23 I 0 East Ponderosa Drive - Suite 25 Camarillo, California 930 I voice fax

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1 ' ' BURKE, W ILLIAMS & SORENSEN, LLP 23 I 0 East Ponderosa Drive - Suite 25 Camarillo, California 930 I voice fax August 26, 2016 Alberto Boada Alberto.Boada@ventura.org Principal Assistant County Counsel 800 So. Victoria Avenue Ventura, California Re: City of Camarillo -- Desalter Project Dear Mr. Boada: I am the City Attorney for the City of Camarillo. The City has requested that I write to you in connection with Section 12 of the draft Resolution by GMA in regard to the City's proposed Desalter Project. On August 25, 2016, Lucie McGovern submitted to the GMA the City's comments on the draft GMA Resolution on Sections other than Section 12. VERSION A The current version of Section 12 of the draft Resolution (which I shall refer to as Version A) reads as follows: 12. The Agency Board may reconsider and modify this Resolution under the following circumstances: (a) to make this Resolution consistent with provisions of a Groundwater Sustainability Plan or update thereof that has been approved by the Agency Board; or (b) a finding by the Agency Board after a public hearing that the implementation of this Resolution is having a detrimental impact on water resources in the Pleasant Valley Basin. For purposes of this provision, a detrimental impact on water resources in the Pleasant Valley Basin means a significant degradation of groundwater resources as measured by empirical data that has not previously been identified in the Revised Plan. The Agency shall provide a minimum of six months advance notice before implementing any material modification to this Resolution or any change resulting in the permanent reduction in the permitted rate, or cessation, of brackish groundwater pumping in the operation of the Desalter Project. Upon receipt of any such notice, City may request a public hearing before the Agency Board at which City and affected stakeholders may present evidence of the damages that will be incurred if a reduction or cessation of Desalter Project operations occurs, and offer additional proposed mitigation measures and/or other operational modifications that may accomplish the Agency's goals without serious adverse impact to the Desalter Project's operations. For purposes of this Section 12, a "material modification" is defined to mean a change in Section 1 of this Resolution to decrease the maximum allowed pumping for operation of the Desalter Project or a change in Section 13 to reduce the term of this Resolution to be below twenty-five (25) years. Item 6E - Page 1 of 8 Los Angeles - Inland Empire - Marin County - Oakland - Orange County - Palm Desert - San Francisco - Silicon Vall ey - Ventura County

2 Alberto Boada August 26, 2016 Page 2 VERSION B The version proposed by the City for Section 12 of the draft Resolution (which I shall refer to as Version B) was included in the redline version ed to the GMA by Ms. McGovern on August 25, 2016 and we also set forth Version B in full here: 12. The Agency Board may reconsider and modify this Resolution and/or the Revised Plan only under the following circumstances: a. When a material modification is required due to a change in state and/or federal law and the Agency shall provide a minimum of 45 days advance written notice ("Notice") to the City, or such other notice period as may be required by law, before approving any material modification to this Resolution based upon a change in state and or federal law, or b. Upon a finding by the Agency Board after a public hearing ("Public Hearing") that the implementation of this Resolution is having a detrimental impact on water resources in the Pleasant Valley Basin ("Detrimental Impact") absent a reasonable mitigation measure as provided in this Section 12. (1) For purposes of this provision, a Detrimental Impact means a significant degradation of groundwater resources caused by the Desalter Project and is an unforeseen impact that is not addressed in the Revised Plan. (2) The Agency shall provide a minimum of six months advance written notice ("Notice") to the City before approving any material modification to this Resolution due to a Detrimental Impact. (3) If the City does not present to the Agency a reasonable mitigation measure to adequately address the Detrimental Impact identified in the Notice within 120 days of receipt by the City of the Notice, then the Agency may approve a material modification of this Resolution at the Public Hearing to mitigate the identified Detrimental Impact. (4) At the Public Hearing, the City will have the reasonable opportunity to present evidence in support of the mitigation measure proposed by the City to address the Detrimental Impact. (5) For purposes of this Section 12, a "material modification" is defined to mean either a change in this Resolution to temporarily or permanently decrease the maximum allowed pumping for operation of the Desalter Project or a change to reduce the term of this Resolution below twenty-five (25) years or any change in the Revised Plan. (6) This Section 12 shall be the exclusive method for the Agency Board to make any modifications to this Resolution notwithstanding any plans, policies, approvals or other actions adopted by the Agency in the future. Item 6E - Page 2 of 8

3 Alberto Boada August26,2016 Page 3 DI SCUSSION The City estimates that the cost to design and build the Desalter Project will be in excess of $50 million. A substantial amount of this cost will have to be financed which will include the issuance of bonds by the City. The City has two financial advisers who have assisted the City in connection with issuance of bonds for over twenty years, Maryann Goodkind and Curt de Crinis. We requested Ms. Good kind and Mr. de Crin is to review Version A and Version B of Section 12 of the draft Resolution. Enclosed you will find a copy of the letter to City Manager David Norman from Curt de Crinis dated August 11, Also enclosed is a copy of the letter to City Manager David Norman from Maryann Goodkind dated August 24, As you will note, both Ms. Goodkind and Mr. de Crinis recommend Version B of the draft Resolution. Mr. de Crinis concludes that Version B will assure bond investors that the City has significant input in managing a reduction in ground water supply and the time to take necessary steps to assure bond holder security is maintained. In contrast, Mr. de Crinis concludes that Version A will likely raise significant credit concerns adversely impacting the issuance of the bonds. Ms. Goodkind, as bond counsel for the City, addresses the legal issues, tax issues and securities issues. Ms. Goodkind explains in detail the shortcomings of Version A and how Version B will allow the City to make appropriate representations and covenants about the bond proceeds and the use of the Desalter Project in any tax-exempt bond. Not only do Ms. Goodkind and Mr. de Crinis recommend Version B, but they both raise significant concerns as to whether financing is even feasible under Version A. Therefore, we believe it is clear that Version B meets the requests from the Board and, at the same time, allows the City to obtain financing for the Desalter Project. CONCLUSION Version B is clearly superior to Version A in that Version B provides the necessary assurances to the bond holders for the bonds that would be issued by the City to finance the construction costs of the Desalter Project. At the same time, Version B provides the GMA with the opportunity to make appropriate modifications to the Resolution within the scope as set forth in Version B. As you may recall, the GMA had expressed concerns about potential impacts that might be caused by the Desalter Project and this resulted in the City and the GMA spending several months drafting the Monitoring and Contingency Plan which is referred to in the draft Resolution as the "Revised Plan." Later in the process, the Board commented that they wanted to make sure the Desalter Project could be modified in the future if required due to a change in state and/or federal law and such modifications are expressly authorized in Section 12a of Version B. Further, in response to any concern that there might be "detrimental impacts" that are not Item 6E - Page 3 of 8

4 Alberto Boada August 26, 2016 Page 4 otherwise addressed in the Revised Plan, Version B includes in subsection b (1) to (6) a process to address any such detrimental impacts. In sum, the City believes that Version B provides the GMA with all the safeguards that have been requested by the GMA and also provides the City with support for the issuance of the bonds as confirmed by the letters of Ms. Goodkind and Mr. de Crinis. If you have any questions, please contact me. If you wish to discuss, please call me on my cell at Thank you for your cooperation. BAP Enclosures: As noted cc: David J. Norman, City Manager Tom Fox, Assistant City Manager Dave Klotzle, Director of Public Works Lucie McGovern, Deputy Director of Public Works Item 6E - Page 4 of 8

5 Financial Advisors, Public Finance Serving California and Hawaii CMdC C.M. de CRINIS (9 CO., INC. I 00 N. Brand Blvd., Suite 605 Glendale, California Tel: (818) curt@cmdecrinis.com Curt de Crinis Managing Director August 11, 2016 Dave Norman, Ci!J lvianager City of Camarillo 601 Carmen Drive Camarillo, CA RE: Fox Canyon Groundwater Management Agency - CONCERNING ADJUSTMENTS TO EXTRACTION ALLOCATION FOR THE CITY OF CAMARILLO - REGARDING SPECIAL USE OF MOUNDED, DEGRADED WATER IN THE NORTH EASTERN PORTION OF THE PLEASANT VALLEY BASIN. Dear Mr. Norman: It is our understanding that the City of Camarillo will be required to fund a significant portion of the capital cost of the proposed North Pleasant Valley Groundwater Recycling Desalter Facility ("the Facility"). The funding will be accomplished through the issuance of bonds. The purpose of the Facility will be to provide desalted water, thereby allowing the City to diversify its water supply and address regional regulatory requirements. Debt service on the bonds, under current market conditions, could be between $1 million and $3 million annually for the 20 year term. The Facility would provide up to 7500 acre feet of potable water annually. The City of Camarillo's projected water rates are expected to support the proposed bond financing. The bonds will be secured by a pledge of the City's water enterprise net water revenues and by a covenant to raise water rates, if necessary, to maintain minimum debt service coverage. These are standard provisions contained in virtually all revenue bonds and required by investors and the rating agencies. Obtaining bond financing for the Facility will require very careful review and extensive investor disclosure. It will also be important to assess the support for higher water rates should supply problems develop. Assumptions regarding water supply and water cost will be closely analyzed by rating agencies, bond underwriters, and potential bond investors. As the Municipal Advisor for the City of Camarillo we have reviewed the terms of the proposed Resolution governing a future agreement between the City of Camarillo and the Fox Canyon Water Management Agency (the "Agency") on the extraction of well water from the basin. Two Item 6E - Page 5 of 8

6 CMdC C.M. de CRINIS & CO., INC. versions of Section 12 of the proposed Resolution have been provided for review, namely Version A and Version B. Ver~ion A of the Resolution allows the Agency's Board to reduce water deliveries, following a public hearing, upon making certain findings by its Board relating its Ground Water Sustainability Plan or findings that continued pumping will have a detrimental impact on water resources in the Pleasant Valley Basin. Neither the City nor its rate payers have any input beyond testimony at public hearings or control over this decision making process. A reduction in water supply by the Agency Board could force the City to purchase imported water while also continuing to pay $1 and $3 million in bond debt service on the Facility. This may require an unplanned water rate increase. This is an area of concern for both future bondholders and rate payers. Such a rate increase would, under current law, be subject to Proposition 218 and/ or rate payer referendum. The resulting supply and cost risk associated with Version A, in our opinion, could adversely impact a bond credit rating and investor interest in the bonds needed to finance the Facility. The proposed City water rates do not currently provide the ability to cover this magnitude of a cost increase. It is also doubtful current rate payers would approve, at time of bond issuance, the level of rates necessary to assure bond debt service is p~id should the Agency restrict or significantly limit desalted water from the basin. Version B of the Resolution helps the City manage the risk of an unplanned and unexpected supply disruption and the risk of a water rate shock. Version B creates a process by which the City can propose mitigation measures and solutions to address supply issues. It creates a means of assessing and managing any necessary water supply reductions and resulting water rate increases and can more easily be explained to City water rate payers, bond rating agencies and investors in the City's bonds. Version B will also provide tl1e basis of disclosure to investors of the risks associates with the Facility and water supply in the basin including the City's role in mitigating any impacts. In conclusion we recommend Version B. Given the size of the borrowing, Version B will assure bond investors that the City has significant input in managing a reduction in ground water supply and the time to take the necessary steps to assure bond holder security is maintained. Version A does not provide these same assurances and will likely raise significant credit concerns adversely impacting the issuance of the bonds. Curt de Crin.is, Managing Director Item 6E - Page 6 of 8

7 August 24, 2016 A NORTON ROSE FULBRIGHT Norton Rose Fulbright US LLP 555 South Flower Street Forty-First Floor Los Angeles, California United States Direct line maryann.goodkind@nortonrosefulbright.com Dave Norman, City Manager City of Camarillo 601 Carmen Drive Camarillo, CA Tel Fax nortonrosefulbright.com Re: Fox Canyon Groundwater Management Agency Dear Mr. Norman: We have acted as bond counsel to the City of Camarillo and its related entities (the "City") for over twenty years. In such capacity, we have been requested to review two versions of Section 12 of a proposed Resolution of the Fox Canyon Water Management Agency (the "Agency") relating to the proposed North Pleasant Valley Groundwater Recycling Desalter Facility ("the Facility"). The City anticipates financing a portion of the cost of the Facility through the issuance of tax-exempt bonds. The purpose of the Facility will be to provide desalted water for its customers and allow the City to diversify its water supply away from imported State water. The Agency must approve the Facility and approve the allocation of groundwater over a period of time during the life of the Facility. This will be accomplished through the adoption of the Resolution by Agency. Version A of Section 12 of the Resolution allows the Agency's Board to amend the Resolution and reduce the quantity of groundwater deliveries or shorten the time period for delivery of groundwater to the City, following a public hearing and upon making certain findings by its Board relating to its Ground Water Sustainability Plan (which may change over time) or upon making of findings that continued pumping will have a detrimental impact on water resources in the Pleasant Valley Basin. These modifications are unilateral and exclusive to the Agency and the City will be bound by these modifications. Version B of Section 12 of the Resolution creates a process by which the City can propose mitigation measures and solutions. Version B provides that modifications can be made only due to change of law or findings of detrimental impacts after a defined process. Detrimental impacts do not include impacts that may occur which are addressed in the Revised Plan. In light of an unforeseen detrimental impact, the City must fail to provide a reasonable mitigation measure in order for the Agency to reduce quantity or duration of the allotted groundwater. These provisions still protect the Agency but also help the City to assess the viability of the project and the continued use of the Facility and help manage the risk of unplanned and unexpected supply disruptions. Norton Rose Fulbright US LLP is a limited liability partnership registered under the laws of Texas Norton Rose Fulbright US LLP, Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP and Norton Rose Fulbright South Africa Inc are separate legal entities and all of them are members of Norton Rose Fulbright Verein, a Swiss verein. Norton Rose Fulbright Verein helps coordinate the activities of the members but does not itself provide legal services to clients. Details of each entity, with certain regulatory information, are available at nortonrosefulbright.com. Item 6E - Page 7 of 8

8 August 24, 2016 Page 2 A NORTON ROSE FULBRIGHT Federal tax law requires that the City make certain representations and covenants regarding the Facility in order to utilize tax-exempt financing. At the time of issuance of the bonds, there must exist a reasonable expectation by the City of a viable project and continued use of the Facility through the final maturity of the bonds. For example, section 147(b) of the Internal Revenue Code (the "Code") requires the City to not unduly burden the tax-exempt market and determine the reasonably expected economic life of a project using the expected date the project is to be placed in service. Additionally, the City will covenant under section 149(g) of the Code that it reasonably expects that no less than 85% of the proceeds will be allocated to the governmental purposes within three years of the bond closing. Covenants under Section 141 of the Code include determinations about the expected and actual use of the project by governmental entities, and limitations on output and management contracts. Version B appears to be the minimum standards to allow the City to have such reasonable expectations and make such representations and covenants. Version A, with the Agency's ability to make unilateral modifications and lack of standards, would prohibit the City from making these representations or entering into these covenants. Federal securities laws, as well, require adequate disclosure to investors and the public regarding the Facility and the security for the bonds. The Resolution is a material item to be disclosed in any offering document. Version B may provide the marginal safeguards that would be acceptable for bond investors. As bond counsel, it is our recommendation that Version B be utilized. For purposes of both federal tax and securities laws, Version B with its reasonableness standard, may be at least sufficient to allow the City to make appropriate representations and covenants about the bond proceeds and the use of the Facility in any tax-exempt bond. Very truly yours, )h /.~ Mary~kind MLG Item 6E - Page 8 of 8

FOX CANYON GROUNDWATER MANAGEMENT AGENCY A S'fA'f.E OF CALIFORNIA WAHR AGENCY

FOX CANYON GROUNDWATER MANAGEMENT AGENCY A S'fA'f.E OF CALIFORNIA WAHR AGENCY BOARD OF DIRECTORS Eugene F. West, Chair, Director, Camrosa Water District David Borchard, Vice Chair, Farmer, Agricultural