 22,652 23,332 24,032 24,752 Transient Occupancy Tax 10,651 10,704 10,704 10,918 11,136 11,359 11,586 Utility Users Tax 5,420 5,544 5,710 5,882 6,058 6,240 6,365 Franchise Fees 1,978 1,800 1,854 1,910 1,967 2,026 2,067 Business Tax Certificates 2,823 3,158 3,252 3,317 3,417 3,519 3,590 Cannabis Tax 999 1,100 1,100 1,450 1,650 1,700 1,733 Total Tax & Franchise Revenue $ 94,247 $ 95,942 $ 97,960 $ 100,702 $ 103,549 $ 106,340 $ 109,220 Fees for Service & Other Revenue Police Services 555 688 612 612 624 637 649 Fire Services 1,502 1,458 1,578 1,578 1,609 1,642 1,674 Development Review 6,117 6,335 6,276 6,585 6,783 6,986 7,126 Parks & Recreation 1,718 1,969 2,022 2,069 2,110 2,152 2,174 Business Licenses 498 446 459 468 477 487 497 Cannabis Licenses 127 210 208 233 237 242 247 Other Revenues 466 711 2,188 2,269 2,376 2,473 2,574 Subventions & Grants 2,068 777 665 682 440 441 442 Storm Reimbursement ESTIMATE(2) 4,208 4,208 Total Fees & Other Revenue $ 13,052 $ 12,593 $ 18,214 $ 18,703 $ 14,657 $ 15,059 $ 15,383 Total Revenue $ 107,299 $ 108,535 $ 116,174 $ 119,405 $ 118,206 $ 121,400 $ 124,604 Use of Funds Staffing 67,639 65,401 67,427 70,620 71,968 73,672 75,279 Contract Services 7,836 9,575 9,380 9,249 8,822 8,998 9,178 Other Operating Expenditures 9,555 9,976 9,858 9,943 9,537 9,728 9,922 Cost Allocation (4,717) (4,462) (5,419) (5,582) (5,694) (5,808) (5,924) Encumbrances from prior year 2,542 Storm Expenditures ESTIMATE(2) 4,500 4,500 Total Operating Expenditure $ 80,313 $ 87,533 $ 85,746 $ 84,229 $ 84,633 $ 86,591 $ 88,456 Debt Service 1,997 1,992 1,854 1,769 1,761 1,550 1,549 Capital 30,575 22,484 29,728 27,269 27,868 28,488 29,123 Transfers Out/(In)(3) 923 296 1,490 1,487 1,896 2,263 2,678 Total Expenditure $ 113,808 $ 112,305 $ 118,817 $ 114,754 $ 116,157 $ 118,890 $ 121,806 CalPERS Additional Discretionary Payment using prior year fund balance) 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Beginning Fund Balance (After CalPERS ADP) $ 45,118 $ 36,609 $ 30,840 $ 26,196 $ 28,847 $ 28,896 $ 29,406 Revenue Over/(Under) Expenses $ (6,509) $ (3,770) $ (2,643) $ 4,651 $ 2,049 $ 2,509 $ 2,797 Ending Fund Balance $ 38,609 $ 32,840 $ 28,196 $ 30,847 $ 30,896 $ 31,406 $ 32,203 General Fund Reserve (see line 45) 12,014 13,727 11,596 14,526 14,651 15,077 15,516 Revenue Stabilization Reserve 2,000 2,000 2,000 2,000 2,000 2,000 2,000 115 Pension Trust Fund 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Restricted based on Audit 19,232 13,468 12,600 12,200 12,200 12,200 12,200 Undesignated Fund Balance $ 3,364 $ 1,644 $ 0 $ 121 $ 45 $ 129 $ 487 Source: City of San Luis Obispo 2023-25 Financial Plan. 1) FY 2022-23 budget includes approved carryover and budget amendments made throughout the year. 2) The 2022-23 Adopted Budget did not include expenses paid from the operating reserve in response to storm events in January and March of 2023. Unplanned storm response expenditures will be paid for out of the General Fund reserve. See “RISK FACTORS– Natural Disasters and Other Events” herein. 3) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” 33- Financial Statements Accounting Policies. The accounting policies of the City conform to generally accepted accounting principles. The Governmental Accounting Standards Board (“GASB”) published its Statement No. 34 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include i) Management’s Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and (ii) fund financial statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and iii) required supplementary information. Accounts of the City are organized on the basis of funds each of which is considered a separate accounting entity. The operation of each fund is accounted for with a separate set of self-balancing accounts. The various funds are grouped into broad categories, as follows: Governmental Funds (General, Local Revenue Measure Sub-Fund, Special Revenue, Capital Projects and Debt Service), Proprietary Funds Enterprise Funds, including the Water, Sewer, Parking, and Transit funds) and Fiduciary Funds Custodial). Basis of Accounting. All Governmental Funds and Fiduciary Funds use the modified accrual basis of accounting. The Proprietary Funds use the accrual basis of accounting. Audited Financial Statements. The City’s most recent audited financial statements for the Fiscal Year ending June 30, 2022, are attached as Appendix A to this Official Statement, which were prepared by the City and audited by Badawi & Associates, Certified Public Accountants, Berkeley, California (the Auditor”). The financial statements should be read in their entirety. The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City or the General Fund. In addition, the Auditor has not reviewed this Official Statement. General Fund Balance Sheet Set forth on the following page are the City’s General Fund balance sheets for the Fiscal Years 2019-20 through 2021-22. 34- TABLE 2 CITY OF SAN LUIS OBISPO GENERAL FUND BALANCE SHEET AS OF JUNE 30 FOR FISCAL YEARS 2019-20 THROUGH 2022-23 Assets: 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Cash and investments $ 33,437,815 $ 39,956,449 $ 34,540,875 $ 33,570,000 Receivables: Taxes 5,936,633 12,110,685 11,473,880 11,500,000 Accounts 1,042,550 1,410,544 1,004,373 685,000 Accrued interest 122,010 87,395 210,686 200,000 Other 87,333 76,791 63,568 75,000 Due from other funds 148,712 45,813 -- -- Prepaid items -- 41,155 90,797 101,500 Loans receivable -- -- 240,637 240,600 Leases receivable -- -- 1,251,050 1,121,000 Total Assets $ 40,775,053 $ 53,728,832 $ 48,875,866 $ 47,493,100 Liabilities, Deferred Inflows of Resources and Fund Balances: Liabilities Accounts payable $ 2,964,457 $ 1,665,320 $ 2,325,910 $ 2,000,000 Accrued liabilities 2,909,403 2,702,968 1,593,058 1,600,000 Due to other funds 49,694 -- -- -- Other liabilities 91,803 220,688 212,617 200,000 Unearned revenue 1,108,400 2,021,785 2,471,916 1,800,000 Total Liabilities $ 7,123,757 $ 6,610,761 $ 6,603,501 $ 5,600,000 Deferred Inflows of Resources Lease related -- -- $ 1,225,534 $ 1,121,000 Unavailable revenue -- -- 301,325 -- Total deferred inflows of resources -- -- $ 1,526,859 1,121,000 Fund Equity and other Credits Fund balances: Nonspendable $ -- $ 41,155 $ 90,797 $ -- Committed to general governmental programs 10,384,119 9,299,971 5,696,864 8,000,000 Committed to risk management 1,498,078 1,955,966 1,845,935 500,000 Committed to contingency fund 10,251,000 11,830,380 12,014,000 13,700,000 Assigned to subsequent years expenditures 4,395,492 18,678,807 12,741,186 10,000,000 Unassigned 7,122,607 5,311,792 8,356,724 8,572,100 Total Fund Balances $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 40,772,100 Source: City of San Luis Obispo Audited Financial Statements. 35- General Fund Revenues, Expenditures and Changes in Fund Balances The General Fund is the general operating fund of the City and is used to account for all financial resources except those required to be accounted for in another fund. In Fiscal Year 2022-23, the major General Fund revenues are estimated as follows: Taxes and Franchise Fees 87% Charges for Services 9% Subventions and Grants 1% In Fiscal Year 2022-23, the major General Fund expenditures are estimated as follows: Public Safety 42% General Government 22% Community Development 16% Leisure, Cultural and Social Services 11% Set forth below is a statement of revenues, expenditures and changes in fund balances for the City’s General Fund for the last three fiscal years. 36- TABLE 3 CITY OF SAN LUIS OBISPO STATEMENT OF GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FISCAL YEAR ENDED JUNE 30 2019-20 Audited 2020-21 Audited 2021-22 Audited 2022-23 Estimated Revenues Taxes and franchise fees(1) $ 59,366,052 $ 70,470,941 $ 93,919,985 $ 98,200,000 Fines, forfeitures and penalties 239,048 223,882 173,915 100,000 Use of money and property(2) 1,161,703 (12,521) (1,455,527) 1,300,000 Subventions and grants(3) 1,460,410 3,626,087 2,596,930 1,400,000 Charges for services 11,319,551 11,742,215 10,682,921 10,400,000 Other revenues 1,231,038 697,104 481,313 1,300,000 Total revenues $ 74,777,802 $ 86,747,708 $ 106,399,537 $ 112,700,000 Expenditures General Government $ 14,503,410 $ 13,041,242 $ 17,190,472 $ 19,300,000 Public Safety 30,174,346 31,643,320 39,656,509 37,100,000 Transportation 3,440,849 3,866,286 4,818,976 6,800,000 Leisure, Cultural and Social Services 8,416,687 9,091,647 10,156,139 9,800,000 Community Development 8,821,689 9,854,482 12,726,420 13,900,000 Capital Outlay – Direct LRM(4) 4,711,633 4,727,261 1,996,731 640,000 Total expenditures $ 70,068,614 $ 72,224,238 $ 86,545,247 $ 87,540,000 Excess of revenues over (under) expenditures $ 4,709,188 $ 14,523,470 $ 19,854,290 $ 25,160,000 Other financing sources (uses): Transfers in $ 3,347,367 $ 7,128,857 $ 3,942,248 $ 4,587,325 Transfers out(4) (6,108,418) (8,332,098) (30,416,749) (27,954,000) Total other financing sources uses) $ (2,761,051) $ (1,203,241) $ (26,474,501) $ (23,366,675) Net Change in Fund Balance $ 1,948,137 $ 13,320,229 $ (6,620,211) $ 1,793,325 Fund balance - July 1, as restated $ 31,703,159 $ 33,797,840 $ 47,365,717 $ 40,745,506 Fund balance - June 30 $ 33,651,296 $ 47,118,071 $ 40,745,506 $ 42,538,831 1) For a breakdown of each component of taxes and franchise fees, see the following table. 2) This includes adjustments for the Fair Market Value of City investments, which were negative adjustments in FY 2020-21 and 2021-22. 3) The increases in FY 2020-21 and FY 2021-22 reflect receipt of Coronavirus Aid, Relief, and Economic Security Act (CARES) funding, as well as mutual aid reimbursements to offset overtime expenditures in the Fire Department, resulting from mutual aid provided to other agencies in support of multiple fires throughout the state. 4) Capital Outlay expenditures represent direct project expenditures from the Local Revenue Measure sub-fund. Beginning in FY 2021-22, the entire Capital Budget was transferred out of the General Fund and into the Capital Outlay Funds and this included in the “Transfers Out” line. There are some historical project balances remaining in the Local Revenue Measure sub- fund, explaining expenditures in FY 2021-22 through FY 2023-24. 5) Includes transfers to the City’s Debt Service Fund for debt service payments as more particularly described in Appendix A— AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022.” Source: City of San Luis Obispo Audited Financial Statements. 37- Recent Developments Storm Response. Storm events in January and March 2023 caused widespread flooding and other storm-related damage. The City activated its Emergency Operations Center (“EOC”) and Department Operations Center (“DOC”) for both storm events, to coordinate response to the storms and protect public health and safety. The City expended approximately $4 million on initial storm response efforts including debris removal from the public right-of-way and waterways; emergency protective measures including repair to roads degraded by the storms, traffic control to restrict access to certain areas of the city, costs to support EOC and DOC operations; and staff time. The City is still assessing the costs associated with the recent storm events, but it is estimated that the costs could be significant. As of September 5, 2023, the City estimated that costs could be approximately $28 million. To fund storm response efforts, the City has forecasted use of $9 million from its operating reserve over the course of FY 2022-23 and FY 2023-24, and has programmed an additional $2.75 million into its Capital Improvement Plan for FY 2023-24 to make permanent repairs to damaged areas. To mitigate the effect on the City’s annual budget, the City anticipates the additional costs will be factored into future years’ Capital Improvement Plans alongside deferral of other capital projects. The City is contracting with E&Y (formerly Ernst & Young) to provide disaster recovery technical assistance in order to maximize reimbursement for storm related costs from FEMA and the California Office of Emergency Services and is working closely with both agencies to review damages and develop projects for consideration of reimbursement. With the effects of climate change, it is likely that these storm events will increase in severity and frequency. The City has implemented an emergency services plan to respond to and mitigate the effects of storms and flooding. See “RISK FACTORS—Natural Disasters and Other Events” herein. Dam Repairs. The Nacimiento Dam and Reservoir (“Nacimiento”), located in the northern part of San Luis Obispo County (the “County”), was evaluated by the State Division of Safety of Dams, which classified Nacimiento as having an extremely high downstream hazard and mandated certain emergency repairs to be made to Nacimiento. The Monterey County Flood Control and Water Conservation District, the owner and operator of Nacimiento, has completed required repairs at no cost to the City of San Luis Obispo. Completed repairs permit the full operation of Nacimiento and water storage and delivery to the City. The San Antonio dam and spillway were recently analyzed, and major repairs are necessary at this facility. As a recipient of Nacimiento water, the City may have a responsibility to share in the costs to repair the San Antonio Spillway. It is currently estimated that the City’s portion of the repair costs will be 6 million-$7 million. Dams at Whale Rock Reservoir (“Whale Rock”) and the Salinas Reservoir (“Salinas”) have undergone inspection to evaluate dam safety. Whale Rock Reservoir requires minor repairs to the underdrains of the spillway, with repairs estimated to cost approximately $350,000. The City is responsible for 55.05% of this cost and all other operating and capital costs at Whale Rock, with the State of California being responsible for the remaining 44.95%. Project construction is anticipated to be complete in October of 2023, prior to the beginning of the rainy season. Salinas Dam, which is currently owned by the United States Army Corps of Engineers, had a semi-quantitative risk assessment performed in 2019. This assessment resulted in a provisional Dam Safety Action Classification rating of Level IV (Low Urgency) and requires no immediate repairs under federal standards. If the dam was required to be transferred to a local entity, which is preferred by the Army Corps of Engineers, it would fall under the jurisdiction of the California Division of Safety of Dams and would require a retrofit to meet State seismic safety standards. If transferred to local ownership, it is envisioned that repair funding to bring the dam into compliance with California state standards would be provided by the State or Federal entities. Covid-19 Response. Despite being economically affected by the COVID-19 pandemic, the City ended FY 2019-20, FY 2020-21 and FY 2021-22 in a solid financial position, with most major revenue sources performing well or above initial downward adjusted assumptions. 38- In FY 2020-21, the City invested $4,748,515 into COVID-19 relief efforts. These efforts were funded through a combination of local sales tax revenue, CARES Act funding and General Fund balance. Despite the unbudgeted costs related to COVID-19, the City ended FY 2020-21 with operating savings due to its strict adherence to cost saving measures identified in the FHCP. With adoption of the 2021-23 Financial Plan, the City Council established a Major City Goal of ‘Economic Recovery, Resiliency and Fiscal Sustainability’ which specifically called out efforts to support economic recovery from the pandemic. Fitch Ratings’ analysts have previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city’s capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.” Throughout the COVID-19 pandemic, the federal government enacted certain relief acts, stimulus bills and funding measures to assist local governments impacted by COVID-19. To date, the City has received $17,218,963 in funding passed through various agencies, including US Treasury and the State. This amount does not include transit ARPA funding that has been allocated to the City but not drawn down. Taxes and Other Revenues Taxes and other sources of revenue received by the City are listed in the table below. Certain general taxes currently imposed by the City are affected by Proposition 218. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Article XIIIC And Article XIIID of the State Constitution” herein. The following table presents the tax revenues and franchise revenues of the City’s General Fund for the last three fiscal years. 39- TABLE 4 CITY OF SAN LUIS OBISPO GENERAL FUND TAX AND FRANCHISE REVENUES BY SOURCE 2019-20 2020-21 2021-22 2022-23 Estimate 2022-23 of Total Sales and use tax-general $ 16,571,064 $ 19,642,604 $ 21,718,004 $ 22,000,000 22.4 Sales and use tax-Local Revenue Measure(1) 7,554,375 12,779,713 29,172,258 30,700,000 31.2 Sales tax- Prop 172 416,459 425,136 529,299 500,000 0.5 Property tax 12,913,661 13,727,986 14,166,259 15,200,000 15.4 Transient occupancy tax (“TOT”) 6,325,841 6,960,035 10,650,762(2) 10,700,000 10.9 Utility users tax 5,439,144 5,225,979 5,338,325 6,100,000 6.2 Property tax in lieu of VLF 5,290,215 5,660,661 5,994,592 6,300,000 6.4 Franchise fees 1,888,414 1,796,829 1,978,295 2,100,000 2.2 Business tax 2,995,263 3,782,115 2,823,163 3,200,000 3.3 Cannabis tax(3) 998,875 1,000,000 1.0 Real property transfer tax 388,075 469,883 550,153 400,000 0.4 Total Tax and Franchise Revenues $ 59,782,511 $ 70,470,941 $ 93,919,985 $ 98,200,000 100.0% Source: City of San Luis Obispo. Numbers may not add due to rounding. 1) The increase in Local Revenue Measure receipts in FY 2020-21 and FY 2021-22 is due to implementation of a new voter approved sales tax measure (Measure G-20, approved in November 2020) in April 2021. Measure G-20 increased the local sales tax from 0.5 percent to 1.5 percent. The increased tax rate will be in place until ended by voters. 2) The increase in TOT revenue in FY 2021-22 surpasses a recovery from earlier declines in TOT revenue caused by the Covid- 19 pandemic. See “CITY FINANCIAL INFORMATION—Transient Occupancy Tax” herein. 3) Prior to 2021-22, Cannabis tax was recorded in Sales and Use Tax – General. Sales and Use Taxes Sales and use taxes represent the largest source of tax revenue to the City. This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State. See CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein for a description of certain limitations on the collection of taxes. State Sales and Use Tax Law. The City collects 1.0% of taxable sales in the City (minus certain administrative costs imposed by the CDTFA, as defined below) pursuant to the Bradley-Burns Uniform Local Sales and Use Tax (the “Sales and Use Tax Law”). Local Revenue Measure. In November 2020, the qualified voters of the City passed Measure G-20 with 58.23% voter approval. Effective April 1, 2021, this 1 1/2 percent sales tax increased the local sales tax by 1 percent and replaced the 2014 local sales tax measure. Measure G-20 will be in place until ended by voters and there is no specific designation for these tax revenues. Sales Tax Rates. Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City’s share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows. 40- TABLE 5 CITY OF SAN LUIS OBISPO SALES TAX RATES AS OF JULY 1, 2023 State (General Fund) 3.6875% State (Fiscal Recovery Fund) 0.25 State (Local Revenue Fund) 1.5625 State (Local Public Safety Fund) 0.50 Local (City and County Operations) 1.00 Local (County transportation funds) 0.25 Local (Local Revenue Measure) 1.50 Total Sales Tax Rate 8.75% Source: California Department of Tax and Fee Administration Application of Sales Tax. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, as identified by the California Department of Tax and Fee Administration (“CDTFA” formerly the State Board of Equalization). Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the CDTFA. According to the CDTFA, it distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year’s like quarterly tax allocation as a starting point, the CDTFA first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The CDTFA disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter’s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the CDTFA under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the CDTFA to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the CDTFA projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the CDTFA’s quarterly projection. During the last month of each quarter, the CDTFA adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. 41- The CDTFA receives an administrative fee based on the cost of services provided by the CDTFA to the City in administering the City’s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. History of Taxable Transactions. The following table presents a summary of historic taxable sales reported within the City for calendar year 2017 through calendar year 2022 and the first quarter of 2023. TABLE 6 CITY OF SAN LUIS OBISPO TAXABLE RETAIL SALES DOLLARS IN THOUSANDS) 2017 2018 2019 2020 2021 2022 2023 (Q1) Motor Vehicle and Parts Dealers $ 301,326 $ 300,576 $ 296,732 $ 304,610 $ 383,092 $ 362,228 $ 77,698 Home Furnishings and Appliance Stores 72,375 74,243 66,208 59,781 74,116 71,736 15,555 Building Material and Garden Equipment and Supplies Dealers 125,990 129,582 127,607 137,471 145,463 149,993 35,226 Food and Beverage Stores 63,843 64,364 65,855 69,447 70,965 72,044 17,679 Gasoline Stations 83,481 94,570 95,193 66,485 98,307 121,521 22,768 Clothing and Clothing Accessories Stores 90,141 91,876 82,217 58,493 82,305 78,665 15,713 General Merchandise Stores 185,391 182,784 184,645 176,221 207,707 235,959 51,043 Food Services and Drinking Places 191,831 190,571 194,381 137,876 202,468 228,881 53,890 Other Retail Group 149,428 149,593 149,006 148,906 179,825 196,627 44,242 Total retail stores $ 1,263,806 $ 1,278,160 $ 1,261,845 $ 1,159,290 $ 1,444,247 $ 1,517,654 $ 333,813 All other outlets 232,639 235,809 267,630 213,575 362,059 341,915 81,606 Total $ 1,496,445 $ 1,513,969 $ 1,529,475 $ 1,372,865 $ 1,806,306 $ 1,859,569 $ 415,418 Source: California Department of Tax and Fee Administration The closure of retail businesses and the fitness, entertainment, and dining industry in response to the COVID-19 pandemic impacted taxable sales within the city in calendar year 2020. However, quick action by congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, protection from rent and utility payments lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The City invested heavily in supporting its business community by implementing parklets for outdoor dining, grants to small businesses, and various promotions to support local commerce. This resulted in taxable sales tracking slightly higher than projected at the end of the third quarter of FY 2020-21 and positioned the City well once vaccination rates increased and restrictions were lifted as seen with a significant increase in taxable sales in 2021. Property Taxes General. Property taxes represent the second largest source of tax revenue to the City. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. 42- Property taxes have historically been the primary revenue source affected by voter initiatives and legislative actions. With approval of Proposition 13 in 1978, property tax revenues were curtailed when they were reduced by two-thirds and thereafter limited to 2% annual increases or the CPI, whichever was less. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction. Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in 1978-79, Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Teeter Plan. San Luis Obispo County has implemented the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the “Teeter Plan”), pursuant to Sections 4701 through 4717 of the State Revenue and Taxation Code, which applies to taxes levied for the City. Under the Teeter Plan, the County guarantees that the City will receive 100% of the taxes levied for it. Any delinquencies are borne by the County, which in return collects and retains all penalties and interest which accrue on the delinquent taxes. Consequently, the City’s tax receipts do not reflect any delinquencies. The Teeter Plan, once adopted by a county, remains in effect unless the County Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year, the board of supervisors receives a petition for its discontinuance from two-thirds of the participating revenue districts in the county. A board of supervisors may, after holding a public hearing on the matter, discontinue the procedures under the Teeter Plan with respect to any tax levying agency in the county when delinquencies for taxes levied by that agency exceed 3%. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS” herein. 43- Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenues from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation in the following year. Assessed Valuation History. The summary below presents a 10-year history of the assessed value of property within the City. TABLE 7 CITY OF SAN LUIS OBISPO ASSESSED VALUATION FISCAL YEARS 2012-13 THROUGH 2022-23 Fiscal Year Secured Roll Gross Value Nonunitary Utilities Unsecured Roll TOTAL 2012-13 $ 5,964,248,670 $ 5,382,272 $ 279,327,968 $ 6,248,958,910 2013-14 6,153,784,758 5,300,173 295,750,397 6,454,835,328 2014-15 6,512,370,260 5,032,204 297,325,321 6,814,727,785 2015-16 6,965,233,454 4,883,115 305,427,553 7,275,544,122 2016-17 7,393,890,993 5,269,573 303,122,262 7,702,282,828 2017-18 7,844,131,236 4,369,188 331,183,030 8,179,683,454 2018-19 8,688,541,007 4,231,993 359,588,899 9,052,361,899 2019-20 9,156,811,458 3,990,145 360,372,662 9,521,174,265 2020-21 9,872,892,242 4,194,503 371,969,399 10,249,056,144 2021-22 10,449,275,830 4,154,621 369,153,263 10,822,583,714 2022-23 11,352,719,604 3,840,493 414,262,072 11,770,822,169 Source: HdL, Coren & Cone 2022/23 Roll Summary table Major Property Taxpayers. The following table shows the top 10 local secured property taxpayers for the current fiscal year. TABLE 8 CITY OF SAN LUIS OBISPO TOP TEN LOCAL SECURED TAXPAYERS FISCAL YEAR 2022-23 Property Owner Industry or Type Number of Parcels Secured Assessed Valuation of Total 1. Jamestown Premier San Luis Obispo Retail Commercial 10 $ 116,755,505 1.06% 2. CAP VIII - Mustang Village LLC Residential 5 100,005,897 0.91% 3. Sierra Vista Hospital Inc. Institutional 8 83,107,362 0.76% 4. San Luis Obispo Promenade DE LLC Commercial 10 56,100,000 0.51% 5. Charles Pasquini Jr Trust Et Al Commercial 4 53,422,118 0.49% 6. Irish Hills Plaza East LLC Commercial 6 53,213,898 0.48% 7. Vintage at San Luis Obispo Alderwood Residential 2 51,000,000 0.46% 8. Hotel San Luis Obispo LLC Commercial 1 37,529,832 0.34% 9. Costco Wholesale Corporation Commercial 1 38,444,903 0.35% 10. Laurel Creek Industrial 4 35,195,481 0.32% 51 $ 624,774,996 5.69% Source: California Municipal Statistics, Inc. 44- Transient Occupancy Tax Transient occupancy tax (“TOT”) receipts are estimated at $10,700,000 in Fiscal Year 2022-23 9.5% of 2022-23 estimated General Fund revenues). The City’s transient occupancy tax is imposed on overnight visitors who occupy a room or rooms in a hotel, inn, motel, bed & breakfast, or other lodging facility within the City’s limits for stays of less than 30 consecutive days. The amount of the tax is 10% of the total rental amount and was increased from 9% to 10% on October 1, 1993. This increase was not approved by majority vote of the electorate, but is not governed by Proposition 62 because the City is a charter city. See “CERTAIN LIMITATIONS ON TAXES AND APPROPRIATIONS—Proposition 62” herein. The tax does not have a sunset provision. COVID-19 travel restrictions and the curtailment of classes at California Polytechnic University impacted the city’s hospitality industry and decreased transient occupancy tax receipts for the City. TOT revenue in FY 2019-20 decreased by $1.7 million compared to FY 2018-19 (the most significantly impacted revenue source in that year). Though TOT increased slightly in FY 2020-21, it remained 14% under FY 2018-19 levels. In FY 2021-22, tourism along the central coast made a strong comeback, as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs in FY 2021-22 ($1.6 million over projections for the year), driven largely by high room rates. Other Taxes and Revenues Utility Users Tax. The City levies a utility users tax which is estimated at $6,100,000 in Fiscal Year 2022-23 (5.4% of estimated General fund revenues). Adopted by the voters in 2012, the City levies a 5% tax on all residences and businesses using telephone, electricity, natural gas and water utilities, and a 4.8% rate for video and telecommunications. Although the tax is collected for the City by the utility companies, it is a tax on the user, not the utility. The utility users tax does not have a sunset provision. Vehicle License Fee. The State imposes the vehicle license fee, which is the fee paid annually in lieu of personal property taxes on a vehicle, and distributed to cities and counties. The vehicle license fee is based on vehicle value (originally in the amount of 2% of the market value of the vehicle) and declines as the vehicle ages. Since 1998 the fee has been incrementally reduced from 2% of a vehicle’s current estimated value, but any such reductions were “backfilled” to local governments by the State from other sources. However, under the 2004-05 State Budget, the VLF was permanently reduced to 0.65% of the estimated value, and backfill by the State to local governments was eliminated, and instead will be met by an increased property tax apportionment to cities and counties. This amounts to approximately $6 million annually as a revenue neutral swap for the City. TABLE 9 CITY OF SAN LUIS OBISPO STATE OF CALIFORNIA MOTOR VEHICLE IN-LIEU PAYMENTS FISCAL YEARS 2017-18 THROUGH 2022-23 Source 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 Motor Vehicle In-Lieu $4,637,253 $4,961,080 $5,290,215 $5,660,661 $5,994,592 $6,283,397 Source: City of San Luis Obispo. 45- Parking Rates (Specific to Parking Enterprise) The City has budgeted revenues of its Parking Fund for payment of debt service on the portion of the Bonds purposed toward the construction of the Cultural Arts District Parking Structure. The Parking Fund is not pledged for the payment of the Bonds. The City’s Parking Fund implements the Access and Parking Management Plan and directs the operations and maintenance of the City’s parking facilities. Parking Fund revenues include rates and fees charged for parking services, property lease income, and one-time incomes such as Parking In-Lieu fee payments. According to City Fiscal Policies, rates must be sufficient to cover operations, capital asset improvements and maintenance, debt obligations, and to maintain appropriate reserve levels to keep the fund healthy and prepared for unforeseen and long-term funding needs. Actual Parking Fund revenues for FY 2021-22 are $5,164,226 and are budgeted to reach $6,530,750 in FY 2022-23. The City projects Parking Fund revenues to rise to $10,203,324 in FY 2023-24. The City Council has approved two parking rate increases to hourly paid parking effective July 1, 2023 and July 1, 2025 as shown in the table below. Based on the City’s forecast for Fiscal Year 2024-25 and projections for later fiscal years, the City expects that the City’s Parking Fund revenues will be sufficient to offset the City’s obligation to make lease payments on the portion of the debt service of the Bonds relating to the construction of the Cultural Arts District Parking Structure. TABLE 10 CITY OF SAN LUIS OBISPO PARKING RATE INCREASES Parking Hourly Rate Changes Parking Spots Subject to Rate Pre-July 1, 2023 Parking Rate Increase Effective July 1, 2023 Increase Effective July 1, 2025 Hourly Rate – Parking Meters Tier 1 (Super Core) 389 $2.00 $4.00 $5.00 Tier 2 (Core) 147 $2.00 $4.00 $5.00 Tier 3 (Outlaying Areas) 585 $1.50 $3.00 $3.00 Hourly Rate – Parking Structures Hourly 1,127 $1.50 $3.00 $3.00 Source: City of San Luis Obispo. TABLE 11 CITY OF SAN LUIS OBISPO PROJECTED PARKING REVENUES FISCAL YEARS 2021-22 THROUGH 2027-28 2021-22(1) 2022-23(2) 2023-24 2024-25 2025-26 2026-27 2027-28 Parking Meters $2,210,191 $2,268,500 $4,876,000 $4,876,000 $5,688,700 $5,688,700 $5,688,700 Parking Structures $999,138 $1,328,450 $3,242,100 $3,388,400 $3,655,700 $3,655,700 $3,667,300 Source: City of San Luis Obispo. 1) Audited Actual revenues. 2) Budgeted revenues. Although the City’s Parking Fund is not pledged to the payment of any debt, the City has previously allocated debt service payments for certain outstanding bonds to the Parking Fund. The following table reflects historical revenues and expenses of the City’s Parking Fund for the last ten years. Such table does not reflect the impact of the previously mentioned parking rate increases. 46- TABLE 12 CITY OF SAN LUIS OBISPO PARKING FUND GROSS REVENUES AND OPERATING EXPENSES LAST 10 FISCAL YEARS Fiscal Year Gross Revenues(1) Operating Expenses(2) Net Revenue Available for Debt Service 2013-14 $4,122,860 $2,488,797 $1,634,063 2014-15 4,905,494 2,409,027 2,496,467 2015-16 4,606,249 2,757,299 1,848,950 2016-17 4,659,562 2,671,028 1,988,534 2017-18 6,651,038 2,998,555 3,652,483 2018-19(3) 5,443,038 3,100,113 2,342,925 2019-20 3,840,059 3,080,588 759,471 2020-21 2,768,419 3,093,183 (324,764) 2021-22 4,890,317 3,552,603 1,337,714 2022-23(4) 7,359,163 4,464,311 2,894,852 Source: City of San Luis Obispo. 1) Does not reflect parking rate increases that are effective July 1, 2023 and July 1, 2025. 2) Operating expenses exclude depreciation. 3) The City refinanced certain prior obligations, resulting in new debt of $16,905,000, of which $5,156,025 is allocated to the Parking Fund. 4) Unaudited. Outstanding General Fund Debt and Other Obligations For additional information regarding the City’s outstanding General Fund debt and lease obligations, see Appendix A hereto. Lease-Purchase Financing. In 2018 the City obtained lease-purchase financing in the amount of 673,095 to purchase a fire truck. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533, through September 5, 2023. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. Energy Sources Conservation State Loan. In 2014, the City obtained a note in the amount of 850,775 for purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. Long-Term Obligations. The City is currently obligated to make lease payments supporting debt service on the following outstanding lease revenue bonds. The table below does not include the Bonds currently being issued, which are payable in whole or in part from lease payments secured by General Fund revenue sources. 47- TABLE 13 CITY OF SAN LUIS OBISPO DESCRIPTION OF OUTSTANDING DEBT AS OF JULY 1, 2023 Bonds Purpose Date of Issuance Original Principal Amount Outstanding Principal Amount (as of 06/30/2023) Final Maturity Capital Improvement Board 2012 Refunding Lease Revenue Bonds(1) Refunding June 7, 2012 $5,050,000 $2,415,000 Dec. 1, 2029 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Los Osos Valley Road Interchange Project), Series 2014 Los Osos Valley Rd Interchange October 23, 2014 7,580,000 $6,275,000 Nov. 1, 2044 San Luis Obispo Public Financing Authority Lease Revenue Refunding Bonds, Series 2018 Refunding May 8, 2018 $16,905,000 $12,350,000(1) June 1, 2039 Source: City of San Luis Obispo. 1) To be refunded with the proceeds of the Bonds. 2) This amount represents the total outstanding principal amount for the 2018 Series Bonds. The City’s Water, Sewer, Parking, Transit and General Fund are budgeted towards these payments and after such budgeted offset, the General Fund’s share of this outstanding amount is $8,089,250. 48- TABLE 14 CITY OF SAN LUIS OBISPO GENERAL FUND DEBT SERVICE(1) Fiscal Year Series 2014 Series 2018 Series 2023 Total Debt Service Less: Parking Fund Offset(2) Total Net Debt Service 2024 $ 420,531 $ 1,439,656 $ 1,640,450 $ 3,500,637 $ 2,079,545 $ 1,421,092 2025 422,731 1,438,256 3,186,000 5,046,987 3,624,668 1,422,319 2026 419,631 1,436,006 3,188,750 5,044,387 3,626,732 1,417,655 2027 421,231 1,101,506 3,193,875 4,716,612 3,529,834 1,186,778 2028 423,556 1,096,256 3,196,250 4,716,062 3,530,608 1,185,454 2029 421,731 1,099,506 3,195,875 4,717,112 3,531,224 1,185,888 2030 424,681 1,100,756 3,197,625 4,723,062 3,533,356 1,189,706 2031 422,253 1,100,006 2,821,000 4,343,259 3,156,502 1,186,757 2032 423,963 1,102,256 2,821,375 4,347,594 3,157,563 1,190,031 2033 419,950 1,097,256 2,824,375 4,341,581 3,159,038 1,182,543 2034 420,675 1,091,706 2,824,875 4,337,256 3,157,845 1,179,411 2035 421,050 1,090,344 2,822,875 4,334,269 3,155,430 1,178,839 2036 420,713 1,096,763 2,823,250 4,340,726 3,157,763 1,182,963 2037 419,650 281,831 2,820,875 3,522,356 2,906,834 615,522 2038 418,213 278,225 2,820,625 3,517,063 2,905,484 611,579 2039 420,900 279,450 2,822,250 3,522,600 2,907,482 615,118 2040 417,700 2,825,500 3,243,200 2,825,500 417,700 2041 419,000 2,825,250 3,244,250 2,825,250 419,000 2042 419,700 2,821,500 3,241,200 2,821,500 419,700 2043 419,800 2,824,000 3,243,800 2,824,000 419,800 2044 419,300 2,822,500 3,241,800 2,822,500 419,300 2045 418,200 2,821,875 3,240,075 2,821,875 418,200 2046 2,821,875 2,821,875 2,821,875 2047 2,822,250 2,822,250 2,822,250 2048 2,822,750 2,822,750 2,822,750 2049 2,823,125 2,823,125 2,823,125 2050 2,823,125 2,823,125 2,823,125 2051 2,822,500 2,822,500 2,822,500 2052 2,821,000 2,821,000 2,821,000 2053 2,823,250 2,823,250 2,823,250 2054 2,823,875 2,823,875 2,823,875 Source: City of San Luis Obispo. 1) Excludes 2012 Bonds to be refunded with the proceeds of the Bonds. 2) Reflects portion of debt service that the City has allocated or expects to allocate, on a budgetary basis, to the City’s Parking Fund, to the extent parking revenues are available for such purpose. The Parking Fund is not pledged to the payment of debt service on any such bonds and the offset reflects only the City’s current expected budgetary allocation. Direct and Overlapping Bonded Debt Set forth below is a direct and overlapping debt report (the “Debt Report”) prepared by California Municipal Statistics, Inc., effective August 19, 2022 for debt issued as of June 30, 2022. The Debt Report is included for general information purposes only. The City has not reviewed the Debt Report for completeness or accuracy and makes no representation in connection therewith. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term obligations generally are not payable from revenues of the City (except as indicated) nor are they necessarily obligations secured by land within the City. In many cases, long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. 49- The contents of the Debt Report are as follows: (1) the first column indicates the public agencies which have outstanding debt as of the date of the Debt Report and whose territory overlaps the City; (2) the second column shows the percentage of the assessed valuation of the overlapping public agency identified in column 1 which is represented by property located within the City; and (3) the third column is an apportionment of the dollar amount of each public agency’s outstanding debt (which amount is not shown in the table) to property in the City, as determined by multiplying the total outstanding debt of each agency by the percentage of the City’s assessed valuation represented in column 2. TABLE 15 CITY OF SAN LUIS OBISPO STATEMENT OF DIRECT AND OVERLAPPING BONDED DEBT AS OF AUGUST 19, 2022 2021-22 Assessed Valuation: $10,485,899,151 Overlapping Tax and Assessment Debt Total Debt 6/30/22 Applicable(1) City’s Share of Debt 6/30/22 San Luis Obispo Community College District $ 163,735,000 16.652% $ 27,265,152 San Luis Coastal Unified School District 148,855,000 51.836 77,160,478 City of San Luis Obispo Community Facilities District No. 2019-1 19,660,000 100.000 19,660,000 Total Overlapping Tax and Assessment Debt $ 124,085,630 Direct and Overlapping General Fund Debt San Luis Obispo County General Fund Obligations $ 22,396,208 16.720% $ 3,744,646 San Luis Obispo County Pension Obligation Bonds 29,843,112 16.720 4,989,768 City of San Luis Obispo Lease Revenue Bonds 24,251,532 100.000 24,251,532(2) Total Gross Direct and General Fund Overlapping Debt $ 32,985,946 Less: City of San Luis Obispo obligations supported by enterprise revenues (4,560,900) Total Net Direct And Overlapping General Fund Debt $ 28,425,046 Total Gross Direct Debt $ 24,251,532 Total Net Direct Debt $ 19,690,632 Total Overlapping Debt $ 132,820,044 Gross Combined Total Debt $ 157,071,576(3) Net Combined Total Debt $ 152,510,676 1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district’s assessed value that is within the boundaries of the city divided by the district’s total taxable assessed value. 2) Includes share of San Luis Obispo County Financing Authority lease revenue bonds ($1,871,532). 3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to 2021-22 Assessed Valuation: Overlapping Tax and Assessment Debt ................................................... 1.18% Total Gross Direct Debt ($24,251,532) ................................................. 0.23% Total Net Direct Debt ($19,690,632) ..................................................... 0.19% Gross Combined Total Debt .................................................................... 1.50% Net Combined Total Debt ....................................................................... 1.45% Source: California Municipal Statistics, Inc. 50- Employee Relations The City has 462.75 authorized full-time equivalent staff positions for Fiscal Year 2022-23. City employees are represented by four labor organizations, the principal of which is the San Luis Obispo City Employees’ Association, which represents approximately 44% of all City employees in a variety of classifications. There have been no work stoppages by City employees. Approximately 75% of all regular City employees are covered under negotiated agreements, summarized and with the expiration dates set forth below: Bargaining Units Number of Employees Agreement Expiration Date San Luis Obispo City Employees’ Association 204.25 June 30, 2025 Police Officers’ Association 67 June 30, 2024 Police Staff Officers’ Association 17 June 30, 2027 Firefighters(1) 56.5 December 31, 2023 1) Both the city and Fire negotiating teams are currently in active discussions and making preparations to begin official negotiations in early September 2023. Management and Confidential employees of the City are not represented and make up the remaining 25% of the regular City employees. The resolutions covering Management and Confidential employees expire June 30, 2025. The City has fostered collaborative and strong labor relations with the three represented police and fire bargaining units. Efforts are underway to cultivate positive interactions with the City’s general unit, the San Luis Obispo City Employees’ Association (SLOCEA) while the parties navigate two outstanding grievances and prepare for one unfair labor practice hearing tentatively scheduled in late December 2023. The City does not expect such grievances will have a material adverse effect on the financial condition of the City. Insurance A summary of insurance coverage for the City, effective as of June 30, 2022, is provided below. General Liability and Workers’ Compensation. The City 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. The City has a retained limit of $500,000 per occurrence for liability and a retained limit of $500,000 per occurrence for workers’ compensation. Liabilities of the City are reported to CJPIA when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported. The result of the actuarial 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 (reserve amount set on each claim) 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. 51- 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 2021-22. 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. The City 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 the City 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 the City in the normal course of business. It is reasonably possible that the City 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 the City. See Appendix A—“AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022—Note 13: Risk Management” hereto. Employee Retirement System Retirement Plan. General. The City contributes to the California Public Employees’ Retirement System CalPERS”) under an agent-multiple employer public employee retirement plan (for miscellaneous members, the “Miscellaneous Plan”) and cost-sharing employer public employee retirement plans (for safety members, the “Safety Plans”) that acts as a common investment and administrative agent for participating entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. Copies of CalPERS’ annual financial report are available from their Executive Office, 400 P Street, Sacramento, California 95814. CalPERS is a separate and distinct legal entity from the City and serves as an independent fiduciary in managing the City’s retirement plan assets. Eligibility. All full-time and part-time benefited City employees are eligible to participate in the retirement program. Benefits vest after five years of service. In addition to basic retirement benefits, the retirement program also provides death and survivor’s benefits. These benefit provisions and all other requirements are established by State statute and City ordinance. About CalPERS. Along with over 3,000 other cities and local agencies, the City contracts with CalPERS for its “defined benefit” retirement plan, which covers all of its regular employees (except in rare circumstances, temporary employees are not covered by the CalPERS plan). Due to changes made by the City and through legislation, there are several CalPERS retirement benefit programs. The City enacted a 2nd Tier benefit plan program which provides a lower level of benefits than the original plan. This plan is available to eligible new employees who are hired after August 30, 2012 (for sworn fire personnel plan members) and after December 6, 2012 for miscellaneous and sworn police safety plan members. A 3rd Tier program was created following the enactment of the Public Employee Pension Reform Act (AB 340) in January 2013. Under this program, employees who are considered new to the CalPERS retirement program are enrolled as required by the new law. The 3rd Tier program provides the lowest level of benefit of the three plans that are now in effect. The following chart summarizes these benefits which reflect the benefit earned each year, as a percentage of the employees qualifying salary and the normal retirement age for the program: 52- 1st Tier 2nd Tier 3rd Tier Miscellaneous 2.7% @ 55 2% @ 60 2% @ 62 Fire Sworn 3% @ 50 3% @ 55 2.7% @ 57 Police Sworn 3% @ 50 2% @ 50 2.7% @ 57 Contribution Rates. All employees contribute the full amount of the required member contribution. For safety employees, the required contribution is either 8%, 9% or 13.75% of annual covered salary depending on the plan they participate in. For safety employees, the required contribution is either 9% or 13.75% of annual covered salary depending on the plan they participate in. For miscellaneous plan members the required contribution is either 7% or 8% of annual covered salary depending upon which plan they participate in. The City’s required contribution to CalPERS is shown below for Fiscal Years 2020-21 and 2021-22. As of the Fiscal Year 2017-18 contribution, CalPERS no longer determines the employer contribution toward the Unfunded Liability as a percentage of payroll, but as a flat dollar contribution. The employer contribution toward the Normal Cost is still provided as a percentage of payroll: Fiscal Year 2020-21 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 10.623% $ 6,020,512 Safety Plan Tier 1 25.54 5,330,744 Police Safety Tier 2 19.825 13,198 Fire Safety Tier 2 22.397 26,207 Police Safety Tier 3 13.884 26,528 Fire Safety Tier 3 13.884 2,481 CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2021-22 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.95% $ 6,819,439 Safety Plan Tier 1 25.59 6,029,105 Police Safety Tier 2 19.88 16,086 Fire Safety Tier 2 22.47 33,223 Police Safety Tier 3 13.98 31,825 Fire Safety Tier 3 13.98 3,197 CalPERS provides a blended rate for all 3 tiers. Fiscal Year 2022-23 Employer Normal Cost Unfunded Liability Payment Miscellaneous Plan* 9.65% $ 7,337,577 Safety Plan Tier 1 25.64 6,697,068 Police Safety Tier 2 19.87 16,915 Fire Safety Tier 2 22.48 35,296 Police Safety Tier 3 13.66 33,517 Fire Safety Tier 3 13.66 1,300 CalPERS provides a blended rate for all 3 tiers. Annual Pension Cost and Required Contribution. For the Fiscal Year ended June 30, 2022, the City’s annual pension cost for the employer’s contribution to CalPERS was $7,709,918 for miscellaneous employees and $7,167,638, for safety employees. The required employer contribution was determined as part of the actuarial valuation dated June 30, 2019 using the entry age normal actuarial cost method. PERS reports that the lag time is necessary due to 53- the amount of time needed for them to extract and test the membership and financial data, and due to the need to provide public agencies with their employer contribution rates well in advance of the start of the fiscal year. The actuarial assumptions included: (i) 7.15% investment rate of return (net of investment and administrative expenses); (ii) projected salary increases that vary by duration of service ranging from 3.1% to 20% for both miscellaneous and safety members; (iii) an inflation factor of 2.5% compounded annually, and (iv) 2.5% annual cost-of-living adjustments for miscellaneous and safety members. The unfunded liability is amortized as a “level percent of pay.” Commencing with the June 30, 2013 valuation, all new gains or losses are amortized over a fixed 30-year period with a 5-year ramp up at the beginning and a 5-year ramp down at the end of the amortization period. In 2017, CalPERS made significant policy changes to address unfunded liabilities systemwide. These policy changes significantly increased required pension contributions for member agencies. As a result, the City had to reduce ongoing expenditures by $8.9 million (across all funds) in order to address and increase its pension contributions in line with new CalPERS requirements. To provide a framework to respond to the long-term fiscal impacts of the significant increases in required pension contributions to the CalPERS retirement system, the City Council adopted a Fiscal Health Response Plan (FHRP), containing three key components, which began implementation with adoption of the FY 2018-19 Financial Plan Supplement and continued through FY 2020-21. The three components of the FHRP included: identification of new revenues, identification of operating reductions and new ways of doing business, and employee concessions. Over the three years of the FHRP, the City negotiated in good faith with its represented and unrepresented bargaining groups to achieve approximately $1.9M of ongoing employee concessions. The employee concessions aimed at a recipe of increasing the employee contribution to CalPERS (“retirement cost-sharing”) by three (3%) percent of pay and offsetting that employee burden by providing a 4% cost- of-living adjustment over a two-year period and continuing the annual City health insurance cost-sharing contribution. Ultimately, the City was able to successfully negotiate retirement cost-sharing with all groups except the San Luis Obispo City Employees Association. In addressing unfunded pension liability as it related to employee concessions, the Council adopted policies such as the Fiscal Sustainability Policy, Compensation Philosophy, and Labor Relations Objectives to provide guidance and address and implement the concept of “shared responsibility.” This concept acknowledges the responsibility of the City, and its employees, to share the burden of pension and health costs, including addressing unfunded liabilities, while recognizing that increasing the employee share of this cost may impact the City’s ability to attract and retain well-qualified employees that ultimately deliver programs and services to the community. With that in mind, employee concessions were proposed as a significant component of the FHRP. To date, implementation of the concessions has resulted in employees from all bargaining groups, except members of the San Luis Obispo City Employees’ Association, paying an additional three (3%) percent of retirement cost sharing ongoing. Implementation of the components noted above have contributed to the City’s ability to address increased CalPERS contributions and make a total of $16.6 million in additional discretionary payments in order to paydown its pension liability. The City’s commitment to paying down its pension debt by making additional discretionary payments (ADPs) has helped to make progress on improving the plan’s overall funded status. Unfortunately, the CalPERS 2022 investment loss of 7.5% has adversely impacted the City’s funded status (as well as that of other PERS agencies throughout California). The ADPs that the City has made have helped to make progress in paying down the unfunded pension liabilities. As of 2021, the funded status of the City’s pension had reached 70.1%, a significant 54- improvement compared to 64.4% in 2015. Absent the ADPs, the funded status in 2021 would have been 68.5%. Unfortunately, the CalPERS -7.5% investment return in FY 2021-22 significantly impacted the City’s funded status (as well as that of other PERS agencies). The City’s current unfunded liability (UFL) is approximately $180 million. This UFL is addressed through ongoing regular payments to CalPERS and paydown is expedited by the City’s ability to make ADPs. Actuarial Analysis Feedback provided by the City’s independent Actuary is that the City is taking appropriate action to make progress in paying down the unfunded pension liabilities, but that market conditions impacting CalPERS investments hinder progress. Three-Year Trend Information. The following table provides three-year trend information on the City’s annual pension cost and the funded status of the Tier 1 plans. TABLE 16 CITY OF SAN LUIS OBISPO THREE-YEAR TREND INFORMATION FOR CALPERS Actuarial Valuation Date Accrued Liability (AL) Market Value of Assets MVA)(1) Unfunded Accrued Liabilities UAL) Funded Ratio MVA/AL) Annual Covered Payroll Safety Plan Tier 1 6/30/19 $ 205,097,380 $ 127,661,453 $ 77,435,927 62.2% 7,147,567 6/30/20 210,170,278 128,700,330 81,469,948 61.2 6,639,579 6/30/21 220,803,796 153,350,001 67,453,795 69.5 6,075,621 Police Safety Tier 2 6/30/19 773,047 674,344 98,703 87.2 591,136 6/30/20 1,009,449 871,774 137,675 86.4 718,135 6/30/21 1,402,421 1,413,979 (11,558) 100.8 765,882 Fire Safety Tier 2 6/30/19 1,812,170 1,699,660 112,510 93.8 1,236,389 6/30/20 2,425,936 2,231,886 194,050 92.0 1,433,450 6/30/21 3,242,867 3,416,497 (173,630) 105.4 1,395,894 Police Safety Tier 3 6/30/19 1,339,239 1,210,679 128,560 90.4 1,884,193 6/30/20 2,007,628 1,807,181 200,447 90.0 2,273,360 6/30/21 2,856,793 2,977,745 (120,952) 104.2 2,203,505 Fire Safety Tier 3 6/30/19 62,298 57,953 4,345 93.0 393,854 6/30/20 190,169 180,065 10,104 94.7 495,399 6/30/21 373,349 407,669 (34,320) 109.2 485,767 Miscellaneous Plan 6/30/19 234,600,386 144,624,229 89,976,157 61.6 21,212,049 6/30/20 240,866,177 147,848,333 93,017,844 61.4 23,168,222 6/30/21 255,715,513 177,819,133 77,896,380 69.5 23,905,476 Source: CalPERS actuarial valuation reports as of June 30, 2021 for the respective plans. The June 30, 2022 valuation reports are expected to be made available by CalPERS in August or September 2023. 55- Net Pension Liability. The City recognizes a net pension liability for the Miscellaneous Plan, measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability was measured as of June 30, 2021, using an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The changes in net pension liability for the Miscellaneous Plan is provided below: TABLE 17 CITY OF SAN LUIS OBISPO CHANGES IN NET PENSION LIABILITY – MISCELLANEOUS PLAN FISCAL YEAR 2020-21 & 2021-22 Total Pension Liability Plan Fiduciary Net Position Net Pension Liability/(Asset) Balance at June 30, 2020 $ 237,568,349 $ 148,289,275 $ 89,279,074 Changes during the year: Service Cost 3,939,785 3,939,785 Interest on total pension liability 16,589,680 16,589,680 Differences between expected and actual experience (755,414) (755,414) Contribution – employer 8,246,755 (8,246,755) Contribution – employee 2,056,274 (2,056,274) Net investment income 32,904,570 (32,904,570) Benefit payments, including refunds of employee contributions (13,518,666) (13,518,666) -- Administrative changes (148,132) 148,132 Net Changes 6,255,385 29,540,801 (23,285,416) Balance at June 30, 2021 $ 243,823,734 $ 177,830,076 $ 65,993,658 Source: City of San Luis Obispo Audited Financial Statements The City recognizes a net pension liability for each of the Safety Plans, measured as a proportionate share of the net pension liability of the CalPERS Safety Risk Pool. The net pension liability of each of the Safety Plans was measured as of June 30, 2021, and the total pension liability for each Safety Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the Safety Plans relative to the projected contributions of all participating employers in the CalPERS Safety Risk Pool, actuarially determined. The City’s proportionate share of the net pension liability for the Safety Plans as of June 30, 2022 was $58,571,330. The City’s percentage share of the net pension liability for the Safety Plans as of June 30, 2020 and June 30, 2021, based on the reports available from CalPERS, were as follows: TABLE 18 CITY OF SAN LUIS OBISPO CHANGES IN NET PENSION LIABILITY – SAFETY PLAN Proportionate Share Percentage share at 6/30/20 0.72250% Percentage share at 6/30/21 1.08299% Change – Increase/(Decrease) 0.36049% Source: City of San Luis Obispo Audited Financial Statements. 56- Other Post-Employment Benefits. The City’s primary Other Post-Employment Benefits (“OPEB”) are for retiree health benefits under the City’s election to participate in the CalPERS Health Benefit Program. The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act. The required employer contribution is $149.00 per month per retiree in calendar year 2022 and 151.00 per month per retiree in calendar year 2023. Retirees pay the differential monthly amount of the premium, which varies depending on the health benefits they select. Additionally, the City has established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000 (together with the City’s participation in the CalPERS Health Benefit Program, the “Plan”). One retiree remains eligible for this benefit. The City pays one-half of the retiree health insurance premiums for this retiree. During the Fiscal Year ended June 30, 2009, the City entered into an agreement with California Employers’ Retiree Benefit Trust (“CERBT”) to pre-fund the City’s OPEB liability. The contribution requirement of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution (the ARC”) including fully funding the implied subsidy. The ARC is an amount actuarially determined in accordance with the parameters of GASB standards. The City’s 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 liability over a period of 30 years. For Fiscal Year 2021-22, the City contributed $949,000 to the Plan, which fully funded the annual required contribution. The City paid a total of $340,000 to the CalPERS Health Benefit Program and retirees during the year and $229,000 to the CERBT. In addition, the City contributed an additional $360,000 to prefund benefits and pay down a portion of the implied subsidy of the Plan. 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, CA 95814. For the Fiscal Years ended June 30, 2020, 2021 and 2022, the City’s annual OPEB costs (expense) of $1,190,000, $921,000 and $949,000, respectively, were equal to the annual required contribution. Trend and funding status information is as follows, based on the Plan’s most recent actuarial valuation date of June 30, 2021. 57- TABLE 19 CITY OF SAN LUIS OBISPO OPEB COSTS 2020 THROUGH 2022 Fiscal Year Ending June 30 Annual OPEB Cost (AOC) Actual Contributions of AOC Contributed Net OPEB Obligation (Asset) 2022 $ 949,000 $ 949,000 100% $ -- 2021 921,000 921,000 100% -- 2020 1,190,000 1,190,000 100% -- Actuarial accrued liability (AAL) $ 14,884,000 Actuarial value of plan assets 10,177,000 Unfunded AAL $ 4,707,000 Funded ratio (actuarial value of plan assets/AAL) 68.4% Covered payroll (active plan members) $ 30,033,000 UAAL as % of covered payroll 15.7% City Investment Policy and Portfolio The City’s primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default. Safety, liquidity and yield are the factors considered, in priority order, in determining individual investment placements. In April 2013, an Investment Oversight Committee was formed to advise the City Treasurer on investment policy and compliance. Investment policies are reviewed and approved annually by the City Council and the Investment Oversight Committee, consisting of the Mayor, City Manager, City Treasurer, staff, and a member of the public meet quarterly with an investment advisor to review compliance. The composition of investments in the City pool will vary from time-to-time depending on cash flow needs of the City, the maturity of investments, purchases of new securities, and due to fluctuations in interest rates. All investments are in compliance with the City’s investment policy. As of March 31, 2023, 55% of the investments within the City pool were in highly liquid instruments. The average duration of the investments managed by the City’s contracted investment advisor was 2.05 years. As of March 31, 2023, the investments in the City pool were as follows: TABLE 20 CITY OF SAN LUIS OBISPO INVESTMENT POOL SUMMARY OF ASSETS HELD Local Agency Investment Fund – Money Market Fund City & CIB $ 44,807,639 JP Morgan Chase – Money Market 50,000,000 PFMAM Managed Investments 100,649,077 Pacific Premier Bank – Collateralized Certificate of Deposit 1,000,000 Pacific Premier Bank – Money Market 1,026,162 TOTAL INVESTMENTS $ 197,482,878 Bank Balance $ 25,952,182 TOTAL TREASURY BALANCE $ 223,435,060 Source: City of San Luis Obispo. 58- TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. Bond Counsel observes that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual, or receipt of interest on, the Bonds. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix D. To the extent the issue price of any maturity of the Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Bonds which is excluded from gross income for federal income tax purposes and exempt from State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken), or events occurring (or not occurring), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Bonds may adversely affect the value of, or 59- the tax status of interest on, the Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Bonds for federal income tax purposes. It is not binding on the IRS or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the Authority, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The Authority has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the beneficial owners regarding the tax-exempt status of the Bonds in the event of an audit examination by the IRS. Under current procedures, beneficial owners would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Authority legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Bonds, and may cause the Authority or the beneficial owners to incur significant expense. Payments on the Bonds generally will be subject to U.S. information reporting and possibly to backup withholding.” Under Section 3406 of the Code and applicable U.S. Treasury Regulations issued thereunder, a non-corporate beneficial owner of Bonds may be subject to backup withholding with respect to “reportable payments,” which include interest paid on the Bonds and the gross proceeds of a sale, exchange, redemption, retirement or other disposition of the Bonds. The payor will be required to deduct and withhold the prescribed amounts if (i) the payee fails to furnish a U.S. taxpayer identification number TIN”) to the payor in the manner required, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) there has been a “notified payee underreporting” described in Section 3406(c) of the Code or (iv) the payee fails to certify under penalty of perjury that the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code. Amounts withheld under the backup withholding rules may be refunded or credited against a beneficial owner’s federal income tax liability, if any, provided that the required information is timely furnished to the IRS. Certain beneficial owners (including among others, 60- corporations and certain tax-exempt organizations) are not subject to backup withholding. The failure to comply with the backup withholding rules may result in the imposition of penalties by the IRS. CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the Authority. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto. Certain matters will be passed upon for the Authority and for the City by the City Attorney. Certain legal matters will be passed upon for the Underwriter by Stradling Yocca Carlson & Rauth, A Professional Corporation, Underwriter’s Counsel. Orrick, Herrington & Sutcliffe LLP has also served as Disclosure Counsel. Orrick, Herrington & Sutcliffe LLP, Bond Counsel and Disclosure Counsel, undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. MUNICIPAL ADVISOR The City has retained PFM Financial Advisors LLC, of San Francisco, California, as municipal advisor (the “Municipal Advisor”) in connection with the issuance of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or assume responsibility for the accuracy, completeness, or fairness of the information contained in this Official Statement. The Municipal Advisor is an independent financial advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. LITIGATION There is no action, suit, or proceeding known by the Authority or the City to be pending or threatened at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds, the Indenture, the Lease Agreement, the Ground Lease or any proceedings of the Authority or the City taken with respect to the execution or delivery thereof. CONTINUING DISCLOSURE The City has covenanted for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by not later than nine months after the end of the City’s fiscal year (which is currently June 30) in each year commencing with the report for the fiscal year ended June 30, 2023 (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events. The Annual Report and event notices will be filed by the City with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriters in complying with Securities Exchange Commission Rule 15c2-12(b)(5) (the “Rule”). The specific nature of the information to be contained in the Annual Report or the notices of material events by the City is set forth in Appendix E— FORM OF CONTINUING DISCLOSURE CERTIFICATE.” In the past five years, the City has from time to time failed to link certain bond CUSIPS to its timely filed audited financial statements. Such errors have been corrected. RATING S&P Global Ratings has assigned the rating of “AA” to the Bonds. Certain information was supplied by the Authority and the City to the rating agency to be considered in evaluating the Bonds. Such rating express only the view of the rating agency and is not a recommendation to buy, sell or hold the Bonds. There is no assurance that such rating will continue for any given period of time or that it will not 61- be reduced or withdrawn entirely by the rating agency if in its judgment circumstances so warrant. The Authority, the City and the Trustee undertake no responsibility to oppose any such revision or withdrawal. Any such downward revision or withdrawal may have an adverse effect on the market price of the Bonds. UNDERWRITING The Bonds were purchased by Raymond James & Associates, Inc. (the “Underwriter”). The Underwriter has agreed to purchase the Bonds at a purchase price of $49,317,157.21 (calculated as the principal amount of the Bonds, plus an original issue premium of $3,707,638.65 and less an Underwriter’s discount of $170,481.44). The initial public offering prices set forth on the cover page may be changed by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof. 62- MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds and of statutes and other documents contained in this Official Statement do not purport to be complete, and reference should be made to the Bonds and such statutes and other documents for full and complete statements of their provisions. The preparation and distribution of this Official Statement have been authorized by the Authority and the City. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: /s/ Emily Jackson Treasurer CITY OF SAN LUIS OBISPO By: /s/ Derek Johnson City Manager APPENDIX A AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR ENDED JUNE 30, 2022 THIS PAGE INTENTIONALLY LEFT BLANK] San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 73 DRAFT**v1 1 The Greys in Between”, the 3-legged sculpture at the center of the newly completed roundabout at Orcutt and Tank Farm, was created by artist Anila Quayyum Agha. The permanent public art installation was commissioned by the City of San Luis Obispo’s Public Art Program in partnership with the San Luis Obispo Museum of Art. In exploring the intersections of race, class, culture, and religion, “The Greys in Between” celebrates minority and immigrant peoples’ contributions to our society and signifies San Luis Obispo as a community committed to being a welcoming place for all. Drawing from symbols found in South Asian art and architecture, Agha used her large lit sculpture to show the relationships that exist between light and darkness, fact and fiction, community and solitude. “The Greys in Between” honors diversity and inclusion, while also inviting viewers to reflect on these different states of being. For more information about the City’s use of roundabouts, visit . Photo credit:Steven Heraldo About the Cover 74 DRAFT**v1 ANNUAL COMPREHENSIVE FINANCIAL REPORT Fiscal Year Ended June 30, 2022 ERICA A. STEWART, MAYOR CARLYN CHRISTIANSON, VICE MAYOR MICHELLE SHORESMAN, COUNCIL MEMBER ANDY PEASE, COUNCIL MEMBER JAN MARX, COUNCIL MEMBER DEREK JOHNSON, CITY MANAGER Prepared by the Department of Finance Brigitte Elke, Finance Director Debbie Malicoat, Accounting Manager/Controller Tavy Garcia, Senior Accountant Traci Kawaguchi, Accountant City of San Luis Obispo, California 75 DRAFT**v1 76 DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page Introductory Section Transmittal Memorandum ..................................................................................................................................................... vii-xxiii Report Purpose and Organization ............................................................................................................................................... vii Profile of the City of San Luis Obispo ........................................................................................................................................ ix Factors Affecting Financial Condition ........................................................................................................................................ xi Financial Condition Overview .................................................................................................................................................... xv Relevant Financial Policies ....................................................................................................................................................... xvii Major Initiatives ........................................................................................................................................................................ xxi Award for Excellence in Financial Reporting .......................................................................................................................... xxii Acknowledgments ...................................................................................................................................................................xxiii Directory of Officials and Advisory Bodies ................................................................................................................................ xxiv City Council ............................................................................................................................................................................. xxiv Advisory Bodies ...................................................................................................................................................................... xxiv Appointed Officials and Department Heads ............................................................................................................................ xxiv Mission Statement ........................................................................................................................................................................ xxv Organizational Values ....................................................................................................................................................... xxvi-xxvii Organization of the City of San Luis Obispo ............................................................................................................................ xxviii GFOA Certificate ....................................................................................................................................................................... xxix Financial Section Independent Auditors’ Report .......................................................................................................................................................1-4 Management’s Discussion and Analysis ..................................................................................................................................... 5-31 Overview of the Financial Statements .......................................................................................................................................... 5 The Financial Year in Review ...................................................................................................................................................... 8 Overall Year-End Financial Statements ..................................................................................................................................... 21 2022-23 Budget Highlights......................................................................................................................................................... 29 i 77 DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 2 Page Basic Financial Statements Government-wide Financial Statements: Statement of Net Position ........................................................................................................................................................ 35 Statement of Activities ....................................................................................................................................................... 36-37 Fund Financial Statements: Balance Sheet – Governmental Funds ..................................................................................................................................... 38 Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position ...................................................................................................................... 39 Statement of Revenues, Expenditures and Changes in Fund Balance – Governmental Funds ...................................................................................................................................................... 40-41 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance to the Government-wide Statement of Activities ................................................................................................... 42 Statement of Fund Net Position Business-Type Activities – Enterprise Funds .................................................................. 43-44 Statement of Revenues, Expenses and Changes in Fund Net Position Business-Type Activities – Enterprise Funds .................................................................................................................................................................. 45 Statement of Cash Flows Business-Type Activities – Enterprise Funds ............................................................................ 46-47 Statement of Fiduciary Net Position - Fiduciary Funds .......................................................................................................... 48 Statement of Changes in Fiduciary Net Position - Fiduciary Funds ....................................................................................... 49 Notes to the Basic Financial Statements ................................................................................................................................ 51-99 Required Supplementary Information Section Budgetary Comparison Schedule – General Fund ............................................................................................................. 103-108 Schedule of the Changes in the Net Pension Liability and Related Ratios – Miscellaneous Agent Multiple – Employer Plan ................................................................................................................................... 110-111 Schedule of the Pension Plan Contributions – Miscellaneous Agent Multiple – Employer Plan ...................................... 112-113 Schedule of the City’s Proportionate Share of the Net Pension Liability – Safety Cost-Sharing Plan .............................. 114-115 Schedule of the City’s Pension Contributions – Safety Cost-Sharing Plan ....................................................................... 116-117 Schedule of the Changes in the Net OPEB Liability and Related Ratios ................................................................................. 118 Schedule of Employer OPEB Contributions ............................................................................................................................. 119 Notes to Required Supplementary Information ........................................................................................................................ 120 ii 78 DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 3 Page Other Supplementary Information and Combining and Individual Fund Statements and Schedules Local Transaction Tax Measure Funding Schedule ........................................................................................................... 123-125 Nonmajor Governmental Funds ........................................................................................................................................ 127-130 Combing Balance Sheet – Nonmajor Governmental Funds .............................................................................................. 132-137 Combining Statement of Revenues, Expenditures and Changes in Fund Balance Nonmajor Governmental Funds ................................................................................................................................... 138-143 Schedule of Revenues, Expenditures and Changes in Fund Balances – Budget and Actual: Downtown Business Improvement District Fund ................................................................................................................. 144 Transportation Development Act (TDA) Fund ..................................................................................................................... 145 Tourism Business Improvement District Fund ...................................................................................................................... 146 Gas Tax Fund ........................................................................................................................................................................ 147 Community Development Block Grant (CDBG) Fund ......................................................................................................... 148 Law Enforcement Grants Fund ............................................................................................................................................. 149 Public Art Contributions Fund .............................................................................................................................................. 150 SB1 Road Repair Fund ......................................................................................................................................................... 151 SB1186 ASP Certify ............................................................................................................................................................. 152 Debt Service Fund ................................................................................................................................................................. 153 Custodial Funds ................................................................................................................................................................. 155-159 Combining Statement of Fiduciary Net Position – Custodial Funds .............................................................................. 156-157 Combining Statement of Changes in Fiduciary Net Position – Fiduciary Funds............................................................ 158-159 Statistical Section Statistical Section – Overview (Unaudited) .............................................................................................................................. 163 Financial Trends: Net Position by Component – Last Ten Fiscal Years ............................................................................................................ 164 Changes in Net Position – Last Ten Fiscal Years ........................................................................................................... 165-166 Fund Balances of Governmental Funds – Last Ten Fiscal Years ................................................................................... 167-168 Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years ................................................................................................................................................. 169-171 General Fund Operating Expenditure Trends by Type – Last Ten Fiscal Years ................................................................... 172 iii 79 DRAFT**v1 City of San Luis Obispo, California Annual Comprehensive Financial Report Fiscal Year Ended June 30, 2022 Table of Contents Page 4 Page Revenue Capacity: Governmental Activities Tax and Franchise Revenues by Source – Last Ten Fiscal Years ................................................. 173 Assessed and Estimated Actual Value of Taxable Property – Last Ten Fiscal Years ........................................................... 174 Property Tax Rates – Last Ten Fiscal Years .......................................................................................................................... 175 Principal Property Taxpayers – Current Year and Nine Years Ago ...................................................................................... 176 Secured Property Tax Roll Levies and Collections – Last Ten Fiscal Years ......................................................................... 177 Schedule of Taxable Sales and Permits by Category – Last Ten Calendar Years ................................................................. 178 Historical Sales and Use Tax Rates ....................................................................................................................................... 179 Schedule of Business Tax Certificates Issued ....................................................................................................................... 180 Debt Capacity: Per Capital Outstanding Debt by Type – Last Ten Fiscal Years ........................................................................................... 181 Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capita Last Ten Fiscal Years ........................................................................................................................................................ 182 Direct and Overlapping Long-Term Debt – Fiscal Year Ended June 30, 2021 ..................................................................... 183 Computation of Legal Debt Margins – Last Ten Fiscal Years .............................................................................................. 184 Revenue Bond Coverage: Water Fund – Last Ten Fiscal Years ..................................................................................................................................... 185 Parking Fund – Last Ten Fiscal Years .................................................................................................................................. 186 Demographic and Economic Information: Demographic and Economic Statistics – Last Ten Fiscal Years ........................................................................................... 187 Principal Employers – Current Year and Nine Years Ago .................................................................................................... 188 Regular Authorized Positions – Last Ten Fiscal Years ......................................................................................................... 189 Operating Information: Operating Indicators and Capital Asset Statistics by Function – Last Ten Fiscal Years ................................................ 190-193 Water System Statistical Data ............................................................................................................................................... 194 Water and Sewer Rates – Last Ten Fiscal Years ............................................................................................................ 195-196 Water System Ten Largest Users – Fiscal Year Ended June 30, 2021 .................................................................................. 197 iv 80 DRAFT**v1 INTRODUCTORY SECTION v 81 DRAFT**v1 vi 82 DRAFT**v1 CityofSanLuisObispo,FinanceandInformationTechnology,990PalmStreet,SanLuisObispo,CA,934013249,805.781.7130, slocity.org Date TO: The Honorable Mayor and Members of the City Council and Citizens of the City of San Luis Obispo FROM: Derek Johnson, City Manager Brigitte Elke, Finance Director SUBJECT: TRANSMITTAL MEMORANDUM FOR ANNUAL COMPREHENSIVE FINANCIAL REPORT FOR FISCAL YEAR 2021-22 We are pleased to submit the City of San Luis Obispo’s 2021-22 Annual Comprehensive Financial Report ACFR). Section 810 of the City’s Charter requires that an audit of the City financial records be conducted each year by an independent certified public accountant. Such an audit has been performed and this report is being published as part of the requirement for the fiscal year ended June 30, 2022, within applicable timelines. Though the audit is conducted by an independent certified public account firm, City management assumes full responsibility for the completeness and reliability of the information contained in this report. We attest that, to the best of our knowledge, the data presented is accurate in all material respects and all statements and disclosures needed for the reader to obtain a thorough understanding of the City’s financial activities have been included. To provide a reasonable basis for making these representations, management of the City has established a comprehensive internal control and review framework that is designed both to protect the government’s assets from loss, theft, or misuse and to compile sufficient and reliable information for the preparation of the City’s financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP). Because the cost of internal controls should not outweigh their benefits, the City’s comprehensive framework of internal controls has been designed to provide reasonable rather than absolute assurance that the financial statements will be free from material misstatement. However, it is critically reviewed by the auditors annually and Finance staff throughout the year to assure compliance with applicable GASB rules and best practices in government accounting. Additionally, the City’s governing body receives reports on a quarterly basis and additional reports in accordance with State requirements are posted online on the City’s website at REPORT PURPOSE AND ORGANIZATION Audited Financial Statements The City’s financial statements were audited by Badawi and Associates, a firm of licensed certified public accountants currently under contract with the City. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City for the fiscal year ended June 30, 2022, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and vii 83 DRAFT**v1 TRANSMITTAL MEMORANDUM disclosures in the financial statements; assessing the overall accounting principles used and significant estimates1 made by management; and evaluating the overall financial statement presentation. The independent auditor concluded that the City’s financial statements present fairly2, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City as of June 30, 2022. They also fairly represent the respective changes in financial position, and, where applicable, cash flows in accordance with accounting principles generally accepted in the United States of America. The independent auditors’ report is presented as the first component of the financial section of this report beginning on page 1. Single Audit” for Federal Grant Programs. The independent audit of the financial statements of the City was part of a broader, federally mandated “Single Audit” designed to meet the special needs of Federal grantor agencies. The standards governing Single Audit engagements require the independent auditor to report not only on the fair presentation of the financial statements, but also on the audited government’s internal controls3 and compliance with legal requirements, with special emphasis on the administration of Federal awards (such as Transit funding). This audit has been completed and will be filed and distributed to appropriate agencies to meet Federal requirements and deadlines. GAAP requires that management provide a narrative introduction, overview, and analysis to accompany the basic financial statements in the form of Management’s Discussion and Analysis (MD&A). This letter of transmittal is designed to complement the MD&A and should be read in conjunction with it. The City’s MD&A can be found immediately following the report of the independent auditors beginning on page 5. Organization of the Annual Comprehensive Financial Report The report is presented in three sections: introductory, financial, and statistical. SECTION ONE - The Introductory section includes this transmittal memorandum and other information to familiarize the reader with the City, including a directory of officials and advisory bodies, the City's mission statement and organizational values, and charts. SECTION TWO - The Financial section consists of six parts: 1) the independent auditors’ report; 2) Management’s Discussion and Analysis; 3) the basic financial statements including the government-wide financial statements; 4) fund financial statements; 5) notes to the financial statements; and 6) required supplementary information; and additional statements and schedules including the local transaction tax information, non-major governmental funds, and agency funds. SECTION THREE - The Statistical section includes selected unaudited financial and demographic information generally presented on a multi-year basis. This information includes financial trends, revenue trends, debt capacity, demographics, and economic and operating information. This section also contains important information for the benefit of the required bond disclosures and rating agencies. 1 Significant estimates included in the financial statements are made in conformity with GAAP. 2 The Term “present fairly” means that the financial statements give a reasonable view of the financial results, financial position, and cash-flow of the reporting entity. 3 Internal controls are systematic measures instituted by an organization to conduct its business in an orderly and efficient manner; safeguard its assets and resources; deter and detect errors, fraud, and theft; ensure accuracy and completeness of its accounting data; produce reliable and timely financial and management information; and ensure adherence to its policies and plans. viii 84 DRAFT**v1 TRANSMITTAL MEMORANDUM As required by GAAP, these financial statements present the City (the primary government) and its component units (entities for which the government is financially accountable). Blended component units (although legally separate entities) are in substance part of the government's operations, and so data from these units are combined with data of the primary government. The City has two component units, the San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority, both of which provide financing for the construction and acquisition of City facilities. The Board/Authority is comprised solely of members of the City Council. Activities of the Board/Authority are accounted for in the applicable City governmental or enterprise funds. PROFILE OF THE CITY OF SAN LUIS OBISPO With a population of 47,653, the City is located eight miles from the Pacific Ocean and is midway between San Francisco and Los Angeles at the junction of Highway 101 and scenic Highway 1. The City serves as the commercial, governmental, and cultural hub of San Luis Obispo County. San Luis Obispo is the county seat and a number of Federal and State regional offices and facilities are located within the City and California Polytechnic State University and Cuesta College are in its sphere of influence. One of California’s oldest communities, the City began with the founding of Mission San Luis Obispo de Tolosa in 1772 by Father Junipero Serra as the fifth mission in the California chain of 21 missions. It was first incorporated in 1856 as a General Law City and became a Charter City in 1876. As a Charter City, San Luis Obispo has more local authority than cities that incorporate under the general laws of the State of California. The Charter is the City’s governing document, and any changes must be approved by the voters. The City’s Charter has been amended several times since its adoption, most recently in August 2011. Form of Government As set forth in the City Charter, the City operates under the “Council-Mayor-City Manager” form of government. The City Council has the authority to make and enforce all laws and regulations with respect to municipal affairs, subject only to the limitations of the City Charter and the State Constitution. There are four Council members, who are elected at-large and serve overlapping, four-year terms. The Mayor is also elected at-large for a two- year term and serves as an equal member of the Council. The City Council appoints the City Manager and City Attorney. All other department heads are appointed by the City Manager. City Services The City provides a wide range of municipal services, including police and fire protection, water and sewer utilities, street and parks maintenance, public transportation, parking, parks and recreation, planning, building and safety, and other general government services. Financial data for all funds through which services are provided by the City have been included in this report. Several municipal services are provided through other governmental agencies or private utility companies, including: Service Agency Courts, Health and Social Services County of San Luis Obispo Elementary and Secondary Schools San Luis Coastal Unified School District Community College San Luis Obispo County Community College District Solid Waste Collection and Disposal San Luis Garbage Company Gas, Electric and Telephone Private Utility Companies ix 85 DRAFT**v1 TRANSMITTAL MEMORANDUM The City is also a member of a Joint Powers Authority called Central Coast Community Energy (3CE) which sources clean and renewable electricity at competitive prices for the community and is delivered through the grid by PG&E. CCCE follows a Community Choice Aggregator or “CCA” model, a community-focused, “not-for- profit” model that allows for greater commitment to clean and renewable energy while supporting community reinvestment for affordable and fair rates and equitable access to clean-energy resources. It is locally controlled and governed by board members who represent the communities served by 3CE. Becoming a member of 3CE was an integral part of the City’s Major City Goal for Climate Action. For more information visit: Budgetary Policy and Control Though the City adopts a two-year Financial Plan, annual budgets are legally appropriated by the City Council by resolution and are prepared for each fund in accordance with its basis of accounting. As provided under the City Charter, the City Manager is responsible for preparing the budget and for its implementation after adoption. Financial reports are presented to the City Council and posted online on a quarterly basis. At mid-year, staff prepares a more in-depth status report for the City Council for the first six months of the fiscal year in addition to any fund balance information and long-term forecast based on the audited annual comprehensive financial report. Since the City uses a two-year Financial Plan, operating appropriations not expended during the first year may be carried forward into the second year for specific purposes with the approval of the City Manager. When applicable, these amounts are shown as assigned for subsequent year expenditures in the financial statements. At the end of the second year of the two-year plan, operating appropriations lapse unless they are committed by contract or purchase order. Multi-year budgets are adopted for capital projects as necessary but revert to fund balance after three years of non-activity. The City Council has the legal authority to amend the budget at any time during the fiscal year. The City Manager has the authority to make administrative adjustments to the appropriated budget if those changes will have neither a significant policy impact nor affect budgeted year-end fund balances. The City's budgetary policies are more fully described in Note 1 of the financial statements. Expenditure and budgeting details are maintained by the City for each fund and department by program area at the line-item level. Budgetary control is exercised through a computerized Enterprise Resource Planning (ERP) system, which interfaces with the City's general ledger. The system maintains an ongoing record of budget balances throughout the year based on actual expenditures and purchase order obligations. Open purchase orders at year-end are reported as assigned fund balance. The ERP system also maintains the City’s list of fixed assets. It is the City's policy to maintain an operating reserve in the General Fund of at least 20% of operating expenditures which is reflected in the committed fund balance. This policy objective has been achieved for fiscal year 2021-22. The City maintains a similar policy for working capital balances in the water, sewer, and parking enterprise funds. The Fleet Replacement Fund reserve policy is $500,000 and the Information Technology (IT) Replacement Fund reserve policy is $400,000 which have been met for 2021-22. With the 2021-22 fiscal year, the City also adopted a capital reserve in its Capital Outlay Fund of 20% of budgeted capital investments from the Local Revenue Measure for the fiscal year. This reserve will be adjusted with each budget adoption, funded from the local transactions tax, and is reflected in the Capital Outlay Fund. x 86 DRAFT**v1 TRANSMITTAL MEMORANDUM FACTORS AFFECTING FINANCIAL CONDITION The information presented in the financial statements is perhaps best understood when it is considered from the broader perspective of the specific environment within which the City operated in 2021-22. Ongoing Global Pandemic Though a gradual re-opening began in Spring of 2021, the City Council adopted its two-year Financial Plan for 2021-23 and the 2021-22 budget considering the effects of the worldwide pandemic brought on by COVID-19. Given the ongoing uncertainty regarding economic recovery, workforce reintegration and beginning issues with supply chain shortfalls, the budget approach, while cautiously optimistic based on better than anticipated results in 2020-21, remained relatively conservative in its forecasting. However, the investments into the adopted major city goals remained strong and concentrated on assisting the community with the recovery from the depth of the pandemic as well as addressing emerging trends and needs. The following goals were adopted, and specific work programs implemented to deliver on the community’s ambitions: Economic Recovery, Resiliency & Fiscal Sustainabiltiy Diversity, Equity, Inclusion Housing and Homelessness Climate Action, Open Space, and Sustainable Transportation As the year unfolded, the City’s major revenue sources continued to recover and grow, providing a much- improved fiscal outlook and the City’s ability to deliver on goals and objectives, as well as certain deliverables set forth in the adopted Fiscal Health Response Plan that stipulated significant additional payments toward the City’s unfunded pension liability. Several other factors played into the City’s financial condition throughout the year and at 2021-22 year-end: 1.Strong tax revenue including increased levels of Sales and Use Tax, Property Tax as well as record high Transient Occupancy Tax. The 2020 voter approved local transaction tax went into effect on April 1, 2021, and FY 2021-22 was the first full fiscal year with the increased tax rate. This local revenue measure has now become the City’s largest single tax revenue. The revenue picture forming during the first six months of the fiscal year allowed for significant adjustments at mid-year to address community needs and emerging issues in a timely fashion and as they were developing. 2.State & Local Fiscal Recovery Funds under the American Rescue Plan Act (ARPA). The Congressional American Rescue Plan Act approved $350 billion for state, local, territorial, and Tribal governments in form of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF). As an entitlement city, San Luis Obispo received $13.5 million in funding directly from the U.S. Treasury. The funding was received on July 6, 2021 and June 30, 2022, respectively. The City will use $10 million of the funding to replenish the revenue loss experienced in 2020 and pay for general government services. The remaining funding will be used in accordance with the U.S. Treasury Final Rule and was approved by the City Council via the 2022-23 Budget Supplement resolution in June 2022. None of the funding was used in FY 2021-22 and remains available for spending through 2026 per Council action which is as follows: xi 87 DRAFT**v1 TRANSMITTAL MEMORANDUM 3.Emerging Needs & Investment in Homelessness response and Diversity, Equity, and Inclusion The City’s two-year Financial Plan invested in response to homelessness and housing and well as Diversity, Equity, and Inclusion through Major City Goals and extensive work programs to fulfill the objectives adopted by the City Council. Due to the City’s fiscal outlook at mid-year, further investments were possible, and the adopted budget amended. The following are examples of the investments with the full report available at: Downtown Safety Enhancements Capital $375,000 Crisis Communication Planning Operating $50,000 Mission Plaza Landscape & Lighting Capital $120,000 Convert Mobile Crisis Unit to Permanent4 Operating $- Railroad Square Safe Parking Operating $64,633 Public Safety Customer Engagement Operating $17,000 Additional Pressure Washing Operating $25,000 Central Resident Inquiry Platform Operating $40,000 Additional Fire Inspection Personnel Operating $33,410 The total budget augmentation amounted to $8.3 million including a $3.9 million grant to the SLO Rep Theater for the new theater location on Monterey and Palm Street. Of the additions, $6.7 million were one-time investments and do not have an ongoing budgetary impact. Throughout the 2021-22 Fiscal Year, the City organization was asked to remain flexible and adjust to the changing conditions that the pandemic and continued directives, as well as the re-opening of business and travel activities presented. The local colleges returned to in-person sessions; all indicating a “normalization” of economic and service activities. Some of the programs implemented the previous year continued such as sidewalk dining, the tenant improvement program, shop local promotions, augmented childcare options, and virtual holiday activities. 4 The Mobile Crisis Unit was fully budgeted in FY2021-22 and this action integrated it into the budget ongoingly. xii 88 DRAFT**v1 TRANSMITTAL MEMORANDUM For additional information regarding the City’s ongoing investments in the City’s economic vitality please visit: Economic Indicators for San Luis Obispo in General Local Economic Environment Historically, and prior to the pandemic-driven conditions, the City has experienced a relatively stable economy, largely insulated from economic downturns in other parts of the State or the nation due to major State and federal employers such as the California Polytechnic State University (Cal Poly), California Men’s Colony, California Department of Transportation (Cal Trans) District 5 offices, the Regional Water Control Board, and Camp San Luis. It is also the County seat with significant county administrative offices and the regional courts. Employment. Due to the local economic environment and a large government presence and diversity, employment in the San Luis Obispo County region has historically been relatively stable. As noted above, the State has a major university, correctional facility, and other regional offices located in the community. The County government and school districts are also major employers. Other major employers include two major hospital facilities, several engineering and software companies, and Pacific Gas and Electric. The announcement to prolong the use of the Diablo Canyon Nuclear Power Plan presents an opportunity to continue jobs for trained professionals in the region. Of course, the historically solid base of employment in the County was not immune from the impacts of the pandemic; especially due to the full closure of Cal Poly and the change in the hospitality industry that relies on the student population. The California Employment Development Department (EDD) reported the unemployment rate in San Luis Obispo County at 11.5% in June 2020, down from a high of 14.8% in April 2020 and the height of the “stay at home” orders. However, after July 2020, the unemployment rate started to trend downward and with the gradual reopening, renewed travel activity, and the return of the colleges to on-campus teaching, the unemployment rate went from 5.5% in July 2021 to 2.6% at the end of the fiscal year according to the U.S. Bureau of Labor Statistics. Key Revenue Sources. As the commercial, governmental, and cultural hub of San Luis Obispo County, the City is fortunate to attract a diverse array of strong revenue sources. The top three revenue sources for the City are Sales & Use Tax, Property Tax, and Transient Occupancy Tax (TOT). The 2020 voter approved local transaction tax of one-and-a-half cent (Local Revenue Measure) went into effect in April 2021 to provide for an array of City services including infrastructure. In just over one year, this Local Revenue Measure has become the largest single tax revenue to the City, growing from $12 million to over $29 million. Of additional note in this fiscal year is the return of travel activity, especially for a drive-to market such as the City of San Luis Obispo. As people began enjoying time away from home, the City’s tourism industry bounced back and reached levels of activity not seen before. The related TOT ended the year well above the anticipated budget at its highest level to date at $10.6 million. All in all, the City’s Sales Tax revenue, strengthened by the new Local Revenue Measure, ended the year well above the adopted budget. Property Tax remained strong and experienced a further increase over previous fiscal years. The City’s fee revenues mostly provided the budgeted cost recovery, but development activities, though still strong, lagged and had to be adjusted downward. xiii 89 DRAFT**v1 TRANSMITTAL MEMORANDUM Long-Term Financial Planning. The City engages in a number of activities focused on long-term financial planning to gauge and adjust to current economic conditions and trends. Different scenarios are developed considering a multitude of information and resources. This effort was even more elaborate in FY 2021-22 due to the uncertainties surrounding the pandemic and gradual re-opening to pre-pandemic activity and assisted the City’s response to the unprecedented economic environment. Long-Term Fiscal Forecast. Before the two-year Financial Plan and budget process begins, the City Council reviews long-term fiscal forecasts for the General and the Enterprise Funds to help set the stage for sustainable decision-making. The purpose of the forecast is to consider long-term fiscal health and to identify the funds’ ability – on an order of magnitude basis – to maintain current services and existing assets and look at the opportunity to fund new initiatives. The 2022-27 forecast was completed in April 2021, before the City Council considered the 2021-23 Financial Plan. The City continued its cautiously optimistic approach given the multitude of remaining uncertainties, but due to a much better fiscal standing was able to adjust the budget at mid-year with a multitude of efforts to address community needs and further investments to assist with economic vitality after the depth of the pandemic. For more information on the Council action at mid-year 2021-22, please visit: 2021-22 Mid-Year Report. CalPERS and the City’s Unfunded Liability With the 2018-19 three-year Fiscal Health Response plan, the City had prepared a path to pay-down the City’s pension liability over a 20-year term, shortening the duration of prescribed payments and saving around $19 million in payments due. It did so by aligning its expenditures with the revenue forecast that would allow for additional annual payments. A first payment of $4.2 million was made in April 2019 and a second payment of equal amount was scheduled for April 2020. Due to the state of the health emergency, the City Council decided to retain any unassigned fund balance until the fiscal situation could be better assessed. It did so again in February 2021 when the next payment of $3 million was scheduled and uncertainties with pandemic driven restrictions continued. Given the City’s commitment to the additional payments and the year-end results, the previously earmarked amounts for the past three fiscal years were paid through unassigned fund balance, making good on 10.2 million in additional funding toward the City’s pension liability. An additional $2.2 million was paid through the City’s four enterprise funds as well as the Whale Rock Reservoir custodial fund and Tourism Business Improvement District Fund. In July 2021, CalPERS announced having ended the 2020-21 Fiscal Year with a 21.3% investment gain. This result triggered the previously adopted Risk Mitigation policy, lowering the future discount rate to 6.8%. The CalPERS board ratified the discount rate in November 2021, and it will become effective for the City with the 2023-24 fiscal year. Given this new reality, further influenced by a 6.1% investment loss at June 30, 2022, staff is reviewing its long-term strategy to gauge the appropriate level of additional payments moving forward and plans on including the strategy as a fiscal policy going forward. FINANCIAL CONDITION OVERVIEW Despite the background of economic uncertainty, changes in doing business, as well as new challenges stemming from the pandemic, the City ended the fiscal year 2021-22 in a better fiscal position than originally anticipated. All major revenue sources recovered or exceeded pre-pandemic levels and service fees recovered with the re- opening of venues and an immediate bounce back once restrictions were lifted. Though the Fiscal Health Contingency Plan was deactivated with the new Financial Plan, it assisted greatly in counter-acting the situation during the depth of the pandemic and allowed the City to invest in the community and situate it perfectly for an xiv 90 DRAFT**v1 TRANSMITTAL MEMORANDUM immediate recovery. The ultimate fiscal result was greatly supported by the additional local transaction tax that was in effect for the first full year in FY 2021-22, generating an additional $19 million in General Fund revenue. At June 30, 2022, the total General Fund balance was $40.7 million; a decrease of $6 million over 2020-21 despite the additional $10.2 million payment to CalPERS. This decrease was deliberate and funded a variety of one time costs such as pilot programs to address homelessness. Additionally, the City continued investing heavily in the economic vitality of the community and made substantial investment at mid-year to address emerging needs as well as new challenges such as labor and supply chain shortages. The table below shows the levels of fund balance in accordance with GASB 54 and the City’s policy pertaining to fund balance assignments. Fund Balance & Reserve Policy General Fund – Fund Balance per June 30, 2022 Non-spendable $90,797 Committed Contingency Fund – 20% policy level $12,014,000 General government programs $5,696,864 Risk Management $1,845,935 Assigned to: Encumbrances SLO Rep Theater grant 4,270,529 3,940,000 115 Trust Fund $2,000,000 CalPERS Payment $2,000,000 Development Services $530,657 Unassigned $8,356,724 Total Fund Balance $40,745,506 Continue to Focus on Sustainability and Long-term Fiscal Health With its Major City Goal for Economic Recovery, Resiliency & Fiscal Sustainability, the City continues its commitment to long-term fiscal health. The goal program aims to, in collaboration with local partners, continue to assist with economic recovery for all from the pandemic and sustain a thriving local economy by supporting local businesses, arts and culture, downtown vitality. It commits to practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure. Revenue Base Growth. Since the Great Recession, the US had experienced an unprecedented long-term expansion that continued into the latter part of 2019-20. Sales tax (including the local Transaction tax), Property Tax and Transient Occupancy Tax (TOT) had accounted for 69% of all funding sources in the General Fund. All of these revenues showed slow but steady growth over the past several years with Property Tax seeing the largest increase. However, all of this came to an abrupt halt with the onset of COVID-19 and the resulting global pandemic that placed the national and local economy on temporary halt. The forecast was uncertain as the pandemic ultimately influenced the entire 2020-21 fiscal year. However, quick action by Congress and substantial aid packages ranging from additional unemployment benefits, one-time payments to households, and protection from rent and utility payments, lead to an accumulation of wealth that resulted in continued purchasing power and consumption. The beginning trends of xv 91 DRAFT**v1 TRANSMITTAL MEMORANDUM the migration to online shopping were accelerated and sales tax revenue did not see the originally anticipated decline. Property tax remained strong as the real estate market continued to deliver. Tourism did clearly take a hit but continued to see activity and bounced back due to pent-up demand in the last quarter into the summer months. Development related fee revenue continued to see significant growth as development activity remained at unprecedented levels in the City, with two Community Facilities Districts beginning construction and housing continuing as a major City goal. These trends largely continued to accelerate during FY 2021-22 with travel activities returning strongly, retail shopping re-discovered, and housing markets retaining momentum. Only development began to tighten due to inflationary pressures and resulting monetary policy from the Federal Reserve to counter-act inflation. Labor shortages as well as supply chain challenges began to take a toll in the third quarter of the Fiscal Year and will be influencing the second year of the Financial Plan greatly. Containment of Operating Costs. The City’s efforts to control costs are ongoing while also addressing the need to remain an attractive employer and provide the services the community expects. The City has an extensive policy framework that allows immediate and nimble action to address adverse changes in economic and fiscal condition and will continue to activate as needed. The City’s implementation of a 2nd and 3rd tier retirement benefit program continues to change the City’s annual retirement contributions as 72% of the workforce is now enrolled in those retirement plan tiers. This is an increase of 15% over last year. These actions have been instrumental in helping the City contain current costs and long-term liabilities related to retirement benefit programs; furthermore, two of the City’s bargaining units as well as the Management & Confidential group pay additional contributions toward the City’s pension obligation. Infrastructure and Facilities Maintenance. As a growing city, San Luis Obispo has seen the need for capital expenditures grow steadily over the past decade. The need to maintain, repair or replace its current infrastructure is met with the need to build amenities for the community at large and the City’s Local Revenue Measure plays a vital part. The City plans on using 75 to 85% of the revenue for infrastructure improvements and enhancements and the Public Works department is gearing up to deliver the projects. For a list of projects delivered in FY 2021- 22 see page 5 in the Management Discussion and Analysis. The funding is allocated to projects in coordination of a number of adopted plans including the General Plan, Bicycle Transportation Plan, Downtown Concept Plan, and Mission Plaza Concept Plan. Each plan represents hours of community input and a vision to maintain and improve San Luis Obispo now and into the future. Ongoing Commitment to Local Transaction Tax Measure Priorities (Local Revenue Measure) The City remains committed to the priorities for the use of the local transaction tax measure as identified by the community. They include public safety, senior services, code enforcement, neighborhood street paving, open space preservation, traffic congestion relief and flood protection. The following table summarizes how the local transaction tax measure funds were used during fiscal year 2021-22. The voter approved increase took effect on April 1, 2021, and the table below reflects the first complete year with the new level of Local Revenue Measure in place and revenue amounting to $29 million. Total uses of the funding during 2020-21 amounted to $32.5 million, with an additional $2 million encumbered through purchase orders or contracts; the remaining balances of these resources are designated for future year expenditures. A more detailed schedule of local transaction tax measure sources and uses is provided in the Financial Section of this report beginning on page 123. xvi 92 DRAFT**v1 TRANSMITTAL MEMORANDUM Local Sales Tax Measure Revenue & Uses Summary 2021-22 Revenues: Sales and use tax - Measure G add-on tax $ 29,172,258 Use of money and property ($283,748) Total Revenues $28,888,510 Uses: Operating Programs ($6,912,660) Capital Projects ($25,578,957) Total Uses ($32,491,617) Change in Fund Balance ($3,603,107) Prior Sales Tax Measure Balance $9,299,971 Encumbered or designated for carryover for future year expenditures ($1,958,912) Net available for future year appropriations (note 1) $ 3,737,952 Note 1: Council took action on October 4, 2022 (R-11367) to allocate $2.1 million of the available fund balance Detail of transfers and expenditures is included with other supplementary information in the financial statements, which can be found beginning on page 121. RELEVANT FINANCIAL POLICIES The City of San Luis Obispo has adopted a comprehensive set of budget and financial policies to provide guidance for all fiscal matters and resource allocations. The policies are reviewed, amended, and updated with each Financial Plan adoption and as needed throughout the year. The policies cover virtually every aspect of financial management but several of these policies are particularly relevant to the understanding of the City’s financial performance in 2021-22. Debt Administration Policies The City’s Capital Financing and Debt Management policies contain general guidelines for refinancing of outstanding debt. These guidelines call for periodic review of all outstanding debt to determine refinancing opportunities, particularly to create economic benefit such as lower debt service payment or reduction of principal. The City always evaluates various options when considering the issuance of debt in order to benefit from the best long-term terms and conditions. Information on the City’s outstanding debt issues and other long-term liabilities is provided in Note 7 in the notes to the financial statements. In February 2022, Fitch Ratings, a nationally recognized statistical rating organization, reviewed the City’s financials, its fiscal outlook, and the current rating. On February 22, 2022, Fitch Ratings subsequently concluded that there should be no change to the existing rating at AA+ with a stable rating outlook. Fitch Ratings’ long xvii 93 DRAFT**v1 TRANSMITTAL MEMORANDUM term credit ratings are assigned on an alphabetic scale from AAA to D. The City’s AA+ bond rating means that the City’s investment grade is “quality”. Specifically, current lease revenue bonds (LRBs) issued by the San Luis Obispo Public Financing Authority remain at an 'AA’ rating and the LRBs issued by the City of San Luis Obispo Capital Improvement Board at an 'AA' rating. At this time, the City of San Luis Obispo has no general obligation debt. Fitch Ratings’ analysts had previously commended the City’s ability to respond to the economic impacts of the COVID-19 pandemic, “budget management at times of recovery is very strong, leaving the city well prepared to manage the current period of economic stress. The city engages in thorough and conservative long-term financial planning with a focus on maintaining structural budget balance, maintaining the city's capital assets with minimal debt reliance, and proactive efforts to pay down its unfunded retirement liabilities above actuarially determined levels.” Budgetary Policies The City of San Luis Obispo has a policy that requires the adoption of a balanced budget over the two-year period of the Financial Plan. This means that operating revenues must fully cover operating expenditures, including debt service. Additionally, ending fund balance (or working capital in the enterprise funds) must meet minimum policy reserve levels. Under this policy it is allowable for total expenditures to exceed revenues in any given year but only when fund balance is used to pay for capital improvement plan projects or other “one-time,” non-recurring expenditures. Fund Balance and Reserve Policies The City’s policies recognize the importance of long-range planning in managing the City’s fiscal affairs in order to provide for stable operations, promote more orderly spending patterns, and assure the City’s long-term fiscal health. The reserves contained in the General Fund and Enterprise Funds play a pivotal role in this strategy. The reserve policies call for a minimum fund balance of at least 20% of operating expenditures in the General Fund and a working capital level of 20% of operating expenses in the Water, Sewer, and Parking Enterprise Funds. The policies also require the Fleet Management and Information Technology Replacement Funds to provide for the timely replacement of vehicles and equipment as well as IT equipment and software and a reserve is retained in these funds to safeguard against unforeseen and unfunded issues. All reserve policies continue to be met. To further strengthen the Water and Sewer fund against revenue fluctuations, both funds carry a Rate Stabilization reserve of 10% of sales revenue for Water and 5% of sales revenue for Sewer. Long-Term Liabilities and Maintenance of Infrastructure With the 2017-19 Financial Plan, the City began to incorporate the use of one-time funds above policy reserve to unfunded pension liabilities and infrastructure into the City’s fiscal policies. Additionally, the City began addressing the long-term needs of its capital assets and categorizing asset maintenance, asset replacement, and new assets driven by new development. The City Council received a first presentation of the long-term needs of its infrastructure in early 2018 and the assessment continued into FY 2019-20 with the beginning stages of the SLOForward effort. It culminated in the City Council’s decision to place a measure on the November 2020 ballot for a 1.5 cent local transaction tax measure to supplant the 2006 enacted half-cent measure. The measure was successfully approved by 58% of the voters and the new local transaction tax went into effect on April 1, 2021. The immediate increase in this revenue stream is part of the favorable financial condition of the City at fiscal year-end and greatly assisted in additional economic recovery efforts at the tail end of the COVID19 restrictions xviii 94 DRAFT**v1 TRANSMITTAL MEMORANDUM and continued investment in the City’s extensive infrastructure. This Local Revenue Measure has now become the City’s largest tax revenue and the City remains committed to the majority of the funds being used to maintain, replace, and renew its growing infrastructure needs. Pension and Other Post-Employment Benefits The City contributes to the California Public Employees’ Retirement System (CalPERS), an agent multiple- employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provision and all other requirements are established by State statute and City ordinance. The amount of the City’s required annual contribution is determined actuarially and is reported to the City via the Annual Valuation Reports provided by CalPERS for each retirement plan. It is the policy of the City to fully fund the annual contribution to ensure that the plan will fully meet its obligation to retired employees on a timely basis. Prepaying the City’s unfunded liability will also reduce overall annual cost depending on whether approved actuarial assumptions are realized and are not adjusted by the CalPERS Board. As part of its cost reduction strategy, the City has implemented 2nd Tier and the state mandated 3rd Tier retirement benefit programs for new hires while also requiring all employees to pay at least the full amount of the member share of the annual retirement contribution. Beginning in 2018-19, and increasing in 2019-20, the City negotiated further concessions with employee groups to pay into CalPERS which will help lessen pension impacts to the City’s budget. The City continues to monitor legal developments and legislation that could positively or negatively impact the City’s finances and plans to counteract any adverse investment results with additional payments to CalPERS. The City has also established a Section 115 Trust fund with the California Employer’s Pension Prefunding Trust CEPPT), and based on the audited financials, plans on making its first contribution of $2.4 million in FY 2022- 23. xix 95 DRAFT**v1 TRANSMITTAL MEMORANDUM All employees currently pay the full employee contribution and the additional contributions agreed to are listed in the chart below: Police (Sworn) Employee Contribution Levels to PERS Retirement Percent of Salary) Safety PERS Tier Jul-20 Tier 1 (3% @ 50) 15% Tier 2 (2% @ 50) 15% Tier 3 (2.7% @ 57) 16.75% Police (Non-Sworn) Employee Contribution Levels to PERS Retirement Percent of Salary) Miscellaneous PERS Tier Jul-20 Tier 1 (2.7% @ 55) 14% Tier 2 (2% @ 60) 13% Tier 3 (2% @ 62) 10% Fire (Sworn) Employee Contribution Levels to PERS Retirement Safety PERS Tier Jul-20 Tier 1 (3% @ 50) 12% Tier 2 (2% @ 50) 12% Tier 3 (2.7% @ 57) 16.75% Employee Contribution Levels (includes appointed officials, department heads, unrepresented management, unrepresented confidential and non-sworn fire employees) to PERS Retirement Miscellaneous PERS Tier Jul-20 Tier 1 (2.7% @ 55) 11% Tier 2 (2% @ 60) 10% Tier 3 (2% @ 62) 10% Other Post-Employment Benefits (OPEB). The City’s primary OPEB cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program under the “unequal contribution option.” When the City joined the CalPERS health plan in 1993, it immediately experienced an increase in the plan choices available along with a significant reduction in rates. Due to CalPERS purchasing power, the City continues to experience competitive health care rates. However, as a condition of joining the CalPERS health program, the City agreed to contribute the minimum monthly amount required by law towards retiree health care xx 96 DRAFT**v1 TRANSMITTAL MEMORANDUM coverage for both active and retired employees. This allows retired employees to purchase health insurance at the same rate offered to active employees. Additionally, the City had established certain post-retirement health care benefits available to executive management employees appointed prior to August 2000. There is only one employee remaining who receives one-half of the retiree health insurance premiums paid by the City through the City's group health plan. This provision ceases upon the death of the retired employee or upon the retired employee reaching age 65. These OPEB benefits were financed on a pay-as-you-go basis in the past. As directed by Council in May 2008, the City began fully pre-funding the OPEB obligation via an irrevocable trust in 2008-09. Additional information on the City’s retirement and post-employment benefits can be found in Note 8 in the notes to the financial statements. MAJOR INITIATIVES The City continued its efforts on a number of significant initiatives in 2021-22 as adopted with the 2021-23 Financial Plan. As such, the Major City Goals drive the City’s strategic direction while maintaining the established core services the community expects and is accustomed to. For additional information on the City’s strategic initiatives go to Economic Recovery, Resiliency & Fiscal Sustainability In collaboration with local partners, continue to support economic recovery for all from the COVID pandemic and support a thriving local economy by supporting local businesses, arts and culture, downtown vitality, practicing fiscal responsibility, paying down unfunded pension liabilities, and investing in critical infrastructure. Housing and Homelessness To expand housing options for all, continue to facilitate the production of housing, including the necessary supporting infrastructure, with an emphasis on affordable and workforce housing. Collaborate with local non-profit partners and the county, the state, and federal governments to discover and implement comprehensive and effective strategies to reduce chronic homelessness. Diversity, Equity, Inclusion (DEI) In response to our commitment to making San Luis Obispo a more welcoming and inclusive city for all, continue to develop programs and policies to support diversity, equity, and inclusion initiatives and advance the recommendations of the DEI Task Force. Climate Action, Open Space, and Sustainable Transportation To proactively address the climate crisis, continue to update and implement the Climate Action Plan for carbon neutrality, including preservation and enhancement of open space and the urban forest, alternative and sustainable transportation, and planning and implementation for resilience. xxi 97 DRAFT**v1 TRANSMITTAL MEMORANDUM GASB Pronouncements for FY 2021-22 GASB Statement No. 87 - Leases This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. More detail is provided under Note 6 in the Financial Statements that follow. GASB Statement 97 – Certain Component Unit Criteria, and Accounting & Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. As disclosed in Note 10, the City’s 457 plans do not meet the definition of a pension plan as they are voluntary contribution plans available to employees who choose to contribute and have no required City contribution. AWARD FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) has awarded a Certificate of Achievement for Excellence in Financial Reporting to the City for its ACFR for the fiscal year ended June 30, 2021. The Award Program The Certificate of Achievement is a prestigious national award recognizing conformance with the highest standards for preparation of State and local government financial reports. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized annual comprehensive financial report whose contents conform to program standards. This report must satisfy both U.S. generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. The City has received a Certificate of Achievement each year since 1984. Staff believe that the City’s current ACFR continues to conform to the Certificate of Achievement program requirements and will submit it to GFOA to determine its eligibility for another certificate. xxii 98 DRAFT**v1 TRANSMITTAL MEMORANDUM Value of Program Participation. There are benefits to participating in these programs beyond simply receiving recognition for the City’s efforts. For example, by striving to meet program standards and goals, the City produces better reports. Additionally, as part of the review process, comments for improvement from other municipal finance professionals who review the reports from a “fresh” perspective are received. Staff believes that this results in continuous improvements in reporting the City’s financial results to elected officials, staff, and other interested parties such as bondholders, credit agencies, and the public at-large. ACKNOWLEDGMENTS The preparation and development of this report would not have been possible without the year-round dedication of the Finance Department staff and their special efforts, working in conjunction with the City's independent auditors, to produce this document. We would like to take this opportunity to compliment all those staff members within the Finance Department and in the other departments as well as our independent auditors who were associated with the preparation of this report. We would also like to thank the City Council for the continued support and dedication in planning and conducting the financial operations of the City in a fiscally responsible and progressive manner. xxiii 99 DRAFT**v1 DIRECTORY OF OFFICIALS AND ADVISORY BODIES CITY COUNCIL Erica A. Stewart Mayor Carlyn Christianson Vice Mayor Andy Pease Council Member Jan Marx Council Member Michelle Shoresman Council Member ADVISORY BODIES Active Transportation Committee Administrative Review Board Architectural Review Commission Construction Board of Appeals Council Compensation Committee Cultural Heritage Committee Housing Authority Human Relations Commission Investment Oversight Committee Mass Transportation Committee Parks and Recreation Commission Personnel Board Planning Commission Promotional Coordinating Committee Revenue Enhancement Oversight Commission Tourism Business Improvement District Board TreeCommittee APPOINTED OFFICIALS AND DEPARTMENT HEADS Appointed Officials Derek Johnson City Manager J. Christine Dietrick City Attorney Department Heads Shelly Stanwyck Assistant City Manager Greg Hermann Deputy City Manager Michael Codron Director of Community Development Brigitte Elke Director of Finance Keith Aggson Fire Chief Nickole Domini Director of Human Resources Richard Scott Police Chief Aaron Floyd Director of Utilities Greg Avakian Director of Parks & Recreation Matt Horn Director of Public Works xxiv 100 DRAFT**v1 MISSION STATEMENT SAN LUIS OBISPO STYLE Quality with Vision WHO ARE WE? People Serving People A team that puts high value on each citizen it serves. Providers of programs that meet basic service needs of each citizen. Enhancers of the quality of life for the community as a whole. WHAT DO WE STAND FOR? Quality in all Endeavors – Pride in Results Service to the community – the best – at all times. Respect – for each other and for those we serve. Value – ensuring delivery of service with value for cost. Community involvement – the opportunity to participate in attaining the goals of the City. WHERE ARE WE GOING? Into the Future with a Design Planning and managing for levels of service consistent with the needs of the citizens. Offering skills development and organizational direction for employees in order to improve the delivery of municipal services. Developing sources of funding and establishing a sound financial management program which will result in fiscal independence and flexibility in the delivery of City services. Providing the residents of the City with accurate and timely information on issues which affect them, and encouraging the full utilization of City services. Promoting the City as a regional trade, recreational and tourist center and improving the quality of life for residents and visitor. xxv 101 DRAFT**v1 ORGANIZATIONAL VALUES We, as an organization, embrace opportunities to improve our services and the quality and effectiveness of our relationships with the community and our teams. The following values guide and inspire our efforts. Shared Vision, Mission and Goals We have a sense of common purpose and direction pursued with passion and translated into concrete actions. Service We are dedicated to the best use of resources to fulfill identified community goals and needs. Leadership and Support We recognize that the ability to lead can be found at all levels and that to create an environment to succeed requires leading by example. Communication We foster open and clear discussion that encourages the willingness to speak up and to listen, within a framework of respect and understanding. Team Players We encourage effective working relationships within and between departments and the public to address issues and achieve valuable results. Honesty, Respect and Trust We honor commitments, acknowledge legitimate differences of opinion and accept decisions reached with integrity. Initiative and Accountability We take personal responsibility to do what needs to be done and report the results in a straightforward manner. Innovation and Flexibility We are open to change and willing to try new ways to fulfill the organization’s vision, mission, and goals more effectively. xxvi 102 DRAFT**v1 Employee Development and Recognition We encourage and support each employee to improve relevant job skills and celebrate personal and team accomplishments. Stewardship and Ethics We promote public trust by using City resources wisely, and through consistent fulfillment of these values. xxvii 103 DRAFT**v1 Patrol Fire, Medical & Haz Mat Natural Resources Recruitment Assistant City Manager Traffic Safety Emergency Response Economic Development Labor Relations Investigations Hazard Prevention Cultural Activities Fair Employment Neighborhood Services Fire Inspections City Clerk Services Risk Management Animal Regulation Disaster Planning General Administration Human Relations Information Technology GIS Management Budget Recreation Programs Water Engineering Long Range Planning Purchasing Ranger Services Sewer Transportation Development Review Accounting & Revenue Park Planning Utilities Resource Creek & Flood Protection Building & Safety Support Services Golf Course Conservation Maintenance Services:CDBG Administration Finance Administration Public Art Whale Rock Reservoir Streets, Parks, Bldgs Housing Community Development Administration Dept Reporting to the Assistant City Manager Utilities Human Resources Parks & Recreation Public Works Community Services RESIDENTS ADVISORY BODIES CITY MANAGER MAYOR & CITY COUNCIL DeptAppointedbytheCityCouncil Appointed by the City Manager CITY ATTORNEY Police Fire Finance xxviii 10 4 D R A F T v 1 Government Finance Officers Association Certificate of Achievement for Excellence in Financial Reporting Presented to City of San Luis Obispo California For its Annual Comprehensive Financial Report For the Fiscal Year Ended June 30, 2021 Executive Director/CEO xxix 105 DRAFT**v1 xxx 106 DRAFT**v1 FINANCIAL SECTION xxxi 107 DRAFT**v1 xxxii 108 DRAFT**v1 INDEPENDENT AUDITOR’S REPORT To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Report on the Audit of the Financial Statements Opinions We have audited the accompanying financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of San Luis Obispo, California (City) as of and for the year ended June 30, 2022, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents. In our opinion, the accompanying financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City, as of June 30, 2022, and the respective changes in financial position and, where applicable, cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinions We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the City and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Responsibilities of Management for the Financial Statements The City’s management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. 109 DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 2 In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for twelve months beyond the financial statement date, including any currently known information that may raise substantial doubt shortly thereafter. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: Exercise professional judgment and maintain professional skepticism throughout the audit. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the City’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control– related matters that we identified during the audit. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis, budgetary comparison information, pension plan and OPEB plan information on pages 5-31 and 103-120 be presented to supplement the basic financial statements. 110 DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 3 Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements. The local sales tax measure funding schedule, combining and individual nonmajor fund financial statements and budgetary comparison schedules, are presented for purposes of additional analysis and are not a required part of the basic financial statements. The local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules on pages 123-159 are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the local sales tax measure funding schedule, the combining and individual nonmajor fund financial statements and budgetary comparison schedules are fairly stated in all material respects in relation to the basic financial statements as a whole. Other Information Management is responsible for the other information included in the annual report. The other information comprises the introductory and statistical sections but does not include the financial statements and our auditor's report thereon. Our opinions on the financial statements do not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. 3 111 DRAFT**v1 To the Honorable Mayor and Members of the City Council of the City of San Luis Obispo San Luis Obispo, California Page 4 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated December 20, 2021, on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance. Badawi and Associates, CPAs Berkeley, California December 20, 2022 4 112 DRAFT**v1 Management’s Discussion and Analysis Overview of the Financial Statements The discussion and incorporated analysis in this document are intended to serve as an introduction to the City’s basic financial statements, which include the following components: (1) government-wide financial statements, (2) fund financial statements and (3) notes to financial statements. This report also contains required supplementary information (RSI) as well as other supplemental financial information. Government-wide Financial Statements. This set of statements is designed to provide readers with a broad overview of the City’s finances, in a manner similar to private-sector business reporting. The Statement of Net Position presents financial information on all the City’s assets/deferred outflows of sources and liabilities/deferred inflows of sources, with the difference reported as net position. In the private sector, it is similar to a balance sheet. Over time, increases or decreases in net financial position may serve as a useful indicator of whether the financial position of the City is improving or declining. In conformance with GASB 68, the Statement of Net Position reported for fiscal year 2021-22 considers the City’s long-term pension liabilities, effectively decreasing the City’s net financial position. The Statement of Activities presents changes in the government’s net position during the most recent fiscal year. All changes in net position are reported during the period when the underlying events giving rise to the change occur, regardless of the timing of the related cash flow. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods such as revenue pertaining to uncollected taxes. The City’s government-wide financial statements distinguish the functions of the City that are principally supported by taxes and intergovernmental revenues (governmental activities) from functions that are intended to recover all or a significant portion of their cost through user fees or that are required by grantor agencies or City policies to be accounted for in this fashion (business-type activities). The governmental activities include: (1) public safety, (2) transportation, (3) leisure, cultural and social services, (4) community development and (5) general government support services such as legal services, elections, human resources, risk management, finance, and information technology. The business-type activities of the City include: 1) water, (2) sewer, (3) parking operations and the (4) transit program. As required by U.S. Generally Accepted Accounting Principles (GAAP), these financial statements present the City the primary government) and its component units (entities for which the government is considered to be financially accountable). Blended component units, although legally separate entities, are in substance, part of the government's operations and data from these units are combined with data of the primary government. The San Luis Obispo Capital Improvement Board and the San Luis Obispo Public Financing Authority are reported as blended component units in these statements. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement 5 113 DRAFT**v1 Management’s Discussion and Analysis Board or San Luis Obispo Public Financing Authority. The City has no component units that require discrete presentation in accordance with Governmental Accounting Standards Board (GASB) standards. Pension Obligation. Pursuant to GASB Statement No. 68 (GASB 68), Accounting and Financial Reporting for Pensions, the City reports on the unfunded pension liability on the full accrual basis of accounting in the government- wide financial statements. The reports also include note disclosure requirements and supplementary schedules as required by GASB 68. The measurement date for fiscal year 2021-22 pension liabilities is as of the fiscal year ended June 30, 2021. This date reflects a one-year lag and was used so that these financial statements could be issued in an expedient manner. Activity (i.e., contributions made by the City) occurring during fiscal year 2021-22 are reported as deferred outflows of resources in accordance with GASB Statement No. 71. Fund Financial Statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City can be divided into three categories: (1) governmental funds, (2) proprietary funds, and (3) fiduciary funds. Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information reflects financial resources available in the near future to finance the City’s programs. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financial decisions. Both the governmental funds balance sheet and the governmental funds statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City maintains several individual governmental funds organized according to their purpose (general, special revenue, debt services, and capital projects). Information is presented in the governmental funds balance sheet and in the governmental funds statement of revenues, expenditures and changes in fund balances. The General Fund and Capital Outlay Fund are both considered major funds. Data from the non-major governmental funds are combined into one aggregated presentation. Individual fund data for each of the non-major governmental funds is provided in the form of combining statements in the supplementary information section in this report. Of the major funds, the City adopts an annual appropriated budget for the General Fund. A budgetary comparison statement has been provided as required supplementary information to demonstrate compliance with the budget. Budgetary information for non-major governmental funds with annual budgets has been provided with the fund financial statements in the supplementary information section in this report. Proprietary Funds. Proprietary funds are generally used to account for services for which the City charges customers; either outside customers or internal units/divisions of the City. Proprietary funds provide the same type of information as shown in the government-wide financial statements, only in more detail. 6 114 DRAFT**v1 Management’s Discussion and Analysis The only type of proprietary fund the City maintains is enterprise funds. The Water, Sewer, Parking, and Transit Funds are presented as business-type activities in the government-wide financial statements. The City considers all four of its enterprise funds to be major funds. Fiduciary Funds. Custodial funds are the only type of fiduciary funds maintained by the City. These are used to account for resources held for the benefit of parties outside the primary government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City’s own programs. An example of a custodial fund may include donations provided to the City to be utilized for specific purposes as well as other funds held in trust of another entity to be utilized for a specific purpose. A specific example is the Hazardous Materials Task Force Fund, created to provide special fire services around the County, which is funded by multiple county and city agencies. The accounting used for fiduciary funds is much like that used for proprietary funds. The Custodial Funds are presented with the fund financial statements in the supplementary information section. Notes to the Financial Statements. The notes provide additional information that is essential to the reader for a full understanding of the data provided in the government-wide and fund financial statements. Other Information. In addition to the basic financial statements and accompanying notes, this report also presents required supplementary information including budgetary comparison schedules, reporting of the local transaction tax measure (Measure G and G-20) and more detailed information concerning the City’s net pension liability, schedule of contributions to the pension plan and progress in funding its obligation to provide other post-employment benefits OPEB). Statistical Information. The statistical section presents detailed information as a context for understanding what the information in the financial statements, notes disclosures, and required supplementary information indicates about the City’s overall financial health. This information has been adjusted over time to also serve as required bond disclosure information. 7 115 DRAFT**v1 Management’s Discussion and Analysis The Financial Year in Review The following information provides a narrative overview and analysis of the financial activities of the City of San Luis Obispo (City) for the fiscal year that ended June 30, 2022. It should be read in conjunction with the accompanying transmittal memorandum and the basic financial statements. The 2021-22 City budget, representing the first of the two-year adopted Financial Plan, was prepared just when the gradual re-opening of the economy began to take shape. In many ways, FY 2021-22 therefore marked a transition year for the City organization. It restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role in finding a balance between the delivery of service and programs and capital infrastructure to serve a growing community and remaining an attractive employer in a rapidly changing and dynamic labor market; all trends that have become a part of the recovery from the pandemic and its influence on worldwide all the way to City economics. Year-End Expenditures – General Fund Overall, the General Fund finished the year in a positive position and experienced about 8% in net expenditure budget savings. The savings can be associated mainly with staffing vacancies as the overall labor market experienced the great “resignation/reshuffle”. In addition to the increased turnover due to labor market trends, the City also approved over 60 new positions with the 2021-23 Financial Plan to meet growing needs of the community and challenges related to Major City Goals. While most of these new positions were approved to hire on July 1, 2021 many were not hired until much later in the year due to the time required for recruitment. In some cases, the salary savings were re-purposed to hire temporary or consultant staffing to assist with the workload in the interim. FY 2021-22 also included a very ambitious Major City Goal work plan, and many efforts were not fully achieved by year-end due to the staffing vacancies and emerging priorities that emanated from factors outside the City’s control. While many factors account for annual budget fluctuations, the graph below provides a high-level illustration of the year-over-year growth in the General Fund Operating Expenditures. Prior to FY 2021-22, average operating budget growth hovered around 2.9% per year which was about 2.3% lower than the average annual CPI (Los Angeles Riverside) for the same period (5.2%). Growth spiked in FY 2021-22 due to a number of factors discussed below, thus increasing the six-year average to 4.8%. 1. The passage of Measure G-20 increased the local transaction tax from half to one-and-a-half cent. The local sales tax measure was approved to specifically offset increasing costs and the infrastructure needs of a growing city. While most of this new funding was allocated to the Capital Improvement Plan (CIP), there are also needs on the operating side to deliver the CIP and maintain the City’s growing infrastructure in addition to delivering a multitude of services and programs throughout the community. 2. A “catch-up” on costs of services. Over the 12 months ended June 2022, the Consumer Price Index for All Urban Consumers increased 9.1%. The 9.1% increase index was the largest 12-month increase since the 12- month period ending November 1981. FY 2021-22 includes some of these increases, but the base budget will increase even more significantly with the 2022-23 Budget. Economic Growth TaxRevenueCityExpenditures 116 DRAFT**v1 Management’s Discussion and Analysis Mid-Year Adjustments Given the 2020-21 audited financial results and the better-than-anticipated revenue picture at mid-year, the City was able to immediately address emerging needs and make further investments in capital infrastructure and assets. The following adjustments need to be considered when looking at the Financial Statements and the required supplementary information and budgetary comparison schedules (page 103 – 108). GENERAL FUND One-time Budget Appropriations 2021-22 SLO Rep Challenge Grant Operating 3,950,000 Vehicles for New Maintenance Positions Capital 210,000 Bob Jones Bike Trail Vegetation Management Operating 25,000 Downtown Safety Enhancements Capital 375,000 Crisis Communications Planning Operating 50,000 Transfer of Mitigation Fee Payment Operating 10,000 Litigation Support Operating 120,000 Council Hearing Room - Auto Tracking Camera Operating 30,000 Covid Tests Operating 30,000 Golf Course Pro Shop Flood Damage Repairs Capital 275,000 Reimbursement Agreement for 600 Tank Farm Capital 1,545,000 Mission Plaza Landscape & Lightning Improvements Capital 120,000 Total $ 6,740,000 Several of these one-time investments bridged immediate and emerging needs that turn into longer-term funding obligations. They will have to be carefully reviewed and ongoing funding could require trade-offs the City Council and City Management will have to consider with the new Financial Plan. 117 DRAFT**v1 Management’s Discussion and Analysis General Fund Operating Budget Additions1 FY 21-22 One-time Contingency: Benchmark Study Adjustments One-time 250,000 Part-time Fire Inspector (0.5 FTE) (Revenue Offset) Ongoing 11,025 Housing/Homelessness Contract Position Operating $40,000 Increased Mission Plaza Maintenance Ongoing $27,000 Additional Pressure Washing Ongoing $25,000 Additional Pruning/Watering Ongoing $200,000 Additional Streets Maintenance Staff Ongoing $60,750 CAPSLO Programming – Safe Parking One-Time $64,633 Centralized Resident Inquiry Platform Ongoing $40,000 Public Safety Customer Engagement Ongoing $17,000 Mobile Data Computers One-Time $14,200 Additional Farmers’ Market Support Ongoing $15,000 Contract Volunteer Coordinator P&R One-Time $32,850 Emergency Manager Ongoing $38,627 Parks Maintenance Beautification Gardener Ongoing $48,600 884,685 Detailed department information and variances explanations can be found in the year-end report that the City Council considered on October 4, 2022 , but overall, the General Fund departments ended the year within the appropriated budget at $66.5 million . As mentioned above, many departments ended the year with significant savings due to vacancies. The overall expenditure actual of $87.3 million includes the CalPERS annual payment for unfunded liabilities as well as the Additional Discretionary Payment (ADP) of $10.2 million ($12.4 million when combining all funds) that was made in March 2022. This amount reflects three years’ worth of allocations as prescribed by the City’s Fiscal Health Response Plan. The payments were originally scheduled to be made annually but were delayed due to the onset of the pandemic and the ensuing uncertainties as to the revenue sources of the City to preserve liquidity to maintain its services to the community. The City Council therefore decided to leave the amounts earmarked annually in fund balance until such time that there was more certainty that the effects of the pandemic were largely mitigated, and the City’s overall financial condition allowed for the payment. Also included in the final expenditures are the contractual and purchasing commitments entered into in FY2021-22. This amount is subsequently marked as assigned fund balance as portrayed on page 38. Though the City Council could take action regarding these commitments, they are often tied to contractual obligations the City has or are connected to work efforts already under way. 1 The ongoing services and programs are fully integrated into the 2022-23 budget and the long-term forecast. 10 118 DRAFT**v1 Management’s Discussion and Analysis Shown separately in order to reflect a more accurate year-over-year comparison for departments. Line 17 includes the FY 2021-22 one-time 10.2 million additional down payment to CalPERS from the General Fund (R-11307). This cost is distributed annually between the departments based on calculated weights. Year-End Revenue – General Fund Sales and Use Tax Revenue: Sales and use tax revenue far exceeded the City’s (and its Sales Tax consultant’s) projections for the year. This is consistent with trends across the state. High consumer spending accelerated by savings accumulation and pent-up demand continued with the gradual opening of the economy, the return of students to in- class sessions, and renewed travel activity. High inflation through labor and supply chain issues intertwined with Federal Reserve monetary policy to counteract inflation and a war driving gas prices to all-time highs, all greatly impacted sales tax. A highly vulnerable revenue stream, sales tax remains a cautionary tale. Although unemployment rates remain low, fuel price instability, stock market woes, and rising consumer prices (as raw materials and components are more expensive) could further weaken consumer confidence and households will likely pull back on discretionary purchases as 2023 arrives. International supply chain issues show a steady recovery, but employee costs and labor shortages may impact future spending patterns, especially in the City’s tourism realm as household income realities catch up with pent-up demand from the pandemic lock-down. The graph below shows the change in sales tax by major business group for Q1 2022 (January-March 2022). For the full report, visit slocity.org/finance. FY 2020 21 FY 2022 23 Actual Budget Actual Funds Available Budget 1 Internal Services 2 Administration/IT 7,060,343$9,758,782$8,720,808$1,037,974$11%9,620,216$ 3 City Attorney 897,198$1,395,133$1,357,168$37,965$3%1,132,935$ 4 Finance 1,533,386$1,999,107$1,878,681$120,426$6%2,010,387$ 5 Non dept,Support Services 1,528,100$1,689,430$647,282$1,042,148$62%2,912,928$ 6 Human Resources 1,215,799$1,620,810$1,608,917$11,894$1%1,480,118$ 7 Public Safey 8 Fire 11,621,200$12,192,029$12,082,810$109,219$1%11,585,358$ 9 Police 13,902,407$15,394,812$15,180,032$214,780$1%16,324,782$ 10 Community Services Group CSG) 11 CSG Administration 321,209$698,691$577,508$121,183$17%496,566$ 12 Community Development 5,941,116$7,563,761$6,621,942$941,818$12%5,968,524$ 13 Parks Recreation 3,653,727$4,800,963$4,158,021$642,942$13%4,758,728$ 14 Public Works 11,359,789$14,338,105$13,332,656$1,005,449$7%14,662,503$ 15 Solid Waste Utilities)117,439$332,271$170,662$161,610$49%282,743$ 16 Total 59,151,714$71,783,893$66,336,486$5,447,407$8%71,235,788$ 17 CalPERs Unfunded Liability* 9,586,928$20,837,422$20,837,422$0%11,815,513$ 18 Total 68,738,643$92,621,316$87,173,909$5,447,407$6%83,051,301$ In d e x Department FY 2021 22 119 DRAFT**v1 Management’s Discussion and Analysis Local Transaction Tax (Local Revenue Measure): The local transaction tax largely mirrors the sales tax trends. FY 2021-22 marks the first full year that the City collected the additional 1% tax from Measure G-20. As a result, annual collection increased to about $29 million from this revenue source, making it the largest tax revenue for the City. For a more detailed account of the Local Revenue Measure, see pages 123 to 125. Property Tax: Property tax revenue continues to increase, and the City recorded an all-time high in FY 2021-22, nearly 4% higher than the prior year due to an attractive and flourishing real estate market. The main reason for growth is the transfer of ownership and the increase in Taxable Assessed Value of homes in the community largely supported by record-low mortgage rates in 2021. As rates now increase, the housing market is beginning to cool, and sales prices begin to plateau. Data shows that number of home sales were down 30.3% in July 2022 compared to July 2021, but the median sale price was up 13.3%2 . The County Assessor’s Office anticipates an additional 4% growth in 2022-23 based on Proposition 13 increases and assessed valuations of homes. Transient Occupancy Tax (TOT): Tourism along the central coast made a strong comeback in FY 2021-22 as the region reopened and benefited from being a drive-to destination. Monthly TOT receipts reached all-time highs largely driven by high room rates. The City received about $1.6 million more than its revenue projections for the year. However, as inflation and gas prices increase and pent-up demand declines, the City’s tourism program together with the countywide tourism office expect to see a growth plateau and a possible decline in FY 2022-23. Utility User Tax (UUT): UUT was slightly below the budgeted amount in FY 2021-22. Utility User Taxes have historically been considered a stable tax revenue source for local governments; however, that changed in 2017, when the Federal Communications Commission reclassified broadband internet, voicemail, and text messaging to a nontaxable classification of communication. The result has been declining or stagnant UUT revenue for telecommunications for most local governments. Increased taxes due to increased energy costs (particularly over the last year) have helped offset the decline in telecommunications taxes. As a result, the City collected nearly $200,000 more than what was collected in the previous year. The City has further benefited from its UUT Administration contract with a third-party vendor. Staff time has been reduced nearly tenfold on collection, enforcement, and other administrative duties required of this tax. Additionally, the vendor helped collect over $25,000 in penalties from delinquent businesses over the last fiscal year, neutralizing the cost of the contract. 2 “San Luis Obispo County Housing Market.” Redfin, 20 Aug. 2022, 12 120 DRAFT**v1 Management’s Discussion and Analysis Business Tax: Business taxes are collected at the beginning of the fiscal year and are based on the gross receipts of the previous calendar year. FY 2021-22 revenues were lower than the previous fiscal year because businesses remitted payment based on their 2020 gross receipts, the year most impacted by COVID-19 and the economic shutdown. Staff had anticipated the decline in revenue and the year-end result slightly surpassed the budgeted forecast. Cannabis Tax: Cannabis tax revenues stabilized in FY 2021-22 now that two retail locations are operating in the City, Cal Poly is fully open, and tourism is returning to pre-pandemic levels. Interestingly, the monthly remittal amounts were nearly the same across the entire fiscal year, unlike sales and transient occupancy taxes which fluctuate seasonally. Staff will closely monitor this revenue during the next fiscal year to determine how variables such as new operators entering the market will impact total cannabis sales within the City. Audits and periodic inspections will continue to be a part of the City’s operations to ensure compliance with state and local regulations. General Government: General Government revenue includes all of the City’s non-departmental revenue such as business licenses, interest earnings, and rent revenue. It also includes grant and subvention revenue which often fluctuates significantly from year to year. For example, in 2021-22 the City received over $1.0 million in Mutual Aid reimbursement. This revenue offsets the Fire Department’s overtime expenditures incurred from sending aid to multiple fires throughout the state. The most notable variance in this category was a negative $1.7 million Fair Market Value (FMV) adjustment. The FMV adjustment is essentially an accounting process that makes it possible to reassess the fair value of the City’s assets when there is a considerable difference between the market and the current book value of the City’s monetary assets. General Fund Revenue compared to previous year and final budget Gas Tax (SB1) is reflected in this schedule of revenues however it is recorded as a transfer from the Gas Tax Fund in the fund financial statements. Development Review Revenue Though high development activity continued into FY 2021-22, several of the fees collected in Community Development for Planning and Building services did not reach the anticipated budget. Most notably, Building Permits, 2021 Actuals 2022 Budget 2022 Actuals 2022 Variance %Received Tax and Franchise Revenue 72,785,610$89,230,869$96,491,194$7,260,326$108.1% Tax and Franchise Revenue 72,785,610$89,230,869$96,491,194$7,260,326$108.1% Local Revenue Measure G 12,779,713$25,810,000$29,172,258$3,362,258$113.0% Sales Tax Bradley Burns)20,067,740$20,790,779$22,247,303$1,456,524$107.0% Property Tax 19,858,530$20,157,153$20,711,004$553,851$102.7% Transient Occupancy Tax 6,960,035$9,051,000$10,650,762$1,599,762$117.7% Utility User Tax 5,225,979$5,383,000$5,338,325$44,675)$99.2% Business Tax 2,937,176$2,832,000$2,823,163$8,837)$99.7% Franchise Fees 1,796,829$1,575,000$1,978,295$403,295$125.6% Gas Tax 1,038,124$1,223,937$1,130,063$93,874)$92.3% Cannabis Tax 844,939$1,000,000$998,875$1,125)$99.9% Gas Tax SB1)851,408$915,000$911,849$3,151)$99.7% Safety Prop 172 425,136$493,000$529,299$36,299$107.4% Fees for Service and Other Revenue 15,897,980$13,695,038$11,855,961$1,839,076)$86.6% Development Review 7,089,762$6,971,140$5,964,790$1,006,350)$85.6% Parks Recreation 1,616,445$1,626,151$1,694,241$68,090$104.2% Fire 1,500,759$1,443,440$1,498,428$54,988$103.8% Grants Subventions 3,200,951$1,274,368$2,028,668$754,300$159.2% Other Revenue 1,357,008$1,184,751$533,074)$1,717,825)$45.0% Police 600,406$619,744$577,441$42,304)$93.2% Business Licenses Incl Cannabis)532,649$575,443$625,468$50,025$108.7% 121 DRAFT**v1 Management’s Discussion and Analysis while the second highest total for building permits in the City’s history and the highest total in FY 2020-21, began to notice the slow-down associated with supply chain issues, inflation, and increased interest rates. Infrastructure Plan Check and Inspections realized the most significant gap in the revenue projections as several anticipated projects did not complete the plan review process during the FY2021-22. In addition, there were approximately $1 million associated with future phases of the Avila Ranch project that were not submitted in FY 2021-22 as previously forecasted. Other Revenue This Revenue category includes rents & leases, fines & forfeitures, damage to City property, and miscellaneous revenues not easily categorized. It also reports on the City’s Interest on Investments which experienced large losses due to the largest Fair Market Value adjustments on investments experienced in 40 years. See Note 2 – Cash and Investments. Detail for the Local Revenue Measure The City’s Local Revenue Measure (half percent transaction tax) is a sub-fund of the General Fund. The activities reflected in the Financial Statements of this report are provided for information regarding the use of the Measure’s according to the community’s priorities and the recommendation of the Revenue Enhancement Oversight Commission, a City Council advisory body, overseeing the allocations. For FY 2021-22, the following revenues and expenditures were recorded: General Fund Budgetary Highlights A detailed budgetary comparison schedule for the year ended June 30, 2022, is presented as required supplementary information following the notes to the financial statements. The final budget amounts include changes that were approved by the City Council through June 30, 2022. The following summarizes the original budget compared with the adjusted final budget for fiscal year 2021-22. The adjusted final budget includes Council approved adjustments as well as administrative budget adjustments in Budget Actual Revenue Transaction Tax 25,810,000$ 29,172,258$ Investment Income (283,748) Total 25,810,000$ 28,888,510$ Expenditures Budget Actual Encumbrances Carryover Operating Programs 6,912,660$ 6,912,660$ -$ -$ Capital Programs Community Safety and Emergency Preparedness 2,755,697 848,909 609,179 1,297,609 Creek and Flood Protection 1,074,772 741,423 119,342 214,007 Safe and Clean Public Areas 1,334,564 419,810 183,161 731,593 Economic Development and Business Retention 1,154,716 410,161 7,500 737,055 Youth/Senior Services and Recreation Facilities 3,996,965 1,775,775 41,997 2,179,193 Street Maintenance and Transportation 11,723,238 4,791,725 1,756,116 5,175,396 Open Space/Natural Areas Preservation and Maint. 1,819,605 1,190,577 98,057 530,971 Other Services and Projects 1,975,179 913,890 89,672 971,617 Total Expenditures 32,747,396$ 18,004,930$ 2,905,024$ 11,837,441$ 2021-22 Local Revenue Measure Budget to Actual 14 122 DRAFT**v1 Management’s Discussion and Analysis accordance with the City’s adopted fiscal policies and procedures. As outlined on page 103, the City Council took action at mid-year to address emerging needs and community interest which resulted in significant budget adjustments for the fiscal year. As discussed below, differences between the original budget and the final amended budget reflect the following key changes: Revenue budgets were increased by $9.4 million primarily for sales, transaction and transient occupancy tax. Overall expenditure budgets were also augmented by $17.1 million for the General Fund. The increases were made to respond to emerging needs and community services as outlined above. Budgets were also increased for encumbrances and carryover of purchase commitments that had not yet been executed at the end of the prior fiscal year as well as the additional payment to CalPERS towards the City’s unfunded liabilities. The following table compares the actual results for revenues, expenditures, and fund balance with the final budget for the General Fund. As the table shows, revenues exceeded the final budget by over $4.2 million, while expenditures ended below the final budget by approximately $6.9 million. The net other sources and uses ended above budget by 3.8 million resulting in an ending fund balance that was $7.2 million greater than anticipated. BUDGETARY HIGHLIGHTS General Fund Original Budget Final Budget Positive (Negative) Variance Revenues 92,799,078$ 102,188,180$ 9,389,102$ Expenditures 76,294,603 93,440,299 (17,145,696) Other sources (uses)(18,937,662) (22,632,216) (3,694,554) Beginning fund balance 47,365,717 47,365,717 - Ending fund balance 44,932,530$ 33,481,382$ (11,451,148)$ General Fund 2021-22 2021-22 Actual Positive (Negative) Variance Revenues 102,188,180$ 106,399,537$ 4,211,357$ Expenditures 93,440,299 86,545,247 6,895,052 Other sources (uses)(22,632,216) (26,474,501) (3,842,285) Beginning fund balance 47,365,717 47,365,717 - Ending fund balance 33,481,382$ 40,745,506$ 7,264,124$ Ending fund balance Nonspendable - 90,797 90,797 Restricted - - - Committed - 19,556,799 19,556,799 Assigned - 12,741,186 12,741,186 Unassigned - 8,356,724 8,356,724 Total ending fund balance 33,481,382$ 40,745,506$ 7,264,124$ BUDGET - ACTUAL COMPARISON 123 DRAFT**v1 Management’s Discussion and Analysis Year-End – Business-Type Activities The City’s business-type activities are financed through rates for services and should be self-sufficient in covering their expenses with their sales and services revenue. Also called Enterprise funds, the City has four such entities with Water, Sewer, Parking, and Transit. While two of the City’s four Enterprise funds fared well through the pandemic years and moved seamlessly back into the re-opening period, two of them remained subdued and only seeing a return to more normalized activity toward the end of the fiscal year. Following is an analysis of each fund and their fiscal standing at the end of 2021-22 and like the Governmental Funds, all of the Enterprise funds were affected by the Fair Market Value Adjustments indicated in Note 2 – Cash and Investments. Water Fund Water Revenue was $6.7 million more than budgeted primarily due to high development activity and the related impact fees. Staff continues to refine the methodology behind development impact fee projections; but the cyclical nature of development makes forecasting challenging. Water service charges surpassed budget by $1.1 million due to a dry winter which resulted in increased irrigation needs within the community. Additionally, staff had budgeted conservatively for water service charges in FY 2021-22 to account for uncertainties associated with continued COVID- 19 impacts. Though the Water Fund began seeing the influences of supply chain issues related to raw material and chemicals as well as increases in utilties toward the end of the fiscal year, it was able to manage its expenses and remain under budgeted allocations. As inflation continues to remain at high levels further driving the factors influencing the Fund’s operation, the effects will be more pronounced in the coming fiscal year. Budget Actual Variance % Service Charges and Base Fees 22,645,942$23,269,764$24,622,357$1,352,593$106% 24,123,079$ Investment and Property Revenue 585,004 407,600 714,713)1,156,998)175%50,000 Other Revenue 414,589 339,780 222,451 121,316 65%209,000 State Grants 326,440 256,395 1,621,599 1,365,204 632% 1,395,000 Cal Poly Capacity Resilience 535,180 223,000 114,317 108,683)51%259,490 COVID Rate Relief Program 225,016)225,016) Development Impact Fees 4,746,439 5,160,020 5,160,020 Federal Stimulus Grants 226,994 226,994 Total 29,253,595$24,496,539$31,028,009$6,735,429$127% 26,036,569$ Water Fund Revenue FY 21 Actual FY 2021 2022 FY 23 Forecasted Budget Budget Actual Funds Available % Staffing 4,142,776$5,551,424$5,174,679$376,745$7%4,961,606$ Contract Services 10,066,890 11,620,462 10,700,008 920,454 8%11,393,356 Other Operating Expenses 770,887 1,286,281 967,819 318,462 25%1,449,507 Utilities 564,395 676,872 531,769 145,103 21%688,885 General Government 1,729,965 1,722,409 1,722,409 0%1,535,175 TOTAL 17,274,913$20,857,448$19,096,684$1,760,764$8%20,028,529$ Exclusive of GASB 68/75 adjustments FY 21 Actual FY 2022 23BudgetWaterFundOperatingExpenses FY 2021 22 124 DRAFT**v1 Management’s Discussion and Analysis Sewer Fund Sewer development impact fees exceeded budget by approximately $3.7 million, reflective of continued development in the City and changes associated with construction timelines. Sewer service charges and base fees were more than budgeted by $1.1 million as staff budgeted conservatively for Sewer service charges in FY 2021-22 considering ongoing pandemic influences and impacts and the moratorium for service shut-off due to non-payment was not lifted until December 2021. As reflected in the Statement of Cash Flows, cash was impacted in the Sewer Fund due to the timing of debt proceeds received for the Water Resource Recovery Facility (WRRF) project reimbursements. Last fiscal year, debt proceeds were lower due to delays in funding related to the construction timeline and project costs carrying over to FY 2021- 22. In addition, State Grants was $4.6M below anticipated budget primarily due to the timing of WRRF construction and reimbursement requests associated with grant awards. Like the Water Fund, the Sewer Fund began feeling the effects of inflation and related labor and supply chain issues toward the end of the fiscal year. However, staff had taken action early to make sure materials related to the WRRF upgrade were already on site and most of the work was able to proceed. Overall, the Fund was able to maintain within its allocated expense budget achieving an overall savings of $1.5 million with significant savings in staffing costs. Parking Fund As part of the mid-year budget process, the Parking Fund forecast was adjusted to estimate revised revenues for FY 2021-22 due to the economic impacts and parking activities following the height of COVID-19, and adjustments in parking operations. When preparing budget adjustments, staff used a conservative approach considering the limitations COVID-19, the re-opening of the economy and renewed travel activity may have on parking revenue. Ultimately, Parking programs returned to pre-COVID activity levels quicker than anticipated and revenue actuals exceeded the revised projections by year-end by 10%. On-street parking revenue in June 2021 was nearly identical to revenue received in February 2020 prior to the COVID pandemic. Similarly, parking structure usage quickly returned to pre-COVID levels beginning in May 2021 when the Farmer’s Market was reestablished and non-city staff who work in the downtown area began to utilize the long-term parking program. These are positive indicators of a Parking Budget Actual Variance % Service Charges and Base Fees 16,942,094$18,004,047$19,109,600$1,105,553$106% 18,634,189$ Development Impact Fees 3,836,955 3,685,008 3,685,008 Other Revenue 541,862 382,000 603,873 223,981 159%291,000 Investment and Property Revenue 9,607 401,514 1,024,551)1,437,268)258%50,000 Grants 258,467 4,784,288 97,413 4,686,875)2% Cal Poly Capacity Resilience 243,568 243,568 243,568 100%243,568 Total 21,832,552$23,815,417$22,714,910$1,109,602)$95% 19,218,757$ FY 2021 2022 FY 23 Forecasted BudgetSewerFundRevenueFY21Actual Budget Actual Funds Available % Staffing*4,424,073$5,775,389$5,183,631$591,758$10%4,889,494$ Contract Services 3,517,931 1,999,295 1,574,248 425,047 21%863,361 Other Operating Expenditures 1,182,999 1,542,872 1,357,622 185,250 12%1,741,111 Utilities 540,553 790,227 539,357 250,870 32%937,710 General Government 1,632,521 1,712,752 1,712,752 0%2,573,783 TOTAL 11,298,077$11,820,535$10,367,610$1,452,925$12%11,005,459$ Exclusive of GASB 68/75 adjustments FY 2020 21 FY 202223SewerFundOperatingExpenses FY 2021 22 125 DRAFT**v1 Management’s Discussion and Analysis Fund moving toward fiscal sustainability into the new fiscal year. The Parking fund also experienced the effects from the Fair Market Value adjustments which is included under “Other Revenue” however, other miscellaneous revenues such as rents & leases were able to counteract some of the downward adjustments of $445,207. Due to the revenue shortfall and gradual recovery to pre-pandemic levels, Parking managed its expenses while also grappling with labor market challenges influencing the re-staffing of its programs. It therefore ended the year within the allocated budget with savings stemming from salary savings that in turn necessitated the use of contract services to maintain the services. Transit Fund In FY 2021-22, the Transit Program looked to the Federal Urbanized Area Grant Funding program (5307 funds) to supplement the Transit Fund, paying for 50% of the operating costs while the remaining funds were state and local transit funds. The City secured Federal grant funding from the American Rescue Plan Act (ARPA) for 100% of operational costs beginning in FY 2022-23 for three fiscal years, and will address driver wages, allow for the purchase of additional zero emission buses, and support other capital projects. The reduction in service levels resulted in cost savings that helped to offset lost fare revenues. The unused balance of annual allocations of Federal 5307 and State Transit Development Act (TDA) Funds have been deferred for future use in FY 2022-23. The variance in the table below is due to both State and Federal grant disbursement timing where it is normal for full revenues to be realized in the Fall or based on receipts of reimbursements. Budget Actuals Variance % Parking Meters 1,265,085$1,940,863$2,210,191$269,328$114% 2,268,500$ Parking Fines 654,284 657,606 928,909 271,303 141% 793,500 Parking Structures 346,300 835,294 1,109,187 273,893 133% 1,328,450 Long Term Parking 422,381 547,795 623,639 75,844 114% 844,900 Other Revenue 380,778 569,578 685,822 116,244 120% 595,400 Total 3,068,827$4,551,136$5,557,749$1,006,613$122% 5,830,750$ FY 2021 2022 Forecasted BudgetFY21ActualsParkingFundRevenue Budget Actual Funds Available % Staffing*1,126,434$2,022,327$1,574,054$448,273$22%1,917,920$ Contract Services 847,922 1,129,895 1,008,835 121,060 11%584,065 Other Operating Expenditures 200,385 362,989 374,319 11,330)3%401,525 Utilities 117,581 211,301 170,905 40,396 19%221,933 General Government 710,211 869,887 869,887 0% TOTAL 3,002,533$4,596,400$3,998,000$598,399$13%3,125,444$ Exclusive of GASB 68/75 adjustments FY 2020 21 FY 202223ParkingFundExpenses FY 2021 22 Budget Actuals Variance % Federal 2,805,689$4,093,659$1,877,362$2,216,297)$46% 7,248,297$ Local Bus Fare)328,184 687,500 710,457 22,957 103%850,000 Other Revenue/Interest Revenue 4,047 30,826 131,428)162,254)426%6,500 State 351,998 2,743,064 1,332,876 1,410,188)49% 2,040,941 Total 3,489,918$7,555,049$3,789,267$3,765,782)$50% 10,145,738$ Forecasted Budget FY 20212022FY202021ActualsTransitFundRevenue 126 DRAFT**v1 Management’s Discussion and Analysis The Transit Fund operating costs are typically split equally between state and federal funding sources after deducting the mandated 20% farebox recovery. The state provides TDA funds based on the adopted budget and federal funds are based upon actual costs. When the Transit Fund has savings there will be a reduction in federal funds being reimbursed which shows as a reduction in revenues. The largest expense for the Fund is in contract services as the operation of the transit service as well as maintenance is contracted out. Ridership Recovery Budget Actual Funds Available % Staffing*313,020$422,212$334,738$87,474$21%298,896$ Contract Services 2,611,522 3,788,402 2,666,078 1,122,324 30%2,895,950 Other Operating Expenditures 220,003 496,424 353,858 142,566 29%684,513 General Government 321,727 226,183 226,183 0%365,544 TOTAL 3,466,272$4,933,221$3,580,857$1,352,364$27%4,244,903$ Exclusive of GASB 68/75 adjustments FY 2020 21 FY 202223TransitFundExpenses FY 2021 22 127 DRAFT**v1 Management’s Discussion and Analysis Combined Program Expenses and Revenue for Business Type Activities Revenue Sources: Operating revenues for services increased by $6 million with Parking and Transit revenue beginning to normalize to pre-pandemic levels while Water and Sewer services remained strong throughout the year with the pandemic restrictions lifted in December 2021. Program Expenses: As outlined in the prior section, the program expenses for the proprietary funds decreased from the previous year leading to a 10% increase in ending Net Position across all funds. Summary of Changes in Net Position 2021-22 2020-21 Revenues: Program Revenues: Charges for services 59,140,271$ 52,740,882$ Operating grants and contributions 5,156,782 3,742,594 Investment earnings (1,207,118) 577,722 Miscellaneous and other 585,101 519,677 Total revenues 63,675,036 57,580,875 Program expenses: Public utilities 33,468,921 36,534,518 Transportation 8,368,389 8,080,778 Total expenses 41,837,310 44,615,296 Increase (decrease) in net position before transfers 21,837,726 12,965,579 Transfers (1,685,314) (1,992,911) Change in net position 20,152,412 10,972,668 Net position - beginning of year 217,715,565 206,322,415 Prior year restatement 2,516,509 420,482 Net position - end of year 240,384,486$ 217,715,565$ Business-Type Activities 20 128 DRAFT**v1 Management’s Discussion and Analysis Overall Year-End Financial Statements When evaluating the overall Financials, several influencing factors should be considered. While GASB Statement No. 87 as well as the integration of the outstanding housing related loans will continue to be a part of the Financial Statements going forward, the Fair Market Value adjustments currently seen will likely adjust in the latter part of 2023 into 2024 as inflation begins to flatten and monetary policy counteracting it begins to ease. GASB Statement No. 87 This pronouncement became effective for fiscal years beginning after June 15, 2021 and was included in the City’s financial statements for the first time with FY 2021-22. As such, GASB 87 requires recognition of certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows or outflows of resources based on the payment provisions of the contract. It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and an intangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferred inflow of resources, thereby enhancing the relevance and consistency of information about the governments’ leasing activities. Within the City’s Financial Statements, Note 6 lists the applicable lease receivables. Housing Loans and Fee Deferrals The City administers an extensive housing program for workforce and low-income housing. Through the program, it has extended loans and impact fee deferrals to low-income housing developers such as the Housing Authority of San Luis Obispo, Transitions Mental Health, and People’s Self-Help Housing (to name a few). The loans are long-term in nature, include a modest interest rate, and will become due in future years. The loans are disclosed in the City’s financial statement under the respective governmental funds as loans receivables and restricted within fund balance. Detailed information can be found in Note 4 – Loans Receivables. Fair Market Value Adjustments The City follows the practice of pooling cash and investments for all funds under its direct daily control. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund’s average quarterly cash balance. Investments are stated at fair value, based on quoted market prices in accordance with GASB standards and is adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. Due to the worldwide pandemic brought on by COVID-19 and the subsequent effects on inflationary trends, the Federal Reserve’s monetary policy to counteract inflation has lead to the largest fair market value adjustment in 40 years. The City’s investments were not immune to the adjustments and the effects are reflected in the Financial Statements under “Use of money and property” in all funds based on the City’s mentioned practices. More information on the City’s investments can be found in Note 2 – Cash & Investments. The following outlines financial highlights for the year which are detailed in the table on page 23 of the Management Discussion and Analysis. Per the City’s Statement of Net Position, total City-wide assets increased by approximately $136.1 million or 21.2%. The assets and deferred outflows of resources of the City exceeded its liabilities and deferred inflows at June 30, 2022 by $418 million (net position). They include again the disclosure of the City’s net unfunded pension liability which decreased by $23.2 million to $66 million as of June 2021 largely due the 2021 interest gain of 21.3%. The City’s net pension liability is measured as the total pension liability of $243.8 million less the 129 DRAFT**v1 Management’s Discussion and Analysis pension’s fiduciary net position of $177.8 million. This picture will likely change with the experienced losses at the end of June 2022 but will be counter-acted by the City’s additional discretionary payments made in FY 2021- 22 and anticipated in FY 2022-23. In governmental activities, amounts received from various sources were slightly below previous year-end results, but the City’s cash and investment balances increased by $24 million; prepaid expenses increased slightly as well and cash held with fiscal agent remained stagnant from 2020-21. Of note is the increase in Loans Receivables of over $4.5 million from the City’s Housing program. In business-type activities, total assets increased from $337 million to $435 million. Of note is the lease receivable amount of $37 million in the Parking Fund due to the reporting of leases under GASB 87. The Sewer Fund increased its construction in progress by almost $40 million as the upgrade of the Water Resource Recovery Facility is ongoing. This $140 million multi-year construction project is scheduled to be completed at the end of 2023. City-wide liabilities increased by $11.6 million during the fiscal year with the decrease in the Governmental funds being offset by an almost $40 million increase in the business-type activities. The decrease in governmental funds is mostly due to the decrease in net unfunded pension liabilities while the increase in the business-type activities reflects new long-term debt obligations. The City’s governmental funds altogether reported combined ending fund balances of $100.5 million. Roughly 78% or $87.5 million is not available for new spending and is reflected as restricted, committed or assigned in the Financial Statements. The total General Fund balance decreased by 15% to $40.7 million due to the additional $10.2 million payment toward the City’s unfunded pension liability with CalPERS (Note 8 – Pension Plans). The Fund balance combines the following levels as outlined in the City’s Fund Balance & Reserve Policy and in accordance with GASB 54: non-spendable, restricted, committed, assigned and unassigned . 130 DRAFT**v1 Management’s Discussion and Analysis Government-wide Overall Financial Analysis Statement of Net Position Net position may serve over time as useful indicator of a government’s financial position. The following is the condensed statement of net position for the fiscal years ended June 30, 2021 and 2022. For the Fiscal Year ending on June 30, 2022, the City’s combined total assets and deferred outflows of resources were greater than its liabilities and deferred inflows of resources by $418 million. The largest portion of the City’s net position reflects its investment in capital assets in the amount of $351.7 million (e.g. land, buildings, infrastructure, machinery, and equipment), less any related outstanding debt used to acquire those assets. The City uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City’s investment in its capital assets is reported net of related debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. Just over $44.5 million of the City’s net position is subject to restrictions imposed by external parties and its use is determined by those restrictions and contractual obligations. The governmental and business-type activities each contributed $22 million to the combined net position resulting in a total net position of $418 million at June 30, 2022. Information about changes in net position for fiscal years 2021-22 and 2020-21 is summarized below. Reasons for the changes are discussed in the following sections for governmental activities and business-type activities. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Current and other assets 128,456,785$ 100,429,898$ 118,049,970$ 95,663,836$ 246,506,755$ 196,093,734$ Capital Assets 214,799,171 205,190,494 317,277,636 241,196,715 532,076,807 446,387,209 Total assets 343,255,956 305,620,392 435,327,606 336,860,551 778,583,562 642,480,943 Total Deferred Outflows of Resources 36,401,908 25,815,578 6,080,805 4,088,384 42,482,713 29,903,962 Current liabilities 25,318,783 11,006,354 17,393,178 16,047,477 42,711,961 27,053,831 Noncurrent liabilities 123,973,399 161,634,631 140,126,065 106,481,087 264,099,464 268,115,718 Total liabilities 149,292,182 172,640,985 157,519,243 122,528,564 306,811,425 295,169,549 Total Deferred Inflows of Resources 52,069,013 3,053,401 43,504,682 704,806 95,573,695 3,758,207 Net position: Net investment in capital assets 193,984,593 184,205,733 157,728,990 160,750,886 351,713,583 344,956,619 Restricted 41,770,187 35,137,179 2,684,781 2,493,859 44,454,968 37,631,038 Unrestricted (57,458,111) (63,601,328) 79,970,715 54,470,820 22,512,604 (9,130,508) Total Net Position 178,296,669$ 155,741,584$ 240,384,486$ 217,715,565$ 418,681,155$ 373,457,149$ CONDENSED STATEMENT OF NET POSITION Governmental Activities Business-Type Activities Total 23 131 DRAFT**v1 Management’s Discussion and Analysis Governmental Activities. The City’s net position in the Governmental activities increased by $22 million to $178.3 million on June 30, 2022 based on very strong tax revenues and expenditure savings in all of its operation that were able to absorb the losses experienced by large fair market value adjustments seen under investment earnings. Governmental Revenues: Revenues are divided into charges for services and general revenues including applicable taxes as listed in the following table. Charges for services are revenues directly related to service activity while operating and capital grants and contributions, and related investment earnings are a mechanism of cost recovery. The total governmental revenue increased from fiscal year 2020-21 by $12.7 million or 13% based on the re-opening of the economy, strong purchasing and a rapidly returning travel and tourism activities. This increase achieved despite the reduction in charges for services from development related activities and lower revenue from capital grants and contributions revenue3. Fiscal Year 2021-22 saw the first full year of the local transaction tax at the augmented level, adding an additional $18 million to the revenue total. Charges for services decreased from the previous year primarily due to a decline in development related activity. Building and planning reviews, permits and inspection activity can vary significantly from year to year. Similarly, grant revenues, particularly for capital projects, such as the Marsh Street Bridge rehabilitation or the Taft to Pepper section of the Railroad Safety Trail were higher in the prior fiscal year. 3 Contribution revenue is grants, donations, transfers and other miscellaneous funding. 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Revenues: Program Revenues: Charges for services 18,920,886$ 24,096,385$ 59,140,271$ 52,740,882$ 78,061,157$ 76,837,267$ Operating grants and contributions 3,647,813 3,601,973 5,156,782 3,742,594 8,804,595 7,344,567 Capital grants and contributions 1,531,157 5,688,200 - - 1,531,157 5,688,200 General Revenues:- - Sales taxes (Including local Sales Tax) 51,419,561 32,847,453 51,419,561 32,847,453 Property taxes 14,716,412 14,197,869 14,716,412 14,197,869 Transient occupancy tax 10,650,762 6,960,035 10,650,762 6,960,035 Utility users tax 5,338,325 5,225,979 5,338,325 5,225,979 Property tax in lieu of VLF 5,994,592 5,660,661 5,994,592 5,660,661 Other taxes and fees 5,800,333 5,578,944 5,800,333 5,578,944 Investment earnings (1,638,993) 435,243 (1,207,118) 577,722 (2,846,111) 1,012,965 Miscellaneous and other 1,213,401 1,019,626 585,101 519,677 1,798,502 1,539,303 Total revenues 117,594,249 105,312,368 63,675,036 57,580,875 181,269,285 162,893,243 Program expenses:- - Public safety 41,132,177 35,323,339 41,132,177 35,323,339 Public utilities 33,468,921 36,534,518 33,468,921 36,534,518 Transportation 10,395,516 8,040,919 8,368,389 8,080,778 18,763,905 16,121,697 Culture and recreation 12,407,720 11,122,003 12,407,720 11,122,003 Community development 15,506,092 11,918,019 15,506,092 11,918,019 General Government 20,982,321 17,276,491 20,982,321 17,276,491 Interest on long-term debt 699,284 731,045 699,284 731,045 Total expenses 101,123,110 84,411,816 41,837,310 44,615,296 142,960,420 129,027,112 Increase (decrease) in net position before transfers 16,471,139 20,900,552 21,837,726 12,965,579 38,308,865 33,866,131 Transfers 1,685,314 1,992,911 (1,685,314) (1,992,911) - - Change in net position 18,156,453 22,893,463 20,152,412 10,972,668 38,308,865 33,866,131 Net position - beginning of year 155,741,584 133,430,668 217,715,565 206,322,415 373,457,149 339,753,083 Prior year restatement 4,398,632 (582,547) 2,516,509 420,482 6,915,141 (162,065) Net position - end of year 178,296,669$ 155,741,584$ 240,384,486$ 217,715,565$ 418,681,155$ 373,457,149$ SUMMARY OF CHANGES IN NET POSITION Governmental Activities Business-Type Activities Total 24 132 DRAFT**v1 Management’s Discussion and Analysis General revenues are used to pay costs of providing program services such as public safety, parks and open space, streetlights and traffic signals, recreation opportunities, Diversity, Equity, and Inclusion (DEI) programs as well as economic development, and environmental sustainability. Top Governmental Activity Revenue Sources. As shown in the graph below, the City’s top five tax revenues accounted for almost 75% of total revenues, with service charges accounting for another 16% and ancillary revenue making up the remainder. Despite ongoing pandemic condition and restrictions, most of the City’s main revenue sources performed well and above initial expectations. Next to the local transaction tax, Transient Occupancy Tax ended the fiscal year at record levels, surpassing $10 million in annual revenue. This is indicative of the City gaining from being a drive-to market and benefiting from the travel activity that followed the pandemic related restrictions. Investment in tourism marketing and programs designed to bring people to San Luis Obispo paid dividends and continue to experience strong lodging and retail activity. Governmental Activities Program Expenses: Program expenses increased from the prior fiscal year, ending 2021-22 at $101 million. As mentioned in the Fiscal Year in Review section above, FY 2021-22 marked a transition year for the City organization as it restored the work postponed by the pandemic and allowed the City to reinvest in its core services and important Major City Goal efforts and strategic initiatives. Increases happened across all programs with Revenues 2021-22 2020-21 Inc / (Dec) % Charges for services 18,920,886$ 22,090,479$ (3,169,593)$ -14% Operating grants and contributions 3,647,813 3,626,087 21,726 1% Capital grants and contributions 1,531,157 7,093,611 (5,562,454) -78% General Revenues: Sales taxes (Including local transaction tax)51,419,561 32,847,453 18,572,108 57% Property taxes 14,716,412 14,197,869 518,543 4% Transient occupancy tax 10,650,762 6,960,035 3,690,727 53% Utility users tax 5,338,325 5,225,979 112,346 2% Property tax in lieu of VLF 5,994,592 5,660,661 333,931 6% Other taxes and fees 5,800,333 5,578,944 221,389 4% Investment earnings (1,638,993) 219,611 (1,858,604) -846% Miscellaneous and other 1,213,401 1,366,458 (153,057) -11% Total governmental revenues 117,594,249$ 104,867,187$ 12,727,062$ 12% GOVERNMENTAL ACTIVITY CHANGE IN REVENUE 25 133 DRAFT**v1 Management’s Discussion and Analysis the most significant ones seen in Community Development, General Government with new initiatives regarding DEI and homelessness, and Public Safety with the new Emergency Management and Mobile Crisis Unit. The following chart compares program fee revenues and expenses which is useful when reviewing the costs of various governmental activities: Financial Analysis of Governmental Funds As noted earlier, the City uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. The following funds have been classified as either governmental or proprietary fund types. Governmental Funds. The focus of the City’s governmental funds is on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the City’s financing requirements. In particular, unassigned fund balance serves as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of June 30, 2022, the City’s governmental funds reported combined ending fund balances of $100.5 million or an increase of $10 million compared to the prior fiscal year. The total fund balance of the governmental funds consists of the following: o Non-spendable fund balance represents prepaid items. Approximately $100,000 was held in non- spendable at fiscal year-end. o Restricted fund balance of $34 million, including reserves for debt service or capital outlay, impact fees programs, general government programs, housing and the net balance of the local transaction tax that increased during the last quarter of the fiscal year once pandemic restrictions were lifted. 134 DRAFT**v1 Management’s Discussion and Analysis o Committed fund balance amounted to $19.5 million accounting for the City’s reserve funds as prescribed by its Fund Balance and Reserve policies. o Assigned fund balance of $16.7 million includes the amounts to be used for specific purposes of the City but do not meet the criteria to be classified as restricted or committed. Funds in this category include contingency funds (20% minimum reserve) and funds to be used for Development Services.as well as purchase orders and encumbrances that have been rolled over into fiscal year 2022-23 in accordance with the City’s budget policies. Fund balance has been assigned to an additional discretionary payment to CalPERS, the newly established Section 115 Trust Fund, and the contingency funds in the IT Replacement and Fleet funds amounting to $4.9 million. o Unassigned fund balance of $22 million of which $13.7 million are in the City’s Capital Outlay Fund for investments in the City’s expansive infrastructure. Some of the General Fund’s $8.3 million in unassigned fund balance was already appropriated for 2022-23 by the Council with the year-end report4. Of the $8.3 million, $2.8 million was approved as carryover into the 2022-23 budget and $2 million was used to establish a Revenue Stabilization Reserve to help insulate the City from large fluctuations in tax revenue. These actions left $3.3 million truly unassigned; however, the five-year forecast relies on $2 million to remain in order to have a balanced five-year budget outlook. Major Governmental Funds. In the fiscal year 2021-22 the City maintained two major funds: the General Fund and the Capital Outlay Fund. Changes in both are highlighted in the Financial Highlights section above. Non-Major Governmental Funds. The City has numerous non-major governmental funds including the Debt Service Fund and various Special Revenue Funds or Capital Projects Funds. These funds are presented in the basic financial statements in the aggregate. A significant number of these funds represent activity for capital projects. On June 30, 2022, these funds had an aggregate fund balance of almost $46 million. Of this total, $34 million is restricted for payment of debt service or specific future capital projects and related funding needs. More information about the aggregated non-major funds can be found in the combining and individual fund statements and schedules immediately following the required supplementary information. Proprietary Funds. The City’s four enterprise funds provide the same type of information found in the government- wide financial statements, but in more detail. Highlights of the annual activity for these funds have already been presented in the discussion of the business-type activities. Capital Assets and Debt Administration Capital Assets. Capital assets, including infrastructure, are those assets that are used in the performance of the City’s functions. As of June 30, 2022 the City’s investment in capital assets for its governmental and business type activities amounts increased to $490 million (net of accumulated depreciation). The investment in capital assets includes things such as: open space, park improvements, buildings and associated improvements, vehicles and equipment, streets, bikeways, water, wastewater, and storm drain systems. 4 Council Agenda Item 6a, October 4, 2022 and Resolution No. 11367 27 135 DRAFT**v1 Management’s Discussion and Analysis Major capital asset5 expenditures during the fiscal year included the following: 37.7 million for the Water Resource Recovery Facility Sewer lift stations: Airport, Buckley, Foothill, Calle Joaquin 847,000 for Water Treatment Plant Energy Efficiency Waterline improvements Meadow Park Pathway Maintenance Orcutt/Tank Farm roundabout construction Parks & Recreation office rehabilitation Railroad Safety Bridge/Trail Taft to Pepper Parks and Recreation Interior Office Rehabilitation Emerson Park Fitness Court Long-Term Debt. At June 30, 2022, the City’s long-term debt had increased by $40.7 million and $142.7 million outstanding. The increase is due to large debt finance projects in the Water and Sewer funds adding $46 million to the business-type activities long-term debt. Within governmental activities, several loans were paid off, lowering the debt burden by $1.3 million from the previous year. The California Government Code provides for a limit on debt secured by real property of 3.75% based on market value. The City’s debt management policy, however, sets a lower debt limit of 2% of assessed valuation. As of June 30, 2022, 2% of the assessed valuation was $234 million6. As of June 30, 2022, the City did not have any general obligation debt subject to the limit. Additional information about the City’s long-term debt can be found in Note 7 to the basic financial statements. 5 Additional information on the City’s capital assets can be found in Note 5 on page 67 to the basic financial statements. 6 Based on the San Luis Obispo County Assessor’s 2021-22 Annual Valuation report. Capital Assets (Net of Depreciation) 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Nondepreciable capital assets 43,547,370$ 41,769,864$ 132,025,105$ 91,238,405$ 175,572,475$ 133,008,269$ Depreciable capital assets (net of accumulated depreciation ) 169,708,981 162,999,121 145,011,649 147,232,029 314,720,630 310,231,150 Total Capital Assets 213,256,351$ 204,768,985$ 277,036,754$ 238,470,434$ 490,293,105$ 443,239,419$ Governmental Business-Type Total Activities Activities Long- Term Debt 2021-22 2020-21 2021-22 2020-21 2021-22 2020-21 Lease-revenue bonds 18,954,856$ 20,038,779$ 15,307,178$ 16,772,171$ 34,262,034$ 36,810,950$ Lease-purchase financing 390,420 734,673 - - 390,420 734,673 Claims & Liabilities - - - - - - Installment sale agreement - - 4,257,343 4,919,407 4,257,343 4,919,407 Loans 139,961 232,111 99,918,648 56,229,546 100,058,609 56,461,657 Leases 125,003 - - 125,003 - Compensated absences 3,104,605 3,016,523 526,111 613,247 3,630,716 3,629,770 22,714,845$ 24,022,086$ 120,009,280$ 78,534,371$ 142,724,125$ 102,556,457$ Governmental Business-Type Total Activities Activities 136 DRAFT**v1 Management’s Discussion and Analysis Pension Obligations and Outlook With the development of the 2017-19 Financial Plan, it became apparent that the City was facing a structural budget gap due to increases in pension cost. Starting in 2018-19, it implemented an aggressive three-year Fiscal Health Response Plan to pay down the pension obligation. The plan included multiple one-time additional payments to CalPERS to reduce the unfunded liability payment term from 30 to 20 years and the City made it’s first $4.2 additional payment in April of 2019. At the onset of the pandemic, the City had successfully built-up sufficient fund balance in its General Fund to make the second scheduled payment of $4.2 million to CalPERS for 2019-20. However, the City Council decided to retain this funding to cover anticipated revenue shortfalls and to assist with economic recovery efforts as the shut-down of the economy and shelter-at-home directives had just taken place and the future looked precarious. With the prolonged duration of the pandemic and slow reopening of the economy, the third payment scheduled in Spring of 2021 was also postponed. However, due to the prudent approach to its expenditures, the investment in the recovery efforts for the community, and a strong revenue recovery in the 4th quarter, the City was able to catch up on the earmarked payments to CalPERS and improve the City’s funding ratio to 75%. In July 2021, CalPERS reported a 21.3% net return on investments for the 12-month period that ended June 30, 2021. Under the Funding Risk Mitigation Policy, approved by the CalPERS Board of Administration in 2015, the double- digit return triggered a reduction in the discount rate used to calculate employer and Public Employees’ Pension Reform Act (PEPRA) members contributions. The discount rate, or assumed rate of return, has now dropped from 7% to 6.8% ongoing. The lowering of the discount rate will increase both employee and employer normal cost and also influence the unfunded liability. However, the double-digit gains should largely mitigate the impact of the lower discount rate on the unfunded liability. The City will see the effects of the change to the discount rate with the 2023- 24 contributions. 2022-23 Budget Highlights As adopted in June 2022, the second year of the Financial Plan provides investments into Council adopted strategic initiatives and 74 established service programs while maintaining a carefully balanced budget. These ambitious work plans continue to bring new challenges. Several of the challenges that the City addresses with the second-year budget are some of the most pernicious issues facing society, but the solutions are neither easy nor inexpensive. In order to make progress and achieve meaningful outcomes, the organization must stay focused and disciplined. Workforce – the Great Reshuffle First dubbed the “Great Resignation” is now more accurately labeled the “Great Reshuffle.” Globally, millions of people are reconsidering and reconfiguring their careers and lives and leveraging the current labor market to find opportunities and positions that fit with their desired lifestyle. The City is not immune from this phenomenon and has seen record number of transitions. The City of San Luis Obispo is committed to provide competitive compensation to continue to attract and retain talented, qualified, and experienced employees who provide the high-quality public services the community requires and expects. In order to do so, the City will need to prioritize competitive compensation. To that end, the City Council received and filed the 2021 Benchmark Compensation Report for the San Luis Obispo City Employees’ Association (SLOCEA) and Unrepresented Management and Confidential Bargaining Units on February 1, 2022. Immediate action was taken to address compensation shortfalls found by the report on April 19, 2022 for confidential and unrepresented management. As of the writing of this message, the City has negotiated a tentative agreement with labor partners on the potential wage and benefit increases identified in the benchmark study in addition to cost of living agreements over three years. 29 137 DRAFT**v1 Management’s Discussion and Analysis The increases in General Fund revenue forecasts allowed Council to quickly address this need and the Council approved negotiation parameters for equity adjustments and cost of living increases are now included in the 2022-23 Supplemental Budget. Moving forward, the City will need to be flexible and creative in order to attract and retain well-qualified employees. More broadly, there is a need region-wide for a concerted strategy to attract and retain employees and the absence of an effective strategy likely portends less than optimum growth and, in the case of the City, struggles to meet service demands. Investment into the Community The City’s ongoing services have been developed over many years with the input from the community, resulting in programs that provide the envisioned quality of life in San Luis Obispo. After years of “tightening the belt” to face challenges and pension obligations head-on, the 2021-23 Financial Plan allowed the City to allocate much needed resources back into ongoing services, programs and infrastructure and this effort continues with the Financial Plan Supplement and 2022-23 budget. Capital While the City has made considerable progress on delivering capital projects, it is constrained by unprecedented conditions that are affecting the entire nation. These obstacles include labor market shortages, significant construction activity in our area due to Federal stimulus monies (increasing local competition for design, inspection, and construction services), supply chain issues, and inflation. While the construction phase of projects is often the community’s first view of the improvements that are being made, it is really the result of months and sometimes years of planning, outreach, study, and design work that must be completed prior to making visible progress on a project. In light of this, the City must ensure that operating resources are right sized to deliver projects and continue meaningful progress for the community in the maintenance and improvements to its infrastructure. Long-Term Outlook and the Path Ahead In many ways, the 2022-23 Supplemental Budget will mark a transition period for the City organization. The 2021- 23 Financial Plan restored the work postponed by the pandemic and allowed the City to re-invest in its core services and important Major City Goal efforts and strategic initiatives. The next several years will concentrate on transforming the City’s role as an attractive employer and finding a balance between the delivery of service and programs and capital programs. Due to the current economic and geo-political circumstances, uncertainty continues to be the one certainty in economic forecasting. However, the updated long-term forecast considers many of the current trends and conditions and remains balanced but this and future Councils will need to be mindful that expansion of programs or new programs will likely require tradeoffs. The effect of uncertainty meant that for the 21-23 Financial Plan, the budget included $3.08 million of one-time General Funds in order to balance the budget for needed programs such as DEI Grant Funding, Mobile Crisis Unit and other services. Many of the services and programs likely require ongoing and dedicated funding to maintain services levels to achieve the intended impact and funding these one-time expenses should be carefully considered. The City will need to remain agile and cautious as it moves through this challenging economic and fiscal climate. As we embark on another year of this “strange routine”, we will need to remain focused and committed to making San Luis Obispo the kind of resilient, dynamic, and sustainable community we want to live and thrive in and advance the key initiatives and tasks the Council set forth in the City’s Major City Goals. 30 138 DRAFT**v1 Management’s Discussion and Analysis For information on the 2022-23 Financial Plan Supplement and the appropriated budget including the allocation of the Local Revenue Measure, please visit: Utility Rates. The City adopts its water and sewer rates with the two-year Financial Plan and in accordance with Proposition 218 requirements. As such, notifications were sent to all rate payers in April 2021 and the rates subsequently adopted in by the City Council. Parking Rates. The Parking Fund, hit hardest by the pandemic restrictions, nevertheless began its recovery in 2021- 22 and in the first months of 2022-23 appears to be seeing pre-COVID19 demand. It continues to assist economic recovery by offering free parking during holiday times to bring people to downtown. In June 2023, the City Council also increases for parking meters and structure parking in preparation for the debt issuance to build the City’s cultural district garage. Requests for Additional Information This financial report is designed to provide a general overview of the City’s finances for all those interested. The City also prepares a Popular Annual Financial Report that can be found on the City’s website under the Finance Department’s online documents. Questions concerning any of the information provided in this report should be addressed to the Department of Finance, 990 Palm Street, San Luis Obispo, CA 93401. 31 139 DRAFT**v1 32 140 DRAFT**v1 BASIC FINANCIAL STATEMENTS 33 141 DRAFT**v1 34 142 DRAFT**v1 Governmental Activities Business-Type Activities Total Assets Current assets: Cash and investments 99,356,588$ 105,676,349$ 205,032,937$ Taxes receivable 11,639,323 - 11,639,323 Accounts receivable 1,465,191 9,090,763 10,555,954 Accrued interest receivable 2,887,198 840,342 3,727,540 Prepaid items and other assets 651,218 - 651,218 Lease receivables 129,740 167,582 297,322 Loans receivable 12,327,527 2,274,934 14,602,461 Total current assets 128,456,785 118,049,970 246,506,755 Noncurrent assets: Cash and investments held by fiscal agent 421,510 437,884 859,394 Investment in joint venture - 2,831,432 2,831,432 Lease receivables 1,121,310 36,971,566 38,092,876 Nondepreciable capital assets 43,547,370 132,025,105 175,572,475 Depreciable capital assets (net of accumulated depreciation) 169,708,981 145,011,649 314,720,630 Total noncurrent assets 214,799,171 317,277,636 532,076,807 Total assets 343,255,956 435,327,606 778,583,562 Deferred Outflows of Resources Other post-employment benefits related 1,391,750 687,662 2,079,412 Pension related 34,811,636 5,217,738 40,029,374 Unamortized loss on refunding of debt 198,522 175,405 373,927 Total deferred outflows of resources 36,401,908 6,080,805 42,482,713 Liabilities Current liabilities: Accounts payable 4,558,580 8,452,754 13,011,334 Accrued salaries 1,597,094 211,651 1,808,745 Unearned revenue 15,237,246 5,191,916 20,429,162 Interest payable 82,324 165,194 247,518 Other liabilities 212,617 - 212,617 Compensated absence - due within one year 2,111,566 157,833 2,269,399 Long-term debt - due within one year 1,519,356 3,213,830 4,733,186 Total current liabilities 25,318,783 17,393,178 42,711,961 Noncurrent liabilities: Compensated absence - due in more than on year 993,039 368,278 1,361,317 Long-term debt - due in more than one year 18,090,884 116,269,339 134,360,223 Net OPEB liability 2,551,999 1,260,937 3,812,936 Net pension liability 102,337,477 22,227,511 124,564,988 Total noncurrent liabilities 123,973,399 140,126,065 264,099,464 Total liabilities 149,292,182 157,519,243 306,811,425 Deferred Inflows of Resources Other post-employment benefits related 1,786,911 882,909 2,669,820 Pension related 49,056,568 5,649,701 54,706,269 Lease related 1,225,534 36,972,072 38,197,606 Total deferred inflows of resources 52,069,013 43,504,682 95,573,695 Net Position Net investment in capital assets 193,984,593 157,728,990 351,713,583 Restricted Debt service 2,540,255 437,884 2,978,139 Transportation projects 9,314,755 2,246,897 11,561,652 Affordable housing programs 13,526,749 - 13,526,749 Impact fee programs 9,669,643 - 9,669,643 Parkland development programs 3,256,800 - 3,256,800 Public art programs 798,038 - 798,038 Tourism programs 1,147,881 - 1,147,881 Subsequent year expenditures 864,848 - 864,848 Claims 651,218 - 651,218 Unrestricted (57,458,111) 79,970,715 22,512,604 Total net position 178,296,669$ 240,384,486$ 418,681,155$ City of San Luis Obispo, California Statement of Net Position June 30, 2022 The accompanying notes are an integral part of these financial statements. 35 143 DRAFT**v1 Functions/Programs Expenses Charges for Services Operating Grants and Contributions Capital Grants and Contributions Governmental activities: Public safety 41,132,177$ 3,197,692$ 965,923$ -$ Transportation 10,395,516 636,874 2,220,788 453,162 Culture and recreation 12,407,720 4,046,439 497 - Community development 15,506,092 10,509,106 151,581 - General government 20,982,321 530,775 309,024 1,077,995 Interest on long-term debt 699,284 - - - Total governmental activities 101,123,110 18,920,886 3,647,813 1,531,157 Business-type activities: Water 20,892,863 29,894,129 1,848,593 - Sewer 12,576,058 23,642,048 97,413 - Parking 4,517,125 4,890,317 538 - Transit 3,851,264 713,777 3,210,238 - Total business-type activities 41,837,310 59,140,271 5,156,782 - Total primary government 142,960,420$ 78,061,157$ 8,804,595$ 1,531,157$ General revenues and transfers: General sales and use taxes Transaction and use tax - Local Revenue Measure Property tax (including real property transfer tax) Transient occupancy tax (TOT) Utility users tax Property tax-in-lieu of vehicle license fees Franchise taxes Business tax Cannabis Tax Total taxes Unrestricted investment earnings Other revenue Income from investment in joint venture Transfers Total general revenues and transfers Change in net position Net position, beginning of year Prior year restatements Net position, beginning of year, as restated Net position, end of year Program Revenues City of San Luis Obispo, California Statement of Activities For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 36 144 DRAFT**v1 Governmental Activities Business-type Activities Total 36,968,562)$ -$ (36,968,562)$ 7,084,692) - (7,084,692) 8,360,784) - (8,360,784) 4,845,405) - (4,845,405) 19,064,527) - (19,064,527) 699,284) - (699,284) 77,023,254) - (77,023,254) 10,849,859 10,849,859 11,163,403 11,163,403 373,730 373,730 72,751 72,751 22,459,743 22,459,743 77,023,254) 22,459,743 (54,563,511) 22,247,303 - 22,247,303 29,172,258 - 29,172,258 14,716,412 - 14,716,412 10,650,762 - 10,650,762 5,338,325 - 5,338,325 5,994,592 - 5,994,592 1,978,295 - 1,978,295 2,823,163 - 2,823,163 998,875 - 998,875 93,919,985 - 93,919,985 1,638,993) (1,207,118) (2,846,111) 1,213,401 - 1,213,401 585,101 585,101 1,685,314 (1,685,314) - 95,179,707 (2,307,331) 92,872,376 18,156,453 20,152,412 38,308,865 155,741,584 217,715,565 373,457,149 4,398,632 2,516,509 6,915,141 160,140,216 220,232,074 380,372,290 178,296,669$ 240,384,486$ 418,681,155$ Net Revenues (Expenses) and Changes in Net Position 37 145 DRAFT**v1 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Assets Cash and investment 34,540,875$ 14,807,005$ 50,008,708$ 99,356,588$ Taxes receivable 11,473,880 - 165,443 11,639,323 Accounts receivable 1,004,373 74,493 322,757 1,401,623 Other receivables 63,568 - - 63,568 Accrued interest receivable 210,686 - 2,676,512 2,887,198 Prepaid items 90,797 - - 90,797 Cash and investments held by fiscal agent - - 421,510 421,510 Loans receivable 240,637 - 12,086,889 12,327,526 Lease receivable 1,251,050 - - 1,251,050 Total assets 48,875,866$ 14,881,498$ 65,681,819$ 129,439,183$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable 2,325,910$ 1,143,842$ 1,088,828$ 4,558,580$ Accrued liabilities 1,593,058 - 4,036 1,597,094 Unearned revenue 2,471,916 - 12,765,330 15,237,246 Other liabilities 212,617 - - 212,617 Total liabilities 6,603,501 1,143,842 13,858,194 21,605,537 Deferred Inflows of Resources: Lease related 1,225,534 - - 1,225,534 Unavailable revenue 301,325 - 5,780,599 6,081,924 Total deferred inflows of resources 1,526,859 - 5,780,599 7,307,458 Fund balance: Nonspendable 90,797 - 8,681 99,478 Restricted for: Debt service - - 2,540,255 2,540,255 Transportation projects - - 8,051,050 8,051,050 Affordable housing programs - - 9,893,314 9,893,314 Impact fee programs - - 8,935,786 8,935,786 Parkland development programs - - 3,107,198 3,107,198 Public art programs - - 798,038 798,038 Tourism programs - - 1,147,881 1,147,881 Public safety program - - 864,848 864,848 Committed to: General government programs 5,696,864 - - 5,696,864 Risk management 1,845,935 - - 1,845,935 Contingency fund 12,014,000 - - 12,014,000 Assigned to: CalPERS pension payment 2,000,000 - - 2,000,000 Contingency fund - - 900,000 900,000 Establishment of Section 115 Trust 2,000,000 - - 2,000,000 Development services 530,657 - 9,795,975 10,326,632 SLO Repertory Theater Grant 3,940,000 - - 3,940,000 General government programs 4,270,529 - - 4,270,529 Subsequent year expenditures - 13,737,656 - 13,737,656 Unassigned 8,356,724 - - 8,356,724 Total fund balance 40,745,506 13,737,656 46,043,026 100,526,188 Total liabilities, deferred inflows of resources and fund balance 48,875,866$ 14,881,498$ 65,681,819$ 129,439,183$ City of San Luis Obispo, California Balance Sheet Governmental Funds June 30, 2022 The accompanying notes are an integral part of these financial statements. 38 146 DRAFT**v1 Total fund balance - governmental funds 100,526,188$ Capital assets at estimated historical cost $ 330,212,574 Accumulated depreciation (116,956,223) 213,256,351 6,081,924 1,391,750 34,811,636 198,522 560,422 Lease revenue bonds 17,819,100$ Lease purchase financing 390,420 Compensated absences 3,104,605 Conservation loan 139,930 Bond premium 1,260,790 Accrued interest payable 82,324 22,797,169) Net pension liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (102,337,477) Net OPEB liability is not a current financial obligation and, therefore, is not reported in the governmental funds. (2,551,999) 1,786,911) 49,056,568) Total net position - governmental activities 178,296,669$ Long-term liabilities, including related interest payable, are not due and payable in the current period and therefore are not reported in the funds. Deferred inflow of resources, pension related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred inflow of resources, OPEB related, are not current assets or resources; and they are not due in the current period and therefore are not reported in the governmental funds. City of San Luis Obispo, California Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position June 30, 2022 Capital assets used in governmental activities are not financial resources and therefore are not reported in the funds. Other long-term assets are not available to pay for current period expenditures and therefore are not reported in the governmental funds. Deferred outflows of resources, pension related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred outflows of resources, OPEB related, are not current asset or resources; and they are not due in the current period and therefore are not reported in the governmental funds. Deferred amounts related to the refunding of long-term debt were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. Unavailable revenue recorded in the fund financial statements resulting from activities in which revenues were earned but funds were not available are reclassified as revenues in the Government-Wide Financial Statements. The accompanying notes are an integral part of these financial statements. 39 147 DRAFT**v1 Total net change in fund balance - governmental funds 8,709,833$ Expenditures for capital outlay - governmental funds $ 14,932,670 Depreciation expense (6,602,831) 8,329,839 Repayments of long-term debt are recognized as expenditures in the governmental funds. In the government-wide statements, repayments of long-term liabilities are reported as reductions of liabilities. Expenditures for repayment of the principal portion of long-term debt were:1,467,402 11,678) it is due. In the statement of activities, interest expense is recognized as the interest accrues, regardless of when it is due. The difference between interest expense paid and interest accrued was:1,694 85,448 Changes in actuarially determined claim liabilities for uninsured claims do not provide current financial resources and are not reported in the governmental funds. 72,321 governmental funds. In the statement of activities, compensated absences are measured by the amounts earned. The difference between compensated absences paid and compensated absences earned was:(88,082) 512,234 23,414,472 1,309,367 Pension expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (25,045,115) OPEB expenses reported in the statement of activities do not require the use of current financial resources and, therefore, are not reported as expenditures in governmental funds (601,282) Total change in net position - governmental activities 18,156,453$ Current year employer pension contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Current year employer OPEB contributions are recorded as expenditures in the governmental funds, however, these amounts are reported as a deferred outflow of resources in the Government-Wide Statement of Net Position Compensated absences are measured by the amounts paid during the period in the Capital outlay net of depreciation expense and disposal. Interest on long-term debt is recognized as an expenditure in the governmental funds when Change in unamortized discount/premium (netted with debt) Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2022 Deferred amounts related to the refunding of long-term debt were not current financial resources. Therefore, they were not reported in the Governmental Funds Balance Sheet. This amount is to be amortized over the life of the long-term debt. This amount is the current year net amortization expense. Revenues that are not considered to be available are reported as unavailable revenues in the governmental funds, however, these amounts are recognized in the Government- Wide Statement of Activities. This amount represents the change in unavailable revenues. City of San Luis Obispo, California The accompanying notes are an integral part of these financial statements. 40 148 DRAFT**v1 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Revenues: 22,247,303$ -$ -$ 22,247,303$ 29,172,258 - - 29,172,258 14,716,412 - - 14,716,412 10,650,762 - - 10,650,762 5,338,325 - - 5,338,325 5,994,592 - - 5,994,592 1,978,295 - - 1,978,295 2,823,163 - - 2,823,163 998,875 - - 998,875 173,915 - - 173,915 1,455,527) (2,903) (692,797) (2,151,227) 2,596,930 1,477,476 2,371,786 6,446,192 10,751,046 9,000 6,897,082 17,657,128 413,188 363,342 259,491 1,036,021 Total revenues 106,399,537 1,846,915 8,835,562 117,082,014 Expenditures: Current: General government 17,190,472 - 7,440 17,197,912 Public safety 39,656,509 - 264,699 39,921,208 Transportation 4,818,976 - 312,156 5,131,132 Leisure, cultural and social services 10,156,139 - 284,404 10,440,543 Community development 12,726,420 514,482 1,826,616 15,067,518 Debt service: Principal - - 1,467,402 1,467,402 Interest and fiscal charges - - 774,747 774,747 Capital outlay: Public safety 16,178 - 232,435 248,613 Transportation 976,123 8,165,271 4,512,455 13,653,849 Leisure, cultural and social services 170,729 3,126,097 636,637 3,933,463 Community development 17,672 583,643 - 601,315 General government 816,029 286,929 516,835 1,619,793 Total expenditures 86,545,247 12,676,422 10,835,826 110,057,495 Revenues over (under) expenditures 19,854,290 (10,829,507) (2,000,264) 7,024,519 City of San Luis Obispo, California Statements of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2022 Sales and use tax - general Transaction and use tax - Local Revenue Measure Property tax (including real property transfer tax) Transient occupancy tax Utility users tax Property tax in lieu of VLF Franchise taxes Business tax Cannabis Tax Miscellaneous Fines, forfeitures and penalties Use of money and property Subventions and grants Charges for services The accompanying notes are an integral part of these financial statements. 41 149 DRAFT**v1 Page 2 General Capital Outlay Fund Other Governmental Funds Total Governmental Funds Other Financing Sources (Uses): Transfers in 3,942,248$ 22,098,191$ 9,232,840$ 35,273,279$ Transfers out (30,416,749) (644,267) (2,526,949) (33,587,965) Total other financing sources (uses)(26,474,501) 21,453,924 6,705,891 1,685,314 Net change in fund balance (6,620,211) 10,624,417 4,705,627 8,709,833 Fund balance, beginning of year 47,118,071 3,113,239 41,177,283 91,408,593 Prior year restatements 247,646 - 160,116 407,762 Fund balance, beginning of year, as restated 47,365,717 3,113,239 41,337,399 91,816,355 Fund balance, end of year 40,745,506$ 13,737,656$ 46,043,026$ 100,526,188$ City of San Luis Obispo, California Statements of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 42 150 DRAFT**v1 Water Sewer Parking Transit Totals Assets Current assets: Cash and investment 33,073,104$ 52,727,181$ 14,128,393$ 5,747,671$ 105,676,349$ Accounts receivable 4,398,755 2,785,425 29,280 1,877,303 9,090,763 Lease Receivables - - 167,582 - 167,582 Accrued interest receivable 245,438 190,379 393,894 10,631 840,342 Total current assets 37,717,297 55,702,985 14,719,149 7,635,605 115,775,036 Noncurrent assets: 433,565 278 4,041 - 437,884 Investment in joint venture 2,831,432 - - - 2,831,432 Loan Receivables 1,476,189 798,745 - - 2,274,934 Lease Receivables - - 36,971,566 - 36,971,566 Capital assets: Land 945,926 2,176,114 5,947,455 - 9,069,495 Infrastructure 108,647,893 93,826,165 28,282,818 110,972 230,867,848 Buildings and improvements 19,139,492 5,074,388 1,101,218 5,212,278 30,527,376 Equipment 6,118,066 5,976,085 1,823,586 9,021,099 22,938,836 Construction in progress 17,303,911 103,110,782 2,457,859 83,058 122,955,610 Total capital assets 152,155,288 210,163,534 39,612,936 14,427,407 416,359,165 Less accumulated depreciation (63,371,214) (51,023,333) (14,999,323) (9,928,541) (139,322,411) Capital assets, net of accumulated depreciation 88,784,074 159,140,201 24,613,613 4,498,866 277,036,754 Total noncurrent assets 93,525,260 159,939,224 61,589,220 4,498,866 319,552,570 Total assets 131,242,557 215,642,209 76,308,369 12,134,471 435,327,606 Deferred Outflows of Resources Pension related 2,383,634 2,162,794 526,173 145,137 5,217,738 290,042 301,984 77,327 18,309 687,662 70,786 6,739 97,880 - 175,405 2,744,462 2,471,517 701,380 163,446 6,080,805 City of San Luis Obispo Statement of Net Position Business-Type Activities - Enterprise Funds June 30, 2022 Total deferred outflow of resources Cash and investments held by fiscal agent Other post-employment benefits related Unamortized loss on refunding of debt Enterprise Funds The accompanying notes are an integral part of these financial statements. 43 151 DRAFT**v1 Page 2 Water Sewer Parking Transit Totals Liabilities Current liabilities: Accounts payable 1,131,492$ 6,544,127$ 306,689$ 470,446$ 8,452,754$ Accrued liabilities 89,113 75,376 29,662 17,500 211,651 Compensated absences 81,979 63,356 9,486 3,012 157,833 Unearned revenue - 190,752 700,000 4,301,164 5,191,916 Interest payable 64,865 32,915 67,414 - 165,194 Current portion of long-term debt 1,624,674 1,022,058 567,098 - 3,213,830 Total current liabilities 2,992,123 7,928,584 1,680,349 4,792,122 17,393,178 Noncurrent liabilities: Compensated absences 191,285 147,831 22,133 7,029 368,278 Lease revenue bonds 9,527,139 293,094 4,172,799 - 13,993,032 Installment sale agreement - 3,569,862 - - 3,569,862 State loan/note payable 11,583,434 83,954,380 3,168,631 - 98,706,445 Net pension liability 9,830,803 9,394,348 2,446,700 555,660 22,227,511 591,852 508,157 130,120 30,808 1,260,937 Total noncurrent liabilities 31,724,513 97,867,672 9,940,383 593,497 140,126,065 Total liabilities 34,716,636 105,796,256 11,620,732 5,385,619 157,519,243 Deferred Inflows of Resources Pension related 2,550,380 2,353,872 602,738 142,711 5,649,701 365,502 392,960 100,623 23,824 882,909 Lease related - - 36,972,072 - 36,972,072 2,915,882 2,746,832 37,675,433 166,535 43,504,682 Net Position Net investment in capital assets 66,119,613 70,307,546 16,802,965 4,498,866 157,728,990 Restricted: Debt service 433,565 278 4,041 - 437,884 Transportation projects - - - 2,246,897 2,246,897 Unrestricted 29,801,323 39,262,814 10,906,578 - 79,970,715 Total net position 96,354,501$ 109,570,638$ 27,713,584$ 6,745,763$ 240,384,486$ Other post-employment benefits related Total deferred inflow of resources City of San Luis Obispo Statement of Net Position Business-Type Activities - Enterprise Funds June 30, 2022 Enterprise Funds Net other post-employment benefits liability The accompanying notes are an integral part of these financial statements. 44 152 DRAFT**v1 Water Sewer Parking Transit Total Operating revenues: Charges for sales and service 24,511,658$ 19,825,026$ 3,943,018$ 710,457$ 48,990,159$ Impact fees 5,160,020 3,685,008 - - 8,845,028 Fines and forfeitures - 1,425 928,909 - 930,334 Other revenues 222,451 130,589 18,390 3,320 374,750 Total operating revenues 29,894,129 23,642,048 4,890,317 713,777 59,140,271 Operating expenses: Salaries and benefits 3,374,350 3,444,226 1,128,657 229,282 8,176,515 Supplies and maintenance 1,499,588 1,896,979 545,224 353,857 4,295,648 Contract services 10,700,008 1,574,248 1,008,835 2,666,079 15,949,170 General government 1,722,409 1,712,752 869,887 226,183 4,531,231 Depreciation 2,863,988 3,559,830 688,790 375,863 7,488,471 Total operating expenses 20,160,343 12,188,035 4,241,393 3,851,264 40,441,035 Operating income (loss) 9,733,786 11,454,013 648,924 (3,137,487) 18,699,236 Nonoperating revenues (expenses) Use of money and property (714,713) (1,024,551) 666,894 (134,748) (1,207,118) Grants 1,848,593 97,413 538 3,210,238 5,156,782 Interest expense and fiscal charges (732,520) (388,023) (275,732) - (1,396,275) Income (loss) from investment in joint venture 585,101 - - - 585,101 Total nonoperating revenues expenses) 986,461 (1,315,161) 391,700 3,075,490 3,138,490 Income (loss) before transfers and capital contributions 10,720,247 10,138,852 1,040,624 (61,997) 21,837,726 Capital Contributions Transfers out (794,769) (655,312) (235,233) - (1,685,314) Total transfers (794,769) (655,312) (235,233) - (1,685,314) Change in net position 9,925,478 9,483,540 805,391 (61,997) 20,152,412 Net position, beginning of year 84,800,287 99,201,571 26,905,947 6,807,760 217,715,565 Prior year restatements 1,628,736 885,527 2,246 - 2,516,509 Net position, beginning of year, as restated 86,429,023 100,087,098 26,908,193 6,807,760 220,232,074 Net position, end of year 96,354,501$ 109,570,638$ 27,713,584$ 6,745,763$ 240,384,486$ Enterprise Funds City of San Luis Obispo, California Statement of Revenues, Expenses, and Changes in Fund Net Assets Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 45 153 DRAFT**v1 Water Sewer Parking Transit Total Cash flows from operating activities: Cash received from customers 29,124,164$ 23,929,298$ 4,894,662$ 2,710,830$ 60,658,954$ 12,057,282) (3,839,076) (1,433,120) (3,000,375) (20,329,853) 1,722,409) (1,712,752) (869,887) (226,183) (4,531,231) 5,390,029) (5,432,177) (1,618,671) (339,057) (12,779,934) Net cash provided by (used in) operating activities 9,954,444 12,945,293 972,984 (854,785) 23,017,936 Operating grants received 1,848,593 288,165 700,538 3,210,238 6,047,534 Transfers to other funds (794,769) (655,312) (235,233) - (1,685,314) 1,053,824 (367,147) 465,305 3,210,238 4,362,220 Cash flows from capital and related financing activities: 4,955,323) (40,437,426) (581,164) (80,878) (46,054,791) Principal paid on debt financing (1,574,854) (991,973) (550,486) - (3,117,313) Interest paid on debt financing (873,993) (392,496) (304,792) - (1,571,281) Proceeds from issuance of debt 2,275,261 42,592,565 - - 44,867,826 Net cash used in capital and related financing activities (5,128,909) 770,670 (1,436,442) (80,878) (5,875,559) Cash flows from investing activities: Use of money and property (755,835) (1,042,658) 139,980 (136,978) (1,795,491) Net cash provided by investing activities (755,835) (1,042,658) 139,980 (136,978) (1,795,491) 5,123,524 12,306,158 141,827 2,137,597 19,709,106 28,383,145 40,421,301 13,990,607 3,610,074 86,405,127 33,506,669$ 52,727,459$ 14,132,434$ 5,747,671$ 106,114,233$ Enterprise Funds City of San Luis Obispo, California Statement of Cash Flows Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 Cash payments to suppliers for goods and services Cash payments to General Fund for interfund services Cash payments to employees for services Acquisition and construction of capital assets Cash flows from noncapital financing activities: Net change in cash and cash equivalents Cash and cash equivalents, beginning of year, as restated Cash and cash equivalents, end of year Net cash provided by (used in) noncapital financing activities The accompanying notes are an integral part of these financial statements. 46 154 DRAFT**v1 City of San Luis Obispo, California Statement of Cash Flows Business-Type Activities - Enterprise Funds For the Fiscal Year Ended June 30, 2022 Page 2 Water Sewer Parking Transit Total Operating income (loss) 9,733,786$ 11,454,013$ 648,924$ (3,137,487)$ 18,699,236$ Depreciation 2,863,988 3,559,830 688,790 375,863 7,488,471 Accounts receivable (769,965) 287,250 4,345 931,620 453,250 Accounts payable 142,314 (367,849) 120,939 19,561 (85,035) Unearned revenue - - - 1,065,433 1,065,433 166,288) (195,391) (31,007) (1,095) (393,781) 1,705,210) (1,636,347) (419,007) (99,208) (3,859,772) 144,181) (156,213) (40,000) (9,472) (349,866) Net cash provided by (used in) operating activities 9,954,444$ 12,945,293$ 972,984$ (854,785)$ 23,017,936$ Reconciliation of cash and investments to the balance sheet: Cash and cash equivalents 33,073,104$ 52,727,181$ 14,128,393$ 5,747,671$ 105,676,349$ 433,565 278 4,041 - 437,884 Total cash and investments 33,506,669$ 52,727,459$ 14,132,434$ 5,747,671$ 106,114,233$ Noncash investing, capital, and financing activities: None Enterprise Funds Deferred OPEB and net OPEB liability Cash and investments held by fiscal agent Reconciliation of operating income loss) to net cash provided by (used in) operating activities: Adjustments to reconcile operating income (loss) to net cash provided by used in) operating activities: Change in assets, deferred outflows of resources, liabilities, and deferred inflows of resources: Accrued salaries and compensated absences Deferred pensions and net pension liability The accompanying notes are an integral part of these financial statements. 47 155 DRAFT**v1 Custodial Funds Assets Current assets: Cash and investment 8,729,369$ Accounts receivable 16,549 Accrued interest receivable 10,789 Capital assets, net of accumulated depreciation 789,639 Total assets 9,546,346 Liabilities Accounts payable 385,905 Compensated absence 54,086 Accrued Salaries 10,887 Other liabilities 2,000 Total liabilities 452,878 NET POSITION Restricted for Individuals, organizations, and other governments 9,093,468 Total Net Position 9,093,468$ City of San Luis Obispo, California Statement of Fiduciary Net Position Fiduciary Funds June 30, 2022 The accompanying notes are an integral part of these financial statements. 48 156 DRAFT**v1 Custodial Funds ADDITIONS: Assessment revenue 152,848$ Charges for services 1,014,126 Charges for public programming 39,951 Contribution from developers 1,704,858 Other revenue 1,647,991 Use of money and property (137,980) Total additions 4,421,794 DEDUCTIONS: Administration expenses 258,616 Contractual services 1,347,589 Materials and supplies 89,444 Public programming 65,750 Use of developer deposits 416,978 Depreciation 63,459 Total deductions 2,241,836 Change in net position 2,179,958 NET POSITION: Beginning of year, as restated 6,913,510 End of year 9,093,468$ City of San Luis Obispo Statement of Changes in Fiduciary Net Position Fiduciary Funds For the year ended June 30, 2022 The accompanying notes are an integral part of these financial statements. 49 157 DRAFT**v1 50 158 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page Note 1:Summary of Significant Accounting Policies 1 Description of the Reporting Entity 1 Government-wide and Fund Financial Statements 1 Measurement Focus, Basis of Accounting and Basis of Presentation 1 Assets, Liabilities, and Net Position or Fund Balance 3 Reconciliation of Government-wide and Fund Financial Statements 6 Budgets and Budgetary Accounting 6 Fair Value Measurements 8 Note 2:Cash and Investments 8 Funds with Fiscal Agent 8 Investments 9 Note 3:Property Taxes 13 Note 4:Loan Receivable 14 Note 5:Capital Assets 15 Note 6:Leases 16 Note 7:Long Term Debt 18 Summary of Long-Term Debt 18 Governmental Activities Summary: 19 Revenue Bonds 19 Lease-Purchase Financing 20 2014 Energy Sources Conservation State Loan 21 Business-Type Activities Summary: 21 Revenue Bonds 21 Loans 23 Installment Sale Agreements 24 Note 8:Pension Plans 24 Agent-Multiple Employer Plan 25 General Information about the Pension Plan 25 Net Pension Liability 26 Changes in the Net Pension Liability 28 Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 29 Cost-Sharing Employer Plan 29 General Information about the Pension Plan 29 Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions 31 159 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements Table of Contents June 30, 2022 Page 2 Page Payable to the Pension Plan 34 Note 9:Other Post-Employment Benefits (OPEB) 35 General Information about OPEB 35 Net OPEB Liability 35 Changes in the Net OPEB Liability 37 OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB 38 Payable to the OPEB Plan 39 Note 10:Deferred Compensation Plan 39 Note 11:Interfund Transactions 39 Note 12:Joint Ventures, Jointly Governed Organizations and Operating Agreements 40 Whale Rock Commission 40 San Luis Obispo Regional Transit Authority 41 San Luis Obispo Council of Governments 41 Nacimiento Water Supply Project 41 Note 13:Risk Management 42 California Joint Powers Insurance Authority 42 Self-Insurance Programs of the Authority 43 Adequacy of Protection 43 Self-Insurance 43 Note 14:Commitments and Contingencies 44 Litigation 44 Grant Awards 44 Regional Transit Authority Pension Expense 44 Note 15:Construction and Other Significant Commitments 45 Note 16:Fund Balance Deficiency 45 Note 17:Subsequent Events 45 Note 18:New Accounting Standards 45 Accounting Standards Adopted 45 New Accounting Standards 46 Note 19:Prior Period Adjustments 47 160 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Note 1: Summary of Significant Accounting Policies The basic financial statements of the City of San Luis Obispo (City) have been prepared in conformity with U.S. Generally Accepted Accounting Principles (GAAP), as applied to governmental agencies. The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The following is a summary of the more significant policies: Description of the Reporting Entity The City is a California charter city. It was incorporated on February 19, 1856 and chartered on May 1, 1876. It is organized in accordance with the Council-Mayor-City Manager form of government. With a population of approximately 45,920, the City provides a broad range of municipal services, including police and fire protection, parks and recreation, water and sewer utilities, street maintenance, public transportation, parking, planning, and building and safety. As required by GAAP, these financial statements present the City (the primary government) and its component units, entities for which the government is considered to be financially accountable. Blended component units, although legally separate entities, are in substance part of the government's operations which creates the need to include their financial information with that of the primary government. The City has no component units that require discrete presentation in accordance with GASB standards. Blended Component Unit. The City has identified The San Luis Obispo Capital Improvement Board (the Board) and the San Luis Obispo Public Financing Authority (the Authority) as blended component units in accordance with GASB standards. Both provide financing for the construction and acquisition of City facilities and consist of members of the City Council. Activities of both units are accounted for in the applicable City governmental funds and consist of the issuance of debt secured by the lease of property. Separate financial statements are not prepared for the San Luis Obispo Capital Improvement Board or San Luis Obispo Public Financing Authority. Government-wide and Fund Financial Statements The government-wide financial statements (i.e. the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government and its component unit. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely primarily on fees and charges for services. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment are offset by program revenues. Direct expenses are those that are clearly identifiable within a specific function or segment. The indirect expense allocation transfers general support services to operating programs based on the most current Cost Allocation Plan. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. Measurement Focus, Basis of Accounting and Basis of Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary funds and fiduciary funds. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 161 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 2 Note 1: Summary of Significant Accounting Policies (Continued) As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the government’s enterprise funds and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 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 to be 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 generally considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. An exception to this timeframe is made to allow for the recognition of the final property tax distributions received from the County, if necessary, as well as for sales tax revenues received in September. This later provision is made in order for the City’s revenue stream to match that recognized by the State of California. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. Property taxes, sales taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the government. Major Funds and Other Funds. GASB Standards define major funds and require that the City’s major governmental funds be identified and presented separately in the fund financial statements. All other funds, called non-major funds, are combined and reported in a single column, regardless of their fund type. Major funds are defined as funds that have assets, liabilities, revenues, or expenditures/expenses equal to ten percent of their fund- type total and at least five percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds. The City reports the following major governmental funds: General Fund. This fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Capital Outlay Fund. This fund was established to account for all of the City’s construction projects and capital purchases in excess of $25,000 with the exception of those funded through non-major capital project funds and Enterprise Funds. Financing is provided primarily through transfers in from the General Fund, and from State and Federal Grants. The only proprietary funds the City reports are the Enterprise Funds, all of which are major funds. Proprietary funds are accounted for on the economic resources measurement focus and the accrual basis of accounting. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. The City reports the following major enterprise funds: Water Fund. This fund accounts for the provision of water services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. Sewer Fund. This accounts for the provision of wastewater collection and treatment services to the residents of the City as well as some customers in the County. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. Parking Fund. This fund accounts for activities related to the implementation of the Access and Parking Management Plan, including the operation of municipal parking lots, parking structures, parking meters and residential parking districts. All activities necessary to provide such services are accounted for in this fund, including, but not limited to, administration, operations, maintenance, capital improvements and debt service. 162 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 3 Note 1: Summary of Significant Accounting Policies (Continued) Transit Fund. This fund accounts for the operation and maintenance of the City's transit system. Although user fees are not the primary funding source for the operation of the system, the State of California and the Federal government, which provide the major funding sources for the system, require that local transit systems be accounted for on an enterprise fund basis. Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. The City has established eight Custodial Funds, which are used to account for funds held by the City as an agent for Whale Rock Commission, Jack House Committee, County Task Force, individual donations, Boysen Ranch, San Luis Ranch Community Facilities District and San Luis Coastal Unified School District and San Luis Obispo County Public Access, Inc. Public Access Television. Custodial funds are accounted for using the accrual basis of accounting. See supplementary information for a complete list of Custodial Funds. Assets, Liabilities, and Net Position or Fund Balance Cash, Cash Equivalents and Investments. The City pools cash resources of its various funds to facilitate cash management. Cash in excess of current requirements is invested and reported as investments. It is the City’s intent to hold investments until maturity. However, the City may, in response to market conditions, sell investments prior to maturity in order to improve the quality, liquidity or yield of the portfolio. The City's cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. Cash and investments held by fiscal agents are treated as cash equivalents for purposes of the statement of cash flows. Money markets and non-negotiable certificates of deposit are reported at amortized cost. All other investments are stated at fair value. Receivables and Payables. Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as “due to/from other funds”. All receivables are shown net of any allowance for uncollectible accounts if material. Charges for utility services rendered but unbilled as of June 30 are accrued and are recognized as revenues. Prepaids and Inventories. The City has no significant inventories. The cost of any inventoriable item has been recorded as an expenditure or expense at the time of purchase. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. Prepayments in the governmental funds are accounted for using the consumption method. Restricted Assets. Certain proceeds of debt financings, as well as resources set aside for their repayment, are classified as restricted assets on the balance sheet because they are maintained in separate trust bank accounts and their use is limited by applicable debt covenants. Notes 2 and 5 have additional information on funds held by fiscal agents. 163 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 4 Note 1: Summary of Significant Accounting Policies (Continued) Capital Assets. Capital assets, which include property, plant, equipment and infrastructure assets (such as streets, sidewalks and bridges), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements, and in the proprietary funds statement of net position. Capital assets are defined by the City as assets with an initial, individual cost of more than $25,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets, donated works of art and similar items, and capital assets received in a service concession arrangement would be reported at acquisition value rather than fair value. The costs of normal maintenance and repairs that do not add to the value of assets or materially extend assets’ lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of the business- type activities is included as part of the capitalized value of the assets constructed. Detailed information on the City’s capital assets can be found in Note 4. Property, plant and equipment of the City are depreciated using the straight line method over the following estimated useful lives: Deferred Outflows and Inflows of Resources. The City recognizes deferred outflows and inflows of resources in the Statement of Net Position. A deferred outflow of resources is defined as a consumption of net assets by the City that is applicable to a future reporting period. The City has deferred outflows of resources related to pensions, other post-employment benefits (OPEB), and unamortized loss on refunding of debt. A deferred inflow of resources is defined as an acquisition of net assets by the City that is applicable to a future reporting period. The City has deferred inflows of resources related to pensions and OPEB. Compensated Absences. City employees are granted vacation and sick leave in varying amounts. In the event of termination, employees are reimbursed for the total value of their accumulated vacation days. Employees are reimbursed for 10% to 30% of the accumulated sick leave only upon retirement and only after at least 10 years of service. In selected cases, similar accumulated sick leave reimbursements may be available after 20 years of continuous employment. An employee's estate is reimbursed for 30% of the employee's accumulated sick leave in the event of death while in the City's employ. A liability for compensated absences is accrued in the government-wide and proprietary funds financial statements. Long-Term Obligations. In the government-wide financial statements, and proprietary funds in the fund financial statements, long- term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary funds statement of net position. Bond premiums and discounts and deferred amounts on refunding are deferred and amortized over the life of the bonds. Deferred amounts on refunding are reported separately from assets and liabilities in the Statement of Net Position. Bonds payable are reported net of the applicable bond premium or discount. Bond issuance costs are expensed as incurred. In the fund financial statements, governmental funds recognize bond premiums and discounts, as well as bond issuance costs, during the period they originate. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. Assets Years Infrastructure 20-100 Buildings and structures 20-50 Improvements other than buildings 10-100 Equipment 3-21 164 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 5 Note 1: Summary of Significant Accounting Policies (Continued) Net Pension Liability. The City recognizes a net pension liability, which represents the excess of the total pension liability over the fiduciary net position of the pension reflected in the actuarial reports provided by the California Public Employees’ Retirement System (CalPERS) plans (Plans). The net pension liability is measured as of the City’s prior fiscal year-end. Changes in the net pension liability are recorded, in the period incurred, as pension expense or as deferred inflows of resources or deferred outflows of resources depending on the nature of the change. The changes in the net pension liability that are recorded as deferred inflows of resources or deferred outflows of resources (that arise from changes in actuarial assumptions or other inputs and differences between expected or actual experience) are amortized over the weighted average remaining service life of all participants in the respective pension plan and are recorded as a component of pension expense beginning with the period in which they are incurred. For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the City’s CalPERS Plans and additions to/deductions from the Plans’ fiduciary net position have been determined on the same basis as they are reported by CalPERS. For this purpose, benefit payments including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. Investments are reported at fair value. Projected earnings on pension investments are recognized as a component of pension expense General fund is the governmental fund used to liquidate the pension liabilities of the governmental activities. Other Post-Employment Benefits (OPEB) Liability. For purposes of measuring net OPEB liability, deferred outflows of resources and deferred inflows of resources related to OPEB, and OPEB expense, information about the fiduciary net position of the City’s plan (OPEB Plan), and additions to or deductions from the OPEB Plan’s fiduciary net position, have been determined on the same basis as they are reported by the California Employer’s Retiree Benefit Trust Program (CERBT). For this purpose, benefit payments including refunds of employee contributions) are recognized when currently due and payable in accordance with benefit terms. Investments are reported at fair value. General fund is the governmental fund used to liquidate the OPEB liabilities of the governmental activities. Generally accepted accounting principles require that the reported OPEB results must pertain to liability and asset information within certain defined timeframes. For this report, the following timeframes are used: Valuation Date June 30, 2021 Measurement Date June 30, 2021 Measurement Period July 1, 2020 to June 30, 2021 Fund Equity. In the fund financial statements, fund balance for governmental funds is reported in classifications that comprise a hierarchy based primarily on the extent to which the City is bound to honor constraints on the specific purpose for which amounts in the funds can be spent. Fund balance is reported in five components in accordance with GASB Statement No. 54 Fund Balance Reporting and Governmental Fund Type Definitions – nonspendable, restricted, committed, assigned and unassigned. The City Council may take action via minute order to add, delete or amend a fund balance commitment that is not required as a condition of a bond covenant or other external, legal requirement. Nonspendable. This component includes amounts that cannot be spent because they are either (a) not in spendable form or (b) legally or contractually required to be maintained intact. Restricted. This component consists of amounts that have constraints placed on them either externally by third-parties (creditors, grantors, contributors, or laws or regulations of other governments) or by law through constitutional provisions or enabling legislation. Enabling legislation authorizes the City to assess, levy, charge or otherwise mandate payment of resources (from external resource providers) and includes legally enforceable requirements (compelled by external parties) that those resources be used only for the specific purposes stipulated in the legislation. Committed. This component consists of amounts that can only be used for specific purposes pursuant to constraints imposed by minute order authorized by the City Council. Those committed amounts established by minute order cannot be used for any other purpose unless the City Council adopts a new minute order so directing. With respect to encumbered amounts, the City may take steps to cancel the order for goods or services and thereby terminate the obligation. 165 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 6 Note 1: Summary of Significant Accounting Policies (Continued) Assigned. This component consists of amounts that are constrained by the City’s intent to be used for specific purposes but are neither restricted nor committed. The City Manager or Director of Finance are authorized by City Council, via formal action at regular public meetings, to assign amounts to a specific purpose. Constraints imposed on the use of assigned amounts can be removed with no formal Council actions. Unassigned. This component is the residual classification for the General Fund and includes all amounts not contained in the other classifications. Unassigned amounts are technically available for any purpose. The General Fund is the only fund that reports a positive unassigned fund balance amount. Other governmental funds may report negative unassigned fund balance, which occurs when a fund has a residual deficit after allocation of fund balance to the nonspendable, restricted, or committed categories. Fund Balance Spending Practice. The City follows a practice in which restricted, committed, assigned, and unassigned fund balances are spent when more than one amount is available for a specific purpose. When both restricted and unrestricted resources are available for use, it is the City’s policy to use restricted resources first, then unrestricted resources (committed, assigned and unassigned) as they are needed. When unrestricted resources (committed, assigned and unassigned) are available for use, it is the City’s policy to use committed resources first, then assigned, and then unassigned as they are needed. Reconciliation of Government-wide and Fund Financial Statements A reconciliation between total fund balance of the governmental funds and total net position of the governmental activities as reported in the government-wide statement of net position is presented in the basic financial statements. A reconciliation between total net change in fund balance of the governmental funds and total change in net position of governmental activities as reported in the government-wide statement of activities is presented in the basic financial statements. There are no differences between total net position of the proprietary funds and total net position of the business-type activities as reported in the government-wide statement of net position. Budgets and Budgetary Accounting Overview. The City has received national recognition for its use of a two-year Financial Plan and budgetary process that emphasizes long-range planning and effective program management. Significant features of the City's two-year Financial Plan include the integration of 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 (CIP) covering five years. 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 the City's Financial Plan is to link what the City wants to accomplish over the next two years with the resources required to do so. Formal statements of budgetary policies and major objectives provide the foundation for achieving this goal. Key budget principles include: maintaining fund balances at levels which will protect the City from future uncertainties; estimating revenues at realistic levels; making current expenditures with current revenues; maintaining the City's traditional commitment to a strong General Fund; and complying with provisions of the State constitution, 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 in the Water, Sewer and Parking Funds; and at policy levels for cost recovery in the Transit Fund; 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. 166 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 7 Note 1: Summary of Significant Accounting Policies (Continued) Budget Process. The City Manager is responsible for preparing the budget and submitting it to the Council for approval. Although specific steps will vary from year to year, the following is an overview of the general approach used under the City's two-year budgetary process: First Year. The Financial Plan process begins with City Council goal setting to determine major objectives to be accomplished over the next two years. As part of this process, community groups, interested individuals, and Council advisory bodies present their recommendations to the Council. Goals approved by the City Council are incorporated into the budget instructions issued to the operating departments, who 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 Council adoption of the Financial Plan and Budget prior to the start of the fiscal year. Second Year. Before the beginning of the second year of the two-year cycle, the Council reviews the progress during the first year, adjusts as necessary and approves appropriations for the second fiscal year. Unspent operating appropriations from the first year may be carried over for specific purposes into the second year with the approval of the City Manager. Unspent and unencumbered operating appropriations lapse at the end of the second year. The fiscal year which ended June 30, 2022 was the first year of the 2021-23 two-year cycle. Mid-Year Reviews. The Council formally reviews the City's financial condition and amends appropriations, if necessary, each February. Status Reports. Financial reports are prepared monthly to monitor the City's fiscal condition; more formal reports are posted to the City's website on a quarterly basis. Additionally, more focused reports are issued on key revenues, such as sales tax, transient occupancy tax and quarterly reports on investments. The status of major goals and program objectives, including Construction in Progress (CIP) projects, are also formally reported to the Council on an ongoing basis. Accounting and Budget Administration. Budgets are prepared for each fund in accordance with its respective basis of accounting consistent with U.S. Generally Accepted Accounting Principles (GAAP). All governmental funds have legally adopted budgets annually. While budgets are prepared for the City's capital projects funds, the capital projects generally span more than one year and are effectively controlled at the project level; accordingly, budgetary comparisons are not presented for capital projects funds in the accompanying other supplementary information following the basic financial statements. As provided under the City Charter, the Council may amend or supplement the budget at any time after its adoption by majority vote of the Council members. The legal level of budgetary control – the level at which expenditures are not to exceed appropriations – is the fund level. For management control purposes, the City Manager has the authority to make or approve administrative adjustments to the budget provided those changes will not have a significant policy impact nor affect budgeted year-end fund balances. Department heads have the authority to transfer line-item budgets within the department within a fund. During fiscal year 2022 several supplemental budget appropriations were made to reflect the inclusion of costs related to prior year encumbered amounts as well as the rollover of unspent capital appropriations. Additional appropriations were added to fund a prepayment made to the retirement system as well as to provide additional resources for the Community Development Department to ensure that it maintained a development review process that complied with State law considering the increased demand for services. These adjustments were material when compared to the original appropriations. Both the original and final amended budgets of the General Fund are presented as required supplementary information following the notes to the financial statements. Budget information for non-major governmental funds with annual budgets is presented in other supplementary information following the notes to the financial statements. 167 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 8 Note 1: Summary of Significant Accounting Policies (Continued) Encumbrances. The City uses an encumbrance system as an extension of normal budgetary accounting for the other governmental funds. Under this system, purchase orders, contracts, and other commitments for the expenditure of monies are recorded in order to reserve that portion of applicable appropriations. Encumbrances outstanding at year-end are recorded as restricted, committed, or assigned fund balances since they do not constitute expenditures or liabilities. Unencumbered appropriations lapse at year-end. Encumbered appropriations are carried forward in the ensuing year’s budget. Indirect Cost Reimbursement. All of the City's general government and engineering programs are accounted and budgeted for in the General Fund. However, some of these support service programs also benefit the City's enterprise and custodial fund operations, and accordingly, payments are made from these funds to reimburse the General Fund for these services. The payments are based on a Central Service Cost Allocation Plan prepared for this purpose, which distributes these shared costs in a uniform, consistent manner in accordance with GAAP. Fair Value Measurements As defined in GASB Statements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City uses valuation techniques that are appropriate under the circumstances and for which sufficient data are available to measure fair value. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. GASB Statements establish a hierarchy of inputs to valuation techniques used to measure fair value. That hierarchy has three levels: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 — Observable inputs, other than Level 1 prices, for the asset or liability, either directly or indirectly. Level 3 — Unobservable inputs for the asset or liability. For fiscal year ended June 30, 2022, the application of valuation techniques applied to the City’s financial statements has been consistent. Note 2: Cash and Investments The City follows the practice of pooling cash and investments for all funds under its direct daily control. Funds held by outside fiscal agents under provisions of bond indentures are maintained separately. Interest earned on pooled cash and investments is allocated quarterly to the various funds based on the respective fund's average quarterly cash balance. Interest earned from cash and investments with fiscal agents is credited directly to such funds. Funds with Fiscal Agent The City has monies held by trustees or fiscal agents pledged to the payment or security of certain bonds. The California Government Code provides that these funds, in the absence of specific statutory provisions governing the issuance of bonds, may be invested in accordance with the ordinance, resolutions, or indentures specifying the types of investments its trustees or fiscal agents may make. These ordinances, resolutions, or indentures are generally more restrictive than the City's general investment policy. In no instance have additional types of investments been authorized which are not permitted by the City's investment policy. 168 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 9 Note 2: Cash and Investments (Continued) Investments The City is authorized by its investment policy, in accordance with Section 53601 of the California Government Code, to invest in the following instruments: Treasury bills and notes Government Sponsored Enterprises Commercial paper Repurchase agreements Bankers' acceptances Corporate medium-term notes Negotiable certificates of deposit Collateralized bank deposits Money market mutual funds State Local Agency Investment Fund (LAIF) Investments are stated at fair value, based on quoted market prices, in accordance with GASB standards. Investment income has been adjusted to reflect any unrealized gains and losses resulting from the fair value adjustment annually. While U.S. generally accepted accounting principles require recording any increases or decreases in the market value of the City’s investments, it is the City’s policy to make all investment decisions based on holding them through maturity, and therefore the City may not realize the gains or losses resulting from the fair value adjustment. As such, changes in market value generally do not affect the long-term results of the portfolio, but they can result in significant fluctuations from year-to-year. The fair value of the City’s position in the State LAIF pool is the same as the value of the pool shares. The State LAIF pool credit quality is unrated. LAIF is overseen by the Local Agency Investment Advisory Board, which consists of five members, in accordance with State statute. The State Treasurer’s Office audits the fund annually. At June 30, 2022, cash and investments consisted of the following: Fair Value Percent of Portfolio Cash and cash equivalents 43,770,453$ 20.39% Investments: State Local Agency Investment Fund 68,226,726 31.79% U.S. Treasury Bond / Note 56,725,859 26.43% Federal Agency Bond / Note 22,151,948 10.32% Corporate Note 13,692,137 6.38% Municipal Bond/Note 2,081,845 0.97% Asset-Backed Securities 1,688,832 0.79% Negotiable Certificates of Deposit 3,354,299 1.56% Non-Negotiable Certificates of Deposit 2,025,090 0.94% Money Market Funds 904,511 0.42% Total investments 170,851,247 79.61% Total cash and investments 214,621,700$ 100.00% 169 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 10 Note 2: Cash and Investments (Continued) At June 30, 2022, cash and investments are reflected in the financial statements as following: Investment Fair Value Measurements. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. Investment securities classified in Level 1 of the fair value hierarchy are valued using prices quoted in active markets for those securities. Investment securities classified in Level 2 of the fair value hierarchy are valued using matrix pricing or market corroborated pricing. Matrix pricing is used to value securities based on the securities’ relationship to benchmark quoted prices. The following is a summary of the fair value measurements as of June 30, 2022: Custodial Credit Risk – Deposits with Financial Institutions. The custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, the City will not be able to recover deposits. Deposits with financial institutions, including non-negotiable certificates of deposit, totaled $45,787,008 at June 30, 2022 and were insured or collateralized with securities held by the pledging financial institution's trust department or agent in the City's name. Governmental Funds Business-Type Funds Fiduciar y Funds Total Cash and investments 99,356,588$ 105,676,349$ 8,729,369$ 213,762,306$ Cash and investments held by fiscal agents 421,510 437,884 - 859,394 Total cash and investments 99,778,098$ 106,114,233$ 8,729,369$ 214,621,700$ Government-Wide Statement of Net Position Fair Value Investments by fair value hierarchy U.S. Treasury Bond / Note 56,725,859$ -$ 56,725,859$ -$ Federal Agency Bond / Note 22,151,948 - 22,151,948 - Corporate Note 13,692,137 - 13,692,137 - Municipal Bond/Note 2,081,845 - 2,081,845 - Asset-Backed Securities 1,688,832 - 1,688,832 - Negotiable Certificates of Deposit 3,354,299 - 3,354,299 - Total investments by fair value hierarchy 99,694,920 -$ 99,694,920$ -$ Investments not subject to fair value hierarchy State Local Agency Investment Fund 68,226,726 Non-Negotiable Certificates of Deposit 2,025,090 Money Market Funds 904,511 Total investments not subject to fair value hierarchy 71,156,327 Total investments measured at fair value 170,851,247$ Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs Level 2) Significant Unobservable Inputs Level 3) 170 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 11 Note 2: Cash and Investments (Continued) The California Government Code requires California financial institutions to secure the City's deposits by pledging government securities as collateral. The market value of the pledged securities must equal 110% of the City's deposits. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes equal to 150% of the City's deposits or letters of credit issued by the Federal Home Loan Bank of San Francisco having a value of 105% in excess of the total amount of deposits. Custodial Credit Risk - Investments. This is the risk that in the event of the failure of a counterparty, the City will not be able to recover the value of its investments that are in the possession of an outside party. All of the City’s investments in securities are insured or registered and held by a counterparty in the City’s name in accordance with the City’s policies. Interest Rate Risk. This is the risk that the market value of securities in the portfolio will fall due to changes in general interest rates. In accordance with its policies in the Investment Management Plan, the City mitigates interest rate risk by: Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market before maturity. Investing operating funds primarily in shorter-term securities. The City’s investment policy also includes portfolio maturity targets. A minimum of 20% of the portfolio will be invested in securities maturing in one year or less. Up to 80% of the portfolio can be invested in securities with a maturity over one year, with no more than 10% of the portfolio invested in securities with a maturity over five years. Maturities using the segmented time distribution method for those investments requiring this disclosure are as follows: Investments held by fiscal agents are structured with maturity dates that correspond to the payment of final debt service of the respective bond indenture. Credit Risk. This is the risk of loss due to the failure of the security issuer or backer. The City’s policies to mitigate credit risk include: Limiting investments to the safest types of securities. As noted above, the California Government Code limits the investment vehicles available to local agencies. The credit risk of these securities is measured by the assignment of a rating by a nationally recognized statistical rating organization. The table below presents the rating for each investment type as provided by Standard & Poor’s except as noted. Pre-qualifying the financial institutions, broker/dealers, intermediaries and advisors with which the City will do business. Fair Value Less Than One Month One Month to One Year One to Five Years Over Five Years State Local Agency Investment Fund 68,226,726$ -$ 68,226,726$ -$ -$ U.S. Treasury Bond / Note 56,725,859 - 15,296,323 41,429,536 - Federal Agency Bond / Note 22,151,948 - 4,529,113 17,622,835 - Corporate Note 13,692,137 - 4,083,726 9,608,411 - Municipal Bond/Note 2,081,845 - - 2,081,845 - Asset-Backed Securities 1,688,832 - 38,679 1,650,153 - Negotiable Certificates of Deposit 3,354,299 - 3,354,299 - - Non-Negotiable Certificates of Deposit 2,025,090 - 2,025,090 - - Money Market Funds 904,511 904,511 - - - Total maturities 170,851,247$ 904,511$ 97,553,956$ 72,392,780$ -$ Cash in banks and on hand 43,770,453 214,621,700$ 171 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 12 Note 2: Cash and Investments (Continued) The following table identifies the Standard & Poor’s credit quality ratings for those investments requiring this disclosure as of June 30, 2022: Concentration Credit Risk. The City’s policies contained in the Investment Policy and Management Plan provide guidelines (by type of investment that limits either the dollar amount, the percent of the portfolio or the maturity term) for diversifying the investment portfolio so that potential losses on individual securities will be minimized. The City’s Investment Management Plan outlines the following criteria related to portfolio diversification: No more than 5% of the City’s portfolio (exclusive of government agency issues or LAIF) shall be placed with any financial institution. No more than 25% of the City’s portfolio shall be invested in collateralized certificates of deposit issued by financial institutions. Certificates of deposit (negotiable and collateralized) placed by the City shall not constitute more than 15% of the total assets of the institution; and negotiable certificates of deposit will only be placed with institutions with total assets in excess of $200 million and that maintain a ratio of equity to total assets of at least 5%. Foreign Currency Risk. The City does not hold any investment that is based on foreign currency exchange rates. Type of Investment Rating Total Federal Agency Bonds / Notes AA+22,151,948$ Corporate Notes AA 3,772,200 A+3,716,448 A 3,160,474 A-2,519,382 BBB+523,633 Total Corporate Notes 13,692,137 Municipal Bond/Note AAA 584,228 AA+291,627 AA 227,666 AA-978,324 Asset-Backed Securities AAA 1,688,832 Negotiable Certificates of Deposit A-1+1,144,808 A-1 2,209,491 Total Negotiable Certificates of Deposit 3,354,299 Not Applicable: U.S. Treasury Bonds / Notes 56,725,859 Not Rated: State Local Agency Investment Fund 68,226,726 Non-Negotiable Certificates of Deposit 2,025,090 Money Market Mutual Funds 904,511 Total Investments 170,851,247$ 172 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 13 Note 3: Property Taxes Property taxes in the State of California (State) are administered for all local agencies at the county level, and consist of secured, unsecured and utility tax rolls. The following is a summary of major policies and practices relating to property taxes: Property Valuation. Valuations are established by the Assessor of the County of San Luis Obispo (County) for the secured and unsecured property tax rolls; the utility property tax roll is valued by the State Board of Equalization. Under the provisions of Article XIIIA of the State Constitution (Proposition 13 adopted by the voters on June 6, 1978), properties are assessed at 100% of full value. Proposition 13 also modified the value of taxable real property for fiscal 1979 by rolling back values to fiscal 1976 levels. From this base of assessment, subsequent annual increases in valuation are limited to a maximum of 2%. However, increases to full value are allowed for property improvements or upon change in ownership. Personal property is excluded from these limitations and is subject to annual reappraisal. Tax Levies. Under the provisions of Proposition 13, the countywide tax levy for general revenue purposes is limited to 1% of full market value, which results in a tax rate of $1.00 per $100 assessed valuation. Tax rates for voter approved indebtedness are excluded from this limitation. Tax Levy Dates. All lien dates attach annually on January 1 preceding the fiscal year for which the taxes are levied. The fiscal year begins July 1 and ends June 30 of the following year. Taxes are levied on both real and unsecured personal property as it exists at that time. The lien against real estate as well as the tax on personal property is not relieved by subsequent renewal or change in ownership. Tax Collections. The County Treasurer/Tax Collector is responsible for all property tax collections. Taxes and assessments on the secured and utility rolls, which constitute a lien against the property, may be paid in two installments: the first installment is due on November 1 of the fiscal year and is delinquent if not paid by December 10; and the second installment is due on March 1 of the fiscal year and is delinquent if not paid by April 10. Unsecured personal property taxes do not constitute a lien against real property. However, if the taxes become delinquent the lien is attached against anything the individual owns, which could include real property. Payment must be made in one installment, which is delinquent if not paid by August 31 of the fiscal year. Significant penalties are imposed by the County for late payments. Teeter Plan. In 1993-94 the City elected to receive property tax revenue in accordance with the alternative method of distribution prescribed by Sections 4701-4717 of the California Revenue and Taxation Code, which is commonly known as the “Teeter Plan” whereby the County remits 100% of taxes levied without regard to delinquencies. The County then pursues collection, retaining any delinquent taxes and related penalties and interest. Tax Levy Apportionments. Due to the nature of the countywide maximum levy, it is not possible to identify general purpose tax rates for specific entities. Under State legislation adopted after the passage of Proposition 13, apportionments to local agencies are made by the County Auditor Controller based primarily on two factors: the ratio that each agency represented of the total County wide levy for the three years prior to fiscal 1979; and subsequent adjustments to these apportionments and transfers to the “Educational Revenue Augmentation Fund” (ERAF) as determined by the State. City Property Tax Distribution Policy. Property taxes are recorded in the General Fund as general-purpose revenue. Transfers are made from the General Fund as needed to support expenditures in the Capital Outlay, Open Space Protection, Fleet Replacement, Information Technology Replacement, Major Facility Replacement and Debt Service Funds. Property taxes receivable at June 30, 2022 have been accrued since they will be collected within 60 days subsequent to year-end. 173 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 14 Note 4: Loan Receivable Loans receivable, including accrued interest comprised balances from the following programs, all of which are discussed on the following pages. A. Affordable Housing Loans - The City’s Affordable Housing Fund provides grants and loans to certain development projects that meet the City’s affordability criteria. As of June 30, 2022, the Fund has 17 loans for affordable housing developments with interest rates ranging from 0% to 4% and repayment terms of 30 to 57 years. These loans had a remaining principal balance of $8.5 million; 4 loans for $669,063 are forgivable if certain criteria are met. The Fund has secured more than 450 affordable housing units for City residents. B. BEGIN Homeownership Loan - The City has provided deferred payment loans utilizing funding from the State of California under the BEGIN program. On June 30, 2022, the Fund had two outstanding loans utilizing this program with a principal balance of $130,000. These loans are provided for a term of 30 years with an annual interest rate of 3%. C. Down Payment Assistance - The Fund has provided down payment assistance loans to individuals purchasing affordable housing units. As of June 30, 2022, the Affordable Housing Fund had eight outstanding down payment assistance loans with a principal balance of $381,155. These loans are provided for a term of 30 years with an annual interest rate of 3%. D. Impact Fee Deferral Loan – The City has provided certain affordable housing developments with loans equal to the amount of certain impact fees. These loans are reflected in the respective impact fee funds. As of June 30, 2022, the total principal outstanding was $4,487,674. These loans are provided for a term of 55 years with an annual interest rate of 3%. E. Community Development Block Grant (CDBG) Fund Loans – The City has provided loans from the City’s allocation of CDBG funding for certain affordable housing developments. As of June 30, 2022, the CDBG Fund had $1,112,944 principal outstanding on the loans. The loans have terms of 30 years and annual interest rates of 3% to 4%. Total Balance Description Loan Receivable Interest Receivable June 30, 2022 Governmental Funds: Affordable Housing Loan 8,490,688$ 1,608,237$ 10,098,925$ BEGIN Homeownership Loan 130,000 48,775 178,775 Down Payment Assistance 381,155 69,328 450,483 CDBG 1,112,944 648,481 1,761,425 Impact Fee Loan 2,212,740 175,711 2,388,451 Total governmental funds 12,327,527 2,550,532 14,878,059 Enterprise Funds: Impact Fee Loan 2,274,934 278,913 2,553,847 Total enterprise funds 2,274,934 278,913 2,553,847 Total Primary Government 14,602,461$ 2,829,445$ 17,431,906$ 174 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 15 Note 5: Capital Assets GASB standards require that the City report in the government-wide statements the value of all capital assets net of accumulated depreciation, including infrastructure assets, in accordance with GAAP. Infrastructure assets are defined as long-lived capital assets that are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. The minimum requirement for compliance with GASB standards is to provide infrastructure valuations for all assets constructed, acquired, or placed into service on or after July 1, 1980. Relevant assets for the City were valued at one of two dates: 1) the original date of construction, if available, or 2) the incorporation date of the City. Each asset was reviewed to determine the adequacy of the data to value the asset prior to July 1, 1980 using historical cost or estimated historical cost. Capital assets activity for the fiscal year ended June 30, 2022 was as follows: Balance Balance June 30, 2021 Additions Deletions Transfers Adjustments June 30, 2022 Governmental activities: Capital assets not being depreciated: Land 32,263,736$ -$ -$ -$ -$ 32,263,736$ Construction in progress 8,859,498 14,980,282 (16,990) (13,185,786) - 10,637,004 Public art 646,630 - - - - 646,630 Total capital assets not - being depreciated 41,769,864 14,980,282 (16,990) (13,185,786) - 43,547,370 Capital assets being depreciated: Infrastructure 201,307,747 - - 4,402,519 - 205,710,266 Accumulated Depreciation (70,327,468) (3,340,085) - - (763,910) (74,431,463) Buildings and improvements 41,071,359 - - 7,433,755 - 48,505,114 Accumulated Depreciation (21,770,258) (1,606,739) - - 806,458 (22,570,539) Equipment 30,980,665 - - 1,349,512 - 32,330,177 Accumulated Depreciation (18,262,924) (1,618,942) - - (73,170) (19,955,036) Capital assets being amortized: Right of use - Lease asset - 157,527 - - - 157,527 Accumulated Amortization - (37,065) - - - (37,065) Total capital assets being depreciated/amortized, net 162,999,121 (6,445,304) - 13,185,786 (30,622) 169,708,981 Governmental activities, capital assets, net 204,768,985$ 8,534,978$ (16,990)$ -$ (30,622)$ 213,256,351$ Business-type activities: Capital assets not being depreciated: Land 9,069,495$ -$ -$ -$ -$ 9,069,495$ Construction in progress 82,168,910 46,158,398 (93,545) (5,278,153) - 122,955,610 Total capital assets not being depreciated 91,238,405 46,158,398 (93,545) (5,278,153) - 132,025,105 Capital assets being depreciated: Infrastructure 227,144,816 - - 4,770,092 (1,047,060) 230,867,848 Accumulated Depreciation (102,024,535) (5,578,768) - - (473,101) (108,076,404) Buildings and improvements 30,156,529 (7,303) 50,000 328,150 30,527,376 Accumulated Depreciation (15,225,339) (601,014) - - (134,991) (15,961,344) Equipment 21,761,714 - - 458,061 719,061 22,938,836 Accumulated Depreciation (14,581,156) (1,308,689) - - 605,182 (15,284,663) Total capital assets being depreciated, net 147,232,029 (7,488,471) (7,303) 5,278,153 (2,759) 145,011,649 Business-type activities, capital assets, net 238,470,434 38,669,927 (100,848) - (2,759) 277,036,754 Total Government-wide 443,239,419$ 47,204,905$ (117,838)$ -$ (33,381)$ 490,293,105$ 175 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 16 Note 5: Capital Assets (Continued) Depreciation expense was charged to functions/programs as follows: Note 6: Leases Pursuant to GASB 87, the City has the following lease receivables: James Town On 11/5/2013, the City entered into a lease with James Town Premier SL Retail, L.P. or commercial retail space located at the Marsh Street parking structure. Under the lease, the lessee pays the City $11,310 per month from 2/1/2014 – 1/31/2015 and with 3% increase each year from 2/1/2015 – 1/31/2024. The lease term has one 5-year extension option. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.5%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $165,652 of lease revenue and $11,983 of interest revenue under the lease. Crown Castle On 9/19/2017, the City entered into a lease with Crown Castle NG West LLC to utilize City utility poles for communications equipment. Under the lease, the initial annual pole fee shall consist of $1,000 for each city pole which Crown Castle’s facilities are to be installed pursuant to this agreement and is payable to city upon execution and delivery of this agreement and prior to Crown Castle installing any portion of the network or any facilities. The term ends on 9/1/2047 with 3% increase annually. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3.5%, which was the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $8,564 of lease revenue and $5,743 of interest revenue under the lease. Garden Street On 8/1/2015, the City entered into a lease with Garden Street SLO Partners, L.P for the right to use land formerly a surface parking lot in order to build a hotel. Under the lease, the lessee pays the City $171,600 or the “Base Annual Rent Floor”, which is the amount of Landlord’s annual net revenue from the operation of Parking Lot 2 on the premises in the period of twelve months ended on the last day of the last full calendar month ended two months prior to the rent commencement date. The amount of base rent shall be increased as of the first day of each rent adjustment period commencing with the rent adjustment period that begins on the first day of the third lease year and on the first day of each subsequent rent adjustment period. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 1%, which is the 5- year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $394,729 of lease revenue and $367,683 of interest revenue under the lease. Governmental activities: Public safety 531,827$ Transportation 2,501,557 Culture and recreation 242,933 Community development 111,618 General government 3,214,896 Total depreciation - governmental activities 6,602,831 Business-type activities: Water 2,863,988 Sewer 3,559,830 Parking 688,790 Transit 375,863 Total depreciation - business-type activities 7,488,471 Total Government-wide 14,091,302$ 176 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 17 Note 6: Leases (Continued) Laguana AT&T On 9/16/2009, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater that ends on 9/30/2029. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $40,785 of lease revenue and $5,994 of interest revenue under the lease. Laguna SBA On 2/1/2005, the City entered into a lease with SBA 2012 TC Assets, LLC to locate a cellular communication site at the Laguna Lake Golf Course. Under the lease, the lessee pays the City $25,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends in 2025. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 3%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $45,734 of lease revenue and $3,680 of interest revenue under the lease. Santa Rosa St On 5/13/2011, the City entered into a lease with New Cingular Wireless PCS, LLC to locate a cellular communication site at the Santa Rosa Park. Under the lease, the lessee pays the City $26,000 annually and thereafter, be multiplied by the CPI Adjuster or 3%, whichever is greater, that ends on 5/13/2031. The lease receivable is measured as the present value of the future minimum rent payments expected to be received during the lease term at a discount rate of 2%, which is the 5-year US Treasury rate in effect when the lease was entered into. In fiscal year 2022, the City recognized $73,432 of lease revenue and $14,114 of interest revenue under the lease. The future revenue payments as of June 30, 2022 are as follows: Year Ending June 30, Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest Principal Interest 2023 167,582$ 6,335$ 1,197$ 5,717$ -$ 368,693$ 31,013$ 5,392$ 38,545$ 2,537$ 58,985$ 12,969$ 297,322$ 401,643$ 2024 102,280 917 1,448 5,682 - 369,703 32,744 4,750 40,968 1,312 62,299 11,806 239,739 394,170 2025 - - 1,698 5,607 - 368,693 34,530 4,047 43,499 4 65,810 10,509 145,537 388,860 2026 - - 1,994 5,537 - 368,693 36,412 3,319 - - 69,426 9,175 107,832 386,724 2027 - - 2,292 5,457 - 368,693 38,354 2,552 - - 73,183 7,768 113,829 384,470 2028-2032 - - 16,544 25,702 - 1,845,484 127,475 2,647 - - 333,279 15,460 477,298 1,889,293 2033-2037 - - 26,937 21,739 - 1,844,474 - - - - - - 26,937 1,866,213 2038-2042 - - 40,470 15,651 - 1,844,474 - - - - - - 40,470 1,860,125 2043-2047 - - 57,878 6,799 - 1,844,474 - - - - - - 57,878 1,851,273 2048-2052 - - 14,070 1 - 1,845,484 - - - - - - 14,070 1,845,485 2053-2057 - - - - - 1,844,474 - - - - - - - 1,844,474 2058-2062 - - - - 161,351 1,842,865 - - - - - - 161,351 1,842,865 2063-2067 - - - - 986,479 1,807,993 - - - - - - 986,479 1,807,993 2068-2072 - - - - 1,353,075 1,748,798 - - - - - - 1,353,075 1,748,798 2073-2077 - - - - 1,732,118 1,669,339 - - - - - - 1,732,118 1,669,339 2078-2082 - - - - 2,161,637 1,569,604 - - - - - - 2,161,637 1,569,604 2083-2087 - - - - 2,695,176 1,445,748 - - - - - - 2,695,176 1,445,748 2088-2092 - - - - 3,248,775 1,295,791 - - - - - - 3,248,775 1,295,791 2093-2097 - - - - 3,869,169 1,113,664 - - - - - - 3,869,169 1,113,664 2098-2102 - - - - 4,634,199 897,046 - - - - - - 4,634,199 897,046 2103-2107 - - - - 5,426,984 643,007 - - - - - - 5,426,984 643,007 2108-2112 - - - - 6,313,092 344,758 - - - - - - 6,313,092 344,758 2113-2115 - - - - 4,287,231 43,275 - - - - - - 4,287,231 43,275 Total 269,862$ 7,252$ 164,528$ 97,892$ 36,869,286$ 27,335,227$ 300,528$ 22,707$ 123,012$ 3,853$ 662,982$ 67,687$ 38,390,198$ 27,534,618$ TotalJamesTownCrownCastleGardenStLagunaATTLagunaSBASantaRosaSt 177 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 18 Note 7: Long Term Debt Summary of Long-Term Debt The following is a summary of the City's long-term debt transactions for the year ended June 30, 2022: Compensated absences in the governmental funds are generally liquidated by the General Fund on a pay as you go basis. For detail of estimated claims and liabilities, see Note 11. The San Luis Obispo Capital Improvement Board (Board) and the San Luis Obispo Public Financing Authority (Authority) have entered into a number of lease agreements with the City of San Luis Obispo wherein the City is obligated to make all debt service payments. The transactions between the Board/Authority have been eliminated from these financial statements. Balance Balance Due Within June 30, 2021 Additions Deductions June 30, 2022 One Year Governmental activities: 2012 Lease revenue refunding bonds 2,970,000$ -$ (270,000)$ 2,700,000$ 285,000$ 2014 Lease revenue bonds 6,635,000 - (175,000) 6,460,000 185,000 2018 Lease revenue refunding bonds 9,212,575 - (553,475) 8,659,100 569,850 Add: Unamortized bond premium 1,221,204 - (85,448) 1,135,756 - Total revenue bonds 20,038,779 - (1,083,923) 18,954,856 1,039,850 Lease liability - 157,527 (32,524) 125,003 32,257 Lease-purchase financing 734,673 - (344,253) 390,420 354,175 Conservation Loan 232,111 - (92,150) 139,961 93,074 Total long-term debt, governmental activities 21,005,563$ 157,527$ (1,552,850)$ 19,610,240$ 1,519,356$ Compensated absences 3,016,523$ 3,121,720$ (3,033,638)$ 3,104,605$ 2,111,566$ Business-type activities: 2012 Water revenue refunding bonds 1,080,000 - (530,000) 550,000 550,000 2018 Lease revenue refunding bonds 4,852,425 - (291,525) 4,560,900 300,150 2018 Water revenue refunding bonds 8,785,000 - (455,000) 8,330,000 470,000 Add: Unamortized bond premium 2,054,746 - (188,468) 1,866,278 - Total revenue bonds 16,772,171 - (1,464,993) 15,307,178 1,320,150 Loans 56,229,546 44,867,826 (1,178,724) 99,918,648 1,212,201 Installment sale agreements 4,919,407 - (662,064) 4,257,343 681,479 Total long-term debt, business-type activities 77,921,124 44,867,826 (3,305,781) 119,483,169 3,213,830 Compensated absences 613,247 449,589 (536,725) 526,111 157,833 Total Government-wide 102,556,457$ 48,596,662$ (8,428,994)$ 142,724,125$ 7,002,585$ 178 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 19 Note 7: Long Term Debt (Continued) Governmental Activities Summary: Revenue Bonds 2012 Refunding Lease Revenue Bonds. In 2012, the Board issued refunding lease revenue bonds in the amount of $5,050,000 to refinance the outstanding 2001 lease revenue bonds, Series C. The purpose of these bonds was to purchase property and build athletic fields, purchase property for police station expansion, and purchase Downtown Plan properties. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on December 1 through December 1, 2029 that range from $210,000 to $390,000. At June 30, 2022, the principal amount outstanding on the bonds was $2,700,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2022. In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2022, the unamortized premium was $142,771. 2014 Lease Revenue Bonds. In 2014, the Authority issued lease revenue bonds in the amount of $7,580,000 to finance the expansion of the Los Osos Valley Road interchange at U.S. 101. The bonds bear interest from 3.00% to 4.00% and are due in annual installments on November 1 through November 1, 2044 that range from $145,000 to $410,000. At June 30, 2022, the principal amount outstanding on the bonds was $6,460,000. In the Statement of Net Position, the 2014 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2014 bonds. At June 30, 2022, the unamortized premium was $126,857. 2018 Lease Revenue Refunding Bonds. In 2018, the Authority issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $11,072,775 was used for financing governmental activities related to the original bonds and the remainder was used for business-type activities. The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from 255,000 to $1,250,000. At June 30, 2022, the principal amount outstanding that pertains to governmental activities was $8,659,100 of the total $13,220,000 outstanding. In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2022, the unamortized premium for governmental activities was $866,128. The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the following 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments). Lease Liability (Cuesta Peak) On October 23, 2003, the City entered into a 22-year Lease Agreement as lessee of a site for City radio equipment. The City pays the landlord $16,857.96 annually with a 4% increase. An initial lease liability was recorded in the amount of $157,527. As of June 30, 2022, the value of the lease liability is $125,003. The City is required to make monthly payments of $670 and increase annually by 5% in October of each year. The lease has an interest rate of 3.04%. The value of the right to use asset as of June 30, 2022 of 157,527 with accumulated amortization of $37,065 is included in the intangible assets on the capital assets activities table found in Note 5 above. 179 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 20 Note 7: Long Term Debt (Continued) At June 30, 2022, the aggregate maturities of the aforementioned governmental activities revenue bonds were as follows: At June 30, 2022, the aggregate maturities of the aforementioned governmental lease liability was as follows: Lease-Purchase Financing Fire Truck. In 2018 the City obtained lease-purchase financing in the amount of $673,095 to purchase a fire truck. The gross amount of assets under this lease is $673,095 with $90,732 accumulated depreciation included in equipment at June 30, 2021. The lease agreement bears an interest rate of 3.178% due in quarterly installments of $36,533 beginning December 5, 2018 through September 5, 2023. At June 30, 2022, the principal amount outstanding is $178,389. Motorola Radios. In 2020, the City obtained lease-purchase financing in the amount of $636,240 to purchase Motorola radios and equipment for public safety. The gross amount of assets under this lease is $636,240 with $212,080 accumulated depreciation as it was placed in service at year end. The lease agreement bears an interest rate of 2.66% due in annual installments of $217,671 beginning June 1, 2021 through June 1, 2023. At June 30, 2022, the principal amount outstanding was $212,031. For the Year Ending June 30, Principal Interest Total 2023 1,039,850$ 715,750$ 1,754,365$ 2024 1,091,050 674,056 1,755,600 2025 1,133,975 630,214 1,765,106 2026 1,178,450 578,566 1,764,189 2027 1,021,775 524,744 1,546,519 2028-2032 4,992,400 1,941,690 6,934,090 2033-2037 4,144,450 1,008,511 5,152,961 2038-2042 2,032,150 428,645 2,460,795 2043-2045 1,185,000 72,300 1,257,300 17,819,100$ 6,574,476$ 24,393,576$ For the Year Ending June 30, Principal Interest Total 2023 32,257$ 3,637$ 35,894$ 2024 34,901 2,411 37,312 2025 37,694 1,074 38,768 2026 20,151 2 20,153 125,003$ 7,124$ 132,127$ 180 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 21 Note 7: Long Term Debt (Continued) At June 30, 2022, the aggregate maturities of the aforementioned governmental activities lease-purchase financing were as follows: 2014 Energy Sources Conservation State Loan In 2014, the City obtained a note in the amount of $850,775 for the purchase of streetlights. The note bears an interest rate of 1% due in semi-annual installments on December 22 and June 22 through December 22, 2023 in the amount of $92,242. At June 30, 2022, the principal amount outstanding is $139,961. At June 30, 2022, the aggregate maturities of the aforementioned governmental activities conservation loan is as follows: Business-Type Activities Summary: Revenue Bonds 2012 Water Revenue Refunding Bonds. In 2012, the City issued water revenue refunding bonds in the amount of $4,960,000 to refund the 2002 water revenue bonds, which were originally issued to fund water system improvements. The bonds bear interest from 2.0% to 4.0% and are due in annual installments on June 1 through June 1, 2023 that range from $340,000 to $550,000. At June 30, 2022, the principal amount outstanding on the bonds was $550,000. The bond indenture agreement specifies reserve requirements equal to the maximum debt service in any particular year to be held in the Trustee’s reserve funds. The reserve requirement has been met for the year ended June 30, 2022. In the Statement of Net Position, the 2012 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2012 bonds. At June 30, 2022, the unamortized premium was $96,234. The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $573,200 and $6,723,041, respectively. For the Year Ending June 30, Principal Interes t Total 2023 354,175$ 3,986$ 358,161$ 2024 36,245 289 36,534 390,420$ 4,275$ 394,695$ For the Year Ending June 30, Principal Interest Total 2023 93,074$ 1,168$ 94,242$ 2024 46,887 235 47,122 139,961$ 1,403$ 141,364$ 181 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 22 Note 7: Long Term Debt (Continued) 2018 Lease Revenue Refunding Bonds. In 2018, the Authority issued lease revenue bonds in the amount of $16,905,000 to advance refund the outstanding 2005 revenue refunding bonds and the 2006 and 2009 lease revenue bonds, which were originally issued to construct several high priority capital improvement projects and to finance the costs of acquisition and construction of public parking facilities, and the public safety communications and emergency operations center project. Of the original bond issuance, $5,832,225 was used for financing business-type activities related to the original bonds and the remainder was used for governmental activities. The bonds bear interest from 3.00% to 5.00% and are due in annual installments on June 1, through June 1, 2039 that range from 255,000 to $1,250,000. At June 30, 2022, the principal amount outstanding that pertains to business-type activities was $4,560,900 of the total $13,220,000 outstanding. In the Statement of Net Position, the 2018 bonds include the related unamortized premium which is being amortized and charged to expense over the term of the 2018 bonds. At June 30, 2022, the unamortized premium that pertains to business-type activities was 458,944. The refunding resulted in a difference of $374,404 between the reacquisition price and the net carrying value of the old debt and is being amortized to expense through 2039. The City completed the refunding to reduce its total debt service payments over the next 21 years by $3,838,338 and to obtain an economic gain of $2,960,278 (difference between the present values of the old and the new debt service payments). 2018 Water Revenue Refunding Bonds. In 2018, the City issued water revenue refunding bonds the in the amount of $10,095,000 to refund the 2006 water revenue bonds, which were originally issued to fund improvements to the water treatment plant. The bonds bear interest from 4% to 5% and are due in annual installments on June 1 through June 1, 2035 that range from $455,000 to $845,000. At June 30, 2022, the principal amount outstanding on the bonds was $8,330,000. The City has pledged future water system revenues, net of specific operating expenses, to repay the bonds on parity with a pledge that services all parity obligations. The bonds are payable solely from water customer net revenues and any moneys in the bond service fund and the reserve fund. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $889,700 and $6,723,041, respectively. In the Statement of Net Position, the bonds include the related unamortized premium which is being amortized and charged to expense over the term of the bonds. At June 30, 2022, the unamortized premium was 1,311,100. At June 30, 2022, the aggregate maturities of the business-type revenue bonds were as follows: For the Year Ending June 30, Principal Interest Total 2023 1,320,150$ 633,238$ 1,953,388 2024 808,950 575,732 1,384,682 2025 846,025 538,424 1,384,449 2026 886,550 496,122 1,382,672 2027 813,225 451,794 1,265,019 2028-2032 4,737,600 1,604,980 6,342,580 2033-2037 3,845,550 406,180 4,251,730 2038-2039 182,850 9,542 192,392 13,440,900$ 4,716,012$ 18,156,912$ 182 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 23 Note 7: Long Term Debt (Continued) Loans 2001 CIEDB State Loan. In 2001, the City obtained a note in the amount of $7,765,900 to go towards expanding the Marsh Street parking structure. The note bears an interest rate of 3.37% due in semi-annual installments on February 1 and August 1 through August 31, 2031 that range from $169,000 to $396,000. At June 30, 2022, the principal amount outstanding on the loan was 3,470,379. 2009 Infrastructure and Economic Development Bank Loan– Tank Farm Lift Station. In 2009, the City obtained a note in the amount of $10,000,000 to go towards the Tank Farm lift station and main sewer project. The note bears an interest rate of 3.25% due in annual installments on December 1 through December 1, 2037 that range from $212,600 to $520,744. At June 30, 2022, the principal amount outstanding on the loan was $6,626,416. The City has pledged future sewer system revenues, net of specific operating expenses, to repay the loan. The loan is payable solely from sewer customer net revenues. For the year ended June 30, 2022, principal and interest paid, and total customer net revenues were $532,596 and $10,304,284, respectively. 2018 Clean Water State Revolving Fund Loan. In 2018, the City Council approved the Clean Water State Revolving Fund loan agreement between the City of San Luis Obispo and the California State Water Resources Control Board for a $140 million loan for the Water Resource Recovery Facility Project. The City will receive $4 million in principal forgiveness and the remaining $136 million will be repaid over 30 years. The applicable interest rate was set at 1.8%. As of June 30, 2022, the City had partially drawn down the loan and had an outstanding principal balance of $77,650,275. 2020 CIEDB State Loan. In 2020, the City obtained a note in the amount of $14,300,000 for improvements to the City’s Water Treatment Plant to provide enhanced reliability and energy and operational efficiencies. The note bears an interest rate of 2.5% and a term of 20 years. At June 30, 2022, the City had partially drawn down the loan and had an outstanding principal balance of 12,171,578. At June 30, 2022, the aggregate maturities of the aforementioned business-type loans were as follows: For the Year Ending June 30, Principal Interest Total 2023 1,212,201$ 641,190$ 1,853,391$ 2024 3,211,641 1,967,763 5,179,404 2025 3,280,590 1,895,817 5,176,407 2026 3,352,693 1,822,214 5,174,907 2027 3,426,480 1,746,888 5,173,368 2028-2032 18,301,173 7,541,107 25,842,280 2033-2037 18,253,321 5,414,014 23,667,335 2038-2042 16,310,457 3,624,403 19,934,860 2043-2047 14,615,022 2,236,669 16,851,691 2048-2052 17,955,069 2,270,809 20,225,879 99,918,648$ 29,160,874$ 129,079,522$ 183 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 24 Note 7: Long Term Debt (Continued) Installment Sale Agreements 2008 Suntrust Bond. In 2008, the Board entered into an installment sale contract financing $2,050,000 to finance the Tank Farm lift station. The terms state an interest rate of 4.2% due in annual installments through 2023 that range from $372,900 to $607,200. At June 30, 2022, the principal amount outstanding on the loan was $350,000. US Bancorp 2014 Wastewater Lease. In 2013, the Board entered into an installment sale contract financing $7,479,000 to finance the acquisition and installation of improvements to its water reclamation facility. The note bears an interest rate of 2.8994% due in annual installments on June 1 and December 1 through December 1, 2028 that range from $372,900 to $607,200. At June 30, 2022, the principal amount outstanding on the loan was $3,907,343. At June 30, 2022, the aggregate maturities of the aforementioned business-type installment sale agreements were as follows: There are a number of limitations and restrictions contained in the various bond indentures. City management believes that the City has complied with the indenture requirements. Security for revenue bonds is paid from receipts or net income and amounts in funds or accounts established under bond indentures. Note 8: Pension Plans The City contributes to the California Public Employees’ Retirement System (CalPERS) for its employees. The City participates in one agent multiple-employer plan for its miscellaneous employees (Miscellaneous Plan) and one cost-sharing multiple-employer plan for its safety employees (Safety Plan). The Miscellaneous Plan is described in the first section of the footnote under Agent- Multiple Employer Plan and the Safety Plan follows and is described in the second section of the footnote under Cost-Sharing Employer Plan. A summary of the government-wide balances for all Plans at June 30, 2022 are as follows: For the Year Ending June 30, Principal Interest Total 2023 681,479$ 117,026$ 798,505$ 2024 706,312 94,628 800,940 2025 541,575 75,364 616,939 2026 557,280 59,431 616,711 2027 573,441 43,035 616,476 2028-2029 1,197,256 34,968 1,232,224 4,257,343$ 424,452$ 4,681,795$ Net Pension Deferred Outflows Deferred Inflows Pension Liability of Resources of Resources Expense Miscellaneous Plan 65,993,658$ 16,642,794$ 16,789,383$ 4,429,353$ Safety Plan 58,571,330 23,386,580 37,916,886 22,198,982 Total Government-Wide 124,564,988$ 40,029,374$ 54,706,269$ 26,628,335$ 184 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 25 Note 8: Pension Plans (Continued) Agent-Multiple Employer Plan General Information about the Pension Plan Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City 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. 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 for Tier 1 employees. Tier 2 and PEPRA employees are based on a three-year average 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 non-duty 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 the plan are applied as specified by the Public Employees’ Retirement Law. The Miscellaneous Plan’s provisions and benefits by tier in effect at June 30, 2022, are summarized as follows: While the City's Miscellaneous Plan is not closed to new entrants, the component option of 2.7% @ 55 is closed to new entrants. Classic Members as defined by CalPERS entering the City's Miscellaneous Plan would enter the 2% @ 60 option while New Members as defined by CalPERS entering the City Miscellaneous Plan would enter the 2% @ 62 option. Prior to On or after On or after Hire date December 6, 2012 December 6, 2012 January 1, 2013 Benefit formula 2.7% @ 55 2% @ 60 2% @ 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 - 55 50 - 63 52 - 67 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 1.092% to 2.418% 1.0% to 2.5% Required employee contribution rates 7.520%7.520%7.00% Required employer contribution rates 9.950%9.950%9.950% Required unfunded accrued liability payment - (1)- (1)6,819,439$ 1) -Combined with on or after January 1, 2013 Tiers within the Miscellaneous Plan 185 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 26 Note 8: Pension Plans (Continued) Employees Covered. As of the measurement date June 30, 2021, the following employees were covered by the benefit terms for the Miscellaneous Plan: 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 July 1 following notice of a change in the rate. Funding contributions for the Plan are 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. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employees that are classified as unrepresented management or unrepresented confidential contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution. During the measurement period, the City contributions totaled $8,246,755. Net Pension Liability The City’s net pension liability for the Miscellaneous Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The net pension liability of the Plan is measured as of June 30, 2021, using an annual actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below. Actuarial Assumptions. The total pension liability in the June 30, 2020 actuarial valuation was determined using the following actuarial assumptions: Miscellaneous Plan Inactive employees or beneficiaries currently receiving benefits 418 Inactive employees entitled to but not yet receiving benefits 422 Active employees 319 Total 1,159 Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increase Mortality (1) Post Retirement Benefit Increase 7.15% Entry-Age Normal Cost Method June 30, 2021 Miscellaneous Plan June 30, 2020 1) The mortatily table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. Contract COLA up to 2.50% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter Derived using CalPERS' Membership Data for all Funds Varies by Entry Age and Service 2.50% 186 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 27 Note 8: Pension Plans (Continued) Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.15% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15% will be applied to all plans in the Public Employees Retirement Fund (PERF). The cash flows used in the testing were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. The stress test results are presented in a detailed report called “GASB Crossover Testing Report” that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best- estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS considered both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound geometric) returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the rounded single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equal to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The table below reflects the long-term expected real rate of return by asset class. Assumed Asset Real Return Real Return Asset Class (a)Allocation Years 1 - 10 (b)Years 11+ (c) Global Equity 50.0%4.80%5.98% Fixed Income 28.0%1.00%2.62% Inflation Assets -0.77%1.81% Private Equity 8.0%6.30%7.23% Real Assets 13.0%3.75%4.93% Liquidity 1.0%--0.92% a) In the CalPERS's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short- term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities b) An expected inflation of 2.0% used for this period c) An expected inflation of 2.92% used for this period Miscellaneous Plan 187 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 28 Note 8: Pension Plans (Continued) Changes in the Net Pension Liability The changes in the Net Pension Liability for the Miscellaneous Plan follows: Sensitivity of the Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the City for the Plan, calculated using the discount rate for each Plan, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Pension Plan Fiduciary Net Position. Detailed information about the pension plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Plan Net Total Fiduciary Pension Pension Net Liability/ Liability Position (Asset) Balance at June 30, 2020 237,568,349$ 148,289,275$ 89,279,074$ Changes during the year: Service cost 3,939,785 - 3,939,785 Interest on the total pension liability 16,589,680 - 16,589,680 Differences between expected and actual experience (755,414) - (755,414) Contribution - employer - 8,246,755 (8,246,755) Contribution - employee - 2,056,274 (2,056,274) Net investment income - 32,904,570 (32,904,570) Benefit payments, including refunds of employee contributions (13,518,666) (13,518,666) - Administrative expense - (148,132) 148,132 Net changes 6,255,385 29,540,801 (23,285,416) Balance at June 30, 2021 243,823,734$ 177,830,076$ 65,993,658$ Miscellaneous Plan 1% Decrease 6.15% Net Pension Liability 96,151,600$ Current Discount Rate 7.15% Net Pension Liability 65,993,658$ 1% Increase 8.15% Net Pension Liability 40,892,112$ 188 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 29 Note 8: Pension Plans (Continued) Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For the year ended June 30, 2022, the City’s pension expense for the Miscellaneous Plan was $4,429,353. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: The deferred outflows of resources related to contributions subsequent to the measurement date of $15,923,929 will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Payable to the Pension Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2022. Cost-Sharing Employer Plan General Information about the Pension Plan Plan Descriptions. As noted above, the City contributes to CalPERS for a defined benefit pension plan for all qualified permanent and probationary employees. CalPERS acts as a common investment and administrative agent for its participating member employers. Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plans regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 15,923,929$ -$ Changes in assumptions Differences between expected and actual experiences 718,865 (511,732) Net differences between projected and actual earnings on plan investments - (16,277,651) Total 16,642,794$ (16,789,383)$ Miscellaneous Plan Measurement Period Ended June 30 Amount 2022 (3,649,106)$ 2023 (4,018,154) 2024 (3,915,060) 2025 (4,488,198) 16,070,518)$ Miscellaneous Plan 189 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 30 Note 8: Pension Plans (Continued) The City participates in five tiers of the safety cost-sharing multiple-employer plan. The Safety Plan tiers consist of Safety Tier 1 police and fire), Police Tier 2, Fire Tier 2, Police PEPRA and Fire PEPRA. 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. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty 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. The Plan’s provisions and benefits within each tier in effect at June 30, 2022, are summarized as follows: The Safety Tier 1 is closed to new entrants. Police Fire Police Fire Prior to Prior to On or after On or after Hire date December 6, 2012 August 30, 2012 December 6, 2012 August 30, 2012 Benefit formula 3.0% @ 50 3.0% @ 50 2.0% @ 50 3.0% @ 55 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 50 - 55 50 - 55 50-55 50 - 55 Monthly benefits, as a % of eligible compensation 3.00%3.00% 2.0% to 2.7% 2.4% to 3% Required employee contribution rates 8.990%8.990%8.950%8.990% Required employer contribution rates 25.590%25.590%19.880%22.470% Required unfunded accrued liability payment 6,029,105$ -$ (1)16,086$ 33,223$ Police PEPRA Fire PEPRA On or after On or after Hire date January 1, 2013 January 1, 2013 Benefit formula 2.7% @ 57 2.7% @ 57 Benefit vesting schedule 5 years service 5 years service Benefit payments monthly for life monthly for life Retirement age 50-57 50-57 Monthly benefits, as a % of eligible compensation 2.0% to 2.7% 2.0% to 2.7% Required employee contribution rates 13.750%13.750% Required employer contribution rates 13.980%13.980% Required unfunded accrued liability payment 31,825$ 3,197$ 1) - Combined with Police Tier 1 Safety Tier 1 Safety Tier 2 190 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 31 Note 8: Pension Plans (Continued) 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 July 1st following notice of a change in the rate. Funding contributions for both Plans are determined annually on an actuarial basis as of June 30th 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. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Members of the Police Officers Association contribute 3% of pay toward the cost of the City's share of the annual required contribution. Members of the International Association of Firefighters, Local 3523 contribute 1.5% of pay toward the cost of the City’s share of the annual required contribution. For the year ended June 30, 2022, the contributions recognized as part of pension expense were $8,069,806. Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions As of June 30, 2022, the City reported a net pension liability for its proportionate share of the Plan’s net pension liability of 58,571,330. The City’s net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2021, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2020 rolled forward to June 30, 2021 using standard update procedures. The City’s proportion of the net pension liability was based on a projection of the City’s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City’s proportionate share of the net pension liability as of the measurement dates of June 30, 2020 and 2021 was as follows: For the year ended June 30, 2022, the City recognized pension expense of $22,198,982 for the Safety Plan. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Proportionate Share Percentage share at 6/30/2020 0.72250% Percentage share at 6/30/2021 1.08299% Change - Increase/(Decrease)0.36049% Deferred Outflows Deferred Inflows of Resources of Resources Pension contributions subsequent to measurement date 12,756,585$ -$ Changes in assumptions - Differences between expected and actual experiences 10,006,862 Differences between projected and actual investment - earnings - 34,861,200 Net Difference between employer's contributions and proprtionate chare of contributions 604,494 729,122 Change in employer's proportion 18,639 2,326,564 Total 23,386,580$ 37,916,886$ Safety Plan 191 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 32 Note 8: Pension Plans (Continued) Pension contributions subsequent to the measurement date of $12,756,585 are reported as deferred outflows of resources and will be recognized as a reduction of the net pension liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: Actuarial Assumptions. The total pension liabilities in the June 30, 2020 actuarial valuations for the Safety Plan was determined using the following actuarial assumptions: Discount Rate. The discount rate used to measure the total pension liability was 7.15% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, CalPERS stress-tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based in the testing, none of the tested plans run out of assets. Therefore, the current 7.15 percent discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long-term expected discount rate of 7.15 percent will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best- estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. Measurement Period Ended June 30 Amount 2023 (4,365,560)$ 2024 (5,682,875) 2025 (7,645,141) 2026 (9,593,315) 27,286,891)$ Safety Plan Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increases Post Retirement Benefit Increase Mortality (1) Varies by Entry Age and Service Contract COLA up to 2.50% until Purchasing Power Protection Allowance Floor on Purchasing Power applies Derived using CalPERS' membership data for all funds 1) The mortatily table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. 7.15% 2.50% Safet y Plan June 30, 2020 June 30, 2021 Entry-Age Normal Cost Method 192 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 33 Note 8: Pension Plans (Continued) In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund (PERF) cash flows. Taking into account historical returns of all the Public Employees Retirement Funds’ asset classes (which includes the agent plan and two cost-sharing plans or PERF A, B, and C funds), expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each PERF fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate. The following presents the City’s proportionate share of the net pension liability, calculated using the discount rate for the Plans as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage point lower or 1-percentage point higher than the current rate: Assumed Asset Real Return Real Return Asset Class (a)Allocation Years 1 - 10 (b)Years 11+ (c) Global Equity 50.0% 4.80% 5.98% Fixed Income 28.0% 1.00% 2.62% Inflation Assets -0.77% 1.81% Private Equity 8.0%6.30% 7.23% Real Assets 13.0% 3.75% 4.93% Liquidity 1.0%--0.92% a) In the CalPERS's ACFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short- term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities b) An expected inflation of 2.0% used for this period c) An expected inflation of 2.92% used for this period Safety Plan 1% Decrease 6.15% Net Pension Liability 88,201,347$ Current Discount Rate 7.15% Net Pension Liability 58,571,330$ 1% Increase 8.15% Net Pension Liability 34,233,930$ 193 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 34 Note 8: Pension Plans (Continued) Pension Plan Fiduciary Net Position. Detailed information about each safety plan’s fiduciary net position is available in the separately issued CalPERS financial reports. Payable to the Pension Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the pension plan required for the year ended June 30, 2022 Defined Contribution Pension Plan The City makes bi-weekly contributions to a 401a retirement plan (Plan) for each department head. The current contribution on behalf of each Participant equals 1% of base earnings up to the maximum allowable by law. In addition, each Participant may contribute up to 14% of earnings to the Plan. Prior to August 2018, non-department head management employees also participated in the Plan and received a 1% employer contribution. Employees are fully vested in the City’s contributions (and interest allocated to the employee’s account) at all times. The Plan is administered by Public Agency Retirement Services (PARS). The Plan assets are held in trust for the exclusive benefit of the Participants or their Beneficiaries. The City has the right at any time to terminate the Plan by resolution of the City Council. During the fiscal year, the City contributed $18,542 to the Plan and Participants contributed $118,507. There were no Plan forfeitures. As of June 30, 2022, the City had $5,337 payable to the Plan. The City makes bi-weekly contributions to 401a retirement plans (Appointed Officials Plans) for the City Manager and City Attorney. Employees are fully vested in the City’s contributions (and interest allocated to the employee’s account) at all times. The Appointed Officials Plans are administered by Mission Square Retirement. The Plan assets are held in trust for the exclusive benefit of the Participants or their Beneficiaries. The City has the right at any time to terminate the Plan by resolution of the City Council. During the fiscal year, the City contributed $25,372 to the Appointed Officials Plans. There were no Plan forfeitures. As of June 30, 2022, the City had $1,039 payable to the Plan. In the year 2022, The City evaluated the requirements of GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans and determined that plan didn’t meet the criteria to be reported as a fiduciary activity, as required by the above mentioned GASB Statements. 194 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 35 Note 9: Other Post-Employment Benefits (OPEB) General Information about OPEB Plan Description. The City’s primary other post-employment benefits (OPEB) cost obligation is for retiree health benefits under its election to participate in the CalPERS Health Benefit Program, an agent multiple-employer defined benefit OPEB plan, under the unequal contribution option.” The City entered the CalPERS medical insurance program in 1993 under the Public Employees’ Medical and Hospital Care Act (PEMHCA). During the fiscal year ended June 30, 2009, the City entered into an agreement to participate in an irrevocable trust to provide a funding mechanism for retiree health benefits. The Trust, California Employers’ Retiree Benefit Trust (CERBT), is administered by CalPERS and managed by a separately appointed board, which is not under control of the City Council. This Trust is not considered a component unit of the City. Benefits Provided. The City provides post-employment heath care insurance, in accordance with Memorandums of Understanding, to all employees who retire from the City upon or after attaining age 50 with at least 5 years of service or disability retirement. Miscellaneous retires who are PEPRA new hires are eligible at age 52. For each retiree enrolled in a CalPERS medical plan, the employer will pay the required statutory PEMHCA minimum, which is $143 per month per retiree in calendar year 2021 and $149 per month per retiree in calendar year 2022. This amount will increase with the health care component of CPI, as announced by the CalPERS Board each year. The retiree must pay the difference between the premium amount, which depends upon the medical plan benefits selected, and the employer-paid minimum. In addition, the City pays 50% of the premium up to the retiree’s age of 65 for one grandfathered executive management retiree hired prior to August 2000. There is no OPEB provided to terminated vested employees. The employer-paid amount will continue to a surviving spouse if the retiree elects a CalPERS survivor annuity. There are no required employee contributions, although the retiree must pay the difference between the premium and the employer-paid amount. The employer is contributing the full Actuarially Determined Contribution. Employees Covered. At June 30, 2021, the measurement date, the following number of employees were covered by the benefit terms: Contributions. The contribution requirements of the plan members and the City are established and may be amended by the City. The City prefunds the plan through CERBT by contributing at least 100% of the annual required contribution. For the measurement period, the City’s contributions totaled $921,000. Net OPEB Liability The City’s net OPEB liability for the Plan is measured as the total OPEB liability less the Plan’s fiduciary net position. The net OPEB liability of the Plan is measured as of June 30, 2021 using an actuarial valuation as of June 30, 2021. The principal assumptions and methods used to determine the net liability are described below. OPEB Plan Inactive employees or beneficiaries currently receiving benefits 196 Inactive employees entitled to but not yet receiving benefit payments 211 Active employees 418 Total 825 195 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 36 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Change in Assumptions. See the note below for the change in assumptions for the measurement date June 30, 2021. Discount Rate. The discount rate used to measure the total OPEB liability was 6.25% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for the Plan, the actuary performed a stress-test on the Plan that would most likely result in a discount rate that would be different from the actuarially-assumed discount rate. Based on the test, the Plan will not run out of assets. Therefore, the current 6.25% discount rate is adequate, and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 6.25% is applied to the Plan. The stress-test results are presented in the detailed actuarial report, which can be obtained from the City. Investments. The following table reflects the long-term expected real rate of return of the Plan’s investments by asset class. The rates of return are presented as geometric means developed over a twenty year period. These rates of return are net of administrative expenses. Actuarial Valuation Date June 30, 2021 Measurement Date June 30, 2021 Contribution Policy Contributes full ADC Actuarial Assumptions: Discount Rate and 6.25% at June 30, 2021 and 6.75% at June 30, 2020 expected Long-Term Rate of Expected City contributions projected to keep Return on Assets sufficient plan assets to pay all benefits from trust General Inflation 2.50% annually Mortality, Retirement, Disability, Rates from CalPERS 2000-2019 Experience Study Termination Mortality Improvement Post-retirement mortality projected fully generational with Society of Actuaries Scale MP-2021 Salary Increases Aggregate - 2.75% Merit - CalPERS 2000-2019 Experience Study Medical Trend Non-Medicare - 6.5% for 2023, decreasing to an ultimate rate of 3.75% in 2076 and later years. Medicare - 5.65% (non-Kaiser) for 2023, decreasing to an ultimate rate of 3.75% in 2076 and later years Participation at Retirement Currently covered: 70% Currently waived: 15% Current Expected Target Real Rate Asset Class Allocation *of Return Global Equity 59.0%4.56% Fixed Income 25.0%0.78% TIPS 5.0%-0.08% Commodities 3.0%1.22% REITs 8.0%4.06% Assumed Long-Term Rate of Inflation 2.50% Expected Long-Term Net Rate of Return, Rounded 6.25% The long-term expected real rates of return are presented as geometric means. Policy target effective October 1, 2018 OPEB Plan 196 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 37 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Changes in the Net OPEB Liability The changes in the net OPEB liability for the June 30, 2021 measurement date are as follows: Sensitivity of Net OPEB Liability to Changes in the Discount Rate. The following presents the net OPEB liability at the current discount rate, as well as what the net OPEB liability would be if it were calculated using a hypothetical discount rate that is one percentage point lower or one percentage point higher than the current rate. Total Plan Fiduciary Net OPEB Liability Net Position OPEB Liability Balance at June 30, 2020 12,766,729$ 7,991,098$ 4,775,631$ Changes during the year: Service cost 423,364 - 423,364 Interest on the total OPEB liability 867,422 - 867,422 Changes in assumptions 507,115 - 507,115 Differences between Expected and actual experience 349,893 - 349,893 Net plan to plan resource movement - - - Contribution - employer - 921,000 (921,000) Contribution - employee - - - Net investment income - 2,196,724 (2,196,724) Benefit payments, including refunds of employee contributions (678,789) (678,789) - Administrative expense - (7,235) 7,235 Net changes 1,469,005 2,431,700 (962,695) Balance at June 30, 2021 14,235,734$ 10,422,798$ 3,812,936$ OPEB Plan 1% Decrease 5.25% Net OPEB Liability 5,684,195$ Current Discount Rate 6.25% Net OPEB Liability 3,812,936$ 1% Increase 7.25% Net OPEB Liability 2,264,616$ 197 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 38 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Sensitivity of Net OPEB Liability to Changes in Healthcare Cost Trend Rates. The following presents the net OPEB liability at current healthcare cost trend rates, as well as what the net OPEB liability would be if it were calculated using hypothetical healthcare cost trend rates that are one percentage point lower or one percentage point higher than the current rate. OPEB Plan Fiduciary Net Position. Detailed information about the OPEB Plan’s fiduciary net position is available in the separately issued CalPERS financial reports on the CERBT. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended June 30, 2022, the City’s OPEB expense was $251,416. At June 30, 2022, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: OPEB contributions subsequent to the measurement date of $1,309,367 are reported as deferred outflows of resources and will be recognized as a reduction of the net OPEB liability in the year ended June 30, 2023. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: OPEB Plan 1% Decrease Net OPEB Liability 2,093,874$ Current Trend Net OPEB Liability 3,812,936$ 1% Increase Net OPEB Liability 5,934,516$ Deferred Outflows Deferred Inflows of Resources of Resources OPEB contributions subsequent to measurement date 1,309,367$ -$ Changes in assumptions 461,316 153,802 Differences between expected and actual experiences 308,729 1,322,804 Net differences between projected and actual earnings on plan investments - 1,193,214 Total 2,079,412$ 2,669,820$ Fiscal Year Ended June 30 Amount 2023 (469,827)$ 2024 (455,829) 2025 (463,180) 2026 (507,190) 2027 (175,703) Thereafter 171,954 1,899,775)$ 198 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 39 Note 9: Other Post-Employment Benefits (OPEB) (Continued) Payable to the OPEB Plan At June 30, 2022, the City reported a payable of $0 for the outstanding amount of contributions to the OPEB plan required for the year ended June 30, 2022. Note 10: Deferred Compensation Plan All employees of the City are eligible to participate in a City sponsored deferred compensation plan (457 Plan). The 457 Plan provides for the deferral of a portion of the employees’ compensation until retirement, termination, or certain other covered events. The assets of the 457 Plan are held in trust for the exclusive benefit of Plan Participants or Beneficiaries. Deferred contribution(s) by a participant in any taxable year will not exceed the lessor of (1) the applicable dollar amount provided under Section 457(b)(2) of the Internal Revenue Code (adjusted for cost of living under Section 457(e)(15) of the Internal Revenue Code), or (2) 100% of the participant’s includible compensation. A participant who has attained age 50 before the close of the calendar year may elect Age 50 Plus Catch-up Contributions and commence making such contributions to his/her Participant Deferral Account. The City has the right at any time to terminate the 457 Plan by resolution of the City Council. In the year 2022, The City evaluated the requirements of GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans and determined that plan didn’t meet the criteria to be reported as a fiduciary activity, as required by the above mentioned GASB Statements. Note 11: Interfund Transactions There is no interfund receivable and payable balances as of June 30, 2022. Interfund transfers for the year ended June 30, 2022 consist of the following: Interfund receivables and payables include temporary negative cash balances that result from the timing of cash flows at year end and the time lag between the dates that transactions are recorded in the accounting system and payment between funds are made. Liquidation of interfund receivables and payables typically occurs in the first quarter of the subsequent fiscal year. Interfund balances between governmental funds are not included in the government-wide Statement of Net Position. Interfund transfers are used to move revenues from the fund with collection authorization to the debt service fund as debt service principal and interest payments become due or to move unrestricted revenues to finance various programs that the government must account for in other funds in accordance with budgetary authorizations. This may include amounts provided as matching funds for various grant programs. Non-Major General Capital Outlay Governmental Transfer Out Fund Fund Funds Total General Fund -$ 21,621,221$ 8,795,528$ 30,416,749$ Capital Outlay Fund 497,600 - 146,667 644,267 Non-Major Governmental Fund 1,759,334 476,970 290,645 2,526,949 Water Fund 794,769 - - 794,769 Sewer Fund 655,312 - - 655,312 Parking Fund 235,233 - - 235,233 Total 3,942,248$ 22,098,191$ 9,232,840$ 35,273,279$ Transfer In 199 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 40 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements The City participates in three multi-governmental organizations: the Whale Rock Commission, the San Luis Obispo Regional Transit Authority, and the San Luis Obispo Council of Governments. The City also has an operating agreement related to Nacimiento Water Supply Project. The following provides a general description of each of these agencies and operating agreements along with a summary of financial information and indebtedness: Whale Rock Commission General Description. The Whale Rock Commission (Commission) was established on December 12, 1960 to govern the operations of the Whale Rock Reservoir. The Commission is composed of six voting members and two non-voting members: three voting members are appointed by the City; one is appointed by California Polytechnic State University; one by California Men's Colony; and one by the Director of Finance, State of California. The two non-voting members are position appointments: the Director of Water Resources, State of California; and the Water Superintendent, City of San Luis Obispo. The Commission is authorized by its respective agencies to establish policies for the operation of the Reservoir, to contract for the sale of excess water, and to approve the annual budget. The City, in accordance with established policies of the Commission, operates and maintains the Reservoir; prepares and recommends the annual budget; and maintains the fiscal records and funds of the Commission. The Whale Rock Custodial Fund is used to account for the Commission's ongoing operating activities. Ownership in the Reservoir is as follows: 55.05%, City of San Luis Obispo; 33.71%, California Polytechnic State University; and 11.24%, California Men's Colony. The City's share of the Commission's expenses is recorded as expenses of the Water Fund. All receipts and disbursements of the Commission are included in an Custodial Fund. Financial Information and Indebtedness. In 1959, the City issued general obligation bonds to secure a future water supply to City residents. Some of the proceeds from the bonds were used to participate with the State of California in the development of the Reservoir. Participation, which is in proportion to the original investment, includes continued operation and maintenance of the facilities. Such indebtedness was directly attributable to provision of water service, and as such, all related indebtedness was recorded in the City's Water Enterprise Fund. These bonds matured in August 1999. The City's original investment in the Reservoir project aggregates $3,900,000 and was amortized on a straight-line basis over thirty- five years. Separate financial statements are available from the Whale Rock Commission, 879 Morro Street, San Luis Obispo, CA 93401. The following segment financial information for the Whale Rock Commission and the Water Fund’s related investment in the joint venture is presented as of and for the year ended June 30, 2022: City's Investment Joint Venture in Joint Ventur e Total assets 5,258,221$ 2,894,651$ Total liabilities 114,839 63,219 Fund balance 5,143,382$ 2,831,432$ Total revenues 2,394,659$ 1,318,260$ Total expenditures 1,332,112 733,328 Excess of revenues over expenditures 1,062,547$ 584,932$ 200 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 41 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) San Luis Obispo Regional Transit Authority General Description. The City is a member of the San Luis Obispo Regional Transit Authority (Authority), which was established on February 27, 1990, to operate a joint public transportation system. The Authority is composed of the Cities of Arroyo Grande, Atascadero, Grover Beach, Morro Bay, Paso Robles, Pismo Beach, and San Luis Obispo, as well as the County of San Luis Obispo. The Authority is governed by a Board of Directors comprised of representatives of each of the seven cities, in addition to the five members of the Board of Supervisors. Each member of the Board has one vote. The Board has the authority to establish policies for the operation of the transit system and to adopt an annual budget. Each member makes an annual contribution to the agency for funding the adopted budget. Financial Information. The City allocates a portion of its Transportation Development Act funds directly to the Authority. During 2021-22 the City contributed approximately $588,596 of these funds to the Authority. The City's share of assets, liabilities, and fund equity has not been calculated by the Authority and therefore is not known to the City; however, based on the City's limited financial participation in the Authority, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from the Authority, 179 Cross Street, Suite A, San Luis Obispo, CA 93401. San Luis Obispo Council of Governments General Description. The San Luis Obispo Council of Governments (SLOCOG) was formed in 1968 through a joint powers agreement among the incorporated cities and the County of San Luis Obispo. It acts as the regional transportation planning agency for the county and is the metropolitan planning organization and the congestion management agency for the region. The governing board consists of twelve delegates, each with one vote that includes the five members of the County Board of Supervisors and one representative from each of the seven cities in the County. Financial Information. A portion of the City's Transportation Development Act funds are directly allocated to the SLOCOG. The City's share of assets, liabilities, and fund equity has not been calculated by SLOCOG and therefore is not known to the City; however, based on the City's limited financial participation in SLOCOG, any such assets, liabilities, or equity are not believed to be significant to the basic financial statements taken as a whole. Separate financial statements are available from SLOCOG, 1114 Marsh Street, San Luis Obispo, CA 93401. Nacimiento Water Supply Project General Description. In 2004, the Council adopted a resolution approving an agreement with the San Luis Obispo County Flood Control and Water Conservation District (District) for the design, construction, and operations of the facilities required for the delivery of 5,482 acre-feet of water per year to the City of San Luis Obispo from the Nacimiento Water Supply Project (Project). The agreement includes conditions relative to the costs associated with the project and how these costs will be shared and paid by the participants in the project. Each project participant, including the City, has entered into an agreement to provide for the development, financing, construction, operation and maintenance of the Project. The agreement is a “take-or-pay” obligation: the City is obligated to pay amounts specified in the agreement whether or not water is delivered. The City is required to pay an amount equal to 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 Project. The City is also required to pay for its share of operating and maintenance costs. The City records these payments as operating expenses in its water enterprise fund. 201 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 42 Note 12: Joint Ventures, Jointly Governed Organizations and Operating Agreements (Continued) The City is required to make payments under its agreement solely from the revenues of its water system. The City agreed to establish and collect rates and charges from the customers of the City’s water enterprise fund at levels sufficient to produce revenues equal to: (1) the costs of operating and maintaining the City’s water enterprise; plus (2) the contract payments, calculated in accordance with the delivery contract including the amounts allocated as the City’s share of capital projects installment debt service; plus (3) the coverage factor for the amounts allocated as the City’s share of capital projects installment debt service; and (4) under certain circumstances, that the City understands and agrees that the delivery contract may impose a surcharge following the occurrence of any payment default. Financial Information. In September 2007, the District sold water revenue bonds in the amount of $196 million for the construction of the Project. In addition, the District sold water revenue bonds in the amount of $182 million. These bonds were refinanced in May 2018. Based on the City’s share of construction costs, debt service and operating and maintenance, the following summarizes the City’s Project obligations for 2021-22 and five-year projections for the 2018 bonds that will remaining outstanding following the refunding. Separate financial statements are available from the San Luis Obispo County Flood Control and Water Conservation District, 1050 Monterey Street, San Luis Obispo, CA 93401. Note 13: Risk Management California Joint Powers Insurance Authority The City is a member of the California Joint Powers Insurance Authority (Authority). The Authority is composed of 119 California public entities and is organized under a joint powers agreement pursuant to California Government Code §6500 et seq. The purpose of the Authority is to arrange and administer programs for the pooling of self-insured losses, to purchase excess insurance or reinsurance, and to arrange for group purchased insurance for property and other lines of coverage. The California JPIA began covering claims of its members in 1978. Each member government has an elected official as its representative on the Board of Directors. The Board operates through a nine-member Executive Committee. Each member pays an annual contribution to cover estimated losses for the coverage period. This initial funding is paid at the beginning of the coverage period. After the close of the coverage period, outstanding claims are valued. A retrospective deposit computation is then conducted annually thereafter until all claims incurred during the coverage period are closed on a pool-wide basis. This subsequent cost reallocation among members based on actual claim development can result in adjustments of either refunds or additional deposits required. The total funding requirement for self-insurance programs is estimated using actuarial models and prefunded through the annual contribution. Costs are allocated to individual agencies based on exposure (payroll) and experience (claims) relative to other members of the risk-sharing pool. Additional information regarding the cost allocation methodology is provided below. Actual 2022 4,610,790$ Projected: 2023 4,609,730 2024 4,619,370 2025 4,621,210 2026 4,622,040 2027-31 23,089,920 2032-36 23,101,490 2037-41 18,565,360 Nacimiento Water Supply Obligations 202 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 43 Note 13: Risk Management (Continued) Self-Insurance Programs of the Authority General Liability and Workers’ Compensation. The City 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. The City has a retained limit of $500,000 per occurrence for liability and no retained limit for workers’ compensation. Liabilities of the City 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 re-evaluated 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 claim’s 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 2020-21. 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. The City 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 the City 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 the City in the normal course of business. It is reasonably possible that the City 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 the City. Adequacy of Protection During the past three fiscal years, none of the above programs of protection experienced settlements or judgments that exceeded pooled or insured coverage. There were also no significant reductions in pooled or insured liability coverage from coverage in 2020- 21. Self-Insurance The City retains the risk for workers’ compensation losses incurred prior to joining the California Joint Powers Insurance Authority. Several member agencies of the now dissolved Central Coast Cities Self-Insurance Fund continue to participate in a non-risk sharing arrangement for claims management and the purchase of excess insurance. The participating agencies share a set of common guidelines and annually set aside premiums to pay their individual losses within their self-insured retentions. Losses are debited and investment income is credited to specific member accounts. The City has not incurred any losses in excess of insurance coverage. Claims liabilities in the governmental funds are generally liquidated by the General Fund. 203 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 44 Note 13: Risk Management (Continued) The last actuarial study to determine the undiscounted outstanding claims liability was completed for the year ended June 30, 2022. The liability was estimated based on the actuarial study and considered claims asserted and paid, and the time limitations for filing claims. There are no estimates for claims incurred but not reported because the time limit for filing claims has elapsed. The estimated asset at June 30, 2022 is calculated as follows: Note 14: Commitments and Contingencies Litigation The City is presently involved in certain matters of litigation that have arisen in the normal course of conducting City business. City management believes, based upon consultation with the 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 the City. Grant Awards Under the terms of Federal and State grants, audits may be required, and certain costs may be questioned as not being appropriate expenditures under the terms of the grants. Such audits could lead to requests for reimbursement to the grantor agencies. City management believes disallowances, if any, will be immaterial. Regional Transit Authority Pension Expense The City is presently a member agency of the San Luis Obispo Regional Transit Authority (SLORTA) (see Note 14), a duly established Joint Powers Authority (JPA) comprised of all local cities and the County of San Luis Obispo. The City’s contractual contribution to that entity is approximately 18% of the total expense. The City was advised that the Regional Transit Authority was working with CalPERS to determine whether it is required to enroll certain previously unenrolled transit employees in the CalPERS pension system and whether the entity may be liable for obligations related to the failure to enroll those employees and make contributions on their behalf. On December 10, 2019 the County Board of Supervisors approved a contract for participation of the JPA in the San Luis Obispo County Pension Trust and the Employees Retirement Plan. The current amount of potential CalPERS unfunded liability for the JPA may reach as high as $4 million. It is not anticipated that the City’s annual payment to the JPA will increase to satisfy this unfunded liability. Self-insurance activity as of and for the year ended June 30, 2022 is summarized is as follows: Interest earnings 2,455$ Claims expense (8,568) Estimated liability for reported claims and settlement expenses (286,622) Assets on deposit 847,044 Estimated unpaid claims asset 560,422$ Changes in the balances of claim assets during the past two fiscal years are as follows: Estimated unpaid claims asset June 30, 2020 803,567$ Claim payments and related expenditures reimbursement (441,021) Change in estimated claims asset June 30, 2021 120,677 Interest earnings 4,878 Estimated unpaid claims asset June 30, 2021 488,101 Claim payments and related expenditures reimbursement 55,979 Change in estimated claims asset June 30, 2022 13,887 Interest earnings 2,455 Estimated unpaid claims asset June 30, 2022 560,422$ 204 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 45 Note 15: Construction and Other Significant Commitments Construction and other significant commitments as of June 30, 2022, including encumbrances outstanding at year-end, are as follows: Long-term construction contracts are billed and paid on a percentage completion basis by construction phase. Note 16: Fund Balance Deficiency As of June 30, 2022, the City had no fund with negative fund balance. Note 17: Subsequent Events Events subsequent to June 30, 2022 have been evaluated through December 20, 2022, which is the date that the financial statements are available to be issued. Management identified no subsequent events that required disclosure. Note 18: New Accounting Standards Accounting Standards Adopted In GASB Statement No. 87, Leases – The objective of this statement is to recognize in the financial statements certain lease assets and liabilities for leases that previously were classified as operating leases and recognized as inflows of resources or outflows of resources based on the payment provisions of the contract. GASB Statement 89, Accounting for Interest Cost Incurred before the End of a Construction Period – The objective of this statement is to (1) to enhance the relevance and comparability of information about capital assets and the cost of borrowing for a reporting period and (2) to simplify accounting for interest cost incurred before the end of a construction period. This statement establishes accounting requirements for interest cost incurred before the end of a construction period. This Statement requires that interest cost incurred before the end of a construction period be recognized as an expense in the period in which the cost is incurred for financial statements prepared using the economic resources measurement focus. As a result, interest cost incurred before the end of a construction period will not be included in the historical cost of a capital asset reported in a business-type activity or enterprise fund. The requirements of this statement did not apply to the City for the current fiscal year. GASB Statement No. 92, Omnibus 2020 - The objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing practice issues that have been identified during implementation and application of certain GASB Statements. GASB Statement 93, Replacement of Interbank Offered Rates – The objective of this Statement is to address the accounting and financial reporting implications that result from the elimination of the London Interbank Offered rate General Fund 3,524,689$ Special Revenue Funds 85,030 Capital Project Funds 4,643,698 Enterprise Funds: Water 2,549,243 Sewer 36,750,388 Parking 445,846 Transit 2,126,016 Total 50,124,910$ 205 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 46 Note 18: New Accounting Standards (Continued) LIBOR) that is notably used in most agreements in which variable payments made or received depend on an interbank offered rate (IBOR). As a result of global reference rate reform, LIBOR is expected to cease to exist in its current form at the end of 2021, prompting governments to amend or replace financial instruments for the purpose of replacing LIBOR with other reference rates, by either changing the reference rate or adding or changing fallback provisions related to the reference rate. The requirements of this statement did not apply to the City for the current year. GASB Statement No. 97, Certain Component Unit Criteria, and Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans—an amendment of GASB Statements No. 14 and No. 84, and a supersession of GASB Statement No. 32 – The primary objectives of this Statement are to (1) increase consistency and comparability related to the reporting of fiduciary component units in circumstances in which a potential component unit does not have a governing board and the primary government performs the duties that a governing board typically would perform; (2) mitigate costs associated with the reporting of certain defined contribution pension plans, defined contribution other postemployment benefit (OPEB) plans, and employee benefit plans other than pension plans or OPEB plans (other employee benefit plans) as fiduciary component units in fiduciary fund financial statements; and (3) enhance the relevance, consistency, and comparability of the accounting and financial reporting for Internal Revenue Code (IRC) Section 457 deferred compensation plans (Section 457 plans) that meet the definition of a pension plan and for benefits provided through those plans. GASB Statement No. 99, Omnibus 2022 – The primary objectives of this Statement are to enhance comparability in accounting and financial reporting and to improve the consistency of authoritative literature by addressing (1) practice issues that have been identified during implementation and application of certain GASB Statements and (2) accounting and financial reporting for financial guarantees. The requirements of this Statement did not apply to the City for the current fiscal year. New Accounting Standards The City is currently analyzing its accounting practices to determine the potential impact on the financial statements for the following GASB Statements: GASB Statement 91, Conduit Debt Obligations – The objective of this statement is to provide a single method of reporting conduit debt obligations by issuers and eliminate diversity in practice associated with (1) commitments extended by issuers, (2) arrangements associated with conduit debt obligations, and (3) related note disclosures. The requirements of this Statement are effective for the City’s year ending June 30, 2023. GASB Statement 94, Public-Private and Public-Public Partnerships and Availability Payment Arrangements – The objective of this Statement is to improve financial reporting by addressing issues related to public-private and public- public partnership arrangements (PPPs). As used in this Statement, a PPP is an arrangement in which a government the transferor) contracts with an operator (a governmental or nongovernmental entity) to provide public services by conveying control of the right to operate or use a nonfinancial asset, such as infrastructure or other capital asset (the underlying PPP asset), for a period of time in an exchange or exchange-like transaction. The requirements of this Statement are effective for the City’s year ending June 30, 2023. GASB Statement No. 96, Subscription-Based Information Technology Arrangements – The objective of this statement is to provide guidance on the accounting and financial reporting for subscription-based information technology arrangements (SBITAs) for government end users (governments). This Statement (1) defines a SBITA; (2) establishes that a SBITA results in a right-to-use subscription asset—an intangible asset—and a corresponding subscription liability; (3) provides the capitalization criteria for outlays other than subscription payments, including implementation costs of a SBITA; and (4) requires note disclosures regarding a SBITA. The requirements of this Statement are effective for the City’s year ending June 30, 2023. 206 DRAFT**v1 City of San Luis Obispo, California Notes to the Financial Statements June 30, 2022 Page 47 Note 18: New Accounting Standards (Continued) GASB Statement No. 100, Accounting Changes and Error Corrections-an Amendment of GASB Statement No. 62 – The primary objective of this Statement is to enhance accounting and financial reporting requirements for accounting changes and error corrections to provide more understandable, reliable, relevant, consistent, and comparable information for making decisions or assessing accountability. The requirements of this Statement are effective for the City’s year ending June 30, 2024. GASB Statement No. 101, Compensated Absences – The primary objective of this Statement is to better meet the information needs of financial statement users by updating the recognition and measurement guidance for compensated absences. That objective is achieved by aligning the recognition and measurement guidance under a unified model and by amending certain previously required disclosures. The requirements of this Statement are effective for the City’s year ending June 30, 2025. Note 19: Prior Period Adjustments During 2022, prior period adjustments were made to correct payroll errors and to properly record the loan receivables in Affordable Housing Fund, CDBG Fund, Impact Fee Funds, Water Fund and Sewer Fund, which the City expensed or not recorded in the past years. Governmental Activities Business- type Activities General Fund Non-Major Governmental Fund Water Fund Sewer Fund Parking Fiduciary Funds Net Position as previously reported at June 30, 2021 155,741,584$ 217,715,565$ 47,118,071$ 41,177,283$ 84,800,287$ 99,201,571$ 26,905,947$ 6,888,633$ Prior Period Adjustments: Loan Receivables 3,558,933 2,274,934 - 160,116 1,476,189 798,745 - - Cash 247,646 17,176 247,646 - 4,539 10,391 2,246 310 Accrued interest 592,053 224,399 - - 148,008 76,391 - - Correction of GASB 84 - 49,134 24,567 24,567 24,567 24,567 - 24,567 Net Position as restated at June 30, 2021 160,140,216$ 220,232,074$ 47,365,717$ 41,361,966$ 86,453,590$ 100,111,665$ 26,908,193$ 6,913,510$ Government-wide Statements Fund Statements 207 DRAFT**v1 100 208 DRAFT**v1 REQUIRED SUPPLEMENTARY INFORMATION UNAUDITED) 101 209 DRAFT**v1 102 210 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund For the Fiscal Year Ended June 30, 2021 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) REVENUES: Taxes and franchise fees: Sales and use tax - general 18,387,000$ 20,790,779$ 22,247,303$ 1,456,524$ Transaction and use tax - Local Revenue Measure 24,279,000 25,810,000 29,172,258 3,362,258 Property tax 14,396,883 14,215,765 14,716,412 500,647 Transient occupancy tax 7,213,000 9,051,000 10,650,762 1,599,762 Utility users tax 5,565,000 5,383,000 5,338,325 (44,675) Property tax in lieu of VLF 5,796,000 5,941,388 5,994,592 53,204 Franchise taxes 1,575,000 1,575,000 1,978,295 403,295 Business tax 2,426,000 2,832,000 2,823,163 (8,837) Cannabis Tax 1,300,000 1,000,000 998,875 (1,125) Total taxes 80,937,883 86,598,932 93,919,985 7,321,053 Fines, forfeitures and penalties 229,096 209,096 173,915 (35,181) Use of money and property 495,000 230,000 (1,455,527) (1,685,527) Subventions and grants: Other State and Federal grants 900,000 4,935,697 2,067,631 (2,868,066) Other subventions and grants 336,000 493,000 529,299 36,299 Total subventions and grants 1,236,000 5,428,697 2,596,930 (2,831,767) 103 211 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 2 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) Charges for services: Public safety: Police 533,196 506,105 468,144 (37,961) Fire: Medical emergency recovery 498,476 475,560 478,674 3,114 Fire safety/hazardous materials permits 900,010 940,010 1,000,075 60,065 Other fire revenues 5,890 (10,631) 26,067 36,698 Community development: Planning and zoning fees 1,305,000 1,305,000 1,383,043 78,043 Construction plan and check inspections 3,955,000 3,951,284 4,507,348 556,064 Infrastructure plan check and inspections (291,721) (291,721) 197,874 489,595 Fire plan check and inspections - - (3,929) (3,929) Culture and recreation: Adult athletic fees 256,200 259,800 232,412 (27,388) Youth athletic fees 770,935 770,935 866,805 95,870 Rental and use fees 289,649 289,649 305,902 16,253 Aquatics 189,378 189,378 273,546 84,168 Golf course 260,543 260,543 220,087 (40,456) General government: Other service charges 757,443 604,443 726,873 122,430 Total charges for services 9,429,999 9,250,355 10,682,921 1,432,566 Impact Fees - - 68,125 68,125 Other revenues 471,100 471,100 413,188 (57,912) Total Revenues 92,799,078 102,188,180 106,399,537 4,211,357 104 212 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 3 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) Expenditures: Public Safety: Police protection: Administration 2,186,391 2,436,920 1,880,726 556,194 Investigations 3,458,235 4,119,375 3,621,224 498,151 Neighborhood services 274,535 297,704 284,409 13,295 Support services 2,920,629 3,417,769 3,315,494 102,275 Patrol services 9,508,130 11,517,804 12,616,286 (1,098,482) Traffic safety 885,312 1,031,932 863,845 168,087 Total police protection 19,233,231 22,821,505 22,581,984 239,521 Fire and environmental safety: Administration 1,221,830 1,493,080 1,397,025 96,055 Emergency response 11,034,040 13,653,788 13,924,054 (270,266) Fire Apparatus Services 468,759 526,567 502,880 23,687 Hazard protection 871,697 1,063,119 965,976 97,143 Training 392,703 185,008 143,900 41,108 Disaster preparedness 50,069 115,434 97,605 17,829 Mobile Crisis Unit - 263,311 43,085 220,226 Total fire and environmental safety 14,039,098 17,300,308 17,074,525 225,783 Total public safety 33,272,329 40,121,813 39,656,509 465,304 Transportation: Transportation planning and engineering 1,016,643 1,163,539 1,123,041 40,498 Street and sidewalk maintenance 2,009,761 2,019,992 1,796,108 223,884 Traffic signals and street lights 569,934 597,520 598,015 (495) Creek and flood protection 1,448,876 1,563,631 1,301,812 261,819 Total transportation 5,045,214 5,344,682 4,818,976 525,706 105 213 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 4 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) Culture and Recreation: Recreation programs: Recreation administration 781,671 899,033 872,935 26,098 Aquatics/Sinsheimer park facilities 651,167 684,067 568,014 116,053 Children's services 1,272,354 1,384,098 1,228,850 155,248 Facilities 284,066 321,958 299,765 22,193 Special events 10,500 8,600 1,008 7,592 Recreational sports 655,001 708,683 516,824 191,859 Golf course 705,094 805,838 831,862 (26,024) Ranger services 818,243 954,994 803,371 151,623 Maintenance programs: Swim center maintenance 592,191 615,215 601,262 13,953 Parks and landscape maintenance 3,327,234 3,494,417 3,553,119 (58,702) Tree maintenance 492,709 380,741 334,499 46,242 Cultural and social service programs: Human relations Human relations 572,086 571,416 212,279 359,137 Cultural activities 347,632 347,632 332,351 15,281 Total leisure, cultural and social services 10,509,947 11,176,692 10,156,139 1,020,553 Community Development: Planning: Commissions and communities 34,939 34,939 13,395 21,544 Community development administration 994,382 1,141,294 903,001 238,293 Long-range planning (656,102) (575,147) 751,455 (1,326,602) Development review 2,038,597 2,381,429 1,839,094 542,335 Natural resource protection 1,008,766 1,066,623 1,017,359 49,264 Construction regulation: Building and safety 2,296,644 3,634,026 3,235,364 398,662 CIP project engineering 2,159,868 2,940,360 2,664,647 275,713 Economic health: Community promotion 437,898 422,612 415,604 7,008 Economic development 1,294,993 1,164,443 869,369 295,074 Housing 962,157 987,983 1,017,132 (29,149) Total community development 10,572,142 13,198,563 12,726,420 472,143 106 214 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 5 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) General Government: Legislation: Council 215,501 241,611 245,855 (4,244) General administration: City administration 2,129,156 2,256,453 2,077,196 179,257 Public works administration 923,458 1,060,927 1,069,343 (8,416) Legal services: City attorney 1,330,474 1,412,670 1,374,705 37,965 City clerk services: Administration and records 574,916 642,094 601,382 40,712 Organization support services: Human resource administration 5,916,713 6,372,946 6,175,678 197,268 Finance and administration 2,276,820 2,364,395 2,557,005 (192,610) Revenue management 420,193 493,732 438,580 55,152 Accounting 1,136,747 1,156,943 1,110,033 46,910 Finance non-departmental 377,658 1,569,473 288,297 1,281,176 Network services 3,374,515 3,310,079 3,204,644 105,435 Wellness program 18,251 16,415 10,134 6,281 Building and vehicle maintenance: Buildings 1,428,128 1,508,715 1,359,287 149,428 Vehicle and equipment maintenance 1,489,883 1,552,441 1,395,775 156,666 Total general government before cost reimburseme 21,612,413 23,958,894 21,907,914 2,050,980 Cost reimbursement (Note 3 to RSI)(4,717,442) (4,717,442) (4,717,442) - Total general government 16,894,971 19,241,452 17,190,472 2,050,980 Capital Outlay: Public safety - 15,869 16,178 (309) Transportation - 2,457,476 976,123 1,481,353 Culture and recreation - 418,213 170,729 247,484 Community development - 19,327 17,672 1,655 General government - 1,446,557 816,029 630,528 Total capital outlay - 4,357,097 1,996,731 2,360,366 Total Expenditures 76,294,603 93,440,299 86,545,247 6,895,052 Excess of Revenues Over Expenditures 16,504,475 8,747,881 19,854,290 11,106,409 107 215 DRAFT**v1 City of San Luis Obispo, California Budgetary Comparison Schedule General Fund, continued For the Fiscal Year Ended June 30, 2021 Page 6 Original Budget Final Budget Actual Variance With Final Budget Positive Negative) Other Financing Sources (Uses) Transfers in 18,800,657 18,800,657 3,942,248 (14,858,409) Transfers out (37,738,319) (41,432,873) (30,416,749) 11,016,124 Total other financing uses (18,937,662) (22,632,216) (26,474,501) (3,842,285) Net Change in Fund Balance (2,433,187) (13,884,335) (6,620,211) 7,264,124 Fund Balance, Beginning of the Year, as restated 47,365,717 47,365,717 47,365,717 Fund Balance, End of Year 44,932,530$ 33,481,382$ 40,745,506$ 108 216 DRAFT**v1 109 217 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Measurement Period 2020-21 2019-20 2018-19 2017-18 Total pension liability: Service Cost 3,939,785$ 3,681,240$ 4,042,717$ 4,328,129$ Interest on total pension liability 16,589,680 16,160,011 15,531,812 14,778,918 Difference between expected and actual experience (755,414) 1,869,474 2,966,923 1,445,049 Changes in assumptions - - - (1,292,326) Benefit payments, including refunds of employee contributions (13,518,666) (12,892,847) (12,061,701) (10,740,816) Net change in total pension liability 6,255,385 8,817,878 10,479,751 8,518,954 Total pension liability - beginning 237,568,349 228,750,471 218,270,720 209,751,766 Total pension liability - ending (a) $ 243,823,734 237,568,349$ 228,750,471$ 218,270,720$ Plan fiduciary net position: Contributions - employer 8,246,755$ 7,709,918$ 9,361,882$ 6,693,987$ Contributions - employee 2,056,274 1,889,583 1,775,245 1,820,697 Net investment income 32,904,570 7,205,266 9,124,520 10,820,033 Benefit payments (13,518,666) (12,892,847) (12,061,701) (10,740,816) Net plan to plan resource movement - - - (316) Administrative expense (148,132) (203,824) (97,394) (200,184) Other miscellaneous income/(expense)- - 316 (380,153) Net change in plan fiduciary net position 29,540,801 3,708,096 8,102,868 8,013,248 Plan fiduciary net position - beginning 148,289,275 144,581,179 136,478,311 128,465,063 Plan fiduciary net position - ending (b)177,830,076$ 148,289,275$ 144,581,179$ 136,478,311$ Net pension liability (asset) - ending (a) - (b)65,993,658$ 89,279,074$ 84,169,292$ 81,792,409$ Plan fiduciary net position as a percentage of the total pension liability 72.93% 62.42% 63.20% 62.53% Covered payroll 23,675,396 21,795,380 22,951,725 23,736,588 Net pension liability as percentage of covered payroll 278.74% 409.62% 366.72% 344.58% Fiscal year 2015 was the first year of implementation. Therefore, only eight years are shown. Information is required only for measurement periods for which GASB 68 is applicable. The current measurement period is the year ended June 30, 2021. Benefit changes . The figures above include any liability impact that may have resulted from voluntary benefit changes that occurred after the June 30, 2019 valuation. However, offers of Two Years Additional Service Credit (a.k.a. Golden Handshakes) that occurred after the June 30, 2019 valuation date are not included in the figures above, unless the liability impact is deemed to be material by the plan actuary. Changes in assumptions . None in 2019 or 2020 or 2021. In 2018, demographic assumptions and inflation rate were changed in accordance to the CalPERS Experience Study and Review of Assumptions December 2017. There were no changes in the discount rate. In 2017, the discount rate was reduced from 7.65 percent to 7.15 percent. In 2016, there were no changes. In 2015, amounts reported reflect an adjustment of the discount rate from 7.5 percent (net of administrative expense) to 7.65 percent (without a reduction for pension plan administrative expense). In 2014, amounts reported were based on the 7.5 percent discount rate. City of San Luis Obispo, California Schedule of the Changes in the Net Pension Liability and Related Ratios Miscellaneous Agent Multiple-Employer Plan June 30, 2022 Last 10 Years * 110 218 DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2016-17 2015-16 2014-15 2013-14 4,124,832$ 3,580,882$ 3,578,172$ 3,703,087$ 14,197,897 13,688,523 13,193,597 12,756,967 694,843 (1,160,933) (2,433,791) - 11,219,603 - (3,057,724) - 10,161,053) (9,476,508) (8,808,668) (8,258,611) 20,076,122 6,631,964 2,471,586 8,201,443 189,675,644 183,043,680 180,572,094 172,370,651 209,751,766$ 189,675,644$ 183,043,680$ 180,572,094$ 6,776,849$ 6,122,173$ 5,027,356$ 4,631,254$ 1,841,331 1,666,606 1,509,834 1,664,654 13,053,453 677,557 2,673,657 17,746,607 10,161,053) (9,476,508) (8,808,668) (8,258,611) 2,936) - - - 172,935) (72,044) (133,042) - 11,334,709 (1,082,216) 269,137 15,783,904 117,130,354 118,212,570 117,943,433 102,159,529 128,465,063$ 117,130,354$ 118,212,570$ 117,943,433$ 81,286,703$ 72,545,290$ 64,831,110$ 62,628,661$ 61.25% 61.75% 64.58% 65.32% 21,841,841 20,499,668 19,769,997 19,235,818 372.16% 353.89% 327.93% 325.58% 111 219 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Acuarially determined contribution 8,390,908$ 8,069,806$ 7,709,918$ 7,093,882$ Contributions in relation to the actuarially determined contribution (15,923,929) (8,069,806) (7,709,918) (9,361,882) Contribution deficiency (excess)(7,533,021)$ -$ -$ (2,268,000)$ Covered payroll 26,238,385 23,675,396 21,795,380 22,951,725 Contributions as percentage of covered payroll 60.69% 34.09% 35.37% 40.79% Actuarial Cost Method Entry Age Normal Amortization Method Amortization Period Asset Valuation Method Inflation 2.50% Salary Increases Varies by Entry Age and Service Payroll Growth 2.750% Discount Rate 7.15% Net of Pension Plan Investment and Administrative Expenses Retirement Age Mortality City of San Luis Obispo, California Schedule of the Pension Plan Contributions Miscellaneous Agent Multiple-Employer Plan June 30, 2022 For details, see June 30, 2018 CalPERS Funding Valuation Report For details, see June 30, 2018 CalPERS Funding Valuation Report The probabilities of Retirement are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. The probabilities of mortality are based on the 2017 CalPERS Experience Study for the period from 1997 to 2015. Pre-retirement and Post-retirement mortality rates include 15 years of projected mortality improvement using 90% of Scale MP-2016 published by the Society of Actuaries. Last 10 Years * The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2020-21 contributions rates are as follows: Fiscal year 2014 was the first year of implementation. Therefore, only nine years are shown. Information is required only for measurement periods for which GASB 68 is applicable. The current measurement period is the year ended June 30, 2021. 112 220 DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2013-14 6,693,987$ 6,776,849$ 6,122,173$ 5,027,356$ 4,631,254$ 6,693,987) (6,776,849) (6,122,173) (5,027,356) (4,631,254) 23,736,588 21,841,841 20,499,668 19,769,997 19,235,818 28.20% 31.03% 30.97% 25.43% 24.08% 113 221 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Measurement Period 2020-2021 2019-2020 2018-2019 2017-18 Proportion of the Collective Net Pension Liability 1.08299% 0.7225% 0.7212% 1.2261% Proportionate Share of the Collective Net Pension Liability 58,571,330$ 78,611,581$ 73,897,967$ 71,940,534$ Covered payroll 10,744,808$ 9,488,971$ 11,197,562$ 11,246,306$ Proportionate share of the net pension liability as percentage of covered payroll 545.11% 828.45% 659.95% 639.68% Plan fiduciary net position as a percentage of the total pension liability 88.29% 75.26% 75.26% 75.26% Fiscal year 2015 was the first year of implementation, therefore only eight years are shown. The CalPERS discount rate was increased from 7.5% to 7.65% in fiscal year 2016, and then decreased from 7.65% to 7.15% in fiscal year 2018. The CalPERS mortality assumptions were adjusted in fiscal year 2019. City of San Luis Obispo, California Schedule of the City's Proportionate Share of the Net Pension Liability Safety Cost-Sharing Plan As of June 30, 2022 Last 10 Years * 114 222 DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2016-17 2015-16 2014-15 2013-14 1.1943% 1.2510% 1.3654% 1.3754% 71,364,346$ 64,792,760$ 56,260,280$ 51,592,420$ 10,614,437$ 10,643,123$ 10,849,863$ 10,768,119$ 672.33% 608.78% 518.53% 479.12% 73.31% 74.06% 78.40% 79.82% 115 223 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 Contractually required contribution (actuarially determined)7,860,585$ 7,631,620$ 7,167,638$ 6,416,780$ Contribution in relation to the actuarially determined contributions (12,756,585) (7,631,620) (7,167,638) (8,348,780) Contribution deficiency (excess)(4,896,000)$ -$ -$ (1,932,000)$ Covered payroll 12,207,346$ 10,744,808$ 9,488,971$ 11,197,562$ Contributions as a percentage of covered payroll 104.50% 71.03% 75.54% 74.56% The Plan’s proportionate share of aggregate contributions may not match the actual contributions made by the employer during the measurement period. The Plan’s proportionate share of aggregate contributions is based on the Plan’s proportion of fiduciary net position as well as any additional side fund (or unfunded liability) contributions made by the employer during the measurement period. Fiscal year 2015 was the first year of implementation, therefore only nine years are shown City of San Luis Obispo, California Schedule of the City's Pension Contributions Safety Cost-Sharing Plan As of June 30, 2022 Last 10 Years * 116 224 DRAFT**v1 2017-18 2016-17 2015-16 2014-15 2013-14 5,910,345$ 5,549,915$ 5,074,217$ 4,350,871$ 4,226,211$ 5,910,345) (6,299,915) (5,824,217) (4,650,871) (5,161,211) 750,000)$ (750,000)$ (300,000)$ (935,000)$ 11,246,306$ 10,614,437$ 10,643,123$ 10,849,863$ 10,768,119$ 52.55% 59.35% 54.72% 42.87% 47.93% 117 225 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 2017-18 Measurement Period 2020-21 2019-20 2018-19 2017-18 2016-17 Total OPEB liability: Service Cost 423,364$ 415,244$ 477,538$ 463,629$ 450,125$ Interest on total OPEB liability 867,422 841,590 935,528 891,794 856,436 Difference between expected and actual experience 349,893 - (2,085,962) - - Changes in assumptions 507,115 (203,416) 21,857 - - Benefit payments, including refunds of employee contributions (678,789) (678,882) (677,824) (765,000) (827,500) Net change in total OPEB liability 1,469,005 374,536 (1,328,863) 590,423 479,061 Total OPEB liability - beginning 12,766,729 12,392,193 13,721,056 13,130,633 12,651,572 Total OPEB liability - ending (a)14,235,734$ 12,766,729$ 12,392,193$ 13,721,056$ 13,130,633$ Plan fiduciary net position: Contributions - employer 921,000$ 1,656,882$ 677,824$ 1,221,000$ 1,493,996$ Net investment income 2,196,724 259,704 392,852 439,828 469,883 Benefit payments (678,789) (678,882) (677,824) (765,000) (827,500) Administrative expense (7,235) (3,472) (1,364) (10,170) (2,387) Net change in plan fiduciary net position 2,431,700 1,234,232 391,488 885,658 1,133,992 Plan fiduciary net position - beginning 7,991,098 6,756,866 6,365,378 5,479,720 4,345,728 Plan fiduciary net position - ending (b)10,422,798$ 7,991,098$ 6,756,866$ 6,365,378$ 5,479,720$ Plan net OPEB liability - ending (a) - (b)3,812,936$ 4,775,631$ 5,635,327$ 7,355,678$ 7,650,913$ Plan fiduciary net position as a percentage of the total OPEB liability 73.22% 62.59% 54.53% 46.39% 41.73% Covered-employee payroll 40,691,438$ 33,077,056$ 33,429,600$ 33,790,437$ 33,722,592$ Plan net OPEB liability as percentage of covered payroll 9.37% 14.44% 16.86% 21.77% 22.69% Changes in assumptions. As of June 30, 2021 measurement date, the assumption adds 1. Discount rate was updated based on newer capital market assumptions 2. Medical plan election at retirement assumption was updated 3. Inflation rate decreased from 2.75% to 2.50%, which decreased the discount rate, medical trend, and aggregate salary increases by 0.25% 4. Demographic assumptions updated to CalPERS 2000-2019 Experience Study 5. Mortality improvement scale was updated to Scale MP-2021. As of June 30, 2020 measurement date, the assumption removed the ACA excise tax. As of June 30, 2019 measurement date, the mortality improvement scale was updated to Scale MP-2019. Medical plan at retirement estimated using weighted premium of recent retirees; updated based on retirements during 2015-2019. Fiscal year 2018 was the first year of implementation. Information is required only for measurement periods for which GASB 75 is applicable. Benefit changes . The figures shown do not include any liability impact that may have resulted from plan changes which occurred after the June 30, 2020 measurement date. Prepared for the City of San Luis Obispo OPEB Plan an Agent Multiple-Employer Defined Benefit OPEB Plan As of June 30, 2022 Last 10 Years * Schedule of Changes in the Net OPEB Liability and Related Ratios 118 226 DRAFT**v1 Fiscal Year 2021-22 2020-21 2019-20 2018-19 2017-18 1,309,367$ 921,000$ 1,190,000$ 1,154,000$ 1,221,000$ 1,309,367)$ (921,000) (1,656,882) (677,824) (1,221,000) Contribution deficiency (excess)-$ -$ (466,882)$ 476,176$ -$ Covered-employee payroll 38,691,777$ 40,691,438$ 33,077,056$ 33,429,600$ 33,790,437$ 3.38% 2.26% 3.60% 3.45% 3.61% Contributions paid as of June 30, 2022 are deferred to June 30, 2023. Valuation date June 30, 2019 Actuarial Cost Method Entry Age Normal, Level % of pay Amortization Method Level % of pay Amortization Period Average 12.1 years remaining fixed period for 2021/22 Asset Valuation Method Investment gains and losses spread over 5-year rolling period Discount Rate General Inflation Medical Trend Mortality CalPERS 1997-2015 experience study Mortality Improvement The actuarial methods and assumptions used to set the actuarially determined contributions for fiscal year 2021-22 are as follows: Non-Medicare - 7.25% for 2021, decreasing to an ultimate rate of 4.0% in 2076 Medicare - 6.3% for 2021, decreasing to an ultimate rate of 4.0% in 2076 Post-retirement mortality projected fully generational with Scale MP-2019 Fiscal year 2018 was the first year of implementation. Information is required only for measurement periods for which GASB 75 is applicable. 6.75% 2.75% Prepared for the City of San Luis Obispo Miscellaneous Plan an Agent Multiple-Employer Defined Benefit OPEB Plan As of June 30, 2022 Last 10 Years * Schedule of Employer OPEB Contributions Actuarially determined contribution Contributions in relation to the actuarially determined contributions Contributions as a percentage of covered payroll 119 227 DRAFT**v1 City of San Luis Obispo, California Notes to Required Supplementary Information June 30, 2022 Budgetary Comparison Schedule 1. The budget is prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. 2. Outstanding encumbrances from the prior fiscal year are not reflected in the original budget column but are included in the final budget amounts. 3. All the City’s general government and engineering programs are initially accounted and budgeted for in the General Fund. However, certain of these support service programs also benefit the City’s enterprise and agency fund operations, and accordingly, transfers are made from these funds to reimburse the General Fund for these services. The transfers are based on a Cost Allocation Plan prepared for this purpose which distributes the shared costs in a uniform, consistent manner in accordance with U.S. generally accepted accounting principles. Excess of Expenditures Over Appropriations 1. At June 30, 2022 expenditures exceeded appropriations in the General Fund as noted below. Department/Division Budget Variance Police Protection: Patrol services 1,098,482$ Fire and environmental safety: Emergency response 270,266 Culture and Recreation: Golf course 26,024 Transportation: Traffic signals and street lights 495 Recreation programs: Maintenance programs: Parks and landscape maintenance 58,702 Planning: Long-range planning 1,326,602 Organization support services: Finance and administration 192,610 Housing 29,149 General Government: Council 4,244 General Administration: Public works administration 8,416 Capital Outlay: Public safety 309 228 DRAFT**v1 OTHER SUPPLEMENTARY INFORMATION AND COMBINING AND INDIVIDUAL FUND STATEMENTS AND SCHEDULES 121 229 DRAFT**v1 122 230 DRAFT**v1 Revenues Budget Actual Local Transaction and Use Tax 25,810,000$ 29,172,258$ Investment Income (283,748) 25,810,000$ 28,888,510$ Expenditures Transfer Out for Operating Programs: Protect Financial Stability (FTE = 3.5) 328,811$ 328,811$ Community Safety and Emergency Preparedness (FTE = 8) 1,417,636 1,417,636 Creek and Flood Protection (FTE = 6) 632,567 632,567 Address Homelessness (FTE = 1) 810,647 810,647 Safe and Clean Public Areas (FTE = 3) 371,021 371,021 Economic Development and Business Retention 998,688 998,688 Youth/Senior Services and Recreation Facilities (FTE = 3.5) 341,009 341,009 Street Maintenance and Transportation (FTE = 5.6) 1,016,455 1,016,455 Open Space/Natural Areas Preservation and Maint. (FTE = 5) 741,007 741,007 Other Services and Projects 254,819 254,819 6,912,660$ 6,912,660$ Transfer Out for 2021-22 Capital Projects Community Safety and Emergency Preparedness 2,119,473$ 2,119,473$ Creek and Flood Protection 960,000 960,000 Safe and Clean Public Areas 805,000 805,000 Economic Development and Business Retention 1,140,555 1,140,555 Youth/Senior Services and Recreation Facilities 3,234,000 3,234,000 Street Maintenance and Transportation (incl bike and ped improvements) 9,021,975 9,021,975 Open Space/Natural Areas Preservation and Maintenance 1,490,000 1,490,000 Other Services and Projects 1,365,464 1,365,464 Allocation to Capital Reserve 3,426,208 3,426,208 23,562,674$ 23,562,674$ Expenditures on Legacy Projects (projects funded before 2021-22) Legacy Projects 3,975,195$ 2,016,283$ Net Change in Fund Balance (3,603,107)$ Fund Balance Beginning of Year 9,299,971$ Fund Balance End of Year 5,696,864$ Encumbered for Legacy Projects (1,958,912)$ Available Fund Balance (note 1) 3,737,952$ Note 1: Council took action on October 4, 2022 (R-11367) to allocate $2.1 million of the available fund balance. City of San Luis Obispo Local Transaction Tax Measure Funding Schedule For the Fiscal Year Ended June 30, 2022 123 231 DRAFT**v1 Page 2 Capital Programs: Budget Actual Encumbrances Carryover Community Safety and Emergency Preparedness Fire Hydrant Replacement 40,000 39,976 - 24 IT Replacements - Annual Asset Maintenance Account 1,703,757 511,052 120,507 1,072,198 Police Station Replacement 262,520 29,950 232,570 0 Fleet Replacement: Police 340,000 109,589 116,367 114,045 Fleet Replacement: Fire 295,000 129,034 133,236 32,730 Community Safety Emergency Response Communication Equip 89,420 29,309 6,500 53,611 Fire Station #3 & #4 Remodel Space Study and Design 25,000 - - 25,000 2,755,697 848,909 609,179 1,297,609 Creek and Flood Protection Pismo/Johnson/San Luis Creek Bank Stabilization 235,000 104,166 88,811 42,023 Broad and Leff Culvert Repair 7,613 7,612 - 1 Storm Drains Annual Asset Maintenance 822,159 629,646 30,530 161,983 Woodbridge Groundwater Runoff Diversion 10,000 - - 10,000 1,074,772 741,423 119,342 214,007 Safe and Clean Public Areas Downtown Safety Enhancements 400,000 208,581 51 191,368 Sidewalk Annual Asset Maintenance 287,613 89,993 2,465 195,155 Mission Plaza Restroom Replacements and Enhancements 377,435 110,918 167,068 99,449 Bob Jones Trail and Railroad Safety Trail Solar Lighting 100,000 - - 100,000 Downtown Cleaning Equipment 21,368 4,500 16,868 Street Lights - Annual Asset Maintenance 73,148 5,818 13,577 53,753 Street and Pathway Lighting 75,000 - - 75,000 1,334,564 419,810 183,161 731,593 Economic Development and Business Retention Open SLO 200,000 65,015 7,500 127,485 Banner Arm - Bench Rests - Signs 100,000 20,878 - 79,122 Annual Public Art Maintenance and Projects 92,500 62,800 - 29,700 Neighborhood Greenways Public Art 11,216 - - 11,216 Downtown Public Art Installations 211,000 172,738 - 38,262 Mission Plaza Maintenance Improvements 275,000 88,730 - 186,271 Mission Plaza Arbor Refurbishment 15,000 - - 15,000 Downtown Zig Zag Lighting 250,000 - - 250,000 1,154,716 410,161 7,500 737,055 Youth/Senior Services and Recreation Facilities Meadow Park Pathways Refurbishment 220,035 220,035 - - Laguna Lake Golf Course Maintenance 40,000 28,430 - 11,570 Golf Course Pro Shop Flood Damage Repairs 120,000 26,778 - 93,222 Parks Major Maintenance - Annual Asset Maintenance 1,977,135 1,198,349 15,517 763,269 Parks and Recreation Master Plan Implementation 200,000 - - 200,000 Playground Equipment Replacement - Annual Asset Maint.110,000 - - 110,000 Parks and Recreation Interior Office Rehabilitation 150,000 150,000 - - North Broad Street Neighborhood Park Construction 175,000 - - 175,000 Major Facilities Maintenance - Annual Asset Maintenance 1,004,795 152,183 26,480 826,132 3,996,965 1,775,775 41,997 2,179,193 City of San Luis Obispo Local Transaction Tax Measure Funding Schedule, continued Includes Legacy Projects and projects funded by Capital Reserve Local Revenue Measure Funded Projects 232 DRAFT**v1 Page 3 Street Maintenance and Transportation Ped and Bike Pathway Inventory and Pavement Condition 82,407 39,544 4,699 38,164 Neighborhood Greenway Plan Implementation Phase II 744,775 338,562 379,028 27,186 South Street Median Landscaping 36,676 22,596 11,090 2,990 Avila Ranch Buckley Extension Class I Bike Lane 1,665,000 56,989 96 1,607,915 Pedestrian Crossing Improvements 363,773 33,149 24,344 306,280 Curb Ramps 1,000,000 616,142 200,848 183,010 2021 Downtown Pavement Improvements Project 2,630,095 2,573,536 - 56,559 Active Transportation Plan Implementation 400,107 106,312 229,912 63,884 Monterey at Santa Rosa Paving and Signal Proect 1,000,000 9,770 230 990,000 Roadway Sealing 2022 238,160 10,360 - 227,800 Street Reconstruction and Resurfacing - Annual Asset Maint.413,118 83,484 147,490 182,143 Mid-Higuera Bypass 110,000 11,546 42,154 56,300 Traffic Signs and Striping Maintenance 62,919 43,770 - 19,149 California Taft Roundabout 300,000 1,721 68,040 230,240 Orcutt/Tank Roundabout Construction 1,069,494 707,019 97,262 265,214 Prado Road Interchange 500,000 - - 500,000 Prado Road Bridge & Road Widening 427,780 26,260 401,520 - Higuera Street Paving 24,634 5,299 - 19,335 Transportation Safety & Operations 59,119 16,930 - 42,189 Marsh at Santa Rosa Replacement 74,250 32,531 2,011 39,709 Traffic Safety Implementation 149,469 14,440 16,390 118,639 Railroad Safety Trail Taft to Pepper 156,706 34,956 121,750 0 Broad Street Corridor Access Improvements 35,000 5,402 - 29,598 Neighborhood Traffic Improvements 179,756 1,410 9,252 169,094 11,723,238 4,791,725 1,756,116 5,175,396 Open Space/Natural Areas Preservation and Maintenance Urban Forest Maintenance 721,610 453,782 75,168 192,660 Open Space - Annual Asset Maintenance 166,395 72,482 4,137 89,776 Laguna Lake Dredging 653,003 634,918 - 18,085 Open Space Acquisition 278,597 29,395 18,752 230,450 1,819,605 1,190,577 98,057 530,971 Other Services and Projects Fleet Replacement: Public Works 631,000 9,289 59,619 562,092 Roundabout Public Art Installations 300,000 217,500 - 82,500 Parking Lot Maintenance - Annual Asset Maintenance 279,583 109,577 - 170,006 Multi-space On-Street Pay Stations 17,000 17,000 - - Fleet Services Vehicle Lift 9,616 9,616 - - Capital Projects Engineering Staff (6 FTE)500,000 412,928 - 87,072 Multisite Energy Management 137,980 137,980 - - Electric Vehicle Charing Stations 100,000 - 30,053 69,947 1,975,179 913,890 89,672 971,617 Total Capital Expenditures 25,834,735$ 11,092,269$ 2,905,025$ 11,837,441$ Local Transaction Tax Measure Funding Schedule, continued For the Fiscal Year Ended June 30, 2022 City of San Luis Obispo Local Revenue Measure Funded Projects Includes Legacy Projects and projects funded by Capital Reserve 233 DRAFT**v1 126 234 DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 The City maintains the following nonmajor governmental funds: Special Revenue Funds The City has established the following ten special revenue funds in order to account for the proceeds from revenue sources that are restricted or committed to expenditures for specified purposes. Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. Downtown Business Improvement District (BID) Fund. This fund has been established to account for the receipt of a surcharge derived from a supplemental assessment upon businesses within the Downtown Business Improvement District’s boundaries. Pursuant to the provisions of the Municipal Code, this surcharge is equal to $150.00 per year. Expenditures from the fund are limited to four basic purposes: decorating public places within the downtown; promoting public events in the downtown core; promoting trade activities; and improving parking in the downtown core. Transportation Development Act (TDA) Fund. The State of California has designated 1/4% of the sales tax levied statewide for local transportation purposes. Funding for this program was provided during the 1971 legislative session with the enactment of the Transportation Development Act, which extended the State sales tax to include purchases of gasoline. Revenues allocated to the City of San Luis Obispo under this program are divided into two categories: Article 3 funds, which are restricted for the improvement and maintenance of street systems including pedestrian and bicycle facilities; and Article 4 funds, which are restricted for public transit systems and are recorded directly in the Transit Fund. Under the City's Financial Plan policies, all TDA Article 3 revenues are allocated for alternative transportation purposes. The purpose of this fund is to account for these revenues. Tourism Business Improvement District (BID) Fund. This fund has been established to account for the receipt of a surcharge derived from assessments upon the lodging establishments within the City. The surcharge is equal to 2% of gross room rents. Expenditures from the fund are limited to the marketing and promotion of tourism. Gas Tax Fund. Portions of the tax rate per gallon levied by the State of California on all gasoline purchases are allocated to cities throughout the State on a population basis. These funds are restricted for expenditures by the State of California for street-related purposes only. Under the City's Financial Plan policies, all gas tax revenues are transferred to the General Fund for street maintenance purposes. Community Development Block Grant (CDBG) Fund. This fund has been established to account for federal funds received by the City specifically to benefit low and moderate income persons, aid in the elimination of blight, and meet other community development needs as allowed by block grant regulations. Law Enforcement Grants Fund. This fund has been established to account for public safety grant funds. Public Arts Contribution Fund. Public contributions to the public art program are accounted for in this fund along with the expenditures for public art projects funded by this revenue source. SB1 Road Repair Fund. This fund has been established to account for stable and ongoing funding for maintenance and improvements to transportation infrastructure as provided through Senate Bill 1 (2017), the Road Repair and Accountability Act. SB1186 CASP Certify Fund. This fund has been established as Senate Bill 1186 (2012) requires local agencies to collect an additional fee when issuing a permit for the purpose of increasing certified access specialist (CASp) services and compliance with 127 235 DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 2 construction-related accessibility requirements. The first priority is to spend the funds on the training and retention of CASps in order to meet the needs of the public in the jurisdiction. The funds may also be spent on activities or programs that facilitate accessibility compliance. Capital Projects Funds The following eleven capital project funds are used by the City to account for the financial resources used in the construction or acquisition of major capital facilities or equipment (with the exception of those financed primarily through proprietary funds). Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles on a multi- year project basis. Accordingly, budgetary comparisons for the capital projects funds are not presented in the accompanying other supplementary information. Parkland Development Fund - Quimby. This fund was established to account for parkland in-lieu fees in accordance with the AB 1191 Act, also known as the Quimby Act; it authorizes the City to require residential subdivisions to dedicate land for parks or pay fees in lieu of dedication. Impact fees may be collected to pay for park land (for projects not involving a subdivision), park improvements, community centers, recreation facilities, trails, open space, etc. Open Space Protection Fund. This fund was established to account for projects funded as part of the City’s open space protection program to enhance open space and agricultural conservation on lands within and surrounding the City, improve passive recreational and nature study opportunities, and restore and enhance wildlife habitat. Projects in this fund will be financed with General Fund contributions, outside contributions, and State and Federal grants. Airport Area Impact Fee Fund. This fund was established to account for interim annexation fees collected for the specific plan and related infrastructure master plans for annexing the airport area to the City. Los Osos Valley Road (LOVR) Sub-Area Fee Fund. This fund was established to account for the LOVR add-on impact fee created for the expansion of capacity for the LOVR interchange at US 101 for construction, project management, and inspection. Though the project has been completed, the City has an existing reimbursement agreement with Costco Wholesale Corporation for improvements already constructed at the LOVR interchange. Fleet Replacement Fund. This fund was established to account for the financing and replacement of vehicles for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings and sales of surplus property. Information Technology Replacement Fund. This fund was established in FY 12-13 to account for the financing and replacement of information technology for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Major Facility Replacement Fund. This fund accounts for the financing and replacement of major facilities for all General Fund programs of the City. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Affordable Housing Program Fund. This fund accumulates revenues from inclusionary housing fees for capital projects related to 128 236 DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 3 affordable housing programs and projects. Transportation Impact Fee Fund. This fund was established to account for construction projects related to transportation facilities and travel lanes within the City that will be financed primarily with transportation impact fees. Infrastructure Fund. This fund was established to provide financing to infrastructure projects that have a wide community benefit. Financing is primarily provided through operating transfers from the General Fund. Parkland Development Impact Fee – Citywide Fund. This fund was created to account for impact fees that were established for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city. OASP Park Development Fund. This fund was established to account for impact fees created for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city but more specifically by the Orcutt Area residents as the location of this park projects are in the Orcutt Area. MASP Park Development Fund. This fund was established to account for impact fees created for the purpose of acquisition and improvement of community parks and existing park facilities intended for access and use by the entire city but more specifically by the Margarita Area residents as the location of this park projects are in the Margarita Area. OASP Transportation Impact Fee Fund. This fund was established to account for construction projects that will be financed primarily with transportation impact fees within the Orcutt Area Specific Plan in accordance with its Development Agreement Fire Impact Fee Fund. This fund was established to account for fire department related construction projects that will be financed primarily with public safety development impact fees. Police Impact Fee Fund. This fund was established to account for police department related construction projects that will be financed primarily with public safety development impact fees. Park Improvement Impact Fee – Citywide Fund. This fund was established to account for construction projects related to park improvements that will be financed primarily with park in-lieu fees. SLR Transportation Impact Fee. This fund was established to account for construction projects that will be financed primarily with transportation impact fees within the San Luis Ranch development, in accordance with its Development Agreement. Public Safety Equipment Replacement Fund. This fund accounts for the financing and replacement of public safety equipment. Financing is primarily provided through operating transfers from the General Fund as well as from interest earnings. Debt Service Fund The City has established one debt service fund to account for the payment and accumulation of resources related to governmental activities long-term debt principal and interest for the following debt issues. Budgets are prepared using the modified accrual basis of accounting consistent with U.S. generally accepted accounting principles. The following governmental activity debt issuances are serviced by this fund. 129 237 DRAFT**v1 City of San Luis Obispo, California Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 Page 4 Capital Improvement Board 2012 Refunding Lease Revenue Bonds. In May 2012 the Board issued $5,050,000 of 2012 Lease Revenue Refunding Bonds. These bonds were issued to refinance the outstanding 2001 Lease Revenue Bonds, Series C, which will be redeemed on December 1, 2029. The 2001 bonds were used to purchase property and build athletic fields; purchase property for police station expansion; purchase Downtown Plan properties. The Board has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. Public Financing Authority 2014 Lease Revenue Bonds. In 2014 the Authority issued $7,580,000 of 2014 Lease Revenue Bonds. These bonds were issued to finance the expansion of the Los Osos Valley Road interchange at U.S. 101. Debt service related to the interchange is recorded in the Debt Service Fund. The Authority has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. 2017 Fire Engine and Street Sweeper. Lease-purchase financing was obtained in order to purchase a fire engine and street sweeper. Debt service obligations are recorded in the Debt Service Fund. 2018 Street Sweeper. Lease-purchase financing was obtained in order to purchase a street sweeper. Debt service obligations are recorded in the Debt Service Fund. 2018 Fire Truck. Lease-purchase financing was obtained in order to purchase a fire truck. Debt service obligations are recorded in the Debt Service Fund. Public Financing Authority 2018 Lease Revenue Bonds. In 2018 the Authority issued $11,072,775 of 2018 Lease Revenue Refunding Bonds. These bonds were issued to refinance the outstanding 2005 Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds. The original bonds were used to accomplish several high priority capital improvement projects including the headquarters fire station, seismic safety and HVAC improvements to City Hall, Mission Plaza expansion, and various properties and street lighting system purchases. Further, the bonds were used to purchase a parking structure and office building and to the finance the construction of the Public Safety Communications and Emergency Operations Center project. The Authority has entered into a lease agreement with the City under which the City is responsible for making lease payments to fund the annual debt service requirements. 2020 Motorola Radio Lease. Lease-purchase financing was obtained in order to purchase new Motorola radios and related equipment for public safety departments. Debt service obligations are recorded in the Debt Service Fund. 130 238 DRAFT**v1 131 239 DRAFT**v1 Downtown BID Transportation Development Act (TDA) Tourism BID Gas Tax Assets Cash and investment 29$ 8,681$ 1,113,272$ -$ Accounts receivable - - 257,536 - Tax receivable - - - - Accrued interest receivable - - 1,982 - Cash held by fiscal agent - - - - Loans receivable - - - - Total assets 29$ 8,681$ 1,372,790$ -$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ 220,873$ -$ Accrued liabilities - - 4,036 - Unearned revenue - - - - Total liabilities - - 224,909 - Deferred Inflows of Resources: Unavailable revenue - - - - Fund balance: Nonspendable - 8,681 - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs - - - - Parkland development programs - - - - Public art programs - - - - Tourism programs - - 1,147,881 - Public safety program - - - - Assigned to: Contingency fund - - - - Subsequent years expenditures 29 - - - Total fund balance 29 8,681 1,147,881 - 29$ 8,681$ 1,372,790$ -$ City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds June 30, 2022 Special Revenue Funds Total liabilities, deferred inflows of resources, and fund balance 132 240 DRAFT**v1 Community Development Block Grant CDBG) Law Enforcement Grants Public Art Contributions SB1 Road Repair SB1186 CASP Certify Parkland In-Lieu Fee Open Space Protection 108,574$ 55,000$ 804,244$ 740,408$ 111,845$ 3,117,272$ 12,920$ 65,221 - - - - - 165,443 - - - 648,482 - 1,433 1,277 211 12,429 29 1,112,944 - - - - 143,044 - 1,870,000$ 120,221$ 805,677$ 907,128$ 112,056$ 3,272,745$ 12,949$ 52,300$ 7,639$ -$ -$ 15,945$ -$ 863 - - - - - 53,163 7,639 - - 15,945 - 1,761,425 - - - - 149,602 - 907,128 112,056 - - 108,575 - - - - - - 3,107,198 - 798,038 - - - - 67,058 - - - - - 12,949 108,575 67,058 798,038 907,128 112,056 3,107,198 12,949 1,870,000$ 120,221$ 805,677$ 907,128$ 112,056$ 3,272,745$ 12,949$ Special Revenue Funds Capital Projects Funds 133 241 DRAFT**v1 City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds, continued Airport Area Impact Fee LOVR Sub- Area Fee Fleet Replacement Info Tech Replacement Assets Cash and investment 674,261$ 583,299$ 2,612,864$ 3,886,420$ Accounts receivable - - - - Tax receivable - - - - Accrued interest receivable 1,275 1,066 3,587 - Cash held by fiscal agent - - - - Loans receivable - - - - Total assets 675,536$ 584,365$ 2,616,451$ 3,886,420$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ 1,896$ 6,155$ Accrued liabilities - - - - Unearned revenue - - - 600,000 Total liabilities - - 1,896 606,155 Deferred Inflows of Resources: Unavailable revenue - - - - Fund balance: Nonspendable - - - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs 675,536 584,365 - - Parkland development programs - - - - Public art programs - - - - Tourism programs - - - - Public safety program - - - - Assigned to: Contingency fund - - 500,000 400,000 Subsequent years expenditures - - 2,114,555 2,880,265 Total fund balance 675,536 584,365 2,614,555 3,280,265 675,536$ 584,365$ 2,616,451$ 3,886,420$ June 30, 2022 Total liabilities, deferred inflows of resources, and fund balance Capital Projects Funds 134 242 DRAFT**v1 Affordable Housing Transportation Impact Fee Infrastructure Public Safety Development Impact Fee Parkland Development Impact Fee- Citywide OASP Park MASP Park 3,812,404$ 7,793,366$ 13,988,177$ -$ 656,891$ 2,039,747$ 1,665,767$ 1,806,969 114,635 - - 59,515 3,804 3,148 9,001,843 1,164,368 - - 446,826 - - 14,621,216$ 9,072,369$ 13,988,177$ -$ 1,163,232$ 2,043,551$ 1,668,915$ 776,798$ -$ -$ -$ -$ -$ 2,964,467 - 9,200,000 - - - - 2,964,467 776,798 9,200,000 - - - - 1,872,010 1,263,705 - - 505,203 - - 7,031,866 - - - - - 9,784,739 - - - - - - 658,029 2,043,551 1,668,915 4,788,177 - - - - 9,784,739 7,031,866 4,788,177 - 658,029 2,043,551 1,668,915 14,621,216$ 9,072,369$ 13,988,177$ -$ 1,163,232$ 2,043,551$ 1,668,915$ Capital Projects Funds 135 243 DRAFT**v1 City of San Luis Obispo, California Combining Balance Sheets Nonmajor Governmental Funds, continued OASP Transportation Impact Fee Fire Impact Fee Police Impact Fee Park Improvement Impact Fee- Citywide Assets Cash and investment 1,389,630$ 199,861$ 245,017$ 1,006,860$ Accounts receivable - - - - Tax receivable - - - - Accrued interest receivable 2,625 7,383 2,812 3,137 Cash held by fiscal agent - - - - Loans receivable - 78,276 56,781 82,807 Total assets 1,392,255$ 285,520$ 304,610$ 1,092,804$ Liabilities, Deferred Inflows of Resources and Fund Balance Liabilities: Accounts payable -$ -$ -$ -$ Accrued liabilities - - - - Unearned revenue - - - - Total liabilities - - - - Deferred Inflows of Resources: Unavailable revenue - 85,301 59,164 84,189 Fund balance: Nonspendable - - - - Restricted for: Debt service - - - - Transportation projects - - - - Affordable housing programs - - - - Impact fee programs 1,392,255 200,219 245,446 1,008,615 Parkland development programs - - - - Public art programs - - - - Tourism programs - - - - Public safety program - - - - Assigned to: Contingency fund - - - - Subsequent years expenditures - - - - Total fund balance 1,392,255 200,219 245,446 1,008,615 1,392,255$ 285,520$ 304,610$ 1,092,804$ June 30, 2022 Capital Projects Funds Total liabilities, deferred inflows of resources, and fund balance 136 244 DRAFT**v1 SLR Transportation Impact Fee Public Safety Equipment Replacement Fund Debt Service Total Nonmajor Governmental Funds 458,142$ 805,012$ 2,118,745$ 50,008,708$ 322,757 165,443 713 - - 2,676,512 421,510 421,510 12,086,889 458,855$ 805,012$ 2,540,255$ 65,681,819$ 7,222$ -$ 1,088,828$ 4,036 12,765,330 7,222 - 13,858,194 5,780,599 8,681 2,540,255 2,540,255 8,051,050 9,893,314 458,855 - - 8,935,786 3,107,198 798,038 1,147,881 797,790 - 864,848 900,000 9,795,975 458,855 797,790 2,540,255 46,043,026 458,855$ 805,012$ 2,540,255$ 65,681,819$ Capital Projects Funds 137 245 DRAFT**v1 Downtown BID Transportation Development Act (TDA) Tourism BID Gas Tax Revenues: Use of money and property -$ -$ (23,302)$ -$ Subventions and grants - 53,681 - 1,130,064 Charges for services 227,202 - 2,127,375 - Other revenues - - 7,616 - Total revenues 227,202 53,681 2,111,689 1,130,064 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development 222,141 - 1,604,475 - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Total expenditures 222,141 - 1,604,475 - Excess (deficiency) of revenues over under) expenditures 5,061 53,681 507,214 1,130,064 Other financing sources (uses): Transfers in - - - - Transfers out - (45,000) (37,887) (1,130,064) Total other financing sources (uses) - (45,000) (37,887) (1,130,064) Net change in fund balance 5,061 8,681 469,327 - 5,032) - 678,554 - Fund balance (deficit), end of year 29$ 8,681$ 1,147,881$ -$ Fund balance, beginning of year, as restated Special Revenue Funds City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2022 138 246 DRAFT**v1 Community Development Block Grant CDBG) Law Enforcement Grants Public Art Contributions SB1 Road Repair SB1186 ASP Certify Parkland In-Lieu Fee Open Space Protection 16,319)$ (23,626)$ (2,609)$ (84,394)$ (467)$ 165,983 - 935,475 - - - 802 99,698 - 28,977 117,604 - 36,482 - - - - 8,915 - 36,482 166,785 83,379 911,849 26,368 42,125 (467) 163,145 - - - - - 914,730 - - - 296,242 - - 340,395 - 163,145 296,242 914,730 - 340,395 - 36,482 3,640 (212,863) (2,881) 26,368 (298,270) (467) 442,500 - - - - 36,482) - - - - - (6,900) 36,482) - 442,500 - - - (6,900) 3,640 229,637 (2,881) 26,368 (298,270) (7,367) 108,575 63,418 568,401 910,009 85,688 3,405,468 20,316 108,575$ 67,058$ 798,038$ 907,128$ 112,056$ 3,107,198$ 12,949$ Capital ProjectsFundsSpecialRevenueFunds 139 247 DRAFT**v1 City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds, continued For the Fiscal Year Ended June 30, 2022 Airport Area Impact Fee LOVR Sub- Area Fee Fleet Replacement Info Tech Replacement Revenues: Use of money and property (21,171)$ (12,091)$ (34,561)$ (5,227)$ Subventions and grants - - - - Charges for services 1,508 126,726 - 179,677 Other revenues - - 53,307 - Total revenues (19,663) 114,635 18,746 174,450 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - 10,853 505,982 Public safety - - 232,435 - Transportation 201,495 - - - Leisure, cultural and social services - - - - Total expenditures 201,495 - 243,288 505,982 Excess (deficiency) of revenues over under) expenditures (221,158) 114,635 (224,542) (331,532) Other financing sources (uses): Transfers in - - 1,615,000 1,075,640 Transfers out - - - (208,290) Total other financing sources (uses) - - 1,615,000 867,350 Net change in fund balance (221,158) 114,635 1,390,458 535,818 Fund balance, beginning of year, as restated 896,694 469,730 1,224,097 2,744,447 Fund balance (deficit), end of year 675,536$ 584,365$ 2,614,555$ 3,280,265$ Capital Projects Funds 140 248 DRAFT**v1 Affordable Housing Transportation Impact Fee Infrastructure Public Safety Development Impact Fee Parkland Development Impact Fee- Citywide OASP Park MASP Park 37,152)$ (236,024)$ (4,774)$ -$ (13,138)$ (51,551)$ (38,915)$ 86,583 - - - - 411,875 1,715,909 - - 121,734 130,976 74,989 153,171 - - - - - - 527,894 1,479,885 81,809 - 108,596 79,425 36,074 312,156 - - - - - 284,404 - 3,380,160 9,422 - - - - 3,692,316 9,422 - - 284,404 - 527,894 (2,212,431) 72,387 - 108,596 (204,979) 36,074 2,757,545 - - - - 87,000) (280,000) (476,971) (188,355) - - - 87,000) (280,000) 2,280,574 (188,355) - - - 440,894 (2,492,431) 2,352,961 (188,355) 108,596 (204,979) 36,074 9,343,845 9,524,297 2,435,216 188,355 549,433 2,248,530 1,632,841 9,784,739$ 7,031,866$ 4,788,177$ -$ 658,029$ 2,043,551$ 1,668,915$ Capital Projects Funds 141 249 DRAFT**v1 City of San Luis Obispo, California Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds, continued For the Fiscal Year Ended June 30, 2022 OASP Transportation Impact Fee Fire Impact Fee Police Impact Fee Park Improvement Impact Fee- Citywide Revenues: Use of money and property (29,353)$ (16,497)$ (19,445)$ (20,015)$ Subventions and grants - - - - Charges for services 728,999 64,597 89,876 190,868 Other revenues - - - - Total revenues 699,646 48,100 70,431 170,853 Expenditures: Current: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Community development - - - - Debt service: Principal - - - - Interest and fiscal charges - - - - Capital: General Government - - - - Public safety - - - - Transportation - - - - Leisure, cultural and social services - - - - Total expenditures - - - - Excess (deficiency) of revenues over under) expenditures 699,646 48,100 70,431 170,853 Other financing sources (uses): Transfers in - 85,996 102,359 - Transfers out - - - - Total other financing sources (uses) - 85,996 102,359 - Net change in fund balance 699,646 134,096 172,790 170,853 Fund balance, beginning of year, as restated 692,609 66,123 72,656 837,762 Fund balance (deficit), end of year 1,392,255$ 200,219$ 245,446$ 1,008,615$ Capital Projects Funds 142 250 DRAFT**v1 SLR Transportation Impact Fee Public Safety Equipment Replacement Fund Debt Service Total Nonmajor Governmental Funds 2,187)$ -$ 21$ (692,797)$ 2,371,786 457,690 - - 6,897,082 259,491 455,503 - 21 8,835,562 7,440 7,440 101,554 - 264,699 312,156 284,404 1,826,616 1,467,402 1,467,402 774,747 774,747 516,835 232,435 6,648 - - 4,512,455 636,637 6,648 101,554 2,249,589 10,835,826 448,855 (101,554) (2,249,568) (2,000,264) 10,000 929,344 2,214,456 9,232,840 30,000) - (2,526,949) 10,000 899,344 2,214,456 6,705,891 458,855 797,790 (35,112) 4,705,627 2,575,367 41,337,399 458,855$ 797,790$ 2,540,255$ 46,043,026$ Capital Projects Funds 143 251 DRAFT**v1 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Charges for services Assessments 245,000$ 245,000$ 227,202$ (17,798)$ Total Revenues 245,000 245,000 227,202 (17,798) Expenditures: Current Community development 245,000 245,000 222,141 22,859 Total Expenditures 245,000 245,000 222,141 22,859 Excess of Revenues Over Expenditures - - 5,061 5,061 Net Change in Fund Balance - - 5,061 5,061 Fund Balance, Beginning of Year (5,032) (5,032) (5,032) - Fund Balance, End of Year (5,032)$ (5,032)$ 29$ 5,061$ Downtown Business Improvement District Fund City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Budget 144 252 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 45,900$ 45,900$ 53,681$ 7,781$ Total Revenues 45,900 45,900 53,681 7,781 Excess of Revenues Over Expenditures 45,900 45,900 53,681 7,781 Other Financing Uses: Operating transfers out (45,900) (97,129) (45,000) 52,129 Net Change in Fund Balance - (51,229) 8,681 59,910 Fund Balance, Beginning of Year - - - - Fund Balance, End of Year -$ (51,229)$ 8,681$ 59,910$ Transportation Development Act (TDA) Budget 145 253 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property 1,400$ 1,400$ (23,302)$ (24,702)$ Assessments 1,442,600 1,442,600 2,127,375 684,775 Total Revenues 1,444,000 1,444,000 2,111,689 667,689 Expenditures: Current Community development 1,451,127 1,858,227 1,604,475 253,752 Total Expenditures 1,451,127 1,858,227 1,604,475 253,752 Excess of Revenues Over (Under) Expenditures (7,127) (414,227) 507,214 921,441 Other Financing Uses: Operating transfers out (28,852) (28,852) (37,887) (9,035) Net Change in Fund Balance (35,979) (443,079) 469,327 912,406 Fund Balance, Beginning of Year 678,554 678,554 678,554 - Fund Balance, End of Year 642,575$ 235,475$ 1,147,881$ 912,406$ Tourism Business Improvement District Fund Budget 146 254 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 1,223,937$ 1,223,937$ 1,130,064$ (93,873)$ Total Revenues 1,223,937 1,223,937 1,130,064 (93,873) Excess of Revenues Over Expenditures 1,223,937 1,223,937 1,130,064 (93,873) Other Financing Uses: Operating transfers out (1,223,937) (1,223,937) (1,130,064) 93,873 Net Change in Fund Balance - - - - Fund Balance, Beginning of Year - - - - Fund Balance, End of Year -$ -$ -$ -$ Gas Tax Budget 147 255 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants -$ -$ -$ -$ Total Revenues - - 36,482 36,482 Expenditures: Current Community development - - - - Total Expenditures - - - - Excess of Revenues Over (Under) Expenditures - - 36,482 36,482 Other Financing Uses: Operating transfers out - - (36,482) (36,482) Net Change in Fund Balance - - - - Fund Balance, Beginning of Year 108,575 108,575 108,575 - Fund Balance, End of Year 108,575$ 108,575$ 108,575$ -$ Community Development Block Grant (CDBG) Fund Budget 148 256 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Subventions and grants 113,000$ 113,000$ 165,983$ 52,983$ Charges for services 2,142 - 802 802 Total Revenues 115,142 113,000 166,785 53,785 Expenditures: Public Safety - 36,043 163,145 (127,102) Total Expenditures - 36,043 163,145 (127,102) Excess of Revenues Over (Under) Expenditures 115,142 76,957 3,640 (73,317) Other Financing Uses: Operating transfers out - - - - Net Change in Fund Balance 115,142 76,957 3,640 (73,317) Fund Balance, Beginning of Year 63,418 63,418 63,418 - Fund Balance, End of Year 178,560$ 140,375$ 67,058$ (73,317)$ Budget Law Enforcement Grants Fund 149 257 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property 2,100$ 2,100$ (16,319)$ (18,419)$ Other revenues 15,000 15,000 99,698 84,698 Total Revenues 17,100 17,100 83,379 66,279 Expenditures: Capital Projects 442,500 522,278 296,242 226,036 Total Expenditures 442,500 522,278 296,242 226,036 Excess of Revenues Over (Under) Expenditures (425,400) (505,178) (212,863) 292,315 Other Financing Uses: Operating transfers in 442,500 442,500 - Net Change in Fund Balance (425,400) (62,678) 229,637 292,315 Fund Balance, Beginning of Year 568,401 568,401 568,401 - Fund Balance, End of Year 143,001$ 505,723$ 798,038$ 292,315$ Budget Public Art Contributions Fund 150 258 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ (23,626)$ (23,626)$ Subventions and grants 915,000 915,000 935,475 20,475 Total Revenues 915,000 915,000 911,849 (3,151) Expenditures: Capital Projects 914,731 1,470,525 914,730 555,795 Total Expenditures 914,731 1,470,525 914,730 555,795 Excess of Revenues Over (Under) Expenditures 269 (555,525) (2,881) 552,644 Net Change in Fund Balance 269 (555,525) (2,881) 552,644 Fund Balance, Beginning of Year 910,009 910,009 910,009 - Fund Balance, End of Year 910,278$ 354,484$ 907,128$ 552,644$ Budget SB1 Road Repair Fund 151 259 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ (2,609)$ (2,609)$ Charges for services - - 28,977 28,977 Total Revenues - - 26,368 26,368 Net Change in Fund Balance (85,461) (85,461) 26,368 111,829 Fund Balance, Beginning of Year 85,688 85,688 85,688 - Fund Balance, End of Year 227$ 227$ 112,056$ 111,829$ SB1186 CASP Certify Budget 152 260 DRAFT**v1 City of San Luis Obispo, California Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual June 30, 2022 Variance with Final Budget Positive Original Final Actual (Negative) Revenues: Use of money and property -$ -$ 21$ 21$ Total Revenues - - 21 21 Expenditures: General Government - - 7,440 (7,440) Principal 1,453,459 1,453,459 1,467,402 (13,943) Interest and fiscal charges 760,996 760,996 774,747 (13,751) Total Expenditures 2,214,455 2,214,455 2,249,589 (35,134) Excess of Revenues Over (Under) Expenditures (2,214,455) (2,214,455) (2,249,568) (35,113) Other Financing Uses: Operating transfers in 2,214,456 2,214,456 2,214,456 - Total other Financing Uses:2,214,456 2,214,456 2,214,456 - Net Change in Fund Balance 1 1 (35,112) (35,113) Fund Balance, Beginning of Year 2,575,367 2,575,367 2,575,367 - Fund Balance, End of Year 2,575,368$ 2,575,368$ 2,540,255$ (35,113)$ Budget Debt Service Fund 153 261 DRAFT**v1 154 262 DRAFT**v1 City of San Luis Obispo, California Custodial Funds For the Fiscal Year Ended June 30, 2022 The City of San Luis Obispo has established the following agency funds, which are used to account for funds held by the City as an agent for private donations and programs operated jointly with other local agencies: Whale Rock Fund. This fund was established to account for the financial activities of the Whale Rock Commission, a joint venture providing water service to the City, the California Polytechnic State University, and the California Men's Colony. Jack House Fund. This fund was established to account for the financial activities of the Jack House Committee, which includes the rehabilitation and use of a use of the historic Jack House property. Hazardous Materials Task Force Fund. This fund was established to account for the financial activities of the County task force. General Agency Fund. This fund was established to account for a broad category of funds, including donations, provided to the City to be utilized for specific purposes. Boysen Ranch Conservation Easement Fund. This fund was established to account for contributions toward obtaining a conservation easement on the Boysen Ranch property. Cable Television Public, Educational and Government Funds (PEG) for the City of San Luis Obispo, San Luis Coastal Unified School District (SLCUSD) and San Luis Obispo County Public Access, Inc. Public Access Television (PAT). These funds account for collections by Charter Communications from its customers for PEG access equipment and facilities. The City of San Luis Obispo, SLCUSD and PAT annually receive equal shares of collections, restricted for approved uses as stipulated in the cable franchise agreement. San Luis Ranch CFD Fund. This fund was established to account for the financial activities of the San Luis Ranch Community Facilities District (CFD). The CFD is the City's first Mello-Roos district. Property taxes collected on properties within the CFD will be used to pay for debt service on the related infrastructure constructed within the district. 155 263 DRAFT**v1 Hazardous Whale Jack Materials Task Rock Fund House Fund Force Fund ASSETS Cash and investments 4,443,600$ 18,948$ 149,534$ Receivables: Accounts 16,549 - - Interest 8,433 36 288 Prepaid items - - - Capital assets 789,639 - - Total assets 5,258,221 18,984 149,822 LIABILITIES Accounts payable 48,122 - 2,477 Compensated absence 54,086 - - Accrued Salaries 10,631 - 256 Other liabilities 2,000 - - Total liabilities 114,839 - 2,733 NET POSITION Restricted for Individuals, organizations, and other governments 5,143,382 18,984 147,089 Total net position 5,143,382$ 18,984$ 147,089$ City of San Luis Obispo Combining Statement of Fiduciary Net Position Custodial Funds For the year ended June 30, 2022 156 264 DRAFT**v1 General Boysen Ranch Total Agency Conservation PEG City of San Luis Ranch PEG Custodial Fund Easement San Luis Obispo CFD SLCUSD Funds 3,052,972$ 407,308$ 115,989$ 145,667$ 395,351$ 8,729,369$ 16,549 770 213 308 741 10,789 789,639 3,052,972 408,078 116,202 145,975 396,092 9,546,346 25,302 2,844 - - 307,160 385,905 54,086 10,887 2,000 25,302 2,844 - - 307,160 452,878 3,027,670 405,234 116,202 145,975 88,932 9,093,468 3,027,670$ 405,234$ 116,202$ 145,975$ 88,932$ 9,093,468$ 157 265 DRAFT**v1 Hazardous Whale Jack Materials Task Rock Fund House Fund Force Fund ADDITIONS: Assessment revenue -$ -$ -$ Charges for services 949,126 - 65,000 Charges for public programming - - - Contribution from developers - - - Other revenue 1,552,897 319 9 Use of money and property (107,364) (470) (4,377) Total additions 2,394,659 (151) 60,632 DEDUCTIONS: Administration expenses 186,697 - 12,679 Contractual services 1,004,354 - 24,336 Materials and supplies 77,602 - 11,842 Public programming - - - Use of developer deposits - - - Depreciation 63,459 - - Total deductions 1,332,112 - 48,857 Net increase (decrease) in fiduciary net position 1,062,547 (151) 11,775 NET POSITION: Beginning of year, as restated 4,080,835 19,135 135,314 End of year 5,143,382$ 18,984$ 147,089$ City of San Luis Obispo Combining Statement of Changes in Fiduciary Net Position Custodial Funds For the year ended June 30, 2022 158 266 DRAFT**v1 General Boysen Ranch Total Agency Conservation PEG City of San Luis Ranch PEG Custodial Fund Easement San Luis Obispo CFD SLCUSD Funds 152,848$ -$ 152,848$ 1,014,126 39,951 39,951 1,704,858 - - - - 1,704,858 39,766 55,000 - 1,647,991 10,273) (3,587) (2,633) (9,276) (137,980) 1,704,858 (10,273) 36,179 205,215 30,675 4,421,794 59,240 - 258,616 11,739 - - 307,160 1,347,589 89,444 65,750 - - 65,750 416,978 - - - - 416,978 63,459 416,978 11,739 65,750 59,240 307,160 2,241,836 1,287,880 (22,012) (29,571) 145,975 (276,485) 2,179,958 1,739,790 427,246 145,773 - 365,417 6,913,510 3,027,670$ 405,234$ 116,202$ 145,975$ 88,932$ 9,093,468$ 159 267 DRAFT**v1 160 268 DRAFT**v1 STATISTICAL SECTION (UNAUDITED) 161 269 DRAFT**v1 162 270 DRAFT**v1 City of San Luis Obispo, California Statistical Section Overview For the Fiscal Year Ended June 30, 2022 This part of the City of San Luis Obispo’s annual comprehensive financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government’s overall financial health. Contents Financial Trends – Schedules 1-6. These schedules contain trend information to help the reader understand how the City’s financial performance and well-being have changed over time. Revenue Capacity – Schedules 7-13. These schedules contain information to help the reader assess the government’s most significant local revenue sources, sales and property taxes. Debt Capacity – Schedules 14-19. These schedules present information to help the reader assess the affordability of the City’s current levels of outstanding debt and the City’s ability to issue additional debt in the future. Demographic and Economic Information – Schedules 20-22. These schedules offer demographic and economic indicators to help the reader understand the environment within which the government’s financial activities take place. Operating Information – Schedules 23-26. These schedules contain service and infrastructure data to help the reader understand how the information in the City’s financial report relates to the services the government provides and the activities it performs. 163 271 DRAFT**v1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Governmental activities: Net investment in capital assets 142,239,500$ 145,266,043$ 150,430,226$ 163,449,992$ 165,100,426$ 171,472,251$ 174,431,254$ 177,335,648$ 184,387,289$ 193,984,593$ Restricted 2,374,800 4,825,662 2,350,838 2,762,387 2,268,499 421,954 20,458,677 29,901,136 35,603,121 41,770,187 Unrestricted 29,927,200 (66,610,104) (57,421,778) (49,031,893) (41,496,841) (49,909,657) (72,041,172) (73,806,116) (62,369,688) (57,458,111) Total governmental activities net position 174,541,500$ 83,481,601$ 95,359,286$ 117,180,486$ 125,872,084$ 121,984,548$ 122,848,759$ 133,430,668$ 157,620,722$ 178,296,669$ Business-type activities: Net investment in capital assets 123,510,200$ 119,116,303$ 125,801,845$ 128,390,611$ 131,149,516$ 136,694,402$ 139,659,544$ 149,617,018$ 160,750,886$ 153,643,418$ Restricted 2,254,200 2,248,979 2,261,213 2,278,392 2,276,526 1,558,795 500,645 4,037,611 2,493,859 2,684,781 Unrestricted 41,712,200 35,224,987 42,117,143 49,495,220 53,421,102 50,866,147 57,379,689 53,983,005 53,159,080 84,056,287 Total business-type activities net position 167,476,600$ 156,590,269$ 170,180,201$ 180,164,223$ 186,847,144$ 189,119,344$ 197,539,878$ 207,637,634$ 216,403,825$ 240,384,486$ Primary government (City wide totals): Net investment in capital assets 265,749,700$ 264,382,346$ 276,232,071$ 291,840,603$ 296,249,942$ 308,166,653$ 314,090,798$ 326,952,666$ 345,138,175$ 347,628,011$ Restricted 4,629,000 7,074,641 4,612,051 5,040,779 4,545,025 1,980,749 20,959,322 33,938,747 38,096,980 44,454,968 Unrestricted 71,639,400 (31,385,117) (15,304,635) 463,327 11,924,261 956,490 (14,661,483) (19,823,111) (9,210,608) 26,598,176 Total primary government net position 342,018,100$ 240,071,870$ 265,539,487$ 297,344,709$ 312,719,228$ 311,103,892$ 320,388,637$ 341,068,302$ 374,024,547$ 418,681,155$ City of San Luis Obispo, California Schedule 1 Net Assets by Component Last Ten Fiscal Years Accrual basis of accounting) 164 27 2 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Expenses: Governmental activities: Public safet y 28,859,200$ 29,651,702$ 26,881,732$ 29,318,821$ 31,806,692$ 42,097,557$ 34,320,108$ 34,670,383$ 35,226,779$ 41,132,177$ Transportation 8,551,500 8,975,047 11,457,311 8,792,028 9,668,840 9,229,042 7,546,278 7,416,335 8,137,479 10,395,516 Culture and recreation 10,078,700 10,239,853 10,332,740 9,808,545 9,824,262 11,125,792 9,469,520 10,063,304 11,122,003 12,407,720 Community development 8,866,900 10,183,782 10,960,778 12,900,275 14,656,604 13,457,993 12,573,953 11,882,018 11,918,019 15,506,092 General Government - - - - - - 22,429,785 22,058,724 17,276,491 20,982,321 Interest on long-term debt 1,217,200 1,221,205 1,015,011 1,351,468 1,170,984 1,488,183 702,885 839,661 731,045 699,284 Total governmental activities expenses 57,573,500 60,271,589 60,647,572 62,171,137 67,127,382 77,398,567 87,042,529 86,930,425 84,411,816 101,123,110 Business-type activities: Water 17,019,000 17,575,961 17,128,041 18,136,120 19,069,967 19,523,736 20,986,430 22,914,013 21,469,967 20,892,863 Sewer 10,189,400 10,647,255 10,132,214 10,842,451 11,683,262 14,158,612 13,967,717 13,100,905 15,064,551 12,576,058 Parking 3,678,600 3,636,607 3,556,637 3,900,052 3,791,493 4,098,840 4,088,681 4,145,364 4,057,242 4,517,125 Transit 3,903,900 4,059,138 3,994,194 4,088,423 4,076,871 4,355,103 4,320,976 4,384,344 4,023,536 3,851,264 Total business-type activities expenses 34,790,900 35,918,961 34,811,086 36,967,046 38,621,593 42,136,291 43,363,804 44,544,626 44,615,296 41,837,310 Total primary government expenses 92,364,400$ 96,190,550$ 95,458,658$ 99,138,183$ 105,748,975$ 119,534,858$ 130,406,333$ 131,475,051$ 129,027,112$ 142,960,420$ Program Revenues: Governmental activities: Charges for services: Public safety 1,599,000$ 1,589,278$ 1,697,748$ 1,673,800$ 1,771,383$ 1,881,725$ 1,633,223$ 3,045,294$ 3,991,193$ 3,197,692$ Transportation 221,200 1,321,323 1,270,787 1,691,757 1,793,010 1,669,563 2,399,692 531,424 91,509 636,874 Culture and recreation 1,926,800 3,048,274 2,155,411 2,048,780 3,501,837 3,487,225 4,078,539 2,508,565 3,430,224 4,046,439 Community development 4,126,400 4,981,211 7,210,132 7,974,880 8,144,128 7,355,831 9,941,951 11,812,417 15,929,420 10,509,106 General Government - - - - - - 1,391,940 760,606 654,039 530,775 Operating grants and contributions 2,814,700 2,412,469 2,509,323 2,667,058 2,488,706 4,015,502 2,990,211 4,828,837 3,601,973 3,647,813 Capital grants and contributions 1,991,900 3,680,440 7,911,867 9,355,707 40,531 39,781 47,234 2,504,722 5,688,200 1,531,157 Total governmental activities program revenues 12,680,000 17,032,995 22,755,268 25,411,982 17,739,595 18,449,627 22,482,790 25,991,865 33,386,558 24,099,856 Business-type activities: Charges for services: Water 18,148,200$ 19,755,909$ 20,446,730$ 19,884,850$ 20,180,931$ 22,202,069$ 24,026,385$ 25,666,777$ 28,340,076$ 29,894,129$ Sewer 16,212,000 17,151,212 18,007,064 16,460,140 16,272,533 16,753,094 18,674,547 19,042,384 21,501,546 23,642,048 Parking 4,693,400 3,998,730 4,905,494 7,408,729 4,666,970 5,226,780 5,443,038 3,293,941 2,567,908 4,890,317 Transit 682,700 688,585 649,899 659,471 666,296 703,451 776,808 633,566 331,352 713,777 Operating grants and contributions 2,673,500 2,458,640 3,148,651 2,888,820 4,180,386 3,099,618 3,259,975 4,712,832 3,742,594 5,156,782 Capital grants and contributions 731,300 82,359 60,063 - - - - - - - Total business-type activities programs revenues 43,141,100 44,135,435 47,217,901 47,302,010 45,967,116 47,985,012 52,180,753 53,349,500 56,483,476 64,297,053 Total primary government program revenues 55,821,100$ 61,168,430$ 69,973,169$ 72,713,992$ 63,706,711$ 66,434,639$ 74,663,543$ 79,341,365$ 89,870,034$ 88,396,909$ Net Revenues (Expenses): Governmental activities (44,893,500)$ (43,238,594)$ (37,892,304)$ (36,759,155)$ (49,387,787)$ (58,948,940)$ (64,559,739)$ (60,938,560)$ (51,025,258)$ (77,023,254)$ Business-type activities 8,350,200 8,216,474 12,406,815 10,334,964 7,345,523 5,848,721 8,816,949 8,804,874 11,868,180 22,459,743 Total primary government (36,543,300)$ (35,022,120)$ (25,485,489)$ (26,424,191)$ (42,042,264)$ (53,100,219)$ (55,742,790)$ (52,133,686)$ (39,157,078)$ (54,563,511)$ Schedule 2 City of San Luis Obispo, California Changes in Net Position, Last Ten Fiscal Years Accrual Basis of Accounting) 165 27 3 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 2 City of San Luis Obispo, California Changes in Net Position, Last Ten Fiscal Years Accrual Basis of Accounting) General Revenues and Other Changes in Net Position: Governmental activities: Sales and use taxes 20,736,000$ 22,180,173$ 22,408,980$ 24,676,377$ 24,068,665$ 24,559,570$ 26,444,775$ 24,125,439$ 32,847,453$ 51,419,561$ Property taxes 9,176,600 8,960,010 9,631,890 10,186,858 10,756,477 11,425,510 12,238,357 13,301,736 14,197,869 14,716,412 Transient occupancy tax 5,572,400 6,063,232 6,805,742 7,127,756 7,381,989 7,514,289 8,061,087 6,325,841 6,960,035 10,650,762 Utility users tax 4,916,100 5,345,342 5,211,207 5,413,720 5,539,407 5,627,356 4,919,892 5,439,144 5,225,979 5,338,325 Property tax in-lieu of vehicle license fees 3,533,200 3,645,692 3,849,341 4,113,244 4,353,912 4,637,253 4,961,080 5,290,215 5,660,661 5,994,592 Other taxes and fees 4,607,600 4,779,570 4,993,285 4,800,592 3,929,377 5,006,594 4,332,557 4,883,677 5,578,944 5,800,333 Investment earnings 237,100 566,931 467,348 825,760 997,995 164,434 1,618,354 3,368,951 435,818 (1,638,993) Miscellaneous and other 349,900 679,127 707,781 - - - 146,579 1,001,369 1,019,626 1,213,401 Gain (loss) on disposal of capital assets (11,000) - - - - - - - - - Prior period adjustment 2,657,100 (833,234) - - - - - - 745,285 - Cumulative change in accounting principle (GASB 65)(345,400) - - - - - - - - - Transfers 115,100 (73,771) (329,452) 1,436,048 1,051,563 1,198,027 2,456,035 1,889,900 1,992,911 1,685,314 Total governmental activities 51,544,700 51,313,072 53,746,122 58,580,355 58,079,385 60,133,033 65,178,716 65,626,272 74,664,581 95,179,707 Business-type activities Investment earnings 73,500$ 364,551$ 361,627$ 845,906$ 182,261$ 320,471$ 2,516,216$ 2,880,634$ 577,250$ (1,207,118)$ Cumulative change in accounting principle (842,600) - - - - - - - - - Income from investment in joint venture - - - 239,200 206,700 209,300 (25,469) 153,949 519,677 585,101 Prior period adjustment - - - - - - - - (907,350) - Transfers (115,100) 73,771 329,452 (1,436,048) (1,051,563) (1,198,027) (2,456,035) (1,889,900) (1,992,911) (1,685,314) Total business-type activities (884,200) 438,322 691,079 (350,942) (662,602) (668,256) 34,712 1,144,683 (1,803,334) (2,307,331) Total primary government 50,660,500$ 51,751,394$ 54,437,201$ 58,229,413$ 57,416,783$ 59,464,777$ 65,213,428$ 66,770,955$ 72,861,247$ 92,872,376$ Change in net position: Governmental activities 6,651,200$ 8,074,478$ 15,853,818$ 21,821,200$ 8,691,598$ 1,184,093$ 618,977$ 4,687,712$ 23,639,323$ 18,156,453$ Business-type activities 7,466,000 8,654,796 13,097,894 9,984,022 6,682,921 5,180,465 8,851,661 9,949,557 10,064,846 20,152,412 Total primary government 14,117,200$ 16,729,274$ 28,951,712$ 31,805,222$ 15,374,519$ 6,364,558$ 9,470,638$ 14,637,269$ 33,704,169$ 38,308,865$ 166 27 4 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 General fund: Reserved $ Unreserved: Nonspendable: Prepaid items 2,777,000 3,191,055 60,181 56,020 3,173,248 3,520,473 51,636 - 41,155 90,797 Restricted for: (Note 1) Debt service 331,600 312,037 303,126 489,056 128,102 159,724 - - - - Committed to: (Note 1) General government programs 1,768,200 4,973,497 3,942,459 4,468,863 9,428,034 8,693,113 - - 9,299,971 5,696,864 Contingency Fund - - - - - - - - 11,830,380 12,014,000 Risk management - - - - - - - - 1,955,966 1,845,935 Assigned to: Contingency Fund - 10,458,000 10,486,931 11,092,782 10,902,368 10,171,464 13,418,400 10,251,000 - - Establishment of Section 115 Trust - - - - - - - 1,400,000 2,000,000 2,000,000 Revenue stabilization - - - - - - - 1,000,000 - - Development Services - - 1,848,386 382,396 41,110 596,796 531,000 899,277 710,657 530,657 Public Safety - - 97,239 - - - - 1,096,215 929,344 - Risk management - - - - - - - 1,498,078 - - City Attorney - - - - 100,000 100,000 - 100,000 100,000 - CalPERS pension payment - - - - - - - - 10,200,000 2,000,000 Subsequent years expenditures - - - 2,716,534 - - 9,908,932 10,284,119 4,738,806 8,210,529 Unassigned 14,060,900 1,382,590 7,828,485 10,419,881 2,723,292 6,334,870 6,185,574 7,122,607 5,311,792 8,356,724 Total general fund 18,937,700 20,317,179 24,566,807 29,625,532 26,496,154 29,576,440 30,095,542 33,651,296 47,118,071 40,745,506 For the Fiscal Year Ended June 30 Schedule 3 City of San Luis Obispo, California Fund Balances, Governmental Funds Last Ten Fiscal Years Modified Accrual Basis of Accounting) 167 27 5 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 For the Fiscal Year Ended June 30 Schedule 3 City of San Luis Obispo, California Fund Balances, Governmental Funds Last Ten Fiscal Years Modified Accrual Basis of Accounting) All other governmental funds: Reserved $ Unreserved reported in: Nonspendable - - - - 5,642 (71,687) 292,641 - - 8,681 Restricted for: (Note 1) Debt service 2,043,200 2,043,222 2,140,980 2,119,724 2,119,611 1,653,109 1,791,026 2,226,898 2,575,367 2,540,255 Public safety programs 22,900 27,145 16,886 23,492 20,786 3,073 - 32,332 63,418 864,848 Transportation projects - - - - - - 8,151,487 9,371,824 10,519,994 8,051,050 Affordable housing programs - - - - - - 2,944,549 8,698,494 9,292,304 9,893,314 Impact fee programs - - - - - - 1,870,656 3,126,925 7,466,378 8,935,786 Parkland development programs - - - - - - 3,528,662 4,709,560 3,405,468 3,107,198 Public art programs - - - - - - 620,934 591,097 568,401 798,038 Tourism programs - - - - - - 456,023 322,975 678,554 1,147,881 Committed to: Affordable housing programs 1,254,900 2,946,847 2,601,882 2,562,825 5,054,332 3,974,629 - - - - Assessment district programs - - - - - - - - - - Capital outlay 1,326,000 6,045,091 3,632,641 2,954,223 - - - - - - General government programs 4,743,552 1,084,221 7,463,605 - 8,092,594 - - - - Impact Fees Programs 3,542,700 411,592 9,410,273 549,349 8,795,074 595,256 - - - - Open space programs 194,300 1,582,425 983,402 1,265,620 588,743 2,363,347 - - - - Parkland development programs 1,209,600 - - - 2,728,883 - - - - - Contingency fund - - - - - 519,885 - - - - Public art programs 347,400 - - - - - - - - - Assigned to: Contingency fund - - - - 900,000 900,000 900,000 900,000 900,000 900,000 Subsequent years expenditures 5,413,900 3,552,319 2,606,757 3,559,851 5,846,873 5,861,455 6,382,294 8,521,320 8,826,420 23,533,631 Unassigned (2,500) 1,039 (83) - - - (318,422) (149,162) (5,782) - Total all other governmental funds 15,352,400 21,353,232 22,476,959 20,498,689 26,059,944 23,891,661 26,619,850 38,352,263 44,290,522 59,780,682 Total all governmental funds 34,290,100$ 41,670,411$ 47,043,766$ 50,124,221$ 52,556,098$ 53,468,101$ 56,715,392$ 72,003,559$ 91,408,593$ 100,526,188$ Note: The City implemented GASB Statement No. 54 in the 2010-11 fiscal year which requires the City to use new designations of ending fund balances. 168 27 6 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Revenues: Sales and use - general 14,242,200$ 15,405,808$ 15,272,683$ 17,498,218$ 16,737,005$ 17,055,085$ 17,805,482$ 16,571,064$ 20,067,740$ 22,247,303$ Sales and Use - local transaction tax 6,493,800 6,774,365 7,136,297 7,178,159 7,331,660 7,504,485 8,325,230 7,554,375 12,779,713 29,172,258 Prop. 172 Public Safety tax 327,700 391,567 409,590 405,066 405,512 397,488 314,063 416,459 425,136 529,299 Property tax 9,176,600 8,960,010 9,631,890 10,186,858 10,756,477 11,425,510 12,238,357 12,913,661 13,727,986 14,166,259 Transient Occupancy 5,572,400 6,063,232 6,805,742 7,127,756 7,381,989 7,514,289 8,061,087 6,325,841 6,960,035 10,650,762 Utility users tax 4,916,100 5,345,342 5,211,207 5,413,720 5,539,407 5,627,356 4,919,892 5,439,144 5,225,979 5,338,325 Property tax in-lieu of VLF (Note 1)3,533,200 3,645,692 3,849,341 4,113,244 4,353,912 4,637,253 4,961,080 5,290,215 5,660,661 5,994,592 Franchise fees 2,552,300 2,636,599 2,790,077 1,537,922 1,557,128 1,597,655 1,428,296 1,888,414 1,796,829 1,978,295 Business tax 2,055,300 2,142,971 2,203,208 2,491,516 2,372,249 2,663,686 2,630,499 2,995,263 3,782,115 2,823,163 Cannabis tax - - - - - - - - - 998,875 Real property transfer 256,300 287,560 298,191 366,088 332,314 347,765 273,762 388,075 469,883 550,153 Fines, forfeitures and penalties 159,700 150,185 184,320 172,353 139,534 199,374 155,269 239,048 223,882 173,915 Use of money and property 237,100 566,931 467,348 825,760 260,169 164,434 1,996,382 2,005,968 219,507 (2,151,227) Vehicle License Fees (Note 1)19,300 - - - - - - - - - Subventions and grants 4,603,140 5,989,881 10,858,570 11,771,980 2,624,753 4,156,333 3,110,689 7,538,893 10,719,698 6,446,192 Charges for services 8,106,600 11,167,033 12,450,887 13,622,945 15,173,707 14,672,746 18,394,586 17,828,561 22,090,479 17,657,128 Other revenues 526,500 357,469 217,710 242,744 446,456 634,391 590,796 708,579 717,440 506,722 Total revenues 62,778,240 69,884,645 77,787,061 82,954,329 75,412,272 78,597,850 85,205,470 88,103,560 104,867,083 117,082,014 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years Modified accrual basis of accounting) 169 27 7 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years Modified accrual basis of accounting) Expenditures: Current: General Government 8,723,300$ 9,362,031$ 10,534,463$ 12,409,567$ 11,824,360$ 12,709,324$ 13,769,778$ 14,503,410$ 13,041,242$ 17,197,912$ Public safety 23,973,400 24,798,500 24,356,077 26,468,454 28,091,747 28,862,906 31,714,220 30,216,995 31,714,578 39,921,208 Transportation 2,798,200 2,882,241 2,969,111 3,317,177 3,780,804 3,565,022 3,495,909 3,710,943 4,450,572 5,131,132 Culture and recreation 6,790,300 7,155,619 7,250,398 7,428,198 7,712,834 8,571,184 8,636,582 8,416,687 9,458,448 10,440,543 Community development 7,777,400 8,389,957 10,047,272 10,770,827 10,300,894 10,815,667 10,677,334 10,477,062 11,101,465 15,067,518 Debt service: Principal 1,543,000 1,534,668 3,856,325 1,792,849 2,101,296 15,665,904 1,974,050 1,605,239 1,602,039 1,467,402 Interest 1,192,700 1,048,671 1,063,820 1,349,216 1,215,504 1,524,180 809,977 993,697 808,586 774,747 Capital: Public safety 457,700 892,351 2,371,865 1,220,759 1,772,454 506,491 706,918 182,235 107,965 248,613 Transportation 5,228,300 4,859,863 14,302,937 15,038,306 4,161,966 6,419,137 6,441,229 6,412,541 11,452,720 13,653,849 Leisure, cultural and social services 395,500 1,272,510 2,399,211 1,463,269 1,499,704 981,768 597,187 1,213,682 537,118 3,933,463 Community development (Note 2)70,900 939,017 123,258 149,537 2,078,181 525,105 1,568,147 785,517 105,142 601,315 General government 429,700 145,199 1,684,045 590,263 633,682 1,192,424 4,695,978 2,081,482 2,492,435 1,619,793 Total expenditures 59,380,400 63,280,627 80,958,782 81,998,422 75,173,426 91,339,112 85,087,309 80,599,490 86,872,310 110,057,495 Excess of revenues over(under) expenditures 3,397,840 6,604,018 (3,171,722) 955,907 238,846 (12,741,262) 118,161 7,504,070 17,994,773 7,024,519 170 27 8 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 4 City of San Luis Obispo, California Revenues, Expenditures and Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years Modified accrual basis of accounting) Other Financing Sources(Uses): Issuance of debt/refunding debt -$ 850,775$ 8,372,323$ 688,500$ 1,141,468$ 12,472,698$ 673,095$ -$ -$ -$ Cost of debt issuance (11,500) - - - - - - - - - Transfers in 8,407,600 13,834,998 11,682,079 12,747,578 15,739,036 19,815,144 9,064,256 9,455,785 15,460,955 35,273,279 Transfers out (8,292,500) (13,908,769) (12,011,531) (11,311,530) (14,687,473) (18,617,117) (6,608,221) (7,565,885) (13,468,044) (33,587,965) Total other financing sources(uses)103,600 777,004 8,042,871 2,124,548 2,193,031 13,670,725 3,129,130 1,889,900 1,992,911 1,685,314 Net change in fund balance 3,501,440$ 7,381,022$ 4,871,150$ 3,080,455$ 2,431,877$ 929,463$ 3,247,291$ 9,393,970$ 19,987,684$ 8,709,833$ Debt service as a percentage of noncapital expenditures 6.62%5.98%8.92%5.20%5.37%26.64%4.08%3.86%3.46%2.36% Notes: 1. Beginning in 2005-06 the State implemented a "VLF swap," under which an equal amount of Vehicle License Fees was "swapped" for an equal amount of revenues to be collected on the property tax roll. 2. Community Development Block Grant (CDBG) expenditures are included in the Community Development total for purposes of this schedule. 3. Prior to 2021-22, cannabis tax was included in business tax 171 27 9 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Staffing: Salaries and wages: Regular salaries 23,214,900$ 23,242,170$ 23,804,510$ 24,790,947$ 26,944,188$ 26,666,447$ 27,520,149$ 28,601,004$ 29,014,941$ 31,823,078$ Temporary salaries 1,812,700 2,191,214 2,137,487 1,964,521 1,793,360 1,711,755 1,898,331 1,882,307 2,294,603 1,855,690 Overtime 3,309,000 3,018,181 3,222,698 3,473,489 3,604,336 4,420,756 4,241,294 3,292,469 4,527,789 4,412,287 Benefits: Retirement 7,661,900 7,637,931 7,943,827 9,323,782 10,394,523 10,570,883 15,150,755 12,593,753 13,344,252 24,665,892 Group health/disability insurance 3,463,500 3,387,101 3,319,117 3,828,238 4,129,004 4,638,471 4,193,021 4,291,139 4,040,575 4,327,121 Medicare 384,400 393,913 408,889 418,704 455,966 469,688 477,925 481,571 505,450 537,516 Unemployment Reimbursements 28,800 31,634 48,588 5,159 150,929 61,972 - 61,240 101,575 17,484 Total staffing 39,875,200 39,902,144 40,885,116 43,804,840 47,472,306 48,539,972 53,481,475 51,203,483 53,829,185 67,639,069 Contract services 5,208,900 5,725,290 5,903,638 6,271,607 6,962,949 6,940,018 6,557,939 6,444,957 8,044,482 7,836,218 Other operating expenditures Communications & utilities 1,842,300 2,034,997 1,945,243 2,192,384 2,023,057 2,190,695 2,444,564 2,115,821 2,494,018 3,780,633 Rents & leases 139,600 197,104 159,718 164,729 170,288 171,909 180,478 160,045 88,615 168,585 Insurance: General liability & property 1,320,700 1,425,450 1,646,605 1,847,422 1,273,133 1,658,319 1,600,962 2,196,462 1,323,824 2,071,193 Workers compensation 918,000 1,405,916 1,631,585 2,019,722 1,627,423 2,145,046 2,422,843 2,611,827 2,037,611 2,181,044 Other operating expenditures 2,910,900 2,991,619 3,635,542 3,079,347 3,345,191 3,017,537 3,575,930 4,902,050 4,256,574 5,589,217 Total operating expenditures 7,131,500 8,055,086 9,018,693 9,303,604 8,439,092 9,183,506 10,224,777 11,986,205 10,200,642 13,790,672 Minor capital 99,400 195,473 78,414 92,853 203,098 90,346 - - 1,070 - Total program expenditures 52,315,000 53,877,993 55,885,861 59,472,903 63,077,445 64,753,842 70,264,191 69,634,645 72,075,379 89,265,958 Reimbursed expenditures (3,732,100) (3,897,420) (3,451,208) (4,008,992) (4,164,747) (4,264,633) (3,981,789) (4,277,664) (4,578,402) (4,717,442) Total general fund operating expenditures 48,582,900$ 49,980,573$ 52,434,653$ 55,463,911$ 58,912,698$ 60,489,209$ 66,282,402$ 65,356,981$ 67,496,977$ 84,548,516$ Schedule 5 City of San Luis Obispo, California General Fund Operating Expenditures by Type Last Ten Fiscal Years Modified Accrual Basis of Accounting) 172 28 0 D R A F T v 1 Fiscal Sales Local Property Transient Utility Property Franchise Business Other Year and Use Sales (Note 2) (Note 1) Occupancy Users in-lieu of VLF Fees Tax Taxes Total 2012-13 14,242,200$ 6,493,800$ 9,176,600$ 5,572,400$ 4,916,100$ 3,533,200$ 2,552,300$ 2,055,300$ 349,900$ 48,891,800$ 2013-14 15,405,808 6,774,365 8,960,010 6,063,232 5,345,692 3,645,692 2,636,599 2,142,971 679,127 51,653,496 2014-15 15,272,683 7,136,297 9,631,890 6,805,742 5,211,207 3,849,341 2,790,077 2,203,208 707,781 53,608,226 2015-16 17,498,218 7,178,159 10,186,858 7,127,756 5,413,720 4,113,244 1,537,922 2,491,516 771,154 56,318,547 2016-17 16,737,005 7,331,660 10,756,477 7,381,989 5,539,407 4,353,912 1,557,128 2,372,249 737,826 56,767,653 2017-18 17,055,085 7,504,485 11,425,510 7,514,289 5,627,356 4,637,253 1,597,655 2,663,686 745,253 58,770,572 2018-19 18,119,545 8,325,230 12,238,357 8,061,087 4,919,892 4,961,080 1,428,296 2,630,499 273,762 60,957,748 2019-20 16,571,064 7,554,375 12,913,661 6,325,841 5,439,144 5,290,215 1,888,414 2,995,263 388,075 59,366,052 2020-21 20,067,740 12,779,713 14,197,869 6,960,035 5,225,979 5,660,661 1,796,829 3,782,115 425,136 70,896,077 2021-22 22,247,303 29,172,258 14,716,412 10,650,762 5,338,325 5,994,592 1,978,295 2,823,163 998,875 93,919,985 Notes: 1. Property tax revenues are presented net of SB2557 County administrative fees (approximately 3% of total property tax revenues). The City has elected to receive its property tax revenues based on the Teeter Plan method of collection whereby the County remits 100% of taxes levied, pursues collection and retains any delinquent taxes and related penalties and interest. 2. In November 2014 voters in San Luis Obispo reauthorized the local half-percent sales and use tax measure (Measure G) . In November 2020 voters in San Luis Obispo replaced the local half-percent sales and use tax with a 1.5% local sales and use tax (Measure G-20). Accrual Basis of Accounting) Schedule 6 City of San Luis Obispo, California Governmental Activities Tax and Franchise Revenues by Source Last Ten Fiscal Years 173 28 1 D R A F T v 1 Fiscal Year Homeowners Secured Roll Nonunitary Unsecured Total Direct Market Value of Market Exemptions Gross Value Utilities Roll TOTAL Tax Rate (Note 1) Value 2012-13 41,572,300$ 5,963,182,500$ 5,382,272$ 279,203,900$ 6,261,931,900$ 1.00% 6,261,931,900$ 100% 2013-14 41,327,300 6,152,693,400 5,300,173 295,626,200 6,467,600,400 1.00% 6,467,600,400 100% 2014-15 41,185,200 6,512,370,260 5,032,204 297,325,321 6,814,727,785 1.00% 6,814,727,785 100% 2015-16 41,518,400 6,965,233,454 4,883,115 305,427,553 7,275,544,122 1.00% 7,275,544,122 100% 2016-17 42,109,709 7,393,890,993 5,269,573 303,122,262 7,702,282,828 1.00% 7,702,282,828 100% 2017-18 42,702,377 7,844,131,236 4,369,188 331,183,030 8,179,683,454 1.00% 8,179,683,454 100% 2018-19 43,352,906 8,688,541,007 4,231,993 359,588,899 9,052,361,899 1.00% 9,052,361,899 100% 2019-20 43,335,854 9,156,811,458 3,990,145 360,372,662 9,521,174,265 1.00% 9,521,174,265 100% 2020-21 43,445,185 9,872,892,242 4,194,503 371,969,399 10,249,056,144 1.00% 10,249,056,144 100% 2021-22 43,644,354 10,449,275,830 4,154,621 369,153,263 10,822,583,714 1.00% 10,822,583,714 100% Notes: 1. Valuations are established by the County Assessor of the County of San Luis Obispo, except for property owned by private utility companies, which is valued by the State of California. The City assumes that Market Values are equal to total Assessed Valuation. 2. For comparison purposes, gross assessed valuations include homeowners' exemptions. Although these exemptions reduce property tax collections, the revenue loss is reimbursed by the State of California. As such, gross assessed valuation is the revenue base used in establishing property tax-related revenues. Source: HdL, Coren & Cone ACFR 2021-22 report - 2021/22 Roll Summary table. Gross Assessed Valuation (Notes 1 and 2) Schedule 7 City of San Luis Obispo, California Assessed Value and Estimated Actual Value of Taxable Property Last Ten Fiscal Years 174 28 2 D R A F T v 1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Proposition 13 maximum tax rate (Note 2)1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 Voter approved indebtedness: State Water Bond 0.00400 0.00400 0.00400 0.00374 0.00400 0.00400 0.00400 0.00400 0.00400 0.00400 Cuesta Community College 2014 A & A1 0.01925 0.01925 0.01925 0.01925 0.01925 0.01925 0.01925 San Luis Coastal Usd 2014 Series A & B 0.04900 0.04900 0.04900 0.04900 0.04900 0.03900 0.03900 Total (Notes 1 and 3)1.00400 1.00400 1.00400 1.07199 1.07225 1.07225 1.07225 1.07225 1.06225 1.06225 Notes: 1. Property tax rates are levied per $100 of assessed valuation. The tax rate information provided is for Tax Rate Area 003-000, which is the largest tax rate area in the City. 2. The passage of Proposition 13 on June 6, 1978 established a maximum County-wide levy for general revenue purposes of 1% of market value. Voter-approved tax rates for the retirement of long-term liabilities were excluded from this limit. 3. It is not possible to identify tax rates for individual agencies however, the following is a summary of derived property tax allocations within Tax Rate Area 003-000 for Fiscal Year 2020-21 Source: HdL, Coren & Cone ACFR 2021-22 report - Direct & Overlapping Property Tax Rates table Base ERAF Net Rate Allocation Apportionment San Luis Coastal Unified School District 36.10 0.00 36.10 San Luis Obispo County - General Fund 30.32 (8.08)22.24 City of San Luis Obispo 18.36 *(3.48)14.88 San Luis Obispo Community College District 6.42 0.00 6.42 County School Services 3.81 0.00 3.81 City/County Library 1.98 (0.32)1.66 Port San Luis Harbor 1.63 (0.44)1.19 Other Agencies 1.38 (0.32)1.06 Education Revenue Augmentation Fund (ERAF)0.00 12.64 12.64 Total 100%0%100% The County further adjusts the 18.4% base rate for revenue shifts to school districts as directed by the State as part of their cuts to local agencies, resulting in an effective rate for the City of approximately 14.9%. Source: HdL, Coren & Cone ACFR 2021-22 report - Property Tax Dollar Breakdown, San Luis Obispo County Assessor 2021-22 Post ERAF TRA Allocation Factors Schedule 8 City of San Luis Obispo, California Property Tax Rates Last Ten Fiscal Years 175 28 3 D R A F T v 1 Number of Secured Percent of Total Number of Secured Percent of Total Owner Parcels Assessed Value Rank City Assessed Value Parcels Assessed Value Rank City Assessed Value Jamestown Premier San Luis Obispo Retail 10 114,335,307$ 1 1.13% 6 39,034,594$ 4 0.65% CAP VIII - Mustang Village LLC 5 98,067,585 2 0.97% Sierra Vista Hospital Inc.8 84,245,815 3 0.83% 7 74,813,684 1 1.25% Charles Pasquini Jr Trust Et Al 8 71,913,177 4 0.71% 9 58,431,143 2 0.98% San Luis Obispo Promenade DE LLC 10 71,033,371 5 0.70% Irish Hills Plaza East LLC 6 52,170,496 6 0.51% Hotel San Luis Obispo LLC 1 36,793,953 7 0.36% Costco Wholesale Corporation 1 37,514,208 8 0.37% 1 32,579,819 7 0.55% Avila Ranch Developers 2 34,121,707 9 0.34% BRE Atlas Property Owner LLC 1 34,078,042 10 0.34% CSHV Mustang Village LLC 3 50,915,983 3 0.85% Irish Hills Plaza West LLC 6 38,981,753 5 0.65% JM Wilson Promenade Properties II LLC 10 32,700,000 6 0.55% Target Corporation 1 25,963,966 8 0.43% Mustang-UCAL LLC 1 25,883,874 9 0.43% Marigold Center LLC 9 25,647,889 10 0.43% Total 52 634,273,661$ 6.26% 53 404,952,705$ 6.77% Source: HdL, Coren & Cone ACFR 2021-22 and 2012-13 reports - Top Ten Property Taxpayers table. Schedule 9 City of San Luis Obispo, California Principal Property Tax Payers Current Year and Nine Years Ago 2021-22 2012-13 176 28 4 D R A F T v 1 Total Secured Current Year Percent Fiscal Tax Levy Current Year Percent Delinquencies Delinquent Year (Notes 1 and 2)Collections Collected (Note 3)(Note 3) 2011-12 8,269,300$ 8,269,300$ 100%0 0 2012-13 8,151,000 8,151,000 100%0 0 2013-14 8,601,630 8,601,630 100%0 0 2014-15 9,097,280 9,097,280 100%0 0 2015-16 9,707,340 9,707,340 100%0 0 2016-17 10,250,205 10,250,205 100%0 0 2017-18 10,868,920 10,868,920 100%0 0 2018-19 11,648,706 11,648,706 100%0 0 2019-20 12,180,662 12,180,662 100%0 0 2020-21 12,957,910 12,957,910 100%0 0 2021-22 13,628,729 13,628,729 100%0 0 Notes: 1. The secured property tax roll is composed of ad valorem taxes as well as special assessments, and is calculated by the San Luis Obispo County Auditor-Controller. The San Luis Obispo County Tax Collector is responsible for all property tax roll collections within the City of San Luis Obispo. The amount reported is before the SB2557 County administrative fees of approximately 3% of total property tax revenues. 2. The secured levy does not include supplemental assessments, unsecured tax revenues, or prior year adjustments, which can be significant. For example, in 2012-13 revenue to the City from supplemental assessments was $99,500 and $215,100 from unsecured. A one-time refund was received from the County Auditor-Controller, refunding $632,800 representing prior overcharges for the SB2557 fee. Property tax revenues totaled $8,740,762. 3. The City has elected the Teeter Plan method of property tax collection, whereby the County remits 100% of taxes levied and pursues collection and retains any delinquent taxes and related penalties and interest. Source: San Luis Obispo County Auditor-Controller - 2021-22 Property Tax Estimates and Delinquencies Report Schedule 10 City of San Luis Obispo, California Secured Property Tax Roll Levies and Collections Last Ten Fiscal Years 177 28 5 D R A F T v 1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sales In Thousands of Dollars Apparel stores 71,723$ 73,170$ 73,241$ 75,037$ 72,522$ 74,300$ 72,735$ 71,058$ 50,586$ 73,407$ General merchandise stores 171,667 173,940 179,551 182,530 179,478 182,184 179,353 181,492 173,776 203,468 Food and drug stores 39,704 40,638 41,985 43,799 43,473 46,065 47,138 48,805 49,999 49,169 Eating & drinking palces 142,844 147,953 159,828 172,341 178,362 184,366 184,909 188,430 138,499 198,831 Building materials & farm tools 111,633 126,123 133,143 140,258 142,370 159,569 162,295 163,186 165,484 179,518 Auto dealers & supplies 227,510 269,602 287,880 304,905 306,812 319,977 323,272 322,174 325,247 403,977 Service stations 107,588 103,094 101,510 88,116 78,033 83,481 94,320 95,367 67,374 99,609 Other retail stores 263,571 262,668 267,764 277,591 282,844 278,792 279,760 263,986 243,728 302,445 Total retail stores 1,136,240 1,197,188 1,244,902 1,284,577 1,283,894 1,328,734 1,343,782 1,334,498 1,214,693 1,510,424 All other outlets 278,271 293,532 311,225 359,242 363,023 372,575 431,884 421,068 513,322 653,595 Total 1,414,511 1,490,720 1,556,127 1,643,819 1,646,917 1,701,309 1,775,666 1,755,566 1,728,015 2,164,019 Source: HdL, Coren & Cone ACFR 2021-22 report - Taxable Sales by Category table Schedule 11 City of San Luis Obispo, California Schedule of Taxable Sales and Permits by Category Last Ten Calendar Years 178 28 6 D R A F T v 1 Effective End State Local City LRM Combined Date Date Jurisdiction Transportation Fund Rate (Note 4 & 6)Rate 8/1/1933 6/30/1935 (Note 2)2.50%2.50% 7/1/1935 6/30/1943 3.00%3.00% 7/1/1943 6/30/1949 2.50%2.50% 7/1/1949 12/31/1961 3.00%3.00% 1/1/1962 7/31/1967 3.00%1.00%4.00% 8/1/1967 6/30/1972 4.00%1.00%5.00% 7/1/1972 6/30/1973 3.75%0.25%1.00%5.00% 7/1/1973 9/30/1973 4.75%0.25%1.00%6.00% 10/1/1973 3/31/1974 3.75%0.25%1.00%5.00% 4/1/1974 11/30/1989 4.75%0.25%1.00%6.00% 12/1/1989 12/31/1990 5.00%0.25%1.00%6.25% 1/1/1991 7/14/1991 4.75%0.25%1.00%6.00% 7/15/1991 12/31/2000 6.00%0.25%1.00%7.25% 1/1/2001 12/31/2001 5.75%0.25%1.00%7.00% 1/1/2002 6/30/2004 6.00%0.25%1.00%7.25% 7/1/2004 3/31/2007 (Note 3)6.25%0.25%0.75% (Note 3)7.25% 4/1/2007 3/31/2009 6.25%0.25%0.75%0.50% 7.75% 4/1/2009 6/30/2011 7.25%0.25%0.75%0.50% 8.75% 7/1/2011 12/31/2012 6.25%0.25%0.75%0.50% 7.75% 1/1/2013 12/31/2016 6.50%0.25%0.75% (Note 5) 0.50% 8.00% 1/1/2017 3/31/2021 6.00%0.25%1.00%0.50% 7.75% 4/1/2021 current 6.00%0.25%1.00% (Note 6) 1.50% 8.75% Notes: 1. The Bradley-Burns Uniform Local Sales and Use Tax Law was enacted in 1955. The law authorizes cities and counties to impose a sales and use tax. Effective January 1, 1962, all cities and counties have adopted ordinances for the State Board of Equalization to collect the local tax. 2. Sales tax only. The use tax was enacted effective July 1, 1935. 3. In March 2004, a State ballot measure was passed issuing deficit reduction bonds for State purposes. Funding was provided effective July 1, 2004 by repealing 25% of the local 1% sales tax and then adopting a new 1/4-cent sales tax dedicated to repayment of the deficit reduction bonds. Cities and counties would then be "made whole" by the State from increased property tax allocations via reduced contributions to ERAF. This "triple flip" is theoretically revenue-neutral, and as such, the effective rate for revenue purposes remains at 1%. 4. In November 2006, voters in San Luis Obispo approved a local revenue measure (LRM) increasing the City tax rate by 1/2%, which became effective April 1, 2007. The sales tax measure has a sunset provision of 8 years. The local Sales Tax was extended as Measure G in the November 2014 election for 8 years. 5. Proposition 30, The Schools and Local Public Safety Protection Act of 2012 , was approved by California voters in November 2012 to temporarily increase the sales and use tax by 0.25%. The sales and use tax imposed by Proposition 30 expired December 31, 2016. 6. In November 2020, voters in San Luis Obispo approved a local revenue measure (LRM) increasing the local sales tax to 1.5% with an effective date of April 1, 2021. The local sales tax measure has no sunset provision and replaced the 2014 Measure G. Source: State Board of Equalization, State of California Schedule 12 City of San Luis Obispo, California Historical Sales and Use Tax Rates 179 287 DRAFT**v1 No. of No. of Certificates Percent Certificates Percent Construction 897 10.7%888 12.0% Manufacturing 129 1.5%128 1.7% Transportation/Utilities 49 0.6%45 0.6% Wholesale 126 1.5%122 1.7% Retail 1167 13.9%941 12.7% Professional 1,185 14.2% 1,074 14.5% Residential Rental 2,694 32.2% 2,097 28.4% Commercial Rental 303 3.6%300 4.1% Services 1,821 21.8% 1,787 24.2% Total business certificates issued 8,371 100% 7,382 100% Home occupations 667 8.0%661 9.0% Located outside City limits 1,932 23.1% 1,767 23.9% Located in Downtown Business Improvement District 553 6.6%546 7.4% Source: City of San Luis Obispo Finance Department - Revenue Division Fiscal Years Ended June 30, 2022 and 2021 Schedule of Business Tax Certificates Issued City of San Luis Obispo, California Schedule 13 20212022 180 288 DRAFT**v1 Percentage of Fiscal Lease Purchase Lease Lease Purchase Installment Total Primary Per Gross Assessed Year Bonds Financing Loans Liability Bonds Financing Sales Agreement Loans Government Capita Value 2012-13 23,574,900$ 823,400$ 2,025,100$ -$ 28,625,150$ -$ 1,620,000$ 20,309,200$ 76,977,750$ 1,690$ 1.23% 2013-14 22,152,010 711,622 850,775 - 27,083,025 - 8,979,000 19,446,784 79,223,216 1,742 1.27% 2014-15 28,556,715 1,127,606 766,092 - 25,983,320 - 8,481,043 18,559,851 83,474,627 1,836 1.28% 2015-16 27,762,893 1,374,773 679,314 - 25,323,405 - 7,932,327 17,647,622 80,720,334 1,741 1.16% 2016-17 26,328,540 1,898,652 591,647 - 24,072,708 - 7,366,468 16,709,160 76,967,175 1,660 0.99% 2017-18 23,484,450 1,599,769 503,101 - 21,815,204 - 6,783,114 15,743,808 69,929,446 1,497 0.91% 2018-19 22,171,441 1,413,937 413,667 - 19,542,657 - 6,181,902 14,750,783 64,474,387 1,385 0.79% 2019-20 21,084,777 1,381,486 323,380 - 18,185,089 - 5,562,462 26,133,837 72,671,031 1,583 0.76% 2020-21 20,038,779 734,673 232,111 - 16,772,171 - 4,919,407 56,229,546 98,926,687 2,102 0.97% 2021-22 18,954,856 390,420 139,961 125,003 15,307,178 - 4,257,343 99,918,648 139,093,409 2,919 1.29% Source: City of San Luis Obispo Finance Department Schedule 14 City of San Luis Obispo, California Per Capita Outstanding Debt By Type Last Ten Fiscal Years Business-TypeActivitiesGovernmentalActivities 181 28 9 D R A F T v 1 Service Ratio of Net Total Taxable General Payable from Net Bonded Debt Net Bonded Assessed Bonded Enterprise Bonded to Assessed Debt per Fiscal Year Population Value Debt Revenues Debt Value Capita 2012-13 45,541 6,261,931,900$ 0 0 0 0.0%0 2013-14 45,473 6,467,600,400 0 0 0 0.0%0 2014-15 45,484 6,814,727,785 0 0 0 0.0%0 2015-16 46,117 7,275,544,122 0 0 0 0.0%0 2016-17 46,724 7,702,282,828 0 0 0 0.0%0 2017-18 46,548 8,179,683,454 0 0 0 0.0%0 2018-19 46,802 9,052,361,899 0 0 0 0.0%0 2019-20 45,920 9,521,174,265 0 0 0 0.0%0 2020-21 47,063 10,249,056,144 0 0 0 0.0%0 2021-22 47,653 10,822,583,714 0 0 0 0.0%0 Notes: 1. Valuations are established by the County Assessor of the County of San Luis Obispo, except for property owned by private utility companies, which is valued by the State of California. 2. See Schedule of Demographic and Economic Statistics for population data. 3. Personal income information is not available. Net Bonded Debt is expressed as a ratio to Assessed Value. Source: HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table Demographics changed from FY to Calendar Year Schedule 15 City of San Luis Obispo, California Ratio of Net General Bonded Debt to Assessed Value and Net Bonded Debt per Capital Last Ten Fiscal Years 182 29 0 D R A F T v 1 Amount Applicable Percent Applicable to the City of to the City of San Luis Obispo San Luis Obispo (1)as of June 30, 2022 Direct long-term debt: City of San Luis Obispo 2018 Water Revenue Refunding Bonds 100.000% 8,330,000$ City of San Luis Obispo 2012 Refunding Revenue Bonds (2001) 100.000% 2,700,000 City of San Luis Obispo 2012 Water Revenue Refunding Bonds (2002) 100.000% 550,000 City of San Luis Obispo 2014 LOVR Lease Revenue Bonds 100.000% 6,460,000 City of San Luis Obispo 2018 Lease Revenue Bonds 100.000% 8,659,100 City of San Luis Obispo Lease liability 100.000%125,003 City of San Luis Obispo Lease-purchase financing 100.000%390,420 City of San Luis Obispo energy conservation loan 100.000%139,961 City of San Luis Obispo Unamortized bond premium 100.000%1,135,756 28,490,240 Overlapping long-term debt (percentage of overlapping agency's assessed valuation located within boundaries of the City): San Luis Obispo County General Fund Obligations 16.720%3,744,646 San Luis Obispo County Pension Obligations 16.720%4,989,768 City of San Luis Obispo Lease Revenue Bonds 100.000%24,251,532 32,985,946 Less: City of San Luis Obispo obligations supported by enterprise revenues 4,495,706 Total gross direct and overlapping long-term debt 28,490,240 Less self-supporting issues: City of San Luis Obispo 2018 Water Revenue Refunding Bonds 8,330,000 City of San Luis Obispo 2012 Water Revenue Refunding Bonds (2002) 550,000 Total self-supporting issues 8,880,000 Net direct and overlapping long-term debt 19,610,240$ Ratio of long-term debt to assessed valuation and population Gross Assessed Valuation 9,521,174,265$ Population 47,063 Percent of Gross Per Capita Amount Assessed Valuation Long-Term Debt Direct and Overlapping Debt: Gross $28,490,240 0.3%$605.36 Net 19,610,240 0.2%417 Direct Debt: Gross $28,490,240 0.3%$605.36 Net 19,610,240 0.2%417 Source: California Municipal Statistics, Inc., HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table Schedule 16 City of San Luis Obispo, California Direct and Overlapping Long-Term Debt Fiscal Year Ended June 30, 2022 1) The percentage of overlapping debt applicable to the city is estimated using taxable assessed property value. Applicable percentages were estimated by determining the portion of the overlapping district's assessed value that is within the boundaries of the city divided by the district's total taxable assessed value. 183 291 DRAFT**v1 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Legal debt limit 234,822$ 241,812$ 244,175$ 272,833$ 288,836$ 306,738$ 339,464$ 357,044$ 384,339$ 405,847$ Total debt applicable to limit Legal debt margin 234,822 241,812 244,175 272,833 288,836 306,738 339,464 357,044 384,339 405,847 Total debt applicable to the limit as a percentage of debt limit 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%0.00%0.00%0.00%0.00% Legal Debt Margin Calculation for Fiscal Year 2020-21 Gross Assessed Valuation 10,822,583,714$ Legal Debt Limit - 3.75% of Gross Assessed Valuation 405,846,889$ Long-term Debt: Revenue Bonds Secured by Capital Leases 22,380,000$ Water Revenue Bonds 8,880,000 31,260,000 Less deductions allowed by law: Revenue Bonds Secured by Capital Leases 22,380,000 Water Revenue Bonds 8,880,000 31,260,000 Total debt applicable to computed limit $0 Legal debt margin 405,846,889$ Note: The California Government Code provides for a legal debt limit of 15% of gross assessed valuation based on 25% of market value, or a legal debt limit of 3.75%. The City's debt management policy, however, sets a more restrictive debt limit of 2% of assessed valuation. Schedule 17 City of San Luis Obispo, California Computation of Legal Debt Margin Last Ten Fiscal Years Amounts Expressed in Thousands) 184 29 2 D R A F T v 1 Less Operating & Net Revenue Coverage Fiscal Operating Development Other Maintenance Available for With Year Revenues Impact Fees Revenues Expenses Bond Debt Service Principal Interest Total Coverage Impact Fees 2012-13 18,250,700$ (1,578,100)$ 97,500$ (13,353,300)$ 3,416,800$ 1,096,215$ 995,419$ 2,091,634$ 163% 239% 2013-14 19,676,199 (819,477) 215,915 (13,996,427)5,076,210 1,160,700 964,148 2,124,848 239% 277% 2014-15 20,552,417 (2,471,501) 59,594 (13,451,298)4,689,212 1,285,686 906,775 2,192,461 214% 327% 2015-16 20,137,422 (1,543,268) 53,731 (14,056,603)4,591,282 1,245,486 881,318 2,126,804 216% 288% 2016-17 19,873,517 (1,266,674) 410,484 (14,754,114)4,263,213 1,290,748 837,657 2,128,405 200% 260% 2017-18 21,997,054 (2,131,345) 325,268 (16,250,751)3,940,226 1,336,267 792,337 2,128,604 185% 285% 2018-19 23,992,758 (3,745,666) 948,324 (15,995,459)5,199,957 2,281,739 858,471 3,140,210 166% 285% 2019-20 25,666,777 (3,723,460) 663,838 (19,485,472)3,121,683 1,367,920 637,348 2,005,268 156% 341% 2020-21 28,340,076 (4,744,361) 65,386 (17,765,625)5,895,476 960,390 527,682 1,488,072 396% 715% 2021-22 29,671,678 (5,160,020) 222,451 (17,296,355)7,437,754 1,001,055 489,266 1,490,321 499% 845% Notes: 2. The City refinanced its 2005 Refunding Lease Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds into the 2018 Lease Revenue Bonds. 4. Net revenues available for debt service exclude development impact fees. 5. Operating expenses exclude depreciation and amortization. Source: City of San Luis Obispo Utilities Department City of San Luis Obispo, California Schedule 18 3. Principal and interest amounts do not include the subordinate private placement loan retired in 2013. Bonded Debt Service Requirements 1. Debt service requirements include 2012 Refunding Revenue Bonds and 2018 Refunding Revenue Bonds Last Ten Fiscal Years Revenue Bond Coverage - Water Fund 185 29 3 D R A F T v 1 Net Revenue Fiscal Gross Operating Available for Year Revenues Expenses Bond Debt Service Principal Interest Total Coverage 2012-13 4,726,000$ (2,440,600)$ 2,285,400$ 663,500$ 386,000$ 1,049,500$ 218% 2013-14 4,122,860 (2,488,797) 1,634,063 690,600 361,822 1,052,422 155% 2014-15 4,905,494 (2,409,027) 2,496,467 447,962 504,407 952,369 262% 2015-16 4,606,249 (2,757,299) 1,848,950 466,185 501,631 967,816 191% 2016-17 4,659,562 (2,671,028) 1,988,534 481,981 487,407 969,388 205% 2017-18 6,651,038 (2,998,555) 3,652,483 498,058 469,314 967,372 378% 2018-19 5,443,038 (3,100,113) 2,342,925 381,250 226,931 608,181 385% 2019-20 3,840,059 (3,080,588) 759,471 237,900 201,866 439,766 173% 2020-21 2,768,419 (3,093,183) (324,764) 247,050 192,350 439,400 -74% 2021-22 4,890,317 (3,552,603) 1,337,714 257,725 182,468 440,193 304% Notes: 1. In 1994 the Capital Improvement Lease Revenue Bonds were refinanced resulting in new debt of $11,780,000, of which $7,421,400 is designated for the Parking Fund. In 2004 the 1994 bonds were refinanced with a maturity date of 2014. In 2006 Lease Revenue Bonds were issued resulting in new debt of $16,160,000, of which $8,726,400 is allocated to the Parking Fund. 3. Operating expenses exclude depreciation. Source: City of San Luis Obispo Finance Department. 2. The City refinanced its 2005 Refunding Lease Revenue Bonds, 2006 Lease Revenue Bonds, and 2009 Lease Revenue Bonds into the 2018 Lease Revenue Bonds. Resulting in new debt of $16,905,000, of which $5,156,025 is allocated to the Parking Fund. Bonded Debt Service Requirements Schedule 19 City of San Luis Obispo, California Revenue Bond Coverage - Parking Fund Last Ten Fiscal Years 186 29 4 D R A F T v 1 Personal Public Elementary and Cuesta College Calendar Income Median Secondary School Full Time Enrollment Unemployment Year Population (1) in 000's (2) Age (2) Enrollment (3)SLO Campus (4) Rate (2) 2012 45,541 1,163$ 24.5 7,368 5,651 6.7% 2013 45,473 1,242 25.3 7,366 5,751 5.7% 2014 45,484 1,191 25.0 7,636 5,116 5.9% 2015 46,117 1,211 25.0 7,638 5,402 4.9% 2016 46,724 1,270 25.4 7,718 4,757 4.5% 2017 46,548 1,300 26.1 7,755 4,988 3.2% 2018 46,802 1,398 26.5 7,813 4,515 2.5% 2019 45,920 1,505 26.2 7,801 4,627 2.4% 2020 47,063 1,625 26.7 7,491 1,114 7.7% 2021 47,653 1,717 26.7 7,537 2,174 5.0% Sources: 1. Beginning in 2020, population data source is US Census 2. HdL, Coren & Cone ACFR 2021-22 report - Demographic and Economic Statistics table 3. CA Dept of Education DataQuest: Enrollment Reports for San Luis Coastal Unified, by Academic Year start date Post Term FTES Dashboard, 320 Year Reported by academic year start date Schedule 20 City of San Luis Obispo, California Demographic and Economic Statistics For The Last Ten Calendar Years 187 29 5 D R A F T v 1 Percentage Percentage Number of Total City Number of Total City Employer Employees Rank Employment Employees Rank Employment Cal Poly State University 3,100 1 12.45%3,145 1 11.00% County of San Luis Obispo 2,920 2 11.73%2,800 2 9.79% Dept. of State Hospitals - Atascadero 2,140 3 8.59% Pacific Gas & Electric Company 1,950 4 7.83%1,700 4 5.94% California Men's Colony 1,500 5 6.02%2,000 3 6.99% Tenet Health Central Coast 1,305 6 5.24% Compass Health 1,200 7 4.82% San Luis Coastal Unified School District 1,200 8 4.82%902 6 3.15% Dignity Health Central Coast 1,000 9 4.02% Lucia Mar Unified School District 1,000 10 4.02% Cal Poly Foundation (Corporation)1,400 5 4.90% Mindbody 544 7 1.90% Rabobank California Department or Transportation 500 8 1.75% Cuesta Community College 439 9 1.53% Community Action Partnership 400 10 1.40% Total 17,315 69.54%13,830 48.35% Source for the 2021-22 employers information is Pacific Business Times Top Employers of San Luis Obispo County List. 2012-13 data is from the City's ACFR. Schedule 21 City of San Luis Obispo, California Principal Employers Current Year and Nine Years Ago 2021-22 2012-13 188 296 DRAFT**v1 Function 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Public Safety Police Sworn 57.0 60.0 60.0 61.0 61.0 61.5 61.5 64.5 65.0 64.0 Non-sworn 25.5 25.5 25.5 25.5 25.5 24.0 24.0 24.0 25.5 27.0 Fire Sworn 44.0 49.0 49.0 50.0 47.0 47.0 47.0 47.0 47.0 47.0 Non-sworn 6.8 4.0 4.0 4.0 10.0 10.0 10.0 10.0 9.5 10.5 Public Utilities 61.9 64.8 64.8 67.1 69.1 69.1 69.1 69.1 69.9 70.6 Transportation 31.8 28.9 28.9 36.8 36.8 36.8 36.8 36.8 37.1 43.3 Culture and recreation 32.0 34.0 34.0 35.0 35.0 35.0 35.0 34.0 33.0 43.0 Community Development 43.8 39.5 40.0 51.0 51.0 47.4 47.9 47.5 47.5 54.5 General Government 52.2 56.0 56.0 57.0 61.0 61.0 62.3 64.8 72.3 87.8 Total 355.0 361.7 362.2 387.4 396.4 391.8 393.6 397.7 406.8 447.7 Ratio of Sworn Police Personnel per 1,000 Population:* 1.25 1.32 1.32 1.33 1.31 1.34 1.31 1.34 1.34 1.34 Ratio of Sworn Fire Personnel per 1,000 Population:* 0.97 1.08 1.08 1.06 1.01 0.99 1.00 1.02 0.99 0.99 Does not include the Cal Poly student and faculty population served. Note: See Schedule of Demographic and Economic Statistics for population data. Source: City of San Luis Obispo Finance Department Schedule 22 City of San Luis Obispo, California Regular Authorized Positions Last Ten Fiscal Years 189 29 7 D R A F T v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Function/Program: Police: Calls for police/fire service 32,074 34,751 36,236 34,659 36,515 38,300 39,620 39,103 37,825 37,335 40,907 44,183 Incident numbers issued 27,595 29,991 31,156 29,277 31,048 32,542 33,360 32,730 31,471 31,472 35,695 38,290 Police reports written 7,661 8,322 9,192 8,665 8,435 8,852 8,675 7,735 6,999 6,297 5,852 6,637 Violations cited 5,939 8,119 7,213 5,793 6,648 7,673 7,649 7,524 5,874 4,020 3,445 3,735 Citations issued 5,380 7,718 6,665 5,275 6,204 7,038 7,030 6,752 5,287 3,660 3,056 3,349 Collision reports 728 669 643 625 630 587 608 609 623 481 419 483 Violent crimes:*126 134 117 158 237 173 177 178 191 187 201 225 Willful homicide*2 1 000001012 Forcible rape*27 24 18 31 44 29 38 44 55 39 37 25 Robbery*35 34 19 26 25 13 21 23 33 34 24 33 Aggravated assault*64 74 79 101 168 131 118 111 103 114 139 165 Property crimes:*640 714 804 713 542 637 731 644 728 728 793 885 Burglary**372 330 414 328 206 225 251 172 244 277 284 272 Motor vehicle theft*54 107 81 63 71 87 95 94 74 74 117 174 Larceny-theft:*1,260 1,345 1,476 1,384 1,162 1,335 1,730 1,516 1,493 1,387 1,219 1,398 Over $400*214 277 309 322 265 325 385 378 410 377 392 439 400 and under*1,046 1,068 1,167 1,062 897 1,010 1,345 1,138 1,083 1,010 827 959 Fire: Medical responses (Note 1)2,799 2,856 2,985 3,232 3,417 3,540 4,538 4,248 3,715 3,884 3,544 3,857 Fire suppression responses (Note 1)101 102 95 105 111 151 143 163 122 127 133 136 Hazardous materials responses (Note 1 and 3)23 17 21 15 21 22 21 17 25 29 98 133 Other responses (Note 1)1,528 1,552 1,812 1,840 1,929 2,158 1,799 1,785 2,100 2,140 1,745 2,097 Total service responses 4,451 4,527 4,913 5,192 5,478 5,871 6,501 6,213 5,962 6,180 5,520 6,223 Fire Suppression Training Hours 9,150 7,602 9,061 8,782 8,149 6,714 6,348 7,719 8,410 10,835 11,033 16,015 Fire and life-safety inspections (Note 4)2,489 2,431 2,494 644 2,476 2,516 3,756 3,738 2,002 3,128 1,871 2,092 Arson investigations (Note 2)22 18 49 44 17 44 8 12 24 21 13 5 Education activities (# of people)20,106 23,120 23,377 23,945 23,697 23,680 23,575 23,540 2,690 2,700 2,031 2,000 Public Utilities: Water/Sewer customer accounts 14,734 14,695 14,742 14,899 14,953 15,167 15,188 15,505 15,555 15,672 15,958 16,256 Miles of sewerline 137 137 137 137 137.6 137.6 138 143 143 146 148 148 Miles of waterline 185 185 187 187 *187 191 197 187 190 191 191 191 Water service line repairs and renewals (incl. recycled water)86 50 66 58 60 50 50 57 38 48 35 47 Sewer main stoppages 9 7 12 15 13 11 4 10 8 11 14 Acre feet of water delivered - Nacimiento 981 2,321 663 1506 839 3574 3817 3753 3484 1470 2449 4460 Acre feet of water delivered - Salinas 2,640 2,149 2,378 1,444 1,986 8 273 853 790 2,165 1,337 650 Acre feet of water delivered - Whale Rock 1,277 2,875 3,212 2,615 1,375 949 924 800 1,556 1,641 399 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years 190 29 8 D R A F T v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years Transportation: Signals and lights: Intersections with traffic signals 67 70 68 70 70 70 70 70 72 73 Traffic signal service requests 80 85 80 85 90 60 71 59 93 145 Streetlights operated & maintained 2,230 2,300 2,300 2,300 2,300 2,280 2,280 2,280 2,400 2,477 Streetlight service requests 500 180 175 45 50 13 8 11 33 47 Roadways: Estimated miles of paved streets 130 132 132 133 133 133 133 134 197 134 137 135 Pavement condition index 74 72 71 72 72 71 71 70 73 70 73 70 Traffic collisions 597 621 593 660 720 531 482 501 431 441 259 361 Parking spaces provided (lot, garage & street)3,067 3,065 3,071 3,119 3,176 2,953 2,892 2,871 2,865 2,865 2,765 2,817 Parking citations written 30,278 26,515 28,690 23,957 20,690 24,213 23,348 21,647 24,415 21,240 17,748 39,254 Total transit passengers 1,045,299 1,118,519 1,109,600 1,122,000 1,099,274 1,209,708 1,131,716 945,288 981,995 715,380 179,456 528,000 Leisure, Cultural and Social Services (Note 5): Open space acres maintained 3,420 3,510 3,510 3,510 3,510 3,510 3,510 3,775 4,040 4,040 4,040 4,040 Open space easement acres 161 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,500 3,500 3,500 3,500 Trail mileage 40 45 47 49 49 52 52 55 55 56 62 65 Total golf rounds played 32,228 34,699 33,067 34,766 33,674 30,572 28,196 35,670 24,662 16,428 24,222 17,991 Acres of park landscape maintained 157 157 157 157 157 157 157 500 570 530 106 106 City Maintained Trees 18,700 18,700 18,700 18,700 19,000 20,000 20,000 20,000 20,000 20,000 12,970 12,970 Children's services program enrollment totals 1,664 1,755 1,605 2,338 2,360 2,115 2,115 1,950 2,050 1,775 1,483 1,611 Annual Senior Center Membership 14,500 265 331 350 315 192 248 Facility permits processed 1,806 1,803 1,269 1,416 836 1,305 1,073 864 909 650 298 455 Annual aquatics attendance (total)56,676 56,042 67,000 73,903 83,107 68,403 96,687 97,701 87,690 55,202 51,235 62,224 Adult athletic teams registered 245 320 325 338 320 325 325 362 292 184 112 168 Youth athletic participants registered 1,320 1,400 1,300 1,200 1,350 1,300 1,150 1,115 1,140 618 611 1,083 Special event applications processed 68 78 84 103 103 77 101 88 95 40 2 37 Banner permits processed 72 86 76 82 47 87 56 45 81 78 48 26 Instructional class enrollments 1,628 1,400 1,308 1,424 1,751 1,151 1,724 1,439 1,118 595 626 1,212 191 29 9 D R A F T v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years Community Development (Note 6): Housing characteristics: Single family units (annually cumulative)10,951 10,969 10,994 11,133 11,230 11,306 11,413 11,510 11,693 11,853 12,072 2-4 units (annually cumulative)2,634 2,650 2,656 2,692 2,695 2,789 2,851 2,865 2,869 2,888 2,928 5 or more unit structures (annually cumulative)5,596 5,596 5,647 5,767 5,804 6,038 6,097 6,148 6,209 6,309 6,524 Mobile homes (annually cumulative)1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,482 1,483 1,483 1,483 Total (annually cumulative)20,578 20,663 20,697 20,779 21,074 21,211 21,615 21,843 22,005 22,254 22,533 23,007 Building permits issued (Note 7):442 463 566 511 597 584 584 623 Residential: Single family residential incl. condos 7 13 48 59 114 97 62 125 159 171 253 202 Multi-family residential (includes second units & ADUs)3 10 6 8 32 5 13 18 19 17 33 16 Non-residential 7 5 7 9 27 13 14 10 15 12 2 3 Additions, alterations, demolitions 499 459 530 458 460 522 545 502 381 510 371 366 Other improvements (motel rooms)1 Total 516 487 591 534 633 637 634 655 575 710 659 587 Approximate value of building permits (in thousands) Residential: Single family residential 6,085$ 3,278$ 15,698$ 15,412$ 36,722$ 26,441$ 15,024$ 19,707$ 24,300$ 28,026$ 50,758$ 35,824$ Multi-family residential 926$ 3,847$ 1,560$ 6,744$ 26,499$ 13,500$ 8,172$ 17,249$ 21,162$ 33,606$ 10,545$ 56,085$ Non-residential 16,608$ 5,142$ 1,935$ 15,310$ 9,791$ 11,484$ 51,110$ 6,248$ 20,430$ 16,981$ 17,475$ 22,665$ Other permits: Additions, alternations, demolitions (incl. swimming pools)15,948$ 16,589$ 20,761$ 19,139$ 22,897$ 30,230$ 27,711$ 14,928$ 34,596$ 60,812$ 78,780$ 29,207$ Total 39,567$ 28,856$ 39,954$ 56,605$ 95,909$ 81,655$ 102,017$ 58,132$ 100,488$ 139,425$ 157,558$ 143,783$ Building inspections conducted 10,210 13,685 10,543 8,996 6,641 7,195 10,745 9,974 7,537 8,670 7,959 10,470 Home occupation permits processed/applied for 126 117 142 129 113 163 144 112 112 131 133 140 Development permit applications received 172 148 217 311 293 253 236 215 215 338 269 282 192 30 0 D R A F T v 1 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 Schedule 23 City of San Luis Obispo, California Operating Indicators and Capital Asset Statistics by Function Last Ten Fiscal Years General Government: Business tax certificates issued: Located outside City limits 1,569 1,670 1,670 1,472 1,602 2,018 1,699 1,872 1,948 1,839 1,913 1,932 Total certificates issued 6,873 7,086 7,086 6,934 7,805 7,597 8,118 8,230 8,205 7,675 7,732 8,371 Citywide recruitments (total)42 59 91 105 129 103 103 97 99 86 90 155 Fleet vehicles maintained City-wide fleet & equipment assets 290 290 290 290 300 318 323 339 338 340 345 347 Replaces prior category Telephone lines managed 1,003 1,024 981 995 1,037 1,005 998 907 971 963 1,071 1,101 Cell phones & modems supported 351 338 344 383 460 453 476 492 481 487 464 538 IT users supported 450 498 498 490 511 515 467 471 488 475 487 511 6. Beginnig in 2016-17, building permit data reported in terms of calendar years, in alignment with State-mandated reporting requirements. Beginning in 2019-20 all Community Development Indicators are reported by calendar year. 7. Excludes special permits such as plumbing, mechanical, electrical, signs, and grading as well as plan check permits. Source: City of San Luis Obispo Departments 1. In Fiscal year 2010-11, numbers reported used observed code from Spillman rather than condition code. 2. Police Department Conducts Arson Investigations, Fire Department Conducts Cause and Origin Investigations. Reported number is Cause and Origin Investigations 3. Beginning in 2020-21, the Fire Department includes all "Hazardous Condition" calls for service as categorized by the National Fire Incident Reporting System (NFIRS). Previously only chemical or flammible liquid spills were captured under this function. Moving forward this function also includes electrical and biological hazards among others. 4. Beginning in 2020, the fire department began utilizing new mobile inspection software that uses a different inspection methodology counting the building rather than the number of individual units within the building. 5. Leisure, Culture and Social Services Indicators for FY 19-20 were lower compared to previous years due to COVID-19 program closures and capacity restrictions. 193 30 1 D R A F T v 1 Fiscal Historic Increase/ Sales Increase/ Deliveries Increase/ Year Connections (Decrease) Revenues (Decrease) In Acre Feet (Decrease) 2009-10 14,875 2.64% 13,025,900$ 4.65% 5,612 -11% 2010-11 14,777 -0.66% 13,302,800 2.13% 5,909 5% 2011-12 14,537 -1.62% 15,291,008 14.95% 5,999 2% 2012-13 14,758 1.52% 16,163,012 5.70% 5,823 -3% 2013-14 14,899 0.01% 18,398,901 13.83% 5,933 2% 2014-15 14,847 0.01% 17,530,717 -4.72% 5,354 -10% 2015-16 15,167 1.40% 17,939,024 2.33% 4,957 -7% 2016-17 15,357 1.25% 18,196,937 1.44% 5,039 2% 2017-18 15,505 0.96% 19,159,169 5.29% 5,530 10% 2018-19 15,555 0.32% 19,577,182 2.18% 5,074 -8% 2019-20 15,672 0.75% 21,519,632 9.92% 5,191 2% 2020-21 15,958 1.82% 22,757,325 5.75% 5,602 8% 2021-22 16,256 1.87% 24,129,231 6.03% 5,732 2% Source: City of San Luis Obispo Utilities Department. Schedule 24 City of San Luis Obispo, California Water System Statistical Data 194 302 DRAFT**v1 As of Monthly Single family June 30 of Each Year Consumption Price per hcf*Multi-family dwelling Commercial Landscape dwelling Multi-family dwelling Commercial 2013 Base Fee 5.00$ $7.43 min. charge per $7.43 min. charge per $7.43 min. charge per 0-8 hcf 6.25 dwelling unit dwelling unit dwelling unit 8 + hcf 7.82 $8.19/unit volume charge ** $8.19/unit volume charge ** $8.19/unit volume charge 2014 Base Fee 5.28$ $7.73 min. charge per $7.73 min. charge per $7.73 min. charge per 1-8 hcf 6.56 dwelling unit dwelling unit dwelling unit 8 + hcf 8.20 $8.52/unit volume charge** $8.52/unit volume charge** $8.52/unit volume charge 2015 Base Fee 9.98$ $7.96 min. charge per $7.96 min. charge per $7.96 min. charge per 1-8 hcf 6.92 dwelling unit dwelling unit dwelling unit 8 + hcf 8.65 $8.77/unit volume charge** $8.77/unit volume charge** $8.77/unit volume charge 2016 Base Fee 9.98$ $8.32 min. charge per $8.32 min. charge per $8.32 min. charge per Base Fee Drought Surcharge 0.74 dwelling unit dwelling unit dwelling unit 1-8 hcf 6.92 $9.17/unit volume charge** $9.17/unit volume charge** $9.17/unit volume charge Drought Surcharge 1.10 9 + hcf 8.65 Drought Surcharge 1.37 2017 Base Fee 9.98$ $8.57 min. charge per $8.57 min. charge per $8.57 min. charge per Base Fee Drought Surcharge 0.74 dwelling unit dwelling unit dwelling unit 1-8 hcf 6.92 $9.44/unit volume charge** $9.44/unit volume charge** $9.44/unit volume charge Drought Surcharge 1.10 9 + hcf 8.65 Drought Surcharge 1.37 2018 Base Fee 12.33$ $8.57 min. charge per $8.57 min. charge per $8.57 min. charge per 1-8 hcf 7.27 dwelling unit dwelling unit dwelling unit 9 + hcf 9.08 $9.44/unit volume charge** $9.44/unit volume charge** $9.44/unit volume charge 2019***Residential SFR Base Fee 20.61$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 5.90 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 6.87 $6.73/unit volume charge $8.17/unit volume charge $10.02/unit volume charge $7.85/unit volume charge** $7.85/unit volume charge** $7.85/unit volume charge** 13 +12.59 2020 Residential SFR Base Fee 21.74$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.22 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.25 $7.10/unit volume charge $8.62/unit volume charge $10.57/unit volume charge $8.28/unit volume charge** $8.28/unit volume charge** $8.28/unit volume charge** 13 +13.28 Schedule 25 City of San Luis Obispo, California Water and Sewer Rates Last Ten Fiscal Years Water Rates (Note 1)Sewer Rates (Monthly) 195 30 3 D R A F T v 1 As of Monthly Single family June 30 of Each Year Consumption Price per hcf*Multi-family dwelling Commercial Landscape dwelling Multi-family dwelling Commercial Schedule 25 City of San Luis Obispo, California Water and Sewer Rates Last Ten Fiscal Years Water Rates (Note 1)Sewer Rates (Monthly) 2021 Residential SFR Base Fee 22.52$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.44 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.51 $7.36/unit volume charge $8.93/unit volume charge $10.95/unit volume charge $8.58/unit volume charge $8.58/unit volume charge $8.58/unit volume charge 13 +13.76 2022 Residential SFR Base Fee 23.31$ Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined Base fee determined 1-5 hcf 6.67 by meter size**** by meter size**** by meter size**** by meter size **** by meter size **** by meter size **** 6-12 hcf 7.77 $7.62/unit volume charge $9.24/unit volume charge $11.33/unit volume charge $8.88/unit volume charge $8.88/unit volume charge $8.88/unit volume charge 13 +14.24 hcf = 100 cubic feet Total monthly volume charge capped based on average winter water consumption. Beginning FY 18-19, different rate structures for SFR, Multi-Family, Commercial, and Landscape See table below 2020-21 rate increase deferred to February 1, 2021 due to COVID-19 Notes: 1. Rates are for services inside the City, outside the City rates are double. 2. Third tier applies only to single-family residential customers. Source: City of San Luis Obispo Utilities Department As of Water Sewer June 30 of Each Year Base charge Base Charge 2021*****3/4 inch or less 22.52$ 20.43$ 1-inch 37.60 34.12 1.5-inch 75.04 68.02 2-inch 120.06 108.88 3-inch 225.27 204.28 4-inch 375.50 340.53 6-inch 750.82 680.85 8-inch 1,201.35 1,089.40 10-inch - 1,566.17 2022 3/4 inch or less 23.31$ 21.15$ 1-inch 38.92 35.31 1.5-inch 77.67 70.40 2-inch 124.26 112.69 3-inch 233.15 211.43 4-inch 388.64 352.45 6-inch 777.10 704.68 8-inch 1,243.40 1,127.53 10-inch - 1,620.99 Base fee charges for Multi-Family, Non-Residential, Irrigation Meter Size 196 30 4 D R A F T v 1 Service Water Use Percent of Name Type (acre-feet) Total City of San Luis Obispo Parks Landscape 60.50 17.3% Silver City Mobile Home Park Mobile Homes 46.95 13.4% ELL-CAP 97-Laguna Lake Mobile Homes 42.42 12.1% Creekside Community Mobile Homes 33.83 9.7% Dignity Health #366 Care Facilities 31.29 8.9% City of San Luis Obispo Golf Landscape 30.58 8.7% SLO Coastal Unified School 28.06 8.0% Sierra Vista Hospital Care Facilities 27.12 7.7% CAP VIII - Mustang Village LLC Apartments 25.35 7.2% Embassy Suites Hotel 24.42 7.0% Total 350.52 100.00% Source: City of San Luis Obispo - Utilities Department Fiscal Year Ended June 30, 2022 Water System - Ten Largest Water Users City of San Luis Obispo, California Schedule 26 197 305 DRAFT**v1 THIS PAGE INTENTIONALLY LEFT BLANK] 306 DRAFT**v1 B-1 APPENDIX B CERTAIN INFORMATION REGARDING THE CITY OF SAN LUIS OBISPO The Bonds do not constitute an indebtedness of the City within the meaning of any constitutional, statutory or charter provisions or limitations and the City is not obligated to levy any ad valorem taxes therefor or to use any other funds of the City to pay the Bonds or the interest thereon. The following information with respect to the County is presented for information purposes only. The following information regarding the City and the surrounding area is presented as general background data. The Bonds are payable solely from the sources described in this Official Statement (see SOURCES OF PAYMENT FOR THE BONDS”). General The City of San Luis Obispo, California (the “City”) is located approximately 235 miles south of downtown San Francisco and 200 miles north of Los Angeles, on the central coast of California. The City is situated along State Route 101 and is the county seat of San Luis Obispo County. The City is located 315 feet above sea level in gentle mountain valley. San Luis Obispo has mild summers with an average high temperature of 78 degrees. San Luis Obispo County (the “County”) is the twenty-fourth largest county in the State and is located on the central coast of California. The County borders the Pacific Ocean, with Monterey County to the north, Santa Barbara County to the south and Kern County to the east. Population The following table summarizes the population estimates for the City, the County and State of California as of January 1, for the years 2019 through 2023. TABLE B-1 CITY OF SAN LUIS OBISPO 2019 THROUGH 2023 POPULATION ESTIMATES as of January 1) Calendar Year City of San Luis Obispo County of San Luis Obispo State of California 2019 45,972 277,850 39,605,361 2020 45,916 276,818 39,648,938 2021 47,163 278,723 39,286,510 2022 47,247 279,751 39,078,674 2023 47,788 278,348 38,940,231 Source: State Department of Finance. Employment The following table summarizes the labor force, employment and unemployment data from 2018 through 2022 (the most current data available) for the City, the County, the State of California and the United States. B-2 TABLE B-2 LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, STATE OF CALIFORNIA AND UNITED STATES 2018 THROUGH 2022 Area Labor Force Employment Unemployment Rate 2018 City of San Luis Obispo 25,300 24,600 2.6 San Luis Obispo County 140,108 135,892 3.0 California 19,288,540 18,467,259 4.2 United States 162,075,000 155,761,000 3.9 2019 City of San Luis Obispo 25,300 24,700 2.5 San Luis Obispo County 139,905 135,854 2.9 California 19,415,066 18,620,302 4.1 United States 163,539,000 157,538,000 3.7 2020 City of San Luis Obispo 24,600 22,700 7.7 San Luis Obispo County 134,416 123,926 7.9 California 18,966,111 17,041,823 10.1 United States 160,742,000 147,795,000 8.1 2021 City of San Luis Obispo 24,700 23,500 5.0 San Luis Obispo County 135,428 128,208 5.3 California 18,977,110 17,587,983 7.3 United States 161,204,000 152,581,000 5.3 2022 City of San Luis Obispo 25,000 24,400 2.6 San Luis Obispo County 137,204 133,048 3.0 California 19,241,972 18,437,956 4.2 United States 164,287,000 158,291,000 3.6 Source: U.S. Department of Labor – Bureau of Labor Statistics and State of California Employment Development Department The County comprises the San Luis Obispo-Paso Robles Metropolitan Statistical Area (the MSA”), reported by the State Employment Development Department. The following table summarizes employment information for the MSA, including unemployment rate and employment by industry. B-3 TABLE B-3 METROPOLITAN STATISTICAL AREA (SAN LUIS OBISPO COUNTY) CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT CALENDAR YEARS 2018 THROUGH 2022 ANNUAL AVERAGES 2018 2019 2020 2021 2022 Civilian Labor Force(1) 140,100 140,000 134,400 135,400 137,200 Employment 135,900 135,900 123,900 128,200 133,000 Unemployment 4,200 4,100 10,500 7,200 4,200 Unemployment Rate 3.0% 2.9% 7.8% 5.3% 3.0% Wage and Salary Employment(2) Agriculture 5,200 5,000 4,800 5,000 5,700 Natural Resources/Mining/Construction 7,900 8,300 8,500 9,100 9,000 Manufacturing 7,700 7,800 7,300 7,900 8,200 Wholesale Trade 2,700 2,700 2,500 2,600 2,600 Retail Trade 14,300 14,000 12,900 13,500 13,800 Trans., Warehousing, Utilities 4,100 4,100 3,700 3,700 3,800 Information 1,200 1,200 1,100 1,200 1,300 Financial and Insurance 2,300 2,200 2,300 2,300 2,200 Real Estate, Rental & Leasing 1,600 1,700 1,500 1,600 1,800 Professional and Business Services 10,900 11,200 10,500 11,000 10,900 Educational and Health Services 17,700 18,200 17,000 17,500 18,100 Leisure and Hospitality 19,200 19,800 15,400 17,400 19,600 Other Services 4,000 4,100 3,300 3,400 3,700 Federal Government 500 500 600 600 600 State Government 10,800 10,800 10,600 10,200 10,400 Local Government 13,100 13,100 12,400 12,400 12,800 Total All Industries(3) 123,200 124,700 114,400 119,400 124,500 1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. 2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. 3) Totals may not add due to rounding. Source: State of California Employment Development Department. The principal employers in the County are shown in the following table. B-4 TABLE B-4 COUNTY OF SAN LUIS OBISPO PRINCIPAL EMPLOYERS FISCAL YEAR 2021-22 Employer Name Number of Employees Rank of Total County Employment Cal Poly State University 3,100 1 12.45% County of San Luis Obispo 2,920 2 11.73 Dept. of State Hospitals - Atascadero 2,140 3 8.59 Pacific Gas & Electric Company 1,950 4 7.83 California Men’s Colony 1,500 5 6.02 Tenet Health Central Coast 1,305 6 5.24 Compass Health 1,200 7 4.82 San Luis Coastal Unified School District 1,200 8 4.82 Dignity Health Central Coast 1,000 9 4.02 Lucia Mar Unified School District 1,000 10 4.02 TOTAL: 17,315 69.54% Source: City of San Luis Obispo Audited Financial Statements, obtained from the Pacific Coast Business Times (The List). The Diablo Canyon nuclear power plant (“Diablo Canyon”), a principal employer in the County and located in the community of Avila Beach, was to cease operations in 2025 under a plan approved by the State Public Utilities Commission in January 2018. In September 2022, Governor Newsom signed SB 846, enabling Pacific Gas and Electric (PG&E) to extend operations beyond 2025 and in March 2023 the Nuclear Regulatory Commission (NRC) authorized PG&E to continue operating Diablo Canyon while the NRC considers renewal of its license. The initial plan to close Diablo Canyon included a program to retain skilled workers through 2025 and funding to retrain workers displaced by the closure. Despite the continued operation of Diablo Canyon, the City will retain the funding provided via SB 1090 for employee retention. Per Capita Income The following table summarizes the per capita income for the City, the County, the State and the United States for the period 2017 through 2021. TABLE B-5 CITY OF SAN LUIS OBISPO, SAN LUIS OBISPO COUNTY, CALIFORNIA AND UNITED STATES PER CAPITA INCOME CALENDAR YEARS 2017 THROUGH 2021 Year City of San Luis Obispo San Luis Obispo County State of California United States 2017 $ 29,748 $ 35,982 $ 35,046 $ 32,397 2018 31,914 36,924 37,124 33,831 2019 34,357 38,308 39,393 35,672 2020 36,232 38,686 38,576 35,384 2021 39,464 42,831 42,396 38,332 Source: U.S. Census Bureau. B-5 Commercial Activity Taxable sales within the City are shown in Table 6 under “CITY FINANCIAL INFORMATION— Sales and Use Taxes” herein. Preliminary total taxable sales during calendar year 2022 in the City were reported to be $1,859,569,000, a 2.9% increase over the total taxable sales of approximately $1,806,306,000 reported during calendar year 2021. Construction Activity The following tables show a three-year summary of the number and valuation of building permits issued in the City. Building permits are issued for various projects ranging from the relatively simple (e.g., water heaters, window change outs, reroofing, etc.) to the more complex projects (e.g., additions and new buildings). Plan reviews are typically required for the more complex projects where it is necessary to review proposed design documents for code compliance. Table B-6 shows the number of plan check applications conducted by the Building Division over the last 3 years. Development activity remained relatively steady in 2022. TABLE B-6 CITY OF SAN LUIS OBISPO PLAN CHECK APPLICATIONS SUBMITTED 2020-2022 2020 2021 2022 Plan Check Applications Submitted 1,438 1,426 1,386 Source: Community Development Department, 2022 Table B-7 depicts the number of building permits issued over the past 3 years. In 2022, 266 permits were issued for new residential projects, representing 562 new residential units. TABLE B-7 CITY OF SAN LUIS OBISPO BUILDING PERMITS ISSUED, 2020-2022 2020 2021 2022 permits units permits units permits units New Single Family 252 252 198 198 162 162 New Accessory Dwelling Units (ADUs)1 44 60 62 93 73 97 New Multi Family & New Mixed Use 22 153 47 326 31 303 Demolitions2 25 -8 22 -3 11 -4 New Commercial 2 0 3 0 10 0 Residential Additions / Alterations 220 0 199 0 214 0 Commercial Additions / Alterations 89 0 99 0 122 0 Total 654 457 630 614 623 558 Source: Community Development Department, 2022 1 ADU unit totals come from ADU permits and single-family permits. 2 Includes units lost from demolitions. B-6 Construction valuation is a good indicator of the level of private investment in building construction. Table B-8 depicts the annual construction valuation over the past 3 years. Valuation data shows a substantial increase in commercial valuation while residential valuation remained relatively steady. The total valuation increased by approximately $41.9 million from 2021 to 2022. This increase is despite a decrease in total number of issued permits. This is an indicator that the cost of construction has increased since 2021. TABLE B-8 CITY OF SAN LUIS OBISPO VALUATION OF CONSTRUCTION, 2020-2022 2020 2021 2022 Single Family 53,949,613 34,211,415 32,464,875 Multi Family 8,225,494 46,933,301 43,655,086 Commercial 17,475,937 1,229,510 33,950,000 Residential Additions / Alterations 7,834,680 6,459,062 8,741,375 Commercial Additions / Alterations 11,178,790 6,722,907 18,711,218 Total Valuation $ 98,664,514 $ 95,556,195 $ 137,522,554 Source: Community Development Department, 2022 Climate Action and Response The City adopted and is now implementing its Climate Action Plan in 2022 for Community Recovery (2020) with the goal of achieving carbon neutrality within the City by 2035. Through the Climate Action Plan, the City is decreasing transportation emissions by improving bike and pedestrian facilities, installing electric vehicle chargers and upgrading public transit to make community members more likely to adopt alternative forms of transportation. The City is also implementing measures to divert organic waste from the landfill (a source of methane emissions), as well as an initiative to plant 10,000 new trees and to protect and manage its open space lands for carbon sequestration. In addition, the City has implemented a project titled “Resilient SLO” that resulted in the adoption of the Climate Adaptation and Safety Element of the City’s General Plan in 2023, which identifies and prioritizes the actions that are necessary for preparing the community for climate change impacts, focusing on finding the best ways to develop community resilience based on a range of potential physical hazards that are negatively affected by climate change such as floods, extreme heat and wildfires. Cyber Security To date, the City is not aware of any significant cyber security events affecting the City or its funds. The City has cybersecurity policies and practices in place designed to protect the confidentiality, integrity and availability of City data and resources, including personally identifiable information and sensitive information. At a high level, these policies are organized into several areas, including risk assessment (with internal analysis and quarterly external expert security assessment) and monitoring at various levels, a comprehensive incident response plan, strong access controls and multifactor authentication mechanisms, network security defenses based on zero trust methodologies, encryption of sensitive data, employee awareness training, regular backups of critical information, and compliance with applicable regulations. Further, the City carries cyber liability coverage which covers privacy incidents, network security incidents, media incidents and cyber crime with certain exclusions, for both first party and third party liability. B-7 Education and Community Facilities The City is adjacent to California Polytechnic State University, San Luis Obispo (“Cal Poly”), one of the more prominent campuses in the California State University system. Cal Poly offers a wide variety of degree programs at both undergraduate and graduate levels. Undergraduate and graduate enrollment at Cal Poly was 22,287 students for the 2022-23 academic year. In FY 2021-22, Cal Poly employed 3,100 people. Cuesta Community College schedules day and evening courses where residents can complete a two-year degree, obtain vocational training or take general education courses. Fall 2022 enrollment was 14,002 full-time students. San Luis Coastal Unified School District provides 10 elementary schools, two middle schools, three senior high schools and an adult school (the “District”). The District also provides a full-day, six- week program from mid-June through the end of July that is open to all current San Luis Coastal kindergarten through high school students free of charge. The total District enrollment is approximately 7,500 students. The boundaries of the San Luis Coastal Unified School District are significantly larger than the City. Medical facilities include Sierra Vista Regional Medical Center with approximately 164 licensed beds in addition to a designated trauma center and the only dedicated pediatric unit in San Luis Obispo County, and French Hospital with approximately 112 acute care beds. Recreational facilities in close proximity include 12 golf courses within a 30 minute drive of the City’s downtown, Lake Lopez, Lake Nacimiento and Montana De Oro State Park. Community facilities include the Performing Arts Center located on the campus of Cal Poly, Mission San Luis Obispo de Tolosa, San Luis Obispo County Historical Museum and San Luis Obispo Art Center. The City has 12 designated open space areas and owns 22 parks and 14 playgrounds. The City operates a 10-hole municipal golf course and the San Luis Obispo Swim Center that offers participants a full range of aquatic programs. Transportation Primary access to the City is provided by State Route 101, which is a major transportation corridor that extends in a general north-south direction from Los Angeles to San Francisco. San Luis Obispo can be accessed at various off-ramps from the highway. This network of roads provides access to the various neighborhoods and business areas dispersed throughout the community. The San Luis Obispo County Airport is within ten minutes from downtown. Commercial service is offered to Dallas, Denver, Los Angeles, Phoenix, Portland, San Diego, San Francisco and Seattle International Airports. Rail passenger service is provided by AMTRAK, which has a station in the City. Union Pacific Transportation Company provides freight rail service to the City. Local bus service is provided by SLO Transit and is linked to a trolley line which operates seasonally in the City’s downtown area, and to the San Luis Obispo Regional Transit Authority-run bus service. THIS PAGE INTENTIONALLY LEFT BLANK] C-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS Certain provisions of the Lease Agreement, the Ground Lease and the Indenture, not previously discussed in this Official Statement, are summarized below. These summaries do not purport to be complete or definitive and are qualified in their entirety by reference to the full terms of the documents. CERTAIN DEFINITIONS The following are definitions of certain of the terms defined in the Lease Agreement or the Indenture, to which reference is hereby made. The following definitions are equally applicable to both the singular and plural forms of the terms defined herein. Capitalized terms not otherwise defined herein will have the meaning assigned to such term in the Indenture or, if not defined therein, in the Lease Agreement. Act” means the Marks-Roos Local Bond Pooling Act of 1985, constituting Section 6584 et seq. of the California Government Code. Additional Rental Payments” means all amounts payable by the City as Additional Rental Payments pursuant to the Lease Agreement. Annual Debt Service” means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled including by reason of mandatory sinking fund redemptions), and (b) the scheduled principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). Authority” means the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State, and any successor thereto. Authorized Denominations” means, with respect to the Bonds, $5,000 and integral multiples thereof. Authorized Representative” means (a) with respect to the Authority, the Chairperson, the Vice Chairperson, the Executive Director, the Deputy Executive Director and the Treasurer of the Authority, and any other Person designated as an Authorized Representative of the Authority in a Written Certificate of the Authority filed with the Trustee, and (b) with respect to the City, the Mayor, the Mayor Pro Tem, the City Manager, the Deputy City Manager, the Treasurer, and the Finance Director of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. Base Rental Deposit Date” means the date no later than the fifth Business Day next preceding each Interest Payment Date. Base Rental Payments” means all amounts payable to the Authority by the City as Base Rental Payments pursuant to the Lease Agreement. Bond Year” means the twelve-month period beginning on December 1 in each year and extending to the next succeeding November 30, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on December 1, 2023. C-2 Bonds” means the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, issued under the Indenture. Book-Entry Bonds” means the Bonds registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of the Indenture. Business Day” means a day that is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. Capital Improvement Board” means the City of San Luis Obispo Capital Improvement Board. City” means the City of San Luis Obispo, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. Closing Date” means the date upon which the Bonds are delivered to the Original Purchaser. Costs of Issuance” means all the costs of issuing and delivering the Bonds, including, but not limited to, all printing and document preparation expenses in connection with the Indenture, the Lease Agreement, the Ground Lease, the Bonds and any preliminary official statement and final official statement pertaining to the Bonds, rating agency fees, CUSIP Service Bureau charges, legal fees and expenses of counsel with the issuance and delivery of the Bonds, the initial fees and expenses of the Trustee and its counsel and other fees and expenses incurred in connection with the issuance and delivery of the Bonds, to the extent such fees and expenses are approved by the City. Costs of Issuance Fund” means the fund by that name established pursuant to the Indenture. Defeasance Securities” means (a) non-callable direct obligations of the United States of America including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are unconditionally guaranteed by the United States of America (“United States Treasury Obligations”), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. Depository” means DTC, and its successors as securities depository for any Book-Entry Bonds, including any such successor appointed pursuant to the Indenture. DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. Event of Default” means any event or circumstance specified as an Event of Default in the Indenture. Fair Market Value” means, with respect to any investment, the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm’s length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of Section 1273 of the Tax Code) and, otherwise, C-3 the term “Fair Market Value” means the acquisition price in a bona fide arm’s length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Tax Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Tax Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) any commingled investment fund in which the City and related parties do not own more than a ten percent (10%) beneficial interest therein if the return paid by the fund is without regard to the source of the investment. Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period selected and designated as the official fiscal year period of the City. Holder” means any person who is the registered owner of any Outstanding Bond. Indenture” means the Indenture, dated as of September 1, 2023 by and among the Authority, the City and U.S. Bank Trust Company, National Association, as Trustee. Independent Accountant” means any accountant or firm of such accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the State, appointed by or acceptable to the City, and who, or each of whom: (a) is in fact independent and not under domination of the City; (b) does not have any substantial interest, direct or indirect, with the City; and (c) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make reports to the City. Interest Account” means the Interest Account by that name within the Payment Fund established pursuant to the Indenture. Interest Payment Dates” means June 1 and December 1 of each year, commencing December 1, 2023. Lease Agreement” means the Lease Agreement, dated as of the date of the Indenture by and between the City, as lessee, and the Authority, as lessor. Lease Default Event” means an event of default pursuant to and as described in the Lease Agreement as a Lease Default Event. Lease Revenues” means all Base Rental Payments payable by the City pursuant to the Lease Agreement, including any prepayments thereof, and any amounts received by the Trustee as a result of or in connection with the Trustee’s pursuit of remedies under the Lease Agreement upon a Lease Default Event. Leased Property” means the certain real property described in Exhibit A of the Lease Agreement, situated in the City of San Luis Obispo, County of San Luis Obispo, State of California, and the improvements thereto. Moody’s” means Moody’s Investors Service, a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, except that if such corporation shall no longer C-4 perform the function of a securities rating agency for any reason, the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority. Net Proceeds” means any insurance proceeds or condemnation award in excess of $50,000, paid with respect to any of the Leased Property, remaining after payment therefrom of all reasonable expenses incurred in the collection thereof. Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture. Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Authority and the City in writing; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the Authority and the City by the Trustee in writing. Opinion of Bond Counsel” means a written opinion of counsel of recognized national standing in the field of law relating to municipal bonds, appointed and paid by the Authority and satisfactory to and approved by the Trustee. Original Purchaser” means the original purchaser of the Bonds from the Authority. Outstanding” means, when used as of any particular time with reference to Bonds, subject to the provisions of the Indenture relating to disqualified bonds, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under the Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Authority shall have been discharged in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance—Discharge of Indenture,” and (c) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee, or that have been paid without surrender thereof, pursuant to the provisions of the Indenture concerning mutilated, lost or destroyed Bonds. Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. Payment Fund” means the fund by that name established in the Indenture. Permitted Encumbrances” means with respect to the Leased Property, as of any particular time a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or that the City may, pursuant to the provisions of the Lease Agreement, permit to remain unpaid, (b) the Lease Agreement, (c) the Ground Lease, (d) any right or claim of any mechanic, laborer, materialman, supplier or vendor not filed or perfected in the manner prescribed by law as normally exist with respect to properties similar to the Leased Property for the purposes for which it was acquired or is held by the City, (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions that exist of record as of the Closing Date, (f) any license with respect to the use of, or lease agreement for, the solar equipment and footprint thereof as may be entered into by the City in support of a loan by the State of California Energy Commission that the City certifies in writing does not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture; and (g) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions established following the Closing Date that the C-5 City certifies in writing do not affect the intended use of the Leased Property or impair the security granted to the Trustee for the benefit of the Owners of the Bonds by the Indenture. Permitted Investments” means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein provided that the Trustee shall be entitled to rely upon any investment direction from the City as conclusive certification to the Trustee that the investments described therein are so authorized under the laws of the State and constitute Permitted Investments), but only to the extent that the same are acquired at Fair Market Value: a) Defeasance Securities; b) obligations of any of the following federal agencies which obligations represent full faith and credit of the United States of America, including: Export-Import Bank, Farm Credit System Financial Assistance Corporation, Rural Economic Community Development Administration (formerly Farmers Home Administration), General Services Administration, U.S. Maritime Administration, Small Business Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development, Federal Housing Administration and Federal Financing Bank; c) direct obligations for any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: senior debt obligations rated Aaa” by Moody’s and “AAA” by S&P issued by Fannie Mae or Federal Home Loan Mortgage Corporation (FHLMC); obligations of the Resolution Funding Corporation (REFCORP); and senior debt obligations of the Federal Home Loan Bank System; d) U.S. dollar denominated deposit accounts, federal funds and banker’s acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody’s, or which deposit accounts are collateralized by Federal Securities for amounts above FDIC insurance limits and maturing no more than 360 days after the date of purchase, including those of the Trustee or its affiliates; e) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody’s and which matures not more than 270 days after the date of purchase; f) investments in a money market fund rated AAAm or AAAm-G or better by S&P, excluding such funds with a floating net asset value but including funds for which the Trustee or its affiliates provide investment advisory or other management services; g) investments in the Local Agency Investment Fund (established under Section 16429.1 of the California Government Code), provided that such investment is held in the name and to the credit of the Trustee, and provided further that the Trustee may restrict such investment if required to keep moneys available for the purposes of the Indenture; h) shares in a State of California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section 53601 of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended; i) U.S. dollar denominated deposit accounts, federal funds, certificates of deposit (including those placed by a third party pursuant to a separate agreement between the Authority and the Trustee), C-6 trust funds, trust accounts, other deposit products, overnight bank deposits, interest bearing deposits, interest bearing money market accounts and banker’s acceptances with domestic commercial banks, which may include the Trustee, its parent holding company, if any, and their affiliates, which have a rating on their short term certificates of deposit on the date of purchase of “A-1” or “A-l+” by S&P and maturing no more than 360 days after the date of purchase, provided that ratings on holding companies are not considered as the rating of the bank or (ii) which are fully insured by the Federal Deposit Insurance Corporation; and j) any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (i) which are rated, based on the escrow, in the highest rating category of S&P and Moody’s or (ii)(A) which are fully secured as to principal and interest and redemption premium, if any, by a fund consisting only of cash or Federal Securities, which fund may be applied only to the payment of such principal of and interest and redemption premium, if any, in such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (B) which fund is sufficient, as verified by an Independent Accountant and with the prior approval of S&P, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates thereof or on the redemption date or dates specified in the irrevocable instructions referred to above, as appropriate. Person” means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Principal Account” means the Principal Account by that name within the Payment Fund established pursuant to the Indenture. Project” means the acquisition, design, engineering, fabrication, construction, improvement and installation of a parking structure in the City’s Cultural Arts District and certain other public capital improvements. Record Date” means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. Redemption Fund” means the fund by that name established pursuant to the Indenture. Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant to the Indenture. Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to the Indenture. Rental Payments” means, collectively, the Base Rental Payments and the Additional Rental Payments. Rental Period” means the period from the Closing Date through December 31, 2024 and, thereafter, the twelve-month period commencing on January 1 of each year during the term of the Lease Agreement. C-7 Scheduled Termination Date” means the date on which the lease ends in accordance with the provisions of the Lease Agreement. Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds pursuant to the Indenture. S&P” means S&P Global Ratings, a corporation organized and existing under the laws of the State of New York, its successors and assigns, except that if such entity shall no longer perform the functions of a securities rating agency for any reason, the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the Authority and approved by the Trustee. State” means the State of California. Supplemental Indenture” means any supplemental indenture amendatory of or supplemental to the Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Trustee” means U.S. Bank Trust Company, National Association, a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee under the Indenture substituted in its place as provided therein. Written Certificate” and “Written Request” of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative of the City. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. GROUND LEASE Lease of the Leased Property; Rental Lease of Property. The City leases to the Authority, and the Authority leases from the City, for the benefit of the Owners of the Bonds, the Leased Property, on the terms and conditions set forth in the Ground Lease, subject only to Permitted Encumbrances, to have and to hold for the term of the Ground Lease. Rental. (a) The Authority shall pay to the City as and for rental of the Leased Property under the Ground Lease, the sum set forth in the Ground Lease (the “Ground Lease Payment”). The Ground Lease Payment shall be paid from the proceeds of the Bonds; provided, however, that in the event the available proceeds of the Bonds are not sufficient to enable the Authority to pay such amount in full, the remaining amount of the Ground Lease Payment shall be reduced to an amount equal to the amount of such available proceeds. b) The City shall deposit the Ground Lease Payment in one or more separate funds or accounts to be held and administered for the purpose of financing the Project. The Authority and the City find and determine that the amount of the Ground Lease Payment does not exceed the fair market value of the leasehold interest in the Leased Property that is conveyed under the Ground Lease by the City to the Authority. No other amounts of rental shall be due and payable by the Authority for the use and occupancy of the Leased Property under the Ground Lease. C-8 Quiet Enjoyment The parties intend that the Leased Property will be leased back to the City pursuant to the Lease Agreement for the term thereof. Subject to any rights the City may have under the Lease Agreement (in the absence of a Lease Default Event) to possession and enjoyment of the Leased Property, the City covenants and agrees that it will not take any action to prevent the Authority from having quiet and peaceable possession and enjoyment of the Leased Property during the term of the Ground Lease and will, at the request of the Authority and at the City’s cost, to the extent that it may lawfully do so, join in any legal action in which the Authority asserts its right to such possession and enjoyment. Special Covenants and Provisions Waste. At all times that the Authority is in possession of the Leased Property, it shall not commit, suffer or permit any waste on the Leased Property, and shall not willfully or knowingly use or permit the use of the Leased Property for any illegal purpose or act. Further Assurances and Corrective Instruments. Each of the City and the Authority shall, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such supplements to the Ground Lease and such further instruments as may reasonably be required for correcting any inadequate or incorrect description of the Leased Property leased by the Ground Lease or intended so to be or for carrying out the expressed intention of the Ground Lease, the Indenture and the Lease Agreement. Waiver of Personal Liability. (a) All liabilities under the Ground Lease on the part of the Authority shall be solely liabilities of the Authority as a joint powers authority, and the City releases each and every director, officer and employee of the Authority of and from any personal or individual liability under the Ground Lease. No director, officer or employee of the Authority shall at any time or under any circumstances be individually or personally liable under the Ground Lease to the City or to any other party whomsoever for anything done or omitted to be done by the Authority under the Ground Lease. b) All liabilities under the Ground Lease on the part of the City shall be solely liabilities of the City as a city and municipal corporation, and the Authority releases each and every member, officer and employee of the City of and from any personal or individual liability under the Ground Lease. No member, officer or employee of the City shall at any time or under any circumstances be individually or personally liable under the Ground Lease to the Authority or to any other party whomsoever for anything done or omitted to be done by the City under the Ground Lease. Taxes. The City shall pay any and all assessments of any kind or character and also all taxes, including possessory interest taxes, levied or assessed upon the Leased Property. Right of Entry. The City reserves the right for any of its duly authorized representatives to enter upon the Leased Property at any reasonable time to inspect the same. Representations and Warranties of the City. The City represents and warrants as follows: a) the City has the full power and authority to enter into, to execute and to deliver the Ground Lease, and to perform all of its duties and obligations under the Ground Lease, and has duly authorized the execution of the Ground Lease; b) except for Permitted Encumbrances, the Leased Property is not subject to any dedication, easement, right of way, reservation in patent, covenant, condition, restriction, lien or encumbrance which C-9 would prohibit or materially interfere with the use of the Leased Property for governmental purposes as contemplated by the City; and c) all taxes, assessments or impositions of any kind with respect to the Leased Property, except current taxes, have been paid in full. Representations and Warranties of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver the Ground Lease, and to perform all of its duties and obligations under the Ground Lease, and has duly authorized the execution and delivery of the Ground Lease. Restrictions on City Except with respect to Permitted Encumbrances, the City shall not mortgage, sell, encumber, assign, transfer or convey the Leased Property or any portion thereof during the term of the Ground Lease. Improvements Title to all improvements made on the Leased Property during the term of the Ground Lease shall vest in the City. Term; Termination Term. The term of the Ground Lease shall commence on the Closing Date and remain in full force and effect from such date to and including Scheduled Termination Date, unless such term is extended or sooner terminated as provided in the Ground Lease. Extension; Early Termination. If, on the Scheduled Termination Date, the Bonds shall not be fully paid, or provision therefor made in accordance with the provisions of the Indenture described under the heading “DEFEASANCE,” or if the Rental Payments payable under the Lease Agreement shall have been abated at any time, then the term of the Ground Lease shall be automatically extended until the date upon which all such Rental Payments shall have been paid in full and all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture described under the heading DEFEASANCE,” except that the term of the Ground Lease shall in no event be extended more than ten years beyond the Scheduled Termination Date. If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture described under the heading “DEFEASANCE,” and the Indenture discharged in accordance with its terms, then the term of the Ground Lease shall terminate. Miscellaneous Amendments; Substitution and Release. The Ground Lease may be amended, supplemented or otherwise modified only in accordance with the provisions of the Lease Agreement. The City shall have the right to substitute alternate real property for the Leased Property or to release portions of the Leased Property as provided in the Lease Agreement. Assignment. The Authority and City acknowledge that the Authority has assigned and transferred certain of its right, title and interest in and to the Ground Lease to the Trustee pursuant to the Indenture. The City consents to such assignment. C-10 LEASE AGREEMENT Lease of Property; Term The Authority leases to the City and the City leases from the Authority the Leased Property, on the terms and conditions set forth in the Lease Agreement, and subject to all Permitted Encumbrances. The parties intend and agree that the leasing of the Leased Property by the City to the Authority under the Ground Lease does not affect or result in a merger of the City’s leasehold estate in the Leased Property as lessee under the Lease Agreement and its leasehold or fee estate, as applicable, in the Leased Property as lessor under the Ground Lease, and the Authority will continue to have a leasehold estate in the Leased Property under the Ground Lease throughout the terms of both leases. The Lease Agreement constitutes a sublease with respect to the Leased Property. The leasehold interest in the Leased Property granted by the City to the Authority pursuant to the Ground Lease is independent of the Lease Agreement and the Lease Agreement is not an assignment or surrender of the leasehold interest in the Leased Property granted to the Authority under the Ground Lease. Term; Occupancy. The City shall take possession of the Leased Property on the Closing Date. The term of the Lease Agreement shall commence on the Closing Date and shall end on the Scheduled Termination Date, unless such term is extended or sooner terminated as provided in the Lease Agreement. If all of the Leased Property shall be taken under the power of eminent domain, and the City does not elect to cause alternate real property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of, the Lease Agreement as described under the heading “AMENDMENTS; ASSIGNMENTS AND SUBLEASING; SUBSTITUTION OR RELEASE— Substitution or Release of the Leased Property,” as provided in clause (i) of paragraph (c) of the Lease Agreement described under the heading “INSURANCE; NET PROCEEDS; EMINENT DOMAIN— Eminent Domain,” but, rather, elects to deliver or cause to be delivered any award made in eminent domain proceedings for such taking to the Trustee for the application to the redemption, pursuant to the provisions of the Indenture relating to extraordinary redemption, of all or a portion of the Outstanding Bonds, as provided in clause (ii) of paragraph (c) of the Lease Agreement described under the heading INSURANCE; NET PROCEEDS; EMINENT DOMAIN—Eminent Domain,”, then, on the date that possession thereof shall be so taken, the term of the Lease Agreement shall terminate. If, prior to the Scheduled Termination Date, all Bonds shall be fully paid, or deemed paid in accordance with the provisions of the Indenture relating to defeasance, then, on the date of such payment or deemed payment, the term of the Lease Agreement shall terminate. If on the Scheduled Termination Date, the Rental Payments payable under the Lease Agreement shall have been abated at any time and for any reason, then the term of the Lease Agreement shall be extended until the date upon which all such Rental Payments shall have been paid in full, except that the term of the Lease Agreement shall in no event be extended more than ten years beyond the Scheduled Termination Date. Upon the termination of the term of the Lease Agreement (other than as provided in the provisions of the Lease Agreement described under the heading “THE LEASE AGREEMENT—Lease Default and Remedies—Lease Default Events and Remedies”), and the first date upon which the Bonds C-11 are no longer Outstanding, all right, title and interest in and to the Leased Property shall vest in the City. Upon any such termination or expiration, the Authority and the Trustee shall execute such conveyances, deeds and other documents as may be necessary to effect such vesting of record. Rental Payments Rental Payments. Rental Payments, consisting of Base Rental Payments and Additional Rental Payments, shall be paid by the City to the Authority for and in consideration of the right to use and occupy the Leased Property and in consideration of the continued right to the quiet use and enjoyment thereof during each Rental Period for which such Rental Payments are to be paid. The obligation of the City to make the Rental Payments, including the Base Rental Payments, does not constitute a debt of the City or of the State or of any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and does not constitute an obligation for which the City or the State is obligated to levy or pledge any form of taxation or for which the City or the State has levied or pledged any form of taxation. If the term of the Lease Agreement shall have been extended pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Lease of Property; Term— Occupancy; Term,” the obligation of the City to pay Rental Payments shall continue to and including the Base Rental Deposit Date preceding the date of termination of the Lease Agreement, as so extended. Base Rental Payments. The City, subject to the provisions of the Lease Agreement described under “LEASE AGREEMENT—Rental Payments—Rental Abatement,” shall pay Base Rental Payments to the Authority. The Base Rental Payments shall be due and payable no later than the fifth Business Day next preceding each Interest Payment Date (the “Base Rental Deposit Date”) on which such Base Rental Payment is due in an amount equal to the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds. If the term of the Lease Agreement shall have been extended pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Lease of Property; Term— Occupancy; Term,” the Base Rental Payments shall be established so that the Base Rental Payment payable on each Base Rental Deposit Date after the Scheduled Termination Date shall be equal to the principal, if any, of and interest on the Bonds remaining due and payable on such Base Rental Deposit Date; provided, however, that the Rental Payments payable in any Rental Period shall not exceed the annual fair rental value of the Leased Property. Additional Rental Payments. a) The City shall also pay, as Additional Rental Payments, such amounts as shall be required for the payment of the following: i) all taxes and assessments of any type or nature charged to the Authority or the City or affecting the Leased Property or the respective interests or estates of the Authority or the City therein; C-12 ii) insurance premiums for all insurance required pursuant to of the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain”; and iii) all other payments not constituting Base Rental Payments required to be paid by the City pursuant to the provisions of the Lease Agreement. b) Amounts constituting Additional Rental Payments payable under the Lease Agreement shall be paid by the City directly to the person or persons to whom such amounts shall be payable. The City shall pay all such amounts when due or at such later time as such amounts may be paid without penalty or, in any other case, within 60 days after notice in writing from the Trustee to the City stating the amount of Additional Rental Payments then due and payable and the purpose thereof. Fair Rental Value. The parties hereto have agreed and determined that the fair rental value of the Leased Property is not less than the amount indicated in the Lease Agreement. In making such determinations of fair rental value, consideration has been given to the uses and purposes that may be served by the Leased Property and the benefits therefrom that will accrue to the City and the general public. Payments of the Rental Payments for the Leased Property during each Rental Period shall constitute the total rental for said Rental Period. Payment Provisions. Each installment of Base Rental Payments payable under the Lease Agreement shall be paid in lawful money of the United States of America to or upon the order of the Authority at the Principal Office of the Trustee, or such other place or entity as the Authority shall designate. Each Base Rental Payment shall be deposited with the Trustee no later than the Base Rental Deposit Date preceding the Interest Payment Date on which such Base Rental Payment is due. Any Base Rental Payment that shall not be paid by the City when due and payable under the terms of the Lease Agreement shall bear interest from the date when the same is due under the Lease Agreement until the same shall be paid a rate equal to the highest rate of interest on any of the Outstanding Bonds. Notwithstanding any dispute between the Authority and the City, the City shall make all Rental Payments when due without deduction or offset of any kind and shall not withhold any Rental Payments pending the final resolution of such dispute. In the event of a determination that the City was not liable for said Rental Payments or any portion thereof, said payments or excess of payments, as the case may be, shall be credited against subsequent Rental Payments due under the Lease Agreement or refunded at the time of such determination. Appropriations Covenant. The City shall take such action as may be necessary to include all Rental Payments due under the Lease Agreement as a separate line item in its annual budgets and to make necessary annual appropriations for all such Rental Payments. The covenants on the part of the City contained in the Lease Agreement shall be deemed to be and shall be construed to be duties imposed by law and it shall be the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Lease Agreement agreed to be carried out and performed by the City. Rental Abatement. (a) Except as otherwise specifically provided in the provisions of the Lease Agreement summarized under this heading (“– Rental Abatement”), during any period in which, by reason of material damage to, or destruction or condemnation of, the Leased Property, or any defect in title to the Leased Property, there is substantial interference with the City’s right to use and occupy any portion of the Leased Property, Rental Payments shall be abated proportionately, and the City waives the benefits of California Civil Code Sections 1932(1), 1932(2) and 1933(4) and any and all other rights to terminate the Lease Agreement by virtue of any such interference, and the Lease Agreement shall C-13 continue in full force and effect. The City and the Authority shall, in a reasonable manner and in good faith, determine the amount of such abatement; provided, however, that the Rental Payments due for any Rental Period shall not exceed the annual fair rental value of that portion of the Leased Property available for use and occupancy by the City during such Rental Period. The City and the Authority shall provide the Trustee and the Insurer with a certificate setting forth the amount of abatement and the basis therefor. Such abatement shall continue for the period commencing with the date of interference resulting from such damage, destruction, condemnation or title defect and, with respect to damage to or destruction of the Leased Property, ending with the substantial completion of the work of repair or replacement of the Leased Property, or the portion thereof so damaged or destroyed. b) Notwithstanding the foregoing, to the extent that Net Proceeds of rental interruption insurance are available for the payment of Rental Payments, Rental Payments shall not be abated as provided in the Lease Agreement summarized in paragraph (a) above but, rather, shall be payable by the City as a special obligation payable solely from such Net Proceeds. Prepayment. The City may cause all or a portion of the Bonds to be optionally redeemed pursuant to the Indenture by prepaying on any date on or after December 1, 2033, all or a portion of the Base Rental Payments from any source of available funds, which prepayment shall be accomplished by the City’s paying an amount sufficient to cause such Bonds to be redeemed pursuant to the Indenture on such prepayment date. The City may prepay, from any source of available funds, all or any portion of the Base Rental Payments by depositing with the Trustee moneys or securities as provided, and subject to the terms and conditions set forth, in the provisions of the Indenture relating to defeasance, sufficient to make such Base Rental Payments when due or to make such Base Rental payments through a specified date on which the City has a right to prepay such Base Rental Payments pursuant to the preceding paragraph, and to prepay such Base Rental Payments on such prepayment date, at a prepayment price determined in accordance with the preceding paragraph. If less than all of the Base Rental Payments are prepaid pursuant to the provisions of the Lease Agreement described under the heading “Prepayment,” then, as of the date of such prepayment pursuant to the first paragraph above, or the date of a deposit pursuant to the preceding paragraph above, the principal and interest components of the Base Rental Payments shall be recalculated in order to take such prepayment into account. The City agrees that if, following a partial prepayment of Base Rental Payments, the Leased Property is damaged or destroyed or taken by eminent domain, or a defect in title to the Leased Property is discovered, the City shall not be entitled to, and by such prepayment waives the right of, abatement of such prepaid Base Rental Payments and the City shall not be entitled to any reimbursement of such Base Rental Payments. If all of the Base Rental Payments are prepaid in accordance with the provisions of the Lease Agreement then, as of the date of such prepayment pursuant to the first paragraph above, or deposit pursuant to the second paragraph above, the term of the Lease Agreement shall be terminated. Before making any prepayment pursuant to the provisions of the Lease Agreement relating to rental payments, the City shall give written notice to the Authority and the Trustee specifying the date on which the prepayment will be made, which date shall be not less than 45 days prior to the prepayment date, unless such notice shall be waived by the Authority and the Trustee. C-14 Quiet Enjoyment; Maintenance; Alterations; Liens Quiet Enjoyment. The Authority covenants and agrees that it will not take any action to prevent the City, so long as the City is keeping and performing the covenants and agreements contained in the Lease Agreement, from having quiet and peaceable possession and enjoyment of the Leased Property during the term of the Lease Agreement. Net-Net-Net Lease. The Lease Agreement shall be deemed and construed to be a “net-net-net lease” and the City agrees that the Rental Payments shall be an absolute net return to the Authority, free and clear of any expenses, charges or set-offs whatsoever and notwithstanding any dispute between the City and the Authority. Right of Entry. The Authority shall have the right to enter upon and to examine and inspect the Leased Property during reasonable business hours (and in emergencies at all times) for any purpose connected with the Authority’s rights or obligations under the Lease Agreement, and for all other lawful purposes. Maintenance and Utilities. Throughout the term of the Lease Agreement, as part of the consideration for rental of the Leased Property, all improvement, repair and maintenance of the Leased Property shall be the responsibility of the City, and the City shall pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property, which may include, without limitation, janitor service, security, power, gas, telephone, light, heating, ventilation, air conditioning, water and all other utility services, and shall pay for or otherwise arrange for payment of the cost of the repair and replacement of the Leased Property resulting from ordinary wear and tear or want of care on the part of the City or any assignee or sublessee thereof. In exchange for the Rental Payments, the Authority agrees to provide only the Leased Property. Additions to Leased Property. Subject to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Quiet Enjoyment; Maintenance; Alterations; Liens—Mechanics’, Etc. Liens,” the City and any sublessee shall, at its own expense, have the right to make additions, modifications and improvements to the Leased Property. To the extent that the removal of such additions, modifications or improvements would not cause material damage to the Leased Property, such additions, modifications and improvements shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. Such additions, modifications and improvements shall not in any way damage the Leased Property or cause it to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements made pursuant to this paragraph, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such additions, modifications and improvements. Installation of City’s Equipment. The City and any sublessee may at any time and from time to time, in its sole discretion and at its own expense, install or permit to be installed items of equipment or other personal property in or upon the Leased Property. All such items shall remain the sole property of the City or such sublessee, and neither the Authority nor the Trustee shall have any interest therein. The City or such sublessee may remove or modify such equipment or other personal property at any time, provided that such party shall repair and restore any and all damage to the Leased Property resulting from the installation, modification or removal of any such items; and the Leased Property, upon completion of any installations, modifications or removals made pursuant to this paragraph, shall be of a value that is at least equal to the value of the Leased Property immediately prior to the making of such installations, modifications or removals. Nothing in the Lease Agreement shall prevent the City or any sublessee from purchasing items to be installed pursuant to this paragraph under a conditional sale or lease purchase C-15 contract, or subject to a vendor’s lien or security agreement as security for the unpaid portion of the purchase price thereof, provided that no such lien or security interest shall attach to any part of the Leased Property. Mechanics’, Etc. Liens. In the event the City shall at any time during the term of the Lease Agreement cause any changes, alterations, additions, improvements, or other work to be done or performed or materials to be supplied, in or upon the Leased Property, the City shall pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies or equipment furnished or alleged to have been furnished to or for the City in, upon or about the Leased Property and that may be secured by a mechanics’, materialmen’s or other lien against the Leased Property or the Authority’s interest therein, and shall cause each such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, except that, if the City desires to contest any such lien, it may do so as long as such contest is in good faith. If any such lien shall be reduced to final judgment and such judgment or such process as may be issued for the enforcement thereof is not promptly stayed, or if so stayed and said stay thereafter expires, the City shall forthwith pay and discharge said judgment. Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Lease Agreement, or from its obligation thereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Insurance; Net Proceeds; Eminent Domain General Liability and Casualty Insurance. (a) The City shall maintain or cause to be maintained, throughout the term of the Lease Agreement, a standard comprehensive general liability insurance policy or policies in protection of the City, the Authority and their respective members, officers, agents and employees. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Leased Property. Said policy or policies shall provide coverage in the minimum liability limits of $1,000,000 for personal injury or death of each person and $3,000,000 for personal injury or deaths of two or more persons in a single accident or event, and in a minimum amount of $500,000 for damage to property (subject to a deductible clause of not to exceed 100,000) resulting from a single accident or event. Such general liability insurance may, however, be in the form of a single limit policy in the amount of $3,000,000 covering all such risks. The Net Proceeds of such general liability insurance shall be applied toward extinguishment or satisfaction of the liability with respect to which the Net Proceeds of such insurance shall have been paid. The City’s obligations under this paragraph may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Self-Insurance.” C-16 b) The City shall maintain or cause to be maintained casualty insurance insuring the Leased Property against fire, lightning and all other risks covered by an extended coverage endorsement excluding earthquake and flood) to the full insurable value of the Leased Property, subject to a $100,000 loss deductible provision. Full insurable value shall not be less than the aggregate principal amount of the Outstanding Bonds. The Net Proceeds of such casualty insurance shall be applied as provided in the Lease Agreement. The City’s obligations under this paragraph may be satisfied by self-insurance, provided that such self-insurance complies with the provisions of the Lease Agreement. c) The insurance required by the Lease Agreement summarized under this heading shall be provided by reputable insurance companies with claims paying abilities determined, in the reasonable opinion of the City’s professionally qualified risk manager or an independent insurance consultant, to be adequate for the purposes of the Lease Agreement. d) The insurance required by the Lease Agreement summarized under this heading may be maintained as part of or in conjunction with any other insurance coverage carried or required to be carried by the City, which insurance may insure the Leased Property and other properties of the City, provided that such insurance complies with the requirements of by the Lease Agreement summarized under this heading. Title Insurance. The City shall provide, on the Closing Date, at its own expense, one or more CLTA or ALTA title insurance policies for the Leased Property, in the aggregate amount of not less than the aggregate principal amount of the Bonds. Said policy or policies shall insure (a) the fee interest of the City in the Leased Property, (b) the Authority’s leasehold estate in the Leased Property under the Ground Lease, and (c) the City’s leasehold estate under the Lease Agreement in the Leased Property, subject only to Permitted Encumbrances; provided, however, that one or more of said estates may be insured through an endorsement to such policy or policies. The Net Proceeds of such title insurance shall be applied as described in the provisions of the Lease Agreement under “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain—Net Proceeds of Title Insurance.” Additional Insurance Provision; Form of Policies. (a) The City shall pay or cause to be paid when due the premiums for all insurance policies required by the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain— General Liability and Casualty Insurance,” and shall promptly furnish or cause to be furnished evidence of such payments to the Trustee. All such policies shall contain a standard lessee clause in favor of the Trustee and the general liability insurance policies shall be endorsed to show the Trustee, as an additional insured. All such policies shall provide that the Trustee and the Insurer shall be given 30 days’ notice of the expiration thereof, any intended cancellation thereof or any reduction in the coverage provided thereby. The Trustee shall be fully protected in accepting payment on account of such insurance or any adjustment, compromise or settlement of any loss agreed to by the City; provided, however, that the City shall not agree to any adjustment, compromise or settlement without the Insurer’s written consent. b) The City shall cause to be delivered to the Trustee, within 90 days following the close of each Fiscal Year, a schedule of the insurance policies being maintained in accordance with the Lease Agreement and a Written Certificate of the City stating that such policies are in full force and effect and that the City is in full compliance with the requirements of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain.” Neither the Trustee nor the Insurer shall be responsible for the sufficiency of coverage or amounts of such policies. Self-Insurance. Any self-insurance maintained by the City pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Insurance; Net Proceeds; Eminent Domain” shall comply with the following terms: C-17 a) the self-insurance program shall be approved in writing by the Insurer and the City’s professionally certified risk manager or by an independent insurance consultant; b) the self-insurance program shall include an actuarially sound claims reserve fund out of which each self-insured claim shall be paid, the adequacy of each such fund shall be evaluated on a bi-annual basis by the City’s professionally certified risk manager or by an independent insurance consultant and any deficiencies in any self-insured claims reserve fund shall be remedied in accordance with the recommendation of the City’s professionally certified risk manager or such independent insurance consultant, as applicable; and c) in the event the self-insurance program shall be discontinued, the actuarial soundness of its claims reserve fund, as determined by the City’s professionally certified risk manager or by an independent insurance consultant, shall be maintained. Damage or Destruction. (a) If the Leased Property or any portion thereof shall be damaged or destroyed, the City shall, within 30 days of the occurrence of the event of damage or destruction, notify the Trustee in writing of the City’s determination as to whether or not such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” b) If the City determines that such damage or destruction will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof. c) If the City determines that such damage or destruction will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (i) apply sufficient funds from the Net Proceeds of any casualty insurance, including the proceeds of any self-insurance, received on account of such damage or destruction and other legally available funds to the repair or replacement of the Leased Property or the portions thereof that have been damaged or destroyed to the condition that existed prior to such damage or destruction, provided that, within 40 days of the occurrence of the event of damage or destruction, the City delivers to the Trustee a Written Certificate of the City (A) certifying that the City has sufficient funds to so complete such repair or replacement of the Leased Property or such portions thereof and identifying such funds and the location thereof, and (B) stating that such funds will not be used for any other purpose until such repair or replacement is completed, (ii) within 60 days of the occurrence of the event of damage or destruction, cause alternate property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT— Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (iii) within 60 days of the occurrence of the event of damage or destruction, deliver sufficient funds from such Net Proceeds and other legally available funds to the Trustee for application to the redemption, pursuant to the extraordinary redemption provisions of the Indenture (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in (I) the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to 105% of the maximum amount of the principal C-18 including principal due and payable by reason of mandatory sinking fund redemption of such Bonds) of and interest on the Bonds coming due in the then current Rental Period or any subsequent Rental Period, and (II) the fair replacement value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, as certified in a Written Certificate of the City delivered to the Trustee, being at least equal to the aggregate principal amount of the Bonds then Outstanding. Net Proceeds of Title Insurance. (a) If a defect in title to the Leased Property results in the creation of a right to receive Net Proceeds under any policy of title insurance with respect to the Leased Property or any portion thereof, the City shall, within 30 days of the creation of such right, notify the Trustee in writing of the City’s determination as to whether or not such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” b) If the City determines that such title defect will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading LEASE AGREEMENT—Rental Payments—Rental Abatement,” such Net Proceeds shall be remitted to the City and used for any lawful purpose thereof. c) If the City determines that such title defect will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (i) within 60 days of the creation of such right to receive such Net Proceeds, cause alternate property to be substituted for all or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (ii) immediately upon receipt thereof, deliver or cause to be delivered such Net Proceeds to the Trustee for the application to the redemption, pursuant to the extraordinary redemption provisions of the Indenture, of all or a portion of the Outstanding Bonds. Eminent Domain. (a) If all or a portion of the Leased Property shall be taken under the power of eminent domain, the City shall, no later than 45 days prior to the day that possession thereof shall be so taken, notify the Trustee in writing of the City’s determination as to whether or not such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement.” b) If the City determines that such taking will not result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” any award made in eminent domain proceedings for such taking shall be remitted to the City and used for any lawful purpose thereof. c) If the City determines that such taking will result in a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments pursuant to the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Rental Payments—Rental Abatement,” then the City shall (A) no later than 60 days prior to the day that possession thereof shall be so taken, cause alternate property to be substituted for all C-19 or a portion of the Leased Property pursuant to, and in accordance with the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property,” or (B) as soon as practicable after receipt thereof, deliver or cause to be delivered any award made such eminent domain proceedings to the Trustee for the application to the redemption, pursuant to the extraordinary redemptions provisions of the Indenture, of all or a portion of the Outstanding Bonds. Representations; Covenants Representations of the City. The City represents and warrants (a) that the City has the full power and authority to enter into, to execute and to deliver the Lease Agreement and to perform all of its duties and obligations thereunder, and has duly authorized the execution and delivery of the Lease Agreement, and (b) the Leased Property will be used in the performance of essential governmental functions. Representation of the Authority. The Authority represents and warrants that the Authority has the full power and authority to enter into, to execute and to deliver the Lease Agreement and the Indenture, and to perform all of its duties and obligations thereunder, and has duly authorized the execution and delivery of the Lease Agreement and the Indenture. Recordation. The City shall record, or cause to be recorded, with the San Luis Obispo County Recorder, the Lease Agreement and the Ground Lease, or memoranda thereof, and a memorandum of the assignment of the City’s right, title and interest in and to the Ground Lease and the Lease Agreement pursuant to the Indenture. Use of the Leased Property. The City will not use, operate or maintain the Leased Property improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by the Lease Agreement. In addition, the City agrees to comply in all respects (including, without limitation, with respect to the use, maintenance and operation of the Leased Property) with all laws of the jurisdictions in which its operations may extend and any legislative, executive, administrative or judicial body exercising any power or jurisdiction over the Leased Property; provided, however, that the City may contest in good faith the validity or application of any such law or rule in any reasonable manner that does not, in the opinion of the Authority, adversely affect the estate of the Authority in and to any of the Leased Property or its interest or rights under the Lease Agreement. Other Liens. The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Indenture, or from its obligation thereunder to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. Taxes. The City shall pay or cause to be paid all taxes and assessments of any type or nature charged to the Authority or affecting the Leased Property or the respective interests or estates therein; provided, however, that with respect to special assessments or other governmental charges that may lawfully be paid in installments over a period of years, the City shall be obligated to pay only such C-20 installments as are required to be paid during the term of the Lease Agreement as and when the same become due. After giving notice to the Authority and the Trustee, the City or any sublessee may, at the City’s or such sublessee’s expense and in its name, in good faith contest any such taxes, assessments, utility and other charges and, in the event of any such contest, may permit the taxes, assessments or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Authority shall notify the City or such sublessee that, in the opinion of independent counsel, by nonpayment of any such items, the interest of the Authority in the Leased Property will be materially endangered or the Leased Property, or any part thereof, will be subject to loss or forfeiture, in which event the City or such sublessee shall promptly pay such taxes, assessments or charges or provide the Authority with full security against any loss that may result from nonpayment, in form satisfactory to the Authority. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Lease Agreement and for the better assuring and confirming unto the Authority of the rights and benefits provided in the Lease Agreement. Lease Default Events and Remedies If (i) the City shall fail (A) to pay any Rental Payment payable under the Lease Agreement when the same becomes due and payable, time being expressly declared to be of the essence in the Lease Agreement, or (B) to keep, observe or perform any other term, covenant or condition contained in the Lease Agreement to be kept or performed by the City, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority, or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event under the Lease Agreement if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, (ii) except as otherwise provided in the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT—Amendments; Assignment and Subleasing; Substitution or Release—Substitution or Release of the Leased Property”, the City’s interest in the Lease Agreement or any part thereof be assigned or transferred, either voluntarily or by operation of law or otherwise, (iii) the City or the Authority shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute, or (iv) the City shall fail to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% of the aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute a Lease Default Event under the Lease Agreement if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days, such failure or event shall constitute a Lease Default Event under the Lease Agreement. C-21 Upon the occurrence of any Lease Default Event under the Lease Agreement, the Authority, in addition to all other rights and remedies it may have at law, shall have the option to do any of the following: a) To terminate the Lease Agreement in the manner provided therein on account of such Lease Default Event, notwithstanding any re-entry or re-letting of the Leased Property as provided therein for in the following paragraph (ii) below, and to re-enter the Leased Property and remove all persons in possession thereof and all personal property whatsoever situated upon the Leased Property and place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City. In the event of such termination, the City agrees to surrender immediately possession of the Leased Property, without let or hindrance, and to pay the Authority all damages recoverable at law that the Authority may incur by reason of such Lease Default Event, including, without limitation, any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. Neither notice to pay Rental Payments or to deliver up possession of the Leased Property given pursuant to law nor any entry or re-entry by the Authority nor any proceeding in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property nor the appointment of a receiver upon initiative of the Authority to protect the Authority’s interest under the Lease Agreement shall of itself operate to terminate the Lease Agreement, and no termination of the Lease Agreement on account of a Lease Default Event under the Lease Agreement shall be or become effective by operation of law or acts of the parties hereto, or otherwise, unless and until the Authority shall have given written notice to the City of the election on the part of the Authority to terminate the Lease Agreement. The City covenants and agrees that no surrender of the Leased Property or of the remainder of the term of the Lease Agreement or any termination of the Lease Agreement shall be valid in any manner or for any purpose whatsoever unless stated by the Authority by such written notice. b) Without terminating the Lease Agreement, (A) to collect each installment of Rental Payments as the same become due and enforce any other terms or provisions of the Lease Agreement to be kept or performed by the City, regardless of whether or not the City has abandoned the Leased Property, or (B) to exercise any and all rights of entry and re-entry upon the Leased Property. In the event the Authority does not elect to terminate the Lease Agreement in the manner provided for in the preceding paragraph (i) above, the City shall remain liable and agrees to keep or perform all covenants and conditions contained in the Lease Agreement to be kept or performed by the City and, if the Leased Property is not re-let, to pay the full amount of the Rental Payments to the end of the term of the Lease Agreement or, in the event that the Leased Property is re-let, to pay any deficiency in Rental Payments that results therefrom; and further agrees to pay said Rental Payments and/or Rental Payment deficiency punctually at the same time and in the same manner as provided in the Lease Agreement for the payment of Rental Payments under the Lease Agreement, notwithstanding the fact that the Authority may have received in previous years or may receive thereafter in subsequent years Rental Payments in excess of the Rental Payments specified in the Lease Agreement, and notwithstanding any entry or re-entry by the Authority or suit in unlawful detainer, or otherwise, brought by the Authority for the purpose of effecting such re-entry or obtaining possession of the Leased Property. Should the Authority elect to re-enter as provided in the Lease Agreement, the City irrevocably appoints the Authority as the agent and attorney-in-fact of the City to re-let the Leased Property, or any part thereof, from time to time, either in the Authority’s name or otherwise, upon such terms and conditions and for such use and period as the Authority may deem advisable and to remove all persons in possession thereof and all personal property whatsoever situated upon the Leased C-22 Property and to place such personal property in storage in any warehouse or other suitable place, for the account of and at the expense of the City, and the City hereby indemnifies and agrees to save harmless the Authority from any costs, loss or damage whatsoever arising out of, in connection with, or incident to any such re-entry upon and re-letting of the Leased Property and removal and storage of such property by the Authority or its duly authorized agents in accordance with the provisions contained in the Lease Agreement. The City agrees that the terms of the Lease Agreement constitute full and sufficient notice of the right of the Authority to re-let the Leased Property in the event of such re-entry without effecting a surrender of the Lease Agreement, and further agrees that no acts of the Authority in effecting such re-letting shall constitute a surrender or termination of the Lease Agreement irrespective of the use or the term for which such re-letting is made or the terms and conditions of such re-letting, or otherwise, but that, on the contrary, upon the occurrence of a Lease Default Event under the Lease Agreement, the right to terminate the Lease Agreement shall vest in the Authority to be effected in the sole and exclusive manner provided for in the preceding paragraph (i) above. The City further agrees to pay the Authority the cost of any alterations or additions to the Leased Property necessary to place the Leased Property in condition for re-letting immediately upon notice to the City of the completion and installation of such additions or alterations. Under the Lease Agreement, the City waives any and all claims for damages caused or that may be caused by the Authority in re-entering and taking possession of the Leased Property as provided in the Lease Agreement and all claims for damages that may result from the destruction of or injury to the Leased Property and all claims for damages to or loss of any property belonging to the City, or any other person, that may be in or upon the Leased Property. In addition to the other remedies set forth in the provisions of the Lease Agreement described under the heading “LEASE AGREEMENT Lease Default Events and Remedies” above, upon the occurrence of a Lease Default Event under the Lease Agreement, the Authority shall be entitled to proceed to protect and enforce the rights vested in the Authority by the Lease Agreement or by law. The provisions of the Lease Agreement and the duties of the City and of its board, officers or employees shall be enforceable by the Authority by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. Without limiting the generality of the foregoing, the Authority shall have the right to bring the following actions: i) Accounting. By action or suit in equity to require the City and its board, officers and employees and its assigns to account as the trustee of an express trust. ii) Injunction. By action or suit in equity to enjoin any acts or things that may be unlawful or in violation of the rights of the Authority. iii) Mandamus. By mandamus or other suit, action or proceeding at law or in equity to enforce the Authority’s rights against the City (and its board, officers and employees) and to compel the City to perform and carry out its duties and obligations under the law and its covenants and agreements with the City as provided in the Lease Agreement. Each and all of the remedies given to the Authority under the Lease Agreement or by any law now or hereafter enacted are cumulative and the single or partial exercise of any right, power or privilege under the Lease Agreement shall not impair the right of the Authority to the further exercise thereof or the exercise of any or all other rights, powers or privileges. The term “re-let” or “re-letting” as used in the the Lease Agreement as described under the heading “LEASE AGREEMENT—Lease Default Events and Remedies” above, but not be limited to, re-letting by means of the operation by the Authority of the Leased Property. If any statute or rule of law validly shall limit the remedies given to the Authority under C-23 the Lease Agreement, the Authority nevertheless shall be entitled to whatever remedies are allowable under any statute or rule of law. In the event the Authority shall prevail in any action brought to enforce any of the terms and provisions of the Lease Agreement, the City agrees to pay a reasonable amount as and for attorney’s fees incurred by the Authority in attempting to enforce any of the remedies available to the Authority under the Lease Agreement. Notwithstanding anything to the contrary contained in the Lease Agreement, the Authority shall have no right upon a default by the City under the Lease Agreement, a Lease Default Event under the Lease Agreement or otherwise to accelerate Rental Payments. Notwithstanding anything in the Lease Agreement to the contrary, the termination of the Lease Agreement by the Authority on account of a Lease Default Event under the Lease Agreement shall not effect or result in a termination of the lease of the Leased Property by the City to the Authority pursuant to the Ground Lease. Amendments; Assignment and Subleasing; Substitution or Release Amendments. (a) The Lease Agreement and the Ground Lease, and the rights and obligations of the Authority and the City thereunder, may be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, but only with the prior written consent of the Owners of a majority of the aggregate principal amount the Bonds then Outstanding, provided that no such amendment shall (i) extend the payment date of any Base Rental Payment or reduce any Base Rental Payment, without the prior written consent of the Owner of each Bond so affected, or (ii) reduce the percentage of the aggregate principal amount the Bonds, the consent of the Owners of which is required for the execution of any amendment of the Lease Agreement or the Ground Lease, without the prior written consent of the Owners of all the Bonds then Outstanding. b) The Lease Agreement and the Ground Lease, and the rights and obligations of the City and the Authority thereunder, may also be amended at any time by an amendment hereto or thereto, which shall become binding upon execution by the City and the Authority, without the written consents of any Owners, but only to the extent permitted by law and only for any one or more of the following purposes: i) to add to the agreements, conditions, covenants and terms required by the Authority or the City to be observed or performed therein other agreements, conditions, covenants and terms thereafter to be observed or performed by the Authority or the City, or to surrender any right or power reserved therein to or conferred therein on the Authority or the City; ii) to make such provisions for the purpose of curing any ambiguity or of correcting, curing or supplementing any defective provision contained therein or in regard to questions arising thereunder that the Authority or the City may deem desirable or necessary and not inconsistent herewith or therewith, and that shall not materially adversely affect the rights or interests of the Owners; iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Bonds or maintain any federal interest subsidies expected to be received with respect to any Bonds; or C-24 iv) to provide for the substitution or release of a portion of the Leased Property in accordance with the provisions of the Lease Agreement as described under the heading “LEASE AGREEMENT Amendments; Assignments And Subleasing; Substitution Or Release Substitution or Release of the Lease Property” below; or v) to make such other changes therein or modifications hereto or thereto as the Authority or the City may deem desirable or necessary, and that shall not materially adversely affect the interests of the Owners. Assignment and Subleasing. Neither the Lease Agreement nor any interest of the City thereunder shall be sold, mortgaged, pledged, assigned or transferred by the City by voluntary act or by operation of law or otherwise; provided, however, that the Leased Property may be subleased in whole or in part by the City, provided that any such sublease shall be subject to all of the following conditions: a) the Lease Agreement and the obligation of the City to make all Rental Payments thereunder shall remain the primary obligation of the City; b) the City shall, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; c) any sublease of the Leased Property by the City shall explicitly provide that such sublease is subject to all rights of the Authority under the Lease Agreement, including, the right to re-enter and re-let the Leased Property or terminate the Lease Agreement upon a Lease Default Event thereunder; and d) the City shall furnish the Authority and the Trustee with an Opinion of Bond Counsel to the effect that such sublease will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income tax purposes. Substitution or Release of the Leased Property. The City shall have the right to substitute alternate real property for any portion of the Leased Property or to release a portion of the Leased Property from the Lease Agreement. The City shall bear all costs and expenses incurred in connection with any substitution or release. A substitution or release under this paragraph will not cause a reduction in, or abatement of, the Base Rental Payments due from the City. Each substitution or release of any portion of the Leased Property is subject to the following conditions, which are conditions precedent to such a substitution or release: a) the City and the Authority must have executed, and the Trustee must have consented to, amendments to the Ground Lease and the Lease Agreement that contain the amended description of the Leased Property as constituted after the substitution and release, and the City must have caused the amendments to be duly recorded with San Luis Obispo County Clerk/Recorder; b) the City must have filed with the Trustee a Written Certificate of the City certifying that (1) the sum of Base Rental Payments plus Additional Rental Payments due under the Lease Agreement in any Rental Period is not in excess of the annual fair-rental value of the Leased Property as constituted after the substitution or release, (2) the Leased Property as constituted after the substitution or release has a useful life equal to or greater than the remaining term of the Bonds, and (3) the City has beneficial use and occupancy of the Leased Property as constituted after such substitution or release; C-25 c) the City must have obtained or caused to be obtained an ALTA or CLTA owner’s title-insurance policy or policies (or an amendment or endorsement to an existing policy or policies) with respect to the Leased Property as constituted after the substitution or release, in substantially the same form as required by the provisions of the Lease Agreement described under the heading “THE LEASE AGREEMENT—INSURANCE; NET PROCEEDS; EMINENT DOMAIN—Title Insurance” and in an amount at least equal to the principal amount of the Bonds then Outstanding. d) The City must have filed or caused to be filed with the Trustee an Opinion of Counsel to the effect that the substitution or release will not, in and of itself, cause the interest on the Bonds to be included in gross income for federal income-tax purposes. THE INDENTURE The Indenture provides for, among other things, the issuance, execution and delivery of the Bonds and sets forth the terms thereof, the creation of certain of the funds and accounts described in the Lease Agreement, certain covenants of the Authority, defines events of default and remedies therefor, and sets forth the rights and responsibilities of the Trustee. Certain provisions of the Indenture setting forth the terms of the Bonds, the redemption provisions thereof and the use of the proceeds of the Bonds are set forth elsewhere in this Official Statement. See “THE BONDS.” Liens and Encumbrances The City shall keep the Leased Property and all parts thereof free from judgments and materialmen’s and mechanics’ liens and free from all claims, demands, encumbrances and other liens of whatever nature or character, and free from any claim or liability that materially impairs the City in conducting its business or utilizing the Leased Property, and the Trustee at its option (after first giving the City ten days’ written notice to comply therewith and failure of the City to so comply within such ten-day period) may defend against any and all actions or proceedings, or may pay or compromise any claim or demand asserted in any such actions or proceedings; provided, however, that, in defending against any such actions or proceedings or in paying or compromising any such claims or demands, the Trustee shall not in any event be deemed to have waived or released the City from liability for or on account of any of its agreements and covenants contained in the Indenture, or from its obligation under the Indenture to perform such agreements and covenants. The Trustee shall have no liability with respect to any determination made in good faith to proceed or decline to defend, pay or compromise any such claim or demand. So long as any Bonds are Outstanding, none of the Trustee, the Authority or the City shall create or suffer to be created any pledge of or lien on the amounts on deposit in any of the funds or accounts created under the Indenture, other than the pledge and lien thereof. Neither the Authority nor the Trustee shall encumber the Leased Property other than in accordance with the Ground Lease, the Lease Agreement and the Indenture. Pledge and Assignment; Funds and Accounts Pledge and Assignment. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, C-26 the provisions of the Indenture and the Act, the Authority pledges to the Owners, and grants thereto a lien on and a security interest in, all of the Lease Revenues and any other amounts held in the Payment Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the Authority, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. Through the Indenture, the Authority assigns and transfers to the Trustee, irrevocably and absolutely, without recourse, for the benefit of the Owners, all of its right, title and interest in and to the Ground Lease and the Lease Agreement, including, without limitation, the right to receive Base Rental Payments and the right to exercise any remedies provided in the Lease Agreement in the event of a default by the City thereunder; provided, however, that the Trustee shall not be required to perform any of the substantive obligations of the Authority thereunder, and, provided, further that Authority shall retain the rights to indemnification, to give consents and approvals thereunder, and to payment or reimbursement of its reasonable costs and expenses under the Lease Agreement. The Trustee hereby accepts said assignment for the benefit of the Owners, subject to the provisions of the Indenture. The Trustee shall be entitled to and shall receive all of the Base Rental Payments, and any Base Rental Payments collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. Payment Fund. All Lease Revenues received by the Trustee shall be deposited by the Trustee in the Payment Fund; provided, however, that Net Proceeds, other than those constituting proceeds of rental interruption insurance received with respect to the Leased Property, shall not be deposited in the Payment Fund but, rather, shall be applied as provided in the Indenture as described under the headings “THE INDENTURE– Net Proceeds and Title Insurance; Covenants—Application of Net Proceeds,” or “– Title Insurance,” as applicable. The Trustee, on each Interest Payment Date, shall transfer from the Payment Fund to each Interest Account an amount equal to the interest on the related Series of Bonds coming due on such Interest Payment Date. Moneys in each Interest Account shall be withdrawn and used by the Trustee for the purpose of paying interest on the related Series of Bonds as and when due and payable. In the event that, on such Interest Payment Date, amounts in any Interest Account are insufficient to pay the interest on the Bonds due and payable on such Interest Payment Date, the Trustee shall apply available funds therein in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULTS AND REMEDIES—Application of Amounts After Default.” The Trustee, on each Principal Payment Date, shall transfer from the Payment Fund to each Principal Account an amount equal to the principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, coming due on such date. Moneys in each Principal Account shall be withdrawn and used by the Trustee for the purpose of paying principal of the related Series of Bonds, including principal due and payable by reason of mandatory sinking fund redemption, as and when due and payable. In the event that, on such Principal Payment Date, amounts in any Principal Account are insufficient to pay the principal due and payable on such Principal Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall apply available funds therein in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULTS AND REMEDIES— Application of Amounts After Default.” C-27 Redemption Fund. The Trustee shall establish and maintain a special fund designated the Redemption Fund.” The Trustee shall deposit in the Redemption Fund (i) amounts received from the City in connection with the City’s exercise of its right pursuant to the provisions described in the Lease Agreement to cause Bonds to be optionally redeemed, and (ii) amounts required to be deposited therein pursuant to the provisions of the Indenture described under the headings “THE INDENTURE—Net Proceeds and Title Insurance; Covenants—Application of Net Proceeds” or “—Title Insurance.” Amounts in the Redemption Fund shall be disbursed therefrom by the Trustee for the payment of the Redemption Price of, and accrued interest on, Bonds redeemed pursuant to the extraordinary or optional redemption provisions of the Indenture. Investments. Except as otherwise provided under the Indenture, all moneys in any of the funds or accounts established pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City received by the Trustee no later than two business days prior to the making of such investment. Moneys in all such funds and accounts shall 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. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to the Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (6) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. Net Proceeds and Title Insurance; Covenants Application of Net Proceeds. If the Leased Property or any portion thereof shall be damaged or destroyed, subject to the further requirements of the Indenture, the City shall, as expeditiously as possible, continuously and diligently prosecute or cause to be prosecuted the repair or replacement thereof, unless the City elects not to repair or replace the Leased Property or the affected portion thereof in accordance with the provisions of the Indenture. The Net Proceeds of any insurance (other than Net Proceeds of rental interruption insurance), including the proceeds of any self-insurance, received on account of any damage or destruction of the Leased Property or a portion thereof shall as soon as possible be deposited with the Trustee and be held by the Trustee in a special account and made available for and, to the extent necessary, shall be applied to the cost of repair or replacement of the Leased Property or the affected portion thereof upon receipt of a Written Request of the City, together with invoices therefor. Pending such application, such proceeds may, pursuant to a Written Request of the City, be invested by the Trustee in Permitted Investments that mature not later than such times as moneys are expected to be needed to pay such costs of repair or replacement. Notwithstanding the foregoing, the City shall, within 60 days of the occurrence of the event of damage or destruction, notify the Trustee in writing as to whether the City intends to replace or repair the Leased Property or the portions of the Leased Property that were damaged or destroyed. If the City does intend to replace or repair the Leased Property or portions thereof, the City shall deposit with the Trustee the full amount of any insurance deductible to be credited to the special account referred to above If such damage, destruction or loss was such that there resulted a substantial interference with the City’s right to the use or occupancy of the Leased Property and an abatement in whole or in part of Rental Payments results from such damage or destruction pursuant to the provisions of the Lease Agreement C-28 described under the heading “THE LEASE AGREEMENT—RENTAL PAYMENTS—Rental Abatement,” then the City shall be required either to (i) apply sufficient funds from the insurance proceeds and other legally available funds to the replacement or repair of the Leased Property or the portions thereof that have been damaged to the condition that existed prior to such damage or destruction, or (ii) apply sufficient funds from the insurance proceeds and other legally available funds to the redemption, pursuant to the provisions described under the heading “REDEMPTION OF BONDS— Extraordinary Redemption” (A) of all of the Outstanding Bonds, or (B) of such portion of the Outstanding Bonds as shall result in the remaining, non-abated Base Rental Payments being sufficient to pay, as and when due, the principal of and interest on the Bonds that will remain Outstanding after such redemption. If the City is required to apply funds from the insurance proceeds and other legally available funds to the redemption of Bonds in accordance with clause (ii) above, the City shall direct the Trustee, in a Written Request of the City, to transfer the funds to be applied to such redemption to the Redemption Fund and the Trustee shall transfer such funds to the Redemption Fund. Any proceeds of any insurance, including the proceeds of any self-insurance remaining after the portion of the Leased Property that was damaged or destroyed is restored to and made available to the City in substantially the same condition and annual fair rental value as that that existed prior to the damage or destruction as required by clause (i) above, or the redemption of Bonds as required by clause (ii) above, in each case as evidenced by a Written Certificate of the City to such effect, shall be paid to the City to be used for any lawful purpose, if there is first delivered to the Trustee a Written Certificate of the City to the effect that the annual fair rental value of the Leased Property after such damage or destruction, and after any repairs or replacements made as a result of such damage or destruction, is at least equal to 100% of the maximum amount of Base Rental Payments becoming due under the Lease Agreement in the then current Rental Period or any subsequent Rental Period and the fair replacement value of the Leased Property after such damage or destruction is at least equal to the sum of the then unpaid principal components of Base Rental Payments. The proceeds of any award in eminent domain shall be deposited by the Trustee in the Redemption Fund and applied to the redemption of Bonds pursuant to the Indenture. Title Insurance. Net Proceeds of any policy of title insurance received by the Trustee in respect of the Leased Property shall be applied and disbursed by the Trustee as follows: a) if the City determines that the title defect giving rise to such proceeds has not substantially interfered with its use and occupancy of the Leased Property and will not result in an abatement of Rental Payments payable by the City under the Lease Agreement, such proceeds shall be remitted to the City and used for any lawful purpose thereof; or b) if the City determines that the title defect giving rise to such proceeds has substantially interfered with its use and occupancy of the Leased Property and will result in an abatement in whole or in part of Rental Payments payable by the City under the Lease Agreement, then the City shall, in a Written Request of the City, direct the Trustee to, and the Trustee shall immediately deposit such proceeds in the Redemption Fund and such proceeds shall be applied to the redemption of Bonds in the manner provided in the extraordinary redemption provisions of the Indenture. Events of Default and Remedies Events of Default. The following events shall be Events of Default under the Indenture: a) except as otherwise provided in the Indenture, failure to pay any installment of principal of any Bond as and when the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; C-29 b) failure to pay any installment of interest on any Bond as and when the same shall become due and payable; c) the occurrence and continuation of a Lease Default Event; d) failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Authority by the Trustee, the City or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the Authority, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such 30 day period and the Authority shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; e) failure by the City to observe and perform any of the covenants, agreements or conditions on its part in the Indenture contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, the Authority or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that if, in the reasonable opinion of the City, the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless consented to by the Trustee, such period of time shall not exceed 180 days; or f) the commencement by the Authority or the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Action on Default. In each and every case during the continuance of an Event of Default, the Trustee may or, at the written direction of the Owners of not less than a majority of the aggregate principal amount of Bonds then Outstanding, shall exercise any of the remedies granted to the Authority under the Lease Agreement and, in addition, take whatever action at law or in equity may appear necessary or desirable to protect and enforce any of the rights vested in the Trustee or the Owners by the Indenture or by the Bonds, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement or for the enforcement of any other legal or equitable right, including any one or more of the remedies set forth in the provisions of the Indenture described under the heading “THE INDENTURE—EVENTS OF DEFAULT AND REMEDIES—Other Remedies.”Other Remedies If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights against the Authority or the City or any member, director, officer or employee thereof, and to compel the Authority or the City or any such member, director, officer or employee to perform or carry out its or his or her duties under law and the agreements and covenants required to be performed by it or him or her contained in the Indenture or the Bonds;by suit in equity to enjoin any acts or things that are unlawful or violate the rights of the Trustee or the Owners; orby suit, action or proceeding in any court of competent jurisdiction, to require the Authority or the City, or both, to account as if it or they were the trustee or trustees of an express trust.Application of Amounts After Default. If an Event of Default shall occur and C-30 be continuing, all Lease Revenues and any other funds thereafter received by the Trustee under any of the provisions of the Indenture shall be applied by the Trustee as follows and in the following order: a) to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture; b) to the payment of all amounts then due for interest on the Bonds, ratably without preference or priority of any kind, according to the amounts of interest on such Bonds due and payable, with interest on the overdue interest at the rate borne by the respective Bonds; and c) to the payment of all amounts then due for principal of the Bonds, ratably without preference or priority of any kind, according to the amounts of principal of the Bonds due and payable, with interest on the overdue principal at the rate borne by the respective Bonds. Limitation on Owner’s Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture, the Act or any other applicable law with respect to such Bond, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners, or to enforce any right under the Bonds, the Indenture, the Act or other applicable law with respect to the Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners, subject to the provisions of the Indenture. The Trustee Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture. The Trustee shall, during the existence of any Event of Default that has not been cured or waived, exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.Qualifications; Removal and Resignation; Successors. a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, which is (or if such trust company, national C-31 banking association or bank is a member of a bank holding company system, its parent bank holding company is) 1. a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this paragraph the combined capital and surplus of such trust company, national banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.(b) The Authority and the City may, by an instrument in writing, upon at least 30 days’ notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with paragraph (a) above, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. b) The Trustee may at any time resign by giving written notice of such resignation by first- class mail, postage prepaid, to the Authority and the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of paragraph (a) above, the Trustee shall resign immediately in the manner and with the effect specified in this section (“Qualifications; Removal and Resignation; Successor”). c) Upon removal or resignation of the Trustee, the Authority and the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in paragraph (a) above. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice, if any, as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such appointment by executing and delivering to the Authority and the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Written Request of the Authority or the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon acceptance of appointment by a successor Trustee as provided in this paragraph, the successor Trustee shall, within 15 days after such acceptance, mail, by first-class mail postage prepaid, a notice of the succession of such Trustee to the trusts thereunder to the Owners at the addresses shown on the Registration Books. C-32 d) Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, national banking association or bank shall be eligible under paragraph (a) above, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding. Liability of TrusteeThe recitals of facts in the Indenture and in the Bonds contained shall be taken as statements of the Authority or the City, as applicable, and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. (b) The Trustee makes no representations as to the validity or sufficiency of the Indenture or of any Bonds, or in respect of the security afforded by the Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Authority, the City or others in accordance with the Indenture. c) The Trustee shall not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. d) No provision of the Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. e) The Trustee may execute any of its powers or duties under the Indenture through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. f) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. g) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. h) Before taking action under the provisions of the Indenture described under the heading THE INDENTURE—Events of Default”, under this section (“Liability of Trusteeor upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. i) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. C-33 j) The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. k) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. l) The Trustee shall not be liable for the failure to take any action required to be taken by it under the Indenture if and to the extent that the Trustee’s taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. m) The Trustee shall not be deemed to have knowledge of an Event of Default under the Indenture unless it has actual knowledge thereof. n) The permissive right of the Trustee to do things enumerated in the Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. o) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions of the Indenture. Amendment of the Indenture The Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners thereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Indenture . No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under the Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, the Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, the Indenture, except as expressly provided in the Indenture, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) modify or amend the provisions of the Indenture described in this section (“Amendment of the Indenture”) without the prior written consents of the Owners of all Bonds then Outstanding. The Indenture and the rights and obligations of the Authority, the City, the Trustee and the Owners thereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the Authority, the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: i) to add to the covenants and agreements of the Authority or the City in the Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign C-34 additional security for the Bonds (or any portion thereof), or to surrender any right or power in the Indenture reserved to or conferred upon the Authority or the City; ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in the Indenture or in regard to questions arising under the Indenture that the Authority or the City may deem desirable or necessary and not inconsistent herewith, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners under the Indenture; iii) to make such additions, deletions or modifications as may be necessary or appropriate to assure the exclusion from gross income for federal income tax purposes of interest on the Tax- Exempt Bonds; and iv) in any other respect whatsoever as the Authority or the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners of the Bonds. Promptly after the execution by the Authority, the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Authority or the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Defeasance Discharge of Indenture. If the Authority shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated in the Indenture and therein, then the Owners shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority under the Indenture shall thereupon cease, terminate and become void and the Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Authority and the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Authority all money or securities held by it pursuant hereto that are not required for the payment of the principal of and interest and premium, if any, on the Bonds. Subject to the provisions of the preceding paragraph, when any Bond shall have been paid and if, at the time of such payment, each of the Authority and the City shall have kept, performed and observed all of the covenants and promises in such Bonds and in the Indenture required or contemplated to be kept, performed and observed by it or on its part on or prior to that time, then the Indenture shall be considered to have been discharged in respect of such Bond and such Bond shall cease to be entitled to the pledge of the Lease Revenues and the other assets as provided in the Indenture, and all agreements, covenants and other obligations of the Authority and the City under the Indenture shall cease, terminate, become void and be completely discharged and satisfied as to such Bond. Notwithstanding the discharge and satisfaction of the Indenture or the discharge and satisfaction of the Indenture in respect of any Bond, those provisions of the Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be C-35 binding upon the Trustee and the Owners and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of the Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of the Indenture, the obligation of the City to indemnify the Trustee pursuant to the provisions of the Indenture described under the heading “THE TRUSTEE—Compensation and Indemnification of the Trustee” shall remain in effect and be binding upon the City. Bonds Deemed to Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning and with the effect provided in the Indenture described under the heading “THE INDENTURE— Defeasance—Discharge of Indenture.” Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance— Discharge of Indenture” if (i) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Authority shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of the provisions of the Indenture described under the heading “REDEMPTION OF BONDS—Mandatory Sinking Fund Redemption,” notice of redemption of such Bond on said redemption date, said notice to be given in accordance with the provisions of the Indenture described under the heading “THE INDENTURE—Defeasance—Discharge of Indenture,” (ii) there shall have been deposited with the Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, together with the money, if any, deposited therewith, will provide moneys that shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the Authority shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owner of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this section (“Bonds Deemed to Have Been Paid”) and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. Neither the money nor the Defeasance Securities deposited with the Trustee pursuant to this paragraph in connection with the deemed payment of Bonds, nor principal or interest payments on any such Defeasance Securities, shall be withdrawn or used for any purpose other than, and shall be held in trust for and pledged to, the payment of the principal of and, premium, if any, and interest on such Bonds. b) No Bond shall be deemed to have been paid pursuant to clause (ii) above unless the Authority or the City shall have caused to be delivered to the Authority, the City and the Trustee (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of paragraph a) above, resulting in such deemed payment, which escrow agreement shall be in form and in substance acceptable to the Authority, the City and the Trustee, which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (iii) a copy of an Opinion of Bond Counsel, dated the date of such deemed payment and addressed to the Authority, the City and the Trustee, in form and in substance acceptable to the Authority and the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in the C-36 Indenture, the Indenture has been discharged in respect of such Bond and all agreements, covenants and other obligations of the Authority and the City thereunder as to such Bond have ceased, terminated, become void and been completely discharged and satisfied. c) The Trustee may seek and is entitled to rely upon (i) an Opinion of Bond Counsel reasonably satisfactory to the Trustee to the effect that the conditions precedent to a deemed payment pursuant to clause (ii) of paragraph (a) above have been satisfied, and (ii) such other opinions, certifications and computations, as the Trustee may reasonably request, of accountants or other financial consultants concerning the matters described in paragraph (b) above. D-1 APPENDIX D PROPOSED FORM OF BOND COUNSEL OPINION Upon issuance of the Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially the following form: September 13, 2023 San Luis Obispo Public Financing Authority San Luis Obispo, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the San Luis Obispo Public Financing Authority (the Authority”) in connection with issuance of $45,780,000 aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), issued pursuant to an Indenture, dated as of September 1, 2023 (the “Indenture”), between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Lease Agreement, the Ground Lease, the Tax Certificate, certificates of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate, including without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, D-2 moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities such as the Authority and the City in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or to have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Lease Agreement, the Ground Lease or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion or view with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding limited obligations of the Authority. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. 3. The Ground Lease and the Lease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority. 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. We observe that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (this “Disclosure Certificate”) is executed and delivered by the City of San Luis Obispo (the “City”), on behalf of itself and the San Luis Obispo Public Financing Authority (the “Authority”), in connection with the issuance of the Authority’s Lease Revenue Bonds Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued under an Indenture dated as of September 1, 2023 (the “Indenture”) between the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The City covenants and agrees, on behalf of itself and the Authority, as follows: SECTION 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report” means any Annual Report provided by the City under, and as described in, Sections 3 and 4 of this Disclosure Certificate. Dissemination Agent” means the City or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. Financial Obligation” means, for purposes of the listed events set out in Section 5(a)(10) and Section (5)(b)(8), a (i) debt obligation; (ii) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (iii) guarantee of (i) or (ii). The term “Financial Obligation” shall not include municipal securities (as defined in the Securities Exchange Act of 1934, as amended) as to which a final official statement (as defined in the Rule) has been provided to the MSRB consistent with the Rule. Fiscal Year” means any twelve-month period beginning on July 1 in any year and extending to the next succeeding June 30, both dates inclusive, or any other 12-month period selected and designated by the City. Listed Events” means any of the events listed in Section 5(a) hereof. MSRB” means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. Official Statement” means the final official statement dated August 30, 2023, prepared with respect to the Bonds. Participating Underwriter” means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Report Date” means March 1 of each year. E-2 Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. SECTION 3. Provision of Annual Reports. a) The City shall, or shall cause the Dissemination Agent to, not later than the Report Date, commencing March 1, 2024, with the report for Fiscal Year 2022-2023, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 business days prior to the Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Report Date if not available by the Report Date. If the City’s Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City under the Indenture. b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Report Date, the City shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. c) With respect to each Annual Report, the Dissemination Agent shall: i) determine each year prior to the Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. SECTION 4. Content of Annual Reports. The City’s Annual Report shall contain or incorporate by reference the following: a) Audited financial statements of the City prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. b) To the extent not contained in the audited financial statements filed under the preceding clause (a), the Annual Report shall contain information showing: E-3 i) information concerning the actual revenues, expenditures and beginning and ending fund balances relating to the General Fund of the City for the most recent completed Fiscal Year; ii) information showing the aggregate principal amount of long-term bonds, leases and other obligations of the City which are payable out of the General Fund of the City, as of the close of the most recent completed Fiscal Year; iii) information concerning the assessed valuation of properties within the City for the most recent completed Fiscal Year; iv) information showing the total secured property tax levy and actual amounts collected for the most recent completed Fiscal Year; v) with respect to the top 10 property taxpayers in the City, information showing the identity of each such taxpayer, and the total assessed valuation of properties owned by each such taxpayer. vi) information concerning the sales and use tax revenue collected by the City for the most recently completed Fiscal Year; vii) information concerning the transient occupancy tax revenue collected by the City for the most recently completed Fiscal Year; viii) a statement on whether the County of San Luis Obispo used the Teeter Plan to assess and collect tax during the most recently completed Fiscal Year; and x) information concerning parking fund revenues and operating expenses. c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. 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 City or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. SECTION 5. Reporting of Significant Events. a) The City shall give, or cause to be given, notice of the occurrence of any of the following Listed Events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: 1. Principal and interest payment delinquencies; 2. Unscheduled draws on debt service reserves reflecting financial difficulties; 3. Unscheduled draws on credit enhancements reflecting financial difficulties; 4. Substitution of credit or liquidity providers, or their failure to perform; E-4 5. Issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); 6. Tender offers; 7. Defeasances; 8. Rating changes; or 9. Bankruptcy, insolvency, receivership or similar event of the obligated person. Note: for the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the 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. 10. Default, event of acceleration, termination event, modification of terms, or other similar events under the terms of a Financial Obligation of the obligated person, any of which reflect financial difficulties. b) The City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: 1. Unless described in Section 5(a)(5), adverse tax opinions or other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 2. Modifications to rights of Bond holders; 3. Bond calls; 4. Release, substitution, or sale of property securing repayment of the Bonds; 5. Non-payment related defaults; 6. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; or 7. Appointment of a successor or additional trustee or the change of name of a trustee. E-5 8. Incurrence of a Financial Obligation of the obligated person, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the obligated person, any of which affect security holders. c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in Section 5(b), the City shall determine if such event would be material under applicable federal securities laws. d) If the City learns of the occurrence of a Listed Event described in Section 5(a), or determines that knowledge of a Listed Event described in Section 5(b) would be material under applicable federal securities laws, the City shall within ten business days of occurrence file a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of the Listed Event described in subsections (a)(7) or (b)(3) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Holders of affected Bonds pursuant to the Indenture. SECTION 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. SECTION 7. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. SECTION 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5, 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 Bonds, or type of business conducted; b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended under the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the E-6 amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be filed in the same manner as for a Listed Event under Section 5(a). SECTION 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. SECTION 12. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City 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 attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: September 13, 2023 CITY OF SAN LUIS OBISPO By: Finance Director E-7 CONTINUING DISCLOSURE EXHIBIT A FORM OF NOTICE TO THE MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Name of Obligated Person: CITY OF SAN LUIS OBISPO Name of Bond Issue: SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Date of Issuance: September 13, 2023 NOTICE IS HEREBY GIVEN that the Issuer has not provided an Annual Report with respect to the above- named Bonds as required by Section 4 of the Continuing Disclosure Certificate of the Issuer, dated the Date of Issuance. The Issuer anticipates that the Annual Report will be filed by _____________. Dated: _______________ CITY OF SAN LUIS OBISPO By [to be signed only if filed] THIS PAGE INTENTIONALLY LEFT BLANK] F-1 APPENDIX F DTC DESCRIPTION The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Bonds, payment of principal of, premium, if any, and interest on the Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Bonds, and other related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the City and the Authority believe to be reliable, but the City and the Authority do not take responsibility for the completeness or accuracy thereof. The City and the Authority cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners either (a) payments of principal, premium, if any, and interest with respect to the Bonds or (b) certificates representing ownership interests in or other confirmation of ownership interests in the Bonds, or that they will so do on a timely basis or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Official Statement. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond will be issued for each maturity (and each yield in the case of bifurcated maturities) of the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has 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 provided that nothing contained in such website is incorporated into this Official Statement. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as F-2 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 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of 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 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 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City and the Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City, the Authority 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, the City or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City, the Authority 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 The City and the Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, bond certificates will be printed and delivered to DTC. NEITHER THE CITY, THE AUTHORITY 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. DTC (or a successor securities depository) may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the City and the Authority. The City and the Authority, in their sole discretion and without the consent of any other person, may terminate the services of DTC (or a successor securities depository) with respect to the Bonds. The City and the Authority undertake no obligation to investigate matters that would enable the City and the Authority to make such a determination. In the event that the book-entry system is discontinued as described above, the requirements of the Indenture will apply. THE CITY, THE AUTHORITY AND THE UNDERWRITERS CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE PARTICIPANTS OR OTHERS WILL DISTRIBUTE PAYMENTS OF PRINCIPAL, INTEREST OR PREMIUM, IF ANY, WITH RESPECT TO THE 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. THE CITY, THE AUTHORITY AND THE UNDERWRITERS ARE NOT 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 Bonds OR AN ERROR OR DELAY RELATING THERETO. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City and the Authority deem reliable, but the City and the Authority take no responsibility for the accuracy thereof. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City, the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The City and the Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered as described in the Indenture and payment of interest to each Owner who owns of record $1,000,000 or more in aggregate principal amount of Bonds may be made to such Owner by wire transfer to such wire address within the United States that such Owner may request in writing for all Interest Payment Dates following the 15th day after the Trustee’s receipt of such request. THIS PAGE INTENTIONALLY LEFT BLANK] SA N L U I S O B I S P O P U B L I C F I N A N C I N G A U T H O R I T Y LE A S E R E V E N U E B O N D S C U L T U R A L A R T S D I S T R I C T P A R K I N G P R O J E C T S E R I E S 2 0 2 3 MISCELLANEOUS The purpose of this Official Statement is to supply information to prospective buyers of the Bonds. Quotations from and summaries and explanations of the Bonds and of statutes and other documents contained in this Official Statement do not purport to be complete, and reference should be made to the Bonds and such statutes and other documents for full and complete statements of their provisions. The preparation and distribution of this Official Statement have been authorized by the Authority and the City. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: /s/ Emily Jackson Treasurer CITY OF SAN LUIS OBISPO By: /s/ Derek Johnson City Manager DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4151-0878-9578.1 EXHIBIT A Notice of Full Optional Redemption City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds Issued: June 7, 2012 Payment Date (December 1) Outstanding Principal Amount Interest Rate Redemption Price Bond Number CUSIP No. (798596) 2023 $305,000 4.000%100%R-12 LC4 2024 315,000 4.000 100 R-13 LD2 2025 325,000 4.000 100 R-14 LE0 2026 345,000 4.000 100 R-15 LF7 2027 360,000 4.000 100 R-16 LG5 2028 375,000 4.000 100 R-17 LH3 2029 390,000 4.000 100 R-18 LJ9 NOTICE IS HEREBY GIVEN that the City of San Luis Obispo Capital Improvement Board (the “Board”) hereby calls for redemption on October 3, 2023 (the “Redemption Date”) all of the then outstanding City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “Bonds”) in the outstanding principal amounts set forth above, at the Redemption Price (the “Redemption Price”) set forth above, together with accrued interest on the Bonds to the Redemption Date. This Notice of Redemption is given pursuant to the Indenture of Trust between the Board and U.S. Bank Trust Company, National Association successor in interest to U.S. Bank National Association (the “Trustee”), dated as of June 1, 2012. If on the Redemption Date money for the payment of the Redemption Price, together with accrued interest, is held by the Trustee for the payment of the Redemption Price of the Bonds hereby called for redemption, interest on the Bonds called for redemption for which such moneys are held shall cease to accrue and be payable from and after the Redemption Date and the Redemption Price of said Bonds, together with accrued interest thereon to the Redemption Date will become due and payable on the Redemption Date. Payment of the Redemption Price on the Bonds called for redemption will be paid only upon presentation and surrender thereof in the following manner: U.S. Bank Global Corporate Trust 111 Fillmore Avenue East St. Paul, MN 55107 1-800-934-6802 BONDHOLDERS PRESENTING THEIR BONDS IN PERSON FOR SAME DAY PAYMENT MUST SURRENDER THEIR BOND(S) BY 1:00 P.M. ON THE REDEMPTION DATE AND A CHECK WILL BE AVAILABLE FOR PICK UP AFTER 2:00 P.M. CHECKS NOT PICKED UP BY 4:30 P.M. WILL BE MAILED OUT TO THE BONDHOLDER VIA FIRST CLASS MAIL. IF PAYMENT OF THE REDEMPTION PRICE IS TO BE MADE TO THE REGISTERED OWNER OF THE BOND, YOU ARE NOT REQUIRED TO ENDORSE THE BOND TO COLLECT THE REDEMPTION PRICE. 4151-0878-9578.1 REQUIREMENT INFORMATION For a list of redemption requirements please visit our website at www.usbank.com/corporatetrust and click on the “Bondholder Information” link. IMPORTANT NOTICE Under the Jobs and Growth Tax Relief Reconciliation Act of 2003 28% will be withheld if tax identification number is not properly certified. *None of the Trustee, Board or the San Luis Obispo Public Financing Authority shall be held responsible for the selection or use of the CUSIP number, nor is any representation made as to its correctness indicated in this Rescindable Notice of Redemption. It is included solely for convenience of the Holders of the Bonds. By: U.S. Bank Trust Company, National Association, as Trustee Date: September 13, 2023 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE REGARDING RESOLUTION NO. 11443 (2023 SERIES) The undersigned hereby states and certifies: (a)that the undersigned is the duly appointed, qualified and acting Secretary of the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), and, as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; and (b)that attached hereto is a true, correct and complete copy of Resolution No. 11443 (2023 SERIES) entitled, “A Resolution of the Board of Directors of the San Luis Obispo Public Financing Authority Authorizing the Execution and Delivery of a Ground Lease, A Lease Agreement, an Indenture, and a Bond Purchase Contract in Connection With the Issuance of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, Authorizing the Issuance of Such Bonds in an Aggregate Principal Amount of Not to Exceed $50,000,000, Authorizing the Distribution of an Official Statement in Connection Therewith and Authorizing the Execution of Necessary Documents and Certificates and Related Actions,” adopted by the Board of Directors of the Authority on August 15, 2023, which resolution has not been amended, modified, supplemented or rescinded since the date of its adoption and remains in full force and effect as of the date hereof. Dated: September 13, 2023 ____________________________________ Teresa Purrington, Secretary of the San Luis Obispo Public Financing Authority DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE OF SECRETARY OF THE AUTHORITY REGARDING JOINT EXERCISE OF POWERS AGREEMENT The undersigned hereby states and certifies: (a)that the undersigned is the duly appointed, qualified and acting Secretary of the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California, and, as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; and (b)that attached hereto is a true, correct and complete copy of the Joint Exercise of Powers Agreement, effective September 15, 2014, by and between the City of San Luis Obispo and the Parking authority of the City of San Luis Obispo, certified by the Secretary of the Authority, and that said Agreement has not been amended, modified or rescinded, and the same is now in full force and effect as of the date hereof. Dated: September 13, 2023 ____________________________________ Teresa Purrington, Secretary of the San Luis Obispo Public Financing Authority DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INCUMBENCY AND SIGNATURE CERTIFICATE OF AUTHORITY Each of the undersigned hereby state and certify: (a)that, as set forth opposite his or her electronic signature below, he or she is a duly appointed, qualified and acting official of the San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), and, as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; (b)that the following are now, and have continuously been since August 15, 2023, the duly elected, qualified and acting members of the Board of Directors of the Authority: Members of the Authority Erica A. Stewart, Chair Jan Marx, Vice Chair Emily Francis, Director Andy Pease, Director Michelle Shoresman, Director (c)that the signatures set forth opposite the names and titles of the following persons are the true and correct specimen signatures of such persons, each of whom holds the office designated below: Name Title Signature Derek Johnson Executive Director _________________________________ Teresa Purrington Secretary __________________________________ DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4140-9161-9401 (e)that, pursuant to Resolution No. 11443 (2023 SERIES), adopted by the Board of Directors of the Authority on August 15, 2023, the Board of Directors of the Authority approved the execution and delivery of any and all agreements, documents, certificates and instruments referred to therein with electronic signatures as may be permitted under the California Uniform Electronic Transactions Act and digital signatures as may be permitted under Section 16.5 of the California Government Code using DocuSign; (f)that, for and on behalf of the Authority, Emily Jackson, the within-named Treasurer of the Authority, is authorized to execute, and has executed with her electronic or manual signature, the following documents: (i)Bond Purchase Contract, dated August 30, 2023, by and among Raymond James & Associates, Inc., the Authority and the City of San Luis Obispo (the “City”), relating to the $45,780,000 aggregate principal amount of the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”); (ii)Ground Lease, dated as of September 1, 2023, by and between the City and the Authority; (iii)Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, together with Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, by and among the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); (iv)Indenture, dated as of September 1, 2023, by and among the Authority, the City and the Trustee, relating to the Bonds; and (v)Official Statement, dated August 30, 2023, relating to the Bonds; (g)that the Bonds, dated the date of this Certificate (this “Certificate”), have been executed by the manual or facsimile signature of the within-named Executive Director of the Authority and attested to by the manual or facsimile signature of the within-named Secretary of the Authority; (h)that he or she agrees and acknowledges that it is his or her intent (i) that, by signing this Certificate using an electronic signature, he or she is signing, adopting and accepting this Certificate, and (ii) that signing this Certificate using an electronic signature is the legal equivalent of having placed his or her handwritten signature on this Certificate on paper; (i)that he or she acknowledges that he or she is being provided with an electronic or paper copy of this Certificate in a usable format; and DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 3 4140-9161-9401 (j)that his or her name, title and email address set forth opposite his or her electronic signature below is correct, and that his or her digital signature is under his or her sole control. Dated: September 13, 2023 Name Title E-mail Address Signature Derek Johnson Executive Director ___________________ ___________________ Teresa Purrington Secretary ___________________ ___________________ Emily Jackson Treasurer ___________________ ___________________ DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B djohnson@slocity.org ejackson@slocity.org tpurring@slocity.org 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 WRITTEN REQUEST TO TRUSTEE The San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), hereby states and certifies: (a)that the undersigned, Emily Jackson, is the duly appointed, qualified and acting Treasurer of the Authority, and, as such, is a duly designated “Authorized Representative” of the Authority, as such term is defined in the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City of San Luis Obispo and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); and (b)that, pursuant to Section 3.01 of the Indenture, the Trustee is hereby requested to authenticate $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), and to deliver the authenticated Bonds to or upon the order of Raymond James & Associates, Inc. (the “Underwriter”) upon receipt by the Trustee from the Underwriter in immediately available funds of the purchase price for the Bonds. Capitalized terms used herein and not otherwise defined shall have the meanings give such terms in the Indenture. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4140-9161-9401 IN WITNESS WHEREOF, the undersigned has executed this Written Request to Trustee on the date set forth below. Dated: September 13, 2023 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: ________________________________ Emily Jackson, Treasurer DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401.4 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE OF THE AUTHORITY The San Luis Obispo Public Financing Authority, a joint powers authority organized and existing under the laws of the State of California (the “Authority”), hereby states and certifies: (a)that the undersigned, Emily Jackson, is the duly appointed, qualified and acting Treasurer of the Authority, and, as such, is a duly designated “Authorized Representative” of the Authority, as such term is defined in the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); (b)that, by all necessary power and authority, the Authority has duly authorized and approved the execution and delivery of the Official Statement, dated August 30, 2023 (the “Official Statement”), relating to the $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), and the execution and delivery of, and the performance by the Authority of the obligations on its part contained in, the following documents (collectively, the “Authority Documents”): (i)the Bonds; (ii)Bond Purchase Contract, dated August 30, 2023 (the “Purchase Contract”), by and among Raymond James & Associates, Inc., the Authority and the City, relating to the Bonds; (iii)Ground Lease, dated as of September 1, 2023, by and between the City and the Authority; (iv)Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, together with Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, by and among the City, the Authority and the Trustee; and (v)Indenture; (c)that Resolution No. 11443 (2023 SERIES), adopted by the Board of Directors of the Authority on August 15, 2023, was adopted at a regular meeting of the Authority, at which a quorum was present and acting throughout, is in full force and effect as of the date hereof, and has not been amended, modified or supplemented as of the date hereof; (d)that the representations, warranties and covenants of the Authority contained in the Purchase Contract are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof by the Authority; 2 4140-9161-9401.4 (e)that the Authority has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the Authority at or prior to the date hereof; (f)that no event affecting the Authority has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (g)that the information and statements contained in the Preliminary Official Statement, dated August 23, 2023, under the caption “THE AUTHORITY” did not as of its date and as of the date of the Purchase Contract, and the information and statements contained in the Official Statement under the caption “THE AUTHORITY” did not as of its date, and as of the date hereof, contain any untrue statement of a material fact or omit to state any material fact that is necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (h)that the Authority is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease Agreement) or other instrument to which the Authority is a party or is otherwise subject, which would have a material adverse impact on the Authority’s ability to perform its obligations under the Authority Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument. 3 4140-9161-9401 IN WITNESS WHEREOF, the undersigned has executed this Certificate of the Authority on the date set forth below. Dated: September 13, 2023 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: ________________________________ Emily Jackson, Treasurer DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4135-7884-9354.1 TAX CERTIFICATE $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 This Tax Certificate is executed and delivered by the San Luis Obispo Public Financing Authority (the “Issuer”) and the City of San Luis Obispo, California (the “City”) in connection with the Issuer’s issuance of $45,780,000 of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to an Indenture (the “Indenture”), dated as of September 1, 2023, by and between the Issuer and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Pursuant to Section 5.03 of the Indenture, and in part pursuant to Treasury Regulations §1.148-2(b)(2), the Issuer and the City certify, covenant, warrant and represent as follows: ARTICLE 1 IN GENERAL 1.1.The Issuer. The Issuer is a public entity and agency, duly organized and validly existing pursuant to Article 1 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California, under a joint exercise of powers agreement, by and between the City and the Parking Authority of the City of San Luis Obispo, effective September 15, 2014, as originally executed and as it may from time to time be amended or supplemented pursuant to the provisions thereof. The governing board of the Issuer is the same as the governing board of the City. The Issuer is authorized to issue obligations such as the Bonds for the public purposes for which the Issuer was created. The earnings of the Issuer will not and cannot inure to the benefit of any private person, and upon dissolution of the Issuer, title to any assets of the Issuer will revert to one or more of its political subdivisions. The City is a political subdivision of the State of California. 1.2.Delivery of the Bonds. On the date hereof, in exchange for receipt of good funds, the Issuer is delivering the Bonds to Raymond James & Associates, Inc., as underwriter (the “Underwriter”) of the Bonds, for resale to the general public. 1.3.Purpose of Tax Certificate. The Issuer and the City are delivering this Tax Certificate to Orrick, Herrington & Sutcliffe LLP, as bond counsel, with the understanding that Orrick, Herrington & Sutcliffe LLP will rely in part upon this Tax Certificate in rendering its opinion that interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. 1.4.Purpose of Financing. The Bonds are being issued to (i) finance a parking structure in the City’s Cultural Arts District (the “2023 Project”), (ii) refund all of the City’s outstanding Capital Improvement Board 2012 Refunding Lease Revenue Bonds (the “2012 Bonds”), and (iii) pay costs of issuing the Bonds. The Bonds are limited obligations of the Issuer, and debt service on the Bonds is expected to be paid from rental payments to be received from the City pursuant to a Lease Agreement between the Issuer and the City, dated as of September 1, 2023 (the “Lease Agreement”). DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4135-7884-9354.1 The 2012 Bonds were issued to currently refund the City’s 2001 Lease Revenue Refunding Bonds, Series C (the “2001C Bonds”). The 2001C Bonds were issued as part of a single issue with the City’s 2001 Lease Revenue Refunding Bonds, Series A and Series B (the “2001AB Bonds,” and together with the 2001C Bonds, the “2001ABC Bonds”). The 2001ABC Bonds were issued to advance refund the City’s 1999 Lease Revenue Bonds Series A (the “1999A Bonds”), Series B (the “1999B Bonds”), and Series C (the “1999C Bonds,” and together with the 1999A Bonds and 1999B Bonds, the “1999ABC Bonds”). The 1999A Bonds and 1999B Bonds refunded certain prior debt of the City, and the 1999C Bonds financed costs of athletic fields, an expansion of the police headquarters, certain park facilities, and the expansion of the site leased to the San Luis Obispo County Historical Society (the “1999C Projects”). Based on the relative debt service of the 2001ABC Bonds, the 1999ABC Bonds, and the prior debt refunded by the 1999A Bonds and 1999B Bonds, and applying the provisions of Treasury Regulation Section 1.148-9(h)(4)(v)(B), the 2012 Bonds are allocated to the refunding, indirectly, of the 1999C Bonds and refinancing of the 1999C Project. The portion of the Bonds being issued to finance the 2023 Project and pay associated costs of issuance is referred to as the “New Money Portion,” and the portion being issued to refund the 2012 Bonds and pay associated costs of issuance is referred to as the “Refunding Portion.” The 2023 Project and the 1999C Project are referred to collectively as the “Projects.” 1.5.Single Issue; Multipurpose Issue. All the Bonds were sold to the Underwriter on August 30, 2023 (the “Sale Date”), pursuant to the same plan of financing, and are expected to be paid out of substantially the same source of funds. No other governmental obligations which are expected to be paid out of substantially the same source of funds as the Bonds have been or will be sold within the 31-day period beginning 15 days before the Sale Date pursuant to the same plan of financing as the Bonds. The Bonds are a multipurpose issue, being issued to (i) finance the 2023 Project, and (ii) refund the 2012 Bonds. The structuring of the Bonds results in debt service savings in each year for the portion of the Bonds allocable to refunding the 2012 Bonds, as shown in the pricing numbers attached as Exhibit B. As a result, in the event that the Issuer elects to allocate specific maturities of the Bonds to the specific refunding purposes pursuant to Treasury Regulation Section 1.148-9(h), the Issuer may make such an allocation consistent with the allocation shown in Exhibit B. 1.6.Definitions. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Indenture. Unless the context otherwise requires, the following capitalized terms have the following meanings: “Available Construction Proceeds” means all Sale Proceeds and Investment Proceeds of the new money portion of the Bonds earned prior to substantial completion of the Projects, less the amount of such proceeds used to pay costs of issuing the Bonds and less any amount of such proceeds deposited in any reasonably required debt service reserve fund. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 3 4135-7884-9354.1 “Bona Fide Debt Service Funds” means those funds and accounts (or portions of those funds and accounts) identified in Section 3.4.3 of this Tax Certificate. “Bond Year” means the period beginning on the Closing Date and ending on September 13, 2024 (or on an earlier date selected by the Issuer in accordance with Treasury Regulations §1.148-1(b)) and each successive one-year period thereafter. The last Bond Year will end on the last day on which any Bond is outstanding for Federal tax purposes. “Closing Date” means the date of this Tax Certificate. “Code” means the Internal Revenue Code of 1986 (including amendments thereto). "Expenditure Exception Gross Proceeds” means the Gross Proceeds of the New Money Portion of the Bonds, including those used to pay costs of issuance, except for amounts (i) held in the Bona Fide Debt Service Funds; (ii) that, as of the Closing Date, are not reasonably expected to become Gross Proceeds but that become Gross Proceeds more than six months after the Closing Date; (iii) representing Sale Proceeds or Investment Proceeds derived from payments under any purpose investment of the Bonds; (iv) Transferred Proceeds, or (v) representing repayments of grants (as defined in Treasury Regulations Section 1.150-1(f), if any, financed by the Bonds. “General Fund” means the City’s General Fund. “Governmental Unit” means any State, or political subdivision of a State, but excludes the United States and its agencies or instrumentalities. “Gross Proceeds” has the meaning used in §1.148-1(b) of the Treasury Regulations, and generally means all proceeds derived from or relating to the Bonds, including Sale Proceeds, Investment Proceeds, and other amounts expected to be used to pay debt service on the Bonds. “Investment Proceeds” means earnings received from investing and reinvesting Sale Proceeds and from investing and reinvesting such earnings. “Investment Property” means any security or obligation, any annuity contract, or any other investment-type property, but does not include any Tax-Exempt Bond unless such obligation is a “specified private activity bond” within the meaning of Section 57(a)(5)(C) of the Code. “Nongovernmental Person” means any person or entity other than a Governmental Unit. “Nongovernmental Use” means any use of the Projects directly or indirectly by any Nongovernmental Person in any trade or business, other than as a member of the general public. “Nonpurpose Investment” means any Investment Property in which Gross Proceeds are invested. “Opinion of Counsel” means a written opinion of nationally recognized bond counsel, delivered to the Trustee, to the effect that the proposed action or inaction, in and of itself, will not result in the inclusion of interest on the Bonds in gross income for federal income tax purposes of interest. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4 4135-7884-9354.1 “Preliminary Expenditures” means architectural, engineering, surveying, soil testing, costs of issuing the Bonds, and similar costs paid with respect to the 2023 Project in an aggregate amount not exceeding 20% of the issue price of the New Money Portion of the Bonds. However, Preliminary Expenditures do not include land acquisition, site preparation or similar costs incident to the commencement of construction. “Rebate Fund” means the rebate fund established under the Indenture. “Rebate Requirement” means the amount of rebatable arbitrage computed as of the last day of any Bond Year pursuant to §1.148-3 of the Treasury Regulations. “Sale Proceeds” means the amount of $18,538,470.60, comprising the principal amount of the Bonds of $16,905,000.00 plus net original issue premium of $1,633,470.60. “Tax-Exempt Bond” means any obligation the interest on which is excluded from gross income for federal income tax purposes pursuant to Section 103 of the Code or Section 103 of the Internal Revenue Code of 1954, as amended (the “1954 Code”), and Title XIII of the Tax Reform Act of 1986, as amended, as well as stock in a regulated investment company to the extent at least 95 percent of income to the stockholder is treated as interest that is excludable from gross income under Section 103 of the Code. “Yield” means that discount rate described in Section 4.1 of this Tax Certificate. 1.7.Reliance. With respect to certain matters contained in this Tax Certificate, the Issuer and the City specifically rely upon certifications of the Underwriter attached hereto as Exhibit A. The Issuer is not aware of any facts or circumstances that would cause it to question the accuracy or reasonableness of any representation made in this Tax Certificate or in the Exhibits hereto. ARTICLE 2 GENERAL TAX LIMITATIONS 2.1.Application of Sale Proceeds and Certain Other Moneys. Sale Proceeds of the Bonds will be used as shown in the following table. In addition, certain funds for the Refunded Bonds will be released and a contribution from the City will be made, each to be deposited to the respective Redemption Funds for each series of the Refunded Bonds, as described in the Indenture and in the amounts as shown below. Use of Sale Proceeds New Money Portion Refund 2012 Bonds Total Finance 2023 Project $47,000,000.00 $0.00 $47,000,000.00 Refund 2012 Bonds 0.00 2,042,136.67 2,042,136.67 Costs of Issuance 263,191.05 11,829.49 275,020.54 Underwriter’s Discount 164,394.30 6,087.14 170,481.44 Total $47,427,585.35 $2,060,053.30 $49,487,638.65 In addition, $405,600.00 held in the reserve fund for the 2012 Bonds will be released and used to redeem the 2012 Bonds. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 5 4135-7884-9354.1 Investment Proceeds earned on amounts held in any fund created with respect to the Bonds will be deposited and retained in such fund. Other than the amounts in the reserve fund, there are no unspent sale and investment proceeds of the Refunded Bonds and no amounts are expected to become transferred proceeds of the Bonds. 2.2.Governmental Bond Status. The Issuer and the City have not loaned, and absent an Opinion of Counsel, will not loan more than the lesser of 5% or $5 million of proceeds of the 2012 Bonds or the Bonds, as applicable, to one or more Nongovernmental Persons. The Issuer and the City have not allowed more than the lesser of 10% or $15 million of Proceeds of the Refunded Bonds or the Bonds, as applicable, or the Projects, to be subject to Nongovernmental Use. Absent an Opinion of Counsel, neither the City, nor the Issuer will allow more than the lesser of 10% or $15 million of proceeds of the Bonds or of the Project to be subject to Nongovernmental Use. For purposes of the preceding sentence, “10%” is reduced to “5%” for nongovernmental use of any facilities financed from proceeds of the Bonds which are disproportionate to or not related to the governmental purposes of the Bonds. Absent an Opinion of Counsel, for purposes of this Section 2.2, a Nongovernmental Person will be treated as “using” Bond proceeds to the extent the Nongovernmental Person: (i) borrows Bond proceeds, (ii) uses the Projects (e.g., as owner, lessee, service provider, operator or manager), except pursuant to a management or service contract that meets the requirements of Revenue Procedure 2017-13 (or successors thereto), (iii) acquires the output of the Projects, in the case of Projects that provide water, electricity or gas service, or (iv) enters into an arrangement that provides the Nongovernmental Person with any special legal entitlements with respect to the Projects, such as preferential uses or access to the Projects. 2.3.Change in Use. The Issuer and the City reasonably expect to use all Bond proceeds and the Projects as set forth in Section 2.2 of this Tax Certificate for the entire stated term to maturity of the Bonds. Absent an Opinion of Counsel, the Issuer and the City in fact will use all Bond proceeds and the Projects as set forth in Section 2.2 of this Tax Certificate. For purposes of this Section 2.3, abandonment or decommissioning of the Projects or any component thereof shall not be considered a change in use. Demolition of the Projects or a component thereof where there is no net scrap value to the Issuer or the City, and disregarding any use by or by means of a scrap contractor who removes bond-financed components without any consideration other than the contractor’s services in demolishing and hauling away those components, will not be considered a change in use. 2.4.Registered Form. The Bonds are being issued in registered form. 2.5.Federal Guarantee. Neither the Issuer nor the City will directly or indirectly use or permit the use of any Proceeds of the Bonds or any other funds of the Issuer or the City or any related party or take or omit to take any action that would cause the Bonds to be DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 6 4135-7884-9354.1 obligations that are “federally guaranteed” within the meaning of Section 149(b) of the Code. In furtherance of this covenant, neither the Issuer nor the City will allow the payment of principal or interest with respect to the Bonds to be guaranteed (directly or indirectly) in whole or in part by the United States or any agency or instrumentality thereof. Except as provided in the next sentence, neither the Issuer nor the City will use 5% or more of the Proceeds of the Bonds to make or finance loans where the payment of principal or interest on such loans is guaranteed in whole or in part by the United States or any agency or instrumentality thereof, nor will they invest 5% or more of the proceeds in federally insured deposits or accounts. The preceding sentence shall not apply to: (a) investments in the Project Fund or Costs of Issuance Fund during the temporary period described in Section 3.8 ; (ii) investments in the Bona Fide Debt Service Funds; or (iii) investments in obligations issued by the United States Department of Treasury. 2.6.Information Reporting. The Issuer will cause a properly completed and executed IRS Form 8038-G to be filed with respect to the Bonds no later than November 15, 2023. 2.7.Current Refunding. Proceeds of the Bonds will not be used directly or indirectly to make principal, interest or premium payments with respect to any governmental obligation other than the 2012 Bonds. The 2012 Bonds will be redeemed on October 3, 2023, which is within 90 days of the Closing Date. 2.8.No Pooling. Proceeds of the Refunded Bonds were not, and proceeds of the Bonds will not be used to make loans to two or more persons. No payments of legal or underwriting costs associated with the issuance of the Bonds are contingent upon expenditures being made after the Closing Date, and the Issuer expects that at least 95% of such costs will be paid not later than 180 days after the Closing Date. 2.9.No Hedge Bonds. As of the dates the 1999C Bonds were issued, the Issuer and the City reasonably expected to spend at least 85% of the sale proceeds of such bonds (less any sale proceeds deposited to a reserve fund) within three years, and no more than 50% of the proceeds of any issue were invested in in investment property with a substantially guaranteed yield for four years or longer. The Issuer and the City reasonably expected to spend at least 85% of the Sale Proceeds of the New Money Portion of the Bonds within three years, and no more than 50% of the Proceeds will be invested in in investment property with a substantially guaranteed yield for four years or longer. 2.10.Prior Tax Covenants; Final Rebate. In connection with the issuance of the 2012 Bonds, the City executed certain documents representing certain facts and containing certain covenants relating to the use of the 1999C Projects and the use of proceeds of the 2012 Bonds, including tax certificates. The City confirms that, except as described in this Tax Certificate, such representations of the City made in tax certificates with respect to the 2012 Bonds continue to be true in all material respects and that it will continue to observe such covenants. In addition, the City certifies that they have complied with all covenants, certifications, warranties and representations set forth in the legal and closing documents for the 2012 Bonds, and relating DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 7 4135-7884-9354.1 to the exclusion of interest on the 2012 Bonds from gross income for federal tax purposes. The City has not taken or omitted to take any action reasonably within their control since the date of issuance of the 2012 Bonds that would cause interest on the Refunded Bonds to be included in gross income for purposes of federal income taxation. Upon redemption of the 2012 Bonds, the final rebate payment for the 2012 Bonds, if any, will be due within 60 days of the last redemption date thereof. 2.11.Retention of Records. The Issuer and the City covenant to maintain all records relating to the requirements of the Code and the representations, certifications and covenants set forth in this Tax Certificate until the date three years after the last outstanding Bonds have been retired. If any of the Bonds are refunded by Tax-Exempt Bonds (the “Refunding Bonds”), the Issuer and the City covenant to maintain all records required to be retained by this Section 2.11 until the later of the date three years after the last outstanding Bonds have been retired or the date three years after the last Refunding Bonds have been retired. The records that must be retained include, but are not limited to: (i) Basic records and documents relating to the Bonds (including the Indenture, this Tax Certificate, the Form 8038-G and the opinion of Bond Counsel); (ii) Documentation evidencing the expenditure of Proceeds of the Bonds; (iii) Documentation pertaining to any investment of Proceeds of the Bonds (including the purchase and sale of securities, SLGs subscriptions, yield calculations for each class of investments, actual investment income received from the investment of proceeds, guaranteed investment contracts, and rebate calculations). (iv) Documentation evidencing use of the Projects by public and private sources (i.e., copies of management contracts, research agreements, leases, etc.); and (v) Documentation evidencing all sources of payment or security for the Bonds. See also Section 5.2 herein relating to records relating to rebate. The Issuer has previously adopted written procedures relating to post-issuance compliance requirements for its tax exempt obligations. ARTICLE 3 ARBITRAGE GENERAL 3.1.Reasonable Expectations. This Article III states the Issuer’s and the City’s reasonable expectations with respect to the amounts and uses of Proceeds of the Bonds and certain other moneys. 3.2.Issue Price. The Issuer is delivering the Bonds to the Underwriter on the date hereof in exchange for payment of the Sale Proceeds, less underwriter’s discount on the Bonds. Based upon advice (attached hereto as Exhibit A) of the Underwriter, the Bonds have been reoffered to the public, and the first price at which 10% of each maturity of the Bonds were sold to the public was the initial offering price for such maturity as reflected in Exhibit A. Based on DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 8 4135-7884-9354.1 such initial offering prices to the public, the aggregate issue price of the Bonds is of $49,487,638.65. 3.3.Funds and Accounts. Pursuant to the Indenture, the Issuer and the City will cause the following funds and accounts to be established and maintained: Payment Fund Interest Account Principal Account Redemption Fund Project Fund Costs of Issuance Fund Rebate Fund Additionally, the General Fund has been established by the City. The Issuer and the City expect that neither they nor any other person benefiting from the issuance of the Bonds will use any moneys in any fund or account other than the Payment Fund and the General Fund, directly or indirectly, to pay principal of or interest on the Bonds; nor is any other fund or account, however established, so pledged as security for the Bonds that there is a reasonable assurance that amounts held in such other fund or account will be available if needed to pay debt service on the Bonds. 3.4.Debt Service Funds. 3.4.1.Payment of the Bonds. The Bonds are obligations of the Issuer payable from payments on the Lease Agreement, which are derived from general revenues of the City. 3.4.2.Revenues. All revenues are to be collected by the Issuer and applied as provided in the Lease Agreement and the Indenture. Payments of debt service on the Bonds are expected to be derived from current revenues of the City in each year, and current revenues are expected to equal or exceed debt service on the Bonds during each payment period. Therefore, all amounts transferred from the City to the Issuer pursuant to the Lease Agreement, and from the Issuer to pay debt service, are expected to be derived from current revenues. 3.4.3.Match Between Revenues and Debt Service. The General Fund (to the extent of transfers to the Payment Fund) and the Payment Fund and accounts therein (collectively, the “Bona Fide Debt Service Funds”) will be used primarily to achieve a proper matching of revenues and debt service within each Bond Year. The Bona Fide Debt Service Funds, in the aggregate, will be depleted at least once a year except for a carryover amount not to exceed the greater of the prior Bond Year’s earnings on such Funds or 1/12th of the prior Bond Year’s debt service in respect of the Bonds. Amounts contributed to the Bona Fide Debt Service Funds will be spent within thirteen months after the date of such contribution, and any amounts received from the investment or reinvestment of monies held in these funds will be expended within one year after the date of accumulation in these funds. Amounts in the Bona Fide Debt Service Funds shall be invested without regard to yield. 3.5.Rebate Fund. A special fund designated the “Rebate Fund” has been established. The Issuer is required to keep the Rebate Fund separate and apart from all other funds DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 9 4135-7884-9354.1 and moneys held by it. The Issuer and the City have covenanted not to use moneys on deposit in any fund or account in connection with the Bonds in a manner which would cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code. The amount required to be held in the Rebate Fund at any point in time is determined pursuant to the requirements of the Code, including particularly Section 148(f) of the Code and Treasury Regulations §1.148-5(c). Moneys in the Rebate Fund are neither pledged to nor expected to be used to pay debt service in respect of the Bonds. No Sale Proceeds or Investment Proceeds of the Bonds are expected to be held in the Rebate Fund and any other amounts in the Rebate Fund will be invested without regard to yield. 3.6.Reserve Account. There is no reserve account or reserve fund for the Bonds. 3.7.Deposits to Redemption Fund for 2012 Bonds. Sale Proceeds and other amounts being used to refund the 2012 Bonds will be deposited directly to the Redemption Fund for the 2012 Bonds until used to currently refund and redeem the Refunded Bonds on October 3, 2023. Such amounts may be invested without regard to yield. 3.8.Project Fund; Costs of Issuance Fund. Proceeds deposited to the Project Fund will be used to pay costs of the 2023 Project, and amounts deposited in the Costs of Issuance Fund will be used to pay the costs of issuing the Bonds and other expenses related to the Bonds. The Issuer and the City reasonably expects that at least 85% of the Net Sale Proceeds of the Bonds will be spent to pay costs of issuing the Bonds or costs of the 2023 Projects before September 13, 2026. The City heretofore has incurred or reasonably expects that, within six months hereafter, it will incur a binding obligation to one or more unrelated parties involving an expenditure of not less than 5% of the Net Sale Proceeds of the New Money Portion of the Bonds. Allocations of Net Sale Proceeds to costs of issuing the Bonds and costs of the 2023 Projects will proceed with due diligence. Based on such representations, as described in Section Error! Reference source not found., below, amounts held in the Project Fund and the Costs of Issuance Fund may be invested without regard to yield until September 13, 2026. 3.9.No Transferred Proceeds. There are no unspent proceeds of the 2012 Bonds, and therefore no amounts that are expected to become “Transferred Proceeds” of the Bonds. 3.10.No Other Replacement Proceeds. Neither the Issuer nor any related person will use any Gross Proceeds of the Bonds directly or indirectly to replace funds of the Issuer or any related person, which funds are or will be used directly or indirectly to acquire Investment Property reasonably expected to produce a yield that is materially higher than the yield on the Bonds. The weighted average maturity of the Bonds does not exceed 120% of the expected weighted average economic useful life of the Project. 3.11.No Overissuance. Taking into account anticipated investment earnings, proceeds from the sale of the Bonds do not exceed the amount necessary to pay costs of the 2023 Project, refund the 2012 Bonds, and to pay costs of issuing the Bonds. 3.12.No Abusive Arbitrage Device. The Bonds are not and will not be part of a transaction or series of transactions that (a) enables the Issuer or any related person to exploit the DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 10 4135-7884-9354.1 difference between tax-exempt and taxable interest rates to gain a material financial advantage, and (b) overburdens the market for tax-exempt obligations in any manner, including, without limitation, by selling bonds that would not otherwise be sold, or selling more bonds, or issuing bonds sooner, or allowing bonds to remain outstanding longer, than otherwise would be necessary. 3.13.No Expected Sale. It is not expected that the Projects or any part thereof financed in whole or in part by the Bonds will be sold or otherwise disposed of before the scheduled maturity date of the Bonds. ARTICLE 4 ARBITRAGE - YIELD AND YIELD RESTRICTION 4.1.Yield. For purposes of this Tax Certificate, yield is calculated as set forth in Section 148(b) of the Code and Treasury Regulations §§1.148-4 and 1.148-5. Thus, yield on the Bonds or yield on Investment Property generally means that discount rate which, when used in computing the present value of all unconditionally payable payments representing principal, interest and costs of qualified guarantees produces an amount equal to the issue price of the Bonds or the purchase price of the Investment Property, as appropriate. As described in Section 3.2, based upon representations of the Underwriter in Exhibit A, the issue price of the Bonds is $49,487,638.65. For purposes hereof, yield shall be calculated on a 360-day year basis with interest compounded semiannually. The yield on the Bonds has been calculated to be at least 3.934544%. 4.2.No Qualified Hedges. No contract has been, and (absent an Opinion of Counsel) no contract will be entered into such that failure to take the contract into account would distort the yield on the Bonds or otherwise would fail clearly to reflect the economic substance of the transaction. 4.3.No Qualified Guarantee. The Bonds are not insured or otherwise expected to be guaranteed by any agreement that could be treated as a qualified guarantee. 4.4.Yield on Lease Agreement. The amounts paid by the City to the Issuer pursuant to the Lease Agreement will match the debt service payable on the Bonds. The Issuer will not receive any amounts from such funds that give rise to a yield on the Lease Agreement in excess of the yield on the Bonds. 4.5.Yield Restriction. With respect to the respective funds established for the Bonds, unless otherwise authorized by an Opinion of Counsel, if (A) amounts remaining in the Project Fund or Costs of Issuance Fund more than three years after the Closing Date, plus (B) all amounts received from the investment or reinvestment of such Bond proceeds and remaining unexpended one year from its receipt date, plus (C) any amounts held in the Bona Fide Debt Service Funds for such Bonds and remaining unexpended after 13 months from the date of accumulation in such funds, plus (D) any Sale Proceeds or Investment Proceeds of such Bonds held in the Rebate Fund therefore, at any time in the aggregate exceeds $100,000, the excess will be invested either (i) in assets that are not treated as Investment Property (e.g., Tax-Exempt Bonds), (ii) in Investment Property with a yield not exceeding the yield on the Bonds or (iii) in assets that satisfy the requirements for qualified yield reduction payments set forth in Section DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 11 4135-7884-9354.1 1.148-5(c) of the Treasury Regulations, subject to the limitation set forth in Section 1.148- 10(b)(1)(ii) of the Treasury Regulations. ARTICLE 5 REBATE 5.1.Undertakings. Pursuant to the Indenture, the Issuer has covenanted to comply with certain requirements of the Code. The Issuer acknowledges that the United States Department of the Treasury has issued regulations with respect to certain of these undertakings, including the proper method for computing whether any rebate amount is due the federal government under Section 148(f) of the Code. The Issuer covenants that it will undertake to determine what is required with respect to the rebate provisions contained in Section 148(f) of the Code and said regulations from time to time and will comply with any requirements that may apply to the Bonds. Except to the extent inconsistent with any requirements of the Code or future regulations, the Issuer will undertake the methodology described in this Tax Certificate. 5.2.Recordkeeping. The Issuer shall maintain or cause to be maintained detailed records with respect to each Nonpurpose Investment attributable to Gross Proceeds, including: (a) purchase date; (b) purchase price; (c) information establishing fair market value on the date such investment became a Nonpurpose Investment; (d) any accrued interest paid; (e) face amount; (f) coupon rate; (g) periodicity of interest payments; (h) disposition price; (i) any accrued interest received; and (j) disposition date. Such detailed recordkeeping is required to facilitate the calculation of the Rebate Requirement. 5.3.Rebate Requirement Calculation and Payment. (a) Except for amounts described in Section 5.4 of this Tax Certificate, the Issuer will prepare or cause to be prepared an annual calculation of the Rebate Requirement consistent with the rules described in this Section 5.3. The Issuer will complete the annual calculation of the Rebate Requirement within 55 days after the close of each Bond Year and within 55 days after the first date on which there are no outstanding Bonds. (b) For purposes of calculating the Rebate Requirement (i) the aggregate amount earned with respect to a Nonpurpose Investment shall be determined by assuming that the Nonpurpose Investment was acquired for an amount equal to its fair market value (determined as provided in §1.148-5(d)(6) of the Treasury Regulations, as applicable) at the time it becomes a Nonpurpose Investment, and (ii) the aggregate amount earned with respect to any Nonpurpose Investment shall include any unrealized gain or loss with respect to the Nonpurpose Investment (based on the assumed purchase price at fair market value and adjusted to take into account amounts received with respect to the Nonpurpose Investment and earned original issue discount or premium) on the first date when there are no outstanding Bonds or when the investment ceases to be a Nonpurpose Investment. (c) The Issuer shall pay to the United States Department of the Treasury not later than 60 days after the end of the fifth Bond Year and each succeeding fifth Bond Year, an amount equal to 90% and, not later than 60 days after the first date when there are no outstanding Bonds, an amount equal to 100% of the Rebate Requirement (determined as of the end of the immediately preceding Bond Year), all as set forth in §1.148-3 of the Treasury Regulations. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 12 4135-7884-9354.1 (d) Each payment required to be made pursuant hereto shall be filed with the Internal Revenue Service Center, Ogden, Utah, on or before the date such payment is due, and shall be accompanied by Form 8038-T. The Issuer shall retain records of the calculations required by this Section 5.3 until six years after the retirement of the last of the Bonds. 5.4.Exceptions from Rebate Requirement. (a)Bona Fide Debt Service Funds Exception. Bona Fide Debt Service Funds may be exempted from the Rebate Requirement. (b)Six-Month Rebate Exception. In general, no rebate calculations will be required with respect to the Adjusted Gross Proceeds if all of the Adjusted Gross Proceeds actually are spent within six months after the Closing Date. (c)Two-Year Construction Expenditures Exception. The Available Construction Proceeds may not be subject to the Rebate Requirement. In determining the amount of Available Construction Proceeds as of any date, as defined in Section 1.6 hereof, there shall be included the amount of investment earnings reasonably expected as of the Closing Date, except that for the last spending period described below, there shall be included only the investment earnings actually received or accrued as of such date. The City reasonably expects that at least 75% of Available Construction Proceeds will be expended for construction expenditures with respect to the 2023 Project. For this purpose, construction expenditures include costs of construction, reconstruction and rehabilitation, but do not include costs of acquiring any interest in land or other existing real or personal property. All of the Available Construction Proceeds will be deposited or are expected to be deposited to the Project Fund. Except at the election of the City, the Rebate Requirement shall not apply to Available Construction Proceeds or Proceeds of the Bonds used to pay costs of issuance of the Obligations if Available Construction Proceeds are spent at least as quickly as set forth in the following schedule (the “Twenty-four-Month Expenditure Schedule”), measured from the Closing Date: End of first six months 15% End of first year 45% End of first 18 months 75% End of first 24 months 100% The requirement that 100% of Available Construction Proceeds be spent within twenty-four (24) months after the Closing Date will be met if at least 95% of Available Construction Proceeds is spent within twenty-four (24) months and the remainder is held as a reasonable retainage, and such remainder is spent within thirty-six (36) months after the Closing Date. Any failure to satisfy the final expenditure requirement is disregarded if the City exercises due diligence to complete the Project and the amount of such failure does not exceed the lesser of 3% of the Sale Proceeds of the Bonds or $250,000.00. (d)Eighteen Month Expenditure Exception. The Issuer will be treated as having satisfied the Rebate Requirement with respect to the Expenditure Exception Gross Proceeds DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 13 4135-7884-9354.1 if such proceeds are allocated to expenditures for a governmental purpose of the City Obligations at least as quickly as set forth in the following schedule (the “Eighteen-Month Expenditure Schedule”), measured from the Closing Date: End of first six months 15% End of first year 60% End of first 18 months 100% In addition, the eighteen-month expenditure exception requires that the Rebate Requirement be satisfied with respect to all amounts not required to be spent pursuant to the Eighteen-Month Expenditure Schedule (other than earnings on the Bona Fide Debt Service Funds). All of the Expenditure Exception Gross Proceeds will be treated as expended after 18 months if the remainder is a “reasonable retainage,” as required or permitted by construction contracts with the City’s contractors and such remainder is spent within 30 months of the Closing Date. Any failure to satisfy the final expenditure requirement is disregarded if the Issuer exercises due diligence to complete the Project and the amount of such failure does not exceed the lesser of 3% of the Sale Proceeds or $250,000.00. 5.5.Investments and Dispositions. (a) General Rule. No Investment Property may be acquired with Gross Proceeds for an amount (including transaction costs, except as otherwise provided in §1.148-5(e) of the Treasury Regulations) in excess of the fair market value of such Investment Property. No Investment Property may be sold or otherwise disposed of for an amount (including transaction costs, except as otherwise provided in §1.148-5(e) of the Treasury Regulations) less than the fair market value of the Investment Property. (b) Fair Market Value. In general, the fair market value of any Investment Property is the price a willing buyer would pay to a willing seller to acquire the Investment Property, with no amount paid artificially to reduce or increase the yield on such Investment Property. This Section 5.5 describes various safe harbors for determining fair market value. With an Opinion of Counsel, other methods may be used to establish fair market value, provided, however, that such methods comply with the requirements of §1.148-5(d)(6) of the Treasury Regulations. (c) Arm’s-length Purchases and Sales. If Investment Property is acquired pursuant to an arm’s length transaction without regard to any amount paid to reduce the yield on the Investment Property, the fair market value of the Investment Property shall be the amount paid for the Investment Property (without increase for transaction costs, except as otherwise provided in §1.148-5(e) of the Treasury Regulations). If Investment Property is sold or otherwise disposed of in an arm’s length transaction without regard to any reduction in the disposition price to reduce the Rebate Requirement, the fair market value of the Investment Property shall be the amount realized from the sale or other disposition of the Investment Property (without reduction for transaction costs, except as otherwise provided in §1.148-5(e) of the Treasury Regulations). (d) SLGS. If a United States Treasury obligation is acquired directly from or disposed of directly to the United States Department of the Treasury (as in the case of the United DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 14 4135-7884-9354.1 States Treasury Securities - State and Local Government Series), such acquisition or disposition shall be treated as establishing a market for the obligation and as establishing the fair market value of the obligation. (e) Investment Contracts. The purchase price of any Investment Property acquired pursuant to an investment contract (a) (within the meaning of §1.148-1(b) of the Treasury Regulations) shall be determined as provided in §1.148-5 of the Treasury Regulations. No investment contract shall be acquired with Gross Proceeds unless the requirements of §1.148-5 of the Treasury Regulations and this Section 5.5(e) are satisfied. With respect to any investment contract, the Issuer will obtain from the provider of the investment contract, broker thereof or other party, such information, certification or representation as will enable the Issuer to determine that these requirements are satisfied. The purchase price of an investment contract will be considered to be fair market value if: (1) the Issuer has made (or has had made on its behalf) a bona fide solicitation for the investment contract; the solicitation must have specified the material terms of the investment contract (i.e., all the terms that could directly or indirectly affect the yield or the cost of the investment including the collateral security requirements for the investment contract) and, unless the moneys invested pursuant to such investment contract will be held in the Reserve Fund or in the Bona Fide Debt Service Funds, the Issuer’s reasonably expected draw-down schedule for the moneys to be invested; the solicitation has a legitimate business purpose (i.e., a purpose other than to increase the purchase price or reduce the yield) for every term of the bid specification; (2) all bidders have an equal opportunity to bid so that, for example, no bidder is given the opportunity to review other bids (a last look) before bidding; (3) the Issuer solicits bids from at least three investment contract providers with established industry reputations as competitive providers of investment contracts; (4) the Issuer includes in the bid specifications a statement to potential bidders that by submitting a bid, the provider is making certain representations that the bid is bona fide, and specifically that (i) the bidder did not consult with any other potential provider about its bid, (ii) the bid was determined without regard to any other formal or informal agreement that the potential provider had with the Issuer or any other person, and (iii) the bid was not submitted solely as a courtesy to the Issuer or any other person for purposes of satisfying the requirements of §1.148-5 of the Treasury Regulations; (5) at least three bids meeting the qualification requirements of the bid solicitation (as set forth in (1) above) have been received from different providers of investment contracts that have no material financial interest in the Bonds (the following investment contract providers are considered to have a material financial interest in the issue: (i) a lead underwriter in a negotiated underwriting, but only until 15 days after the issue date of the issue, (ii) an entity acting as a financial advisor with respect to the purchase of the investment contract at the time the bid specifications were forwarded to potential DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 15 4135-7884-9354.1 providers; and (iii) any related party to a provider that is disqualified for one of the two preceding reasons); (6) at least one of the bids received by the Issuer that meets the requirements of the preceding paragraph is from an investment contract provider with an established industry reputation as a competitive provider of investment contracts; (7) the investment contract has a yield (net of any broker’s fees) at least equal to the highest yielding of the qualifying bids received from the bidders that have no material financial interest in the Bonds; if the investment contract is not the highest- yielding of the qualifying bids, the Issuer must have significant non-tax reasons, such as creditworthiness of the bidder, for failure to purchase the highest-yielding investment contract offered; (8) if an agent for the Issuer conducts the bidding process, the agent does not bid; and (9) the provider of the investment contract certifies as to all administrative costs to be paid on behalf of the Issuer, including any fees paid as broker commissions in connection with the investment contract. (f) Deemed Acquisition or Sale. The fair market value of any Investment Property not directly purchased with Gross Proceeds for which there is an established securities market generally is the price at which a willing buyer would purchase Investment Property from a willing seller in a bona fide, arm’s length transaction. (g) Certificates of Deposit. The purchase price of a certificate of deposit issued by a commercial bank that has a fixed interest rate, a fixed principal payment schedule, a fixed maturity and a substantial penalty for early withdrawal, will be considered to be fair market value if: (1) the yield on the certificate of deposit is not less than the yield on reasonably comparable direct obligations of the United States; and (2) the yield on the certificate of deposit is not less than the highest published yield of the provider thereof which is currently available on comparable certificates of deposit offered to the public. (h) Broker Compensation. For purposes of computing the Yield on any investment contract acquired through a broker, reasonable compensation received by such broker, whether payable by or on behalf of the obligor or obligee of such investment contract, may be taken into account in determining the cost of the investment contract (as provided in Section 1.148- 5(e)(2)(iii) of the Treasury Regulations). For the calendar year 2023, compensation is deemed reasonable if does not exceed the lesser of i) $46,000 or ii) 0.2% of the amount reasonably expected, as of the date of acquisition of the investment contract, to be invested under the investment contract over its term, or $5,000 (if 0.2% of such amount reasonably expected to be invested under the investment contract over its term is less than $5,000). In addition, the total fees received by the broker with respect to the investment of any proceeds of the Bonds that are taken DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 16 4135-7884-9354.1 into account with respect to all investment contracts, at any time, may not exceed $130,000. All amounts referenced are to be adjusted for inflation after the Closing Date. 5.6.Segregation of Proceeds. In order to perform the calculations required by the Code, it is necessary to track separately all of the Gross Proceeds. To that end, the Issuer shall cause to be established separate accounts or subaccounts, or shall cause the Trustee to take such other accounting measures as are necessary in order to account fully for all Gross Proceeds. 5.7.Filing Requirements. The Issuer will file or cause to be filed such reports or other documents with the Internal Revenue Service as are required by the Code. 5.8.Retention of Firm; Rebate Responsibility. The Issuer hereby undertakes to satisfy its obligation to perform the rebate calculations that may be required to be made from time to time with respect to the Bonds. To that end, the Issuer may consult from time to time with an outside rebate consultant to assist in any rebate and yield reduction payment calculations that may be required to be made from time to time with respect to the Bonds, including to perform rebate calculations with respect to the Bonds after the date of this Tax Certificate. ARTICLE 6 OTHER MATTERS 6.1.Expectations. The undersigned are authorized representatives of the Issuer and the City acting for and on behalf of the Issuer and the City in executing this Tax Certificate. To the best of the knowledge and belief of the undersigned, there are no other facts, estimates or circumstances that would materially change the expectations as set forth herein, and said expectations are reasonable. 6.2.Amendments. Notwithstanding any other provision of this Tax Certificate, the Issuer and the City may amend this Tax Certificate and thereby alter any actions allowed or required by this Tax Certificate if such amendment is signed by an authorized officer and is supported by an Opinion of Counsel. 6.3.Survival of Defeasance. Notwithstanding any provision in this Tax Certificate or the Indenture to the contrary, the obligation to remit the Rebate Requirement, if any, to the United States Department of the Treasury and to comply with all other requirements contained in this Tax Certificate shall survive defeasance of the Bonds. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B SIGNATURE PAGE – TAX CERTIFICATE 4135-7884-9354 Dated: September 13, 2023. SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY By: Emily Jackson, Treasurer CITY OF SAN LUIS OBISPO By: Derek Johnson, City Manager DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B A-1 4135-7884-9354 EXHIBIT A CERTIFICATE OF THE UNDERWRITER $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Dated: September 13, 2023 The undersigned, on behalf of Raymond James & Associates, Inc. (“Raymond James”) hereby certifies as set forth below with respect to the sale and delivery of the above- captioned obligations (the “Bonds”). 1. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the Bonds, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Schedule A. 2. Defined Terms. (a) Issuer means the San Luis Obispo Public Financing Authority. (b) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities. (c) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. The term “related party” for purposes of this certificate generally means any two or more persons who have greater than 50 percent common ownership, directly or indirectly. (d) Sale Date means the first day on which there is a binding contract in writing for the sale of a Maturity of the Bonds. The Sale Date of the Bonds is August 30, 2023. (e) Underwriter means: (i) any person that agrees pursuant to a written contract with the Issuer and the City of San Luis Obispo (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public; and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Raymond James’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer and the City of San Luis Obispo with respect to certain of the representations DocuSign Envelope ID: 0DD1FD78-6DC7-4400-873D-5FAF0A89876C A-2 4135-7884-9354 set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Orrick, Herrington & Sutcliffe LLP, in connection with rendering its opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer or the City of San Luis Obispo from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. Except as expressly set forth above, the certifications set forth herein may not be relied upon or used by any third party or for any other purpose. DocuSign Envelope ID: 0DD1FD78-6DC7-4400-873D-5FAF0A89876C A-3 4135-7884-9354 RAYMOND JAMES & ASSOCIATES, INC. By: Name: Emily Giles Title: Managing Director Dated: September 13, 2023 DocuSign Envelope ID: 0DD1FD78-6DC7-4400-873D-5FAF0A89876C A-4 4135-7884-9354 SCHEDULE A SALE PRICES OF THE BONDS $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Maturity Date (December 1) Principal Amount Interest Rate Yield Price 2024 $920,000 5.000%3.130%102.210 2025 970,000 5.000 3.000 104.253 2026 1,025,000 5.000 2.980 106.147 2027 1,080,000 5.000 2.920 108.191 2028 1,135,000 5.000 2.940 109.891 2029 1,195,000 5.000 2.990 111.321 2030 870,000 5.000 3.050 112.541 2031 915,000 5.000 3.090 113.762 2032 965,000 5.000 3.130 114.867 2033 1,015,000 5.000 3.140 116.144 2034 1,065,000 5.000 3.210 115.482C 2035 1,120,000 5.000 3.300 114.637C 2036 1,175,000 5.000 3.390 113.799C 2037 1,235,000 5.000 3.490 112.877C 2038 1,300,000 5.000 3.590 111.964C 2039 1,370,000 5.000 3.740 110.612C 2040 1,440,000 5.000 3.850 109.632C 2041 1,510,000 5.000 3.950 108.750C 2042 1,590,000 5.000 4.020 108.138C 2043 1,670,000 5.000 4.080 107.617C 2048T 9,725,000 5.000 4.280 105.901C 2053T 12,490,000 5.000 4.360 105.224C C Priced to the first optional redemption date of December 1, 2033 at par. T Term Bond. DocuSign Envelope ID: 0DD1FD78-6DC7-4400-873D-5FAF0A89876C B-1 EXHIBIT B PRICING NUMBERS TABLE OF CONTENTS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Report Page Lease Revenue Bonds, Series 2023 Sources and Uses of Funds ..........................1 Bond Summary Statistics ...........................2 Bond Pricing ...............................4 Bond Debt Service Breakdown ........................5 Summary of Refunding Results ........................6 Savings ..................................7 Summary of Bonds Refunded .........................8 Bond Maturity Table ............................9 Cost of Issuance ..............................10 Underwriter's Discount ...........................11 Escrow Requirements ............................12 Escrow Statistics ..............................13 Form 8038 Statistics ............................14 Proof of Arbitrage Yield ...........................16 Page 1 SOURCES AND USES OF FUNDS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Refunding of Parking Series 2012 Facilities Lease Revenue Lease Revenue Refunding Sources: Bonds Bonds Total Bond Proceeds: Par Amount 43,860,000.00 1,920,000.00 45,780,000.00 Premium 3,567,585.35 140,053.30 3,707,638.65 47,427,585.35 2,060,053.30 49,487,638.65 Other Sources of Funds: DSRF 405,600.00 405,600.00 47,427,585.35 2,465,653.30 49,893,238.65 Refunding of Parking Series 2012 Facilities Lease Revenue Lease Revenue Refunding Uses: Bonds Bonds Total Project Fund Deposits: Project Fund 47,000,000.00 47,000,000.00 Refunding Escrow Deposits: DSRF 405,600.00 405,600.00 Bond Proceeds 2,042,136.67 2,042,136.67 2,447,736.67 2,447,736.67 Delivery Date Expenses: Cost of Issuance 263,191.05 11,829.49 275,020.54 Underwriter's Discount 164,394.30 6,087.14 170,481.44 427,585.35 17,916.63 445,501.98 47,427,585.35 2,465,653.30 49,893,238.65 Page 2 BOND SUMMARY STATISTICS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Refunding of Parking Series 2012 Lease Facilities Lease Revenue Refunding Revenue Bonds Bonds Aggregate Dated Date 09/13/2023 09/13/2023 09/13/2023 Delivery Date 09/13/2023 09/13/2023 09/13/2023 Last Maturity 12/01/2053 12/01/2029 12/01/2053 Arbitrage Yield 3.934544% 3.934544% 3.934544% True Interest Cost (TIC) 4.369017% 3.057563% 4.353140% Net Interest Cost (NIC) 4.598611% 3.199622% 4.586440% All-In TIC 4.415380% 3.222122% 4.400886% Average Coupon 5.000000% 5.000000% 5.000000% Average Life (years) 19.331 3.876 18.683 Weighted Average Maturity (years) 19.163 3.925 18.528 Duration of Issue (years) 12.325 3.568 11.985 Par Amount 43,860,000.00 1,920,000.00 45,780,000.00 Bond Proceeds 47,427,585.35 2,060,053.30 49,487,638.65 Total Interest 42,392,650.00 372,050.00 42,764,700.00 Net Interest 38,989,458.95 238,083.84 39,227,542.79 Total Debt Service 86,252,650.00 2,292,050.00 88,544,700.00 Maximum Annual Debt Service 2,825,500.00 374,125.00 3,197,625.00 Average Annual Debt Service 2,854,472.70 368,694.37 2,930,326.53 Underwriter's Fees (per $1000) Average Takedown 3.052383 2.474609 3.028151 Other Fee 0.695777 0.695776 0.695777 Total Underwriter's Discount 3.748160 3.170385 3.723928 Bid Price 107.759214 106.977404 107.726425 Par Average Average PV of 1 bp Bond Component Value Price Coupon Life change Serial Bonds 23,565,000.00 110.530 5.000% 11.664 17,585.20 2048 Term Bond 9,725,000.00 105.901 5.000% 23.317 8,266.25 2053 Term Bond 12,490,000.00 105.224 5.000% 28.317 10,491.60 45,780,000.00 18.683 36,343.05 Page 3 BOND SUMMARY STATISTICS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing All-In Arbitrage TIC TIC Yield Par Value 45,780,000.00 45,780,000.00 45,780,000.00 + Accrued Interest + Premium (Discount) 3,707,638.65 3,707,638.65 3,707,638.65 - Underwriter's Discount -170,481.44 -170,481.44 - Cost of Issuance Expense -275,020.54 - Other Amounts Target Value 49,317,157.21 49,042,136.67 49,487,638.65 Target Date 09/13/2023 09/13/2023 09/13/2023 Yield 4.353140% 4.400886% 3.934544% Page 4 BOND PRICING San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Maturity Yield to Call Call Premium Bond Component Date Amount Rate Yield Price Maturity Date Price (-Discount) Takedown Serial Bonds: 12/01/2024 920,000 5.000% 3.130% 102.210 20,332.00 2.000 12/01/2025 970,000 5.000% 3.000% 104.253 41,254.10 2.500 12/01/2026 1,025,000 5.000% 2.980% 106.147 63,006.75 2.500 12/01/2027 1,080,000 5.000% 2.920% 108.191 88,462.80 2.500 12/01/2028 1,135,000 5.000% 2.940% 109.891 112,262.85 2.500 12/01/2029 1,195,000 5.000% 2.990% 111.321 135,285.95 2.750 12/01/2030 870,000 5.000% 3.050% 112.541 109,106.70 2.750 12/01/2031 915,000 5.000% 3.090% 113.762 125,922.30 2.750 12/01/2032 965,000 5.000% 3.130% 114.867 143,466.55 2.750 12/01/2033 1,015,000 5.000% 3.140% 116.144 163,861.60 2.750 12/01/2034 1,065,000 5.000% 3.210% 115.482 C 3.334% 12/01/2033 100.000 164,883.30 3.000 12/01/2035 1,120,000 5.000% 3.300% 114.637 C 3.515% 12/01/2033 100.000 163,934.40 3.000 12/01/2036 1,175,000 5.000% 3.390% 113.799 C 3.672% 12/01/2033 100.000 162,138.25 3.000 12/01/2037 1,235,000 5.000% 3.490% 112.877 C 3.817% 12/01/2033 100.000 159,030.95 3.000 12/01/2038 1,300,000 5.000% 3.590% 111.964 C 3.946% 12/01/2033 100.000 155,532.00 3.000 12/01/2039 1,370,000 5.000% 3.740% 110.612 C 4.097% 12/01/2033 100.000 145,384.40 3.000 12/01/2040 1,440,000 5.000% 3.850% 109.632 C 4.208% 12/01/2033 100.000 138,700.80 3.000 12/01/2041 1,510,000 5.000% 3.950% 108.750 C 4.302% 12/01/2033 100.000 132,125.00 3.000 12/01/2042 1,590,000 5.000% 4.020% 108.138 C 4.369% 12/01/2033 100.000 129,394.20 3.000 12/01/2043 1,670,000 5.000% 4.080% 107.617 C 4.425% 12/01/2033 100.000 127,203.90 3.000 23,565,000 2,481,288.80 2048 Term Bond: 12/01/2044 1,755,000 5.000% 4.280% 105.901 C 4.602% 12/01/2033 100.000 103,562.55 3.250 12/01/2045 1,845,000 5.000% 4.280% 105.901 C 4.602% 12/01/2033 100.000 108,873.45 3.250 12/01/2046 1,940,000 5.000% 4.280% 105.901 C 4.602% 12/01/2033 100.000 114,479.40 3.250 12/01/2047 2,040,000 5.000% 4.280% 105.901 C 4.602% 12/01/2033 100.000 120,380.40 3.250 12/01/2048 2,145,000 5.000% 4.280% 105.901 C 4.602% 12/01/2033 100.000 126,576.45 3.250 9,725,000 573,872.25 2053 Term Bond: 12/01/2049 2,255,000 5.000% 4.360% 105.224 C 4.675% 12/01/2033 100.000 117,801.20 3.250 12/01/2050 2,370,000 5.000% 4.360% 105.224 C 4.675% 12/01/2033 100.000 123,808.80 3.250 12/01/2051 2,490,000 5.000% 4.360% 105.224 C 4.675% 12/01/2033 100.000 130,077.60 3.250 12/01/2052 2,620,000 5.000% 4.360% 105.224 C 4.675% 12/01/2033 100.000 136,868.80 3.250 12/01/2053 2,755,000 5.000% 4.360% 105.224 C 4.675% 12/01/2033 100.000 143,921.20 3.250 12,490,000 652,477.60 45,780,000 3,707,638.65 Dated Date 09/13/2023 Delivery Date 09/13/2023 First Coupon 12/01/2023 Par Amount 45,780,000.00 Premium 3,707,638.65 Production 49,487,638.65 108.098817% Underwriter's Discount -170,481.44 -0.372393% Purchase Price 49,317,157.21 107.726425% Accrued Interest Net Proceeds 49,317,157.21 Page 5 BOND DEBT SERVICE BREAKDOWN San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Refunding of Parking Series 2012 Facilities Lease Revenue Period Lease Revenue Refunding Ending Bonds Bonds Total 06/30/2024 1,571,650 68,800 1,640,450 06/30/2025 2,817,000 369,000 3,186,000 06/30/2026 2,824,000 364,750 3,188,750 06/30/2027 2,824,125 369,750 3,193,875 06/30/2028 2,822,500 373,750 3,196,250 06/30/2029 2,824,000 371,875 3,195,875 06/30/2030 2,823,500 374,125 3,197,625 06/30/2031 2,821,000 2,821,000 06/30/2032 2,821,375 2,821,375 06/30/2033 2,824,375 2,824,375 06/30/2034 2,824,875 2,824,875 06/30/2035 2,822,875 2,822,875 06/30/2036 2,823,250 2,823,250 06/30/2037 2,820,875 2,820,875 06/30/2038 2,820,625 2,820,625 06/30/2039 2,822,250 2,822,250 06/30/2040 2,825,500 2,825,500 06/30/2041 2,825,250 2,825,250 06/30/2042 2,821,500 2,821,500 06/30/2043 2,824,000 2,824,000 06/30/2044 2,822,500 2,822,500 06/30/2045 2,821,875 2,821,875 06/30/2046 2,821,875 2,821,875 06/30/2047 2,822,250 2,822,250 06/30/2048 2,822,750 2,822,750 06/30/2049 2,823,125 2,823,125 06/30/2050 2,823,125 2,823,125 06/30/2051 2,822,500 2,822,500 06/30/2052 2,821,000 2,821,000 06/30/2053 2,823,250 2,823,250 06/30/2054 2,823,875 2,823,875 86,252,650 2,292,050 88,544,700 Page 6 SUMMARY OF REFUNDING RESULTS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Dated Date 09/13/2023 Delivery Date 09/13/2023 Arbitrage yield 3.934544% Escrow yield 5.198928% Value of Negative Arbitrage -1,681.04 Bond Par Amount 1,920,000.00 True Interest Cost 3.057563% Net Interest Cost 3.199622% All-In TIC 3.222122% Average Coupon 5.000000% Average Life 3.876 Weighted Average Maturity 18.528 Par amount of refunded bonds 2,415,000.00 Average coupon of refunded bonds 4.000000% Average life of refunded bonds 3.386 Remaining weighted average maturity of refunded bonds 3.352 PV of prior debt to 09/13/2023 @ 3.934544% 2,447,113.74 Net PV Savings 56,489.48 Percentage savings of refunded bonds 2.339109% Percentage savings of refunding bonds 2.942160% Page 7 SAVINGS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Present Value Prior Prior Prior Refunding Refunding Refunding to 09/13/2023 Date Debt Service Receipts Net Cash Flow Debt Service Receipts Net Cash Flow Savings @ 3.9345444% 06/30/2024 395,500.00 405,600.00 -10,100.00 68,800.00 6,987.16 61,812.84 -71,912.84 -74,563.41 06/30/2025 393,100.00 393,100.00 369,000.00 369,000.00 24,100.00 23,078.02 06/30/2026 390,300.00 390,300.00 364,750.00 364,750.00 25,550.00 23,512.87 06/30/2027 396,900.00 396,900.00 369,750.00 369,750.00 27,150.00 24,011.40 06/30/2028 397,800.00 397,800.00 373,750.00 373,750.00 24,050.00 20,446.32 06/30/2029 398,100.00 398,100.00 371,875.00 371,875.00 26,225.00 21,422.21 06/30/2030 397,800.00 397,800.00 374,125.00 374,125.00 23,675.00 18,582.07 2,769,500.00 405,600.00 2,363,900.00 2,292,050.00 6,987.16 2,285,062.84 78,837.16 56,489.48 Savings Summary PV of savings from cash flow 56,489.48 Net PV Savings 56,489.48 Page 8 SUMMARY OF BONDS REFUNDED San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Maturity Interest Par Call Call Bond Date Rate Amount Date Price Lease Revenue Refunding Bonds, Seires 2012: Serial Bonds 12/01/2023 4.000% 305,000 10/03/2023 100.000 12/01/2024 4.000% 315,000 10/03/2023 100.000 12/01/2025 4.000% 325,000 10/03/2023 100.000 12/01/2026 4.000% 345,000 10/03/2023 100.000 12/01/2027 4.000% 360,000 10/03/2023 100.000 12/01/2028 4.000% 375,000 10/03/2023 100.000 12/01/2029 4.000% 390,000 10/03/2023 100.000 2,415,000 Page 9 BOND MATURITY TABLE San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Refunding of Parking Series 2012 Facilities Lease Revenue Maturity Lease Revenue Refunding Date Bonds Bonds Total 12/01/2024 640,000 280,000 920,000 12/01/2025 680,000 290,000 970,000 12/01/2026 715,000 310,000 1,025,000 12/01/2027 750,000 330,000 1,080,000 12/01/2028 790,000 345,000 1,135,000 12/01/2029 830,000 365,000 1,195,000 12/01/2030 870,000 870,000 12/01/2031 915,000 915,000 12/01/2032 965,000 965,000 12/01/2033 1,015,000 1,015,000 12/01/2034 1,065,000 1,065,000 12/01/2035 1,120,000 1,120,000 12/01/2036 1,175,000 1,175,000 12/01/2037 1,235,000 1,235,000 12/01/2038 1,300,000 1,300,000 12/01/2039 1,370,000 1,370,000 12/01/2040 1,440,000 1,440,000 12/01/2041 1,510,000 1,510,000 12/01/2042 1,590,000 1,590,000 12/01/2043 1,670,000 1,670,000 12/01/2044 1,755,000 1,755,000 12/01/2045 1,845,000 1,845,000 12/01/2046 1,940,000 1,940,000 12/01/2047 2,040,000 2,040,000 12/01/2048 2,145,000 2,145,000 12/01/2049 2,255,000 2,255,000 12/01/2050 2,370,000 2,370,000 12/01/2051 2,490,000 2,490,000 12/01/2052 2,620,000 2,620,000 12/01/2053 2,755,000 2,755,000 43,860,000 1,920,000 45,780,000 Page 10 COST OF ISSUANCE San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Cost of Issuance $/1000 Amount Contingency 0.44883 20,547.54 Financial Advisor - PFM 1.57274 72,000.00 Financial Advisor - PFM (Expense) 0.05461 2,500.00 Financial Advisor - PFM (Data Fee) 0.05000 2,289.00 Bond Counsel - Orrick 1.97685 90,500.00 Rating Agency - Standard & Poor's 0.80821 37,000.00 Trustee - US Bank 0.11324 5,184.00 Title Insurance - First American 0.91743 42,000.00 Printer - Image Master 0.06553 3,000.00 6.00744 275,020.54 Page 11 UNDERWRITER'S DISCOUNT San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Underwriter's Discount $/1000 Amount Average Takedown 3.02815 138,628.75 Underwriter's Counsel 0.43687 20,000.00 Ipreo Fees 0.09846 4,507.69 DTC Fees 0.01747 800.00 CUSIP Fees 0.02283 1,045.00 CDIAC Fees 0.10922 5,000.00 DAC Review Fees 0.01092 500.00 3.72393 170,481.44 Page 12 ESCROW REQUIREMENTS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Period Principal Ending Interest Redeemed Total 10/03/2023 32,736.67 2,415,000 2,447,736.67 32,736.67 2,415,000 2,447,736.67 Page 13 ESCROW STATISTICS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Modified Yield to Yield to Perfect Value of Total Duration PV of 1 bp Receipt Disbursement Escrow Negative Cost of Escrow Escrow Cost (years) change Date Date Cost Arbitrage Dead Time Refunding of Series 2012 Lease Revenue Refunding Bonds: DSRF 405,600.00 0.054 2.19 5.198950% 5.198950% 405,600.00 -278.11 BP 2,042,136.67 0.054 11.06 5.198928% 5.198928% 2,042,136.67 -1,402.93 2,447,736.67 13.25 2,447,736.67 -1,681.04 0.00 Delivery date 09/13/2023 Arbitrage yield 3.934544% Page 14 FORM 8038 STATISTICS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Dated Date 09/13/2023 Delivery Date 09/13/2023 Redemption Bond Component Date Principal Coupon Price Issue Price at Maturity Serial Bonds: 12/01/2024 920,000.00 5.000% 102.210 940,332.00 920,000.00 12/01/2025 970,000.00 5.000% 104.253 1,011,254.10 970,000.00 12/01/2026 1,025,000.00 5.000% 106.147 1,088,006.75 1,025,000.00 12/01/2027 1,080,000.00 5.000% 108.191 1,168,462.80 1,080,000.00 12/01/2028 1,135,000.00 5.000% 109.891 1,247,262.85 1,135,000.00 12/01/2029 1,195,000.00 5.000% 111.321 1,330,285.95 1,195,000.00 12/01/2030 870,000.00 5.000% 112.541 979,106.70 870,000.00 12/01/2031 915,000.00 5.000% 113.762 1,040,922.30 915,000.00 12/01/2032 965,000.00 5.000% 114.867 1,108,466.55 965,000.00 12/01/2033 1,015,000.00 5.000% 116.144 1,178,861.60 1,015,000.00 12/01/2034 1,065,000.00 5.000% 115.482 1,229,883.30 1,065,000.00 12/01/2035 1,120,000.00 5.000% 114.637 1,283,934.40 1,120,000.00 12/01/2036 1,175,000.00 5.000% 113.799 1,337,138.25 1,175,000.00 12/01/2037 1,235,000.00 5.000% 112.877 1,394,030.95 1,235,000.00 12/01/2038 1,300,000.00 5.000% 111.964 1,455,532.00 1,300,000.00 12/01/2039 1,370,000.00 5.000% 110.612 1,515,384.40 1,370,000.00 12/01/2040 1,440,000.00 5.000% 109.632 1,578,700.80 1,440,000.00 12/01/2041 1,510,000.00 5.000% 108.750 1,642,125.00 1,510,000.00 12/01/2042 1,590,000.00 5.000% 108.138 1,719,394.20 1,590,000.00 12/01/2043 1,670,000.00 5.000% 107.617 1,797,203.90 1,670,000.00 2048 Term Bond: 12/01/2044 1,755,000.00 5.000% 105.901 1,858,562.55 1,755,000.00 12/01/2045 1,845,000.00 5.000% 105.901 1,953,873.45 1,845,000.00 12/01/2046 1,940,000.00 5.000% 105.901 2,054,479.40 1,940,000.00 12/01/2047 2,040,000.00 5.000% 105.901 2,160,380.40 2,040,000.00 12/01/2048 2,145,000.00 5.000% 105.901 2,271,576.45 2,145,000.00 2053 Term Bond: 12/01/2049 2,255,000.00 5.000% 105.224 2,372,801.20 2,255,000.00 12/01/2050 2,370,000.00 5.000% 105.224 2,493,808.80 2,370,000.00 12/01/2051 2,490,000.00 5.000% 105.224 2,620,077.60 2,490,000.00 12/01/2052 2,620,000.00 5.000% 105.224 2,756,868.80 2,620,000.00 12/01/2053 2,755,000.00 5.000% 105.224 2,898,921.20 2,755,000.00 45,780,000.00 49,487,638.65 45,780,000.00 Stated Weighted Maturity Interest Issue Redemption Average Date Rate Price at Maturity Maturity Yield Final Maturity 12/01/2053 5.000% 2,898,921.20 2,755,000.00 Entire Issue 49,487,638.65 45,780,000.00 18.5283 3.9345% Proceeds used for accrued interest 0.00 Proceeds used for bond issuance costs (including underwriters' discount) 445,501.98 Proceeds used for credit enhancement 0.00 Proceeds allocated to reasonably required reserve or replacement fund 0.00 Proceeds used to refund prior tax-exempt bonds 2,042,136.67 Proceeds used to refund prior taxable bonds 0.00 Remaining WAM of prior tax-exempt bonds (years) 3.3522 Remaining WAM of prior taxable bonds (years) 0.0000 Last call date of refunded tax-exempt bonds 10/03/2023 2011 Form 8038 Statistics Proceeds used to currently refund prior issues 2,042,136.67 Proceeds used to advance refund prior issues 0.00 Remaining weighted average maturity of the bonds to be currently refunded 3.3522 Remaining weighted average maturity of the bonds to be advance refunded 0.0000 Page 15 FORM 8038 STATISTICS San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Refunded Bonds Bond Component Date Principal Coupon Price Issue Price Lease Revenue Refunding Bonds, Seires 2012: SERIAL 12/01/2023 305,000.00 4.000% 108.630 331,321.50 SERIAL 12/01/2024 315,000.00 4.000% 107.771 339,478.65 SERIAL 12/01/2025 325,000.00 4.000% 106.498 346,118.50 SERIAL 12/01/2026 345,000.00 4.000% 105.659 364,523.55 SERIAL 12/01/2027 360,000.00 4.000% 104.828 377,380.80 SERIAL 12/01/2028 375,000.00 4.000% 104.005 390,018.75 SERIAL 12/01/2029 390,000.00 4.000% 103.189 402,437.10 2,415,000.00 2,551,278.85 Remaining Last Weighted Call Issue Average Date Date Maturity Lease Revenue Refunding Bonds, Seires 2012 10/03/2023 06/07/2012 3.3522 All Refunded Issues 10/03/2023 3.3522 Page 16 PROOF OF ARBITRAGE YIELD San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Present Value PV to 09/13/2023 Date Debt Service Total Factor @ 3.9345444465% 12/01/2023 495,950.00 495,950.00 0.991593458 491,780.78 06/01/2024 1,144,500.00 1,144,500.00 0.972462474 1,112,983.30 12/01/2024 2,064,500.00 2,064,500.00 0.953700587 1,968,914.86 06/01/2025 1,121,500.00 1,121,500.00 0.935300676 1,048,939.71 12/01/2025 2,091,500.00 2,091,500.00 0.917255759 1,918,440.42 06/01/2026 1,097,250.00 1,097,250.00 0.899558985 987,041.10 12/01/2026 2,122,250.00 2,122,250.00 0.882203637 1,872,256.67 06/01/2027 1,071,625.00 1,071,625.00 0.865183130 927,151.87 12/01/2027 2,151,625.00 2,151,625.00 0.848491002 1,825,634.45 06/01/2028 1,044,625.00 1,044,625.00 0.832120919 869,254.31 12/01/2028 2,179,625.00 2,179,625.00 0.816066666 1,778,719.31 06/01/2029 1,016,250.00 1,016,250.00 0.800322150 813,327.39 12/01/2029 2,211,250.00 2,211,250.00 0.784881397 1,735,568.99 06/01/2030 986,375.00 986,375.00 0.769738544 759,250.86 12/01/2030 1,856,375.00 1,856,375.00 0.754887845 1,401,354.92 06/01/2031 964,625.00 964,625.00 0.740323663 714,134.71 12/01/2031 1,879,625.00 1,879,625.00 0.726040471 1,364,683.82 06/01/2032 941,750.00 941,750.00 0.712032846 670,556.93 12/01/2032 1,906,750.00 1,906,750.00 0.698295474 1,331,474.89 06/01/2033 917,625.00 917,625.00 0.684823138 628,410.83 12/01/2033 37,622,625.00 37,622,625.00 0.671610727 25,267,758.53 66,888,200.00 66,888,200.00 49,487,638.65 Proceeds Summary Delivery date 09/13/2023 Par Value 45,780,000.00 Premium (Discount) 3,707,638.65 Target for yield calculation 49,487,638.65 Page 17 PROOF OF ARBITRAGE YIELD San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Final Pricing Assumed Call/Computation Dates for Premium Bonds Bond Maturity Call Call Yield To Component Date Rate Yield Date Price Call/Maturity SERIAL 12/01/2034 5.000% 3.210% 12/01/2033 100.000 3.2110361% SERIAL 12/01/2035 5.000% 3.300% 12/01/2033 100.000 3.3010944% SERIAL 12/01/2036 5.000% 3.390% 12/01/2033 100.000 3.3911957% SERIAL 12/01/2037 5.000% 3.490% 12/01/2033 100.000 3.4912526% SERIAL 12/01/2038 5.000% 3.590% 12/01/2033 100.000 3.5913039% SERIAL 12/01/2039 5.000% 3.740% 12/01/2033 100.000 3.7412775% SERIAL 12/01/2040 5.000% 3.850% 12/01/2033 100.000 3.8513708% SERIAL 12/01/2041 5.000% 3.950% 12/01/2033 100.000 3.9514721% SERIAL 12/01/2042 5.000% 4.020% 12/01/2033 100.000 4.0215066% SERIAL 12/01/2043 5.000% 4.080% 12/01/2033 100.000 4.0815049% TERM48 12/01/2044 5.000% 4.280% 12/01/2033 100.000 4.2816244% TERM48 12/01/2045 5.000% 4.280% 12/01/2033 100.000 4.2816244% TERM48 12/01/2046 5.000% 4.280% 12/01/2033 100.000 4.2816244% TERM48 12/01/2047 5.000% 4.280% 12/01/2033 100.000 4.2816244% TERM48 12/01/2048 5.000% 4.280% 12/01/2033 100.000 4.2816244% TERM53 12/01/2049 5.000% 4.360% 12/01/2033 100.000 4.3616557% TERM53 12/01/2050 5.000% 4.360% 12/01/2033 100.000 4.3616557% TERM53 12/01/2051 5.000% 4.360% 12/01/2033 100.000 4.3616557% TERM53 12/01/2052 5.000% 4.360% 12/01/2033 100.000 4.3616557% TERM53 12/01/2053 5.000% 4.360% 12/01/2033 100.000 4.3616557% Rejected Call/Computation Dates for Premium Bonds Bond Maturity Call Call Yield To Increase Component Date Rate Yield Date Price Call/Maturity to Yield SERIAL 12/01/2034 5.000% 3.210% 3.3347338% 0.1236978% SERIAL 12/01/2035 5.000% 3.300% 3.5163637% 0.2152693% SERIAL 12/01/2036 5.000% 3.390% 3.6732365% 0.2820408% SERIAL 12/01/2037 5.000% 3.490% 3.8183681% 0.3271156% SERIAL 12/01/2038 5.000% 3.590% 3.9471585% 0.3558546% SERIAL 12/01/2039 5.000% 3.740% 4.0983232% 0.3570457% SERIAL 12/01/2040 5.000% 3.850% 4.2084988% 0.3571280% SERIAL 12/01/2041 5.000% 3.950% 4.3027049% 0.3512328% SERIAL 12/01/2042 5.000% 4.020% 4.3702435% 0.3487369% SERIAL 12/01/2043 5.000% 4.080% 4.4264473% 0.3449424% TERM48 12/01/2044 5.000% 4.280% 4.5634110% 0.2817866% TERM48 12/01/2045 5.000% 4.280% 4.5746489% 0.2930245% TERM48 12/01/2046 5.000% 4.280% 4.5848351% 0.3032107% TERM48 12/01/2047 5.000% 4.280% 4.5941005% 0.3124761% TERM48 12/01/2048 5.000% 4.280% 4.6025554% 0.3209311% TERM53 12/01/2049 5.000% 4.360% 4.6534841% 0.2918284% TERM53 12/01/2050 5.000% 4.360% 4.6597844% 0.2981287% TERM53 12/01/2051 5.000% 4.360% 4.6655797% 0.3039241% TERM53 12/01/2052 5.000% 4.360% 4.6709227% 0.3092671% TERM53 12/01/2053 5.000% 4.360% 4.6758590% 0.3142033% Ú±®³ øλªò ѽ¬±¾»® îðîï÷ Ü»°¿®¬³»²¬ ±º ¬¸» Ì®»¿-«®§ ײ¬»®²¿´ 못²«» Í»®ª·½» ײº±®³¿¬·±² 묫®² º±® Ì¿¨óÛ¨»³°¬ Ù±ª»®²³»²¬¿´ Þ±²¼- ˲¼»® ײ¬»®²¿´ 못²«» ݱ¼» -»½¬·±² ïìçø»÷ Í»» -»°¿®¿¬» ·²-¬®«½¬·±²-ò Ý¿«¬·±²æ ׺ ¬¸» ·--«» °®·½» ·- «²¼»® üïððôðððô «-» Ú±®³ èðíèóÙÝò Ù± ¬± º±® ·²-¬®«½¬·±²- ¿²¼ ¬¸» ´¿¬»-¬ ·²º±®³¿¬·±²ò ÑÓÞ Ò±ò ïëìëóððìé ﮬ × Î»°±®¬·²¹ ß«¬¸±®·¬§Ý¸»½µ ¾±¨ ·º ß³»²¼»¼ 묫®² ï ׫»® ²¿³»î ׫»® »³°´±§»® ·¼»²¬·º·½¿¬·±² ²«³¾»® øÛ×Ò÷ í¿ Ò¿³» ±º °»®-±² ø±¬¸»® ¬¸¿² ·--«»®÷ ©·¬¸ ©¸±³ ¬¸» ×ÎÍ ³¿§ ½±³³«²·½¿¬» ¿¾±«¬ ¬¸·- ®»¬«®² ø-»» ·²-¬®«½¬·±²-÷ í¾ Ì»´»°¸±²» ²«³¾»® ±º ±¬¸»® °»®-±² -¸±©² ±² í¿ ì Ò«³¾»® ¿²¼ -¬®»»¬ ø±® ÐòÑò ¾±¨ ·º ³¿·´ ·- ²±¬ ¼»´·ª»®»¼ ¬± -¬®»»¬ ¿¼¼®»--÷ α±³ñ-«·¬»ë λ°±®¬ ²«³¾»® øÚ±® ×ÎÍ Ë-» Ѳ´§÷ í ê Ý·¬§ô 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ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò îç íð Ò±²®»º«²¼·²¹ °®±½»»¼- ±º ¬¸» ·--«» ø-«¾¬®¿½¬ ´·²» îç º®±³ ´·²» îí ¿²¼ »²¬»® ¿³±«²¬ ¸»®»÷ ò ò ò íð ﮬ Ê Ü»-½®·°¬·±² ±º λº«²¼»¼ Þ±²¼-ò ݱ³°´»¬» ¬¸·- °¿®¬ ±²´§ º±® ®»º«²¼·²¹ ¾±²¼-ò íï Û²¬»® ¬¸» ®»³¿·²·²¹ ©»·¹¸¬»¼ ¿ª»®¿¹» ³¿¬«®·¬§ ±º ¬¸» ¬¿¨ó»¨»³°¬ ¾±²¼- ¬± ¾» ®»º«²¼»¼ ò ò ò §»¿®- íî Û²¬»® ¬¸» ®»³¿·²·²¹ ©»·¹¸¬»¼ ¿ª»®¿¹» ³¿¬«®·¬§ ±º ¬¸» ¬¿¨¿¾´» ¾±²¼- ¬± ¾» ®»º«²¼»¼ ò ò ò ò §»¿®- íí Û²¬»® ¬¸» ´¿-¬ ¼¿¬» ±² ©¸·½¸ ¬¸» ®»º«²¼»¼ ¬¿¨ó»¨»³°¬ ¾±²¼- ©·´´ ¾» ½¿´´»¼ øÓÓñÜÜñÇÇÇÇ÷ ò ò íì Û²¬»® ¬¸» ¼¿¬»ø-÷ ¬¸» ®»º«²¼»¼ ¾±²¼- ©»®» ·--«»¼ øÓÓñÜÜñÇÇÇÇ÷ Ú±® п°»®©±®µ λ¼«½¬·±² ß½¬ Ò±¬·½»ô -»» -»°¿®¿¬» ·²-¬®«½¬·±²-ò Ý¿¬ò Ò±ò êíééíÍ Ú±®³ èðíèóÙ øλªò ïðóîðîï÷ San Luis Obispo Public Financing Authority 47-2231331 990 Palm Street San Luis Obispo,California 93401-3934 09/13/2023 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project),Series 2023 798641 CQ7 Emily Jackson,Treasurer (805)781-7125 public improvements 49,487,638.65 12/01/2053 49,487,638.65 18.5283 3.9345 3.3522 N/A 10/03/2023 06/07/2012 45,780,000.00 0 49,487,638.65 445,501.98 0 0 2,042,136.67 0 2,487,638.65 47,000,000.00 DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B Ú±®³ èðíèóÙ øλªò ïðóîðîï÷ п¹» î ﮬ Ê× Ó·-½»´´¿²»±«- íë Û²¬»® ¬¸» ¿³±«²¬ ±º ¬¸» -¬¿¬» ª±´«³» ½¿° ¿´´±½¿¬»¼ ¬± ¬¸» ·--«» «²¼»® -»½¬·±² ïìïø¾÷øë÷ ò ò ò ò íë íê ¿ Û²¬»® ¬¸» ¿³±«²¬ ±º ¹®±-- °®±½»»¼- ·²ª»-¬»¼ ±® ¬± ¾» ·²ª»-¬»¼ ·² ¿ ¹«¿®¿²¬»»¼ ·²ª»-¬³»²¬ ½±²¬®¿½¬ øÙ×Ý÷ò Í»» ·²-¬®«½¬·±²- ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò íê¿ ¾ Û²¬»® ¬¸» º·²¿´ ³¿¬«®·¬§ ¼¿¬» ±º ¬¸» Ù×Ý øÓÓñÜÜñÇÇÇÇ÷ ½Û²¬»® ¬¸» ²¿³» ±º ¬¸» Ù×Ý °®±ª·¼»® íé б±´»¼ º·²¿²½·²¹-æ Û²¬»® ¬¸» ¿³±«²¬ ±º ¬¸» °®±½»»¼- ±º ¬¸·- ·--«» ¬¸¿¬ ¿®» ¬± ¾» «-»¼ ¬± ³¿µ» ´±¿²- ¬± ±¬¸»® ¹±ª»®²³»²¬¿´ «²·¬- ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò ò íé íè ¿×º ¬¸·- ·--«» ·- ¿ ´±¿² ³¿¼» º®±³ ¬¸» °®±½»»¼- ±º ¿²±¬¸»® ¬¿¨ó»¨»³°¬ ·--«»ô ½¸»½µ ¾±¨ ¿²¼ »²¬»® ¬¸» º±´´±©·²¹ ·²º±®³¿¬·±²æ ¾Û²¬»® ¬¸» ¼¿¬» ±º ¬¸» ³¿-¬»® °±±´ ¾±²¼ 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P01067176 4 09/13/2023 Emily Jackson,Treasurer 09/13/2023 Orrick,Herrington &Sutcliffe LLP 94-2952627 405 Howard Street,San Francisco,California 94105-2669 (415)773-5700 DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B Issuance Issuer Name:San Luis Obispo Public Financing Authority Issue Name:Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Project Name:Cultural Arts Parking Project Proposed Sale Date:08/23/2023 Principal to be Sold:$50,000,000.00 Is any portion of the principal to refund, redeem, paydown, or refinance outstanding debt? Yes Refunding Amount:$1,940,000.00 CDIAC# of the debt to be refunded, redeemed, paid down, or refinanced: CDIAC #Amount No data available to disaplay. Issuer certifies that it has complied with Gov. Code section 8855(i) with respect to local debt policies: Yes Marks-Roos Authority/TRAN Pool Authority:No Marks-Roos Local Obligor/TRAN Participant:No Issuance Authorization Authorization (1): Authorization Name:Resolution Original Authorized Amount:$50,000,000.00 Authorization Date (MM/DD/YYYY):08/15/2023 Amount Authorization Replenished (By this Issue):$0.00 Amount Authorization Reduced (By this Issue):$50,000,000.00 Net Change (By this Issue):$-50,000,000.00 Statutory Authority Will a Validation Action be Pursued?No REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 08/03/2023 Page 1 of 3 Statutory Authorities Statute (1): Statute:GOV - (6584-6599.1) - Article 4. Marks-Roos Local Bond Pooling Act Tax Status/Interest Under State Law:Tax-Exempt Taxable Principal Amount: Tax-Exempt Principal Amount:$50,000,000.00 Under Federal Law:Tax Exempt, No AMT Taxable Principal Amount: Tax-exempt (No AMT) Principal Amount:$50,000,000.00 Tax-exempt (AMT) Principal Amount: Type of Debt Instrument Public Lease Revenue Bond Source of Repayment Is debt repayable in non-US currency?No Source of Repayment Type Local Obligations Purpose of Financing Purpose Name Percentage Parking 100 Financing Participants Role Organization Contact First Name Contact Last Name 1_Issuer Main Contact Emily Jackson REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 08/03/2023 Page 2 of 3 Filing Contact Orrick, Herrington & Sutcliffe LLP Underwriter Counsel Stradling Yocca Carlson & Rauth Lead Underwriter Raymond James & Associates Inc Bond Counsel Orrick, Herrington & Sutcliffe LLP Trustee/Paying Agent U.S. Bank Trust Company, National Association Municipal Advisor PFM Financial Advisors LLC Type of Sale Type:Negotiated Is financing a private placement?No Reason(s) for Negotiated Sale: No data available to display. Document Submittal Document Type Document Name File Upload Date No data available to disaplay. REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 08/03/2023 Page 3 of 3 Issuance Issuer Name:San Luis Obispo Issue Name:San Luis Obispo Public Finance Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Project Name:Cultural Arts Parking Project Proposed Sale Date:08/23/2023 Principal to be Sold:$50,000,000.00 Is any portion of the principal to refund, redeem, paydown, or refinance outstanding debt? Yes Refunding Amount:$1,940,000.00 CDIAC# of the debt to be refunded, redeemed, paid down, or refinanced: CDIAC #Amount No data available to disaplay. Issuer certifies that it has complied with Gov. Code section 8855(i) with respect to local debt policies: Yes Marks-Roos Authority/TRAN Pool Authority:No Marks-Roos Local Obligor/TRAN Participant:No Issuance Authorization Authorization (1): Authorization Name:Resolution Original Authorized Amount:$50,000,000.00 Authorization Date (MM/DD/YYYY):08/15/2023 Amount Authorization Replenished (By this Issue):$0.00 Amount Authorization Reduced (By this Issue):$50,000,000.00 Net Change (By this Issue):$-50,000,000.00 Statutory Authority Will a Validation Action be Pursued?No REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 08/03/2023 Page 1 of 3 Statutory Authorities Statute (1): Statute:3 - (GOV 6508, 37350) - INSTALLMENT SALES (LEASE) PURCHASE/FINANCING AGREEMENTS Tax Status/Interest Under State Law:Tax-Exempt Taxable Principal Amount: Tax-Exempt Principal Amount:$50,000,000.00 Under Federal Law:Tax Exempt, No AMT Taxable Principal Amount: Tax-exempt (No AMT) Principal Amount:$50,000,000.00 Tax-exempt (AMT) Principal Amount: Type of Debt Instrument Public Lease Revenue Bond Source of Repayment Is debt repayable in non-US currency?No Source of Repayment Type No data available to display. Purpose of Financing Purpose Name Percentage Parking 100 Financing Participants Role Organization Contact First Name Contact Last Name 1_Issuer Main Contact Emily Jackson Lender Emily Jackson REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 08/03/2023 Page 2 of 3 Filing Contact Orrick, Herrington & Sutcliffe LLP Bond Counsel Orrick, Herrington & Sutcliffe LLP Municipal Advisor PFM Financial Advisors LLC Type of Sale Type:Negotiated Is financing a private placement?Yes Reason(s) for Negotiated Sale: No data available to display. Document Submittal Document Type Document Name File Upload Date No data available to disaplay. REPORT OF PROPOSED DEBT ISSUANCE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 08/03/2023 Page 3 of 3 Issuance Issuer Name:San Luis Obispo Public Financing Authority Issue Name:Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Project Name:Cultural Arts Parking Project Principal:$45,780,000.00 Original Issue Premium:$3,707,638.65 Original Premium Discount:$0.00 Net Original Issue Premium/Discount:$3,707,638.65 Is any portion of the principal to refund, redeem, paydown, or refinance outstanding debt? Yes Refunding Amount:$1,920,000.00 CDIAC# of the debt to be refunded, redeemed, paid down, or refinanced: CDIAC #Amount No data available to disaplay. Issuer certifies that it has complied with Gov. Code section 8855(i) with respect to local debt policies: Yes Environmental / Social Impact Type Amount No Data available to display. Marks-Roos Authority/TRAN Pool Authority:Yes Marks-Roos Local Obligor/TRAN Participant:No Maturity Structure:Serial and Term Bonds Dates Proposed Sale Date:08/23/2023 Actual Sale Date:08/30/2023 Settlement Date:09/13/2023 Dated Date:09/13/2023 Final Maturity Date:12/01/2053 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 09/13/2023 Page 1 of 5 First Optional Call Date:12/01/2033 Issuance Authorization Authorization (1): Authorization Name:Resolution Original Authorized Amount:$50,000,000.00 Authorization Date (MM/DD/YYYY):08/15/2023 Amount Authorization Replenished (By this Issue): $45,780,000.00 Amount Authorization Reduced (By this Issue):$45,780,000.00 Net Change:$0.00 Statutory Authority Will a Validation Action be Pursued?No Statutory Authorities Statute (1): Statute:GOV - (6584-6599.1) - Article 4. Marks-Roos Local Bond Pooling Act Credit Credit Enhancement/Guaranty:None Enhancement Expiration Date Credit Rating:Rated Standard & Poor:AA Fitch: Moody's: Other: Financing Participants/Costs Underwriter REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 09/13/2023 Page 2 of 5 Management Fee: Total Takedown Amount:$138,628.75 Underwriter Expense:$31,852.69 Organization Name Contact First Name Contact Last Name Raymond James & Associates Inc Bond Counsel:$90,500.00 Organization Name Contact First Name Contact Last Name Fee Amount Orrick, Herrington & Sutcliffe LLP $90,500.00 Borrower Counsel: Co-Bond Counsel: Credit Enhancement: Disclosure Counsel: Financial/Municipal Advisor:$76,433.15 Organization Name Contact First Name Contact Last Name Fee Amount PFM Financial Advisors LLC $76,433.15 Lender: Placement Agent: Purchaser: Credit Rating Agency:$37,000.00 Organization Name Contact First Name Contact Last Name Fee Amount S&P Global Ratings $37,000.00 Trustee/Paying Agent:$4,482.88 Organization Name Contact First Name Contact Last Name Fee Amount U.S. Bank Trust Company, National Association $4,482.88 Other Expenses Amount:$66,604.51 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 09/13/2023 Page 3 of 5 Total Additional Fees and Expenses:$275,020.54 Total Costs of Issuance:$445,501.98 Other Contacts: Role Organization Contact First Name Contact Last Name Underwriter Counsel Stradling Yocca Carlson & Rauth 1_Issuer Main Contact Emily Jackson Marks-Roos Main Contact Emily Jackson ADTR Main Contact Emily Jackson 2_Invoice Contact Raymond James & Associates Inc Filing Contact Orrick, Herrington & Sutcliffe LLP Tax Status/Interest Under State Law:Tax-Exempt State Taxable Principal Amount: State Tax-Exempt Principal Amount:$45,780,000.00 Under Federal Law:Tax Exempt, No AMT Federal Taxable Principal Amount: Federal Tax-exempt (No AMT) Principal Amount:$45,780,000.00 Federal Tax-exempt (AMT) Principal Amount: Net Interest Cost (NIC):4.586 True Interest Cost (TIC):4.353 Capital Appreciation Debt:No Type of Debt Instrument Public Lease Revenue Bond Source of Repayment Source of Repayment Types: REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 09/13/2023 Page 4 of 5 Local Obligations Is debt repayable in non-US currency?No Senior Structure:No Subordinate Structure:No Purpose(s) of Financing Purpose Name Percentage Parking 100 Type of Sale Type:Negotiated Is financing a private placement?No Reason(s) for Negotiated Sale: Benefit in working with participants familiar with the debt and/or issuer. Cost Savings expected. Provided more debt structuring flexibility. Provided more sale timing flexibility Document Submittal Official Statements/Offering Memorandum:Enclosed Maturity Schedule:Included in official Statement Document Type Document Name File Upload Date Resolution R-11443 by SLO Public Financing Authority authorization of 2023 Series Lease Revenue Bond issuance for Cultural Arts District Parking Structure.pdf 09/13/2023 Official Statement POSTED - Official Statement - SLO Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023.pdf 09/13/2023 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0966 Status: Submitted 09/13/2023 Page 5 of 5 Issuance Issuer Name:San Luis Obispo Issue Name:San Luis Obispo Public Finance Authority Lease Revenue Bonds (Cultural Arts Parking Project), Series 2023 Project Name:Cultural Arts Parking Project Principal:$45,780,000.00 Original Issue Premium:$3,707,638.65 Original Premium Discount:$0.00 Net Original Issue Premium/Discount:$3,707,638.65 Is any portion of the principal to refund, redeem, paydown, or refinance outstanding debt? Yes Refunding Amount:$1,920,000.00 CDIAC# of the debt to be refunded, redeemed, paid down, or refinanced: CDIAC #Amount No data available to disaplay. Issuer certifies that it has complied with Gov. Code section 8855(i) with respect to local debt policies: Yes Environmental / Social Impact Type Amount No Data available to display. Marks-Roos Authority/TRAN Pool Authority:No Marks-Roos Local Obligor/TRAN Participant:Yes Maturity Structure:Serial and Term Bonds CDIAC# of the related Authorities: CDIAC # 2023-0966 Dates Proposed Sale Date:08/23/2023 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 09/13/2023 Page 1 of 5 Actual Sale Date:08/30/2023 Settlement Date:09/13/2023 Dated Date:09/13/2023 Final Maturity Date:12/01/2053 First Optional Call Date:12/01/2033 Issuance Authorization Authorization (1): Authorization Name:Resolution Original Authorized Amount:$50,000,000.00 Authorization Date (MM/DD/YYYY):08/15/2023 Amount Authorization Replenished (By this Issue):$0.00 Amount Authorization Reduced (By this Issue):$45,780,000.00 Net Change:$-45,780,000.00 Statutory Authority Will a Validation Action be Pursued?No Statutory Authorities Statute (1): Statute:3 - (GOV 6508, 37350) - INSTALLMENT SALES (LEASE) PURCHASE/FINANCING AGREEMENTS Credit Credit Enhancement/Guaranty:None Enhancement Expiration Date Credit Rating:Rated Standard & Poor:AA Fitch: Moody's: Other: REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 09/13/2023 Page 2 of 5 Financing Participants/Costs Underwriter Management Fee: Total Takedown Amount: Underwriter Expense: Bond Counsel:$90,500.00 Organization Name Contact First Name Contact Last Name Fee Amount Orrick, Herrington & Sutcliffe LLP $90,500.00 Borrower Counsel: Co-Bond Counsel: Credit Enhancement: Disclosure Counsel: Financial/Municipal Advisor:$76,443.15 Organization Name Contact First Name Contact Last Name Fee Amount PFM Financial Advisors LLC $76,443.15 Lender:$0.00 Placement Agent: Purchaser:$0.00 Organization Name Contact First Name Contact Last Name Fee Amount Emily Jackson $0.00 Credit Rating Agency:$37,000.00 Organization Name Contact First Name Contact Last Name Fee Amount S&P Global Ratings $37,000.00 Trustee/Paying Agent: Other Expenses Amount:$0.00 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 09/13/2023 Page 3 of 5 Total Additional Fees and Expenses:$203,943.15 Total Costs of Issuance:$203,943.15 Other Contacts: Role Organization Contact First Name Contact Last Name 1_Issuer Main Contact Emily Jackson ADTR Main Contact Emily Jackson Marks-Roos Main Contact Emily Jackson 1_Issuer Main Contact Emily Jackson 2_Invoice Contact Emily Jackson Filing Contact Orrick, Herrington & Sutcliffe LLP Tax Status/Interest Under State Law:Tax-Exempt State Taxable Principal Amount: State Tax-Exempt Principal Amount:$45,780,000.00 Under Federal Law:Tax Exempt, No AMT Federal Taxable Principal Amount: Federal Tax-exempt (No AMT) Principal Amount:$45,780,000.00 Federal Tax-exempt (AMT) Principal Amount: Net Interest Cost (NIC):4.586 True Interest Cost (TIC):4.353 Capital Appreciation Debt:No Type of Debt Instrument Public Lease Revenue Bond Source of Repayment Source of Repayment Types: REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 09/13/2023 Page 4 of 5 General Fund of Issuing Jurisdiction Is debt repayable in non-US currency?No Senior Structure:No Subordinate Structure:No Purpose(s) of Financing Purpose Name Percentage Parking 100 Type of Sale Type:Negotiated Is financing a private placement?Yes Reason(s) for Negotiated Sale: No data available to display. Document Submittal Official Statements/Offering Memorandum:Enclosed Maturity Schedule:Included in official Statement Document Type Document Name File Upload Date Resolution R-11442 by City Council authority authorization of 2023 Series Lease Revenue Bond issuance for Cultural Arts District Parking Structure.pdf 09/13/2023 Official Statement POSTED - Official Statement - SLO Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023.pdf 09/13/2023 REPORT OF FINAL SALE California Debt and Investment Advisory Commission, 915 Capitol Mall, Room 400, Sacramento, CA 95814 P.O. Box 942809, Sacramento, CA 94209-0001 Tel.: (916) 653-3269 Fax: (916) 654-7440 CDIAC # : 2023-0967 Status: Submitted 09/13/2023 Page 5 of 5 September 13, 2023 City of San Luis Obispo San Luis Obispo, CA Orrick, Herrington & Sutcliffe LLP San Francisco, California Raymond James & Associates, Inc. San Francisco, California Re: San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project) Series 2023 Ladies and Gentlemen: I act as counsel to the San Luis Obispo Public Financing Authority (the “Authority”), and in connection with the issuance by the Authority of its $45,780,000 Lease Revenue Bonds (Cultural Arts District Parking Project) Series 2023 (the “Bonds”), I have reviewed Resolution No. 11443, adopted by the Authority on August 15, 2023 (the “Resolution”); an Indenture of Trust dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City of San Luis Obispo (the “City”) and U.S. Bank National Association, as trustee (the “Trustee”); a Ground Lease dated as of September 1, 2023 (the “Ground Lease”), between the City, as lessor, and the Authority, as lessee; a Lease Agreement dated as of September 1, 2023 (the “Lease Agreement”), between the Authority, as sublessor, and the City, as sublessee; a Continuing Disclosure Certificate of the City, dated the date hereof (the “Continuing Disclosure Certificate”); a Memorandum of Lease Agreement and Assignment dated as of September 1, 2023 by and among the City, the Authority and the Trustee (the “Memorandum of Lease and Assignment”); a Bond Purchase Contract dated as of August 30, 2023 (the “Purchase Contract”); the Preliminary Official Statement with respect to the Bonds, dated August 23, 2023 (the “Preliminary Official Statement”); the Official Statement with respect to the Bonds, dated August 30, 2023 (the “Official Statement”); and such other documents as I consider necessary to render this opinion. The Resolution, the Ground Lease, the Lease Agreement, the Continuing Disclosure Certificate, the Memorandum of Lease and Assignment and the Purchase Contract shall be referred to collectively herein as the “Authority Documents.” In rendering this opinion, I have made the assumption that all documents submitted to or reviewed by me are accurate and complete and, if not originals, are true and correct copies of originals. I have further assumed that the signatures on each of these documents by parties other than representatives of the City and the Authority are genuine, and each individual executing any of these documents on behalf of the parties other than the City and the Authority has the authority and legal capacity to do so. With your permission I have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures (other than signatures on behalf of the Authority); (b) the conformity to the originals of all documents submitted to me as copies; (c) the truth, accuracy, and completeness of the information, representations, and warranties contained in the records, documents, instruments, opinions, and certificates I have reviewed; and (d) the absence of any evidence extrinsic to the provisions of the written agreements between the parties that the parties intended a meaning contrary to that expressed by those provisions. Based on the foregoing, I am of the opinion that: 1. The Authority is a joint powers authority under Article 1 of Chapter 5 of Division 7 of Title 1 of the California Government Code duly organized and validly existing under and by virtue of the Constitution and the laws of the State of California (the “State”). 2. The Resolution was duly adopted at a meeting of the governing board of the Authority that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Resolution is in full force and effect and has not been modified, amended, or rescinded as of the date hereof. 3. The Bonds and the Authority Documents have been duly authorized, executed and delivered by the Authority and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the Authority enforceable against the Authority in accordance with the respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or tother laws affecting enforcement of creditors’ rights or by the application of equitable principles if equitable remedies are sought. 4. The execution and delivery by the Authority of the Authority Documents, and compliance by the Authority with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the Authority is subject to or by which it is bound. 5. Except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the Authority or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the Authority or the titles of the officers of the Authority to their respective offices, (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the issuance of the Bonds or the execution or delivery of any of the Authority Documents, or the payment or collection of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the Authority Documents or the consummation of the transactions contemplated thereby or any proceeding of the Authority taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation or contesting the powers of the Authority and its authority to make the pledges set forth in the Indenture, (c) that may result in any material adverse change relating to the Authority that could materially adversely affect the Authority’s ability to perform its obligations under the Authority Documents, or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and 6. No authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the Authority is required for the valid authorization, execution, and delivery by the Authority of the Authority Documents. The foregoing opinions are subject to the following additional exceptions or limitations: A. Except as hereinafter limited, the opinions set forth herein are based upon the laws of the State (without reference to conflict of laws rules) and the federal law of the United States of America which are in effect as of the date hereof, and I assume no obligation to modify or supplement this opinion with respect to changes in such laws after the date hereof. B. As counsel to the Authority in this matter, I have not rendered financial advice to the Authority and do not represent, by this opinion or otherwise, that I have reviewed or made any assessment about, nor do I offer any opinion about, the financial condition of the City or the Authority, past, present or future, including any financial information contained in the documents; nor have I reviewed the financial feasibility of this transaction or those matters which the proceeds of the Bonds will fund or any of its components and accordingly, I offer no opinion whatsoever regarding such financial feasibility. I express no opinion as to any matter other than as expressly set forth above, and, in conjunction therewith, specifically express no opinion concerning the application to or compliance with federal securities law, including but not limited to the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, any state securities or “Blue Sky” law, or any federal, state or local tax law, of the Bonds or the issuance and sale thereof. In particular, I express no opinion as to whether any order, consent, permission, approval, authorization, order, license, filing or registration that is the subject of the opinion set forth in paragraph 5, above, may be required under any such federal securities or state securities or "Blue Sky" laws. This opinion is solely for the benefit of the City, the underwriter of the Bonds and Orrick, Herrington & Sutcliffe LLP, as Bond Counsel and as Disclosure Counsel, in connection with the transactions covered by the first paragraph of this letter and may not be relied upon or used by, circulated, quoted or referred to, nor may copies hereof be delivered to, any other person or for any other purpose without my prior written approval; provided, however, that copies of this opinion may be included in the closing transcripts for the transactions covered by the first paragraph of this letter. I undertake no duty to notify any person or entity of changes in the facts or circumstances upon which this opinion is based or any new facts or information which may become known to me after the date of this opinion. Very truly yours, J. Christine Dietrick City Attorney City of San Luis Obispo 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE OF CITY CLERK REGARDING RESOLUTION NO. 11442 (2023 SERIES) The undersigned hereby states and certifies: (a)that the undersigned is the duly appointed, qualified and acting City Clerk of the City of San Luis Obispo, a municipal corporation and chartered city organized and existing under the laws of the State of California (the “City”), and, as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; and (b)that the attached Resolution No. 11442 (2023 SERIES) entitled, “A Resolution of the City Council of the City of San Luis Obispo Authorizing the Execution and Delivery by the City of a Ground Lease, a Lease Agreement, an Indenture, a Bond Purchase Contract and a Continuing Disclosure Certificate in Connection With the Issuance of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023, Approving the Issuance of Such Bonds in an Aggregate Principal Amount of Not to Exceed $50,000,000, Authorizing the Distribution of an Official Statement in Connection With the Offering and Sale of Such Bonds and Authorizing the Execution of Necessary Documents and Certificates and Related Actions,,” adopted by the City Council of the City on August 15, 2023, has not been amended, modified or rescinded since the date of its adoption and remains in full force and effect as of the date hereof. Dated: September 13, 2023 ____________________________________ Teresa Purrington, City Clerk of the City of San Luis Obispo DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 INCUMBENCY AND SIGNATURE CERTIFICATE OF THE CITY Each of the undersigned hereby state and certify: (a)that, as set forth opposite is his or her electronic signature below, he or she is a duly elected or appointed, qualified and acting official of the City of San Luis Obispo, a municipal corporation and chartered city organized and existing under the laws of the State of California (the “City”), and, as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; (b)that the following are now, and have continuously been since August 15, 2023, the duly elected, qualified and acting members of the City Council of the City: City Council Members Erica A. Stewart, Mayor Jan Marx, Vice Mayor Emily Francis, Council Member Andy Pease, Council Member Michelle Shoresman, Council Member (c)that pursuant to Resolution No. 11442 (2023 SERIES), adopted by the City Council of the City on August 15, 2023 (the “Resolution”), the City Council of the City approved the execution and delivery of any and all agreements, documents, certificates and instruments referred to therein with electronic signatures as may be permitted under the California Uniform Electronic Transactions Act and digital signatures as may be permitted under Section 16.5 of the California Government Code using DocuSign; (d)that, for and on behalf of the City, the within-named City Manager of the City is authorized to execute, and has executed, with his electronic or manual signature, the following documents: (i)Bond Purchase Contract, dated August 30, 2023, by and among Raymond James & Associates, Inc., the San Luis Obispo Public Financing Authority (the “Authority”) and the City, relating to the $45,780,000 aggregate principal amount of the San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”); (ii)Ground Lease, dated as of September 1, 2023, by and between the City and the Authority; (iii)Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, together with Memorandum of Lease Agreement and Assignment, dated DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4140-9161-9401 as of September 1, 2023, by and among the City, the Authority and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); (iv)Indenture, dated as of September 1, 2023, by and among the Authority, the City and the Trustee, relating to the Bonds; and (v)Continuing Disclosure Certificate, dated September 13, 2023, executed by the City; (vi)Official Statement, dated August 30, 2023, relating to the Bonds; and (vii)Request to Trustee, executed by the City of San Luis Obispo Capital Improvement Board and acknowledged and agreed to by U.S. Bank Trust Company, National Association, relating to the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds; (e)that he or she agrees and acknowledges that it is his or her intent (i) that, by signing this Certificate (this “Certificate”) using an electronic signature, he or she is signing, adopting and accepting this Certificate, and (ii) that signing this Certificate using an electronic signature is the legal equivalent of having placed his or her handwritten signature on this Certificate on paper; (f)that he or she acknowledges that he or she is being provided with an electronic or paper copy of this Certificate in a usable format; and DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 3 4140-9161-9401 (g)that his or her name, title and e-mail address set forth opposite his or her electronic signature below is correct, and that his or her digital signature is under his or her sole control. Dated: September 13, 2023 Name Title E-mail Address Signature Derek Johnson City Manager ___________________ ___________________ Emily Jackson Finance Director ___________________ __________________ Teresa Purrington City Clerk ___________________ __________________ DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B djohnson@slocity.org ejackson@slocity.org tpurring@slocity.org 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE OF THE CITY The City of San Luis Obispo, a municipal corporation and chartered city organized and existing under the laws of the State of California (the “City”), hereby states and certifies: (a)that the undersigned, Derek Johnson, is the duly appointed, qualified and acting City Manager of the City, and, as such, is an “Authorized Representative,” as such term is defined in the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the San Luis Obispo Public Financing Authority (the “Authority”), the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); (b)that by all necessary action, the City has duly authorized and approved the delivery of the Official Statement, dated August 30, 2023 (the “Official Statement”), relating to the $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (collectively, the “Bonds”), and the execution and delivery of, and the performance by the City of the obligations on its part contained in, the following documents (collectively, the “City Documents”), and has authorization to enter into such documents under the laws of the State of California: (i)Bond Purchase Contract, dated August 30, 2023 (the “Purchase Contract”), by and among Raymond James & Associates, Inc., the Authority and the City, relating to the Bonds; (ii)Ground Lease, dated as of September 1, 2023, by and between the City and the Authority; (iii)Lease Agreement, dated as of September 1, 2023, by and between the City and the Authority, together with Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, by and among the City, the Authority and the Trustee; (iv)Indenture; (v)Continuing Disclosure Certificate, dated September 13, 2023, executed by the City; and (vi)Request to Trustee, executed by the City of San Luis Obispo Capital Improvement Board and acknowledged and agreed to by U.S. Bank Trust Company, National Association, relating to the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds; (c)that Resolution No. 11442 (2023 SERIES), adopted by the City Council of the City on August 15, 2023, was adopted at a regular meeting of the City Council of the City, at which a DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4140-9161-9401 quorum was present and acting throughout, is in full force and effect as of the date hereof, and has not been amended, modified or supplemented as of the date hereof; (d)that the representations, warranties and covenants of the City contained in the Purchase Contract are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof by the City, and the City has complied with, in all material respects, all of the terms and conditions of the Purchase Contract required to be complied with by the City at or prior to the date hereof; (e)that no event affecting the City has occurred since the date of the Official Statement, which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (f)that the information and statements contained in the Preliminary Official Statement, dated August 23, 2023 (the “Preliminary Official Statement”), relating to the Bonds, did not as of its date and as of the date of the Purchase Contract, and the information and statements contained in the Official Statement did not as of its date and as of the date hereof (other than information in the Preliminary Official Statement under the caption “UNDERWRITING” and the Official Statement under the caption “UNDERWRITING” and information regarding DTC and its book entry only system) contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; (g)that the City is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Lease) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and (h)that the City has an adopted debt management policy in accordance with Government Code Section 8855 and such policy is attached hereto as Exhibit A. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 3 4140-9161-9401 IN WITNESS WHEREOF, the undersigned has executed this Certificate of the City on the date set forth below. Dated: September 13, 2023 CITY OF SAN LUIS OBISPO By: ________________________________ Derek Johnson, City Manager DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401.3 EXHIBIT A CITY OF SAN LUIS OBISPO DEBT MANAGEMENT POLICY CAPITAL FINANCING & DEBT MANAGEMENT October 2022 Introduction Table of Contents Policy Statement ....................................................................................................................... 1 Debt Management Objective ......................................................................................................... 1 Consideration of Capital Financing ............................................................................................. 1 Designated Bonds & Debt Management Designated Bonds ........................................................................................................................... 3 Debt Management .......................................................................................................................... 4 Debt Capacity ................................................................................................................................. 5 Independent Disclosure Council.................................................................................................... 5 Land-Based Financings Public Purpose ................................................................................................................................ 6 Eligibility Improvements ............................................................................................................... 6 Development Impact Fees Guidelines & Policies…………………….……………………………8 Conduit Financings……………………………………………………………………………….10 Refinancing ......................................................................................................................................... 11 Enhanced Infrastructure Financing & District Guidelines & Policies ........................................ 11 Glossary .............................................................................................................................................. 12 XII. GLOSSARY 1 Introduction POLICY STATEMENT The City of San Luis Obispo (City) will maintain, at all times, debt management policies that are fiscally prudent, consistent with State and Federal law, and that reflect the most opportune financing strategies to deliver on the needs and goals of the community and the City organization. This Debt Management Policy establishes objectives, parameters, and guidelines for responsibly issuing and administering the City’s debt. Prudent management of the City’s debt program is necessary to achieve cost-effective access to the capital markets and demonstrates a commitment to long-term financial planning and sustainability. DEBT MANAGEMENT OBJECTIVES This policy sets forth key objectives for the City in issuing and administering the City’s debt, which are to: • Maintain the City’s sound financial position. • Minimize debt service and issuance cost. • Maintain access to cost-effective borrowing. • Achieve and maintain highest reasonable credit rating. • Ensure full and timely repayment of debt. • Maintain full and complete financial disclosure and reporting including voluntary disclosures. • Ensure compliance with State and Federal laws and regulations. SCOPE This policy establishes the framework for when the City of San Luis Obispo should consider issuing debt and the overall acceptable debt burden. Long-term debt is an effective way to finance capital improvements by matching the term of the debt with the useful life of the asset being financed. Properly managed debt provides flexibility in current and future operating budgets and provides the City with the long-term assets required to deliver services, programs, and public infrastructure to the community. The City recognizes that effective debt management practices require a comprehensive Debt Management Policy that details the use of capital debt to support the capital infrastructure in the community while maintaining a stable and prudent fiscal outlook. Consideration of Capital Financing 1. The City will consider the use of debt financing only for one-time capital improvement projects and only under the following circumstances: a. When the project’s useful life will exceed the term of the financing. b. When project revenues or specific resources will be sufficient to service the long -term debt. 2. Debt financing will not be considered appropriate for any recurring purpose such as operating and maintenance expenditures. The issuance of short-term instruments such as revenue, tax or bond anticipation notes is excluded from this limitation. (See Investment Policy) XII. GLOSSARY 2 3. Capital improvements will be financed primarily through user fees, service charges, assessments, special taxes or developer agreements when benefits can be specifically attributed to users of the facility. Accordingly, development impact fees should be created and implemented at levels sufficient to ensure that new development pays its fair share of the cost of constructing necessary community facilities and public infrastructure. For Community Facilities Districts please see section F. 4. Transportation impact fees are a major funding source in financing transportation system improvements. However, revenues from these fees are subject to significant fluctuation based on the rate of new development. Accordingly, the following guidelines will be followed in designing and building projects funded with transportation impact fees: a. The availability of transportation impact fees in funding a specific project will be analyzed on a case-by-case basis as plans and specification or contract awards are submitted for City Manager or Council approval. b. If adequate funds are not available at that time, the Council will make one of two determinations: 1. Defer the project until funds are available. 2. Based on the high-priority of the project, advance funds from the General Fund, which will be reimbursed as soon as impact fee funds become available. Repayment of General Fund advances will be the first use of transportation impact fee funds when they become available. 5. The City will use the following criteria to evaluate pay-as-you-go versus long-term financing in funding capital improvements: a. Factors Favoring Pay-As-You-Go Financing 1. Current revenues and adequate fund balances are available, or project phasing can be accomplished. 2. Existing debt levels adversely affect the City's credit rating. 3. Market conditions are unstable, present difficulties in marketing, and would yield unfavorable financing terms. b. Factors Favoring Long-Term Financing 1. Revenues available for debt service are deemed sufficient and reliable so that long- term financings can be marketed with investment grade credit ratings. 2. The project securing the financing is of the type which will support an investment grade credit rating. 3. Market conditions present favorable interest rates and demand for municipal bonds and yield favorable terms & conditions. 4. A project is mandated by state or federal requirements, and resources are insufficient or unavailable. XII. GLOSSARY 3 5. The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable. 6. The life of the project or asset to be financed is 10 years or longer. 7. Vehicle leasing when market conditions and operational circumstances present favorable opportunities. Designated Bonds 1. The City will consider the use of designated bonds such as Green Bonds, Sustainable Bonds, Social Bonds, or other alternatively designated bonds whenever advantageous and under the following circumstance: a. The City has determined the intended benefits, associated challenges, and cost fit with the goals and objectives set forth; b. The bonds support and respond to market demands for sustainable development (e.g. infrastructure, environmental improvements, and social benefit projects). c. When such an issuance allows the City to attract a broader investor base, media attention, and enhance resident engagement. 2. The City will use the Green Bond Principles as a framework to promote the role that debt capital markets can play in financing progress toward environmental and social sustainability. a. Use of Proceeds: allocating the full amount of the net proceeds of bonds to eligible green projects a defined by the Green Bond Framework; b. Project Evaluation and Selection: Using clear “green” criteria, as defined by the issue, to select projects for funding; c. Management of Proceeds: the City will track green bond proceeds and will review project expenditures to identify the eligible project cost that best correspond with the intended use. d. Reporting: Annually, until the Green Bonds proceeds are fully allocated, the City will report the use of the proceeds to demonstrate compliance with the intended use. 3. The City will ensure that the Designated Bonds are consistent with the intrinsic Environmental, Social, And Governance values of the City such as Diversity, Equity, and Inclusion (DEI) as well as with the United Nations Sustainable Development Goals (SDG). a. SDG 8: Decent Work and Economic Growth, which includes targets to achieve higher levels of economic productivity through diversification, technological upgrading, and innovation b. SDG 9: Industry, Innovation, and Infrastructure, which includes targets to upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes. c. SDG 10: Reduced Inequalities, which includes targets for reducing inequalities in income as well as those based on age, sex, disability, race, ethnicity, origin, religion or economic or other status within a country. d. SDG 11: Sustainable Cities and Communities, which include targets to provide access to safe, affordable, accessible and sustainable transport systems for all, and XII. GLOSSARY 4 improving road safety. As well as targets to ensure access to safe and affordable housing and basic services. e. SDG 12: Responsible Consumption and Production, which includes targets to encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle. f. SDG 13: Climate Action: which includes targets to strengthen resilience and adaptive capacity to climate-related hazards and natural disasters 2. The City will seek to qualify its designated bonds to provide detail to investors on the designated eligibility criteria for the use of proceeds on a case-by-case basis, using at least one of the following: a. Third Party Assurance: In which a certified company will create assurance reports that state whether the issuance is aligned with a reputable international framework b. Second Party Opinion (SPOs): In which an outside entity will provide an assessment of the designated bond framework, analyze eligible projects/assets, and provide a sustainability "rating", giving a qualitative indication of aspects of the issuer's framework and planned allocation of proceeds c. Green Bond Rating: In which a number of rating agencies assess the bond’s alignment with the Green Bond Principles and the integrity of its green credentials Debt Management 1. The City will not obligate the General Fund to secure long-term financings except when marketability can be significantly enhanced. 2. An internal feasibility analysis will be prepared for each long-term financing which analyzes the impact on current and future budgets for debt service and operations. This analysis will also address the reliability of revenues to support debt service. 3. The City will generally conduct financings on a competitive basis. However, negotiated financings may be used due to market volatility or the use of an unusual , complex financing or security structure, or the market conditions yielding more favorable terms in a negotiated financing. 4. The City will seek an investment grade rating (Baa/BBB or greater) on any direct debt and will seek credit enhancements such as letters of credit or insurance when necessary for marketing purposes, availability and cost-effectiveness. 5. The City will monitor all forms of debt annually coincident with the City's Financial Plan preparation and review process and report concerns and remedies, if needed, to the Council. 6. The City will diligently monitor its compliance with bond covenants and ensure its adherence to federal arbitrage regulations. XII. GLOSSARY 5 7. The City will maintain good, ongoing communications with bond rating agencies about its financial condition. The City will follow a policy of full disclosure on every financial report and bond prospectus (Official Statement) and continue its voluntary disclosures. Debt Capacity 1. General Purpose Debt Capacity. The City will carefully monitor its levels of general- purpose debt. Because the City’s general-purpose debt capacity is limited, it is important that the City only use general purpose debt financing for high-priority projects when it cannot reasonably use other financing methods for two key reasons: a. Funds borrowed for a project today are not available to fund other projects tomorrow. b. Funds committed for debt repayment today are not available to fund operations in the future. In evaluating debt capacity, general-purpose annual debt service payments should generally not exceed 10% of General Fund revenues; and in no case should they exceed 15%. Further, direct debt will not exceed 2% of assessed valuation; and no more than 60% of capital improvement outlays will be funded from long-term financings. 2. Enterprise Fund Debt Capacity. The City will set enterprise fund rates at levels needed to fully cover debt service requirements as well as operations, maintenance, administration and capital improvement costs. The ability to afford new debt for enterprise operations will be evaluated as an integral part of the City’s rate review and setting process. Independent Disclosure Counsel The following criteria will be used on a case-by-case basis in determining whether the City should retain the services of an independent disclosure counsel in conjunction with specific project financings: 1. The City will generally not retain the services of an independent disclosure counsel when all of the following circumstances are present: a. The revenue source for repayment is under the management or control of the City, such as general obligation bonds, revenue bonds, lease-revenue bonds or certificates of participation. b. The bonds will be rated or insured. 2. The City will consider retaining the services of an independent disclosure counsel when one or more of following circumstances are present: a. The financing will be negotiated, and the underwriter has not separately engaged an underwriter’s counsel for disclosure purposes. XII. GLOSSARY 6 b. The revenue source for repayment is not under the management or control of the City, such as land-based assessment districts, tax allocation bonds or conduit financings. c. The bonds will not be rated or insured. d. The City’s financial advisor, bond counsel, or underwriter recommends that the City retain an independent disclosure counsel based on the circumstances of the financing. Land-Based Financings 1. Public Purpose. There will be a clearly articulated public purpose in forming an assessment or special tax district in financing public infrastructure improvements. This should include a finding by the Council as to why this form of financing is preferred over other funding options such as impact fees, reimbursement agreements, or direct developer responsibility for the improvements. New development should generally be expected to “pay its own way,” (i.e., provide funding through one mechanism or another that funds its “proportional share” of public improvement and infrastructure costs and ongoing operations and maintenance costs). 1. The City will consider the use of City-based funding sources to fund public facility and infrastructure improvements that provide for the health, safety and welfare of existing and future residents and/or provide measurable economic development and fiscal benefits. In evaluating whether the City will use city- based funding sources, the following evaluation criteria should be considered: a. Significant public benefit, demonstrated by compliance with and furtherance of General Plan goals, policies, and programs b. Alignment with the Major City Goals and other important objectives in place at the time of the application c. Head of Household Job Creation d. Housing Creation e. Circulation/Connectivity Improvements f. Net General Fund fiscal impact 2. The City generally will not fund or offer public financing for infrastructure improvements that confer only private benefit to individual property owners or development projects. 3. The City shall seek continuity (or improvements to) existing levels of municipal service by assuring adequate funding for the City’s operation, maintenance and infrastructure replacement costs.” 2. Eligible Improvements. Except as otherwise determined by the Council when proceedings for district formation are commenced, preference in financing public improvements through a special tax district shall be given for those public improvements that help achieve clearly identified community facility and infrastructure goals in accordance with adopted facility and infrastructure plans as set forth in key policy documents such as the General Plan, Specific Plan, Facility or Infrastructure Master Plans, or Capital Improvement Plan. Such improvements include study, design, construction and/or acquisition of: XII. GLOSSARY 7 a. Public safety facilities. b. Water supply, distribution and treatment systems. c. Waste collection and treatment systems. d. Major transportation system improvements, such as freeway interchanges; bridges; intersection improvements; construction of new or widened arterial or collector streets (including related landscaping and lighting); sidewalks and other pedestrian paths; transit facilities; and bike paths. e. Storm drainage, creek protection and flood protection improvements. f. Parks, trails, community centers and other recreational facilities. g. Open space. h. Cultural and social service facilities. i. Other governmental facilities and improvements such as offices, information technology systems and telecommunication systems. School facilities will not be financed except under appropriate joint community facilities agreements or joint exercise of powers agreements between the City and school districts. 3. Active Role. Even though land-based financings may be a limited obligation of the City, it will play an active role in managing the district. This means that the City will select and retain the financing team, including the financial advisor, bond counsel, trustee, appraiser, disclosure counsel, assessment engineer and underwriter. Any costs incurred by the City in retaining these services will generally be the responsibility of the property owners or developer and will be advanced via a deposit when an application is filed; or will be paid on a contingency fee basis from the proceeds from the bonds. 4. Credit Quality. When a developer requests a district, the City will carefully evaluate the applicant’s financial plan and ability to carry the project, including the payment of assessments and special taxes during build-out. This may include detailed background, credit and lender checks, and the preparation of independent appraisal reports and market absorption studies. For districts where one property owner accounts for more than 25% of the annual debt service obligation, a letter of credit further securing the financing may be required. 5. Reserve Fund. A reserve fund should be established in the lesser amount of: the maximum annual debt service; 125% of the annual average debt service; or 10% of the bond proceeds. 6. Value-to-Debt Ratios. The minimum value-to-debt ratio should generally be 4:1. This means the value of the property in the district, with the public improvements, should be at least four times the amount of the assessment or special tax debt. In special circumstances, after conferring and receiving the concurrence of the City’s financial advisor and bond counsel that a lower value-to-debt ratio is financially prudent under the circumstances, the City may consider allowing a value-to-debt ratio of 3:1. The Council should make special findings in this case. 7. Appraisal Methodology. Determination of value of property in the district shall be based upon the full cash value as shown on the ad valorem assessment roll or upon an appraisal by an independent Member Appraisal Institute (MAI). The definitions, standards and assumptions to be used for appraisals shall be determined by the City on a case-by-case XII. GLOSSARY 8 basis, with input from City consultants and district applicants, and by reference to relevant materials and information promulgated by the State of California, including the Appraisal Standards for Land-Secured Financings prepared by the California Debt and Investment Advisory Commission. 8. Capitalized Interest During Construction. Decisions to capitalize interest will be made on case-by-case basis, with the intent that if allowed, it should improve the credit quality of the bonds and reduce borrowing costs, benefiting both current and future property owners. 9. Maximum Burden. Annual assessments (or special taxes in the case of Mello-Roos or similar districts) should generally not exceed 1% of the sales price of the property; and total property taxes, special assessments and special taxes payments collected on the tax roll should generally not exceed 2%. 10. Benefit Apportionment. Assessments and special taxes will be apportioned according to a formula that is clear, understandable, equitable and reasonably related to the benefit received by—or burden attributed to—each parcel with respect to its financed improvement. Any annual escalation factor should generally not exceed 2%. Development Impact Fees Guidelines and Policies Development impact fees are one-time fees levied on new development, typically levied at the time building permits are issued, to fund a range of the City’s public facilities and infrastructure. Such fees are levied both on a citywide basis as well as for specific areas (e.g., the Specific Plan Areas). The levy of development impact fees is regulated by the State’s Mitigation Fee Act (Government Code Section 66000 et seq.). 1. Development impact fees should be set, consistent with the statutory “nexus” analysis and findings, to fund new development’s proportional share of public facility and infrastructure costs. 2. Improvements funded by development impact fees should be referenced generally in the appropriate planning documents (e.g., General Plan, Specific Plans, etc.) and reflected in the City’s Capital Improvement Program. 3. An exception to this policy may be created by a development agreement between the City and a private developer. In this case public investments are offset by measurable public benefits. 4. The City’s development impact fees can be “leveraged” through the use of fee credit and reimbursement agreements with developers and landowners. 5. The City’s aggregate fee levels should not render new development that is otherwise consistent with City plans and regulations economically infeasible. Aggregate fee levels should be evaluated in terms of a reasonable standard, but not a strict limit (e.g., aggregate fee levels should not exceed an average of approximately 10 to 12 percent of the market value of the new development, either on a per-unit or per-square foot basis). XII. GLOSSARY 9 6. The City may consider reductions or waivers of its development impact fees in cases where a development project meets specific City planning or economic development policies such as affordable housing projects. In such cases the amount of funding foregone must be replaced with other funding sources available to the City. 1. Special Tax District Administration. In the case of Mello-Roos or similar special tax districts, the total maximum annual tax should not exceed 110% of annual debt service. The rate and method of apportionment should include a back-up tax in the event of significant changes from the initial development plan and should include procedures for prepayments. a. Community Facilities Districts or Assessment Districts offer a way to fund infrastructure, maintenance, or municipal services through special taxes or assessments levied on property owners benefiting from the thus-funded improvements or services. It can be used for both capital improvements and ongoing facility maintenance or services. b. The City will consider the formation of financing districts using the State’s assessment law or the Mello-Roos Community Facilities Act for its newly developing areas on a case- by-case basis, consistent with technical analysis and City priorities (i.e., capital or ongoing funding). c. The City will consider the effect of the special tax on the City’s ability to issue General Obligation bonds or other property-based tax measures. d. Such districts should fund infrastructure or services serving or otherwise providing benefit to the area subject to the assessment or special tax. e. Such districts can fund public facilities or infrastructure otherwise funded with the City’s development impact fees or project-specific exactions. In such cases the area’s development impact fee obligations will be adjusted proportionately. f. Within any such districts, property value-to-lien ratio should, consistent with typical underwriting standards, be at least 4.0:1 after calculating the value of the financed public improvements to be installed and considering any prior or pending special taxes or improvement liens. g. Consistent with underwriting standards and market considerations, and as a matter of policy, the City will limit the maximum amount of special taxes to be levied on any parcel of property within a Community Facilities District, in any given fiscal year, together with the general property taxes, general obligation bonds, and other special taxes and assessments levied on such parcel, shall not exceed an amount equal to one and eight- tenths percent (1.8 percent) of the projected assessed value of the parcel (and improvements if applicable). How the special tax capacity is allocated between capital and ongoing expenditures will depend upon the City’s priorities. h. The City shall have discretion to allow a special tax in excess of the established limits for any lands within the CFD which are designated for commercial or industrial uses. XII. GLOSSARY 10 i. As a part of such district formations, the City will retain a special tax consultant to prepare a report which recommends a special tax rate and method for the proposed CFD and evaluates the special tax proposed to determine its ability to adequately fund identified public facilities, City administrative costs, services (if applicable) and other related expenditures. 2. Foreclosure Covenants. In managing administrative costs, the City will establish minimum delinquency amounts per owner, and for the district as a whole, on a case-by- case basis before initiating foreclosure proceedings. 3. Disclosure to Bondholders. In general, each property owner who accounts for more than 10% of the annual debt service or bonded indebtedness must provide ongoing disclosure information annually as described under SEC Rule 15(c)-12. 4. Disclosure to Prospective Purchasers. Full disclosure about outstanding balances and annual payments should be made by the seller to prospective buyers at the time that the buyer bids on the property. It should not be deferred to after the buyer has made the decision to purchase. When appropriate, applicants or property owners may be required to provide the City with a disclosure plan. Conduit Financings 1. The City will consider requests for conduit financing on a case-by-case basis using the following criteria: a. The City’s bond counsel will review the terms of the financing and render an opinion that there will be no liability to the City in issuing the bonds on behalf of the applicant. b. There is a clearly articulated public purpose in providing the conduit financing. c. The applicant is capable of achieving and maintaining this public purpose. 2. This means that the review of requests for conduit financing will generally be a two-step process: a. First asking the Council if they are interested in considering the request and establishing the ground rules for evaluating it. b. And then returning with the results of this evaluation and recommending approval of appropriate financing documents if warranted. This two-step approach ensures that the issues are clear for both the City and applicant, and that key policy questions are answered. 3. The work scope necessary to address these issues will vary from request to request and will have to be determined on a case-by-case basis. Additionally, the City should generally be fully reimbursed for our costs in evaluating the request; however, this should also be determined on a case-by-case basis. XII. GLOSSARY 11 Refinancing 1. General Guidelines. Periodic reviews of all outstanding debt will be undertaken to determine refinancing opportunities. Refinancing will be considered (within federal tax law constraints) under the following conditions: a. There is a net economic benefit. b. It is needed to modernize covenants that are adversely affecting the City’s financial position or operations. c. The City wants to reduce the principal outstanding in order to achieve future debt service savings, and it has available working capital to do so from other sources. 2. Standards for Economic Savings. In general, refinancing for economic savings will be undertaken whenever net present value savings of at least five percent (5%) of the refunded debt can be achieved. a. Refinancing that produce net present value savings of less than five percent will be considered on a case-by-case basis, provided that the present value savings are at least three percent (3%) of the refunded debt. b. Refinancing with savings of less than three percent (3%), or with negative savings, will not be considered unless there is a compelling public policy objective. Enhanced Infrastructure Financing District Guidelines and Policies a. EIFD financing should be considered for public facilities or infrastructure improvements that confer citywide and/or regional benefits. This may include the “City share” of infrastructure included in the City’s development impact fees. b. Unless there is a Development Agreement in place that provides otherwise, EIFDs should not be used to fund real estate projects’ proportional share of infrastructure costs otherwise included in the City’s development impact fees or charged as project- specific exactions (e.g., subdivision improvements). c. City should consider EIFDs when more than one local government jurisdiction is participating to produce maximum benefit. d. At the time of formation of the EIFD (or if changes to the EIFD are contemplated), the City should require a fiscal impact analysis to determine if an EIFD is fiscally prudent and analyze opportunity cost to the City’s General Fund. XII. GLOSSARY 12 Glossary of Terms Designated Bonds: bonds that have been labeled or “designated” to attract investors looking for investments that produce social or environmental benefits (examples include green bonds, sustainable bonds, social bonds, or other alternatively designated bonds). Green Bonds: New and existing projects with environmental benefits (examples include terrestrial and aquatic biodiversity, clean transportation, renewable energy infrastructure, green buildings, water/wastewater management projects, natural resource conservation). Social Bonds: New and existing projects with positive social outcomes (examples include affordable housing, food security and sustainable food systems, and access to essential services). Sustainability Bonds: New and existing projects with both environmental and social benefits (examples include renewable energy, climate change adaptation or mitigation, and clean transportation). 4140-9161-9401.2 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 WRITTEN REQUEST NO. 1 FOR DISBURSEMENTS FROM COSTS OF ISSUANCE The City of San Luis Obispo, a municipal corporation and chartered city organized and existing under the laws of the State of California (the “City”), hereby states and certifies: (a)that the undersigned, Emily Jackson, is the duly appointed, qualified and acting Finance Director of the City, and, as such, is an “Authorized Representative,” as such term is defined in the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the San Luis Obispo Public Financing Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”); (b)that the Trustee is hereby requested to disburse from the Costs of Issuance Fund, established pursuant to Section 3.03 of the Indenture, to the payees set forth on Exhibit A attached hereto and by this reference incorporated herein, the amount set forth in an invoice received from each listed payee in an amount not to exceed the amount set forth on Exhibit A opposite each such payee, for payment of such costs identified on said Exhibit A; (c)that each item of cost identified on Exhibit A has been properly incurred and the amounts to be disbursed pursuant to this Written Request are for Costs of Issuance properly chargeable to the Costs of Issuance Fund, and no amounts to be disbursed pursuant to this Written Request have been the subject of a previous Written Request for disbursement from said fund; and (d)that an invoice, for each item of cost identified on Exhibit A is attached hereto. Capitalized terms used herein and not otherwise defined shall have the meanings give such terms in the Indenture. DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 2 4140-9161-9401.2 IN WITNESS WHEREOF, the undersigned has executed this Written Request No. 1 for Disbursements from Costs of Issuance on the date set forth below. Dated: September 13, 2023 CITY OF SAN LUIS OBISPO By: ________________________________ Emily Jackson, Finance Director DocuSign Envelope ID: A8226142-23F2-4ED7-BA1F-BFBE7D0A5A1B 4140-9161-9401.4 EXHIBIT A COSTS OF ISSUANCE DISBURSEMENTS Payee Name and Address Purpose of Obligation Amount* Orrick, Herrington & Sutcliffe LLP Payment for services rendered as bond counsel and expenses related thereto $90,500.00 S&P Global Ratings Rating Agency Fee 37,000.00 PFM Financial Advisors LLC Payment for services rendered as Municipal Advisor and expenses related thereto 76,433.15 ImageMaster, LLC Posting of Official Statement and Investor Presentation 2,261.51 U.S. Bank Trust Company, National Association Trustee fees and Trustee Counsel Fees 4,482.88 Chicago Title Company Title Insurance 38,824.00 __________ * Not to exceed amount. X EVIDENCE OF PROPERTY COVERAGE ISSUE DATE (MM/DD/YYYY) 08/24/2023 THIS EVIDENCE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE ADDITIONAL INTEREST. THIS EVIDENCE DOES NOT AFFIRMATIVELY OR NEGATIVELY AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BELOW. THIS EVIDENCE OF COVERAGE DOES NOT CONSTITUTE A CONTRACT BETWEEN THE ISSUING INSURER(S), AUTHORIZED REPRESENTATIVE OR PRODUCER, AND THE ADDITIONAL INTEREST. CALIFORNIA JOINT POWERS INSURANCE AUTHORITY C/O Alliant Insurance Services, Inc. 18100 Von Karman Avenue, 10th Floor Irvine, CA 92612 Ph (949) 756-0271 / Fax (949) 756-2713 License #OC36861 COVERAGE AFFORDED California JPIA – Memorandum of Coverage Excess Carrier’s – Schedule on File with California JPIA MEMBER: LOAN NUMBER MEMORANDUM NUMBER 128410009W23 EFFECTIVE DATE 07/01/2023 EXPIRATION DATE 07/01/2024 CONT. UNTIL TERMINATED IF CHECKED THIS REPLACES PRIOR EVIDENCE DATED: PROPERTY INFORMATION LOCATION / DESCRIPTION AS RESPECTS BOND PURCHASE CONTRACT FOR LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023, LEASE AGREEMENT DATED AS OF SEPTEMBER 1, 2023 FOR THE FOLLOWING PROPERTY: YEAR BUILT: 1991, SQUARE FEET: 215,838, CONSTRUCTION DESCRIPTION: ALL REINFORCED CONCRETE, TOTAL VALUE: $25,135,225.00. THIS LOCATION IS COVERED AT FULL REPLACEMENT COST, UP TO THE LIMIT REFERENCED IN THE COVERAGE INFORMATION SECTION BELOW. THIS CANCELS AND REPLACES CERTIFICATE ISSUED 08/22/23 TO AMEND CERTIFICATE DESCRIPTION THIS IS TO CERTIFY THAT THE MEMORANDUM OF COVERAGE LISTED ABOVE HAS BEEN ISSUED TO THE MEMBER NAMED ABOVE FOR THE PERIOD INDICATED NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS EVIDENCE MAY BE ISSUED OR MAY PERTAIN, THE COVERAGE AFFORDED BY THE MEMORANDUM DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH MEMORANDUM. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. COVERAGE INFORMATION COVERAGE / PERILS / FORMS AMOUNT OF INSURANCE DEDUCTIBLE “All Risk” of Direct Physical Loss or Damage Including Flood – Limits Per Occurrence – Replacement Cost Subject to Memorandum Exclusions (Earthquake & Flood per schedule on file with Company) Sub-Limits apply as follows (but not limited to): $ 10,000,000 Flood Coverage – All locations not separately insured for EQ/Flood - Annual Aggregate Limit $ 50,000,000 Course of Construction Final Contract Value - Real Property $ 25,000,000 Newly Acquired Property (reported within 60 days) unnamed locations $ 250,000 Newly Acquired Fine Arts $ 500,000 Animals $ 10,000 Limited Mold - $100,000 Limited Mold Aggregate Limit Earthquake / Flood Covered Only If Indicated on Property Schedule on file with the Company and with the Authority. $500,000,000 REMARKS (Including Special Conditions) Deductibles: Earthquake, if Purchased, 5% of Total Insurable Values Per Unit, Per Occurrence, Subject to $100,000 Minimum Per Occurrence Flood - $250,000 Flood Zones A & V per Member per Occurrence, All Other Flood Zones $100,000 per Member per Occurrence Vehicles & Telephone Equipment in Vehicles, if Purchased, Comprehensive and Collision - $2,500 Per Occurrence Emergency Vehicles if Purchased, Comprehensive and Collision - $10,000 Per Occurrence All Other Perils - $10,000 Per Occurrence CANCELLATION SHOULD THE ABOVE DESCRIBED MEMORANDUM / EXCESS CARRIER(S) BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, NOTICE WILL BE DELIVERED IN ACCORDANCE WITH THE MEMORANDUM COVERAGE PROVISIONS. ADDITIONAL INTEREST NAME AND ADDRESS MORTGAGEE ADDITIONAL INSURED LOSS PAYEE 438BFU OTHER EVIDENCE ONLY LOAN # AUTHORIZED REPRESENTATIVE CITY OF SAN LUIS OBISPO 990 PALM STREET SAN LUIS OBISPO, CA 93401 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY ATTN: TREASURER 990 PALM STREET SAN LUIS OBISPO, CA 93401 September 13, 2023 San Luis Obispo Public Financing Authority San Luis Obispo, CA 95648 Orrick, Herrington & Sutcliffe LLP San Francisco, California Raymond James & Associates, Inc. San Francisco, California Re: San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project) Series 2023 Ladies and Gentlemen: I act as counsel to the City of San Luis Obispo (the “City”), and in connection with the issuance by the San Luis Obispo Public Financing Authority (the “Authority”) of its $45,780,000 Lease Revenue Bonds (Cultural Arts District Parking Project) Series 2023 (the “Bonds”), I have reviewed Resolution No. 11442, adopted by the City on August 15, 2023 (the “Resolution”); an Indenture of Trust dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City and U.S. Bank National Association, as trustee (the “Trustee”); a Ground Lease dated as of September 1, 2023 (the “Ground Lease”), between the City, as lessor, and the Authority, as lessee; a Lease Agreement dated as of September 1, 2023 (the “Lease Agreement”), between the Authority, as sublessor, and the City, as sublessee; a Continuing Disclosure Certificate of the City, dated the date hereof (the “Continuing Disclosure Certificate”); a Memorandum of Lease Agreement and Assignment dated as of September 1, 2023 by and among the City, the Authority and the Trustee (the “Memorandum of Lease and Assignment”); a Bond Purchase Contract dated as of August 30, 2023 (the “Purchase Contract”); the Preliminary Official Statement with respect to the Bonds, dated August 23, 2023 (the “Preliminary Official Statement”); the Official Statement with respect to the Bonds, dated August 30, 2023 (the “Official Statement”); and such other documents as I consider necessary to render this opinion. The Resolution, the Ground Lease, the Lease Agreement, the Continuing Disclosure Certificate, the Memorandum of Lease and Assignment and the Purchase Contract shall be referred to collectively herein as the “City Documents.” In rendering this opinion, I have made the assumption that all documents submitted to or reviewed by me are accurate and complete and, if not originals, are true and correct copies of originals. I have further assumed that the signatures on each of these documents by parties other than representatives of the City and the Authority are genuine, and each individual executing any of these documents on behalf of the parties other than the City and the Authority has the authority and legal capacity to do so. With your permission I have assumed the following: (a) the authenticity of original documents and the genuineness of all signatures (other than signatures on behalf of the City); (b) the conformity to the originals of all documents submitted to me as copies; (c) the truth, accuracy, and completeness of the information, representations, and warranties contained in the records, documents, instruments, opinions, and certificates I have reviewed; and (d) the absence of any evidence extrinsic to the provisions of the written agreements between the parties that the parties intended a meaning contrary to that expressed by those provisions. Based on the foregoing, I am of the opinion that: 1. The City is a municipal corporation and chartered city duly organized and validly existing under and by virtue of the laws of the State of California (the “State”). 2. The Resolution was duly adopted at a meeting of the City Council of the City that was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Resolution is in full force and effect and has not been modified, amended, or rescinded as of the date hereof. 3. The City Documents have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the City enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting enforcement or creditors’ rights or by the application of equitable principles if equitable remedies are sought. 4. The execution and delivery by the City of the City Documents, and compliance by the City with the provisions thereof, under the circumstances contemplated thereby, do not and will not in any material respect conflict with or constitute a breach of or default under any law, administrative regulation, court decree, resolution, or agreement to which the City is subject to or by which it is bound. 5. The Preliminary Official Statement did not as of its date, and the Official Statement, at all times subsequent to the date of the Official Statement up to and including the date hereof, did not (excluding therefrom financial statements and other statistical data included in the Official Statement, and any information with respect to Depository Trust Company and the book-entry only system, prices and yields for the Bonds, and any other information provided by the Underwriter, as to which no view is expressed) contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 6. Except as otherwise disclosed in the Official Statement, there is no action, suit, proceeding, inquiry, or investigation, at law or in equity, before or by any court, regulatory agency, or public board or body, pending and notice of which has been received by the City, or, to the best knowledge of such counsel after reasonable investigation, threatened (a) in any way questioning the existence of the City or the titles of the officers of the City to their respective offices; (b) affecting, contesting, or seeking to prohibit, restrain, or enjoin the Authority’s issuance of the Bonds or the execution or delivery of any of the City Documents, or the payment to or collection by the Authority of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds or the City Documents or the consummation of the transactions contemplated thereby or any proceeding of the City taken with respect to any of the foregoing, or contesting the exclusion of the interest on the Bonds from taxation; (c) that may result in any material adverse change relating to the City that could materially adversely affect the City’s ability to perform its obligations under the City Documents; or (d) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 7. No authorization, approval, consent, or other order of the State or any other governmental authority or agency within the State having jurisdiction over the City is required for the valid authorization, execution, and delivery by the City of the City Documents. The foregoing opinions are subject to the following additional exceptions or limitations: A. Except as hereinafter limited, the opinions set forth herein are based upon the laws of the State (without reference to conflict of laws rules) and the federal law of the United States of America which are in effect as of the date hereof, and I assume no obligation to modify or supplement this opinion with respect to changes in such laws after the date hereof. B. As counsel to the City in this matter, I have not rendered financial advice to the City and do not represent, by this opinion or otherwise, that I have reviewed or made any assessment about, nor do I offer any opinion about, the financial condition of the City, past, present or future, including any financial information contained in the documents; nor have I reviewed the financial feasibility of this transaction or those matters which the proceeds of the Bonds will fund or any of its components and accordingly, I offer no opinion whatsoever regarding such financial feasibility. I express no opinion as to any matter other than as expressly set forth above, and, in conjunction therewith, specifically express no opinion concerning the application to or compliance with federal securities law, including but not limited to the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended, any state securities or “Blue Sky” law, or any federal, state or local tax law, of the Bonds or the issuance and sale thereof. In particular, I express no opinion as to whether any order, consent, permission, approval, authorization, order, license, filing or registration that is the subject of the opinion set forth in paragraph 5, above, may be required under any such federal securities or state securities or "Blue Sky" laws. This opinion is solely for the benefit of the Authority, the underwriter of the Bonds and Orrick, Herrington & Sutcliffe LLP, as Bond Counsel and as Disclosure Counsel, in connection with the transactions covered by the first paragraph of this letter and may not be relied upon or used by, circulated, quoted or referred to, nor may copies hereof be delivered to, any other person or for any other purpose without my prior written approval; provided, however, that copies of this opinion may be included in the closing transcripts for the transactions covered by the first paragraph of this letter. I undertake no duty to notify any person or entity of changes in the facts or circumstances upon which this opinion is based or any new facts or information which may become known to me after the date of this opinion. Very truly yours, J. Christine Dietrick City Attorney City of San Luis Obispo 4140-9161-9401.4 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 CERTIFICATE OF U.S. BANK TRUST COMPANY, NATIONAL ASSOCIATION U.S. Bank Trust Company, National Association (“U.S. Bank”) hereby states and certifies: (a)that the undersigned is an authorized officer of U.S. Bank, acting as (i) trustee (the “Trustee”) under the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the San Luis Obispo Public Financing Authority (the “Authority”), the City of San Luis Obispo (the “City”) and U.S. Bank, (ii) Trustee under the Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023 (the “Memorandum of Lease Agreement”), by and among the Authority, the City and U.S. Bank, and (iii) trustee under the Request to Trustee, dated the date hereof (the “Request to Trustee,” and together with the Indenture and the Memorandum of Lease Agreement, the “U.S. Bank Documents”), executed by the City of San Luis Obispo Capital Improvement Board and acknowledged and agreed to by U.S. Bank, relating to the City of San Luis Obispo Capital Improvement Board 2012 Refunding Lease Revenue Bonds, and as such, is familiar with the facts herein certified and is authorized and qualified to certify the same; (b)that U.S. Bank is a national banking association organized and existing under the laws of the United States, having the full power and being qualified to enter into and perform its duties under the U.S. Bank Documents, and as Trustee to authenticate and deliver the $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”) to Raymond James & Associates, Inc. (the “Underwriter”), pursuant to the terms of the Indenture; (c)that the Bonds have been duly authenticated by a duly authorized officer of the Trustee; (d)that the U.S. Bank Documents have been duly authorized, executed and delivered by U.S. Bank and, assuming due authorization, execution and delivery by the other parties thereto, constitute legal, valid and binding obligations of U.S. Bank in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors’ rights generally and the application of equitable principles if equitable remedies are sought; (e)that no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the banking or trust powers of U.S. Bank that has not been obtained is or will be required for the Trustee’s authentication of the Bonds or the consummation by U.S. Bank of its obligations under the U.S. Bank Documents; (f)that U.S. Bank’s execution and delivery of the U.S. Bank Documents, and compliance with the provisions on U.S. Bank’s part contained therein, will not conflict with or constitute a breach of or default under any law, administrative regulation, judgment, decree, material agreement or material instrument to which U.S. Bank is a party or is otherwise subject 2 4140-9161-9401.4 (except that no representation, warranty or agreement is made with respect to any federal or state securities or blue sky laws or regulations), nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the properties or assets held by the Trustee pursuant to the lien created by the Indenture under the terms of any such law, administrative regulation, judgment, decree, material agreement or material instrument, except as provided by the Indenture; (g)that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental or public entity pending and served or, to the best knowledge of U.S. Bank, threatened against U.S. Bank, affecting the existence of U.S. Bank, or the titles of its officers to their respective offices, or seeking to prohibit, restrain or enjoin the authentication and delivery of the Bonds by the Trustee, or in any way contesting or affecting the validity or enforceability of the U.S. Bank Documents, or contesting the powers of U.S. Bank or its authority to enter into, adopt or perform its obligations under any of the U.S. Bank Documents, wherein an unfavorable decision, ruling or finding would materially adversely affect the validity or enforceability of the U.S. Bank Documents or the ability of U.S. Bank to perform its obligations thereunder; and (h)that, subject to the provisions of the Indenture and Written Requests of the Authority provided thereunder, the Trustee will apply the proceeds from the Bonds for the purposes specified therein. Capitalized terms used herein and not otherwise defined shall have the meanings give such terms in the Indenture. 4140-9161-9401.4 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 TRUSTEE’S RECEIPT OF PROCEEDS U.S. Bank Trust Company, National Association (“U.S. Bank”) hereby states and certifies: (a)that the undersigned is an authorized officer of U.S. Bank, acting as trustee (the “Trustee”) under the Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the San Luis Obispo Public Financing Authority (the “Authority”), the City of San Luis Obispo and the Trustee, and, as such, is familiar with the facts herein certified and is authorized to certify the same; (b)that the aggregate purchase price of the $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), was represented to the Trustee by Raymond James & Associates, Inc. (the “Underwriter”), to have been computed as follows: $45,780,000.00 Aggregate Principal Amount of the Bonds 3,707,638.65 Plus Net Original Issue Premium (170,481.44) Less Underwriter’s Discount $49,317,157.21 TOTAL PURCHASE PRICE (c)that, on the date hereof, the Trustee received from the Underwriter, a wire transfer of federal funds in the amount of $49,317,157.21, representing the purchase price of the Bonds, and the Trustee has deposited or transferred the following amounts this date as described below: $ 275,020.54 Deposited into the Costs of Issuance Fund 47,000,000.00 Deposited into the Project Fund 2,042,136.67 Transferred to the Trustee for deposit in the 2012 Bond Fund (as defined in the Indenture), established under the 2012 Indenture (as defined in the Indenture) $49,317,157.21 TOTAL AMOUNT DEPOSITED OR TRANSFERRED THIS DATE 4862-1482-4574\2 September 13, 2023 San Luis Obispo Public Financing Authority San Luis Obispo, California City of San Luis Obispo San Luis Obispo, California Raymond James & Associates, Inc., San Francisco, California Re: San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Ladies and Gentlemen: We have acted as counsel for U.S. Bank Trust Company, National Association, a national banking association (the “Trustee”), in connection with the Indenture, dated as of September 1, 2023, by and among the San Luis Obispo Public Financing Authority, the City of San Luis Obispo, and the Trustee, as trustee (the “Indenture”), relating to the above-captioned bonds (the “Bonds”). We are generally familiar with the Articles of Association and the Bylaws of the Trustee and are also familiar with the corporate proceedings of the Trustee with regard to its authorization, execution and delivery of the Indenture and the Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, by and among the San Luis Obispo Public Financing Authority, the City of San Luis Obispo, and the Trustee (collectively, the “Trustee Documents”). Capitalized terms used herein shall have the respective meanings ascribed to them in the Indenture, except as otherwise defined herein. We have examined such documents and have reviewed such questions of law as we have considered necessary and appropriate for the purposes of this opinion. In such review, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity with originals of all documents submitted to us as copies. Where questions of fact material to our opinions expressed below were not established independently, we have relied upon statements of officers of the Trustee as contained in certificates of officers of the Trustee. Where our opinions expressed below are qualified as being limited “to our knowledge,” such words, as used herein, mean that prior to or during the course of this firm’s representation of the Trustee in connection with the specific transactions contemplated by the Trustee Documents, no contrary information came to the attention of Mark Jutsen, Fanny Renault or Erin McCrady, the attorneys in our firm who have principally represented the Trustee in connection with the transactions contemplated by the Trustee Documents and the preparation of this opinion. Based upon the foregoing, we are of the opinion that: 1. The Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States of America and is authorized to exercise trust powers. 2. The Trustee has all requisite corporate power, authority and legal right to execute and deliver the Trustee Documents and has taken all necessary action to authorize the execution and performance of the Trustee Documents. 4862-1482-4574\2 3. The Trustee has duly executed and delivered the Trustee Documents. Assuming the due authorization, execution and delivery thereof by the other parties thereto, the Trustee Documents are the legal, valid and binding agreements of the Trustee, enforceable in accordance with their terms against the Trustee. 4. The Trustee has duly authenticated the Bonds in its capacity as trustee under the Indenture. 5. To our knowledge, the execution and delivery by the Trustee of the Trustee Documents and the performance of the obligations of the Trustee under the Trustee Documents by the Trustee, will not contravene the Articles of Association or Bylaws of the Trustee, or any law, regulation or ruling of any court or governmental authority to which the Trustee is subject. The opinions set forth above are subject to the following qualifications and exceptions: (a) The opinions are subject to the effect of any applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application affecting creditors’ rights; (b) The opinions are subject to the effect of general principles of equity, including (without limitation) concepts of materiality, reasonableness, good faith and fair dealing, and other similar doctrines affecting the enforceability of agreements generally (regardless of whether considered in a proceeding in equity or at law); and (c) Our opinion in paragraph 5 is limited to laws and regulations normally applicable to transactions of the type contemplated in the Trustee Documents. Our opinions expressed above are limited to the laws of the State of California and the federal laws of the United States of America. The foregoing opinions are being furnished to you solely for your benefit and may not be relied upon by, nor may copies be delivered to, any other person without our prior written consent. Very truly yours, EM/MJ/FR 4140-9161-9401 $45,780,000 SAN LUIS OBISPO PUBLIC FINANCING AUTHORITY LEASE REVENUE BONDS (CULTURAL ARTS DISTRICT PARKING PROJECT), SERIES 2023 RECEIPT FOR BONDS The undersigned, on behalf of Raymond James & Associates, Inc. (the “Underwriter”), hereby states and certifies: (a)that the Underwriter has received through the facilities of The Depository Trust Company on the date hereof, $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), in the form of fully-registered book-entry-only bonds; and (b)that all conditions to the obligations of the Underwriter under the Bond Purchase Contract, dated August 30, 2023, by and among the Underwriter, the San Luis Obispo Public Financing Authority and the City of San Luis Obispo, relating to the Bonds, have been satisfied or waived. IN WITNESS WHEREOF, the undersigned has executed this Receipt for Bonds the date set forth below. Dated: September 13, 2023 RAYMOND JAMES & ASSOCIATES, INC. By: _______________________________ Managing Director DocuSign Envelope ID: 0DD1FD78-6DC7-4400-873D-5FAF0A89876C SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N SP E C I M E N 1 To: San Luis Obispo Public Financing Authority Lease Revenue Bonds, Series 2023 Working Group From: Raymond James & Associates, Inc. Date: September 11, 2023 Re: Final Closing Wire Instructions for: $45,780,000 San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 The Bonds: Delivery Date: September 13, 2023 Dated Date: September 13, 2023 Bond Type: DTC – Full Book Entry Closing Information: Closing Date and Time: September 13, 2023 @ 8:30 AM PT Location: Via Teleconference: Dial‐in: 1 646 876 9923 Passcode: 995 175 4545 Closing Procedure: On the Closing Date, Raymond James will send the Fed reference numbers to: (1) U.S. Bank (Trustee), (2) the City of San Luis Obispo, (3) Orrick, Herrington & Sutcliffe LLP (Bond Counsel) and to (4) PFM Financial Advisors LLC (Municipal Advisor). After confirmation from U.S. Bank that the funds have been received, U.S. Bank, the City, Orrick, PFM, and Raymond James will contact DTC to release the bonds. DTC Phone Number: (212) 855‐3752, 3753, 3754 or 3755 Proceeds Information: Sources and Uses: Sources: Total Par Amount $ 45,780,000.00 Plus: Net Premium 3,707,638.65 Plus: Prior Debt Service Reserve Fund 405,600.00 $ 49,893,238.65 Uses: Total Deposit to Project Fund $ 47,000,000.00 Deposit to Refunding Escrow 2,477,736.67 Cost of Issuance 275,020.54 Underwriter's Discount 170,481.44 $ 49,893,238.65 2 Wire # 1: Wire to U.S. Bank from Raymond James Wire Due: Wednesday, September 13, 2023 The U.S. Bank Wire Information Bank U.S. BANK, N.A. ABA#: 091000022 FBO: U.S. BANK TRUST N.A. Acct: 180121167365 Ref: San Luis Obispo 2023 Lease Revenue Bonds Deposit of Total Wire Amount from Raymond James Par Amount of Bonds $ 45,780,000.00 Plus: Reoffering Premium 3,707,638.65 Less: Underwriter’s Discount (170,481.44) Total Wire Amount $ 49,317,157.21 Other Transfers: On or before closing, U.S. Bank Trust Company N.A. will transfer certain existing funds on hand to the Redemption Account. Below are the sources of funds for the redemption of the outstanding 2012 Bonds. Source: Amount 2012 Bonds Reserve Fund $ 405,600.00 Bond Proceeds 2,042,136.67 Total Redemption Fund Amount $2,447,736.67 3 Principal Contacts: City: City of San Luis Obispo Emily Jackson, Finance Director Derek Johnson, City Manager Greg Cleary, CIP Manager Gaven Hussey, Parking Program Manager Brian Nelson, Deputy Director of Public Works 805.781.7125 805.781.7114 805.781.7255 805.781.7234 805.781.7113 Bond and Disclosure Counsel: Orrick, Herrington, & Sutcliffe Patricia Eichar, Partner Laura Gao, Project Manager Victoria Freitag, Associate 916.329.7917 213.612.2131 415.773.4508 Municipal Advisor: PFM Financial Advisors Christine Choi, Managing Director Dominic Scattini, Senior Analyst 415.393.7247 415.393.7229 Underwriter: Raymond James Emily Giles, Managing Director Giles Geddes, Analyst 415.616.8923 404.240.6806 Underwriter’s Counsel: Stradling Yocca Carlson & Rauth Vanessa S. Legbandt, Shareholder Nicolas G. Yeager, Associate 949.725.4073 949.725.4181 Trustee: US Bank N.A. John Axt, Vice President 213.247.1069 DTC: Closing Desk 212.855.3752 4 Debt Service Schedule Lease Revenue Bonds, Series 2023 Period Ending Parking Facilities Lease Revenue Bonds Refunding of Series 2012 Lease Revenue Refunding Bonds Total Debt Service 12/01/2023 $ 475,150 $ 20,800 $ 495,950 12/01/2024 2,833,000 376,000 3,209,000 12/01/2025 2,841,000 372,000 3,213,000 12/01/2026 2,842,000 377,500 3,219,500 12/01/2027 2,841,250 382,000 3,223,250 12/01/2028 2,843,750 380,500 3,224,250 12/01/2029 2,844,250 383,250 3,227,500 12/01/2030 2,842,750 2,842,750 12/01/2031 2,844,250 2,844,250 12/01/2032 2,848,500 2,848,500 12/01/2033 2,850,250 2,850,250 12/01/2034 2,849,500 2,849,500 12/01/2035 2,851,250 2,851,250 12/01/2036 2,850,250 2,850,250 12/01/2037 2,851,500 2,851,500 12/01/2038 2,854,750 2,854,750 12/01/2039 2,859,750 2,859,750 12/01/2040 2,861,250 2,861,250 12/01/2041 2,859,250 2,859,250 12/01/2042 2,863,750 2,863,750 12/01/2043 2,864,250 2,864,250 12/01/2044 2,865,750 2,865,750 12/01/2045 2,868,000 2,868,000 12/01/2046 2,870,750 2,870,750 12/01/2047 2,873,750 2,873,750 12/01/2048 2,876,750 2,876,750 12/01/2049 2,879,500 2,879,500 12/01/2050 2,881,750 2,881,750 12/01/2051 2,883,250 2,883,250 12/01/2052 2,888,750 2,888,750 12/01/2053 2,892,750 2,892,750 $ 86,252,650 $ 2,292,050 $ 88,544,700 One California Street, 31st Floor San Francisco, CA 94111-5432 tel 415 371-5000 reference no.: 1764379 August 11, 2023 City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Attention: Emily Jackson, Finance Director Re:US$46,025,000 San Luis Obispo Public Financing Authority, California, Lease Revenue Bonds, (Cultural Arts Parking Project), Series 2023, dated: Date of delivery, due: December 01, 2053 Dear Emily Jackson Pursuant to your request for an S&P Global Ratings rating on the above-referenced obligations, S&P Global Ratings has assigned a rating of "AA" . 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No Third Party Beneficiaries.Nothing in any credit rating engagement,or a credit rating when issued,is intended or should be construed as creating any rights on behalf of any third parties,including,without limitation,any recipient of a credit rating.No person is intended as a third party beneficiary of any credit rating engagement or of a credit rating when issued. PF Ratings U.S. (4/28/16)Page | 4 Orrick, Herrington & Sutcliffe LLP 400 Capitol Mall Suite 3000 Sacramento, CA 95814-4497 +1 916 447 9200 orrick.com 4137-4953-4537.1 September 13, 2023 San Luis Obispo Public Financing Authority San Luis Obispo, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the San Luis Obispo Public Financing Authority (the “Authority”) in connection with issuance of $45,780,000 aggregate principal amount of its Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”), issued pursuant to an Indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City of San Luis Obispo (the “City”) and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Lease Agreement, the Ground Lease, the Tax Certificate, certificates of the Authority, the City, the Trustee and others, opinions of counsel to the Authority, the City, the Trustee and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after original delivery of the Bonds on the date hereof. Accordingly, this letter speaks only as of its date and is not intended to, and may not, be relied upon or otherwise used in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the San Luis Obispo Public Financing Authority September 13, 2023 Page 2 4137-4953-4537.1 opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. We call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Lease Agreement, the Ground Lease and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, receivership, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities such as the Authority and the City in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or to have the effect of a penalty), right of set- off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the state or quality of title to or interest in any of the real or personal property described in or as subject to the lien of the Lease Agreement, the Ground Lease or the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Our services did not include financial or other non-legal advice. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion or view with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding limited obligations of the Authority. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Authority. 3. The Ground Lease and the Lease Agreement have been duly executed and delivered by, and constitute the valid and binding obligations of, the City and the Authority. 4. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual alternative minimum tax. We observe that, for tax years beginning after December 31, 2022, interest on the Bonds included in adjusted financial statement income of certain corporations is not excluded from the federal corporate alternative minimum tax. San Luis Obispo Public Financing Authority September 13, 2023 Page 3 4137-4953-4537.1 We express no opinion regarding other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per Orrick, Herrington & Sutcliffe LLP 400 Capitol Mall Suite 3000 Sacramento, CA 95814-4497 +1 916 447 9200 orrick.com 4153-2514-4393.2 September 13, 2023 Raymond James & Associates, Inc. San Francisco, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (Supplemental Opinion) Ladies and Gentlemen: This letter is addressed to you, as Underwriter, pursuant to Sections 8(g)(2) and 8(g)(5)of the Bond Purchase Contract, dated August 30, 2023 (the “Purchase Contract”), by and among you, the San Luis Obispo Public Financing Authority (the “Authority”) and the City of San Luis Obispo (the “City”), providing for the purchase of $45,780,000 aggregate principal amount of San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 (the “Bonds”). The Bonds are being issued pursuant to an indenture, dated as of September 1, 2023 (the “Indenture”), by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture or, if not defined in the Indenture, in the Purchase Contract. We have delivered our final legal opinion (the “Bond Opinion”) as bond counsel to the Authority concerning the validity of the Bonds and certain other matters, dated the date hereof and addressed to the Authority. You may rely on such opinion as though the same were addressed to you. In connection with our role as bond counsel to the Authority, we have reviewed the Purchase Contract, the Indenture, the Ground Lease, the Lease Agreement, the Tax Certificate, certain portions of the posted Preliminary Official Statement, dated August 23, 2023, with respect to the Bonds (the “Preliminary Official Statement”), and of the posted Official Statement, dated August 30, 2023, with respect to the Bonds (the “Official Statement”), the Continuing Disclosure Certificate, opinions of counsel to the Authority, the City, the Trustee, and the Underwriter, certificates of the Authority, the City, the Trustee, the Underwriter, and others, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions and conclusions set forth herein. Raymond James & Associates, Inc. September 13, 2023 Page 2 4153-2514-4393.2 The opinions and conclusions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions or conclusions may be affected by actions taken or omitted or events occurring after the original delivery of the Bonds on the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the original delivery of the Bonds on the date hereof. We have assumed the genuineness of all documents and signatures provided to us and the due and legal execution and delivery thereof by, and validity against, any parties other than the Authority and the City. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinions, referred to in the third paragraph hereof. We have further assumed compliance with all covenants and agreements contained in such documents. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Indenture, the Tax Certificate, the Continuing Disclosure Certificate and the Purchase Contract and their enforceability may be subject to bankruptcy, insolvency, reorganization, receivership, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against governmental entities such as the Authority and the City in the State of California. We express no opinion with respect to any indemnification, contribution, liquidated damages, penalty (including any remedy deemed to constitute or to have the effect of a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in the foregoing documents, nor do we express any opinions with respect to the state or quality of title to or interest in any real or personal property described in or as subject to the lien of the Indenture or the accuracy or sufficiency of the description contained therein of, or the remedies available to enforce liens on, any such property. Finally, we undertake no responsibility for the accuracy, except as expressly set forth in numbered paragraph 3 below, completeness or fairness of the Official Statement dated August 30, 2023 (the “Official Statement”) or other offering material relating to the Bonds and express no opinion or view with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions and conclusions: 1. The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. 2. The Purchase Contract has been duly executed and delivered by, and constitutes the valid and binding obligation of, each of the Authority and the City. Raymond James & Associates, Inc. September 13, 2023 Page 3 4153-2514-4393.2 3. The statements contained in the Official Statement under the captions “INTRODUCTION,” “THE BONDS” (excluding therefrom all information pertaining to DTC and its book-entry only system, as to which no opinion is expressed), “SOURCES OF PAYMENT FOR THE BONDS,” “TAX MATTERS,” and APPENDIX C – “SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS,” excluding any material that may be treated as included under such captions by cross reference or reference to other documents or sources, insofar as such statements expressly summarize certain provisions of the Bonds, the Indenture, the Ground Lease and the Lease Agreement, or set out content of the Bond Opinion, are accurate in all material respects. 4. We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of any of the statements contained in the Preliminary Official Statement or (except as explicitly stated in paragraph 3 above) in the Official Statement and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. In our capacity as bond and disclosure counsel to the Authority in connection with issuance of the Bonds, we participated in conferences with your representatives, your counsel, representatives of the Authority, the City, their respective counsel, and others, during which the contents of the Preliminary Official Statement or the Official Statement and related matters were discussed. Based on our participation in the above-mentioned conferences (which, with respect to the Preliminary Official Statement, did not extend beyond the date of the Purchase Contract), and in reliance thereon, on oral and written statements and representations of the Authority and the City and others and on the records, documents, certificates, opinions and matters herein mentioned, subject to the limitations on our role as bond and disclosure counsel to the Authority, we advise you as a matter of fact and not opinion that (a) no facts had come to the attention of the attorneys in our firm rendering legal services with respect to the Preliminary Official Statement which caused us to believe as of the date of the Preliminary Official Statement and the date of the Purchase Contract, based on the documents, drafts and facts in existence and reviewed as of those dates that the Preliminary Official Statement contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except any information marked as preliminary or subject to change, any information permitted to be omitted by Securities and Exchange Commission Rule 15c2-12 or otherwise left blank and any other differences with the information in the Official Statement), and (b) no facts had come to the attention of the attorneys in our firm rendering legal service with respect to the Official Statement which caused us to believe as of the date of the Official Statement and as of the date hereof that the Official Statement contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that we expressly exclude from the scope of this paragraph and express no view with respect to both the Preliminary Official Statement and the Official Statement, about any CUSIP numbers, financial, accounting, statistical or economic, Raymond James & Associates, Inc. September 13, 2023 Page 4 4153-2514-4393.2 engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, any information about feasibility, valuation, appraisals, absorption, real estate or environmental matters, litigation, any management discussion and analysis, any statements about compliance with prior continuing disclosure undertakings, Appendices A, E and F, or any information about book-entry, DTC, Cede & Co., ratings, rating agencies, municipal advisors, underwriting, included or referred to therein or omitted therefrom. No responsibility is undertaken or conclusion expressed with respect to any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incorporated by reference in the Preliminary Official Statement or the Official Statement. 5. The Continuing Disclosure Certificate has been duly executed, and delivered by, and is the valid and binding obligation of, the City. No opinion is expressed regarding the adequacy of the Continuing Disclosure Certificate for purposes of S.E.C. Rule 15c2-12 This letter is furnished by us as bond and disclosure counsel to the Authority. No attorney- client relationship has existed or exists between our firm and you in connection with the Bonds or by virtue of this letter. We disclaim any obligation to update this letter. This letter is delivered to you as Underwriter of the Bonds, is solely for your benefit as such Underwriter in connection with the original delivery of the Bonds on the date hereof, and is not to be used, circulated, quoted or otherwise referred to or relied upon for any other purpose or by any other person. This letter is not intended to, and may not, be relied upon by owners of the Bonds or by any other party to whom it is not specifically addressed. Very truly yours, ORRICK, HERRINGTON & SUTCLIFFE LLP Orrick, Herrington & Sutcliffe LLP 400 Capitol Mall Suite 3000 Sacramento, CA 95814-4497 +1 916 447 9200 orrick.com 4147-3958-0233.1 September 13, 2023 U.S. Bank Trust Company, National Association, as Trustee Los Angeles, California San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Ladies and Gentlemen: In connection with the delivery of the above-referenced bonds (the “Bonds”) we have delivered our final legal opinion concerning the validity of the Bonds and certain other matters, dated the date hereof and addressed to the issuer of the Bonds. You may rely on said opinion as though the same were addressed to you. No attorney- client relationship has existed or exists between the addressee of this letter and our firm in connection with the Bonds or by virtue of this letter. Very truly yours, ORRICK, HERRINGTON & SUTCLIFFE LLP Orrick, Herrington & Sutcliffe LLP 400 Capitol Mall Suite 3000 Sacramento, CA 95814-4497 +1 916 447 9200 orrick.com Patricia L. Eichar E PEichar@orrick.com D +1 916 329 7917 F +1 916 329 4900 4165-0387-0537.3 September 8, 2023 VIA E-MAIL: Darnella.Ward@ctt.com Darnella Ward Chicago Title Company 701 Fifth Avenue, Suite 2700 Seattle, WA 98104 Re: San Luis Obispo Public Financing Authority Lease Revenue Bonds (Cultural Arts District Parking Project), Series 2023 Dear Darnella: This firm serves as bond counsel to the San Luis Obispo Public Financing Authority (the “Authority”) in connection with the above-referenced transaction. This letter shall constitute closing instructions to Chicago Title Company (“Chicago Title”) from the City of San Luis Obispo (the “City”) in connection with the closing of the transaction which is the subject of this letter. A. DOCUMENTS Chicago Title has received, or will receive, one (1) fully executed and acknowledged original of each of the documents listed below (collectively, the “Documents”). A copy of each of the Documents should be used as the conformed copies to be returned to the undersigned pursuant to the second paragraph of Section C below. 1. The Ground Lease, dated as of September 1, 2023, by and between the City, as Lessor, and the Authority, as Lessee; and 2. The Memorandum of Lease Agreement and Assignment, dated as of September 1, 2023, with respect to the Lease Agreement, dated as of September 1, 2023, by and between the Authority as sublessor and the City as sublessee and the Indenture, dated as of September 1, 2023, by and among the Authority, the City and U.S. Bank Trust Company, National Association, as trustee. Chicago Title will be provided the Documents in recordable form before 4:00 p.m., Pacific time on Monday, September 11, 2023. Same will be delivered to the following address: September 8, 2023 Page 2 4165-0387-0537.3 FIDELITY NATIONAL TITLE GROUP | CENTRAL COAST 1234 Monterey Street, Suite 110| San Luis Obispo, CA 93401 Attn: Reece Benson, Ph. 805.782.6900 Chicago Tile is authorized to record the Documents if and only if you are irrevocably and unconditionally committed to issue the Policy (as defined below) as of the time and date of the Closing Date as described above. As early as possible on the September 12, 2023, you shall submit for recording the Documents in the Official Records of San Luis Obispo County, California (the “Official Records”). B. TITLE INSURANCE POLICY The City requests Chicago Title, and Chicago Tile is unconditionally prepared and irrevocably committed, to issue to the City and the Authority its 72472 CLTA Standard Coverage Policy of Title Insurance, effective at 8:00 a.m., Pacific time on September 13, 2023 (the “Closing Date”), with coverage in the amount of $45,780,000 in the exact form set forth in the Proforma attached hereto as Exhibit A as described below (with all blanks properly completed) (the “Policy”). C. OTHER MATTERS The undersigned will contact Chicago Title with verbal authorization to proceed with the closing and the recordation of the Documents as described in Section A of this letter on or before 5:30 p.m. California time on Tuesday, September 12, 2023. Immediately after the Documents have been recorded in accordance with this letter, Chicago Title is to call the undersigned at (916) 329-7917 or, if for any reason she is unavailable for such call, Victoria Freitag at (971) 322-7769, or Laura Gao at (213) 612-2131 and provide the date and time of recording and the instrument number of each recorded Document. If any of the instructions in this letter cannot be followed for any reason whatsoever, please call the undersigned, Ms. Freitag or Ms. Gao immediately at the above telephone numbers. Promptly after recordation of the Documents (and in any event within three (3) days after such recordation), Chicago Title shall deliver a conformed copy of each of the Documents (showing the County Recorder’s certification that the same have been recorded and setting forth the date of recording and instrument number) to the undersigned at the address noted above. As soon as reasonably possible, but not later than two (2) weeks after the Closing Date, Chicago Title shall deliver one (1) original of the Policy to the undersigned at the above address. September 8, 2023 Page 3 4165-0387-0537.3 Please acknowledge receipt and acceptance of the above-described Documents and Chicago Title’s agreement to comply with the instructions herein (including the obligation to issue the Policy as required hereby) in the space hereinbelow provided. Recordation of any of the Documents shall constitute the irrevocable agreement of Chicago Title to comply with all provisions hereof. Very truly yours, Patricia L. Eichar Patricia L. Eichar Enclosures September 8, 2023 Page 4 4165-0387-0537.3 RECEIPT AND ACCEPTANCE of the above-referenced Documents and agreement to comply with each provision herein (including the obligation to be irrevocably committed to issue the Policy as described herein) is hereby acknowledged. Dated: September___, 2023 CHICAGO TITLE COMPANY By: Name: Title: 4165-0387-0537.3 Exhibit A City of San Luis Obispo 2023 Cultural Arts Parking Structure Lease Revenue Bond ORGANIZATION/ADDRESS PHONE EMAIL ADDRESS Issuer City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401‐3934 Emily Jackson, Finance Director (805) 781‐7125 ejackson@slocity.org Derek Johnson, City Manager (805) 781‐7114 djohnson@slocity.org Greg Cleary, CIP Manager (805) 781‐7255 gcleary@slocity.org Gaven Hussey, Parking Program Manager (805) 781‐7234 ghussey@slocity.org Brian Nelson, Deputy Director of Public Works (805) 781‐7113 bnelson@slocity.org Municipal Advisor PFM Financial Advisors LLC 44 Montgomery Street, 3rd Floor San Francisco, CA 94104 Sarah Hollenbeck, Managing Director (415) 393‐7260 hollenbecks@pfm.com Dominic Scattini, Analyst (415) 393‐7229 scattinid@pfm.com Bond Counsel Orrick, Herrington & Sutcliffe LLP 400 Capitol Mall, Suite 3000 Sacramento, CA 95814‐4497 Patricia L. Eichar, Partner (916) 329‐7917 peichar@orrick.com Laura Gao, Project Manager (213) 612‐2131 lgao@orrick.com Victoria Freitag, Associate (415) 773‐4508 vfreitag@orrick.com Underwriter Raymond James One Embarcadero Center, Suite 650 San Francisco, CA 94111 Emily Giles, Managing Director (415) 616‐8923 emily.giles@raymondjames.com 3050 Peachtree Road, Suite 702 Atlanta, GA 30305 Giles Geddes, Analyst (404) 240‐6806 giles.geddes@raymondjames.com Underwriter's Counsel Stradling Yocca Carlson & Rauth 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 Vanessa S. Legbandt, Shareholder (949) 725‐4073 vlegbandt@stradlinglaw.com Nicolas G. Yeager, Associate (949) 725‐4181 nyeager@stradlinglaw.com Distribution List as of June 14, 2023 Prepared by PFM Financial Advisors LLC City of San Luis Obispo 2023 Cultural Arts Parking Structure Lease Revenue Bond ORGANIZATION/ADDRESS PHONE EMAIL ADDRESS Distribution List as of June 14, 2023 Trustee US Bank 633 W. Fifth Street, 24th Floor Los Angeles, CA 90071 John Axt, Vice President (213) 247‐1069 john.axt@usbank.com Trustee Counsel Dorsey & Whitney 51 West 52nd Street New York, NY 10019‐6119 Mark Jutsen, Partner (212) 415‐9335 jutsen.mark@dorsey.com Fanny Renault, Of Counsel (212) 415‐9367 renault.fanny@dorsey.com FULL WORKING GROUP ejackson@slocity.org; djohnson@slocity.org; gcleary@slocity.org; ghussey@slocity.org; bnelson@slocity.org; hollenbecks@pfm.com; scattinid@pfm.com; peichar@orrick.com; vfreitag@orrick.com; lgao@orrick.com; emily.giles@raymondjames.com; giles.geddes@raymondjames.com; vlegbandt@stradlinglaw.com; nyeager@stradlinglaw.com; john.axt@usbank.com; jutsen.mark@dorsey.com; renault.fanny@dorsey.com; Prepared by PFM Financial Advisors LLC Certificate Of Completion Envelope Id: A822614223F24ED7BA1FBFBE7D0A5A1B Status: Completed Subject: Complete with DocuSign: SLO Public Financing Authority Lease Revenue Bonds Closing Documents Source Envelope: Document Pages: 154 Signatures: 23 Envelope Originator: Certificate Pages: 3 Initials: 0 Laura Gao AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) lgao@orrick.com IP Address: 136.226.66.166 Record Tracking Status: Original 9/7/2023 5:58:37 PM Holder: Laura Gao lgao@orrick.com Location: DocuSign Signer Events Signature Timestamp Derek Johnson djohnson@slocity.org djj Security Level: Email, Account Authentication (None)Signature Adoption: Pre-selected Style Using IP Address: 136.226.67.78 Sent: 9/7/2023 9:41:43 PM Viewed: 9/7/2023 10:02:38 PM Signed: 9/10/2023 6:55:42 PM Electronic Record and Signature Disclosure: Accepted: 9/7/2023 10:02:38 PM ID: b224ea20-b17d-44e0-8a6f-2aa933731650 Emily Jackson ejackson@slocity.org Finance Director Security Level: Email, Account Authentication (None)Signature Adoption: Pre-selected Style Using IP Address: 136.226.67.82 Sent: 9/7/2023 9:41:43 PM Viewed: 9/7/2023 11:15:30 PM Signed: 9/10/2023 1:25:20 AM Electronic Record and Signature Disclosure: Accepted: 9/7/2023 11:15:30 PM ID: 75f61220-6d94-41b8-80c3-2787ab8d4e65 Teresa Purrington tpurring@slocity.org Security Level: Email, Account Authentication (None) Signature Adoption: Drawn on Device Using IP Address: 174.87.88.145 Signed using mobile Sent: 9/7/2023 9:41:44 PM Viewed: 9/8/2023 7:58:05 AM Signed: 9/8/2023 7:58:47 AM Electronic Record and Signature Disclosure: Accepted: 9/8/2023 7:58:05 AM ID: 0b234f07-d8b2-4b10-97e9-3e1f4b29c9d6 In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Witness Events Signature Timestamp Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 9/7/2023 9:41:44 PM Certified Delivered Security Checked 9/8/2023 7:58:05 AM Signing Complete Security Checked 9/8/2023 7:58:47 AM Completed Security Checked 9/10/2023 6:55:42 PM Payment Events Status Timestamps Electronic Record and Signature Disclosure ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE By checking the ‘I Agree’ box, I confirm that: I can access and read this ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE document. I can print on paper this ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE or save or send it to a place where I can print it for future reference and access. I agree that the transaction consisting of the agreements to which this ELECTRONIC SIGNATURE AND DISCLOSURE relates may be conducted by electronic means. I agree and acknowledge that it is my intent, that by signing each related agreement using an electronic signature, I am signing, adopting, and accepting each related agreement and that signing each related agreement using an electronic signature is the legal equivalent of having placed my handwritten signature on each related agreement on paper. I acknowledge that I am being provided with an electronic or paper copy of each related agreement in a usable format. I agree that each related agreement and each of my signature pages may be stored by DocuSign, Inc. or Orrick, Herrington, & Sutcliffe LLP in a cloud-based computer storage system, and acknowledge that the security of cloud-based computer storage systems cannot be guaranteed. Electronic Record and Signature Disclosure created on: 7/29/2020 11:33:10 AM Parties agreed to: Derek Johnson, Emily Jackson, Teresa Purrington Certificate Of Completion Envelope Id: 0DD1FD786DC74400873D5FAF0A89876C Status: Completed Subject: Complete with DocuSign: Closing Documents for San Luis Obispo LRBs Series 2023 Source Envelope: Document Pages: 5 Signatures: 2 Envelope Originator: Certificate Pages: 3 Initials: 0 Laura Gao AutoNav: Enabled EnvelopeId Stamping: Enabled Time Zone: (UTC-08:00) Pacific Time (US & Canada) lgao@orrick.com IP Address: 136.226.66.166 Record Tracking Status: Original 9/8/2023 4:31:36 PM Holder: Laura Gao lgao@orrick.com Location: DocuSign Signer Events Signature Timestamp Emily Giles emily.giles@raymondjames.com Security Level: Email, Account Authentication (None) Signature Adoption: Pre-selected Style Using IP Address: 170.12.233.242 Sent: 9/8/2023 4:37:55 PM Viewed: 9/11/2023 9:47:09 AM Signed: 9/11/2023 9:47:49 AM Electronic Record and Signature Disclosure: Accepted: 9/11/2023 9:47:09 AM ID: 4f78b7b9-9fd8-451c-b3b6-854714095303 In Person Signer Events Signature Timestamp Editor Delivery Events Status Timestamp Agent Delivery Events Status Timestamp Intermediary Delivery Events Status Timestamp Certified Delivery Events Status Timestamp Carbon Copy Events Status Timestamp Giles Geddes giles.geddes@raymondjames.com Security Level: Email, Account Authentication (None) Sent: 9/8/2023 4:37:55 PM Electronic Record and Signature Disclosure: Not Offered via DocuSign Vanessa S. Legbandt vlegbandt@stradlinglaw.com Security Level: Email, Account Authentication (None) Sent: 9/8/2023 4:37:56 PM Viewed: 9/8/2023 5:34:40 PM Electronic Record and Signature Disclosure: Not Offered via DocuSign Witness Events Signature Timestamp Notary Events Signature Timestamp Envelope Summary Events Status Timestamps Envelope Sent Hashed/Encrypted 9/8/2023 4:37:56 PM Envelope Summary Events Status Timestamps Certified Delivered Security Checked 9/11/2023 9:47:09 AM Signing Complete Security Checked 9/11/2023 9:47:49 AM Completed Security Checked 9/11/2023 9:47:49 AM Payment Events Status Timestamps Electronic Record and Signature Disclosure ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE By checking the ‘I Agree’ box, I confirm that: I can access and read this ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE document. I can print on paper this ELECTRONIC SIGNATURE CONSENT AND DISCLOSURE or save or send it to a place where I can print it for future reference and access. I agree that the transaction consisting of the agreements to which this ELECTRONIC SIGNATURE AND DISCLOSURE relates may be conducted by electronic means. I agree and acknowledge that it is my intent, that by signing each related agreement using an electronic signature, I am signing, adopting, and accepting each related agreement and that signing each related agreement using an electronic signature is the legal equivalent of having placed my handwritten signature on each related agreement on paper. I acknowledge that I am being provided with an electronic or paper copy of each related agreement in a usable format. I agree that each related agreement and each of my signature pages may be stored by DocuSign, Inc. or Orrick, Herrington, & Sutcliffe LLP in a cloud-based computer storage system, and acknowledge that the security of cloud-based computer storage systems cannot be guaranteed. Electronic Record and Signature Disclosure created on: 7/29/2020 11:33:10 AM Parties agreed to: Emily Giles