$4,055,000 PERRIS PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (1987 PROJECT LOAN), 2009 SERIES A

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1 NEW ISSUE - BOOK-ENTRY ONLY RATING Standard & Poor s: A- (See CONCLUDING INFORMATION - RATING ON THE BONDS herein) In the opinion of Aleshire & Wynder, LLP, Bond Counsel, based on existing statutes, regulations, rulings and court decisions and assuming, among other matters, compliance with certain covenants, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from current State of California personal income taxes. In the opinion of Bond Counsel, interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding other federal or State tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS TAX EXEMPTION herein. RIVERSIDE COUNTY STATE OF CALIFORNIA $4,055,000 PERRIS PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (1987 PROJECT LOAN), 2009 SERIES A Dated: Date of Delivery Due: October 1 As Shown Below. The cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to making an informed investment decision. See BONDOWNERS RISKS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. Interest on the Bonds is payable semiannually on April 1 and October 1 of each year, commencing on October 1, 2009, until maturity or earlier redemption (see THE BONDS - GENERAL PROVISIONS and THE BONDS - REDEMPTION herein). The information contained within this Official Statement was prepared under the direction of the Perris Public Financing Authority (the Authority ) by the following firm serving as Financing Consultant to the Authority. ROD GUNN ASSOCIATES, INC. MATURITY SCHEDULE $715,000 Serial Bonds Maturity Date Principal Interest Reoffering Maturity Date Principal Interest Reoffering _October 1_ Amount _Rate Rate October 1_ Amount _Rate Rate 2009 $65, % 3.250% 2015 $60, % 5.100% , % 3.350% , % 5.300% , % 4.250% , % 5.550% , % 4.400% , % 5.800% , % 4.600% , % 6.100% , % 4.850% $475, % Term Bonds due October 1, 2024, Price % $640, % Term Bonds due October 1, 2029, Price % $690, % Term Bonds due October 1, 2033, Price % $1,535, % Term Bonds due October 1, 2037, Price % The Bonds are payable solely from the revenues pledged under the Indenture (the Revenues ), consisting primarily of proceeds from the repayment of a loan (the 1987 Project Loan ) with respect to the Redevelopment Project-1987 (the 1987 Redevelopment Project ) to be made by the Authority to the Redevelopment Agency of the City of Perris (the Agency ) as described herein. The 1987 Project Loan is payable on a parity basis with certain obligations issued by the Agency in 2006 and is payable on a subordinate basis to certain additional obligations issued in 2001 by the Agency, all as described herein. The 1987 Project Loan is payable solely from Tax Revenues (as defined herein) attributable to the 1987 Redevelopment Project, as described herein (see SOURCES OF PAYMENT FOR THE BONDS, BONDOWNERS RISKS, THE 1987 REDEVELOPMENT PROJECT and TAX INCREMENT REVENUES herein). It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company in New York, New York, on or about February 19, 2009 (see APPENDIX G - BOOK-ENTRY SYSTEM ). The date of the Official Statement is February 3, 2009.

2 PERRIS PUBLIC FINANCING AUTHORITY PERRIS, CALIFORNIA AUTHORITY BOARD AND CITY COUNCIL Daryl Busch, Chairperson and Mayor Al Landers, Vice Chairperson and Mayor Pro Tem Joanne H. Evans, Board Member and Council Member Raul (Mark) Yarbrough, Board Member and Council Member Rita Rogers, Board Member and Council Member AUTHORITY AND CITY STAFF Richard Belmudez, Executive Director and City Manager Ron Carr, Assistant Executive Director, Treasurer and Assistant City Manager Eric Dunn, Authority and Agency Counsel and City Attorney Judy L. Haughney, Secretary and City Clerk PROFESSIONAL SERVICES Bond Counsel Aleshire & Wynder, LLP Irvine, California Disclosure Counsel Fulbright & Jaworski L.L.P. Los Angeles, California City Attorney and Authority Counsel Aleshire & Wynder, LLP Irvine, California Financing Consultant Rod Gunn Associates, Inc. Huntington Beach, California Trustee Wells Fargo Bank, National Association Los Angeles, California Underwriter O Connor & Company Securities, Inc. Newport Beach, California Underwriter s Counsel McFarlin & Anderson LLP Lake Forest, California Dissemination Agent Willdan Financial Services Temecula, California FOR ADDITIONAL INFORMATION Ron Carr, City of Perris, California (951) O Connor & Company Securities, Inc. (949) i

3 GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and 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 to be construed as a contract with the purchasers of the Bonds. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Agency, in any press release and in any oral statement made with the approval of an authorized officer of the Agency, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, forecast, expect, intend, and similar expressions identify forward-looking statements within the meaning of the 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 subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the Agency or any other entity described or referenced herein since the date hereof. Neither the Authority nor the Agency plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. Limited Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or the Agency to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Agency or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a 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. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Agency or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. ii

4 TABLE OF CONTENTS INTRODUCTORY STATEMENT...1 THE AUTHORITY...1 Authorization and Formation...1 Bond Authorization and Issuance...1 THE AGENCY...2 Authorization and Formation...2 The 1987 Redevelopment Project...2 The 1987 Project Loan Authorization...2 Tax Allocation Financing...3 Outstanding Indebtedness of the 1987 Redevelopment Project...3 SECURITY AND SOURCES OF REPAYMENT...3 The Indenture...3 The 1987 Project Loan Agreement...4 PURPOSE...4 The Bonds...4 The 1987 Project Loan...4 REDEMPTION OF THE BONDS...4 Mandatory Redemption from Optional Loan Prepayments...4 Mandatory Redemption upon Acceleration of the 1987 Project Loan...4 Mandatory Sinking Payment Redemption...5 THE BONDS GENERAL PROVISIONS...5 Denominations...5 Registration, Transfer and Exchange...5 Payment...5 Notice...5 LEGAL MATTERS...5 PROFESSIONAL SERVICES...6 FINANCIAL STATEMENTS...6 CONTINUING DISCLOSURE...6 AVAILABILITY OF LEGAL DOCUMENTS...7 SELECTED ESSENTIAL FACTS...8 ESTIMATED SOURCES AND USES OF FUNDS...10 THE BONDS...10 Sources of Funds...10 Uses of Funds...10 THE 1987 PROJECT LOAN...10 Sources of Funds...10 Uses of Funds...10 THE BONDS...11 GENERAL PROVISIONS...11 Repayment of the Bonds...11 Transfer or Exchange of Bonds...11 Bonds Mutilated, Lost, Destroyed or Stolen...11 REDEMPTION...12 Mandatory Sinking Payment Redemption...12 Mandatory Redemption from Optional Loan Prepayments...13 Mandatory Redemption upon Acceleration of the 1987 Project Loan...13 Notice of Redemption...13 Selection of Bonds for Redemption...13 Effect of Redemption...13 Partial Redemption...14 ADDITIONAL OBLIGATIONS...14 The Authority...14 The Agency...14 SCHEDULED DEBT SERVICE ON THE BONDS...16 SCHEDULED DEBT SERVICE ON THE 1987 PROJECT LOAN...18 SOURCES OF PAYMENT FOR THE BONDS...20 REPAYMENT OF THE BONDS...20 The Bonds...20 Reserve Fund...20 REPAYMENT OF THE 1987 PROJECT LOAN...20 Tax Allocation Financing...20 Pledge of Tax Revenues...21 Alternative Method of Tax Apportionment ( Teeter Plan )...22 BONDOWNERS RISKS...23 THE BONDS...23 General...23 No Liability of the Authority to the Owners...23 Loss of Tax Exemption...23 Secondary Market...23 No Effective Acceleration on Default...23 Enforceability of Remedies...24 THE 1987 PROJECT LOAN...24 Risk Factors Relating to the Reduction of Tax Revenues...24 Risk Factors Related to Real Estate Market Conditions...27 Risk Factors Related to Natural and Man-made Disasters...28 Risk Factors Relating to State Budget Legislation...28 Risk Factors Relating to the Bonds and the Redevelopment Law...29 Risk Factors Related to Bankruptcy of the Authority and the Agency...29 Risk Factors Related to Assumptions and Projections...30 PROPERTY TAXATION IN CALIFORNIA...31 CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES...31 IMPLEMENTING LEGISLATION...31 CONSTITUTIONAL CHALLENGES TO PROPERTY TAX SYSTEM...32 PROPERTY TAX COLLECTION PROCEDURES...32 SUPPLEMENTAL ASSESSMENTS...32 TAX COLLECTION FEES...33 UNITARY PROPERTY TAX...33 BUSINESS INVENTORY AND REPLACEMENT REVENUE...33 iii

5 PROPOSITION FUTURE INITIATIVES...34 THE AUTHORITY...35 GENERAL...35 AUTHORIZATION...35 The Bonds...35 The 1987 Project Loan...35 AUTHORITY FINANCIAL STATEMENTS...35 DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS...35 THE AGENCY...37 GOVERNMENT ORGANIZATION...37 AGENCY POWERS...37 THE REDEVELOPMENT PLAN...38 General...38 Redevelopment Plan Limitations...38 AGENCY FINANCIAL ADMINISTRATION...40 Annual Budget...40 Agency Accounting Records and Financial Statements...40 Annual Financial Report...41 Filing of Statement of Indebtedness...41 THE 1987 REDEVELOPMENT PROJECT...43 GENERAL...43 ASSESSED VALUE BY LAND USE...43 TOP TEN TAXABLE PROPERTY OWNERS Redevelopment Project Map...46 TAX INCREMENT REVENUES...51 HISTORICAL TAXABLE VALUATIONS...51 ASSESSMENT APPEALS...51 PROPOSITION 8 ADJUSTMENTS...52 TRANSFERS OF OWNERSHIP...52 FORECLOSURES...52 DELINQUENCIES...52 PASS-THROUGH AGREEMENTS AND STATUTORY PAYMENTS...53 Pass-Though Agreements...53 Statutory Tax Sharing...55 Section Payments...57 HOUSING SET-ASIDE...57 PROJECTED TAX INCREMENT REVENUES ASSUMPTIONS...57 LEGAL MATTERS...59 ENFORCEABILITY OF REMEDIES...59 APPROVAL OF LEGAL PROCEEDINGS...59 TAX EXEMPTION...59 INFORMATION REPORTING AND BACKUP WITHHOLDING...60 ABSENCE OF LITIGATION...61 CONCLUDING INFORMATION...62 RATING ON THE BONDS...62 UNDERWRITING...62 EXPERTS...62 FINANCIAL STATEMENTS OF THE AGENCY...62 THE FINANCING CONSULTANT...62 FORWARD-LOOKING STATEMENTS...63 iv ADDITIONAL INFORMATION...63 REFERENCES...63 EXECUTION...63 APPENDIX A SUMMARY OF CERTAIN TERMS AND THE INDENTURE...A-1 APPENDIX B SUMMARY OF THE 1987 PROJECT LOAN AGREEMENT...B-1 APPENDIX C FISCAL CONSULTANT REPORT...C-1 APPENDIX D AGENCY FINANCIAL STATEMENTS...D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT...E-1 APPENDIX F FORM OF OPINION OF BOND COUNSEL... F-1 APPENDIX G BOOK-ENTRY SYSTEM... G-1

6 CITY OF PERRIS VICINITY MAP v

7 OFFICIAL STATEMENT $4,055,000 PERRIS PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (1987 PROJECT LOAN), 2009 SERIES A This Official Statement which includes the cover page and appendices (the Official Statement ) is provided to furnish certain information concerning the sale by the Perris Public Financing Authority (the Authority ) of its Tax Allocation Revenue Bonds (1987 Project Loan), 2009 Series A (the Bonds ), in the aggregate principal amount of $4,055,000. INTRODUCTORY STATEMENT This Introductory Statement contains only a brief description of this issue and does not purport to be complete. The Introductory Statement is subject in all respects to more complete information in the entire Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement and the documents summarized herein. Potential investors must read the entire Official Statement to obtain information essential to make an informed investment decision (see BONDOWNERS RISKS herein). THE AUTHORITY Authorization and Formation The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State (the Joint Powers Act ). The City of Perris (the City ), pursuant to Resolution No. 1715, adopted on August 28, 1989, and the Redevelopment Agency of the City of Perris (the Agency ), pursuant to Resolution No. 120, adopted on August 28, 1989, formed the Authority by the execution of a joint exercise of powers agreement (see THE AUTHORITY herein). Bond Authorization and Issuance Pursuant to the Joint Powers Act, the Authority is authorized, among other things, to issue revenue bonds to provide funds to acquire local obligations issued by local agencies or to make loans to local agencies to finance or refinance public capital improvements, such revenue bonds to be repaid from the repayment of the local obligations so acquired by the Authority or repayment of the loan, such as the 1987 Project Loan (the 1987 Project Loan ) described herein (see INTRODUCTORY STATEMENT SECURITY AND SOURCES OF REPAYMENT below). The Bonds are being issued pursuant to the Indenture, as defined herein (see APPENDIX A SUMMARY OF CERTAIN TERMS AND THE INDENTURE ). The Bonds are being sold to the Underwriter pursuant to, and subject to the terms and conditions of, the Purchase Contract by and among the Underwriter, the Authority and the Agency (the Purchase Contract ). The Indenture and the Purchase Contract were approved by the Authority pursuant to Resolution No. 39 adopted on October 28, It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of The Depository Trust Company, on or about February 19, 2009 (see APPENDIX G - BOOK- ENTRY SYSTEM ). The Authority has issued other series of bonds. Each series is separately secured under the terms of an indenture for such other series of bonds. The Authority is not authorized to issue any additional bonds under the Indenture secured by repayment of the 1987 Project Loan except for refunding purposes. However, the Authority may in the future loan money to the Agency which loan may be payable on a parity with the 1987 Project Loan (see THE BONDS ADDITIONAL OBLIGATIONS herein). 1

8 THE AGENCY Authorization and Formation The Agency is a public body, corporate and politic, existing under and by virtue of the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the Redevelopment Law ). The Agency was activated on March 9, The City Council of the City (the City Council ), at the same time, declared itself to be the members of the Agency and appointed the City Manager to be the Agency s Executive Director (see THE AGENCY herein). The Agency is comprised of 3 Redevelopment Projects: (i) the Central Perris and North Perris Redevelopment Project (the Central North Redevelopment Project ); (ii) the Redevelopment Project (the 1987 Redevelopment Project ) and (iii) the Redevelopment Project-1994 (the 1994 Redevelopment Project ). Collectively the Central North Redevelopment Project, the 1987 Redevelopment Project and the 1994 Redevelopment Project are referred to herein as the Redevelopment Projects. The 1987 Redevelopment Project The Perris City Council adopted the redevelopment plan (the Redevelopment Plan ) establishing the 1987 Redevelopment Project by Ordinance No. 687 on June 29, The redevelopment plan was subsequently amended by Ordinance No. 996 on December 12, On September 27, 2005, by the adoption of Ordinance No. 1171, the City Council amended the redevelopment plan pursuant to Senate Bill 1045 by extending by one year the duration of the redevelopment plan and the time frame to collect tax increment revenue. On February 14, 2006, the redevelopment plan was amended to reinstate eminent domain. On September 30, 2008, the City Council amended the redevelopment plan to eliminate the time limit on establishment of indebtedness by Ordinance No (which Ordinance will be effective 30 days thereafter) (see THE AGENCY THE REDEVELOPMENT PLAN Redevelopment Plan Limitations ). The 1987 Redevelopment Project has an area of approximately 2,030 acres, divided between four noncontiguous areas throughout the City (see THE 1987 REDEVELOPMENT PROJECT herein for a description of the 1987 Redevelopment Project). The 1987 Project Loan Authorization The Authority will be making the 1987 Project Loan to the Agency with respect to the 1987 Redevelopment Project (see Tax Allocation Financing below), in the amount of $4,055,000. The Agency authorized the 1987 Project Loan by resolution, adopted on October 28, The Agency has pledged a lien on Tax Revenues, as defined herein, to the repayment of the 1987 Project Loan. Tax Revenues consist of Tax Increment Revenues from the Agency s 1987 Redevelopment Project, excluding (i) amounts required to be deposited into the Agency s Low and Moderate Income Housing Fund, as defined herein, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements and Statutory Tax Sharing (see SOURCES OF PAYMENT FOR THE BONDS, BONDOWNERS RISKS and TAX INCREMENT REVENUES herein). The pledge of Tax Revenues is on a subordinate basis with any payments required under the Agency s Loan Agreement, dated as of June 1, 2001, with respect to the 1987 Redevelopment Project (the 2001 Loan ) and relating to the Perris Public Financing Authority Tax Allocation Revenue Bonds, 2001 Series A. The pledge of Tax Revenues is on a parity basis with any payments required under the Agency s Loan Agreement, dated as of May 1, 2006, with respect to the 1987 Redevelopment Project (the 2006 Loan ) and relating to the Perris Public Financing Authority 2006 Tax Allocation Revenue Bonds (see Outstanding Indebtedness of the 1987 Redevelopment Project below) (see Tax Allocation Financing below and SOURCES OF PAYMENT FOR THE BONDS, BONDOWNERS RISKS and TAX INCREMENT REVENUES herein). 2

9 Tax Allocation Financing The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The taxable valuation of a redevelopment project last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies within the redevelopment project thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter-approved bonded indebtedness on or after January 1, 1989, for the acquisition or improvement of real property) are allocated to a redevelopment agency (the Tax Increment Revenues ) and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Outstanding Indebtedness of the 1987 Redevelopment Project Pursuant to an Indenture of Trust, dated as of June 1, 2001, the Authority issued its Tax Allocation Revenue Bonds, 2001 Series A Bonds (the 2001 Bonds ) in the aggregate principal amount of $10,745,000 of which $9,270,000 currently remains outstanding. Proceeds of the 2001 Bonds were loaned to the Agency pursuant to a 1987 Project Loan Agreement and a Housing Loan Agreement both dated as of June 1, The loan pursuant to the 1987 Project Loan Agreement (the 2001 Loan ) was in the principal amount of $4,275,000 of which $3,795,000 currently remains outstanding. The 2001 Loan matures on October 1, The 1987 Project Loan is payable on a subordinate basis to the 2001 Loan. Pursuant to an Indenture of Trust, dated as of May 1, 2006, the Authority issued its 2006 Tax Allocation Revenue Bonds (the 2006 Bonds ) in the aggregate principal amount of $31,005,000, of which $30,570,000 currently remains outstanding. Proceeds of the 2006 Bonds were loaned to the Agency pursuant to separate loan agreements, all dated as of May 1, 2006, with each of the Redevelopment Projects and the Low and Moderate Income Housing Fund. The loan with respect to the 1987 Redevelopment Project (the 2006 Loan ) was in the principal amount of $5,220,000 of which $5,185,000 currently remains outstanding. The 2006 Loan matures October 1, The 1987 Project Loan is payable on a parity basis with the 2006 Loan. SECURITY AND SOURCES OF REPAYMENT The Indenture The Bonds are secured under an Indenture of Trust, dated as of February 1, 2009 (the Indenture ), by and between the Authority and Wells Fargo Bank, National Association, Los Angeles, California, as trustee (the Trustee ) (see APPENDIX A - SUMMARY OF THE INDENTURE ). The proceeds of the Bonds will be loaned by the Authority to the Agency pursuant to the 1987 Project Loan. The Bonds are payable from loan payments to be made to the Authority under the 1987 Project Loan, from amounts in the Reserve Fund created under the Indenture and from certain funds and accounts created under the Indenture, and from investment earnings thereon (the Revenues ) (see SOURCES OF PAYMENT FOR THE BONDS and BONDOWNERS RISKS herein). The Bonds are limited obligations of the Authority. The Bonds do not constitute a debt or liability of the City, the State of California (the State ) or of any political subdivision thereof, other than the Authority. The Authority shall be obligated to pay the principal of the Bonds, and the interest thereon, only from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power. 3

10 The 1987 Project Loan Agreement The 1987 Project Loan is to be made and secured pursuant to the 1987 Project Loan Agreement (the 1987 Project Loan Agreement ) authorized by a Resolution of the Agency, adopted on October 28, A description of the 1987 Project Loan Agreement is set forth in APPENDIX B - SUMMARY OF THE 1987 PROJECT LOAN AGREEMENT. The 1987 Project Loan is made in accordance with the laws of the State, and particularly the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State. The Agency is authorized to issue additional obligations secured by Tax Revenues on a parity with the 1987 Project Loan (see THE BONDS - ADDITIONAL OBLIGATIONS - The Agency herein). The 1987 Project Loan is a limited obligation of the Agency. The 1987 Project Loan does not constitute a debt or liability of the State or of any political subdivision thereof, other than the Agency. The Agency shall be obligated to pay the principal of the 1987 Project Loan, and the interest thereon, only from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the 1987 Project Loan. The Agency has no ad valorem taxing power. PURPOSE The Bonds The Bonds are being issued to provide funds to make the 1987 Project Loan on the closing date and to pay the expenses of the Authority in connection with the issuance of the Bonds. In addition, Bond proceeds will be used to establish a reserve fund pursuant to the Indenture (see SOURCES OF PAYMENT FOR THE BONDS - REPAYMENT OF THE BONDS - Reserve Fund herein). The amount of the deposit into the Reserve Fund will be in the amount equal to $405,500 (see ESTIMATED SOURCES AND USES OF FUNDS herein). The 1987 Project Loan Proceeds of the 1987 Project Loan will be used by the Agency to finance redevelopment activities consisting of capital projects of the Agency and public improvements of benefit to the 1987 Redevelopment Project, and to pay the expenses of the Agency in connection with the 1987 Project Loan (see ESTIMATED SOURCES AND USES OF FUNDS herein). REDEMPTION OF THE BONDS Mandatory Redemption from Optional Loan Prepayments The Bonds are subject to mandatory redemption from optional prepayments under the 1987 Project Loan prior to maturity, in whole or in part, on a pro rata basis and by lot within a maturity, on October 1, 2018, and on any date thereafter at a redemption price equal to the principal amount thereof, plus accrued interest to the date of redemption, as described herein (see THE BONDS - REDEMPTION Mandatory Redemption From Optional Loan Prepayments herein). Mandatory Redemption upon Acceleration of the 1987 Project Loan The Bonds are also subject to mandatory redemption, without premium, prior to maturity, in whole or in part, on any date, from amounts credited toward the payment of principal of the 1987 Project Loan coming due and payable solely by reason of acceleration of the 1987 Project Loan (see THE BONDS - REDEMPTION - Mandatory Redemption upon Acceleration of the 1987 Project Loan herein). 4

11 Mandatory Sinking Payment Redemption The Bonds maturing October 1, 2024, October 1, 2029, October 1, 2033 and October 1, 2037, are subject to mandatory sinking payment redemption, without premium, prior to their maturity date, in part by lot on October 1 in each year commencing October 1, 2020, with respect to the Bonds maturing October 1, 2024, October 1, 2025 with to the Bonds maturing October 1, 2029, October 1, 2030 with respect to the Bonds maturing October 1, 2033, and October 1, 2034 with respect to the Bonds maturing October 1, 2037, from mandatory sinking payments under the Indenture (see THE BONDS - REDEMPTION Mandatory Sinking Payment Redemption herein). THE BONDS GENERAL PROVISIONS Denominations The Bonds will be issued in the minimum denomination of $5,000 each or any integral multiple thereof (see THE BONDS - GENERAL PROVISIONS herein). Registration, Transfer and Exchange The Bonds will be issued in fully-registered form without coupons. Any Bond may, in accordance with its terms, be transferred or exchanged, pursuant to the provisions of the Indenture (see THE BONDS - GENERAL PROVISIONS - Transfer or Exchange of Bonds herein). When delivered, the Bonds will be registered in the name of The Depository Trust Company, New York, New York ( DTC ), or its nominee. DTC will act as securities depository for the Bonds. Individual purchases of Bonds will be made in book-entry form only in the principal amount of $5,000 or any integral multiple thereof. Purchasers of beneficial interests in the Bonds will not receive certificates representing their ownership interests in Bonds purchased (see APPENDIX G - BOOK-ENTRY SYSTEM ). Payment Principal of the Bonds and any premium upon redemption will be payable in each of the years and in the amounts set forth on the cover page hereof upon surrender at the corporate trust office of the Trustee in Los Angeles, California. Interest on the Bonds will be paid by check of the Trustee mailed by first class mail on the Interest Payment Date (as defined in the Indenture) to the person entitled thereto (except as otherwise described herein for interest paid to an account in the continental United States of America by wire transfer as requested in writing no later than the applicable Record Date (as defined in the Indenture) by owners of $1,000,000 or more in aggregate principal amount of Bonds) (see THE BONDS - GENERAL PROVISIONS herein). Initially, interest on and principal and premium, if any, of the Bonds will be payable when due by wire of the Trustee to DTC which will, in turn, remit such interest, principal and premium, if any, to DTC Participants (as defined herein), which will, in turn, remit such interest, principal and premium, if any, to Beneficial Owners (as defined herein) of the Bonds (see APPENDIX G - BOOK-ENTRY SYSTEM ). Notice Notice of any redemption will be mailed by first class mail by the Trustee at least thirty (30) but no more than sixty (60) days prior to the date fixed for redemption to the registered owners of any Bonds designated for redemption and to the Securities Depositories and one or Information Services provided in the Indenture. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date (see THE BONDS - REDEMPTION - Notice of Redemption herein). LEGAL MATTERS All legal proceedings in connection with the issuance of the Bonds are subject to the approving opinion of Aleshire & Wynder, LLP, Irvine, California, Bond Counsel. Such opinion, and certain tax consequences incident to the ownership of the Bonds, including certain exceptions to the tax treatment of interest, are described more fully under the heading LEGAL MATTERS herein. Certain legal matters will be passed on for the Authority and the Agency by Aleshire & Wynder, LLP, Irvine, California, as 5

12 City Attorney, Authority Counsel and Agency Counsel and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California, as Underwriter s Counsel. PROFESSIONAL SERVICES Wells Fargo Bank, National Association, Los Angeles, California, will serve as Trustee under the Indenture. The Trustee will act on behalf of the Bondowners for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the Revenues and other funds held under the Indenture, and otherwise to hold all the offices and perform all the functions and duties provided in the Indenture to be held and performed by the Trustee. Rod Gunn Associates, Inc., Huntington Beach, California, Financing Consultant (the Financing Consultant ), advised the Authority as to the financial structure and certain other financial matters relating to the Bonds. HdL Coren & Cone, Diamond Bar, California (the Fiscal Consultant ), prepared the Fiscal Consultant Report containing certain background information on the Agency and the 1987 Redevelopment Project, including the projection of Tax Revenues used in sizing and structuring the Bonds. See APPENDIX C - FISCAL CONSULTANT REPORT for more complete information regarding Tax Revenues. Fees payable to Bond Counsel, Disclosure Counsel, Underwriter s Counsel and the Financing Consultant are contingent upon the sale and delivery of the Bonds. FINANCIAL STATEMENTS The Agency s financial statements for the fiscal year ended June 30, 2008, are attached hereto as APPENDIX D and have been audited by Teaman, Ramirez & Smith, Certified Public Accountants, Riverside, California. The Agency has not requested, nor did the Agency obtain permission from, the auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the auditor has not performed any post-audit work on the financial statements. CONTINUING DISCLOSURE The Agency has undertaken all responsibilities for any required continuing disclosure to Bondowners as described below. The Authority shall have no liability to the Bondowners or any other person with respect to such disclosures provided by the Agency. The Agency will covenant to provide annually certain financial information and operating data relating to the 1987 Redevelopment Project by not later than February 15 each year, commencing February 15, 2010, and to provide the audited Financial Statements of the Agency for the fiscal year ending June 30, 2009, and for each subsequent fiscal year when they are available (together, the Annual Report ), and to provide notices of the occurrence of certain other enumerated events. The Annual Report will be filed by the Trustee on behalf of the Agency with the Municipal Securities Rulemaking Board ( MSRB ) in an electronic format as prescribed by the MSRB. Until July 1, 2009, the notices of material events will be timely filed by the Authority with the MSRB, the National Recognized Municipal Securities Information Repository certified by the Securities and Exchange Commission Repositories and a State repository, if any. Effective July 1, 2009, such noticies of material events will be filed solely with the MSRB. The specific nature of the information to be contained in the Annual Report or the notices of material events and certain other terms of the continuing disclosure obligation are summarized in APPENDIX E - FORM OF CONTINUING DISCLOSURE AGREEMENT. The Agency has not previously failed to comply with any undertaking to provide any required continuing disclosure. 6

13 AVAILABILITY OF LEGAL DOCUMENTS The summaries and references contained herein with respect to the Indenture, the 1987 Project Loan Agreement, the Bonds, the 1987 Project Loan and other statutes or documents do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute, and references to the Bonds are qualified in their entirety by reference to the form thereof included in the Indenture. Copies of the documents described herein are available for inspection during the period of initial offering of the Bonds at the offices of the Underwriter, O Connor & Company Securities, Inc., 620 Newport Center Drive, Suite 1100, Newport Beach, California, (949) Copies of these documents may be obtained after delivery of the Bonds from the Authority at the Office of the Assistant City Manager, 101 North D Street, Perris, California 92570, telephone (951)

14 SELECTED ESSENTIAL FACTS The following summary does not purport to be complete. Reference is hereby made to the complete Official Statement in this regard. THE BONDS Principal Amount of Bonds: $4,055,000 Additional Bonds: No Additional Bonds are authorized to be secured by the 1987 Project Loan except bonds issued to refund the Bonds (see THE BONDS ADDITIONAL OBLIGATIONS The Authority herein). First Optional Redemption Date: October 1, 2018, at 100% of principal amount (see THE BONDS - REDEMPTION Mandatory Redemption From Optional Loan Prepayments herein). Primary Source of Revenues for Repayment: The Bonds are repayable from Revenues, as defined herein, which primarily consist of the repayment of the 1987 Project Loan (see SOURCES OF PAYMENT FOR THE BONDS and BONDOWNERS RISKS herein). Priority: All the Bonds are equally secured by a first pledge of and lien on the Revenues as described herein (see SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE BONDS, BONDOWNERS RISKS herein and APPENDIX A - SUMMARY OF CERTAIN TERMS AND THE INDENTURE ). Debt Service Coverage from Repayment of 100% 1987 Project Loan (see THE AUTHORITY DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS herein): THE 1987 PROJECT LOAN Principal Amount of the 1987 Project Loan: $4,055,000 Outstanding Principal Amount of the 2001 Loan: Outstanding Principal Amount of the 2006 Loan: Additional Indebtedness: $3,795,000 $5,185,000 Additional indebtedness on a parity with the 1987 Project Loan and the 2006 Loan is permitted subject to certain conditions. No senior obligations except the 2001 Loan and other Bonds to refund the 2001 Loan (see THE BONDS ADDITIONAL OBLIGATIONS The Agency herein). 8

15 Primary Source of Revenues for Repayment of the 1987 Project Loan and the 2006 Loan: Priority: Minimum Ratio of Estimated Tax Revenues in any Fiscal Year to Maximum Annual Debt Service on the 1987 Project Loan, 2001 Loan, and the 2006 Loan: Tax Revenues on a subordinate basis with the 2001 Loan and on a parity basis with the 2006 Loan (see TAX INCREMENT REVENUES herein). The Agency has pledged a lien on Tax Revenues, on a subordinate basis with the 2001 Loan and on a parity basis with the 2006 Loan (see SOURCES OF PAYMENT FOR THE BONDS and BONDOWNERS RISKS herein). 125% (see table entitled TAX REVENUES AND DEBT SERVICE herein). THE 1987 REDEVELOPMENT PROJECT Year Established: 1987 Last Date to Receive Tax Increment Revenues: June 28, 2038 Size (in Acres): 2,030 Acres Ten Largest Taxpayers (expressed as a percentage of total Secured and Unsecured Assessed Value): Land Use as a percentage of Fiscal Year assessed value: 30.99% (see THE 1987 REDEVELOPMENT PROJECT TOP TEN TAXABLE PROPERTY OWNERS herein). Residential 17.4%, Commercial 8.3%, Industrial 26.0%, Vacant Land 33.1%, Other 15.2% (see THE 1987 REDEVELOPMENT PROJECT ASSESSED VALUE BY LAND USE herein). 9

16 THE BONDS ESTIMATED SOURCES AND USES OF FUNDS Proceeds from the sale of the Bonds will be used to make the 1987 Project Loan to the Agency in the aggregate principal amounts indicated below. Under the provisions of the Indenture, the Trustee will receive the proceeds from the sale of the Bonds and will apply them as follows: Sources of Funds Bond Proceeds $4,055, Original Issue Discount (70,941.65) Underwriter s Discount (38,522.50) Net Bond Proceeds $3,945, Uses of Funds Loan Fund $3,396, Reserve Fund (1) 405, Costs of Issuance (2) 143, Total Uses $3,945, ( 1 ) An amount equal to the Reserve Requirement under the Indenture. (2) Expenses include fees of Bond Counsel, Disclosure Counsel, the Financing Consultant, Underwriter s Counsel, Trustee, Rating Agency, costs of printing the Official Statement, and other costs of issuance of the Bonds. THE 1987 PROJECT LOAN Under the provisions of the 1987 Project Loan Agreement, the Trustee will receive the proceeds of the 1987 Project Loan and will apply or credit them as follows: Sources of Funds Principal Amount of 1987 Project Loan $4,055, Loan Discount (658,739.15) Net Loan Proceeds $3,396, Uses of Funds Redevelopment Fund $3,351, Costs of Issuance (1) 45, Total Uses $3,396, (1) Costs of Issuance include fees of Bond Counsel, the Financing Consultant, Fiscal Consultant and Disclosure Counsel. 10

17 GENERAL PROVISIONS THE BONDS Repayment of the Bonds Interest is payable on the Bonds at the rates per annum set forth on the cover page hereof. Interest with respect to the Bonds will be computed on the basis of a year consisting of 360 days and twelve 30-day months. Each Bond will be dated as of the closing date, and interest with respect thereto will be payable from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it shall bear interest from such Interest Payment Date; (b) it is authenticated on or before September 15, 2009, in which event interest thereon will be payable from the closing date; or (c) interest on any Bond is in default as of the date of authentication, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. Interest on the Bonds will be payable by check of the Trustee mailed by first class mail on the applicable Interest Payment Date to the person appearing on the registration books as the owner thereof, initially Cede & Co., or by wire transfer made on such Interest Payment Date to any owner of $1,000,000 or more in aggregate principal amount of outstanding Bonds, who shall have requested such transfer pursuant to written instructions provided prior to the applicable Record Date to the Trustee. The owners of the Bonds shown on the registration books on the Record Date for the Interest Payment Date will be deemed to be the owners of the Bonds on said Interest Payment Date for the purpose of the paying of interest. Principal of the Bonds and any premium upon early redemption is payable upon presentation and surrender thereof, at the corporate trust office of the Trustee in Los Angeles, California. Transfer or Exchange of Bonds Any Bond, in accordance with its terms, may be transferred or exchanged, pursuant to the provisions of the Indenture, upon surrender of such Bond for cancellation at the corporate trust office of the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer or exchange, the Trustee shall authenticate and deliver a new Bond or Bonds for like aggregate principal amount or maturity amount of authorized denominations. The Trustee is not required to transfer or exchange any Bonds or portions thereof during the period established by the Trustee for selection of Bonds for redemption, or any Bonds selected for redemption. The cost of printing Bonds and any services rendered or expenses incurred by the Trustee in connection with any transfer shall be paid by the Authority. Bonds Mutilated, Lost, Destroyed or Stolen If any Bond becomes mutilated, the Authority, at the expense of the Bond Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series and tenor in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee will be canceled by it. If any Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence is satisfactory to the Trustee and indemnity for the Trustee and the Authority satisfactory to the Trustee shall be given, the Authority, at the expense of the Bondowner, will execute, and the Trustee will thereupon authenticate and deliver, a new Bond of like series and tenor in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond has matured or has been called for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee). The Trustee may require payment of a fee for preparing and authenticating each new Bond issued pursuant to the Indenture. Any Bond issued under the 11

18 provisions of the Indenture in lieu of any Bond alleged to be lost, destroyed or stolen will be entitled to the benefits of the Indenture with all other Bonds secured by the Indenture. REDEMPTION Mandatory Sinking Payment Redemption The Bonds maturing on October 1, 2024, October 1, 2029, October 1, 2033 and October 1, 2037, are subject to mandatory redemption, in part by lot, on October 1 in each year commencing October 1, 2020, in the case of the Bonds maturing on October 1, 2024, October 1, 2025, in the case of the Bonds maturing October 1, 2029, October 1, 2030, in the case of the Bonds maturing October 1, 2033, and October 1, 2034, in the case of the Bonds maturing on October 1, 2037, from mandatory sinking payments made by the Authority pursuant to the Indenture at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption as set forth in the following schedule; provided, however, that (i) in lieu of redemption thereof, the Bonds may be purchased by the Authority and tendered to the Trustee, and (ii) if some but not all of the Bonds have been redeemed pursuant to mandatory redemption from optional loan prepayments and mandatory redemption upon acceleration of the 1987 Project Loan provisions described herein, the total amount of all future sinking payments will be reduced by the aggregate principal amount of the Bonds so redeemed, to be allocated among such sinking payments on a pro rata basis (as nearly as practicable) in integral multiples of $5,000 as determined by the Authority. SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS TERM BONDS MATURING OCTOBER 1, 2024 October 1 Year Principal Amount October 1 Year Principal Amount 2020 $80, $100, , ,000 (maturity) ,000 SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS TERM BONDS MATURING OCTOBER 1, 2029 October 1 Year Principal Amount October 1 Year Principal Amount 2025 $110, $140, , ,000 (maturity) ,000 SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS TERM BONDS MATURING OCTOBER 1, 2033 October 1 Year Principal Amount October 1 Year Principal Amount 2030 $155, $175, , ,000 (maturity) SCHEDULE OF MANDATORY SINKING PAYMENT REDEMPTIONS TERM BONDS MATURING OCTOBER 1, 2037 October 1 Year Principal Amount October 1 Year Principal Amount , , , ,000 (maturity) 12

19 Mandatory Redemption from Optional Loan Prepayments The Bonds are subject to mandatory redemption from optional prepayments under the 1987 Project Loan prior to maturity on any date on or after October 1, 2018, as a whole or in part, on a pro rata basis and by lot within a maturity, from loan prepayments by the Agency of all or any portion of the 1987 Project Loan at 100% of the principal amount of the Bonds to be redeemed together with accrued interest thereon to the date fixed for redemption. Mandatory Redemption upon Acceleration of the 1987 Project Loan The Bonds will also be subject to mandatory redemption in whole, or in part by maturity in a manner such that remaining payments on the 1987 Project Loan, calculated at the interest rates of the Bonds, will be sufficient to pay remaining debt service on the Bonds, as determined by the Authority, and by lot within a maturity, on any date, from amounts credited toward the payment of principal of the 1987 Project Loan coming due and payable solely by reason of an event of default and acceleration of the 1987 Project Loan pursuant to the 1987 Project Loan Agreement at a redemption price equal to the principal amount of the Bonds to be redeemed, without premium, together with accrued interest thereon to the redemption date (see APPENDIX B - SUMMARY OF THE 1987 PROJECT LOAN AGREEMENT - Events of Default and Acceleration of Maturities herein). The Bonds will be subject to mandatory redemption pursuant to the provisions of the Indenture solely from amounts credited towards the payment of principal of the 1987 Project Loan which has become due and payable by reason of such event of default and acceleration only. Notice of Redemption When redemption is authorized or required, written notice of redemption is required to be mailed by the Trustee to the respective owners of any Bonds designated for redemption at their addresses appearing on the bond registration books, to the Securities Depositories, and to the Information Services, all as provided in the Indenture, by first class mail, postage prepaid, no less than thirty (30), nor more than sixty (60), days prior to the date fixed for redemption. Neither failure to receive such notice nor any defect in the notice so mailed will affect the sufficiency of the proceedings for redemption of such Bonds or the cessation of accrual of interest on the redemption date. In addition to the foregoing notice, further notice will be given by the Trustee to any Bondowner whose Bond has been called for redemption but who has failed to tender his or her Bond for payment by the date which is sixty (60) days after the redemption date, but no defect in such further notice will in any manner defeat the effectiveness of a call for redemption. Selection of Bonds for Redemption Except as otherwise set forth in the Indenture, whenever provision is made in the Indenture for the redemption of less than all of the Bonds of any maturity, the Trustee shall select the Bonds to be redeemed from all Bonds of such maturity not previously called for redemption, by lot in any manner which the Authority in its sole discretion shall deem appropriate. For purposes of such selection, all Bonds shall be deemed to be comprised of separate $5,000 portions and such portions shall be treated as separate Bonds which may be separately redeemed. Effect of Redemption From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest shall accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to the Indenture shall be cancelled and destroyed. 13

20 Partial Redemption In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Bondowner thereof, at the expense of the Authority, a new Bond or Bonds of the same series and maturity date, of authorized denominations equal in an aggregate principal amount to the unredeemed portion of the Bond to be redeemed. ADDITIONAL OBLIGATIONS The Authority The Authority will not have any indebtedness secured by the Revenues other than the Bonds, except bonds issued to refund the Bonds. However, the Agency is authorized to issue additional obligations secured by the Tax Revenues on a parity with the 1987 Project Loan and the 2006 Loan, and the Authority may issue bonds to acquire the additional obligations of the Agency. When and if issued, each series of bonds of the Authority would be secured by a separate obligation of the Agency. The Agency The Agency has covenanted under the 1987 Project Loan Agreement that it will not issue any obligations senior to the obligations described herein other than to refund the 2001 Loan. In addition to the 1987 Project Loan and the 2006 Loan, the Agency may issue or incur Parity Debt (as defined in the 1987 Project Loan Agreement) secured by Tax Revenues in such principal amount as shall be determined by the Agency. The Agency may issue and deliver any Parity Debt subject to the following specific conditions which are conditions precedent to the issuance and delivery of such Parity Debt issued under the 1987 Project Loan Agreement: (a) No event of default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the 1987 Project Loan Agreement, the 2001 Loan Agreement and the 2006 Loan Agreement provided that the requirements of this Subsection (a) will not apply to any issue of Parity Debt all of the available proceeds of which will be applied to refund the 1987 Project Loan or any other Parity Debt in whole or in part. (b) The Tax Revenues for the then current fiscal year, as set forth in a written certificate of the Agency, as defined in the Indenture, based on assessed valuation of property in the 1987 Redevelopment Project as evidenced in the written records of the County of Riverside (the County ), shall be at least equal to one hundred twenty-five percent (125%) of the sum of maximum annual debt service on the 1987 Project Loan, the 2001 Loan, the 2006 Loan and all Parity Debt payable from Tax Revenues; provided that (i) the requirements of this Subsection (b) will not apply to any issue of Parity Debt all of the available proceeds of which will be applied to refund the 1987 Project Loan, the 2001 Loan, the 2006 Loan or other Parity Debt in whole or in part, and (ii) debt service on any Parity Debt the proceeds of which are deposited into an escrow fund meeting the requirements of Subsection (d) below will be disregarded for purposes of measuring maximum annual debt service. (c) The related parity debt instrument shall provide that: (1) Interest on such parity debt shall be payable on April 1 and October 1 in each year of the term of such parity debt except the first twelve-month period, during which interest may be payable on any April 1 or October 1; and (2) The principal of such parity debt shall not be payable on any date other than October 1 in any year. 14

21 (d) The proceeds of such Parity Debt may be deposited into an escrow fund to be held by a trustee, from which amounts may not be released to the Agency unless the Tax Revenues for the most recent fiscal year (as evidenced in the written records of the County of Riverside) at least equal one hundred twenty-five percent (125%) of maximum annual debt service with respect to the 1987 Project Loan, the 2001 Loan and the 2006 Loan and the portion of the Parity Debt to be released and any then outstanding Parity Debt. (e) For purposes of calculation of Tax Revenues under the 1987 Project Loan Agreement, Tax Revenues shall be calculated by using the most recent assessed values as evidenced in the written records of the County and a 1% tax rate (without regard to overrides). (f) The issuance of such Parity Debt shall not cause the Agency to exceed any applicable Redevelopment Plan limitations with respect to the 1987 Redevelopment Project. (g) The Agency shall file with the Trustee a Written Certificate of the Agency certifying that all of the foregoing conditions to the issuance of such Parity Debt have been satisfied (including any additional certifications as may be required by the 1987 Project Loan Agreement). 15

22 SCHEDULED DEBT SERVICE ON THE BONDS The following is the scheduled debt service on the Bonds. Interest Payment Date Principal Interest Annual Debt Service October 1, 2009 $65,000 $162, $227, April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, ,000 96, , April 1, , October 1, ,000 92, , April 1, , October 1, ,000 88, , April 1, , October 1, ,000 83, ,

23 Scheduled Debt Service on the Bonds (continued). Interest Payment Date Principal Interest Annual Debt Service April 1, 2030 $78, October 1, 2030 $155,000 78, $312, April 1, , October 1, ,000 73, , April 1, , October 1, ,000 67, , April 1, , October 1, ,000 61, , April 1, , October 1, ,000 54, , April 1, , October 1, ,000 47, , April 1, , October 1, ,000 39, , April 1, , October 1, ,000 31, ,

24 SCHEDULED DEBT SERVICE ON THE 1987 PROJECT LOAN The following is the scheduled debt service on the 1987 Project Loan. Interest Payment Date Principal Interest Annual Debt Service October 1, 2009 $65,000 $162, $227, April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, , , , April 1, , October 1, ,000 96, , April 1, , October 1, ,000 92, , April 1, , October 1, ,000 88, , April 1, , October 1, ,000 83, ,

25 Scheduled Debt Service on the 1987 Project Loan (continued). Interest Payment Date Principal Interest Annual Debt Service April 1, 2030 $78, October 1, 2030 $155,000 78, $312,285 April 1, , October 1, ,000 73, ,435 April 1, , October 1, ,000 67, ,535 April 1, , October 1, ,000 61, ,285 April 1, , October 1, ,000 54, ,985 April 1, , October 1, ,000 47, ,430 April 1, , October 1, ,000 39, ,810 April 1, , October 1, ,000 31, ,125 19

26 SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE BONDS The Bonds The Bonds are secured under an Indenture of Trust, dated as of February 1, 2009, by and between the Authority and Wells Fargo Bank, National Association, Los Angeles, California, as trustee (see APPENDIX A - SUMMARY OF CERTAIN TERMS AND THE INDENTURE ). The proceeds of the Bonds will be loaned to the Agency pursuant to the 1987 Project Loan Agreement. The Bonds are payable from loan payments to be made to the Authority under the 1987 Project Loan Agreement, from certain funds and accounts created under the Indenture, and from investment earnings thereon Project Loan payments to be made under the 1987 Project Loan Agreement are pledged to the payment of principal of and interest on the Bonds pursuant to the Indenture until the Bonds have been paid, or until sufficient moneys have been set aside irrevocably for that purpose. The Trustee will covenant to exercise such rights and remedies as may be necessary to enforce the 1987 Project Loan payments when due under the 1987 Project Loan Agreement and otherwise to attempt to protect the interests of the Bondowners in the event of default by the Authority. The Bonds are limited obligations of the Authority. The Bonds do not constitute a debt or liability of the State or of any political subdivision thereof, other than the Authority. The Authority shall be obligated to pay the principal of the Bonds and the interest thereon, only from the funds described herein and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the Bonds. The Authority has no taxing power. Reserve Fund In order to further secure the payment of principal of and interest on the Bonds, the Trustee is required to deposit in the Reserve Fund under the Indenture an amount sufficient to maintain the Reserve Requirement on deposit in the Reserve Fund. The Reserve Requirement means, in respect of any Bond Year as computed by the Authority, the least of (i) 10% of the original proceeds (within the meaning of section 148 of the Internal Revenue Code of 1986 (the Code )) of the Bonds, (ii) 125% of the average annual debt service as of the date of issuance, or (iii) the maximum annual debt service. In the event that the Agency fails to deposit with the Trustee the full amount required by the 1987 Project Loan Agreement to pay principal and interest due on the Bonds, the Trustee will withdraw from the Reserve Fund the difference between the amount required to be on deposit and the amount available on such date. Amounts in excess of the Reserve Requirement will be transferred to the Revenue Fund under the Indenture to be applied as a credit against the next succeeding loan payment under the 1987 Project Loan Agreement. REPAYMENT OF THE 1987 PROJECT LOAN Tax Allocation Financing In General. The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The taxable valuation of a redevelopment project last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies within the redevelopment project thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay bonded indebtedness approved by the voters on or after January 1, 1989, for the acquisition or improvement of real property) 20

27 (herein, the Tax Increment Revenues ) are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above indicated. Allocation of Taxes. As provided in the Redevelopment Plan of the Agency with respect to the 1987 Redevelopment Project, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the 1987 Redevelopment Project each year by or for the benefit of the State of California and any city, county, city and county, district or other public corporation (herein collectively referred to as taxing agencies ) for fiscal years beginning after the effective date of the 1987 Redevelopment Project are divided as follows: (1) To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the 1987 Redevelopment Project as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the 1987 Redevelopment Project (or ordinances approving amendments to the Redevelopment Plan adding to the 1987 Redevelopment Project), shall be allocated to, and when collected shall be paid into, the funds of the respective taxing agencies as taxes by or for said taxing agencies on all other property are paid; and (2) To the Agency: Except for the taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which shall be allocated to and when collected shall be paid to such taxing agency, that portion of said levied taxes each year in excess of the amounts provided in (1) above, shall be allocated to, and when collected, shall be paid into a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, redevelopment activities within the 1987 Redevelopment Project. Unless and until the total assessed valuation of the taxable property in the 1987 Redevelopment Project exceeds the total assessed value of the taxable property in the 1987 Redevelopment Project as shown by the last equalized assessment roll referred to in paragraph (1) above, all of the taxes levied and collected upon the taxable property in the 1987 Redevelopment Project shall be paid into the funds of the respective taxing agencies. When said bonds, loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the 1987 Redevelopment Project shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid. The Agency is authorized to make pledges of the portion of taxes mentioned in paragraph (2) above to repay specific advances, loans and indebtedness as appropriate in carrying out the Redevelopment Plan for the 1987 Redevelopment Project. Pledge of Tax Revenues The Agency has pledged a lien on Tax Revenues, as defined herein, to the repayment of the 1987 Project Loan. The pledge of Tax Revenues is on a subordinate basis with any payments required under the Agency s Loan Agreement, dated as of June 1, 2001, with respect to the 1987 Redevelopment Project (the 2001 Loan ) and relating to the Perris Public Financing Authority Tax Allocation Revenue Bonds, 2001 Series A. The pledge of Tax Revenues is on a parity basis with any payments required under the Agency s Loan Agreement, dated as of May 1, 2006, with respect to the 1987 Redevelopment Project (the 2006 Loan ) and relating to the Perris Public Financing Authority 2006 Tax Allocation Revenue Bonds (see INTRODUCTORY STATEMENT THE AGENCY - The 1987 Project Loan Authorization and INTRODUCTORY STATEMENT THE AGENCY - Outstanding Indebtedness of the 1987 Redevelopment Project herein). 21

28 Tax Revenues consist of Tax Increment Revenues from the Agency s 1987 Redevelopment Project, excluding (i) amounts required to be deposited into the Agency s Low and Moderate Income Housing Fund, (ii) the SB 2557 County Administrative fees and collection charges and (iii) amounts required to be paid pursuant to certain Pass-Through Agreements, and Statutory Tax Sharing (as described herein). The 1987 Project Loan is a limited obligation of the Agency payable solely from Tax Revenues, and further, from certain funds and accounts created under the 1987 Project Loan Agreement and investment earnings thereon. The 1987 Project Loan does not constitute a debt or liability of the State or of any political subdivision thereof or a pledge of the faith and credit of the City, the State, or any such political subdivision, other than the Agency. Neither the City, the State nor the Agency shall be obligated to pay the principal of the 1987 Project Loan, or the interest thereon, except from the funds described herein, and neither the faith and credit nor the taxing power of the City, the State or any of its political subdivisions is pledged to the payment of the principal of or the interest on the 1987 Project Loan. The Agency has no ad valorem property taxing power. Alternative Method of Tax Apportionment ( Teeter Plan ) Sections 4701 through 4717 of the California Revenue and Taxation Code permit counties to use a method of apportioning taxes (commonly referred to as the Teeter Plan ) whereby all local agencies with historical delinquency rates less that 3%, including redevelopment agencies, receive from the County 100% of their respective shares of the amount secured ad valorem taxes levied, without regard to actual collections of taxes. Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a one-time adjustment for changes in the tax roll in the following year. The County of Riverside has adopted this method of distributing taxes and will continue to do so unless the County Board of Supervisors takes action to discontinue the practice. There is no assurance that the County will continue to allocate tax revenues in this manner. If this method of distributing taxes is discontinued, significant delinquencies in the payment of ad valorem taxes may have an adverse affect on the Agencies ability to make payments under the Housing Loan as such payments come due and payable and accordingly the Authority s ability to pay debt service on the Bonds. 22

29 BONDOWNERS RISKS BEFORE PURCHASING ANY OF THE BONDS, ALL PROSPECTIVE INVESTORS AND THEIR PROFESSIONAL ADVISORS SHOULD CAREFULLY CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS, WHICH ARE NOT MEANT TO BE AN EXHAUSTIVE LISTING OF ALL RISKS ASSOCIATED WITH THE PURCHASE OF THE BONDS. MOREOVER, THE ORDER OF PRESENTATION OF THE RISK FACTORS DOES NOT NECESSARILY REFLECT THE ORDER OF THEIR IMPORTANCE. 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/or interest on the Bonds. Such risk factors include, but are not limited to, the following matters. THE BONDS General The ability of the Authority to pay the principal of and interest on the Bonds depends upon the receipt by the Trustee of sufficient Revenues from repayment of the 1987 Project Loan, amounts on deposit in the Reserve Fund and interest earnings on amounts in the funds and accounts for the Bonds established by the Indenture. A number of risks that could adversely impact the security or payment of the Bonds are outlined below. No Liability of the Authority to the Owners Except as expressly provided in the Indenture, the Authority will not have any obligation or liability to the Owners of the Bonds with respect to the payment when due of the 1987 Project Loan, or with respect to the observance or performance by the Agency of other agreements, conditions, covenants and terms required to be observed or performed by it under the 1987 Project Loan, the 1987 Project Loan Agreement, the Indenture or any related documents or with respect to the performance by the Trustee of any duty required to be performed by it under the Indenture. Loss of Tax Exemption As discussed under the caption LEGAL MATTERS - TAX EXEMPTION 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 or the Agency in violation of its covenants contained in the Indenture, the Tax and Non-Arbitrage Certificate and other documents. Should such an event of taxability occur, the Bonds are not subject to special redemption or any increase in interest rate and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Indenture. Secondary Market There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such 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. No Effective Acceleration on Default In the event of default under the Indenture, as a practical matter, Bondowners will be limited to obtaining the moneys in the Reserve Fund and enforcing the obligation of the Agency to repay the 1987 Project Loan on an annual basis to the extent of the Tax Revenues. No real or personal property in the

30 Redevelopment Project is pledged to secure the Bonds or the 1987 Project Loan and it is not anticipated that the Agency will have available moneys sufficient to redeem all of the Bonds or the 1987 Project Loan in the event of an acceleration resulting from an event of default. Enforceability of Remedies The remedies available to the Trustee and the registered owners of the Bonds upon an event of default under the Indenture or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of the legal documents with respect to the Bonds is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. THE 1987 PROJECT LOAN Risk Factors Relating to the Reduction of Tax Revenues General. Tax Increment Revenues allocated to the Agency (which constitute the principal source of repayment of the principal of and interest on the 1987 Project Loan, as discussed herein) are a portion of the taxes allocated to the Agency each year which are determined by the amount of incremental valuation of taxable property in the 1987 Redevelopment Project, the current rate or rates at which property in the 1987 Redevelopment Project is taxed and the percentage of taxes collected in the 1987 Redevelopment Project. The Agency has no taxing power, nor does the Agency have the power to affect the rate at which property is taxed. At least four types of events that are beyond the control of the Agency could occur and cause a reduction in Tax Increment Revenues arising from the 1987 Redevelopment Project, thereby impairing the ability of the Agency to make payments of principal of and interest and premium (if any) when due on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. First, a reduction of taxable values of property or tax rates in the 1987 Redevelopment Project or a reduction of the rate of increase in taxable values of property in the 1987 Redevelopment Project caused by economic or other factors beyond the Agency s control (such as a relocation out of the 1987 Redevelopment Project by one or more major property owners, successful appeals by property owners for a reduction in a property s assessed value, a reduction of the general inflationary rate, a reduction in transfers of property, construction activity or other events that permit reassessment of property at lower values, or the destruction of property caused by natural or other disasters, including earthquakes) could occur, thereby causing a reduction in Tax Increment Revenues. Second, the California electorate or legislature could adopt limitations with the effect of reducing Tax Increment Revenues payable to the Agency. Such limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. For a further description of Article XIIIA, see PROPERTY TAXATION IN CALIFORNIA -- CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES, herein. Third, a reduction in the tax rate applicable to property in the 1987 Redevelopment Project by reason of discontinuation of certain override tax levies in excess of the 1% basic levy will reduce Tax Increment Revenues otherwise available to pay debt service. Such override can be expected to decline over time until it reaches the 1% basic levy and may be discontinued at any time, which may cause a reduction in Tax Increment Revenues and consequently Tax Revenues. Fourth, delinquencies in the payment of property taxes by the owners of land in the 1987 Redevelopment Project could have an adverse effect on the Agency s ability to make timely payments of principal of and interest on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the 24

31 Bonds (see SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE 1987 PROJECT LOAN Alternative Method of Tax Apportionment ( Teeter Plan ) herein). Tax Increment Revenues allocated to the Agency are distributed throughout the year in installments, with the first major installment in December, a second major installment in April of the succeeding year and a final payment by the end of July in that year. The payments are adjusted to reflect actual collections. Any reduction in Tax Increment Revenues, and, consequently, Tax Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency s ability to make timely payments of principal of and interest on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. Reduction in Inflationary Rate. As described in greater detail herein, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. The Agency has projected Tax Increment Revenues to be received by it based, among other things, upon such 2% inflationary increases. A two percent growth rate has been assumed because it is the maximum inflationary growth rate permitted by law and this rate of growth has been achieved in all but five years since The years in which less than two percent growth was realized were (1.0%), (1.19%), (1.11%), (1.85%) and (1.867%). Should the assessed value of real property not increase at the allowed annual rate of 2%, the Agency s receipt of future Tax Increment Revenues may be adversely affected. See PROPERTY TAXATION IN CALIFORNIA - CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES herein. Property Assessment Appeals. An assessee of locally-assessed or state-assessed property may contest the taxable value enrolled by the county assessor or by the State Board of Equalization ( SBE ), respectively. The assessee of SBE-assessed property or locally-assessed personal property, the valuation of which is subject to annual reappraisal, actually is contesting the determination of the full cash value of property when filing an assessment appeal. Because of the limitations to the determination of the full cash value of locally-assessed real property by Article XIIIA (described herein), however, an assessee of locally-assessed real property generally is contesting only the original determination of the base assessment value of the parcel, i.e. the value assigned after a change of ownership or completion of new construction. At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A base assessment appeal has significant future revenue impact because a reduced base year assessment will then reduce the compounded value of the property prospectively. Except for the 2% inflation factor, the value of the property cannot be increased until a change of ownership occurs or additional improvements are added. The taxable value of utility property may be contested by utility companies and railroads to the SBE. Generally, the impact of utility appeals is on the statewide value of a utility determined by the SBE. As a result, the successful appeal of a utility may not affect the taxable value of a redevelopment project but could affect a redevelopment project s allocation of unitary property taxes. The actual impact on tax increment revenues is dependent upon the actual revised value of assessments resulting from values determined by the Riverside County Assessment Appeals Board or through litigation and the ultimate timing of successful appeals. Because the County Controller adjusts revenues to the Agency to reflect roll corrections from successful appeals, the Agency may bear the burden of appeals. The actual valuation impact to the 1987 Redevelopment Project from successful assessment appeals will occur on the assessment roll prepared after the actual valuation reduction. Within the 1987 Redevelopment Project, there have been 35 assessment appeals filed since Of the 35 appeals filed, 2 have been allowed with a reduction in value and 7 have been denied. There are 26 25

32 appeals currently pending on properties within the 1987 Redevelopment Project. Based on the historical averages, the Fiscal Consultant forecasts that 6 of the currently pending appeals will be allowed and that these successful appeals will result in an assessed value reduction of $2,254,317. This reduction has been incorporated by the Fiscal Consultant in the projection as a reduction to the assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated (see APPENDIX C FISCAL CONSULTANT REPORT ). Proposition 8 Adjustments. The assessee of locally-assessed real property also may contest the current assessment value (the base assessment value plus the compounded annual inflation factor) when specified conditions have caused the full cash value to drop below the current assessment value. Pursuant to Section 51(b) of the Revenue and Taxation Code, the assessor may place a value on the tax roll lower than the compounded base assessment value, if the full cash value of real property has been reduced by damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in the value. Reductions in value pursuant to Section 51(b), commonly referred to as Proposition 8 appeals, can be achieved either by formal appeal or administratively by assessor staff appraising the property. A reduced full cash value placed on the tax roll does not change the base assessment value. The future impact of a parcel subject to a Proposition 8 appeal is dependent upon a change in the conditions which caused the drop in value. In fiscal years subsequent to a successful Proposition 8 appeal, the assessor may determine that the value of the property has increased as a result of corrective actions or improved market conditions and enroll a value on the tax roll up to the parcel s compounded base assessment value. The Assessor completed an annual review of properties in the County, including the 1987 Redevelopment Project, and made adjustments for decline in value. Such adjustments are included in the assessment roll. There were 55 of the 347 residential parcels in the 1987 Redevelopment Project with Proposition 8 reductions resulting in a value decrease of $2,123,538. Despite this reduction, assessed value within the 1987 Redevelopment Project increased by 13.19% from Fiscal Year to Fiscal Year Levy and Collection. Neither the Agency nor the Authority has an independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Increment Revenues, and accordingly, could have an adverse impact on the ability of the Agency to pay debt service on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency s ability to make timely debt service payments. The Agency receives from the County 100% of its respective share of the secured ad valorem taxes levied, without regard to actual collections of taxes (see SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE 1987 PROJECT LOAN Alternative Method of Tax Apportionment ( Teeter Plan ) herein). Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a onetime adjustment for changes in the tax roll in the following year. However, there is no assurance that the County will continue to allocate tax revenues in this manner (see TAX INCREMENT REVENUES FORECLOSURES and TAX INCREMENT REVENUES DELINQUENCIES herein). Property Owner Bankruptcy. On July 30, 1992 the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy would not be entitled to priority over the claims of a secured creditor with a prior lien on the property. Similar results were reached by several circuit courts in other circuits. Subsequently, however, section 362(b)(18) of the Bankruptcy Code was enacted, effectively overturning this line of decisions and providing that local governments may rely on statutory property tax liens to secure payment of property taxes even after the filing of a bankruptcy petition. 26

33 Risk Factors Related to Real Estate Market Conditions Development Risks. Generally, the Agency s ability to pay debt service on the 1987 Project Loan, and, consequently, the Authority s ability to pay debt service on the Bonds, will be dependent upon the economic strength of the 1987 Redevelopment Project. The general economy of the 1987 Redevelopment Project will be subject, in part, to the development risks generally associated with real estate development projects. Development within the 1987 Redevelopment Project may be subject to unexpected delays, disruptions and changes. For example, real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market, fluctuations in interest rates, unexpected increases in development costs and by other factors. Further, real estate development operations within the 1987 Redevelopment Project could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If development in the 1987 Redevelopment Project is delayed or halted, the economy of the 1987 Redevelopment Project could be adversely affected, causing a reduction of the Tax Increment Revenues available to pay debt service on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. Current Real Estate Market Conditions. Prior to 2006, the housing market in Southern California experienced significant price appreciation and accelerated demand. Recent trends indicate the housing market has significantly weakened. Starting in 2006, home developers, appraisers and market absorption consultants began to report weakening of the new home market evidenced by (i) lower demand for new homes, (ii) significant increases in cancellation rates for homes under contract, (iii) the exit of speculators from the new home market, (iv) a growing supply of new and existing homes available for purchase, (v) increases in competition for new homes orders, (vi) prospective home buyers having a more difficult time selling their existing homes in the more competitive environment, and (vii) higher incentives required to stimulate new home orders or to induce home buyers not to cancel purchase contracts. The housing slowdown in Southern California has intensified. It has been reported that the median price of a home in the County dropped to $230,000, a 35.4% decrease from October of There were 11,714 mortgage default notices filed against homeowners within the County in the third quarter of 2008 as compared to 9,250 in the third quarter of Recent reports indicate that the housing slowdown has spread to the commercial sector. Retail sales have declined and the value of commercial property has also decreased from its peak in Decreasing land values could have an adverse affect on the Assessed Value within the 1987 Redevelopment Project and thus Tax Increment Revenues. Assessed Value represents market value of an assessed parcel as of its most recent assessment, plus a 2% per year inflation factor since such assessment. In the absence of a Proposition 8 adjustment, a new assessment of an assessed parcel to its then current market value will only occur upon a change of ownership or new construction with respect to such parcel. Therefore, in general, market value is often in excess of assessed value except for those parcels reassessed preceding the economic downturn and after the end of Adjustable Rate and Unconventional Mortgage Structures. Since the end of 2002, many persons have financed the purchase of new homes using loans with little or no down payment and with adjustable interest rates that start low and are subject to being reset at higher rates on a specified date or upon the occurrence of specified conditions. Many of these loans allow the borrower to pay interest only for an initial period, in some cases up to 10 years. Currently, in Southern California, a substantial portion of outstanding home loans are adjustable rate loans which were obtained at historically low interest rates. In the opinion of some economists, the significant increase in home prices in this time period has been driven, in part, by the ability of home purchasers to access adjustable rate and non-conventional loans. Increases in interest rates on new loans, which have resulted in increased loan payments, have contributed to a decrease in home sales as purchasers are unable to qualify for loans with higher interest rates. Such decrease in home sales has resulted in a decrease in home prices. Such reduction in home prices has resulted in recent homebuyers having loan balances that exceed the value of their homes, given their low down payments and small amount of equity in their homes. 27

34 Furthermore, there has been tightening of underwriting criteria for mortgage loans such that lenders no longer offer 100% financing or require stricter verification, higher income to loan ratio, higher credit ratios or some combination of such factors. There has also been tightening of the credit market, especially with respect to the availability of jumbo loans. As a result, potential homeowners may have difficulty finding financing and rising interest rates may price potential homeowners out of the market. In addition, many borrowers who purchased homes in recent years may not be able to access replacement financing for their adjustable rate mortgage loans, which has reset or will soon reset at a significantly higher interest rate, for a number of reasons. Many borrowers have financed 100% of the price of their home with adjustable rate loans. As home values decline, such borrowers may not be able to obtain replacement financing because the outstanding loan balances exceed the value of their homes. For the reasons discussed above, homeowners who purchased their homes with adjustable rate loans may experience difficulty in making their loan payments and paying property taxes levied on their property. According to transfer of ownership records reported by DataQuick, there have been 56 parcels within the 1987 Redevelopment Project that appear to have had foreclosure activity. Of the 56 parcels, six parcels have been sold resulting in a reduction of $190,400 in value and 50 parcels have not been sold. Risk Factors Related to Natural and Man-made Disasters The value of the assessed property in the 1987 Redevelopment Project in the future could be adversely affected by a variety of factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of assessed property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. It is possible that one or more of the conditions referenced above may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the assessed property may well depreciate or disappear. According to the Safety Element of the City s General Plan, the City is located in a seismically active region and could be impacted by a major earthquake originating from several faults in the area. Seismic hazards encompass both potential surface rupture and ground shaking. An environmental condition that may result in the reduction in the assessed value of parcels would be the discovery of a hazardous substance that would limit the beneficial use of a property within the 1987 Redevelopment Project. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner may be required to remedy a hazardous substance condition of property whether or not the owner or operator had anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the property within the 1987 Redevelopment Project be affected by a hazardous substance would be to reduce the marketability and value of the property by the costs of remedying the condition, causing a reduction of the Tax Increment Revenues available to pay debt service on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. Risk Factors Relating to State Budget Legislation In order to address State budget deficits, the Legislature enacted and the Governor has signed AB 1389 to require a $350 million shift for Fiscal Year from redevelopment agencies into a countywide Education Revenue Augmentation Fund ( ERAF ). AB 1389 does not provide for repayment of this amount to redevelopment agencies, nor does it provide for any extensions of redevelopment plan limits due to the payment by redevelopment agencies. The Low and Moderate Income Housing Revenues may 28

35 not be used to pay the amounts due pursuant to AB 1389, however, an agency may borrow up to 50% from its current year Housing Set-Aside Revenues for purposes of making the ERAF payment. The payment may come from any available Agency revenues. The ERAF payment is subordinate to debt existing at the date of enactment of AB An agency that cannot make the payment due to existing indebtedness may borrow from their legislative body. Failure to make the ERAF payment will result in penalties that effectively stop new activities of the Agency. It has been estimated the Agency will be required to pay $779,436 in Fiscal Year The Agency has set aside moneys to make its required payment. The Agency cannot predict whether future State budget legislation will divert moneys from redevelopment agencies, and the effect such diversion would have on the receipt of Tax Revenues and, accordingly, the payment of debt service on the Bonds. Risk Factors Relating to the Bonds and the Redevelopment Law 1987 Project Loan Is a Limited Obligation. The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provision of additional sources of income to taxing agencies having the effect of reducing the property tax rate must necessarily reduce the amount of Tax Increment Revenues and therefore Tax Revenues that would otherwise be available to pay the principal of, interest on and premium, if any, on the 1987 Project Loan and consequently, the Authority s ability to pay debt service on the Bonds. Redevelopment Plan Limitations on Tax Revenues. Section of the Redevelopment Law requires, in certain circumstances, a redevelopment agency to either include in the redevelopment plan or to adopt by ordinance a limitation on the amount of taxes that may be divided and allocated to the redevelopment agency with respect to the related redevelopment project. Pursuant to Section , taxes may not be allocated to a redevelopment agency beyond this limitation except by amendment of the redevelopment plan. In addition, under the provisions of Assembly Bill 1290 ( AB 1290 ), enacted by the State Legislature in 1993, a redevelopment agency may not pay indebtedness or receive property taxes pursuant to Section of the Redevelopment Law after ten years from the termination of the effectiveness of a redevelopment plan. The Redevelopment Plan for the 1987 Redevelopment Project contains such tax increment revenue limitations (see THE AGENCY THE REDEVELOPMENT PLAN Redevelopment Plan Limitations ). Risk Factors Related to Bankruptcy of the Authority and the Agency The Authority and the Agency are public agencies and, like the City, are not subject to the involuntary procedures of the Bankruptcy Code. The Authority and/or the Agency may seek voluntary protection under Chapter 9 of the Bankruptcy Code. In the event the Authority and/or the Agency were to become a debtor under the Bankruptcy Code, the Authority and/or the Agency would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 proceeding. Such a bankruptcy could adversely impact the payments under the Indenture and the 1987 Project Loan Agreement. Among the adverse effects might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the Authority and/or the Agency or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the Authority and/or the Agency; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the occurrence of unsecured or secured debt which may have priority of payment superior to that of the owners of the Bonds; and (iv) the possibility of the adoption of a plan for the adjustment of the Authority s and/or the Agency s debt without the consent of the Trustee or all of the owners of the Bonds, which plan may restructure, delay, compromise or reduce the amount of any claim against the Authority. However, the bankruptcy of the Authority, and not the Agency, should not affect the Trustee s rights under the 1987 Project Loan Agreement. The Authority could still challenge the assignment, and the Trustee and/or the owners of the Bonds may have to litigate these issues in order to protect their interests. 29

36 Risk Factors Related to Assumptions and Projections Any reduction in Tax Increment Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on Tax Revenues and on the Agency s ability to make timely payments of principal of, premium, if any, and interest on the 1987 Project Loan, which is secured by such Tax Revenues. To estimate the total Tax Revenues available to pay debt service on the Agency s obligations, the Fiscal Consultant has made certain assumptions with regard to the assessed valuation in the 1987 Redevelopment Project, future tax rates, and the percentage of taxes collected. See APPENDIX C FISCAL CONSULTANT REPORT for a full discussion of the assumptions underlying the projections set forth herein with respect to Tax Revenues. The Agency believes these assumptions to be reasonable, but to the extent that the assessed valuations, the tax rates, and the percentage of taxes collected are less than the Agency s assumptions, the total Tax Revenues available will, in all likelihood, be less than those projected herein and consequently, the Authority s ability to pay debt service on the Bonds may be adversely affected. See TAX INCREMENT REVENUES herein. 30

37 PROPERTY TAXATION IN CALIFORNIA CONSTITUTIONAL AMENDMENTS AFFECTING TAX INCREMENT REVENUES The Tax Increment Revenues include a portion of the ad valorem taxes levied on real property within the 1987 Redevelopment Project. Article XIIIA of the California Constitution limits the amount of ad valorem tax on real property to 1% of full cash value, as determined by the county assessor. Article XIIIA defines full cash value to mean the County Assessor s valuation of real property as shown on the tax bill under full cash value, or thereafter the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period. Furthermore, all real property valuation may be increased to reflect the inflationary rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues. Article XIIIB of the California Constitution limits the annual appropriations from the proceeds of taxes of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the subsequent two years. Section of the Redevelopment Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances or indebtedness incurred for redevelopment activity shall not be deemed the receipt by such agency of proceeds of taxes within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or any appropriation subject to the limitation of, any other public body within the meaning or the purpose of the Constitution and laws of the State, including Section of the Redevelopment Law. Two California appellate court decisions have upheld the constitutionality of Section 33678, and in the one case in which a petition for review was filed in the California Supreme Court, such petition was denied. IMPLEMENTING LEGISLATION Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA of $4.00 per $100 assessed valuation (based on the traditional practice of using 25% of full cash value as the assessed value for tax purposes). The legislation further provided that, for Fiscal Year only, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years. Effective as of the Fiscal Year, assessors in California no longer record property values in the tax rolls at the assessed value of 25% of market values. All taxable property value is shown at full market value. In conformity with this change in procedure, all taxable property value included in this Official Statement (except as noted) is shown at 100% of market value and all general tax rates reflect the $1 per $100 of taxable value. 31

38 Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2% annual value growth) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of base revenue from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. The Agency is unable to predict the nature or magnitude of future revenue sources which may be provided by the State to replace lost property tax revenues. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters. CONSTITUTIONAL CHALLENGES TO PROPERTY TAX SYSTEM There have been many challenges to Article XIIIA of the California Constitution. The United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency s receipt of Tax Increment Revenues should a future decision hold unconstitutional the method of assessing property. PROPERTY TAX COLLECTION PROCEDURES In California, property that is subject to ad valorem taxes is classified as secured or unsecured. The secured classification includes property on which any property tax levied by a county becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax levied by a county that becomes a lien on secured property has priority over all present and future private liens arising pursuant to State law on the secured property, regardless of the time of the creation of the other liens. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on other property owned by the taxpayer. Secured and unsecured properties are entered on separate parts of the assessment roll maintained by the county assessor. The payment of delinquent taxes with respect to property on the secured roll may be enforced only through the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. Such property may thereafter be redeemed by payment of the delinquent taxes and penalties. Unsecured personal property taxes may be collected, in the absence of timely payment by the taxpayer, through (1) a civil action against the taxpayer; (2) filing a certificate of delinquency for record in the county recorder s office, in order to obtain a lien on property of the taxpayer; (3) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer; and (4) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer. Except for property assessed by the State, the valuation of taxable property is determined as of January 1 each year, and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due February 1 and become delinquent August 31, and such taxes are levied at the prior year s secured tax rate. The valuation of State-assessed property is determined on January 1 of each year. SUPPLEMENTAL ASSESSMENTS A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change, and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provides increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Redevelopment Projects, Tax Increment Revenues and, consequently, Tax Revenues may increase. 32

39 TAX COLLECTION FEES SB 2557, enacted in 1990 (Statutes of 1990, Chapter 466), authorized county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation, SB 1559 (Chapter 697, Statutes of 1992), specifically includes redevelopment agencies among entities subject to a property tax administration charge. The projections of Tax Revenues take such administrative costs into account. UNITARY PROPERTY TAX AB 454 (Statutes of 1987, Chapter 921) provides a revised method of reporting and allocating property tax revenues generated from most State-assessed unitary properties commencing with Fiscal Year Under AB 454, the State reports to each county auditor-controller only the county-wide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor-controllers to use in order to determine the allocation of unitary property taxes generated by the county-wide unitary value, which are: (i) for revenue generated from the 1% tax rate, each jurisdiction is to receive up to 102% of its prior year unitary property Tax Increment Revenue; however, if county-wide revenues generated from unitary properties are greater than 102% of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction s share of secured property taxes; and (ii) for revenue generated from the application of the debt service tax rate to county-wide unitary taxable value, each jurisdiction is to receive a percentage share of revenue based on the jurisdiction s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State-assessed property, except railroads and non-unitary properties the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or a revision of the method of assessing utilities by the State Board of Equalization. AB 454 allows, generally, valuation growth or decline of State-assessed unitary property to be shared by all jurisdictions within a county. BUSINESS INVENTORY AND REPLACEMENT REVENUE Prior to 1979, the State reimbursed cities, counties, special districts and redevelopment agencies that portion of taxes which would have been generated by the exempted portion of business inventory value (50%). In 1979, the California Legislature enacted AB 66 (Statutes of 1979, Chapter 1150), eliminating the assessment and taxation of business inventory property and providing for replacement revenue for local agencies, except redevelopment agencies. In 1980, the California Legislature enacted AB 1994 (Statutes of 1980, Chapter 610), providing partial replacement revenue for the loss of business inventory revenues by redevelopment agencies. In 1990, the California Legislature amended Section of the California Government Code (Chapter 449, Statutes of 1990) which precludes redevelopment agencies from pledging special subvention revenues toward the payment of debt service for bonded indebtedness incurred after July 31, 1990 (the effective date of the legislation). The State Budget reduced the State s funding for the special subvention. As enacted under AB 222 (Chapter 188, Statutes of 1991), the Budget Act eliminated subvention payments for most redevelopment projects, including the 1987 Redevelopment Project. Additionally, the State Budget implemented further cuts in funding for the State s special subvention to redevelopment agencies. As a result, these revenues are not included in the projections of estimated Tax Revenues. PROPOSITION 87 Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay general obligation bonds approved by two-thirds of the voters, the redevelopment agency with a redevelopment project that includes property affected by the tax rate increase would have realized a proportionate increase in tax increment revenues. 33

40 Proposition 87, approved by the voters of the State on November 8, 1988, requires that all revenues produced by such a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity that increased the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment revenues when taxes on property in the redevelopment project are increased to repay voter-approved general obligation debt. FUTURE INITIATIVES Each of Article XIIIA, Article XIIIB and Proposition 87 was adopted as a measure that qualified for the ballot pursuant to California s initiative process. From time to time other initiative measures could be adopted, further affecting revenues of the Agency or the Agency s ability to expend revenues. The nature and impact of these measures cannot be anticipated by the Authority or the Agency. Article XIIIB. On October 6, 1979, California voters approved Proposition 4, or the Gann Initiative, which added Article XIIIB to the California Constitution. The principal thrust of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, authority or any other political subdivision of the State. The amendment includes a requirement that if an entity s revenues in any year exceed amounts permitted to be spent, the excess will be returned to the taxpayer by revising the tax override rate over the subsequent two years. To the extent such tax rates are revised, Tax Increment Revenues may be affected, since Tax Increment Revenues allocated to the Agency are a function of the combinations of tax rates levied by certain taxing agencies having jurisdiction within the Redevelopment Projects and assessments of property located within the Redevelopment Projects. 34

41 GENERAL THE AUTHORITY The Authority is a joint exercise of powers authority organized and existing under and by virtue of the Joint Powers Act. The City, pursuant to Resolution No. 1715, adopted on August 28, 1989, and the Agency, pursuant to Resolution No. 120, adopted on August 28, 1989, formed the Authority by the execution of a Joint Exercise of Powers Agreement (the Joint Powers Agreement ). The Authority is governed by a five-member board which consists of all members of the City Council. The Mayor of the City is appointed the Chairperson of the Authority. The City Manager acts as the Executive Director, the City Clerk acts as the Secretary and the Assistant City Manager acts as the Assistant Executive Director and Treasurer of the Authority. The Bond Law provides for the issuance of revenue bonds of joint exercise of powers authorities, such as the Authority, to be repaid solely from the revenues of certain public obligations, such as the Bonds. The Authority has no taxing power. The Authority is authorized to finance or refinance indebtedness in connection with public capital improvements undertaken and completed by making loans for such purposes. The Authority, since its formation in 1989, has been used to facilitate financing and refinancing for public capital improvements, similar to its use in the case of the Bonds to facilitate financing of the 1987 Project Loan. AUTHORIZATION The Bonds The Bonds are to be issued and secured pursuant to the Indenture, and are to be sold to the Underwriter, as authorized by a resolution adopted on October 28, The Bonds are being sold to provide moneys to enable the Authority to fund the 1987 Project Loan. The Authority authorized the funding of the 1987 Project Loan pursuant to a resolution, adopted October 28, The Bonds are also issued in accordance with the laws of the State, and particularly the Marks-Roos Local Bond Pooling Act of 1985, as amended, constituting Article 4 (commencing with Section 6584), of Chapter 5, Division 7, Title 1 of the Government Code of the State. The 1987 Project Loan The 1987 Project Loan was authorized by a resolution of the Agency, adopted on October 28, The 1987 Project Loan is governed by the laws of the State, and particularly the Community Redevelopment Law of the State, constituting Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the Redevelopment Law ). AUTHORITY FINANCIAL STATEMENTS The Authority, as required by the California Government Code, conducts an annual audit. The minimum requirements of the audit are required to be those prescribed by the State Controller for special districts and are required to conform to generally accepted auditing standards. DEBT SERVICE COVERAGE ON THE AUTHORITY BONDS The Bonds are special obligations of the Authority payable solely from and secured by revenues from repayment of the 1987 Project Loan, and certain funds and accounts established under the Indenture. The receipt of revenues from repayment of the 1987 Project Loan is subject to several variables described herein (see BONDOWNERS RISKS THE 1987 PROJECT LOAN herein). The District provides no assurance that the Revenues and the coverage ratios shown will be achieved. 35

42 TABLE NO. 1 PERRIS PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS (1987 PROJECT LOAN), 2009 Series A DEBT SERVICE COVERAGE Bond Year Debt Service Payments on the 1987 Project Loan Debt Service Payments on the Bonds Coverage Ratio 2009 $227,818 $227, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

43 GOVERNMENT ORGANIZATION THE AGENCY The Agency is a public body, corporate and politic, existing under and by virtue of the California Community Redevelopment Law, being Part 1 of Division 24 (commencing with Section 33000) of the Health and Safety Code of the State (the Redevelopment Law ). The Agency was activated in 1965, and is governed by a five-member board (the Agency Governing Board ) which consists of all members of the City Council. The Chairman and Vice Chairman are appointed to a one-year term by the Agency Governing Board from among its members. The Agency s members and term expiration dates are as follows: Council Member Term Expires Daryl Busch, Chairperson and Mayor December 2012 Al Landers, Vice Chairperson and Mayor Pro Tem December 2010 Joanne H. Evans, Board Member and Council Member December 2012 Raul (Mark) Yarbrough, Board Member and Council Member December 2010 Rita Rogers, Board Member and Council Member December 2012 The City performs certain general administrative functions for the Agency. The City Manager serves as the Agency s Executive Director, the City Clerk serves as Agency Secretary and the City s Assistant City Manager serves as Assistant Executive Director and Agency Treasurer. The costs of such functions, as well as additional services performed by City staff are allocated annually to the Agency. The Agency reimburses the City for such allocated costs out of available Tax Increment Revenues. Such reimbursement is subordinate to any outstanding loans and indebtedness of the Agency. Current City Staff assigned to administer the Agency include: Richard Belmudez, Executive Director and City Manager Ron Carr, Assistant Executive Director, Agency Treasurer and Assistant City Manager Habib Motlagh, City Engineer Eric Dunn, Authority and Agency Counsel and City Attorney AGENCY POWERS All powers of the Agency are vested in its members. Pursuant to the Redevelopment Law, the Agency is a separate public body and exercises governmental functions, including planning and implementing redevelopment projects. The Agency may exercise the right to issue or incur loans, advances or other indebtedness for authorized purposes and to expend their proceeds, and the right to acquire, sell, rehabilitate, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks and utilities, and can further prepare for use as a building site any real property which it owns or administers. The Agency may, from any funds made available to it for such purposes, pay for all or part of the value of land and the cost of buildings, facilities or other improvements to be publicly owned and operated, provided that such improvements are of benefit to a redevelopment project and cannot be financed by any other reasonable method. The Agency may not construct or develop buildings, with the exception of public buildings and housing, and must sell or lease cleared property which it acquires within a 37

44 redevelopment project for redevelopment in conformity with a particular redevelopment plan, and may further specify a period within which such redevelopment must begin and be completed. THE REDEVELOPMENT PLAN General Under the Redevelopment Law the City Council is required to adopt, by ordinance, a redevelopment plan for each redevelopment project. A redevelopment agency may only undertake those activities within a redevelopment project specifically authorized in the adopted redevelopment plan. A redevelopment plan is a legal document, the content of which is largely prescribed in the Redevelopment Law rather than a plan in the customary sense of the word. The general objective of each of the Agency s redevelopment plans is to encourage investment in the Redevelopment Projects by the private sector. The redevelopment plans provide for the acquisition of property, the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The redevelopment plans also allow the redevelopment of land by private enterprise, the rehabilitation of structures, the rehabilitation or construction of low and moderate income housing, and participation by owners and the tenants of properties in the Redevelopment Projects. Redevelopment Plan Limitations The applicable Redevelopment Plan limitations for the 1987 Redevelopment Project are shown on the following table and are discussed below: TABLE NO. 2 REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT REDEVELOPMENT PLAN LIMITATIONS Redevelopment Plan Expiration Last Date to Incur New Debt Last Date to Repay Debt with Tax Increment Revenues Tax Increment Revenues Limit Limit on Total Tax Increment Revenues Bond Debt June 28, 2028 Eliminated June 28, 2038 $355 million $87 million Redevelopment Plan Expiration. Chapter 942, Statutes of 1993, as codified in Section of the Redevelopment Law, limits the life of redevelopment plans adopted prior to January 1, 1994, to 40 years from the date of adoption or January 1, 2009, whichever is later. In the case of the 1987 Redevelopment Project the Redevelopment Plan expiration date was June 28, In enacting Senate Bill 1045 ( SB 1045 ), the State Legislature amended Section of the Redevelopment Law. Section (e) of the Redevelopment Law now provides that the City Council may adopt an ordinance to extend the limits by one additional year. Pursuant to SB 1045, the City Council adopted an Ordinance on September 27, 2005, to extend the term of the Redevelopment Plan of the 1987 Redevelopment Project by one year (until June 28, 2028). Senate Bill 1096 ( SB 1096 ) further amended Section (e) of the Redevelopment Law to provide that the City Council may adopt an ordinance to extend the limits for certain redevelopment projects by an additional year for each year that a payment was made to ERAF (2 years maximum) by a redevelopment agency. However, to qualify under SB 1096, a redevelopment plan must meet one of the following criteria: 38

45 1. SB 1096 provides that for redevelopment plans with less than twenty years of time remaining prior to expiration from June 30, 2005, the redevelopment plans may be extended by one year for each year that the required ERAF payment was made. 2. SB 1096 provides that if a redevelopment plan has more than ten years but less than twenty years of time remaining prior to expiration of the redevelopment plan, the time limit may be extended only if certain findings are made by the City Council. 3. If a redevelopment project has less than ten years remaining before the expiration of the redevelopment plan, the time limit may be extended without making specific findings. As of June 30, 2005, the 1987 Redevelopment Project did not meet any of the criteria of SB 1096 for extension of the time limits of Section (e). Receipt of Tax Increment Time Limits In addition, under the provisions of Assembly Bill 1290 ( AB 1290 )` enacted by the State Legislature in 1993, Chapter 942, Statutes of 1993, as codified in Section of the Redevelopment Law, a redevelopment agency may not pay indebtedness or receive property taxes pursuant to Section of the Redevelopment Law after ten years from the termination of the redevelopment plan except to accommodate certain specific low and moderate income housing fund obligations or to pay debt service on bonds, indebtedness or other financial obligations authorized prior to January 1, Pursuant to SB 1045, the City Council adopted an Ordinance on September 27, 2005, to extend the term of redevelopment plan of the 1987 Redevelopment Project by one year. This extension in turn extended the period within which the 1987 Redevelopment Project may repay indebtedness by one year or until June 28, Time Limit on Incurring Indebtedness For redevelopment plans adopted prior to 1994, Chapter 942, Statutes of 1993, as codified in Section of the Redevelopment Law, stipulates that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan or January 1, 2004, whichever is later. Pursuant to Senate Bill 211, which was signed into law as Chapter 741, Statutes of 2001, a city council may amend a redevelopment plan to eliminate the time limit to establish indebtedness in redevelopment projects adopted prior to January 1, 1994, by ordinance. If the redevelopment plan is so amended, existing tax sharing agreements will continue and certain statutory tax sharing for entities without passthrough agreements will be required beginning in the fiscal year following the year the eliminated limit would have taken effect. On September 30, 2008, the City Council amended the redevelopment plan to eliminate the time limit on establishment of indebtedness by Ordinance No Limitation on the Amount of Tax Increment Receipts Sections and of the Redevelopment Law require each redevelopment agency to either include in each redevelopment plan or to adopt by ordinance a limitation on the amount of taxes that may be divided and allocated to the redevelopment agency with respect to the related redevelopment project. Pursuant to Section , taxes may not be allocated to a redevelopment agency beyond this limitation except by amendment of the redevelopment plan. The aggregate amount of Tax Increment Revenues that may be collected by the Agency for the 1987 Redevelopment Project is $355 million. The Fiscal Consultant reports that if assessed values were to grow at a future annual rate of 7.15%, the 1987 Redevelopment Project would reach the cumulative tax increment revenue limit in Fiscal Year (the final date on which the Agency is authorized to collect tax increment revenues and repay indebtedness is June 28, 2038). In order to ensure sufficient Tax Revenues to pay debt service on the Bonds, the Agency has covenanted as follows in the Indenture: 39

46 The Agency shall annually review, prior to the release of surplus Tax Revenues, tax increment revenues allocable to it under then current Redevelopment Law that have been received since the inception of the Redevelopment Plan and measure such revenues against the Agency s then effective cumulative tax increment limitation. If remaining revenues allocable with the plan limit are less than 105% of all future debt service and other obligations, all revenues not needed to pay debt service or replenish the reserve account shall be deposited into a Trustee-held escrow account and invested in Defeasance Securities. Such account shall be sufficient to and shall be used to call bonds or pay debt service without regard to interest earnings thereon. Limit on the Amount of Bonded Indebtedness Redevelopment plans of an agency are required to include a limit on the amount of bonded indebtedness to be repaid with tax increment revenues that can be outstanding at one time. These limits can be extended only by an amendment of the redevelopment plan. The limit on the amount of bonded indebtedness for the 1987 Redevelopment Project is $87 million. The amount of bonded indebtedness currently outstanding prior to the issuance of the Bonds is $8,980,000. AGENCY FINANCIAL ADMINISTRATION Annual Budget The law requires redevelopment agencies to adopt an annual budget containing the following: (1) The proposed expenditures of the agency. (2) The proposed indebtedness to be incurred by the agency. (3) The anticipated revenues of the agency. (4) The work program for the coming year, including goals. (5) An examination of the previous years achievements and a comparison of the achievements with the goals of the previous years work program. All expenditures and indebtedness of the Agency is required to be in conformity with the adopted or amended budget. The Executive Director of the Agency is responsible for preparing the proposed budget and submitting it to the Agency Governing Board. After reviewing the proposed budget at a public meeting, the Agency Governing Board holds a public hearing. The Agency Governing Board adopts the budget prior to the start of each fiscal year. The Finance Director of the City is responsible for controlling expenditures within budgeted appropriations. Agency Accounting Records and Financial Statements Every redevelopment agency is required to present an annual report to its legislative body within six months of the end of the fiscal year. The annual report is required, among other things, to include an independent financial audit report and a fiscal statement for the previous fiscal year. The California Health and Safety Code defines audit report to mean an examination of and opinion on the financial statements of the agency which presents the results of the operations and financial position of the agency. The independent financial audit is required to be conducted in accordance with generally accepted auditing standards and the rules governing audit reports promulgated by the Governmental Accounting Standards Board. The independent financial audit report is also required to include an opinion of the agency s compliance with laws, regulations and administrative requirements governing activities of the agency. The California Health and Safety Code requires the fiscal statement to contain the following information: (1) The amount of outstanding indebtedness of the Agency and each redevelopment project. 40

47 (2) The amount of Tax Increment Revenues (including Unitary Tax Revenues) generated in the Agency and in each redevelopment project. (3) The amount of Tax Increment Revenues (including Unitary Tax Revenues) paid to a taxing agency pursuant to a tax sharing agreement, other than school or community college district. (4) The financial transactions report required to be submitted to the State Controller. (5) The amount allotted to school or community college districts pursuant to the Redevelopment Law. (6) The amount of existing indebtedness and the total amount of payments required to be paid on existing indebtedness for that fiscal year. (7) Any other fiscal information which the Agency believes is useful to describe its programs. The 1987 Project Loan Agreement requires the Agency to keep, or cause to be kept, proper books and accounts separate from all other records and accounts of the Agency and the City in which complete and correct entries are made of all transactions relating to the 1987 Redevelopment Project and the Tax Increment Revenues. The 1987 Project Loan Agreement requires the Agency to file with the Trustee annually, within 180 days after the close of each fiscal year, its audited financial statements showing the Tax Increment Revenues and the financial condition of the 1987 Redevelopment Project, including the balances in all funds and accounts related to the 1987 Redevelopment Project as of the end of such fiscal year. The audited financial statements are required to be accompanied by a Written Certificate of the Agency stating that the Agency is in compliance with its obligations under the 1987 Project Loan Agreement. The Agency covenants under the 1987 Project Loan Agreement to furnish a copy of such statements upon reasonable request to any Bondowner. Annual Financial Report The Agency retained the firm of Teaman, Ramirez & Smith, Certified Public Accountants, Riverside, California, to examine the component unit financial statements of the Agency as of and for the fiscal year ended June 30, 2008, which is included as APPENDIX D. The firm s examination was made in accordance with generally accepted auditing standards and the Guidelines for Compliance Audits of California Redevelopment Agencies issued by the State Controller. Filing of Statement of Indebtedness Section of the Redevelopment Law requires that the Agency file, not later than the first day of October of each year with the county auditor, a statement of indebtedness certified by the chief financial officer of the Agency for each redevelopment project for which the redevelopment plan provides for the division of taxes pursuant to Section of the Redevelopment Law. The statement of indebtedness is required to contain, among other things, the date on which the bonds were delivered, the principal amount, term, purpose, interest rate and total interest of the bonds, the principal amount and the interest due in the fiscal year in which the statement of indebtedness is filed and the outstanding balance and amount due on the bonds. Similar information must be given for each loan, advance or indebtedness that the Agency has incurred or entered into which is payable from tax increment revenues. As amended by Assembly Bill 1290 (Statutes of 1993, Chapter 942) ( AB 1290 ), Section of the Redevelopment Law requires each redevelopment agency to file a reconciliation statement for each redevelopment project for which the redevelopment agency receives tax increment revenues pursuant to Section of the Redevelopment Law. The reconciliation statement is to show, among other things, (i) for each loan, advance or indebtedness, for each redevelopment project, the total debt service obligations of the redevelopment agency to be paid in the fiscal year for which the statement of indebtedness is filed; (ii) the total debt service remaining to be paid on such indebtedness; and (iii) the available revenues as of the end of that fiscal year. Available revenues consist of all Tax Increment Revenues held by the redevelopment agency as cash or cash equivalents and all cash or cash equivalents held by the redevelopment agency that are irrevocably pledged or restricted to payment of a loan, 41

48 advance or indebtedness that the redevelopment agency has listed on a statement of indebtedness. For purposes of Section of the Redevelopment Law, amounts held in a redevelopment agency s Low and Moderate Income Housing Fund do not constitute available revenues, and amounts deposited by a redevelopment agency in its Low and Moderate Income Housing Fund constitute indebtedness of the redevelopment agency. Section 33675(g) of the Redevelopment Law has been amended by AB 1290 to provide that payments of Tax Increment Revenues from the county auditor to a redevelopment agency may not exceed the redevelopment agency s aggregate total outstanding debt service obligations, minus the available revenues of the redevelopment agency, as shown on the reconciliation statement. Payments to a trustee under a bond resolution or indenture or payments to a public agency in connection with payments by such public agency pursuant to a bond issue shall not be disputed in any action under Section of the Redevelopment Law. The Agency believes that the amendments to Section of the Redevelopment Law limiting the payment of Tax Increment Revenues to an amount not greater than the difference between a redevelopment agency s total outstanding debt obligations and total available revenues, as reported on the redevelopment agency s reconciliation statement, will not have an adverse impact on the Agency s ability to meet its debt service obligations. 42

49 GENERAL THE 1987 REDEVELOPMENT PROJECT The Perris City Council adopted the redevelopment plan establishing the 1987 Redevelopment Project by Ordinance No. 687 on June 28, The redevelopment plan was subsequently amended by Ordinance No. 996 on December 12, On September 27, 2005, by the adoption of Ordinance No. 1171, the City Council amended the redevelopment plan pursuant to Senate Bill 1045 by extending by one year the duration of the redevelopment plan and the time frame to collect tax increment revenues. On February 14, 2006 the redevelopment plan was amended to reinstate eminent domain. On September 30, 2008, the City Council amended the redevelopment plan to eliminate the time limit on establishment of indebtedness by Ordinance No (see THE AGENCY THE REDEVELOPMENT PLAN Redevelopment Plan Limitations ). The 1987 Redevelopment Project is an area of approximately 2,030 acres, divided between four noncontiguous areas throughout the City. The Ramona Expressway Subarea consists of 1,050 acres of industrial/commercial property, some with freeway visibility. Access to the southern portion of the subarea from Interstate 215 (I-215) is via the Ramona Expressway interchange and through the central portion via the Oleander Avenue interchange. The subarea is bounded to the north by March Air Reserve Base. The land use in this area is designated 85% for general and light industrial uses, and the remaining 150 acres fronting the freeway are designated for commercial uses. The Goetz Road Subarea encompasses 547 acres in the southern portion of the City and is bordered by an Atchison, Topeka and Santa Fe rail line. The 85-acre Perris Valley Airport is located in the Goetz Road Subarea as is the Orange Empire Railway Museum. The East San Jacinto Avenue Subarea comprises 96 acres of commercial property with freeway access and visibility. The existing development includes a retail center constructed in The West Fourth Street Subarea is located in the west-central portion of the City, bisected east to west by Highway 74 (Fourth Street) and paralleled on the east by the Atchison, Topeka and Santa Fe rail line. The subarea is developed with older residential neighborhoods comprised of one- and two-story single family homes with small neighborhood commercial strip centers. The subarea also contains the western fringe of the City s commercial downtown area. Fourth Street (Highway 74) links the Perris Valley with Lake Elsinore to the west and Hemet to the east. ASSESSED VALUE BY LAND USE The following table represents the breakdown of land use in the 1987 Redevelopment Project by assessed value for Fiscal Year Unsecured and SBE Non-Unitary values are assigned to secured parcels already accounted for in the other land use categories and do not, therefore, have numbers of parcels listed. 43

50 TABLE NO. 3 REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT ASSESSED VALUES BY LAND USE CATEGORY Category Parcels Assessed Value Percentage Residential 347 $54,273, % Commercial 39 25,773, % Industrial 53 80,934, % Dry Farm 7 7,730, % Institutional 4 1,205, % Vacant Land ,141, % Miscellaneous 3 1,688, % Exempt % Possessory Int. [5] 106, % Unsecured [111] 36,365, % Totals: 999 $311,219, % Source: Fiscal Consultant Report (see Appendix C Fiscal Consultant Report ). 44

51 TOP TEN TAXABLE PROPERTY OWNERS Set forth in the table below are the ten largest property taxpayers for the 1987 Redevelopment Project for Fiscal Year TABLE NO. 4 REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT TEN LARGEST PROPERTY TAXPAYERS (SECURED AND UNSECURED) Property Owner Assessed Value % of Redevelopment Project Assessed Value % of Redevelopment Project Incremental Value Primary Land Use (Planned Land Use) 1. Oakmont Ramona Expressway $25,365, % 8.97% Vacant Land/ (five buildings planned approx 1.6 million Sq. Ft.) 2. CR&R Inc. 20,151, % 7.13% CR&R Waste Services 3. WLPX Perris Venue LLC 10,259, % 3.63% Vacant Land (Target Center projected opening ,000 sq. ft. of retail) 4. Fr California Goetz 7,140, % 2.53% (Planned First Perris Airport Distribution Center 769,000 sq. ft.) 5. Fr California Perris 7,042, % 2.49% Perris Ranch Business Park 61,700 sq. ft. 6. Nic Oleander 6,768, % 2.39% Vacant Land (Industrial) Malbert 5,854, % 2.07% Timber Towne Furniture showroom and manufacturing facility 8. James Mark Dakan 4,791, % 1.69% Inland Boat & RV 9. Safar & Safar Brothers Inc. 4,645, % 1.64% Arco Gas & AM/PM Mini Mart 10. Magnolia Industrial Park 4,437, % 1.57% Vacant Land (Industrial) $96,455, % 34.11% Source: Fiscal Consultant. 45

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57 TAX INCREMENT REVENUES HISTORICAL TAXABLE VALUATIONS The Agency s source of Tax Increment Revenues and consequently Tax Revenues pledged to pay debt service on the 1987 Project Loan is the Tax Increment Revenues from the 1987 Redevelopment Project as reported by the Riverside Auditor-Controller s office. The following table provides a summary of the historical taxable values for the 1987 Redevelopment Project for Fiscal Years through TABLE NO. 5 REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT HISTORICAL VALUES Secured (1) Land $58,531,314 $73,100,869 $97,180,771 $143,281,436 $160,453,585 Improvements 52,659,597 59,304,435 72,273,494 96,821, ,586,615 Personal Prop 5,230,350 6,009,207 8,910,342 12,722,473 14,764,457 Exemptions (2,434,171) (2,528,694) (2,655,578) (4,700,117) (4,950,979) TOTAL SECURED $113,987,090 $135,885,817 $175,709,029 $248,124,799 $274,853,678 Unsecured Land $230,901 $160,226 $70,643 $65,620 $63,994 Improvements 6,734,765 8,300,421 9,601,467 7,746,446 11,329,825 Personal Prop 9,019,033 13,403,333 23,308,303 22,939,967 25,737,089 Exemptions (91,400) _(160,000) (424,800) (623,600) (765,100) TOTAL UNSECURED $15,893,299 $21,703,980 $32,555,613 $30,128,433 $36,365,808 GRAND TOTAL $129,880,389 $157,589,797 $208,264,642 $278,253,232 $311,219,486 Incremental Value $101,475,043 $129,184,451 $179,859,296 $249,847,886 $282,814,140 Annual Change 11.77% 27.31% 39.23% 38.91% 13.19% (1) Secured values include state assessed non-unitary utility property. Source: County of Riverside County Lien Date Rolls. ASSESSMENT APPEALS Historically only a small percentage of requested appeals have been granted. While the outcome of pending appeals cannot be determined in advance, the Fiscal Consultant has estimated the assessed value reduction that may result from the pending appeals based on an analysis of pending and historical appeals data (see APPENDIX C FISCAL CONSULTANT REPORT ). Within the 1987 Redevelopment Project, there have been 35 assessment appeals filed since Of the 35 appeals filed, 2 have been allowed with a reduction in value and 7 have been denied. There are 26 appeals currently pending on properties within the 1987 Redevelopment Project. Based on the historical averages, the Fiscal Consultant expects that 6 of the currently pending appeals will be allowed and that these successful appeals will result in an assessed value reduction of $2,254,317. This reduction has 51

58 been incorporated by the Fiscal Consultant in the projection as a reduction to the assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated. PROPOSITION 8 ADJUSTMENTS In 1978, California voters passed Proposition 8. This constitutional amendment allows a temporary reduction in assessed value when a property suffers a decline in value. A decline in value occurs when the current market value of a property is less than the current assessed value as of the lien date. Under the terms of Proposition 8, it is the Assessor s obligation to assess all properties at the lesser of current market value or at the property s base value as adjusted for inflation and for any changes that have occurred to the property since it was last purchased. Properties that have their values reduced to the current market value are annually reviewed by the Assessor to determine the new market value of the property. The value that is enrolled each year is the lesser of the current market value or the property s adjusted base value. Adjusting the property s value to the current market value may entail a further decrease in value or an increase in value that is not limited by constitutional restriction on annual value increases. Once the property has again reached its adjusted base value, it may be increased in value only by the rate of inflation to a maximum annual rate of two percent as required by the State constitution. The Assessor completed an annual review of properties in the County, including the 1987 Redevelopment Project, and made adjustments for decline in value. Such adjustments are included in the Fiscal Year assessment roll. There were 55 of the 347 residential parcels in the 1987 Redevelopment Project with Proposition 8 reductions resulting in a value decrease of $2,123,538. Despite this reduction, assessed value within the 1987 Redevelopment Project grew by 13.19% (see APPENDIX C FISCAL CONSULTANT REPORT ). TRANSFERS OF OWNERSHIP Within the 1987 Redevelopment Project, 10 transfers of ownership occurred between January 1, 2008 and July 1, These transfers of ownership are expected to result in a decrease of value in the amount of $149,576 to the Fiscal Year tax roll for the 1987 Redevelopment Project (see APPENDIX C FISCAL CONSULTANT REPORT ). FORECLOSURES To the extent properties in foreclosure are sold for amounts less than their assessed value, Tax Increment Revenues could be reduced. According to transfer of ownership reported by DataQuick, there have been 11 parcels within the 1987 Redevelopment Project that appear to have foreclosure activity. All 11 parcels are yet to be sold. The sales values on these transfers of ownership are expected to be reflected in the tax rolls for Fiscal Year Based on data provided by DataQuick, the 11 parcels in foreclosure yet to be sold may result in a reduction of $642,822 in assessed value. The impact of these transfers is included in the Projections by the Fiscal Consultant of Incremental Taxable Value and Tax Increment Revenue (see APPENDIX C FISCAL CONSULTANT REPORT ). DELINQUENCIES The Agency receives from the County 100% of its respective share of the secured ad valorem taxes levied, without regard to actual collections of taxes (see SOURCES OF PAYMENT FOR THE BONDS REPAYMENT OF THE 1987 PROJECT LOAN Alternative Method of Tax Apportionment ( Teeter Plan ) herein). Due to this allocation method, the Agency is held harmless from tax delinquencies and, as a consequence, the Agency receives no adjustments for redemption payments of delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. The County makes a one- 52

59 time adjustment for changes in the tax roll in the following year. However, there is no assurance that the County will continue to allocate tax revenues in this manner. If the County does not allocate taxes in accordance with its Teeter Plan, tax delinquencies could cause temporary disruptions of the receipt of Tax Increment Revenues to the extent delinquencies exceeded redemption payments of delinquent collections. PASS-THROUGH AGREEMENTS AND STATUTORY PAYMENTS Prior to the enactment of Assembly Bill 1290 ( AB 1290 ), enacted by the State Legislature in 1993, under the Redevelopment Law a redevelopment agency could enter into an agreement to pay tax increment revenues to any taxing agency that has territory located within a redevelopment project in an amount which in the agency s determination was appropriate to alleviate any financial burden or detriment caused by the redevelopment project. These agreements normally provide for a pass-through of tax increment revenue directed to the affected taxing agency, and, therefore, are commonly referred to as pass-through agreements. The Agency has entered into pass-through agreements with respect to Tax Increment Revenues relating to the 1987 Redevelopment Project. Although AB 1290 prohibits redevelopment agencies from entering into pass-through agreements, AB 1290 does not affect existing pass-through agreements. In place of such agreements, AB 1290 provides a statutory formula for the allocation of tax increment revenues ( Statutory Tax Sharing ), which formula applies to all redevelopment projects created after enactment of AB 1290 and to territory that is added to existing redevelopment projects (see APPENDIX C FISCAL CONSULTANT REPORT ). Pass-Though Agreements The Agency has the following pass-through agreements with respect to the 1987 Redevelopment Project: 1. Riverside County Pursuant to the pass-through agreement with Riverside County, the County receives approximately 24.68% of the 1% General Levy (the County Share). In each year in which Tax Increment Revenues are $700,000 or less, the Agency will receive 100% of the County Share; in each year in which Tax Increment Revenues are between $700,000 and $1,500,000, the Agency will receive 75% of the County Share; in each year in which Tax Increment Revenues are between $1,500,000 and $3,500,000 the Agency will receive 50% of the County Share; in each year in which Tax Increment Revenues are between $3,500,000 and $6,000,000, the Agency will receive 25% of the County Share; and in each year in which Tax Increment Revenues are $6,000,000 or more, the Agency will not receive any portion of the County Share. The Agency must reimburse the County for each year in which the County did not receive 100% of the County Share. Such reimbursement will commence in the fiscal year following the year in which the Agency receives $6,000,000 in annual Tax Increment Revenues, and will continue for 15 equal annual installments. The reimbursement of the County Share will be net of any amounts deposited by the Agency into the I-215 Interchange Account. For any year in which the County deposits funds to the County s I-215 Interchange Account, the Agency is required to make a similar deposit. This fund is to provide for the construction of a freeway interchange at the I-215 and Placentia Road in Perris. The County and the Agency are currently seeking alternative funding and plan to construct the interchange. The Agency has covenanted to satisfy its obligation to the I-215 Interchange Account. 2. Riverside County Flood Control District Pursuant to the pass-through agreement with the Riverside County Flood Control District (the Flood Control District ), the Flood Control District receives approximately 4.27% of the 1% General Levy (the Flood Control District Share ). The Agency will be allocated 100% of the Flood Control District Share, but to be used only for operational and maintenance costs expended by the Flood Control District and certain drainage and flood control improvements authorized pursuant to the pass-through agreement. The entire Flood Control District Share has been deducted from projected Tax Revenues to be set aside by the Agency for these authorized expenditures. 53

60 3. Eastern Municipal Water District Pursuant to the pass-through agreement with the Eastern Municipal Water District ( EMWD ), EMWD receives approximately 5.01% of the 1% General Levy (the EMWD Share ). Pursuant to the passthrough agreement, the Agency received 100% of the EMWD Share during the first five years of the 1987 Redevelopment Project. Beginning with the sixth year, EMWD received 80% of the EMWD Share and the Agency reimbursed 80% of the EMWD Share collected in the first five years, such reimbursement to be paid in 30 equal installments of $1,999 each. Thirteen annual installments have been paid to date. EMWD also receives any Tax Increment Revenues generated by the tax override levied to service any EMWD indebtedness. 4. Perris Union High School Pursuant to the pass-through agreement with the Perris Union High School ( Perris Union ), Perris Union receives approximately 13.47% of the 1% General Levy (the Perris Union Share ). The Perris Union Share is distributed 30% to Perris Union, 5% to the Perris Union Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Perris Union Share to Perris Union for Tax Increment Revenues generated from the development of excess Perris Union School Property within the 1987 Redevelopment Project. Perris Union also receives any Tax Increment Revenues generated by the tax override levied to service any Perris Union indebtedness. 5. Riverside Community College District Pursuant to the pass-through agreement with the Riverside Community College District ( RCC ), RCC receives approximately 2.48% of the 1% General Levy (the RCC Share ). The RCC Share is distributed 35% to RCC and 65% to the Agency. The Agency will also pay an additional 15% of the RCC Share to RCC for Tax Increment Revenues generated from the development of excess RCC School Property within the 1987 Redevelopment Project. RCC also receives any Tax Increment Revenues generated by the tax override levied to service any RCC indebtedness. 6. Mt. San Jacinto Community College District Pursuant to the pass-through agreement with the Mt. San Jacinto Community College District ( SJCC ), SJCC receives approximately 1.69% of the 1% General Levy (the SJCC Share ). The SJCC Share is distributed 35% to SJCC and 65% to the Agency. The Agency will also pay an additional 15% of the SJCC Share to SJCC for Tax Increment Revenues generated from the development of excess SJCC School Property within the 1987 Redevelopment Project. SJCC also receives any Tax Increment Revenues generated by the tax override levied to service any SJCC indebtedness. 54

61 7. Riverside County Office of Education Pursuant to the pass-through agreement with the Riverside County Office of Education ( Office of Education ), the Office of Education receives approximately 3.80% of the 1% General Levy (the Office of Education Share ). The Office of Education Share is distributed 35% to Office of Education and 65% to the Agency. The Agency will also pay an additional 15% of the Office of Education Share to Office of Education for Tax Increment Revenues generated from the development of excess Office of Education School Property within the 1987 Redevelopment Project. Office of Education also receives any Tax Increment Revenues generated by the tax override levied to service any Office of Education indebtedness. 8. Perris Elementary School Pursuant to the pass-through agreement with the Perris Elementary School ( Perris Elementary ), Perris Elementary receives approximately 11.81% of the 1% General Levy (the Perris Elementary Share ). The Perris Elementary Share is distributed 30% to Perris Elementary, 5% to the Perris Elementary Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Perris Elementary Share to Perris Elementary for Tax Increment Revenues generated from the development of excess Perris Elementary School Property within the 1987 Redevelopment Project. Perris Elementary also receives any Tax Increment Revenues generated by the tax override levied to service any Perris Elementary indebtedness. 9. Val Verde Elementary School Pursuant to the pass-through agreement with the Val Verde Elementary School ( Val Verde Elementary ), Val Verde Elementary receives approximately 12.55% of the 1% General Levy (the Val Verde Elementary Share ). The Val Verde Elementary Share is distributed 30% to Val Verde Elementary, 5% to the Val Verde Elementary Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Val Verde Elementary Share to Val Verde Elementary for Tax Increment Revenues generated from the development of excess Val Verde Elementary School Property within the 1987 Redevelopment Project. Val Verde Elementary also receives any Tax Increment Revenues generated by the tax override levied to service any Val Verde Elementary indebtedness. 10. Romoland School District Romoland School District receives approximately % of the 1% General Levy (the Romoland Share ) net of housing set-aside. Statutory Tax Sharing Pursuant to Section of the Health and Safety Code, for redevelopment projects adopted prior to January 1, 1994, any amendment that increases the amount of tax increment revenues to be received by a redevelopment project or extends any of the measure s required time limits triggers payments to taxing entities with whom the agency does not have a pass-through agreement. The AB 1290 payments, which are to begin the fiscal year following the year that the redevelopment project s original plan limitations would have taken effect, are calculated using the increase in assessed value above the amount of assessed value in the redevelopment project in the year that the former limit would have been reached. On September 30, 2008, the City Council adopted Ordinance No eliminating the last date for the 1987 Redevelopment Project to issue new debt. The AB 1290 time limit on incurring debt for the 1987 Redevelopment Project was June 28, Commencing with the Fiscal Year and using the Fiscal Year valuations as an adjusted base year value, the Agency is required to pay to the affected taxing entities an amount that is 25% of all tax increment revenue derived from the incremental increase in assessed value above the adjusted base year value after deducting the 20% housing set-aside obligation (the First Tier Tax Sharing ). This First Tier Tax Sharing continues for the life of the 1987 Redevelopment Project. Payments are only to those entities without pass-through agreements. The City may elect to receive the First Tier Tax Sharing. 55

62 In addition, beginning in Fiscal Year , using the values for Fiscal Year as an adjusted base year value, the Agency must pay to affected taxing entities, after deducting the 20% housing setaside obligation, an amount that is 21% of the revenue derived from the increase in assessed value above the new adjusted base year value (the Second Tier Tax Sharing ). This Second Tier Tax Sharing will also continue for the life of the 1987 Redevelopment Project and be paid only to the taxing entities that have not entered into pass-through agreements. The City may not elect to receive the Second Tier Tax Sharing. A third tier of tax sharing payments will not be applicable because the Redevelopment Plan terminates on June 28, Legislation enacted with the state budget ( AB 1389 ) requires the Redevelopment Agency to report statutory tax sharing payments made pursuant to AB 1290 and SB 211 to the County Auditor. For each Redevelopment Project, the Redevelopment Agency was required to report to the County Auditor any statutory tax sharing payments made to each of the taxing agencies for each of past five fiscal years ( through ) by October 1, 2008, and annually thereafter, by October 1, for the next six fiscal years. This information is to be reviewed by the County Auditor and reported to the State Controller. The State Controller is then responsible for disseminating the appropriate information, including any redevelopment agency whose calculations are determined by the County Auditor not to be in conformance with the requirements of AB 1290, to the Legislative Analyst, the State Department of Finance, the State Board of Education, and the Board of Governors of the California Community Colleges. In the event of a dispute the redevelopment agency has 15 days to revise and resubmit its report, submit a statement of dispute identifying the issues, amend the report, or submit the report to the State Controller with the county s analysis. The legislation allows the State Controller to revoke a county finding of concurrence and direct an agency to resubmit a report to the county if the Controller finds significant errors in the report. When the State Controller submits its report to the Legislative Analyst and the Department of Finance, it is required to summarize the statements of dispute including whether the Controller or other state entity has provided instructions as to how these disputes should be resolved. Ultimately, for agencies with unresolved disputes, the State Controller with the concurrence of the State Director of Finance, may waive the penalties and interest charges for late payments for 12 months for agencies that filed a statement of dispute that, in the opinion of the Controller, is likely to be resolved in a manner consistent with an agency s position. After February 1, 2009, an agency listed on the most recent State Controller s report for which the county has not issued a finding of concurrence or that has outstanding statutory tax sharing payments to a local educational agency, will be subject to penalties and interest charges. The penalties, would prevent the agency from adding new project areas or expanding existing areas, issuing new bonds or other obligations including refunding, encumbering or expending any funds derived from any source except to pay existing loans, contractual obligations, tax-sharing agreements or housing set-aside deposits. Administrative costs would be limited 75 percent of the average monthly amount spent on administration in the previous fiscal year. Such identified agencies would also incur interest costs on any statutory tax sharing payment that is not paid by 60 days after the close of the fiscal year in which the tax sharing payment was required. The interest rate would be 150 percent of the current Pooled Money Investment Account earnings annual yield beginning 60 days after the close of the fiscal year for which the statutory tax sharing payment was due. The State Controller, with the concurrence of the State Director of Finance may waive the penalties and interest for up to 12 months for agencies identified by as not in concurrence when a dispute by an agency that is likely to be sustained, when the agency has paid the local educational agencies or had the county withhold a disputed amount, or if the agency would sustain a fiscal hardship if it made the payments in the amount estimated by the county auditor. Although the Redevelopment Project will not incur statutory tax sharing payments until Fiscal Year , the County has not concurred with the Agency s calculations for the Agency s other two Redevelopment Projects and the Agency has filed a letter of dispute with the County. In order 56

63 to avoid the penalties, the Agency has made the required payments to the local educational agencies the amounts specified by the County and undisputed amounts to other taxing entities. This procedure will allow the Agency to avoid the penalties while pursuing a resolution to the disputed issues. The Fiscal Consultant has reflected the County methodology in the projections of tax increment revenues. Section Payments Health & Safety Code Section permits taxing entities affected by the adoption of a redevelopment project to adopt resolutions requiring the County to transfer a portion of the Tax Increment Revenues otherwise payable to the Agency to such taxing entities. Affected taxing agencies which are school districts and community college districts are automatically eligible to receive such payments and do not have to adopt a resolution. Such payments are of Tax Increment Revenues attributable to an increase in the tax rate imposed for the benefit of the affected taxing entity, and Tax Increment Revenues attributable to the affected taxing entity equal to the difference between the amount of tax increment revenues which a redevelopment agency would have received based on a plan amendment to receive tax increment revenue using as the base year the year of the original plan adoption, and using as a base year the year of the plan amendment which permits the agency to receive Tax Increment Revenues. HOUSING SET-ASIDE In accordance with Section of the Redevelopment Law, not less than twenty percent (20%) of all taxes which are allocated to the Agency from the 1987 Redevelopment Project are required to be deposited in a low and moderate income housing fund (the Low and Moderate Income Housing Fund ) to be used by the Agency for purposes of improving, increasing and preserving the City s supply of housing for persons and families of low or moderate income (including the payment of indebtedness issued or incurred for such purposes) (the Housing Set-Aside Revenues ). The Housing Set-Aside Revenues are calculated as 20% of gross Tax Increment Revenues; therefore the amount of Housing Set- Aside Revenues is not affected by payments under any tax sharing agreements. PROJECTED TAX INCREMENT REVENUES ASSUMPTIONS The Agency s Fiscal Consultant has prepared the projections of Tax Increment Revenues (including Unitary Tax Revenues) for the 1987 Redevelopment Project as set forth in the Fiscal Consultant s Report. See APPENDIX C FISCAL CONSULTANT REPORT for more detailed information on projected Tax Increment Revenues (including Unitary Tax Revenues) for the 1987 Redevelopment Project, including an explanation of the assumptions on which such projections are based. Receipt of projected Tax Increment Revenues (including Unitary Tax Revenues) in the amounts and at the times projected by the Agency depends on the realization of certain assumptions relating to the Tax Increment Revenues (including Unitary Tax Revenues). Based upon the projected Tax Increment Revenues (including Unitary Tax Revenues), the Agency expects sufficient Tax Revenues should be available to the Agency to pay principal of and interest on the 1987 Project Loan. Although the Agency believes that the assumptions upon which the projected Tax Increment Revenues (including Unitary Tax Revenues) and Tax Revenues are based are reasonable, the Agency, the Fiscal Consultant and the Financing Consultant provide no assurance that the projected Tax Increment Revenues (including Unitary Tax Revenues) and Tax Revenues will be achieved. To the extent that the assumptions are not actually realized, the Agency s ability to timely pay principal and interest on the 1987 Project Loan may be adversely affected. 57

64 TABLE NO. 6 REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT TAX REVENUES AND DEBT SERVICE 2001 Loan Debt Service Debt Service on the 1987 Project Loan Fiscal Year Tax Revenues 2006 Loan Debt Service Total Debt _Service_ $1,212,000 $290,753 $307,379 $227,818 $825, ,178, , , , , ,199, , , , , ,221, , , , , ,243, , , , , ,265, , , , , ,288, , , , , ,311, , , , , ,335, , , , , ,360, , , , , ,384, , , , , ,407, , , , , ,213, , , , , ,233, , , , , ,255, , , , , ,275, , , , , ,296, , , , , ,318, , , , , ,340, , , , , ,362, , , , , ,506, , , , , ,535, , , , , ,565, , , , , ,596, , , , ,627, , , , ,658, , , , ,691, , , , ,724, , , , ,757, , , Debt service is presented on a bond year basis. Source: Fiscal Consultant Report (see Appendix C Fiscal Consultant Report ). Coverage _Ratio_ 58

65 ENFORCEABILITY OF REMEDIES LEGAL MATTERS The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the Indenture, the 1987 Project Loan Agreement or any other document described herein are in many respects dependent upon regulatory and judicial actions which are often subject to discretion and delay. Under existing law and judicial decisions, the remedies provided for under such documents may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified to the extent that the enforceability of certain legal rights related to the Indenture is subject to limitations imposed by bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally and by equitable remedies and proceedings generally. APPROVAL OF LEGAL PROCEEDINGS Aleshire & Wynder, LLP, Irvine, California, as Bond Counsel, will render an opinion which states that the Indenture and the 1987 Project Loan Agreement are valid and binding contracts of the Authority and are enforceable in accordance with their terms. The legal opinion of Bond Counsel will be subject to the effect of bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights and to the exercise of judicial discretion in accordance with general principles of equity. The Authority has no knowledge of any fact or other information which would indicate that the Indenture or the 1987 Project Loan Agreement are not so enforceable against the Authority or the Agency, as applicable, except to the extent such enforcement is limited by principles of equity and by State and federal laws relating to bankruptcy, reorganization, moratorium or creditors rights generally. Certain legal matters will be passed on for the Authority and the Agency by Aleshire & Wynder, LLP, Irvine, California, as City Attorney, Agency and Authority Counsel. In addition, certain legal matters will be passed on by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriter by McFarlin & Anderson LLP, Lake Forest, California, as Underwriter s Counsel. Fees payable to Bond Counsel and Disclosure Counsel are contingent upon the sale and delivery of the Bonds. TAX EXEMPTION In the opinion of Aleshire & Wynder, LLP, Bond Counsel, based on existing statutes, regulations, rulings and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel expects to deliver an opinion at the time of issuance of the Bonds substantially in the form set forth in Appendix F hereto. The Internal Revenue Code of 1986 (the Code ) imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The Authority has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may affect the value of, or the tax status of interest on the Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, will not adversely affect the value of, or the tax 59

66 status of interest on, the Bonds. Prospective owners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. Bond Counsel is further of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes. Bond Counsel observes, however, that interest on the Bonds is included in adjusted current earnings in calculating corporate alternative minimum taxable income. Prospective purchasers of the Bonds should be aware that (i) with respect to insurance companies subject to the tax imposed by Section 831 of the Code, Section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest with respect to the Bonds, (ii) interest, with respect to the Bonds, earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by Section 884 of the Code, (iii) passive investment income, including interest with respect to the Bonds, may be subject to federal income taxation under Section 1375 of the Code for subchapter S corporations having subchapter C earnings and profits at the close of the taxable year and gross receipts more than 25% of which constitute passive investment income, and (iv) Section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining gross income, receipts or accruals of interest on the Bonds. Certain agreements, requirements and procedures contained or referred to in the Indenture and other relevant documents may be changed and certain actions may be taken or omitted under the circumstances and subject to the terms and conditions set forth in those documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Bond or the interest payable with respect thereto if any change occurs or action is taken or omitted upon the advice or approval of counsel other than Bond Counsel. Although Bond Counsel has rendered an opinion that interest on the Bonds is excluded from federal gross income, and is exempt from current State of California personal income taxes, the ownership or disposition of the Bonds, and the accrual or receipt of interest on the Bonds may otherwise affect a Bondowner s State or federal tax liability. The nature and extent of these other tax consequences will depend upon each Bondowner s particular tax status and the Bondowner s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. INFORMATION REPORTING AND BACKUP WITHHOLDING Information reporting requirements will apply to interest (including original issue discount, if any) paid after March 31, 2007, on tax-exempt obligations, including the Bonds. In general, such requirements are satisfied if the interest recipient completes, and provides the payer with, a Form W-9, Request for Taxpayer Identification Number and Certification, or unless the recipient is one of a limited class of exempt recipients, including corporations. A recipient not otherwise exempt from information reporting who fails to satisfy the information reporting requirements will be subject to backup withholding, which means that the payer is required to deduct and withhold a tax from the interest payment, calculated in the manner set forth in the Code. For the foregoing purpose, a payer generally refers to the person or entity from whom a recipient receives its payments of interest or who collects such payments on behalf of the recipient. If an owner purchasing a Bond through a brokerage account has executed a Form W-9 in connection with the establishment of such account, as generally can be expected, no backup withholding should occur. In any event, backup withholding does not affect the excludability of the interest on the Bonds from gross income for federal income tax purposes. Any amounts withheld pursuant to backup withholding would be allowed as a refund or a credit against the owner s federal income tax once the required information is furnished to the Internal Revenue Service. 60

67 ABSENCE OF LITIGATION The Authority and the Agency will furnish a certificate, dated as of the date of delivery of the Bonds, that there is not now known to be pending or threatened any litigation restraining or enjoining the execution or delivery of the Indenture, the 1987 Project Loan Agreement or the sale or delivery of the Bonds or in any manner questioning the proceedings and authority under which the Indenture and the 1987 Project Loan Agreement are to be executed or delivered or the Bonds are to be delivered or affecting the validity thereof. 61

68 RATING ON THE BONDS CONCLUDING INFORMATION Standard & Poor s Ratings Services has assigned their rating of A- to the Bonds. Such rating reflects only the views of the rating agency and any desired explanation of the significance of such rating should be obtained from the rating agency. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by the 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. UNDERWRITING The Bonds are being sold to O Connor & Company Securities, Inc., Newport Beach, California (the Underwriter ). The Bonds are being sold to the Underwriter pursuant to, and subject to the terms and conditions of, the Purchase Contract by and among the Underwriter, the Authority and the Agency (the Purchase Contract ). The Underwriter is offering the Bonds at the prices set forth on the front cover page hereof. The initial offering prices may be changed from time to time and concessions from the offering prices may be allowed to dealers, banks and others. The Underwriter has purchased the Bonds at a price of $3,945, ( %), which amount represents the principal amount of the Bonds, less an original issue discount of $70, and less an Underwriter s discount of $38, The Underwriter will pay certain of its expenses relating to the offering. EXPERTS The Fiscal Consultant Report prepared by HdL Coren & Cone, Diamond Bar, California, has been included in this Official Statement in reliance on and upon the authority of said firm as experts in the matters covered therein. FINANCIAL STATEMENTS OF THE AGENCY Included herein as Appendix D are the audited financial statements of the Agency as of and for the year ended June 30, 2008, together with the report thereon, dated December 3, 2008, of Teaman, Ramirez & Smith, Certified Public Accountants, Riverside, California (the Auditor ). Such audited financial statements have been included herein in reliance upon the report of the Auditor. The Auditor has not undertaken to update the audited financial statements of the Agency or its report or to take any action intended or likely to elicit information concerning the accuracy, completeness or fairness of the statements made in this Official Statement, and no opinion is expressed by the Auditor with respect to any event subsequent to its report, dated December 3, The Agency has not requested nor did the Agency obtain permission from the auditor to include the audited financial statements as an appendix to this Official Statement. THE FINANCING CONSULTANT The material contained in this Official Statement was prepared by Rod Gunn Associates, Inc., Huntington Beach, California, an independent financial consulting firm, who advised the Authority as to the financial structure and certain other financial matters relating to the Bonds. The information set forth herein has been obtained by the Financing Consultant from sources which are believed to be reliable, but such information is not guaranteed by the Financing Consultant as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financing Consultant are contingent upon the sale and delivery of the Bonds. 62

69 FORWARD-LOOKING STATEMENTS Certain statements included or incorporated by reference in this Official Statement constitute forwardlooking 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, project, budget or similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption TAX INCREMENT REVENUES herein. 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 AUTHORITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. ADDITIONAL INFORMATION The summaries and references contained herein with respect to the Indenture, the 1987 Project Loan Agreement, the Bonds, statutes and other documents, do not purport to be comprehensive or definitive and are qualified by reference to each such document or statute and references to the Bonds are qualified in their entirety by reference to the form hereof included in the Indenture. Copies of the Indenture, the 1987 Project Loan Agreement and other documents are available for inspection during the period of initial offering on the Bonds at the offices of the Underwriter, O Connor & Company Securities, Inc., 620 Newport Center Drive, Suite 1100, Newport Beach, California, (949) Copies of these documents may be obtained after delivery of the Bonds from the City through the office of the Assistant City Manager, City of Perris, 101 North D Street, Perris, California The Authority and the Agency will provide annual financial statements and other pertinent credit information, including the Annual Financial Report, if one is prepared, upon request. Copies of all periodic reports may also be made available by any other means maintained by the Authority and the Agency, or their agents, to provide information to persons wishing to receive it. REFERENCES 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 and the purchasers or Owners of any of the Bonds. EXECUTION The execution of this Official Statement by the Executive Director and its distribution to the purchaser has been duly authorized by the Perris Public Financing Authority. PERRIS PUBLIC FINANCING AUTHORITY By: /s/ Richard Belmudez Executive Director 63

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71 APPENDIX A SUMMARY OF CERTAIN TERMS AND THE INDENTURE The following is a summary of certain definitions in the Indenture and the Loan Agreement and certain provisions of the Indenture and does not purport to be a complete restatement thereof. Reference is hereby made to the Indenture for the complete terms thereof. Copies of the Indenture are available from the Authority upon request. Unless otherwise defined in this Official Statement, the following terms have the following meanings. Any term not defined herein shall have the meaning given to such term in the Indenture and the Loan Agreement. Act means Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of the State, as in existence on the Closing Date or as thereafter amended from time to time. Agency means the Redevelopment Agency of the City of Perris, a public body corporate and politic organized under the laws of the State, and any successor thereto. Annual Debt Service means, for each Bond Year with respect to each of the Bonds, the sum of (a) the interest payable on the Outstanding Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year, including from mandatory sinking fund payments. Authority means the Perris Public Financing Authority, a joint powers authority duly organized and existing under the Joint Exercise of Powers Agreement, dated as of August 14, 1989, by and between the City and the Agency, together with any amendments thereof and supplements thereto and under the laws of the State. Authority Representative means the Chairperson, Vice Chairperson, Executive Director or Treasurer of the Authority, or any other authorized representative of the Authority as evidenced by a certificate of the Chairman or Executive Director. Board means the Board of Directors of the Authority. Bond Counsel means Aleshire & Wynder, LLP or any attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized expertise in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Code. Bond Law means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with Section 6584), as in existence on the Closing Date or as thereafter amended from time to time. Bond Year means each twelve-month period beginning on October 2 of each year and ending on October 1 of the following year, except that the first Bond Year shall begin on the Closing Date and end on October 1, Bonds means the Perris Public Financing Authority Tax Allocation Revenue Bonds (1987 Project Loan), 2009 Series A, authorized by and at any time Outstanding pursuant to the Bond Law and the Indenture. A-1

72 Business Day means a day of the year, other than a Saturday or Sunday, on which banks in Los Angeles, California, are not required or authorized to remain closed and on which the New York Stock Exchange is not closed. Certificate and/or Written Request of the Authority or Agency means, a written certificate or written request signed in the name of the Authority or Agency, as applicable, by an authorized representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. City means the City of Perris, a general law city and municipal corporation organized and existing under the laws of the State. Closing Date means the date of delivery. Code means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under the Code. Costs of Issuance means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds, the making of the Loan pursuant to the Loan Agreement, including but not limited to all compensation, fees and expenses (including but not limited to fees and expenses for legal counsel) of the Agency, the Authority and the Trustee, costs and fees relating to any bond insurance policy, if any, compensation to any financial consultants or underwriters, legal fees and expenses, filing and recording costs, rating agency fees, costs of preparation and reproduction of documents and costs of printing. Costs of Issuance Fund means the fund established and held by the Trustee pursuant to the Indenture or the Costs of Issuance Fund established pursuant to the Loan Agreement, as applicable. Defeasance Securities means: 1. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -- SLGS ) 2. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities 3. Resolution Funding Corp. (REFCORP). Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book-entry form are acceptable 4. Pre-refunded municipal bonds rated Aaa by Moody s and AAA by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody s rating), then the pre-refunded bonds must have been pre-refunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition 5. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.: a. U.S. Export-Import Bank (Eximbank) Direct obligations or fully guaranteed certificates of beneficial ownership b. Farmers Home Administration (FmHA) Certificates of beneficial ownership A-2

73 c. Federal Financing Bank d. General Services Administration Participation certificates e. U.S. Maritime Administration Guaranteed Title XI financing f. U.S. Department of Housing and Urban Development (HUD) Project Notes Local Authority Bonds New Communities Debentures - U.S. government guaranteed debentures U.S. Public Housing Notes and Bonds - U.S. government guaranteed public housing notes and bonds. DTC means The Depository Trust Company, New York, New York, and its successors and assigns. Event of Default means any of the events described in the Indenture. Excess Investment Earnings means the amount of excess investment earnings determined to be subject to rebate to the United States of America with respect to the investment of the gross proceeds of the Bonds, determined pursuant to Section 148(f) of the Code. Federal Securities means (a) any direct general obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America), the payment of principal of and interest on which are unconditionally and fully guaranteed by the United States of America; and (b) any obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. Fiscal Year means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority as its official fiscal year period and certified to the Trustee in writing by an Authority Representative. Housing Set-Aside Revenues means, for each Bond Year beginning with the Bond Year commencing on the Closing Date, the amount of taxes (including all payments and reimbursements, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Agency as provided in the Redevelopment Plan for the Project Area which is required to be deposited in the Agency s Low and Moderate Income Housing Fund pursuant to Section of the Redevelopment Law. Indenture means the Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions of the Indenture. Independent Accountant means any certified public accountant or firm of certified public accountants appointed and paid by the Authority, and who, or each of whom (a) is in fact independent and not under domination of the Authority, the City or the Agency; (b) does not have any substantial interest, direct or indirect, in the Authority, the City or the Agency; and (c) is not connected with the Authority, the City or the Agency as an officer or employee of the Authority, the City or the Agency but who may be regularly retained to make annual or other audits of the books of or reports to the Authority, the City or the Agency. A-3

74 Information Services means Financial Information, Inc., 1 Cragwood Road, 2nd Floor, South Plainfield, New Jersey 07080; Attention: Editor; Mergent/FIS, Inc., Center Drive, Suite 150, Charlotte, North Carolina 28217, Attn: Called Bond Dept.; and Kenny S&P, 55 Water Street, 45th Floor, New York, New York 10041, Attention: Notification Department; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing information with respect to called bonds as the Authority may designate in a Written Request of the Authority delivered to the Trustee. Interest Account means the account by that name established and held by the Trustee pursuant to the Indenture. Interest Payment Date means April 1 and October 1 in each year, beginning October 1, 2009, and continuing thereafter so long as any Bonds remain Outstanding. Letter of Representations means the letters of the Authority and the Trustee delivered to and accepted by DTC (or such other applicable Securities Depository) on or prior to the issuance of the Bonds in bookentry form setting forth the basis on which DTC (or such other applicable Securities Depository) serves as depository for the Bonds issued in book-entry form, as originally executed or as it may be supplemented or revised or replaced by a letter to a substitute Securities Depository. Loan or 1987 Project Loan means the loan made by the Authority to the Agency under and pursuant to the Loan Agreement. Loan Agreement or 1987 Project Loan Agreement means the Loan Agreement (Redevelopment Project-1987), dated as of February 1, 2009, by and between the Authority and the Agency relating to the Project Area, as originally executed or as it may from time to time be supplemented, modified or amended. Loan Fund means the fund by that name established and held by the Trustee pursuant to the Indenture. Loan Interest Payment Date means April 1 and October 1 of each year, beginning October 1, Loan Principal Payment Date means October 1 of each year. Maximum Annual Debt Service means as of the date of calculation, the maximum amount obtained by totaling, for the current or any future Bond Year, the sum of: (a) the principal amount of all such Outstanding Bonds maturing in such Bond Year; (b) the aggregate principal amount of all Outstanding Bonds scheduled to be redeemed by operation of mandatory sinking payment deposits in such Bond Year, together with any premium thereon; and (c) the interest which would be due during such Bond Year on the aggregate principal amount of such Bonds which would be Outstanding in such period if such Bonds are retired as scheduled, but deducting and excluding from such aggregate principal amount the aggregate principal amount of such Bonds no longer Outstanding. Moody s means Moody s Investors Service, its successors and assigns. Outstanding, when used as of any particular time with reference to Bonds, means all Bonds theretofore executed, issued and delivered by the Authority under the Indenture except (a) Bonds theretofore cancelled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds paid or deemed to have been paid within the meaning of the Indenture, and (c) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered pursuant to the Indenture or any Supplemental Indenture. Owner, when used with respect to any Bond, means the person in whose name the ownership of such Bond shall be registered on the Registration Books. A-4

75 Parity Debt has the meaning given to said term in the Loan Agreement. Parity Debt Instrument means any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein (the Trustee is entitled to rely on written investment direction of the Authority as a determination that such investment is a legal investment), but only to the extent that the same are acquired at fair market value: (a) Federal Securities; (b) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): (i) direct obligations or fully guaranteed certificates of beneficial ownership of the U.S. Export-Import Bank; (ii) certificates of beneficial ownership of the Farmers Home Administration; (iii) obligations of the Federal Financing Bank; (iv) debentures of the Federal Housing Administration; (v) participation certificates of the General Services Administration; (vi) guaranteed mortgage-backed bonds or guaranteed pass-through obligations of the Government National Mortgage Association; (vii) guaranteed Title XI financings of the U.S. Maritime Administration; and (viii) project notes, local authority bonds, new communities debentures and U.S. public housing notes and bonds of the U.S. Department of Housing and Urban Development; (c) bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): (i) senior debt obligations of the Federal Home Loan Bank System; (ii) participation certificates and senior debt obligations of the Federal Home Loan Mortgage Corporation; (iii) mortgaged-backed securities and senior debt obligations of the Federal National Mortgage Association (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal); (iv) senior debt obligations of the Student Loan Marketing Association; (v) obligations (but only the interest component of stripped obligations) of the Resolution Funding Corporation; and (vi) consolidated systemwide bonds and notes of the Farm Credit System; (d) money market funds (including funds of the Trustee or its affiliates) registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G, AAAm, or AAm, and, if rated by Moody s, rated Aaa, Aa1 or Aa2; (e) certificates of deposit secured at all times by collateral described in (a) or (b) above, which have a maturity of one year or less, which are issued by commercial banks, savings and loan associations or mutual savings banks, and such collateral must be held by a third party, and the Trustee must have a perfected first security interest in such collateral; (f) certificates of deposit, savings accounts, deposit accounts or money market deposits (including those of the Trustee and its affiliates) which are fully insured by the Federal Deposit Insurance Corporation; (g) investment agreements, including guaranteed investment contracts, forward purchase agreements and reserve fund put agreements, which, (i) are acceptable to the Trustee A-5

76 and (ii) are general obligations of an entity whose long term debt obligations, or claims paying ability, respectively, is rated in one of the two highest rating categories by Moody s or S&P; (h) commercial paper rated, at the time of purchase, Prime-1 by Moody s and A- 1 or better by S&P; (i) bonds or notes issued by any state or municipality which are rated by Moody s and S&P in one of the two highest rating categories assigned by such agencies; (j) federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of Prime-1 or A3 or better by Moody s and A-1 or A or better by S&P; (k) repurchase agreements which provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to the Trustee and the transfer of cash from the Trustee to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the Trustee in exchange for the securities at a specified date, which satisfy the following criteria: (i) repurchase agreements must be between the Trustee and (A) a primary dealer on the Federal Reserve reporting dealer list which falls under the jurisdiction of the Securities Investors Protection Corporation which are rated A or better by Moody s and S&P, or (B) a bank rated A or better by Moody s and S&P; (ii) the written repurchase agreement contract must include the following: (A) securities acceptable for transfer, which may be direct U.S. government obligations, or federal agency obligations backed by the full faith and credit of the U.S. government; (B) the term of the repurchase agreement may be up to 30 days; (C) the collateral must be delivered to the Trustee or a third party acting as agent for the Trustee simultaneous with payment (perfection by possession of certificated securities); (D) the Trustee must have a perfected first priority security interest in the collateral; (E) the collateral must be free and clear of third-party liens and, in the case of a broker which falls under the jurisdiction of the Securities Investors Protection Corporation, are not subject to a repurchase agreement or a reverse repurchase agreement; (F) failure to maintain the requisite collateral percentage, after a two-day restoration period, will require the Trustee to liquidate the collateral; and (G) the securities must be valued weekly, marked-to-market at current market price plus accrued interest and the value of collateral must be equal to 104% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus accrued interest (unless the securities used as collateral are obligations of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, in which case the collateral must be equal to 105% of the amount of cash transferred by the Trustee to the dealer bank or securities firm under the repurchase agreement plus accrued interest). If the value of securities held as collateral falls below 104% of the value of the cash transferred by the Trustee, then additional cash and/or acceptable securities must be transferred; and (iii) a legal opinion must be delivered to the Trustee to the effect that the repurchase agreement meets guidelines under state law for legal investment of public funds; (l) the Local Agency Investment Fund of the State of California, created pursuant to Section of the California Government Code, to the extent the Trustee is authorized to register such investment in its name; and (m) so long as any Bond is Outstanding, any other investments permitted in writing by an insurer of the bonds, if any. A-6

77 Principal Account means the account by that name established and held by the Trustee pursuant to the Indenture. Project Area or Redevelopment Project means the redevelopment project area described in the Redevelopment Plan for the Redevelopment Project-1987, as amended and supplemented from time to time. Record Date means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date. Redevelopment Plan means the Redevelopment Plan for the Redevelopment Project-1987, approved by Ordinance No. 687 enacted by the City Council of the City on June 29, 1987, as amended by Ordinance No. 996, adopted on December 12, 1994 and Ordinance No. 1171, adopted on September 27, 2005, as amended by Ordinance No. 1181, adopted on February 14, 2006, and as amended by Ordinance No. 1247, adopted on September 30, 2008, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law. Registration Books means the records maintained by the Trustee pursuant to the Indenture for the registration and transfer of ownership of the Bonds. Reserve Fund means the fund established and held by the Trustee pursuant to the Indenture. Reserve Requirement means, as of any calculation date, an amount equal to the least of (i) ten percent (10%) of the original proceeds of the Bonds; (ii) 125% of average Annual Debt Service as of the date of issuance; or (iii) Maximum Annual Debt Service. Revenue Fund means the fund by that name established and held by the Trustee pursuant to the Indenture. Revenues means: (a) all amounts payable by the Agency pursuant to the Loan Agreement; (b) all moneys deposited and held from time to time by the Trustee in the funds and accounts established pursuant to the Indenture for the Bonds; and (c) income and gains with respect to the investment of amounts on deposit in the funds and accounts established pursuant to the Indenture for the Bonds. S&P means Standard & Poor s, a division of The McGraw-Hill Companies, Inc., its successors and assigns. Securities Depositories means The Depository Trust Company, Southern Business Center, Bermuda Green Drive, Tampa, Florida 33647, Attn: Call Notification Department, Fax (813) ; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may designate in a Certificate of the Authority delivered to the Trustee. Senior Debt means the loan under the Senior Loan Agreement. Senior Loan Agreement or 2001 Loan Agreement means the 1987 Redevelopment Project Loan Agreement, dated as of June 1, 2001, between the Agency and the Authority, which loan was funded by a portion of the Authority's outstanding Perris Public Financing Authority Tax Allocation Revenue Bonds, 2001 Series A originally issued in the initial principal amount of $10,745,000. Special Subventions means all amounts payable by the State to the Agency under and pursuant to the provisions of Chapter 1.5 of Part 1 of Division 4 of Title 2 (commencing with Section 16110) of the Government Code of the State. State means the State of California. A-7

78 Supplemental Indenture means any indenture, agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of the Indenture. Tax Regulations means temporary and permanent regulations promulgated under or with respect to Section 103 and Sections 141 through 150, inclusive, of the Code. Tax Revenues means all taxes annually allocated and paid to the Agency with respect to the of the Project Area pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, including all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations; but excluding the Housing Set-Aside Revenues, amounts payable to entities other than the Agency under and pursuant to Tax Sharing Agreements, any amounts payable by the Agency pursuant to California Health and Safety Code Section or Section and the Special Subventions. Trustee means Wells Fargo Bank, National Association, and its successors and assigns, and any other corporation or association which may at any time be substituted in its place as provided in the Indenture. Trust Office means the corporate trust office of the Trustee at the address set forth in the Indenture or such other office designated by the Trustee. THE INDENTURE Creation of Funds and Accounts Loan Fund. A portion of the proceeds of the Bonds will be deposited by the Trustee in the Loan Fund established under the Indenture. On the Closing Date, the Trustee will disburse all amounts in the Loan Funds to the Agency for the purpose of funding the Loan. Costs of Issuance Fund. A portion of the proceeds of the Loan will be deposited by the Trustee in the Costs of Issuance Fund established under the Indenture. The moneys in the Costs of Issuance Fund will be disbursed by the Trustee to pay the Costs of Issuance of the Bonds. All moneys remaining in the Costs of Issuance Fund following the time specified in the Indenture shall be transferred to the Agency's Redevelopment Fund to be used for capital projects. Revenue Fund; Deposit of Loan Payments. The Indenture establishes a trust fund (the Revenue Fund ) which will be held by the Trustee for deposit of Revenues, which constitute payments on the Loan as received. On or before each Interest Payment Date, the Trustee will transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee will establish and maintain within the Revenue Fund), the following amounts in the following order of priority, before any transfer is made to any account subsequent in priority: (a) Interest Account. On or before each Interest Payment Date, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds on such Interest Payment Date. All moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). A-8

79 (b) (c) Pledge and Assignment Principal Account. On or before each date on which the principal of the Bonds is required to be paid, the Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds due and payable on such date, or required to be redeemed on such Interest Payment Date pursuant to the Indenture. All moneys in the Principal Account will be used and withdrawn by the Trustee solely for the purpose of (A) paying the principal of the Bonds at the maturity thereof, or (B) paying the principal of and premium (if any) on any Bonds upon the redemption thereof pursuant to the Indenture. Surplus. All amounts on deposit in the Revenue Fund on the first day following any Interest Payment Date, to the extent not required to pay any interest on or principal of any Outstanding Bonds then having come due and payable, shall be credited to the replenishment of the Reserve Fund in an amount to maintain the respective Reserve Requirement therein, in the order of replenishment described in the Indenture, if necessary; and then to the next succeeding payment on the Loan not then in default. Subject only to the provisions of the Indenture, the Bonds shall be secured by a first lien on and pledge of all of the Revenues and a pledge of all of the moneys in the Interest Account and Principal Account of the Revenue Fund and in the Reserve Fund, including all amounts derived from the investment of such moneys. The Bonds shall be equally secured by a pledge, charge and first lien upon the Revenues and such moneys without priority for number, date of Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge, charge and first lien upon the Revenues and such moneys. So long as any of the Bonds are Outstanding, the Revenues and such moneys shall not be used for any other purpose; except that out of the Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by the Indenture. Subject to the provisions of the Indenture, the Authority transfers in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority (but not the obligations) in the Loan Agreement (other than as described in the Loan Agreement). The Trustee shall be entitled to and shall receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The assignment to the Trustee is solely in its capacity as Trustee under the Indenture and in accepting such assignment and taking any actions with respect to the Loan Agreement, the Trustee shall be entitled to all the indemnities, protections, immunities and limitations from liability afforded it as Trustee under the Indenture. The Trustee also shall be entitled to and, subject to the provisions of the Indenture, shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement. Investment of Funds All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture or the Loan Agreement will be invested by the Trustee solely in Permitted Investments, as directed pursuant to the Written Request of the Authority filed with the Trustee in advance of the making of such investments. In the absence of any such Written Request of the Authority, the Trustee will invest any such moneys in Permitted Investments described in money market funds as described under the Indenture. Obligations purchased as an investment of moneys in any fund shall be deemed to be part of such fund or account. All interest or gain derived from the investment of amounts in any of the funds or accounts established with the Trustee under the Indenture shall be deposited in the Interest Account of the Revenue Fund and A-9

80 shall be allocated to payments due under the Loan Agreement. For purposes of acquiring any investments, the Trustee may commingle funds held by it under the Indenture upon the Written Request of the Authority. The Trustee may act as principal or agent in the acquisition of any investment. The Trustee will incur no liability for losses arising from any investments made pursuant to the Indenture. The Trustee Wells Fargo Bank, National Association, will serve as Trustee under the Indenture. The Trustee will act as the agent and depository of the Authority for the purpose of receiving all moneys required to be paid to the Trustee, to allocate, use and apply the same, to hold, receive and disburse the payments on the Loan and other funds held under the Indenture, and otherwise to hold all offices and perform all the functions and duties provided in the Indenture to be held and performed by the Trustee. The Trustee shall keep accurate records of all funds administered by it and of all Bonds paid and discharged. Notice to Bond Owners of Default. If an Event of Default occurs with respect to any Bonds of which the Trustee has been given or is deemed to have notice, as provided in the Indenture, then the Trustee shall promptly give written notice thereof by first-class mail to the Owner of each such Bond, unless such Event of Default shall have been cured before the giving of such notice; provided, however, that unless such Event of Default consists of the failure by the Authority to make any payment when due, the Trustee may elect not to give such notice to the Bond Owners if and so long as the Trustee in good faith determines that such Event of Default does not materially adversely affect the interests of the Bond Owners or that it is otherwise not in the best interests of the Bond Owners to give such notice. Intervention by Trustee. In any judicial proceeding to which the Authority is a party which, in the opinion of the Trustee and its counsel, has a substantial bearing on the interests of Owners of any of the Bonds, the Trustee may intervene on behalf of such Bond Owners, and subject to the provisions of the Indenture, shall do so if requested in writing by the Owners of at least twenty-five percent (25%) aggregate principal amount of such Bonds then Outstanding. Removal of Trustee. The Owners of a majority in aggregate principal amount of the Outstanding Bonds may at any time, or the Authority may (and the Authority, at the request of the Agency shall) so long as no Event of Default shall have occurred and then be continuing, remove the Trustee initially appointed, and any successor thereto, by an instrument or concurrent instruments in writing delivered to the Trustee at least thirty (30) days prior to the effective date of such removal, whereupon the Authority or such Owners, as the case may be, shall appoint a successor or successors thereto; provided that any such successor shall be a bank or trust company meeting the requirements set forth in the Indenture. Resignation by Trustee. The Trustee and any successor Trustee may at any time give thirty (30) days written notice of its intention to resign as Trustee under the Indenture, such notice to be given to the Authority and the Agency by registered or certified mail. Upon receiving such notice of resignation, the Authority shall promptly appoint a successor Trustee. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds, the Revenues and all funds and accounts established pursuant to the Indenture or the Loan Agreement. Such books of record and account shall be available for inspection by the Authority and the Agency during regular business hours with reasonable prior notice. Not later than 45 days following each Interest Payment Date, the Trustee shall prepare and file with the Authority a report setting forth: (i) amounts withdrawn from and deposited into each fund and account maintained by the Trustee under the Indenture; (ii) the balance on deposit in each fund and account as of the date for which such report is prepared; and (iii) a brief description of all obligations held as investments in each fund and account. Copies of such reports may be mailed to any owner of at least A-10

81 50% aggregate principal amount of Bonds Outstanding, upon the owner s written request at a cost not to exceed the Trustee s actual costs of duplication and mailing. Said reports may be in the form of the Trustee s regular statements. Events of Default and Remedies Events of Default. Any one or more of the following events will constitute an Event of Default under the Indenture: (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise. (b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable. (c) Failure by the Authority to observe and perform any of the covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, other than as referred to in the preceding clauses (a) and (b), for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, has been given to the Authority by the Trustee, or to the Authority and the Trustee by the Owners of the Bonds of not less than twenty-five percent (25%) in the aggregate principal amount of the Bonds at that time Outstanding; provided, however, that if in the reasonable opinion of the Authority the failure stated in such notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Authority within such thirty (30) day period and diligently pursued until such failure is corrected. (d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property. Remedies Upon Event of Default. If any Event of Default shall occur, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and, at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time Outstanding, shall, upon notice in writing to the Authority and the Agency, declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. Notice of the occurrence of any Event of Default shall be given by the Trustee to the Bond Owners if and to the extent required pursuant to the Indenture. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority or the Agency shall deposit with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the Bonds to the extent permitted by law, and the charges and expenses of the Trustee and its counsel, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of not less than a A-11

82 majority in aggregate principal amount of the Bonds then Outstanding, by written notice to the Authority, the Agency and the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. In addition, upon the occurrence and during the continuance of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of and interest and premium (if any) on the Bonds, and to enforce any rights of the Trustee under or with respect to the Indenture. If an Event of Default shall have occurred and be continuing, and if requested so to do by the Owners of a majority in aggregate principal amount of Outstanding Bonds, and indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners. No remedy by the terms of the Indenture conferred upon or reserved to the Trustee (or the Bond Owners) is intended to be exclusive of any other remedy. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds, opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which any Owner of Bonds shall have the right to bring to enforce any right or remedy under the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is appointed (and the successive respective Owners of the Bonds issued under the Indenture, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact. Application of Funds After Default All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid: First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of the Indenture, including reasonable compensation to its agents, attorneys and counsel and any outstanding fees and expenses of the Trustee; and Second, to the payment of the whole amount of interest on and principal of the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds; provided, however, that in the event A-12

83 such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority: (a) (b) (c) (d) first, to the payment of all installments of interest on the Bonds then due and unpaid, second, to the payment of principal of all installments of the Bonds then due and unpaid, third, to the payment of the redemption price (including principal and interest accrued to the redemption date, but excluding any premium) of the Bonds to be redeemed pursuant to the Indenture, and fourth, to the payment of interest on overdue installments of principal and interest on the Bonds. Remedies; Limitations on Owner s Remedies No Owner of any Bond issued under the Indenture shall have the right to institute any suit, action or proceeding at law or in equity, for any remedy under or upon the Indenture, unless (a) such Owner shall have previously given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers granted or to institute such action, suit or proceeding in its own name; (c) said Owners shall have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such sixty (60) day period by the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are declared under the Indenture, in every case, to be conditions precedent to the exercise by any Owner of Bonds of any remedy under the Indenture; it being understood and intended that no one or more Owners of Bonds shall have any right in any manner whatever by his or their action to enforce any right under the Indenture, except in the manner therein provided, and that all proceedings at law or in equity to enforce any provision of the Indenture shall be instituted, had and maintained in the manner therein provided and for the equal benefit of all Owners of the Outstanding Bonds. The right of any Owner of any Bond to receive payment of the principal of and interest and premium (if any) on such Bond as provided in the Indenture or to institute suit for the enforcement of any such payment, shall not be impaired or affected without the written consent of such Owner, notwithstanding any other provision of the Indenture. Amendments The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture which shall become binding upon execution by the Authority and the Trustee and upon prior written consent of the Agency, without consent of any Bond Owners, to the extent permitted by law but only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Authority contained in the Indenture, other covenants and agreements hereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the Authority; A-13

84 (b) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in any other respect whatsoever, as the Authority may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners in the opinion of Bond Counsel; (c) to modify, amend or supplement the Indenture in such manner as to permit the qualification of an Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (d) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds; or (e) to facilitate the issuance of additional obligations of the Agency pursuant to the Loan Agreement. Except as set forth in the preceding paragraph, the Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consents of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or premiums (if any) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee. Discharge of Indenture If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways: (a) by well and truly paying or causing to be paid the principal of, and the interest and premium (if any) on, such Bonds as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Loan Agreement, is fully sufficient to pay such Bonds, including all principal, interest and premiums (if any); or (c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Securities (as defined in the Indenture) in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established with the Trustee pursuant to the Indenture and the Loan Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates; and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the Written Request of the Authority, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to all such Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the A-14

85 Trustee. Any funds held by the Trustee following any payments or discharge of the Outstanding Bonds pursuant to this provision, which are not required for said purposes, shall be paid over to the Authority. Certain Additional Covenants Punctual Payment. The Authority shall punctually pay or cause to be paid the principal, interest and premium (if any) to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture. Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest will not be entitled, in case of any default under the Indenture, to the benefits of such Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding with respect to the Indenture and of all claims for interest thereon which shall not have been so extended. Nothing in the provisions of the Indenture described in this paragraph will be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Against Encumbrances. The Authority will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding with respect to such Indenture, except the pledge and assignment created by such Indenture or any obligations which are expressly subordinated thereto. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other Indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes. Power to Issue Bonds and Make Pledge and Assignment. The Authority is duly authorized pursuant to law to issue the Bonds and to enter into the Indenture and to pledge and assign the Revenues, the Loan Agreement and other assets pledged and assigned, respectively, under the Indenture in the manner and to the extent provided in the Indenture. The Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the Authority in accordance with their terms, and the Authority and the Trustee, subject to the provisions of the Indenture, will at all times, to the extent permitted by law, defend, preserve and protect said pledge and assignment of Revenues and other assets and all the rights of the Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Tax Covenants Relating to the Bonds. (a) Special Definitions. When used in this Section, the following terms have the following meanings: Code means the Internal Revenue Code of 1986, as amended. Computation Date has the meaning set forth in section (b) of the Tax Regulations. Gross Proceeds means any proceeds as defined in section (b) of the Tax Regulations (referring to sales, investment and transferred proceeds), and any replacement proceeds as defined in section (c) of the Tax Regulations, of the Bonds. A-15

86 Investment has the meaning set forth in section (b) of the Tax Regulations. Issue shall refer to any Bond or group of Bonds constituting an Issue within the meaning of section of the Tax Regulations. Nonpurpose Investment means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and that is not acquired to carry out the governmental purposes of that series of Bonds. Rebate Amount has the meaning set forth in section (b) of the Tax Regulations. Tax Regulations means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code, or section 103 of the 1954 Code, as applicable. Yield of any Investment has the meaning set forth in section of the Tax Regulations; and of any issue of governmental obligations has the meaning set forth in section of the Tax Regulations. (b) (c) Not to Cause Interest to Become Taxable. The Authority covenants that it shall not use, and shall not permit the use of, and shall not omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to Section 103(a) of the Code from the gross income, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Trustee receives a written opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect such exclusion of the interest on any Bond from the gross income of the owner thereof for federal income tax purposes, the Authority shall comply with each of the specific covenants in this Section. Private Use and Private Payments. Except as would not cause any Bond to become a private activity bond within the meaning of section 141 of the Code and the Tax Regulations, the Authority shall take all actions necessary to assure that the Agency at all times prior to the final cancellation of the last of the Bonds to be retired: (1) exclusively owns, operates and possesses all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds and not use or permit the use of such Gross Proceeds (including through any contractual arrangement with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and (2) does not directly or indirectly impose or accept any charge or other payment by any person or entity (other than a state or local government) who is treated as using any Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds. (d) No Private Loan. Except as would not cause any Bond to become a private activity bond within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, the Authority shall not use or permit the use of Gross Proceeds of the Bonds A-16

87 (e) (f) (g) (h) to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be loaned to a person or entity if: (i) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. Not to Invest at Higher Yield. Except as would not cause the Bonds to become arbitrage bonds within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, the Authority shall not (and shall not permit any person to), at any time prior to the final cancellation of the last Bond to be retired, directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the Bonds within the meaning of said section 148. Not Federally-Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Tax Regulations and rulings thereunder, the Authority shall not take or omit to take (and shall not permit any person to take or omit to take) any action that would cause any Bond to be federally guaranteed within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder. Information Report. The Authority shall timely file any information required by section 149(e) of the Code with respect to Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Tax Regulations: (1) The Authority shall account (or shall cause the Agency to account) for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Bond is discharged. However, to the extent permitted by law, the Authority may commingle (and may allow the Agency to commingle) Gross Proceeds of Bonds with its other moneys, provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. (2) Not less frequently than each Computation Date, the Authority shall calculate, or shall cause the Agency to calculate (and to report to the Authority the results of such calculation, including the basis therefor, in sufficient detail and on a timely basis in order that the Authority be able to comply with its covenants herein), the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Tax Regulations and rulings thereunder. The Authority shall maintain a copy of the calculation with its official transcript of proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (3) In order to assure the excludability pursuant to section 103(a) of the Code of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, the Authority shall pay to the United States the amount that when added to the future value of previous rebate payments made for the Bonds equals (i) in the case of the Final Computation Date as defined in section A-17

88 3(e)(2) of the Tax Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (ii) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate payments shall be made by the Authority at the times and in the amounts as are or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder for execution and filing by the Authority. Notwithstanding the foregoing, and provided that the Authority takes all steps available to it to cause the provision of such amounts, the monetary obligation of the Authority under this paragraph (3) shall be limited to amounts provided to it for such purpose by the Agency. (i) (j) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, the Authority shall not and shall not permit any person to, at any time prior to the final cancellation of the last of the Bonds to be retired, enter into any transaction that reduces the amount required to be paid to the United States pursuant to paragraph (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm s length and had the Yields on the Bonds not been relevant to either party. Bonds Not Hedge Bonds. (i) The Authority represents that none of the Bonds is or will become a hedge bond within the meaning of section 149(g) of the Code. (ii) Without limitation of paragraph (i) above (A) that on the date of issuance the Authority reasonably expects that at least 85% of the spendable proceeds of the Bond Issue will be expended within the three-year period commencing on such date of issuance, and (B) no more than 50% of the proceeds of the Bonds will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (k) Elections. The Authority hereby directs and authorizes any Authority Representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such Representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the Bonds, in the Certificate as to tax exemption or similar or other appropriate certificate, form or document. (l) Closing Certificate. The Authority agrees to execute and deliver in connection with the issuance of the Bonds a Tax and NonArbitrage Certificate, or similar document containing additional representations and covenants pertaining to the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, which representations and covenants are incorporated as though expressly set forth herein. Loan Agreement. The Trustee shall promptly collect all amounts due from the Agency pursuant to the Loan Agreement and, subject to the provisions of the Indenture, shall enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder. The Authority and the Agency may at any time amend or modify the Loan Agreement pursuant to the applicable provisions thereof, but only: (a) if the Authority, the Agency or the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding; provided, however, that no such amendment or modification shall (i) extend the maturity of or reduce the amount of interest or principal payments on the Loan, or otherwise alter or impair the obligation of the A-18

89 Agency to pay the principal, interest or prepayment premiums on the Loan at the time and place and at the rate and in the currency provided herein, without the express written consent of the Owner of each affected Bond, (ii) reduce the percentage of Bonds required for the written consent to any such modification or amendment thereof or the Indenture, or (iii) without its written consent thereto, modify any of the rights or obligations of the Trustee; or (b) without the consent of any of the Bond Owners, if such amendment or modification is for any one or more of the following purposes: (i) to add to the covenants and agreements of the Agency contained in the Loan Agreement other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds; (ii) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Loan Agreement, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds; (iii) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds; or (iv) to provide for the issuance of Parity Debt as defined in and under and in accordance with the provisions of the Loan Agreement. Nothing in the Indenture shall prevent the Agency and the Authority from entering into any amendment or modification of the Loan Agreement which solely affects a particular Bond or Bonds all of the Owners of which shall have consented to such amendment or modification. The Authority may sell the Loan Agreement upon written direction to the Trustee, so long as the proceeds of such sale are placed in an appropriate fund to pay debt service on the Bonds, and such proceeds are sufficient to discharge all of the Authority s obligations on the portion of the Bonds represented by such Loan Agreement in the manner set forth in the Indenture. Further Assurances. The Authority will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Indenture, and for the better assuring and confirming unto the Owners of the Bonds the rights and benefits provided in the Indenture. A-19

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91 APPENDIX B SUMMARY OF THE LOAN AGREEMENT The following is a summary of certain provisions of the 1987 Project Loan Agreement (the "Loan Agreement") and does not purport to be a complete restatement thereof. Reference is hereby made to the Loan Agreement for information in this regard. Copies of the Loan Agreement are available from the Agency upon request Funds and Accounts; Flow of Funds Special Fund; Deposit of Tax Revenues. The Agency has previously established a special fund related to the Redevelopment Project (the Special Fund ) which is held by the Agency in a separate fund apart from all other funds and accounts of the Agency. Subject to the obligations under the Senior Loan Agreement, the Agency will deposit all of the applicable Tax Revenues pledged to repayment of the Loan and Parity Debt received in any Bond Year in the Special Fund until such amounts equal the aggregate amount of principal and interest and reserve fund deposits required pursuant to the Loan Agreement, the Senior Loan Agreement and any Parity Debt Instrument. Subject to the Senior Loan Agreement and except as provided in the Loan Agreement or other Parity Debt Instrument, the excess amounts shall be released from the pledge and lien under the Loan and be used for any lawful purposes of the Agency, including the payment of any subordinate debt. Subject to the Senior Loan Agreement and prior to the payment in full of the loan payments on the Loan and all Parity Debt and the payment in full of all other amounts payable under the Loan Agreement and under any Parity Debt Instruments, the Agency will not have any beneficial right or interest in the moneys on deposit in the Special Fund, except only as provided in the Loan Agreement and in any Parity Debt Instruments. Transfer of Tax Revenues from Special Fund. Subject to the obligations under the Senior Loan Agreement, and in addition to the transfers required to be made pursuant to any Parity Debt Instruments, the Agency shall withdraw from the Special Fund and transfer to the Trustee, to the extent necessary to make the payments under the Loan Agreement, the following amounts at the following times and in the following order of priority: (a) (b) (c) Interest and Principal Deposits. No later than the fifth (5th) Business Day preceding each date on which the principal of or interest on the Loan or any Parity Debt shall become due and payable, including but not limited to the principal amount of the Loan to be prepaid together with any prepayment premium thereon, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit into the Revenue Fund an amount which, together with the amounts then held on deposit in the Interest Account, the Principal Account and the Revenue Fund, is equal to the aggregate amount of such principal, interest and prepayment premium coming due on the Loan Interest Payment Date or the Loan Principal Payment Date. Reserve Fund Deposits. In the event the balance in the Reserve Fund related to the Loan is less than the Reserve Requirement, the Agency shall immediately withdraw from the Special Fund and transfer to the Trustee for deposit in the Reserve Fund an amount of money necessary to maintain the Reserve Requirement in the Reserve Fund. No such transfer and deposit need be made to the Reserve Fund so long as there shall be on deposit therein a sum at least equal to the Reserve Requirement. Surplus. Except as may be otherwise provided in the Senior Loan Agreement and any Parity Debt Instrument, and subject to other provisions of the Loan Agreement, the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which, together with other available amounts in the Special Fund, exceeds the amounts B-1

92 required in such Bond Year pursuant to the Loan Agreement; and all Tax Revenues which are received by the Agency during any Bond Year in excess of the amounts required to be deposited in the Special Fund in such Bond Year shall be released from the pledge thereof and lien thereon. In the event that for any reason whatsoever any amounts shall remain on deposit in the Special Fund on any October 2 after making all of the transfers theretofore required to be made pursuant to the preceding clauses (a) and (b) and pursuant to the Senior Loan Agreement and any Parity Debt Instruments, the Agency may withdraw such amounts from the Special Fund, to be used for any lawful purposes of the Agency, including but not limited to the payment of any subordinate debt, or the payment of any amounts due and owing to the United States of America pursuant to the Loan Agreement. Redevelopment Fund. The Agency has heretofore created the Redevelopment Project-1987 Redevelopment Fund into which it shall deposit the moneys received from the Trustee for the Loan. The moneys in such fund shall be used solely in the manner provided by the Redevelopment Law and the Redevelopment Plan to provide financing for the Redevelopment Project. Costs of Issuance Fund. A portion of the proceeds of the Loan will be deposited by the Trustee in the Costs of Issuance Fund established under the Loan Agreement. The moneys in the Costs of Issuance Fund will be disbursed to pay the Costs of Issuance of the Loan. Terms of the Loan; Payment and Prepayment of the Loan The Agency shall repay the principal of the Loan in installments on October 1 in each of the years and in the amounts, and shall pay interest on the unpaid principal balance of the Loan on the Loan Interest Payment Date in the amounts, set forth in the Loan Agreement. Any installment of principal or interest which is not paid when due shall continue to accrue interest at the net effective rate of interest then borne by the Loan from and including the date on which such principal or interest is payable to but not including the date of actual payment. The principal of the Loan is subject to optional prepayment in whole or in part from any funds in any integral multiple of $5,000, on any date on which the Bonds are subject to Mandatory Redemption from Optional Loan Prepayments pursuant to the Indenture, together with the amount of accrued interest and premium (if any) required to be paid upon redemption. The Authority shall take or cause to be taken any and all steps required under the Indenture to redeem such Outstanding Bonds on the redemption date designated pursuant to a Written Request of the Agency filed with the Authority and the Trustee; provided, however, that such date shall be a date of redemption of the Bonds for which notice has been timely given pursuant to the Indenture. The principal of the Loan is subject to mandatory prepayment upon acceleration of the principal pursuant to an event of default and acceleration of the Loan under the Loan Agreement on any date and in the amount described in the Indenture under Mandatory Redemption upon Acceleration of the Loan. Investment of Funds All moneys in the Special Fund shall be invested by the Agency in any investments authorized under the laws of the State. All interest, profits and other income received from the investment of moneys in any fund or account held under the Loan Agreement will be deposited in such fund or account. The Agency may comingle any amounts in any of the funds and accounts held under the Loan Agreement with any other amounts held by the Agency for the purposes of making any investment, provided that the Agency shall maintain separate accounting procedures for the investment of all funds and accounts held under the Loan Agreement. B-2

93 Events of Default and Acceleration of Maturities The following events will constitute Events of Default under the Loan Agreement: (a) (b) (c) Failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the Loan or any Parity Debt made under the Loan Agreement when and as the same shall become due and payable. Failure by the Agency to observe and perform any of the covenants, agreements or conditions on its part contained in the Loan Agreement, other than as referred to in the preceding clause (a), for a period of thirty (30) days after written notice, specifying such failure and requesting that it be remedied, has been given to the Agency by the Trustee; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30) day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Agency within such thirty (30) day period and thereafter is diligently pursued until such failure is corrected. The filing by the Agency of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Agency or of the whole or any substantial part of its property. Subject to the rights and obligations under the Senior Loan Agreement, if an Event of Default has occurred and is continuing with respect to the Loan, the Trustee may (a) declare the principal of the Loan, together with accrued interest on all unpaid installments thereof, to be due and payable immediately, and upon any such declaration the same will become immediately due and payable, anything in the Loan Agreement to the contrary notwithstanding, and (b) subject to receipt of satisfactory indemnity, exercise any other remedies available to the Trustee in law or equity. Immediately upon becoming aware of the occurrence of an Event of Default under the Loan Agreement, the Trustee shall give notice of such Event of Default to the Agency by telephone, telecopier or other telecommunication device confirmed in writing. This provision, however, is subject to the condition that if, at any time after the principal of the Loan has been so declared due and payable, and before any judgment or decree for the payment of the moneys due has been obtained or entered, the Agency deposits with the Trustee a sum sufficient to pay all installments of principal of the Loan matured prior to such declaration and all accrued interest thereon, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Trustee may, by written notice to the Authority and the Agency, rescind and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust the right or power consequent thereon. Application of Funds Upon Default Subject to the rights and obligations under the Senior Loan Agreement, all amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Loan Agreement, or otherwise held by the Trustee upon the occurrence of an Event of Default, shall be applied by the Trustee in the following order: B-3

94 First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default, including reasonable compensation to its agents, attorneys and counsel and any outstanding fees and expenses of the Trustee; and Second, to the payment of the whole amount of interest on and principal of the Loan and any Parity Debt then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Loan and such Parity Debt; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority: (a) (b) (c) (d) first, to the payment of all installments of interest on the Loan and any Parity Debt then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full; second, to the payment of all installments of principal of the Loan and any Parity Debt then due and payable, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full; third, to the payment of the prepayment price (including principal and interest accrued to the prepayment date, but excluding any premium) of the Loan and any Parity Debt to be redeemed pursuant to the Loan Agreement or Parity Debt Instrument, on a pro rata basis in the event that the available amounts are insufficient to pay all such prepayment price in full; and fourth, to the payment of interest on overdue installments of principal and interest with respect to the Loan and any Parity Debt, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full. Discharge of the Loan Agreement If the Agency shall pay and discharge the indebtedness on the Loan or any portion thereof in any one or more of the following ways: (1) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof, as and when the same become due and payable; (2) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an amount which, together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or the Loan Agreement, is fully sufficient in the opinion of Bond Counsel or an independent accountant to pay all principal of and interest and prepayment premiums (if any) on the Loan or such portion thereof; or (3) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Securities (as defined in the Indenture) in such amount as an independent accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or a Supplemental Indenture or the Loan Agreement, be fully sufficient to pay and discharge the indebtedness on the Loan or such portion thereof (including all principal, interest and prepayment premiums) at or before maturity; then, at the election of the Agency, the pledge of and lien upon the Tax Revenues and other funds provided for in the Loan Agreement and all other obligations of the Trustee, the Authority and the Agency under the Loan Agreement with respect to the Loan or such portion thereof shall cease and terminate, B-4

95 except only the obligation of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to the Loan or such portion thereof, and to pay all expenses and costs of the Trustee when and as such expenses and costs become due and payable. Notice of such election shall be filed with the Authority and the Trustee. In the case of a discharge of the entire indebtedness represented by the Loan, any funds thereafter held by the Trustee, which are not required for said purpose, shall be paid over to the Agency. Notwithstanding the foregoing, the obligations of the Agency shall not be discharged unless and to the extent the Bonds shall have been discharged in whole or in part pursuant to the Indenture. Additional Covenants Punctual Payment. The Agency will punctually pay or cause to be paid the principal of and interest and prepayment premium (if any) on the Loan in strict conformity with the terms of the Loan Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement. Limitation on Additional Debt. The Agency has covenanted that, except as necessary to refund outstanding bonds, so long as the Loan remains unpaid, the Agency will not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from all or any part of the Tax Revenues, excepting only Senior Debt, the Loan and any Parity Debt. In addition to the Loan and any Parity Debt, from time to time the Agency may issue or incur subordinate debt in such principal amount as shall be determined by the Agency, provided that the issuance of such subordinate debt shall not cause the Agency to exceed any applicable Plan Limitations. Payment of Claims. The Agency will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. The Agency will not be required to make any such payment so long as the Agency in good faith shall contest the validity of said claims. Books and Accounts; Financial Statements. The Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues and the Special Fund. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the inspection of the Authority, the Trustee and the Bond Owners as provided in the Loan Agreement, or their representatives authorized in writing. The Agency will cause to be prepared within one hundred and eighty (180) days after the close of each Fiscal Year so long as any of the Bonds are Outstanding, complete audited financial statements with respect to such fiscal year showing the Tax Revenues, all disbursements from the Special Fund and the financial condition of the Redevelopment Project, including the balances in all funds and accounts relating to the Redevelopment Project, as of the end of such Fiscal Year which statement shall be accompanied by a Certificate of the Agency stating that the Agency is in compliance with its obligations under the Loan Agreement. The Agency will furnish a copy of such statements, upon reasonable request, to any Bond Owner. Protection of Security and Rights. The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Bond Owners with respect to the Loan. Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area when the same shall become due. Nothing described herein will require the Agency to make any such payment so long B-5

96 as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and comply with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof. Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way and except property planned for public ownership or use by the Redevelopment Plan in effect on the date of the Loan Agreement) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in the Project Area. Maintenance of Tax Revenues. The Agency will comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County of Riverside and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not enter into any agreement with the City or any other governmental unit which would have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loan. The Agency has not and will not incur any loans, obligations or indebtedness repayable from Tax Revenues such that the total aggregate debt service on said loans, obligations or indebtedness incurred from and after the date of adoption of the Redevelopment Plan, when added to the total aggregate payments due on the Loan, the 2006 Loan, the Senior Debt and on any Parity Debt, will exceed the applicable maximum amount of Tax Revenues to be divided and allocated to the Agency pursuant to the Redevelopment Plan. Subject to the preceding sentences, nothing in the Loan Agreement is intended nor shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of any such agreement, amendment or supplement which by its term is subordinate to the payment of the Loan and Parity Debt. Payment of Administrative Expenses; Indemnification. The Agency shall pay to the Trustee all compensation for all services rendered under the Indenture and the Loan Agreement, including all reasonable expenses, charges, legal and consulting fees and other disbursements and those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties. Upon the occurrence of an Event of Default under the Loan Agreement, the Trustee shall have a first lien on the funds held by it under the Indenture and the Loan Agreement to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in the Loan Agreement. The Agency has further covenanted and agreed to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any loss, expense and liabilities which they may incur arising out of or in connection with the exercise and performance of their powers and duties, including the costs and expenses of defending against any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or intentional misconduct of the Trustee, its officers, directors, agents or employees. Such obligations of the Agency will survive the resignation or removal of the Trustee under the Indenture, the Loan Agreement and payment of the Loan and the discharge of the Loan Agreement. Tax Covenants. (a) Special Definitions. When used in this Section, the following terms have the following meanings: Bonds means, unless otherwise qualified, the Bonds. Computation Date has the meaning set forth in section (b) of the Tax Regulations. B-6

97 Gross Proceeds means any proceeds as defined in section (b) of the Tax Regulations (referring to sales, investment and transferred proceeds), and any replacement proceeds as defined in section (c) of the Tax Regulations, of the Bonds. Investment has the meaning set forth in section (b) of the Tax Regulations. Issue refers to any Bond or group of Bonds constituting an issue within the meaning of Section of the Tax Regulations. Unless otherwise indicated or made necessary by the context, each of the covenants and representations set forth below is intended to be made, and is made, separately with respect to each Issue of Bonds. Nonpurpose Investment means any investment property, as defined in section 148(b) of the Code, in which Gross Proceeds of the Bonds are invested and that is not acquired to carry out the governmental purposes of the Bonds. Rebate Amount has the meaning set forth in section (b) of the Tax Regulations. Tax Regulations means the United States Treasury Regulations promulgated pursuant to sections 103 and 141 through 150 of the Code, or section 103 of the 1954 Code, as applicable. Yield (i) (ii) of any Investment has the meaning set forth in section of the Tax Regulations; and of any issue of governmental obligations has the meaning set forth in section of the Tax Regulations. (b) (c) Not to Cause Interest to Become Taxable. Neither the Agency nor the Authority shall use, permit the use of, or omit to use Gross Proceeds or any other amounts (or any property the acquisition, construction or improvement of which is to be financed directly or indirectly with Gross Proceeds) in a manner that if made or omitted, respectively, could cause the interest on any Bond to fail to be excluded pursuant to Section 103(a) of the Code from the gross income, of the owner thereof for federal income tax purposes. Without limiting the generality of the foregoing, unless and until the Agency or the Authority receives a written opinion of Bond Counsel to the effect that failure to comply with such covenant will not adversely affect such exclusion of the interest on any Bond from the gross income of the owner thereof for federal income tax purposes, the Agency and the Authority, respectively, shall comply with each of the specific covenants in this Section. Private Use and Private Payments. Except as would not cause any Bond to become a private activity bond within the meaning of section 141 of the Code and the Tax Regulations, the Agency shall at all times prior to the final cancellation of the last of the Bonds to be retired: (i) exclusively own, operate and possess all property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with Gross Proceeds of the Bonds, and not use or permit the use of such Gross Proceeds (including through any contractual arrangement with terms different than those applicable to the general public) or any property acquired, constructed or improved with such Gross Proceeds in any activity carried on by any person or entity (including the United States or any agency, department and instrumentality thereof) other than a state or local government, unless such use is solely as a member of the general public; and B-7

98 (ii) not directly or indirectly impose or accept any charge or other payment by any person or entity (other than a State or local government) who is treated as using any Gross Proceeds of the Bonds or any property the acquisition, construction or improvement of which is to be financed or refinanced directly or indirectly with such Gross Proceeds, other than taxes of general application within its jurisdiction. (d) (e) (f) (g) (h) No Private Loan. Except as would not cause any Bond to become a private activity bond within the meaning of section 141 of the Code and the Tax Regulations and rulings thereunder, neither the Agency nor the Authority shall use Gross Proceeds of the Bonds to make or finance loans to any person or entity other than a state or local government. For purposes of the foregoing covenant, such Gross Proceeds are considered to be loaned to a person or entity if: (i) property acquired, constructed or improved with such Gross Proceeds is sold or leased to such person or entity in a transaction that creates a debt for federal income tax purposes; (ii) capacity in or service from such property is committed to such person or entity under a take-or-pay, output or similar contract or arrangement; or (iii) indirect benefits of such Gross Proceeds, or burdens and benefits of ownership of any property acquired, constructed or improved with such Gross Proceeds, are otherwise transferred in a transaction that is the economic equivalent of a loan. Not to Invest at Higher Yield. Except as would not cause the Bonds to become arbitrage bonds within the meaning of section 148 of the Code and the Tax Regulations and rulings thereunder, neither the Agency nor the Authority shall, at any time prior to the final cancellation of the last Bond to be retired, directly or indirectly invest Gross Proceeds in any Investment, if as a result of such investment the Yield of any Investment acquired with Gross Proceeds, whether then held or previously disposed of, would materially exceed the Yield of the Bonds within the meaning of said section 148. Not Federally Guaranteed. Except to the extent permitted by section 149(b) of the Code and the Tax Regulations and rulings thereunder, neither the Agency nor the Authority shall take or omit to take any action that would cause any Bond to be federally guaranteed within the meaning of section 149(b) of the Code and the Tax Regulations and rulings thereunder. Information Report. The Authority shall timely file any information required by section 149(e) of the Code with respect to Bonds with the Secretary of the Treasury on Form 8038-G or such other form and in such place as the Secretary may prescribe. Rebate of Arbitrage Profits. Except to the extent otherwise provided in section 148(f) of the Code and the Tax Regulations, with respect to the Bonds: (i) (ii) The Agency and Authority, as the case may be, shall account for all Gross Proceeds (including all receipts, expenditures and investments thereof) on its books of account separately and apart from all other funds (and receipts, expenditures and investments thereof) and shall retain all records of accounting for at least six years after the day on which the last Bond of the series is discharged. However, to the extent permitted by law, each of the Agency and the Authority may commingle Gross Proceeds of Bonds with its other moneys, provided that it separately accounts for each receipt and expenditure of Gross Proceeds and the obligations acquired therewith. Not less frequently than each Computation Date, the Agency shall calculate the Rebate Amount in accordance with rules set forth in section 148(f) of the Code and the Tax Regulations and rulings thereunder. The Agency promptly shall report to the Authority the results of such calculation, including the basis therefor, in sufficient detail and on a timely basis in order that the Authority be able to comply with its covenants herein. The Authority shall maintain a copy of the calculation with its official transcript of B-8

99 proceedings relating to the issuance of the Bonds until six years after the final Computation Date. (iii) In order to assure the excludability, pursuant to Section 103(a) of the Code, of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, the Authority has agreed pursuant to the Indenture to pay to the United States the amount that when added to the future value of previous rebate payments made for the Bonds equals (A) in the case of the Final Computation Date as defined in section (e)(2) of the Tax Regulations, one hundred percent (100%) of the Rebate Amount on such date; and (B) in the case of any other Computation Date, ninety percent (90%) of the Rebate Amount on such date. In all cases, such rebate payments shall be made by the Authority at the times and in the amounts as are or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder, and shall be accompanied by Form 8038-T or such other forms and information as is or may be required by section 148(f) of the Code and the Tax Regulations and rulings thereunder for execution and filing by the Authority. (iv) The Agency shall exercise reasonable diligence to assure that no errors are made in the calculations and payments required by paragraphs (b) and (c), and if an error is made, to discover, report to the Authority and promptly correct such error within a reasonable amount of time thereafter (and in all events within one hundred eighty (180) days after discovery of the error), including payment to the United States of any additional Rebate Amount owed to it, interest thereon, and any penalty imposed under section (h) or other provision of the Tax Regulations. (i) (j) Not to Divert Arbitrage Profits. Except to the extent permitted by section 148 of the Code and the Tax Regulations and rulings thereunder, neither the Agency nor the Authority shall, at any time prior to the final cancellation of the last of the Bonds to be retired, enter into any transaction that reduces the amount required to be paid to the United States pursuant to paragraph (h) of this Section because such transaction results in a smaller profit or a larger loss than would have resulted if the transaction had been at arm s length and had the Yields on the Bonds not been relevant to either party. Bonds Not Hedge Bonds. (i) (ii) The Agency represents that none of the prior issues nor the Bonds is or will become a hedge bond within the meaning of section 149(g) of the Code. Without limitation of paragraph (i) above: (A) the Agency reasonable expects (upon appropriate investigation) that on the date of issuance of the Bonds that at least 85% of the spendable proceeds of the Issue would be expended within the three-year period commencing on such date of issuance, and (B) no more than 50% of the proceeds of the Bonds will be invested in Nonpurpose Investments having a substantially guaranteed yield for a period of four years or more. (k) (l) Elections. The Agency hereby directs and authorizes any Authority Representative to make elections permitted or required pursuant to the provisions of the Code or the Tax Regulations, as such Representative (after consultation with Bond Counsel) deems necessary or appropriate in connection with the Bonds, in the Certificate as to Tax Exemption or similar or other appropriate certificate, form or document. Closing Certificate. Each of the Agency and the Authority agrees to execute and deliver in connection with the issuance of the Bonds a Tax and Nonarbitrage Certificate, or similar document containing additional representations and covenants pertaining to the exclusion of B-9

100 interest on the Bonds from the gross income of the owners thereof for federal income tax purposes, which representations and covenants are incorporated as though expressly set forth herein. Further Assurances. The Agency will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Loan Agreement and for the better assuring and confirming unto the Trustee, the Authority and the Bond Owners of the rights and benefits provided in the Loan Agreement. Amendment. The Loan Agreement may be amended by the parties thereto, but only under the circumstances set forth in, and in accordance with, the Indenture. The Indenture shall not be amended, nor shall the Authority agree or consent to any amendment of the Indenture, without the prior written consent of the Agency (except that such consent shall not be required in the event that an Event of Default shall have occurred and be continuing under the Loan Agreement). B-10

101 APPENDIX C FISCAL CONSULTANT REPORT C-1

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103 Appendix C I. Introduction REDEVELOPMENT AGENCY OF THE CITY OF PERRIS 1987 REDEVELOPMENT PROJECT Perris Public Financing Authority Tax Allocation Revenue Bonds (1987 Project Loan), 2009 Series A PROJECTED TAXABLE VALUES AND ANTICIPATED TAX INCREMENT REVENUES January 27, 2009 The City of Perris Public Financing Authority (the Authority), a joint powers authority consisting of the City of Perris and the Redevelopment Agency of the City of Perris (the Agency), is proposing to issue its Tax Allocation Revenue Bonds (1987 Project Loan), 2009 Series A (the Bonds). The Bonds will be secured with a pledge of and lien on the tax increment revenues derived from the 1987 Redevelopment Project (the Project Area). The California Community Redevelopment Law (the Law) provides for the creation of redevelopment agencies by cities and counties for the purpose of the elimination of blight. The Law, together with Article 16, Section 16 of the California Constitution, authorizes redevelopment agencies to receive that portion of property tax revenue generated by project area taxable values that are in excess of the Base Year value. The Base Year value is defined as the amount of the taxable values within the project area boundaries on the last equalized tax roll prior to adoption of the project area. The amount of current year taxable value that is in excess of the Base Year value is referred to as incremental taxable value. Tax revenues generated from the incremental taxable value are generally referred to as Tax Increment Revenues. The Law provides that the Tax Increment Revenues may be pledged by the redevelopment agency to the repayment of agency indebtedness. In this report, Gross Tax Increment Revenues, including Unitary Tax Revenue (see Section IV H, Allocation of State Assessed Unitary Taxes) are referred to as Gross Revenues. Tax Revenues are defined as Gross Revenues less the Housing Set-Aside Requirement (see Section V, Low and Moderate Income Housing Set-Aside), the SB 2557 County Administrative fees and collection charges (see Section IV G., County Collection Charges) and tax sharing payments (see Section VII, Tax Sharing Agreements and Other Obligations). The Bonds will be secured by a pledge of Tax Revenues from the Project Area. The purpose of this fiscal consultant report (the Report) is to examine Riverside County Auditor Controller s tax allocation practices, assessment appeals, assessed values for the current fiscal year and other pertinent circumstances and to project for nine fiscal years the amount of Tax Revenues anticipated to be received by the Agency from the Project Area. As a result of our research, we project that the Tax Revenues that will be pledged to the payment of debt service on the Bonds will be as shown in Table A below:

104 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 Table A Projected Tax Revenues (000 s omitted) Fiscal Year Incremental Value Gross Revenues Tax Revenues $282,814 $2,846 $1, ,152 2,871 1, ,628 2,926 1, ,214 2,982 1, ,912 3,039 1, ,724 3,097 1, ,651 3,157 1, ,698 3,218 1, ,865 3,280 1, ,156 3,343 1,360 The taxable values of property and the resulting Gross Revenues and Tax Revenues summarized above are reflected on Table 1 of the projections. These projections are based on assumptions determined by our review of the taxable value history of the Project Area and the property tax assessment and property tax apportionment procedures of Riverside County (the County). Future year assessed values, Gross Tax Revenues, and Tax Revenues are projections based upon the assumptions described in this Report, and are not guaranteed as to accuracy and this Report is not to be construed as a representation of such by HdL Coren & Cone. II. The Project Area The Perris City Council adopted the Plan establishing Project Area by Ordinance No. 687 on June 29, The Plan was subsequently amended by Ordinance No. 996 on December 12, The Project Area is an area of approximately 2,030 acres, divided between four non-contiguous areas throughout the City. The Ramona Expressway Subarea consists of 1,050 acres of industrial/commercial property, some with freeway visibility. Access to the southern portion of the subarea from Interstate 215 is via the Ramona Expressway interchange and through the central portion via the Oleander Avenue interchange. The subarea is bounded to the north by March Air Force Base. The land use in this historically agricultural area is designated 85% for general and light industrial uses, and the remaining 150 acres fronting the freeway are designated for commercial uses. The Goetz Road Subarea encompasses 547 acres in the southern portion of the City and is bordered by an Atchison, Topeka and Santa Fe rail line. The 85 acre Perris Valley Airport is located in the Goetz Road Subarea as is the Orange Empire Railway Museum. The East San Jacinto Avenue Subarea comprises 96 acres of commercial property with freeway access and visibility. The existing development includes a retail center constructed in The agency hopes to attract additional retail uses for this subarea. C - 2

105 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 The West Fourth Street Subarea is located in the west-central portion of the City, bisected east to west by Highway 74 (Fourth Street) and paralleled on the east by the Atchison, Topeka and Santa Fe rail line. The subarea is developed with older residential neighborhoods comprised of one- and two-story single family homes with small neighborhood commercial strip centers. The subarea also contains the western fringe of the City s commercial downtown area. Fourth Street (Highway 74 links the Perris Valley with Lake Elsinore to the west and Hemet to the east. A. Land Use The following Table B represents the breakdown of land use in the Project Area by assessed value for Fiscal Year Unsecured and SBE Non-Unitary values are assigned to secured parcels already accounted for in the other land use categories and do not, therefore, have numbers of parcels listed. Land use categories are taken from the Riverside County land use designations provided in conjunction with the tax roll data and do not necessarily correspond to the zoning or general plan land use designations of the City of Perris. Table B Taxable Values by Land Use Category (000 s omitted) Category Parcels Taxable Value % Residential 347 $54,273, % Commercial 39 25,773, % Industrial 53 80,934, % Dry Farm 7 7,730, % Institutional 4 1,205, % Vacant Land ,141, % Miscellaneous 3 1,688, % Exempt % Possessory Int. [5] 106, % Unsecured [111] 36,365, % Totals: 999 $311,219, % B. Redevelopment Plan Limits Chapter 942, Statutes of 1993 (See Section VI B below), as codified in Section of the Law, limits the life of redevelopment plans adopted prior to January 1, 1994 to 40 years from the date of adoption or January 1, 2009, whichever is later. It also limits the period within which a redevelopment project area may receive tax increment to the life of the redevelopment plan plus ten years beyond the termination of redevelopment activities except to accommodate certain specific low and moderateincome housing obligations or to pay debt service on bonds, indebtedness or other financial obligations authorized prior to January 1, Such redevelopment plans are further required to include a limitation on the number of tax increment dollars that may be allocated to the redevelopment agency; a time limit on the establishing of indebtedness to be repaid with tax increment; and a limit on the amount of bonded indebtedness to be repaid with tax increment that can be outstanding at one time. These limits can be extended only by an amendment of the redevelopment plan. C - 3

106 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 For redevelopment plans adopted prior to 1994, Chapter 942 stipulates that the time limit for establishing indebtedness shall not exceed 20 years from the adoption of the redevelopment plan or January 1, 2004, whichever is later. Chapter 741, Statutes of 2001, was adopted under SB 211 and amends several sections of the Law that control time limitations for redevelopment project areas. Limitations, that under prior legislation could not be amended or had different amendment procedures, in accordance with this section, may be modified through project area amendments as set forth in this section of the Law (see Section VI, Legislation). On September 30, 2008, the City Council adopted Ordinance No (which Ordinance will be effective 30 days thereafter) which amended the original redevelopment plan for the Project Area such that the time limits for establishment of loans, advances and indebtedness were eliminated. Pursuant to Senate Bill 1045 (see Section VI, Legislation) the City Council adopted Ordinance No on September 27, 2005 to extend the term of redevelopment plan effectiveness of each project area by one year. This extension in turn extends the terms of each redevelopment plan s effectiveness and the period within which the project areas may repay indebtedness by one year as allowed by SB The City Council may further extend the term of the redevelopment plans and the period within which the Agency may repay indebtedness as allowed by SB The Project Area is not eligible for this extension. Plan Expiration Table C Summary of Redevelopment Plan Limits Last Date to Incur New Debt Last Date to Repay Debt with Tax Increment Tax Increment Limit Limit on Total Tax Increment Bond Debt June 28, 2028 Eliminated June 28, 2038 $355 million $87 million III. Project Area Assessed Values A. Assessed Values Taxable values are prepared and reported by the County Auditor-Controller each fiscal year and represent the aggregation of all locally assessed properties which are part of the Project Areas. The assessments are assigned to Tax Rate Areas (TRA) which are coterminous to the boundaries of the Project Areas. The historic reported taxable values for the Project Area were reviewed in order to ascertain the rate of taxable property valuation growth over the most recent eleven fiscal years beginning with (see Table 3 of the projections). C - 4

107 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 There has been substantial growth in the Project Area since its inception. The taxable values for Project Area represent tax increment value of $282,814,140 from Since , the 1987 Project has experienced positive growth in every fiscal year. During this ten year period, taxable value the 1987 Project grew steadily every year increasing by $212,069,617 (213.9%). Secured values added $185,386,641 (207.2%) and although unsecured values had decreased in , and , unsecured values added $26,682,976 (275.6%) during the ten year period. Increased were due to growth in residential and industrial development and transfer of ownership of vacant land. The following Table D illustrates the changes in incremental value for the Project Area in the current and previous nine fiscal years and the percentage increase over the prior year that these values represent. Table D Project Area Incremental Value Change Incremental Value % Change $70,744, ,139, % ,254, % ,887, % ,792, % ,475, % ,184, % ,859, % ,847, % ,814, % The Assessor completed an annual review of properties in the County, including the Project Area, and made adjustments for decline in value. Such adjustments are included in the taxable values. There were 55 of the 347 residential parcels in the Project Area with Proposition 8 reductions resulting in a value decrease of $2,123,538. Despite this reduction, assessed value within the Project Area had increased by percent. B. Top Ten Taxable Property Owners A review of the top ten taxable property owners in the Project Areas for fiscal year was conducted. Within Project Area, the aggregate taxable value of the ten largest taxpayers totaled $96,455,361 or 30.99% of taxable property values and 34.11% of the incremental value. Table E below details the valuations of the top ten taxpayers. The largest taxpayer represents 8.15% of the Project Area s incremental value, and 8.96% of the incremental value. C - 5

108 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 Table E Project Area Top Ten Property Owners Assessed % Total % Incremental Value Value Value Project Area Total & Incremental Values 311,219,486 $282,814,140 1 Oakmont Ramona Expressway 25,365, % 8.97% 2 CR & R Inc. 20,151, % 7.13% 3 WLPX Perris Venue LLC 10,259, % 3.63% 4 FR California Goetz 7,140, % 2.53% 5 FR California Perris 7,042, % 2.49% 6 Nic Oleander 6,768, % 2.39% Malbert 5,854, % 2.07% 8 James M. & Janie M. Dakan 4,791, % 1.69% 9 Safar & Safar Brothers Inc. 4,645, % 1.64% 10 Magnolia Industrial Park 4,437, % 1.57% Totals $96,455, % 34.11% IV. Tax Allocation and Disbursement A. Property Taxes The taxable values of property are established each year on the property tax lien date. Prior to 1997 the lien date was March 1 for locally assessed property and January 1 for State assessed utility property. Beginning with 1997, the lien date is also January 1 for locally assessed property. Real Property reflects the reported assessed values for secured and unsecured land and improvements. Pursuant to Article XIIIA of the State Constitution the value of locally assessed Real Property may only be increased up to two percent annually to reflect inflation. Real Property values are also permitted to increase as a result of a change of ownership or new construction. Utility property assessed by the State Board of Equalization may be revalued annually and such assessments are not subject to the inflation limitations of Article XIIIA. The taxable value of Personal Property is also established on the lien dates and is not subject to the annual two percent limit of locally assessed Real Property. Secured property includes property on which any property tax levied by a county becomes a lien on that property. Unsecured property typically includes value for tenant improvements, fixtures and personal property. A tax levied on unsecured property does not become a lien against the taxed unsecured property, but may become a lien on certain other secured property owned by the taxpayer. The taxes levied on unsecured property are levied at the previous year's secured property tax rate. B. Supplemental Assessments Chapter 498 of the Statutes of 1983 provides for the reassessment of property upon a change of ownership or completion of new construction. Such reassessment is referred to as the Supplemental Assessment and is determined by applying the current year's tax rate to the amount of increase in a C - 6

109 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 property's value and prorating the resulting property taxes to reflect the portion of the tax year remaining as determined by the date of the change in ownership or completion of new construction. Supplemental Assessments become a lien against Real Property. Since revenues derived from Supplemental Assessments have been allocated to redevelopment agencies and taxing entities in the same manner as regularly collected property taxes. The receipt of Supplemental Tax Revenues by taxing entities typically follows the change of ownership by a year or more. We have not included revenues resulting from Supplemental Assessments in our projection. C. Tax Rates Tax rates will vary from area to area within the State, as well as within a community and a project area. The tax rate for any particular parcel is based upon the jurisdictions levying the tax rate for the area where the parcel is located. The tax rate consists of the general levy rate of $1.00 per $100 of taxable values and the over-ride tax rate. The over-ride rate is that portion of the tax rate that exceeds the general levy tax rate and is levied to pay voter approved indebtedness or contractual obligations that existed prior to the enactment of Proposition XIII. A Constitutional amendment approved in June 1983 allows the levy of over-ride tax rates to repay indebtedness for the acquisition and improvement of real property, upon approval by a two-thirds vote. A subsequent amendment of the Constitution prohibits the allocation to redevelopment agencies of tax revenues derived from over-ride tax rates levied for repayment of indebtedness approved by the voters after December 31, The over-ride tax rates typically decline each year as a result of (1) increasing property values (which would reduce the over-ride rate that must be levied to meet debt service) and (2) the eventual retirement of debt over time. The Project Area consists of 23 Tax Rate Areas. A Tax Rate Area is a geographic area within which the taxes on all property are levied by a certain set of taxing entities. These taxing entities each receive a prorated share of the general levy and those taxing entities with voter approved over-ride tax rates receive the revenue resulting from that tax rate. The tax rates for the fiscal year are not fully available from the County. The tax increment projections are, however, based on the correct tax rates for The override tax rate levied by the Metropolitan Water District is authorized by a contract for purchase of water from the California Water Project and will not reach its termination date until Therefore, we have held the tax rate constant at $ for the life of our projections. The following Table F shows the two different tax rates for the 21 Tax Rate Areas in the 1987 Project, their components and their percentage of secured and unsecured incremental values: C - 7

110 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 Table F Project Area Tax Rates Taxing Entities Tax Rate 1 Tax Rate 2 Tax Rate 3 Tax Rate 4 General Levy Metropolitan Water District RDA Applicable Rate Perris School* Perris Union High School * Riverside City Community College* Total Rate % of Secured Incremental Value 50.15% 49.70% 0.13% 0.02% % of Unsecured Incremental Value 64.48% 35.52% 0.00% 0.00% Tax Rate 1 TRA s , , , , , , and Tax Rate 2 TRA s , , , , , , , , , and Tax Rate 3 TRA s and Tax Rate 4 TRA s and * Approved after 1988 and not available for allocation to the Agency. The rates are not yet available. These figures reflect the rates. D. Allocation of Taxes Secured taxes are due in two equal installments. Installments of taxes levied upon secured property become delinquent on December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31. Riverside County disburses secured and utility tax increment revenue to redevelopment agencies in five installments during the fiscal year. Supplemental tax roll revenue and homeowner s exemption revenue is distributed periodically during the fiscal year with the final reconciliation being remitted in September following the close of the fiscal year. The County s practice is to distribute 100 percent of the taxes levied on the extended tax roll subject to any tax sharing agreement with the County. The tax revenues of the taxing entities are not subject to revenue loss due to delinquencies or gains due to redemptions. This is an administrative practice of the County that could be subject to change. For purposes of this Report we have assumed that this practice will continue and have estimated future taxes based the Agency receiving 100 percent of the amount levied. E. Annual Tax Receipts to Tax Levy As indicated in the section above, the County Auditor Controller allocates tax revenue to the Agency at 100 percent of the calculated revenue and does not allocate based on collections. The Agency receives 100 percent of the amount levied for any particular year. F. Assessment Appeals Within 1987 Project there have been 35 assessment appeals filed since Of the 35 appeals filed, two have been allowed with a reduction in value and seven have been denied. There are 26 C - 8

111 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 appeals currently pending within 1987 Project. Based on the historical averages, we expect that six pending appeals will be allowed. A reduction of $2,254,317 has been incorporated in the projection as a reduction to the assessed value. Reductions in revenue for refunds resulting from these successful appeals have not been estimated. Our estimates are based upon the historical averages of successful appeals and amounts of value reductions. Actual appeals, reductions and refunds may vary from historical averages. Our estimated reductions in values are reflected on Tables 1 and 2 of the projections. G. County Collection Charges Chapter 466 allows counties to recover charges for property tax administration in an amount equal to their property tax administration costs, adjusted annually. The County billed the Agency a $22,232 for the fiscal year. This amount was withheld from tax revenue allocations by the Auditor-Controller for the Project Area. For the Project Area, this amount equated to 0.87% of the Project Area s Gross Revenue. For purposes of our projection, we have assumed that the County will continue to charge the Agency for property tax administration and that such charge will annually equate to 0.87%of the Project Area s Gross Revenue for the remainder of the Projection (see Tables 1 and 2). H. Allocation of State Assessed Unitary Taxes Legislation enacted in 1986 (Chapter 1457) and 1987 (Chapter (921) provided for a modification of the distribution of tax revenues derived from utility property assessed by the State Board of Equalization (the SBE), other than railroads. Prior to the fiscal year, property assessed by the SBE was assessed statewide and was allocated according to the location of individual components of a utility in a tax rate area. Commencing in , tax revenues derived from unitary property assessed by the SBE is accumulated in a single Tax Rate Area for the County and distributed to each taxing entity in the County in the following manner: (1) each taxing entity will receive the same amount as in the previous year plus an increase for inflation of up to two percent; (2) if utility tax revenues are insufficient to provide the same amount as in the previous year, each taxing entity's share would be reduced pro-rata county wide; and (3) any increase in revenue above two percent would be allocated in the same proportion as the taxing entity's local secured and taxable values are to the local secured taxable values of the County. To administer the allocation of unitary tax revenues to redevelopment agencies, the County no longer includes the taxable value of utilities as part of the reported taxable values of the project area and thus, reduced the base year of project areas by the amount of utility value that existed originally in the base year. The County Auditor-Controller remitted $6,894 in unitary revenue to the Agency for Project Area during the fiscal year. These revenue amounts tend to remain fairly constant but are subject to adjustments by the SBE for inflation growth, declines in value due to assessment appeals by utility companies and others taxed under this system and increases in value resulting from development of new facilities. Because we cannot reasonably project changes in this revenue stream, we have assumed that the unitary tax revenue will remain constant in future years. C - 9

112 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 V. Low and Moderate Income Housing Set-Aside Sections and of the Law require redevelopment agencies to set aside 20 percent of all tax increment revenues from project areas adopted after December 31, 1976 into a low and moderate income housing fund (the Housing Set-Aside Requirement). Section of the Law makes this requirement applicable to those redevelopment projects adopted prior to December 31, An agency may only reduce the Housing Set-Aside Requirement if the agency annually determines, consistent with the housing element of the general plan of the Agency's legislative body that: (1) no need exists in the community to improve or increase the supply of low and moderate income housing; (2) some stated percentage less than 20 percent of the tax increment is sufficient to meet the housing need. In order to make findings (1) or (2), the Agency's finding must be consistent with the housing element of the community's general plan, including its share of the regional housing needs of very low income households and persons and families of low or moderate income. No such findings have been made by the Agency and, thus, 20 percent of gross revenue has been projected as being set aside from the Project Area. VI. Legislation SB 211 was signed into law as Chapter 741, Statutes of This legislation has two main impacts on the limits contained in an agency s redevelopment plan. First, the City Council may eliminate the time limit to establish indebtedness in Project Areas adopted prior to January 1, 1994 by ordinance. If the Plan is so amended, any existing tax sharing agreements will continue and certain statutory tax sharing for entities without tax sharing agreements will commence in the year the eliminated limit would have taken effect. Second, the City Council may extend the time limit for plan effectiveness and repayment of debt for up to ten years if it can make certain specified findings. The Agency eliminated the time limit on incurrence of new indebtedness by Ordinance 1247 on September 30, In order to address State Budget deficits, the Legislature enacted SB 614, SB 844 and SB 1135 that required payments from redevelopment agencies for the , and fiscal years into a countywide ERAF. The Agency could have used any funds legally available and not legally obligated for other uses, including reserve funds, bond proceeds, earned income, and proceeds of land sales, but not moneys in the Low and Moderate Income Housing Fund (the Housing Fund) to satisfy this obligation. An agency could have reduced its payment due to existing indebtedness, contractual obligations and 90 percent of administrative costs (collectively, Existing Obligations). If an agency could not make the required payment due to Existing Obligations, it could have borrowed up to 50 percent of its contribution to the Housing Fund (which must be repaid within ten years), or the agency was required to obtain a loan from the city/county in order to pay the difference between what the agency pays and the total amount due. For agencies that did not borrow to meet any shortfall of the required payment, the county auditor-controller was required to deduct any amount due from the city/county's allocation of property taxes. This obligation applied to the agency and not to specific Project Areas. According to the Agency, it has no outstanding ERAF obligations. In addition to the payments from redevelopment agencies periodic State budget solutions have involved the shifting of property tax revenues from cities, counties and special districts to the ERAF. C - 10

113 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 From to state budgets were adopted with no additional shifting of tax increment from redevelopment agencies; however, the State Budget required a shift of $75 million of tax increment statewide from redevelopment agencies to ERAF to meet the state budget shortfall. AB 1768 (Chapter 1127, Statutes of 2002) was enacted by the Legislature and signed by the Governor and based upon the methodology provided in the budget the shift requirement for the Agency was $97,054 for fiscal year only. The Agency made the required payment without impacting its payment of debt service and other obligations. As part of the State s budget legislation, SB 1045 (Chapter 260, Statutes of 2003) required redevelopment agencies statewide to contribute $135 million to local County ERAFs which reduces the amount of State funding for schools. This transfer of funds was limited to Fiscal Year only. The amount of revenue that was transferred by the Agency to the Riverside County ERAF for was $182,850. The Agency made this payment to the County by the May 10, 2004 deadline without impacting its payment of debt service on existing indebtedness. Under the Law as amended by SB 1045, the Agency was authorized to use a simplified methodology to amend the individual redevelopment plans to extend by one year the effectiveness of the plan and the time during which the Agency may repay debt with tax increment revenues. In addition, the amount of this payment and the ERAF payments made in prior years may be deducted from the amount of the Project Areas cumulative tax increment revenues. The Agency extended the life of the Plan pursuant to SB This amendment was adopted by Ordinance No The extension of time is reflected in the projections and in the Project Area limits shown in Table D. After the State s budget for was approved by the legislature and signed by the Governor, Senate Bill 1096 was adopted. Pursuant to SB 1096, redevelopment agencies within the State paid a combined total of $250 million to ERAF in each of fiscal years and using the same formula as was used for Annual payments were due on May 10 of each fiscal year. As in previous years, payments were allowed to be made from any available funds other than the Housing Fund. If an agency was unable to make a payment, it was allowed to borrow up to 50 percent of the current year Housing Set-Aside Revenues, however, such borrowed amounts must be repaid to the Housing Fund within 10 years of the last ERAF payment (May 10, 2006). The Agency s portion of the statewide ERAF requirement for was $322,546. The Agency s payment amount was $323,300. The ERAF requirements were subordinate to the payment of debt service on the existing bonds and the Agency made such payments on time. SB 1096 made provision for extensions of project area effectiveness of one year for each of the two payments required. For project areas that have less than 10 years of plan effectiveness remaining after June 30, 2005 a one year extension is authorized. For project areas that have more than 10 years and less than 20 years of plan effectiveness remaining after June 30, 2005 a one year extension is authorized if the City Council can make certain findings that the Agency is in compliance with specified state housing requirements. These requirements are: 1) that the Agency is setting aside 20 percent of gross tax increment revenue; 2) housing implementation plans are in place; 3) replacement housing and inclusionary housing requirements are being met; and, 4) no excess surplus exists. For those project areas with more than 20 years of plan effectiveness remaining after June 30, 2005 no extension of time is authorized. C - 11

114 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 In addition, for project areas that have less than 10 years of plan effectiveness remaining after June 30, 2006 a one year extension is authorized. For project areas that have more than 10 years and less than 20 years of plan effectiveness remaining after June 30, 2006 a one year extension is authorized if the City Council can make certain findings that the Agency is in compliance with specified state housing requirements. These requirements are: 1) that the Agency is setting aside 20 percent of gross tax increment revenue; 2) housing implementation plans are in place; 3) replacement housing and inclusionary housing requirements are being met; and, 4) no excess surplus exists. For those project areas with more than 20 years of plan effectiveness remaining after June 30, 2006 no extension of time is authorized. The Project Area is not eligible for this extension. In Fiscal Year the Legislature enacted AB 1389 into law to require a $350 million shift for from redevelopment agencies to ERAF. There will be no repayment of this amount nor are any extensions of redevelopment plan limits provided. The Low and Moderate Housing Requirement will not apply to the amount paid for the ERAF. The amount that the Agency will be required to pay is $775,691. The payment may come from any available Agency revenues. The Agency may borrow up to 50 percent of the ERAF obligation from its current year Housing Set-Aside Requirement. The ERAF payment is subordinate to debt existing at the date of enactment of AB An Agency that cannot make the payment due to existing indebtedness may borrow from their legislative body. Failure to make the ERAF payment will result in penalties that effectively stop new activities of the Agency. The Agency cannot predict whether the State Legislature will enact any other legislation requiring additional or increased future shifts of tax increment revenues to the State and/or to schools, whether through an arrangement similar to ERAF or by other arrangements, and, if so, the effect on future Tax Revenues. Legislation, AB 1389, enacted with the state budget requires redevelopment agencies to report their statutory payments pursuant to AB 1290 and SB 211 to their county auditors. Redevelopment agencies are to report to their county auditors their Statutory Payments by each project area, and each taxing agency for each of past five years ( through ) by October 1, 2008, and annually by October 1 st for the next six years. This information is to be consolidated by the counties and reported to the State Controller. The State Controller is then responsible for disseminating the appropriate information, including redevelopment agencies whose calculations are determined by the counties to not be in concurrence with the requirements of AB 1290, to the Legislative Analyst, the State Department of Finance, the State Board of Education, and the Board of Governors of the California Community Colleges. In the event of a dispute the redevelopment agency has 15 days to revise and resubmit its report, submit a statement of dispute identifying the issues, amend the report, or submit the report to the State Controller with the county s analysis. The legislation allows the State Controller to revoke a county finding of concurrence and direct an agency to resubmit a report to the county if the Controller finds significant errors in the report. When the State Controller submits its report to the Legislative Analyst and the Department of Finance it is required to summarize the statements of dispute including whether the Controller or other state entity has provided instructions as to how these disputes should be resolved. Ultimately, for agencies with unresolved disputes, the State Controller with the concurrence C - 12

115 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 of the State Director of Finance, may waive the penalties and interest charges for late payments (see Penalties and Interest below) for 12 months for agencies that filed a statement of dispute that, in the opinion of the Controller, is likely to be resolved in a manner consistent with an agency s position. After February 1, 2009, an agency listed on the most recent State Controller s report for which the county has not issued a finding of concurrence or that has outstanding Statutory payments to a local educational agency, will be subject to penalties and interest charges. The penalties, would prevent the agency from adding new project areas or expanding existing areas, issuing new bonds or other obligations including refunding, encumbering or expending any funds derived from any source except to pay existing loans, contractual obligations, tax-sharing agreements or housing set-aside deposits. Administrative costs would be limited 75 percent of the average monthly amount spent on administration in the previous fiscal year. Such identified agencies would also incur interest costs on any Statutory Payment that is not paid by 60 days after the close of the fiscal year in which the pass-through payment was required. The interest rate would be 150 percent of the current Pooled Money Investment Account earnings annual yield beginning 60 days after the close of the fiscal year for which the Statutory Payment was due. The State Controller, with the concurrence of the State Director of Finance may waive the penalties and interest for up to 12 months for agencies identified by as not in concurrence when a dispute by an agency that is likely to be sustained, when the agency has paid the local educational agencies or had the county withhold a disputed amount, or if the agency would sustain a fiscal hardship if it made the payments in the amount estimated by the county auditor. Although the Project Area will not incur statutory tax sharing payments until Fiscal Year , the County has not concurred with the Agency s calculations for the Agency s other two redevelopment project areas and the Agency has filed a letter of dispute with the County. In order to avoid the penalties, the Agency will make the required payments to the local educational agencies the amounts specified by the County and undisputed amounts to other taxing entities by February 1, This procedure will allow the Agency to avoid the penalties while pursuing a resolution to the disputed issues. We have reflected the County methodology in our projections. VII. Tax Sharing Agreements and Other Obligations Tax Sharing Agreements A. Tax Sharing Obligations The Agency has entered into several tax sharing agreements for each of the Project Areas. On Tables 1 and 2 of each projection, we indicate our calculation of the impact of the agreements identified by the Agency and deduct the amounts estimated to be shared with other entities from the tax increment revenue. The pass through agreements for each Project Area is outlined below. 1. Riverside County Pursuant to the tax sharing agreement with Riverside County, the County receives approximately 24.68% of the 1% General Levy (the County Share ). In each year in which Tax Increment Revenues are $700,000 or less, the Agency will receive 100% of the County s Share; in each year in which Tax Increment Revenues are between $700,000 and $1,500,000 the Agency will receive 75% of the C - 13

116 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 County s Share; in each year in which Tax Increment Revenues are $1,500,000 and $3,500,000 the Agency will receive 50% of the County s Share; in each year in which Tax Increment Revenues are between $3,500,000 and $6,000,000 the Agency will receive 25% of the County s Share; in each year in which Tax Increment Revenues are $6,000,000 or more, the Agency will not receive any portion of the County s Share. The Agency must reimburse the County for each year in which the County did not receive 100% of the County Share. Such reimbursement will commence in the fiscal year following the year in which the Agency receives $6,000,000 in annual Tax Increment Revenues, and will continue for 15 equal annual installments. The reimbursement of the County Share will be net of any amounts deposited by the Agency into the I-215 Interchange Account. For any year in which the County deposits funds to the County s I-215 Interchange Account, the Agency is required to make a similar deposit. This fund is to provide for the construction of a freeway interchange at the I-215 and Placentia Road in Perris. The County and the Agency are currently seeking alternative funding and plan to construct the interchange. The Agency has covenanted to satisfy it obligation to the I-215 Interchange Account. 2. Riverside County Flood Control District Pursuant to the pass-through agreement with the Riverside County Flood Control District, the District receives approximately 4.27% of the 1% General Levy) the Flood Control District Share ). The Agency will be allocated 100% of the Flood control District s Share, but to be used only for operational and maintenance cost expended by the Flood Control district and certain drainage and flood control improvement authorized pursuant to the tax sharing agreement. The entire Flood Control District Share has been deducted from projected Tax Revenues to be set aside by the Agency for these authorized expenditures. 3. Eastern Municipal Water District Pursuant to the tax sharing agreement with the Eastern Municipal Water District, EMWD receives approximately 5.01% of the 1% General Levy (the EMWD Share ). The Agency received 100% of the EMWD Share during the first five years. Beginning with the sixth year, EMWD receives 80% of the EMWD Share and the Agency reimbursed 80% of the EMWD Share collected in the first five years, such reimbursement to be paid in 30 equal installments of $1,999 each. Thirteen annual installments have been paid to date. EMWD also receives any Tax Increment Revenues generated by the tax override levied to service any EMWD indebtedness. 4. Perris Union High School Pursuant to the tax sharing agreement with the Perris Union High School, Perris Union receives approximately 13.47% of the 1% General Levy (the Perris Union Share ). The Perris Union Share is distributed 30% to Perris Union, 5% to the Perris Union Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Perris Union Share to Perris Union for Tax Increment Revenues generated from the development of excess Perris Union School Property within the 1987 Redevelopment Project. Perris Union also receives any Tax Increment Revenues generated by the tax override levied to service any Perris Union indebtedness. [Includes the Perris Junior High portion] C - 14

117 Perris Redevelopment Agency Fiscal Consultant s Report January 27, Riverside Community College District Pursuant to the tax sharing agreement with the Riverside Community College District, the District receives approximately 2.48% of the 1% General Levy (the RCC Share ).The RCC Share is distributed 35% to RCC and 65% to the Agency. The Agency will also pay an additional 15% of the RCC Share to RCC for Tax Increment Revenues generated from the development of excess RCC School Property within the 1987 Redevelopment Project. RCC also receives any Tax Increment Revenues generated by the tax override levied to service any RCC indebtedness. 6. Mt. San Jacinto Community College District Pursuant to the tax sharing agreement with the Mt. San Jacinto Community College District, the District receives approximately 1.69% of the 1% General Levy (the SJCC Share ).The SJCC Share is distributed 35% to SJCC and 65% to the Agency. The Agency will also pay an additional 15% of the SJCC Share to SJCC for Tax Increment Revenues generated from the development of excess SJCC School Property within the 1987 Redevelopment Project. SJCC also receives any Tax Increment Revenues generated by the tax override levied to service any SJCC indebtedness. 7. Riverside County Office of Education Pursuant to the tax sharing agreement with the Riverside County Office of Education, the District receives approximately 3.80% of the 1% General Levy (the Office of Education Share ).The Office of Education Share is distributed 35% to Office of Education and 65% to the Agency. The Agency will also pay an additional 15% of the Office of Education Share to Office of Education for Tax Increment Revenues generated from the development of excess Office of Education School Property within the 1987 Redevelopment Project. Office of Education also receives any Tax Increment Revenues generated by the tax override levied to service any Office of Education indebtedness. 8. Perris Elementary School Pursuant to the tax sharing agreement with the Perris Elementary School, Perris Elementary receives approximately 11.81% of the 1% General Levy (the Perris Elementary Share ). The Perris Elementary Share is distributed 30% to Perris Elementary, 5% to the Perris Elementary Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Perris Elementary Share to Perris Elementary for Tax Increment Revenues generated from the development of excess Perris Elementary School Property within the 1987 Redevelopment Project. Perris Elementary also receives any Tax Increment Revenues generated by the tax override levied to service any Perris Elementary indebtedness. 9. Val Verde Elementary School Pursuant to the tax sharing agreement with the Val Verde Elementary School, Val Verde Elementary receives approximately 12.55% of the 1% General Levy (the Val Verde Elementary Share ). The Val Verde Elementary Share is distributed 30% to Val Verde Elementary, 5% to the Val Verde Elementary Offsite Fund and 65% to the Agency. The Agency will also pay an additional 15% of the Val Verde Elementary Share to Val Verde Elementary for Tax Increment Revenues generated from the development of excess Val Verde Elementary School Property within the 1987 Redevelopment Project. Val Verde Elementary also receives any Tax Increment Revenues generated by the tax override levied to service any Val Verde Elementary indebtedness. C - 15

118 Perris Redevelopment Agency Fiscal Consultant s Report January 27, Romoland School District Romoland School District receives approximately % of the 1% General Levy (the Romoland Share ) net of housing set-aside. B. Tax Sharing Statutes Pursuant to section of the Health and Safety Code, within project areas adopted prior to January 1, 1994, any amendment that increases the amount of tax increment to be received by a Project or extends any of the measure s required time limits triggers payments to taxing entities with whom the agency does not have a tax sharing agreement. The AB 1290 payments, which are to begin the fiscal year following the year that the project s original plan limitations would have taken effect, are calculated using the increase in assessed value above the amount of assessed value in the project area in the year that the former limit would have been reached. On, September 30, 2008, the City Council adopted Ordinance No eliminating the last date for the Project Area to issue new debt. The AB 1290 time limit on incurring debt for the Project Area was June 28, Commencing with fiscal year and using the valuations as an adjusted base year value, the Agency shall pay to the affected taxing entities an amount that is 25 percent of all tax increment revenue derived from the incremental increase in assessed value above the adjusted base year value after deducting the 20 percent housing set-aside obligation. This first tier of tax sharing continues for the life of the Project Area. Payments are only to those entities without tax sharing agreements. The City of Perris may elect to receive the share of the first tier of tax sharing. In addition, beginning in fiscal year and using the values for as an adjusted base year value, the Agency must pay to affected taxing entities, after deducting the 20 percent housing set-aside obligation, an amount that is 21 percent of the revenue derived from the increase in assessed value above the new adjusted base year value. This second tier of tax sharing payment will also continue for the life of the Project Area and be paid only to the taxing entities that have not entered into agreements. The City may not elect to receive its share. A third tier of tax sharing payments will not be applicable because the Plan terminates on June 28, As a result of the reporting requirements related to AB 1389, the Agency is currently disputing the County Auditor Controller methodology for the calculation of the statutory tax sharing payments. Section (b)(2) states that the tax sharing amounts pursuant to subdivisions (b), (c), (d) and (e) of Section be calculated against the amount of assessed value by which the current year assessed value exceeds an adjusted base year assessed value. Under the Auditor-Controller s methodology the current year assessed value is interpreted to include supplemental values, prior year collections, unitary revenue and other Agency revenues and revenue adjustments that are derived from sources other than current year assessed values. This inclusion of revenues from other than current year assessed values has, in connection with the unduly reduced adjusted base year value, resulted in C - 16

119 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 the Auditor-Controller calculating the amount of the tax sharing requirement to be far in excess of the amounts calculated by the Agency. Until the dispute issue are resolved with the County Auditor Controller, we have reflected the County s methodology in our projections. VIII. Court Decisions Santa Ana Decision The State Court of Appeals upheld a Superior Court decision which held the Santa Ana School District had the right to receive payments from the Orange County Redevelopment Agency pursuant to a resolution adopted by the School District in 1999 under former Section 33676(a) of the Law (Santa Ana Unified School District v. Orange County Redevelopment Agency; App. 4 Dist Cal. Rptr.2d 770, 90 Cal. App 4th 404, review denied). Former Section 33676(a) (2) provided that, unless a negotiated tax sharing agreement had been entered into, upon passage of a resolution prior to adoption of a redevelopment plan, affected taxing agencies and every school and community college district could elect to be allocated increases in the assessed value of taxable property in the project area based on inflation growth (the Base Year Inflation Adjustment). Former Section 33676(a)(2) was repealed as part of major revisions made to the Law pursuant to the Reform Act of 1993 (AB 1290). The changes to the Law contained in AB1290 were effective as of January 1, The Court of Appeals affirmed the lower court ruling that due to an amendment to former Section 33676(a) that was adopted in 1984 and became effective on January 1, 1985, school and community college districts were to automatically receive the 2% Property Tax Increase even without adopting the appropriate resolution prior to the adoption of a redevelopment plan. Although the 1987 Project was adopted during this time frame, the Agency had entered into tax sharing agreements with each of the school districts. As a result, they are unaffected by the ruling in this case. IX. Development Activities A review of recent transfers of ownership has been conducted and a number of transfers were found to have occurred after the January 1, 2008 lien date for the current fiscal year. These transfers of ownership occurred from January 1, 2008 through July 1, As a result, the sales values on these transfers of ownership are expected to be reflected in the tax rolls for There were ten transfers of ownership found within the 1987 Project. Of the ten transfers, one buyer, Apostolic Assembly of Faith & Church appears to potentially be eligible for a welfare exemption. These transfers of ownership are expected to result in a decrease of value in the amount $149,576 to the tax roll. In addition, based on data provided by DataQuick, there are eleven parcels in foreclosure with outstanding mortgages that may result in a reduction of $642,822. The impacts of these transfers are included in the Projections of Incremental Taxable Value and Tax Increment Revenue and shown in detail on Table 4 (New Development). C - 17

120 Perris Redevelopment Agency Fiscal Consultant s Report January 27, 2009 X. Trended Taxable Value Growth Growth in real property land and improvement values have been limited to an assumed rate of growth of real property taxable values of two percent annually as allowed under Article XIIIA of the State Constitution. A two percent growth rate has been assumed because it is the maximum inflationary growth rate permitted by law and this rate of growth has been achieved in all but five years since The years in which less than two percent growth was realized were (1.0%), (1.19%), (1.11%), (1.85%) and (1.867%). If in future years the growth of taxable value in the project area is less than two percent, the resultant Tax Increment Revenues would be reduced. As a result of the recent nationwide increase in defaults on residential mortgages there has been concern expressed in the financial market over the possible impact that these defaults may have on redevelopment agency revenues in general. Reliable information on foreclosure activity is difficult to find and what information that is available is not readily applicable to discrete areas within cities and redevelopment project areas. Much of the information available is segregated by county or ZIP code. The Project Area contained less than 5% of the total parcels within the City and less than 3% of the total residential parcels within the City. Based on this information it seems unlikely that foreclosures within the Project Area will have a significant impact on Project Area assessed values and revenues. According to transfer of ownership reported by DataQuick, there have been eleven parcels within the Project Area that appear to have foreclosure activity. All 88 parcels are yet to be sold. HdL Coren & Cone make no representation that taxable values will actually grow at two percent. Future values will also be affected by changes of ownership and new construction not reflected in our projections. In addition, the values of property previously reduced in value due to assessment appeals based on reduced market values could increase more than two percent when real estate values increase more than two percent (see Section IV A above). Seismic activity and environmental conditions such as hazardous substances that are not anticipated in this report might also impact property taxes and Tax Increment Revenue. HdL Coren & Cone makes no representation that taxable values will actually grow at the rate projected. Anticipated revenues could be adjusted as a result of unidentified assessment appeal refunds, other Assessor corrections discussed previously, or unanticipated increases or decreases in property tax values. Estimated valuations from developments included in this analysis are based upon our understanding of the general practices of the Riverside County Assessor and Auditor-Controller s Office. General assessment practices are subject to policy changes, legislative changes, and the individual appraiser's judgment. While we believe our estimates to be reasonable, taxable values resulting from actual appraisals may vary from the amounts assumed in the projections. F:/Bond Services/Tax Allocation/Perris 1987 Project/FCR 3 C - 18

121 Redevelopment Agency of the City of Perris 1987 Redevelopment Project Projection of Incremental Taxable Value & Tax Increment Revenue (000's Omitted) 27-Jan-09 Table Redevelopment Project Taxable Values (1) Real Property (2) 271, , , , , , , , , ,825 Personal Property (3) 39,736 39,736 39,736 39,736 39,736 39,736 39,736 39,736 39,736 39,736 Total Projected Value 311, , , , , , , , , ,561 Taxable Value over Base 28, , , , , , , , , , ,156 Gross Tax Increment Revenue (4) 2,840 2,864 2,919 2,975 3,032 3,090 3,150 3,211 3,273 3,336 Unitary Tax Revenue Gross Revenues 2,847 2,871 2,926 2,982 3,039 3,097 3,157 3,218 3,280 3,343 LESS: SB 2557 Admin. Fee (5) (25) (25) (25) (26) (26) (27) (27) (28) (28) (29) Pass Throughs Riverside County Taxing Entities (6) (350) (353) (359) (366) (373) (381) (388) (395) (403) (411) Val Verde Unified (7) (125) (126) (128) (130) (133) (135) (138) (141) (143) (146) Perris Union High School (8) (134) (135) (137) (140) (143) (145) (148) (151) (154) (157) Perris Area Elem School Fund (9) (117) (118) (120) (123) (125) (127) (130) (132) (135) (138) Romoland School (10) (0) (0) (0) (0) (0) (0) (0) (0) (0) (0) Riverside City Community College (11) (25) (25) (25) (26) (26) (27) (27) (28) (28) (29) Mt. San Jacinto Community College (12) (17) (17) (17) (18) (18) (18) (19) (19) (19) (20) County Office of Education (13) (38) (38) (39) (39) (40) (41) (42) (43) (43) (44) Riverside County Flood Control (14) (121) (122) (124) (127) (129) (132) (134) (137) (140) (142) Eastern Municipal Water District (15) (116) (117) (119) (121) (123) (126) (128) (130) (133) (135) SB 211 Statutory Pass Throughs Tier 1 Passthrough to All Taxing Entities (16) 0 (44) (47) (49) (51) (54) (56) (59) (61) (64) Tier 2 Passthrough to All Taxing Entities (16) Net Tax Revenues 1,782 1,752 1,784 1,817 1,850 1,885 1,919 1,955 1,991 2,028 Housing Set Aside Requirement (17) Non-Housing Set-Aside Tax Revenues 1,212 1,178 1,199 1,221 1,243 1,265 1,288 1,311 1,335 1,360 F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

122 Redevelopment Agency of the City of Perris 1987 Redevelopment Project Projection of Incremental Taxable Value & Tax Increment Revenue Footnotes 27-Jan-09 Table 1 - Continued (1) Taxable values as reported by Riverside County. (2) Real property consists of land and improvements. Decreased for transfer sales (see Table Redevelopment Project) and increased 2% annually for inflation. In , values were reduced by $2,254,317 for estimated value loss from six pending appeals. (3) Personal property is held constant at level. (4) Projected Gross Tax Increment is based upon incremental taxable values factored against an assumed Project tax rate and adjusted for indebtedness approved by voters after Future tax rates are assumed to remain constant at $ per $100 of taxable value. Tax rates related to indebtedness approved after 1989 have been omitted from the calculation. (5) County Administration fee is estimated at 0.87% of Gross Revenue. (6) Riverside County (including Library & Structural Fire) receives: 0% of its share of general levy tax increment where tax increment value is less than $700,000; 25% of its share of general levy tax increment where tax increment value is greater than or equal to $700,000 and less than $1,500,000; 50% of its share of general levy tax increment where tax increment value is greater than or equal to $1,500,000 and less than $3,500,000; 75% of its share of tax increment where tax increment value is greater than or equal to $3,500,000 and less than $6,000,000; and 100% of its share of general levy tax increment where tax increment value is greater than or equal to $6,000,000. A 15 year repayment of amounts, less 1/2 of any funds in the I-215 Interchange, for years when collection rate was less than 100% commences when tax increment value is greater than or equal to $6,000,000. (7) Val Verde Unified School District receives 35% of its share (12.55%) of general levy tax increment, where 5% of its share is deposited in a trust fund administered by the Agency. (8) Perris Union High School District receives 35% of its share (13.47%) of general levy tax increment, where 5% of its share is deposited in a trust fund administered by the Agency. (9) Perris Elementary School District receives 35% of its share (11.81%) of general levy tax increment, where 5% of its share is deposited in a trust fund administered by the Agency. (10) Romoland School District receives 80% of its share (0.0002%) of general levy tax increment. (11) Riverside City Community College District receives 35% of its share (2.48%) of general levy tax increment. (12) Mt. San Jacinto Community College District receives 35% of its share (1.69%) of general levy tax increment. (13) Riverside County Office of Education receives 35% of its share (3.80%) of general levy tax increment. (14) Riverside County Flood Control District receives 100% of its share (4.27%) of general levy tax increment upon either: completion of agreed upon Project Improvements and payment of all associated costs incurred by the Agency in connection with the Project Improvements; or termination of the Redevelopment Plan. (15) Eastern Municipal Water District receives its share (5.01%) of the general levy tax increment net of housing set aside. In addition, the Agency reimburses EMWD $1,999 annually for the EMWD share the Agency collected in the first five years of the Project. (16) Payment of SB 211 statutory tax sharing inititated in fiscal year , the year after the date to incur indebtedness in the original plan (January 1, 2004) has lapsed. All Taxing Entities (69.08%) other than those that already have pass throughs receive their shares of 25% of tax revenue on incremental value above the year 1 value net of housing set aside. In addition, after year 10, Taxing Entities receive 21% of tax revenue on incremental value above the year 10 value net of housing set aside. (17) Housing Set Aside calculated at 20% of Adjusted Gross Revenue. F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

123 Redevelopment Agency of the City of Perris 1987 Redevelopment Project PROJECTION OF INCREMENTAL VALUE AND TAX INCREMENT REVENUE (000s Omitted) 27-Jan-09 Table Redevelopment Project Tax Revenues Components Taxable Value Housing Non-Housing Total Over Base Gross Tax SB 2557 Pass-Throughs SB 211 Tax Sharing Payments Tax Set-Aside Set-Aside Taxable Value 28,405 Revenue Charge Agreements Tier 1 Tier 2 Revenues Tax Revenues Tax Revenues , ,814 2,847 (25) (1,041) 0 0 1, , , ,152 2,871 (25) (1,050) (44) 0 1, , , ,628 2,926 (25) (1,070) (47) 0 1, , , ,214 2,982 (26) (1,090) (49) 0 1, , , ,912 3,039 (26) (1,111) (51) 0 1, , , ,724 3,097 (27) (1,132) (54) 0 1, , , ,651 3,157 (27) (1,154) (56) 0 1, , , ,698 3,218 (28) (1,176) (59) 0 1, , , ,865 3,280 (28) (1,199) (61) 0 1, , , ,156 3,343 (29) (1,222) (64) 0 2, , , ,572 3,407 (29) (1,245) (66) 0 2, , , ,117 3,473 (30) (1,269) (69) (3) 2, , , ,793 3,540 (31) (1,511) (72) (5) 1, , , ,602 3,608 (31) (1,541) (75) (8) 1, , , ,548 3,678 (32) (1,568) (78) (10) 1, , , ,632 3,749 (32) (1,599) (81) (12) 2, , , ,858 3,822 (33) (1,630) (84) (15) 2, , , ,229 3,896 (34) (1,661) (87) (17) 2, , , ,746 3,971 (34) (1,693) (90) (20) 2, , , ,415 4,048 (35) (1,726) (93) (23) 2, , , ,236 4,127 (36) (1,760) 0 0 2, , , ,215 4,207 (36) (1,794) 0 0 2, , , ,352 4,289 (37) (1,829) 0 0 2, , , ,653 4,372 (38) (1,864) 0 0 2, , , ,119 4,457 (39) (1,900) 0 0 2, , , ,755 4,544 (39) (1,937) 0 0 2, , , ,563 4,632 (40) (1,975) 0 0 2, , , ,548 4,723 (41) (2,014) 0 0 2, , , ,712 4,815 (42) (2,053) 0 0 2, , , ,060 4,908 (42) (2,093) 0 0 2, , ,025 (978) (45,907) (1,277) (113) 64,750 22,605 42,145 F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

124 Redevelopment Agency of the City of Perris 1987 Redevelopment Project HISTORICAL VALUES (1) 27-Jan-09 Table Redevelopment Project BASE YEAR Secured (2) Land 14,770,673 46,113,409 46,526,125 47,326,396 47,502,877 50,893,039 58,531,314 73,100,869 97,180, ,281, ,453,585 Improvements 12,749,171 40,885,284 41,347,200 43,666,856 45,089,696 48,559,861 52,659,597 59,304,435 72,273,494 96,821, ,586,615 Personal Prop 82,445 5,094,197 5,122,431 5,131,221 5,466,419 5,268,325 5,230,350 6,009,207 8,910,342 12,722,473 14,764,457 Exemptions (1,260,882) (2,625,853) (2,675,794) (2,821,752) (2,931,046) (2,448,253) (2,434,171) (2,528,694) (2,655,578) (4,700,117) (4,950,979) TOTAL SECURED 26,341,407 89,467,037 90,319,962 93,302,721 95,127, ,272, ,987, ,885, ,709, ,124, ,853,678 Unsecured Land 0 164, , , , , , ,226 70,643 65,620 63,994 Improvements 991,599 2,841,760 5,257,501 7,009,011 8,055,152 6,209,093 6,734,765 8,300,421 9,601,467 7,746,448 11,329,825 Personal Prop 1,072,340 6,733,761 8,771,366 9,043,378 9,791,439 10,471,608 9,019,033 13,403,333 23,308,303 22,939,967 25,737,089 Exemptions 0 (57,500) (92,400) 0 23,300 (34,199) (91,400) (160,000) (424,800) (623,600) (765,100) TOTAL UNSECURE 2,063,939 9,682,832 14,224,586 16,356,699 18,164,885 16,924,545 15,893,299 21,703,980 32,555,613 30,128,435 36,365,808 GRAND TOTAL 28,405,346 99,149, ,544, ,659, ,292, ,197, ,880, ,589, ,264, ,253, ,219,486 Incremental Value: 70,744,523 76,139,202 81,254,074 84,887,485 90,792, ,475, ,184, ,859, ,847, ,814,140 Annual Change: 7.63% 6.72% 4.47% 6.96% 11.77% 27.31% 39.23% 38.91% 13.19% (1) Source: County of Riverside County Lien Date Rolls (2) Secured values include state assessed non-unitary utility property. F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

125 Redevelopment Agency of the City of Perris 1987 Redevelopment Project New Development 27-Jan-09 Table Redevelopment Project 000's omitted SqFt/ Total Less Total Value REAL Units Value Value Existing Added Start Complete $0 $ $0 $ $0 $ $0 $ Transfer Sales (Jan. 1 -Jul 1, 2008) 10 $0 $3,963,181 4,112,757 (150) Completed (150) Trust Transactions (Foreclosure) 11 $0 $1,928,151 2,570,973 (643) (643) Total Real Property: 5,891,332 6,683,730 (792) (792) Adj. Annually for 2.0% PERSONAL Start Complete Total Personal Property: Total Real and Personal Property: (792) F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

126 Redevelopment Agency of the City of Perris 1987 Redevelopment Project TOP TEN TAXABLE PROPERTY OWNERS (1) 27-Jan-09 Table Redevelopment Project Secured Unsecured Total % of % of % of Value Parcels Sec. AV Value Parcels Unsec. AV Value Total Value Use Code 1. Ramona Expressway Oakmont $25,365, % $ % 25,365, % Vacant Land - Light Industrial Five Buildings Planned / approx. 1.6 million sq. ft. 2. CR & R Inc. $20,151, % $ % 20,151, % Industrial, Vacant Land CR & R Waste Services - recycling facility 3. WLPX Perris Venue LLC $10,259, % $ % 10,259, % Vacant Land - Commercial Target Center - projected opening ,000 sq. ft. of retail space offered 4. FR California Goetz $7,140, % $ % 7,140, % Industrial, Vacant Land Pomeroy Corp. - Pre-cast concrete products (site planned for redevelopment - First Perris Airport Distribution Center Potential 769,000 sq ft development) 5. FR California Perris $7,042, % $ % 7,042, % Industrial Perris Ranch Business Park - Newly completed 61,700 sq. ft. available 6. Nic Oleander $6,768, % $ % 6,768, % Vacant Land - Light Industrial Malbert $5,854, % $ % 5,854, % Industrial Timber Towne Furniture - Showroom and manufacturing facility 8. James M. & Janie M. Dakan $4,791, % $ % 4,791, % 9. Safar & Safar Brothers Inc. $4,590, % $55, % 4,645, % Commercial, Vacant Land Inland Auto Boat & RV Commercial, Unsecured Arco Gas & AMPM Mini Mart 10. Magnolia Industrial Park $4,437, % $ % 4,437, % Vacant Land - Industrial $96,400, % $55, % $96,455, % Project Area Assessed Valuation Totals: $274,853,678 $36,365,808 $311,219,486 Project Area Incremental Value Totals: $248,512, % $34,301, % $282,814, % (1) top property owners current as of July 1, F:\Bond Services\Tax Allocation Bonds\Perris 2008\Projection 8 - cm

127 APPENDIX D AGENCY FINANCIAL STATEMENTS D-1

128 (THIS PAGE LEFT BLANK INTENTIONALLY)

129 PERRIS REDEVELOPMENT AGENCY FINANCIAL STATEMENTS Year Ended June 30, 2008

130 Perris Redevelopment Agency Financial Statements Year Ended June 30, 2008 TABLE OF CONTENTS Independent Auditors Report PAGE i Basic Component Unit Financial Statements: Government-wide Financial Statements: Statement of Net Assets 1 Statement of Activities 2 Fund Financial Statements: Balance Sheet - Governmental Funds 3-4 Reconciliation of the Balance Sheet of Governmental Funds to the Statement of Net Assets 5 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 6-7 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities 8 Notes to the Financial Statements 9-28 Required Supplementary Information: Notes to Required Supplementary Information 29 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual: Central / North Project Area Special Revenue Fund 30 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual: 1987 Project Area Special Revenue Fund 31 Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual: 1994 Project Area Special Revenue Fund 32 Independent Auditors Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 33

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