$25,735,000 CLOVIS PUBLIC FINANCING AUTHORITY WASTEWATER REVENUE BONDS, SERIES 2005

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1 NEW ISSUE BOOK ENTRY ONLY RATINGS (MBIA Insured) Moody s Insured Rating: Aaa Moody s Underlying Rating: A3 (See RATINGS herein.) In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifi cations described herein, under existing law, interest on the Bonds is excluded from gross income for federal income tax purposes, and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes See TAX MATTERS herein. $25,735,000 CLOVIS PUBLIC FINANCING AUTHORITY WASTEWATER REVENUE BONDS, SERIES 2005 Dated: Date of Delivery Due: August 1, as shown below The Bonds are being sold to finance the acquisition and construction of certain improvements to the Wastewater System (the Wastewater System ) The Bonds are being issued in fully registered form and when issued will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the Bonds will not receive certificates representing their beneficial ownership in the Bonds but will receive credit balances on the books of their respective nominees. Interest due on the Bonds is payable semiannually on August 1 and February 1 in each year commencing August 1, 2005, by check or draft of Union Bank of California, N.A., San Francisco, California, as trustee (the Trustee ), under the hereinafter described Indenture of Trust (the Indenture ) mailed by first class mail on each interest Payment Date to the Owners of record as of the Record Date at the addresses shown on the registration books required to be kept by the Trustee or, upon the written request received by the Trustee of an Owner of at least $1,000,000 in aggregate principal amount of Bonds prior to the applicable Record Date, by wire transfer of immediately available funds to an account in the United States designated by such Owner. Payment of principal and redemption price on all Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof at the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be designated by the Trustee. The Bonds will be issued in fully registered form in the denomination of $5,000 each or any integral multiple thereof. The scheduled payment of principal of and interest on the Bonds when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Bonds by MBIA Insurance Corporation. The Bonds are subject to optional and mandatory sinking fund redemption as more fully described herein. The Bonds are payable from Revenues consisting primarily of Installment Payments (the Installment Payments ) payable by the City to the Clovis Public Financing Authority (the Authority ) under the hereinafter described Installment Sale Agreement and amounts on deposit in certain funds and accounts established by the Installment Sale Agreement and the Indenture. The obligation of the City to make Installment Payments under the Installment Sale Agreement is a special obligation of the City payable solely from Net Revenues (as hereinafter defined) of the Wastewater System. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR 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. MATURITY SCHEDULE Base CUSIP: 18933R Maturity Principal Interest Price CUSIP Maturity Principal Interest Price CUSIP (August 1) Amount Rate or Yield Number (August 1) Amount Rate or Yield Number 2011 $ 310, % 3.220% AA $ 90, % 4.150% AH , AB , AJ , AC , AK , AD , AL , AE , AM , AF , AN , AG ,210, c AP9 $1,000, % Term Bonds due August 1, 2026; Price: % c ; CUSIP: AQ 7 $6,305, % Term Bonds due August 1, 2030; Price: % c ; CUSIP: AR 5 $15,610, % Term Bonds due August 1, 2035; Price: % c ; CUSIP: AS 3 The Bonds will be offered when, as and if issued and accepted by the Underwriter, subject to approval as to legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, and subject to certain other conditions. Jones Hall is also acting as Disclosure Counsel. It is anticipated that the Bonds, in book entry form, will be available for delivery in New York, New York, on or about May 5, Dated: April 21, 2005 C Priced to par call on August 1, 2015 CUSIP A registere Inc. CUSIP data herein is provi a substitute for the CUSIP Servi responsibility for the accuracy of such numbers.

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3 CLOVIS PUBLIC FINANCING AUTHORITY GOVERNING BOARD Nathan F. Magsig, Chairman and Mayor Bob Whalen, Vice-Chairman and Mayor Pro Tem Lynne Ashbeck, Board Member and Council Member Harry Armstrong, Board Member and Council Member José Flores, Board Member and Council Member AUTHORITY STAFF Kathy Millison, Executive Director/City Manager Robert Woolley, Authority Treaurer and City Finance Director BOND COUNSEL AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California CITY ATTORNEY AND AUTHORITY COUNSEL Tom Riggs, Esq. Lozano Smith, a Professional Law Corporation Fresno, California TRUSTEE Union Bank of California, N.A. Los Angeles, California

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5 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations with respect to the Bonds other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized. No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the City, any other parties described in this Official Statement. Use of this Official Statement. This Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract with the purchasers of the Bonds. Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. 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. Document References and Summaries. All references to and summaries of the Indenture, the Installment Sale Agreement or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents. Bonds are Exempt from Securities Laws Registration. The issuance and sale of the Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. Stabilization of Prices. 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. 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 cover page hereof and said public offering prices may be changed from time to time by the Underwriter. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED 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 OCCUR

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7 INTRODUCTION... 1 THE PROJECT... 2 THE BONDS... 3 GENERAL... 3 REDEMPTION... 3 ESTIMATED SOURCES AND USES OF FUNDS... 5 INSTALLMENT PAYMENT SCHEDULE... 6 SECURITY FOR THE BONDS... 7 GENERAL... 7 INSTALLMENT PAYMENTS... 7 RESERVE ACCOUNT... 7 LIMITED LIABILITY... 8 RATE COVENANT... 9 RATE STABILIZATION FUND... 9 LIMITATIONS ON SUPERIOR AND PARITY OBLIGATIONS... 9 BOND INSURANCE THE AUTHORITY THE CITY GENERAL GOVERNANCE AND MANAGEMENT CITY STAFF LAND AND LAND USE EMPLOYEES BUDGET PROCESS PENSION OBLIGATIONS INSURANCE COVERAGE THE WASTEWATER SYSTEM GENERAL BILLING PRACTICES WASTEWATER SYSTEM USERS CURRENT RATE CHARGES COMPARATIVE RATES FUTURE LAND USE REGULATIONS HISTORICAL REVENUES, MAINTENANCE AND OPERATIONS COSTS AND DEBT SERVICE COVERAGE PROJECTED REVENUES, MAINTENANCE AND OPERATIONS COSTS AND DEBT SERVICE COVERAGE CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS ARTICLE XIIIB GANN LIMIT PROPOSITION BOND OWNERS' RISKS REVENUES; RATE COVENANT ENTERPRISE EXPENSES INSURANCE LIMITATIONS ON REMEDIES AVAILABLE TO BONDOWNERS... 27

8 TABLE OF CONTENTS Page ENVIRONMENTAL REGULATION SECONDARY MARKET FOR BONDS LOSS OF TAX-EXEMPTION CONTINUING DISCLOSURE APPROVAL OF LEGAL PROCEEDINGS TAX MATTERS LITIGATION FINANCIAL STATEMENTS RATINGS UNDERWRITING MISCELLANEOUS APPENDIX A EXCERPTS OF AUDITED FINANCIAL STATEMENTS, JUNE 30, A-1 APPENDIX B GENERAL INFORMATION ABOUT THE CITY OF CLOVIS...B-1 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS...C-1 APPENDIX D FORM OF BOND COUNSEL OPINION...D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE...E-1 APPENDIX F INFORMATION CONCERNING DTC...F-1 APPENDIX G FORM OF FINANCIAL GUARANTY INSURANCE POLICY... G-1 ii

9 SUMMARY STATEMENT This summary is subject in all respects to the more complete information contained in this Official Statement, and the offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used in this Official Statement and not otherwise defined herein shall have the respective meanings assigned to such terms in Appendix C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. Purpose. The Bonds are being sold to finance the acquisition and construction of certain improvements to the City Wastewater System, to fund a reserve fund for the Bonds and to pay costs of issuance of the Bonds. Security for the Bonds. The Bonds are payable from Revenues, consisting primarily of Installment Payments payable by the City under an Installment Sale Agreement and amounts on deposit in certain funds and accounts established by the Installment Sale Agreement and the Indenture. The obligation of the City to make the Installment Payments under the Installment Sale Agreement is a special obligation of the City payable solely from Net Revenues of the City Wastewater System. THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY AND WILL BE PAYABLE FROM AND SECURED BY A CHARGE AND LIEN ON REVENUES, CONSISTING PRIMARILY OF INSTALLMENT PAYMENTS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE INSTALLMENT PAYMENTS OR THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS. THE OBLIGATION OF THE CITY TO PAY INSTALLMENT 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 AUTHORITY HAS NO TAXING POWER. NEITHER THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE INSTALLMENT PAYMENTS UNDER THE INSTALLMENT SALE AGREEMENT CONSTITUTES A DEBT OF THE CITY, THE AUTHORITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF THE CONSTITUTION OR THE LAWS OF THE STATE OF CALIFORNIA. Rate Covenant. The City has covenanted in the Installment Sale Agreement to fix, prescribe, revise and collect rates, fees and charges for the service and facilities furnished by the Wastewater System that are at least sufficient to yield Net Revenues of the Wastewater System during each Fiscal Year equal to 120% of all Installment Payments and any payments of principal and of interest on any Parity Debt as they become due and payable with respect to the Wastewater System for such Fiscal Year. Additional Parity Obligations. The City of Clovis 1998 Sewer Revenue Refunding Bonds, issued in the aggregate original principal amount of $15,330,000 (the 1998 Bonds ) are payable by the City on a basis superior to the payment of the Installment Payments. The City may not incur additional obligations, including obligations on a parity with the 1998 Bonds, payable from Net Revenues of the Wastewater System prior to the Installment Payments. The City may issue bonds or execute contracts the payments or installment payments under which are secured by a pledge of the Net Revenues of the Wastewater System

10 on a parity with the lien of the Installment Payments due under the Installment Sale Agreement subject to the conditions described herein. Redemption. The Bonds with stated maturities on or after August 1, 2016, are subject to optional redemption prior to their respective stated maturities, as a whole or in part on any date, on or after August 1, The Bonds with a stated maturity of August 1, 2026, August 1, 2030 and August 1, 2035 are subject to mandatory sinking fund redemption in part (by lot) on any August 1 on and after August 1, August 1, 2027 and August 1, 2031, respectively. Financial Guaranty Insurance Policy. Concurrently with the delivery of the Bonds, MBIA Insurance Corporation (the Bond Insurer ) will issue its Financial Guaranty Insurance Policy (the Policy ) for the Bonds. The Policy unconditionally guarantees the payment of that portion of the principal of and interest on the Bonds which has become due for payment, but which is unpaid. See BOND INSURANCE herein and Appendix G FORM OF FINANCIAL GUARANTY INSURANCE POLICY attached hereto. City of Clovis. The City is located in northeastern area of Fresno County in California s San Joaquin Valley. The City was incorporated in The City contains approximately square miles in total area and population, as of January 1, 2004, of approximately 80,900 persons. The City provides wastewater services to substantially all residential, commercial and industrial customers in the City.

11 $25,735, CLOVIS PUBLIC FINANCING AUTHORITY WASTEWATER REVENUE BONDS, SERIES 2005 INTRODUCTION This Official Statement, including the cover page and all appendices hereto, provides certain information concerning the sale and delivery of Clovis Public Financing Authority, Wastewater Revenue Bonds, Series 2005 (the Bonds ), in the aggregate principal amount of $25,735,000. All descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. Certain capitalized terms used herein and not defined herein shall have the meaning given such terms in Appendix C hereto entitled SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. The Bonds are payable from revenues (as further described herein, the Revenues ) consisting primarily of Installment Payments ( Installment Payments ) to be made by the City of Clovis (the City ) to the Clovis Public Financing Authority (the Authority ) under an Installment Sale Agreement dated as of May 1, 2005 (the Installment Sale Agreement ) between the City and the Authority and amounts on deposit in certain funds and accounts established under an Indenture of Trust, dated as of May 1, 2005 (the Indenture ), between the Authority and Union Bank of California, N.A., Los Angeles, California, as trustee (the Trustee ). The City s obligation to make Installment Payments under the Installment Sale Agreement is a special obligation of the City payable solely from Net Revenues (as defined below) of the City Wastewater System (the Wastewater System ). The Bonds are being issued under the Indenture. Under the Indenture, the Authority has assigned to the Trustee for the benefit of the Owners of the Bonds substantially all its rights under the Installment Sale Agreement, including its right to receive Installment Payments and its rights to enforce payment by the City of such Installment Payments when due. The Authority is a joint exercise of powers authority duly organized under the Marks- Roos Local Bond Pooling Act of 1985, constituting Article 4 of Division 7 of the Government Code of the State of California (commencing with section 6584) (the Act ). The Authority was formed under a joint exercise of powers agreement between the Clovis Community Development Agency (the Agency ) and the City, dated as of July 1, 1990 (the JPA Agreement ) to provide for the financing and refinancing of public capital improvements for the members of the Authority. The Bonds are being issued to finance the acquisition and construction of certain improvements to the Wastewater System (the Project ), to fund a Reserve Account and to pay costs of issuing the Bonds. The obligation of the City to make the Installment Payments from the sources described above is absolute and unconditional, and until such time as the Installment Payments have been paid in full (or provision for the payment thereof is made under the Installment Sale Agreement), the City will not discontinue or suspend any Installment Payments required to be made by it when due, whether or not the Wastewater System or any part thereof is operating or operable, or its use is suspended, interfered with, reduced or curtailed or terminated in whole or -1-

12 in part, and whether or not the Project has been completed, and such payments are not subject to reduction whether by offset or otherwise and shall not be conditional upon the performance or nonperformance by any party of any agreement for any cause whatsoever. MBIA Insurance Corporation (the Bond Insurer ) has issued a commitment to issue, simultaneously with the issuance of the Bonds, a Municipal Bond insurance policy (the Financial Guaranty Insurance Policy ) guaranteeing the payment, when due, of the principal of and interest on the Bonds. See the caption BOND INSURANCE herein. THE PROJECT Commercial and residential developments planned in the northeast, northwest and southwest quadrants of the City will require new wastewater infrastructure. The construction of an advanced tertiary 3 mgd sub-regional wastewater treatment plant - expandable to 8+ mgdis planned to service 80,000 residents. The City expects to expend proceeds of the Bonds on an initial phase of the improvements which are currently estimated to cost approximately $24,000,000. Improvements in the initial phase include the construction of Pump Station E, deep sewer trunk lines, force mains and other improvements to the Wastewater System. The City has recently received bids for construction of Pump Station E. The infrastructure to be financed with the proceeds of the Bonds is required for ultimate development of the new wastewater treatment plant. Following is a brief description of the wastewater facilities, timing and estimated costs of the entire wastewater facilities development program of the City. The estimated costs do not contain an inflation factor. The City expects that the facilities will be constructed under design, build and operate contracts to be entered into by the City and will be financed by the issuance of additional bonds by the City. The following described facilities will ultimately be constructed only if projected population growth materializes. Phase One: Estimated Total Cost - $110,800, : $24M for pump station, sewer trunk, force main : $16M for recycled water pipelines, storage pond, force mains : $40M for 2.84 Mgd plant, storage basin, pump station, recycled water pump station : $19M for recycled water pipelines, recycled water pump : $11M for pump station and force main Phase Two: Estimated Total Cost - $16,000, : Financing for plant expansion (5.68 Mgd), pump station expansion, storage basin expansion Phase Three: Estimated Total Cost - $16,000, : Financing for plant expansion (8.34 Mgd), pump station expansion, storage basin expansion -2-

13 THE BONDS General The Bonds will be dated the initial date of delivery thereof, and interest will be payable from such date at the rates set forth on the cover page of this Official Statement, on August 1 and February 1 of each year (the Interest Payment Dates ), commencing August 1, Interest on the Bonds will be calculated on the basis of a 360 day year consisting of twelve 30 day months. The Bonds will mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds will be issued in fully registered form, individual purchases being made in book-entry form only, in denominations of $5,000 or any integral multiple thereof. Principal of and interest on the Bonds are payable by the Trustee to The Depository Trust Company, New York, New York ( DTC ), as the registered Owner of the Bonds, which will in turn remit such principal and interest to the DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds. See Appendix F INFORMATION CONCERNING DTC attached hereto. Redemption Optional Redemption. The Bonds with stated maturities on or after August 1, 2016, are subject to redemption prior to their respective stated maturities, as a whole or in part on any date among maturities on such basis as the Authority may designate in a written request provided to the Trustee and by lot within each maturity in integral multiples of $5,000, on or after August 1, 2015, from any available source of funds at a redemption price equal to 100% of the principal amount of such Bonds to be redeemed, plus accrued interest thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption. The Bonds with a stated maturity of August 1, 2026, August 1, 2030 and August 1, 2035 (the Term Bonds ) are subject to mandatory redemption prior to such stated maturity in part (by lot) on any August 1 as shown in the following tables, in integral multiples of $5,000 at a redemption price of the principal amount thereof plus accrued interest thereon to the date fixed for redemption, without premium. The Term Bonds will be redeemed in the amounts and upon the dates as follows: -3-

14 Term Bonds Maturing August 1, 2026 Redemption Date (August 1) Amount 2025 $485, (maturity) 515,000 Term Bonds Maturing August 1, 2030 Redemption Date (August 1) Amount 2027 $ 530, , ,540, (maturity) 2,675,000 Term Bonds Maturing August 1, 2035 Redemption Date (August 1) Amount 2031 $2,820, ,960, ,115, ,275, (maturity) 3,440,000 Notice of Redemption. When redemption is authorized or required, the Trustee shall give notice to the Owners of the Bonds designated for redemption. Such notice shall state the date of notice, the redemption date, the place or places of redemption, and the redemption price, shall designate the maturities, CUSIP numbers, if any, and, if less than all Bonds of any such maturity are to be redeemed, the serial numbers of the Bonds of such maturity to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, have been called for redemption, and in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on said date there will become due and payable on each of said Bonds the redemption price thereof or of said specified portion of the principal represented thereby in the case of a Bond to be redeemed in part only, together with interest accrued with respect thereto to the redemption date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such redemption date interest with respect thereto shall cease to accrue, and shall require that such Bond be then surrendered to the Trustee. Notice of such redemption shall be mailed, first class postage redeemed, not more than 60 days nor less than 30 days prior to said redemption date, to the respective Owners of any Bonds designated for redemption at their addresses appearing on the Bond registration books. Any defect in the notice or the mailing thereof will not affect the validity of the redemption of any Bond. -4-

15 ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds with respect to the Project. Sources: Bond Proceeds $25,735, Plus Net Original Issue Premium 1,191, Total Sources $26,926, Uses: Deposit to Project Fund $24,000, Reserve Account 2,431, Underwriter s Discount 154, Bond insurance premium 188, Costs of Issuance (1) 152, Total Uses $26,926, (1) Estimate includes legal and financing costs, printing costs, initial fees of the Trustee, advertising costs, Bond Counsel and Disclosure Counsel fees, and certain other costs. -5-

16 INSTALLMENT PAYMENT SCHEDULE The following table presents the Installment Payments. Fiscal Year Ending June 30 Principal Interest Total Installment Payments $ 947, $ 947, ,281, ,281, ,281, ,281, ,281, ,281, ,281, ,281, ,281, ,281, $ 310,000 1,276, ,586, ,000 1,266, ,586, ,000 1,259, ,329, ,000 1,257, ,332, ,000 1,254, ,329, ,000 1,251, ,326, ,000 1,248, ,333, ,000 1,245, ,335, ,000 1,241, ,336, ,000 1,237, ,337, ,000 1,233, ,333, ,000 1,228, ,333, ,000 1,224, ,334, ,210,000 1,191, ,401, ,000 1,149, ,634, ,000 1,124, ,639, ,000 1,097, ,627, ,000 1,068, ,628, ,540, , ,527, ,675, , ,525, ,820, , ,530, ,960, , ,525, ,115, , ,528, ,275, , ,528, ,440,000 86, ,526,

17 SECURITY FOR THE BONDS General The Bonds are special obligations of the Authority and will be payable from and secured by a charge and lien on Revenues, consisting primarily of Installment Payments to be made by the City under the Installment Sale Agreement. Neither the faith and credit nor the taxing power of the Authority, the City, the State of California or any political subdivision thereof is pledged to the payment of the Installment Payments or the principal or redemption price of or interest on the Bonds. The Authority has no taxing power. Neither the payment of the principal of or interest on the Bonds nor the obligation of the City to make Installment Payments under the Installment Sale Agreement constitutes a debt of the City, the Authority, the State of California or any political subdivision thereof within the meaning of the Constitution or the laws of the State of California. Installment Payments All Net Revenues of the Wastewater System are irrevocably pledged to the payment of the Installment Payments. The pledge of Net Revenues constitutes a first lien on amounts on deposit in the Wastewater Fund established under the Installment Sale Agreement subject to application as permitted in the Installment Sale Agreement, for the payment on the Installment Payments and all other Parity Debt in accordance with the terms of the Installment Sale Agreement. Gross Revenues shall be deposited immediately upon receipt by the City in the Wastewater Fund and shall be used and applied by the City as provided the Installment Sale Agreement. The City has covenanted, from the moneys in the Wastewater Fund, to pay all Operation and Maintenance Costs of the Wastewater System as they become due and payable. Thereafter, all remaining moneys in such Wastewater Fund shall be used and applied first to pay debt service on the 1998 Bonds and to replenish the reserve fund established for the 1998 Bonds and, then, to pay the Installment Payments and Parity Debt, and then to replenish the Reserve Account and all reserve funds established for the Parity Debt, and thereafter as described in the Installment Sale Agreement. For the definitions of the terms Gross Revenues, Net Revenues and Operation and Maintenance Costs see the definitions in Appendix C hereto. Reserve Account The Indenture requires the establishment of a Reserve Account in an amount equal to the Reserve Requirement. The Indenture defines the term Reserve Requirement to mean an amount equal to the lesser of (a) Maximum Annual Debt Service on the Bonds and all outstanding Parity Debt, or (b) 125% of the average amount of debt service coming due and payable on the Bonds and all outstanding Parity Debt in the current and each future Bond Year. Initially, the Reserve Account will be funded in an amount equal to $2,431,360.90, which is equal to 125% of the average amount of debt service coming due and payable on the Bonds in the current and each future Bond Year. Amounts in the Reserve Account will be used and withdrawn by the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds and Parity Debt, including the -7-

18 principal amount of any Term Bonds and Parity Debt which are subject to mandatory sinking fund redemption, when due and payable to the extent that moneys deposited in the Interest Account or Principal Account are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds and Parity Debt. If the amounts on deposit in the Reserve Account are insufficient at any time to pay the full amount of principal of and interest on the Bonds and Parity Debt then required to be paid from the Reserve Account, the Trustee shall apply such amounts first, to the payment of interest and second, to the payment of principal. If the City issues Parity Debt, it is required to (a) establish an additional reserve account which will be deemed to be a part of the Reserve Account which is established under the Indenture, and (b) deposit an amount into such additional reserve account so that the aggregate balance in the Reserve Account and all reserve accounts established for Parity Debt is equal to the Reserve Requirement. Amounts held in the Reserve Account and in all reserve accounts established for Parity Debt will constitute a common reserve for the security of the Installment Payments and all Parity Debt, without preference or priority. Limited Liability Installment Sale Agreement. Notwithstanding anything contained in the Installment Sale Agreement, the City is not required to advance any moneys derived from any source of income other than the Net Revenues of the Wastewater System for the payment of amounts due thereunder or for the performance of any agreements or covenants required to be performed by it contained therein. The City may, however, advance moneys for any such purpose so long as such moneys are derived from a source legally available for such purpose and may be legally used by the City for such purpose. The Installment Payments under the Installment Sale Agreement are not secured by, and the Bond Owners have no security interest in or mortgage on, the Project, the Wastewater System or any other assets of the City. Default by the City will not result in loss of the Project, the Wastewater System or any other assets of the City. Should the City default, the Trustee, as assignee of the Authority, may declare all principal components of the unpaid Installment Payments under the Installment Sale Agreement and the accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; and by mandamus or other action or proceeding or suit at law or in equity enforce its rights against the City, compel the City to perform and carry out its duties under the Government Code of the State of California and all laws amendatory thereof or supplemental thereto, and the agreements and covenants required to be performed by it contained in the Installment Sale Agreement or by suit in equity enjoin any acts or things which are unlawful or violate the rights of the Authority. See Appendix C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Installment Sale Agreement Events of Default and Remedies on Default. THE OBLIGATION OF THE CITY TO PAY INSTALLMENT 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 INSTALLMENT PAYMENTS UNDER THE INSTALLMENT SALE AGREEMENT DOES NOT CONSTITUTE A DEBT OR INDEBTEDNESS OF THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. -8-

19 Rate Covenant The City has covenanted in the Installment Sale Agreement to fix, prescribe and collect rates, fees and charges for the service and facilities furnished by the Wastewater System which are at least sufficient to yield Net Revenues of the Wastewater System during each Fiscal Year equal to 120% of all Installment Payments and all payments of principal of and interest on any Parity Debt as they become due and payable during such Fiscal Year. See Appendix C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS Installment Sale Agreement Rates and Charges. Rate Stabilization Fund The City has established a Rate Stabilization Fund to be held by it and administered in accordance with the Installment Sale Agreement, for the purpose of stabilizing the rates and charges imposed by the City with respect to the Wastewater System. From time to time the City may deposit amounts in the Rate Stabilization Fund from any source of legally available funds, including but not limited to Net Revenues which are released from the pledge and lien which secures the Installment Payments and any Parity Debt, as the City may determine. The City has currently funded the Rate Stabilization Fund in the amount of $10,000,000 from available funds. The City may, but is not be required to, withdraw amounts on deposit in the Rate Stabilization Fund and deposit such amounts in the Wastewater Fund in any Fiscal Year for the purpose of paying the Installment Payments or the principal of and interest on any Parity Debt coming due and payable in such Fiscal Year. Amounts so transferred from the Rate Stabilization Fund to the Wastewater Fund in any Fiscal Year constitute Gross Revenues for that Fiscal Year (except as otherwise provided in the Installment Sale Agreement), and will be applied for the purposes of the Wastewater Fund. Amounts on deposit in the Rate Stabilization Fund may not be pledged to or otherwise secure the Installment Payments or any Parity Debt. All interest or other earnings on deposits in the Rate Stabilization Fund will be retained therein or, at the option of the City, be applied for any other lawful purpose. The City has the right at any time to withdraw any or all amounts on deposit in the Rate Stabilization Fund and apply such amounts for any other lawful purpose of the City. Limitations on Superior and Parity Obligations Set forth below is a summary of the provisions of the Installment Sale Agreement with respect to incurrence of superior obligations and issuance of any Parity Debt thereunder. Obligations Superior to Installment Payments. The 1998 Bonds are payable from Gross Revenues of the Wastewater System on a basis superior to the payment of the Installment Payments. The City has covenanted in the Installment Sale Agreement that it will not, so long as any Bonds are Outstanding, issue or incur any additional bonds or other obligations, including obligations on a parity with the 1998 Bonds, secured by a pledge of revenues of the Wastewater System and payable from Gross Revenues or Net Revenues of the Wastewater System prior or superior to the Installment Payments due thereunder. Issuance of Parity Debt. Except for obligations incurred to prepay or discharge the Installment Payments or any Parity Debt, the City may not issue or incur any Parity Debt during the Term of the Installment Sale Agreement unless all of the following conditions are satisfied: -9-

20 (a) (b) (c) (d) No Event of Default has occurred and is continuing; The Net Revenues (excluding any amounts derived from a Rate Stabilization Fund), calculated in accordance with sound accounting principles, as shown by the books of the City for the most recent completed Fiscal Year for which audited financial statements of the City are available, or for any more recent consecutive 12 month period selected by the City, in either case verified by an Independent Accountant or a Fiscal Consultant or shown in the audited financial statements of the City, plus (at the option of the City) any Additional Revenues, at least equal 120% of Maximum Annual Debt Service (taking into account the Parity Debt then proposed to be issued); There must be deposited into a segregated account within the Reserve Account from the proceeds of such Parity Debt in an amount sufficient to cause the balance in the Reserve Account to be equal to the Reserve Requirement; and The trustee or fiscal agent for such Parity Debt is the same entity performing the functions of Trustee under the Indenture. The Indenture defines the term Additional Revenues to mean, with respect to any Parity Debt: (i) (ii) An allowance for Net Revenues from any additions or improvements to or extensions of the Wastewater System to be financed from the proceeds of such Parity Debt or from any other source but in any case which, during all or any part of the most recent completed Fiscal Year for which audited financial statements are available or for any other 12-month period selected by the City, were not in service, all in an amount equal to 80% of the estimated additional average annual Net Revenues to be derived from such additions, improvements and extensions for the first 36-month period in which each addition, improvement or extension is to be in operation, all as shown by the certificate or opinion of a qualified independent engineer employed by the City. An allowance for Net Revenues arising from any increase in the charges made for service from the Wastewater System which has become effective prior to the incurring of such Parity Debt but which, during all or any part of such Fiscal Year or such 12-month period, was not in effect, in an amount equal to the total amount by which the Net Revenues would have been increased if such increase in charges had been in effect during the whole of such Fiscal Year or such 12-month period, all as shown by the certificate or opinion of an Independent Accountant. Outstanding Obligations Fresno Debt Service Payments. Wastewater effluent collected by the City s Wastewater System is treated by the City of Fresno in its treatment plant under the Fresno-Clovis Regional Sewage System Joint Powers Agreement, dated as of March 1, 1997 (as amended) between -10-

21 the City and the City of Fresno. In consideration of the agreement of the City of Fresno to treat the effluent from the City s Wastewater System, the City is obligated to pay a portion of the debt service on the City of Fresno Sewer System Revenue Bonds, 1993 Series A and 1995 Series B (the Fresno Debt Service Payments). The amount of the Fresno Debt Service Payments for fiscal year is approximately $2,269,000. See Table 9. The Fresno Debt Service Payments are included by definition in the Indenture in Operation and Maintenance Costs and are, therefore, paid prior to the determination of the Net Revenues securing payment of debt service on the Bonds. See Appendix C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS DEFINED TERMS Bonds. To refinance certain obligations of the City relating to the Wastewater System, the City issued its City of Clovis 1998 Sewer Revenue Refunding Bonds in the principal amount of $15,330,000, currently outstanding in the principal amount of $14,780,000 (the 1998 Bonds ). Payments of debt service on the 1998 Bonds from revenues of the Wastewater System are superior to payments of debt service on the Bonds. Accordingly, payments of debt service on the 1998 Bonds are by definition in the Indenture paid prior to the determination of the Net Revenues securing payment of the Bonds. See Appendix C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS DEFINED TERMS. The City has covenanted in the Installment Sale Agreement that it will not, so long as any Bonds are Outstanding, issue or incur any additional bonds or other obligations, including obligations on a parity with the 1998 Bonds, secured by a pledge of revenues of the Wastewater System and payable from Gross Revenues or Net Revenues of the Wastewater System prior or superior to the Installment Payments due thereunder. BOND INSURANCE The full text of a specimen financial guaranty insurance policy is set forth in Appendix G hereto. The information relating to the Bond Insurer contained below and in Appendix G have been furnished by the Bond Insurer. No representation is made herein by the Authority as to the accuracy or the adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. The Municipal Bond Insurance Policy The MBIA Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Company to the Trustee or its successor of an amount equal to (i) the principal of (either at the stated maturity or by an advancement of maturity under a mandatory sinking fund payment) and interest on, the Bonds as such payments shall become due but shall not be so paid (except that in the event of any acceleration of the due date of such principal by reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity under a mandatory sinking fund payment, the payments guaranteed by the MBIA Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration, unless MBIA elects in its sole discretion, to pay in whole or in part any principal due by reason of such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any Owner of the Bonds under a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable -11-

22 preference to such Owner within the meaning of any applicable bankruptcy law (a Preference ). MBIA's policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Bonds. MBIA's policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; (iii) payments of the purchase price of Bonds upon tender by an owner thereof; or (iv) any Preference relating to (i) through (iii) above. MBIA's policy also does not insure against nonpayment of principal of or interest on the Bonds resulting from the insolvency, negligence or any other act or omission of the Trustee or any other trustee for the Bonds. Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by MBIA from the Trustee or any owner of a Bond the payment of an insured amount for which is then due, that such required payment has not been made, MBIA on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Bonds or presentment of such other proof of ownership of the Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Bonds as are paid by MBIA, and appropriate instruments to effect the appointment of MBIA as agent for such owners of the Bonds in any legal proceeding related to payment of insured amounts on the Bonds, such instruments being in a form satisfactory to U.S. Bank Trust National Association, U.S. Bank Trust National Association shall disburse to such owners or the Trustee payment of the insured amounts due on such Bonds, less any amount held by the Trustee for the payment of such insured amounts and legally available therefor. MBIA MBIA Insurance Corporation ( MBIA ) is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the Company ). The Company is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. MBIA has three branches, one in the Republic of France, one in the Republic of Singapore and one in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by MBIA, changes in control and transactions among affiliates. Additionally, MBIA is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods of time. MBIA does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding the policy and MBIA set forth under the heading "MUNICIPAL BOND INSURANCE". Additionally, MBIA makes no representation regarding the Bonds or the advisability of investing in the Bonds. -12-

23 MBIA Information The following documents filed by the Company with the Securities and Exchange Commission (the SEC ) are incorporated herein by reference: (1) The Company s Annual Report on Form 10-K for the year ended December 31, Any documents filed by the Company under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934, as amended, after the date of this Official Statement and prior to the termination of the offering of the Bonds offered hereby shall be deemed to be incorporated by reference in this Official Statement and to be a part hereof. Any statement contained in a document incorporated or deemed to be incorporated by reference herein, or contained in this Official Statement, shall be deemed to be modified or superseded for purposes of this Official Statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Official Statement. The Company files annual, quarterly and special reports, information statements and other information with the SEC under File No Copies of the SEC filings (including (1) the Company s Annual Report on Form 10-K for the year ended December 31, 2004, and (2) the Company s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004) are available (i) over the Internet at the SEC s web site at (ii) at the SEC s public reference room in Washington D.C.; (iii) over the Internet at the Company s web site at and (iv) at no cost, upon request to MBIA Insurance Corporation, 113 King Street, Armonk, New York The telephone number of MBIA is (914) As of December 31, 2003, MBIA had admitted assets of $9.9 billion (audited), total liabilities of $6.2 billion (audited), and total capital and surplus of $3.7 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of December 31, 2004 MBIA had admitted assets of $10.3 billion (unaudited), total liabilities of $6.9 billion (unaudited), and total capital and surplus of $3.3 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. Financial Strength Ratings of MBIA Moody's Investors Service, Inc. rates the financial strength of MBIA "Aaa." Standard & Poor's, a division of The McGraw-Hill Companies, Inc. rates the financial strength of MBIA "AAA." Fitch Ratings rates the financial strength of MBIA "AAA." Each rating of MBIA should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of MBIA and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency. -13-

24 The above ratings are not recommendations to buy, sell or hold the Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Bonds. MBIA does not guaranty the market price of the Bonds nor does it guaranty that the ratings on the Bonds will not be revised or withdrawn. In the event MBIA were to become insolvent, any claims arising under a policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association, established under Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code. There can be no assurances that payments made by MBIA representing interest on the Bonds will be excluded from gross income, for federal tax purposes, in the event of nonappropriation by the City. THE AUTHORITY The Clovis Public Financing Authority (the Authority ) was created by a Joint Exercise of Powers Agreement, dated as of July 1, 1990, between the City and the Clovis Community Development Agency (the Agency ). Such agreement was entered into under the provisions of Articles 1 and 4 of Chapter 5 of Division 7 of Title 1 (commencing with Section 6484) of the California Government Code (the JPA Law ). The Authority was created for the purpose of assisting the financing or refinancing of certain public capital improvements of the City or the Agency. The Authority is governed by a five-member board whose members are the same as the City Council. The Authority has no employees and all staff work is done by City staff or by consultants to the Authority. General THE CITY The City is located in northeastern Fresno County, adjacent to the City of Fresno, approximately 180 miles southeast of the City of San Francisco and 210 miles northeast of the City of Los Angeles. The City was first settled in the 1800 s and was incorporated in The City contains approximately 18.4 square miles in total area. The City population was estimated to be 80,900 as of January 1, 2004, an increase of approximately 5.8% from 2003, and an increase of approximately 18.1% from The City currently provides wastewater collection for about 80,900 residents and sends the effluent to the Fresno/Clovis Regional plant for treatment and discharge. Within the City s boundaries, it is the sole enterprise that provides wastewater services. -14-

25 Governance and Management The City is a general law city. The City is governed by 5 members of the City Council elected at large to serve 4-year overlapping terms at elections held every two years. The mayor is selected by the City Council to serve a 2-year term. Council members select a vice mayor from among their number to serve a 2-year term. The current mayor and city council members and their occupations are set forth below: Mayor, Mayor Pro Tem and City Council Members Expiration of Term Occupation Nathan F. Magsig, Mayor March, 2009 Executive Director Bob Whalen, Mayor Pro Tem March, 2007 Deputy District Attorney Lynne Ashbeck, Councilmember March, 2009 Education Director Harry Armstrong, Councilmember March, 2007 Retired José Flores, Councilmember March, 2007 Sheriffs Captain City Staff Kathy Millison is the City Manager of the City of Clovis and Executive Director of the Authority and has served in such capacities since Ms. Millison has served as City Manager after serving eight years as Assistant City Manager in charge of personnel, risk management, and growth management for the City of Clovis. City Manager is an appointed office established by municipal code and under California law. The City Manager is the chief administrative officer, appointed by the City Council, responsible for administering all operations, finances, projects, and appointment/removal of employees of the City consistent with City Council policy directives and applicable law. Prior to joining the city, Ms. Millison worked as Assistant to the City Manager and also as Planning Director for City of The Dalles, Oregon, as Assistant Planner for Mason County Regional Planning Council, Shelton, Washington, and as Research Assistant for the Institute of Water Research at Michigan State University, East Lansing, Michigan. Ms. Millison is a graduate of Michigan State University with a B.S. degree in Biological Sciences and has completed all coursework towards an M.P.A. at California State University, Fresno. Robert Woolley has been Deputy Finance Director with the City for the past 18 years and was recently appointed Finance Director following the retirement of the previous Director. The Finance Department provides a variety of services for the Wastewater System including general accounting, utility billing and collection, budgeting, financial reporting, and debt administration. In addition to the duties of Finance Director, Mr. Woolley is also the City Treasurer. Mr. Woolley is a graduate cum laude of California State University, Fresno, majoring in business administration and is pursuing his Master of Arts degree in public administration from National University, Fresno. He also holds the professional designation of Certified Public Finance Officer from the Government Finance Officers Association, a national board of professional standards, and is a member of the Government Finance Officers Association nationally and in California and the California Municipal Treasurers Association. Land and Land Use The City is located in the northeast portion of Fresno County. The sphere of influence of the City (the Sphere of Influence ), is a projection determined in accordance with state law, of what the ultimate boundaries of the City will be, and provides an estimate of future City growth. The current Sphere of Influence includes approximately 25 square miles. It is expected that the -15-

26 City will be annexing most of its current Sphere of Influence within the next 15 to 20 years. Development may occur over 25 years under the City s General Plan. Based upon current Fresno County and City land use policies, the City s projected population at buildout is about 132,000. Set forth below is a summary of assessed valuation of property in the City. The increases reflect both development of land within the City as well as annexations of additional property into the City. Employees Fiscal Year Source: City of Clovis Table 2 CITY OF CLOVIS ASSESSED VALUATION (Dollars in millions) Total Assessed Valuation Increase $2, , % , , , , , , , The City currently employs approximately 450 full-time and 145 part-time and seasonal persons, of whom 9 full-time persons work in the wastewater department. Certain employees of the City belong to several different labor unions. The City currently is subject to multi-year contracts with its labor unions. City has not experienced any strike or other labor actions since Budget Process Prior to June 1 of each year, the City Manager submits a proposed budget for the City for the Fiscal Year commencing the following July 1 to the City Council. The City Council generally conducts public workshops to obtain comments from residents and ratepayers. Subsequent to the public workshops, the City Council approves the budget prior to July 1. The City s budget is prepared on a modified accrual basis and includes the City s Wastewater Fund. The City Council approved the operating budget for the current fiscal year on June 21, 2004, and since that date there have been no material amendments to the approved budget. Pension Obligations The City contributes to the California Public Employees Retirement System ( PERS ) which acts as a common investment and administration agent. City retirement plan participants -16-

27 contribute 8% of their annual covered salary for miscellaneous members and 9% for public safety members. The City s required contribution for Fiscal Year was 9.059% for miscellaneous employees and 24.29% for public safety employees. Fiscal Year 2003/04 PERS contribution was $2,473,838 and the unfunded pension liability as of June 2003 was $4.2M for public safety members and $0.7M for miscellaneous members. Insurance Coverage The City is a member of the Central San Joaquin Valley Risk Management Authority which provides $1,000,000 liability coverage over a $100,000 self-insured retention. Excess coverage of $10,000,000 is provided by the California Joint Powers Risk Management Authority. The Central San Joaquin Valley Risk Management Authority provides property damage coverage for all risks (excluding earthquake and floods) for first dollar coverage based on annually updated estimated replacement values Indicated in the following table are the City s various insurance policies as of March 1, City of Clovis Insurance Coverage as of March 1, 2005 Coverage Effective Dates Amount of Coverage General Municipal Liability Automobile Liability Mobile Equipment Workers Compensation and Employers Liability Fire and Property Surety Bond Public Employee Blanket Bond July to June 30, 2005 July to June 30, 2005 July to June 30, 2005 July to June 30, 2005 July to June 30, 2005 October 20, 2003 to October 2007 $10 Million $100,000 Self-Insured Retention $1 Million $100,000 Self-Insured Retention Replacement Value $5,000 Deductible Per Loss $10 Million Combined $250,000 Self-Insured Retention All Risk-Replacement Cost 90% Co-Insurance $800,

28 THE WASTEWATER SYSTEM General The City s Wastewater System encompasses approximately 285 linear miles of pipeline encompassing about 19 square miles, from which the City of Fresno treats an average of 7.0 million gallons daily. The City currently owns 9.3 million gallons per day of processing capacity in the Fresno/Clovis Regional Wastewater Treatment plant. The City s Wastewater System serves a population of 86,000 residents, representing approximately 24,000 accounts or 31,000 dwelling unit equivalents. Billing Practices Users are billed bimonthly under a system which generates invoices each month for approximately half of the system accounts. Residential charges are based on a flat monthly rate per dwelling unit equivalent, with the result that multifamily housing projects and mobilehome parks comprise multiple billing units. Commercial and industrial users are billed on a formula which reflects the type and quantity (based on metered use of potable water) of discharge and, as to the single largest user, the metered quantity discharged. Bills are due within 30 days, and commencing 10 days after a reminder notice is sent, delinquent accounts are subject to shut-off of water service. The City s write-offs for bad debts have historically amounted to less than 0.5 percent of system revenues. Wastewater System Users The Wastewater System serves approximately 31,000 connections. The City s customers are primarily residential, with single-family homes representing the largest customer group. Single family homes is also the customer category where the City has experienced growth in the past and projected growth indicates that new development will also bring singlefamily homes with some additional commercial and mixed use development projected. The City also has commercial users of low, medium and high strength discharge characteristics and one large industrial user. The City s customers are classified as follows: -18-

29 Table 3 Principal Wastewater System Users Fiscal Year No. of Customer Type Dwelling Units Residential: Single family dwelling units 20,563 Mobile Home Park 875 Multifamily 7,712 Commercial/Industrial Commercial-Multi Units- 1 service 727 Banks/S&L/Insurance Co. 16 Car Wash 12 Laundromat, Dry Cleaner 6 Industrial Contractors 30 Manufacturing, cabinet Shops 14 Misc. Comm- Home Occupation 3 General Commercial 201 General- Individually Billed N/O 407 Hospital/Nursing Home/Med Bldg 139 Service Station, Garage, Car Dealers 75 Barber Shop, Beauty Shop 25 Church 57 Lodges, Chamber, Rodeo Assoc. 5 N.P.O. Salvation Army 1 Bakeries (wholesale)/ice Cream/ Confectionary 5 Markets (w/grinders), Convenience Store 28 Funeral Home (Mortuaries w/embalming) 4 Restaurants/Bars 78 Vet Hospital/Taxidermist 9 Food Process, Fruit, Meat Packing 5 Metal Finish, Plating, Mill 15 Total 31,012 Source: City of Clovis A five-year history of residential accounts and commercial accounts is shown in the following table. The number of residential accounts has been increasing by an annual compounded rate of 1.05% during the past five years. Table 4 Residential and Commercial Sewer Accounts Residential Accounts 17,547 17,899 19,149 20,073 21,381 Commercial Accounts , Total 18,524 18,876 20,155 20,894 22,250 Source: City of Clovis -19-

30 The ten principal users of the Wastewater System, based on water consumption and the associated revenue received, for the Fiscal Year ended June 30, 2004 are shown in the following table. Revenue received from these principal users accounts for 7.2% of the total revenues received for the Fiscal Year from service charges. Table 5 Principal Wastewater System Users Fiscal Year Customer Bi-Monthly Billing Annual Revenue Wawona Frozen Foods $78,020 $468,118 C.U.S.D. (27 Accounts) 38, ,54 Save Mart 12,929 77,575 Clovis Community Hospital 10,125 60,750 Aspen Square Apartments 8,493 50,958 The Scottsmen Apartments 8,299 49,793 Woods Mobile Home Park 7,847 7,081 Merit Manor Apartments 7,303 43,818 Von s 6,898 41,389 Bonaventure Park 6,700 40,200 Park Creek Garden Apartments 6,639 39,833 Parkland A G Mobile Home Park 6,549 39,293 JD Home Apartments 6,488 38,928 Creek Park Village 5,854 35,124 Mi Rancho Tortilla Shop 5,698 34,188 Pelco 4,938 29,625 Mountain View Apartments 4,619 27,711 Realty Investment Fund V 4,466 26,798 Total $230,449 $1,111,467 Source: City of Clovis Current Rate Charges Service Charges. The City of Clovis current rate ordinance sets the sewer service charge for single family residences at $14.68 per month; this rate includes a $0.06 pretreatment charge. Multi-family residences and mobile homes pay $11.41 per month per dwelling unit equivalent which also includes the $0.06 pretreatment charge. Commercial customers are divided into low, medium and high strength users and industrial customers are also divided by discharge characteristics into low and high users. Commercial and industrial users also pay a pretreatment charge ranging from $1.29 to $27.54 per month. Public, private and parochial schools pay based on the student population. The per student per year rate for elementary schools is $5.45, for middle schools $8.04, high schools pay $10.73 and colleges are charged $2.50. The City has not increased sewer service charges since July 1, 1999, and currently has no expectations of any such increase. However, increases will certainly occur from time to time in the future. Connection Fees. The City expects that connection fees (consisting principally of developer impact fees) will provide the funds to pay debt service on the Bonds, as well as debt -20-

31 service on bonds to be issued in the future to pay the costs of the entire wastewater facilities construction program. See the description of the program under the heading THE PROJECT above. Accordingly, the City has developed a schedule of annually increasing connection fees and has engaged the firm of Bartle Wells Associates to assist the City in setting of such fees. The connection fee for the current Fiscal Year is $4,224. The connection fee is scheduled to be increased to $4,858 for Fiscal Year , rising to $7,242 by Fiscal Year The table below shows a five-year history of new connections, as well as connection fee revenue generated by these connections. Table 6 New Connections Fiscal Year Fiscal Year Number of Units Connected Total Connection Fees ,195 $4.4m , m , m , m ,354 (1) 7.6m (1) (1) As of March 1, 2005; 1,800 connections projected through June 30, Source: City of Clovis Comparative Rates The table below compares the City s current sewer service charge to the typical monthly cost for a single family home in nine communities in the Clovis area. -21-

32 Table 7 Comparative Rates- Monthly Sewer Charges Fiscal Year Agency 2004 Monthly Residential Sewer Charge (1) Merced $20.95 Selma/Kingsburg (2) Tulare Stockton Fresno Sacramento (3) Hanford City of Clovis Visalia Bakersfield 9.75 (1) Bi-Monthly service charge. (2) Rates for Selma Kingsburg Fowler County Sanitation District. (3) Rates for Sacramento Regional County Sanitation District. Source: City of Clovis Future Land Use Regulations Development within the City is contingent upon the construction and acquisition of a number of public infrastructure improvements such as arterial streets, water distribution facilities, sewage collection and transmission facilities, drainage facilities and street lighting, as well as the necessary on-site improvements. The installation of the necessary public infrastructure improvements and the construction of the private development are subject to the receipt of discretionary approvals from appropriate public agencies concerning the layout and design of the development, the nature and extent of the improvements, land use, health and safety requirements and other matters. The failure of one or more developers to obtain any such approvals could adversely affect the planned land development within the City. In addition, there can be no assurance that future land development within the City will not be adversely affected by future Federal, State or local government policies, including, but not limited to, governmental policies to restrict or control development. -22-

33 Historical Revenues, Maintenance and Operations Costs and Debt Service Coverage The following table is a summary of operating results of the Wastewater System Enterprise Fund for the five Fiscal Years ended June 30, This information is derived from the audited financial statements of the City for such five Fiscal Years. Table 8 Historical Wastewater System Revenues, Maintenance and Operations Costs for the Five Fiscal Years Ended June 30, Operating Revenues: Charges for Services $9,577,960 $11,126,901 $11,717,934 $15,719,996 $15,444,620 Other Revenue 0 11, , ,290 1,331,540 Total Operating Revenue 9,577,960 11,138,770 12,071,403 16,370,286 16,776,160 Operating Expenses: Salaries and Benefits 450, , , , ,949 Services, Materials, Supplies 2,033,188 3,065,912 2,300,360 2,390,528 3,008,250 Administration 1,142,298 1,366,182 1,465,591 1,768,856 1,910,187 Depreciation/Amortization 1,266,677 1,290,109 1,323,077 1,347,479 1,364,196 Total Operating Expenses 4,893,109 6,236,374 5,610,739 6,124,721 6,945,582 Operating Income (Loss) 4,684,851 4,902,396 6,460,664 10,245,565 9,830,578 Non Operating Revenue (Expense): Interest Income 630, , , , ,267 Interest Expense (2,218,932) (2,165,829) (2,121,552) (2,067,856) (2,007,368) Gain (Loss) on Disposal of Fixed Assets (1,588,793) (1,292,864) (1,333,525) (1,372,163) (1,434,101) Income Before Contributions and Transfers 3,096,058 3,609,532 5,127,139 8,873,402 8,396,477 Transfers in Transfers out Changes in Net Assets 3,096,058 3,609,532 5,127,139 8,873,402 8,396,477 Total Net Assets Beginning 18,395,132 21,491,190 25,100,722 30,227,861 39,101,263 Total Net Assets Ending $21,491,190 $25,100,722 $30,227,861 $39,101,263 $47,497,740 Source: City of Clovis Projected Revenues, Maintenance and Operations Costs and Debt Service Coverage The City s estimated projected operating results for the Wastewater System for the fiscal years ending June 30, 2005 through June 30, 2009 are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the City s estimate of projected financial results based upon its judgment of the most probable occurrence of certain important future events. The assumptions set forth in the footnotes to the chart set forth below are material in the development of the City s financial projections, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those -23-

34 presented in the forecast and such variations may be material. The obligation of the City to make Installment Payments under the Installment Sale Agreement is limited to Net Revenues of the Wastewater System and the City is not obligation to apply any other revenues to make such Installment Payments. Table 9 CITY OF CLOVIS Projected Wastewater System Revenues, Maintenance and Operations Costs and Debt Service Coverage for the Five Fiscal Years Ended June 30, Revenues: Charges for Services $7,016,000 $7,350,000 $7,615,000 $7,880,000 $8,145,000 Other Revenue 56,000 56,000 56,000 56,000 0 Interest Income 488, , , , ,000 Connection Fees 7,604,000 7,287,000 8,161,000 8,978,000 9,876,000 Total Revenue 15,164,000 15,248,000 16,398,000 17,487,000 18,579,000 Expenses: Operating Expenses 10,175,000 8,277,500 8,500,500 8,698,500 9,903,500 Fresno Payments (1) 2,269,371 2,264,980 2,259,109 2,255,235 2,253,356 Total Expenses 12,444,371 10,542,480 10,759,609 10,953,735 12,156,856 Net Revenue 2,719,629 4,705,520 5,638,391 6,533,265 6,422,144 Release of Reserve 3,000, Bonds Debt Service (873,098) (873,260) (873,198) (872,910) (872,398) Net Revenue 4,846,531 3,832,260 4,765,193 5,660,355 5,549, Bonds Debt Service 947,197 1,281,921 1,281,921 1,281,921 Coverage 405% 372% 442% 433% (1) City s share of debt service on City of Fresno Sewer System Revenue Bonds, 1993 Series A and 1995 Series A; treated as Operation and Maintenance Cost for purposes of the Indenture and the Installment Sale Agreement. (2) The 1993A, 1995 A and 1998 Obligations end in 2024, 2012 and 2029, respectively. Maximum annual debt service from 2030 to 2035 is approximately $3.5 million. Source: City of Clovis Article XIIIB Gann Limit CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS Article XIIIB of the California State Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The base year for establishing such appropriation limit is the fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if (i) the financial responsibility for a service is transferred to another public entity or to a private entity, (ii) the financial source for the provision of services is transferred from taxes to other revenues, or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. -24-

35 Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions and refunds of taxes. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by the voters and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the providing of existing services more costly. The City is of the opinion that its charges with respect to its Wastewater System do not exceed the costs it reasonably bears in providing wastewater service and are not subject to the limits of Article XIIIB. Proposition 218 General. An initiative measure entitled the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Article XIIID. Article XIIID defines the terms fee and charge to mean any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service. A property-related service is defined as a public service having a direct relationship to property ownership. Article XIIID further provides that reliance by an agency on any parcel map (including an assessor s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a fee or charge as defined in Article XIIID, the local government s ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and -25-

36 (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. The City believes that current City rates and charges with respect to the Wastewater System comply with the requirements of Proposition 218 and expects that any future fees and charges will comply with Proposition 218 s procedural and substantive requirements to the extent applicable thereto. Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms local tax, assessment, fee or charge, so it is unclear that the definitions set forth in Article XIIID referred to above will be applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, Therefore, in the absence of other limitations, provisions of Article XIIIC could be applicable to the water rates charged by the City. The City and the City Attorney do not believe that Article XIIIC grants to the voters within the City the power to repeal or reduce rates and charges in a manner which would be inconsistent with the City s contractual obligations, including but not limited to, the Installment Sale Agreement. However, there can be no assurance of the availability of particular remedies adequate to protect the interests of Bond Owners. Remedies available to Bond Owners in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain. In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations on the Bonds, the Indenture and the Installment Sale Agreement are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Special Counsel (the form of which is attached as Appendix D), will be similarly qualified. BOND OWNERS' RISKS The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it could delay or prevent payment of principal of and interest on the Bonds. Such risk factors include, but are not limited to, the following matters and should be considered, along with other information in this Official Statement, by potential investors. Revenues; Rate Covenant Revenues are dependent upon the demand for wastewater services, which can be affected by population factors, more stringent wastewater standards, wastewater regulations, or problems with the City's or the City of Fresno s wastewater collection and treatment facilities. There can be no assurance that wastewater service demand will be consistent with the levels contemplated in this Official Statement. A decrease in the demand for wastewater services -26-

37 could require an increase in rates or charges in order to comply with the rate covenant. The City's ability to meet its rate covenant is dependent upon its capacity to increase rates without driving down demand to a level insufficient to meet debt service on the Bonds. Enterprise Expenses There can be no assurance that expenses of the City will be consistent with the levels contemplated in this Official Statement. Changes in technology, changes in quality standards, increases in the cost of operation or other expenses could require substantial increases in rates or charges in order to comply with the rate covenant in the Installment Sale Agreement. Such rate increases could drive down demand for wastewater and related services or otherwise increase the possibility of nonpayment of the Bonds. Environmental Regulation The kind and degree of wastewater service which is effected through the Wastewater System is regulated, to a large extent, by the federal government and the State of California. If the federal government, acting through the Environmental Protection Agency or additional legislation, or the State should impose stricter wastewater quality standards upon the Wastewater System, its expenses could increase accordingly and rates and charges would have to be increased to offset those expenses. It is not possible to predict the direction which federal or State regulation will take with respect to wastewater treatment standards. Insurance The Indenture obligates the City to obtain and keep in force various forms of insurance or self-insurance for repair or replacement of a portion of the Wastewater System in the event of damage or destruction to such portion of the Wastewater System. No assurance can be given as to the adequacy of any such self-insurance or any additional insurance to fund necessary repair or replacement of any portion of the Wastewater System. Significant damage to the Wastewater System could cause the City to be unable to generate sufficient Net Revenues to pay Installment Payments, in turn resulting in insufficient Revenues being available to the Authority to pay the Bonds. Limitations on Remedies Available to Bond Owners The ability of the City to comply with its covenants under the Installment Sale Agreement and to generate Net Revenues sufficient to pay Installment Payments (and, in turn, resulting in insufficient Revenues to pay principal of and interest on the Bonds) may be adversely affected by actions and events outside of the control of the City, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See Proposition 218 above. Furthermore, any remedies available to the Owners of the Bonds upon the occurrence of an event of default under the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on Bondowners remedies contained in the Indenture, the rights and obligations under the Bonds and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under -27-

38 State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. Loss of Tax-Exemption As discussed under the caption TAX MATTERS herein, 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 future acts or omissions of the Authority in violation of its covenants in the Indenture or the City in violation of its covenants in the Installment Sale Agreement. Should such an event of taxability occur, the Bonds are not subject to special redemption and will remain Outstanding until maturity or until redeemed under other provisions set forth in the Indenture. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Underwriter and the beneficial owners of the Bonds to provide certain financial information and operating data relating to the City no later than 270 days following the end of the City s fiscal year (presently June 30) (the Annual Report ), commencing with the report for the Fiscal Year ending June 30, 2005, and to provide notices of the occurrence of certain enumerated events, if deemed by the City to be material under federal securities laws. The Annual Report and notices of material events will be filed by the City with each Nationally Recognized Municipal Securities Information Repository or the Municipal Securities Rule Making Board, as applicable. The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth below in Appendix E FORM OF CONTINUING DISCLOSURE CERTIFICATE. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). As of the date hereof, the City has timely filed all Annual Reports required under previous undertakings. -28-

39 APPROVAL OF LEGAL PROCEEDINGS The legal opinion of Bond Counsel, approving the validity of the Bonds, in substantially the form attached hereto as Appendix D, will be made available to purchasers at the time of original delivery of the Bonds, and a copy thereof will accompany each Bond. Certain matters with respect to this Official Statement will be considered on behalf of the Authority and the City by Jones Hall, A Professional Law Corporation ( Disclosure Counsel ). Certain matters will be passed upon for the City by the City Attorney and for the Authority by the City Attorney, serving as Authority Counsel. Payment of the fees of Bond Counsel and Disclosure Counsel are contingent upon issuance of the Bonds. TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the Bonds may be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. Bond Counsel's opinion as to the exclusion from gross income of interest (and original issue discount) is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986, as amended (the "Tax Code"), that must be satisfied subsequent to the issuance of the Bonds to assure that interest (and original issue discount) will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Tax Code might cause interest (and original issue discount) to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The Authority and the City have covenanted to comply with all such requirements. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar bonds). Although Bond Counsel has rendered an opinion that interest (and original issue discount) is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Tax Code, the ownership of the Bonds and the accrual or receipt of interest (and original issue discount) on the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences with respect to the Bonds. -29-

40 D. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix LITIGATION There is no action, suit or proceeding pending or, to the knowledge of the Authority or the City, threatened at the present time seeking to restrain or to enjoin the sale or delivery of the Bonds or in any way contesting or affecting the validity or enforceability of the Bonds, the Indenture or the Installment Sale Agreement or any action of the Authority or the City contemplated by any of said documents. There are no pending suits contesting or affecting the collection of Gross Revenues or which would have a material adverse effect on the Wastewater System, the financial condition of the City, including the City s ability to make Installment Payments, or the receipt of Gross Revenues by the City. FINANCIAL STATEMENTS Sampson & Sampson, Certified Public Accountants, Clovis, California, audited the financial statements of the City for the Fiscal Year ended June 30, The firm s examination was made in accordance with generally accepted auditing standards. See APPENDIX A EXCERPTS OF AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, The complete audited financial statements of the City for the Fiscal Year ended June 30, 2004, may be obtained from the Finance Director of the City, upon request. The City has not requested nor did the City obtain permission from Sampson & Sampson to include the audited financial statements as an appendix to this Official Statement. Accordingly, Sampson & Sampson has not performed any post-audit review of the financial condition or operations of the City. RATINGS Upon issuance of the Bonds, Moody s Investors Service ( Moody s ) will assign the Bonds ratings of Aaa, with the understanding that, upon delivery of the Bonds, the Policy will be issued by the Bond Insurer. In addition, Moody s has assigned an underlying rating of A3 to the Bonds. The City has furnished Moody s information and material which have not been included in this Official Statement. Generally, rating agencies base their ratings on information and material so furnished and on investigations, studies and assumptions made by the rating agencies. The ratings reflect only the view of such organization and an explanation of the significance of such rating may be obtained from Moody s Investors Service, 99 Church Street, New York, New York (212) There is no assurance that the ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. -30-

41 UNDERWRITING The Bonds are being purchased by Stone & Youngberg LLC as underwriter (the Underwriter ). The Underwriter has agreed, subject to certain conditions, to purchase all of the Bonds described on the cover page of this Official Statement at an aggregate purchase price of $26,772, (which is equal to the par amount of the Bonds, less underwriter s discount of $154, and plus a net original issue premium of $1,191, The initial public offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than such public offering prices. MISCELLANEOUS References made herein to certain documents and reports are brief summaries thereof and do not purport to be complete or definitive, and reference is hereby made to such documents and reports for a full and complete statement of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Authority or the City and the purchasers or registered owners of any of the Bonds. The delivery and distribution of this Official Statement have been duly authorized by the Authority or the City. CLOVIS PUBLIC FINANCING AUTHORITY By: /s/ Robert Woolley Treasurer -31-

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