$11,155,000 CITY OF UKIAH WATER REVENUE REFUNDING BONDS, SERIES 2016

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1 NEW ISSUE BOOK ENTRY ONLY RATINGS: Insured Bonds: S&P: AA S&P Underlying: A+ See the caption RATINGS herein In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California ( Bond Counsel ), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. See the caption TAX MATTERS. $11,155,000 CITY OF UKIAH WATER REVENUE REFUNDING BONDS, SERIES 2016 Dated: Date of Issuance Due: September 1, as set forth on the inside front cover page The 2016 Bonds are being issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York. Purchasers of the 2016 Bonds will not receive securities representing their beneficial ownership in the 2016 Bonds purchased. Interest on the 2016 Bonds is payable on September 1, 2016 and each March 1 and September 1 thereafter, until the maturity thereof. The principal of and interest on the 2016 Bonds are payable by the Trustee to Cede & Co., and such interest and principal payments are to be disbursed to the Beneficial Owners of the 2016 Bonds through their nominees. The 2016 Bonds are subject to optional redemption as more fully described herein. The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay all amounts payable under the Installment Sale Agreement, dated as of September 1, 2005, by and among the City, the Association of Bay Area Governments and Wells Fargo Bank, National Association, as trustee; (ii) to prepay all amounts payable under a loan contract with the State of California Department of Water Resources; (iii) to purchase a municipal bond insurance policy from Assured Guaranty Municipal Corp. to guarantee the payment of principal of and interest on the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive; (iv) to purchase a municipal bond debt service reserve insurance policy from Assured Guaranty Municipal Corp. for deposit in the Reserve Fund for the 2016 Bonds; and (v) to pay costs of issuance of the 2016 Bonds, all as more fully described herein. The 2016 Bonds are being issued pursuant to the Indenture of Trust, dated as of March 1, 2016, by and between the City of Ukiah and Wells Fargo Bank, National Association, as trustee. The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City s municipal water system remaining after payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under the Indenture. The City may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest on the 2016 Bonds, subject to the terms and conditions of the Indenture, as more fully described herein. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The scheduled payment of principal of and interest on the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive (the Insured Bonds ), when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Insured Bonds by ASSURED GUARANTY MUNICIPAL CORP. THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE See Inside Front Cover Page The 2016 Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the 2016 Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by David Rapport, City Attorney, for the Underwriter by its counsel, Nixon Peabody LLP, for the Insurer by its counsel and for the Trustee by its counsel. It is anticipated that the 2016 Bonds will be available for delivery through the facilities of The Depository Trust Company on or about March 1, Dated: February 18, 2016

2 MATURITY SCHEDULE BASE CUSIP * $11,155,000 CITY OF UKIAH WATER REVENUE REFUNDING BONDS, SERIES 2016 Maturity Date (September 1) Principal Amount Interest Rate Yield Price CUSIP * 2016 $475, % 0.400% AA , AB , AC , AD , AE , AF , AG , AH , AJ , A , A , (c) AM , (c) AN , (c) AP , (c) AQ , (c) AR , AS , AT , AU , A 5 American Bankers Association by S&P Capital IQ. Copyright data herein is for the accuracy of such numbers. Insured Bond. (c)

3 No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement in connection with the offering made hereby and, if given or made, such other information or representations must not be relied upon as having been authorized by the City 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 2016 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the 2016 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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 set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expression 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 City since the date hereof. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2016 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE 2016 BONDS TO CERTAIN DEALERS, DEALER BANKS, BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE COVER PAGE HEREOF, AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT HISTORICAL FACTS BUT FORECASTS AND FORWARD-LOOKING STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN THIS RESPECT, THE WORDS ESTIMATE, PROJECT, ANTICIPATE, EXPECT, INTEND, BELIEVE AND SIMILAR EXPRESSIONS ARE INTENDED TO 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. ALL PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER FORWARD-LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. The 2016 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The 2016 Bonds have not been registered or qualified under the

4 securities laws of any state. The Indenture has not been qualified under the Trust Indenture Act of 1939, as amended, in reliance upon an exemption contained in such act. The City maintains a website. However, the information presented there is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2016 Bonds. Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the 2016 Bonds or the advisability of investing in the 2016 Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the caption BOND INSURANCE and Appendix F SPECIMEN MUNICIPAL BOND INSURANCE POLICY.

5 CITY OF UKIAH COUNTY OF MENDOCINO STATE OF CALIFORNIA MAYOR AND MEMBERS OF THE CITY COUNCIL Steve Scalmanini, Mayor Jim Brown, Vice Mayor Kevin Doble, Council Member Maureen Mulheren, Council Member Douglas Crane, Council Member STAFF Sage Sangiacomo, City Manager Karen Scalabrini, Finance Director Kristine Lawler, City Clerk Tim Eriksen, Public Works Director/City Engineer Sean White, Water and Sewer Utilities Director SPECIAL SERVICES City Attorney David Rapport Rapport & Marston Ukiah, California Financial Advisor Public Financial Management Inc. San Francisco, California Bond Counsel and Disclosure Counsel Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California Trustee Wells Fargo Bank, National Association San Francisco, California

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7 TABLE OF CONTENTS Page SUMMARY STATEMENT... i WATER REVENUE REFUNDING BONDS, SERIES INTRODUCTION... 1 General... 1 Changes Since the Date of the Preliminary Official Statement... 2 REFUNDING PLAN Installment Sale Agreement... 2 State Loan... 2 THE 2016 BONDS... 3 General Provisions... 3 Transfers and Exchanges Upon Termination of Book Entry Only System... 3 Redemption of the 2016 Bonds... 4 Notice of Redemption... 4 Book Entry Only System... 5 DEBT SERVICE PAYMENT SCHEDULE... 5 SECURITY FOR THE 2016 BONDS... 6 Limited Obligations Payable From Net Revenues... 6 Rate Covenant... 6 Additional Indebtedness... 6 Reserve Fund... 7 Insurance; Reconstruction, Repair and Replacement... 9 Rate Stabilization Fund ESTIMATED SOURCES AND USES OF FUNDS BOND INSURANCE Bond Insurance Policy Assured Guaranty Municipal Corp THE CITY OF UKIAH General Service Area and Land Use City Council Employees and Management Defined Benefit Pension Plan No Other Post-Employment Benefits Budget Process City Insurance No Parity Obligations Seismic Considerations Financial Statements THE WATER SYSTEM OF THE CITY General Water Supply Drought Measures The Water System Largest Water System Customers Water System Rates and Charges Future Water System Improvements Water System Reserves Historic Water System Operating Results and Debt Service Coverage i

8 TABLE OF CONTENTS (continued) Page Projected Water System Operating Results and Debt Service Coverage CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB Proposition Proposition Future Initiatives CERTAIN RISKS TO BONDHOLDERS Limited Obligations Accuracy of Assumptions System Demand System Expenses Limited Recourse on Default Rate-Setting Process under Proposition Statutory and Regulatory Compliance Natural Disasters Limitations on Remedies Loss of Tax Exemption Secondary Market Parity Obligations Risks Associated with Bond Insurance APPROVAL OF LEGAL PROCEEDINGS LITIGATION TAX MATTERS RATINGS UNDERWRITING CONTINUING DISCLOSURE UNDERTAKING FINANCIAL ADVISOR FINANCIAL INTERESTS MISCELLANEOUS APPENDIX A FINANCIAL STATEMENTS... A-1 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE... B-1 APPENDIX C FORM OF OPINION OF BOND COUNSEL... C-1 APPENDIX D INFORMATION CONCERNING DTC... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT... E-1 APPENDIX F SPECIMEN MUNICIPAL BOND INSURANCE POLICY... F-1 ii

9 SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement, and the offering of the 2016 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay all amounts payable under the Installment Sale Agreement, dated as of September 1, 2005, by and among the City, the Association of Bay Area Governments and Wells Fargo Bank, National Association, as trustee; (ii) to prepay all amounts payable under a loan contract with the State of California Department of Water Resources; (iii) to purchase a municipal bond insurance policy from Assured Guaranty Municipal Corp. to guarantee the payment of principal of and interest on the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive; (iv) to purchase a municipal bond debt service reserve insurance policy from Assured Guaranty Municipal Corp. for deposit in the Reserve Fund for the 2016 Bonds; and (v) to pay costs of issuance of the 2016 Bonds, all as more fully described herein. See the captions REFUNDING PLAN, BOND INSURANCE and ESTIMATED SOURCES AND USES OF FUNDS. Security for the 2016 Bonds. The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City s municipal water system remaining after payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under the Indenture. The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2016 Bonds in the future as described herein. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. See the caption SECURITY FOR THE 2016 BONDS. Refunding Plan. A portion of the proceeds of the 2016 Bonds will be transferred to Wells Fargo Bank, National Association, as trustee with respect to the 2005 Installment Sale Agreement, on the date of issuance of the 2016 Bonds. The amount transferred to Wells Fargo Bank, National Association will be applied on such date to prepay the $11,485,000 principal amount outstanding under the 2005 Installment Sale Agreement, plus accrued interest with respect thereto. A portion of the proceeds of the 2016 Bonds, together with moneys held in certain funds and accounts established in connection with the below-described loan contract, will also be delivered to the State of California Department of Water Resources to prepay all amounts payable under a loan contract with the State of California Department of Water Resources, which is currently outstanding in the principal amount of $1,046, See the caption REFUNDING PLAN. Rate Covenant. The Indenture requires the City, at all times while any of the 2016 Bonds remain unpaid, to the fullest extent permitted by law, to fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service provided by the Water System which are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues (which, when calculated for purposes of the foregoing covenant, do not include amounts transferred from the Rate Stabilization Fund pursuant to the Indenture that are in excess of 20% of Debt Service for such Fiscal i

10 Year) equal to 120% of Debt Service for such Fiscal Year. See the caption SECURITY FOR THE 2016 BONDS Rate Covenant. Additional Contracts and Bonds. The Indenture permits the City to execute any Contracts or issue any Bonds on a parity with the obligation to pay principal of and interest on the 2016 Bonds, provided that certain conditions are satisfied as described herein. See the caption SECURITY FOR THE 2016 BONDS Additional Indebtedness. The Indenture also permits the City to execute or issue obligations payable on a subordinate basis to the 2016 Bonds. Bond Insurance. Payment of the principal of and interest on the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive, will be insured by a municipal bond insurance policy to be issued by Assured Guaranty Municipal Corp. concurrently with the issuance of the 2016 Bonds. See the caption BOND INSURANCE. Payment of the principal of and interest on the 2016 Bonds maturing on September 1 of the years 2016 through 2018, inclusive, is not insured by a municipal bond insurance policy. Reserve Fund. A Reserve Fund for the 2016 Bonds has been established pursuant to the Indenture. Assured Guaranty Municipal Corp. has committed to issue, concurrently with the issuance of the 2016 Bonds, a municipal bond debt service reserve insurance policy for the benefit of the 2016 Bonds in an initial principal amount equal to $928,718.76, which constitutes the Reserve Requirement. The Reserve Policy will be deposited in the Reserve Fund. The City is not obligated (i) to make any additional deposits into the Reserve Fund in the event that Assured Guaranty Municipal Corp. defaults on its obligation to make payments under the Reserve Policy or (ii) to replace the Reserve Policy in the event of a rating downgrade of Assured Guaranty Municipal Corp. See the caption SECURITY FOR THE 2016 BONDS Reserve Fund. Redemption. The 2016 Bonds are subject to optional redemption prior to maturity as described herein. See the caption THE 2016 BONDS Redemption of the 2016 Bonds. The City and the Water System. The City encompasses approximately five square miles and is located in Mendocino County, approximately 100 miles north of San Francisco in the northern coastal region of the State on U.S. Highway 101. The area is centrally located between the San Francisco Bay area, Eureka and Sacramento. The City was incorporated in 1876 and is a general law city operating under a City Council/City Manager form of government. The City has an estimated population of approximately 16,075 people. In Fiscal Year 2015, the Water System supplied approximately 2,156 acre-feet of potable water through approximately 4,570 single-family residential and 1,151 multi-family residential and commercial (including governmental, landscape, fire service and other) connections. The Water System s service area includes the incorporated area of the City and certain adjacent unincorporated areas. The City s primary source of water is surface water, which is supplied by the Russian River and two alluvial wells adjacent thereto. The City also extracts groundwater from three wells located in the Ukiah Valley Groundwater Basin. For information concerning the Water System, see the caption THE WATER SYSTEM OF THE CITY. For general information regarding the City, see the caption THE CITY OF UKIAH and Appendix A. ii

11 $11,155,000 CITY OF UKIAH WATER REVENUE REFUNDING BONDS, SERIES 2016 INTRODUCTION General This Official Statement, including the front cover page, the inside front cover page and all appendices hereto, provides certain information concerning the sale and delivery of the City of Ukiah Water Revenue Refunding Bonds, Series 2016 (the 2016 Bonds ). The 2016 Bonds are being issued pursuant to an Indenture of Trust, dated as of March 1, 2016 (the Indenture ), by and between the City of Ukiah (the City ) and Wells Fargo Bank, National Association, San Francisco, California, as trustee (the Trustee ). The 2016 Bonds are being issued to provide funds, together with certain other moneys: (i) to prepay all amounts payable under the Installment Sale Agreement, dated as of September 1, 2005 (the 2005 Installment Sale Agreement ), by and among the City, the Association of Bay Area Governments ( ABAG ) and Wells Fargo Bank, National Association, as trustee, which is currently outstanding in the principal amount of $11,485,000; (ii) to prepay all amounts payable under Loan Contract No. E54304, dated September 30, 1988 (the State Loan ), by and between the City and the State of California Department of Water Resources ( DWR ), which is currently outstanding in the principal amount of $1,046,582.05; (iii) to purchase a municipal bond insurance policy (the Policy ) from Assured Guaranty Municipal Corp. ( AGM or the Insurer ) to guarantee the payment of principal of and interest on the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive (the Insured Bonds ); (iv) to purchase a municipal bond debt service reserve insurance policy (the Reserve Policy ) from the Insurer for deposit in the Reserve Fund for the 2016 Bonds; and (v) to pay costs of issuance of the 2016 Bonds. See the captions REFUNDING PLAN, BOND INSURANCE and ESTIMATED SOURCES AND USES OF FUNDS. The 2016 Bonds are limited obligations of the City payable solely from Net Revenues, which consist of Revenues of the City s municipal water system (the Water System ) remaining after payment of Operation and Maintenance Costs of the Water System, as such terms are defined in Appendix B, and from amounts on deposit in certain funds and accounts created under the Indenture. The City may incur additional obligations payable on a parity with the obligation to pay principal of and interest on the 2016 Bonds in the future as described under the caption SECURITY FOR THE 2016 BONDS Additional Indebtedness. The 2016 Bonds are subject to optional redemption prior to maturity as described herein. See the caption THE 2016 BONDS Redemption of the 2016 Bonds. Payment of the principal of and interest on the Insured Bonds will be insured by the Policy to be issued by the Insurer concurrently with the issuance of the 2016 Bonds. See the caption BOND INSURANCE. Payment of the principal of and interest on the 2016 Bonds maturing on September 1 of the years 2016 through 2018, inclusive (the Uninsured Bonds ), is not insured by a municipal bond insurance policy. A Reserve Fund for the 2016 Bonds has been established pursuant to the Indenture. The Insurer has committed to issue, concurrently with the issuance of the 2016 Bonds, the Reserve Policy for the benefit of the 2016 Bonds in an initial principal amount equal to $928,718.76, which constitutes the Reserve Requirement. The Reserve Policy will be deposited in the Reserve Fund. The City is not obligated (i) to make any additional deposits into the Reserve Fund in the event that the Insurer defaults on its obligation to make payments under the Reserve Policy or (ii) to replace the Reserve Policy in the event of a rating downgrade of the Insurer. See the caption SECURITY FOR THE 2016 BONDS Reserve Fund. 1

12 The summaries and references to the Indenture and all documents, statutes, reports and other instruments referred to herein do not purport to be complete, comprehensive or definitive, and each such summary or reference is qualified in its entirety by reference to the full Indenture or the respective document, statute, report or instrument, copies of which are available for inspection at the offices of the City in Ukiah, California and will be available from the Trustee upon request and payment of duplication cost. Capitalized terms used and not otherwise defined herein have the meanings ascribed to them in Appendix B. The capitalization of any word not conventionally capitalized or otherwise defined herein indicates that such word is defined in the Indenture and, as used herein, has the meaning given to it in the Indenture. Unless otherwise indicated, all financial and statistical information herein has been provided by the City. The City regularly prepares a variety of reports, including audits, budgets and related documents. Any registered owner of the 2016 Bonds may obtain a copy of such reports, as available, from the Trustee or the City. Additional information regarding the Official Statement may be obtained by contacting the Trustee or the City of Ukiah, 300 Seminary Avenue, Ukiah, California 95482, Attention: Finance Director. Changes Since the Date of the Preliminary Official Statement Changes have been made to this Official Statement since Preliminary Official Statement dated February 11, 2016: (i) throughout the Official Statement to reflect the fact that the Policy will insure only the Insured Bonds; (ii) in Appendix B to reflect comments received from the Trustee on the Indenture; (iii) under the caption THE WATER SYSTEM OF THE CITY Water System Rates and Charges General to reflect the adoption of the water Rate Study by the City Council on February 17, 2016; and (iv) under the caption CONTINUING DISCLOSURE and in Appendices B and E to reflect the City s entry into a Continuing Disclosure Agreement with Wells Fargo Bank, National Association Installment Sale Agreement REFUNDING PLAN The City entered into the 2005 Installment Sale Agreement, which is currently outstanding in the principal amount of $11,485,000, to finance certain capital improvements to the Water System. The City plans to apply a portion of the proceeds of the 2016 Bonds, to pay all outstanding amounts under the 2005 Installment Sale Agreement on March 1, 2016 (the Prepayment Date ) at a prepayment price equal to the outstanding principal amount thereof, plus accrued interest with respect thereto, without premium (the Prepayment Price ). Assuming the sufficiency of the moneys deposited for such purposes, as a result of the deposit and application of funds as provided above, the 2005 Installment Sale Agreement will be defeased pursuant to the provisions thereof as of the date of issuance of the 2016 Bonds. The portion of the proceeds of the 2016 Bonds constituting the Prepayment Price is pledged solely to the payment of the Prepayment Price of the 2005 Installment Sale Agreement, and will not be available for the payments of principal of and interest on the 2016 Bonds. State Loan The City entered into the State Loan, which is currently outstanding in the principal amount of $1,046,582.05, to finance certain capital improvements to the Water System. On the date of issuance of the 2016 Bonds, the City will deliver a portion of the proceeds of the 2016 Bonds, which, together with amounts held in the debt service fund for the State Loan, are sufficient to pay all outstanding amounts under the State Loan to the Trustee. The Trustee will hold such moneys uninvested until April 1, 2016, on which date the Trustee will pay all outstanding amounts under the State Loan at a prepayment price equal to the outstanding principal amount thereof, plus accrued interest with respect thereto, without premium. 2

13 THE 2016 BONDS General Provisions The 2016 Bonds will be issued in the aggregate principal amount of $11,155,000. The 2016 Bonds will be dated as of the date of initial issuance thereof (the Issuance Date ), will bear interest from such date at the rates per annum set forth on the inside front cover page hereof, payable on September 1, 2016 and each March 1 and September 1 thereafter (each, an Interest Payment Date ), and will mature on the dates set forth on the inside cover page hereof. Interest on the 2016 Bonds will be computed on the basis of a 360 day year composed of twelve 30 day months. The 2016 Bonds will be issued only in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). DTC will act as securities depository for the 2016 Bonds. Ownership interests in the 2016 Bonds may be purchased in book entry form, in denominations of $5,000 or any integral multiple thereof. See the caption Book Entry Only System below and Appendix D. In the event that the book entry only system described below is discontinued, the principal of and redemption premium (if any) on the 2016 Bonds are payable by check or draft of the Trustee upon presentation and surrender thereof at maturity or upon prior redemption at the office of the Trustee in San Francisco, California (the Office of the Trustee ). Interest on the 2016 Bonds is payable on each Interest Payment Date to the person whose name appears on the registration books maintained by the Trustee (the Registration Books ) as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding the Interest Payment Date (the Record Date ), such interest to be paid by check of the Trustee, sent by first class mail on the applicable Interest Payment Date to the Owner at such Owner s address as it appears on the Registration Books. An Owner of $1,000,000 or more in principal amount of 2016 Bonds may, at such Owner s option, be paid by wire transfer of immediately available funds to an account in the United States in accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record Date. The principal of and interest and premium, if any, on the 2016 Bonds will be payable in lawful money of the United States. Each 2016 Bond will bear interest from the Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) unless it is authenticated on or before August 15, 2016, in which event it will bear interest from the Issuance Date; provided, however, that if, as of the date of authentication of any 2016 Bond, interest thereon is in default, such 2016 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Transfers and Exchanges Upon Termination of Book Entry Only System In the event that the book entry system described under the caption Book Entry Only System is abandoned, the 2016 Bonds will be printed and delivered as provided in the Indenture. Thereafter, any 2016 Bond may, in accordance with its terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by such person s duly authorized attorney, upon surrender of such 2016 Bond at the Office of the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. The Trustee is not required to register the transfer of any 2016 Bond during the period in which the Trustee is selecting 2016 Bonds for redemption and any 2016 Bond that has been selected for redemption. Whenever any 2016 Bond or 2016 Bonds are surrendered for transfer, the City will execute and the Trustee will authenticate and deliver a new 2016 Bond or 2016 Bonds of authorized denomination or denominations for a like series and aggregate principal amount of the same maturity. The Trustee will require 3

14 the 2016 Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. Following any transfer of 2016 Bonds, the Trustee will cancel and destroy the 2016 Bonds that it has received Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of other authorized denominations of the same series and maturity. The Trustee is not required to exchange any 2016 Bond during the period in which the Trustee is selecting 2016 Bonds for redemption and any 2016 Bond that has been selected for redemption. The Trustee will require the 2016 Bond Owner requesting such exchange to pay any tax or other governmental charge required to be paid with respect to such exchange. Following any exchange of 2016 Bonds, the Trustee will cancel and destroy the 2016 Bonds that it has received. Redemption of the 2016 Bonds The 2016 Bonds with stated maturities on or after September 1, 2027, are subject to redemption prior to their respective stated maturities, as a whole or in part, on September 1, 2026, or any date thereafter, as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice being for the convenience of the Trustee) prior to the Redemption Date, and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium. Notice of Redemption Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days before any Redemption Date, to the respective Owners of any 2016 Bonds designated for redemption at their addresses appearing on the Registration Books, to the Securities Depositories and the Information Services; provided that, in the case of notice of optional redemption not related to an advance or current refunding, such notice may be given only if sufficient funds have been deposited with the Trustee to pay the applicable Redemption Price of the 2016 Bonds to be redeemed; and provided further, that such notice may be cancelled by the City upon Written Request delivered to the Trustee not less than five days prior to such Redemption Date. Each notice of redemption will: (a) state the date of notice, the Redemption Date, the place or places of redemption and the Redemption Price; and (b) designate the maturities, CUSIP numbers, if any, and, if less than all 2016 Bonds of any such maturity are to be redeemed, the serial numbers of the 2016 Bonds of such maturity to be redeemed by giving the individual number of each 2016 Bond or by stating that all 2016 Bonds between two stated numbers, both inclusive, have been called for redemption and, in the case of 2016 Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on each of said 2016 Bonds or parts thereof designated for redemption the Redemption Price thereof, or of said specified portion of the principal thereof in the case of a 2016 Bond to be redeemed in part only, together with interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been deposited with the Trustee) from and after such Redemption Date, interest thereon will cease to accrue, and will require that such 2016 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2016 Bond. Notice of redemption of 2016 Bonds will be given by the Trustee, at the expense of the City, for and on behalf of the City. With respect to any notice of optional redemption of 2016 Bonds, such notice may state that such redemption is conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such 2016 Bonds to be redeemed and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee will not be required to redeem such 2016 Bonds. In the event that such notice of redemption contains such a condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a 4

15 reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such moneys were not so received. Book Entry Only System One fully-registered 2016 Bond of each maturity will be issued in the principal amount of the 2016 Bonds of such maturity. Such 2016 Bond will be registered in the name of Cede & Co. and will be deposited with DTC. The City may decide to discontinue use of the system of book entry transfers through DTC (or a successor securities depository). In that event, the 2016 Bonds will be printed and delivered and will be governed by the provisions of the Indenture with respect to payment of principal and interest and rights of exchange and transfer. See the caption Transfers and Exchanges Upon Termination of Book Entry Only System. The City cannot and does not give any assurances that DTC Participants or others will distribute payments of principal of and interest on the 2016 Bonds received by DTC or its Nominee as the registered Owner, or any redemption or other notices, to the Beneficial Owners (as such term is defined in Appendix D), that they will do so on a timely basis or that DTC will service and act in the manner described in this Official Statement. See Appendix D for additional information concerning DTC. DEBT SERVICE PAYMENT SCHEDULE Set forth below is an annualized schedule of principal of and interest on the 2016 Bonds for the period ending June 30 in each of the years indicated. Period Ending June Bonds Principal 2016 Bonds Interest 2016 Bonds Total 2017 $ 475, $ 448, $ 923, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , TOTAL $ 11,155, $ 4,890, $ 16,045, Source: Raymond James & Associates, Inc. 5

16 Limited Obligations Payable From Net Revenues SECURITY FOR THE 2016 BONDS The City is obligated to make payments of principal of and interest on the 2016 Bonds solely from Net Revenues. The term Net Revenues means, for any period, the Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or gain derived from the investment of amounts in any of such funds or accounts. See Appendix B for a detailed discussion of the terms of the Indenture. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2016 BONDS IS A SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. Rate Covenant In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund (as described under the caption Rate Stabilization Fund ) on the first day of such Fiscal Year is less than the Debt Service on the 2016 Bonds payable in such Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service provided by the Water System that are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues (which, when calculated for purposes of the foregoing covenant, do not include amounts transferred from the Rate Stabilization Fund pursuant to the Indenture that are in excess of 20% of Debt Service for such Fiscal Year) equal to 120% of Debt Service for such Fiscal Year. In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the first day of such Fiscal Year is at least equal to the Debt Service on the 2016 Bonds payable in such Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at the commencement of each such Fiscal Year, rates and charges for the Water Service provided by the Water System that are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Revenues (which, when calculated for purposes of the foregoing covenant, do not include amounts transferred from the Rate Stabilization Fund pursuant to the Indenture) equal to 120% of Operation and Maintenance Costs for such Fiscal Year. The City may make, or permit to be made, adjustments from time to time in such rates, fees and charges and may make, or permit to be made, such classification thereof as it deems necessary, but may not reduce or permit to be reduced such rates, fees and charges below those then in effect, unless the Revenues from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements. Additional Indebtedness Pursuant to the Indenture, the City may at any time execute any Contract or issue any Bonds, as the case may be, payable from Net Revenues on a parity with the 2016 Bonds, provided that: (a) The Net Revenues (which, when calculated for purposes of the below, do not include amounts transferred from the Rate Stabilization Fund to the Revenue Fund pursuant to the Indenture that are in excess 6

17 of 20% of Debt Service for such Fiscal Year) for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, as evidenced by both a calculation prepared by the City and a special report prepared by an Independent Certified Public Accountant or an Independent Financial Consultant on such calculation on file with the City, produce a sum equal to at least 120% of the Debt Service for such Fiscal Year; and (b) The Net Revenues (which, when calculated for purposes of the below, do not include amounts transferred from the Rate Stabilization Fund to the Revenue Fund pursuant to the Indenture that are in excess of 20% of Debt Service for such Fiscal Year) for the most recent audited Fiscal Year preceding the date of adoption by the City Council of the resolution authorizing the issuance of such Bonds or the date of the execution of such Contract, as the case may be, including adjustments to give effect as of the first day of such Fiscal Year to increases or decreases in rates and charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a calculation prepared by the City, produce a sum equal to at least 120% of the Debt Service for such Fiscal Year, plus the Debt Service which would have accrued on any Contracts executed or Bonds issued since the end of such Fiscal Year, assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year, plus the Debt Service which would have accrued had such proposed additional Contract been executed or proposed additional Bonds been issued at the beginning of such Fiscal Year. Notwithstanding the foregoing, Bonds or Contracts may be issued or incurred to refund outstanding Bonds or Contracts if, after giving effect to the application of the proceeds thereof, total Debt Service will not be increased in any Fiscal Year in which Bonds or Contracts (outstanding on the date of issuance or incurrence of such refunding Bonds or Contracts, but excluding such refunding Bonds or Contracts) not being refunded are outstanding. Notwithstanding anything set forth in the Indenture, so long as Insured Bonds are Outstanding and the Policy is in full force and effect and the Insurer is not in default of its obligations thereunder, Bonds or Contracts may not be issued or delivered, as applicable, if an Event of Default (or any event which, once all notice or grace periods have passed, would constitute an Event of Default) exists, unless otherwise permitted by the Insurer, or unless such default will be cured upon such delivery or issuance. Nothing contained in the Indenture limits the issuance of any obligations payable from Net Revenues on a subordinate basis to the Contracts and Bonds. Reserve Fund The Trustee will establish and maintain a separate fund to be known as the Reserve Fund. On the date of issuance of the 2016 Bonds, the Reserve Policy will be deposited in the Reserve Fund for the benefit of the 2016 Bonds. The Reserve Policy will be applied by the Trustee solely for the purposes set forth in the Indenture. The City is not obligated (i) to make any additional deposits into the Reserve Fund in the event that the Insurer defaults on its obligation to make payments under the Reserve Policy or (ii) to replace the Reserve Policy in the event of a rating downgrade of the Insurer. Upon the prior written consent of the Insurer (so long as the Reserve Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder), the City may substitute another Credit Facility (other than the Reserve Policy) for all or part of the moneys on deposit in the Reserve Fund by depositing such Credit Facility with the Trustee; provided that, at the time of such substitution, the amount on deposit in the Reserve Fund, together with the amount available under all Credit Facilities (including the Reserve Policy), is at least equal to the Reserve Requirement. Moneys for which a Credit Facility has been substituted as provided in the Indenture will be transferred, at the election of the City, to the Interest Account. 7

18 Notwithstanding anything to the contrary in the Indenture, the following provisions will govern the Reserve Fund so long as the Reserve Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder: (a) The City will repay any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and will pay interest thereon from the date of payment by the Insurer at the Late Payment Rate. If the interest provisions of this subparagraph (a) will result in an effective rate of interest which, for any period, exceeds the limit of the usury or any other laws applicable to the indebtedness created in the Indenture, then all sums in excess of those lawfully collectible as interest for the period in question will, without further agreement or notice between or by any party to the Indenture, be applied as additional interest for any later periods of time when amounts are outstanding under the Indenture to the extent that interest otherwise due thereunder for such periods plus such additional interest would not exceed the limit of the usury or such other laws, and any excess will be applied upon principal immediately upon receipt of such moneys by the Insurer, with the same force and effect as if the City had specifically designated such extra sums to be so applied and the Insurer had agreed to accept such extra payment(s) as additional interest for such later periods. In no event will any agreed-to or actual exaction as consideration for the indebtedness created in the Indenture exceed the limits imposed or provided by the law applicable to this transaction for the use or detention of money or for forbearance in seeking its collection. At least five Business Days before any Interest Payment Date, the Trustee will ascertain the necessity for a claim under the Reserve Policy or other Credit Facility in accordance with the terms of the Indenture, and will provide notice to the Insurer and the provider of any other Credit Facility at least five Business Days prior to each date upon which interest or principal is due on the 2016 Bonds. If five Business Days before any Interest Payment Date, the moneys available in the Payment Fund do not equal the amount of the principal of and interest on the 2016 Bonds then coming due and payable, the Trustee will apply the moneys available in the Reserve Fund to make delinquent payments of principal of and interest on the 2016 Bonds on behalf of the City by transferring the amount necessary for such purpose to the Payment Fund. All cash and investments in the Reserve Fund will be transferred to the Payment Fund before any drawing may be made on the Reserve Policy or any other Credit Facility. The Trustee will take whatever action is necessary to liquidate or draw upon investments of funds held in the Reserve Fund or draw upon the Reserve Policy or other Credit Facility to make such funds available for application as provided in the Indenture on the Interest Payment Date. The Trustee will repay the Insurer any draws under the Reserve Policy, together with interest thereon, at the Late Payment Rate from Revenues received from the City. The Trustee will also pay all related reasonable expenses incurred by the Insurer, together with interest thereon, at the Late Payment Rate from Revenues received from the City. Moneys, if any, on deposit in the Reserve Fund (or the applicable account therein) will be withdrawn and applied by the Trustee for the final payment or payments of principal of and interest on the 2016 Bonds (or the applicable account therein), respectively. In the event of any transfer from the Reserve Fund or the making of any claim under a Credit Facility, the Trustee will, within five days thereafter, provide written notice to the City of the amount and the date of such transfer or claim. So long as no Event of Default has occurred and is continuing, any amount of cash in the Reserve Fund (or the applicable account therein) in excess of the Reserve Requirement (or applicable reserve requirement) on February 15 or August 15 of each year will be withdrawn from the Reserve Fund (or the applicable account therein) by the Trustee, and such amount will be deposited in the Interest Account. 8

19 (b) Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, Policy Costs ) will commence in the first month following each draw, and each such monthly payment will be in an amount at least equal to 1/12th of the aggregate of Policy Costs related to such draw. (c) Amounts in respect of Policy Costs paid to the Insurer will be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Insurer on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Reserve Policy. The obligation to pay Policy Costs will be secured by a valid lien on all revenues and other collateral pledged as security for the 2016 Bonds (subject only to the priority of payment provisions set forth under the Indenture). (d) All cash and investments in the Reserve Fund will be transferred to the Payment Fund for payment of debt service on 2016 Bonds before any drawing may be made on the Reserve Policy or any other Credit Facility. Payment of any Policy Costs will be made prior to replenishment of any such cash amounts. Draws on all Credit Facilities (including the Reserve Policy) on which there is available coverage will be made on a pro-rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the Reserve Account. Payment of Policy Costs and reimbursement of amounts with respect to other Credit Facilities will be made on a pro-rata basis prior to replenishment of any cash drawn from the Reserve Account. For the avoidance of doubt, available coverage means the coverage then available for disbursement pursuant to the terms of the applicable alternative credit instrument without regard to the legal or financial ability or willingness of the provider of such instrument to honor a claim or draw thereon or the failure of such provider to honor any such claim or draw (e) If the City fails to pay any Policy Costs in accordance with the requirements of subparagraph (a) above, the Insurer will be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Indenture other than: (i) acceleration of the maturity of the 2016 Bonds; or (ii) remedies which would adversely affect owners of the 2016 Bonds. (f) The City will include any Policy Costs then due and owing to the Insurer in the calculations of Debt Service for purposes of the additional debt test and the rate covenant described under the captions Additional Indebtedness and Rate Covenant. (g) The Trustee will ascertain the necessity for a claim upon the Reserve Policy in accordance with the provisions of subparagraph (a) above and provide notice to the Insurer in accordance with the terms of the Reserve Policy at least five Business Days prior to each date upon which interest or principal is due on the Bonds (h) In no event will amounts in the Reserve Fund be applied to payment of debt service on any Bonds, Contracts or other obligations of the City other than the 2016 Bonds. Insurance; Reconstruction, Repair and Replacement Casualty Events. The City has covenanted to maintain insurance on the Water System with responsible insurers in amounts and against such risks (including accident to or destruction of the Water System) as are usually covered in connection with facilities similar to the Water System so long as such insurance is available from reputable insurance companies. The City maintains insurance coverages as described under the caption THE CITY OF UKIAH City Insurance, including earthquake insurance. See Appendix B under the caption PARTICULAR COVENANTS Insurance for a description of the insurance coverages required by the Indenture. In the event of any damage to or destruction of the Water System caused by the perils covered by such insurance, the Net Proceeds thereof will be applied to the reconstruction, repair or replacement of the damaged 9

20 or destroyed portion of the Water System. The City will begin such reconstruction, repair or replacement promptly after such damage or destruction occurs, and will continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and will pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same are completed and the Water System is free and clear of all claims and liens. If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of the Water System, and/or the cost of the construction of additions, betterments, extensions or improvements to the Water System, then the excess Net Proceeds will be applied to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts other than the 2016 Bonds in accordance with the indenture pursuant to which such Bonds were issued or with the applicable Contract, or to other City purposes permitted by law. If such Net Proceeds are sufficient to enable the City to retire the entire obligation evidenced by the 2016 Bonds prior to the final due date of the 2016 Bonds, as well as the entire obligations evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the City may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water System, and/or not to construct other additions, betterments, extensions or improvements to the Water System; and thereupon such Net Proceeds will be applied to the retirement of such Bonds and Contracts, or to other City purposes permitted by law. See the captions CERTAIN RISKS TO BONDHOLDERS System Expenses and CERTAIN RISKS TO BONDHOLDERS Natural Disasters. The City will procure and maintain such other insurance as it deems advisable or necessary to protect its interests and the interests of the 2016 Bond Owners, which insurance affords protection in such amounts and against such risks as are usually covered in connection with municipal water systems similar to the Water System. Any insurance required to be maintained as described above may be maintained under a self-insurance program so long as such self-insurance is maintained in the amounts and manner usually maintained in connection with water systems similar to the Water System and is, in the opinion of an accredited actuary, actuarially sound. Eminent Domain Events. If all or any part of the Water System is taken by eminent domain proceedings, the Net Proceeds thereof will be applied as follows: (a) If: (1) the City files with the Trustee a certificate showing: (i) the estimated loss of annual Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent domain proceedings; (ii) a general description of the additions, betterments, extensions or improvements to the Water System proposed to be acquired and constructed by the City from such Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations under the Indenture will not be substantially impaired (which determination will be final and conclusive), then the City will promptly proceed with the acquisition and construction of such additions, betterments, extensions or improvements substantially in accordance with such certificate and such Net Proceeds will be applied for the payment of the costs of such acquisition and construction, and any balance of such Net Proceeds not required by the City for such purpose will be deposited in the Water System Revenue Fund. (b) If the foregoing conditions are not met, then such Net Proceeds will be applied by the City to such other fund or account as may be appropriate and used for the retirement of Bonds and Contracts in accordance with the indenture pursuant to which such Bonds were issued or with the applicable Contract, or to other City purposes permitted by law. 10

21 Rate Stabilization Fund The City will maintain a special fund designated as the Rate Stabilization Fund, which fund the City has agreed and covenanted to maintain and to hold separate and apart from other funds so long as any Contracts or Bonds remain unpaid. Money transferred by the City from the Revenue Fund to the Rate Stabilization Fund in accordance with the Indenture will be held in the Rate Stabilization Fund and applied in accordance with the Indenture. The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund and transfer such amounts to the Revenue Fund to be applied to the payment of principal of and interest on the 2016 Bonds or, in the event that all or a portion of the 2016 Bonds are discharged, transfer all or any portion of such amounts for application in accordance with the Indenture. Any such amounts transferred from the Rate Stabilization Fund to the Revenue Fund in accordance with the Indenture constitute pledged Revenues. As of January 1, 2016, the City held approximately $1.48 million in the Rate Stabilization Fund. ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the estimated sources and uses of funds: Sources (1) : Principal Amount $ 11,155,000 Plus Net Original Issue Premium 1,509,193 Additional Moneys (2) 91,006 Total Sources $ 12,755,200 Uses (1) : Prepayment of 2005 Installment Sale Agreement $ 11,485,000 Prepayment of State Loan 1,065,356 Policy Premium 21,756 Reserve Policy Premium 20,432 Costs of Issuance (3) 162,656 Total Uses $ 12,755,200 (1) (2) (3) All amounts rounded to the nearest dollar. Totals may not add due to rounding. Reflects moneys held in funds and accounts established in connection with the State Loan. Includes Underwriter s discount and certain legal, rating agency, printing and other financing-related costs. BOND INSURANCE The information under this caption has been prepared by the Insurer for inclusion in this Official Statement. Neither the City nor the Underwriter has reviewed this information, nor do the City or the Underwriter make any representation with respect to the accuracy or completeness thereof. The following information is not a complete summary of the terms of the Policy and reference is made to Appendix F for a specimen of the Policy. Bond Insurance Policy Concurrently with the issuance of the 2016 Bonds, Assured Guaranty Municipal Corp. ( AGM ) will issue its Municipal Bond Insurance Policy (the Policy ) for the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive (the Insured Bonds ). The Policy guarantees the scheduled payment of principal of and interest on the Insured Bonds when due as set forth in the form of the Policy included as Appendix F to this Official Statement. 11

22 The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Assured Guaranty Municipal Corp. AGM is a New York domiciled financial guaranty insurance company and an indirect subsidiary of Assured Guaranty Ltd. ( AGL ), a Bermuda-based holding company whose shares are publicly traded and are listed on the New York Stock Exchange under the symbol AGO. AGL, through its operating subsidiaries, provides credit enhancement products to the U.S. and global public finance, infrastructure and structured finance markets. Neither AGL nor any of its shareholders or affiliates, other than AGM, is obligated to pay any debts of AGM or any claims under any insurance policy issued by AGM. AGM s financial strength is rated AA (stable outlook) by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), AA+ (stable outlook) by Kroll Bond Rating Agency, Inc. ( KBRA ) and A2 (stable outlook) by Moody s Investors Service, Inc. ( Moody s ). Each rating of AGM should be evaluated independently. An explanation of the significance of the above ratings may be obtained from the applicable rating agency. The above ratings are not recommendations to buy, sell or hold any security, and such ratings are subject to revision or withdrawal at any time by the rating agencies, including withdrawal initiated at the request of AGM in its sole discretion. In addition, the rating agencies may at any time change AGM s long-term rating outlooks or place such ratings on a watch list for possible downgrade in the near term. Any downward revision or withdrawal of any of the above ratings, the assignment of a negative outlook to such ratings or the placement of such ratings on a negative watch list may have an adverse effect on the market price of any security guaranteed by AGM. AGM only guarantees scheduled principal and scheduled interest payments payable by the issuer of bonds insured by AGM on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the relevant insurance policy), and does not guarantee the market price or liquidity of the securities it insures, nor does it guarantee that the ratings on such securities will not be revised or withdrawn. Current Financial Strength Ratings. On June 29, 2015, S&P issued a credit rating report in which it affirmed AGM s financial strength rating of AA (stable outlook). AGM can give no assurance as to any further ratings action that S&P may take. On November 13, 2014, KBRA assigned an insurance financial strength rating of AA+ (stable outlook) to AGM. AGM can give no assurance as to any further ratings action that KBRA may take. On July 2, 2014, Moody s issued a rating action report stating that it had affirmed AGM s insurance financial strength rating of A2 (stable outlook). On February 18, 2015, Moody s published a credit opinion under its new financial guarantor ratings methodology maintaining its existing rating and outlook on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. For more information regarding AGM s financial strength ratings and the risks relating thereto, see AGL s Annual Report on Form 10-K for the fiscal year ended December 31, Capitalization of AGM. At September 30, 2015, AGM s policyholders surplus and contingency reserve were approximately $3,769 million and its net unearned premium reserve was approximately $1,603 million. Such amounts represent the combined surplus, contingency reserve and net unearned premium reserve of AGM, AGM s wholly owned subsidiary Assured Guaranty (Europe) Ltd. and 60.7% of AGM s indirect subsidiary Municipal Assurance Corp.; each amount of surplus, contingency reserve and net unearned premium reserve for each company was determined in accordance with statutory accounting principles. Incorporation of Certain Documents by Reference. Portions of the following documents filed by AGL with the Securities and Exchange Commission (the SEC ) that relate to AGM are incorporated by reference into this Official Statement and shall be deemed to be a part hereof: 12

23 (i) (ii) (iii) (iv) the Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (filed by AGL with the SEC on February 26, 2015); the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 (filed by AGL with the SEC on May 8, 2015); the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015 (filed by AGL with the SEC on August 6, 2015); and the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 (filed by AGL with the SEC on November 6, 2015). All consolidated financial statements of AGM and all other information relating to AGM included in, or as exhibits to, documents filed by AGL with the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, excluding Current Reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K, after the filing of the last document referred to above and before the termination of the offering of the 2016 Bonds shall be deemed incorporated by reference into this Official Statement and to be a part hereof from the respective dates of filing such documents. Copies of materials incorporated by reference are available over the internet at the SEC s website at at AGL s website at or will be provided upon request to Assured Guaranty Municipal Corp.: 31 West 52nd Street, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no information available on or through AGL s website shall be deemed to be part of or incorporated in this Official Statement. Any information regarding AGM included herein under the caption BOND INSURANCE Assured Guaranty Municipal Corp. or included in a document incorporated by reference herein (collectively, the AGM Information ) shall be modified or superseded to the extent that any subsequently included AGM Information (either directly or through incorporation by reference) modifies or supersedes such previously included AGM Information. Any AGM Information so modified or superseded shall not constitute a part of this Official Statement, except as so modified or superseded. Miscellaneous Matters. AGM makes no representation regarding the 2016 Bonds or the advisability of investing in the 2016 Bonds. In addition, AGM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding AGM supplied by AGM and presented under the caption BOND INSURANCE. General THE CITY OF UKIAH The City encompasses approximately five square miles and is located in Mendocino County (the County ), approximately 100 miles north of San Francisco in the northern coastal region of the State of California (the State ) on U.S. Highway 101. The area is centrally located between the San Francisco Bay area, Eureka and Sacramento. The City was incorporated in 1876 and is a general law city operating under a City Council/City Manager form of government. The City has an estimated population of approximately 16,075 people. The City provides police, fire, street and infrastructure maintenance, storm drain, park and community recreation, museum, community development and other services to residents. The City also provides water, wastewater and electric services through the operations of its utility enterprises and operates an airport and civic center. The City s water utility (the Water System ) is operated by the Water Utility Division of the Public Works Department of the City. 13

24 The City s primary source of water is surface water, which is supplied by the Russian River and two alluvial wells adjacent thereto. The City also extracts groundwater from three wells located in the Ukiah Valley Groundwater Basin. Over the past five Fiscal Years, an average of approximately 46% of the water delivered by the City has been supplied by the Russian River and approximately 54% of the water delivered by the City has been supplied by the City s groundwater wells and water diverted from Lake Mendocino. See the caption THE WATER SYSTEM OF THE CITY. Service Area and Land Use The Water System s service area includes the incorporated area of the City and certain adjacent unincorporated areas. With limited exceptions, new residents and businesses in the City are required to connect to the Water System. The City is substantially built out and significant new development is not expected in the future. Land use within the City is primarily residential, with some commercial/governmental and park/landscape uses. The City currently has approximately 4,570 single-family residential customers and 1,151 multi-family residential, commercial, governmental, fire service and other customers. All accounts are metered. City Council The City is governed by a five member City Council. City Councilmembers are elected at large and serve staggered four-year terms. The current City Councilmembers and the expiration dates of their terms are set forth below. Employees and Management Council Members Expiration of Term Steve Scalmanini, Mayor November 2016 Jim Brown, Vice Mayor November 2018 Kevin Doble, Council Member November 2018 Maureen Mulheren, Council Member November 2018 Douglas Crane, Council Member November 2016 As of June 30, 2015, the City had approximately 187 full-time equivalent employees, of which approximately 12 work for the Water Utility Division of the Public Works Department. Non-management Public Works Department employees are represented by the Operating Engineers Local No. 3 ( Local No. 3 ) and certain Public Works Department managers are represented by the Management Unit (the Managers Association ). Relations between the City and these bargaining units are governed by memoranda of understanding (each, an MOU ). The current MOUs with Local No. 3 and the Managers Association extend through September Other City employees are also represented by bargaining units. The City has never experienced a strike, slowdown or work stoppage. The Water System is overseen by the City Manager, the Public Works Director/City Engineer, the Water and Sewer Utilities Director and the Finance Director. Legal services are provided to the City by David Rapport, City Attorney. Day-to-day management of the City is delegated to the City Manager, Sage Sangiacomo. Mr. Sangiacomo has served as the City Manager since June 2015 and has over 17 years of experience in municipal administration. In his role as City Manager, Mr. Sangiacomo serves as the administrative head of the City and is responsible for the operation of all City departments. Prior to becoming City Manager, Mr. Sangiacomo served the City as a Community Services Supervisor from 1998 to 2006, the Community Services Director from 2006 to 2010 and an Assistant City Manager from 2010 to Mr. Sangiacomo is a credentialed city 14

25 manager by the International City Managers Association and holds a Bachelor s degree from the University of California, Davis. Tim Eriksen serves as the City s Public Works Director/City Engineer. Mr. Eriksen has served in this capacity since Mr. Eriksen has been with the City since 2000, initially as a Senior Civil Engineer. Before joining the City, he worked for the County of San Mateo and a private civil engineering firm. Mr. Eriksen received his Bachelor of Science degree in Civil Engineering from California State University at San Jose in In addition, Mr. Eriksen has been a registered Professional Engineer in California since Sean White serves as the City s Water and Sewer Utilities Director. Mr. White has been with the City since 2015 and has worked on regional water issues since 1994 after being elected to the Marin Municipal Water District Board of Directors. Mr. White also previously led the Natural Resources Section of the Sonoma County Water Agency and served as general manager of the Mendocino County Russian River Flood Control and Water Conservation Improvement District. Mr. White received his Bachelor of Science Degree in Fisheries Biology from Humboldt State University as an Honors Graduate in Karen Scalabrini serves as the City s Finance Director. Ms. Scalabrini has been with the City since Ms. Scalabrini previously served as Finance Director for the City of St. Helena for approximately ten years and as an accountant for the City of Healdsburg for just over nine years. She also previously worked in the private sector implementing and supporting accounting systems. Ms. Scalabrini received her Bachelor s Degree in Business Administration with a concentration in Accounting from California State University at Sonoma. David Rapport serves as the City Attorney. Mr. Rapport has served as the City Attorney since Mr. Rapport has practiced law since 1972 and holds a bachelor s degree from the University of California, Davis and a law degree from the University of California, Berkeley. Defined Benefit Pension Plan This caption contains certain information relating to the California Public Employees Retirement System ( CalPERS ). The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City has not independently verified the information provided by CalPERS and neither makes any representations nor expresses any opinion as to the accuracy of the information provided by CalPERS. The comprehensive annual financial reports of CalPERS are available on its Internet website at The CalPERS website also contains CalPERS most recent actuarial valuation reports and other information concerning benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and they are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans. Plan Description. The City contributes to the California Public Employees Retirement System ( CalPERS ), an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State, including the City. Benefit provisions and all other requirements are established pursuant to State statute and City ordinance. Public Works Department employees participate in two Miscellaneous Plans: (i) a 2.7% at 55 Plan (the Classic Plan ) for employees hired prior to January 1, 2013 and (ii) a 2.0% at 67 Plan (the PEPRA 15

26 Plan ) for employees hired on or after January 1, 2013 who were not previously CalPERS members. Participants in the Classic Plan are required by State statute to contribute 8% of their annual covered salary. Participants in the PEPRA Plan are required by State statute to contribute 7% of their annual covered salary. The City does not make any portion of such contributions for Classic Plan or PEPRA Plan members. Funding Policy. Required employer and employee contributions are determined from rates established by CalPERS based upon various actuarial assumptions which are revised annually. The City currently funds the normal pension costs, which are determined by CalPERS using the Entry Age Normal Actuarial Cost Method, as well as an amortization of the City s unfunded actuarial liability. For Fiscal Years 2014 and 2015, the City s required and actual employer contributions to CalPERS for the City s Miscellaneous Plans (from all funds, including the Water Fund) were $1,995,467 and $2,488,643, respectively. Such contributions were equal to the respective annual required contributions described below. Based on the actuarial valuation of CalPERS assets, the City s required employer contribution to the retirement plans for Fiscal Years 2014 and 2015 was % and %, respectively, of annual covered payroll for Miscellaneous Plan members. The City made contributions to CalPERS in such amounts. The required employer contribution for Fiscal Year 2015 was determined as part of the June 30, 2012, actuarial valuation using the Entry Age Normal Actuarial Cost Method. The actuarial assumptions for the June 30, 2012 valuation included: (a) 7.50% investment rate of return (net of administrative expenses); (b) projected annual salary increases that vary from 3.30% to 14.20%; and (c) a 2.75% inflation component. The actuarial value of CalPERS assets was determined using a technique that smoothes the effect of volatility in the market value of investments over a fifteen-year period. CalPERS initial unfunded liabilities are amortized over a closed period that depends on the plan s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Subsequent to the June 30, 2012 actuarial valuation, CalPERS made changes to actuarial assumptions and methods. These changes include: moving from using smoothing of the market value of assets to obtain the actuarial value of assets to direct smoothing of employer contribution rates; increased life expectancy; changes to retirement ages (earlier for some groups and later for others); lower rates of disability retirement; and other changes. CalPERS has not provided current estimates of the effects of these changes which are specific to the City. The City s annual pension cost for Fiscal Years 2012 through 2015 for Miscellaneous Plan members is shown below: (1) Fiscal Year Annual Pension Cost (APC) (1) Percentage of APC Contributed Net Pension Obligation 06/30/2012 $1,826, % $- 06/30/2013 2,038, /30/2014 1,995, /30/2015 2,488, Includes City-funded employee contributions. The annual pension cost (the APC ) is equal to the annual required contribution plus an adjustment for the cumulative difference between the APC and the City s actual plan contributions for the year. The cumulative difference is called the net pension obligation. The City does not have a net pension obligation; its annual pension cost is equal to its annual required contribution. Source: Audited Financial Statements for Fiscal Year 2015, Note 4.F. AB 340, Public Employee Pension Reform Act of 2013 (PEPRA). On September 12, 2012, the California Governor signed Assembly Bill 340 ( AB 340 ), which implements pension reform in California. Effective January 1, 2013, AB 340: (i) requires public retirement systems and their participating employers to share equally with employees the normal cost rate for such retirement systems; (ii) prohibits employers from paying employer-paid member contributions to such retirement systems for employees hired after January 1, 16

27 2013 who were not already enrolled in CalPERS; (iii) establishes a compulsory maximum non-safety benefit formula of 2.5% at age 67; (iv) defines final compensation as the highest average annual pensionable compensation earned during a 36-month period; and (v) caps pensionable income at a 2013 level of $110,100 ($132,120 for employees not enrolled in Social Security), subject to annual Consumer Price Index increases. Other provisions reduce the risk of the City incurring additional unfunded liabilities, including prohibiting retroactive benefits increases, generally prohibiting contribution holidays, and prohibiting purchases of additional non-qualified service credit. Pursuant to AB 340, the City established a new pension tier (2.0% at 67) for employees hired on or after January 1, 2013 who were not previously CalPERS members. CalPERS Plan Actuarial Methods. The staff actuaries at CalPERS prepare annually an actuarial valuation which is typically delivered in October of each year, approximately 15 months following the valuation date (thus, the actuarial valuation dated October 2015 covered CalPERS Fiscal Year ended June 30, 2014). The actuarial valuations express the City s required contribution rates in percentages of covered payroll, which percentages the City must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City s contribution rate derived from the actuarial valuation as of June 30, 2014 affects the City s Fiscal Year 2017 required contribution rate). CalPERS rules require the City to implement the actuary s recommended rates. The annual actuarially required contribution rates consist of two components: the normal cost and the unfunded actuarial accrued liability ( UAAL ). The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS plans that are attributed to the current year, and the actuarial accrued liability (the AAL ) represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The UAAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement. The UAAL is based on several assumptions such as, among others, the expected rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAAL may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will pay under the CalPERS plans to retirees and active employees upon their retirement and not as a fixed expression of the liability the City owes to CalPERS under its CalPERS plans. In the June 30, 2014 actuarial valuation, the CalPERS actuary estimated the actuarial value of the assets (the Actuarial Value ) of the CalPERS plans at the end of the Fiscal Year (which assumes, among other things, that the rate of return during that Fiscal Year equaled the assumed rate of return of 7.50%). The CalPERS actuary uses a smoothing technique to determine Actuarial Value that is calculated based on certain policies. As described below, these policies and actuarial assumptions have changed significantly in recent years and are expected to change or be modified further by CalPERS in the future. Certain significant recent changes in assumptions include the following: 1. On March 14, 2012, the CalPERS Board approved a change in the inflation assumption used in the actuarial assumptions used to determine employer contribution rates. This reduced the assumed investment return from 7.75% to 7.50%, reduced the long-term payroll growth assumption from 3.25% to 3.0%, and adjusted the inflation component of individual salary scales from 3.25% to a merit scale varying by duration of employment, an assumed annual inflation component of 3% and an annual production growth of 0.25%. Although the full impact of such changes is not yet clear, CalPERS has estimated that they could result in net increases in future contribution levels of approximately 1% to 2%. 2. On April 17, 2013, the CalPERS Board of Administration approved a plan: (i) to replace the current 15-year asset-smoothing policy with a 5-year direct-rate smoothing process; and (ii) to replace the 17

28 current 30-year rolling amortization of unfunded liabilities with a 30-year fixed amortization period. CalPERS Chief Actuary has stated that the revised approach provides a single measure of funded status and unfunded liabilities, less rate volatility in extreme years, a faster path to full funding and more transparency to employers such as the City about future contribution rates. These changes are expected to accelerate the repayment of unfunded liabilities of the City s plans in the near term; the exact magnitude of the potential contribution rate increases is not known at this time, but may be significant. These changes will be reflected beginning with the June 30, 2014 actuarial valuation affecting contribution rates for Fiscal Year 2016 and thereafter. As a preliminary estimate, the City has currently budgeted for annual increases in its pension contributions of approximately 3% per year through Fiscal Year On February 18, 2014, the CalPERS Board approved changes to actuarial assumptions and methods based upon a recently completed experience study. These changes include: moving from using smoothing of the market value of assets to obtain the actuarial value of assets to direct smoothing of employer contribution rates; increased life expectancy; changes to retirement ages (earlier for some groups and later for others); lower rates of disability retirement; and other changes. 4. On November 17, 2015, the CalPERS Board approved changes that could affect the assumed investment return rate in the future. In years in which CalPERS investment returns are more than 2% greater than forecast, the long-term assumed investment return rate will be reduced by a maximum of 0.25%. CalPERS estimates that this change will reduce the assumed investment return rate by approximately 1% (to 6.5%) within 20 years. Reporting obligations under Governmental Accounting Standards Board Statement No. 68 ( GASB 68 ) commenced with financial statements for Fiscal Year Under GASB 68, an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources (as such terms are described in the following paragraph) related to pensions in its financial statements as part of its financial position. As a result of this change in accounting standards, the City s total net position attributable to the Water System decreased by approximately $2,719,769 in Fiscal Year 2015, primarily due to a $2,504,440 adjustment to the unrestricted net position balance as a result of the adoption of GASB 68. The net pension liability is the plan s total pension liability based on the Entry Age Normal Actuarial Cost Method less the plan s fiduciary net position. The pension expense is the change in net pension liability from the previous fiscal year to the current fiscal year, less adjustments. Deferred outflows and deferred inflows of resources related to pensions are certain changes in total pension liability and fiduciary net position that are to be recognized in future pension expense. Under GASB 68, deferred inflows and deferred outflows of resources related to pensions are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year in which the gain or loss occurs. The remaining amounts are categorized as deferred inflows and deferred outflows to be recognized in future pension expense. GASB 68 is a change in accounting reporting standards, but it does not change the District s CalPERS plan funding obligations. Funded Status; UAAL. As of the most recent actuarial study dated June 30, 2014, the Miscellaneous Plans were 66.0% funded. The City had an unfunded accrued liability of $25,599,971 for its Miscellaneous Plans as of June 30, 2014, based on a market value of assets of $49,753,237, as set forth in the most recent actuarial report prepared by CalPERS. 18

29 The following table sets forth the schedule of funding progress for the City s Miscellaneous Plans. The employer contribution rate for Fiscal Year 2016 is % of annual covered payroll. (2) Valuation Date Entry Age Normal Accrued Liability Actuarial Value of Assets UAAL Funded Ratio Annual Covered Payroll 06/30/2011 $64,706,927 $45,539,395 $19,167, % $8,358,294 06/30/ ,126,262 46,891,536 20,234, ,146,799 06/30/ ,916,982 43,152,382 (2) 26,764, ,097,337 06/30/ ,353,208 49,753,237 25,599, ,775,108 Beginning with the 6/30/2013 actual valuation, the actuarial value of assets equals the market value of assets. Source: CalPERS Actuarial Report Dated October 2015, as of June 30, For additional information relating to the City s CalPERS Plan, see Note 4.F to the City s financial statements set forth in Appendix A. No Other Post-Employment Benefits Budget Process The City does not provide any other post-employment benefits to retired employees. The City prepares and adopts a budget for each Fiscal Year. The budgeting process generally spans an eight-month timeframe beginning in November of each year and involves extensive coordination with all City departments. Prior to June 30 of each year, the City Manager submits to the City Council a proposed budget for the Fiscal Year commencing the following July 1. The budget includes proposed expenditures and the means of financing them. Prior to June 30, budgetary review sessions are conducted to obtain input from various City departments and the budget is legally enacted through the passage of a resolution. The City Council adopted the budget for Fiscal Year 2016 on August 19, 2015, with Fiscal Year 2015 appropriations continuing until the adoption of such budget. City Insurance The City is exposed to various risks of losses related to torts, theft of, damage to and destruction of assets, errors and omissions, injuries to employees and natural disasters. The City maintains property, liability and worker s compensation insurance through the Redwood Empire Municipal Insurance Fund ( REMIF ), a public entity risk pool that operating as a common risk management and insurance program for several Northern California municipalities. The City pays quarterly and annual premiums to the REMIF for its general insurance coverage. REMIF is self-sustaining for liability insurance through member premiums and reinsures through commercial companies for other coverage. The REMIF cost sharing pool provides coverage between the City s deductible and $500,000 (liability program) and $1,000,000 (workers compensation program). Losses in excess of the REMIF cost sharing pool limits are covered by REMIF through the California Joint Powers Risk Management Authority and commercial insurance policies. Loss limits are $39,500,000 (liability), $300,000,000 (property), $21,245,000 (boiler and machinery), $9,990,000 (automobile) and $3,000,000 (workers compensation), in each case per occurrence. Losses exceeding these limits are the responsibility of the City. The City s deductibles are $10,000 for worker s compensation, property and automobile losses and fidelity coverage, $25,000 for liability losses, $5,000 for boiler and machinery losses and $100,000 or 5% of building value for earthquake and flood losses, in each case per occurrence. The City continues to carry 19

30 commercial insurance for all other risks of loss, including employee health and accident, coverage of the municipal airport and bonding of certain employees and elected officials. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. The City s property damage insurance covers Water System treatment facilities, but Water System pipelines are not insured. There can be no assurance that incurred losses of the City will be covered up to the amount of loss, if at all. See the caption CERTAIN RISKS TO BONDHOLDERS Natural Disasters. For additional information relating to the City s insurance coverages, see Note 4.A to the City s financial statements set forth in Appendix A. No Parity Obligations Upon the prepayment of the 2005 Installment Sale Agreement and the State Loan as described under the caption THE REFUNDING PLAN, the City will have no other obligations payable from Net Revenues or secured by a pledge of Revenues on a parity with the obligation of the City to pay principal of and interest on the 2016 Bonds. Seismic Considerations The City is located in a seismically active region. Significant faults are located near the City. There is potential for destructive ground shaking during the occurrence of a major seismic event. In addition, land along fault lines may be subject to liquefaction during the occurrence of such an event. In the event of a severe earthquake, there may be significant damage to both property and infrastructure within the City. Newer Water System facilities are designed to withstand earthquakes with minimal damage, as earthquake loads are taken into consideration in the design of project structures. The impact of lesser magnitude events is expected by the City to be temporary, localized and repairable. To date, no City facilities have suffered any significant earthquake damage. The City maintains earthquake insurance on certain Water System facilities. However, there can be no assurance that coverage will be provided under such insurance in sufficient amounts to cover losses in the event of an earthquake. See the captions City Insurance and CERTAIN RISKS TO BONDHOLDERS Natural Disasters. Financial Statements Copies of the most recent audited financial statements of the City prepared by Davis Hammon & Co., Certified Public Accountants, Oroville, California (the Auditor ) are attached as Appendix A hereto (the Financial Statements ). The Auditor s letter dated January 9, 2015 is set forth therein. The Financial Statements should be read in their entirety. The Financial Statements are public documents and the City has not sought the approval of the Auditor to append the Financial Statements to this Official Statement. The Auditor has neither performed any post-audit review of the financial condition of the City nor reviewed or audited this Official Statement. 20

31 THE WATER SYSTEM OF THE CITY General In Fiscal Year 2015, the Water System supplied approximately 2,156 acre-feet of potable water through approximately 4,570 single-family residential and 1,151 multi-family residential and commercial (including governmental, landscape, fire service and other) connections. The Water System includes two alluvial wells adjacent to the Russian River and three active groundwater wells, facilities for the diversion of surface water from the Russian River, eight water tanks and reservoirs with a combined storage capacity of approximately 6.1 million gallons and approximately 60 miles of pipelines, including transmission lines ranging in size from 2 inches to 16 inches in diameter. The Water System s average daily demand is approximately 2 million gallons per day ( MGD ), while the peak daily demand is approximately 4 MGD. Water provided by the Water System is treated at the City s Water Treatment Plant (the Treatment Plant ) prior to delivery to customers. The Treatment Plant has a design capacity of between 5.0 and 5.5 MGD (depending upon the intake s turbidity), with average daily flow of approximately 1.2 MGD. The treatment process includes chemical clarification by coagulation and flocculation and filtration. The water is then filtered and chlorinated before delivery to Water System customers. The Treatment Plant also includes a high capacity pumping station. The water delivered by the Water System meets all applicable State and federal drinking water and health standards. Approximately 97% of the Water System is supplied by gravity, although three additional zones with small numbers of connections require booster pump stations. Water Supply The City s primary source of water is the Russian River, which flows from north to south near the City. The City diverts surface water from the Russian River and extracts water from two alluvial wells that are located adjacent to the Russian River. The City also extracts groundwater from three groundwater wells located within City boundaries. The City currently has rights to water stored in Lake Mendocino, which can be diverted from the East Fork of the Russian River, but has terminated the agreement pursuant to which such rights are held and does not expect to utilize this source in the future. The City also maintains interties to the water systems of certain neighboring water service providers that would enable the City to serve its customers in the event of a supply emergency. Russian River. On January 25, 1954, the State Water Resources Control Board (the SWRCB ) issued Water Right Permit (Application 15704) (the Permit ). The Permit grants the City a year-round right to divert Russian River underflow for municipal purposes at a rate not to exceed 20.0 cubic feet per second ( CFS ), which is approximately five times the City s current usage. The City also has a pre-1914 right to appropriate surface water from the Russian River at a rate of 2.8 CFS. The City exercises its rights to the Russian River through two alluvial wells, Wells #3 and #5, that are located on the Russian River riverbank within City boundaries. Well #3 has a production capacity of approximately 300 gallons per minute ( GPM ) and Well #5 has a production capacity of approximately 150 GPM. The Water System also includes facilities, known as the Ranney Collector, to divert surface water from the Russian River to the Treatment Plant. The Ranney Collector has a production capacity of approximately 3,200 GPM and is used in the dry season during times of low surface water turbidity. Russian River flow is maintained at levels mandated by the SWRCB through releases from Lake Mendocino during summer months, when river levels are lower than during other times of the year. Groundwater. The City s groundwater supply is obtained from three active groundwater wells with an average depth of approximately 250 feet. The City s wells, which are located on City-owned land within 21

32 City boundaries, provide a combined capacity of approximately 1,800 GPM. The wells are located in the Ukiah Valley Groundwater Basin (the Basin ), an unadjudicated groundwater basin. DWR has estimated that the Basin holds a total of approximately 100,000 acre-feet of water in storage. On September 16, 2014, the State Governor signed Assembly Bill No and Senate Bill Nos and 1319 (collectively, the Sustainable Groundwater Management Act, or SGMA ) into law. The SGMA constitutes a legislative effort to regulate groundwater on a Statewide basis. Under the SGMA, DWR designated groundwater basins in the State as high, medium, low or very low priority for purposes of groundwater management by January 31, By January 31, 2017, local groundwater producers must establish or designate an entity (referred to as a groundwater sustainability agency, or GSA ), subject to DWR s approval, to manage each high and medium priority groundwater basin. Each GSA is tasked with submitting a groundwater sustainability plan for DWR s approval by January 31, Alternatively, groundwater producers can submit a groundwater management plan under Part 2.75 of the California Water Code or an analysis for DWR s review demonstrating that a groundwater basin has operated within its sustainable yield for at least 10 years. Such alternative plan must be submitted by January 31, 2017 and updated every five years thereafter. GSAs must consider the interests of all groundwater users in the basin and may require registration of groundwater users, the installation of flow meters to measure groundwater extractions and annual reporting of extractions up to an amount specified in the groundwater sustainability plan. In addition, GSAs are authorized to impose spacing requirements on new wells, monitor, regulate and limit or condition groundwater production and establish production allocations among groundwater producers, among other powers. GSAs are authorized to impose fees to fund such activities and to fine or issue cease and desist orders against producers that violate the GSA s regulations. Groundwater sustainability plans must include sustainability goals and a plan to implement such goals within 20 years. The Basin has been designated as a medium priority groundwater basin. Although a GSA has not been appointed for the Basin, the City currently anticipates that the County will ultimately become the GSA. The City does not currently expect its groundwater extraction rights or costs in the Basin to change significantly as a result of the enactment of the SGMA. All of the City s groundwater wells are currently metered, as required by the SGMA. No assurance can be provided as to whether or when a GSA will be appointed for any portion of the Basin. The City does not currently expect the enactment of the SGMA or the appointment of a GSA with respect thereto to have a material adverse effect on the City s ability to generate sufficient Net Revenues to pay the 2016 Bonds. Lake Mendocino. The Mendocino County Russian River Flood Control and Water Conservation Improvement District (the District ) holds a water rights permit that entitles the District to store and use up to 8,000 acre feet of water in Lake Mendocino, which is located approximately five miles from the City. In 2004, the City and the District entered into an agreement (the Water Supply Agreement ) that allowed the City to use up to 800 acre-feet per year of the District s supply. The City s right to receive water was subject to a number of restrictions, including during times of drought. The City and the District have terminated the Water Supply Agreement, and the City anticipates that such termination will become effective in spring The City does not expect to divert water by agreement with the District in the future and believes that its water supply from the Russian River and groundwater wells is sufficient to meet the demands of its customers. Drought Measures State Orders. On January 17, 2014, the State Governor declared a drought state of emergency (the Declaration ) with immediate effect. The Declaration includes the following orders, among others: (a) local urban water suppliers, including the City, are encouraged to implement their local water shortage contingency 22

33 plans; the City s plan is discussed under the caption City Response to Drought; (b) local urban water suppliers, including the City, are encouraged to update their urban water management plans to prepare for extended drought conditions; (c) DWR and the SWRCB are directed to expedite the processing of water transfers; (d) the SWRCB is directed to put water rights holders on notice that they may be required to cease or reduce water diversions in the future; (e) the SWRCB is directed to consider modifying requirements for reservoir releases or diversion limitations; and (f) DWR is directed to take necessary actions to protect water quality and supply in the Sacramento-San Joaquin River Delta/San Francisco Bay Estuary (the Bay-Delta ), including the installation of temporary barriers or temporary water supply connections, while minimizing impacts to aquatic species. In addition, on July 15, 2014, the SWRCB adopted emergency measures requiring water suppliers to implement mandatory Statewide water conservation actions. On March 17, 2015, the SWRCB adopted additional emergency regulations limiting outdoor irrigation to two days per week, extending certain measures set forth in the July 15, 2014 action for an additional 270 days, prohibiting outdoor irrigation for 48 hours following rain and prohibiting restaurants from serving water to customers unless requested. It is anticipated that the City will comply with these regulations through its Water Shortage Contingency Plan (the Drought Plan ), as discussed under the caption City Response to Drought. On April 1, 2015, the Governor issued an executive order extending the measures set forth in the Declaration and adopting the following additional orders, among others: (i) the SWRCB is directed to impose restrictions to reduce potable urban water usage, including usage by commercial, industrial and institutional properties and golf courses, by 25% from 2013 amounts through February 28, 2016; portions of a water supplier s service area with higher per capita use must achieve proportionally greater reductions than areas with lower per capita use; (ii) DWR is directed to lead a statewide initiative to replace 50 million square feet of lawns with drought tolerant landscaping; (iii) the California Energy Commission is directed to implement a rebate program for replacement of inefficient appliances; (iv) urban water suppliers are required to provide monthly water usage, conservation and enforcement information; (v) service providers are required to monitor groundwater basin levels in accordance with California Water Code 10933; (vi) permitting agencies are required to prioritize approval of water infrastructure and supply projects; and (vii) DWR is required to plan salinity barriers in the Bay-Delta. On May 6, 2015, the SWRCB adopted regulations in response to the Governor s executive order that require the City to effect a 20% reduction from 2013 water usage. On November 13, 2015, the Governor issued Executive Order B-36-15, which calls for an extension of urban water use restrictions until October 31, 2016 should drought conditions persist through January On February 2, 2016, the SWRCB extended its previous emergency regulations through October 2016 while making available credits and adjustments of up to 8% in urban water suppliers conservation mandates based upon climate, water-efficient growth and investments in drought-resilient supply sources. The City is currently evaluating whether it will be eligible for any credits or adjustments. The SWRCB will review the February 2, 2016 regulations in April 2016 to determine whether to give urban water suppliers more flexibility based on updated water supply information through April City Response to Drought. Under the Drought Plan, the City responds to water supply shortages in stages. Stage 1 of the Drought Plan, which is intended to reduce water usage by 10% to 20%, limits the following activities: The application of potable water to outdoor landscapes in a manner that causes runoff such that water flows onto adjacent property, non-irrigated areas, private and public walkways, roadways, parking lots or structures; 23

34 Broadcast (non-drip) irrigation from sunup to sundown and more frequently than: (i) every other day; or (ii) more than four days per week and at a rate that causes ponding or puddling in the irrigated area, or drip irrigation at a rate that causes ponding or puddling in the irrigated area; The use of a hose that dispenses potable water to wash a motor vehicle, except where the hose is fitted with a shut-off nozzle or device attached to it that causes it to cease dispensing water immediately when not in use; The application of potable water to driveways and sidewalks; and The use of potable water in a fountain or other decorative water feature except where the water is part of a recirculating system. Under Stage 2 of the Drought Plan, which is intended to reduce water usage by 20% to 35%, a 15% surcharge is imposed on water consumption rates and the following water uses are prohibited: Use of water from public hydrants for any purpose other than fire protection and/or prevention; Use of water through any meter when the consumer has been given two days notice to repair one or more leaks and has failed to complete such repairs; Use of water by a golf course to irrigate any portion of its grounds except those areas designated as tees and greens, unless the City determines that any such use is nonessential; Use of water to irrigate grass, lawns, ground cover, shrubbery, vegetable gardens, trees or other outdoor vegetation unless drip irrigation is used; Use of water for the construction of any structure, including such use in dust control; Use of water to wash any sidewalk, walkways, driveway, street, parking lot, tennis court or other hard surfaced area by hosing or by otherwise direct use of water from faucets or other outlets; Use of water to wash any motor vehicle, trailer, airplane or boat by hosing or otherwise using water directly from a faucet or other outlet; Use of water to fill or refill any swimming pool; and Use of water to add to any swimming pool that is not equipped with and using a pool cover. Stage 3 of the Drought Plan, which is intended to reduce water usage by 35% to 50%, imposes a 25% surcharge on water consumption rates and imposes additional restrictions on water usage. Stage 4 of the Drought Plan, which is intended to reduce water usage by 50% or more, imposes a 35% surcharge on water consumption rates and imposes additional restrictions on water usage. The City is currently implementing Stage 1 of the Drought Plan. The City believes that such actions will enable it to reduce water usage by up to 20% from 2013 amounts in accordance with the regulations adopted by the SWRCB on May 6, To date, reductions in water usage by Water System customers have exceeded 33%. In some cases, actions taken pursuant to the Declaration could result in additional water being made available to the City, while in other cases, actions taken pursuant to the Declaration could reduce water supplies. The City believes that implementation of the Drought Plan is likely to reduce water sales revenues in Fiscal Year While implementation of the Drought Plan in future years may result in lower water sales 24

35 revenues, it is also likely to result in lower operating costs, in particular pumping and energy costs related to water production and delivery. The projected operating results set forth under the caption PROJECTED OPERATING RESULTS reflect the implementation of the Drought Plan through the end of Fiscal Year The City does not believe that the implementation of the Drought Plan will have a material adverse effect on its ability to generate sufficient Net Revenues to pay the principal of and interest on the 2016 Bonds when due. See the Official Statement under the caption SECURITY FOR THE 2016 BONDS Limited Obligations Payable from Net Revenues. If a water shortage should arise, legal issues exist as to whether different California Water Code provisions should be invoked to require reasonable regulations for the allocation of water in time of shortage. Any curtailment that is accompanied by an increase in pumping charges or costs of diverting water from the Russian River could necessitate an increase in the City s water rates to City customers. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. The Water System Historic Water Production. The following table shows historic water production of the Water System for the five most recent Fiscal Years: (1) CITY OF UKIAH WATER SYSTEM Historic Water Production in Acre-Feet Fiscal Year Russian River (1) Lake Mendocino Groundwater/ Total % Increase/ (Decrease) ,531 1,382 2,918 N/A% ,827 1,543 3, ,038 1,483 3, (2) 1,183 1,632 2,815 (20.05) 2015 (2) 1,442 1,248 2,690 (4.44) Includes surface water diversions and extractions from alluvial wells. See the caption Water Supply Russian River. (2) Decreases in water production reflect water conservation measures and State orders relating to drought. See the caption Drought Measures. See the caption Historic Water Sales Revenues for historic water sales revenues in such years. Source: City. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 25

36 Historic Water Sales. The following table shows historic water sales of the Water System for the five most recent Fiscal Years: (1) Fiscal Year Residential Water Sales CITY OF UKIAH WATER SYSTEM Historic Water Sales in Acre-Feet (1) Commercial/Other Water Sales Total Water Sales % Increase/ (Decrease) ,582 1,027 2,608 N/A% ,705 1,102 2, ,738 1,124 2, (2) 1, ,456 (14.19) 2015 (2) 1, ,156 (12.21) Differences between water sales and water production set forth under the caption Historic Water Production reflect Water System losses, evaporation, unbilled water use, fire hydrant testing and fire hydrant use in emergencies. (2) Decreases in water production reflect water conservation measures and State orders relating to drought. See the caption Drought Measures. See the caption Historic Water Sales Revenues for historic water sales revenues in such years. Source: City. Historic Water System Connections. The following table shows historic billed connections to the Water System for the five most recent Fiscal Years: Fiscal Year Source: City. Residential Connections CITY OF UKIAH WATER SYSTEM Historic Water System Connections (1) Commercial/Other Connections Total Connections % Increase/ (Decrease) ,511 1,130 5,641 N/A% ,533 1,141 5, ,533 1,141 5, ,556 1,143 5, ,570 1,151 5, [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 26

37 Historic Water Sales Revenues. The following table shows historic water sales revenues of the Water System for the five most recent Fiscal Years. Increases in water revenues reflect the five-year rate increases adopted in See the caption Water System Rates and Charges General. (1) Fiscal Year Residential Water Sales Revenues CITY OF UKIAH WATER SYSTEM Historic Water Sales Revenues Commercial/Other Water Sales Revenues Total Water Sales Revenues % Increase/ (Decrease) 2011 $2,413,867 $1,609,244 $4,023,111 N/A% ,937,127 1,958,084 4,895, ,418,379 2,278,919 5,697, ,561,222 2,374,148 5,935, (1) 3,390,067 2,167,420 5,557,487 (6.37) Reflects unaudited actual Fiscal Year 2015 amounts. Decrease reflects reduced water use as a result of mandatory conservation orders in light of Statewide drought. See the caption Drought Measures. Source: City. Projected Water Production. The following table shows projected water production of the Water System for the current and next four Fiscal Years. The table reflects the continued implementation of the City s Drought Plan through the end of Fiscal Year CITY OF UKIAH WATER SYSTEM Projected Water Production in Acre-Feet Fiscal Year Russian River (1) Groundwater Total % Increase/ (Decrease) ,447 1,184 2,630 (2.23)% ,541 1,261 2, ,641 1,342 2, ,699 1,390 3, ,708 1,397 3, Source: City. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 27

38 Projected Water Sales. The following table shows projected water sales of the Water System for the current and next four Fiscal Years. The table reflects the continued implementation of the City s Drought Plan through the end of Fiscal Year (1) Fiscal Year Residential Water Sales CITY OF UKIAH WATER SYSTEM Projected Water Sales in Acre-Feet (1) Commercial/Other Water Sales Total Water Sales (1) % Increase/ (Decrease) , , % , , ,556 1,038 2, ,612 1,074 2, ,620 1,080 2, Differences between water sales and water production set forth under the caption Projected Water Production reflect Water System losses, evaporation, unbilled water use, fire hydrant testing and fire hydrant use in emergencies. Source: City. Projected Water System Connections. The following table shows projected billed connections to the Water System for the current and next four Fiscal Years: Fiscal Year Source: City. Residential Connections CITY OF UKIAH WATER SYSTEM Projected Water System Connections Commercial/Other Connections Total Connections % Increase/ (Decrease) ,570 1,151 5, % ,616 1,163 5, ,662 1,174 5, ,708 1,186 5, ,756 1,198 5, Projected Water Sales Revenues. The following table shows projected water sales revenues of the Water System for the current and next four Fiscal Years: Fiscal Year Source: City. Residential Water Sales Revenues CITY OF UKIAH WATER SYSTEM Projected Water Sales Revenues Commercial/Other Water Sales Revenues Total Water Sales Revenues % Increase/ (Decrease) 2016 $3,353,938 $2,235,959 $5,589, % ,598,200 2,398,800 5,997, ,840,600 2,560,400 6,401, ,038,000 2,692,000 6,730, ,177,800 2,785,200 6,963, Projected water sales revenues assume continued drought conditions and the continued implementation of the City s Drought Plan through the end of Fiscal Year 2020, the projected Water System 28

39 connections set forth under the caption Projected Water System Connections and adoption of the projected rate increases described under the caption Water System Rates and Charges General. See the caption CERTAIN RISKS TO BONDHOLDERS Accuracy of Assumptions. Largest Water System Customers The following table sets forth the ten largest customers of the Water System of the City (other than the City itself) as of June 30, 2015, as determined by the amount of their respective payments. (1) CITY OF UKIAH WATER SYSTEM Largest Water System Customers Fiscal Year Customer Revenues Hundred Cubic Feet Purchased % of Total (1) Ukiah Golf Course $ 165,993 56, % Ukiah Unified School District 148,851 47, Manor Oaks Mobile Estates 121,467 12, County of Mendocino 36,088 11, Mendocino Brewing Company 34,772 11, Russian River Cemetery District 34,728 10, Orchard Manor Apartments 33,312 11, Ukiah Adventist Hospital 22,473 8, Home Depot 19,885 7, Walmart 19,159 7, TOP TEN TOTAL $ 636, , % Percentage of total Water System Revenues. Source: City. These ten customers accounted for approximately 11.46% of total water sales revenues of $5,557,487 for Fiscal Year Water System Rates and Charges General. Water System Revenues are derived from water sales (consumption charges) and fixed charges. Fixed charges are dependent on a customer s meter size. The City Council has rate setting authority and the City s rates are not subject to review or approval by the California Public Utilities Commission or any other agency. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218 for a discussion of certain limitations of the rate setting authority of the City Council. On July 1, 2010, the City adopted five-year rate increases for the Water System in compliance with the notice, hearing and protest provisions of Proposition 218. Water rates effective July 1, 2014 are set forth below. CITY OF UKIAH WATER SYSTEM Water Consumption Rate Per Hundred Cubic Feet Zone Rate per Hundred Cubic Feet $2.73 $2.73 $2.73 $

40 Water System customers also pay a fixed monthly charge that varies depending upon meter size, as set forth below. Most residential customers have a 1 or smaller diameter meter. Source: City. CITY OF UKIAH WATER SYSTEM Fixed Water Charges by Meter Size Bimonthly Meter Size Fixed Rate 0.75 $ , Fire Service Fire Service Fire Service Fire Service In 2015, the City engaged The Reed Group, Inc. (the Consultant ) to prepare a water rate study (the Rate Study ) analyzing the Water System s capital needs and current rate structure. The Rate Study was approved by the City Council on February 17, In the Rate Study, the Consultant recommends that the City adopt water rate increases of approximately 3% per annum beginning in spring The projected water sales revenues set forth under the caption The Water System Projected Water Sales Revenues reflect projected water rate increases of approximately 3% per annum in Fiscal Years 2017 through 2020 in accordance with the Rate Study. All water rate increases are subject to the notice, hearing and protest provisions of Proposition 218 described under the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. There can be no assurance that the City Council will adopt additional rate increases in the future. However, the City has covenanted to set rates and charges in amounts that are expected to be sufficient to pay debt service while the 2016 Bonds are outstanding. See the caption SECURITY FOR THE 2016 BONDS Rate Covenant. Comparative Water Rates. Set forth below is a schedule of estimated comparative water rates for the City and water service providers located near the City effective as of January 1, Because each service provider has a different rate structure, an average monthly water bill was calculated based on 11 hundred cubic feet of usage per single family residence per month. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 30

41 (1) CITY OF UKIAH WATER SYSTEM Comparative Water Rates Water Service Provider Average Monthly Water Charge (1) City of Fort Bragg $82.00 City of Healdsburg City of Cloverdale City of Ukiah Millview County Water District Rogina Water Company Estimated for service providers other than the City. Charge applicable to ¾ meter. Source: Reed Group, Inc. Water Rate Study. Collection Procedures. All charges for water service are billed monthly on a consolidated basis with sewer, solid waste and electric service. If payment is not received 36 days after billing, a late charge of $5.00 is assessed and a delinquent bill is sent allowing 10 more days for payment. If payment is not received after such period, a final notice of non-payment is sent and another $5.00 late charge is assessed allowing an additional 7 days for payment. A 48 hour shut-off notice will be hand delivered the next working day after the due date of the final notice. If payment is not received within such 48 hour period, electric service is shut off. Service is not restored until all charges, including a reconnection fee of $25.00, has been paid in full. An additional deposit may be required. After 10 days of non-payment all services, including water, are shut-off and the account is closed. Currently, Water System accounts are delinquent in the total amount of approximately $46,312 (representing less than 1% of total Water System Revenues in Fiscal Year 2015). The City reports that nearly all customers pay delinquent bills prior to shut-off. Future Water System Improvements The City projects capital improvements to the Water System of approximately $15,370,000 over the current and next four Fiscal Years, including pipeline improvements, the development of an additional groundwater well, the rehabilitation of an existing well, improvements to existing wells and the Treatment Plan, water meter upgrades and other improvements. The City currently projects funding such capital improvements through a combination of grants, Net Revenues remaining after payment of the 2016 Bonds and Water System reserves. The City does not expect to issue additional Bonds or enter into additional Contracts to finance such improvements in the current or next four Fiscal Years. Water System Reserves The City maintains an operating reserve equal to 25% of annual Operation and Maintenance Costs and debt service of the Water System. The operating reserve provides working capital and funds for unplanned operation and maintenance expenditures. As of January 1, 2016, approximately $1,001,000 was held in the operating reserve. The City also maintains a rate stabilization reserve equal to 50% of annual Operation and Maintenance Costs of the Water System. The rate stabilization reserve provides a source of available funds in the event of a drought or other emergency. As of January 1, 2016, approximately $1,480,000 was held in the rate stabilization reserve. 31

42 The Rate Study discussed under the caption Water System Rates and Charges General recommends the creation of an additional reserve: a water connection fee fund. The City is currently exploring whether to establish such fund. Historic Water System Operating Results and Debt Service Coverage The following table is a summary of operating results of the Water System for the last five Fiscal Years. These results have been derived from the Financial Statements and audited financial statements of the City for prior Fiscal Years but exclude certain non-cash items and include certain other adjustments. The table has not been reviewed or audited by the Auditor. CITY OF UKIAH WATER SYSTEM Historic Water System Operating Results and Debt Service Coverage Fiscal Year Ended June (1) Revenues Water Service Charges (2) $4,036,531 $4,935,691 $5,710,278 $5,997,957 $5,576,979 Interest Earnings 25,469 2,359 33,497 56,550 45,845 Miscellaneous Revenues (3) 3, ,421 8,718 2,148 Total Revenues $4,065,226 $4,938,050 $5,847,196 $6,063,225 $5,624,972 Operation and Maintenance Costs City Administration $ 672,782 $ 614,070 $ 707,455 $ 708,320 $ 983,373 Operations and Maintenance (4) 1,362,088 1,560,178 1,739,054 1,779,625 1,855,345 Total Operation and Maintenance Costs $2,034,870 $2,174,248 $2,446,509 $2,487,945 $2,838,718 Net Revenues $2,030,356 $2,763,802 $3,400,687 $3,575,280 $2,786,254 Debt Service State Loan (5) $ 180,958 $ 180,320 $ 181,407 $ 180,305 $ 182, Installment Purchase Agreement (5) 887, , , , ,548 Total Debt Service $1,068,081 $1,064,843 $1,058,030 $1,053,728 $1,056,584 (1) Debt Service Coverage (6) Remaining Revenues (7) $ 962,275 $1,698,959 $2,342,657 $2,521,552 $1,729,670 Reflects unaudited actual Fiscal Year 2015 amounts. Decrease in water sales revenues reflects effect of reduced water sales resulting from the Statewide drought and related State orders. See the caption Drought Measures. (2) Differs from historic water sales revenues set forth under the caption The Water System Historic Water Sales Revenues because includes fire line service charges, penalties and other water service revenues. (3) Includes connection fees. (4) Includes production, distribution, meter reading and other Water System Operation and Maintenance Costs. (5) This obligation is being prepaid from proceeds of the 2016 Bonds. See the caption REFUNDING PLAN. (6) Net Revenues divided by Total Debt Service. (7) Net Revenues less Total Debt Service. Source: City. Projected Water System Operating Results and Debt Service Coverage The estimated projected operating results for the Water System of the City for the current and next four Fiscal Years are set forth below, reflecting certain significant assumptions concerning future events and circumstances. The financial forecast represents the City s estimate of projected Water System financial results based upon its judgment of the most probable occurrence of certain important future events. The projections of Revenues reflect continued drought restrictions and the City s estimates of water use set forth under the caption The Water System Projected Water Sales and the projected water rate increases described under the caption Water System Rates and Charges General. All water rate increases are 32

43 subject to the notice, hearing and protest provisions of Proposition 218 described under the caption CONSTITUTIONAL PROVISIONS AFFECTING WATER SYSTEM REVENUES AND EXPENDITURES Proposition 218: Article XIIIC and Article XIIID. There can be no assurance that the City Council will adopt additional rate increases as currently projected. The assumptions set forth herein and in the footnotes to the chart below are material in the development of the financial projections of the City, and variations in the assumptions may produce substantially different financial results. Actual operating results achieved during the projection period may vary from those presented in the forecast and such variations may be material. See the caption BONDOWNERS RISKS Accuracy of Assumptions. CITY OF UKIAH WATER SYSTEM Projected Water System Operating Results and Debt Service Coverage Fiscal Year Ending June (1) Revenues Water Service Charges (2) $5,589,897 $5,997,000 $6,401,000 $6,730,000 $6,963,000 Interest Earnings (3) 24,800 27,200 20,600 22,700 17,300 Miscellaneous Revenues (4) 28,671 29,500 30,400 31,300 32,200 Total Revenues $5,643,368 $6,053,700 $6,452,000 $6,784,000 $7,012,500 Operation and Maintenance Costs City Administration (5) $1,115,183 $1,148,600 $1,183,000 $1,218,500 $1,255,100 Operations and Maintenance (6) 1,838,441 1,970,800 2,114,100 2,229,500 2,308,000 Total Operation and Maintenance Costs $2,953,624 $3,119,400 $3,297,100 $3,448,000 $3,563,100 Net Revenues $2,689,744 $2,934,300 $3,154,900 $3,336,000 $3,449,400 Debt Service State Loan (7) $ 182,000 $ - $ - $ - $ Installment Purchase Agreement (7) 870, Bonds - 923, , , ,719 Total Debt Service $1,052,000 $ 923,769 $ 926,669 $ 919,319 $ 928,719 (1) Debt Service Coverage (8) Remaining Revenues (9) $1,637,744 $2,010,531 $2,228,231 $2,416,681 $2,520,681 Reflects projected Fiscal Year 2016 results set forth in the Rate Study. See the caption Water System Rates and Charges General. (2) Reflects projected rate increases of approximately 3% per annum in Fiscal Years 2017 through 2020 that have not yet been adopted. There can be no assurance that the City Council will adopt such rate increases as currently projected. All water rate increases are subject to the notice, hearing and protest provisions of Proposition 218 described under the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. (3) Projected at 0.5% on Water System reserves in Fiscal Years 2016 and 2017 and at 0.75% on Water System reserves thereafter. (4) Includes connection fees. Projected to increase approximately 3% per annum from Fiscal Year 2016 budgeted amount. (5) Projected to increase approximately 3% per annum from Fiscal Year 2016 budgeted amount. (6) Includes production, distribution, meter reading and other Water System Operation and Maintenance Costs. Projected to increase approximately 7% per annum from Fiscal Year 2016 budgeted amount in Fiscal Years 2017 and 2018, approximately 5.5% from Fiscal Year 2018 amount in Fiscal Year 2019 and approximately 3.5% per annum thereafter. (7) This obligation is being prepaid from proceeds of the 2016 Bonds. See the caption REFUNDING PLAN. (8) Net Revenues divided by Total Debt Service. (9) Net Revenues less Total Debt Service. Source: City. 33

44 Article XIIIB CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Article XIIIB of the California Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost of living and population. The base year for establishing such appropriation limit is the State fiscal year and the limit is to be adjusted annually to reflect changes in population and consumer prices. Adjustments in the appropriations limit of an entity may also be made if: (i) the financial responsibility for a service is transferred to another public entity or to a private entity; (ii) the financial source for the provision of services is transferred from taxes to other revenues; or (iii) the voters of the entity approve a change in the limit for a period of time not to exceed four years. Appropriations subject to Article XIIIB generally include the proceeds of taxes levied by or for the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments from retirement, unemployment, insurance and disability insurance funds. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from: (a) regulatory licenses, user charges, and user fees (but only to the extent such proceeds exceed the cost reasonably borne by the entity in providing the service or regulation); and (b) the investment of tax revenues. Article XIIIB includes a requirement that if an entity s revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Certain expenditures are excluded from the appropriations limit, including payments of indebtedness existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved by a vote of electors of the issuing entity and payments required to comply with court or federal mandates which without discretion require an expenditure for additional services or which unavoidably make the provision of existing services more costly. The City is of the opinion that its charges for Water Service do not exceed the costs that it reasonably bears in providing such service and therefore are not subject to the limits of Article XIIIB. The City has covenanted in the Indenture that it will, at all times while any of the 2016 Bonds remain unpaid, to the fullest extent permitted by law, fix and prescribe, at the commencement of each Fiscal Year, rates and charges for the Water Service that are reasonably expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year Net Revenues (which, when calculated for purposes of the foregoing covenant, do not include amounts transferred from the Rate Stabilization Fund pursuant to the Indenture that are in excess of 20% of Debt Service for such Fiscal Year) equal to 120% of Debt Service for such Fiscal Year. See the caption SECURITY FOR THE 2016 BONDS Rate Covenant. Proposition 218 General. An initiative measure entitled the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added Article XIIIC and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. Article XIIID. Article XIIID defines the terms fee and charge to mean any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service. A property-related service is defined as a public service having a direct relationship to property ownership. Article XIIID further provides that reliance by an agency on any parcel map (including an assessor s parcel 34

45 map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a fee or charge as defined in Article XIIID, the local government s ability to increase such fee or charge may be limited by a majority protest. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges, including provisions to the effect that: (i) revenues derived from the fee or charge may not exceed the funds required to provide the property-related service; (ii) such revenues may not be used for any purpose other than that for which the fee or charge was imposed; (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership may not exceed the proportional cost of the service attributable to the parcel; and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was generally believed that Article XIIID did not apply to charges for water services that are primarily based on the amount consumed (i.e., metered water rates), which had been held to be commodity charges related to consumption of the service, not property ownership. The Supreme Court stated in Bighorn-Desert View Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the Bighorn Case ), however, that fees for ongoing water service through an existing connection were property-related fees and charges. The Supreme Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of Los Angeles that metered water rates are not subject to Proposition 218. The City has complied with the notice and public hearing requirements of Article XIIID in determining whether to change Water System rates and charges since approximately On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the SJC Case ) upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cost of furnishing service at a given level of usage. The opinion was specific to the facts of the case, including a finding that the City of San Juan Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The City s water rates, which are described under the caption THE WATER SYSTEM OF THE CITY System Rates and Charges, do not currently include tiered rates based on usage. The City does not currently expect the decision in the SJC Case to affect its water rate structure. The City believes that its current water rates comply with the requirements of Proposition 218 and expects that any future water rate increases will comply with Proposition 218 s procedural and substantive requirements to the extent applicable thereto. Article XIIIC. Article XIIIC provides that the initiative power may not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges is applicable to all local governments. Article XIIIC does not define the terms local tax, assessment, fee or charge, so it was unclear whether the definitions set forth in Article XIIID referred to above were applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, On July 24, 2006, the State Supreme Court held in the Bighorn Case that the provisions of Article XIIIC included rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory 35

46 rate setting obligations. In any event, the City does not believe that Article XIIIC grants to the voters within the City the power to repeal or reduce rates and charges for the Water Service in a manner which would be inconsistent with the contractual obligations of the City. However, there can be no assurance of the availability of particular remedies adequate to protect the Beneficial Owners of the 2016 Bonds. Remedies available to Beneficial Owners of the 2016 Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. So long as the 2016 Bonds are held in book-entry form, DTC (or its nominee) will be the sole registered owner of the 2016 Bonds and the rights and remedies of the 2016 Bond Owners will be exercised through the procedures of DTC. In addition to the specific limitations on remedies contained in the applicable documents themselves, the rights and obligations with respect to the 2016 Bonds and the Indenture are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix C), will be similarly qualified. Proposition 26 On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the California Constitution to expand the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 applies to charges imposed or increased after November 2, 2010 and provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. The City believes that its water rates and charges are not taxes under Proposition 26. Future Initiatives Articles XIIIB, XIIIC and XIIID and Proposition 26 were adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time other initiatives could be proposed and adopted affecting the City s revenues or ability to increase revenues. CERTAIN RISKS TO BONDHOLDERS The following information should be considered by prospective investors in evaluating the 2016 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations may be relevant to making an investment decisions with respect to the 2016 Bonds. In addition, the order in 36

47 which the following information is presented is not intended to reflect the relative importance of any such risks. Limited Obligations The obligation of the City to pay the 2016 Bonds is a limited obligation of the City and is not secured by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts, except the Revenues. The obligation of the City to pay the 2016 Bonds does not constitute an obligation of the City to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. Accuracy of Assumptions To estimate the revenues available to pay Debt Service on the 2016 Bonds, the City has made certain assumptions with regard to the rates and charges to be imposed in future years, the expenses associated with operating the Water System and the interest rate at which funds will be invested. The City believes these assumptions to be reasonable, but to the extent that any of these assumptions fail to materialize, the Net Revenues available to pay Debt Service on the 2016 Bonds will, in all likelihood, be less than those projected herein. See the caption THE WATER SYSTEM OF THE CITY Projected Water System Operating Results and Debt Service Coverage. Projected Water System operating results assume the implementation of certain rate increases in future years; however, all such rate increases are subject to the substantive and procedural requirements of Proposition 218 and there can be no assurance that such rate increases will be adopted. See the caption Rate-Setting Process under Proposition 218. The City may choose to maintain compliance with the rate covenant set forth in the Indenture in part by means of contributions from available reserves or resources. In such event, Net Revenues may generate amounts which are less than 1.20 times Debt Service in any given Fiscal Year. See the caption SECURITY FOR THE 2016 BONDS Rate Covenant. System Demand There can be no assurance that the demand for Water Service will occur as described in this Official Statement. Reduction in levels of demand could require an increase in rates or charges in order to comply with the rate covenant. Demand for water services could be reduced as a result of hydrological conditions, conservation efforts (including in response to the current drought as described under the caption THE WATER SYSTEM OF THE CITY Drought Measures or future droughts) and other factors. System Expenses There can be no assurance that the City s expenses will be consistent with the descriptions in this Official Statement. Operation and Maintenance Costs may vary with labor costs (including costs related to pension liabilities), treatment costs, regulatory compliance costs and other factors. Increases in expenses could require an increase in rates or charges in order to comply with the rate covenant. See the caption SECURITY FOR THE 2016 BONDS Rate Covenant. Limited Recourse on Default If the City defaults on its obligation to pay the principal of and interest on the 2016 Bonds, the Trustee has the right to declare the total unpaid principal of the 2016 Bonds, together with the accrued interest thereon to be immediately due and payable. However, in the event of a default and such acceleration, there can be no assurance that the City will have sufficient funds to pay the accelerated amounts due on the 2016 Bonds from Net Revenues. 37

48 Rate-Setting Process under Proposition 218 Proposition 218, which added Articles XIIIC and XIIID to the California Constitution, affects the City s ability to maintain existing rates and impose rate increases, and no assurance can be given that future rate increases will not encounter majority protest opposition or be challenged by initiative action authorized under Proposition 218. In the event that future proposed rate increases cannot be imposed as a result of majority protest or initiative, the City might thereafter be unable to generate Net Revenues in the amounts required by the Indenture to pay the 2016 Bonds. The City believes that the current water rates approved by the City Council were effected under the public hearing and majority protest provisions of Proposition 218. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. Statutory and Regulatory Compliance Laws and regulations governing the treatment and delivery of water are enacted and promulgated by federal, State and local government agencies. Compliance with these laws and regulations is and will continue to be costly, and, as more stringent standards are developed, such costs will likely increase. Claims against the Water System for failure to comply with applicable laws and regulations could be significant. Such claims may be payable from assets of the Water System or from other legally available sources. In addition to claims by private parties, changes in the scope and standards for public agency water systems such as that operated by the City may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders can also impose substantial additional costs on the City. No assurance can be given that the cost of compliance with such laws, regulations and orders would not adversely affect the ability of the City to generate Net Revenues sufficient to pay the 2016 Bonds. Natural Disasters The occurrence of any natural disaster in the City, including, without limitation, fire, earthquake, landslide, high winds, drought or flood, could have an adverse material impact on the economy within the City, the Water System and the Net Revenues available for the payment of the 2016 Bonds. Portions of the Water System may be at risk of damage or destruction from wildfires or subject to unpredictable seismic activity. The occurrence of natural disasters in the area of the Water System could result in substantial damage to the Water System which, in turn, could substantially reduce revenue generated by the Water System and affect the ability of the City to pay the 2016 Bonds. The City maintains liability insurance for the Water System and earthquake and property casualty insurance for certain portions of the Water System. See the caption THE CITY OF UKIAH City Insurance. However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Furthermore, as described under the caption THE CITY OF UKIAH City Insurance, significant portions of the Water System, including pipelines, are not covered by property casualty insurance. Damage to such portions of the Water System as a result of natural disasters would result in uninsured losses to the City. Limitations on Remedies The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues in amounts that are sufficient to pay principal of and interest on the 2016 Bonds may be adversely affected by actions and events that are outside of the control of the City or actions taken (or not taken) by voters, property owners, taxpayers or persons obligated to pay assessments, fees and charges. See the caption CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES Proposition 218. Furthermore, the remedies available to the owners of the 2016 Bonds upon the occurrence of an event of 38

49 default under the Indenture are in many respects dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition, usual equity principles may limit the specific enforcement under State law of certain remedies, as may the exercise by the United States of America of the powers delegated to it by the federal Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the 2016 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitations, or modification of their rights. Remedies may be limited because the Water System serves an essential public purpose. In addition to the limitations on remedies contained in the Indenture, the rights and obligations under the Indenture may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against cities in the State. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2016 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the 2016 Bonds will be similarly qualified. See Appendix C. In the event that the City fails to comply with its covenants under the Indenture or fails to pay principal of and interest on the 2016 Bonds, there can be no assurance of the availability of remedies adequate to protect the interest of the holders of the 2016 Bonds. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds, the City has covenanted in the Indenture to comply with the applicable requirements of the Internal Revenue Code of 1986, as amended (the Code ), and not to take any action or fail to take any action if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the 2016 Bonds under Section 103 of the Code. Interest on the 2016 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of such 2016 Bonds as a result of acts or omissions of the City in violation of this or other covenants in the Indenture applicable to the 2016 Bonds. The 2016 Bonds are not subject to redemption or any increase in interest rates should an event of taxability occur and will remain outstanding until maturity or prior redemption in accordance with the provisions contained in the Indenture. See the caption TAX MATTERS. Secondary Market There can be no guarantee that there will be a secondary market for the 2016 Bonds or, if a secondary market exists, that the 2016 Bonds can be sold for any particular price. Occasionally, because of general market conditions, adverse history or economic prospects connected with a particular issue, secondary marketing practices 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. Parity Obligations The Indenture permits the City to enter into Contracts or issue Bonds payable from Net Revenues on a parity with the 2016 Bonds, subject to the terms and conditions set forth therein. The entry into of Contracts or the issuance of Bonds could result in reduced Net Revenues available to pay the 2016 Bonds. The City has covenanted to maintain Debt Service coverage of 120%, as further described under the caption SECURITY FOR THE 2016 BONDS Additional Indebtedness. 39

50 Risks Associated with Bond Insurance In the event that the City defaults in the payment of principal of or interest on the Insured Bonds when due, the owners of the Insured Bonds will have a claim under the Policy for such payments. See the caption BOND INSURANCE. In the event that the Insurer becomes obligated to make payments with respect to the Insured Bonds, no assurance can be given that such event will not adversely affect the market for the 2016 Bonds. In the event that the Insurer is unable to make payment of principal of and interest on the Insured Bonds when due under the Policy, the Insured Bonds will be payable solely from Revenues and amounts held in certain funds and accounts established under the Trust Agreement, as described under the caption SECURITY FOR THE 2016 BONDS. The long-term rating on the Insured Bonds is dependent in part on the financial strength of the Insurer and its claims-paying ability. The Insurer s financial strength and claims-paying ability are predicated upon a number of factors which could change over time. If the long-term ratings of the Insurer are lowered, such event could adversely affect the market for the 2016 Bonds. See the caption RATINGS. Neither the City nor the Underwriter have made an independent investigation of the claims-paying ability of the Insurer, and no assurance or representation regarding the financial strength or projected financial strength of the Insurer is being made by the City or the Underwriter in this Official Statement. Therefore, when making an investment decision with respect to the 2016 Bonds, potential investors should carefully consider the ability of the City to pay principal and interest on the 2016 Bonds, assuming that the Policy is not available for that purpose with respect to the Insured Bonds, and the claims-paying ability of the Insurer through final maturity of the 2016 Bonds. So long as the Policy remains in effect and the Insurer is not in default of its obligations thereunder, the Insurer has certain notice, consent and other rights under the Indenture and will have the right to control all remedies in the event of a default under the Indenture. The Insurer is not required to obtain the consent of the owners of the 2016 Bonds with respect to the exercise of remedies. See Appendix B. APPROVAL OF LEGAL PROCEEDINGS The valid, legal and binding nature of the 2016 Bonds is subject to the approval of Stradling Yocca Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is attached hereto as Appendix C and such legal opinion will be attached to each 2016 Bond. Certain legal matters will be passed upon for the City by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, and by David Rapport, City Attorney, for the Underwriter by its counsel, Nixon Peabody LLP, for the Insurer by its counsel and for the Trustee by its counsel. From time to time Bond Counsel represents the Underwriter on matters unrelated to the issuance of the 2016 Bonds or other City obligations. LITIGATION At the time of delivery of and payment for the 2016 Bonds, the City will certify that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the City affecting the existence of the City or the titles of its directors or officers to their respective offices or seeking to restrain or to enjoin the sale or delivery of the 2016 Bonds, the application of the proceeds thereof in accordance with the Indenture, or in any way contesting or affecting the validity or enforceability of the 2016 Bonds, the Indenture, or any action of the City contemplated by any of said documents, or in any way contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or contesting the powers of the City or its authority with respect to the 2016 Bonds or any action of the City contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor. 40

51 TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. Bond Counsel notes that, with respect to corporations, interest on the 2016 Bonds may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest (and original issue discount) on the 2016 Bonds is based upon certain representations of fact and certifications made by the City and others and is subject to the condition that the City complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds to assure that interest (and original issue discount) on the 2016 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. The City has covenanted to comply with all such requirements. In the opinion of Bond Counsel, the difference between the issue price of a 2016 Bond (the first price at which a substantial amount of the 2016 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2016 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a Beneficial Owner will increase the Beneficial Owner s basis in the applicable 2016 Bond. The amount of original issue discount that accrues to the Beneficial Owner of a 2016 Bond is excluded from the gross income of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. The amount by which a 2016 Bond Owner s original basis for determining loss on sale or exchange in the applicable 2016 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Code; such amortizable bond premium reduces the 2016 Bond Owner s basis in the applicable 2016 Bond (and the amount of tax-exempt interest received with respect to the 2016 Bonds), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2016 Bond Owner realizing a taxable gain when a 2016 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2016 Bond to the Owner. Purchasers of the 2016 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. The Internal Revenue Service (the IRS ) has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2016 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2016 Bonds might be affected as a result of such an audit of the 2016 Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation thereof) subsequent to the issuance of the 2016 Bonds to the extent that it adversely affects the exclusion from gross income of interest (and original issue discount) on the 2016 Bonds or their market value. 41

52 SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, THERE MIGHT BE FEDERAL, STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE OR LOCAL TAX TREATMENT OF THE 2016 BONDS OR THE MARKET VALUE OF THE 2016 BONDS. LEGISLATIVE CHANGES HAVE BEEN PROPOSED IN CONGRESS, WHICH, IF ENACTED, WOULD RESULT IN ADDITIONAL FEDERAL INCOME TAX BEING IMPOSED ON CERTAIN OWNERS OF TAX-EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2016 BONDS. THE INTRODUCTION OR ENACTMENT OF ANY OF SUCH CHANGES COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2016 BONDS. NO ASSURANCE CAN BE GIVEN THAT, SUBSEQUENT TO THE ISSUANCE OF THE 2016 BONDS, SUCH CHANGES (OR OTHER CHANGES) WILL NOT BE INTRODUCED OR ENACTED OR INTERPRETATIONS WILL NOT OCCUR. BEFORE PURCHASING ANY OF THE 2016 BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX CONSEQUENCES RELATING TO THE 2016 BONDS. Bond Counsel s opinions may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the 2016 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross income of interest (and original issue discount) for federal income tax purposes with respect to any 2016 Bond if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson & Rauth, a Professional Corporation. Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes provided that the City continues to comply with certain requirements of the Code, the ownership of the 2016 Bonds and the accrual or receipt of interest (and original issue discount) on the 2016 Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before purchasing any of the 2016 Bonds, all potential purchasers should consult their tax advisors with respect to collateral tax consequences relating to the 2016 Bonds. Should interest (and original issue discount) on the 2016 Bonds become includable in gross income for federal income tax purposes, the 2016 Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed in accordance with the Indenture. A complete copy of the proposed opinion of Bond Counsel is set forth in Appendix C. RATINGS Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), is expected to assign the Insured Bonds the rating of AA based upon the delivery of the Policy by the Insurer at the time of issuance of the 2016 Bonds. S&P is also expected to assign the Insured Bonds the rating of A+ notwithstanding the delivery of the Policy and to assign the Uninsured Bonds the rating of A+. There is no assurance that any credit rating given to the 2016 Bonds will be maintained for any period of time or that a rating may not be lowered or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any downward revision or withdrawal of such rating may have an adverse effect on the market price of the 2016 Bonds. The ratings reflect only the views of S&P, and an explanation of the significance of such ratings may be obtained from S&P. Generally, rating agencies base their ratings on information and materials furnished to them (which may include information and material from the City that is not included in this Official Statement) and on investigations, studies and assumptions by the rating agencies. 42

53 Neither the City nor the Underwriter makes any representation as to the Insurer s creditworthiness and no representation that the Insurer s credit rating will be maintained in the future. The rating agencies have previously taken action to downgrade the ratings of certain municipal bond insurers and have published various releases outlining the processes that they intends to follow in evaluating the ratings of financial guarantors. For some financial guarantors, the result of such evaluations could be a rating affirmation, a change in rating outlook, a review for downgrade or a downgrade. Potential investors are directed to the rating agencies for additional information on the applicable rating agencies evaluations of the financial guaranty industry and individual financial guarantors, including the Insurer. See the caption BOND INSURANCE for further information relating to the Insurer. UNDERWRITING The 2016 Bonds will be purchased by Raymond James & Associates, Inc. (the Underwriter ) pursuant to a Bond Purchase Agreement, dated February 18, 2016, by and between the City and the Underwriter (the Purchase Contract ). Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of the 2016 Bonds for an aggregate purchase price of $12,627, (representing the principal amount of the 2016 Bonds, less an Underwriter s discount of $36,534.20, plus a net original issue premium of $1,509,193.40). The Purchase Contract provides that the Underwriter will purchase all of the 2016 Bonds if any are purchased, the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase Contract, the approval of certain legal matters by counsel and certain other conditions. The initial public offering prices stated on the inside cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2016 Bonds to certain dealers (including dealers depositing 2016 Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. CONTINUING DISCLOSURE UNDERTAKING The City has covenanted in a Continuing Disclosure Agreement for the benefit of the holders and Beneficial Owners of the 2016 Bonds to provide certain financial information and operating data relating to the City by not later than April 1 following the end of the City s Fiscal Year (currently its Fiscal Year ends on June 30) (the Annual Report ), commencing with the report for Fiscal Year ending June 30, 2016, and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access System ( EMMA ) for municipal securities disclosures, maintained on the Internet at The specific nature of the information to be contained in the Annual Report and the notice of material events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by the Securities and Exchange Commission. On certain occasions in the past five years, the City, on its own behalf and in its capacity as successor agency to the former Ukiah Redevelopment Agency, did not file continuing disclosure annual reports, audited financial statements or notices of bond insurer ratings changes with EMMA within the time required by previous continuing disclosure undertakings entered into by the City or the former Ukiah Redevelopment Agency, and certain of those filings did not include all information that was required by such previous continuing disclosure undertakings. For example: (a) With respect to ABAG bonds secured by the 2005 Installment Sale Agreement and an Installment Sale Agreement, dated as of March 1, 2006, by and among the City, ABAG and Wells Fargo Bank, National Association, as trustee (the 2005 Bonds and the 2006 Bonds, respectively): 43

54 (1) The City filed audited financial statements for Fiscal Year 2010 approximately one month after the filing deadline; (2) The City filed audited financial statements for Fiscal Year 2013 approximately five months after the filing deadline and did not properly link such audited financial statements to the 2005 Bonds on EMMA. The City has linked the audited financial statements for the Fiscal Year 2013 to the 2005 Bonds on or prior to the date of this Official Statement; (3) The City filed notice of the rating downgrade of a bond insurer for the 2006 Bonds approximately two years after the filing deadline; and (4) The City filed historical information regarding rate increases and debt service coverage for the Water System and the City s wastewater utility between one and four years after the filing deadline. Such information was included in the City s Fiscal Year 2014 comprehensive annual financial report, which was filed in January 2014; and (b) With respect to obligations of the former Ukiah Redevelopment Agency: (1) The City filed audited financial statements for Fiscal Years 2011, 2012 and 2013 approximately two years, approximately nine months and approximately five months, respectively, after the filing deadline; and (2) The City filed updated fund balance, historical taxable value, top ten property taxpayer, tax increment revenue and debt service coverage information for prior fiscal years between one and four years after the filing deadline. Such information was included in a remedial filing made in December The City expects to make additional corrective filings with respect to certain omitted information for Fiscal Years 2011 through 2014 relating to Ukiah Redevelopment Agency financings prior to the issuance of the 2016 Bonds. In 2014, the City submitted a self-report under the Securities and Exchange Commission s Municipalities Continuing Disclosure Cooperation initiative related to an incomplete disclosure of certain of the above-described matters in the Official Statements for the Ukiah Redevelopment Agency Ukiah Redevelopment Project Tax Allocation Bonds, 2011 Series A and Taxable Tax Allocation Housing Bonds, 2011 Series B. The City has tasked its Finance Director with direct responsibility for making timely and complete continuing disclosure filings going forward, and the City expects to engage Wells Fargo Bank, National Association as dissemination agent to assist the City with future continuing disclosure filings. In addition, the City s Disclosure Counsel will provide senior City staff with disclosure training on or about the date of issuance of the 2016 Bonds. Finally, the City intends to include information that is required to be updated under the City s continuing disclosure undertakings in the City s comprehensive annual financial reports going forward in order to ensure that such information is updated annually. FINANCIAL ADVISOR The District has retained Public Financial Management Inc., San Francisco, California, as financial advisor (the Financial Advisor ) in connection with the issuance of the 2016 Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained in this Official Statement. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. 44

55 FINANCIAL INTERESTS The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel and counsel to the Underwriter and the Trustee are contingent upon the issuance and delivery of the 2016 Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the 2016 Bonds. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 45

56 MISCELLANEOUS Insofar as any statements made in this Official Statement involve matters of opinion or of estimates, whether or not expressly stated, they are set forth as such and not as representations of fact. No representation is made that any of such statements made will be realized. Neither this Official Statement nor any statement which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2016 Bonds. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF UKIAH By: /s/sage Sangiacomo City Manager 46

57 APPENDIX A FINANCIAL STATEMENTS

58 Comprehensive Annual Financial Report For the fiscal year ended June 30, 2014 City of Ukiah, California

59 City of Ukiah Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2014 Prepared by the Finance Department City of Ukiah, California

60 INTRODUCTORY SECTION Letter of Transmittal Organization Chart List of Principal Officials CITY OF UKIAH Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2014 Table of Contents Page i iv v FINANCIAL SECTION Independent Auditors' Report 1 Management's Discussion and Analysis 3 Basic Financial Statements: Government-Wide Financial Statements: Statement of Net Position 16 Statement of Activities 17 Fund Financial Statements: Balance Sheet - Governmental Funds 18 Statement of Revenues, Expenditures and Changes in Fund Balances - Governmental Funds 19 Reconciliation of Statement of Revenues, Expenditures and Changes in Fund Balances to Statement of Activities 20 Statement of Net Position - Proprietary Funds 21 Statement of Revenues, Expenses and Changes in Net Position - Proprietary Funds 22 Statement of Cash Flows - Proprietary Funds 23 Statement of Fiduciary Net Position - Fiduciary Funds 24 Statement of Changes in Fiduciary Net Position - Fiduciary Funds 25 Notes to the Financial Statements 26 REQUIRED SUPPLEMENTARY INFORMATION SECTION Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget to Actual - General Fund 46 Schedule of Funding Progress - Public Employees' Retirement System 47 COMBINING AND INDIVIDUAL FUND FINANCIAL STATEMENTS AND SCHEDULES Combining Balance Sheet - Nonmajor Governmental Funds 48 Combining Statement of Revenues, Expenditures, and Changes in Fund Balances - Nonmajor Governmental Funds 51 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Park Development Special Revenue Fund 54 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Anton Stadium Special Revenue Fund 55 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Observatory Park Special Revenue Fund 56 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Playground and Park Amenities Special Revenue Fund 57 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Swimming Pool Special Revenue Fund 58

61 CITY OF UKIAH Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2014 Table of Contents Page Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Riverside Park Special Revenue Fund 59 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Skate Park Special Revenue Fund 60 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Softball Complex Special Revenue Fund 61 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Museum Grants Prop 84 Special Revenue Fund 62 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Asset Seizure Special Revenue Fund 63 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Supplemental Law Enforcement Special Revenue Fund 64 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Local Law Enforcement Block Grant Special Revenue Fund 65 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Asset Forfeiture H&S Special Revenue Fund 66 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Special Police Special Revenue Fund 67 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Special Revenue Special Revenue Fund 68 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - ARC General Operating Special Revenue Fund 69 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Signalization Special Revenue Fund 70 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Gas Tax 2106 Special Revenue Fund 71 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Gas Tax 2107 Special Revenue Fund 72 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Gas Tax Special Revenue Fund 73 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Gas Tax 2105 Special Revenue Fund 74 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - STIP Augmentation Special Revenue Fund 75 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - CDBG Grants Special Revenue Fund 76 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - HOME Grants Special Revenue Fund 77 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - FEMA Grants Special Revenue Fund 78 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - SB325 Reimbursement Special Revenue Fund 79 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - State STP Special Revenue Fund 80 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Trans-Traffic Congestion Relief Special Revenue Fund 81 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Museum Special Revenue Fund 82

62 CITY OF UKIAH Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2014 Table of Contents Page Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - LMIHF Housing Asset Special Revenue Fund 83 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Equipment Reserve Capital Projects Fund 84 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Special Projects Reserve Capital Projects Fund 85 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - Capital Improvement Capital Projects Fund 86 Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual - City Housing Bond Proceeds Capital Projects Fund 87 Combining Statement of Net Position - Nonmajor Proprietary Funds 88 Combining Statement of Revenues, Expenses, and Changes in Net Position - Nonmajor Proprietary Funds 89 Combining Statement of Cash Flows - Nonmajor Proprietary Funds 90 Combining Statement of Net Position - Internal Service Funds 91 Combining Statement of Revenues, Expenses, and Changes in Net Position - Internal Service Funds 92 Combining Statement of Cash Flows - Internal Service Funds 93 Combining Statement of Fiduciary Net Position - Fiduciary Funds 94 Combining Statement of Changes in Fiduciary Net Position - Private Purpose Trust Funds 95 Combining Statement of Changes in Assets and Liabilities - Agency Funds 96 SUPPLEMENTARY FINANCIAL INFORMATION SECTION Comparative Statements for Major Enterprise Funds Comparative Statement of Net Position - Major Electric Enterprise 97 Comparative Statement of Changes in Net Position - Major Electric Enterprise 98 Comparative Statement of Cash Flows - Major Electric Enterprise 99 Comparative Statement of Net Position - Major Water Enterprise 100 Comparative Statement of Changes in Net Position - Major Water Enterprise 101 Comparative Statement of Cash Flows - Major Water Enterprise 102 Comparative Statement of Net Position - Major Wastewater Enterprise 103 Comparative Statement of Changes in Net Position - Major Wastewater Enterprise 104 Comparative Statement of Cash Flows - Major Wastewater Enterprise 105 Comparative Statement of Net Position - Major Disposal Site Enterprise 106 Comparative Statement of Changes in Net Position - Major Disposal Site Enterprise 107 Comparative Statement of Cash Flows - Major Disposal Site Enterprise 108

63 CITY OF UKIAH Comprehensive Annual Financial Report For the Fiscal Year Ended June 30, 2014 Table of Contents STATISTICAL SECTION Table Page FINANCIAL TRENDS INFORMATION Net Position By Component, Last Ten Fiscal Years Changes in Net position, Last Ten Fiscal Years Fund Balances of Governmental Funds, Last Ten Fiscal Years Changes in Fund Balances of Governmental Funds, Last Ten Fiscal Years REVENUE CAPACITY INFORMATION Tax Revenues by Source - Governmental Funds, Last Ten Fiscal Years Electric Revenue Rates, Last Ten Fiscal Years Wastewater Revenue Rates, Last Ten Fiscal Years Water Revenue Rates, Last Ten Fiscal Years Principal Electric Revenue Rate Payers, Current Year DEBT CAPACITY INFORMATION Ratio of Outstanding Debt By Type, Last Ten Fiscal Years Ratio of General Bonded Debt Outstanding, Last 10 Fiscal Years Computation of Direct and Overlapping Bonded Debt Legal Debt Margin Information, Last Ten Fiscal Years Pledged Revenue Coverage, Last Ten Fiscal Years DEMOGRAPHIC AND ECONOMIC INFORMATION Demographic and Economic Statistics, Last Ten Years Principal Employers, Current Year OPERATING INFORMATION Full-Time Equivalent City Government Employees By Function/Program Last Ten Fiscal Years Operating Indicators by Function/Program, Last 10 Fiscal Years Capital Asset Statistics by Function/Program, Last 10 Fiscal Years OTHER COMPLIANCE REPORTS Independent Auditors Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements In Accordance with Government Auditing Standards 129 Schedule of Findings and Questioned Costs 131 Independent Accountants Report on Agreed-Upon Procedures Applied to Appropriations Limit Worksheets 133

64 Introductory Section City of Ukiah, California

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66 City of Ukiah 300 Seminary Ave., Ukiah, CA (707) FAX (707) Date: January 9, 2015 To: Honorable Mayor, Members of the City Council, and Citizens of the City of Ukiah The City follows a policy of preparing a complete set of financial statements in conformity with U.S. generally accepted accounting principles after the end of each fiscal year. This report is published to fulfill that policy for the fiscal year ended June 30, This report consists of management s representations concerning the finances of the City of Ukiah. Management assumes full responsibility for the completeness and reliability for all information contained in the report. To provide a reasonable basis for internal control, management of the City of Ukiah has established a comprehensive internal control framework that is designed to protect the government s assets from loss, theft, or misuse and to produce reliable information for the preparation of the City s financial statements. Because the cost of internal control should not exceed anticipated benefits, the objective is to provide reasonable, rather than absolute, assurance that the City s financial statements are free of material misstatements. As management, we assert that, to the best of our knowledge, this financial report is complete and reliable in all material respects. The firm of Davis Hammon & Company, Certified Public Accountants, has issued an unmodified independent auditors report on the City of Ukiah s financial statements for the fiscal year ended June 30, The independent auditor s report is located at the front of the financial section of this report. Management s Discussion and Analysis (MD&A) immediately follows the independent auditors report and provides a narrative introduction, overview, and analysis of the basic financial statements. The MD&A complements this letter of transmittal and should be read in conjunction with it. Profile of the City and its operations The City of Ukiah was incorporated in The City is located in Northern California approximately 125 miles north of San Francisco on highway 101. The City occupies 4.7 square miles and is the County seat for Mendocino County. According to the 2010 census, Ukiah s population is 16,075. i

67 Ukiah is a general law city under California state law and its rights, powers, privileged, authority, and functions are established through the State constitution. The City operates under a councilmanager form of government. The five members of the Ukiah City Council are elected by voters to serve overlapping four-year terms. The mayor is elected by, and from, the City Council for a oneyear term. The Council appoints the City Manager who serves at their discretion. The City Council is a policy setting body that is responsible for passing ordinances, adopting a City Budget, appointing committees. The Council also serves as the governing board for the Successor Agency to the Ukiah Redevelopment Agency. The City Manager is responsible for carrying out the policies and ordinances of the City Council, for overseeing the daily operations of the City, and for appointing other employees and otherwise managing daily operations of the City. The City provides a full range of municipal services including fire and police protection; construction and maintenance of City Streets, storm drains, bridges and similar infrastructure type assets; park maintenance; community recreation activities, museum, and community development. In terms of business-type activities, the City provides water, wastewater and, electric services through the operations of its utility enterprises. In addition the City operates an airport and Civic center. The City operates on a fiscal year basis, beginning July1 and ending June 30. Financial prudence is exercised when preparing the City s budget. One-time revenues are not considered for ongoing operation expenditures. The City s annual budget serves as the foundation for the City of Ukiah s financial planning and control system. All departments of the City submit requests for appropriations to the City Manager each year. The Manager uses these requests as a starting point for developing a proposed budget. The Manager presents a proposed budget to the City Council each year. The Council holds public hearings on the proposed budget and then ultimately adopts a formal budget. The City maintains and encumbrance accounting system as one way of accomplishing budgetary control. Purchase orders, contracts, and other commitments for expenditure of monies are secured in order to reserve that portion of applicable appropriation. Total expenditures of each fund may not exceed fund appropriations and total expenditures for each department may not exceed departmental appropriations. Encumbrances outstanding at year-end are reported as assigned fund balance. Unencumbered amounts lapse at year-end and may be appropriated as part of the following year s budget. Local Economy The City has a strong sales tax base. The population can increase by 20%. During the fiscal year 2013/14 the city saw positive trends in some economic segments. Unemployment decreased by 1.4% down to 6% from the prior fiscal year, based on data from the California State Development Department. Tourism has steadily increased in the City since This fiscal year transient occupancy taxes increased 15.8% from last fiscal year. These revenues have grown to almost $1 million annually. ii

68 The City has a strong sales tax base and attracts shoppers from all over the surrounding area. During fiscal year 2013/14 sales tax revenues increased by 3%. Long-Term Financial Planning The City, in fiscal year 2015, expects the local economy to stabilize with little to no growth. The City has made a series of difficult decisions over the course of the last six years in order to maintain the solvency of the Ukiah General Fund. Citizens recently passed Measure P that extended a ½ cent sales tax which was set to expire in September of The renewal was critical to the City for maintaining services and equipment for police and fire operations and is approximately $2.4 million for the general fund. The City is projecting a balanced operational fund and using reserves for onetime capital costs. Major Initiatives In addition to adopting a balanced budget for the year, Council adopted formal financial management policies and general financial goals during the fiscal year. Those financial goals include: 1. To maintain a financially viable City that provides an adequate level of municipal services. 2. To maintain financial flexibility in order to be able to continually adapt to local and regional economic changes. 3. To maintain and enhance the sound fiscal condition of the City. Respectfully submitted, Karen Scalabrini Finance Director iii

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70 City of Ukiah Organization Chart Citizens of Ukiah City Council Mayor Phil Baldwin Vice Mayor Mary Ann Landis Councilmember Doug Crane Councilmember Benj Thomas Councilmember Steve Scalmanini City Attorney David Rapport Assistant City Manager Sage Sangiacomo City Manager Jane Chambers City Clerk Kristine Lawler Airport Commission Demolition Permit Review Committee Design Review Board Investment Oversight Committee Parks, Recreation, & Golf Commission Paths, Open Space, & Creeks Commission Planning Commission Traffic Engineering Committee Board of Appeals Civil Service Board Airport Manager Greg Owen Community Services Director Sage Sangiacomo Electric Utility Director Mel Grandi Finance Director Karen Scalabrini HR Director/Risk Manager Melody Harris Planning & Building Director Charley Stump Police Chief Chris Dewey Fire Chief John Bartlett (Contracted) Public Works Director Tim Eriksen Parks & Recreation Electric Utility Operations Budget Development Human Resources Planning & Building Inspection Police Protection Fire Protection Engineering Municipal Golf Course Electrical Construction Financial Reporting Risk Management Code Enforcement Code Enforcement Advanced Life Support Streets & Roads Municipal Pool Treasury Management Redevelopment Parking Enforcement Vehicle Services Museum Accounts Payable Animal Control Solid Waste Disposal Conference Center Payroll Water Utility Operations Special Events Purchasing Sewer Utility Operations Information Technology Utility Billing

71 City Officials Mayor Vice Mayor Councilmember Councilmember Councilmember City Manager Assistant City Manager Electric Director Finance Director Human Resources Director Police Chief Fire Chief Public Works Director Planning Director City Attorney City Clerk Phil Baldwin Mary Ann Landis Benj Thomas Douglas Crane Steve Scalmanini Jane Chambers Sage Sangiacomo Mel Grandi Karen Scalabrini Melody Harris Chris Dewey John Bartlett Tim Eriksen Charley Stomp David Rapport Kristine Lawler City of Ukiah, California

72 Financial Section Independent Auditors report, Management s discussion and analysis, basic financial statements and notes to the financial statements City of Ukiah, California

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74 Davis W. Hammon, Jr., CPA ( ) Stephen B. Norman, CPA PFS Stephen J. Herr, CPA James L. Duckett, CPA INDEPENDENT AUDITORS' REPORT Honorable Mayor and City Council Members of the City of Ukiah Ukiah, California We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregated remaining fund information of the City of Ukiah, California, as of and for the year ended June 30, 2014, which collectively comprise the City s basic financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risk of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall financial statement presentation. We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregated remaining fund information of the City of Ukiah as of June 30, 2014 and the respective changes in financial position and, where applicable, cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 1 MEMBERS: AMERICAN INSTITUTE AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 2080 Myers Street, Suite 3, Oroville, CA (530) FAX (530)

75 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management s discussion and analysis and required supplementary information on pages 4 through 14 and 46 through 47, respectively, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Ukiah s basic financial statements. The introductory section, combining and individual nonmajor fund statements and schedules, comparative major enterprise fund statements, and statistical section are presented for the purpose of additional analysis and are not a required part of the financial statements. The combining and individual nonmajor fund statements and schedules, and comparative major enterprise fund statements are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the combining and individual nonmajor fund statements and schedules, and comparative major enterprise fund statements are fairly stated in all material respects in relation to the financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 9, 2015, on our consideration of the City of Ukiah's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit in accordance with Government Auditing Standards in considering the City s internal control over financial reporting and compliance. Davis Hammon & Co. January 9,

76 Management s Discussion and Analysis City of Ukiah, California

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78 MANAGEMENT'S DISCUSSION AND ANALYSIS As management of the City of Ukiah (City), we offer readers of the City s financial statements this narrative overview and analysis of the financial activities of the City for the fiscal year ended June 30, Please read it in conjunction with the accompanying basic financial statements. This Analysis is organized into ten topics, moving from highlights of 2014, through descriptions of the financial statements and analysis of the selected information. The final topics discuss some of the City s financial processes and the upcoming budget outlook. Note: Unless otherwise indicated, all amounts are expressed in thousands of dollars. 1. FINANCIAL HIGHLIGHTS The City s total net position increased 0.6% to $125,641 from $124,794 a year ago. Governmental activities net position ended the year at $45,271 down 1.1% from $45,791 in the prior year while the net position for Business Type activities was up 1.7% to $80,370 from $79,003 in Total tax revenue, other governmental revenues and business activity revenues were higher than expenses by $847. General Fund expenditures exceeded revenues and other financing sources and uses by $218. Total revenues from all sources were $49,254, up 4.6% from $47,086 in the prior year. The total cost of all activities was $48,407, down from the prior year at $49, USING THIS ANNUAL REPORT This annual report consists of five parts management s discussion and analysis (this portion), the basic financial statements, the required supplemental information, an optional section that presents combining statements for nonmajor governmental funds and enterprise funds. The basic financial statements include two kinds of statements that present different views of the City: (1) The first two statements are government-wide financial statements that provide both long-term and short-term information about the City s overall financial status. These include the Statement of Net Position and the Statement of Activities. (2) The remaining statements are fund financial statements that focus on individual parts of the City government, reporting on the City s operations in more detail than the government-wide statements. The governmental funds statements tell how general governmental services like public safety were financed in the short-term as well as what remains for future spending. Proprietary fund statements offer short and long-term financial information about activities the government operates like businesses, such as the electric, water and wastewater funds business-type activities. Figure A-1 summarizes the major features of the City s financial statements, including the portion of the City government they cover and the types of information they contain. The remainder of this overview section of Management s discussion and analysis explains the structure and contents of each of the statements. 3

79 MANAGEMENT'S DISCUSSION AND ANALYSIS Figure A-1 Major Features of City of Ukiah s Government-wide and Fund Financial Statements Fund Statements Government-wide Statements Governmental Funds Proprietary Funds Scope Entire city government The activities of the City that are not proprietary or fiduciary, such as police, fire, and parks Activities the City operates similar to private businesses: such as electric, water, and wastewater systems. Required financial statements Statement of net position Statement of activities Statement of revenues, expenditures, and changes in fund balances Balance sheet Statement of net position Statement of revenues expenses, and changes in net position Statement of cash flows Accounting basis and measurement focus Accrual accounting and economic resources focus Modified accrual accounting and current financial resources focus Accrual accounting and economic resources focus Type of asset/liability information All assets and liabilities, both financial and capital, and shortterm and long-term Only assets expected to be used up and liabilities that come due during the year or soon thereafter; no capital assets included All assets and liabilities, both financial and capital, and shortterm and long-term Type of inflow/outflow information All revenues and expenses during year, regardless of when cash is received or paid Revenues for which cash is received during or soon after the end of the year; expenditures when goods or services have been received and payment is due during the year or soon thereafter All revenues and expenses during year, regardless of when cash is received or paid Government-wide Statements The government-wide statements report information about the City as a whole using accounting methods similar to those used by private-sector companies. The statement of net position includes all the government s assets and liabilities. All of the current year s revenues and expenses are accounted for in the statement of activities regardless of when cash is received or paid. The two government-wide statements report the City's net position and how it has changed. Net position the difference between the City's assets and liabilities is one way to measure the City's financial health, or position. Over time, increases or decreases in the City's net position is an indicator of whether its financial health is improving or deteriorating, respectively. The government-wide financial statements of the City are divided into two categories: Governmental activities All of the City s basic services are considered to be governmental activities, including general government, community development, public safety, public works, and community services. Property taxes, sales taxes, Vehicle License Fees (VLF), ambulance fees, transient occupancy taxes, and franchise fees finance most of these activities. Business-type (Proprietary) activities The City charges a fee to customers to cover all or most of the cost of the services provided. The City s utility services (water, wastewater and electric), airport, golf course, and conference center are reported in this category. 4

80 MANAGEMENT'S DISCUSSION AND ANALYSIS Fund Financial Statements The fund financial statements provide more detailed information about the City's most significant funds not the City as a whole. Funds are accounting devices that the City uses to keep track of specific sources of funding and spending for particular purposes. Some funds are required by State law. The City Council establishes other funds to control and manage money for particular purposes or to show that it is properly using certain taxes and grants. The City has two kinds of funds: Governmental funds Most of the City's basic services are included in governmental funds, which focus on (1) how cash and other financial assets that can readily be converted to cash flow in and out and (2) the balances left at year-end that are available for spending. Consequently, the governmental funds statements provide a detailed shortterm view that helps you determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. Because this information does not encompass the additional long-term focus of the government-wide statements, we provide additional information at the bottom of the governmental funds statement, or on the subsequent page, that explains the relationship (or differences) between them. Proprietary funds Services for which the City charges customers a fee are generally reported in proprietary funds. Proprietary funds, like the government-wide statements, provide both long-and short-term financial information. In fact, the City's enterprise funds (one type of proprietary fund) are the same as its business-type activities, but provide more detail and additional information, such as cash flows. The City s internal service funds are another type of proprietary fund used to account for activities charged to other funds on a cost reimbursement basis. 3. FINANCIAL ANALYSIS OF GOVERNMENT WIDE STATEMENTS The Summary of Net Position (Table 1) and Summary of Changes in Net Position (Table 2) present the City s governmental and business activities in total for the years ending June 30, 2014 and June 30, The City s combined net position for the fiscal year ended June 30, 2014 was $125,641. The City accounts for its utilities, including electric, water, wastewater and solid waste disposal as proprietary funds. The airport, parking district, golf course, conference center, and street lighting system are also accounted for as enterprise funds. These funds are categorized as Business Activities on Table 1. The City s net position for governmental activities decreased 1% from $45,791 to $45,271. Business-type activities net position increased 2% from $79,003 to $80,370. Legally unrestricted governmental net position included assets in special revenue funds received for specific purposes and amounts accumulated for capital projects. The Electric Utility transferred $1,009 to the General Fund as payment in lieu of taxes that would be charged to an outside provider. This amount is calculated at 7% of electric revenues. In FY two Rate Stabilization Funds were created; one in the Wastewater Enterprise ($2,850 initial balance) and one for the Ukiah Valley Sanitation District ($1,900 initial balance). In FY , no transfers were made to the Wastewater Debt Service Fund for the Rate Stabilization Funds. 5

81 MANAGEMENT'S DISCUSSION AND ANALYSIS Table 1 Summary of Net Position June 30, 2014 and 2013 (Full Accrual, in Thousands) Governmental Activities Business Type Activities Total Current assets 20,023 21,694 44,772 44,899 64,795 66,593 Noncurrent assets 34,225 34, , , , ,443 Total Assets 54,248 55, , , , ,036 Current liabilities 8,977 10,015 2,075 2,100 11,052 12,115 Noncurrent liabilities , ,127 97, ,127 Total Liabilities 8,977 10,015 99, , , ,242 Net Position: Net investment in capital assets 27,139 27,304 46,694 44,514 73,833 71,818 Restricted: Public safety Public works 2,675 2, ,675 2,320 Housing & community development 2, , Parks & recreation Debt service - - 2,035 2,028 2,035 2,028 Unrestricted 12,111 15,462 31,641 32,461 43,752 47,923 Total Net Position 45,271 45,791 80,370 79, , ,794 6

82 MANAGEMENT'S DISCUSSION AND ANALYSIS Table 2 Summary of Changes in Net Position For the Fiscal Years Ended June 30, 2014 and 2013 (Full Accrual, in Thousands) Governmental Activities Business Type Activities Total Revenues: Program Revenues: Charges for services 3,736 4,128 31,931 29,764 35,667 33,892 Operating grants and contributions 1,098 1, ,155 1,279 Capital grants and contributions General Revenues: Taxes 10,261 10, ,261 10,143 Intergovernmental revenue not restricted to specific programs 1,237 1, ,237 1,229 Unrestricted investment earnings Total Revenues 16,910 17,080 32,344 30,006 49,254 47,086 Expenses: General government 3,716 2, ,716 2,957 Public safety 9,868 10, ,868 10,515 Public works 2,290 2, ,290 2,109 Community development 832 1, ,254 Parks and recreation 2,541 2, ,541 2,482 Interest on long-term debt Electric ,555 14,483 14,555 14,483 Water - - 3,717 3,651 3,717 3,651 Wastewater - - 8,118 8,638 8,118 8,638 Solid waste disposal site (closed) Street lighting Airport - - 1,338 1,638 1,338 1,638 Parking district Golf course Conference center Total Expenses 19,247 19,317 29,160 29,835 48,407 49,152 Change in Net Position Before (2,337) (2,237) 3, (2,066) Transfers: Transfers 1, (1,817) (584) Change in Net Position (520) (1,365) 1,367 (413) 847 (1,778) Beginning Net Position 45,791 47,156 79,003 80, , ,752 Change in Accounting Principle (1,180) - (1,180) Beginning Net Position - Restated 45,791 47,156 79,003 79, , ,572 Ending Net Position 45,271 45,791 80,370 79, , ,794 7

83 Governmental Activities MANAGEMENT'S DISCUSSION AND ANALYSIS Table 3 presents the cost of each of the City s major governmental programs for FY and FY Table 3 Cost of Governmental Activities For the Fiscal Years Ended June 30, 2014 and 2013 (Full Accrual, in Thousands) Cost Percentage Change Change General government 3,716 2, % Public safety 9,868 10,515 (647) -6% Public works 2,290 2, % Community development 832 1,254 (422) -34% Parks & recreation 2,541 2, % Total Governmental Activities 19,247 19,317 (70) 0% On a full accrual basis, including financing and capital costs as reported under GASB 34, the City s total cost of governmental activities decreased by 0.4%. The increases in General Government, Public Works and Parks & Recreation were offset by decreases in Public Safety and Community Development. Governmental expenses reflect a wide variety of projects and on-going activities, many of which are supported in part by program fees or other funding sources. The City s PERS retirement benefits costs decreased by $109 from 2013 to 2014 (to $3,042 from $3,151). General government services, functions that support Public Safety and all the other City services, include the City Council, City Clerk, City Treasurer, Community Planning, and the City Manager s office as well as Finance, Administrative Services, Legal, and Human Resources. Public Safety is the largest component of governmental activities. The majority of public safety cost is for personnel. Police salaries and overtime increased by $69. Fire salaries and overtime decreased by $557 with the cessation of the ambulance service provided by the City as of March 2013 as well as the combining of the Fire Department with the Ukiah Valley Fire District. Public Works primarily consists of engineering, streets, and public rights of way maintenance. Projects in FY included work on the Talmage Road Corridor Improvements, the Northwest Pacific Rail Trail and the Oak Manor Trail. Parks and Recreation activities include a wide range of services to the public. Principal activities include maintaining all City parks and other landscaped areas, managing a modern museum, providing a year round calendar of youth and adult recreation programs, and operating a public swimming pool. The recreation programs are primarily self-funded through user fees and cooperative use agreements with the school systems and others. Community Development is primarily grant-funded projects. FY expenses included $224 for First Time Home Buyers and Owner Occupied Rehab program, $85 for the Visit Ukiah TOT program and $79 for the Alex Rorabaugh Center general operating expenses 8

84 Business Type Activities MANAGEMENT'S DISCUSSION AND ANALYSIS The City s net position for business-type activities in continuing operations resulted in a $3,270 increase in net position or 10% of total revenues (before revenue from the use of money and property and transfers to other funds), compared with a $255 increase, or 1% in The Solid Waste Disposal Site was closed in 2001 and its current position is presented separately so as to not distort the results of continuing operations presented on Table 4. Table 4 Statement of Operating Income and Expenses - Business Type Funds For the Fiscal Years Ended June 30, 2014 and 2013 (Full Accrual, in Thousands) Increase (Decrease) Operating Expenses Operating Revenues From Operations Electric 14,555 14,483 14,994 15, % 657 4% Water 3,717 3,651 6,007 5,814 2,290 38% 2,163 37% Wastewater 8,118 8,638 8,833 6, % (2,424) -39% Street lighting (26) -14% (32) 17% Airport 1,338 1,638 1,259 1,726 (79) -6% 88 5% Parking district (55) -47% (52) 46% Golf course % (80) 41% Conference center (44) -15% (65) 23% Total 28,587 29,421 31,857 29,676 3,270 10% 255 1% Closed Program: Solid Waste Disposal Site (441) (285) Electricity purchase costs increased from $7,983 last year to $8,466 in FY , while rates charged by the Utility were held constant. Purchase costs represented 58% of the Operating Expenses for FY up from 55% in FY Annual water revenue was up 3% from the prior year reflecting the increased water rates offset, in part, by increased operations and maintenance expenses. The Conference Center was unable to fully fund its operating expenses, after depreciation, in FY Management will continue its effort to improve marketing, restructure operations and reduce operating costs in relation to revenue. The Solid Waste Disposal Site was closed in 2001 and State regulations require the site to be monitored for 30 years with funds set aside for closure expenses, post-closure expenses, and contingencies. The City is working with the regulatory agencies to complete the formal closure of the site. 4. FINANCIAL ANALYSIS OF THE FUND STATEMENTS Governmental Funds The voter approved one-half percent sales tax went into effect in October In FY , revenue from this tax increased to $2,424 from $2,413. There was a decline in property tax received of $234 reflecting continued economic challenges. The total increase in governmental revenues was $76. Table 5 summarizes the major revenue classifications used for taxes and other governmental revenues, expenditures, transfers, and changes in fund balances: 9

85 MANAGEMENT'S DISCUSSION AND ANALYSIS Table 5 Revenue, Expenditures and Fund Balance Summary - Governmental Funds For the Fiscal Years Ended June 30, 2014 and 2013 (Modified Accrual Basis, in Thousands) Other Total General Governmental Funds Governmental Funds Revenues: Taxes 10,230 10, ,230 10,219 Licenses and permits Fines, forfeitures & penalties Interest, rents & concessions Intergovernmental 1,253 1,245 2,017 1,719 3,270 2,964 Charges for services 1,006 1, ,014 1,581 Other 225 (1) Total Revenues 13,235 13,453 2,663 2,370 15,898 15,823 Expenditures: Current: General government 2,676 1, ,773 2,117 Public safety 8,700 9, ,297 9,832 Public works 1,141 1, ,612 1,411 Housing & community development ,206 Parks & recreation 1,907 1, ,305 2,328 Capital outlay ,299 1,160 1,545 Total Expenditures 15,168 15,349 2,765 3,090 17,933 18,439 Excess(Deficiency) of revenues over expenditures (1,933) (1,896) (102) (720) (2,035) (2,616) Other Financing Sources(Uses): Transfers in 1,715 1, ,414 2,077 2,681 Transfers out - (962) (243) (1,120) (243) (2,082) 1, , Net Change in Fund Balances (218) (1,591) 17 (426) (201) (2,017) Fund Balances, July 1 5,274 6,865 10,137 10,563 15,411 17,428 Fund Balances, June 30 5,056 5,274 10,154 10,137 15,210 15,411 Before the revenue from the additional 0.5% local sales tax, net taxes (including sales, property, occupancy, business licenses and franchise fees) increased by less than 1%. The revenue from the additional 0.5% local sales tax increased by less than 1% from FY to FY Intergovernmental General Fund revenue from primarily includes State of California payments for motor Vehicle License Fees (MVLF). 10

86 MANAGEMENT'S DISCUSSION AND ANALYSIS Other Governmental Funds Revenue classified as Intergovernmental include many government grants which vary dramatically from year to year. FY totaled $1,138, increasing to $2,516 for FY , dropping to $2,357 for FY , to $1,116 for FY , then increasing to $3,020 for FY , increasing to $3,168 for FY , increasing to $3,406 for FY decreasing in FY to $1,719 and increasing again in FY to $2,017. The largest component of this year s funding included $574 for Riverside Park improvements, $224 from the 11-HOME-7654 Grant for First Time Homebuyers and Owner Occupied Rehabilitation, $214 for the Museum Prop 84 grant and $100 for Anton Stadium. Current General Fund expenditures decreased from $15,103 to $14,905. Other Governmental Funds saw an 11% decrease in expenditures, primarily in Housing and Community Development and Capital Outlay. Total Governmental Fund expenditures decreased from $18,439 in FY to $17,933 in FY , a 3% decrease. The net change in fund balance in the General Fund for FY was a decrease of $218, as compared to a decrease of $1,591 in FY as no transfers out were made this year. The net change in fund balances for the Other Governmental Funds was an increase of $17 in FY as compared to $(426) decrease in FY GENERAL FUND BUDGETARY HIGHLIGHTS Actual General Fund revenues exceeded budget by $15, a variance of less than1%. Total tax revenues were 2% under budget, with property taxes down 21% offset, in part, by the transient occupancy taxes (over budget by 20%) and Property transfers (over budget by 15%). The regular sales tax revenue was under budget by $82, 1.7% and the local one-half percent sales tax was over by $52 (2%). Total General Fund expenditures finished the year under budget by $ CASH MANAGEMENT The City contracts with Public Financial Management, Inc. (PFM), a specialist in municipal cash management, to direct its investments and maintain flexibility by utilizing a pooled cash system. Under the pooled cash concept, the City invests the cash of all funds to ensure maturities coincide with cash needs. Cash is invested in certain eligible securities, as constrained by law, and further limited by the City s investment policy. The goals of the City s investment policy are safety, liquidity, and yield. The City Council has appointed an Investment Oversight Committee, chaired by the elected City Treasurer, to direct and monitor the activities of PFM. 7. CAPITAL ASSETS The capital assets of the City are those assets that are used in performance of City functions including infrastructure assets. Capital Assets include equipment, buildings, land, park facilities, and roads. Table 6 Capital Assets (Net of Depreciation) June 30, 2014 and 2013 (In Thousands) Governmental Activities Business-Type Activities Total Land ,674 4,674 5,169 5,169 Land improvements 3,137 2, ,762 2,935 Buildings and improvements 3,816 3,577 32,506 33,610 36,322 37,187 Equipment, vehicles and machinery 2,115 2,305 3,591 3,298 5,706 5,603 Infrastructure 14,786 12,867 90,125 91, , ,792 Construction in progress 2,790 5,786 3,255 3,163 6,045 8,949 Total 27,139 27, , , , ,635 11

87 MANAGEMENT'S DISCUSSION AND ANALYSIS At June 30, 2014, the value of capital assets of the governmental activities, net of accumulated depreciation, totaled $27,139 and the value of capital assets of the business-type activities, net of accumulated depreciation, totaled $134,776. Depreciation on capital assets is recognized in the Government-Wide financial statements but not in the Fund financial statements. Additional information regarding the City s capital assets can be found on pages in the Notes to the Financial Statements. The City attempts to minimize debt by reserving current revenue for capital projects. A current expense is recorded and transferred to specific project accounts in either the Equipment Replacement or Special Projects Reserve Funds. A given project may require transfers for several years to accumulate sufficient funding before going forward. 8. CURRENT LIABILITIES AND LONG-TERM DEBT At year-end, current governmental liabilities are $8,977 and business-type liabilities are $2,075. The City had governmental liabilities totaling $8,977 and business-type liabilities of $99,220. The $97,145 of noncurrent businesstype debt the Lake Mendocino Hydro power plant bonds and water and wastewater utility upgrades. The City has a total liabilities-to-net-position ratio of 86%, down from 91% in FY Table 7 Outstanding Debt (net of debt discounts/premiums) June 30, 2014 and 2013 (In Thousands) Governmental Activities Business-Type Activities Total Electric revenue bonds - - 6,981 8,453 6,981 8,453 Installment obligations: Water treatment plant ,282 12,620 12,282 12,620 Wastewwter treatment plant ,749 68,531 66,749 68,531 State Loans: Water treatment plant 1,255 1,389 1,255 1,389 Wastewater treatment plant , ,205 Landfill closure/postclosure - - 9,063 8,929 9,063 8,929 Total , ,127 97, ,127 Additional information regarding the City s outstanding debt can be found on pages in the Notes to the Financial Statements. 9. NEXT YEAR S BUDGET AND ECONOMIC FACTORS The City General Fund Budget for FY increased expenditures by $661 and increased revenues by $445 from the projected actuals for FY Budgeted combined Public Safety and General Fund revenues for FY are $1,220 above the actual revenues for FY The budgeted expenditures are $139 over FY actual expenditures. These amounts include the revenue and expenditures related to the Measure S Sales Tax which is budgeted for FY with a $54 increase over FY actual. The budget adopted for the combined Public Safety and General Funds for FY has a balance of $(277). This is decrease from the balance of $(1,566) for FY budget. 12

88 MANAGEMENT'S DISCUSSION AND ANALYSIS The Measure S Sales Tax revenues for FY are projected to be $2,340. In the budget presentation, this revenue is combined with the General Fund in the Combined Public Safety and General Fund Summary and on other summary schedules. Public Safety (Police and Fire) expenditures of $8,628 are budgeted in Public Safety Fund #105. The General Fund (#100) provides the additional funding necessary for the expenditures in excess of the revenue received from Measure S and grant funds recorded directly in the Public Safety Fund. GOVERNMENTAL FUNDS Based on the analysis of our sales tax consultants, the budget contains a projected sales tax increase of $238 over the FY projected actual sales tax amount. The FY budget reflects another difficult year that local governments in parts California and the United States are facing. Further reductions in operating expenses will be required to achieve a balanced budget for FY as the continued economic climate restricts the recovery of City revenues. Uncertain financial conditions at the State level may have unknown fiscal impacts on the City. Measure S Sales Tax: While this revenue source is part of the General Fund for budget purposes, it is internally recorded as a separate fund. The sales tax and interest revenue is projected to be $2,478 for the FY budget year. Expenditures are broken into two categories: Police Department and Fire Department. Budgeted expenditures are $8,628. These expenditures are the entire Police and Fire operations, with the additional funding coming from the City s General Fund (#100) to make up the difference between the Measure S funding and budgeted expenses. The funding plan behind Measure S called for General Fund support of $5,020 per year. The General Fund Support projected for FY is $6,120. ENTERPRISE FUNDS Electric Utility: The Electric Utility expenditures are projected to decrease over the next year with the largest reduction in the cost of electric generation. Replacement of defective electric poles began in FY and will continue on an annual basis as identified on the priority list. Another significant project will be the undergrounding of the system in certain areas of the city. Water Operations: A five-year rate study was completed in The first scheduled increase became effective on August 1, 2010 with the fifth increase implemented July New rate schedules are in process. Wastewater Operations: A five-year rate study was completed in The first rate increase became effective in July 2011, with planned increases in each of the subsequent three years. The schedule of four annual rate increases is projected to meet debt revenue covenants. The City is beginning the process for updating the rate structure to meet revenue covenants in future years. Solid Waste: A review of the garbage rates was completed and new rates implemented in December In 2011 new contracts for curbside collection and for transfer station operation were completed. These contracts established new methods for revising fees based on a combination of the diesel fuel index, the consumer price index, fees and charges levied by other governments, and changes in the landfill charges for waste that is not recycled. These contracts extend for fifteen years and provide an option for an additional five years under certain conditions. Ukiah Valley Conference Center: The Conference Center had net gain, before depreciation and transfers, of $2, compared to a net loss of $(18) in FY Income continues to be less than the depreciation expense. Capital costs will continue to be subsidized, as necessary, by the General Fund, until the Conference Center is able to provide funding beyond operating expenses. OTHER INFORMATION Development: A proposed major retail development, of a Costco store in the City s Airport Business Park, is moving forward. The Costco Draft EIR was published in early 2013 and certified in January A lawsuit was filed in February 2014 placing the project on hold. 13

89 MANAGEMENT'S DISCUSSION AND ANALYSIS City Operations: In September 2013, the City implemented salary reductions of 5% for most labor units as a means of reducing expenditures. The reductions are in effect for a period of two years. A lawsuit was filed by the Ukiah Valley Sanitation District (District) on October 18, 2013 seeking more that $28 million in restitution for alleged overcharging of the District for services provided by the City pursuant to a series of agreements beginning in The City contests the allegations and is in mediation with the District. The City has entered into an interim agreement with the Ukiah Valley Fire District as of January 1, 2014 to provide firefighting, emergency medical response and hazardous material response services within the corporate limits of the City. Additional details of the agreement are included in the Notes to the Financial Statements on page xx. Summary While facing ongoing General Fund budget deficits, the City continues to provide not only basic services, but also many quality-of-life services that enhance the community. City staff will continue to develop expenditure reduction plans during FY to realign revenues and expenditures. The City plans on utilizing General Fund reserves to finance one-time expenses. Expenditure reductions, changes in fees and charges, and related organizational changes are expected to result in balanced budgets in the future. Sponsorships, donations, and fees-for-service cover many of our youth sports and recreational programs, as well as community events. Successful grant awards have assisted the City by providing the majority of funding for the new skateboard park and upgrades to the swimming pool facility and Anton Stadium. City staff will continue to apply for grants in all categories, including bike lane enhancements and transportation funding, as they become available. The release of STIP funding from the State has also enhanced the City s ability to provide Public Works upgrades to street and infrastructure systems. As growth in the surrounding unincorporated areas continues to impact City services, the need to prepare for possible service enhancements increases. 10. CONTACTING THE CITY S FINANCIAL MANAGEMENT This financial report is designed to provide citizens, taxpayers, customers, investors, and creditors with a general overview of the City s finances and to show the City s accountability for the money it receives. If you have questions about this report or need additional financial information, contact the City s Finance Director at (707) , Finance Department, City of Ukiah, 300 Seminary Ave, Ukiah, California or online: at 14

90 Basic Financial Statements City of Ukiah, California

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92 CITY OF UKIAH Statement of Net Position June 30, 2014 Governmental Activities ASSETS Current assets: Cash and investments 13,046,574 Business-Type Activities $ $ 39,044,212 $ 52,090,786 Cash and investments - restricted 2,744,309 2,072,014 4,816,323 Net receivables 2,292,841 4,555,545 6,848,386 Internal balances 1,923,225 (1,923,225) - Deposits 760 4,530 5,290 Prepayments 14,998-14,998 Inventory - 1,019,243 1,019,243 Total current assets 20,022,707 44,772,319 64,795,026 Noncurrent assets: Long term receivables -loans 4,650,414 42,500 4,692,914 Land primarily held for resale 2,435,114-2,435,114 Capital assets not being depreciated 3,285,779 7,928,637 11,214,416 Capital assets being depreciated, net 23,853, ,847, ,700,751 Total noncurrent assets 34,224, ,818, ,043,195 Total assets 54,247, ,590, ,838,221 LIABILITIES Current liabilities: Accounts payable and other current liabilities 1,891, ,756 2,724,909 Customer deposits - 7,562 7,562 Accrued interest payable - 1,233,817 1,233,817 Unearned revenues - long-term loans receivable 4,650,414-4,650,414 Unearned revenues - real property held for resale 2,435,114-2,435,114 Total current liabilities 8,976,681 2,075,135 11,051,816 Noncurrent liabilities: Due within one year - 4,349,591 4,349,591 Due in more than one year - 92,795,340 92,795,340 Total noncurrent liabilities - 97,144,931 97,144,931 Total liabilities 8,976,681 99,220, ,196,747 NET POSITION Net investment in capital assets 27,139,213 46,693,900 73,833,113 Restricted: Public safety 333, ,481 Public works 2,675,263-2,675,263 Housing and community development 2,937,509-2,937,509 Parks and recreation 74,822-74,822 Debt service - 2,072,014 2,072,014 Unrestricted 12,110,479 31,604,793 43,715,272 Total net position $ 45,270,767 $ 80,370,707 $ 125,641,474 Total The notes to financial statements are an integral part of this statement. 16

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94 CITY OF UKIAH Statement of Activities For the Fiscal Year Ended June 30, 2014 Program Revenues Expenses Functions/Programs City government Governmental activities: General government 3,715,968 Charges for Services Operating Grants and Contributions Capital Grants and Contributions $ $ 1,255,815 $ - $ - Public safety 9,867, , ,942 - Public works 2,290, , , ,666 Community development 832, , ,363 - Parks and recreation 2,540, ,548 39, ,326 Total governmental activities 19,246,838 3,736,253 1,097, ,992 Business-type activities: Electric 14,554,884 14,993, Water 3,717,064 6,006, Wastewater 8,118,315 8,832, Disposal site 573, , Street lighting 216, , Airport 1,337,555 1,201,546 57,271 - Parking 170, , Golf course 129, , Conference center 342, , Total business-type activities 29,160,036 31,931,176 57,271 - Total City government $ 48,406,874 $ 35,667,429 $ 1,154,870 $ 483,992 General revenue, transfers and extrordinary item: Taxes: Property taxes Sales taxes Transient occupancy taxes Business license tax and transfer taxes Franchises Use of money and property From other agencies not restricted to specific programs Transfers Total general revenues and special item Change in net position Net position, beginning Net position, ending The notes to financial statements are an integral part of this statement. 17

95 Net (Expenses) Revenue and Changes in Net Position City Government Governmental Activities Business-type Activities Total $ (2,460,153) $ - $ (2,460,153) (8,776,630) - (8,776,630) (741,293) - (741,293) (424,654) - (424,654) (1,526,264) - (1,526,264) (13,928,994) - (13,928,994) - 439, ,026-2,289,611 2,289, , ,442 - (441,191) (441,191) - (25,139) (25,139) - (78,738) (78,738) - (55,071) (55,071) - 30,071 30,071 - (44,600) (44,600) - 2,828,411 2,828,411 (13,928,994) 2,828,411 (11,100,583) 1,251,189-1,251,189 7,134,537-7,134, , , , , , ,767 93, , ,893 1,237,181-1,237,181 1,816,592 (1,816,592) - 13,408,597 (1,460,220) 11,948,377 (520,397) 1,368, ,794 45,791,164 79,002, ,793,680 $ 45,270,767 $ 80,370,707 $ 125,641,474

96 CITY OF UKIAH Balance Sheet Governmental Funds June 30, 2014 General Fund Nonmajor Governmental Funds Total Governmental Funds ASSETS Cash and investments $ 3,379,224 $ 8,151,886 $ 11,531,110 Cash with fiscal agent - 2,744,309 2,744,309 Taxes receivable 126, ,183 Accounts receivable 1,338, ,740 1,515,313 Interest receivable 14,432 17,160 31,592 Intergovernmental receivables - 600, ,282 Prepayments 13,498 1,500 14,998 Loans to employees Due from other funds 1,152,912-1,152,912 Advances to other funds 618, ,594 Long term notes receivables - 4,650,414 4,650,414 Real property held for resale - 2,435,114 2,435,114 Total assets $ 6,643,845 $ 18,777,405 $ 25,421,250 LIABILITIES Liabilities: Accounts payable $ 499,337 $ 206,154 $ 705,491 Accrued salaries and benefits 278,078 17, ,582 Compensated absences 659,324 6, ,345 Due to other funds - 630, ,484 Advances from other funds - 148, ,000 Unearned revenues - long-term loans receivable - 4,650,414 4,650,414 Unearned revenues - real property held for resale - 2,435,114 2,435,114 Total liabilities 1,436,739 8,093,691 9,530,430 DEFERRED INFLOWS OF RESOURCES Unavailable revenues 151, , ,264 Total deferred inflows of resources 151, , ,264 FUND BALANCES Nonspendable 619, ,044 Restricted - 4,805,526 4,805,526 Committed 203,105 3,569,505 3,772,610 Assigned - 2,514,649 2,514,649 Unassigned 4,233,953 (736,226) 3,497,727 Total fund balances 5,056,102 10,153,454 15,209,556 Total liabilities, deferred inflows of resources and fund balances $ 6,643,845 $ 18,777,405 $ 25,421,250 Amounts reported for governmental activities in the statement of net position (page 16) are different because: Total Governmental Fund Balances $ 15,209,556 Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds: Capital assets $ 58,035,566 Accumulated depreciation (30,896,353) 27,139,213 Other long-term assets are not available to pay for current period expenditures and, therefore, are reported as unavailable revenue in the fund: Unavailable revenues 681,264 Internal service funds are used by management to charge the cost of purchasing, risk management, billing & collection, garage and public safety dispatch to to individual funds. The assets and liabilities of the internal service funds are included in governmental activities statement of net position: 2,240,734 Net Position of Governmental Activities $ 45,270,767 The notes to financial statements are an integral part of this statement. 18

97 CITY OF UKIAH Statements of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds For the Fiscal Year Ended June 30, 2014 General Fund Nonmajor Governmental Funds Total Governmental Funds REVENUES Taxes: Property taxes $ 1,251,189 $ - $ 1,251,189 Sales taxes 7,104,666-7,104,666 Transient occupancy taxes 925, ,191 Franchises 591, ,767 Business license 324, ,240 Property transfer 34,379-34,379 Licenses and permits 283,786 8, ,688 Fines, forfeitures and penalties 53, , ,776 Interest, rents and concessions 182, , ,887 Intergovernmental 1,252,709 2,017,333 3,270,042 Charges for services 1,005,530 8,004 1,013,534 Miscellaneous 225, , ,158 Total revenues 13,235,450 2,663,067 15,898,517 EXPENDITURES Current: General government 2,676,148 97,437 2,773,585 Public safety 8,699, ,402 9,297,118 Public works 1,141, ,810 1,612,266 Housing and community development 480, , ,349 Parks and recreation 1,907, ,749 2,304,893 Capital outlay 262, ,446 1,159,928 Total expenditures 15,167,827 2,765,312 17,933,139 Excess (deficiency) of revenues over expenditures (1,932,377) (102,245) (2,034,622) OTHER FINANCING SOURCES (USES) Transfers in 1,714, ,068 2,076,641 Transfers out - (243,049) (243,049) Total other financing sources (uses) 1,714, ,019 1,833,592 Net change in fund balances (217,804) 16,774 (201,030) Fund balances, July 1 5,273,906 10,136,680 15,410,586 Fund balances, June 30 $ 5,056,102 $ 10,153,454 $ 15,209,556 The notes to financial statements are an integral part of this statement. 19

98 CITY OF UKIAH Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Fiscal Year Ended June 30, 2014 Amounts reported for governmental activities in the statement of activities (page 17) are different because: Net Change in Fund Balances - total governmental funds (page 19) $ (201,030) Governmental funds report capital outlays as expenditures. However, in the the statement of activities, the cost of these assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense in the current period. (151,054) Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the funds (244,659) Internal service funds are closed by charging additional amounts or reducing charges to participating governmental activities to completely cover the internal service fund's costs for the year. 76,346 Change in Net Position of Governmental Activities $ (520,397) The notes to financial statements are an integral part of this statement. 20

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100 CITY OF UKIAH Statement of Net Position Proprietary Funds June 30, 2014 Business-Type Activities ASSETS Electric Water Sewer Disposal Site Current assets: Cash and cash equivalents $ 8,638,658 $ 5,890,298 $ 15,390,406 $ 8,542,337 Cash and cash equivalents - restricted 2,072, Receivables: Accounts (net) 379, , ,662 11,192 Unbilled 1,935, , ,728 - Interest 18,063 13,874 29,280 19,024 Grants Notes - current portion Refundable deposits - 3, Inventory 933,522 85, Total current assets 13,977,319 7,006,300 16,162,076 8,572,553 Noncurrent assets: Advances to other funds Notes receivable Capital assets: Land 1,403,672 70, , ,654 Land improvements 35, , ,290 - Infrastructure systems 18,737,542 9,080,305 81,511,072 - Buildings and improvements 25,437,975 18,130,288 10,193,131 - Rolling equipment 1,700, , , ,296 Machinery and equipment 2,729,456 2,019,960 1,461, ,039 Less accumulated depreciation (23,927,114) (9,142,456) (14,979,094) (356,534) Construction in progress 360, ,927 1,714,431 - Total noncurrent assets 26,477,777 21,058,103 81,267, ,455 Total assets 40,455,096 28,064,403 97,429,441 9,421,008 LIABILITIES Current liabilities: Accounts payable 64, , , Accrued salaries and benefits 51,529 28,905 35,163 1,912 Compensated absences 121,521 63,229 99,696 6,171 Due to other funds Customer deposits Interest payable 36, ,548 1,005,926 - Long term obligations due in one year 1,610, ,042 2,251,549 - Total current liabilities 1,884, ,505 3,507,815 8,302 Noncurrent liabilities: Advances from other funds - 745,000 - Revenue bonds 5,371, Installment obligations - 11,931,622 64,899,067 - State loans - 1,117, ,252 - Landfill closure/postclosure ,062,877 Total noncurrent liabilities 5,371,109 13,794,035 65,312,319 9,062,877 Total liabilities 7,255,751 14,708,540 68,820,134 9,071,179 NET POSITION Net investment in capital assets 19,496,668 7,521,026 13,703, ,455 Restricted for debt service 2,072, Unrestricted 11,630,663 5,834,837 14,905,810 (498,626) Total net position $ 33,199,345 $ 13,355,863 $ 28,609,307 $ 349,829 The notes to financial statements are an integral part of this statement. 21

101 Business-Type Activities Governmental Activities Other Enterprise Funds Total Enterprise Funds Internal Service Funds $ 582,513 $ 39,044,212 $ 1,515,464-2,072, ,244 1,011,010 16,933 22,170 3,432,725-1,299 81,540 2,109 24,270 24,270-6,000 6, , ,019, ,296 46,695,544 1,535, ,203 42,500 42,500-1,829,928 4,673,811-1,599,653 1,897,850-1,311, ,640,008-2,943,142 56,704, , ,779 3,156,773 43, ,294 6,770, ,865 (3,916,966) (52,322,164) (461,817) 884,335 3,254,826-5,166, ,818,454 1,291,013 6,144, ,513,998 2,826,279 51, ,607 59,788 16, ,556 47,075 31, , , , ,428-7,562 7,562-2,390 1,233, ,349, ,890 6,947, , ,797 1,400, ,371, ,830, ,530, ,062, ,797 94,196,137-1,287, ,143, ,735 5,124,254 46,693, ,810-2,072,014 - (267,891) 31,604,793 2,240,734 $ 4,856,363 $ 80,370,707 $ 2,601,544

102 CITY OF UKIAH Statement of Revenues, Expenses, and Changes in Fund Net Position Propretary Funds For the Fiscal Year Ended June 30, 2014 Business-Type Activities Electric Water Sewer Disposal Site OPERATING REVENUES Current services $ 14,697,774 $ 5,997,957 $ 8,815,439 $ 124,857 Incoming provision Sales of fuel Facility rents Miscellaneous 296,136 8,718 17,318 7,430 Total operating revenues 14,993,910 6,006,675 8,832, ,287 OPERATING EXPENSES Purchased power 8,466, Maintenance and operations 3,561,410 1,779,625 2,622, ,731 General and administration 801, , ,013 - Fuel Insurance premiums Depreciation and amortization 1,162, ,945 1,877,905 12,747 Total operating expenses 13,991,623 3,128,890 5,068, ,478 Operating income (loss) 1,002,287 2,877,785 3,764,647 (441,191) NON-OPERATING REVENUES (EXPENSES) Operating subsidies Property taxes Interest and investment revenue 86,746 56, ,366 84,068 Interest expense and fiscal charges (563,261) (588,174) (3,050,205) - Net nonoperating revenues (expenses) (476,515) (531,624) (2,926,839) 84,068 Income (loss) before transfers 525,772 2,346, ,808 (357,123) Transfers out (1,009,418) (250,000) (68,000) - Change in net position (483,646) 2,096, ,808 (357,123) Total net position, July 1 33,682,991 11,259,702 27,839, ,952 Total net position, June 30 $ 33,199,345 $ 13,355,863 $ 28,609,307 $ 349,829 The notes to financial statements are an integral part of this statement. 22

103 Business-Type Activities Governmental Activities Other Enterprise Funds Total Enterprise Funds Internal Service Funds $ 396,173 $ 30,032,200 $ 2,706, ,245, , , , ,655-36, ,988 87,815 1,954,663 31,920,292 4,039,563-8,466,241-1,216,399 9,740,357 2,261, ,973 2,281, , , , ,253, ,849 3,808,554 35,595 2,196,295 24,958,396 3,955,061 (241,632) 6,961,896 84,502 57,271 57,271-10,884 10,884-5, ,372 8,844 - (4,201,640) - 73,797 (3,777,113) 8,844 (167,835) 3,184,783 93,346 (489,174) (1,816,592) (17,000) (657,009) 1,368,191 76,346 5,513,372 79,002,516 2,525,198 $ 4,856,363 $ 80,370,707 $ 2,601,544

104 CITY OF UKIAH Statement of Cash Flows Proprietary Funds For the Fiscal Year Ended June 30, 2014 Business-Type Activities Electric Water Sewer Disposal Site CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 15,771,553 $ 6,056,120 $ 8,658,761 $ 137,346 Payments for interfund services (10,101,256) (296,403) (320,100) (4,164) Payments to suppliers (2,175,916) (924,490) (1,431,419) (352,095) Payments to employees (594,831) (1,174,877) (1,444,252) (77,010) Net cash provided by (used for) operating activities 2,899,550 3,660,350 5,462,990 (295,923) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out Operating subsidies Property taxes (1,009,418) (250,000) (68,000) - Net cash provided by (used for) noncapital financing activities (1,009,418) (250,000) (68,000) - CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments received on long-term note Payments to acquire capital assets (860,408) (137,327) (52,295) - Payments on long-term debt principal (1,500,000) (468,196) (2,169,854) - Interest paid on long-term debt (537,187) (598,455) (3,111,639) - Trustee fees (5,413) Net cash provided by (used for) capital related financing activities (2,903,008) (1,203,978) (5,333,788) - CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 117,963 71, , ,173 Net cash provided by investing activities 117,963 71, , ,173 Net increase (decrease) in cash and cash equivalents (894,913) 2,277, ,201 (185,750) Balances-beginning of the year 11,605,585 3,612,522 15,157,205 8,728,087 Balances-end of the year $ 10,710,672 $ 5,890,298 $ 15,390,406 $ 8,542,337 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 1,002,287 $ 2,877,785 $ 3,764,647 $ (441,191) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 1,162, ,945 1,877,905 12,747 Decrease (increase) in receivables 777,643 49,445 (173,996) 5,059 Decrease (increase) in inventory (18,063) (3,043) - - Increase (decrease) in payables (24,425) 95,218 (5,566) 127,462 SCHEDULE OF NON-CASH CAPITAL FINANCING ACTIVITIES: None during the fiscal year. $ 2,899,550 $ 3,660,350 $ 5,462,990 $ (295,923) The notes to financial statements are an integral part of this statement. 23

105 Other Enterprise Funds Total Enterprise Funds Governmental Activities Internal Service Funds $ 1,786,202 $ 32,409,982 $ 4,198,819 (49,337) (10,771,260) (404,475) (927,331) (5,811,251) (1,731,948) (592,759) (3,883,729) (1,753,315) 216,775 11,943, ,081 (489,174) (489,174) (17,000) 33,001 33,001-10,884 (1,316,534) - (445,289) (1,772,707) (17,000) 5,500 5,500 - (203,558) (1,253,588) (21,844) - (4,138,050) - - (4,247,281) - - (5,413) - (198,058) (9,638,832) (21,844) 9, ,049 9,867 9, ,049 9,867 (417,062) 1,013, , ,575 40,102,974 1,235,360 $ 582,513 $ 41,116,226 $ 1,515,464 $ (241,632) $ 6,961,896 $ 84, ,849 3,808,554 35,595 (168,461) 489, ,256 - (21,106) - 512, ,708 29,728 $ 216,775 $ 11,943,742 $ 309,081

106 CITY OF UKIAH Statement of Fiduciary Net Position Fiduciary Funds June 30, 2014 Private Purpose Trust Agency Funds Assets Cash and investments $ 5,831,678 $ 5,414,175 Cash and investments 5,760,668 - Receivables: Accounts 16, ,099 Unbilled - 292,288 Accrued interest 9,947 17,783 Real property held for resale 3,730,238 - Capital assets 142,295 2,268,471 Total assets 15,491,077 $ 8,371,816 Liabilities Accounts payable 26,897 $ 700,008 Accrued salaries and benefits Accrued interest 137,240 - Payroll withholdings and employer contributions 547,793 - Customer utility deposits 393,055 - Other deposits 470,397 - Due to other agencies 7,671,808 Noncurrent liabilities: Due within one year 965,000 - Due in more than one year 9,727,586 - Net Position Total liabilities 12,268,358 $ 8,371,816 Held in trust for other purposes $ 3,222,719 The notes to financial statements are an integral part of this statement. 24

107 CITY OF UKIAH Statement of Changes in Fiduciary Net Position Private Purpose Trust Funds For the Fiscal Year Ended June 30, 2014 Total Private Purpose Trust Additions: Taxes $ 2,771,423 Interest, rents and concessions 38,642 Other revenues 201 Total additions 2,810,266 Deductions: Salaries and benefits 19,351 Contractual services 93,014 Internal charges 69,601 Interest and fiscal charges 677,277 Total deductions 859,243 Change in net position 1,951,023 Net position, July 1 1,271,696 Net position, June 30 $ 3,222,719 The notes to financial statements are an integral part of this statement. 25

108 CITY OF UKIAH Notes to the Financial Statements June 30, ) Summary of Significant Accounting Policies A) Reporting Entity The City of Ukiah was incorporated March 8, 1876 under the applicable laws and regulations of the State of California. The City operates under a Council City Manager form of government and provides a variety of services including police, fire fighting and medical emergency, sewage treatment, water treatment, electric power, street lighting and maintenance, parks and recreation, municipal golf course, conference center, and redevelopment activities. The accompanying financial statements present the City and its component units, entities for which the City is considered to be financially accountable. Blended component units, although legally separate entities are, in substance, part of the City s operations. The City has no component units that require discrete presentation. Blended Component Unit. The Parking District #1 is a special district, primarily located in Ukiah's downtown area, is administered and accounted for by the City. The Parking Commission is appointed by the Ukiah City Council and acts as an advisory board to the Council in District matters. The District is reported as an enterprise fund. The District does not prepare separate financial statements. Ukiah Successor Agency Until January 31, 2012, the Ukiah Redevelopment Agency ( RDA ) was a community redevelopment agency reported as a component unit of the City of Ukiah. On February 1, 2012, the Agency was dissolved by the State of California legislature and, therefore, no longer exists as a separate entity. The City elected to serve as the Ukiah Successor Agency ( USA ) of the Ukiah Redevelopment Agency. In its capacity as the successor agency, the City is responsible to wind-up the affairs of the former RDA, and dispose of the RDA s assets in compliance with State legislative requirements. The USA is governed by a seven (7) member Oversight Board comprised of one (1) Ukiah City Council member, (1) Ukiah City employee, (2) members appointed by the Mendocino County Board of Supervisors, one (1) member appointed by Mendocino County Office of Education, one (1) member appointed by the Cemetery District, and one (1) member appointed by the Chancellor of the California Community College System. Activities of the USA are reported as a private-purpose trust fund in the accompanying financial statements. B) Government-Wide And Fund Financial Statements The government-wide financial statements (i.e. the statement of net position and the statement of changes in net position) report information of all the non-fiduciary activities of the City and its component units. All fiduciary activities are reported only in the fund financial statements. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those clearly identifiable with a specific function or segment. Indirect expenses have been allocated to functional expenses as the result of an administrative cost recovery element built into a charge for centralized services. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate fund financial statements are provided for governmental funds, proprietary funds, and fiduciary funds (even though the fiduciary funds are excluded from the government-wide financial statements). Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C) Measurement Focus, Basis Of Accounting, And Financial Statement Presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary funds and fiduciary fund financial statements. Revenues are recognized when earned and expenses are recorded when the liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. 26

109 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter pay liabilities of the current period. For this purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due. Property taxes, sales taxes, franchise taxes, licenses and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. All other revenue items are considered to be measurable and available only when cash is received by the City. The City reports only one major governmental fund: The General Fund is the City s primary operating fund. It accounts for all financial resources of the general government except those required to be accounted for in another fund. The City reports the following major proprietary funds: The Electric Fund accounts for the activities of the City s electric generation and distribution operations. The Water Fund accounts for the activities of the City s water treatment and distribution operations. The Wastewater Fund accounts for the activities of the City s sewage collection and treatment operations. The Disposal Site Fund accounts for the activities of the City s solid waste landfill operations. Additionally, the City reports the following fund types: Special Revenue Funds account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specific purposes other than debt service or capital projects. Capital Project Funds - account for and report financial resources that are restricted, committed, or assigned to expenditure for capital outlays, including the acquisition or construction of capital facilities and other capital assets in governmental funds. Internal Service Funds - account for garage (vehicle maintenance), stores (purchasing), public safety dispatch, utility billing, workers compensation and liability insurance services provided to other departments or agencies of the City, or to other governments, on a cost reimbursement basis. Private-Purpose Trust Funds - account for resources legally held in trust for use by other organizations and departments. All resources of the fund, including any earnings on the invested resources, may be used to support the organization s or department s activities. There is no requirement that any portion of these resources be preserved as capital. Agency Funds - used by the City to report resources held by the City in a custodial capacity for the Ukiah Valley Sanitation District, Ukiah Waste Solutions, and Russian River Watershed. These funds are used to record receipt, temporary investment and remittance of fiduciary resources to individuals, private organizations or other governments. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the City s proprietary fund functions and various other functions of the City. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. Amounts reported as program revenues include 1) charges to customers or applicants for goods, services, or privileges provided 2) operating grants and contributions, and 3) capital grants and contributions. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes. Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund s principal ongoing operations. Principal operating revenues of the City s electric, water, wastewater, golf and street lighting funds and the City s internal service funds are charges to customers for sales and services. Principal operating revenues of the City s airport, disposal site and conference center funds include charges to customers for sales and services and rental fees. The parking district fund s principal operating revenues include the sale of parking permits to customers and parking fines. The City also recognizes as operating revenue tap fees intended to recover 27

110 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 the cost of connecting new customers to the City s utilities. Operating expenses for the enterprise funds and internal service funds include cost of power purchases, fuels and lubricants, operations, maintenance, utilities, insurance premiums and deductibles, general and administration, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. New Pronouncements In June 2012, the Governmental Accounting Standards Board ( GASB ) approved Statement No. 68, Accounting and Financial Reporting for Pensions. This statement requires governments providing defined benefit pension plans to recognize their long-term obligation for pension benefits as a liability in the statement of net position and to more comprehensively and comparably measure the annual costs of pension benefits. Statement No. 68 also requires revised and new note disclosures and required supplementary information (RSI) to be reported by employers. The implementation of this GASB statement could have a significant impact on the City s financial statements and is effective for the fiscal year ended June 30, D) Assets, Liabilities, And Net Position Or Equity 1) Cash And Investments Investments for the City and its component units are reported at fair value. The City s cash and cash equivalents are considered to be cash on hand, demand deposits, and short-term investments with original maturities of three months or less from the date of acquisition. 2) Receivables And Payables For the government-wide financial statements the individual components comprising Net Receivables and Accounts Payable and Other Current Liabilities include the following: Business- Governmental Type Activities Activities Total Net Receivables: Accounts receivable (net) $ 1,532,246 $ 1,011,010 $ 2,543,256 Unbilled - 3,432,725 3,432,725 Taxes 126, ,183 Accrued interest 33,701 81, ,241 Grants 600,282 24, ,552 Employee loans Notes - current portion - 6,000 6,000 2,292,841 4,555,545 6,848,386 Accounts Payable and Other Current Liabilities: Accounts payable $ 765,279 $ 377,607 $ 1,142,886 Accrued salaries and benefits 342, , ,213 Accrued compensated absences 783, ,593 1,105,810 1,891, ,756 2,724,909 Activity between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to either due to/from other funds (i.e. the current portion of interfund loans) or advances to/from other funds (i.e. the non-current portion of interfund loans). All other outstanding balances between funds are reported as due to/from other funds. Any residual balances outstanding between the governmental activities and the businesstype activities are reported in the government-wide financial statements as internal balances. An estimated receivable of $3,432,725 has been reported within the City's enterprise funds for services provided but not yet billed as of June 30, The receivable, and increase to related revenue accounts, was arrived at by taking the cycle billings the City sent the customers in July and prorating for the number of days applicable to the fiscal year ended June 30,

111 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 All trade and property tax receivables are shown net of an allowance for uncollectible accounts. Allowances for uncollectible receivables totaled $140,341 and were determined based on an analysis of historical trends. Property taxes for the current year were attached as an enforceable lien as of January 1 st and were levied on July 1 st. Taxes are due in two equal installments on November 1 st and February 1 st. The City relies on the competency of the County of Mendocino Assessor's office to properly assess, collect and distribute property taxes. 3) Inventories And Prepaid Items Inventories are valued at the lower of cost (first-in, first-out) or market. An annual charge is made to various City funds to assist in the financing of warehouse operations in addition to being billed as inventory is issued. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements. 4) Restricted Assets The proceeds from bonds issued by the former Ukiah Redevelopment Agency have been reported as restricted on the statement of net position because they must be used for City low and moderate income housing projects. Certain proceeds of the City s electric fund revenue bonds are classified as restricted assets because their use is limited by applicable bond or other covenants. 5) Capital Assets Capital assets, which include property, plant, and equipment, are reported in the applicable governmental or businesstype activities column in the government-wide financial statements. Capital assets are defined by the City as assets with an initial individual cost of more than $5,000 and an estimated useful life in excess of two years. Capital assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. Improvements are capitalized and depreciated over the remaining useful lives of the related fixed assets, as applicable. The City s museum contains collections of historical artifacts including artwork, Native American artifacts, and relics from the region s past. These collections are protected, cared for and preserved by the City for the purpose of public exhibition; and proceeds from the sale of any item, if any, are used to acquire additional items for the collection. Therefore, the City has elected not to capitalize these collections. Interest is capitalized on construction of major assets acquired with debt. The amount of interest to be capitalized is calculated by offsetting interest expense incurred from the date of the borrowing until completion of the project with interest earned on invested proceeds over the same period. For the year ended June 30, 2014, no interest expense was capitalized to any of the City s capital projects. Property, plant and equipment of the City are depreciated using the straight-line method using the following useful lives: Years Land improvements years Buildings and improvements years Infrastructure years Licensed vehicles 5-10 years Machinery and equipment 5-20 years 29

112 CITY OF UKIAH Notes to the Financial Statements June 30, ) Deferred Inflows of Resources In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The City has classified several items as deferred inflows because they were current accrued revenues that are not available to pay for current period expenditures. Accordingly, these items have been reported as Unavailable Revenues on the accompanying balance sheets. These amounts are deferred and will be recognized as an inflow of resources in the period that the amounts become available. 7) Real Property Primarily Held for Resale The City has acquired several real properties for the purpose of infilling the supply of low and moderate income housing. These properties will be subsequently sold and the proceeds placed back into the low and moderate income housing program. Therefore, these properties have been recorded as an asset on the accompanying financial statements at the lower of cost (the amount of the unpaid loan plus costs for foreclosure properties) or market and fully offset by recognizing a liability for Unearned Revenues Real Property Held for Resale. At June 30, 2014, the carrying value of these properties was $2,435,114. 8) Compensated Absences It is the City's policy to allow an employee to accumulate no more than two years vacation. Full time City employees are entitled to sick leave with full pay due to absence resulting from illness or injury to the extent of the amount earned. There is no liability for unpaid sick leave since the government does not have a policy to pay any amount when employees separate from service with the City. The City reports all accrued compensated absences as a current obligation payable from current financial resources, therefore, the entire liability of $1,105,810 has been accrued as incurred in the government-wide and fund financial statements. 9) Long-Term Obligations In the government-wide financial statements, and proprietary fund types in the fund financial statements, long-term debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net position. Long-term debt issue discounts and premiums are deferred and amortized over the life of the debt using the straight-line method, which is not materially different from the effective interest method. Bonds payable and installment obligations are reported net of the unamortized discounts and premiums. Debt issue costs are recognized as an expense in the year incurred. 10) Net Position/Fund Balance Assumptions Sometimes the City will fund outlays for a particular purpose from both restricted (e.g., restricted bond or grant proceeds) and unrestricted resources. In order to calculate the amounts to report as restricted net position and unrestricted net position in the government-wide and proprietary fund financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the City s policy to consider restricted net position to have been depleted before unrestricted net position are applied. The government-wide statement of net position reports $8,056,676 of restricted net position, of which $27,175 is restricted by enabling legislation. In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the City s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last. 11) Fund Balance Policies Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The City itself can establish limitations on the use of resources through either a commitment (committed fund balance) or an assignment (assigned fund balance). The committed fund balance classification includes amounts that can be used only for the specific purposes determined by a formal action of the government s highest level of decision-making authority. The City Council is the highest level of decision-making 30

113 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 authority for the City that can, by adoption of a resolution, commit fund balance. Once adopted, the limitation imposed by the resolution remains in place until a similar action is taken (the adoption of another resolution) to remove or revise the limitation. Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as committed. The City Council has authorized the City Department Heads to assign fund balance. The City Council may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above, an additional action is essential to either remove or revise a commitment. At June 30, 2014, the fund balances of the City s governmental funds were classified as nonspendable, restricted, committed and assigned for the following purposes: Other Nonmajor General Funds Total Nnspendable: Petty cash $ 450 $ - $ 450 Long-term receivable 618, ,594 Restricted: Public safety - 333, ,481 Public works - 1,492,593 1,492,593 Housing and community development - 2,952,277 2,952,277 Parks and recreation - 27,175 27,175 Committed: General government 99, , ,634 Public safety 38, , ,214 Public works 5,655 1,262,891 1,268,546 Parks and recreation 57,299-57,299 Housing and community development 1,944-1,944 City utility improvements - 894, ,973 Assigned: General government - 250, ,074 Public safety Public works - 2,091,606 2,091,606 Parks and recreation - 172, ,969 Unassigned 4,233,953 (736,226) 3,497,727 $ 5,056,102 $ 10,153,454 $ 15,209,556 2 Stewardship, Compliance And Accountability A) Budgetary Information Annual budgets were adopted for all governmental funds except the certain minor special revenue (STIP Augmentation, FEMA Grant, and LMIHF Housing Asset) and capital projects (City Housing Bond Proceeds) funds which were expected to have little or no activity. Budgets are adopted on a basis consistent with generally accepted accounting principles. Annually, each City department submits a request for appropriation to the City Manager so that a budget may be prepared. The budget is prepared by fund, function and activity, and includes information on the past year, current year estimates and requested appropriations for the next fiscal year. Before June 30th, the proposed budget is presented to the City Council for review. The City Council holds public hearings and may add to, subtract from, or change appropriations, but may not change the form of the budget. Any changes in the budget must be within the revenues and reserves estimated as available by the City Manager, or the revenue estimates must be changed by an affirmative vote of a majority of the City Council. Expenditures may not legally exceed budgeted appropriations at the activity level. supplementary appropriations totaling $1,342,830 were authorized. During the year, several 31

114 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Encumbrances represent commitments related to unperformed contracts for goods or services. Encumbrance accounting - under which purchase orders, contracts and other commitments for the expenditures of resources are recorded to reserve that portion of the applicable appropriation - is utilized in the governmental funds. Encumbrances outstanding at year-end are reported as commitments of fund balances and do not constitute expenditures or liabilities because the commitments will be reapportioned and honored during the subsequent year. B) Excess Of Expenditures Over Appropriations For the year ended June 30, 2014, the following fund had expenditures exceeding appropriations: Expenditures Over Appropriations: Asset Seizure $ (183,762) Supplemental Law Enforcement (11,355) Asset Forfeiture H&S (4,634) Museum (23,215) C) Deficit Fund Equity The following funds had deficit fund balances as of June 30, These deficits were primarily caused by expenditures in excess of grant awards, or delayed reimbursements from grant agencies. Management is monitoring each fund s activities to ensure improved financial position. The deficits do not represent a significant financial burden. Deficit Fund Equities: Anton Stadium $ (60,105) Observatory Park (36,822) Swimming Pool (129,254) Riverside Park (5,439) Museum Grants Prop 84 (162,625) Local Law Enforcement Block Grant (16,232) Special Police (21,779) ARC General Operating (26,913) STIP Augmentation (49,576) FEMA Grants (12,740) Museum (168,137) Capital Improvement (46,604) 3) Detailed Notes On All Funds A) Cash And Investments Cash and investments are reported in the accompanying financial statements as follows: Statement of Net Position: Cash and investments $ 52,090,786 Restricted cash with fiscal agent 4,816,323 Statement of Fiduciary Net Position: Cash and investments 11,245,853 Cash with fiscal agent 5,760,668 Total Cash and Investments $ 73,913,630 Cash and investments consist of the following: Cash on hand $ 2,700 Deposits with financial institutions 12,432,994 Investments 61,477,936 Total Cash and Investments $ 73,913,630 32

115 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Authorized Investments City Investment Policy The table below identifies the types of investments that are authorized by the City s investment policy: Maximum Maximum Maximum Total of Investment On Authorized Investment Type Maturity Portfolio One Issuer City of Ukiah Bonds 5 years No limit 10% U.S. Treasuries (notes, bonds, bills and other indebtedness) 5 years No limit None Obligations of the State of California (warrants, notes and bonds) 5 years No limit 10% Local Agency Obligations (bonds, notes and other indebtedness 5 years No limit 10% U.S. Agency Obligations 5 years No limit None Bankers Acceptances 180 days 40% 10% Commercial Paper (rated "A" or better) 270 days 25% 10% Negotiable Certificates 5 years 30% 10% Repurchase Agreements 365 days No limit 10% Reverse Repurchase Agreements (1) 92 days 20% 10% Medium-Term Notes 5 years 30% 10% Money Market Funds (highest rating) 5 years 20% 10% Local Agency Investment Fund 5 years $50 million 10% Time Deposits 5 years 25% 10% Mortgage-Backed and Asset-Backed Securities (rated "AA" or better) 5 years 20% 10% (1) = Requires prior City Council approval before investment is purchased. Authorized Investments Debt Trustee Agreements Investments held by bond fiscal agents (trustees) are governed by the provisions of the underlying indenture agreements rather than the general provisions of the City s investment policy or California Government Code. The indenture agreements do not specifically identify maximum maturity and maximum investment provisions. The indenture agreements do identify the following permitted investments: U.S. Government Obligations U.S. Agency Obligations Money Market Funds (rated AAAm-G, AAAm or Aam) Demand or Time Deposits (FDIC insured or fully secured) Bonds or Notes (must have one of two highest ratings) Bankers Acceptances Commercial Paper Repurchase Agreements Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the City manages its exposure to interest rate risk is by purchasing a combination of shorter and longer term investments and by timing cash flows from maturities so that a portion of the portfolio is maturing or coming close to maturity evenly over time as necessary to provide the cash flow and liquidity needed for City s operations. The City s target maximum average maturity to control overall exposure to interest rate risk is 2.5 years. 33

116 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 As of June 30, 2014, the City had the following investments: Weighted Average Investment Type Fair Value Maturity (Years) Corporate Bonds and Notes $ 14,229, U.S Treasury Bonds and Notes 22,250, U.S. Government Agency Bonds and Notes 9,393, Municipal and State Bonds 2,186, State Investment Pool (LAIF) 2,514, Money Market Funds 7,485,421 - Held By Bond Trustee: Money Market Funds 3,418,619 - Total Fair Value $ 61,477,936 Portfolio Weighted Average Maturity 1.68 Disclosures Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of an investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. As of June 30, 2014, the City s investments were in compliance with the ratings required by the City s investment policy and indenture agreements. Fair Exempt From Year End Rating Not Investment Type Value Disclosure AAA/AAAm AA+/AA/AA- A+/A-1+ Rated Corporate Bonds and Notes $ 14,229,126 $ - $ - $ 7,797,759 $ 6,431,367 $ - U.S Treasury Bonds and Notes 22,250,187 22,250, U.S. Government Agency Bonds and Notes 9,393, ,393, Municipal and State Bonds 2,186, ,585, ,158 - State Investment Pool 2,514, ,514,817 Money Market Funds 7,485,421-7,485, Held By Bond Trustee: Money Market Funds 3,418,619-3,418, Total Fair Value $ 61,477,936 $ 22,250,187 $ 10,904,040 $ 18,776,367 $ 7,032,525 $ 2,514,817 Concentrations of Credit Risk With the exception of securities of the U.S. Government and its agencies, the investment policy of the City limit the amount that can be invested in any one issuer to no more than 10% of the total portfolio. At June 30, 2014, the following investments from one issuer (other than U.S. Treasury securities, mutual funds and external investment pools) represented 5% or more of the total City investments. Investment Type Issuer Fair Value Dreyfus Tax Exempt Cash Management Money Fund Dreyfus $ 4,414,062 Federal National Mortgage Association Notes FNMA 3,437,355 Custodial Credit Risk Custodial credit risk for deposits is the risk that in the event of bank failure, the City s deposits may not be returned to the City or the City will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of failure of the counterparty (e.g. broker-dealer) to a transaction, the City will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code and the City s investment policy do not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, other than the following provisions for deposits: The California Government Code requires that a financial institution secure deposits 34

117 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 made by state and local governmental units by pledging securities in an undivided collateral pool held by the a depository regulated under state law (unless so waived by the governmental unit). The market value of the pledged securities in the collateral pool must equal 110% of the total deposits by public agencies. California law also allows financial institutions to secure City deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits. It is the policy of the City not to waive these requirements. At year-end, the City s deposits with financial institutions totaled $12,383,344, of which $2,139,582 was covered by federal depository insurance. The $10,244,762 uninsured amount was exposed to custodial credit risk, but was collateralized by securities, as described above. As of June 30, 2014, City investments in the following investment types were held by the same institution that was used by the City to buy the securities: Corporate Bonds and Notes $ 14,229,126 U.S Treasury Bonds and Notes 22,250,187 U.S. Government Agency Bonds and Notes 9,393,137 Municipal and State Bonds 2,186,629 Investment in State Investment Pool The Local Agency Investment Pool (LAIF) is a special fund of the California State Treasury through which local governments may pool investments. The City may invest up to $50,000,000 in the fund. Investments in LAIF are highly liquid, as deposits can be converted to cash within 24 hours without loss of interest. Funds deposited in LAIF are invested in accordance with Government Code Sections and Oversight of LAIF is provided by the Pooled Money Investment Board whose members are the California State Treasurer, California Director of Finance and the California State Controller. B) Capital Assets Capital assets activity for the year ended June 30, 2014 was as follows: Balance Balance Government Activities: July 1, 2013 Additions Deletions June 30, 2014 Nondepreciable Capital Assets: Land $ 495,340 $ - $ - $ 495,340 Construction in progress 5,786, ,148 3,795,887 2,790,439 Total Nondepreciable Capital Assets 6,281, ,148 3,795,887 3,285,779 Depreciable Capital Assets: Land improvements 3,196, ,754-4,184,886 Infrastructure systems 33,309,341 2,438,887-35,748,228 Buildings 6,372, ,756-6,757,422 Rolling equipment 4,196, ,728-4,432,319 Machinery and equipment 3,547, ,389 48,745 3,626,932 Total Depreciable Capital Assets 50,622,018 4,176,514 48,745 54,749,787 Less: Accumulated Depreciation: Land improvements (921,573) (126,654) - (1,048,227) Infrastructure systems (20,442,530) (519,815) - (20,962,345) Buildings (2,796,191) (144,529) - (2,940,720) Rolling equipment (3,108,817) (286,850) - (3,395,667) Machinery and equipment (2,330,406) (232,253) (13,265) (2,549,394) Total Accumulated Depreciation (29,599,517) (1,310,101) (13,265) (30,896,353) Depreciable Capital Assets, net 21,022,501 2,866,413 35,480 23,853,434 Governmental Activities Capital Assets, net $ 27,304,019 $ 3,666,561 $ 3,831,367 $ 27,139,213 35

118 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Balance Balance Business-Type Activities: July 1, 2013 Additions Deletions June 30, 2014 Nondepreciable Capital Assets: Land $ 4,673,811 $ - $ - $ 4,673,811 Construction in progress 3,162,892 91,934-3,254,826 Total Nondepreciable Capital Assets 7,836,703 91,934-7,928,637 Depreciable Capital Assets: Land improvements 1,884,900 12,950-1,897,850 Infrastructure systems 110,162, , ,640,008 Buildings and improvements 56,691,132 13,404-56,704,536 Rolling equipment 2,499, ,548-3,156,773 Machinery and equipment 6,775,739-5,425 6,770,314 Total Depreciable Capital Assets 178,013,253 1,161,653 5, ,169,481 Less: Accumulated Depreciation: Land improvements (1,224,207) (48,750) - (1,272,957) Infrastructure systems (18,236,352) (2,278,823) - (20,515,175) Buildings and improvements (23,080,901) (1,117,348) - (24,198,249) Rolling equipment (2,194,413) (128,735) - (2,323,148) Machinery and equipment (3,783,162) (234,898) (5,425) (4,012,635) Total Accumulated Depreciation (48,519,035) (3,808,554) (5,425) (52,322,164) Depreciable Capital Assets, net 129,494,218 (2,646,901) - 126,847,317 Business-Type Activities Capital Assets, net $ 137,330,921 $ (2,554,967) $ - $ 134,775,954 Depreciation expense was charged to functions/programs of the City as follows: Governmental Activities: General government $ 239,513 Public safety 318,251 Public works 602,916 Housing and community development 19,562 Parks and recreation 129,859 Total Depreciation Expense - Governmental Activities $ 1,310,101 Business-Type Activities: Electric $ 1,162,108 Water 640,945 Sewer 1,877,905 Disposal site 12,747 Parking 5,325 Airport 60,686 Conference center 46,602 Golf course 2,236 Total Depreciation Expense - Business-Type Activities $ 3,808,554 Construction And Other Commitments At year-end the City s incomplete major commitments with contractors were as follows: Expended Remaining To-Date Commitment Museum Prop 84 Nature Education $ 287,299 $ 321,250 Talmage Road Corridor Improvements 296, ,201 ERP Software 674, ,696 Costco EIR Phase II 16,355 37,415 Utility Billing Software 47,437 15,625 Northewest Pacific Rail Trail 110, ,791 36

119 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 C) Interfund Receivables, Payables And Transfers The composition of interfund balances and transfers within the City s fund financial statements as of June 30, 2014 is as follows: Due To(From) Other Funds Due From Due To General Fund $ 1,152,912 $ - Nonmajor governmental funds: Anton Stadium - 47,620 Observatory Park - 32,951 Riverside Park - 5,426 Museum Grants Prop ,663 Local Law Enforcement Block Grant - 16,196 Special Police - 77,597 Gas Tax ,804 ARC General Operating - 16,259 STIP Augmentation - 49,576 FEMA Grants - 12,740 Museum - 156,151 Capital Improvement - 46,501 Nonmajor business-type funds: Airport - 142,364 Conference Center - 5,362 Golf - 374,702 Total Due To(From) Other Funds $ 1,152,912 $ 1,152,912 The General Fund has reported a receivable of $1,152,912 for deficit pooled fund cash balances at June 30, For the most part, the deficit balances are expected to be eliminated through proceeds of grants and State subsidies. Exceptions include the Museum deficit of $156,151 which is expected to be eliminated by a combination of grants, and donations made by the Grace Hudson Museum Endowment. The ARC General Operating Fund and Conference Center deficits should be eliminated by future operating revenues. The Airport Fund deficit will be eliminated when a substantial receivable for fuel sales is collected. Management expects both the Capital Improvement Fund and Golf Fund deficits will in all likelihood be resolved by transfers from the General Fund, but no transfers have been authorized. Advances Due To(From) Other Funds Due From Due To General Fund $ 618,594 $ - Water Fund - 745,000 Swimming Pool Fund - nonmajor special reveunue - 148,000 Golf Fund - nonmajor proprietary - 655,797 Liability Fund - internal service 930,203 - Total Advances Due To(From) Other Funds $ 1,548,797 $ 1,548,797 Both the General Fund and Liability Fund have made long-term advances to the Golf Fund (a nonmajor enterprise fund) for the purpose of refunding a capital lease obligation and acquiring equipment. The Liability Fund has made a long-term advance to the Water Fund for the purpose of water-related capital projects and to the Park Development Fund for temporary funding of several parks related construction projects. None of above advances have been deemed to have a current portion. 37

120 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Interfund Transfers Transfers In Transfers Out General Fund $ 1,714,573 $ - Electric Fund - 1,009,418 Water Fund - 250,000 Sewer Fund - 68,000 Private Purpose Trust Fund - - Nonmajor governmental funds 362, ,049 Nonmajor business-type funds - 489,174 Internal service funds - 17,000 Total Transfers In(Out) $ 2,076,641 $ 2,076,641 A transfer of $475,684 from the Golf Fund and $13,490 from the Conference Center Fund (nonmajor enterprise funds), the General Fund to return transfers made in the prior year for pooled cash deficits. The Electric Fund transferred $1,009,418 to the General Fund representing payments in-lieu of taxes. The General Fund also received $215,981 from nonmajor Gas Tax Funds for costs incurred for streets and roads maintenance projects. The Wastewater Fund and Water Fund transferred $68,000 and $250,000, respectively, and the Garage Fund and Public Safety Dispatch Fund (internal service) transferred $10,000 and $7,000, respectively, to the Special Projects Fund (nonmajor capital projects fund) for their proportionate share of future capital outlays. A transfer of $27,068 was made from the Special Projects Fund (nonmajor capital projects) to the Special Revenue (nonmajor special revenue) for costs associated with a public works project. D) Long-Term Debt Changes in long-term liabilities Balance Balance Due Within July 1, 2013 Additions Deletions June 30, 2014 One Year Business-Type Activities: Electric revenue bonds payable $ 8,595,000 $ - $ 1,500,000 $ 7,095,000 $ 1,610,000 Deferred amounts: Issuance discounts (142,365) - (28,474) (113,891) Net revenue bonds payable 8,452,635-1,471,526 6,981,109 1,610,000 Installment obligations payable: Water treatment plant 12,530, ,000 12,195, ,000 Wastewater treatment plant 68,480,000-1,780,000 66,700,000 1,850,000 Deferred amounts: Issuance premiums 142,038-6, ,689 Net installment obligations payable 81,152,038-2,121,349 79,030,689 2,200,000 State loans: Water Resources - Water Treatment 1,388, ,196 1,255, ,042 Water Resources - Sewer Treatment 1,204, , , ,549 Total State loans 2,593, ,050 2,070, ,591 Landfill closure and post-closure 8,928, ,935-9,062,877 - Total Business-Type Activities Long-Term Liabilities $ 101,126,921 $ 133,935 $ 4,115,925 $ 97,144,931 $ 4,349,591 38

121 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Electric Revenue Bonds. The City has issued bonds where the City pledges revenue derived from the acquired or constructed assets of the City s electric system to pay debt service. Revenue bonds outstanding, excluding an unamortized discount of $113,891, at June 30, 2014 were as follows: Purpose Interest Rates Amount Electric Revenue Refunding Series % % $ 7,095,000 Installment Obligations. The City has entered into two (2) separate agreements with the Association of Bay Area Governments (ABAG) whereby ABAG issued revenue bonds to provide resources for the City to acquire and construct capital improvements to the City s water treatment plant and wastewater treatment plant. The bonds are an obligation of ABAG and are payable solely from and secured by revenues that consist primarily of payments on two (2) installment obligations of the City. The installment obligations of the City are as follows: Water Treatment Plant Dated September 1, 2005 the original amount of the obligation was $14,355,000 and is secured with a pledge of net revenues from the City s water system. The obligation principal is payable in annual installments beginning September 1, 2007 ranging from $280,000 to $845,000 through September 1, Interest payments commenced March 1, 2006 and are payable semiannually on September 1 st and March 1 st. At June 30, 2014 the installment obligation liability outstanding excluding the unamortized premium of $86,622 was as follows: Purpose Interest Rates Amount Water Treatment Plant Upgrade 4.00% % $ 12,195,000 Wastewater Treatment Plant Dated March 1, 2006 the original amount of the obligation was $75,060,000 and is secured with a pledge of net revenues from the City s wastewater system. The obligation principal is payable in annual installments beginning March 1, 2009 ranging from $400,000 to $4,690,000 through March 1, Interest payments commence September 1, 2006 and are payable semiannually on September 1 st and March 1 st. At June 30, 2014 the installment obligation liability outstanding excluding the unamortized premium of $49,067 was as follows: Purpose Interest Rates Amount Wastewater Treatment Plant Upgrade & Expansion 4.00% % $ 66,700,000 Department of Water Resources Loans. The City has obtained two (2) loans from the California Department of Water Resources to finance an upgrade of the water treatment plant and to finance an upgrade of the wastewater treatment plant to comply with safe drinking water standards. Water Treatment Plant The maximum loan amount was $3,599,009 and is payable over 30 years. At June 30, 2014, the balance of the loan was $1,255,455. Principal and interest are payable semi-annually on April 1 st, and October 1 st, with the interest rate being %. Loan payments will be made exclusively from revenues received from assessments and user charges of the treatment plant. Wastewater Treatment Plant The maximum loan amount was $6,592,944, payable over 20 years. At June 30, 2014, the balance of the loan was $814,801. Principal and interest are payable annually on April 15 th with the interest rate being 3.0%. Landfill Closure And Postclosure Costs. As more fully discussed in Note 4(D), long-term liabilities include $9,062,877 which has been accrued for future landfill closure and postclosure costs. Legal Debt Limit. The City is subject to a debt limit of 15% of the City s gross assessed valuation. At June 30, 2014, the City s legal debt limit amount was $120,505,532, and the City had no outstanding debt applicable to the limit. 39

122 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 Debt service requirements for future years, excluding landfill closure and postclosure costs, are as follows:. Business-Type Activities Year Ended Revenue Bonds State Loans Installment Loans June 30, Principal Interest Principal Interest Principal Interest 2015 $ 1,610,000 $ 443,438 $ 539,591 $ 68,438 $ 2,200,000 $ 3,527, ,710, , ,311 51,719 2,290,000 3,438, ,825, , ,259 33,777 2,385,000 3,346, ,950, , ,648 28,388 2,480,000 3,250, ,233 22,803 2,585,000 3,150, ,214 32,894 14,715,000 14,008, ,355,000 10,442, ,060,000 5,801, ,825, ,612 $ 7,095,000 $ 1,144,063 $ 2,070,256 $ 238,019 $ 78,895,000 $ 47,698,961 Long-Term Debt - Ukiah Successor Agency As previously described the Ukiah Successor Agency ( USA ) is responsible to windup the affairs of the former Ukiah Redevelopment Agency ( RDA ). At the time of the dissolution of the RDA, there were three (3) outstanding bond series outstanding which are now being administered by the USA. In future fiscal years, bond payments will be made by assets held with the USA or from an allocation of property tax revenues in an amount that is necessary to pay the annual installment payments on these bonds. At June 30, 2014, the total balance of the bonds outstanding was $10,935,000 which has been reported as a liability of the Ukiah Successor Agency private-purpose trust fund and is comprised of the following individual bond series: Ukiah Redevelopment Agency Tax Allocation Refunding Bonds, Series On April 18, 2007, the former RDA issued $5,595,000 in tax allocation bonds to refinance a loan agreement between the RDA and the Redwood Empire Financing Authority. The bond series is comprised of $4,310,000 in serial bonds maturing annually on December 1 st through the year 2020, and $1,285,000 in term bonds maturing on December 1, The serial bonds require annual principal payments ranging from $230,000 to $390,000. Interest rates on the serial bonds range from 3.75% to 4.70%, and the term bonds carry an interest rate of 4.75%. Interest is paid semi-annually on June 1 st and December 1 st. The outstanding balance was $3,700,000 at June 30, Ukiah Redevelopment Project Tax Allocation Bonds, Series 2011A. On March 8, 2011, the former RDA issued $5,180,000 Tax Allocation Bonds, 2011 Series A. The bonds were a special obligation of the RDA payable solely from and secured by a pledge of Agency tax revenues. The bonds carry an interest rate ranging from 3.0% to 6.5%. The bond series is comprised of $2,840,000 in serial bonds maturing annually on December 1 st through the year 2021, and $2,340,000 in term bonds maturing on December 1, The serial bonds require annual principal payments ranging from $10,000 to $620,000. Proceeds of the bonds were to be used to finance redevelopment activities, fund a reserve account for the bond issue and provide for the cost of issuing the bonds. The outstanding balance was $4,150,000 at June 30, Ukiah Redevelopment Project Taxable Tax Allocation Housing Bonds, Series 2011B. On March 8, 2011, the former RDA issued $3,250,000 Taxable Tax Allocation Bonds, 2011 Series B. The bonds were a special obligation of the RDA payable solely from RDA housing tax revenues. The bonds carry an interest rate ranging from 3.25% to 9.0%. The bond series is comprised of $1,585,000 in serial bonds maturing annually on August 1 st through the year 2021, and $1,665,000 in term bonds maturing on August 1, The serial bonds require annual principal payments ranging from $75,000 to $270,000. Proceeds of the bonds were to be used to finance redevelopment activities benefiting low and moderate income housing, fund a reserve account for the bond issue and provide for the cost of issuing the bonds. The outstanding balance was $3,085,000 at June 30,

123 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 E) Segment Information As discussed previously, the City has issued revenue bonds to finance improvements in its electric department. The City also obtained State loans and incurred installment obligations to finance improvements in its water and wastewater departments. These enterprises were all determined to be major funds for financial reporting purposes and required segment information is presented in the proprietary fund financial statements. None of the City s nonmajor enterprise funds meet the criteria for segment reporting. 4) Other Information A) Risk Management The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. The City provides property, liability, and worker's compensation insurance through the Redwood Empire Municipal Insurance Fund (REMIF), a public entity risk pool currently operating as a common risk management and insurance program for several Northern California municipalities. The City pays quarterly and annual premiums to the REMIF for its general insurance coverage. The joint powers formation agreement of the REMIF provides that the REMIF will be self-sustaining through member premiums for liability insurance and will reinsure through commercial companies for other coverage. REMIF is a risk sharing, self-funded pool which is a direct purchase program. The REMIF cost sharing pool provides coverage between the City s deductible and $500,000 (liability program) and $1,000,000 (workers compensation program). Losses in excess of the REMIF cost sharing pool limits are covered by REMIF through the California Joint Powers Risk Management Authority and commercial insurance policies. Losses limits are $39,500,000 (liability), $300,000,000 (property), $21,245,000 (boiler and machinery), $9,990,000 (auto) and $3,000,000 (workers compensation) all per occurrence. Losses exceeding these limits are the responsibility of the City. The City's deductibles are $10,000 for worker's compensation, property and auto losses, and fidelity; $25,000 for liability losses; $5,000 for boiler and machinery losses; and $100,000 or 5% of building value for earthquake and flood losses - all per occurrence. Separate internal service funds are maintained by the City for the City s deductibles and allocated share of pooled costs noted above. The total cash and investments held in these funds at June 30, 2014, was $678,942 which management believes is adequate to finance the City's share of any losses. The City continues to carry commercial insurance for all other risks of loss, including employee health and accident, coverage of the Municipal Airport and bonding of certain employees and elected officials. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three fiscal years. B) Related Organizations The City is a member of various joint powers authorities that provide goods or services to the City and other authority members. Under the criteria established by GASB-14, the City does not have sufficient authority, influence or accountability over these entities to incorporate them in this annual report. Additionally, the City has determined that it has no ongoing financial interest or responsibility for any of these organizations as defined by GASB-14. The names and general functions of these joint powers are as follows: Northern California Power Agency (NCPA) NCPA has 14 members including municipal electric utilities, a port authority, an irrigation district, a public utility district, a transportation district; and one associate member entity. The NCPA is generally empowered to purchase, generate, transmit, distribute, and sell electrical energy. Members participate in the projects of the Agency on an elective basis. A Commission comprised of one representative for each member governs the NCPA. The City is currently involved in several hydroelectric, geothermal and other energy related projects as a member of this agreement. The NCPA is financed by contributions from member cities, government grants and debt. The City is committed to provide substantial additional financial support for its portion of the actions and projects of the NCPA. During the year ended June 30, 2014, the City paid $8,466,241 to the NCPA for power supplied by the agency. 41

124 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 The NCPA holds certain funds under a separate member custodial agreement - the general operating reserve. The purpose of the reserve is to allow members to fund all, or a portion, of the contingent liabilities that the NCPA faces at any given time, while providing the individual member with the flexibility to draw upon their part of the reserve, as each member individually deems appropriate. At June 30, 2014, the City's balance held in the reserve was $10,037,107. Due to the nature of the reserve held by NCPA, payments made to the reserve are expensed as purchased power. Mendocino Transit Authority - This Agency consists of four Mendocino County cities and the County of Mendocino. The Agency was created to apply for and receive Transportation Development Act, Urban Mass Transportation Act, and other funds as a public transportation operator and to provide public transportation services within Mendocino County. Its activities are primarily financed from fare box revenue and federal and state government grants. A Board of Directors comprised of one member from each city and three members that are appointed by the Mendocino County Board of Supervisors governs the Authority. Redwood Empire Financing Authority (REFA) - This is an agreement between seven Northern California cities. The Authority is authorized to acquire, through lease purchase, installment sale agreements, or otherwise such property necessary or convenient for the operation of the member cities. A Commission comprised of one member appointed by each member city administers the Authority. As explained previously, the City has entered into various financing arrangements with REFA. Redwood Empire Municipal Insurance Fund (REMIF) - A group of Northern California cities participate in this agreement to provide themselves with various levels of liability, property and worker's compensation insurance. A Commission comprised of one member appointed by each member city administers the Authority. As explained previously, the City provides for its general and workers compensation insurance needs through REMIF. Annual premiums paid to the Authority were $1,253,500. During the year, the City received distribution from REMIF totaling $59,408 for surplus funds within REMIF s liability insurance program. Transmission Agency Of Northern California (TANC) - Members include ten cities, one electric co-op, two irrigation districts, and two public utility districts. The Agency was created to provide electric transmission or other facilities, including real property and rights of way, for the use of its members. A Commission comprised of one representative appointed by each member governs the Agency. The City has authorized its participation in the project up to one percent (1%) of the total. Mendocino Solid Waste Management Authority (MSWMA) - This Authority consists of three Mendocino County cities and the County of Mendocino. The Agency was created for the purpose of: (a) siting, licensing, developing, constructing, maintaining, and operating disposal sites and sanitary landfills and (b) preparing and implementing a solid waste management plan. A Commission comprised of one member from each city and two members that are appointed by the Mendocino County Board of Supervisors governs the Authority. C) Contingencies On October 18, 2013, the Ukiah Valley Sanitation District ( District ) filed a complaint in the Mendocino County Superior Court seeking in excess of $20 million interest alleging that the City overcharged the District for services provided by the City pursuant to a series of agreements, beginning in The District has alleged that the City has breached various clauses in each of the agreements and amendments entered into from 1967 through In response, The City has filed a demurrer to the complaint contending the District has failed to allege sufficient facts to avoid the time bar in the Torts Claims Act which required the District to file its claim within one year of when its causes of action accrued. Management is attempting to mediate the dispute to prevent the potential substantial defense costs should the case go to trial. If the case cannot be settled through medication, the City intends to vigorously contest the District s claim. Management is of the opinion that it is more likely than not that the District will not prevail. Amounts received from grantor agencies are subject to audit and adjustment by grantor agencies, principally the federal government. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures which may be disallowed by the grantor cannot be determined at this time although the City expects such amounts, if any, to be immaterial. D) Landfill Closure And Postclosure Costs State and federal laws and regulations require that the City place a final cover on its landfill when closed and perform certain maintenance and monitoring functions at the landfill site for thirty years after closure. In addition to operating expenses related to current activities of the landfill, an expense provision and related liability are being recognized based on the future closure and postclosure care costs that will be incurred near or after the landfill no longer accepts waste. The recognition of these landfill closure and postclosure care costs is based on the amount of landfill used 42

125 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 during the year. The estimated liability for landfill closure and postclosure care costs has a balance of $9,062,877 (including $900,032 for corrective action liability) as of June 30, 2014, which is based on 100.0% usage (filled) of the landfill. This estimated total current cost of the landfill closure and postclosure care is based on the amount that would be paid if all equipment, facilities, and services required to close, monitor, and maintain the landfill were acquired as of June 30, 2014, as determined by the last engineering study performed. However, the actual cost of closure and postclosure care may change due to inflation, changes in technology, or changes in landfill laws and regulations. The City is required by state and federal laws and regulations to make annual contributions to finance closure and postclosure care. The City is in compliance with these requirements, and at June 30, 2014, held $9,062,471 within its pooled investments designated for these purposes. The City has made a pledge of future service revenues for anticipated remaining expected costs, future inflation costs, and any additional costs that might arise from changes in postclosure requirements (due to changes in technology or more rigorous environmental regulations, for example). E) Service Contracts The City has entered into several agreements to provide services to the citizens of the City and surrounding areas. The general purpose and description of these contract agreements are as follows: The City has entered into an agreement with the Ukiah Valley Fire District ( UVFD ) to provide firefighting, emergency medical response and hazardous material response services within the corporate limits of the City. The current interim agreement commenced January 1, 2014 and terminates December 31, Under the terms of the agreement the City will provide fulltime and temporary fire personnel and use of City fire engines, rolling stock and related equipment to the UVFD, as well as making City facilities available to the UVFD. Fire personnel will remain employees of the City, and the City will continue to own all the equipment and facilities affected by the agreement. The UVFD will be responsible for day-to-day management and administration. The City will share in the cost for the employment of the Fire Chief, as well as certain fixed and reimbursable costs. For the year ended June 30, 2014, the City paid $142,375 under the term of the agreement. The City has entered into a leasing agreement with Tayman Park Golf Group, Inc. ( Lessee ) to operate, manage, repair and maintain the City s municipal golf course. The lease includes the 18 hole golf course, clubhouse, and shared usage of City equipment. The Lessee is responsible to provide all services, maintenance, and administration including setting user fees for the normal operation of the course. The initial term of the agreement is ten years commencing July 1, 2012, with an option for two (2) additional five (5) year extensions, and cancellable by either party in the event of default. The Lessee must pay to the City rent based on a percentage of gross revenues from course operations and concessions, and reimburse the City for personnel and equipment provided by the City. In addition, the Lessee annually must contribute $40,000 to a Capital Improvement Project for the benefit of the golf course. For the year ended June 30, 2014, the City received $65,162 in rents. The City reports activities of the golf course as a nonmajor enterprise fund. The cost and carrying amount of assets lease under this agreement were as follows: Accumulated Carrying Cost Depreciation Value Land $ 1,001,350 $ - $ 1,001,350 Land improvements 308,753 (302,003) 6,750 Infrastructure systems 178,259 (178,259) - Buildings and improvements 105,992 (83,932) 22,060 Rolling equipment 28,006 (28,006) - Machinery and equipment 30,390 (30,390) - Total $ 1,652,750 $ (622,590) $ 1,030,160 The City has granted Ukiah Waste Solutions a franchise for mandatory residential and optional commercial garbage collection and disposal. The City has also contracted with Ukiah Waste Solutions to provide a citywide recycling program. The City acts as billing and collecting agent for the residential accounts of Ukiah Waste Solutions. Amounts held by the City on behalf of the corporation are accounted for in the Agency funds. The City has contracted with the Ukiah Valley Sanitation District to provide processing of the District's wastewater. In addition, the City provides billing, collection and other direct maintenance services for the District. District assets held by the City are accounted for in the Agency funds. 43

126 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 F) Employee Retirement Systems Plan Description: The City has three (3) defined benefit pension plans; the Miscellaneous Plan of the City of Ukiah (Miscellaneous Plan), the Safety Police Plan of the City Of Ukiah (Police Plan), and the Safety Fire Plan of the City of Ukiah (Fire Plan). Each plan provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. The plans are part of the Public Agency portion of the California Public Employees Retirement System (CalPERS), an agent multiple employer defined benefit plan which acts as a common investment and administrative agent for participating public employees within the State of California. Since both the Police and Fire Plans each have less than 100 City participants they are required by CalPERS to participate in a risk pools and, therefore, are presented as cost-sharing, multiple-employer plans. State statutes within the Public Employees Retirement Law establish a menu of benefit provisions as well as other requirements. The City of Ukiah selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local ordinance. CalPERS issues a separate comprehensive annual financial report. Copies of the CalPERS' annual financial report may be obtained from the CalPERS Executive Office P Street - Sacramento, CA On January 1, 2013, the Public Employees Pension Reform Act of 2013 (PEPRA) took effect. The impact of most of the PEPRA changes will first show up in the rates and the benefit provision listings of the June 30, 2014 valuation, which sets the contribution rates. For more information on PEPRA, please refer to the CalPERS website. Funding Policy: Active plan members in the Plans are required to contribute a portion of their annual covered salary. The City is required to contribute the actuarially determined remaining amounts necessary to fund the benefits for its members. The actuarial methods and assumptions used are those adopted by CalPERS Board of Administration. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS. The required employer contribution rates for fiscal 2013/14 were as follows: Member Annual Contribution Employer Contribuiton Rates Pension Rate Classic PEPRA Cost Miscellaneous 8.00% 26.25% 12.25% $ 1,995,467 Fire 10.00% 31.76% 12.25% 285,813 Police 10.00% 36.85% 12.25% $ 761,020 3,042,300 Annual Pension Cost: For fiscal year 2013/14 the City's annual pension cost was $3,042,300 and the City actually contributed $3,042,300. The annual required contribution for fiscal year 2013/14 was determined as part of the June 30, 2011, actuarial valuation. Three-Year Trend Information Year Ending Annual Pension Cost Percentage Net Pension June 30, Miscellaneous Fire Police Contributed Obligation 2012 $ 1,826,673 $ 349,759 $ 730, % $ ,038, , , % ,995, , , % - Actuarial Methods and Assumptions (Miscellaneous Plan): Initial unfunded liabilities are amortized over a closed period that depends on the plan s date of entry into CalPERS. Subsequent plan amendments are amortized as a level percentage of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan are amortized over a 30-year period with Direct Rate Smoothing with a 5- year ramp up/ramp down. If the plan s accrued liability exceeds the actuarial value of plan assets, then the amortization payment on the total unfunded liability may not be lower than the payment calculated over a 30-year amortization 44

127 CITY OF UKIAH Notes to the Financial Statements June 30, 2014 period. A summary of principal assumptions and methods used to determine the annual required contribution (ARC) as of the latest available valuation date is presented below: Valuation date Actuarial cost method Amortization method Asset valuation method Actuarial Assumptions: Discount rate Miscellaneous Plan June 30, 2013 Entry age normal cost method Level percent of payroll Market value 7.5% (net of administration) Projetced salary increases 3.30% to 14.20% Inflation 2.75% Payroll growth 3.00% The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing relative to the actuarial accrued liability for benefits. Plan Changes (all plans): On April 17, 2013, the CalPERS Board of Administration approved a recommendation to change the CalPERS amortization and smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing policy, which spread investment returns over a 15-year period while experience gains and losses were amortized over a rolling 30-year period. Effective with the June 30, 2014 valuations, CalPERS will no longer use an actuarial value of assets and will employ an amortization and smoothing policy that will spread rate increases or decreases over a 5-year period, and will amortize all experience gains and losses over a fixed 30-year period. The new amortization and smoothing policy will be used for the first time in the June 30, 2014 actuarial valuations. These valuations will be performed in the fall of 2014 and will set employer contribution rates for the fiscal year G) Deferred Compensation The City of Ukiah offers its employees deferred compensation plans created in accordance with Internal Revenue Code Section 457. The plans, available to all City employees, permit employees to defer a portion of their salary until future years. Participation in the plans is optional, and the City does not match any employee contributions. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. The City has adopted the provisions of GASB Statement No. 32 and, therefore, the assets and liabilities of these plans have been excluded from the accompanying financial statements. 45

128 Required Supplementary Information City of Ukiah, California

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130 CITY OF UKIAH Schedule of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual General Fund For the Fiscal Year Ended June 30, 2014 Budget Amounts Variance with Final Budget Positive Original Final Actual (Negative) REVENUES Taxes: Property taxes $ 1,586,505 $ 1,586,505 $ 1,251,189 $ (335,316) Sales taxes 7,134,996 7,134,996 7,104,666 (30,330) Transient occupancy taxes 772, , , ,691 Franchises 579, , ,767 11,947 Business license 315, , ,240 8,340 Property transfer 30,000 30,000 34,379 4,379 Licenses and permits 127, , , ,856 Fines, forfeitures and penalties 50,500 50,500 53,999 3,499 Interest, rents and concessions 168, , ,485 13,672 Intergovernmental 1,262,116 1,262,116 1,252,709 (9,407) Charges for services 1,191,475 1,191,475 1,005,530 (185,945) Miscellaneous , ,509 Total revenues 13,220,555 13,220,555 13,235,450 14,895 EXPENDITURES Current: General government 2,665,349 2,900,320 2,676, ,172 Public safety 8,652,604 8,850,020 8,699, ,304 Public works 1,067,381 1,081,804 1,141,456 (59,652) Housing and community development 674, , , ,663 Parks and recreation 1,998,571 2,042,079 1,907, ,935 Capital outlay 315, , ,482 76,174 Total expenditures 15,373,449 15,887,423 15,167, ,596 Excess (deficiency) of revenues over expenditures (2,152,894) (2,666,868) (1,932,377) 734,491 OTHER FINANCING SOURCES (USES) Transfers in 1,155,000 1,155,000 1,714, ,573 Transfers out Total other financing sources (uses) 1,155,000 1,155,000 1,714, ,573 Net change in fund balances (997,894) (1,511,868) (217,804) 1,294,064 Fund balances, July 1 5,273,906 5,273,906 5,273,906 - Fund balances, June 30 $ 4,276,012 $ 3,762,038 $ 5,056,102 $ 1,294,064 46

131 CITY OF UKIAH Schedule of Funding Progress Public Employees' Retirement System Miscellaneous Plan of the City of Ukiah Actuarial Accrued UAAL as a Actuarial Liability Unfunded Percentage Actuarial Value of (AAL) - AAL Funded Covered of Covvered Valuation Assets Entry Age (UAAL) Ratio Payroll Payroll Date (A) (B) (B-A) (A/B) (C) [(B-A)/C) 6/30/2011 $ 45,539,395 $ 64,706,927 $ 19,167, % $ 8,358, % 6/30/ ,891,536 67,126,262 20,234, % 8,146, % 6/30/ ,152,382 69,916,982 26,764, % 8,097, % 47

132 Optional Supplementary Information Nonmajor funds combining financial statements, budgetary schedules, combining internal service funds, and combining fiduciary funds. City of Ukiah, California

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134 CITY OF UKIAH Combining Balance Sheets Nonmajor Governmental Funds June 30, 2014 Special Revenue Park Development Anton Stadium Observatory Park Playground and Park Amenities Swimming Pool Riverside Park Assets Cash and investments $ 27,105 $ - $ - $ 28,492 $ 18,704 $ - Cash with fiscal agent Receivables: Accounts Intergovernmental - 100, Accrued interest Notes, long-term Prepayments Real property held for resale Total assets $ 27,175 $ 100,000 $ - $ 28,555 $ 18,746 $ - Liabilities: Accounts payable $ - $ 12,485 $ 3,871 $ - $ - $ 13 Accrued salaries and benefits Compensated absences Due to other funds - 47,620 32, ,426 Advances from other funds ,000 - Total liabilities - 60,105 36, ,000 5,439 Deferred inflow of resources: Unavailable revenues: Grants - 100, Long-term loans receivable Real property held for resale Total deferred inflows of resources - 100, Fund balances: Nonspendable: Petty cash Restricted: Public safety Public works Housing and community development Parks and recreation 27, Committed: General government Public safety Public works City utility improvements Assigned: General government Public works Parks and recreation , Unassigned - (60,105) (36,822) - (129,254) (5,439) Total fund balances 27,175 (60,105) (36,822) 28,555 (129,254) (5,439) Total liabilities, deferred inflows of resources and fund balances $ 27,175 $ 100,000 $ - $ 28,555 $ 18,746 $ - 48

135 Skate Park Softball Complex Museum Grants Prop 84 Special Revenue Supplemental Law Asset Seizure Enforcement Local Law Enforcement Block Grant Asset Forfeiture H&S Special Police $ 12,731 $ 6,319 $ - $ 94,859 $ 52,549 $ - $ 193,944 $ ,263-8, , $ 12,759 $ 6,333 $ 213,263 $ 95,085 $ 60,793 $ - $ 194,363 $ 62,713 $ - $ - $ 48,515 $ 7,754 $ - $ 36 $ - $ ,918-1,913 4, ,828-2,293 1, , ,196-77, ,178 7,808 4,746 16,232 4,206 84, , , ,277 56, , ,759 6, (162,625) - - (16,232) - (21,779) 12,759 6,333 (162,625) 87,277 56,047 (16,232) 190,157 (21,779) $ 12,759 $ 6,333 $ 213,263 $ 95,085 $ 60,793 $ - $ 194,363 $ 62,713 (Continued)

136 CITY OF UKIAH Combining Balance Sheets Nonmajor Governmental Funds June 30, 2014 Special Revenue Special Revenue ARC General Operating Signalization Gas Tax 2106 Gas Tax 2107 Gas Tax Assets Cash and investments $ 1,090,366 $ - $ 418,715 $ 36,808 $ 10,881 $ - Cash with fiscal agent Receivables: Accounts 176, Intergovernmental 66, ,982 11,349 4,000 Accrued interest 2, Notes, long-term Prepayments Real property held for resale Total assets $ 1,335,540 $ - $ 419,648 $ 42,873 $ 22,254 $ 4,000 Liabilities: Accounts payable $ 36,770 $ 10,400 $ - $ - $ - $ - Accrued salaries and benefits Compensated absences Due to other funds - 16, ,804 Advances from other funds Total liabilities 36,770 26, ,804 Deferred inflow of resources: Unavailable revenues: Grants 242, Long-term loans receivable Real property held for resale Total deferred inflows of resources 242, Fund balances: Nonspendable: Petty cash Restricted: Public safety Public works 29, ,648 42,873 22, Housing and community development Parks and recreation Committed: General government Public safety Public works 1,026, City utility improvements Assigned: General government Public works Parks and recreation Unassigned - (26,913) Total fund balances 1,056,025 (26,913) 419,648 42,873 22, Total liabilities, deferred inflows of resources and fund balances $ 1,335,540 $ - $ 419,648 $ 42,873 $ 22,254 $ 4,000 49

137 Special Revenue Gas Tax 2105 STIP Augmentation CDBG Grants HOME Grants FEMA Grants SB325 Reimbursement Srate STP Congestion Relief Museum $ 19,666 $ - $ 175,380 $ 6,937 $ - $ 109,338 $ 108,327 $ 709,963 $ , ,805 73,551-21, , ,713,282 1,212, $ 28,008 $ - $ 1,889,052 $ 1,219,085 $ 25,805 $ 182,889 $ 108,327 $ 732,971 $ - $ - $ - $ - $ - $ - $ 74,354 $ - $ - $ 4, , , , , , ,740 74, , , ,713,282 1,212, ,713,282 1,212,147 25, , , , , ,770 6, (49,576) - - (12,740) (168,137) 28,008 (49,576) 175,770 6,938 (12,740) 108, , ,971 (168,137) $ 28,008 $ - $ 1,889,052 $ 1,219,085 $ 25,805 $ 182,889 $ 108,327 $ 732,971 $ - (Continued)

138 CITY OF UKIAH Combining Balance Sheets Nonmajor Governmental Funds June 30, 2014 Special Revenue LMIHF Housing Asset Equipment Reserve Special Project Reserve Capital Projects Capital Improvement City Housing Bond Proceeds Totals Assets Cash and investments $ 25,204 $ 2,658,367 $ 2,347,231 $ - $ - $ 8,151,886 Cash with fiscal agent ,744,309 2,744,309 Receivables: Accounts ,740 Intergovernmental ,282 Accrued interest 56 5,184 5, ,160 Notes, long-term 1,724, ,650,414 Prepayments 1,500 1,500 Real property held for resale 2,435, ,435,114 Total assets $ 4,185,359 $ 2,663,551 $ 2,353,949 $ - $ 2,744,309 $ 18,777,405 Liabilities: Accounts payable $ - $ 7,153 $ - $ 103 $ - $ 206,154 Accrued salaries and benefits ,504 Compensated absences ,021 Due to other funds , ,484 Advances from other funds ,000 Total liabilities - 7,237-46,604-1,008,163 Deferred inflow of resources: Unavailable revenues: Grants ,260 Long-term loans receivable 1,724, ,650,414 Real property held for resale 2,435, ,435,114 Total deferred inflows of resources 4,160, ,615,788 Fund balances: Nonspendable: Petty cash Restricted: Public safety ,481 Public works ,492,593 Housing and community development 25, ,744,309 2,952,277 Parks and recreation ,175 Committed: General government - 745,157 30, ,157 Public safety - 636, ,484 Public works - 236, ,262,891 City utility improvements - 894, ,973 Assigned: General government - 143, , ,074 Public works - - 2,091, ,091,606 Parks and recreation , ,969 Unassigned (46,604) - (736,226) Total fund balances 25,260 2,656,314 2,353,949 (46,604) 2,744,309 10,153,454 Total liabilities, deferred inflows of resources and fund balances $ 4,185,359 $ 2,663,551 $ 2,353,949 $ - $ 2,744,309 $ 18,777,405 50

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140 CITY OF UKIAH Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2014 Special Revenue Park Development Anton Stadium Observatory Park Playground and Park Amenities Swimming Pool Riverside Park Revenues: Taxes $ - $ - $ - $ - $ - $ - Licenses and permits 8, Fines, forfeitures and penalties Interest, rents and concessions Intergovernmental ,048 Charges for services Other revenues - 16, Total revenues 9,203 16, ,839 Expenditures: Current: General government Public safety Public works Housing and community development Parks and recreation - 22, Capital outlay - 30,772 1,527-31,431 - Total expenditures - 52,899 1,643-31,431 - Excess of revenues over (under) expenditures 9,203 (36,544) (1,643) 263 (31,249) 574,839 Other financing sources (uses): Transfers in Transfers out Total other financing sources (uses) Net change in fund balances 9,203 (36,544) (1,643) 263 (31,249) 574,839 Fund balances, July 1 17,972 (23,561) (35,179) 28,292 (98,005) (580,278) Fund balances, June 30 $ 27,175 $ (60,105) $ (36,822) $ 28,555 $ (129,254) $ (5,439) 51

141 Skate Park Softball Complex Museum Grants Prop 84 Asset Seizure Special Revenue Supplemental Law Enforcement Local Law Enforcement Block Grant Asset Forfeiture H&S Special Police $ - $ - $ - $ - $ - $ - $ - $ , , ,876 1, ,466-99, , , ,581 99,979-46, , , , , , , ,063 64, , , , , ,098 (186) 58 (147,708) (72,029) (83,034) (109) (36,262) (22,007) (186) 58 (147,708) (72,029) (83,034) (109) (36,262) (22,007) 12,945 6,275 (14,917) 159, ,081 (16,123) 226, $ 12,759 $ 6,333 $ (162,625) $ 87,277 $ 56,047 $ (16,232) $ 190,157 $ (21,779) (Continued)

142 CITY OF UKIAH Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2014 Special Revenue Special Revenue ARC General Operating Signalization Gas Tax 2106 Gas Tax 2107 Gas Tax Revenues: Taxes $ - $ - $ - $ - $ - $ - Licenses and permits Fines, forfeitures and penalties Interest, rents and concessions 10,908 58,455 3, Intergovernmental 298, , ,194 4,000 Charges for services - 8, Other revenues 105, Total revenues 414,693 66,459 3,864 64, ,285 4,000 Expenditures: Current: General government Public safety Public works 366, , Housing and community development - 79, Parks and recreation Capital outlay 446, Total expenditures 813,768 79,337-1, Excess of revenues over (under) expenditures (399,075) (12,878) 3,864 62, ,285 4,000 Other financing sources (uses): Transfers in 27, Transfers out (24,687) (112,040) (4,000) Total other financing sources (uses) 27, (24,687) (112,040) (4,000) Net change in fund balances (372,007) (12,878) 3,864 38,081 4,245 - Fund balances, July 1 1,428,032 (14,035) 415,784 4,792 18, Fund balances, June 30 $ 1,056,025 $ (26,913) $ 419,648 $ 42,873 $ 22,254 $

143 Special Revenue Gas Tax 2105 STIP Augmentation CDBG Grants HOME Grants FEMA Grants SB325 Reimbursement Srate STP Congestion Relief Museum $ - $ - $ - $ - $ - $ - $ - $ - $ , ,148 1, ,608-1, ,931-73, ,499 39, ,394-3, ,691-15, , ,482 2, ,647 43, , , , , , ,931-74, , ,691-14, (873) 2, ,647 (325,327) (75,254) (75,254) ,437-14, (873) 2, ,647 (325,327) (5,429) (49,576) 161,184 6,864 (12,806) 109, , , ,190 $ 28,008 $ (49,576) $ 175,770 $ 6,938 $ (12,740) $ 108,535 $ 108,327 $ 732,971 $ (168,137) (Continued)

144 CITY OF UKIAH Combining Statement of Revenues, Expenditures, and Changes in Fund Balances Nonmajor Governmental Funds For the Fiscal Year Ended June 30, 2014 Special Revenue Capital Projects LMIHF Housing Asset Equipment Reserve Special Project Reserve Capital Improvement City Housing Bond Proceeds Totals Revenues: Taxes $ - $ - $ - $ - $ - $ - Licenses and permits ,902 Fines, forfeitures and penalties ,777 Interest, rents and concessions 12,710 21,749 21, ,402 Intergovernmental ,017,333 Charges for services ,004 Other revenues - 125,009-2,908 12, ,649 Total revenues 12, ,758 21,677 2,908 12,801 2,663,067 Expenditures: Current: General government - 75,823 21, ,437 Public safety - 16, ,402 Public works ,741 4, ,810 Housing and community development ,468 Parks and recreation ,749 Capital outlay - 113, ,446 Total expenditures - 206,024 45,355 4,534-2,765,312 Excess of revenues over (under) expenditures 12,710 (59,266) (23,678) (1,626) 12,801 (102,245) Other financing sources (uses): Transfers in - 335, ,068 Transfers out - - (27,068) - - (243,049) Total other financing sources (uses) - 335,000 (27,068) ,019 Net change in fund balances 12, ,734 (50,746) (1,626) 12,801 16,774 Fund balances, July 1 12,550 2,380,580 2,404,695 (44,978) 2,731,508 10,136,680 Fund balances, June 30 $ 25,260 $ 2,656,314 $ 2,353,949 $ (46,604) $ 2,744,309 $ 10,153,454 53

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146 CITY OF UKIAH Park Development Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Licenses and permits: Development fees $ - $ - 8,902 Variance with Final Budget Positive (Negative) $ $ 8,902 Interest, rents and concessions: Investment earnings 2,751 2, (2,450) Total revenues 2,751 2,751 9,203 6,452 Expenditures: Capital outlay: Open space Total expenditures Excess of revenues over (under) expenditures 2,751 1,775 9,203 7,428 Transfer out Net change in fund balances 2,751 1,775 9,203 7,428 Fund balance, July 1 17,972 17,972 17,972 - Fund balance, June 30 $ 20,723 $ 19,747 $ 27,175 $ 7,428 54

147 CITY OF UKIAH Anton Stadium Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Intergovernmental: State grant $ 100,000 $ 100,000 - Variance with Final Budget Positive (Negative) $ $ (100,000) Other revenues: Contributions and donations ,355 16,355 Total revenues 100, ,000 16,355 (83,645) Expenditures: Current: Other services and supplies ,127 (21,879) Capital outlay: Anton Stadium 76,552 76,552 30,772 45,780 Total expenditures 76,800 76,800 52,899 23,901 Excess of revenues over (under) expenditures 23,200 23,200 (36,544) (59,744) Transfer out Net change in fund balances 23,200 23,200 (36,544) (59,744) Fund balance, July 1 (23,561) (23,561) (23,561) - Fund balance, June 30 $ (361) $ (361) $ (60,105) $ (59,744) 55

148 CITY OF UKIAH Observatory Park Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Intergovernmental: State grant $ - $ - $ - $ - Total revenues Expenditures: Current: Other services and supplies 1,001 1, Capital outlay: Observatory Park 6,000 7,230 1,527 5,703 Total expenditures 7,001 8,231 1,643 6,588 Excess of revenues over (under) expenditures (7,001) (8,231) (1,643) 6,588 Transfer out Net change in fund balances (7,001) (8,231) (1,643) 6,588 Fund balance, July 1 (35,179) (35,179) (35,179) - Fund balance, June 30 $ (42,180) $ (43,410) $ (36,822) $ 6,588 56

149 CITY OF UKIAH Playground and Park Amenities Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Interest, rents and concessions: Investment earnings $ 323 $ 323 $ 263 $ (60) Total revenues (60) Expenditures: Current: Other services and supplies Total expenditures Excess of revenues over (under) expenditures (60) Transfer out Net change in fund balances (60) Fund balance, July 1 28,292 28,292 28,292 - Fund balance, June 30 $ 28,615 $ 28,615 $ 28,555 $ (60) 57

150 CITY OF UKIAH Swimming Pool Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 583 $ Variance with Final Budget Positive (Negative) $ $ (417) Other Revenues: Contributions and donations 10,000 10, (9,984) Total revenues 10,583 10, (10,401) Expenditures: Capital outlay: Swimming pool 75, ,223 31,431 73,792 Total expenditures 75, ,223 31,431 73,792 Excess of revenues over (under) expenditures (64,417) (94,640) (31,249) 63,391 Transfer out Net change in fund balances (64,417) (94,640) (31,249) 63,391 Fund balance, July 1 (98,005) (98,005) (98,005) - Fund balance, June 30 $ (162,422) $ (192,645) $ (129,254) $ 63,391 58

151 CITY OF UKIAH Riverside Park Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ - $ Variance with Final Budget Positive (Negative) $ $ 791 Intergovernmental: State grant , ,048 Total revenues , ,839 Expenditures: Current: Public works 9,225 9,225-9,225 Capital outlay: Anton Stadium 2,000 6,864-6,864 Total expenditures 11,225 16,089-16,089 Excess of revenues over (under) expenditures (11,225) (16,089) 574, ,928 Transfer out Net change in fund balances (11,225) (16,089) 574, ,928 Fund balance, July 1 (580,278) (580,278) (580,278) - Fund balance, June 30 $ (591,503) $ (596,367) $ (5,439) $ 590,928 59

152 CITY OF UKIAH Skate Park Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 176 $ Variance with Final Budget Positive (Negative) $ $ (57) Other revenues: Contributions and donations Total revenues Expenditures: Current: Other services and supplies 386 (386) Capital outlay: Skate park 12,860 12,860-12,860 Total expenditures 12,860 12, ,474 Excess of revenues over (under) expenditures (12,684) (12,684) (186) 12,498 Transfer out Net change in fund balances (12,684) (12,684) (186) 12,498 Fund balance, July 1 12,945 12,945 12,945 - Fund balance, June 30 $ 261 $ 261 $ 12,759 $ 12,498 60

153 CITY OF UKIAH Softball Complex Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Interest, rents and concessions: Investment earnings $ 72 $ 72 $ 58 $ (14) Total revenues (14) Expenditures: Capital outlay: Softball complex Total expenditures Excess of revenues over (under) expenditures (14) Transfer out Net change in fund balances (14) Fund balance, July 1 6,275 6,275 6,275 - Fund balance, June 30 $ 6,347 $ 6,347 $ 6,333 $ (14) 61

154 CITY OF UKIAH Museum Grants Prop 84 Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 284 $ Variance with Final Budget Positive (Negative) $ $ (284) Intergovernmental: Proposition 84 allocation 750, ,000 67,466 (682,534) Total revenues 750, ,284 67,466 (682,818) Expenditures: Current: Other services and supplies 757, ,255 6, ,144 Capital outlay: Museum renovation ,063 (209,063) Total expenditures 757, , , ,081 Excess(deficiency) of revenues over (under) expenditures (6,716) (104,971) (147,708) (42,737) Other financing sources (uses) Transfers out Net change in fund balance (6,716) (104,971) (147,708) (42,737) Fund balance, July 1 (14,917) (14,917) (14,917) - Fund balance, June 30 $ (21,633) $ (119,888) $ (162,625) $ (42,737) 62

155 CITY OF UKIAH Asset Seizure Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Fines, forfeitures and penalties: Asset seizures $ - $ 17, ,340 Variance with Final Budget Positive (Negative) $ $ 107,940 Asset seizures - Federal ,457 30,457 LEAA ,000 2,000 Interest, rents and concessions: Investment earnings 2,548 2, (1,764) Total revenues 2,548 19, , ,633 Expenditures: Current: Salaries and benefits (54) Other services and supplies - 46, ,142 (119,294) Capital outlay: Equipment ,414 (64,414) Total expenditures - 46, ,610 (183,762) Excess of revenues over (under) expenditures 2,548 (26,900) (72,029) (45,129) Transfer out Net change in fund balances 2,548 (26,900) (72,029) (45,129) Fund balance, July 1 159, , ,306 - Fund balance, June 30 $ 161,854 $ 132,406 $ 87,277 $ (45,129) 63

156 CITY OF UKIAH Supplemental Law Enforcement Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 1,338 $ 1, Variance with Final Budget Positive (Negative) $ $ (773) Intergovernmental: COPS allocation 100, ,000 99,414 (586) Total revenues 101, ,338 99,979 (1,359) Expenditures: Current: Salaries and benefits 143, , ,513 (12,496) Other services and supplies 30,000 30,000 27,500 2,500 Total expenditures 173, , ,013 (9,996) Excess of revenues over (under) expenditures (71,679) (71,679) (83,034) (11,355) Transfer out Net change in fund balances (71,679) (71,679) (83,034) (11,355) Fund balance, July 1 139, , ,081 - Fund balance, June 30 $ 67,402 $ 67,402 $ 56,047 $ (11,355) 64

157 CITY OF UKIAH Local Law Enforcement Block Grant Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Revenues: Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) $ - $ - $ - $ - Total revenues Expenditures: Current: Other services and supplies Total expenditures Excess of revenues over (under) expenditures (184) (184) (109) 75 Transfer out Net change in fund balances (184) (184) (109) 75 Fund balance, July 1 (16,123) (16,123) (16,123) - Fund balance, June 30 $ (16,307) $ (16,307) $ (16,232) $ 75 65

158 CITY OF UKIAH Asset Forfeiture H&S Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Fines, forfeitures and penalties: Asset seizures - State $ - $ - 44,980 Variance with Final Budget Positive (Negative) $ $ 44,980 Interest, rents and concessions: Investment earnings 2,586 2,586 1,876 (710) Total revenues 2,586 2,586 46,856 44,270 Expenditures: Current: Salaries and benefits ,738 (73,738) Other services and supplies 78,454 78,484 9,380 69,104 Total expenditures 78,454 78,484 83,118 (4,634) Excess of revenues over (under) expenditures (75,868) (75,898) (36,262) 39,636 Transfer out Net change in fund balances (75,868) (75,898) (36,262) 39,636 Fund balance, July 1 226, , ,419 - Fund balance, June 30 $ 150,551 $ 150,521 $ 190,157 $ 39,636 66

159 CITY OF UKIAH Special Police Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ - $ - 1,091 Variance with Final Budget Positive (Negative) $ $ 1,091 Intergovernmental: Community Corrections Patrol 492, , ,000 (367,502) Total revenues 492, , ,091 (366,411) Expenditures: Current: Salaries and benefits 250, , , ,680 Total expenditures 250, , , ,680 Excess of revenues over (under) expenditures 241, ,724 (22,007) (263,731) Transfer out Net change in fund balances 241, ,724 (22,007) (263,731) Fund balance, July Fund balance, June 30 $ 241,952 $ 241,952 $ (21,779) $ (263,731) 67

160 CITY OF UKIAH Special Revenue Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 15,710 $ 15,710 10,908 Variance with Final Budget Positive (Negative) $ $ (4,802) Intergovernmental: SWRCB Underground Tank ,145 19,145 CalTrans BTA Grant , ,046 State Local Transportation ,934 13,934 Other Revenues: Underground tank insurance , ,660 Total revenues 15,710 15, , ,983 Expenditures: Current: Other services & supplies 60, , ,862 (204,203) Capital outlay: Talmage Rd corridor 753, , , ,770 Redwood Business Park ,170 (17,170) Oak Manor Trail ,612 (164,612) Northwest Pacific Trail - 97, ,483 (12,586) Total expenditures 813,113 1,215, , ,199 Excess of revenues over (under) expenditures (797,403) (1,200,257) (399,075) 801,182 Transfer in ,068 27,068 Net change in fund balances (797,403) (1,200,257) (372,007) 828,250 Fund balance, July 1 1,428,032 1,428,032 1,428,032 - Fund balance, June 30 $ 630,629 $ 227,775 $ 1,056,025 $ 828,250 68

161 CITY OF UKIAH ARC General Operating Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Rents and concessions $ 55,000 $ 55,000 58,455 Variance with Final Budget Positive (Negative) $ $ 3,455 Charges for services: Program income 20,000 20,000 8,004 (11,996) Total revenues 75,000 75,000 66,459 (8,541) Expenditures: Current: Salaries and benefits 19,162 19,162 21,784 (2,622) Other services & supplies 58,066 55,838 57,553 (1,715) Total expenditures 77,228 75,000 79,337 (4,337) Excess of revenues over (under) expenditures (2,228) - (12,878) (12,878) Transfer in Net change in fund balances (2,228) - (12,878) (12,878) Fund balance, July 1 (14,035) (14,035) (14,035) - Fund balance, June 30 $ (16,263) $ (14,035) $ (26,913) $ (12,878) 69

162 CITY OF UKIAH Signalization Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Interest, rents and concessions: Investment earnings $ 4,740 $ 4,750 $ 3,864 $ (886) Total revenues 4,740 4,750 3,864 (886) Expenditures: Capital outlay: Redwood Business Park 462, , ,144 Total expenditures 462, , ,144 Excess of revenues over (under) expenditures (457,404) (457,394) 3, ,258 Transfer in Net change in fund balances (457,404) (457,394) 3, ,258 Fund balance, July 1 415, , ,784 - Fund balance, June 30 $ (41,620) $ (41,610) $ 419,648 $ 461,258 70

163 CITY OF UKIAH Gas Tax 2106 Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 459 $ Variance with Final Budget Positive (Negative) $ $ (188) Intergovernmental: Gas tax ,687 54,687 63,815 9,128 Total revenues 55,146 55,146 64,086 8,940 Expenditures: Current: Engineering - streets 24,687 24,687-24,687 Other services & supplies 30,000 31,318 1,318 30,000 Total expenditures 54,687 56,005 1,318 54,687 Excess of revenues over (under) expenditures 459 (859) 62,768 63,627 Transfer out - - (24,687) (24,687) Net change in fund balances 459 (859) 38,081 38,940 Fund balance, July 1 4,792 4,792 4,792 - Fund balance, June 30 $ 5,251 $ 3,933 $ 42,873 $ 38,940 71

164 CITY OF UKIAH Gas Tax 2107 Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 1,344 $ 1, Variance with Final Budget Positive (Negative) $ $ (1,253) Intergovernmental: Gas tax , , ,194 4,154 Total revenues 113, , ,285 2,901 Expenditures: Current: Engineering - streets 112, , ,040 Other services & supplies - 1,221-1,221 Total expenditures 112, , ,261 Excess of revenues over (under) expenditures 1, , ,162 Transfer out - - (112,040) (112,040) Net change in fund balances 1, ,245 4,122 Fund balance, July 1 18,009 18,009 18,009 - Fund balance, June 30 $ 19,353 $ 18,132 $ 22,254 $ 4,122 72

165 CITY OF UKIAH Gas Tax Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 46 $ 46 - Variance with Final Budget Positive (Negative) $ $ (46) Intergovernmental: Gas tax ,000 4,000 4,000 - Total revenues 4,046 4,046 4,000 (46) Expenditures: Current: Engineering - streets 4,000 4,000-4,000 Total expenditures 4,000 4,000-4,000 Excess of revenues over (under) expenditures ,000 3,954 Transfer out - - (4,000) (4,000) Net change in fund balances (46) Fund balance, July Fund balance, June 30 $ 242 $ 242 $ 196 $ (46) 73

166 CITY OF UKIAH Gas Tax 2105 Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 744 $ Variance with Final Budget Positive (Negative) $ $ (661) Intergovernmental: Gas tax ,254 75, ,608 33,354 Total revenues 75,998 75, ,691 32,693 Expenditures: Current: Maintenance - streets 75,254 75,254-75,254 Total expenditures 75,254 75,254-75,254 Excess of revenues over (under) expenditures , ,947 Transfer out - - (75,254) (75,254) Net change in fund balances ,437 32,693 Fund balance, July 1 (5,429) (5,429) (5,429) - Fund balance, June 30 $ (4,685) $ (4,685) $ 28,008 $ 32,693 74

167 CITY OF UKIAH STIP Augmentation Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Revenues: Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) $ - $ - $ - $ - Total revenues Expenditures: Total expenditures Excess of revenues over (under) expenditures Transfer out Net change in fund balances Fund balance, July 1 (49,576) (49,576) (49,576) - Fund balance, June 30 $ (49,576) $ (49,576) $ (49,576) $ - 75

168 CITY OF UKIAH CDBG Grants Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 9,413 $ 9,413 3,828 Variance with Final Budget Positive (Negative) $ $ (5,585) Revolving loan payments 12,974 12,974 10,758 (2,216) Intergovernmental: 10-EDEF-7261 grant 470, ,805 1,200 (469,605) Total revenues 493, ,192 15,786 (477,406) Expenditures: Current: Administration 20,210 26,681 1,200 25,481 Active delivery 67,820 67,820-67,820 Contracted services 395, , ,749 Total expenditures 483, ,250 1, ,050 Excess of revenues over (under) expenditures 9,413 2,942 14,586 11,644 Transfer out Net change in fund balances 9,413 2,942 14,586 11,644 Fund balance, July 1 161, , ,184 - Fund balance, June 30 $ 170,597 $ 164,126 $ 175,770 $ 11,644 76

169 CITY OF UKIAH HOME Grants Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 1 $ 1 74 Variance with Final Budget Positive (Negative) $ $ 73 Intergovernmental: 11-HOME-7654 grant 645, , ,931 (421,633) Total revenues 645, , ,005 (421,560) Expenditures: Current: Administration 14,295 14,295 6,230 8,065 Active delivery 41,247 41,247 13,286 27,961 Contracted services 590, , , ,805 Total expenditures 645, , , ,831 Excess of revenues over (under) expenditures (197) (197) Transfer out Net change in fund balances (197) (197) Fund balance, July 1 6,864 6,864 6,864 - Fund balance, June 30 $ 6,667 $ 6,667 $ 6,938 $

170 CITY OF UKIAH FEMA Grants Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Interest, rents and concessions: Investment earnings $ - $ - $ 66 $ 66 Total revenues Expenditures: Total expenditures Excess of revenues over (under) expenditures Transfer out Net change in fund balances Fund balance, July 1 (12,806) (12,806) (12,806) - Fund balance, June 30 $ (12,806) $ (12,806) $ (12,740) $ 66 78

171 CITY OF UKIAH SB325 Reimbursement Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Intergovernmental: MCOG allocations $ - $ - $ 73,482 $ 73,482 Total revenues ,482 73,482 Expenditures: Current: Contracted services 162, ,019 74,355 87,664 Total expenditures 162, ,019 74,355 87,664 Excess of revenues over (under) expenditures (162,019) (162,019) (873) 161,146 Transfer out Net change in fund balances (162,019) (162,019) (873) 161,146 Fund balance, July 1 109, , ,408 - Fund balance, June 30 $ (52,611) $ (52,611) $ 108,535 $ 161,146 79

172 CITY OF UKIAH State STP Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Intergovernmental: MCOG allocations $ 120,000 $ 120,000 - Variance with Final Budget Positive (Negative) $ $ (120,000) Other revenues: Miscellaneous reimbursement - - 2,394 2,394 Total revenues 120, ,000 2,394 (117,606) Expenditures: Capital outlay: US 101 corridor interchange 425, , ,628 Total expenditures 425, , ,628 Excess of revenues over (under) expenditures (305,000) (422,628) 2, ,022 Transfer out Net change in fund balances (305,000) (422,628) 2, ,022 Fund balance, July 1 105, , ,933 - Fund balance, June 30 $ (199,067) $ (316,695) $ 108,327 $ 425,022 80

173 CITY OF UKIAH Trans-Traffic Congestion Relief Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 5,512 $ 5,512 6,148 Variance with Final Budget Positive (Negative) $ $ 636 Intergovernmental: Gas tax , , ,499 (5,509) Total revenues 233, , ,647 (4,873) Expenditures: Current: Contracted services 399, , ,716 Total expenditures 399, , ,716 Excess of revenues over (under) expenditures (166,196) (166,196) 228, ,843 Transfer out Net change in fund balances (166,196) (166,196) 228, ,843 Fund balance, July 1 504, , ,324 - Fund balance, June 30 $ 338,128 $ 338,128 $ 732,971 $ 394,843 81

174 CITY OF UKIAH Museum Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 1,282 $ 1,282 - Variance with Final Budget Positive (Negative) $ $ (1,282) Rentals 5,000 5,000 1,015 (3,985) Intergovernmental: Proposition 84 allocation 30,000 30,000 39,551 9,551 Other revenues: Sun House Guild & Endowment 45,000 45,000 - (45,000) Attendance and donations 12,000 12,000 3,116 (8,884) Total revenues 93,282 93,282 43,682 (49,600) Expenditures: Current: Salaries and benefits 266, , ,785 (24,620) Other services and supplies 51,720 52,233 48,900 3,333 Interfund charges 27,396 27,396 29,324 (1,928) Total expenditures 345, , ,009 (23,215) Excess(deficiency) of revenues over (under) expenditures (251,999) (252,512) (325,327) (72,815) Other financing sources (uses) Transfers out Net change in fund balance (251,999) (252,512) (325,327) (72,815) Fund balance, July 1 157, , ,190 - Fund balance, June 30 $ (94,809) $ (95,322) $ (168,137) $ (72,815) 82

175 CITY OF UKIAH LMIHF Housing Asset Special Revenue Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ - $ Variance with Final Budget Positive (Negative) $ $ 210 Rentals ,000 12,000 Revolving loan payments Total revenues ,710 12,710 Expenditures: Total expenditures Excess(deficiency) of revenues over (under) expenditures ,710 12,710 Other financing sources (uses) Transfers out Net change in fund balance ,710 12,710 Fund balance, July 1 12,550 12,550 12,550 - Fund balance, June 30 $ 12,550 $ 12,550 $ 25,260 $ 12,710 83

176 CITY OF UKIAH Equipment Reserve Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ 26,822 $ 26,822 21,749 Variance with Final Budget Positive (Negative) $ $ (5,073) Other revenues: General governmental buildings , ,009 Total revenues 26,822 26, , ,936 Expenditures: Current: Salaries and benefits - finance 11,429 11,429 6,291 5,138 Other services and supplies 175,000 86,400 88,600 Capital outlay: Equipment - finance 311, ,649 84, ,651 Equipment - fire 45,000 45,000 24,480 20,520 Equipment - governmental buildings 100, ,855 3, ,000 Total expenditures 468, , , ,909 Excess(deficiency) of revenues over (under) expenditures (441,256) (531,111) (59,266) 471,845 Other financing sources (uses) Transfers in 132, , , ,000 Net change in fund balance (309,256) (399,111) 275, ,845 Fund balance, July 1 2,380,580 2,380,580 2,380,580 - Fund balance, June 30 $ 2,071,324 $ 1,981,469 $ 2,656,314 $ 674,845 84

177 CITY OF UKIAH Special Project Reserve Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Interest, rents and concessions: Investment earnings $ 20,350 $ 20,350 $ 21,677 $ 1,327 Total revenues 20,350 20,350 21,677 1,327 Expenditures: Current: Other services and supplies 123, ,766 45,355 78,411 Capital outlay: Infrastructure - streets 289, , ,170 Total expenditures 413, ,936 45, ,581 Excess(deficiency) of revenues over (under) expenditures (393,269) (409,586) (23,678) 385,908 Other financing sources (uses) Transfers in - - (27,068) (27,068) Net change in fund balance (393,269) (409,586) (50,746) 358,840 Fund balance, July 1 2,404,695 2,404,695 2,404,695 - Fund balance, June 30 $ 2,011,426 $ 1,995,109 $ 2,353,949 $ 358,840 85

178 CITY OF UKIAH Capital Improvement Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Variance with Final Budget Positive (Negative) Revenues: Other revenues: Miscellaneous reimbursement $ - $ - $ 2,908 $ 2,908 Total revenues - - 2,908 2,908 Expenditures: Current: Other services and supplies ,534 (4,046) Internal charges Capital outlay: Infrastructure - streets - 11,407-11,407 Total expenditures ,365 4,534 7,831 Excess(deficiency) of revenues over (under) expenditures (958) (12,365) (1,626) 10,739 Other financing sources (uses) Transfers in Net change in fund balance (958) (12,365) (1,626) 10,739 Fund balance, July 1 (44,978) (44,978) (44,978) - Fund balance, June 30 $ (45,936) $ (57,343) $ (46,604) $ 10,739 86

179 CITY OF UKIAH City Housing Bond Proceeds Capital Projects Fund Schedule of Revenues, Expenditures, and Changes in Fund Balance - Budget and Actual For the Fiscal Year Ended June 30, 2014 Budgets Original Final Actual Amounts Revenues: Interest, rents and concessions: Investment earnings $ - $ Variance with Final Budget Positive (Negative) $ $ 691 Other revenues: Miscellaneous reimbursement ,110 12,110 Total revenues ,801 12,801 Expenditures: Current: Other services and supplies Internal charges Capital outlay: Infrastructure - streets Total expenditures Excess(deficiency) of revenues over (under) expenditures ,801 12,801 Other financing sources (uses) Transfers in Net change in fund balance ,801 12,801 Fund balance, July 1 2,731,508 2,731,508 2,731,508 - Fund balance, June 30 $ 2,731,508 $ 2,731,508 $ 2,744,309 $ 12,801 87

180 CITY OF UKIAH Combining Statement of Net Position Nonmajor Enterprise Funds June 30, 2014 Parking District ASSETS Current assets: Cash and cash equivalents 112,630 Street Lighting Airport Conference Center Golf Course Totals $ $ 469,883 $ - $ - $ - $ 582,513 Receivables: Accounts (net) 10, ,420 15,393 38, ,244 Unbilled - 22, ,170 Interest 248 1, ,299 Grants , ,270 Notes ,000 6,000 Refundable deposits Total current assets 123, , ,490 15,393 44, ,296 Noncurrent assets: Notes receivable ,500 42,500 Capital assets: Land 183, , ,750 1,001,350 1,829,928 Land improvements - - 1,290, ,753 1,599,653 Infrastructure systems 77,682-1,055, ,259 1,311,089 Buildings and improvements ,677 2,294, ,992 2,943,142 Rolling equipment ,773-28, ,779 Machinery and equipment 33,043-38,767 53,094 30, ,294 Less accumulated depreciation (36,733) - (2,265,488) (992,155) (622,590) (3,916,966) Construction in progress , ,335 Total noncurrent assets 257,863-2,108,069 1,728,162 1,072,660 5,166,754 Total assets 381, ,104 2,408,559 1,743,555 1,117,482 6,144,050 LIABILITIES Current liabilities: Accounts payable 2,809 12,253 21,933 10,981 3,511 51,487 Accrued salaries and benefits - 1,638 7,508 4,733 2,168 16,047 Compensated absences - 2,901 15,129 5,601 8,345 31,976 Due to other funds ,364 5, , ,428 Customer deposits - - 5,400 2,162-7,562 Interest payable ,390 2,390 Total current liabilities 2,809 16, ,334 28, , ,890 Noncurrent liabilities due in more more than one year: Advances from other funds , ,797 Total noncurrent liabilities , ,797 Total liabilities 2,809 16, ,334 28,839 1,046,913 1,287,687 NET POSITION Net investment in capital assets 257,863-2,108,069 1,728,162 1,030,160 5,124,254 Unrestricted 120, , ,156 (13,446) (959,591) (267,891) Total net position $ 378,541 $ 476,312 $ 2,216,225 $ 1,714,716 $ 70,569 $ 4,856,363 88

181 CITY OF UKIAH Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Nonmajor Enterprise Funds For the Fiscal Year Ended June 30, 2014 Parking District Street Lighting Airport Conference Center Golf Course Totals OPERATING REVENUES Parking meters and fees $ 60,455 $ - $ - $ - $ - $ 60,455 Parking fines 44, ,217 Lighting fees - 191, ,389 Hangar and landing fees ,353-20,353 Sales of fuel , ,449 Facility rents , ,014 65, ,655 Course fees and charges ,759 79,759 Miscellaneous - - 1,265 20,789 14,332 36,386 Total operating revenues 104, ,389 1,201, , ,253 1,954,663 OPERATING EXPENSES Salaries and benefits - 62, , , , ,421 Contractual services/lease 103,818 3,025 7,236 6, ,413 Other services and supplies 13, , , ,630 15, ,565 Interfund charges 48,239 1, ,984 47, ,973 Fuel , ,074 Depreciation and amortization 5,325-60,686 46,602 2, ,849 Total operating expenses 170, ,528 1,337, , ,182 2,196,295 Operating income (loss) (65,955) (25,139) (136,009) (44,600) 30,071 (241,632) NON-OPERATING REVENUES (EXPENSES) Operating subsidies , ,271 Property taxes 10, ,884 Interest and investment revenue 1,069 4, ,642 Net nonoperating revenues (expenses) 11,953 4,399 57, ,797 Income (loss) before transfers (54,002) (20,740) (78,564) (44,600) 30,071 (167,835) Transfers out (13,490) (475,684) (489,174) Change in net position (54,002) (20,740) (78,564) (58,090) (445,613) (657,009) Total net position, July 1 432, ,052 2,294,789 1,772, ,182 5,513,372 Total net position, June 30 $ 378,541 $ 476,312 $ 2,216,225 $ 1,714,716 $ 70,569 $ 4,856,363 89

182 CITY OF UKIAH Combining Statement of Cash Flows Nonmajor Enterprise Funds For the Fiscal Year Ended June 30, 2014 Parking District CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers 112,636 Street Lighting Airport Conference Center Golf Course Totals $ $ 194,373 $ 966,196 $ 293,699 $ 219,298 $ 1,786,202 Payments for interfund services (22,490) (2,617) (549) (19,071) (4,610) (49,337) Payments to suppliers (140,770) (151,725) (858,482) (127,901) 351,547 (927,331) Payments to employees - (61,392) (302,079) (133,237) (96,051) (592,759) Net cash provided by (used for) operating activities (50,624) (21,361) (194,914) 13, , ,775 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (13,490) (475,684) (489,174) Property taxes 10, ,884 Operating subsidies , ,001 Net cash provided by (used for) noncapital financing activities 10,884-33,001 (13,490) (475,684) (445,289) CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments to acquire capital assets - - (203,558) - - (203,558) Payments received on long-term note ,500 5,500 Net cash provided by (used for) capital related financing activities - - (203,558) - 5,500 (198,058) CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 1,601 5,857 2, ,510 Net cash provided by investing activities 1,601 5,857 2, ,510 Net increase (decrease) in cash and cash equivalents (38,139) (15,504) (363,419) - - (417,062) Balances-beginning of the year 150, , , ,575 Balances-end of the year $ 112,630 $ 469,883 $ - $ - $ - $ 582,513 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ (65,955) $ (25,139) $ (136,009) $ (44,600) $ 30,071 $ (241,632) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 5,325-60,686 46,602 2, ,849 Decrease (increase) in receivables 7,964 2,984 (235,350) (4,104) 60,045 (168,461) Increase (decrease) in payables 2, ,759 15, , ,019 Net cash provided by (used for) operating activities $ (50,624) $ (21,361) $ (194,914) $ 13,490 $ 470,184 $ 216,775 Noncash capital financing activities: During the fiscal year, there were none. 90

183 CITY OF UKIAH Combining Statement of Net Position Internal Service Funds June 30, 2014 Garage ASSETS Current assets: Cash and cash equivalents 42,454 Public Safety Dispatch Purchasing Billing & Collection Workers' Comp Insurance Liability Insurance $ $ 285,086 $ 48,212 $ 460,770 $ 394,615 $ 284,327 $ 1,515,464 Receivables(net) 1, ,421-16,933 Accrued interest , ,109 Inventory Refundable deposits Total current assets 44, ,749 48, , , ,327 1,535,266 Totals Noncurrent assets: Advances to other funds , ,203 Capital assets: Buildings and improvements 327, ,113 Rolling equipment 43,649-4, ,418 Machinery and equipment 33, ,702-45, ,096 Less: Accumulated depreciation (173,522) (252,889) (4,769) (30,637) - - (461,817) Total noncurrent assets 231, ,813-14, ,203 1,291,013 Total assets 275, ,562 48, , ,036 1,214,530 2,826,279 LIABILITIES Current liabilities: Accounts payable 3,725 48,666-7, ,788 Accrued salaries and benefits 7,523 23,339 4,588 11, ,075 Compensated absences 26,774 47,285 14,716 29, ,872 Total current liabilities 38, ,290 19,304 48, ,735 Total liabilities 38, ,290 19,304 48, ,735 NET POSITION Net investment in capital assets 231, ,813-14, ,810 Unrestricted 6, ,459 29, , ,036 1,214,530 2,240,734 Total net position $ 237,886 $ 281,272 $ 29,070 $ 428,750 $ 410,036 $ 1,214,530 $ 2,601,544 91

184 CITY OF UKIAH Combining Statement of Revenues, Expenses, and Changes in Fund Net Position Internal Service Funds For the Fiscal Year Ended June 30, 2014 Garage Public Safety Dispatch Purchasing Billing & Collection Workers' Comp Liability Insurance Totals OPERATING REVENUES Current services $ 461,693 $ 1,175,110 $ 274,449 $ 795,354 $ - $ - $ 2,706,606 Incoming provision , ,344 1,245,142 Miscellaneous ,853-59,408 87,815 Total operating revenues 462,195 1,175, , , , ,752 4,039,563 OPERATING EXPENSES Salaries and benefits 310, , , , ,769,331 Contractual services/lease 5, ,581 9,197 58, ,827 Other services and supplies 66,671 21,164 12, , ,333 Interfund charges 23,881 66,346 68, , ,475 Insurance premiums , ,074 1,253,500 Depreciation and amortization 8,801 22,871-3, ,595 Total operating expenses 414,721 1,152, , , , ,074 3,955,061 Operating income (loss) 47,474 22,507 (6,193) (30,336) 129,372 (78,322) 84,502 NON-OPERATING REVENUES (EXPENSES) Investment earnings 384 3, , ,844 Net nonoperating revenues (expenses) 384 3, , ,844 Income (loss) before transfers 47,858 25,592 (5,730) (25,424) 129,372 (78,322) 93,346 Transfers out (10,000) (7,000) (17,000) Change in net position 37,858 18,592 (5,730) (25,424) 129,372 (78,322) 76,346 Total net position, July 1 200, ,680 34, , ,664 1,292,852 2,525,198 Total net position, June 30 $ 237,886 $ 281,272 $ 29,070 $ 428,750 $ 410,036 $ 1,214,530 $ 2,601,544 92

185 CITY OF UKIAH Combining Statement of Cash Flows Internal Service Funds For the Fiscal Year Ended June 30, 2014 Garage CASH FLOWS FROM OPERATING ACTIVITIES Receipts from interfund services provided 461,334 Public Safety Dispatch Purchasing Billing & Collection Workers' Comp Liability Insurance $ $ 341,637 $ 274,454 $ 823,667 $ 782,462 $ 522,752 $ 3,206,306 Receipts from intergovernmental services - 992, ,513 Payments for interfund services (23,881) (66,346) (68,850) (245,398) - - (404,475) Payments to suppliers (71,687) (222,702) (23,116) (160,943) (652,426) (601,074) (1,731,948) Payments to employees (305,770) (820,978) (189,229) (437,338) - - (1,753,315) Net cash provided by (used for) operating activities 59, ,124 (6,741) (20,012) 130,036 (78,322) 309,081 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (10,000) (7,000) (17,000) Net cash provided by (used for) noncapital financing activities (10,000) (7,000) (17,000) CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments to acquire capital assets (21,844) (21,844) Net cash provided by (used for) capital related financing activities (21,844) (21,844) CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 336 2, , ,867 Net cash provided by investing activities 336 2, , ,867 Net increase (decrease) in cash and cash equivalents 28, ,882 (6,112) (13,868) 130,036 (78,322) 280,104 Balances-beginning of the year 13,966 65,204 54, , , ,649 1,235,360 Balances-end of the year $ 42,454 $ 285,086 $ 48,212 $ 460,770 $ 394,615 $ 284,327 $ 1,515,464 Totals Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 47,474 $ 22,507 $ (6,193) $ (30,336) $ 129,372 $ (78,322) $ 84,502 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 8,801 22,871-3, ,595 Change in assets and liabilities: Decrease (increase) in receivables (861) 159,040 (47) ,256 Increase (decrease) in accounts payable ,043 (1,903) ,712 Increase (decrease) in other liabilities 4,374 4,663 1,402 5, ,016 Net cash provided by (used for) operating activities $ 59,996 $ 224,124 $ (6,741) $ (20,012) $ 130,036 $ (78,322) $ 309,081 Noncash capital financing activities: During the fiscal year, there were none. 93

186 CITY OF UKIAH Combining Statement of Fiduciary Net Position Fiduciary Funds June 30, 2014 Special Deposit Payroll Revolving Private Purpose Trust Downtown Ukiah Business Successor Improvement Agency Total Private Purpose Trust Assets Cash and investments $ 866,727 $ 550,389 $ 503 $ 4,414,059 $ 5,831,678 Cash and investments with fiscal agent ,760,668 5,760,668 Receivables: Accounts 15, ,251 Unbilled Accrued interest ,947 9,947 Real property held for resale ,730,238 3,730,238 Capital assets , ,295 Total assets 881, ,591 1,332 14,057,207 15,491,077 Liabilities Accounts payable 18,495 2,798-5,604 26,897 Accrued salaries and benefits Accrued interest , ,240 Payroll withholdings and employer contributions - 547, ,793 Customer utility deposits 393, ,055 Other deposits 470, ,397 Due to other agencies Noncurrent liabilities: Due within one year , ,000 Due in more than one year ,727,586 9,727,586 Net Position Total liabilities 881, ,591-10,835,820 12,268,358 Held in trust for other purposes $ - $ - $ 1,332 $ 3,221,387 $ 3,222,719 94

187 Ukiah Valley Sanitation District Garbage Billing Agency Russian River Watershed Total Agency $ 4,589,293 $ 684,560 $ 140,322 $ 5,414, ,532 23, , , ,288 15,953 1, , ,268, ,268,471 $ 7,521,537 $ 709,644 $ 140,635 $ 8,371,816 $ 522,163 $ 151,824 $ 26,021 $ 700, ,999, , ,614 7,671, $ 7,521,537 $ 709,644 $ 140,635 $ 8,371,816

188 CITY OF UKIAH Combining Statement of Changes in Fiduciary Net Position Private Purpose Trust Funds For the Fiscal Year Ended June 30, 2014 Private Purpose Trust Special Deposit Payroll Revolving Downtown Business Improvement Ukiah Successor Agency Total Private Purpose Trust Additions: Taxes $ - $ - $ 18,240 $ 2,753,183 $ 2,771,423 Interest, rents and concessions ,642 38,642 Other revenues Total additions ,240 2,792,026 2,810,266 Deductions: Salaries and benefits ,351 19,351 Contractual services ,735 79,279 93,014 Internal charges - - 3,791 65,810 69,601 Interest and fiscal charges , ,277 Total deductions , , ,243 Change in net position ,950,309 1,951,023 Net position, July ,271,078 1,271,696 Net position, June 30 $ - $ - $ 1,332 $ 3,221,387 $ 3,222,719 95

189 CITY OF UKIAH Combining Statement of Changes in Assets and Liabilities Agency Funds For the Fiscal Year Ended June 30, 2014 Balance Balance July 1, 2013 Additions Deductions June 30, 2014 Assets Cash and investments: Ukiah Valley Sanitation District $ 6,849,057 $ 5,178,774 $ 7,438,538 $ 4,589,293 Garbage Billing 641, , , ,560 Russian River Watershed 113, , , ,322 Receivables: Ukiah Valley Sanitation District 552,450 4,519,730 4,408, ,773 Garbage Billing 59, , ,545 25,084 Russian River Watershed Capital assets: Ukiah Valley Sanitation District 2,338,888-70,417 2,268,471 Garbage Billing Russian River Watershed Total assets $ 10,555,406 $ 11,822,367 $ 14,005,957 $ 8,371,816 Liabilities Accounts payable: Ukiah Valley Sanitation District $ 14,095 $ 7,362,945 $ 6,854,877 $ 522,163 Garbage Billing 149, , , ,824 Russian River Watershed 20, , ,683 26,021 Due to other agencies: Ukiah Valley Sanitation District 9,726,300 5,228,600 7,955,526 6,999,374 Garbage Billing 551, , , ,820 Russian River Watershed 93, , , ,614 Total liabilities $ 10,555,406 $ 14,769,584 $ 16,953,174 $ 8,371,816 96

190 Supplementary Financial Information Section Comparative statements for major enterprise funds City of Ukiah, California

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192 CITY OF UKIAH Comparative Statement of Net Position Major Electric Enterprise June 30, 2014 June 30 ASSETS Current assets: Cash and cash equivalents $ 8,638,658 $ 9,533,290 Receivables: Accounts (net) 379,681 1,439,837 Unbilled 1,935,381 1,652,868 Interest 18,063 49,280 Inventory 933, ,459 Total current assets 11,905,305 13,590,734 Noncurrent assets: Restricted assets: Cash and cash equivalents 2,072,014 2,072,295 Capital assets: Land 1,403,672 1,403,672 Land improvements 35,751 35,751 Infrastructure systems 18,737,542 18,259,791 Buildings and improvements 25,437,975 25,437,975 Rolling equipment 1,700,362 1,327,705 Machinery and equipment 2,729,456 2,729,456 Less accumulated depreciation (23,927,114) (22,765,006) Construction in progress 360, ,133 Total noncurrent assets 28,549,791 28,851,772 Total assets 40,455,096 42,442,506 LIABILITIES Current liabilities: Accounts payable 64,639 94,454 Accrued salaries and benefits 51,529 49,034 Compensated absences 121, ,626 Current liabilities payable from restricted assets: Interest payable 36,953 44,766 Long term obligations due in one year 1,610,000 1,500,000 Total current liabilities 1,884,642 1,806,880 Noncurrent liabilities: Revenue bonds 5,371,109 6,952,635 Total noncurrent liabilities 5,371,109 6,952,635 Total liabilities 7,255,751 8,759,515 NET POSITION Net investment in capital assets 19,496,668 18,326,842 Restricted for debt service 2,035,601 2,027,529 Unrestricted 11,667,076 13,328,620 Total net position $ 33,199,345 $ 33,682,991 97

193 CITY OF UKIAH Comparative Statement of Revenues, Expenses, and Changes in Fund Net Position Major Electric Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ened June OPERATING REVENUES Current services $ 14,697,774 $ 14,993,473 Miscellaneous 296, ,702 Total operating revenues 14,993,910 15,140,175 OPERATING EXPENSES Purchased power 8,466,241 7,982,892 Maintenance and operations 3,561,410 3,788,608 General and administration 801, ,804 Depreciation and amortization 1,162,108 1,151,923 Total operating expenses 13,991,623 13,831,227 Operating income (loss) 1,002,287 1,308,948 NON-OPERATING REVENUES (EXPENSES) Interest and investment revenue 86,746 37,815 Interest expense and fiscal charges (563,261) (651,856) Net nonoperating revenues (expenses) (476,515) (614,041) Income (loss) before transfers 525, ,907 Transfers out (1,009,418) (1,029,127) Change in net position (483,646) (334,220) Total net position, July 1 33,682,991 34,017,211 Total net position, June 30 $ 33,199,345 $ 33,682,991 98

194 CITY OF UKIAH Comparative Statement of Cash Flows Major Electric Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 15,771,553 $ 14,842,087 Payments for interfund services (10,101,256) (10,321,758) Payments to suppliers (2,175,916) (1,741,037) Payments to employees (594,831) (549,549) Net cash provided by (used for) operating activities 2,899,550 2,229,743 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (1,009,418) (1,029,127) Net cash provided by (used for) noncapital financing activities (1,009,418) (1,029,127) CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments to acquire capital assets (860,408) (426,194) Payments on long-term debt principal (1,500,000) (1,410,000) Interest paid on long-term debt (537,187) (625,312) Trustee fees (5,413) (5,414) Net cash provided by (used for) capital related financing activities (2,903,008) (2,466,920) CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 117,963 (11,465) Net cash provided by investing activities 117,963 (11,465) Net increase (decrease) in cash and cash equivalents (894,913) (1,277,769) Balances-beginning of the year 11,605,585 12,883,354 Balances-end of the year $ 10,710,672 $ 11,605,585 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 1,002,287 $ 1,308,948 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 1,162,108 1,151,923 Decrease (increase) in receivables 777,643 (298,088) Decrease (increase) in inventory (18,063) 47,633 Increase (decrease) in payables (24,425) 19,327 $ 2,899,550 $ 2,229,743 Noncash capital financing activities: During the fiscal year, there were none. 99

195 CITY OF UKIAH Comparative Statement of Net Position Major Water Enterprise June 30, 2014 June 30 ASSETS Current assets: Cash and cash equivalents $ 5,890,298 $ 3,622,522 Receivables: Accounts (net) 157, ,398 Unbilled 855, ,724 Interest 13,874 18,728 Refundable deposits 3,730 3,730 Inventory 85,721 82,678 Total current assets 7,006,300 4,789,780 Noncurrent assets: Capital assets: Land 70,126 70,126 Land improvements 142, ,206 Infrastructure systems 9,080,305 9,080,305 Buildings and improvements 18,130,288 18,130,288 Rolling equipment 461, ,432 Machinery and equipment 2,019,960 2,019,960 Less accumulated depreciation (9,142,456) (8,501,511) Construction in progress 295, ,916 Total noncurrent assets 21,058,103 21,561,722 Total assets 28,064,403 26,351,502 LIABILITIES Current liabilities: Accounts payable 145,781 61,912 Accrued salaries and benefits 28,905 24,485 Compensated absences 63,229 56,301 Interest payable 188, ,744 Long term obligations due in one year 488, ,200 Total current liabilities 914, ,642 Noncurrent liabilities due in more more than one year: Installment agreement 11,931,622 12,285,707 State loans 1,117,413 1,255,451 Advances from other funds 745, ,000 Total noncurrent liabilities 13,794,035 14,286,158 Total liabilities 14,708,540 15,091,800 NET POSITION Net investment in capital assets 7,521,026 7,552,364 Unrestricted 5,834,837 3,707,338 Total net position $ 13,355,863 $ 11,259,

196 CITY OF UKIAH Comparative Statement of Revenues, Expenses, and Changes in Fund Net Position Major Water Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ened June OPERATING REVENUES Current services $ 5,997,957 $ 5,710,278 Miscellaneous 8, ,421 Total operating revenues 6,006,675 5,813,699 OPERATING EXPENSES Maintenance and operations 1,779,625 1,739,054 General and administration 708, ,455 Depreciation and amortization 640, ,738 Total operating expenses 3,128,890 3,038,247 Operating income (loss) 2,877,785 2,775,452 NON-OPERATING REVENUES (EXPENSES) Interest and investment revenue 56,550 33,497 Interest expense and fiscal charges (588,174) (613,102) Net nonoperating revenues (expenses) (531,624) (579,605) Income (loss) before transfers 2,346,161 2,195,847 Transfers out (250,000) (15,000) Change in net position 2,096,161 2,180,847 Total net position, July 1 11,259,702 9,078,855 Total net position, June 30 $ 13,355,863 $ 11,259,

197 CITY OF UKIAH Comparative Statement of Cash Flows Major Water Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 6,056,120 $ 5,583,439 Payments for interfund services (296,403) (262,729) Payments to suppliers (924,490) (1,718,765) Payments to employees (1,174,877) (524,834) Net cash provided by (used for) operating activities 3,660,350 3,077,111 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (250,000) (15,000) Net cash provided by (used for) noncapital financing activities (250,000) (15,000) CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments to acquire capital assets (137,327) (269,693) Payments on long-term debt principal (468,196) (453,632) Interest paid on long-term debt (598,455) (622,148) Net cash provided by (used for) capital related financing activities (1,203,978) (1,345,473) CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 71,404 4,769 Net cash provided by investing activities 71,404 4,769 Net increase (decrease) in cash and cash equivalents 2,277,776 1,721,407 Balances-beginning of the year 3,612,522 1,901,115 Balances-end of the year $ 5,890,298 $ 3,622,522 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 2,877,785 $ 2,775,452 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 640, ,738 Decrease (increase) in receivables 49,445 (230,260) Decrease (increase) in refundable deposits Decrease (increase) in inventory (3,043) 4,615 Increase (decrease) in payables 95,218 (64,734) $ 3,660,350 $ 3,077,111 Noncash capital financing activities: During the fiscal year, there were none. 102

198 CITY OF UKIAH Comparative Statement of Net Position Major Wastewater Enterprise June 30, 2014 June 30 ASSETS Current assets: Cash and cash equivalents $ 15,390,406 $ 15,157,205 Receivables: Accounts (net) 122,662 51,111 Unbilled 619, ,283 Interest 29,280 77,914 Total current assets 16,162,076 15,803,513 Noncurrent assets: Capital assets: Land 670, ,431 Land improvements 120, ,290 Infrastructure systems 81,511,072 81,511,072 Buildings and improvements 10,193,131 10,179,727 Rolling equipment 575, ,573 Machinery and equipment 1,461,565 1,461,565 Less accumulated depreciation (14,979,094) (13,101,189) Construction in progress 1,714,431 1,704,506 Total noncurrent assets 81,267,365 82,792,975 Total assets 97,429,441 98,596,488 LIABILITIES Current liabilities: Accounts payable 115, ,353 Accrued salaries and benefits 35,163 33,311 Compensated absences 99, ,243 Interest payable 1,005,926 1,065,096 Long term obligations due in one year 2,251,549 2,169,854 Total current liabilities 3,507,815 3,490,857 Noncurrent liabilities due in more more than one year: Installment agreement 64,899,067 66,751,331 State loans 413, ,801 Total noncurrent liabilities 65,312,319 67,566,132 Total liabilities 68,820,134 71,056,989 NET POSITION Net investment in capital assets 13,703,497 13,056,989 Unrestricted 14,905,810 14,482,510 Total net position $ 28,609,307 $ 27,539,

199 CITY OF UKIAH Comparative Statement of Revenues, Expenses, and Changes in Fund Net Position Major Wastewater Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ened June OPERATING REVENUES Current services $ 4,821,018 $ 4,754,625 Operating charges allocated to UVSD 1,515,542 1,699,988 Debt service charges allocated to UVSD 2,478,879 2,485,486 Miscellaneous 17,318 66,122 Total operating revenues 8,832,757 9,006,221 OPERATING EXPENSES Maintenance and operations 2,622,192 2,746,425 General and administration 568, ,093 Depreciation and amortization 1,877,905 1,892,642 Total operating expenses 5,068,110 5,442,160 Operating income (loss) 3,764,647 3,564,061 NON-OPERATING REVENUES (EXPENSES) Equity allocation to UVSD - (2,792,740) Interest and investment revenue 123,366 79,277 Interest expense and fiscal charges (3,050,205) (3,195,431) Net nonoperating revenues (expenses) (2,926,839) (5,908,894) Income (loss) before transfers 837,808 (2,344,833) Transfers out (68,000) (18,000) Change in net position 769,808 (2,362,833) Total net position, July 1 27,839,499 30,202,332 Total net position, June 30 $ 28,609,307 $ 27,839,

200 CITY OF UKIAH Comparative Statement of Cash Flows Major Wastewater Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 8,658,761 $ 8,989,755 Payments for interfund services (320,100) (305,866) Payments to suppliers (1,431,419) (2,245,398) Payments to employees (1,444,252) (1,037,897) Net cash provided by (used for) operating activities 5,462,990 5,400,594 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers out (68,000) (18,000) Net cash provided by (used for) noncapital financing activities (68,000) (18,000) CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES Payments to acquire capital assets (52,295) (158,112) Equity allocation to UVSD - (1,710,103) Payments on long-term debt principal (2,169,854) (2,098,499) Interest paid on long-term debt (3,111,639) (3,189,995) Net cash provided by (used for) capital related financing activities (5,333,788) (7,156,709) CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 171,999 1,363 Net cash provided by investing activities 171,999 1,363 Net increase (decrease) in cash and cash equivalents 233,201 (1,772,752) Balances-beginning of the year 15,157,205 16,929,957 Balances-end of the year $ 15,390,406 $ 15,157,205 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ 3,764,647 $ 3,564,061 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 1,877,905 1,892,642 Decrease (increase) in receivables (173,996) (16,466) Increase (decrease) in payables (5,566) (39,643) $ 5,462,990 $ 5,400,594 Noncash capital financing activities: During the fiscal year, there were none. 105

201 CITY OF UKIAH Comparative Statement of Net Position Major Disposal Site Enterprise June 30, 2014 June 30 ASSETS Current assets: Cash and cash equivalents $ 8,542,337 $ 8,728,087 Receivables: Accounts (net) 11,192 16,251 Interest 19,024 45,129 Total current assets 8,572,553 8,789,467 Noncurrent assets: Capital assets: Land 699, ,654 Rolling equipment 101, ,296 Machinery and equipment 404, ,039 Less accumulated depreciation (356,534) (343,787) Total noncurrent assets 848, ,202 Total assets 9,421,008 9,650,669 LIABILITIES Current liabilities: Accounts payable 219 7,550 Accrued salaries and benefits 1, Compensated absences 6,171 6,310 Total current liabilities 8,302 14,775 Noncurrent liabilities due in more more than one year: Landfill Closure/Postclosure 9,062,877 8,928,942 Total noncurrent liabilities 9,062,877 8,928,942 Total liabilities 9,071,179 8,943,717 NET POSITION Net investment in capital assets 848, ,202 Unrestricted (498,626) (154,250) Total net position $ 349,829 $ 706,

202 CITY OF UKIAH Comparative Statement of Revenues, Expenses, and Changes in Fund Net Position Major Disposal Site Enterprise For the Fiscal Year Ended June 30, 2014 Fiscal Year Ened June OPERATING REVENUES Current services $ 124,857 $ 122,037 Miscellaneous 7,430 7,284 Total operating revenues 132, ,321 OPERATING EXPENSES Maintenance and operations 560, ,909 Depreciation and amortization 12,747 12,748 Total operating expenses 573, ,657 Operating income (loss) (441,191) (284,336) NON-OPERATING REVENUES (EXPENSES) Interest and investment revenue 84,068 43,984 Net nonoperating revenues (expenses) 84,068 43,984 Income (loss) before transfers (357,123) (240,352) Transfers - - Change in net position (357,123) (240,352) Total net position, July 1 706, ,304 Total net position, June 30 $ 349,829 $ 706,

203 Fiscal Year Ended June CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 137,346 $ 123,893 Payments for interfund services (4,164) (1,332) Payments to suppliers (352,095) (217,891) Payments to employees (77,010) (22,139) Net cash provided by (used for) operating activities (295,923) (117,469) CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES CITY OF UKIAH Comparative Statement of Cash Flows Major Disposal Site Enterprise For the Fiscal Year Ended June 30, Net cash provided by (used for) noncapital financing activities - - CASH FLOWS FROM CAPITAL AND RELATED ACTIVITIES - - Net cash provided by (used for) capital related financing activities - - CASH FLOWS FROM INVESTING ACTIVITIES Interest receipts 110,173 (1,145) Net cash provided by investing activities 110,173 (1,145) Net increase (decrease) in cash and cash equivalents (185,750) (118,614) Balances-beginning of the year 8,728,087 8,846,701 Balances-end of the year $ 8,542,337 $ 8,728,087 Reconciliation of operating income (loss) to net cash provided by operating activities: Operating income (loss) $ (441,191) $ (284,336) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization expense 12,747 12,748 Decrease (increase) in receivables 5,059 (5,428) Increase (decrease) in payables 127, ,547 $ (295,923) $ (117,469) Noncash capital financing activities: During the fiscal year, there were none. 108

204 Statistical Section This part of the City of Ukiah s comprehensive annual financial report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the government s overall financial health. Financial Trends These schedules contain trend information to help the reader understand how the City s financial performance and well-being changed over time. Revenue Capacity These schedules contain information to help the reader assess the City s most significant local revenue sources. Debt Capacity These schedules present information to help the reader assess the affordability of the CIty s current level of outstanding debt and the City s ability to issue additional debt in the future. Demographic and Economic Information These schedules offer demographic and economic indicators to help the reader understand the environment within which the City s financial activities take place. Operating Information These schedules contain service and infrastructure data to help the reader understand how the information in the City s financial report relates to the services the City provides and activities it performs. City of Ukiah, California

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206 City of Ukiah Net Position by Component Last Ten Fiscal Years (accrual basis of accounting) Table 1 As of June Governmental Activities Net investment in capital assets $ 2,911,896 $ 9,312,036 $ 21,865,791 $ 21,427,557 $ 22,328,676 $ 31,547,564 $ 17,407,569 $ 26,649,167 $ 27,304,019 $ 27,139,213 Restricted 5,032,681 5,850,088 7,605,826 7,078,491 7,107,257 7,574,594 17,276,255 3,086,157 3,025,432 6,021,075 Unrestricted 14,082,581 10,631,881 13,735,320 19,470,248 22,069,011 7,547,784 14,030,594 17,420,652 15,461,713 12,110,479 Total governmental activities net position 22,027,158 25,794,005 43,206,937 47,976,296 51,504,944 46,669,942 48,714,418 47,155,976 45,791,164 45,270,767 Business-type Activities Net investment in capital assets 19,242,039 5,983,855 24,173,407 28,606,388 22,508,736 33,203,171 40,266,700 48,101,086 44,514,348 46,693,900 Restricted 1,129,719 1,037,126 2,015,181 2,003,618 1,999,495 2,006,773 2,172,384 4,128,472 2,027,529 2,072,014 Unrestricted 28,343,409 44,611,585 38,754,350 40,386,700 46,697,741 40,762,605 33,817,844 28,366,417 32,460,639 31,604,793 Total business-type activities net position 48,715,167 51,632,566 64,942,938 70,996,706 71,205,972 75,972,549 76,256,928 80,595,975 79,002,516 80,370,707 Primary government Net investment in capital assets 22,153,935 15,295,891 46,039,198 50,033,945 44,837,412 64,750,735 57,674,269 74,750,253 71,818,367 73,833,113 Restricted 6,162,400 6,887,214 9,621,007 9,082,109 9,106,752 9,581,367 19,448,639 7,214,629 5,052,961 8,093,089 Unrestricted 42,425,990 55,243,466 52,489,670 59,856,948 68,766,752 48,310,389 47,848,438 45,787,069 47,922,352 43,715,272 Total primary government $ 70,742,325 $ 77,426,571 $ 108,149,875 $ 118,973,002 $ 122,710,916 $ 122,642,491 $ 124,971,346 $ 127,751,951 $ 124,793,680 $ 125,641,474 Fiscal Year 109

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208 City of Ukiah Changes in Net Position Last Ten Fiscal Years (accrual basis of accounting) Table 2 For Fiscal Year Ended June Expenses Governmental Activities: General government $ 2,103,504 $ 2,255,304 $ 2,905,386 $ 3,411,371 $ 2,908,643 $ 2,837,619 $ 2,479,770 $ 2,570,568 $ 2,956,583 $ 3,715,968 Public safety 6,434,118 7,034,888 8,090,623 8,640,259 9,233,988 9,181,714 9,595,075 9,827,504 10,514,943 9,867,900 Public works 1,580,300 1,891,584 3,004,298 3,273,011 2,002,957 1,577,833 3,097,652 2,206,556 2,109,273 2,290,261 Housing and community development 2,509,635 1,065,156 1,823,274 2,037,947 2,525,679 10,308,280 c 3,598,630 1,223,579 1,254, ,020 Parks and recreation 1,542,652 1,734,575 2,044,667 2,066,409 2,392,889 1,985,137 2,466,386 2,262,816 2,481,572 2,540,689 Interest on long-term debt 471, , , , , , , , Total govermental activities expenses 14,642,028 14,438,103 18,307,167 19,794,018 19,397,237 26,207,735 21,688,654 18,511,155 19,316,636 19,246,838 Business-Type Activities: Fiscal Year Electric 12,277,555 13,299,458 18,638,548 14,065,295 16,739,318 14,900,706 12,859,394 13,980,276 14,483,083 14,554,884 Water 2,302,426 2,701,788 3,093,685 3,549,376 3,850,248 3,629,692 3,289,935 3,414,760 3,651,349 3,717,064 Wastewater 2,432,729 3,082,231 2,956,066 3,579,514 3,755,359 3,301,200 8,329,472 8,243,340 8,637,591 8,118,315 Disposal site 513, , , , , , , , , ,478 Nonmajor activities 2,036,486 2,540,337 2,822,013 3,052,273 2,920,083 2,636,680 2,756,727 2,980,963 2,648,970 2,196,295 Total business-type expenses 19,562,802 22,223,120 28,107,313 24,674,711 27,695,651 24,849,662 27,431,696 28,959,663 29,834,650 29,160,036 Total Expenses $ 34,204,830 $ 36,661,223 $ 46,414,480 $ 44,468,729 $ 47,092,888 $ 51,057,397 $ 49,120,350 $ 47,470,818 $ 49,151,286 $ 48,406,874 Program Revenues Governmental Activities: Charges for services: General government $ 1,244,847 $ 1,392,245 $ 1,646,230 $ 1,690,431 $ 1,410,045 $ 1,642,298 $ 1,843,825 $ 1,630,601 $ 1,005,296 $ 1,255,815 Public safety 762,060 1,004, , ,588 1,099,193 1,111,741 1,092,577 1,080,981 1,224, ,328 Public works 285, , ,019 1,300,523 1,000, , , , , ,559 Housing and community development 59, , , , , , , , , ,003 Parks and recreation 402, , , , , , , ,363 1,072, ,548 Operating grants and contributions 1,669, ,231 1,498, , ,551 1,011,588 1,320,581 1,062,183 1,237,955 1,097,599 Capital grants and contributions 250, ,393 1,964,588 1,910, ,583 2,720,942 2,430,383 3,098, , ,992 Total govermental activities 4,674,936 4,573,034 7,601,842 7,738,034 6,194,133 8,029,137 8,237,806 8,355,121 5,616,468 5,317,844 Business-Type Activities: Charges for services: Electric 14,568,144 15,318,680 15,437,412 15,988,323 15,259,236 15,148,212 15,314,426 16,157,282 15,140,175 14,993,910 Water 1,915,595 2,314,645 2,645,216 2,919,950 2,866,811 2,698,212 4,039,757 4,935,691 5,813,699 6,006,675 Wastewater 2,594,745 4,065,442 5,320,114 6,243,311 7,008,738 7,419,735 6,423,276 9,786,375 6,213,481 8,832,757 Disposal site 73,188 66,341 93,636 66,597 67,297 66, , , , ,287 Nonmajor activities 1,818,159 2,155,035 2,681,329 2,857,667 2,866,554 2,446,397 2,508,685 2,905,410 2,467,226 1,965,547 Operating grants and contributions 20,397 19,926 20,451 19,905 19,920 20,155 10,359 10,660 40,717 57,271 Capital grants and contributions 38, , , , ,170 1,737, Total business-type activities 21,028,812 24,709,236 26,944,169 28,917,866 28,772,726 29,537,208 28,404,904 33,922,646 29,804,619 31,988,447 Total Program Revenues $ 25,703,748 $ 29,282,270 $ 34,546,011 $ 36,655,900 $ 34,966,859 $ 37,566,345 $ 36,642,710 $ 42,277,767 $ 35,421,087 $ 37,306,291 Net (Expense)/Revenue: Govermental activities $ (9,967,092) $ (9,865,069) $ (10,705,325) $ (12,055,984) $ (13,203,104) $ (18,178,598) $ (13,450,848) $ (10,156,034) $ (13,700,168) $ (13,928,994) Business-type activities 1,466,010 2,486,116 (1,163,144) 4,243,155 1,077,075 4,687, ,208 4,962,983 (30,031) 2,828,411 Total Net Expense $ (8,501,082) $ (7,378,953) $ (11,868,469) $ (7,812,829) $ (12,126,029) $ (13,491,052) $ (12,477,640) $ (5,193,051) $ (13,730,199) $ (11,100,583) continued 110

209 City of Ukiah Changes in Net Position (continued) Last Ten Fiscal Years (accrual basis of accounting) Table 2 Fiscal Year For Fiscal Year Ended June General Revenues Governmental Activities: Property taxes $ 3,594,440 $ 4,202,837 $ 5,105,884 $ 5,365,559 $ 5,741,393 $ 5,106,817 $ 4,426,250 $ 3,182,981 $ 1,484,934 $ 1,251,189 Sales taxes 4,085,720 5,557,289 6,894,257 7,154,547 6,439,622 5,776,015 6,951,957 6,518,506 6,901,284 7,134,537 Transient occupancy taxes 423, , , , , , , , , ,570 Vehicle in-lieu taxes 1,154,667 1,009,912 1,187,612 1,228,550 1,266,285 1,295,970 1,311,862 1,238,660 1,229,156 1,237,181 Other taxes 779, , , , , , , , , ,007 Interest and investment earnings 593, , , , , , , ,318 91,117 93,521 Transfers 572,356 1,073, , ,545 1,265,107 1,012,185 1,408,163 1,065, ,692 1,816,592 Total general revenues, transfers and special items 11,203,759 13,631,916 15,953,032 16,825,343 16,731,752 15,089,774 15,854,831 13,874,852 12,335,356 13,408,597 Business-Type Activities: Interest and investment earnings 869,319 1,504,868 2,447,206 2,756,158 2,297,298 1,091, , , , ,372 Special item: Transfer to other agency (1,900,000) Transfers In/(Out) (572,356) (1,073,585) (737,079) (945,545) (1,265,107) (1,012,185) (1,408,163) (1,065,910) (584,482) (1,816,592) Total business-type activities 296, ,283 1,710,127 1,810,613 (867,809) 79,031 (688,829) (623,936) (383,583) (1,460,220) Total Primary Government $ 11,500,722 $ 14,063,199 $ 17,663,159 $ 18,635,956 $ 15,863,943 $ 15,168,805 $ 15,166,002 $ 13,250,916 $ 11,951,773 $ 11,948,377 Extraordinary items b Govermental activities $ 67,866 $ - $ - $ - $ - $ (1,746,178) $ (359,507) b $ (5,277,260) d $ - $ - Business-type activities Total Extraordinary Items $ 67,866 $ - $ - $ - $ - $ (1,746,178) $ (359,507) $ (5,277,260) $ - $ - Accounting Change - Acccumulative Effect Govermental activities $ - $ - $ 12,165,225 $ - $ - $ - $ - $ - $ - $ - Business-type activities ,763, (1,179,845) Total Extraordinary Items $ - $ - $ 24,928,614 a $ - $ - $ - $ - $ - $ (1,179,845) $ - e - Change in Net Position Govermental activities $ 1,304,533 $ 3,766,847 $ 17,412,932 $ 4,769,359 $ 3,528,648 $ (4,835,002) $ 2,044,476 $ (1,558,442) $ (1,364,812) $ (520,397) Business-type activities 1,762,973 2,917,399 13,310,372 6,053, ,266 4,766, ,379 4,339,047 (1,593,459) 1,368,191 Total Net Position $ 3,067,506 $ 6,684,246 $ 30,723,304 $ 10,823,127 $ 3,737,914 $ (68,425) $ 2,328,855 $ 2,780,605 $ (2,958,271) $ 847,794 a b c d e = City adopted the provisions of GASB 34 with regard to the capitalization and reporting of infrastructure. = City, through the Ukiah Redevelopment Agency, was required to make a payment to the Supplemental Revenue Augmentation Fund. = City, through the Ukiah Redevelopment Agency, expended $4,197,996 on land held for resale, and contributed $4,240,528 for projects of outside agencies. = Adjustment due to the dissoluiton of the Ukiah Redevelopment Agency. = City adopted policy to expense debt issue costs in year costs were incurred. 111

210 City of Ukiah Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Table 3 Fiscal Year As of June a General Fund: Nonspendable $ - $ - $ - $ - $ - $ - $ 877,506 $ 559,134 $ 619,044 $ 619,044 Committed , , ,105 Assigned ,686,766 4,851,110 89,859 - Unassigned ,381 1,454,665 4,381,047 4,233,953 Reserved 584,197 1,444,418 2,388,819 1,121,539 1,184,675 1,365, Unreserved 3,034,712 2,007,003 1,790,710 3,849,361 3,723,221 4,325, Total general fund $ 3,618,909 $ 3,451,421 $ 4,179,529 $ 4,970,900 $ 4,907,896 $ 5,690,562 $ 6,237,800 $ 6,864,909 $ 5,273,906 $ 5,056,102 All Other Governmental Funds: Nonspendable $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Restricted ,404,870 5,867,124 4,486,098 4,805,526 Committed ,047 1,235, ,402 3,569,505 Assigned ,759,509 3,460,240 5,832,173 2,514,649 Unassigned (894,993) (736,226) Reserved 8,853,816 7,201,180 8,750,121 10,437,242 11,738,706 6,402, Unreserved 4,900,994 9,798,546 11,967,164 14,335,315 15,634,574 10,027, Total all other governmental funds $ 13,754,810 $ 16,999,726 $ 20,717,285 $ 24,772,557 $ 27,373,280 $ 16,430,649 $ 21,920,426 $ 10,563,149 $ 10,136,680 $ 10,153,454 a = The City adopted the provisions of GASB Statement No. 54 in Prior year amounts were not restated. 112

211 City of Ukiah Changes in Fund Balances of Governmental Funds Last Ten Fiscal Years (modified accrual basis of accounting) Table 4 Function Revenues Property taxes $ 3,544,453 $ 4,202,837 $ 5,105,884 $ 5,365,559 $ 5,741,393 $ 5,106,817 $ 4,426,250 $ 3,182,981 $ 1,484,934 $ 1,251,189 Sales taxes 4,085,720 5,557,289 6,894,257 7,154,547 6,439,622 5,776,015 6,807,971 6,465,410 6,977,233 7,104,666 Transient occupancy taxes 423, , , , , , , , , ,191 Other taxes 829, , , , , , , , , ,386 Licenses & permits 167, , , , , , , , , ,688 Fines & forfeitures 85,634 74,744 96, , , , , , , ,776 Intergovernmental 2,864,640 2,164,530 3,813,212 3,615,552 2,424,259 4,419,645 4,626,790 4,756,038 2,964,207 3,270,042 Interest and rents 1,401,423 1,486,174 1,873,653 2,476,051 2,563,121 1,565,187 1,264,421 1,083, , ,887 Charges for services 725, , , , ,787 1,024,323 1,309,827 1,146,590 1,580,632 1,013,534 Miscellaneous 74, ,467 1,018, , , , , , , ,158 Total revenues 14,202,620 16,044,599 21,532,073 22,223,688 20,493,346 20,325,181 21,156,470 19,408,244 15,823,221 15,898,517 Expenditures Current: General government 1,393,214 1,595,073 2,106,228 2,055,096 1,787,942 1,712,083 1,701,144 1,861,192 2,117,303 2,773,585 Public safety 5,915,992 6,554,807 7,666,646 8,086,283 8,656,150 8,794,788 8,712,155 8,996,781 9,831,860 9,297,118 Public works 1,376,948 1,685,468 2,827,485 3,075,056 1,798,507 1,398,207 2,255,054 1,508,698 1,411,445 1,612,266 Housing and community development 2,413,282 1,023,471 1,764,237 1,911,046 2,494,429 10,255,824 c 3,530,698 1,151,384 1,205, ,349 Parks and recreation 1,417,023 1,573,832 1,900,284 1,980,129 2,236,986 1,859,248 2,312,834 2,048,294 2,327,464 2,304,893 Debt Service: Principal 340, ,489 5,632,452 a 345, , , , , Interest and fiscal charges 472, , , , , , , , Issue costs , , Capital outlay 391, , , ,731 1,693,179 5,188,025 5,354,765 2,481,671 1,545,538 1,159,928 Total expenditures 13,721,125 14,105,756 23,266,762 18,322,590 19,220,734 29,751,153 24,598,973 18,872,817 18,439,074 17,933,139 Excess (deficiency) of revenues over expenditures 481,495 1,938,843 (1,734,689) 3,901,098 1,272,612 (9,425,972) (3,442,503) 535,427 (2,615,853) (2,034,622) Other financing sources (uses) Bond issue proceeds - - 5,595,000 a ,430, Discount on bonds issued - - (69,704) (249,138) Transfers-in 1,610,438 2,589,053 1,657,093 1,257,262 1,303,267 2,114,256 4,047,961 1,072,410 2,680,654 2,076,641 Transfers-out (1,038,082) (1,450,468) (1,002,033) (311,717) (38,160) (1,102,071) (2,389,798) (6,500) (2,082,273) (243,049) Proceeds from borrowing Total financing sources (uses) 572,356 1,138,585 6,180, ,545 1,265,107 1,012,185 9,839,025 1,065, ,381 1,833,592 Fiscal year Extrordinary items (1,746,178) b (359,507) b (12,331,505) d - - Net Change in Fund Balance $ 1,053,851 $ 3,077,428 $ 4,445,667 $ 4,846,643 $ 2,537,719 $ (10,159,965) $ 6,037,015 $ (10,730,168) $ (2,017,472) $ (201,030) Debt service as percentage of non-capital expenses 6.50% 5.56% 37.35% 4.12% 3.26% 2.26% 2.91% 5.30% 0.00% 0.00% a b c d = On April 18, 2007, the Ukiah Redevelopment Agency issued $5,595,0000 in tax allocation bonds that were used to refinance an older obligation. = City, through the Ukiah Redevelopment Agency, was required to make a payment to the Supplemental Revenue Augmentation Fund. = City, through the Ukiah Redevelopment Agency, expended $4,197,996 on land held for resale, and contributed $4,240,528 for projects of outside agencies. = Adjustment due to the dissoluiton of the Ukiah Redevelopment Agency. 113

212 City of Ukiah Tax Revenues by Source - Governmental Funds Last Ten Fiscal Years Table 5 Type of Tax Fiscal Year Property Sales & Use Occupancy Franchise Other Total 2005 $ 3,594,440 $ 4,085,720 $ 423,303 $ 475,936 $ 304,001 $ 8,883, ,202,837 5,557, , , ,137 11,178, ,105,884 6,894, , , ,963 13,532, ,365,559 7,154, , , ,802 14,200, ,741,393 6,439, , , ,660 13,801, ,106,817 5,776, , , ,351 12,480, ,426,250 6,260, , , ,934 12,270, ,182,981 6,465, , , ,444 11,341, ,484,934 6,977, , , ,281 10,219, ,251,189 7,104, , , ,618 10,231,431 Change % 1.8% 11.7% 3.8% -0.2% 0.1% 114

213 City of Ukiah Electric Revenues Rates Last Ten Fiscal Years Table 6 Fiscal Year Residential, single phase Per meter per month, per KWH $ $ $ $ $ $ $ $ $ $ Minimum monthly billling General service: Base charge: Single phase Polyphase X-ray machine Miniumum charge: second meter Energy use charge, per meter, per month, per KWH Summer Winter General Service with Demand: Base rate, per meter, per month Demand charge per KWH Summer Winter General large Industrial Service: Base charge, per meter, per month Demand charge per kwh of maximum demand: Winter Summer

214 City of Ukiah Wastewater Revenue Rates Last Ten Fiscal Years Table 7 Fiscal Year Wastewater System Rates- City (1) Residential Fixed Minimum Charge- Per Dwelling Unit $ $ $ $ $ $ $ $ $ $ Consumption Rate ($/hcf (2)) Commercial Commercial Low Strength ($/hcf) Commercial Moderate Strength ($/hcf) Commercial Medium Strength ($/hcf) Commercial High Strength ($/hcf) (1) The rates beginning in were approved pursuant to Resolution No by City Council on July 21, (2) Each unit equals 748 gallons or 100 cubic feet (hcf). Wastewater System Rates- District (1) Residential Fixed Minimum Charge- Per Dwelling Unit Consumption Rate ($/hcf (2)) Commercial Commercial Low Strength ($/hcf) Commercial Moderate Strength ($/hcf) Commercial Medium Strength ($/hcf) Commercial High Strength ($/hcf) Special (3) (1) The rates beginning in were approved pursuant to Ordinance No. 36 approved by the District on June 30, (2) Each unit equals 748 gallons or 100 cubic feet (hcf). (3) Determined on a case-by-case basis. 116

215 City of Ukiah Water Revenue Rates Last Ten Fiscal Years Table 8 Fiscal Year Water System Rates (1) Consumption Rate ($/unit (2)) Single Family Residential $ 0.73 $ 0.91 $ 1.07 $ 1.20 $ 1.29 $ 1.92 $ 2.21 $ 2.41 $ 2.65 $ 2.73 All Other Customers Minimum base charge by Meter Size/ Class: 3/4" Meter " Meter /2" Meter " Meter " Meter " Meter " Meter , , Fire Service 2" & under Fire Service 3" Fire Service 4" Fire Service 6" & up (1) The rates beginning in were approved pursuant to Resolution No by City Council on July 21, (2) Each unit equals 748 gallons. 117

216 City of Ukiah Principal Electric Revenue Rate Payers Current Year Table 9 Rate Payers Electric Usage 2014 City of Ukiah $ 1,495, % County of Medocino 1,762, % Home Depot 1,243, % Maverick Enterprises 3,065, % Mendocino Brewing Co. 1,889, % Safeway Stores 2,438, % Save Mart Supermarkets 3,835, % Ukiah Unified School District 3,040, % Ukiah Valley Medical Center 3,592, % Wal-Mart 1,045, % $ 23,409,696 21% Information for principal rate payers nine years ago was not available. 118

217 City of Ukiah Ratio of Debt Outstanding by Type Last Ten Fiscal Years Table 10 Governmental Type Activities Business Type Activites Countywide Estimated Electric Total Percentage Fiscal Estimated Per Capita Ukiah Redevelopment Revenue Installment State Landfill Primary Debt of Personal Year Population (1) Income (2) Personal Income Bonds Bonds Agreements Loans Obligations Government Per Capita Income ,891 $ 35,299 $ 560,936,409 $ 5,865,941 $ 17,740,000 $ - $ 6,240,620 $ 7,624,181 $ 13,490,122 $ % 2006 (2) 15,804 36, ,202,384 5,632,452 16,830,000 89,415,000 5,832,793 7,831,864 13,464, % ,742 36, ,220,934 5,595,000 15,860,000 89,415,000 5,412,073 8,041,167 13,636, % ,690 37, ,275,750 5,250,000 14,830,000 89,135,000 4,977,952 8,167,206 13,417, % ,666 37, ,127,724 5,020,000 13,735,000 88,445,000 4,530,099 8,409,211 13,429, % 2010 (3) 15,682 37, ,767,064 4,785,000 12,570,000 86,945,000 4,068,249 8,594,214 13,379, % 2011 (4) 15,682 36, ,860,902 12,965,000 11,330,000 85,035,000 3,591,810 8,595,222 21,560,222 1, % 2012 (5) 16,109 36, ,322,999 12,700,000 10,005,000 83,055,000 3,100,437 8,775,386 21,475,386 1, % 2013 (5) 15,960 36, ,927,560 11,845,000 8,595,000 81,010,000 2,593,306 8,928,942 20,773,942 1, % ,065 36, ,729,715 10,935,000 7,095,000 78,895,000 2,070,256 9,062,877 19,997,877 1, % Notes to Table: (1) Source: State Department of Finance (2) Source: California Labor Market Data (State EDD), estimated at 3.9% growth. (3) Source: MuniServices LLC Demographic & Economic Statistics (4) Source: Bureau of Economic Analysis for 2009 (most recent) (5) Source: Bureau of Economic Analysis 119

218 City of Ukiah Ratio of General Bonded Debt Outstanding Last Ten Fiscal Years Table 11 General Bonded Debt Outstanding Percentage Actual of Actual Countywide Taxable General Total Taxable Fiscal Estimated Per Capita Value Redevelopment Obligation Primary Debt Value Year Population (1) Income (2) of Property Bonds Bonds Government Per Capita of Property ,891 $ 35,299 $ 925,374,029 $ 5,865,941 $ - $ 5,865,941 $ % 2006 (2) 15,804 36, ,993,844 5,632,452-5,632, % ,742 36,477 1,035,450,324 5,595,000-5,595, % ,690 37,175 1,119,849,497 5,250,000-5,250, % ,666 37,414 1,178,230,603 5,020,000-5,020, % 2010 (3) 15,682 37,863 1,205,686,442 4,785,000-4,785, % 2011 (4) 15,682 36,211 1,180,790,444 12,965,000-12,965, % 2012 (5) 16,109 36,211 1,169,395,369 12,700,000-12,700, % 2013 (5) 15,960 36,211 1,171,599,083 11,845,000-11,845, % 2014 (5) 16,065 36,211 1,195,466,105 10,935,000-10,935, % Notes to Table: (1) Source: State Department of Finance (2) Source: California Labor Market Data (State EDD), estimated at 3.9% growth. (3) Source: MuniServices LLC Demographic & Economic Statistics (4) Source: Bureau of Economic Analysis for 2009 (most recent) (5) Source: Bureau of Economic Analysis The redevelopment agency was dissolved by law in fiscal 2012 and the redevelopment bonds were transferred from the City to a preivate purpose trust. The bonds are no longer considered an obligation of the City. 120

219 City of Ukiah Computation of Direct and Overlapping Bonded Debt June 30, 2014 Table 12 Overlapping tax and assessment debt: Estimated Estimated Share of Percentage Direct and Debt Applicable Overlapping Jurisdiction Outstanding to City Debt City of Ukiah % $ - Ukiah Community College District $ 63,349, % 8,426,789 Ukiah Unified School District 56,365, % 19,365,565 Total overlapping tax and assessment debt $ 27,792,354 Overlapping General Fund Debt: Mendecino County General Fund Obligations 22,545, % $ 2,843,601 Mendecino County Pension Obligation Bonds 72,245, % 9,112,262 City of Ukiah % - Total overlapping general fund obligation debt $ 11,955,863 Overlapping Tax Increment Debt (Successor Agency): 10,935, % $ 10,935,000 Total Direct Debt $ - Total Overlapping Debt 50,683,217 Total combined debt $ 50,683,217 Ratio to assessed valuation City of Ukiah total assessed valuation $ 1,265,700,188 Direct debt (City) 0.00% Direct debt (MJCCD, UVSD) 2.20% Overlapping debt 0.94% Combined total debt 4.00% Ratios to Redevelopment Successor Agency Incremental Valuation ($547,163,216) California Municipal Statistics, Inc. provided percentages applicable to City which are applied to the total outstanding debt amount as reported by the County of Mendecino. Assessed valuation total is provided by the County of Mendecino 121

220 City of Ukiah Legal Debt Margin Information Last Ten Fiscal Years Table 13 Debt Subject Ratio Applied Legal Total Debt to Limit Fiscal Assessed as % of Debt Limit Subject to as % of Year Valuation Assessed Value Margin Limit Debt Limit 2005 $ 604,837, % $ 90,725, % ,336, % 97,700, % ,499, % 104,774, % ,332, % 112,249, % ,968, % 118,795, % ,846, % 121,627, % ,670, % 119,500, % ,452, % 119,167, % ,293, % 119,293, % ,370, % 120,505, % Legal Debt Limit Margin Calculation for Assessed value $ 795,293,020 Debt limit is 15% of assessed value $ 119,293,953 Less: Debt applicable to limitation - Total bonded debt - Legal debt margin $ 119,293,953 In accordance with state law the City may not incur general obligation bonded indebtedness in excess of 15% of total assessed valuation, with such debt being payable from the proceeds of taxes levied upon taxable properties 122

221 City of Ukiah Pledged Revenue Coverage Last Ten Fiscal Years Table Water System Installment Agreement 1992 Electric Revenue Bonds 2006 Wastewater System Installment Agreement Pledged Pledged Pledged Fiscal System Debt Service System Debt Service System Debt Service Year Revenues Principal Interest Coverage Revenues Principal Interest Coverage Revenue Principal Interest Coverage 2005 $ - $ - $ - - $ 3,905,903 $ 855,000 $ 1,127, $ - $ - $ ,806, ,000 1,074, , ,936, ,000 1,017, ,010, , , ,857,843 1,030, , ,464, ,760 3,463, ,196, , , ,066 1,095, , ,023, ,291 3,454, ,643, , , ,104,320 1,165, , ,026,227 1,546,380 3,428, ,007, , , ,234,671 1,240, , ,577,709 1,956,772 3,369, ,769, , , ,050,422 1,325, , ,903,915 2,027,475 3,267, ,662, , , ,374 1,410, , ,685,684 2,098,499 3,189, ,792, , , (82,183) 1,500, ,188 (0.04) 8,978,102 2,169,854 3,109, Notes: Details regarding the City's outstanding debt can be found in the notes to the financial statements. 123

222 City of Ukiah Demographic and Economic Statistics Last Ten Fiscal Years Table 15 Countywide Estimated Fiscal Estimated Per Capita City Ukiah Assessed Unemployment Year Notes Population (1) Income (2) Income Valuation Rate (4) 2005 (5) 16,020 $ 30,453 $ 487,857,060 $ 925,374,029 * 2006 (5) 15,960 32, ,865, ,993,844 * 2007 (5) 15,959 34, ,675,837 1,035,450,324 * ,963 35, ,605,641 1,119,849, % ,983 33, ,118,323 1,178,230, % ,042 35, ,951,260 1,205,686, % ,075 36, ,582,775 1,180,790, % ,069 38, ,037,253 1,169,395, % 2013 (3) 16,101 39, ,781,958 1,171,599, % ,109 39, ,692,116 1,195,466, % Notes to Table: (1) Source: State Department of Finance E-4 Population Estimates (2) Source: Bureau of Economic Analysis, 2013 estimated at 3.0% (3) Source: Bureau of Economic Analysis for 2007 (most recent) (4) Source: Employment Development Department Monthly Labor Force Data for Counties Report 400 C, June (5) Information unavailable 124

223 City of Ukiah Full-Time Equivalent City Government Employees by Function/Program Last Ten Fiscal Years Table 17 Full-Time Equivalent Personnel as of June 30 Function Administration (1) Police (2) Fire (3) Planning & Building Public Works Water/Sewer Wastewater Treatment Electric Airport Parks & Recreation Totals: (1) includes City Administration,Finance, and Information Services Functions (2) Includes dispatch- dispatch supports both police and fire. (3) Decrease in fire was due to discontinuing Amubulance Services 126

224 City of Ukiah Operating Indicators by Function/Program Last Ten Fiscal Years Table 18 Fiscal Year Ended June 30 Function Police Felony crimes (1) 1,278 1,677 1,797 1,522 1,355 1,398 1,362 1,192 1,183 1,091 Misdemeanor Arrests DUI Crime Reports 4,140 4,327 4,475 4,412 4,190 3,658 3,664 3,569 3,579 3,301 Water system Annual Consumption (AF) 4,102 3,739 3,490 3,148 2,872 2,387 2,505 2,660 2,831 2,788 Daily average consumption in MGD Wastewater system Daily average treatment 1, , , , , , , , in MGD Maximum daily capacity of treatment plant, in MGD Airport system Number landings 39,000 26,892 29,009 21,391 24,813 22,326 21,972 25,269 38,293 31,700 Electric System Kwh generated in (millions) - * - * Streets Expenditures for streets in thousands of dollars $ 586 $ 657 $ 776 $ 825 $ 798 $ 651 $ 923 $ 762 $ 833 $ 1,087 Fire Supression Number paramedical calls 1,514 1,344 1,502 1,603 1,519 1, ,521 1, * - Number fire calls 2,263 2,132 2,332 2,471 2,389 2,383 2,319 2, * - Data not available unless otherwise noted (1) Ukiah Police Department Records Management System reporting for calendar year ending December 31, data for 2014 through October. * Statistics no longer compiled after ambulance service was discontinued. ** Hydro Electric plant was not in operation in 2005 and

225 City of Ukiah Capital Asset Statistics by Function/Program Last Ten Fiscal Years Table 19 Fiscal Years ended June 30 Function Area in Square Miles Fire protection (State/County) Number of stations Number of personnel Parks and recreation: Conference center Parks & open space areas Park acreage Tennis courts Police protection Number of substations Public library (County) Number of branches Streets Miles of streets Water system Service connections 5,490 5,439 5,498 4,256 5,544 5,574 5,585 5,650 5,680 5,699 Miles of water mains Wastewater system Number of treatment plants Electric system Number street lights 2,352 2,352 2,352 2,352 2,352 2,352 2,352 2,352 2,352 2,

226 Other Compliance Reports City of Ukiah, California

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228 Davis W. Hammon, Jr., CPA ( ) Stephen B. Norman, CPA PFS Stephen J. Herr, CPA James L. Duckett, CPA Honorable Mayor and City Council Members of the City of Ukiah Ukiah, CA INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENTS IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, the basic financial statements of the governmental activities, the business-type activities, each major fund, and the aggregated remaining fund information of the City of Ukiah, California, as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the City s basic financial statements and have issued our report thereon dated January 9, Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Ukiah's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of City of Ukiah s internal control. Accordingly, we do not express an opinion on the effectiveness of City of Ukiah s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Ukiah's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and, accordingly, we do not express such an opinion. The results of our tests disclosed one instance of noncompliance that is required to be reported under Government Auditing Standards and is described in the accompanying schedule of findings and questioned costs as item The City of Ukiah s response to the finding identified in our audit is described in the accompanying schedule of findings and questioned costs. The City s response was not subject to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 129 MEMBERS: AMERICAN INSTITUTE AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 2080 Myers Street, Suite 3, Oroville, CA (530) FAX (530)

229 We noted certain other matters that we reported to management of the City of Ukiah in a separate letter dated January 9, The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the entity s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Davis Hammon & Co. January 9,

230 CITY OF UKIAH SCHEDULE OF FINDINGS AND QUESTIONED COSTS JUNE 30, 2014 A) Summary of Audit Results 1) The auditors report expresses an unmodified opinion on the basic financial statements. 2) No significant deficiencies were disclosed related to the audit of the basic financial statements of the City of Ukiah. 3) No instances of noncompliance material to the basic financial statements of the City of Ukiah were disclosed as required to be reported in accordance with Government Auditing Standards. 4) The City of Ukiah s total expenditures of federal financial expenditures were less than $500,000 and, therefore, the City was exempt from the single audit requirements of OMB Circular A-133. B) Findings Financial Statement Audit No new were matters noted. The following finding was noted during the prior year audit, and has been updated for the current fiscal year: : Noncompliance with Rate Covenants Criteria As part of the City s long-term debt obligations, the City has entered into several utility rate covenants whereby electric, water and sewer rates would be maintained at a levels sufficient to provide net revenues in excess of utility operating and debt service costs. Each obligation has slight variances in the terms and amounts used to compute the coverage requirements, but in each instance net revenues must exceed certain levels. Statement of Condition We noted that the Electric 1992 Series Revenue Bonds ( Electric Bonds ) did not meet the required coverage requirements. Perspective Information In fiscal year 2013/14 the Electric Bonds did not met the gross revenue coverage requirement by $82,183 (this criteria was met in fiscal 2012/13), and fell short of the net revenue requirement by $591,376 (for 2012/13 the shortage was $45,034). Cause The revenues of both the Electric Utility were less than amounts anticipated during the budget process. The City has actively promoted conservation of the use of electricity resulting in some decreases in utility revenues. Effect Upon written notice of the noncompliance by the Electric Bonds trustee, the City will have 90 days to respond that in its reasonable opinion the failure can be corrected. If, after receiving written notice of nonperformance, the City does not take reasonable steps to cure the failure, an event of default can be declared. Recommendation - The City needs to monitor Electric system rates and charges in relation to costs and expenses to ensure compliance with the revenue covenants. Views of Responsible Officials The City is currently undergoing a rate study and intends to bring new rates to the City Council in the next couple of months in order to correct this issue for future years. Rates have not been increased in over fourteen years. 131

231 CITY OF UKIAH SCHEDULE OF FINDINGS AND QUESTIONED COSTS JUNE 30, 2014 C) Status of Prior Year Findings and Questioned Costs Reconciliations of Pooled Cash and Investments Criteria The City s internal control system should include procedures that regularly and consistently reconcile pooled cash and investments to amounts recorded in the City s books and accounts. Statement of Condition The City did not finalize the reconciliation of pooled cash and investments for most of the year ended June 30, 2013, until May, Amounts were tracked and monitored by City staff during the entire period, but amounts were not tied to the balances recorded in the general ledger in a timely manner. Questioned Costs $-0- Perspective Information When the City converted to new accounting and financial software, a new Pooled Cash Fund was created to account for the cash and investment activities of the City. The purpose of this fund is to 1) report the amount of cash and investments held by the City and 2) report the amount of each individual funds share of the pool balance. Cause With the great amount of staff resources dedicated to the launch and implementation of the new financial and accounting software, the actual step to reconcile cash and investment balances was not done. Effect The books of the City did not accurately reflect and report the assets of the City. Controls over cash and investment activities would not permit City staff to identify and correct errors in a timely manner. In addition, the City s allocations of investment earnings to individual funds were delayed until pooled cash amounts were reconciled. Recommendation The City should establish, monitor and enforce a policy which requires cash and investments to be reconciled at the end of each and every month by the last day of the immediately following month. Views of Responsible Officials The position of Finance Director was not permanently filled during the time in question. The City has taken action and filled the position. The New finance Director has placed a time schedule on reconciliations. Reconciliations are scheduled to be done by the 15 th of the following month and will not be any later than the last day of the following month. Current Status - As the current year progressed, the City adopted a policy to prepare monthly reconciliations as soon after each month-end as practicable and, by the end of the fiscal year was completing reconciliations in a timely manner. We consider this matter resolved. 132

232 Davis W. Hammon, Jr., CPA ( ) Stephen B. Norman, CPA PFS Stephen J. Herr, CPA James L. Duckett, CPA INDEPENDENT ACCOUNTANTS' REPORT ON AGREED-UPON PROCEDURES APPLIED TO APPROPRIATIONS LIMIT WORKSHEETS Honorable Mayor and City Council Members of the City of Ukiah Ukiah, California We have applied the procedures enumerated below to the Appropriations Limit calculations of the City of Ukiah for the year ended June 30, These procedures, which were agreed to by the City of Ukiah and the League of California Cities (as presented in the League publication entitled Article XIIIB Appropriations Limitation Uniform Guidelines) were performed solely to assist the City in meeting the requirements of Section 1.5 of Article XIIIB of the California Constitution. This engagement to apply agreed-upon procedures was performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified users of the report. Consequently, we make no representation regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures performed and our findings were as follows: 1) We obtained the City's completed alternate computation Appropriations Limit worksheets, and compared the limit and annual adjustment factors included in those worksheets to the limit and annual adjustment factors that were adopted by resolution of the City Council. We also compared the population and inflation options included in the aforementioned worksheets to those that were selected by a recorded vote of the City Council. Finding: The alternate computation Appropriation Limit worksheets used an incorrect population change percentage amount. The Unincorporated population change for Mendocino County was 0.41% and the worksheets used 0.49%. 2) Using the City's alternate computational worksheet, we added last year's limit to the total current year limit adjustments, as computed, for this year, and compared the results to this year's limit. Finding: No exceptions were noted as a result of our procedures. 3) We compared the prior year appropriations limit presented in the alternate computational worksheets to the prior year appropriations limit adopted by the City Council for the prior year. Finding: No exceptions were noted as a result of our procedures. We were not engaged to, and did not perform an audit, the objective of which would be the expression of an opinion on the Appropriations Limit alternate computational worksheets. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. No procedures have been performed with respect to the determination of the appropriation limit for the base year, as defined by the League publication Article XIIIB Appropriations Limitation Uniform Guidelines. This report is intended solely for the use of the City of Ukiah and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. However, this report is a matter of public record and its distribution is not limited. Davis Hammon & Co. January 9, MEMBERS: AMERICAN INSTITUTE AND CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS 2080 Myers Street, Suite 3, Oroville, CA (530) FAX (530)

233 APPENDIX B DEFINITIONS AND SUMMARY OF THE INDENTURE The following is a summary of certain provisions of the Indenture which are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the Indenture for a full and complete statement of the provisions thereof. DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS Definitions. Unless the context otherwise requires, the terms defined in the Indenture will, for all purposes of the Indenture and of any indenture supplemental to the Indenture and of any certificate, opinion or other document mentioned in the Indenture, have the meanings specified in the Indenture, to be equally applicable to both the singular and plural forms of any of the terms defined in the Indenture. Accountant s Report. The term Accountant s Report means a report signed by an Independent Certified Public Accountant. Authorized Representative. The term Authorized Representative means, with respect to the City, its Mayor, Vice-Mayor, City Clerk, City Manager, Finance Director or any other person designated as an Authorized Representative of the City by a Certificate of the City signed by its Mayor, Vice-Mayor, City Clerk, City Manager or Finance Director and filed with the Trustee. Bond Counsel. The term Bond Counsel means Stradling Yocca Carlson & Rauth, a Professional Corporation, or another firm of nationally recognized attorneys experienced in the issuance of obligations the interest on which is excludable from gross income under Section 103 of the Code. Bonds. The term Bonds means all revenue bonds or notes of the City authorized, executed, issued and delivered by the City, the payments of which are payable from Net Revenues on a parity with the 2016 Bonds and which are secured by a pledge of and lien on Revenues as described in the Indenture. Bond Year. The term Bond Year means the period beginning on the date of issuance of the 2016 Bonds and ending on August 31, 2016, and each successive one year or, during the last period prior to maturity or the last period prior to redemption of all 2016 Bonds Outstanding at such time, shorter period thereafter, until there are no Outstanding 2016 Bonds. Business Day. The term Business Day means: (i) a day which is not a Saturday, Sunday or legal holiday on which banking institutions in the State, or in any other state in which the Office of the Trustee is located, are closed; or (ii) a day on which the New York Stock Exchange is not closed. Certificate; Direction; Request; Requisition. The terms Certificate, Direction, Request and Requisition of the City mean a written certificate, direction, request or requisition signed in the name of the City by an Authorized Representative. Any such instrument and supporting opinions or representations, if any, may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined will be read and construed as a single instrument. If and to the extent required by the Indenture, each such instrument will include the statements provided for in the Indenture. City. The term City means the City of Ukiah, a municipal corporation and general law city duly organized and existing under and by virtue of the laws of the State. Closing Date. The term Closing Date means the date on which the 2016 Bonds are delivered to the original purchaser thereof. Code. The term Code means the Internal Revenue Code of 1986, as amended. B-1

234 Continuing Disclosure Agreement. The term Continuing Disclosure Agreement means the Continuing Disclosure Agreement, by and between the City and the Trustee, as dissemination agent, relating to the 2016 Bonds, dated the Closing Date, as originally executed or as it may be from time to time amended or supplemented in accordance with its terms. Contracts. The term Contracts means all contracts of the City previously or later authorized and executed by the City, the payments under which are payable from Net Revenues on a parity with the 2016 Bonds and which are secured by a pledge and lien on Revenues as described in the Indenture; but excluding contracts entered into for operation and maintenance of the Water System. Credit Facility. The term Credit Facility means a letter of credit, insurance policy, surety bond or other such funding instrument, including the Reserve Policy, issued by an entity the long-term unsecured obligations of which are rated (at the time of issuance) AA or better by S&P and deposited with the Trustee into the Reserve Fund pursuant to the Indenture. The City is not obligated (i) to make any additional deposits into the Reserve Fund in the event that Assured Guaranty Municipal Corp. defaults on its obligation to make payments under the Reserve Policy or (ii) to replace the Reserve Policy in the event of a rating downgrade of Assured Guaranty Municipal Corp. Debt Service. The term Debt Service means, for any period of calculation, the sum of: (1) the interest payable during such period on all outstanding Bonds, assuming that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No , 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); (2) those portions of the principal amount of all outstanding serial Bonds maturing in such period; (3) those portions of the principal amount of all outstanding term Bonds required to be redeemed or paid in such period; and (4) those portions of the Contracts on which payments are required to be made during such period, (except to the extent that the interest evidenced and represented thereby is capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of the Code (Section 1531 of Title I of Division B of the American Recovery and Reinvestment Act of 2009 (Pub. L. No , 23 Stat. 115 (2009), enacted February 17, 2009)), or any future similar program); but less the earnings to be derived from the investment of moneys on deposit in debt service reserve funds established for Bonds or Contracts; provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed rate, the rate of interest used to calculate Debt Service will, for all purposes, be assumed to bear interest at a fixed rate equal to the higher of: (i) the then current variable interest rate borne by such Bonds or Contracts plus 1%; and (ii) the highest variable rate borne over the preceding 24 months by outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time outstanding, by variable rate debt of which the interest rate is computed by reference to an index comparable to that to be utilized in determining the interest rate for the debt then proposed to be issued; provided further, that if 25% or more of the aggregate principal amount of any series or issue of such Bonds or Contracts is due in any one year, Debt Service will be determined for the period of determination as if the principal of and interest on such series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in substantially equal annual amounts over a period of 25 years from the date of calculation; and provided further, that as to any such Bonds or Contracts or portions thereof bearing no interest but which are sold at a discount and which such discount accretes with respect to such Bonds or Contracts or portions thereof, such accreted discount will be treated as interest in the calculation of Debt Service; and provided further, that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such Bonds or Contracts will be the resulting linked rate or the effective fixed interest rate to be paid by the City with respect to such Paired Obligations, but only if the applicable Paired Obligations satisfy the requirements set forth in the Indenture; and provided further, that the amount on deposit in a debt service reserve fund on any date of calculation of Debt Service will be deducted from the amount of principal due at the final maturity of the Bonds and Contracts for which such debt service reserve fund was established, and to the extent that the amount in such debt service reserve fund is in excess of such amount of principal, such excess will be applied to the full amount of principal due, in each preceding year, in descending order, until such amount is exhausted. B-2

235 Depository; DTC. The term Depository or DTC means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, in its capacity as securities depository for the 2016 Bonds. Event of Default. The term Event of Default means any of the events specified as such in the Indenture. Federal Securities. The term Federal Securities means any non-callable direct obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America). Fiscal Year. The term Fiscal Year means the twelve month period beginning on July 1 of each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month period later selected and designated as the official fiscal year period of the City. Generally Accepted Accounting Principles. The term Generally Accepted Accounting Principles means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Governmental Accounting Standards Board or its successor. Indenture. The term Indenture means the Indenture of Trust, dated as of March 1, 2016, by and between the City and the Trustee, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture. Independent Certified Public Accountant. The term Independent Certified Public Accountant means any firm of certified public accountants appointed by the City, each of whom is independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American Institute of Certified Public Accountants. Independent Financial Consultant. The term Independent Financial Consultant means a financial consultant or firm of such consultants appointed by the City, which may, for purposes of the certification described in the definition of Paired Obligations be an interest rate swap adviser, and who, or each of whom: (i) is in fact independent and not under domination of the City; (ii) does not have any substantial interest, direct or indirect, with the City; and (iii) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports thereto. Information Services. The term Information Services means the Municipal Securities Rulemaking Board; or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the City may specify in a certificate to the Trustee and as the Trustee may select. Initial Rating Requirement. The term Initial Rating Requirement means the rating requirement described in clause (a) under the caption MISCELLANEOUS Paired Obligation Provider Guidelines. Insolvency Proceeding. The term Insolvency Proceeding has the meaning set forth under the caption MISCELLANEOUS Insurer as Third Party Beneficiary; Notices to Insurer. Insurance Policy. The term Insurance Policy means the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the Insured Bonds when due. Insurer. The term Insurer means Assured Guaranty Municipal Corp., a New York stock insurance company, or any successor thereto or assignee thereof. Insured Bonds. The term Insured Bonds means the 2016 Bonds maturing on September 1 of the years 2019 through 2035, inclusive, the scheduled payment of principal of and interest on which is guaranteed by the Insurance Policy. B-3

236 Insurer Advances. The term Insurer Advances has the meaning set forth under the caption REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Claims Upon the Insurance Policy. Insurer Reimbursement Amounts. The term Insurer Reimbursement Amounts has the meaning set forth under the caption REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Claims Upon the Insurance Policy. Insurer s Fiscal Agent. The term Insurer s Fiscal Agent has the meaning set forth under the caption REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Claims Upon the Insurance Policy. Interest Account. The term Interest Account means the account by that name in the Payment Fund established pursuant to the Indenture. Interest Payment Date. The term Interest Payment Date means September 1, 2016 and each March 1 and September 1 thereafter. Investment Agreement. The term Investment Agreement means an investment agreement by a provider, supported by appropriate opinions of counsel; provided that, without limiting the foregoing, any such Investment Agreement must: (i) be from a provider rated by S&P or Moody s at A- or A3, respectively, or above; (ii) require the City to terminate such agreement and immediately reinvest the proceeds thereof in other Permitted Investments if the rating assigned to such provider by S&P or Moody s falls to BBB+ or Baa1, respectively, or below; and (iii) expressly permit the withdrawal, without penalty, of any amounts necessary at any time to fund any deficiencies on account of debt service requirements with respect to the 2016 Bonds, together with such amendments as may be approved by the City and the Trustee from time to time. Late Payment Rate. The term Late Payment Rate has the meaning set forth under the caption REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Claims Upon the Insurance Policy. Law. The term Law means the laws of the State of California pursuant to which the City was formed and operates, and Section 5451 of the Government Code of the State of California, and in each case all laws amendatory thereof or supplemental thereto. Letter of Representations. The term Letter of Representations means the letter of the City delivered to and accepted by the Depository on or prior to delivery of the 2016 Bonds as book entry bonds setting forth the basis on which the Depository serves as depository for such book entry bonds, as originally executed or as it may be supplemented or revised or replaced by a letter from the City delivered to and accepted by the Depository. Minimum Rating Requirement. The term Minimum Rating Requirement means the rating requirement described in clause (b) under the caption MISCELLANEOUS Paired Obligation Provider Guidelines. Moody s. The term Moody s means Moody s Investors Service, Inc. or any successor thereto. Net Proceeds. The term Net Proceeds means, when used with respect to any casualty insurance or condemnation award, the proceeds from such insurance or condemnation award remaining after payment of all expenses (including attorneys fees) incurred in the collection of such proceeds. Net Revenues. The term Net Revenues means, for any period, the Revenues for such period less the Operation and Maintenance Costs for such period. When held by the Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or gain derived from the investment of amounts in any of such funds or accounts. B-4

237 Nominee. The term Nominee means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the Indenture. Office. The term Office means with respect to the Trustee, the principal corporate trust office of the Trustee at MAC #A , 333 Market Street, 18th Floor, San Francisco, CA 94105, California, Re: City of Ukiah Series 2016, or such other or additional offices as may be specified in writing by the Trustee to the City, except that, with respect to the presentation of 2016 Bonds for payment or for registration of transfer and exchange, such term means the office or agency of the Trustee at which, at any particular time, its corporate trust agency business is conducted. Operation and Maintenance Costs. The term Operation and Maintenance Costs means the reasonable and necessary costs and expenses paid or incurred by the City to maintain and operate the Water System, determined in accordance with Generally Accepted Accounting Principles, including all reasonable expenses of management and repair and all other expenses necessary to maintain and preserve the Water System in good repair and working order, all administrative costs of the City that are charged directly or apportioned to the operation of the Water System, such as salaries and wages of employees, pension and other post-employment benefit obligations, overhead, taxes (if any) and insurance premiums (including payments required to be paid into any self-insurance funds), and including all other reasonable and necessary costs of the City or charges required to be paid by it to comply with the terms of the Indenture, any Supplemental Indenture or any Contracts or Bonds, such as compensation, reimbursement and indemnification of the Trustee and fees and expenses of Independent Certified Public Accountants; but excluding in all cases: (i) payment of Debt Service on Contracts, Bonds and obligations payable from Revenues on a subordinate basis to Contracts and Bonds; (ii) costs of capital additions, replacements, betterments, extensions or improvements which under Generally Accepted Accounting Principles are chargeable to a capital account; (iii) depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles; and (iv) and any amounts transferred to the Rate Stabilization Fund. Outstanding. The term Outstanding, when used as of any particular time with reference to 2016 Bonds, means (subject to the provisions of the Indenture) all 2016 Bonds theretofore or thereupon being authenticated and delivered by the Trustee under the Indenture except: (i) 2016 Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2016 Bonds with respect to which all liability of the City has been discharged in accordance with the Indenture, including 2016 Bonds (or portions thereof) described therein; and (iii) 2016 Bonds subject to transfer or exchange, or in lieu of or in substitution for which other 2016 Bonds have been authenticated and delivered by the Trustee pursuant to the Indenture. Owner; 2016 Bond Owner. The term Owner or 2016 Bond Owner, whenever used in the Indenture with respect to a 2016 Bond, means the person in whose name the ownership of such 2016 Bond is registered on the Registration Books. Paired Obligation Provider. The term Paired Obligation Provider means a party to a Paired Obligation other than the City. Paired Obligations. The term Paired Obligations means any Bond or Contract (or portion thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing the issuance or execution and delivery thereof, which are simultaneously issued or executed and delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the City for the term of such Bond or Contract, as certified by an Independent Financial Consultant in writing, and which comply with the provisions of the Indenture. Participants. The term Participants means those broker-dealers, banks and other financial institutions from time to time for which the Depository holds book entry certificates as securities depository. Payment Fund. The term Payment Fund means the fund by that name established pursuant to the Indenture. B-5

238 Permitted Investments. The term Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein. The Trustee is entitled to rely upon the written investment direction of the City as a representation that such investment constitutes a legal investment under the laws of the State. (a) for all purposes, including but not limited to defeasance investments in refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance Corporation or otherwise collateralized with obligations described in part (2) below); and (2) Federal Securities; and (b) for all purposes other than defeasance investments in refunding escrow accounts: (1) obligations of any of the following federal agencies that represent the full faith and credit of the United States of America, including the Export Import Bank, Farmers Home Administration, General Services Administration, U.S. Maritime Administration, Government National Mortgage Association, U.S. Department of Housing & Urban Development (PHAs) and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness rated at least AA- or Aa3 by the applicable Rating Agency at the time of purchase issued by Fannie Mae or the Federal Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S. dollar denominated deposit accounts, certificates of deposit, federal funds and banker s acceptances with domestic commercial banks (including the Trustee) which are either insured by the Federal Deposit Insurance Corporation or have a rating on their short term certificates of deposit on the date of purchase of A-1 or A-1+ by S&P and P-1 by Moody s and maturing no more than 360 days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (4) commercial paper which is rated at the time of purchase in the single highest classification, A-1+ by S&P and P-1 by Moody s and which matures not more than 270 days after the date of purchase; (5) investments in a money market fund rated AAm, AAm-G, AAAm or AAAm-G or better by S&P at the time of purchase, including such funds for which the Trustee or an affiliate acts as investment advisor or provides other services; (6) pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody s at the time of purchase; (7) any Investment Agreement; (8) the California Investment Trust; and (9) the State of California Local Agency Investment Fund. Policy Payments Account. The term Policy Payments Account has the meaning set forth under the caption REVENUES; FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Claims Upon the Insurance Policy. Principal Account. The term Principal Account means the account by that name in the Payment Fund established pursuant to the Indenture. Prior Issuer. The term Prior Issuer means the Association of Bay Area Governments. Rate Stabilization Fund. The term Rate Stabilization Fund means the fund by that name continued pursuant to the Indenture. Rating. The term Rating means any currently effective rating on the 2016 Bonds issued by a Rating Agency. Rating Agencies. The term Rating Agencies means S&P and any other nationally recognized statistical rating organization then rating the 2016 Bonds. Rebate Fund. The term Rebate Fund means the fund by that name established pursuant to the Indenture. Record Date. The term Record Date means, with respect to any Interest Payment Date, the 15th day of the calendar month preceding such Interest Payment Date, whether or not such day is a Business Day. B-6

239 Redemption Date. The term Redemption Date means the date fixed for an optional redemption prior to maturity of the 2016 Bonds. Redemption Fund. The term Redemption Fund means the fund by that name established pursuant to the Indenture. Redemption Price. The term Redemption Price means, with respect to any 2016 Bond (or portion thereof), the principal amount of such 2016 Bond (or portion) plus the interest accrued to the applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof pursuant to the provisions of such 2016 Bond and the Indenture. Registration Books. The term Registration Books means the records maintained by the Trustee for the registration of ownership and registration of transfer of the 2016 Bonds pursuant to the Indenture. Reserve Fund. The term Reserve Fund means the fund by that name established in accordance with the Indenture. Reserve Policy. The term Reserve Policy means the financial guaranty insurance policy issued by the Insurer under which claims may be made in order to provide moneys in the Reserve Fund available for the purposes thereof. Reserve Requirement. The term Reserve Requirement means, initially, $928,718.76, and thereafter, as of the date of calculation, an amount equal to the least of: (i) 10% of the proceeds of the issue of the 2016 Bonds within the meaning of Section 148 of the Code; (ii) the maximum amount of debt service on the 2016 Bonds payable in any one year; and (iii) 125% of the average amount of debt service on the 2016 Bonds payable in each year. Responsible Officer of the Trustee. The term Responsible Officer of the Trustee means any officer within the corporate trust division (or any successor group or department of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time are such officers, respectively, with responsibility for the administration of the Indenture. Revenue Fund. The term Revenue Fund means the Water Fund of the City, or such other enterprise fund of the City in which Revenues are deposited. Revenues. The term Revenues means all gross income and revenue received or receivable by the City from the ownership or operation of the Water System, determined in accordance with Generally Accepted Accounting Principles, including all fees (including connection fees, facility capacity fees and standby charges), rates, charges, amounts paid under any contracts received by or owed to the City in connection with the operation of the Water System, proceeds of insurance relating to the Water System, investment income allocable to the Water System and other income and revenue howsoever derived by the City from the ownership or operation of the Water System or arising from the Water System, subject to and after satisfaction of any obligations payable on a senior basis to Bonds and Contracts, and investment earnings on amounts held in the Revenue Fund; but excluding in all cases: (i) customer deposits or any other deposits or advances that are subject to refund until such deposits or advances have become the property of the City; and (ii) any proceeds of taxes or assessments that are restricted by law to be used by the City to pay bonds or other obligations later issued. Revenues also include all amounts transferred from the Rate Stabilization Fund to the Revenue Fund during any Fiscal Year in accordance with the Indenture and do not include any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal Year in accordance with the Indenture. S&P. The term S&P means Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business, or any successor thereto. B-7

240 Securities Depositories. The term Securities Depositories means The Depository Trust Company; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the City may designate in a Written Request of the City deliver to the Trustee. State. The term State means the State of California. State Loan. The term State Loan means Loan Contract No. E54304, dated September 30, 1988, by and between the City and the State of California Department of Water Resources. Supplemental Indenture. The term Supplemental Indenture means any indenture later duly authorized and entered into between the City and the Trustee, supplementing, modifying or amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Tax Certificate. The term Tax Certificate means the Tax Certificate dated the Closing Date concerning certain matters pertaining to the use and investment of proceeds of the 2016 Bonds, including any and all exhibits attached thereto. Trustee. The term Trustee means Wells Fargo Bank, National Association, a national banking association duly organized and existing under the laws of the United States of America, or its successor as Trustee under the Indenture as provided in the Indenture Installment Sale Agreement. The term 2005 Installment Sale Agreement means the Installment Sale Agreement, dated as of September 1, 2005, by and among the City, the Prior Issuer and Wells Fargo Bank, National Association, as trustee, as originally executed and as it may from time to time be amended or supplemented in accordance therewith Bonds. The term 2016 Bonds means the City of Ukiah Water Revenue Refunding Bonds, Series 2016 issued by the City and at any time Outstanding pursuant to the Indenture. Valuation Date. Valuation Date means the fifth Business Day preceding the date of redemption. Value. The term Value, which will be determined as of the end of each month, means that the value of any investments will be calculated as follows: (a) for the purpose of determining the amount of any fund, all Permitted Investments credited to such fund will be valued at fair market value. The Trustee will determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers include, but are not limited to, pricing services provided by Financial Times Interactive Data Corporation, Bank of America Merrill Lynch and Morgan Stanley Smith Barney. (b) As to certificates of deposit and bankers acceptances: the face amount thereof, plus accrued interest. (c) As to any investment not specified above: market value, or, if the market value is not ascertainable by the City or the Trustee, at cost. Water Service. The term Water Service means the water distribution service made available or provided by the Water System. Water System. The term Water System means the whole and each and every part of the water system of the City, including the portion thereof existing on the Closing Date, and including all additions, betterments, extensions and improvements to such water system or any part thereof later acquired or constructed; but not including the City s wastewater system or recycled water system unless otherwise designated by the City Council of the City. Written Consent of the City; Written Order of the City; Written Request of the City; Written Requisition of the City. The terms Written Consent of the City, Written Order of the City, Written Request of the City and Written Requisition of the City mean, respectively, a written consent, order, request or requisition signed by or on behalf of the City by an Authorized Representative or by any two persons (whether or not members of the City Council) who are specifically authorized by resolution of the City to sign or execute such a document on its behalf. B-8

241 Content of Certificates and Opinions. Every certificate or opinion provided for in the Indenture except the certificate of destruction provided for therin, with respect to compliance with any provision of the Indenture must include: (1) a statement that the person making or giving such certificate or opinion has read such provision and the definitions in the Indenture relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the certificate or opinion is based; (3) a statement that, in the opinion of such person he has made or caused to be made such examination or investigation as is necessary to enable him to express an informed opinion with respect to the subject matter referred to in the instrument to which his signature is affixed; (4) a statement of the assumptions upon which such certificate or opinion is based, and that such assumptions are reasonable; and (5) a statement as to whether, in the opinion of such person, such provision has been complied with. Any such certificate or opinion made or given by an officer of the City may be based, insofar as it relates to legal or accounting matters, upon a certificate or opinion of or representation by counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless such officer knows, or in the exercise of reasonable care should have known, that the certificate, opinion or representation with respect to the matters upon which such certificate or statement may be based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar as it relates to factual matters (with respect to which information is in the possession of the City) upon a certificate or opinion of or representation by an officer of the City, unless such counsel, Independent Certified Public Accountant or Independent Financial Consultant knows, or in the exercise of reasonable care should have known, that the certificate or opinion or representation with respect to the matters upon which such person s certificate or opinion or representation may be based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent Certified Public Accountant or Independent Financial Consultant, as the case may be, need not certify to all of the matters required to be certified under any provision of the Indenture, but different officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants may certify to different matters, respectively. THE 2016 BONDS Registration Books. The Trustee will keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the 2016 Bonds, which will upon reasonable notice and at reasonable times be open to inspection during regular business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee will, under such reasonable regulations as it may prescribe, register, transfer or cause to be registered or transferred, on such records, the ownership of the 2016 Bonds as provided in the Indenture. The person in whose name any 2016 Bond is registered will be deemed the Owner thereof for all purposes of the Indenture, and payment of or on account of the interest on and principal and Redemption Price of by such 2016 Bonds will be made only to or upon the order in writing of such registered Owner, which payments will be valid and effectual to satisfy and discharge liability upon such 2016 Bond to the extent of the sum or sums so paid Bonds Mutilated, Lost, Destroyed or Stolen. If any 2016 Bond becomes mutilated, the City, at the expense of the Owner of said 2016 Bond, will execute, and the Trustee will thereupon authenticate and deliver, a new 2016 Bond of like tenor, series and authorized denomination in exchange and substitution for the 2016 Bonds so mutilated, but only upon surrender to the Trustee of the 2016 Bond so mutilated. Every mutilated 2016 Bond so surrendered to the Trustee will be canceled by it and disposed of in a manner deemed appropriate by the Trustee. If any 2016 Bond is lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to the Trustee and indemnity satisfactory to the Trustee is given, the City, at the expense of the Owner, will execute, and the Trustee will thereupon authenticate and deliver, a new 2016 Bond of like tenor, series and authorized denomination in lieu of and in substitution for the 2016 Bond so lost, destroyed or stolen (or if any such 2016 Bond has matured or is about to mature, instead of issuing a substitute 2016 Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing each new 2016 Bond and of the expenses which may be incurred by the City and the Trustee with respect thereto. Any 2016 Bond issued under the provisions of the Indenture in lieu of any 2016 Bond alleged to be lost, destroyed or stolen will constitute an original additional contractual obligation on the part of the City, whether or not the 2016 Bond so alleged to be lost, destroyed, or stolen is at any time enforceable by anyone, and will be entitled to the benefits of the Indenture with all other 2016 Bonds secured by the B-9

242 Indenture. Notwithstanding any other provision of the Indenture, in lieu of delivering a new 2016 Bond for a 2016 Bond which has been mutilated, lost, destroyed or stolen and which has matured or has been selected for redemption, the Trustee may make payment of such 2016 Bond upon receipt of indemnity satisfactory to the Trustee. Book Entry System. (a) Election of Book Entry System. Prior to the issuance of the 2016 Bonds, the City may provide that such 2016 Bonds will be initially issued as book entry bonds. If the City elects to deliver any 2016 Bonds in book entry form, the City will cause the delivery of a separate single fully registered bond (which may be typewritten) for each maturity date of such 2016 Bonds in an authorized denomination corresponding to the total principal amount of the 2016 Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2016 Bond will be registered in the 2016 Bond Registration Books in the name of the Nominee, as nominee of the Depository, and ownership of the 2016 Bonds, or any portion thereof may not thereafter be transferred except as provided in the Indenture. With respect to book entry 2016 Bonds, the City and the Trustee have no responsibility or obligation to any Participant or to any person on behalf of which such a Participant holds an interest in such book entry 2016 Bonds. Without limiting the immediately preceding sentence, the City and the Trustee have no responsibility or obligation with respect to: (i) the accuracy of the records of the Depository, the Nominee, or any Participant with respect to any ownership interest in book entry 2016 Bonds; (ii) the delivery to any Participant or any other person, other than an Owner as shown in the 2016 Bond Registration Books, of any notice with respect to book entry 2016 Bonds, including any notice of redemption; (iii) the selection by the Depository and its Participants of the beneficial interests in book entry 2016 Bonds to be redeemed in the event that the City redeems the 2016 Bonds in part; or (iv) the payment by the Depository or any Participant or any other person, of any amount of principal of, premium, if any, or interest on book entry 2016 Bonds. The City and the Trustee may treat and consider the person in whose name each book entry 2016 Bond is registered in the 2016 Bond Registration Books as the absolute Owner of such book entry 2016 Bond for the purpose of payment of principal of, premium and interest on such 2016 Bond, for the purpose of giving notices of redemption and other matters with respect to such 2016 Bond, for the purpose of registering transfers with respect to such 2016 Bond, and for all other purposes whatsoever. The Trustee will pay all principal of, premium, if any, and interest on the 2016 Bonds only to or upon the order of the respective Owner, as shown in the 2016 Bond Registration Books, or such Owner s respective attorney duly authorized in writing, and all such payments will be valid and effective to fully satisfy and discharge the City s obligations with respect to payment of principal of, premium, if any, and interest on the 2016 Bonds to the extent of the sum or sums so paid. No person other than an Owner, as shown in the 2016 Bond Registration Books, may receive a 2016 Bond evidencing the obligation to make payments of principal of, premium, if any, and interest on the 2016 Bonds. Upon delivery by the Depository to the City and the Trustee, of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions in the Indenture with respect to Record Dates, the word Nominee in the Indenture will refer to such nominee of the Depository. (b) Delivery of Letter of Representations. In order to qualify the book entry 2016 Bonds for the Depository s book entry system, the City and the Trustee (if required by the Depository) will execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations does not in any way impose upon the City or the Trustee any obligation whatsoever with respect to persons having interests in such book entry 2016 Bonds other than the Owners, as shown on the 2016 Bond Registration Books. By executing a Letter of Representations, the Trustee will agree to take all action necessary at all times so that the Trustee will be in compliance with all representations of the Trustee in such Letter of Representations. In addition to the execution and delivery of a Letter of Representations, the City and the Trustee will take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify book entry 2016 Bonds for the Depository s book entry program. (c) Selection of Depository. In the event that: (i) the Depository determines not to continue to act as securities depository for book entry 2016 Bonds; or (ii) the City determines that continuation of the book entry system is not in the best interest of the beneficial owners of the 2016 Bonds or the City, then the City will discontinue the book entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City will prepare or direct the preparation of a new single, separate, fully B-10

243 registered 2016 Bond for each of the maturity dates of such book entry 2016 Bonds, registered in the name of such successor or substitute qualified securities depository or its Nominee as provided in clause (e) below. If the City fails to identify another qualified securities depository to replace the Depository, then the 2016 Bonds will no longer be restricted to being registered in such 2016 Bond Registration Books in the name of the Nominee, but may be registered in whatever name or names the Owners transferring or exchanging such 2016 Bonds designate, in accordance with the provisions of the Indenture. (d) Payments To Depository. Notwithstanding any other provision of the Indenture to the contrary, so long as all Outstanding 2016 Bonds are held in book entry form and registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and interest on such 2016 Bonds and all notices with respect to such 2016 Bonds will be made and given, respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed by the Depository and agreed to by the Trustee notwithstanding any inconsistent provisions in the Indenture. (e) Transfer of 2016 Bonds to Substitute Depository. (i) The 2016 Bonds will be initially issued as provided in the Indenture. Registered ownership of such 2016 Bonds, or any portions thereof, may not thereafter be transferred except: (A) to any successor of DTC or its nominee, or of any substitute depository designated pursuant to clause (B) below ( Substitute Depository ); provided that any successor of DTC or Substitute Depository is qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any Substitute Depository, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its functions as depository; provided that any such Substitute Depository is qualified under any applicable laws to provide the services proposed to be provided by it; or (C) to any person as provided below, upon: (1) the resignation of DTC or its successor (or any Substitute Depository or its successor) from its functions as depository; or (2) a determination by the City that DTC or its successor (or Substitute Depository or its successor) is no longer able to carry out its functions as depository. (ii) In the case of any transfer pursuant to clauses (i)(a) or (i)(b) above, upon receipt of all Outstanding 2016 Bonds by the Trustee, together with a Written Request of the City to the Trustee designating the Substitute Depository, a single new 2016 Bond, which the City will prepare or cause to be prepared, will be issued for each maturity of 2016 Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or their Nominees, as the case may be, all as specified in such Written Request of the City. In the case of any transfer pursuant to clause (i)(c) abve, upon receipt of all Outstanding 2016 Bonds by the Trustee, together with a Written Request of the City to the Trustee, new 2016 Bonds, which the City will prepare or cause to be prepared, will be issued in such denominations and registered in the names of such persons as are requested in such Written Request of the City, subject to the limitations of the Indenture, provided that the Trustee is not required to deliver such new 2016 Bonds within a period of less than 60 days from the date of receipt of such Written Request from the City. (iii) In the case of a partial redemption or an advance refunding of any 2016 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor (or any Substitute Depository or its successor) will make an appropriate notation on such 2016 Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the Trustee, all in accordance with the Letter of Representations. The Trustee is not liable for such Depository s failure to make such notations or errors in making such notations and the records of the Trustee as to the Outstanding principal amount of such 2016 Bonds will be controlling. (iv) The City and the Trustee are entitled to treat the person in whose name any 2016 Bond is registered as the Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and the City and the Trustee have no responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the 2016 Bonds. Neither the City nor the Trustee have any responsibility or obligation, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or Substitute Depository or its successor), B-11

244 except to the Owner of any 2016 Bonds, and the Trustee may rely conclusively on its records as to the identity of the Owners of the 2016 Bonds. ISSUANCE OF 2016 BONDS; APPLICATION OF PROCEEDS Validity of 2016 Bonds. The validity of the authorization and issuance of the 2016 Bonds is not dependent on and will not be affected in any way by any proceedings taken by the City or the Trustee with respect to any other agreement. The recital contained in the 2016 Bonds that the same are issued pursuant to the Constitution and laws of the State is conclusive evidence of the validity and of compliance with the provisions of law in their issuance. REDEMPTION OF 2016 BONDS Selection of 2016 Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the 2016 Bonds, the Trustee will select the 2016 Bonds for redemption as a whole or in part on any date as directed by the City and by lot within each maturity in integral multiples of $5,000 in accordance with the Indenture, subject to the approval of the Insurer in the event of a redemption of Insured Bonds pursuant to the Indenture so long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder, and in the absence of such direction, in inverse order of maturity. The Trustee will promptly notify the City in writing of the numbers of the 2016 Bonds or portions thereof so selected for redemption. Partial Redemption of 2016 Bonds. Upon surrender of any 2016 Bond redeemed in part only, the City will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the City, a new 2016 Bond or 2016 Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the 2016 Bonds surrendered and of the same series, interest rate and maturity. Effect of Redemption. Notice of redemption having been duly given as aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the date fixed for redemption on, the 2016 Bonds (or portions thereof) so called for redemption being held by the Trustee, on the Redemption Date designated in such notice, the 2016 Bonds (or portions thereof) so called for redemption will become due and payable, interest on the 2016 Bonds so called for redemption will cease to accrue, said 2016 Bonds (or portions thereof) will cease to be entitled to any benefit or security under the Indenture, and the Owners of said 2016 Bonds will have no rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee will, upon surrender for payment of any of the 2016 Bonds to be redeemed on their Redemption Dates, pay such 2016 Bonds at the Redemption Price. All 2016 Bonds redeemed pursuant to the foregoing provisions will be canceled upon surrender thereof. REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST Pledge and Assignment; Revenue Fund. (a) All of the Revenues, all amounts held in the Revenue Fund described in clause (b) below, the Reserve Fund described in the Indenture and amounts transferred from the Rate Stabilization Fund to the Revenue Fund as described in the Indenture and any other amounts (including proceeds of the sale of the 2016 Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate Fund and the Rate Stabilization Fund (other than those amounts transferred by the City from the Rate Stabilization Fund to the Revenue Fund)) have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if any, on the 2016 Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues may not be used for any other purpose while the 2016 Bonds remain Outstanding; provided that out of the Revenues there may be apportioned such sums for such purposes as are expressly permitted in the Indenture. The foregoing pledge, together with the pledge created by all other Contracts and Bonds, constitutes a first lien on and security interest in Revenues and, subject to application of Revenues and all amounts on deposit therein as permitted in the Indenture, the Revenue Fund and other funds and accounts created under the Indenture for the payment of the principal of and interest, and the premium, if any, on the 2016 Bonds and all Contracts and Debt Service on Bonds in accordance with the terms of the Indenture. Such pledge will attach, be perfected and be valid and binding from and after the Closing Date, without any physical delivery thereof or further act, and will be valid and binding against all parties B-12

245 having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice of the Indenture. (b) In order to carry out and effectuate the pledge and lien contained in the Indenture, the City has agreed and covenanted that all Revenues will be received by the City in trust and deposited when and as received in the Revenue Fund, which fund the City has agreed and covenanted to maintain and to hold separate and apart from other funds so long as the 2016 Bonds and any Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fund will be used and applied by the City as provided in the Indenture. All moneys in the Revenue Fund will be held in trust and applied, used and withdrawn for the purposes set forth in the Indenture. The City will, from the moneys in the Revenue Fund, pay all Operation and Maintenance Costs (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund will be set aside by the City at the following times for the transfer to the following respective special funds in the following order of priority: (i) Interest and Principal Payments. Not later than the fifth Business Day prior to each Interest Payment Date, the City will, from the moneys in the Revenue Fund, transfer to the Trustee for deposit in the Payment Fund or the Redemption Fund the payments of interest and principal or mandatory sinking fund payments, as applicable, on the 2016 Bonds due and payable on such Interest Payment Date. The City will also, from the moneys in the Revenue Fund, transfer to the applicable trustee for deposit in the respective payment fund, without preference or priority, and in the event of any insufficiency of such moneys ratably without any discrimination or preference, any other Debt Service in accordance with the provisions of any Bond or Contract. (ii) Reserve Funds. On or before each Interest Payment Date, the City will, from the remaining moneys in the Revenue Fund, thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably without any discrimination or preference, transfer to the applicable trustee for such reserve funds and/or accounts, if any, as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal to the reserve requirement with respect thereto. (iii) Surplus. Moneys on deposit in the Revenue Fund on any date when the City reasonably expects that such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the purposes described in clauses (i) or (ii) above may be expended by the City at any time for any purpose permitted by law or deposited in the Rate Stabilization Fund. (iv) Investments. All moneys held by the City in the Revenue Fund may be invested in Permitted Investments, and the investment earnings thereon will remain on deposit in such fund, except as otherwise provided in the Indenture. Allocation of Revenues. There has established with the Trustee the Payment Fund, which the Trustee has covenanted to maintain and hold in trust separate and apart from other funds held by it so long as any principal of and interest on the 2016 Bonds remain unpaid. Except as directed in the Indenture, all payments of interest and principal on the 2016 Bonds received by the Trustee pursuant to the Indenture will be promptly deposited by the Trustee upon receipt thereof into the Payment Fund; except that all moneys received by the Trustee and required by the Indenture to be deposited in the Redemption Fund will be promptly deposited therein. All payments of interest and principal on the 2016 Bonds deposited with the Trustee will be held, disbursed, allocated and applied by the Trustee only as provided in the Indenture. The Trustee will establish and hold an Interest Account and a Principal Account within the Payment Fund. The Trustee will transfer from the Payment Fund and deposit into the following respective accounts, the following amounts in the following order of priority and at the following times, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: B-13

246 (a) Not later than the fifth Business Day preceding each Interest Payment Date, the Trustee will deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all 2016 Bonds then Outstanding. No deposit needs to be made into the Interest Account if there is in such fund an amount sufficient to pay the interest becoming due and payable on such date on all 2016 Bonds then Outstanding. (b) Not later than the fifth Business Day preceding each date on which the principal of the 2016 Bonds becomes due and payable under the Indenture, the Trustee will deposit in the Principal Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the 2016 Bonds coming due and payable on such date. No deposit needs to be made into the Principal Account if there is in such fund moneys sufficient to pay the principal becoming due and payable on such date on all 2016 Bonds then Outstanding. Application of Interest Account. All amounts in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying interest on the 2016 Bonds as it becomes due and payable (including accrued interest on any 2016 Bonds purchased or accelerated prior to maturity pursuant to the Indenture). Application of Principal Account. All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the principal amount of the 2016 Bonds at maturity, purchase or acceleration; provided, however, that at any time prior to selection for redemption of any such 2016 Bonds, upon written direction of the City, the Trustee may apply such amounts to the purchase of 2016 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2016 Bonds. Application of Redemption Fund. There has been established with the Trustee a special fund designated as the Redemption Fund. All amounts in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of the 2016 Bonds to be redeemed on any Redemption Date pursuant to the Indenture; provided, however, that at any time prior to selection for redemption of any such 2016 Bonds, upon written direction of the City, the Trustee may apply such amounts to the purchase of 2016 Bonds at public or private sale, as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Account) as directed pursuant to a Written Request of the City, except that the purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable to the 2016 Bonds. Investments. All moneys in any of the funds or accounts established with the Trustee pursuant to the Indenture will be invested by the Trustee solely in Permitted Investments. Such investments will be directed by the City pursuant to a Written Request of the City filed with the Trustee at least two Business Days in advance of the making of such investments (which directions will be promptly confirmed to the Trustee in writing). In the absence of any such directions from the City, the Trustee will invest any such moneys in Permitted Investments described in clause (b)(5) of the definition thereof; provided, however, that any such investment will be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee has received a written direction from the City specifying a specific money market fund and, if no such written direction from the City is so received, the Trustee will hold such moneys uninvested. Obligations purchased as an investment of moneys in any fund will 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 under the Indenture will be deposited in the Interest Account unless otherwise provided in the Indenture. For purposes of acquiring any investments under the Indenture, the Trustee may commingle funds (other than the Rebate Fund) held by it upon the Written Request of the City. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee will not be responsible or liable for losses arising from any investments made pursuant to the Indenture. The Trustee will furnish the City with periodic cash transaction statements which include detail for all investment transactions effected by the Trustee or brokers selected by the City. Upon the City s election, such statements will be delivered via the Trustee s online service and upon electing such service, paper statements will be provided only upon request. The City waives the right to receive brokerage confirmations of security transactions B-14

247 effected by the Trustee as they occur, to the extent permitted by law. The City further understands that trade confirmations for securities transactions effected by the Trustee will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker. The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with any investments made by the Trustee under the Indenture. The City will invest, or cause to be invested, all moneys in any fund or accounts established with the Trustee as provided in the Tax Certificate. For investment purposes, the Trustee may commingle the funds and accounts established under the Indenture, but will account for each separately. In making any valuations of investments under the Indenture, the Trustee may utilize and rely on computerized securities pricing services that may be available to the Trustee, including those available through the Trustee accounting system. Rebate Fund. (a) Establishment. The Trustee will establish a fund for the 2016 Bonds designated the Rebate Fund when required in accordance with the Indenture. Absent an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds will not be adversely affected, the City will cause to be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Indenture and the Tax Certificate. All money at any time deposited in the Rebate Fund will be held by the Trustee in trust for payment to the United States Treasury. All amounts on deposit in the Rebate Fund for the 2016 Bonds will be governed by the Indenture and the Tax Certificate, unless and to the extent that the City delivers to the Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2016 Bonds will not be adversely affected if such requirements are not satisfied. Notwithstanding anything to the contrary contained in the Indenture or in the Tax Certificate, the Trustee: (i) will be deemed conclusively to have complied with the provisions thereof if it follows all Requests of the City; (ii) has no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate; (iii) may rely conclusively on the City s calculations and determinations and certifications relating to rebate matters; and (iv) has no responsibility to independently make any calculations or determinations or to review the City s calculations or determinations thereunder. (i) Annual Computation. Within 55 days of the end of each Bond Year (as such term is defined in the Tax Certificate), the City will calculate or cause to be calculated the amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section of the Treasury Regulations (taking into account any applicable exceptions with respect to the computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant to Section 148(f)(4)(C)(vii) of the Code (the 1½% Penalty ) has been made), for such purpose treating the last day of the applicable Bond Year as a computation date, within the meaning of Section (b) of the Treasury Regulations (the Rebatable Arbitrage ). The City will obtain expert advice as to the amount of the Rebatable Arbitrage to comply with the foregoing provisions. (ii) Annual Transfer. Within 55 days of the end of each Bond Year, upon the Written Request of the City, an amount will be deposited to the Rebate Fund by the Trustee from any Net Revenues legally available for such purpose (as specified by the City in the aforesaid Written Request), if and to the extent required so that the balance in the Rebate Fund equals the amount of Rebatable Arbitrage so calculated in accordance with clause (i) above. In the event that immediately following the transfer required by the previous sentence, the amount then on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein, upon Written Request of the City, the Trustee will withdraw the excess from the Rebate Fund and credit the excess to the Payment Fund. (iii) Payment to the Treasury. The Trustee will pay, as directed by Written Request of the City, to the United States Treasury, out of amounts in the Rebate Fund: (A) Not later than 60 days after the end of: (X) the fifth Bond Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the Rebatable Arbitrage calculated as of the end of such Bond Year; and (B) Not later than 60 days after the payment of all the 2016 Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such applicable B-15

248 Bond Year, and any income attributable to the Rebatable Arbitrage, computed in accordance with Section 148(f) of the Code and Section of the Treasury Regulations. In the event that, prior to the time of any payment required to be made from the Rebate Fund, the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the City will calculate or cause to be calculated the amount of such deficiency and deposit an amount received from any legally available source equal to such deficiency prior to the time such payment is due. Each payment required to be made pursuant to the foregoing provisions will be made to the Internal Revenue Service Center, Ogden, Utah on or before the date on which such payment is due, and will be accompanied by Internal Revenue Service Form 8038-T (prepared by the City), or will be made in such other manner as provided under the Code. (b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund after redemption and payment of the 2016 Bonds and the payments described in clause (a) above being made may be withdrawn by the City and utilized in any manner by the City. (c) Survival of Defeasance. Notwithstanding anything in the Indenture to the contrary, the obligation to comply with the Rebate Fund requirements of the Indenture will survive the defeasance or payment in full of the 2016 Bonds. Application of Funds and Accounts When No 2016 Bonds are Outstanding. On the date on which all 2016 Bonds are retired or provision made therefor pursuant to the Indenture, and after payment of all amounts due the Trustee under the Indenture, all moneys then on deposit in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to the Indenture will be withdrawn by the Trustee and paid to the City for use by the City at any time for any purpose permitted by law. Claims Upon the Insurance Policy. If, on the third Business Day prior to the related scheduled Interest Payment Date with respect to Insured Bonds there is not on deposit with the Trustee, after making all transfers and deposits required under the Indenture, moneys sufficient to pay the principal of and interest on the Insured Bonds due on such Interest Payment Date, the Trustee will give notice to the Insurer and to its designated agent (if any) (the Insurer s Fiscal Agent ) by telephone or telecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. If, on the second Business Day prior to the related Interest Payment Date, there continues to be a deficiency in the amount available to pay the principal of and interest on the Insured Bonds due on such Interest Payment Date, the Trustee will make a claim under the Insurance Policy and give notice to the Insurer and the Insurer s Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Insured Bonds and the amount required to pay principal of the Insured Bonds, confirmed in writing to the Insurer and the Insurer s Fiscal Agent by 12:00 noon, New York City time, on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy. The Trustee will designate any portion of payment of principal on the Insured Bonds paid by the Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Insured Bonds registered to the then current 2016 Bond Owner, whether DTC or its Nominee or otherwise, and will issue a replacement Insured Bond to the Insurer, registered in the name of Assured Guaranty Municipal Corp., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Trustee s failure to so designate any payment or issue any replacement Insured Bond will have no effect on the amount of principal or interest payable by the City with respect to any Insured Bond or the subrogation rights of the Insurer. The Trustee will keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (as such term is defined below) and the allocation of such funds to payment of interest on and principal of any Insured Bond. The Insurer has the right to inspect such records at reasonable times upon reasonable notice to the Trustee. Upon payment of a claim under the Insurance Policy, the Trustee will establish a separate special purpose trust account for the benefit of Insured Bond Owners referred to in the Indenture as the Policy Payments Account and over which the Trustee will have exclusive control and sole right of withdrawal. The Trustee will receive any B-16

249 amount paid under the Insurance Policy in trust on behalf of Insured Bond Owners and will deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts will be disbursed by the Trustee to Insured Bond Owners in the same manner as principal and interest payments are to be made with respect to the 2016 Bond Owners under the Indenture. It is not necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Notwithstanding anything in the Indenture to the contrary, the City has agreed to pay to the Insurer: (i) a sum equal to the total of all amounts paid by the Insurer under the Insurance Policy (the Insurer Advances ); and (ii) interest on such Insurer Advances from the date paid by the Insurer until payment thereof in full, payable to the Insurer at the Late Payment Rate (as such term is defined below) per annum (collectively, the Insurer Reimbursement Amounts ). Late Payment Rate means the lesser of: (a) the greater of: (1) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in The City of New York, as its prime or base lending rate (any change in such rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank) plus 3%; and (2) the then applicable highest rate of interest on the 2016 Bonds; and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate will be computed on the basis of the actual number of days elapsed over a year of 360 days. The City has covenanted and agreed that the Insurer Reimbursement Amounts are secured by a lien on and pledge of the Revenues and payable from such Revenues on a parity with the pledge of Revenues to the payment of the 2016 Bonds. Funds held in the Policy Payments Account will not be invested by the Trustee and may not be applied to satisfy any costs, expenses or liabilities of the Trustee. Any funds remaining in the Policy Payments Account following an Interest Payment Date with respect to Insured Bonds will promptly be remitted to the Insurer. The Insurer will, to the extent that it makes any payment of principal of or interest on the Insured Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy (which subrogation rights will also include the rights of any such recipients in connection with any Insolvency Proceeding). Each obligation of the City to the Insurer under the Indenture will survive the discharge or termination thereof. Subject to the Indenture, the City will pay or reimburse the Insurer any and all charges, fees, costs and expenses that the Insurer may reasonably pay or incur in connection with: (i) the administration, enforcement, defense or preservation of any rights or security in the Indenture; (ii) the pursuit of any remedies under the Indenture or otherwise afforded by law or equity; (iii) any amendment, waiver or other action with respect to, or related to the Indenture, whether or not executed or completed; or (iv) any litigation or other dispute in connection with the Indenture or the transactions contemplated thereby, other than costs resulting from the failure of the Insurer to honor its obligations under the Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Indenture. As set forth in the Indenture, the Insurer is entitled to pay principal of or interest on the Insured Bonds that become Due for Payment but are unpaid by reason of Nonpayment by the Issuer (as such terms are defined in the Insurance Policy) and any amounts due on the Insured Bonds as a result of acceleration thereof in accordance with the Indenture, whether or not the Insurer has received a Notice of Nonpayment (as such term is defined in the Insurance Policy) or a claim upon the Insurance Policy. PARTICULAR COVENANTS Punctual Payment. The City will punctually pay, or cause to be paid, the principal and interest to become due in respect of all of the 2016 Bonds, in strict conformity with the terms of the 2016 Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in the Indenture. Extension of Payment of 2016 Bonds. The City will not directly or indirectly extend or assent to the extension of the maturity of any of the 2016 Bonds or the time of payment of any claims for interest by the purchase of such 2016 Bonds or by any other arrangement, and in case the maturity of any of the 2016 Bonds or the time of payment of any such claims for interest is extended, such 2016 Bonds or claims for interest will not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full B-17

250 for the principal of all of the 2016 Bonds then Outstanding and of all claims for interest thereon which have not been so extended. Nothing in the Indenture will be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding 2016 Bonds, and such issuance will not be deemed to constitute an extension of maturity of 2016 Bonds. Against Encumbrances. The City will not make any pledge of, or place any lien on, Revenues or the moneys in the Revenue Fund except as provided in the Indenture. The City may at any time, or from time to time, execute Contracts or issue Bonds as permitted in the Indenture. The City may also at any time, or from time to time, incur evidences of indebtedness, or incur other obligations, for any lawful purpose which are payable from and secured by a pledge of lien on Revenues on any moneys in the Revenue Fund as may from time to time be deposited therein, provided that such pledge and lien is subordinate in all respects to the pledge of and lien thereon provided in the Indenture. Power to Issue 2016 Bonds and Make Pledge and Assignment. The City is duly authorized pursuant to law to issue the 2016 Bonds, to enter into the Indenture and to pledge and assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the manner and to the extent provided in the Indenture. The 2016 Bonds and the provisions of the Indenture are and will be the legal, valid and binding special obligations of the City in accordance with their terms, and the City and the Trustee will at all times, subject to the provisions of the Indenture and 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 2016 Bond Owners under the Indenture against all claims and demands of all persons whomsoever. Accounting Records and Financial Statements. (a) The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate trust industry standards, in which complete and accurate entries are made of all transactions made by it relating to the proceeds of 2016 Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of record and account will be available for inspection by the City upon reasonable prior notice during business hours and under reasonable circumstances. (b) The City will keep appropriate accounting records in which complete and correct entries are made of all transactions relating to the Water System, which records will be available for inspection by the Trustee (which has no duty to inspect such records) at reasonable hours and under reasonable conditions. (c) The City will prepare and file with the Trustee, upon the Trustee s written request, within 270 days of each Fiscal Year (commencing with the Fiscal Year ending June 30, 2016), financial statements of the City for the preceding Fiscal Year prepared in accordance with Generally Accepted Accounting Principles, together with an Accountant s Report thereon. The Trustee has no duty to review such financial statements. Tax Covenants. Notwithstanding any other provision of the Indenture, absent an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the 2016 Bonds will not be adversely affected for federal income tax purposes, the City has covenanted to comply with all applicable requirements of the Code necessary to preserve such exclusion from gross income with respect to the 2016 Bonds, and has specifically covenanted, without limiting the generality of the foregoing, as follows: (a) Private Activity. The City will take no action or refrain from taking any action or make any use of the proceeds of the 2016 Bonds or of any other moneys or property which would cause the 2016 Bonds to be private activity bonds within the meaning of Section 141 of the Code; (b) Arbitrage. The City will make no use of the proceeds of the 2016 Bonds or of any other amounts or property, regardless of the source, or take any action or refrain from taking any action which will cause the 2016 Bonds to be arbitrage bonds within the meaning of Section 148 of the Code; B-18

251 (c) Federal Guarantee. The City will make no use of the proceeds of the 2016 Bonds or take or omit to take any action that would cause the 2016 Bonds to be federally guaranteed within the meaning of Section 149(b) of the Code; (d) Information Reporting. The City will take or cause to be taken all necessary action to comply with the informational reporting requirement of Section 149(e) of the Code necessary to preserve the exclusion of interest on the 2016 Bonds pursuant to Section 103(a) of the Code; (e) Hedge Bonds. The City will make no use of the proceeds of the 2016 Bonds or any other amounts or property, regardless of the source, or take any action or refrain from taking any action that would cause the 2016 Bonds to be considered hedge bonds within the meaning of Section 149(g) of the Code unless the City takes all necessary action to assure compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross income of interest on the 2016 Bonds for federal income tax purposes; and (f) Miscellaneous. The City will take no action or refrain from taking any action inconsistent with its expectations stated in the Tax Certificate executed by the City in connection with the issuance of the 2016 Bonds and will comply with the covenants and requirements stated therein and incorporated by reference in the Indenture. The foregoing covenants are not applicable to, and nothing contained in the Indenture will be deemed to prevent the City from causing the Trustee to issue revenue bonds or to execute and deliver contracts payable on a parity with the 2016 Bonds, the interest with respect to which has been determined by Bond Counsel to be subject to federal income taxation. Waiver of Laws. The City will not at any time insist upon or plead in any manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at any time later in force that may affect the covenants and agreements contained in the Indenture or in the 2016 Bonds, and all benefit or advantage of any such law or laws is expressly waived by the City to the extent permitted by law. Further Assurances. The City will make, execute and deliver any and all such further indentures, 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 2016 Bonds of the rights and benefits provided in the Indenture. Budgets. On or prior to the fifteenth day of each Fiscal Year, the City will certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the 2016 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the amounts so budgeted are not adequate for the payment of the principal of and interest on the 2016 Bonds due under the Indenture, the City will take such action as may be necessary to cause such annual budget to be amended, corrected or augmented so as to include therein the amounts required to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and interest on the 2016 Bonds due under the Indenture and will notify the Trustee of the proceedings then taken or proposed to be taken by the City. Observance of Laws and Regulations. To the extent necessary to assure its performance under the Indenture, the City will well and truly keep, observe and perform all valid and lawful obligations or regulations now or later imposed on the City by contract, or prescribed by any law of the United States of America, or of the State, or by any officer, board or commission having jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or franchise now owned or later acquired by the City, respectively, including its right to exist and carry on its business, to the end that such contracts, rights and franchises will be maintained and preserved, and will not become abandoned, forfeited or in any manner impaired. Compliance with Contracts. The City will neither take nor omit to take any action under any contract if the effect of such act or failure to act would in any manner impair or adversely affect the ability of the City to pay principal of or interest on the 2016 Bonds; and the City will comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all other contracts affecting or involving the Water System, to the extent that the City is a party thereto. B-19

252 Prosecution and Defense of Suits. The City will promptly, upon request of the Trustee or any 2016 Bond Owner, from time to time take such action as may be necessary or proper to remedy or cure any defect in or cloud upon the title to the Water System or any part thereof, whether now existing or later developing, prosecute all such suits, actions and other proceedings as may be appropriate for such purpose and indemnify and save the Trustee (including all of its employees, officers and directors) and every 2016 Bond Owner harmless from all loss, cost, damage and expense, including attorneys fees, which they or any of them may incur by reason of any such defect, cloud, suit, action or proceeding. The City will defend against every suit, action or proceeding at any time brought against the Trustee (including all of its employees, officers and directors) or any 2016 Bond Owner upon any claim arising out of the receipt, application or disbursement of any of the payments of principal of or interest on the 2016 Bonds or involving the rights of the Trustee or any 2016 Bond Owner under the Indenture; provided that the Trustee or any 2016 Bond Owner at such party s election may appear in and defend any such suit, action or proceeding. The City will indemnify, protect and hold harmless the Trustee and the 2016 Bond Owners against any and all losses, damages and liability claimed or asserted by any person, arising out of such receipt, application or disbursement, and will indemnify and hold harmless the 2016 Bond Owners against any attorneys fees or other expenses which any of them may incur in connection with any litigation (including pre-litigation activities) to which any of them may become a party by reason of ownership of 2016 Bonds. The City will promptly reimburse any 2016 Bond Owner in the full amount of any attorneys fees or other expenses which such Owner may incur in litigation or otherwise in order to enforce such party s rights under the Indenture or the 2016 Bonds, provided that such litigation is concluded favorably to such party s contentions therein. The foregoing indemnification obligations of the City will survive the termination of the Indenture and the resignation or removal of the Trustee. Continuing Disclosure. The City has covenanted and agreed that it will comply with and carry out all of its obligations under the Continuing Disclosure Agreement to be executed and delivered by the City in connection with the issuance of the 2016 Bonds. Notwithstanding any other provision of the Indenture, failure of the City to comply with the Continuing Disclosure Agreement will not be considered an Event of Default; however, any Owner or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with the foregoing obligations. For purposes of the Indenture, Beneficial Owner means any person which has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any 2016 Bonds (including persons holding 2016 Bonds through nominees, depositories or other intermediaries). Against Sale or Other Disposition of Property. The City will not enter into any agreement or lease which impairs the operation of the Water System or any part thereof necessary to secure adequate Revenues for the payment of the principal of and interest on the 2016 Bonds, or which would otherwise impair the operation of the Water System. Any real or personal property which has become nonoperative or which is not needed for the efficient and proper operation of the Water System, or any material or equipment which has become worn out, may be sold so long as such sale will not impair the ability of the City to pay the principal of and interest on the 2016 Bonds and if the proceeds of such sale are deposited in the Revenue Fund. Nothing in the Indenture restricts the ability of the City to sell any portion of the Water System so long as such portion is immediately repurchased by the City, and so long as such arrangement cannot by its terms result in the purchaser of such portion of the Water System exercising any remedy which would deprive the City of, or otherwise interfere with, its right to own and operate such portion of the Water System. Against Competitive Facilities. To the extent that it can so legally obligate itself, the City has covenanted that it will not acquire, construct, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any person whomsoever to acquire, construct, maintain or operate within the Water Service area any water system competitive with the Water System. Maintenance and Operation of the Water System. The City will maintain and preserve the Water System in good repair and working order at all times, operate the Water System in an efficient and economical manner and pay all Operation and Maintenance Costs as they become due and payable. B-20

253 Payment of Claims. The City will pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the funds or accounts created under the Indenture or on any funds in the hands of the City pledged to pay the principal of or interest on the 2016 Bonds or to the Owners prior or superior to the lien under the Indenture. Payment of Taxes and Compliance with Governmental Regulations. The City will pay and discharge all taxes, assessments and other governmental charges which may be lawfully imposed upon the Water System or any part thereof or upon the Revenues when the same become due. The City will duly observe all valid regulations and requirements of any governmental authority relative to the operation of the Water System, or any part thereof, but the City is not required to comply with any regulations or requirements so long as the validity or application thereof is contested in good faith. Collection of Rates and Charges. The City will have in effect at all times by laws, rules and regulations requiring each customer to pay the rates and charges applicable to the Water Service and providing for the billing thereof and for a due date and a delinquency date for each bill. Enforcement of Contracts. The City will not voluntarily consent to or permit any rescission of, nor will it consent to any amendment to or otherwise take any action under or in connection with, any contracts previously or later entered into if such rescission or amendment would in any manner impair or adversely affect the ability of the City to pay principal of and interest on the 2016 Bonds. EVENTS OF DEFAULT AND REMEDIES OF 2016 BOND OWNERS Events of Default. The following events are Events of Default under the Indenture: (a) Default by the City in the due and punctual payment of the principal of any 2016 Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as the same become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by acceleration or otherwise. (b) Default by the City in the due and punctual payment of any installment of interest on any 2016 Bonds, any installment of interest on any Bond or any installment of interest with respect to any Contract, when and as the same become due and payable. (c) Default by the City in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the 2016 Bonds, or required by any Bond or indenture relating thereto or by any Contract, if such default continues for a period of 60 days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the City by the Trustee or by the Owners of not less than a majority in aggregate principal amount of 2016 Bonds Outstanding, a majority in principal amount of such Bonds outstanding, or a majority in principal amount outstanding with respect to such Contract, as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the notice can be corrected, but not within such 60 day period, and corrective action is instituted by the City within such 60 day period and diligently pursued in good faith until the default is corrected, such default will not be an Event of Default. (d) The City files a petition or answer seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if a court of competent jurisdiction approves a petition filed with or without the consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any other applicable law of the United States of America or any state therein, or if under the provisions of any other law for the relief or aid of debtors any court of competent jurisdiction assumes custody or control of the City or of the whole or any substantial part of its property. (e) with its terms. Payment of the principal of any Bond or with respect to any Contract is accelerated in accordance Remedies Upon Event of Default. If any Event of Default specified in the Indenture occurs and is continuing, the Trustee will at the written direction of the Insurer, or may with the written consent of the Insurer, in B-21

254 each case provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, and upon being indemnified to its reasonable satisfaction therefor, upon notice in writing to the City and the Insurer, declare the principal of all of the 2016 Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same will become and be immediately due and payable, anything in the Indenture or in the 2016 Bonds contained to the contrary notwithstanding. So long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default of its obligations thereunder, the Insurer may elect, in its sole discretion, to pay accelerated principal of the Insured Bonds and interest accrued on such principal to the date of acceleration (to the extent unpaid by the City), and the Trustee will be required to accept such amounts. Upon payment in full of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer s obligations under the Insurance Policy with respect to such Insured Bonds will be fully discharged. Nothing contained in the Indenture permits or requires the Trustee to accelerate payments due under the Indenture if the City is not in default of its obligation thereunder. 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 has been obtained or entered, the City or the Insurer deposits with the Trustee a sum sufficient to pay all of the principal of and installments of interest on the 2016 Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective 2016 Bonds to the extent permitted by law, and the reasonable charges and expenses of the Trustee and the Insurer, or deposits with the applicable trustee with respect to any Contract a sum sufficient to pay all of the principal and installments of interest with respect to such Contract payment of which is overdue, with interest on such overdue principal at the rate borne by such Contract to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Contract, or deposits with the applicable trustee with respect to any Bond a sum sufficient to pay all of the principal of and installments of interest on such Bond payment of which is overdue, with interest on such overdue principal at the rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of the applicable trustee with respect to such Bonds, and any and all other Events of Default known to the Trustee or the applicable trustee with respect to such Contract or Bonds (other than in the payment of principal of and interest on the 2016 Bonds, payment of principal and interest with respect to such Contract or payment of principal and interest on such Bond, as applicable, due and payable solely by reason of such declaration) has been made good or cured to the satisfaction of the Trustee and the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, or provision deemed by the Trustee to be adequate has been made therefor, then, and in every such case the Trustee will, on behalf of the Insurer and the Owners of all of the 2016 Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment will extend to or affect any subsequent Event of Default, or impair or exhaust any right or power consequent thereon. Application of Revenues and Other Funds After Default. If an Event of Default occurs and is continuing, all Revenues held or thereafter received by the Trustee and all amounts in any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture (other than amounts held in the Rebate Fund and the Rate Stabilization Fund) will be applied in the following order: (a) To the payment of reasonable fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Indenture and any expenses necessary in the opinion of the Trustee to protect the interests of the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, and the Owners of the 2016 Bonds, Contract or Bonds; (b) To the payment of Operation and Maintenance Costs; and (c) To the payment of the principal of and interest then due on the 2016 Bonds (upon presentation of the 2016 Bonds to be paid, and stamping or otherwise noting thereon of the payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions of the Indenture, the payment of the principal and interest then due with respect to such Contract in accordance with the provisions thereof and the payment of the principal of and interest then due on such Bonds in accordance with the provisions thereof and of any indenture related thereto, in the following order of priority: B-22

255 First: To the payment to the persons entitled thereto of all installments of interest then due on the 2016 Bonds, with respect to such Contract or on such Bonds, as applicable, in the order of the maturity of such installments, and, if the amount available is not sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; Second: To the payment to the persons entitled thereto of the unpaid principal of any 2016 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable, which have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate of 8% per annum, and, if the amount available is not sufficient to pay in full all the 2016 Bonds, all amounts due under such Contract or all of the Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the persons entitled thereto, without any discrimination or preference; Third: To the payment of any amounts owed to the Insurer under the Indenture in connection with the Insurance Policy or the Reserve Policy, including but not limited to Policy Costs; and City. Fourth: If there is any remainder after the foregoing payments, such remainder will be paid to the Trustee to Represent 2016 Bond Owners. The Trustee has been irrevocably appointed (and the successive respective Owners of the 2016 Bonds, by taking and holding the same, will be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful attorney in fact of the Owners of the 2016 Bonds for the purpose of exercising and prosecuting on their behalf such rights and remedies as may be available to such Owners under the provisions of the 2016 Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2016 Bond Owners, the Trustee in its discretion may, and upon the written request of the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, or the Owners of a majority in aggregate principal amount of the 2016 Bonds then Outstanding, and upon being indemnified to its satisfaction therefor, will proceed to protect or enforce its rights or the rights of the Insurer and such Owners by such appropriate action, suit, mandamus or other proceedings as it deems most effectual to protect and enforce any such right, at law or in equity, either for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the execution of any power granted in the Indenture, or for the enforcement of any other appropriate legal or equitable right or remedy vested in the Trustee or in the Insurer and such Owners under the 2016 Bonds or the Indenture or any law; and upon instituting such proceeding, the Trustee will be entitled, as a matter of right, to the appointment of a receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings. All rights of action under the Indenture or the 2016 Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the 2016 Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in the name of the Trustee for the benefit and protection of the Insurer and all of the Owners of such 2016 Bonds, subject to the provisions of the Indenture Bond Owners Direction of Proceedings. The Owners of a majority in aggregate principal amount of the 2016 Bonds then Outstanding have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee under the Indenture, provided that such direction must be in accordance with law and the provisions of the Indenture, and that the Trustee has the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to 2016 Bond Owners not parties to such direction. Suit by Owners. No Owner of any 2016 Bonds has the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Indenture with respect to such 2016 Bonds, unless: (a) such Owners have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of not less than 50% in aggregate principal amount of the 2016 Bonds then Outstanding have made written request upon the Trustee to exercise the powers granted in the Indenture or to institute such suit, action or proceeding in its own name; (c) such Owner or Owners have tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee has failed B-23

256 to comply with such request for a period of 60 days after such written request has been received by, and said tender of indemnity has been made to, the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Owners of a majority in aggregate principal amount of the 2016 Bonds then Outstanding. Such notification, request, tender of indemnity and refusal or omission are, in every case, conditions precedent to the exercise by any Owner of 2016 Bonds of any remedy under the Indenture or under law; it being understood and intended that no one or more Owners of 2016 Bonds have any right in any manner whatever by their actions to affect, disturb or prejudice the security of the Indenture or the rights of any other Owners of 2016 Bonds, or to enforce any right under the 2016 Bonds, the Indenture, or applicable law with respect to the 2016 Bonds, except in the manner provided in the Indenture, and that all proceedings at law or in equity to enforce any such right will be instituted, had and maintained in the manner provided in the Indenture and for the benefit and protection of all Owners of the Outstanding 2016 Bonds, subject to the provisions of the Indenture. Absolute Obligation of the City. Nothing in the Indenture or in the 2016 Bonds affects or impairs the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the 2016 Bonds to the respective Owners of the 2016 Bonds at their respective dates of maturity, or upon call for redemption, as provided in the Indenture, but only out of the Revenues and other assets pledged therefor in the Indenture, or affects or impairs the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the 2016 Bonds. Remedies Not Exclusive. No remedy conferred upon or reserved to the Trustee or to the Owners of the 2016 Bonds in the Indenture is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, will be cumulative and in addition to any other remedy given under the Indenture or now or later existing at law or in equity or otherwise. No Waiver of Default. No delay or omission of the Trustee or of any Owner of the 2016 Bonds to exercise any right or power arising upon the occurrence of any Event of Default will impair any such right or power or be construed to be a waiver of any such Event of Default or an acquiescence therein. So long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default of its obligations thereunder, no default or Event of Default may be waived without the Insurer s express written consent. Insurer s Rights. Anything in the Indenture to the contrary notwithstanding, so long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default of its obligations thereunder, upon the occurrence and continuance of an Event of Default, the Insurer will be deemed to be the sole holder of the Insured Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the 2016 Bonds are entitled to take pursuant hereto pertaining to: (a) defaults and remedies; and (b) the duties and obligations of the Trustee. In furtherance thereof and as a term of the Indenture and of the Insured Bonds, the Trustee and each Insured Bond Owner have appointed the Insurer as their agent and attorney-in-fact and agree that, so long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder, the Insurer may at any time during the continuation of any Insolvency Proceeding direct all matters relating to such Insolvency Proceeding, including without limitation: (A) all matters relating to any claim or enforcement proceeding in connection with an Insolvency Proceeding (a Claim ); (B) the direct of any appeal of any order relating to any Claim; (C) the posting of any surety, supersedeas or performance bond pending any such appeal; and (D) the right to vote to accept or reject any plan of adjustment. In the addition, the Trustee and each Insured Bond Owner have delegated and assigned to the Insurer, to the fullest extent permitted by law, the rights of the Trustee with respect to Insured Bonds and Insured Bond Owners in the conduct of any Insolvency Proceeding, including, without limitation, all rights of any party to an adversary proceeding or action with respect to any court order issued in connection with any such Insolvency Proceeding. So long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default of its obligations thereunder, the Trustee may not waive any Event of Default or accelerate the 2016 Bonds without the Insurer s written consent. B-24

257 Duties, Immunities and Liabilities of Trustee. THE TRUSTEE (a) The Trustee will, prior to an Event of Default, and after the curing or waiving of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in the Indenture, and no implied covenants or duties will be read into the Indenture against the Trustee. The Trustee will, during the existence of any Event of Default (which has not been cured or waived), exercise such of the rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person s own affairs. (b) The City may, with the written consent of the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, remove the Trustee at any time, unless an Event of Default has occurred and is then continuing, and, with the written consent of the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, will remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the 2016 Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee ceases to be eligible in accordance with the Indenture or becomes incapable of acting, or is adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property is appointed, or any public officer takes control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. The City will thereafter promptly appoint a successor Trustee by an instrument in writing. (c) The Trustee may at any time resign by providing a 45-day written notice of such resignation to the City and the Insurer and by giving the 2016 Bond Owners notice of such resignation by first class mail at the addresses shown on the Registration Books. Upon receiving such notice of resignation, the City will promptly appoint a successor Trustee acceptable to the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, by an instrument in writing. (d) Any removal or resignation of the Trustee and appointment of a successor Trustee will become effective upon acceptance of appointment by the successor Trustee. If no successor Trustee has been appointed and accepted appointment within 45 days of giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any 2016 Bond Owner (on behalf of such Owner and all other 2016 Bond Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under the Indenture will signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, will become vested with all of the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee in the Indenture; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee will execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all of the right, title and interest of such predecessor Trustee in and to any property held by it under the Indenture and will pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions set forth in the Indenture. Upon request of the successor Trustee, the City will execute and deliver any and all instruments as may be reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in the Indenture, the City will mail or cause the successor trustee to mail a notice of the succession of such Trustee to the trusts under the Indenture to each rating agency which is then rating the 2016 Bonds and to the 2016 Bond Owners at the addresses shown on the Registration Books. If the City fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee will cause such notice to be mailed at the expense of the City. The Trustee s rights to indemnity and reimbursement of outstanding fees and expenses will survive the Trustee s resignation or removal. B-25

258 (e) Any Trustee appointed under the provisions of the Indenture in succession to the Trustee must be a trust company, banking association or bank having the powers of a trust company, having a combined capital and surplus of at least $75,000,000, and subject to supervision or examination for federal or state authority, or an entity otherwise approved by the Insurer in writing, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder. If such bank, banking association or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purpose of the Indenture the combined capital and surplus of such trust company, banking association or bank will be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee ceases to be eligible in accordance with the provisions of the Indenture, the Trustee will resign immediately in the manner and with the effect specified in the Indenture. Merger or Consolidation. Any trust company, banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated, or any trust company, banking association or bank resulting from any merger, conversion or consolidation to which it is a party, or any trust company, banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided that such trust company, banking association or bank is eligible under the Indenture, will be the successor to such Trustee, without the execution or filing of any paper or any further act, anything in the Indenture to the contrary notwithstanding. Liability of Trustee. (a) The recitals of facts in the Indenture and in the 2016 Bonds will be taken as statements of the City, and the Trustee does not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of the Indenture or the 2016 Bonds, nor will the Trustee incur any responsibility in respect thereof, other than as expressly stated in the Indenture in connection with the respective duties or obligations therein or in the 2016 Bonds assigned to or imposed upon it. The Trustee is, however, responsible for its representations contained in its certificate of authentication on the 2016 Bonds. The Trustee will not be liable in connection with the performance of its duties under the Indenture, except for its own negligence or willful misconduct. The Trustee may become the Owner of 2016 Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of 2016 Bond Owners, whether or not such committee represents the Owners of a majority in principal amount of the 2016 Bonds then Outstanding. (b) The Trustee is not liable for any error of judgment made in good faith by a responsible officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee is not liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority (or such other percentage provided for in the Indenture) in aggregate principal amount of the 2016 Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under the Indenture. (d) The Trustee is not liable for any action taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by the Indenture. (e) The Trustee will not be deemed to have knowledge of any default or Event of Default under the Indenture or any other event which, with the passage of time, the giving of notice, or both, would constitute an Event of Default under the Indenture unless and until a Responsible Officer of the Trustee has actual knowledge of such event or the Trustee has been notified in writing, in accordance with the Indenture, of such event by the City or the Owners of not less than 50% of the 2016 Bonds then Outstanding. In the absence of such notice, the Trustee may conclusively assume that no Event of Default exists. Except as otherwise expressly provided in the Indenture, the Trustee is not bound to ascertain or inquire as to the performance or observance by the City of any of the terms, conditions, covenants or agreements of the Indenture, any of the documents executed in connection with the 2016 Bonds or the existence of an Event of Default thereunder or an event which would, with the giving of notice, the B-26

259 passage of time, or both, constitute an Event of Default thereunder. The Trustee is not responsible for the validity, effectiveness or priority of any collateral given to or held by it. (f) No provision of the Indenture requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties thereunder, or in the exercise of any of its rights or powers. (g) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the Indenture, unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. No permissive power, right or remedy conferred upon the Trustee under the Indenture will be construed to impose a duty to exercise such power, right or remedy. (h) Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to all provisions of the Indenture. (i) The Trustee has no responsibility or liability with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the 2016 Bonds. agents. (j) The immunities extended to the Trustee also extend to its directors, officers, employees and (k) The Trustee may execute any of the trusts or powers of the Indenture and perform any of its duties through attorneys, agents and receivers and is not answerable for the negligence or willful misconduct of any attorney, agent or receiver if appointed by it with reasonable care. (l) The Trustee will not be considered in breach of or in default in its obligations under the Indenture or progress in respect thereto in the event of enforced delay ( unavoidable delay ) in the performance of such obligations due to unforeseeable causes beyond its control and without its willful misconduct or negligence, including, but not limited to, Acts of God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the Water System, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (m) The Trustee has agreed to accept and act upon instructions or directions pursuant to the Indenture sent by unsecured electronic mail, facsimile transmission or other similar unsecured electronic methods, provided, however, that, the Trustee must have received an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate will be amended and replaced whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee s understanding of such instructions will be deemed controlling. The Trustee is not liable for any losses, costs or expenses arising directly or indirectly from the Trustee s reliance upon and compliance with such instructions notwithstanding the fact that such instructions conflict or are inconsistent with a subsequent written instruction. The City has agreed to assume all risks arising out of the use of such electronic methods to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk of interception and misuse by third parties. (n) The Trustee is not responsible for the application of the 2016 Bond proceeds, for the use or application of any property or for any moneys which are released or withdrawn in accordance with the provisions of the Indenture. B-27

260 (o) The Trustee is under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Owners pursuant to the provisions of the Indenture unless such Owners have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (p) The permissive right of the Trustee to do things enumerated in the Indenture will not be construed as a duty, and the Trustee is not answerable for other than its negligence or willful misconduct. (q) Under no circumstances will the Trustee be liable in its individual capacity (as opposed to its capacity as Trustee under the Indenture) for the obligations evidenced by the 2016 Bonds. Right to Rely on Documents. The Trustee will be protected in acting upon any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes, direction, facsimile transmission, electronic mail or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it under the Indenture in good faith and in accordance therewith. The Trustee may treat the Owners of the 2016 Bonds appearing in the Trustee s Registration Books as the absolute owners of the 2016 Bonds for all purposes and the Trustee will not be affected by any notice to the contrary. Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee deems it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the Indenture, such matter (unless other evidence in respect thereof is specifically prescribed in the Indenture) may be deemed to be conclusively proved and established by a Certificate, Request or Requisition of the City, and such Certificate, Request or Requisition will be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of the Indenture will be retained in the Trustee s possession and will be subject at all reasonable times to the inspection of the City and any 2016 Bond Owner, and their agents and representatives duly authorized in writing, at reasonable hours and under reasonable conditions. Compensation and Indemnification. The City will pay to the Trustee from time to time all reasonable compensation for all services and will reimburse the Trustee for all advances and expenditures, including but not limited to advances, fees and all reasonable expenses, charges, legal and consulting fees and other disbursements and those of the Trustee s attorneys, agents and employees, incurred in and about the performance of their powers and duties under the Indenture. The City will indemnify, defend and hold harmless the Trustee, its officers, employees, directors and agents from and against any loss, costs, claims, liability or expense (including fees and expenses of its attorneys and advisors) incurred without negligence or willful misconduct on its part, arising out of or in connection with the execution of the Indenture, acceptance or administration of the trust therein, including costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers thereunder. The rights of the Trustee and the obligations of the City under the foregoing provisions will survive removal or resignation of the Trustee or the discharge of the 2016 Bonds and the Indenture. B-28

261 Amendments Permitted. MODIFICATION OR AMENDMENT OF THE INDENTURE (a) The Indenture and the rights and obligations of the City, the Owners of the 2016 Bonds and the Trustee may be modified or amended from time to time and at any time by an indenture or indentures supplemental thereto, which the City and the Trustee may enter into when the prior written consent of the Insurer, provided that Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, and the Owners of a majority in aggregate principal amount of all 2016 Bonds then Outstanding, exclusive of 2016 Bonds disqualified as provided in the Indenture, have been filed with the Trustee. No such modification or amendment may: (1) extend the fixed maturity of any 2016 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend the time of payment, or change the rate of interest or the method of computing the rate of interest thereon, extend the time of payment of interest thereon or adversely affect the rights and interest of the Insurer, without the prior written consent of the Insurer, provided that the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, and the Owner of each 2016 Bond so affected; or (2) reduce the aforesaid percentage of 2016 Bonds the consent of the Owners of which is required to affect any such modification or amendment, or permit the creation of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the 2016 Bonds of the lien created by the Indenture on such Revenues and other assets except as permitted in the Indenture, without the consent of the Owners of all of the 2016 Bonds then Outstanding. It is not necessary for the consent of the Insurer, if required, or the 2016 Bond Owners to approve the particular form of any Supplemental Indenture, but it is sufficient if such consent approves the substance thereof. Promptly after the execution by the City and the Trustee of any Supplemental Indenture pursuant to the foregoing provisions, the Trustee will mail a notice, setting forth in general terms the substance of such Supplemental Indenture, to each Rating Agency, the Insurer and the Owners of the 2016 Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such Supplemental Indenture. (b) The Indenture and the rights and obligations of the City, the Trustee and the Owners of the 2016 Bonds may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any 2016 Bond Owners or the Insurer, if the Trustee receives an opinion of Bond Counsel to the effect that the provisions of such Supplemental Indenture do not materially adversely affect the interests of the Owners of the Outstanding 2016 Bonds, including, without limitation, for any one or more of the following purposes: (1) to add to the covenants and agreements of the City contained in the Indenture other covenants and agreements thereafter to be observed, to pledge or assign additional security for the 2016 Bonds (or any portion thereof), or to surrender any right or power reserved to or conferred upon the City in the Indenture; (2) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the City may deem necessary or desirable; (3) to modify, amend or supplement the Indenture in such manner as to permit the qualification of the Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute, and to add such other terms conditions and provisions as may be permitted by said act or similar federal statute; and (4) to modify, amend or supplement the Indenture in such manner as to cause interest on the 2016 Bonds to remain excludable from gross income under the Code. (c) The Trustee may in its discretion, but is not obligated to, enter into any such Supplemental Indenture authorized by the Indenture which materially adversely affects the Trustee s own rights, duties or immunities under the Indenture or otherwise. (d) Prior to the Trustee entering into any Supplemental Indenture, there will be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the exclusion of interest on the 2016 Bonds from federal income taxation and from state income taxation. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to the Indenture, the Indenture will be deemed to be modified and amended in accordance therewith, and the respective B-29

262 rights, duties and obligations under the Indenture of the City, the Trustee and all Owners of 2016 Bonds Outstanding will thereafter be determined, exercised and enforced thereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture will be deemed to be part of the terms and conditions of the Indenture for any and all purposes. Endorsement of 2016 Bonds; Preparation of New 2016 Bonds Bonds delivered after the execution of any Supplemental Indenture pursuant to the Indenture may, and if the Trustee so determines will, bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand on the Owner of any 2016 Bonds Outstanding at the time of such execution and presentation of his or her 2016 Bonds for the purpose at the Office of the Trustee or at such additional offices as the Trustee may select and designate for that purpose, a suitable notation is made on such 2016 Bonds. If the Supplemental Indenture so provides, new 2016 Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, will be prepared and executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2016 Bonds then Outstanding will be exchanged at the Office of the Trustee, without cost to any 2016 Bond Owner, for 2016 Bonds then Outstanding, upon surrender for cancellation of such 2016 Bonds, in equal aggregate principal amount of the same maturity. Amendment of Particular 2016 Bonds. The provisions of the Indenture do not prevent any 2016 Bond Owner from accepting any amendment as to the particular 2016 Bonds held by such Owner. DEFEASANCE Discharge of Indenture. The 2016 Bonds may be paid by the City in any of the following ways, provided that the City also pays or causes to be paid any other sums payable under the Indenture by the City: (a) by paying or causing to be paid the principal of and interest and redemption premiums (if any) on the 2016 Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, money or securities in the necessary amount (as provided in the Indenture) to pay or redeem all 2016 Bonds then Outstanding; or (c) by delivering to the Trustee, for cancellation by it, all of the 2016 Bonds then Outstanding. If the City also pays or causes to be paid all other sums payable under the Indenture by the City, then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with the Trustee and the Insurer, provided that the Insurance Policy is in full force and effect and the Insurer is not in default thereunder, signifying the intention of the City to discharge all such indebtedness and the Indenture), and notwithstanding the fact that any 2016 Bonds have not been surrendered for payment, the Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants, agreements and other obligations of the City under the Indenture will cease, terminate, become void and be completely discharged and satisfied. In such event, upon the Written Request of the City, the Trustee will execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee will pay over, transfer, assign or deliver all moneys or securities or other property held by it pursuant to the Indenture which are not required for the payment or redemption of 2016 Bonds not theretofore surrendered for such payment or redemption to the City. Discharge of Liability on 2016 Bonds. Upon the deposit with the Trustee, in trust, at or before maturity, of money or securities in the necessary amount (as provided in the Indenture) to pay or redeem any Outstanding 2016 Bonds (whether upon or prior to the maturity or the Redemption Date of such 2016 Bonds), provided that, if such Outstanding 2016 Bonds are to be redeemed prior to maturity, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice, then all liability of the City in respect of such 2016 Bonds will cease, terminate and be completely discharged, and the Owners thereof will thereafter be entitled only to payment out of such money or securities deposited with the Trustee as aforesaid for their payment, subject however, to the provisions of the Indenture. The City may at any time surrender to the Trustee for cancellation by it any 2016 Bonds previously issued and delivered, which the City may have acquired in any manner whatsoever, and such 2016 Bonds, upon such surrender and cancellation, will be deemed to be paid and retired. B-30

263 Notwithstanding the foregoing, so long as the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder, the Indenture will not cease, terminate and become void as to Insured Bonds in accordance with the Indenture unless there has been delivered to the Insurer: (1) a report of an Independent Certified Public Accountant or such other accountant as is acceptable to the Insurer verifying the sufficiency of the escrow, if any, established to pay the Insured Bonds in full on the maturity or redemption date ( Verification ); (2) an escrow deposit agreement (which will be acceptable in form and substance to the Insurer); (3) an opinion of nationally recognized bond counsel to the effect that the Insured Bonds are no longer Outstanding under the Indenture; and (4) a certificate of discharge of the Trustee with respect to the Insured Bonds; each Verification and defeasance opinion must be acceptable in form and substance, and addressed, to the City, the Trustee and the Insurer. The Insurer will be provided with final drafts of the above referenced documentation not less than five Business Days prior to the funding of the escrow. Insured Bonds will remain Outstanding under the Indenture unless and until they are in fact paid and retired or the above criteria are met. Amounts paid by the Insurer under the Insurance Policy will not be deemed paid for purposes of the Indneture and the Insured Bonds relating to such payments will remain Outstanding and continue to be due and owing until paid by the City in accordance with the Indenture. The Indenture will not be discharged unless all amounts due or to become due to the Insurer and all Policy Costs owing to the Insurer have been paid in full or duly provided for. The City s obligation to pay such amounts will expressly survive payment in full of the Bonds. Deposit of Money or Securities with Trustee. Whenever in the Indenture it is provided or permitted that there be deposited with or held in trust by the Trustee money or securities in the necessary amount to pay or redeem any 2016 Bonds, the money or securities so to be deposited or held may include money or securities held by the Trustee in the funds and accounts established pursuant to the Indenture and will be: (a) lawful money of the United States of America in an amount equal to the principal amount of such 2016 Bonds and all unpaid interest thereon to maturity, except that, in the case of 2016 Bonds which are to be redeemed prior to maturity and in respect of which notice of such redemption has been given as provided in the Indentureor provisions satisfactory to the Trustee have been made for the giving of such notice, the amount to be deposited or held will be the principal amount of such 2016 Bonds and all unpaid interest and premium, if any, thereon to the Redemption Date; or (b) Federal Securities the principal of and interest on which when due will, in the written opinion of an Independent Certified Public Accountant or Independent Financial Consultant filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the 2016 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due, provided that in the case of 2016 Bonds which are to be redeemed prior to the maturity thereof, notice of such redemption has been given as provided in the Indenture or provisions satisfactory to the Trustee have been made for the giving of such notice; provided, in each case, that: (i) the Trustee will be irrevocably instructed (by the terms of the Indenture or by Written Request of the City) to apply such money to the payment of such principal, interest and premium, if any, with respect to such 2016 Bonds; and (ii) the City will delivered to the Trustee an opinion of Bond Counsel addressed to the City and the Trustee to the effect that such 2016 Bonds have been discharged in accordance with the Indenture (which opinion may rely upon and assume the accuracy of the Independent Certified Public Accountant s or Independent Financial Consultant s opinion referred to above). Payment of 2016 Bonds After Discharge of Indenture. Notwithstanding any provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal of, or interest on, any 2016 Bonds and remaining unclaimed for two years after the principal of all of the 2016 Bonds has become due and payable (whether at maturity or upon call for redemption or by acceleration as provided in the Indenture), if such moneys were so held at such date, or two years after the date of deposit of such moneys if deposited after said date when all of the 2016 Bonds became due and payable, will be repaid to the City free from the trusts created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the Trustee indemnifying the Trustee with respect to claims of Owners of 2016 Bonds which have not yet been paid, and all liability of the Trustee with respect to such moneys will thereupon cease; provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee will at the written direction of the City (at the cost of the City) first mail to the Owners of 2016 Bonds B-31

264 which have not yet been paid, at the addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the 2016 Bonds so payable and not presented and with respect to the provisions relating to the repayment to the City of the moneys held for the payment thereof. MISCELLANEOUS Liability of City Limited to Revenues. Notwithstanding anything in the Indenture or the 2016 Bonds, but subject to the priority of payment with respect to Operation and Maintenance Costs, the City is not required to advance any moneys derived from any source other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of the purposes of the Indenture, whether for the payment of the principal of or interest on the 2016 Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but is not required to, advance for any of the purposes of the Indenture any funds of the City which may be made available to it for such purposes. The obligation of the City to pay interest and principal on the 2016 Bonds is a special obligation of the City payable solely from the Net Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof (other than the City) in contravention of any constitutional or statutory debt limitation or restriction. Successor Is Deemed Included in All References to Predecessor. Whenever in the Indenture either the City or the Trustee is named or referred to, such reference will be deemed to include the successors or assigns thereof, and all of the covenants and agreements in the Indenture contained by or on behalf of the City or the Trustee will bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Limitation of Rights to Parties and 2016 Bond Owners. Nothing in the Indenture or in the 2016 Bonds expressed or implied is intended or will be construed to give to any person other than the City, the Trustee, the Insurer and the Owners of the 2016 Bonds, any legal or equitable right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision therein contained; and all such covenants, conditions and provisions are and will be held to be for the sole and exclusive benefit of the City, the Trustee and the Owners of the 2016 Bonds. Waiver of Notice; Requirement of Mailed Notice. Whenever in the Indenture the giving of notice by mail or otherwise is required, the giving of such notice may be waived in writing by the person entitled to receive such notice, and in any such case the giving or receipt of such notice is not a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in the Indenture any notice is required to be given by mail, such requirement may be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Destruction of 2016 Bonds. Whenever in the Indenture provision is made for the cancellation by the Trustee, the Trustee will cancel and dispose of such 2016 Bonds in a manner deemed appropriate by the Trustee. Severability of Invalid Provisions. If any one or more of the provisions contained in the Indenture or in the 2016 Bonds are for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions will be deemed severable from the remaining provisions contained in the Indenture and such invalidity, illegality or unenforceability will not affect any other provision of the Indenture, and the Indenture will be construed as if such invalid or illegal or unenforceable provision had never been contained in the Indenture. The City has declared that it would have entered into the Indenture and each and every other Section, paragraph, sentence, clause or phrase thereof and authorized the issuance of the 2016 Bonds pursuant thereto irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the Indenture may be held illegal, invalid or unenforceable. Evidence of Rights of 2016 Bond Owners. Any request, consent or other instrument required or permitted by the Indenture to be signed and executed by 2016 Bond Owners may be in any number of concurrent instruments of substantially similar tenor and will be signed or executed by such 2016 Bond Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a B-32

265 writing appointing any such agent, or of the holding by any person of 2016 Bonds transferable by delivery, will be sufficient for any purpose of the Indenture and will be conclusive in favor of the Trustee and the City if made in the manner provided in the Indenture. The fact and date of the execution by any person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the person signing such request, consent or other instrument acknowledged to such notary public or other officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The Ownership of 2016 Bonds will be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any 2016 Bond will bind every future Owner of the same 2016 Bond and the Owner of every 2016 Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon. Disqualified 2016 Bonds. In determining whether the Owners of the requisite aggregate principal amount of 2016 Bonds have concurred in any demand, request, direction, consent or waiver under the Indenture, 2016 Bonds which are known by the Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2016 Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2016 Bonds, will be disregarded and deemed not to be Outstanding for the purpose of any such determination Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of the Indenture if the pledgee establishes to the satisfaction of the Trustee the pledgee s right to vote such 2016 Bonds and that the pledgee is not a person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the 2016 Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel will be full protection to the Trustee. Upon request, the City will certify to the Trustee those 2016 Bonds that are disqualified pursuant to the Indenture and the Trustee may conclusively rely on such certificate. Money Held for Particular 2016 Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular 2016 Bonds (or portions of 2016 Bonds in the case of registered 2016 Bonds redeemed in part only) will, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the 2016 Bonds entitled thereto, subject, however, to the provisions of the Indenture but without any liability for interest thereon. Funds and Accounts. Any fund or account required by the Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts will at all times be maintained in accordance with corporate trust industry standards to the extent practicable, and with due regard for the requirements of the Indenture and for the protection of the security of the 2016 Bonds and the rights of every Owner thereof. Waiver of Personal Liability. No member, officer, agent, employee, consultant or attorney of the City will be individually or personally liable for the payment of the principal of or premium or interest on the 2016 Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing contained in the Indenture relieves any such member, officer, agent, employee, consultant or attorney from the performance of any official duty provided by law or by the Indenture. CUSIP Numbers. Neither the Trustee nor the City is liable for any defect or inaccuracy in the CUSIP number that appears on any 2016 Bond or in any redemption notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect that the CUSIP numbers on the 2016 Bonds have been assigned by an independent service and are included in such notice solely for the convenience of the 2016 Bond Owners and that neither the City nor the Trustee is liable for any inaccuracies in such numbers. Choice of Law. THE INDENTURE WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA. B-33

266 Paired Obligation Provider Guidelines. For purposes of the Indenture, Paired Obligations must comply with the following conditions: (a) A Paired Obligation Provider must initially have a long-term rating of A- or better by S&P and A3 or better by Moody s. (b) So long as the long-term rating of the Paired Obligation Provider is not reduced below Baa2 by S&P or BBB by Moody s, the interest rate of such Paired Obligation will be deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of the Indenture. In the event that a Paired Obligation Provider does not maintain the Minimum Rating Requirement and the City does not replace such Paired Obligation Provider with another Paired Obligation Provider which maintains the Initial Rating Requirement within ten Business Days of notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement, interest with respect to such Paired Obligations will be computed for purposes of the Indenture without regard to payments to be received from the Paired Obligation Provider. Insurer as Third Party Beneficiary; Notices to Insurer. The Insurer is explicitly recognized as and will be deemed to be an Insured Bond Owner entitled to all notices provided to Insured Bond Owners and a third party beneficiary of the Indenture. The rights granted to the Insurer under the Indenture to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer s contractual rights and will not be construed or deemed to be taken for the benefit, or on behalf, of the Insured Bond Owners, and such action does not evidence any position of the Insurer, affirmative or negative, as to whether the consent of the Insured Bond Owners or any other person is required in addition to the consent of the Insurer. So long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder, the Insurer will be provided with the following information by the City or the Trustee, as the case may be: (i) annual audited financial statements within 270 days after the end of the City s Fiscal Year (together with a certification of the City that it is not aware of any default or Event of Default under the Indenture), and the City s annual budget within 30 days after the approval thereof, together with such other information, data or reports as the Insurer will reasonably request from time to time; thereof; (ii) Notice of any default known to the Trustee or the City within five Business Days after knowledge (iii) Prior notice of the advance refunding or redemption of the 2016 Bonds, including the principal amount, maturities and CUSIP numbers thereof; (iv) Notice of the resignation or removal of the Trustee and the appointment of, and acceptance of duties by, any successor thereto; (v) Notice of the commencement of any proceeding by or against the City commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an Insolvency Proceeding ); (vi) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of or interest on the 2016 Bonds; (vii) A full original transcript of all proceedings relating to the execution of any amendment, supplement, or waiver to the Indenture; and (viii) the Indenture. All reports, notices and correspondence to be delivered to 2016 Bond Owners under the terms of B-34

267 In addition, so long as Insured Bonds are Outstanding and the Insurance Policy is in full force and effect and the Insurer has not defaulted on its obligations thereunder: (1) all information furnished pursuant to the Continuing Disclosure Agreement entered into in connection with the delivery of the 2016 Bonds will also be provided to the Insurer, simultaneously with the furnishing of such information; provided that the City s filing of such information with the Municipal Securities Rulemaking Board s Electronic Municipal Market Access system in accordance with the Continuing Disclosure Agreement will constitute compliance with the foregoing obligation. The Insurer has the right to receive such additional information as it may reasonably request; (2) the City will permit the Insurer to discuss the affairs, finances and accounts of the City or any information that the Insurer may reasonably request regarding the security for the 2016 Bonds with appropriate officers of the City and will use commercially reasonable efforts to enable the Insurer to have access to the facilities, books and records of the City on any Business Day upon reasonable prior notice; (3) the Trustee will notify the Insurer of any failure of the City to provide notices, certificates and other information under the Indenture; (4) in determining whether any amendment, consent, waiver or other action to be taken, or any failure to take action, under the Indenture would adversely affect the security for the 2016 Bonds or the rights of the 2016 Bond Owners, the Trustee will consider the effect of any such amendment, consent, waiver, action or inaction as if there were no Insurance Policy; (5) Each of the City and the Trustee have covenanted and agreed to take such action (including, as applicable, filing of Uniform Commercial Code financing statements and continuations thereof) as is necessary from time to time to preserve the priority of the pledge of the Trust Estate under applicable law; and (6) no contract may be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the 2016 Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer. B-35

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269 APPENDIX C FORM OF OPINION OF BOND COUNSEL Upon issuance of the 2016 Bonds, Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: City of Ukiah 300 Seminary Avenue Ukiah, California March, 2016 Re: City of Ukiah Water Revenue Refunding Bonds, Series 2016 Members of the City Council: We have examined a certified copy of the record of the proceedings of the City of Ukiah (the City ) relative to the issuance of the $ City of Ukiah Water Revenue Refunding Bonds, Series 2016 (the 2016 Bonds ), dated the date hereof, and such other information and documents as we consider necessary to render this opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchaser of the 2016 Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The 2016 Bonds are being issued pursuant to an Indenture of Trust, dated as of March 1, 2016 (the Indenture ), by and between the City and Wells Fargo Bank, National Association, as trustee (the Trustee ). The 2016 Bonds mature on the dates and in the amounts referenced in the Indenture. The 2016 Bonds are dated their date of delivery and bear interest at the rates per annum referenced in the Indenture. The 2016 Bonds are registered in the form set forth in the Indenture. Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under existing law, that: 1. The proceedings of the City show lawful authority for the issuance and sale of the 2016 Bonds under the laws of the State of California now in force and the Indenture has been duly authorized, executed and delivered by the City. Assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2016 Bonds and the Indenture are valid and binding obligations of the City enforceable against the City in accordance with their terms. 2. The obligation of the City to make the payments of principal of and interest on the 2016 Bonds from Net Revenues (as such term is defined in the Indenture) is an enforceable obligation of the City and does not constitute an indebtedness of the City in contravention of any constitutional or statutory debt limit or restriction. 3. Under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest (and original issue discount) on the 2016 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals and corporations. It should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of such corporations. C-1

270 4. Interest (and original issue discount) on the 2016 Bonds is exempt from State of California personal income tax. 5. The amount by which a 2016 Bond Owner s original basis for determining loss on sale or exchange in the applicable 2016 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the Internal Revenue Code of 1986, as amended (the Code ); such amortizable bond premium reduces the 2016 Bond Owner s basis in the applicable 2016 Bond (and the amount of tax-exempt interest received), and is not deductible for federal income tax purposes. The basis reduction as a result of the amortization of 2016 Bond premium may result in a 2016 Bond Owner realizing a taxable gain when a 2016 Bond is sold by the Owner for an amount equal to or less (under certain circumstances) than the original cost of the 2016 Bond to the Owner. Purchasers of the 2016 Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of amortizable bond premium. 6. The difference between the issue price of a 2016 Bond (the first price at which a substantial amount of the 2016 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity of such 2016 Bond constitutes original issue discount. Original issue discount accrues under a constant yield method, and original issue discount will accrue to a 2016 Bond Owner before receipt of cash attributable to such excludable income. The amount of original issue discount deemed received by a 2016 Bond Owner will increase the 2016 Bond Owner s basis in the applicable 2016 Bond. The amount of original issue discount that accrues to the Owner of a 2016 Bond is excluded from the gross income of such 2016 Bond Owner for federal income tax purposes, is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and is exempt from State of California personal income tax. The opinions expressed herein as to the exclusion from gross income of interest on the 2016 Bonds are based upon certain representations of fact and certifications made by the City and are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2016 Bonds to assure that such interest (and original issue discount) on the 2016 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original issue discount) on the 2016 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2016 Bonds. The City has covenanted to comply with all such requirements. The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement ends as of the date of issuance of the 2016 Bonds. The Indenture and the Tax Certificate relating to the 2016 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect on the exclusion from gross income of interest (and original issue discount) on the 2016 Bonds for federal income tax purposes with respect to any 2016 Bond if any such action is taken or omitted based upon the opinion or advice of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the 2016 Bonds. The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Indenture and the 2016 Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. Our opinion is limited to matters governed by the laws of the State of California and federal law. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. C-2

271 We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement relating to the 2016 Bonds or other offering material relating to the 2016 Bonds and expressly disclaim any duty to advise the owners of the 2016 Bonds with respect to matters contained in the Official Statement. Respectfully submitted, C-3

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273 APPENDIX D INFORMATION CONCERNING DTC The information in this section concerning DTC and DTC s book entry only system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2016 Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the 2016 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the 2016 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company ( DTC ), New York, NY, will act as securities depository for the 2016 Bonds. The 2016 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered 2016 Bond will be issued for each annual maturity of the 2016 Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC is rated AA+ by Standard & Poor s. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of 2016 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the 2016 Bonds on DTC s records. The ownership interest of each actual purchaser of each 2016 Bonds ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 2016 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive bonds representing their ownership interests in 2016 Bonds, except in the event that use of the book entry system for the 2016 Bonds is discontinued. To facilitate subsequent transfers, all 2016 Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of 2016 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no D-1

274 knowledge of the actual Beneficial Owners of the 2016 Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such 2016 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of 2016 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2016 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2016 Bonds documents. For example, Beneficial Owners of 2016 Bonds may wish to ascertain that the nominee holding the 2016 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the 2016 Bonds within a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to 2016 Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts 2016 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the 2016 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A 2016 Bond Owner shall give notice to elect to have its 2016 Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such 2016 Bond by causing the Direct Participant to transfer the Participant s interest in the 2016 Bonds, on DTC s records, to the Trustee. The requirement for physical delivery of 2016 Bond in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the 2016 Bond are transferred by Direct Participants on DTC s records and followed by a book entry credit of tendered 2016 Bond to the Trustee s DTC account. DTC may discontinue providing its services as depository with respect to the 2016 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book entry only transfers through DTC (or a successor securities depository). In that event, 2016 Bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK ENTRY ONLY SYSTEM IS USED FOR THE 2016 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC D-2

275 PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2016 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. D-3

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277 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT Upon issuance of the 2016 Bonds, the City proposes to enter into a Continuing Disclosure Agreement in substantially the following form: This Continuing Disclosure Agreement (the Disclosure Agreement ), dated March 1, 2016, is executed and delivered by the City of Ukiah (the City ) and Wells Fargo Bank, National Association, as dissemination agent (the Dissemination Agent ), in connection with the issuance of the $11,155,000 City of Ukiah Water Revenue Refunding Bonds, Series 2016 (the Bonds ). The Bonds are being issued pursuant to provisions of an Indenture of Trust, dated as of March 1, 2016 (the Indenture ), by and between the City and Wells Fargo Bank, National Association, as trustee (the Trustee ). The City and the Dissemination Agent covenant and agree as follows: Section 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the City and the Dissemination Agent for the benefit of the Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with SEC Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report or any addendum thereto provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Beneficial Owner shall mean any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes. Disclosure Representative shall mean the Finance Director of the City or his or her designee, or such other officer or employee as the City shall designate in writing to the Trustee and Dissemination Agent from time to time. Dissemination Agent shall mean Wells Fargo Bank, National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the City and which has filed with the Trustee a written acceptance of such designation. Fiscal Year shall mean the one-year period ending on the last day of June of each year, or any other period selected as the City s fiscal year. In the event of a change in the City s Fiscal Year, the City shall give notice of such change in the same manner as for a Listed Event under Section 5(a) Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board established pursuant to Section 15B(b)(1) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at Official Statement shall mean the Official Statement dated February 18, 2016 relating to the Bonds. E-1

278 Participating Underwriter shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule shall mean Rule 15c2-12(b)(5) adopted by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time. SEC shall mean the United States Securities and Exchange Commission. State shall mean the State of California. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than each April 1 following the end of the City s Fiscal Year, commencing April 1, 2017, provide to the MSRB and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the City shall provide the Annual Report to the Dissemination Agent. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall notify the City of such failure to receive the Annual Report. The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice of a failure to file to the MSRB in the form of Exhibit A. (d) The Dissemination Agent shall, to the extent information is known to it, file a report with the City and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. Section 4. Content of Annual Reports. The City s Annual Report shall contain or include by reference the following information (unless otherwise stated, such information shall be as of the end of the most recent fiscal year and shall be with respect to the City): (a) The audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available; (b) Principal amount of the Bonds outstanding; (c) Number of connections to the Water System in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY The Water System Historic Water System Connections; E-2

279 (d) Water production in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY The Water System Historic Water Production in Acre Feet; (e) Amount of residential, commercial and total water sales in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY The Water System Historic Water Sales in Acre-Feet; (f) Water sales revenues in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY The Water System Historic Water Sales Revenues; (g) Ten largest Water System customers in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY Largest Water System Customers; (h) Information on any Water System rate increases in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY Water System Rates and Charges Water Consumption Rate per Hundred Cubic Feet; and Fixed Water Charges by Meter Size; and (i) Summary of historical operating results (with debt service and coverage ratio shown) in the prior Fiscal Year, in substantially the form set forth in the Official Statement under the caption THE WATER SYSTEM OF THE CITY Historic Water System Operating Results and Debt Service Coverage. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB s internet website or filed with the SEC. Section 5. Reporting of Listed Events. (a) The City shall give, or shall cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: (1) Principal and interest payment delinquencies. (2) Unscheduled draws on debt-service reserves reflecting financial difficulties. (3) Unscheduled draws on credit enhancements reflecting financial difficulties. (4) Substitution of credit or liquidity providers, or their failure to perform. (5) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB). (6) Tender offers. (7) Defeasances. (8) Ratings changes. E-3

280 (9) Bankruptcy, insolvency, receivership or similar proceedings. For the purposes of the event identified in this Section 5(a)(9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) The City shall give, or shall cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after the event: (1) Unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds. (2) Modifications to the rights of Bond holders. (3) Optional, unscheduled, or contingent Bond redemptions. (4) Release, substitution or sale of property securing repayment of the Bonds. (5) Non-payment related defaults. (6) The consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business; the entry into a definitive agreement to undertake such an action; or the termination of a definitive agreement relating to any such actions, other than in accordance with its terms. trustee. (7) Appointment of a successor or additional trustee or the change of the name of a (c) Upon receipt of notice from the City and instruction by the City to report the occurrence of any Listed Event, the Dissemination Agent shall provide notice thereof to the MSRB in accordance with Section 5(d) hereof. In the event the Dissemination Agent shall obtain actual knowledge of the occurrence of any of the Listed Events, the Dissemination Agent shall, immediately after obtaining such knowledge, contact the Disclosure Representative, inform such person of the event, and request that the City promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to Section 5(d). For purposes of this Disclosure Agreement, actual knowledge of the occurrence of such Listed Event shall mean actual knowledge by the Dissemination Agent, if other than the Trustee, and if the Dissemination Agent is the Trustee, then by the officer at the corporate trust office of the Trustee with regular responsibility for the administration of matters related to the Indenture. The Dissemination Agent shall have no responsibility to determine the materiality, if applicable, of any of the Listed Events. (d) The City, or the Dissemination Agent, if the Dissemination Agent has been instructed by the City to report the occurrence of a Listed Event, shall file a notice of such occurrence with the MSRB in a timely manner not more than ten (10) Business Days after the occurrence of the event. Section 6. Termination of Reporting Obligation. The City s obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. E-4

281 If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Wells Fargo Bank, National Association. The Dissemination Agent may resign by providing thirty days written notice to the City and the Trustee. The Dissemination Agent shall have no duty to prepare any information report, nor shall the Dissemination Agent be responsible for filing any report that is not provided to it by the City in a timely manner and in a form suitable for filing. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the City and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the City) provided, the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the City chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the City shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Filings with the MSRB. All financial information, operating data, financial statements, notices, and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. Section 11. Default. In the event of a failure of the City to comply with any provision of this Disclosure Agreement, the Trustee (at the written request of any Participating Underwriter or the holders of at least 50% aggregate principal amount of Outstanding Bonds, shall, but only to the extent that funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including, without limitation, fees and expenses of its attorneys), or any holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City or the Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture pertaining to the Trustee is hereby made applicable to this Disclosure Agreement as if this E-5

282 Disclosure Agreement were (solely for this purpose) contained in the Indenture; and the Trustee and Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to indemnify and save the Dissemination Agent and Trustee, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s or Trustee s respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the City for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to them hereunder and shall not be deemed to be acting in any fiduciary capacity for the City, the Bondholders, or any other party. Neither the Trustee nor the Dissemination Agent shall have any liability to the Bondholders or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Disclosure Agreement. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the City: To the Dissemination Agent: To the Trustee: City of Ukiah 300 Seminary Avenue Ukiah, California Attn: Finance Director Wells Fargo Bank, National Association MAC #A Market Street, 18th Floor San Francisco, CA 94105, California Re: City of Ukiah Series 2016 Wells Fargo Bank, National Association MAC #A Market Street, 18th Floor San Francisco, CA 94105, California Re: City of Ukiah Series 2016 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. Section 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the Trustee, the Dissemination Agent, the Participating Underwriter and holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. E-6

283 CITY OF UKIAH By: City Manager WELLS FARGO BANK, NATIONAL ASSOCIATION, as Dissemination Agent By: Authorized Representative E-7

284 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Obligor: City of Ukiah Name of Obligations: $11,155,000 City of Ukiah Water Revenue Refunding Bonds, Series 2016 Date of Issuance: March, 2016 NOTICE IS HEREBY GIVEN that the City of Ukiah (the City ) has not provided an Annual Report with respect to the above-captioned obligations as required by the Continuing Disclosure Agreement, dated March 1, 2016, by and between the City and Wells Fargo Bank, National Association, as dissemination agent. [The City anticipates that the Annual Report will be filed by.] Dated: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Dissemination Agent, on behalf of the City of Ukiah cc: City of Ukiah E-8

285 APPENDIX F SPECIMEN MUNICIPAL BOND INSURANCE POLICY

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287 MUNICIPAL BOND INSURANCE POLICY ISSUER: BONDS: $ in aggregate principal amount of Policy No: -N Effective Date: Premium: $ ASSURED GUARANTY MUNICIPAL CORP. ("AGM"), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the "Trustee") or paying agent (the "Paying Agent") (as set forth in the documentation providing for the issuance of and securing the Bonds) for the Bonds, for the benefit of the Owners or, at the election of AGM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the Business Day next following the Business Day on which AGM shall have received Notice of Nonpayment, AGM will disburse to or for the benefit of each Owner of a Bond the face amount of principal of and interest on the Bond that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by AGM, in a form reasonably satisfactory to it, of (a) evidence of the Owner's right to receive payment of the principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner's rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in AGM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by AGM is incomplete, it shall be deemed not to have been received by AGM for purposes of the preceding sentence and AGM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, who may submit an amended Notice of Nonpayment. Upon disbursement in respect of a Bond, AGM shall become the owner of the Bond, any appurtenant coupon to the Bond or right to receipt of payment of principal of or interest on the Bond and shall be fully subrogated to the rights of the Owner, including the Owner's right to receive payments under the Bond, to the extent of any payment by AGM hereunder. Payment by AGM to the Trustee or Paying Agent for the benefit of the Owners shall, to the extent thereof, discharge the obligation of AGM under this Policy. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. "Business Day" means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer's Fiscal Agent are authorized or required by law or executive order to remain closed. "Due for Payment" means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity unless AGM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. "Nonpayment" means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. "Nonpayment" shall also include, in respect of a Bond, any payment of principal or interest that is Due for Payment made to an Owner by or on behalf of the Issuer which has been recovered from such Owner pursuant to the