$10,025,000 OAKLEY PUBLIC FINANCING AUTHORITY 2016 LEASE REVENUE BONDS

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1 NEW ISSUE FULL BOOK-ENTRY INSURED RATING: S&P: AA UNDERLYING RATING: S&P: AA- See RATINGS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS. $10,025,000 OAKLEY PUBLIC FINANCING AUTHORITY 2016 LEASE REVENUE BONDS Dated: Date of Delivery Due: May 1, as shown on inside cover Authority for Issuance. The bonds captioned above (the Bonds ) are being issued by the Oakley Public Financing Authority (the Authority ) pursuant to an Indenture of Trust dated as of December 1, 2016 (the Indenture ) by and between the Authority and U.S. Bank National Association, as trustee for the Bonds (the Trustee ). See THE BONDS Authority for Issuance. Use of Proceeds. The proceeds of the Bonds will be used to (i) refinance the outstanding 2006 Certificates of Participation (Civic Center Project) (the 2006 Certificates ) of the City of Oakley (the City ), together with related lease payment obligations, (ii) obtain additional funds to finance the construction of a community center and related facilities (the 2016 Project ), (iii) pay the premium of a debt service reserve policy for the Bonds (the Reserve Policy ) to be issued by Assured Guaranty Municipal Corp. ( AGM ) concurrently with the delivery of the Bonds and (iv) pay the costs of issuing the Bonds, including the premium for the Policy (as defined below). See REFINANCING PLAN. Security for the Bonds. Under the Indenture, the Bonds will be payable solely from and secured by Revenues (as defined in this Official Statement) and certain funds and accounts held under the Indenture, including a reserve account established by depositing the Reserve Policy therein. Revenues consist primarily of lease payments ( Lease Payments ) to be made by the City to the Authority pursuant to a Lease Agreement dated as of December 1, 2016 (the Lease ), by and between the Authority and the City, for the leasing of certain real property (the Leased Property ). Under the Lease, the City covenants to take such action as necessary to include the Lease Payments in its annual budgets and to make all necessary appropriations for such Lease Payments (subject to abatement under certain circumstances as described in this Official Statement). The rights of the Authority to receive Lease Payments under the Lease will be assigned to the Trustee pursuant to an Assignment Agreement dated as of December 1, 2016 (the Assignment Agreement ), by and between the Authority and the Trustee. Upon the occurrence of an Event of Default under the Lease, the Trustee may terminate the Lease and re-lease the Leased Property and may recover rent and other monetary charges as they become due. See SECURITY FOR THE BONDS Remedies and BOND OWNERS RISKS Default. Bond Terms; Book-Entry Only. The Bonds will bear interest at the rates shown on the inside cover page, payable semiannually on May 1 and November 1 (each, an Interest Payment Date ), commencing May 1, 2017, and will be issued in fully-registered form without coupons in the denomination of $5,000 or any integral multiple of $5,000. The Bonds will be issued in book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ( DTC ). With respect to any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day, shall be its respective Record Date. Purchasers of the Bonds will not receive certificates representing their interests in the Bonds. Payments of the principal of, premium, if any, and interest on the Bonds will be made to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the Bonds. See THE BONDS General Provisions. Redemption. The Bonds are subject to redemption prior to maturity. See THE BONDS Redemption. Insurance Policy. The scheduled payment of principal of and interest on the Bonds, when due will be guaranteed under an insurance policy (the Policy ) to be issued concurrently with the delivery of the Bonds by AGM. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING POWER. NONE OF THE BONDS, NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE BONDS, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS, CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. SEE SECURITY FOR THE BONDS. CERTAIN FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY IS CONTAINED IN CITY FINANCIAL INFORMATION, APPENDIX A CITY OF OAKLEY AND COUNTY OF CONTRA COSTA GENERAL INFORMATION AND APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, THE INFORMATION THEREIN IS IMPORTANT SHOULD BE READ IN ITS ENTIRETY. MATURITY SCHEDULE (see inside cover) THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR QUICK REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE OF BONDS. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION WITH RESPECT TO THE PURCHASE OF THE BONDS. The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will also be passed upon for the Authority and the City by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the City and the Authority by Cota Cole LLP, as City Attorney to the City and General Counsel to the Authority, and for the Underwriter by Stradling, Yocca, Carlson, & Rauth, A Professional Corporation, Newport Beach, California. It is anticipated that the Bonds will be delivered in book-entry form through the facilities of DTC on or about December 15, The date of this Official Statement is: November 30, 2016.

2 MATURITY SCHEDULE Maturity Date (May 1) $10,025,000 OAKLEY PUBLIC FINANCING AUTHORITY 2016 LEASE REVENUE BONDS Principal Amount Interest Rate Yield Price 2017 $310, % 1.000% AA , AB , AC , AD , AE , AF , AG , AH , AJ , AK , AL , C AM , AN , C AP , C AQ , C AR4 CUSIP (Base 67363C) $1,700, % Term Bonds Due May 1, 2036, Yield 4.220%, Price: , CUSIP 67363C AV5 $2,540, % Term Bonds Due May 1, 2041, Yield 4.310%, Price: , CUSIP 67363C AW3 C: Priced to first optional call date of May 1, 2026 at par. Copyright 2016, CUSIP Global Services, and a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services, which is managed on behalf of American Bankers Association by S&P Capital IQ. Neither the Authority nor the Underwriter assumes any responsibility for the accuracy of the CUSIP data.

3 OAKLEY CALIFORNIA Oakley, Ca Oakley 0 mi Copyright and (P) Microsoft Corporation and/or its suppliers. All rights reserved. Certain mapping and direction data 2012 NAVTEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: Her Majesty the Queen in Right of Canada, Queen's Printer for Ontario. NAVTEQ and NAVTEQ ON BOARD are trademarks of NAVTEQ Tele Atlas North America, Inc. All rights reserved. Tele Atlas and Tele Atlas North America are trademarks of Tele Atlas, Inc by Applied Geographic Solutions. All rights reserved. Portions Copyright 2012 by Woodall Publications Corp. All rights reserved. Oakley San Francisco Los Angeles 40

4 OAKLEY PUBLIC FINANCING AUTHORITY CITY OF OAKLEY AUTHORITY BOARD/CITY COUNCIL Kevin Romick, Mayor/Chair Sue Higgins, Vice Mayor/Vice-Chair Doug Hardcastle, Councilmember/ Member Vanessa Perry, Councilmember/Member Randy Pope, Councilmember/Member AUTHORITY/CITY OFFICIALS Bryan Montgomery, City Manager/Executive Director Deborah Sultan, Finance Director/Treasurer Libby Vreonis, City Clerk/Secretary Cota Cole LLP, City Attorney/Authority Counsel BOND AND DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California MUNICIPAL ADVISOR Public Financial Management, Inc. San Francisco, California VERIFICATION AGENT Causey Demgen & Moore P.C. Denver, Colorado TRUSTEE U.S. Bank National Association San Francisco, California

5 GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT No dealer, broker, salesperson or other person has been authorized by the Authority, the City or the Underwriter to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein; and, if given or made, such other information or representations must not be relied upon as having been authorized by the Authority, 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 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 or owners of the Bonds. Statements contained in this Official Statement that involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the Authority and the City and from other sources that the Authority and the City believe to be reliable. The information and expression of opinion herein are subject to change without notice and neither delivery of the 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 or the Authority or any other parties described herein since the date hereof. All summaries of the Resolution or other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. 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. In connection with the offering of the Bonds, the Underwriter may overallot or effect transactions that stabilize or maintain the market price of such Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and dealer banks and banks acting as agents 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. The Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon an exemption contained in such act. The Bonds have not been registered or qualified under the securities laws of any state. Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, budget or other similar words. Such forward-looking statements include but are not limited to certain statements contained in the information in this CITY FINANCIAL INFORMATION and APPENDIX A CITY OF OAKLEY AND COUNTY OF CONTRA COSTA GENERAL INFORMATION. The achievement of certain results or other expectations contained in such forward-looking statements involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Neither the Authority nor the City plans to issue any updates or revisions to those forward-looking statements if or when its expectations or events, conditions or circumstances on which such statements are based occur. Assured Guaranty Municipal Corp. ( AGM ) makes no representation regarding the Bonds or the advisability of investing in the 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 heading BOND INSURANCE and APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. The City maintains a website. However, the information presented therein is not part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds.

6 TABLE OF CONTENTS Page INTRODUCTION... 1 THE FINANCING PLAN... 5 Refunding of 2006 Certificates... 5 Verification of Mathematical Accuracy... 6 The 2016 Project... 6 Estimated Sources and Uses of Funds... 7 THE LEASED PROPERTY... 8 Description... 8 Modifications of Leased Property... 8 Subleasing... 8 Substitution... 9 Release of Leased Property THE BONDS Authority for Issuance Description of the Bonds Transfer, Registration and Exchange Redemption Book-Entry Only System DEBT SERVICE SCHEDULE SECURITY FOR THE BONDS Pledge of Revenues Lease Payments; Covenant to Appropriate Abatement Insurance; Condemnation Project Fund Reserve Account Remedies BOND INSURANCE Bond Insurance Policy Assured Guaranty Municipal Corp THE AUTHORITY THE CITY General CITY FINANCIAL INFORMATION Budget Process General Fund Budgets City Financial Policies Financial Statements General Fund Revenues Property Taxes Sales Taxes Other Taxes and Revenues State Budgets Long-Term Obligations Employee Relations Page Risk Management Employee Retirement System No Other Post-Employment Retirement Benefits Investment Policies and Procedures CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS54 Article XIIIA of the State Constitution Article XIIB of the State Constitution Articles XIIIC and XIIID of the State Constitution. 55 Proposition Proposition la Proposition Unitary Property Future Initiatives RISK FACTORS Special Obligations of the Authority No Pledge of Taxes Additional Obligations of the City Default Abatement Assessed Value of Taxable Property; Delinquent Payment of Property Taxes Natural Calamities Hazardous Substances Proposition State Budget Limitations on Remedies Available to Bond Owners; Bankruptcy Litigation State Law Limitations on Appropriations Property Tax Allocation by the State; Changes in Law Early Redemption Risk Loss of Tax-Exemption Secondary Market for Bonds IRS Audit of Tax-Exempt Issues TAX MATTERS CERTAIN LEGAL MATTERS LITIGATION RATINGS CONTINUING DISCLOSURE MUNICIPAL ADVISOR UNDERWRITING EXECUTION APPENDIX A APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F APPENDIX G CITY OF OAKLEY AND COUNTY OF CONTRA COSTA GENERAL INFORMATION AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 SUMMARY OF PRINCIPAL LEGAL DOCUMENTS FORM OF OPINION OF BOND COUNSEL FORM OF CONTINUING DISCLOSURE CERTIFICATE DTC AND THE BOOK-ENTRY ONLY SYSTEM SPECIMEN MUNICIPAL BOND INSURANCE POLICY i

7 OFFICIAL STATEMENT $10,025,000 OAKLEY PUBLIC FINANCING AUTHORITY 2016 LEASE REVENUE BONDS INTRODUCTION This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and appendices, and the documents summarized or described in this Official Statement. A full review should be made of the entire Official Statement. The offering to potential investors is made only by means of the entire Official Statement. Capitalized terms used but not defined in this Official Statement have the meanings set forth in the Indenture (as defined below). See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. Authority for Issuance. The Oakley Public Financing Authority (the Authority ) is issuing its 2016 Lease Revenue Bonds (the Bonds ) under the following legal authority: (a) Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the State ), commencing with Section 6584 of said Code (the Bond Law ), (b) a resolution adopted by the Board of Directors (the Board ) of the Authority on November 8, 2016 (the Authority Resolution ), and a resolution adopted by the City Council (the City Council ) of the City of Oakley (the City ) on November 8, 2016 (the City Resolution ), and (c) an Indenture of Trust (the Indenture ), dated as of December 1, 2016, by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ). Form of Bonds; Book-Entry Only. The Bonds will be issued in fully registered form, registered in the name of The Depository Trust Company, New York, New York ( DTC ), or its nominee, which will act as securities depository for the Bonds. Purchasers of the Bonds will not receive certificates representing the Bonds that are purchased. See THE BONDS Book- Entry Only System and APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM. Purpose of the Bonds. The Bonds are being issued to provide funds to (i) refinance all of the outstanding 2006 Certificates of Participation (Civic Center Project) (the 2006 Certificates ) of the City, together with related lease payment obligations, which are currently outstanding in the aggregate principal amount of $6,415,000 and (ii) obtain additional funds to finance the construction of a community center and related facilities (the 2016 Project ). See THE FINANCING PLAN.

8 The proceeds of the Bonds will also be used to (i) pay the premium of a debt service reserve policy for the Bonds (the Reserve Policy ) to be issued by Assured Guaranty Municipal Corp. ( AGM ) concurrently with the delivery of the Bonds and (ii) pay the costs of issuing the Bonds, including the premium for the Policy (as defined below). Security for the Bonds and Pledge of Revenues. The Bonds will be payable solely from and secured by Revenues and all amounts (including proceeds of the sale of the Bonds) held in any fund or account established under the Indenture, including the Reserve Account (as defined below). See Reserve Account below. The Indenture defines Revenues to mean (a) all amounts received by the Authority or the Trustee under or with respect to the Lease Agreement dated as of December 1, 2016 (the Lease ), between the Authority as lessor and the City as lessee of the real property constituting the City s City Hall located at 3231 Main Street, Oakley, California ( City Hall ), including both land and improvements (collectively, the Leased Property ), including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding (i) any additional amounts of rental pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which are applied to finance or refinance the acquisition or construction of any real or personal property for which the City is authorized to expend funds subject to its control and (ii) any Additional Rental Payments (as hereinafter defined); and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture. The Indenture defines Lease Payments to mean the amounts payable by the City under the Lease, including any prepayment thereof and including any amounts payable upon a delinquency in the payment thereof. Under the Lease, the City covenants to take such action as necessary to include the Lease Payments in its annual budgets and to make all necessary appropriations for such Lease Payments (subject to abatement under certain circumstances described in the Lease). See SECURITY FOR THE BONDS. The City s General Fund (the General Fund ) revenues for the fiscal year ended June 30, 2015 totaled approximately $10 million. Maximum annual debt service for the Bonds is anticipated to be approximately $676,775 or 5.30%* of the City s General Fund revenues for the fiscal year ended June 30, See APPENDIX A CITY OF OAKLEY AND COUNTY OF CONTRA COSTA GENERAL INFORMATION and APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, The scheduled Lease Payments payable by the City under the Lease are calculated to be sufficient to permit the Authority to pay the principal of, and interest on, the Bonds when due. However, in the event of any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property, Lease Payments may be abated under the Lease without constituting a default. See SECURITY FOR THE BONDS Abatement and RISK FACTORS Abatement. However, proceeds of insurance may be available to pay Lease Payments in the event of insured damage, destruction or condemnation with respect to the Leased Property. 2

9 Pursuant to an Assignment Agreement, dated as of December 1, 2016 (the Assignment Agreement ), by and between the Authority and the Trustee, the Authority has assigned to the Trustee for the benefit of the Owners of the Bonds, certain of the Authority s rights under the Lease, including its rights to receive Lease Payments and to enforce remedies in the event of a default by the City for the purpose of securing the payment of debt service on the Bonds. Reserve Account. The Authority will establish a debt service reserve account for the Bonds (the Reserve Account ) by depositing the Reserve Policy therein in the amount of $676, to satisfy the Reserve Requirement (as defined below). AGM has committed to issue, concurrently with the issuance of the Bonds, the Reserve Policy for deposit in the Reserve Account. See SECURITY FOR THE BONDS Debt Service Reserve Account. Additional Obligations. The City has existing obligations payable from the General Fund, and the City is permitted to enter into other obligations, which constitute additional charges against its revenues without the consent of Owners of the Bonds. See CITY FINANCIAL INFORMATION. Under the Indenture, the Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred by the Authority which are payable out of the Revenues in whole or in part. Redemption. The Bonds are subject to redemption prior to their stated maturity dates. See THE BONDS Redemption. Abatement. The Lease provides that, except to the extent of availability of proceeds of insurance against accident to or destruction of the Leased Property collected by the City or the Authority, or amounts on deposit in the Bond Fund available to pay Lease Payments which would otherwise be abated, the obligation of the City to pay Lease Payments will be subject to abatement by reason of (i) damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or (ii) a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property. See SECURITY FOR THE BONDS Abatement, and RISK FACTORS Abatement. Changes Since Preliminary Official Statement. Subsequent to the date of the Preliminary Official Statement dated as of November 18, 2016 (the Preliminary Official Statement ) with respect to the Bonds, the City s audited financial statements for the fiscal year ending June 30, 2016 became available and the results thereof are reflected in this Official Statement. In particular, in addition to the inclusion of pricing related information, this Official Statement differs from the Preliminary Official Statement as follows: (i) financial information pertaining to fiscal year set forth in Tables 1, 2, 3 and 4 and under the heading CITY FINANCIAL INFORMATION Employee Retirement System has been updated to reflect the City s audited financial statements for the fiscal year ending June 30, 2016; and (ii) the City s audited financial statements for the fiscal year ending June 30, 2016 have been included as Appendix B to this Official Statement, instead of the audited financial statements for the fiscal year ending June 30, 2015.Risks of Investment. The Bonds are payable from Revenues, which consists primarily of Lease Payments, and certain funds and accounts established under the Indenture. For a discussion of some of the risks associated with the purchase of the Bonds, see RISK FACTORS. THE BONDS ARE SECURED SOLELY BY THE PLEDGE OF REVENUES AND CERTAIN FUNDS HELD UNDER THE INDENTURE. THE BONDS ARE NOT SECURED BY A PLEDGE OF THE TAXING POWER OF THE CITY. THE AUTHORITY HAS NO TAXING 3

10 POWER. NONE OF THE BONDS, NOR THE OBLIGATION OF THE AUTHORITY TO PAY PRINCIPAL OF OR INTEREST ON THE BONDS, NOR THE OBLIGATION OF THE CITY TO MAKE THE LEASE PAYMENTS, CONSTITUTES A DEBT OR A LIABILITY OF THE AUTHORITY, THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL LIMITATION ON INDEBTEDNESS, OR A PLEDGE OF THE FULL FAITH AND CREDIT OF THE CITY. See SECURITY FOR THE BONDS. Bond Insurance Policy. Concurrently with the issuance of the Bonds, AGM will issue its Municipal Bond Insurance Policy (the Policy ) for the Bonds. The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Professionals Involved in the Offering. The following professionals are involved in the offering of the Bonds: Public Financial Management, Inc., San Francisco, California (the Municipal Advisor ), has acted as municipal advisor to the City. U.S. Bank National Association, San Francisco, California, will act as Trustee with respect to the Bonds. Stifel, Nicolaus & Company, Incorporated (the Underwriter ) is underwriting the Bonds. All proceedings in connection with the issuance of the Bonds are subject to the approval of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel to the Authority. Jones Hall, A Professional Law Corporation, is also acting as Disclosure Counsel. The City Attorney will render certain opinions on behalf of the Authority and the City. Certain legal matters will be passed on for the Underwriter by Stradling, Yocca, Carlson & Rauth, A Professional Corporation, Newport Beach, California, as Underwriter s Counsel. Payment of the fees and expenses of Bond Counsel, Disclosure Counsel, the Municipal Advisor and Underwriter s Counsel is contingent upon the sale and delivery of the Bonds. Summaries of Documents. This Official Statement includes descriptions of the Bonds, the Authority, the City, and summaries of the Site Lease, the Facility Lease and the Indenture. The descriptions and summaries of documents do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements are qualified in their entirety by reference to each document and, with respect to certain rights and remedies, to laws and principles of equity relating to creditors rights generally. Undefined capitalized terms shall have the meanings set forth in the Indenture. Copies of the Site Lease, the Facility Lease, and the Indenture are available for inspection during business hours at the corporate trust office of the Trustee in San Francisco, California. This Official Statement speaks only as of its date, as set forth on the cover hereof, and the information and expressions of opinion are subject to change without notice. Neither the delivery of this Official Statement nor any sale of Bonds shall under any circumstances create any implication that there has been no change in the affairs of the Authority and the City since the date set forth on the cover. 4

11 THE FINANCING PLAN The Bonds are being issued to provide funds to (i) refinance all of the 2006 Certificates and (ii) obtain additional funds to finance the construction the 2016 Project. Refunding of 2006 Certificates Outstanding 2006 Certificates. The following 2006 Certificates are outstanding and will be repaid with a portion of the proceeds of the Bonds: CITY OF OAKLEY 2006 CERTIFICATES OF PARTICIPATION (CIVIC CENTER PROJECT) (Base CUSIP Number: ) Maturity Date (May 1) Principal Amount Interest Rate CUSIP 2017 $ 285, % AK , AL , AM , AN , AP , AQ , AR , AS , AT , AU , AW , AY ,075, BA8 Refunding of 2006 Certificates. Pursuant to the Irrevocable Refunding Instructions (the Refunding Instructions ), by the Authority and the City to Wells Fargo Bank, N.A., as trustee for the 2006 Certificates (in such capacity, the 2006 Trustee ), the Authority will deliver a portion of the proceeds of the Bonds, along with other available amounts, to the 2006 Trustee for deposit in the Lease Payment Fund established under the trust agreement relating to the 2006 Certificates (the 2006 Lease Payment Fund ). The 2006 Trustee will invest a portion of the funds deposited in the 2006 Lease Payment Fund in government securities and will hold the remainder in cash, uninvested. The 2006 Trustee will apply the amounts held in the 2006 Lease Payment Fund for the sole purposes of prepaying all of the 2006 Certificates maturing on and after May 1, 2017 on January 14, Under the terms of the trust agreement relating to the 2006 Certificates, all of the outstanding 2006 Certificates will be paid and discharged by depositing with the 2006 Trustee or any other fiduciary, under an escrow deposit and trust agreement, security for the payment of lease payments relating to such 2006 Certificates, said security to be held by the 2006 Trustee CUSIP is a registered trademark of the American Bankers Association. Copyright 2016 Standard & Poor s, a Division of the McGraw Hill Companies, Inc. CUSIP data herein is provided by Standard & Poor s CUSIP Service Bureau. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. None of the City, the Authority, or the Underwriter take any responsibility for the accuracy of such numbers. 5

12 on behalf of the City to be applied by the 2006 Trustee or by such other fiduciary to pay or prepay such lease payments as the same become due under the lease relating to the 2006 Certificates. The amounts held by the 2006 Trustee in the 2006 Lease Payment Fund are pledged solely to the amounts due and payable by the Authority with respect to the 2006 Certificates. The funds deposited in the 2006 Lease Payment Fund will not be available for the payment of debt service with respect to the 2016 Bonds. Verification of Mathematical Accuracy Causey Demgen & Moore P.C., Denver, Colorado (the Verification Agent ), will verify the sufficiency of the deposits in the 2006 Lease Payment Fund for the purposes described above. Assuming the accuracy of the Verification Agent s computations, as a result of the deposit and application of funds as provided in the Refunding Instructions, the City s obligations with respect to the 2006 Certificates will be discharged. The Verification Agent has restricted its procedures to examining the arithmetical accuracy of certain computations and has not made any study or evaluation of the assumptions and information upon which the computations are based and, accordingly, has not expressed an opinion on the data used, the reasonableness of the assumptions, or the achievability of the forecasted outcome. The 2016 Project The 2016 Project consists of the construction of a community center and related facilities. It is slated to be constructed on a 6.22-acre parcel of land within the City and is anticipated to include room for recreation classes, after-school programs and summer camps. A multi-sport field to accommodate sports classes, camps and recreational leagues is also anticipated to be constructed. The 2016 Project will be completed in phases as funding becomes available. A portion of the proceeds of the Bonds will be used by the City to fund a portion of the total costs of the first phase of the 2016 Project, which will consist of the construction of a recreation center and a multi-sport field. Certain additional funds have been set aside by the City from its General Fund to pay for costs related to the first phase of the 2016 Project. See CITY FINANCIAL INFORMATION General Fund Budgets. The first phase of the 2016 Project is anticipated to be completed in fiscal year

13 Estimated Sources and Uses of Funds The estimated sources and uses of funds relating to the Bonds and the 2006 Certificates are as follows: Sources: Principal Amount of Bonds $10,025, Plus: 2006 Certificates - Available Funds 574, Plus: Net Original Issue Premium 156, Total Sources $10,756, Uses: Refunding of 2006 Certificates $6,468, Project Fund 4,000, Costs of Issuance Fund (1) 223, Underwriter s Discount 64, Total Uses $10,756, (1) Costs of Issuance include the fees and expenses for Bond Counsel, Disclosure Counsel, Municipal Advisor, Verification Agent, Trustee, City Attorney, premiums for the Policy and Reserve Policy, printing expenses, rating fee and other costs related to the issuance of the Bonds. 7

14 THE LEASED PROPERTY Lease Payments will be made by the City under the Lease for the use and occupancy of the Leased Property, which is described in greater detail below. Description The Leased Property consists of City Hall, including the land on which such property is located, and all related improvements. City Hall consists of three buildings across approximately 7 acres located on Main Street in the downtown area of the City. The first and second buildings each consists of approximately 7,500 square feet and were constructed on or about The third building was constructed in 2007 with proceeds of the 2006 Certificates and consists of approximately 8,950 square feet. City Hall houses the City Council Chambers and members offices, the offices of the City Manager, the offices of the Finance Director and other administrative offices of the City and the Oakley Policy Department. City Hall is part of the City s Civic Center Complex, which, in addition to the City Hall, includes a plaza, a park, Community Park and a restaurant building, currently operated as a Black Bear Diner. The park consists of approximately two acres and includes landmark oak trees, open green space, and an outdoor amphitheater. The restaurant consists of 5,000 square feet of indoor space and a 1,000 square foot patio for outdoor eating or gatherings. The park and restaurant do not constitute a part of the Leased Property. The City and the Authority, based on comparable properties, insurance appraisals, and other records it maintains, estimate the current fair rental value of the Leased Property to be not less than the amount of the annual Lease Payments. The County s assessed value of the Leased Property as of fiscal year is approximately $11,538,716, of which $9,374,078 relates to improvements and $2,164,638 relates to land. The total insured value of the Leased Property is approximately $8,968,950, with $8,487,950 of such insured value attributable to the market value of the building itself, and $481,000 attributable to the value of the land. Modifications of Leased Property Under the Lease, the City will have the right during the term of the Lease to make additions, modifications and improvements to the Leased Property or any portion thereof. Such additions, modifications and improvements may not in any way damage the Leased Property, or cause the Leased Property to be used for purposes other than those authorized under the provisions of state and federal law; and the Leased Property, upon completion of any additions, modifications and improvements, must be of a value which is not substantially less than the value thereof immediately prior to the making of such additions, modifications and improvements. Subleasing of Leased Property Under the Lease, the City may, with the prior written consent of AGM, sublease the Leased Property, or any portion thereof, subject to all of the following conditions: 8

15 the Lease and the obligation of the City to make Lease Payments thereunder must remain obligations of the City; the City must, within 30 days after the delivery thereof, furnish or cause to be furnished to the Authority and the Trustee a true and complete copy of such sublease; no such sublease by the City may cause the Leased Property to be used for a purpose which is not authorized under the provisions of the laws of the State; and the City must furnish to the Authority and the Trustee a written opinion of Bond Counsel stating that such sublease does not cause the interest on the Bonds to become included in gross income for purposes of federal income taxation or to become subject to personal income taxation by the State. Substitution of Leased Property Under the Lease, the City has the option, with the prior written consent of AGM, at any time and from time to time, to substitute other real property (the Substitute Property ) for the Leased Property or any portion thereof (the Former Property ), upon satisfaction of all of the requirements set forth in the Lease, which include the following requirements: No Event of Default under the Lease has occurred and is continuing; The City has obtained a CLTA policy of title insurance insuring the City s leasehold estate under the Lease in the Substitute Property, subject only to Permitted Encumbrances (as defined in the Lease), in an amount at least equal to the estimated value thereof; The City has certified in writing to the Authority and the Trustee that the Substitute Property serves the municipal purposes of the City and constitutes property which the City is permitted to lease under the laws of the State, and has been determined to be essential to the proper, efficient and economic operation of the City and to serve an essential governmental function of the City; The Substitute Property does not cause the City to violate any of its covenants, representations and warranties made in the Lease; The City has filed with the Authority and the Trustee a written certificate of the City or other written evidencing stating that the useful life of the Substitute Property at least extends to May 1, 2041, that the estimated value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the Leased Property, after substitution of the Substitute Property and release of the Former Property, is at least equal to the Lease Payments thereafter coming due and payable under the Lease; and The City has mailed written notice of the substitution to each rating agency that then maintains a rating on the Bonds. 9

16 Upon the satisfaction of all conditions precedent to substitution set forth in the Lease, the Term of the Lease will thereupon end as to the Former Property and commence as to the Substitute Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of any substitution of property under the Lease. The Authority and the City will also make any amendments needed to be made to the Lease, and will enter into any necessary site or ground leases in connection with such substitution. Such amendments may be made without the consent of Bondowners. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments as a result of a substitution. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. Release of Leased Property Under the Lease, the City has the option, with the prior written consent of AGM, at any time and from time to time during the term of the Lease to release from the Lease any portion of the Leased Property (the Released Property ); provided that the City satisfies all of the following requirements which must be satisfied prior to such release: No Event of Default under the Lease has occurred and is continuing; The City has filed with the Authority and the Trustee, and caused to be recorded in the office of the Contra Costa County Recorder sufficient memorialization of, an amendment hereof which removes the Released Property from the Site Lease and the Lease; The City has certified in writing to the Authority and the Trustee that the value of the property which remains subject to the Lease following such release is at least equal to the aggregate Outstanding principal amount of the Bonds, and the fair rental value of the property which remains subject to the Lease following such release is at least equal to the Lease Payments thereafter coming due and payable under the Lease; and The City has mailed written notice of the release to each rating agency that then maintains a rating on the Bonds. Upon the satisfaction of all such conditions precedent, the Term of the Lease will thereupon end as to the Released Property. The City is not entitled to any reduction, diminution, extension or other modification of the Lease Payments whatsoever as a result of such release. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. 10

17 THE BONDS Authority for Issuance The Bonds are being issued under the Bond Law, the Authority Resolution, the City Resolution and the Indenture. Description of the Bonds The Bonds will be issued and delivered in fully-registered form without coupons in integral multiples of $5,000 for each maturity, initially in the name of Cede & Co., as nominee for DTC, as registered owner of all Bonds. The initially executed and delivered Bonds will be dated the date of delivery (the Closing Date ) and mature on May 1 in the years and in the amounts, and bear interest (calculated on the basis of a 360-day year of twelve 30-day months), at the rates shown on the inside cover page of this Official Statement. Interest on the Bonds will be payable on May 1 and November 1 in each year, beginning May 1, 2017 (each an Interest Payment Date ). Interest on the Bonds is payable from the Interest Payment Date next preceding the date of authentication thereof unless: (a) a Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (c) interest on any Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has been paid in full, payable on each Interest Payment Date. The Indenture defines Record Date to mean, with respect to any Interest Payment Date, the 15 th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. Interest is payable on each Interest Payment Date to the persons in whose names the ownership of the Bonds is registered on the Registration Books at the close of business on the immediately preceding Record Date, except that while the Bonds are subject to the book-entry system, the principal, interest and any prepayment premium with respect to the Bonds will be paid by the Trustee to DTC for subsequent disbursement to beneficial owners of the Bonds. See APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date is payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which is given to such Owner by first-class mail not less than 10 days prior to such special record date. The Trustee will pay interest on the Bonds by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. At the written request of the Owner of Bonds in an aggregate principal 11

18 amount of at least $1,000,000, which written request is on file with the Trustee as of any Record Date, the Trustee will pay interest on such Bonds on each succeeding Interest Payment Date by wire transfer in immediately available funds to such account of a financial institution within the United States of America as specified in such written request, which written request will remain in effect until rescinded in writing by the Owner. The Trustee will pay principal of the Bonds in lawful money of the United States of America by check of the Trustee upon presentation and surrender thereof at the Office of the Trustee. Transfer, Registration and Exchange See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS for a description of the provisions of the Indenture relating to the transfer, registration and exchange of the Bonds. Redemption Optional Redemption. The Bonds maturing on or before May 1, 2026, are not subject to optional redemption prior to their stated maturity. The Bonds maturing on or after May 1, 2027, are subject to redemption, as a whole or in part at the election of the Authority among maturities on such basis as designated by the Authority and by lot within a maturity, at the option of the Authority, on May 1, 2026, and on any date thereafter, at a redemption price equal to 100% of the principal amount of Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Special Mandatory Redemption From Insurance or Condemnation Proceeds. The Bonds are subject to redemption as a whole, or in part on a pro rata basis among maturities, on any date, from any Net Proceeds of insurance or an eminent domain award with respect to the Leased Property which are not applied to repair, rebuild or replace the Leased Property as provided in the Indenture, at a redemption price equal to 100% of the principal amount to be redeemed plus interest accrued thereon to the date fixed for redemption, without premium. Sinking Account Redemption. The Bonds maturing on May 1, 2036 and May 1, 2041 (the Term Bonds ) are also subject to mandatory sinking account prepayment by lot on May 1 in each year as set forth in the following tables, from sinking fund payments made by the Authority to the Principal Account pursuant to the Indenture, at a redemption price equal to 100% of the principal amount to be redeemed, together with accrued interest on the Term Bonds to be redeemed to the date set for redemption, without premium, as follows: Sinking Fund Prepayment Date (May 1) Term Bonds Maturing May 1, 2036 Principal Amount To Be Prepaid_ 2033 $400, , , (Maturity) 450,000 12

19 Sinking Fund Prepayment Date (May 1) Term Bonds Maturing May 1, 2041 Principal Amount To Be Prepaid 2037 $470, , , , (Maturity) 550,000 Notwithstanding the foregoing, if some but not all of the Term Bonds are redeemed pursuant to the optional or special mandatory provisions of the Indenture, the aggregate principal amount of the Term Bonds to be prepaid in each year thereafter under shall be reduced by the aggregate principal amount of Term Bonds so prepaid, to be allocated among sinking fund payments on a pro rata basis in integral multiples of $5,000. Notice of Redemption. Notice of redemption will be mailed by the Trustee, first class, postage prepaid, not more than 60 and not less than 30 days before any redemption date, to the respective registered Owners of any Bonds designated for redemption at their addresses appearing on the registration books maintained by the Trustee and to one or more Securities Depositories and the Municipal Securities Rulemaking Board. Neither the failure to receive any notice nor any defect therein will affect the proceedings for such redemption. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds of a single maturity, the Trustee shall select the Bonds of that maturity to be redeemed by lot in any manner which the Trustee in its sole discretion deems appropriate. For purposes of such selection, the Trustee shall treat each Bond as consisting of separate $5,000 portions and each such portion shall be subject to redemption as if such portion were a separate Bond. Effect of Redemption. If notice of redemption has been duly given, and moneys for payment of the redemption price of, together with interest accrued to the date fixed for redemption on, including any applicable premium, the Bonds (or portions thereof) so called for redemption are held by the Trustee, on the redemption date designated in such notice, the Bonds (or portions thereof) so called for redemption shall become due and payable, interest on the Bonds so called for redemption shall cease to accrue, said Bonds (or portions thereof) shall cease to be entitled to any benefit or security under the Indenture, and the Owners of said Bonds shall have no rights in respect thereof except to receive payment of the redemption price thereof. Rescission of Redemption. The Authority has the right to rescind any notice of optional redemption of Bonds by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of redemption shall be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default. The Authority and the Trustee have no liability to the Bond Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent under the Indenture. 13

20 Book-Entry Only System The Bonds will be issued as fully registered bonds in book-entry only form, registered in the name of Cede & Co. as nominee of DTC, and will be available to ultimate purchasers in integral multiples of $5,000, under the book-entry system maintained by DTC. While the Bonds are subject to the book-entry system, the principal, interest and any redemption premium with respect to a Bond will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. Purchasers of the Bonds will not receive certificates representing their interests therein, which will be held at DTC. The Authority and the Trustee cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal, interest or premium with respect to the Bonds paid to DTC or its nominee as the registered owner, or will distribute any redemption notices or other notices, to the Beneficial Owners, or that they will do so on a timely basis or will serve and act in the manner described in this Official Statement. The Authority and the Trustee are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a beneficial Owner with respect to the Bonds or an error or delay relating thereto. See APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM for further information regarding DTC and the book-entry system. 14

21 DEBT SERVICE SCHEDULE The table below shows semiannual debt service payments on the Bonds, assuming no optional or extraordinary redemption. Payment Date Bonds Principal Bonds Interest Total Debt Service Total Annual Debt Service 5/1/17 $310, $150, $460, $460, /1/17-196, , /1/18 275, , , , /1/18-192, , /1/19 280, , , , /1/19-186, , /1/20 295, , , , /1/20-180, , /1/21 305, , , , /1/21-174, , /1/22 315, , , , /1/22-168, , /1/23 330, , , , /1/23-161, , /1/24 345, , , , /1/24-154, , /1/25 360, , , , /1/25-147, , /1/26 380, , , , /1/26-140, , /1/27 395, , , , /1/27-133, , /1/28 405, , , , /1/28-125, , /1/29 420, , , , /1/29-118, , /1/30 435, , , , /1/30-109, , /1/31 455, , , , /1/31-98, , /1/32 480, , , , /1/32-86, , /1/33 400, , , , /1/33-78, , /1/34 415, , , , /1/34-70, , /1/35 435, , , , /1/35-61, , /1/36 450, , , , /1/36-52, , /1/37 470, , , , /1/37-42, , /1/38 485, , , , /1/38-32, , /1/39 505, , , , /1/39-22, , /1/40 530, , , , /1/40-11, , /1/41 550, , , , Total $10,025, $5,646, $15,671, $15,671,

22 SECURITY FOR THE BONDS The principal of and interest on the Bonds are not a debt of the Authority (except to the limited extent described in this Official Statement) or the City, nor a legal or equitable pledge, charge, lien or encumbrance, upon any of their respective property, or upon any of their income, receipts, or revenues except the Revenues and other amounts pledged under the Indenture. This section provides summaries of the security for the Bonds and certain provisions of the Indenture and the Lease. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS for a more complete summary of the Indenture and the Lease. Capitalized terms used but not defined in this section have the meanings given in APPENDIX C. Pledge of Revenues Pursuant to the Indenture, all of the Revenues and all amounts (including proceeds of the sale of the Bonds) held in any fund or account established under the Indenture are pledged to secure the payment of the principal of and interest and premium (if any) on the Bonds in accordance with their terms and the provisions of the Indenture. Said pledge constitutes a lien on and security interest in the Revenues and such amounts and shall attach, be perfected and be valid and binding from and after the Closing Date, without the need for any physical delivery thereof or further act. The Indenture defines the term Revenues to mean (a) all amounts received by the Authority or the Trustee under or with respect to the Lease, including, without limiting the generality of the foregoing, all of the Lease Payments (including both timely and delinquent payments, any late charges, and whether paid from any source), but excluding (i) any additional amounts of rental pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which are applied to finance or refinance the acquisition or construction of any real or personal property for which the City is authorized to expend funds subject to its control and (ii) any Additional Rental Payments; and (b) all interest, profits or other income derived from the investment of amounts in any fund or account established under the Indenture. The Indenture defines the term Additional Rental Payments to mean the amounts of additional rental payments which are payable by the City under the Lease or which are otherwise identified as Additional Rental Payments under the Lease. Under the Lease, Additional Rental Payments, include, but are not limited to, (a) all fees and expenses incurred by the Authority in connection with or by reason of its leasehold estate in the Leased Property, when due, (b) all reasonable compensation to the Trustee for all services rendered under the Indenture and for all reasonable expenses, charges, costs, liabilities, legal fees and other disbursements incurred in and about the performance of its powers and duties under the Indenture,(c) the reasonable fees and expenses of such accountants, consultants, attorneys and other experts as may be engaged by the Authority or the Trustee to prepare audits, financial statements, reports, opinions or provide such other services required under the Lease or the Indenture and (d) all amounts due to the Insurer pursuant to the Indenture, the Bond Insurance Policy and the Reserve Policy (other than reimbursement for draws thereunder). Pursuant to the Assignment Agreement, the Authority has assigned to the Trustee for the benefit of the Owners of the Bonds, certain of its rights under the Lease, including its right to receive Lease Payments for the purpose of securing the payment of debt service on the Bonds and the right to pursue remedies in the event the City defaults under the Lease. 16

23 THE BONDS ARE SPECIAL OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM AND SECURED BY A PLEDGE OF REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE DOES NOT CONSTITUTE AN OBLIGATION OF THE CITY FOR WHICH THE CITY IS OBLIGATED TO LEVY OR PLEDGE ANY FORM OF TAXATION OR FOR WHICH THE CITY HAS LEVIED OR PLEDGED ANY FORM OF TAXATION. NEITHER THE BONDS NOR THE OBLIGATION OF THE CITY TO MAKE LEASE PAYMENTS UNDER THE LEASE CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE COUNTY OF CONTRA COSTA (THE COUNTY ), THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS (INCLUDING ANY MEMBER OF THE AUTHORITY) IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS. Lease Payments; Covenant to Appropriate The City covenants, under the Lease, to make Lease Payments as rental for the right to use and occupy the Leased Property under the Lease. Amounts of the scheduled Lease Payments are calculated to be sufficient to pay debt service on the Bonds when due. Lease Payments will be paid by the City semiannually to the Trustee on the Business Day immediately preceding each Interest Payment Date. Upon receipt, the Trustee will deposit the Lease Payments in the Bond Fund for the purposes of paying principal of and interest on the Bonds. The City covenants under the Lease to take such action as may be necessary to include all Lease Payments in its annual budgets and to make the necessary annual appropriations for all such rental payments. Under certain circumstances described in the Lease, however, Lease Payments are subject to abatement during periods of substantial interference with the City s use and occupancy of all or a portion of the Leased Property. See Abatement below. Abatement The Lease provides that the obligation of the City to pay Lease Payments will be subject to abatement by reason of (i) any damage or destruction such that there is substantial interference with the use and occupancy of all or any portion of the Leased Property, or (ii) a temporary taking of the Leased Property or a permanent taking of a portion of the Leased Property. Such abatement will be in an amount determined by the City, such that the resulting unabated portion of the Lease Payments will represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. In the case of abatement due to damage or destruction of the Leased Property, such abatement will continue for the period commencing with such damage or destruction and ending with the substantial completion of the work of repair or reconstruction. In the event of any such damage or destruction, the Lease continues in full force and effect and the City waives any right to terminate the Lease by virtue of any such damage and destruction. In the case of abatement due to a partial or temporary taking of the Leased Property under the power of eminent domain, (i) the Lease shall continue in full force and effect with respect thereto and (ii) the Lease Payments are subject to abatement in an amount determined by the City such that the resulting Lease Payments represent fair consideration for the use and occupancy of the remaining usable portions of the Leased Property not damaged or destroyed. If all of the Leased Property is taken permanently under the power of eminent domain or sold to 17

24 a government threatening to exercise the power of eminent domain, the term of the Lease ceases as of the day such possession is taken. Notwithstanding the foregoing, under the Lease, the Lease Payments will not be subject to abatement to the extent that amounts in the Insurance and Condemnation Fund (i.e. proceeds of insurance against accident to or destruction of the Leased Property collected by the City or the Authority in the event of any such accident or destruction (including rental interruption insurance)) or in the Bond Fund are available to pay Lease Payments which would otherwise be abated. Insurance; Condemnation Liability and Property Damage Insurance. Pursuant to the Lease, the City is required to maintain or cause to be maintained throughout the Term of the Lease from insurers rated A- or better by S&P (as hereinafter defined), a standard commercial general liability insurance policy or policies in protection of the Authority, the City, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage in an amount equal to the replacement cost of the Leased Property and be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of selfinsurance by the City acceptable to AGM, subject to the provisions of the Lease, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance must be applied toward extinguishment or satisfaction of the liability with respect to which paid. Casualty Insurance. Pursuant to the Lease, the City is required to procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, casualty insurance against loss or damage to all buildings situated on the Leased Property, in an amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate principal amount of the Outstanding Bonds. Such insurance must, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and must include earthquake insurance if available at reasonable cost from reputable insurers in the judgment of the City. Such insurance may be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of selfinsurance. The Net Proceeds of such insurance must be deposited in the Insurance and Condemnation Fund to be applied as set forth in the Indenture. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. Rental Interruption Insurance. Pursuant to the Lease, the City is required to procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of any of the hazards covered in the casualty insurance described in the preceding paragraph, in an amount at least equal to the maximum such Lease Payments coming due and payable during 18

25 any consecutive two Fiscal Years. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, must be paid to the Trustee and deposited in the Bond Fund, to be applied as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable, or to the extent there has been a draw on the Reserve Policy, to reimburse AGM for amounts due under the Indenture as a result of a draw on the Reserve Policy. Title Insurance. Pursuant to the Lease, on or before the Closing Date the City shall, at its expense, obtain a CLTA title insurance policy insuring the City s leasehold estate under the Lease in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. All Net Proceeds received under any such title insurance policy must be deposited with the Trustee in the Bond Fund to be credited towards the prepayment of the remaining Lease Payments. Condemnation Proceeds. Pursuant to the Indenture, if all or any part of the Leased Property is taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain) the Authority shall deposit or cause to be deposited with the Trustee the Net Proceeds therefrom, which the Trustee shall deposit in the Insurance and Condemnation Fund under the Lease and which shall be applied and disbursed by the Trustee as follows: (i) If the City has not given written notice to the Trustee, within 45 days following the date on which such Net Proceeds are deposited with the Trustee, of its determination that such Net Proceeds are needed for the replacement of the Leased Property or such portion thereof, the Trustee shall transfer such Net Proceeds to the Redemption Fund to be applied towards the redemption of the Bonds under the Indenture. (ii) If the City has given written notice to the Trustee, within 45 days following the date on which such Net Proceeds are deposited with the Trustee, of its determination that such Net Proceeds are needed for replacement of the Leased Property or such portion thereof, the Trustee shall pay to the City, or to its order, from said proceeds such amounts as the City may expend for such replacement, upon the filing of Written Requisitions of the City as agent for the Authority. No assurance can be given that the proceeds of any insurance or condemnation award will be sufficient under all circumstances to repair or replace the Leased Property or to prepay all of the Lease Payments with respect to the Leased Property. Also, the City makes no representation as to the sufficiency of any insurance awards or the adequacy of any selfinsurance to pay, when and as due, amounts payable under the Lease or the Bonds. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS for a description of provisions of the Lease Agreement and the Trust Indenture relating to the application of proceeds from the casualty insurance or condemnation awards. See RISK FACTORS Abatement. 19

26 Project Fund Establishment of Project Fund. Pursuant to the Indenture, the Trustee will establish a special fund designated as the Project Fund. The Trustee will keep such fund separate and apart from all other funds and moneys held by the Trustee, and will administer such fund as provided in the Indenture and described below. Application of Project Fund. Amounts in the Project Fund shall be disbursed for Project Costs. Disbursements from the Project Fund shall be made by the Trustee upon receipt of a sequentially numbered Written Request of the City. Such requisition shall: (i) set forth the amounts to be disbursed for payment or reimbursement of previous payments of Project Costs and the person or persons to whom said amounts are to be disbursed; and (ii) state that the amounts to be disbursed constitute Project Costs, that said amounts are required to be disbursed pursuant to a contract entered into therefor by or on behalf of the City, or were necessarily and reasonably incurred, and that said amounts are not being paid in advance of the time, if any, fixed for payment. Upon completion (or otherwise when the City determines that it no longer needs amounts in the Project Fund for payment of Project Costs), the City shall file a Certificate of City with the Trustee to such effect, and the Trustee shall transfer any moneys in the Project Fund to the Bond Fund. Thereupon, the Project Fund shall be closed. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS for further information regarding the Project Fund and a description of Project Costs. Reserve Account Establishment of Reserve Account. Pursuant to the Indenture, the Trustee will establish and hold a fund entitled the Reserve Account within the Bond Fund. On or before each Interest Payment Date, the Trustee is required to transfer from the Bond Fund and, after making deposits into the Interest Account and Principal Account pursuant to the Indenture, deposit into the Reserve Account an amount equal to the Reserve Requirement. Definition of Reserve Requirement. The Indenture defines Reserve Requirement to mean, as of the date of calculation thereof, an amount equal to the least of (a) 10% of the principal amount of the Bonds, determined in accordance with the Tax Code, (b) the maximum amount of principal of and interest on the Bonds coming due and payable on the Bonds in the current or any future Bond Year, or (c) 125% of the average amount of principal of and interest on the Bonds coming due and payable on the Bonds in the current or any future Bond Year. The Reserve Requirement will be met with the deposit of the Reserve Policy in the Reserve Account on the Closing Date. The amounts available under the Reserve Policy will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Reserve Account for the purpose of making transfers to the Interest Account and the Principal Account in accordance with the Indenture. 20

27 The Trustee will comply with all documentation relating to the Reserve Policy as shall be required to maintain the Reserve Policy in full force and effect and as shall be required to receive payments thereunder in the event and to the extent required to make any payment when and as required under the Indenture, including the reimbursement of all amounts due and owing to AGM in respect of the Reserve Policy. The Authority will have no obligation to replace the Reserve Policy or to fund the Reserve Account with cash if, at any time that the Bonds are Outstanding, amounts are not available under the Reserve Policy or if the rating of the claims-paying ability of the Insurer is downgraded. Use of Amounts in Reserve Account. All amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds when due and payable, to the extent that moneys deposited in the Interest Account or the Principal Account are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds. If the amounts on deposit in the Reserve Account are insufficient at any time to pay the full amount of principal of and interest on the Bonds then required to be paid from the Reserve Account, the Trustee shall apply such amounts first, to the payment of interest and second, to the payment of principal. If at any time the amounts on deposit in the Reserve Account are sufficient to enable the Authority to pay or redeem all of the Outstanding Bonds and the interest thereon, the Trustee shall apply the amounts in the Reserve Account for that purpose at the Written Request of the Authority. On the date on which all Bonds are retired under the Indenture or provision is made therefor under the Indenture, after payment of any amounts then owed to the Trustee, all moneys then on deposit in the Reserve Account shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Lease Payments. If the amount held in the Reserve Account on May 1 or November 1 in any year is excess of the Reserve Requirement, the Trustee shall transfer such amount to the Bond Fund to be applied in accordance with the Indenture. Remedies If the City defaults in performance of its obligations under the Lease, the Authority or the Trustee, as assignee of the Authority, may either terminate the Lease and re-enter and re-let all or a portion of the Leased Property or may retain the Lease and hold the City liable for all payments on an annual basis and still have the right to re-enter and re-let the Leased Property without effecting a surrender of the Lease. Additionally, the Trustee may pursue remedies at law or in equity to enforce the Lease. Although the Lease and the Indenture provide that the Trustee, as assignee of the Authority, may take possession of the Leased Property if there is a default by the City, and the Lease provides that the Trustee may have such rights of access to the Leased Property as may be necessary to exercise any remedies, portions of the Leased Property may not be easily recoverable and, even if recovered, could be of little value to others. There can be no assurance that the Leased Property can be re-let for an amount equal to all outstanding Lease Payments. Due to the essential nature of the governmental functions of the Leased Property, it is not certain whether a court would permit the exercise of the remedies of repossession and reletting with respect thereto. In addition, the remedy of repossession and re-letting may prove to be unavailable or not economically viable with respect to all or portions of the Leased Property because the Authority has only a leasehold or other possessory right to some of the Leased Property. Therefore, repossession of the Leased Property in such instances may not be an 21

28 available remedy. In addition, assuming the Leased Property could be repossessed, it may prove functionally impossible to relet. 22

29 BOND INSURANCE The following information has been furnished by AGM for use in this Official Statement. No representation is made by the City, the Authority or the Underwriter as to the accuracy or completeness of this information, or the absence of material adverse changes therein at any time subsequent to the date hereof. See APPENDIX G for a specimen of the Policy. Bond Insurance Policy Concurrently with the issuance of the Bonds, AGM will issue its Municipal Bond Insurance Policy (the Policy ) for the Bonds. The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement. 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 S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC ( 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. 23

30 Current Financial Strength Ratings. On July 27, 2016, 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 August 8, 2016, Moody s published a credit opinion affirming its existing insurance financial strength rating of A2 (stable outlook) on AGM. AGM can give no assurance as to any further ratings action that Moody s may take. On December 10, 2015, KBRA issued a financial guaranty surveillance report in which it affirmed AGM s insurance financial strength rating of AA+ (stable outlook). AGM can give no assurance as to any further ratings action that KBRA 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, 2016, AGM s policyholders surplus and contingency reserve were approximately $3,891 million and its net unearned premium reserve was approximately $1,378 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: (i) the Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (filed by AGL with the SEC on February 26, 2016); (ii) the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016 (filed by AGL with the SEC on May 5, 2016); (iii) the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 (filed by AGL with the SEC on August 4, 2016); and (iv) the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 (filed by AGL with the SEC on November 4, 2016). 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 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 htttp:// or will be provided upon request to Assured Guaranty Municipal Corp.: 1633 Broadway, New York, New York 10019, Attention: Communications Department (telephone (212) ). Except for the information referred to above, no 24

31 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 Bonds or the advisability of investing in the 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 heading BOND INSURANCE. 25

32 THE AUTHORITY The Authority was formed pursuant to a Joint Exercise of Powers Agreement dated as of August 1, 2003 (the Joint Exercise of Powers Agreement ), between the City and the former Redevelopment Agency of the City of Oakley (the Former Agency ). The Authority was formed for the purpose, among others, of assisting the City in the acquisition, construction and financing of public improvements that are of public benefit to the City. The City Council acts as the Board of the Authority. The Mayor and the Vice Mayor of the City serve as the Chairman and Vice-Chairman, respectively, the City Manager serves as the Executive Director, the City Clerk serves as the Secretary, and the City s Finance Director serves as the Treasurer of the Authority. The Successor Agency to the Oakley Redevelopment Agency (the Successor Agency ) has succeeded to the rights and obligations of the Former Agency under the Joint Exercise of Powers Agreement as a result of amendments to the California Community Redevelopment Law. The City Council sits as the board of the Successor Agency and the Successor Agency functions, in essence, as a department of the City. 26

33 THE CITY General Location. The City is situated in the eastern portion of the County, along the shore of the Sacramento-San Joaquin Delta, near the cities of Pittsburg, Antioch, and Brentwood. Close to the junction of Highways 4 and 160, with access to San Francisco, the Silicon Valley, and Sacramento, the City is equidistant from both San Francisco and Sacramento at 55 miles. The City enjoys close proximity to major regional employment areas, including San Francisco and the northern Bay Area, Walnut Creek and the San Ramon corridor in Contra Costa County and the Stockton and central San Joaquin Valley area to the east. The City also enjoys close proximity to major regional recreation areas, including Mt. Diablo State Park approximately 25 miles to the west, the Sierra Nevada Mountains 90 miles to the east and the Sacramento Delta waterway to the north. City Government. The City is a community of approximately 40,141 located in the eastern portion of the County. The City was incorporated on July 1, 1999, and is operated under a Council-City Manager structure of government. The City Council is comprised of five members elected by the voters citywide, serving in staggered 4-year terms. Two City Council members are selected on annual basis by the City Council to serve as Mayor and Vice Mayor. The City Council hires a City Manager to run the City s day-to-day operations. The City Council of the City currently consists of the following persons: Council Member Title Expiration of Term Kevin Romick Mayor December 2016* Sue Higgins Vice Mayor December 2018 Doug Hardcastle Councilmember December 2016* Vanessa Perry Councilmember December 2016 Randy Pope Councilmember December 2018 * Elected to serve an additional 4-year term as a council member of the City on November 8, City Services. The City provides the following services: Legislative, Administrative, Building and Safety; Planning; Engineering; Streets; Parks and Landscaping Maintenance; Recreation; and Police Protection. Sewer, Water, Transit, Irrigation, Mosquito Abatement, Flood Control, Schools, and Fire Protection Services are all provided by local special districts with their own governing boards. The City contracts for sanitation service with a local firm under a long-term franchise agreement. 27

34 CITY FINANCIAL INFORMATION Budget Process Annual Budget Process. Each year, the City Council holds a strategic planning discussion and adopts a budget to direct the allocation of City resources in accordance with its strategic planning priorities. The process typically beings in January with internal budget reviews, followed by a strategic planning session in March, a budget workshop in May to discuss a Proposed Budget, and adoption of a final Recommended Budget in June. The City operates on a fiscal year that begins July 1 and ends on June 30. The adopted Budget includes the annual update of the City s Comprehensive Statement of Financial Policies, which serves as a framework for its financial practices, an update to its 10 Year Plan, and budgets for each of the funds under the City s control. Budgetary control is established at the fund level. The City s General Fund is its primary operating fund, and is used to account for Legislative, Administrative Services, Community Development, Recreation, Police and Public Works operations, and is where the City accounts for all its general-purpose revenues. It is distinguished from the City s other governmental funds that are used to account for special purpose revenues, capital projects, debt service activities, and monies held for the benefit of others. The Governmental Accounting Standards Board ( GASB ) published its Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, on June 30, 1999 ( GASB Statement No. 34 ). GASB Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management s Discussion and Analysis; (ii) government-wide financial statements prepared using the economic measurement focus and the accrual basis of accounting and fund financial statements prepared using both the current financial resources measurement focus and the modified accrual method of accounting (governmental funds) and funds using the economic measurement focus and the accrual basis of accounting (proprietary funds) and (iii) required supplementary information. The City s financial statements are prepared in conformance with the requirements of GASB Statement No. 34. Adopted Fiscal Year Budget. The City s budget for fiscal year (the Budget ) anticipates approximately $11.6 million in revenue, an 4.2% increase from revenue budgeted in the City s budget for fiscal year (the Budget ). The City s general fund operating expenditure plan presented in the Budget totals approximately $10.1 million and represents an 8.9% decrease from the Budget. 28

35 General Fund Budgets The following table shows the City s adopted budget of revenues, expenditures and changes in fund balance for its General Fund for the most recent three fiscal years. It also shows the audited General Fund revenues, expenditures and changes in fund balance for fiscal year and fiscal year Table 1 City of Oakley General Fund Budgets For Fiscal Years through Amended Budget FY Audited FY Amended Budget FY Audited FY Adopted Budget FY Revenues: Property taxes $4,644,150 $4,832,574 $5,233,000 $5,323,685 $5,487,000 Sales taxes 1,346,500 1,506,300 1,693,000 1,752,799 1,755,000 Other taxes 1,483,000 1,494,472 1,493,000 1,645,472 1,575,000 Licenses and permits 803,038 1,284,503 1,132,700 2,024,190 1,185,600 Charges for services 54,000 74,901 47, ,808 74,000 Fines and forfeits 151, , , , ,500 Intergovernmental: Mother vehicle in lieu 16,000 15, ,651 15,000 Other 334, , , , ,442 Use of money and property 197, , , , ,000 Miscellaneous 869, , ,583 1,115, ,822 Total revenues 9,899,129 11,045,568 11,166,783 12,772,318 11,630,364 Expenditures: Current: Legislative 499, , , , ,612 Administrative services 1,472,596 1,287,373 1,490,491 1,335,242 1,900,773 Community development 1,410,919 1,345,552 1,681,022 1,592,691 1,663,263 Public works 672, , , , ,623 Law enforcement 5,276,714 4,523,333 6,078,328 4,498,740 (1) 4,345,512 Recreation 528, , , , ,437 Capital Outlay ,420, , ,000 Estimated reduction in value of land held for redevelopment -- 40, Total expenditures 9,860,438 8,690,452 12,458,830 9,697,245 10,769,220 Excess (deficiency) of revenues over (under) expenditures 38,691 2,355,116 (1,292,047) 3,075, ,144 Other Financing Sources (Uses): Proceeds from sale of property 135,000 10, ,000 79, Transfers in -- 1, Transfers (out) (1,432,500) (1,432,500) (1,530,000) (1,530,000) (4,500,000) (2) Total other financing sources (uses) (1,297,500) (1,420,648) (1,391,000) (1,450,372) (4,500,000) Net Change in Fund Balance before Special Items ($1,258,809) 934,468 ($2,683,047) 1,624,701 ($3,638,856) Special Items: Assets transferred to/from Successor Agency -- (274,305) -- 2,903,630 (3) -- Fund Balances: Beginning of year -- 12,381, ,042, End of year -- $13,042, $17,570, (1) Difference in expenditures related to law enforcement between budgeted and actual expenditures for fiscal year of approximately $1.6 million is primarily due to fewer police officers having worked during the fiscal year than budgeted. See Employee Relations for further information regarding the City s police department. (2) Represents transfers from the General Fund to other funds of the City for certain capital projects, including a $4 million transfer to the City s General Capital Projects Fund for the 2016 Project to satisfy a portion of anticipated construction costs thereof. (3) Represents a non-cash asset transfer to the City by the Successor Agency. Source: City of Oakley. 29

36 City Financial Policies The City Council provides long-term policy guidance to City staff for conducting the City s financial activities through its Statement of Financial Policies (the Financial Policies ). Following is a brief summary of certain of provisions of the Financial Policies. Operating Budget Policies. The City Council will adopt a balanced budget by June 30 of each year. An annual base operating budget will be developed by verifying or conservatively projecting revenues and expenditures for the current and forthcoming fiscal year. The purchase of new or replacement capital equipment with a value of $25,000 or more and with a useful life of two years or more will require City Council approval. The City will avoid budgetary and accounting procedures which balance the current budget at the expense of future budgets. All recommended increased appropriations of general purpose revenues, General Fund reserves, or that transfer appropriations between funds during the year will be presented to the City Council for approval. Amendments made to authorize spending of increased or new special purpose revenues may be approved by the City Manager. Revenue Policies. The City will work to develop a diversified and stable revenue system to protect it from short-term fluctuations in any one revenue source. User fees will be adjusted bi-annually to recover the full cost of services provided, except when the City Council determines that a subsidy from the General Fund is in the public interest. Capital improvements will be financed primarily through user fees, service charges, impact fees, or developer agreements when benefits can be specifically attributed to users of the facility. For projects financed with debt, the fees, charges, and/or contractual payments will be established at a level sufficient to fund the project in its entirety, including the repayment of principal and interest on amounts borrowed. The City will consider future operations and maintenance costs as part of each project s financing plan and ensure that funding sources are identified to properly operate and maintain the improvements when constructed. Expenditure Policies. The City will maintain a level of expenditure which will provide for the public well-being and safety of the residents of the community. Capital Budget and Improvement Budget Policies. The City will develop an annual Five-Year Plan for Capital Improvements, including sections for capital improvement program ( CIP ) design, development, implementation, and operating maintenance costs. The City will identify the estimated capital and ongoing operations and maintenance costs, potential funding sources and project schedule for each capital project proposal before it is submitted to the City Council for approval. The costs related to the 2016 Project are included in the City s CIP. In addition to the proceeds of the Bonds available to finance the 2016 Project, a portion of such costs are anticipated to be satisfied from $4 million budgeted to be transferred in fiscal year to the City s General Capital Projects Fund. The City will coordinate development of annual capital improvement budget with the development of the operating budget. All costs for internal professional services needed to implement the CIP will be included in the operating budget for the year the CIP is to be implemented. The Capital Budget will be based on the CIP, and each project s unused appropriations at each year-end will be automatically rolled over to the subsequent year, until the project is completed. Additions to project funding plans required City Council approval. Changes that do not increase funding levels may be approved by the City Manager. 30

37 Reserve Policies. The City will maintain General Fund emergency reserves at a level at least equal to 20% of general fund operating expenditures. The primary purpose of these reserves is to project the City s essential service programs and funding requirements during periods of economic downturn (defined as a recession lasting two or more years) or other unforeseen catastrophic costs not covered by the City s Contingency Reserve. Should the balance in the reserve fall below the 20% threshold, a plan to restore the level over a period of no more than five years will be included in each proposed annual budget reviewed with the City Council until the reserve has been returned to at least 20%. Financial Statements Accounting Policies. The basic financial statements of the City are prepared in conformity with accounting principles generally accepted in the United States ( U.S. GAAP ) as applied to governmental agencies. The GASB is the accepted standard setting body for establishing governmental accounting and financial reporting principles. The accounts of the City are organized on the basis of funds, each of which is considered a separate accounting entity. The operations of each fund are accounted for by providing a separate set of self-balancing accounts that comprise its assets, liabilities, fund balance, revenues and expenditures or expenses, as appropriate. City resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which spending activities are controlled. See APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 for additional information regarding the City s accounting policies. Audited Financial Statements. The City s most recent audited financial statements for the fiscal year ending June 30, 2016, are attached as APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 to this Official Statement, and were prepared by the City and audited by Maze & Associates, Pleasant Hill, California (the Auditor ). The Financial Statements should be read in their entirety. The City has not requested nor did the City obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the City or the General Fund. In addition, the Auditor has not reviewed this Official Statement. 31

38 The following table sets forth the General Fund balance sheets of City for the last six fiscal years. Assets: Cash and investments available for operations Accounts receivable, net allowance of Table 2 City of Oakley General Fund Balance Sheet As of June 30 for Fiscal Years through Audited FY Audited FY Audited FY Audited FY Audited FY Audited FY $6,025,501 $6,950,848 $7,729,247 $9,030,853 $9,929,996 $10,967, , ,839 1,246, , ,715 1,229,137 doubtful accounts Interest receivable 5,799 4,718 3,508 4,691 5,809 12,299 Due from other funds -- 50, ,819 8, Prepaid and deposits 193,962 20,857 27,834 22,832 27, ,500 Loans receivable 1,102,823 1,089, ,131 1,161,299 1,856,589 1,822,742 Advances to other funds 169, , , , , ,732 Lands held for resale or redevelopment 1,998,435 1,998,435 2,222,235 2,222,235 2,182,235 4,732,066 Total assets 10,059,601 10,899,396 13,082,737 13,619,947 15,191,444 19,208,879 Liabilities: Accounts payable 1,359,409 1,246,144 1,534, ,049 1,257, ,719 Accrued liabilities 32,587 40,473 40,288 57, , ,195 Deposits payable ,766 Unearned revenue , , , ,703 Deferred revenue 759, , Advances from other funds Total liabilities 2,151,238 2,141,887 1,895,481 1,042,724 1,977,879 1,519,383 Deferred inflows of resources: Unavailable revenue accounts receivable , , , ,041 Fund Balances: Nonspendable 2,847,266 2,842,611 3,300,858 3,654,081 4,374,924 7,000,040 Restricted 559, , , , , ,498 Assigned 155, , , , , ,008 Unassigned 4,346,502 5,255,400 6,151,038 7,837,093 7,938,168 9,067,909 Total fund balances 7,908,363 8,757,509 11,002,394 12,381,961 13,042,124 17,570,455 Total liabilities and fund balances $10,059,601 $10,899,396 $13,082,737 $13,619,947 $15,191,444 $19,208,879 Source: City of Oakley Audited Financial Statements. The table on the next page sets forth the audited statement of revenues, expenditures and changes in fund balances for the City s General Fund for the last six fiscal years. 32

39 Table 3 City of Oakley Statement of General Fund Revenues, Expenditures and Changes in Fund Balance Fiscal Years through Audited FY Audited FY Audited FY Audited FY Audited FY Audited FY Revenues: Property taxes $3,877,581 $3,687,678 $4,317,823 $4,014,795 $4,832,574 $5,323,685 Sales tax 1,412,503 1,590,120 1,617,770 1,520,884 1,506,300 1,752,799 Other taxes 1,076,464 1,193,150 1,311,245 1,425,552 1,494,472 1,645,472 License and permits 950, ,965 1,178,075 1,344,949 1,284,503 2,024,190 Charges for services 41,952 74,316 53,561 75,691 74, ,808 Fines and forfeits 149, , , , , ,383 Intergovernmental: Motor vehicle in lieu 159,316 17,809 18,727 15,804 15,603 15,651 Other 95, , , , , ,284 Developer fees Special assessments Loan repayments Use of money and property 78,544 95, , , , ,225 Miscellaneous 1,158, , , , ,706 1,115,821 Total revenues 9,000,159 8,825,249 10,059,081 9,752,761 11,045,568 12,772,318 Expenditures: Current: Legislative 483, , , , , ,763 Administrative services 783, , ,430 1,110,343 1,287,373 1,335,242 Community development 1,238,715 1,175,328 1,282,663 1,225,658 1,345,552 1,592,691 Public works 351, , , , , ,182 Housing programs Law enforcement 4,737,030 4,664,278 4,214,760 4,282,445 4,523,333 4,498,740 Recreation 237, , , , , ,798 Capital outlay 110,612 93,186 64, ,829 Estimated reduction in value of land held for -- redevelopment ,000 Debt service: Principal Interest and fiscal charges Total expenditures 7,942,044 7,807,826 7,746,611 8,032,789 8,690,452 9,697,245 Excess of revenues over (under) expenditures 1,058,115 1,017,423 2,312,470 1,719,972 2,355,116 3,075,073 Other financing sources (uses): Proceeds from sale of property ,000 79,035 Transfers in 7,595 2, , Transfers (out) (102,500) (171,000) (67,788) (341,212) (1,432,500) (1,530,000) Total other financing sources (uses) (94,905) (168,277) (67,585) (340,405) (1,420,648) (1,450,372) Net Change in Fund Balances before Special Items 963, ,146 2,244,885 1,379, ,468 1,624,701 Special Items: Assets transferred to/from Successor Agency (274,305) 2,903,630 Net Change in Fund Balances 963, ,146 2,244,885 1,379, ,163 4,528,331 Fund Balances (Deficit) At Beginning of Year 6,945,153 7,908,363 8,757,509 11,002,394 12,381,961 13,042,124 Fund Balances (Deficit) At End of Year $7,908,363 $8,757,509 $11,002,394 $12,381,961 $13,042,124 $17,570,455 Source: City of Oakley Audited Financial Statements. 33

40 General Fund Revenues Revenues received by the City for the three most recent fiscal years for which audited financial statements are available and projected revenues set forth in the adopted budget for fiscal year , are set forth in the table below. Table 4 City of Oakley General Fund Revenues by Source - General Governmental Activities Revenue Audited FY Audited FY Audited FY Adopted Budget FY Property taxes $4,014,795 $4,832,574 $5,323,685 $5,487,000 Sales tax 1,520,884 1,506,300 1,752,799 1,755,000 Other taxes 1,425,552 1,494,472 1,645,472 1,575,000 License and permits 1,344,949 1,284,503 2,024,190 1,185,600 Charges for services 75,691 74, ,808 74,000 Fines and forfeits 158, , , ,500 Intergovernmental: Motor vehicle in lieu 15,804 15,603 15,651 15,000 Other 245, , , ,442 Use of money and property 146, , , ,000 Miscellaneous 804, ,706 1,115, ,822 Total revenues $9,752,761 $11,045,568 $12,772,318 $11,630,364 Source: City of Oakley Audited Financial Statements; City of Oakley. Property Taxes General. The City receives two significant types of property taxes: (1) the City s share of 1% ad valorem tax on property collected by the County; and (2) Property Tax In Lieu of Vehicle License Fees. Both types of taxes are driven primarily by changes in assessed values. The City anticipates an increase of 5% in citywide assessed values in fiscal year The City s fiscal year Budget includes estimated revenues from ad valorem property taxes totaling $2,708,000 and Property Taxes in Lieu of Vehicle License Fees totaling $2,629,000. Levy and Collection. Property taxes are levied for each fiscal year on taxable real and personal property as of the preceding January 1. For assessment and collection purposes, property is classified either as secured or unsecured and is listed accordingly on separate parts of the assessment roll. The secured roll is that part of the assessment roll containing State-assessed public utilities property and real property the taxes on which are a lien sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the unsecured roll. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and become delinquent on December 10 and April 10, respectively. A penalty of 10% attaches immediately to all delinquent payments. Property on the secured roll with respect to which taxes are delinquent become tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of a penalty of 1% per month to the time of redemption, plus costs and a redemption fee. If taxes are unpaid for a period of five years or more, the property is deeded to the State and may be sold at public auction. 34

41 Property taxes on the unsecured roll are due as of the January 1 lien dates and become delinquent on August 31. A 10% penalty attaches to delinquent unsecured taxes. If unsecured taxes are unpaid at 5:00 p.m. on October 31, an additional penalty of 1% attaches to them on the first day of each month until paid. The County has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a judgment in the office of the County Clerk specifying certain facts in order to obtain a lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the assessee. Beginning in , Proposition 13 and its implementing legislation shifted the function of property tax allocation to the counties, except for levies to support prior voted debt, and prescribed how levies on county-wide property values are to be shared with local taxing entities within each county. Teeter Plan. The Board of Supervisors of the County has approved the implementation of the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ), as provided for in Section 4701 et seq. of the California Revenue and Taxation Code. Under the Teeter Plan, the County apportions secured property taxes on an accrual basis when due (irrespective of actual collections) to local political subdivisions, including the City, for which the County acts as the tax-levying or tax-collecting agency. The Teeter Plan is applicable to all tax levies on secured property for which the County acts as the tax-levying or tax-collecting agency, or for which the County treasury is the legal depository of the tax collections, which includes the City. The Teeter Plan is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax-levying or tax-collecting agency. Assessed Valuation. All property is assessed using full cash value as defined by Article XIIIA of the State Constitution. State law provides exemptions from ad valorem property taxation for certain classes of property such as churches, colleges, non-profit hospitals, and charitable institutions. See CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS. Future assessed valuation growth allowed under Article XIIIA (new construction, certain changes of ownership, 2% inflation) will be allocated on the basis of situs among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of base revenues from the tax rate area. Each year s growth allocation becomes part of each agency s allocation in the following year. 35

42 Proposition 13 and Proposition 8 Property Value Adjustments. Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or 2%, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed. Proposition 8, enacted in 1978, allows for a temporary reduction in assessed value when a property suffers a decline-in-value. As of January 1st (lien date) each year, the Assessor must enroll either a property s Proposition 13 value (adjusted annually for inflation by no more than 2%) or its current market value, whichever is less. When the current market value replaces the higher Proposition 13 value, the lower value is commonly referred to as a Proposition 8 Value. Proposition 8 values are temporary and, once enrolled, must be reviewed annually by the assessor until the Proposition 13 adjusted base year value is enrolled. Assessed Valuation History. The following table shows a 10 year history of the City s assessed valuation. Table 5 City of Oakley Assessed Valuations of All Taxable Property Fiscal Years to Local Secured Utility Unsecured Total Assessed Value Percent Change $3,516,634,838 $ -- $46,879,096 $3,563,513, ,329,132, ,300,156 3,376,432,314 (5.2)% ,588,417, ,327,006 2,635,744,586 (21.9) ,520,711, ,225 40,254,897 2,561,812,141 (2.8) ,409,580,854 62,100 51,914,272 2,461,557,226 (3.9) ,398,318,990 1,582,100 47,003,277 2,446,904,367 (0.6) ,586,815,876 1,802,200 40,593,445 2,629,211, ,118,298,832 5,142,200 37,876,446 3,161,317, ,369,002,931 5,302,200 42,377,574 3,416,682, ,639,437,537 5,452,200 48,080,641 3,692,970, Source: California Municipal Statistics, Inc. 36

43 Major Property Taxpayers. The following table shows the 20 largest taxpayers in the City as determined by their secured assessed valuations in Table 6 City of Oakley Largest Local Secured Taxpayers % of Property Owner Primary Land Use Assessed Valuation Total (1) 1. Brookfield Emerson Land LLC Residential Development $ 41,175, % 2. Cypress Square-S&R Associates Shopping Center 18,744, Richmond American Homes of Maryland Residential Development 14,223, East County Communities LLC Residential Development 14,042, Chemours Company FC LLC Industrial 12,539, Neroly Sports Club Investors Athletic Club 12,443, CC County Communities LLC Undeveloped 12,200, HPH Properties LP Industrial 10,264, Shea Homes LP Residential Development 9,628, Emerson 86 Lots LLC Residential Development 8,763, Shurgard Storage Centers Inc. Industrial 8,496, Forecast Land Investment LLC Undeveloped 7,750, Oakley Hotels LLC Hotel 7,557, Simon-Oakley Town Center LLC Shopping Center 7,546, Lucky No Cal Investor LLC Shopping Center 7,303, WEC 98D-30 LLC Shopping Center 5,781, Mission Mile LLC Shopping Center 5,076, Towncentre Commons LP Residential Properties 4,792, Hayworth-Fabian LLC RV Storage 4,513, S Investments LLC Service Station/Mart 4,330, $217,172, % (1) Fiscal Year Local Secured Assessed Valuation: $3,639,437,537. Source: California Municipal Statistics, Inc. Sales Taxes The City receives a share of sales taxes when the point of sale is located in the City. While the City does not yet have a large commercial base, business activity is expected to grow over time and revenues projected to increase. For fiscal year , the estimated sales taxes are $1,755,000, an increase of 3.6% adjusted for one-time true up payment in fiscal year for the end of the sales tax Triple Flip. Sales Tax Rates. The City collects a percentage of taxable sales in the City (minus certain administrative costs imposed by the State Board of Equalization) pursuant to the Bradley-Burns Uniform Local Sales and Use Tax (the Sales and Use Tax Law ), as shown below. As part of the State s fiscal year Budget, the State Legislature authorized, and the voters of the State approved, a redirection to the State from local jurisdictions (including the City) of sales revenues in the amount of 0.25% of the basic 1.0% local sales tax rate, starting July 1, The State uses such revenues to pay the State s economic recovery bonds. Under the California Economic Recovery Act, which includes legislation commonly referred to as the Triple Flip, the State redirected certain property taxes in the Education Augmentation Revenue Fund to local governments, including the City, to compensate for this redirection of sales taxes on a dollar for dollar basis. The Triple Flip ended in fiscal year

44 Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City s share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows: Table 7 City of Oakley Sales Tax Rates As of July 1, 2016 Component Rate State (General Fund) % State (Fiscal Recovery Fund) State (Local Revenue Fund 1991 Realignment) State (Local Revenue Fund 2011) State (Local Public Safety Fund) State (Education Protection Account) Total State-Wide Tax Rate % City % County Transportation.2500 Transit/Special (BART).5000 Proposition 172 (1).5000 Total City of Oakley Tax Rate % (1) Proposition 172 put a one-half percent state sales tax rate in the Section 35, Article XIII of the California Constitution, effective January 1, Under Proposition 172, all revenues from the additional one-half percent sales tax can be used only for local public safety activities, to include police and sheriffs' departments, fire protection, county district attorneys, county probation, and county jail operations. Source: California State Board of Equalization. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, including sales of the following products: food products for home consumption; prescription medicine; newspapers and periodicals; edible livestock and their feed; seed and fertilizer used in raising food for human consumption; and gas, electricity and water when delivered to consumers through mains, lines and pipes. This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the State Board of Equalization s July 2014 Publication No. 61 entitled Sales and Use Taxes: 38

45 Exemptions and Exclusions, which can be found on the State Board of Equalization s website at The City and the Authority do not take any responsibility for the continued accuracy of the foregoing internet address or for the accuracy, completeness or timeliness of information on such website, and such information is not incorporated herein by this reference. Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the California State Board of Equalization. According to the State Board of Equalization, it distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year s like quarterly tax allocation as a starting point, the State Board of Equalization first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The State Board of Equalization disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter s actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the State Board of Equalization under a contract with any city, city and county, or county are required to be transmitted by the State Board of Equalization to such city, city and county, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the State Board of Equalization projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the State Board of Equalization s quarterly projection. During the last month of each quarter, the State Board of Equalization adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. The Board of Equalization receives an administrative fee based on the cost of services provided by the Board to the City in administering the City s sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. 39

46 History of Taxable Transactions. Total taxable sales during calendar year 2014 in the City were reported to be approximately $128.9 million, a 6.81% increase over the total taxable sales of approximately $137.6 million reported during calendar year Figures are not yet available for calendar year Table 8 City of Oakley Number of Permits and Valuation of Taxable Transactions (in thousands of dollars) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions $92, $124, , , , , , , , ,635 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). Other Taxes and Revenues Interfund Charges for Services. Interfund Charges for Services is the largest revenue of the City. More than one-third of the fiscal year General Fund revenue categories are cost recoveries for activity funded by impact fees, developer application fees, special taxes, assessments and other special purpose revenues. For fiscal year , estimated Interfund Charges for Police Services total approximately $3.7 million, for Engineering Services total approximately $1.2 million, for Public Works Maintenance total approximately $252,000, for Planning Services total approximately $30,000, for Parks Maintenance Services total approximately $400,000, and for Other Services total approximately $80,000. Other Taxes. In addition to the property and sales taxes, the City collects a transient occupancy (hotel) tax, utility franchise fees, property transfer taxes, and business license taxes. For fiscal year , estimated total other taxes are $1,835,000, an increase of $94,000 over fiscal year , as a result of anticipated increases in franchise fee revenues. Intergovernmental Revenues. The City receives revenue from various other governmental agencies in the form of grants, motor vehicle tax, school resource officer reimbursements, vehicle abatement, recycling grants and administrative charges. For fiscal year , total intergovernmental revenues are projected to total approximately $395,400. Utility Franchise Fee. The utility franchise fee is comprised of a tax on electric, gas, garbage, and cable. 40

47 The City s history of enactments regarding its utility franchise fee is summarized as follows: Table 9 City of Oakley Utility Franchise Fee History Effective Date Utility Covered Rate 1999 Gas & Electric 2% 2006 Cable TV 5% 2010 Garbage 8% (1) (1) Subject to an annual adjustment of.5% to 12%. Source: City of Oakley. Transient Occupancy (Hotel) Tax. The City currently levies a transient occupancy tax on hotel and motel bills equal to 10%. The transient occupancy tax is a tax paid by hotel and motel guests who spend fewer than 30 consecutive days in a hotel or motel in the City. State Budgets Set forth in the following paragraphs are descriptions of the State budget process, the current State budget situation, and the potential impacts on the City. The Budget Process. Through the State budget process, the State can enact legislation that significantly impacts the source, amount and timing of the receipt of revenues by local agencies, including the City. As in recent years, State budget deficits can result in legislation that adversely impacts local agency budgets. The State s fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the Governor s Budget ). Under State law, the annual proposed Governor s Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor s Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. Prior to the November 2, 2010 California General Election, the Budget Act required approval by a two-thirds majority vote of each House of the Legislature. On November 2, 2010, California voters passed Proposition 25, which amended this legislative vote requirement to a simple majority. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. 41

48 Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State s website, where recent Official Statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only; the City and the Authority do not take any responsibility for the continued accuracy of the such internet addresses or for the accuracy, completeness or timeliness of information on such websites, and such information is not incorporated herein by this reference. The California State Treasurer Internet home page for the Public Finance Division at under the heading Bond Sales, posts various State of California Official Statements, many of which contain a summary of the current State Budget, past State Budgets, and the impact of those budgets on local governments in the State. The California State Treasurer s Office Internet home page for the Public Finance Division at under the heading Financial Information, posts the State s audited financial statements. In addition, the Financial Information section includes the State s Rule 15c2-12 filings for State bond issues. The Financial Information section also includes the Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation from the State s most current Reoffering Circular, which discusses the State budget and its impact on local agencies in the State. The California Department of Finance s Internet home page at under the heading California Budget, includes the text of proposed and adopted State Budgets. The State Legislative Analyst s Office ( LAO ) prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the LAO s Internet home page at under the heading Products. The State has not entered into any contractual commitment with the City, the Authority or the owners of the Bonds to provide State budget information to the City or the owners of the Bonds. Although the City and the Authority believe the State sources of information listed above are reliable, the City and the Authority assume no responsibility for the accuracy of the State budget information set forth or referred to herein. Fiscal Year State Budget. On June 27, 2016, the Governor signed the Fiscal Year State Budget Act (the State Budget ). The State Budget includes $122.5 billion in general fund spending and $44.6 billion in special fund spending, along with $3.6 billion in bond spending. The State Budget includes more money for higher education, repeals a cap on welfare payments, raises rates for child care providers and puts an additional $3.3 billion into the State s rainy-day reserve, including an optional $2 billion shift to protect against a future economic downturn. The State Budget also establishes a multiyear plan that is balanced and that, among other items, provides for the following: 42

49 contributions to both state budget reserves: the Special Fund for Economic Uncertainties, the state s discretionary reserve, and the Budget Stabilization Account, the state s constitutional rainy day fund, raising such reserves to $6.7 billion; an increase of more than $1.3 billion in one-time discretionary general funds for school districts, charter schools and county offices of education to use at local discretion (for activities such as deferred maintenance, professional development, induction for beginning teachers, instructional materials, technology, and the implementation of new educational standards); $807 million for statewide deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals, and other state facilities; a $3.1 billion cap-and-trade expenditure plan to reduce greenhouse gas emissions; over $2 billion in funds for various infrastructure improvements, $688 million for critical deferred maintenance at levees, state parks, universities, community colleges, prisons, state hospitals, and other state facilities; a $1.2 billion pay-down of debt and liabilities from Proposition 2 funds; and $710 million to pay for the costs of wildfires and for other effects of the drought. Future State Budgets. The City and the Authority cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State s current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the City has no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. Decrease in such revenues may have an adverse impact on the City s ability to pay the Lease Payments securing the Bonds. Long-Term Obligations After the issuance of the Bonds and the refunding of the 2006 Certificates, the City will not have any long-term obligations payable from its General Fund other than its obligations under the Lease. Employee Relations The City had 75 authorized positions at the beginning of fiscal year None of the City s employees were represented by bargaining units during fiscal year The City has historically maintained a police department operated by non-sworn personnel consisting of City employees and sworn personnel consisting of employees of the County s Office of the Sherriff under contract with the Sherriff s Office. After determining, among other things, that a municipal police department with sworn personnel employed by the City would provide the same or greater level of service at a lower cost, the City formed the City of Oakley Police Department commencing July 1, City police officers are represented by 43

50 the Oakley Police Officers Association and are currently under a contract that expires on June 30, Risk Management The City is a member of the Municipal Pooling Authority of Northern California (the Pooling Authority ). The Pooling Authority provides coverage against various types of loss risks under the terms of a joint-powers agreement with the City and several other cities and governmental agencies. See APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 for additional information about the City s risk management practices. Employee Retirement System This section contains certain information relating to California Public Employees Retirement System ( CalPERS ). The information is primarily derived from information produced by CalPERS, its independent accountants and actuaries. The City and the Authority have not independently verified the information provided by CalPERS and make no representations and express no 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 City and the Authority do not take any responsibility for the continued accuracy of the foregoing internet address or for the accuracy, completeness or timeliness of information on such website, and such information is not incorporated herein by this reference. Actuarial assessments are forward-looking statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or may be changed in the future. Actuarial assessments will change with the future experience of the pension plans. CalPERS Plan Description. All qualified permanent, probationary and part-time employees are eligible to participate in the City s Safety Plan and Miscellaneous Employee Pension Pans (collectively, the Plans and individually referred to herein as Safety Plan, Classic Tier 1 Plan, Classic Tier 2 Plan and PEPRA Tier 3 Plan ), cost-sharing multiple employer defined benefit pension plans administered by CalPERS. The Safety Plan which provides benefits for safety employees hired after January 1, 2013 was established effective August 12, 2015 and therefore, information regarding the Safety Plans in this Official Statement is limited to information pertaining to fiscal year The Classic Tier 1 Plan, the Classic Tier 2 and the PEPRA Tier 3 Plan (collectively, the Miscellaneous Plans ) and the Safety Plan are part of the public agency cost-sharing multiple employer defined benefit pension plan ( PERF C ), which is administered by CalPERS. PERF C consists of a miscellaneous pool and a safety pool (also referred to as risk pools ), which are comprised of individual employer miscellaneous and safety rate plans, respectively. Each employer participates in one cost-sharing multiple-employer defined benefit pension plan regardless of the number of rate plans the employer sponsors. The City sponsors four rate plans the Plans. Benefit provisions under the Plans are established by State statute and City resolution. 44

51 CalPERS Benefits Provided. CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each Plan are applied as specified by the Public Employee s Retirement Law. In August 2010, the City Council authorized an amendment to the contract between the City and the CalPERS in order to establish a Tier 2 retirement benefits structure. The Tier 2 changed the retirement benefit plan from 2.5% at 55 to 2% at 60 to new miscellaneous employees hired on or after October 18, A Tier 3 structure was established to implement the provisions of the Pension Reform Act of 2013 ( PEPRA ), Assembly Bill 340, and is applicable to employees new to CalPERS, and hired after December 31, 2012, and not subject to grandfathering into the previously existing Tier 2 Plan. See California Public Employees Pension Reform Act of 2013 below for further discussion regarding PEPRA. The provisions and benefits of the Miscellaneous Plans in effect at June 30, 2015, are summarized as follows: Classic Tier 1 Plan Classic Tier 2 Plan PEPRA Tier 3 Plan Hire Date Prior to October 18, 2010 On or after October 18, 2010 On or after January 1, 2013 Benefit formula Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Monthly for life Retirement age Monthly benefits, as a % of eligible compensation 2.0% to 2.5% 1.092% % 1.0% - 2.5% Required employee contribution rates 8% 7% 6.25% Required employee contribution rates % 8.435% 6.25% Source: City of Oakley. The provisions and benefits of the Plans, including the Safety Plan, in effect at June 30, 2016, are summarized as follows: Classic Tier 1 Plan Classic Tier 2 Plan PEPRA Tier 3 Plan Hire Date Prior to October 18, 2010 On or after October 18, 2010 On or after January 1, 2013 Benefit formula Benefit vesting schedule 5 years of service 5 years of service 5 years of service Benefit payments Monthly for life Monthly for life Monthly for life Retirement age Monthly benefits, as a % of eligible 2.0% to 2.5% 1.092% % 1.0% - 2.5% compensation Required employee contribution rates 8% 7% 6.25% Required employee contribution rates 9.671% 7.163% 6.237% Source: City of Oakley. 45

52 Safety Plan On or after Hire Date January 1, 2013 Benefit formula 57 Benefit vesting schedule 5 years of service Benefit payments Monthly for life Retirement age Monthly benefits, as a % of eligible 2.0% to 2.7% compensation Required employee contribution rates % Required employee contribution rates % Source: City of Oakley. Beginning in fiscal year , CalPERS collects employer contributions for the Plans as a percentage of payroll for the normal cost portion as noted in the rates above and as a dollar amount for contributions toward the unfunded liability and side fund. The dollar amounts are billed on a monthly basis. The City s required contribution for the unfunded liability and side fund was $84,347 in fiscal year Contributions. Section 20814(c) of the California Public Employees Retirement Law ( PERL ) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through the CalPERS annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The employer is required to contribute the difference between the actuarially determined rate and the contribution rate of the employees. For the year ended June 30, 2015, the contributions recognized as part of pension expense for each Miscellaneous Plan were as follows: Classic Tier 1 Plan Classic Tier 2 Plan PEPRA Tier 3 Plan Contributions - employer $189,460 $64,162 $42,991 Source: City of Oakley. For the fiscal year ended June 30, 2016, the City s contributions to the Plans were $382,769. Implementation of GASB Nos. 68 and 71. In June 2012 and November 2013, the Governmental Accounting Standards Board issued GASB Statement No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27 ( GASB Statement No. 68 ) and GASB No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date An Amendment of GASB Statement No. 68 ( GASB Statement No. 71 ), respectively. The primary objective of GASB Statement No. 68 is to improve accounting and financial reporting by state and local governments for pensions and improve information provided by state and local governmental employers about financial support for pensions that is provided by other entities. In particular, GASB Statement No. 68 requires a state or local government employer such as the City to recognize a net pension liability measured as of a date (the measurement date) no earlier than the end of its prior fiscal year. If a state or local government employer 46

53 makes a contribution to a defined benefit pension plan between the measurement date of the reported net pension liability and the end of the government s reporting period, GASB Statement No. 68 requires that the government recognize its contribution as a deferred outflow of resources. In addition, Statement 68 requires recognition of deferred outflows of resources and deferred inflows of resources for changes in the net pension liability of a state or local government employer that arise from other types of events. GASB Statement No. 68, as amended requires that, at transition, a government recognize a beginning deferred outflow of resources for its pension contributions, if any, made subsequent to the measurement date of the beginning net pension liability and that beginning balances for other deferred outflows of resources and deferred inflows of resources related to pensions be reported only if it is practical to determine all such amounts. As a result of the implementation of GASB Statement No. 68 as amended by GASB Statement No. 71, the beginning net position of the City s Governmental Activities was reduced by approximately $1.2 million for fiscal year Pension Liabilities, Pension Expenses, and Deferred Outflows/Inflows of Resources Related to Pensions. As of June 30, 2015, the City reported net pension liabilities for its proportionate shares of the net pension liability of each Miscellaneous Plan as follows: Net Pension Liability Classic Tier 1 Plan $1,086,857 Classic Tier 2 Plan 15,376 PEPRA Tier 3 Plan -- Total Net Pension Liability $1,102,233 Source: City of Oakley. As of June 30, 2016, the City reported a net pension liability for its proportionate share of the net pension liability of the Plans of $1,380,410. The City s net pension liability for each Plan is measured as the proportionate share of net pension liability. The net pension liability of each of the Plans is measured as of June 30, 2014, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2013 rolled forward to June 30, 2014 using standard update procedures. The City s proportion of the net pension liability was based on a projection of the City s long-term share of contributions to the pension plans relative to the projected contributions of all participating employers, actuarially determined. The City s proportionate share of the net pension liability for each Plan as of June 30, 2013 and 2014 was as follows: Classic Tier 1 Classic Tier 2 Proportion - June 30, % % Proportion - June 30, Change - Increase (Decrease) ( ) Source: City of Oakley. For fiscal year , the net pension liability of each of the Plans is measured as of June 30, 2015, and the total pension liability for each Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2014 rolled forward to June 30, 47

54 2015 using standard update procedures. The City s proportionate share of the net pension liability for the Plans as of June 30, 2014 and 2015 was as follows: Plans Proportion - June 30, % Proportion - June 30, Change - Increase (Decrease) Source: City of Oakley. For the year ended June 30, 2015, the City recognized pension expense of $40,717. At June 30, 2015, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $296, Differences between actual and expected experience Changes in assumptions Change in employer s proportion of differences between the employer s contributions and the employers proportionate share of contributions -- ($303,523) Net differences between projected and actual earnings on plan investments -- (26,656) Total $296,613 ($330,179) Source: City of Oakley. Deferred outflows of resources related to contributions subsequent to the measurement date in the amount of $296,613 as described above will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows on the following page: Year Ended June 30 Annual Amortization 2016 ($85,402) 2017 (85,402) 2018 (83,495) 2019 (75,880) Thereafter -- Source: City of Oakley. 48

55 For the year ended June 30, 2016, the City recognized pension expense of $24,069. At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $382, Differences between actual and expected experience 19, Changes in assumptions -- ($179,857) Change in employer s proportion of differences between the employer s contributions and the employers proportionate share of contributions 731,949 (212,258) Net differences between projected and actual earnings on plan investments -- (90,165) Total $1,133,729 ($482,280) Source: City of Oakley. Employer Contribution and Funding History. The City is required to contribute at an actuarially determined rate of annual covered payroll. The actuarially determined rates for each of the Miscellaneous Plans for the fiscal years ended June 30, 2016, through June 30, 2018, are as follows: City s Required Employer Contribution Rate Fiscal Year Fiscal Year Fiscal Year (1) Employer Employer Employer Employer Normal Cost Rate Payment of Unfunded Liability Employer Normal Cost Rate Payment of Unfunded Liability Employer Normal Cost Rate Payment of Unfunded Liability Classic Tier 1 Plan 9.671% $87, % $97, % $112,034 Classic Tier 2 Plan PEPRA Tier 3 Plan , ,208 (1) Projected; CalPERS Actuarial Reports regarding the Safety Plan are not yet available. Source: CalPERS Actuarial Reports dated November 2015 and August The following tables set forth the schedule of funding for the City s Miscellaneous Plans for the fiscal years ended June 30, 2014, and Valuation Date (June 30) Accrued Liability Miscellaneous Plans Classic Tier 1 Plan Market Value of Assets Unfunded Liability Funded Ratio (1) Annual Covered Payroll 2014 $5,598,919 $4,385,053 $1,213, % $1,086, ,124,444 4,691,897 1,432, ,053,970 49

56 Valuation Date (June 30) Accrued Liability Classic Tier 2 Plan Market Value of Assets Unfunded Liability Funded Ratio (1) Annual Covered Payroll 2014 $256,783 $258,760 $(1,977) 100.8% $685, , ,877 13, ,654 Valuation Date (June 30) Accrued Liability PEPRA Tier 3 Plan Market Value of Assets Unfunded Liability Funded Ratio (1) Annual Covered Payroll 2014 $42,190 $44,066 $(1,876) 104.5% $633, , ,282 9, ,111 (1) Based on the market value of assets. Source: CalPERS Actuarial Report Dated August Recent CalPERS Actions. At its April 17, 2013, meeting, CalPERS Board of Administration (the CalPERS Board ) approved a recommendation to change the CalPERS amortization and smoothing policies. Prior to this change, CalPERS employed an amortization and smoothing policy that spread investment returns over a 15-year period with experience gains and losses paid for over a rolling 30-year period. After this change, CalPERS will employ an amortization and smoothing policy that will pay for all gains and losses over a fixed 30-year period with the increases or decreases in the rate spread directly over a 5-year period. The new amortization and smoothing policy was used for the first time in the June 30, 2013, actuarial valuations in setting employer contribution rates for fiscal year On February 18, 2014, the CalPERS Board approved new demographic actuarial assumptions based on a 2013 study of recent experience. The largest impact, applying to all benefit groups, is a new 20-year mortality projection reflecting longer life expectancies and that longevity will continue to increase. Because retirement benefits will be paid out for more years, the cost of those benefits will increase as a result. The CalPERS Board also assumed earlier retirements for Police 3% at age 50, Fire 3% at 55, and Miscellaneous 2.7% at 55 and 3% at 60, which will increase costs for those groups. As a result of these changes, rates will increase beginning in fiscal year (based on the June 30, 2014 valuation) with full impact in fiscal year On November 18, 2015, the CalPERS Board adopted a funding risk mitigation policy intended to incrementally lower its discount rate - its assumed rate of investment return - in years of good investment returns, help pay down the pension fund's unfunded liability, and provide greater predictability and less volatility in contribution rates for employers. The policy establishes a mechanism to reduce the discount rate by a minimum of 0.05 percentage points to a maximum of 0.25 percentage points in years when investment returns outperform the existing discount rate, currently 7.5%, by at least four percentage points. CalPERS staff modeling anticipates the policy will result in a lowering of the discount rate to 6.5% in about 21 years, improve funding levels gradually over time and cut risk in the pension system by lowering the volatility of investment returns. More information about the funding risk mitigation policy can be accessed through CalPERS web site at the following website address: The reference to this Internet website is provided for reference and convenience only. 50

57 The City and the Authority do not take any responsibility for the continued accuracy of the foregoing internet address or for the accuracy, completeness or timeliness of information on such website, and such information is not incorporated herein by this reference. California Public Employees Pension Reform Act of On September 12, 2012, the Governor signed into PEPRA, which impacted various aspects of public retirement systems in the State, including the CalPERS programs. In general, PEPRA (i) increased the retirement age for public employees depending on job function, (ii) capped the annual pension benefit payouts for public employees hired after January 1, 2013, (iii) required public employees hired after January 1, 2013 to pay at least 50% of the costs of their pension benefits (as described in more detail below), (iv) required final compensation for public employees hired after January 1, 2013 to be determined based on the highest average annual pensionable compensation earned over a period of at least 36 consecutive months, and (v) attempted to address other perceived abuses in the public retirement systems in the State. PEPRA applies to all public employee retirement systems in the State, except the retirement systems of the University of California, and charter cities and charter counties whose pension plans are not governed by State law. PEPRA s provisions went into effect on January 1, 2013 with respect to new State, school, and city and local agency employees hired on or after that date; existing employees who are members of employee associations, including employee associations of the City, have a fiveyear window to negotiate compliance with PEPRA through collective bargaining. CalPERS has predicted that the impact of PEPRA on employees and employers, including the City and other employers in the CalPERS system, will vary, based on each employer s current level of benefits. As a result of the implementation of PEPRA, new members must pay at least 50% of the normal costs of the plan, which can fluctuate from year to year. To the extent that the new formulas lower retirement benefits, employer contribution rates could decrease over time as current employees retire and employees subject to the new formulas make up a larger percentage of the workforce. This change would, in some circumstances, result in a lower retirement benefit for employees than they currently earn. The City is unable to predict the amount of future contributions it will be required to make to CalPERS as a result of the implementation of PEPRA, and as a result of negotiations with its employee associations, or, notwithstanding the adoption of PEPRA, resulting from any legislative changes regarding the CalPERS employer contributions that may be adopted in the future. No Other Post-Employment Retirement Benefits The City currently does not offer other post-employment retirement benefits. 51

58 Investment Policies and Procedures The City invests its funds in accordance with the City's Investment and Portfolio Policy (the Investment Policy ), which is subject to annual review and approval by the City Council. The purpose of the Investment Policy is to establish the investment goals of safety, liquidity, and yield (in that order). The City s Investment Policy complies with the provisions of the California government Code, Sections through (the authority governing investments for municipal governments in the State). The Investment Policy limits the City to investments authorized by State law. In addition, the Investment Policy establishes further guidelines. It is the policy of the City, a general law city, to invest public funds in a manner that will provide maximum security with the highest investment return while meeting the daily cash flow demands of the City. The Investment Policy establishes three objectives for City investments, in the following order of priority: (1) Safety of principal: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. (2) Liquidity: The City s investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. (3) Return of Investment: The City s investment portfolio shall be designed with the object of attaining a market rate of return throughout budgetary and economic cycles, taking into account the City s investment risk constraints and the clash flow characteristics of the portfolio. The City Council reviews monthly investment reports. According to the report for the quarter ending June 30, 2016, the City has invested funds as set forth in the table on the following page. 52

59 Table 10 City of Oakley Investment Portfolio as of June 30, 2016 Name of Institution Rate Maturity* Cost Amount Market Value** Investments in Wells Fargo Bank Account: Overnight Sweep Investments 0.007% 4/1/2016 $2,844, $2,844, Investments with Wells Fargo Investment Advisors: Institutional Money Market N/A 1,775, ,775, Investments with State of California: Local Agency Investment Fund (LAIF) - City N/A 19,826, ,838, Investments with CalTRUST: Short-Term Investment Account-City N/A 9,055, ,092, Total Investments Other Than Bond Proceeds 33,501, ,551, Investments with Wells Fargo Trust (bond proceeds):*** 2012 Refunding Revenue Bonds Government Money Market Wells Fargo Advantage Gov MM Svc 0.010% N/A 127, , Certificates of Deposit Discover Bank 5/16/12-5/16/17 250, , GE Capital Retail Bank /18/12-5/18/17 250, , Goldman Sachs Bank USA /16/12-5/16/17 250, , Refunding Revenue Bonds Government Money Market Wells Fargo Advantage Gov MM Svc N/A 326, , Certificates of Participation Government Money Market Wells Fargo Advantage Gov MM Svc N/A 574, , Total Investments of Bond Proceeds 1,778, ,785, Total All City Investments $35,280, $35,337, * With the exception of certificates of deposit, all accounts have same day or next day liquidity. ** Market valuation for LAIF was obtained at Market value for all other investments was obtained from FT Interactive Data. As the city holds its investments to maturity, market value fluctuations are not significant. *** Investment of bond proceeds is governed by each bond s Trust Agreement. All of the amounts with Wells Fargo Trust are debt service reserve funds. Investment income remains with the individual bond accounts. Source: City of Oakley. 53

60 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS The ability of the City to raise fees, taxes and other revenues is limited. Following is a description of certain constitutional limitations on taxes and appropriations applicable to the City. For a description of other factors relating to the revenues of the City, see CITY FINANCIAL INFORMATION above. Article XIIIA of the State Constitution Section 1(a) of Article XIIIA of the State Constitution limits the maximum ad valorem tax on real property to 1% of full cash value (as defined in Section 2 of Article XIIIA), to be collected by counties and apportioned according to law. Section 1(b) of Article XIIIA provides that the 1% limitation does not apply to ad valorem taxes to pay interest or redemption charges on (1) indebtedness approved by the Voters prior to June 1, 1978 or (2) any bonded indebtedness for the acquisition or improvement of real property approved on or after June 1, 1978, by two thirds of the votes cast by the voters voting on the Proposition. Section 2 of Article XIIIA defines full cash value to mean the county assessor s valuation of real property as shown on the tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the area under taxing jurisdiction or reduced in the event of declining property value caused by substantial damage, destruction or other factors. Legislation enacted by the State Legislature to implement Article XIIIA provides that notwithstanding any other law, local agencies may not levy any ad valorem property tax except to pay debt service on indebtedness approved by the voters as described above. The voters of the State subsequently approved various measures that further amended Article XIIIA. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, does not constitute a purchase or change of ownership triggering reassessment under Article XIIIA. This amendment could serve to reduce the property-tax revenues of the City. Other amendments permitted the State Legislature to allow persons over 55 or severely disabled homeowners who sell their residences and buy or build another of equal or lesser value within two years in the same county, to transfer the old residence s assessed value to the new residence. In the November 1990 election, the voters approved the amendment of Article XIIIA to permit the State Legislature to exclude from the definition of newly constructed the construction or installation of seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, Article XIIIA has also been amended to permit reduction of the full cash value base in the event of declining property values caused by damage, destruction or other factors, provided that there would be no increase in the full cash value base in the event of reconstruction of property damaged or destroyed in a disaster. 54

61 Article XIIB of the State Constitution Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city, county, school district, special district, authority or other political subdivision of the State to the appropriations limit for the prior fiscal year, as adjusted for changes in the cost of living, population and services for which the fiscal responsibility is shifted to or from the governmental entity. The base year for establishing this appropriations limit is the fiscal year. The appropriations limit may also be adjusted in emergency circumstances, subject to limitations. Appropriations of an entity of local government subject to Article XIIIB generally include authorizations to expend during a fiscal year the proceeds of taxes levied by or for the entity, 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, certain State subventions received by the local governmental entity and the proceeds to the local governmental entity from (1) regulatory licenses, user charges, and user fees (to the extent that such proceeds exceed the cost of providing the service or regulation) and (2) the investment of tax revenues. Article XIIIB provides that if a governmental entity s revenues in any year exceed the amounts permitted to be spent, the excess must be returned by revising tax rates or fee schedules over the subsequent two fiscal years. Article XIIIB does not limit the appropriation of moneys to pay debt service on indebtedness existing or authorized as of January 1, 1979, or for bonded indebtedness approved thereafter by a vote of the electors of the issuing entity at an election held for that purpose, or appropriations for certain other limited purposes. Furthermore, Article XIIIB was amended in 1990 to exclude from the appropriations limit all qualified capital outlay projects, as defined by the Legislature from proceeds of taxes. The Legislature has defined qualified capital outlay project to mean a fixed asset (including land and construction) with a useful life of 10 or more years and a value which equals or exceeds $100,000. As a result of this amendment, the appropriations to pay the lease payments on the City s long term General Fund lease obligations are generally excluded from the City s appropriations limit. Articles XIIIC and XIIID of the State Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the Right to Vote on Taxes Act. Proposition 218 added Articles XIIIC and XIIID to the California Constitution and contains a number of interrelated provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed below, and it is not possible at this time to predict with certainty the outcome of such determination. Article XIIIC requires that all new local taxes be submitted to the electorate before they become effective. Taxes for general governmental purposes of the City require a majority vote and taxes for specific purposes, even if deposited in the City s General Fund, require a twothirds vote. Further, any general purpose tax the City imposed, extended or increased without voter approval after December 31, 1994 may continue to be imposed only if approved by a majority vote in an election that must be held before November 6, The voter-approval requirements of Article XIIIC reduce the flexibility of the City to raise revenues for the General Fund, and no assurance can be given that the City will be able to impose, extend or increase such taxes in the future to meet increased expenditure needs. 55

62 The City currently imposes the following general taxes: business-operations tax and transient-occupancy tax. Since all of these taxes were imposed before January 1, 1995, and have not been extended or increased since that date, these taxes should be exempt from the requirements of Article XIIIC. Any future increases in these taxes, however, would be subject to the voter requirement of Article XIIIC. Article XIIID also adds several provisions making it generally more difficult for local agencies to levy and maintain fees, charges, and assessments for municipal services and programs. These provisions include, among other things, (i) a prohibition against assessments that exceed the reasonable cost of the proportional special benefit conferred on a parcel, (ii) a requirement that assessments confer a special benefit, as defined in Article XIIID, over and above any general benefits conferred; (iii) a majority protest procedure for assessments which involves the mailing of notice and a ballot to the record owner of each affected parcel, a public hearing and the tabulation of ballots weighted according to the proportional financial obligation of the affected parties, and (iv) a prohibition against fees and charges used for general governmental services, including police, fire and library services, where the service is available to the public at large in substantially the same manner as it is to property owners. On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends Article XIIIC of the State Constitution by expanding the definition of tax to include any levy, charge, or exaction of any kind imposed by a local government except the following: (1) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (2) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and does not exceed the reasonable costs to the local government of providing the service or product; (3) a charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, for performing investigations, inspections, and audits, for enforcing agricultural marketing orders, and for the administrative enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 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 bears a fair or reasonable relationship to the payor s burdens on, or benefits received from, the governmental activity. The City does not believe that any material source of its General Fund revenue is subject to challenge under Proposition 218 or Proposition 26. Article XIIIC also removes limitations on the initiative power in matters of reducing or repealing local taxes, assessments, fees or charges. No assurance can be given that the voters of the City will not, in the future, approve an initiative or initiatives which reduce or repeal local taxes, assessments, fees or charges currently comprising a substantial part of the City s General Fund. If such repeal or reduction occurs, the City s operations could be adversely affected. 56

63 Proposition 62 At the November 4, 1986, general election, the voters of the State approved Proposition 62, a statutory initiative (1) requiring that any tax imposed by local governmental entities for general governmental purposes be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency s legislative body and by a majority of the electorate of the governmental entity; (2) requiring that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a twothirds vote of the voters within that jurisdiction; (3) restricting the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; (4) prohibiting the imposition of ad valorem taxes on real property by local governmental entities, except as permitted by Article XIIIA; (5) prohibiting the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (6) requiring that any tax imposed by a local governmental entity on or after August 1, 1985, be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional at the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara City Local Transportation Authority v. Guardino, upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax and, by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. The Guardino decision did not address whether it should be applied retroactively. In response to Guardino, the California Legislature adopted Assembly Bill 1362, which provided that Guardino should apply only prospectively to any tax that was imposed or increased by an ordinance or resolution adopted after December 14, Assembly Bill 1362 was vetoed by the Governor; hence the application of the Guardino decision on a retroactive basis remains unclear. The Guardino decision also did not decide the question of the applicability of Proposition 62 to charter cities. Two cases decided by the California Courts of Appeals in 1993, Fielder v. City of Los Angeles (1993) 14 Cal.App.4th 137 (rev. den. May 27, 1993), and Fisher v. County of Alameda (1993) 20 Cal.App.4th 120 (rev. den. Feb. 24, 1994), held that the restriction imposed by Proposition 62 on property transfer taxes did not apply to charter cities because charter cities derive their power to enact such taxes under Article XI, Section 5, of the California Constitution relating to municipal affairs. Proposition 62, as an initiative statute, does not have the same level of authority as a constitutional initiative. It is analogous to legislation adopted by the State Legislature, except that it may be amended only by a vote of the State s electorate. However, Proposition 218, as a constitutional amendment, is applicable to all cities and supersedes many of the provisions of Proposition 62. Proposition la Senate Constitutional Amendment No. 4 was enacted by the Legislature and subsequently approved by the voters as Proposition 1A at the November 2004 election. Among other things, Proposition 1A amended the State Constitution to reduce the Legislature s authority over local government revenue sources by placing restrictions on the State s access to 57

64 local governments property, sales and vehicle-license fee revenues as of November 3, 2004, and by providing that the State may not reduce any local sales-tax rate, limit existing local government authority to levy a sales-tax rate or change the allocation of local sales-tax revenues, subject to certain exceptions. Proposition 1A provides, however, that beginning in fiscal year , the State may shift to schools and community colleges up to 8% of local government property tax revenues, which amount must be repaid, with interest, within three years. This shift of local government property tax can be accomplished if the Governor proclaims that the shift is needed due to a severe state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are met. Proposition 22 Proposition 22, entitled The Local Taxpayer, Public Safety and Transportation Protection Act, was approved by the voters of the State in November Proposition 22 eliminates or reduces the State s authority to (i) temporarily shift property taxes from cities, counties and special districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State-mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of State fuel tax revenues. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization ( Unitary Property ), commencing with the Fiscal Year, are allocated as follows: (i) each jurisdiction will receive up to 102% of its prior year State-assessed revenue; and (ii) if county-wide revenues generated from Unitary Property are less than the previous year s revenues or greater than 102% of the previous year s revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Future Initiatives Article XIIIA, Article XIIIB and Propositions 62, 218, and Proposition 1A were each adopted as measures that qualified for the ballot pursuant to the State s initiative process. From time to time, other initiative measures could be adopted, further affecting City s revenues or their ability to expend revenues. 58

65 RISK FACTORS The following describes certain special considerations and risk factors affecting the payment of and security for the Bonds. The following discussion is not meant to be an exhaustive list of the risks associated with the purchase of any Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors in the Bonds are advised to consider the following special factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other considerations will not materialize in the future. Special Obligations of the Authority The Bonds are special obligations of the Authority and are payable solely from, and secured by, a pledge of Revenues and certain funds and accounts held under the Indenture. Revenues consist primarily of Lease Payments payable by the City under the Lease. If, for any reason, the Revenues collected under the Indenture are not sufficient to pay debt service on the Bonds, the Authority will not be obligated to utilize any other of its funds, other than moneys on deposit in the Bond Fund and certain other funds and accounts established under the Indenture, to pay debt service on the Bonds. The Authority has no taxing power. No Pledge of Taxes General. The obligation of the City to pay the Lease Payments does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation, but are payable from yearly appropriations of any funds lawfully available to the City. The obligation of the City to pay Lease Payments does not constitute a debt or indebtedness of the Authority, the City, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitation or restriction. Limitations on Taxes and Fees. Certain taxes, assessments, fees and charges presently imposed by the City could be subject to the voter approval requirements of Article XIIIC and Article XIIID of the State Constitution. Based upon the outcome of an election by the voters, such fees, charges, assessments and taxes might no longer be permitted to be imposed, or may be reduced or eliminated and new taxes, assessments fees and charges may not be approved. The City has assessed the potential impact on its financial condition of the provisions of Article XIIIC and Article XIIID of the State Constitution respecting the imposition and increase of taxes, fees, charges and assessments and does not believe that an election by the voters to reduce or eliminate the imposition of certain existing fees, charges, assessments and taxes would substantially affect its financial condition. However, the City believes that if the initiative power was exercised so that all local taxes, assessments, fees and charges that may be subject to Article XIIIC and Article XIIID of the State Constitution are eliminated or substantially reduced, the financial condition of the City, including its General Fund, could be materially adversely affected. Although the City does not currently anticipate that the provisions of Article XIIIC and Article XIIID of the State Constitution would adversely affect its ability to pay Lease Payments and its other obligations payable from its General Fund, no assurance can be given regarding the ultimate interpretation or effect of Article XIIIC and Article XIIID of the State Constitution on the City s finances. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS. 59

66 Additional Obligations of the City The City has existing obligations payable from its General Fund. See CITY FINANCIAL INFORMATION. The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Bonds. To the extent that additional obligations are incurred by the City, the funds available to pay Lease Payments may be decreased. The Lease Payments and other payments due under the Lease (including payment of costs of repair and maintenance of the Leased Property, taxes and other governmental charges levied against the Leased Property) are payable from funds lawfully available to the City. If the amounts that the City is obligated to pay in a fiscal year exceed the City s revenues for such year, the City may choose to make some payments rather than making other payments, including Lease Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. Default Whenever any event of default referred to in the Lease happens and continues, the Authority is authorized under the terms of the Lease to exercise any and all remedies available under law or granted under the Lease. See APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS for a detailed description of available remedies in the case of a default under the Lease. In the event of a default, there is no remedy of acceleration of the total Lease Payments due over the term of the Lease. The Trustee is not empowered to sell the Leased Property and use the proceeds of such sale to redeem the Bonds or pay debt service on the Bonds. However, under the Indenture, the Trustee is empowered to declare the principal of all of the Bonds then-outstanding, and the interest accrued thereon, to be due and payable immediately. The City will be liable only for Lease Payments on an annual basis and, in the event of a default, the Trustee would be required to seek a separate judgment each year for that year s defaulted Lease Payments. Any such suit for money damages would be subject to limitations on legal remedies against municipalities in California, including a limitation on enforcement of judgments against funds of a fiscal year other than the fiscal year in which the Lease Payments were due and against funds needed to serve the public welfare and interest. Abatement Under certain circumstances related to damage, destruction, condemnation or title defects which cause a substantial interference with the use and possession of the Leased Property, the City s obligation to make Lease Payments will be subject to full or partial abatement, and this could result in the Trustee having inadequate funds to pay the principal and interest on the Bonds as and when due. See SECURITY FOR THE BONDS Abatement and APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS. 60

67 Assessed Value of Taxable Property; Delinquent Payment of Property Taxes Natural and economic forces can affect the assessed value of taxable property within the City. The City is located in a seismically active region, and damage from an earthquake in or near the area could cause moderate to extensive damage to taxable property. Other natural or manmade disasters, such as flood, fire, toxic dumping, coastal erosion or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. Economic and market forces, such as a downturn in the regional economy generally, can also affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets. In addition, the total assessed value can be reduced through the reclassification of taxable property to a class exempt from taxation, whether by ownership or use (such as exemptions for property owned by State and local agencies and property used for qualified educational, hospital, charitable or religious purposes). Levy and Collection. The City does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the City s property tax revenues, and accordingly, could have an adverse impact on the ability of the City to make Lease Payments. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the City s ability to pay Lease Payments under the Lease when due. In addition, the County operates under the Teeter Plan which is to remain in effect unless the Board of Supervisors of the County orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1), the Board of Supervisors receives a petition for its discontinuance joined in by resolutions adopted by at least two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year. If the Teeter Plan is discontinued subsequent to its implementation, only those secured property taxes actually collected would be allocated to political subdivisions (including the City) for which the County acts as the tax-levying or tax-collecting agency. Reduction in Inflationary Rate. Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining assessed value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS. Such measure is computed on a calendar year basis. Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation in the following fiscal years: (1.010%); (1.194%); (1.115%); (1.853%); (1.867%); (0.998%); (1.008%); (1.02%); (0.454%); (1.998%); and (1.525%). More information about inflationary assessed value adjustments can be accessed through the California State Board of Equalization's, under the Final CCPI Announcement posted on the Letters to Assessors webpage for each year, at The reference to this internet website is shown for reference and convenience only. The City and the Authority do not take any responsibility for the continued accuracy of the foregoing internet address or for the accuracy, completeness or timeliness of information on such website, and such information is not incorporated herein by this reference. 61

68 The City and the Authority are unable to predict if any adjustments to the full cash value base of real property within the City, whether an increase or a reduction, will be realized in the future. Appeals of Assessed Values; Delinquencies. Reductions in the market values of taxable property may cause property owners to appeal assessed values and may also be associated with an increase in delinquency rates for taxes. No assurance can be given that property tax appeals in the future will not significantly reduce the City s property tax revenues. There are two types of appeals of assessed values that could adversely impact property tax revenues: Proposition 8 Appeals. Most of the appeals that might be filed in the City would be based on Section 51 of the Revenue and Taxation Code, which requires that for each lien date the value of real property must be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Under California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In most cases, the appeal is filed because the applicant believes that present market conditions (such as residential home prices) cause the property to be worth less than its current assessed value. These market-driven appeals are known as Proposition 8 appeals. Any reduction in the assessment ultimately granted as a Proposition 8 appeal applies to the year for which application is made and during which the written application was filed. These reductions are often temporary and are adjusted back to their original values when market conditions improve. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. The County Assessor may also unilaterally reduce assessed values under Proposition 8. Base Year Appeals. A second type of assessment appeal is called a base year appeal, where the property owners challenge the original (basis) value of their property. Appeals for reduction in the base year value of an assessment, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. The completion date of new construction or the date of change of ownership determines the base year. Any base year appeal must be made within four years of the change of ownership or new construction date. Decreases in the aggregate value of taxable property within the City resulting from natural disaster, reclassification by ownership or use, or as a result of the operation Proposition 8 all may have an adverse impact on the General Fund revenues available to pay Lease Payments under the Lease. 62

69 In addition, failure by large property owners to pay property taxes when due may also cause a decrease in General Fund revenues available to pay Lease Payments under the Lease when due. Natural Calamities General. From time to time, the City is subject to natural calamities, including, but not limited to, earthquake, flood, wildfire, tsunami, or pipeline incident, that may adversely affect economic activity in the City, and which could have a negative impact on City finances. There can be no assurance that the occurrence of any natural calamity would not cause substantial interference to and costs for the City. Seismic. There are several identified faults within close proximity to or within the boundaries of the City that could potentially result in damage to buildings, roads, bridges and other property within the City in an even of an earthquake. The Health and Safety Element of the City s General Plan states that the Brentwood Fault lies under the City and that it is inferred active on the basis of scattered small magnitude earthquakes near the trace of the fault. Other inferred active faults the Davis and Antioch Faults lie west of the City. More information about seismic hazards in the City can be found in the Health and Safety Element of the City s General Plan. If an earthquake were to substantially damage or destroy taxable property within the City, the assessed valuation of such property would be reduced. Such reduction of assessed valuations could have a negative impact on the finances of the City, which in turn could impair the ability of the City to make Lease Payments on a timely payments and thereby affect the Authority s ability to make timely payments of debt service on the Bonds. In addition, the City is not obligated under the Lease and the City does not intend to procure and maintain, or cause to be procured and maintained, earthquake insurance on the Leased Property. If any portion of the Leased Property is destroyed by an earthquake, the Lease Payments may be abated and result in a reduction of amounts available to pay debt service on the Bonds. Flood. Substantial areas within the City are subject to flooding, especially areas along the bay and northeast of the Contra Costa canal. According to the Federal Emergency Management Agency, Marsh Creek, the majority of the City s shoreline area, and the entire Cypress Lakes SOI Area are within the 100-year floodplain. The most serious flood hazards existing in the City area relate to the system of levees that protect the islands and adjacent mainland. Levee failure often occurs in areas where levees rest on soft mud, silt, or peat. Flooding problems have been exacerbated by boat movement on the waterways, which creates waves that accelerate the natural process of levee erosion. If a flood were to substantially damage or destroy taxable property within the City, the assessed valuation of such property would be reduced. Such reduction of assessed valuations could have a negative impact on the finances of the City, which in turn could impair the ability of the City to make Lease Payments on a timely payments and thereby affect the Authority s ability to make timely payments of debt service on the Bonds. 63

70 Hazardous Substances Discovery of hazardous substances on parcels within the City could impact the City s ability to pay Lease Payments under the Lease when due. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has any thing to do with creating or handling the hazardous substance. The effect, therefore, should any substantial amount of property within the City be affected by a hazardous substance, would be to reduce the marketability and value of the property by the costs of, and any liability incurred by, remedying the condition, since the purchaser, upon becoming an owner, will become obligated to remedy the condition just as is the seller. Reduction in the value of property in the City as a whole could reduce property tax revenues received by the City and deposited in the General Fund, which could significantly and adversely affect the ability of the City to pay Lease Payments under the Lease when due and thereby affect the Authority s ability to make timely payments of debt service on the Bonds. Proposition 218 See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIC and Article XIIID of the State Constitution, for information about certain risks to the City s General Fund revenues under Articles XIIIC and Article XIIID of the California Constitution. State Budget In recent years, the State has faced significant financial stress. There can be no assurances that the State will not take budgetary or other actions that materially adversely affect the financial condition of the City. See CITY FINANCIAL INFORMATION State Budget. Limitations on Remedies Available to Bond Owners; Bankruptcy The ability of the City to comply with its covenants under the Lease may be adversely affected by actions and events outside of the control of the City, and may be adversely affected by actions taken (or not taken) by voters, property owners, taxpayers or payers of assessments, fees and charges. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS above. Furthermore, any remedies available to the owners of the Bonds upon the occurrence of an event of default under the Lease or the Indenture are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. In addition to the limitations on remedies contained in the Lease and the Indenture, the rights and obligations under the Bonds, the Lease and the Indenture may be subject to the following: the United States Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors 64

71 rights generally, now or hereafter in effect; usual equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations, of the police power inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation or modification of their rights. The opinion of Bond Counsel notes that the rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights generally, and by equitable principles, whether considered at law or in equity. Litigation The City may be or become a party to litigation that has an impact on the City s General Fund. Although the City maintains certain insurance policies that provide coverage under certain circumstances and with respect to certain types of incidents, the City cannot predict what types of liabilities may arise in the future and whether these may adversely affect the ability of the City to pay Lease Payments under the Lease when due. See also LITIGATION. State Law Limitations on Appropriations Article XIIIB of the California Constitution limits the amount that local governments can appropriate annually. The ability of the City to pay Lease Payments and other payments due under the Leases may be affected if the City should exceed its appropriations limit. The State may increase the appropriation limit of cities in the State by decreasing the State s own appropriation limit. The City does not anticipate exceeding its appropriations limit. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIB of the State Constitution above. Property Tax Allocation by the State; Changes in Law The responsibility for allocating general property taxes was assigned to the State by Proposition 13, which stated that property taxes were to be allocated according to law. The formula for such allocation was contained in Assembly Bill 8 ( AB 8 ), adopted in 1978, which allocates property taxes among cities, counties, and school districts. The formulas contained in AB 8 were designed to allocate property taxes in proportion to the share of property taxes received by a local entity prior to Proposition 13. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS, Article XIIIA of the State Constitution. Beginning in its fiscal year , in response to its own budgetary shortfalls, the State began to permanently redirected billions of dollars of property taxes Statewide from cities, counties, and certain special districts to schools and community college districts. These redirected funds reduced the State's funding obligation for K-14 school districts by a commensurate amount. In response, Proposition 1A of 2004, approved by State voters in November 2004 and generally effective in fiscal year , provided that the State may not reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate or change the allocation of local sales tax revenues, subject to certain limitations. However, 65

72 pursuant to Proposition 1A and beginning in fiscal year , the State could, upon gubernatorial proclamation of fiscal hardship and following approval of two-thirds of both houses of the legislature, and it did, shift to schools and community colleges up to 8% of local government ad valorem property tax revenues, which amount must be repaid, with interest, within three years. The State could also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. In November 2010, State voters approved Proposition 22, which amends the State's constitution to eliminate the State s authority to temporarily shift additional ad valorem property taxes from cities, counties and special districts to schools, among other things. See CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS, Proposition 22. The State last passed a redirection or property tax shift applicable to fiscal years and No assurance can be given that the State, the County s or the City electorate will not at some future time adopt initiatives, or that the State Legislature will not enact legislation that will amend the laws of the State in a manner that could result in a reduction of the City s property tax allocations or its other revenues and therefore a reduction of the funds legally available to the City to pay Lease Payments and other payments due under the Leases. See, for example, CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIC and Article XIIID of the State Constitution. Early Redemption Risk Early payment of the Lease Payments and early redemption of the Bonds may occur in whole or in part, without premium, from the proceeds of title insurance, on any date, if the Leased Property, or a portion thereof, is lost, destroyed or damaged beyond repair or taken by eminent domain and if the City exercises it right to prepay the Lease Payments in whole or in part pursuant to the provisions of the Lease and the Indenture. See THE BONDS Redemption Special Mandatory Redemption from Insurance or Condemnation Proceeds. Loss of Tax-Exemption The City has covenanted in the Lease, and the Authority has covenanted in the Indenture, that each will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest on the Bonds under Section 103 of the Internal Revenue Code of 1986, as amended (the Tax Code ). In the event either the City or the Authority fails to comply with the foregoing tax covenant, interest on the Bonds may be includable in the gross income of the Owners thereof for federal tax purposes retroactive to the risk of issuance. See TAX MATTERS. Secondary Market for Bonds There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that any Bonds can be sold for any particular price. Prices of bond issues for which a market is being made will depend upon then-prevailing circumstances. Such prices could be substantially different from the original purchase price. No assurance can be given that the market price for the Bonds will not be affected by the introduction or enactment of any future legislation (including without limitation amendments to the Tax Code), or changes in interpretation of the Tax Code, or any action of the Internal Revenue Service (the IRS ), including but not limited to the publication of proposed or final regulations, the issuance of rulings, the selection of the Bonds for audit examination, or the course or result of any IRS audit or examination of the Bonds or obligations that present similar tax issues as the Bonds. In 66

73 addition, a number of local governments in the State have recently instituted bankruptcy or prebankruptcy proceedings. No assurance can be given that the market price for the Bonds will not be affected by the outcomes of these bankruptcy proceedings or the institution of bankruptcy or pre-bankruptcy proceedings for additional local governments in the State. IRS Audit of Tax-Exempt Issues The IRS has initiated an expanded program for the auditing of tax-exempt issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar obligations). 67

74 TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding paragraph are subject to the condition that the Authority and the City comply with all requirements of the Tax Code that must be satisfied subsequent to the issuance of the Bonds. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is less than the amount payable at maturity thereof, then such difference constitutes original issue discount for purposes of federal income taxes and State personal income taxes. If the initial offering price to the public (excluding bond houses and brokers) at which a Bond is sold is greater than the amount payable at maturity thereof, then such difference constitutes original issue premium for purposes of federal income taxes and State personal income taxes. De minimis original issue discount and original issue premium is disregarded. Under the Tax Code, original issue discount is treated as interest excluded from federal gross income and exempt from State personal income taxes to the extent properly allocable to each owner thereof subject to the limitations described in the first paragraph of this section. The original issue discount accrues over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). The amount of original issue discount accruing during each period is added to the adjusted basis of such Bonds to determine taxable gain upon disposition (including sale, redemption, or payment on maturity) of such Bond. The Tax Code contains certain provisions relating to the accrual of original issue discount in the case of purchasers of the Bonds who purchase the Bonds after the initial offering of a substantial amount of such maturity. Owners of such Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Bonds with original issue discount, including the treatment of purchasers who do not purchase in the original offering, the allowance of a deduction for any loss on a sale or other disposition, and the treatment of accrued original issue discount on such Bonds under federal individual and corporate alternative minimum taxes. Under the Tax Code, original issue premium is amortized on an annual basis over the term of the Bond (said term being the shorter of the Bond s maturity date or its call date). The amount of original issue premium amortized each year reduces the adjusted basis of the owner of the Bond for purposes of determining taxable gain or loss upon disposition. The amount of original issue premium on a Bond is amortized each year over the term to maturity of the Bond on the basis of a constant interest rate compounded on each interest or principal payment date (with straight-line interpolations between compounding dates). Amortized Bond premium is not deductible for federal income tax purposes. Owners of premium Bonds, including purchasers 68

75 who do not purchase in the original offering, should consult their own tax advisors with respect to State personal income tax and federal income tax consequences of owning such Bonds. Current and future legislative proposals, if enacted into law, clarification of the Tax Code or court decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent beneficial owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals, clarification of the Tax Code or court decisions may also affect the market price for, or marketability of, the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. In the further opinion of Bond Counsel, interest on the Bonds is exempt from California personal income taxes. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Bonds other than as expressly described above. CERTAIN LEGAL MATTERS The Bonds are offered when, as and if issued and received by the Underwriter and subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will also be passed upon for the Authority and the City by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. Certain legal matters will be passed upon for the City and the Authority by the City Attorney, and for the Underwriter by Stradling, Yocca, Carlson & Rauth, P.C., Irvine, California. Payment of the fees and expenses of Bond Counsel, Disclosure Counsel, the Municipal Advisor and Underwriter s Counsel is contingent upon the sale and delivery of the Bonds. LITIGATION The City is not aware of any pending or threatened litigation concerning the validity of the Bonds or challenging any action taken by the City with respect to the Bonds, the Indenture, the Lease, the Leased Property or any other agreements or actions undertaken in connection with the issuance of the Bonds. Furthermore, the City is not aware of any pending or threatened litigation to restrain, enjoin, question or otherwise affect the Indenture or the Lease or in any way contesting or affecting the validity or enforceability of any of the foregoing or any proceedings of the City taken with respect to any of the foregoing. There are a number of lawsuits and claims pending and threatened against the City unrelated to the Bonds or actions taken with respect to the Bonds. It is the opinion of the City as of this date that such litigation, claims and threatened litigation will not materially affect the City s finances or impair its ability to make the Lease Payments under the Lease or the debt service payments on the Bonds. 69

76 RATINGS S&P is anticipated to assign a rating of AA to the Bonds based on the understanding that AGM will issue the Policy concurrently with the delivery of the Bonds. S&P has assigned an underlying rating of AA- to the Bonds. These ratings reflect only the view of S&P, and an explanation of the significance of these ratings, and any outlook assigned to or associated with these ratings, should be obtained from S&P. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The City and the Authority have provided certain additional information and materials to the rating agency (some of which does not appear in this Official Statement). There is no assurance that these ratings will continue for any given period of time or that these ratings will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of any rating on the Bonds may have an adverse effect on the market price or marketability of the Bonds. CONTINUING DISCLOSURE The City will covenant for the benefit of owners of the Bonds to provide certain financial information and operating data relating to the City by the date that is nine months after the end of the City s Fiscal Year (currently March 31 based on the City s Fiscal Year end of June 30), commencing with the report for the fiscal year ended June 30, 2016 (the Annual Report ), and to provide notices of the occurrence of certain enumerated events. Such reports are required to be filed with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system ( EMMA ). The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is described in APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE, attached to this Official Statement. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2 12(b)(5) (the Rule ). The City and its related governmental entities have previously entered into numerous disclosure undertakings under the Rule in connection with the issuance of long-term obligations. During the past five years, the City and its related entities failed to comply in all material respects with their respective undertakings. In particular, the City (i) failed to file a notice of the upgrade by S&P in November 2015 of its underlying rating assigned to the Authority s Refunding Revenue Bonds, Series 2014 and (ii) did not timely file a notice of the upgrade by S&P in December 2013 of its underlying rating assigned to the 2006 Certificates. The City has a made all remedial filings it believes are required under the Rule to correct such historical noncompliance. The City has retained NBS Government Finance Group, doing business as NBS ( NBS ) to provide continuing disclosure services to the City to ensure compliance with its continuing disclosure undertakings in the future. To further ensure such compliance, the City has appointed its Finance Director to coordinate the preparation and filing of annual disclosure reports by NBS and has adopted policies and procedures related thereto. 70

77 MUNICIPAL ADVISOR The Municipal Advisor has assisted the City with various matters relating to the planning, structuring and delivery of the Bonds. The Municipal Advisor is a municipal advisory firm and is not engaged in the business of underwriting or distributing municipal securities or other public securities. The Municipal Advisor assumes no responsibility for the accuracy, completeness or fairness of this Official Statement. The Municipal Advisor will receive compensation from the City contingent upon the sale and delivery of the Bonds. UNDERWRITING The Underwriter has entered into a bond purchase agreement with the Authority and the City under which it will purchase the Bonds at a price of $10,117, (equal to the par amount of the Bonds, plus net original issue premium of $156,737.55, and less an Underwriter s discount of $64,646.90). The Underwriter will be obligated to take and pay for all of the Bonds if any are taken. The Underwriter intends to offer the Bonds to the public at the offering prices set forth on the inside cover page of this Official Statement. After the initial public offering, the public offering price may be varied from time to time by the Underwriter. 71

78 EXECUTION The execution and delivery of this Official Statement have been authorized by the Board of Directors of the Authority and the City Council of the City. OAKLEY PUBLIC FINANCING AUTHORITY By: /s/ Bryan Montgomery Executive Director CITY OF OAKLEY By: /s/ Bryan Montgomery City Manager 72

79 APPENDIX A CITY OF OAKLEY AND COUNTY OF CONTRA COSTA GENERAL INFORMATION The following information in this section of the Official Statement concerning City of Oakley (the City ), the County of Contra Costa (the County ) and surrounding areas is included only for the purpose of supplying general information regarding the community. The taxing power of the City, the County, the State of California (the State ), and any political subdivision thereof is not pledged to the payment of the Bonds. The Bonds are not a debt of the City, the County, the State, or any of its political subdivisions, and neither the City, the County, the State nor any of its political subdivisions is liable therefor. General The City. The City is situated in the eastern portion of the County, along the shore of the Sacramento-San Joaquin Delta, near the cities of Pittsburg, Antioch, and Brentwood. Close to the junction of Highways 4 and 160, with access to San Francisco, the Silicon Valley, and the state capital at Sacramento, the City is equidistant from both San Francisco and Sacramento at 55 miles. The County. Situated northeast of San Francisco, the County is bounded by San Francisco and San Pablo Bays, the Sacramento River Delta, and by Alameda County on the south. Ranges of hills effectively divide the County into three distinct regions. The western portion, with its access to water, contains much of the County s heavy industry. The central section is rapidly developing from a suburban area into a major commercial and financial headquarters center. The eastern part is also undergoing substantial change, from a rural, agricultural area, to a suburban region. The County has extensive and varied transportation facilities-ports accessible to ocean-going vessels, railroads, freeways, and rapid transit lines connecting the area with Alameda County and San Francisco. Population The following table lists population figures for the City, the County and the State for the last five calendar years. CITY OF OAKLEY, CONTRA COSTA COUNTY AND STATE OF CALIFORNIA Population Estimates Calendar Years 2012 Through 2016 Year City of Oakley Contra Costa County State of California ,850 1,069,977 37,881, ,926 1,083,340 38,239, ,864 1,097,172 38,567, ,609 1,111,143 38,907, ,141 1,123,429 39,255,883 Source: California Department of Finance for January 1. A-1

80 Employment and Industry The unemployment rate in the Oakland-Hayward-Berkeley MD was 4.9% in July 2016, up from a revised 4.8% in June 2016, and below the year-ago estimate of 5.2%. This compares with an unadjusted unemployment rate of 5.9% for the State and 5.1% for the nation during the same period. The unemployment rate was 4.8% in Alameda County, and 5.0% in the County. The table below sets forth the unemployment rate in the City and the State for the previous nine calendar years. CITY OF OAKLEY AND STATE OF CALIFORNIA Unemployment Rate Calendar Years 2006 through 2015 Year City of Oakley State of California % 4.9% Source: City of Oakley; Bureau of Labor Statistics A-2

81 The table below lists employment by industry group for the County for calendar years 2011 through CONTRA COSTA COUNTY Annual Averages Civilian Labor Force, Employment and Unemployment, Employment by Industry (March 2015 Benchmark) Civilian Labor Force (1) 1,316,300 1,336,300 1,344,100 1,355,600 1,374,800 Employment 1,182,400 1,218,700 1,245,500 1,275,000 1,308,100 Unemployment 133, ,500 98,600 80,600 66,700 Unemployment Rate 10.2% 8.8% 7.3% 5.9% 4.8% Wage and Salary Employment: (2) Agriculture 1,500 1,500 1,400 1,300 1,200 Mining, Logging and Construction 48,600 52,900 57,300 59,400 63,300 Manufacturing 79,700 79,900 80,100 82,800 86,600 Wholesale Trade 42,200 43,700 45,200 46,200 47,600 Retail Trade 101, , , , ,000 Transportation, Warehousing and Utilities 32,200 32,900 33,500 35,600 38,300 Information 22,600 22,100 21,500 21,300 22,400 Finance and Insurance 32,900 33,400 33,500 32,600 32,800 Real Estate and Rental and Leasing 14,900 15,400 16,200 16,800 16,800 Professional and Business Services 157, , , , ,000 Educational and Health Services 158, , , , ,400 Leisure and Hospitality 88,200 91,800 97, , ,300 Other Services 35,700 36,400 37,000 37,500 38,000 Federal Government 14,600 14,200 13,800 13,800 13,800 State Government 38,300 38,500 38,900 39,300 39,800 Local Government 111, , , , ,200 Total, All Industries (3) 980,100 1,008,000 1,037,500 1,063,600 1,096,300 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: Labor Division of the California State Employment Development Department. A-3

82 Principal Employers The following table shows the principal employers in the City, as shown in the City s Comprehensive Annual Financial Report for fiscal year ending June 30, CITY OF OAKLEY Principal Employers Employer Number of Employees Percent of Total Employment Oakley Union Elementary School % Lucky s Diamond Hills Sports Club and Spa Raley s Delta Black Bear Diner McDonalds Continente Nut LLC Foundation Constructors Ironhouse Sanitary Burger King Rain for Rent Jack in the Box Oakley Hotels LLC Source: City Of Oakley, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, A-4

83 Major Employers The table below lists the major employers in the County, listed alphabetically. CONTRA COSTA COUNTY Major Employers September 2016 Employer Name Location Industry AAA Northern CA Nevada & Utah Walnut Creek Automobile Clubs BART Richmond Transit Lines Bayer Health Care Phrmctcls Richmond Laboratories-Pharmaceutical (mfrs) Bio-Rad Laboratories Inc. Hercules Physicians & Surgeons Equip & Supls-Mfrs Chevron Corp Richmond Service Stations-Gasoline & Oil Chevron Corp San Ramon Oil Refiners (mfrs) Chevron Global Downstream LLC San Ramon Petroleum Products (whls) Chevron Technology Ventures San Ramon Technology Assistance Programs Chevron-Corp Not Available Real Estate Contra-Costa Regional Med Ctr Martinez Hospitals Department of Veterans Affairs Martinez Clinics Inspira Financial Co Walnut Creek Financial Advisory Services Job Connections Danville Personnel Consultants John Muir Medical Center Concord Hospitals John Muir Medical Center Walnut Creek Hospitals Kaiser Permanente Antioch Med Antioch Physicians & Surgeons Kaiser Permanente Martinez Med Martinez Clinics Kaiser Permanente Walnut Creek Walnut Creek Physicians & Surgeons La Raza Market Richmond Grocers-Retail Liberty Tax Svc Antioch Tax Return Preparation & Filing San Ramon Regional Medical Center San Ramon Hospitals Shell Oil Products Martinez Oil & Gas Producers St Marys College Moraga Schools-Universities & Colleges Academic Sutter Delta Medical Center Antioch Hospitals Tesoro Golden Eagle Refinery Pacheco Oil Refiners (mfrs) US Veterans Medical Center Martinez Outpatient Services USS-POSCO Industries Pittsburg Steel Mills (mfrs) Source: State of California Employment Development Department, extracted from the America's Labor Market Information System (ALMIS) Employer Database, nd Edition. A-5

84 Commercial Activity A summary of the historic taxable sales within the County during the past five years in which data is available are shown in the following tables. Annual figures for calendar year 2015 are not yet available. CONTRA COSTA COUNTY Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in Thousands) Retail Stores Total All Outlets Number of Permits Taxable Transactions Number of Permits Taxable Transactions ,423 $8,716,393 21,784 $11,953, ,930 9,300,418 21,153 12,799, ,343 10,062,437 21,504 13,997, ,511 10,677,018 21,449 14,471, ,657 11,092,210 21,550 15,030,047 Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax). A-6

85 Construction Activity The following tables show a five-year summary of the valuation of building permits issued in the City and the County. CITY OF OAKLEY Building Permit Valuation (Valuation in Thousands of Dollars) Permit Valuation New Single-family $20,530.4 $36,596.1 $58,063.0 $24,451.8 $78,354.6 New Multi-family 0.0 1, , Res. Alterations/Additions 8, ,894.8 Total Residential 29, , , , ,249.4 New Commercial , , , New Industrial New Other , ,092.0 Com. Alterations/Additions , ,489.2 Total Nonresidential , , , ,439.8 New Dwelling Units Single Family Multiple Family TOTAL Source: Construction Industry Research Board, Building Permit Summary. CONTRA COSTA COUNTY Building Permit Valuation (Valuation in Thousands of Dollars) Permit Valuation New Single-family $211,417.9 $340,255.7 $469,376.5 $402,109.1 $629,638.5 New Multi-family 47, , , , ,088.7 Res. Alterations/Additions 233, , , , ,221.7 Total Residential 491, , , , ,053,948.9 New Commercial 17, , , , ,256.4 New Industrial 7, , , , ,020.1 New Other 15, , , , ,219.6 Com. Alterations/Additions 214, , , , ,320.4 Total Nonresidential 254, , , , ,816.5 New Dwelling Units Single Family 718 1,188 1,585 1,439 1,909 Multiple Family TOTAL 1,073 2,137 1,955 2,027 2,522 Source: Construction Industry Research Board, Building Permit Summary. A-7

86 Effective Buying Income Effective Buying Income is defined as personal income less personal tax and non-tax payments, a number often referred to as disposable or after-tax income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as disposable personal income. The following table summarizes the total effective buying income for the City, the County, the State and the United States for calendar years 2011 through CITY OF OAKLEY, CONTRA COSTA COUNTY, AND THE STATE OF CALIFORNIA Effective Buying Income As of January 1, 2011 through 2015 Total Effective Buying Income (000 s Omitted) Median Household Effective Buying Income Year Area 2011 City of Oakley $711,553 $60,988 Contra Costa County 30,416,350 60,777 California 814,578,458 47,062 United States 6,438,704,664 41, City of Oakley $806,038 $59,153 Contra Costa County 33,604,875 61,167 California 864,088,828 47,307 United States 6,737,867,730 41, City of Oakley $787,223 $60,369 Contra Costa County 32,061,585 61,731 California 858,676,636 48,340 United States 6,982,757,379 43, City of Oakley $849,333 $61,927 Contra Costa County 33,833,478 64,090 California 901,189,699 50,072 United States 7,357,153,451 45, City of Oakley $927,073 $67,242 Contra Costa County 37,417,068 68,074 California 981,231,666 53,589 United States 7,757,960,399 46,738 Source: The Nielsen Company (US), Inc. A-8

87 The following table describes the per capita income for the City for calendar years 2006 through CITY OF OAKLEY Per Capita Income Calendar Years 2006 through 2015 Education Year Per Capita Income 2006 $59, , , , , , , , , ,469 Source: City of Oakley; Bureau of Labor Statistics The City is part of the Oakley Union School District, Antioch Unified School District and Liberty Union High School District. Liberty Union High School District oversees the operations of Freedom High School, La Paloma High School, Heritage High School, Independence High School and the Liberty Alternative Education Center. Near the City are four colleges: Los Medanos Community College in Pittsburg, Diablo Valley Community College in Concord and San Joaquin Delta Community College and University of the Pacific in Stockton. Transportation The City is in close proximity to a developed transportation network. State Highway 4 runs in an east/west direction through the City, intersecting Interstate 680 near Martinez and Interstate 80 in Hercules. To the east, Highway 4 leads to Stockton where it intersects with Interstate 5. The highways provide the City with access to major regional workplace and recreation areas. The City is close to both regional and international airports Concord Airport, Stockton Airport and Oakland International Airport. The City is also served by bus lines and railroads. In addition, the City believes that the Bay Area Rapid Transit ( BART ) is currently working on ebart an expansion of BART to the East Bay. The ebart rail system will run from Pittsburg/Bay Point BART station through Pittsburg, Antioch, Oakley, Brentwood, and Bryon. There are also currently conversations between the City of Antioch and the Water Transit Authority to explore the feasibility of providing ferry passenger service from the Antioch waterfront to San Francisco. A-9

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89 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 B-1

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91 OAKLEY -~- CAL IF ORN I A COMPREHENSIVE ANNUAL FINANCIAL REPORTFORTHEYEARENDED JUNE 30, 2016

92 CITY OF OAKLEY, CALIFORNIA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2016 PREPARED BY THE FINANCE DEPARTMENT

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94 INTRODUCTORY SECTION

95 CITY OF OAKLEY, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 Table of Contents I INTRODUCTORY SECTION: I TABLE OF CONTENTS Letter of Transmittal... i Organizational Chart... vii Elected Officials and Administrative Personnel viii GFOA Certificate of Achievement... ix I FINANCIAL SECTION: I Independent Auditor's Report... 1 Management's Discussion and Analysis... 5 Basic Financial Statements: Government-wide Financial Statements: Statement of Net Position Statement of Activities Fund Financial Statements: Governmental Funds: Balance Sheet Reconciliation of the Governmental Funds Balance Sheet with the Statement of Net Position Statement of Revenues, Expenditures, and Changes in Fund Balances Reconciliation of the Net Change in Fund Balances Total Governmental Funds with the Statement of Activities... 26

96 CITY OF OAKLEY, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 Table of Contents I FINANCIAL SECTION (Continued): I Statement of Revenues, Expenditures, and Changes in Fund Balance-Budget and Actual: General Fund Lighting and Landscaping Districts Public Protection Low and Moderate Income Housing Asset Proprietary Funds: Statement of Net Position Statement of Revenue, Expenses and Changes in Fund Net Position Statement of Cash Flows Fiduciary Funds: Statement of Fiduciary Net Position Statement of Changes in Fiduciary Net Position Notes to Basic Financial Statements...39 Required Supplementary Information: Schedule of the City's Proportionate Share of the Net Pension Liability Schedule of Contributions Supplemental Information: Major Governmental Funds Other than the General Fund and Major Special Revenue Funds: Schedule of Revenues, Expenditures, and Changes in Fund Balances -Budget and Actual... 84

97 CITY OF OAKLEY, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 Table of Contents I FINANCIAL SECTION (Continued): I Non-major Governmental Funds: Combining Balance Sheets Combining Statements of Revenues, Expenditures, and Changes in Fund Balances Combining Schedules of Revenues, Expenditures, and Changes in Fund Balances-Budget and Actual Internal Service Funds: Combining Statement of Net Position Combining Statement of Revenue, Expenses and Changes in Fund Net Position Combining Statement of Cash Flows Fiduciary Funds: Statement of Changes in Assets and Liabilities - Agency Funds I STATISTICAL SECTION: I Financial Trends: 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 Balance of Governmental Funds-Last Ten Fiscal Years Revenue Capacity: Assessed and Estimated Actual Value of Taxable Property-Last Ten Fiscal Years Property Tax Rates - All Overlapping Governments - Last Ten Fiscal Years Principal Property Tax Payers Property Tax Levies and Collections-Last Ten Fiscal Years

98 CITY OF OAKLEY, CALIFORNIA Comprehensive Annual Financial Report For the Year Ended June 30, 2016 Table of Contents I STATISTICAL SECTION (Continued): I Debt Capacity: Ratio of Outstanding Debt by Type-Last Ten Fiscal Years Computation of Direct and Overlapping Debt Computation of Legal Bonded Debt Margin Bonded Debt Pledged Revenue Coverage - Last Ten Fiscal Years Demographic and Economic Information: Demographic and Economic Statistics - Last Ten Fiscal Years Principal Employers Operating Information: Budgeted Full-Time Equivalent City Government Employees by Function - Last Ten Fiscal Years Operating Indicators by Function/Program Capital Asset Statistics by Function/Program - Last Ten Fiscal Years

99 CITY COUNCIL Kevin Romick, Mayor Sue Higgins, Vice-Mayor Vanessa Perry Randy Pope Doug Hardcastle OAKLEY -~- CAL IF ORN I A CITY HALL 3231 Main Street Oakley, CA tel fax December 13, 2016 To the Citizens of the City of Oakley, and Honorable Members of the City Council We are pleased to submit to you the City of Oakley's Comprehensive Annual Financial Report (CAFR) for the fiscal year ended June 30, This report is published in accordance with State law that requires financial statements be presented in conformity with accounting principles generally accepted in the United States of America, and audited in accordance with auditing standards generally accepted in the United States of America by a firm of licensed certified public accountants. It is also prepared to meet reporting standards set forth by the Governmental Finance Officers Association.. This letter of transmittal is designed to complement the Management's Discussion and Analysis (MD&A) and should be read in conjunction with it. The MD&A can be found immediately following the report of the independent auditors. Responsibility for both the accuracy of the data and the completeness and fairness of the presentation, including all disclosures, rests with City management. To the best of our knowledge and belief, the enclosed data is accurate in all material respects and is reported in a manner designed to present fairly the financial position and the changes in financial position of the governmental activities and the various funds of the City; and includes all disclosure necessary to enable the reader to gain an understanding of the City's financial affairs. CITY PROFILE The City of Oakley is a community of approximately 40,141 located in the eastern portion of Contra Costa County in the San Francisco Bay Area. The City entity is a California corporate municipality incorporated on July 1, 1999, and operated under a Council-City Manager structure of government. The City Council is comprised of five members elected by the voters, city-wide, serving in staggered 4 year terms. The Council hires a City Manager to run the City's day-to-day operations.

100 The City provides the following services: Legislative; Administrative; Building and Safety; Code Enforcement, Planning; Engineering; Streets, Parks and Landscape Maintenance; Recreation; and Police Protection. Other community services that are provided by local special districts with their own governing boards include: Sewer, Water, Transit, Irrigation, Mosquito Abatement, Flood Control, Schools, and Fire Protection. The City contracts for sanitation services with a local firm under a long-term franchise agreement. FINANCIAL INFORMATION Discussion and analysis of the City's finances can be found in the MD&A section of the attached report. The information below includes a summary of what is recorded in the General Fund and certain Other Financial Information of ongoing interest but not included in the MD&A. The Financial Statements presented in this CAFR include the City and its component unit, the Oakley Public Financing Authority. It is blended in the report since it is governed by the City Council sitting in a separate capacity and provides services exclusively to the City. The Oakley Redevelopment Agency was dissolved on January 31, 2012, and its assets and liabilities were transferred to the City, as Housing Successor, and to a Successor Agency. The Successor Agency is reported as a Private Purpose Trust Fund, since it is legally a separate Entity and its decisions and governance subject to the approval of parties other than the City Council. Each year, the City Council holds a strategic planning discussion and adopts a budget to direct the allocation of City resources in accordance with its strategic planning priorities. The process typically begins in January with internal budget reviews, followed by a strategic planning session in March, a budget workshop in May to discuss a Proposed Budget, and adoption of a final Recommended Budget in June. The City operates on a fiscal year that begins each July 1 and ends on June 30. The adopted Budget includes the annual update of the City's Comprehensive Statement of Financial Policies, which serves as a framework for its financial practices, an update to its 10 Year Plan, and budgets for each of the funds under the City's control. Budgetary control is established at the Fund level. The City's General Fund is its primary operating fund, and is used to account for Legislative, Administrative Services, Community Development, Recreation, Police and Public Works operations, and is where the City accounts for all its 11

101 general purpose revenues. It is distinguished from the City's other governmental funds that are used to account for special purpose revenues, capital projects, debt service activities, and monies held for the benefit of others. Debt Management The City generally does not incur debt, except in instances where there will be long-term benefits or where no other method of acquiring an asset is possible. Equipment purchases are generally funded through the City's Equipment Replacement Fund or with current revenues. Reserves The City has sufficient reserves to meet its current and immediate future obligations. The Statement of Financial Policies contains reserve policies and the City's Adopted Budget includes a 10 Year Plan which highlights the impact of near term decisions on fund balances and reserves during the 10-year period. Furthermore, in order to maintain the 10 Year Plan's relevance, twice each year (at budget adoption and again at mid-year), the City reviews and updates the assumptions used in the Plan Financial Statement Impacts/Redevelopment Agency Dissolution The State passed legislation in June 2011 that resulted in the dissolution of redevelopment agencies throughout the State effective January 31, The legislation was further amended and revised in June of Collectively, the legislation is referred to as the Dissolution Act. The process of implementing the Act resulted in uncertainties and litigation relating to the process. The City, Successor Agency, and State Department of Finance settled the litigation in July 2014, removing these uncertainties and allowing the Agency to resume moving forward in the process of winding down the Agency's affairs. The City submitted its Long Range Property Management Plan to the State Department of Finance in November of The Agency subsequently submitted a revised LRPMP on December 17, 2015 and received the approval on December 30, The agency conveyed the approved properties with a book value of $6,327,321 to the City during fiscal year The transfer is discussed in greater detail in the Financial Statement footnotes. 111

102 ECONOMIC FACTORS AND NEXT YEAR'S BUDGET In preparing the budget for fiscal year , management considered the following significant factors likely to affect the financial condition of the City: Housing prices have strengthened and building activity has continued to increase. Property tax revenue growth was estimated at 5%, reflecting the increasing market strength, offset by conservative estimates of what the County Assessor might or might not reflect in his assessed values. In addition, the City projected developers will complete 180 new homes in fiscal year , similar to the increased levels seen in fiscal year The cost of the City's contract for police services through Contra Costa County rose substantially through the years increasing a cumulative 33.1 % from 2009/10 through 2014/2015. As a result, the City formed its own municipal Police Department on May 6, For fiscal year 2016/17, the City has estimated that the cost of police services will be $7.8 million with increased services at a lower cost per officer than the County contract. The City has accumulated reserves well in excess of its adopted policy level of 20% of anticipated General Fund expenditures. With all of the news supporting an expectation that the recession was finally over, the Council has once again begun the appropriation of the excess to fund onetime additional infrastructure and economic development investments. While the budget news was generally good, the City Council continues to support a budget process that uses recurring revenues for recurring expenditures and allocates one-time funds for one-time purposes, reflecting their commitment to conservative budgeting, controlling costs, and using the City's revenues wisely. LONG TERM FINANCIAL PLANNING The City adopts a balance budget for each fiscal year by June 30. The City has financial policies that include the use of one-time revenues will be used for nonrecurring or one-time expenditures including capital and reserves. The City has adopted a fund balance policy that requires the unassigned fund balance in the General Fund to be at least 20% of operating expenditures. As part of the budgeting process a 10 year financial projection is approved each year. This creates the framework to evaluate the City's success in ensuring service iv

103 sustainability. Each year a 5-year Capital Improvement Plan is created to maintain the core infrastructure of the City will building new infrastructure for the community. THE LOCAL AND REGIONAL ECONOMIES Oakley's local commercial economy was affected by the larger downturn being experienced across the country and seemingly everywhere, and while commercial activity in the region has improved, commercial vacancies in nearby cities remain a viable and competing alternative to new ground-up construction in Oakley. While new development and City initiatives bring infrastructure improvements and attractive new neighborhoods, these investments also support the City's efforts to attract new businesses and expand existing local employment opportunities. Thus, while near-term growth in the local economy may remain slower, the City is taking the steps necessary to realize its potential, and its longterm prospects remain favorable. Like most small cities in metropolitan areas, Oakley's economy is influenced strongly by the regional economy. It rises as the region expands, and falls as the region contracts. The greater San Francisco Bay Area economy has continued to improve this last year and employment for the City's residents has improved yet again. City unemployment was 5.6% in September 2016 down slightly from 5.7% in September INDEPENDENT AUDITORS State statutes require an annual audit by independent certified public accountants. The accounting firm of Maze & Associates has been engaged by the City to conduct this year's audit. The auditor's report on the basic financial statements is included in the financial section of the report. AWARDS FOR EXCELLENCE IN FINANCIAL REPORTING The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Oakley for its comprehensive annual financial report for the fiscal year ended June 30, This was the sixteenth consecutive year that the government has achieved the award. To receive the award, a government v

104 must publish an easily readable and efficiently organized comprehensive annual financial report. This report must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program's requirements and we are submitting it to the GFOA to determine its eligibility for another certificate. AVAILABILITY TO THE PUBLIC Once accepted by the Council, the report will be made available to the Public at the City Offices, on the City's website ( at State repositories, and by providing copies to the City's bond disclosure dissemination agent. CONCLUSION We are proud to deliver to you the City's Comprehensive Annual Financial Report for the year ended June 30, The preparation of this report on a timely basis could not be accomplished without the dedicated services of Finance Department staff and the assistance of many others in the City organization. We would like to express our appreciation to everyone who contributed to its preparation and thank you for your continued support in planning and conducting the financial operations of the City in a responsible and progressive manner. Bryan H. Montgomery City Manager Deborah Sultan Finance Director vi

105 CITIZENS OF OAKLEY CITY COUNCIL CITY ATTORNEY Special Counsel Paralegal CITY MANAGER Assistant to the City Manager :::. Admin Assistant Maintenance Custodian You, Me, We= Oak ley Program Coordinator City Clerk City Clerk Records Management Clerk Engineering/ Public Works City Engineer/PW Director Senior Civil Engineer Planning I I Building Economic Dev. Planning Manager Permit Center Manager Ee. Development Manager Senior Planner Building Inspectors Finance Finance Director Senior Accountant Police Chief Lieutenants Recreation Recreation Manager Rec. & Events Coordinator Receptionists Associate Engineers PW Inspector PW Administrative Specialist PW Receptionist Streets Maintenance Foreman Parks & Landscape Maintenance Manager Permit Technician Admin Assistant Code Enforcement Code Enforcement Manager Code Enforcement Officer Code Enforcem ent Technicians Human Resources HR Manager HR Technician Sr. Accounting Technician Accounting Assistants IT Services Sergeants Records Supervisor Police Officers Police Service Assistants Senior Rec. Leaders Facilities Attendant Recreation Leaders (seasonal) Recreation Aides (seasonal) Parks & Landscape Foreman PW Laborer II PW Laborer I Tree Maintenance Laborer Parks and Landscape Laborers (seasonal) Parks Monitor Sports Field Maintenance Laborer r

106 CITY OF OAKLEY ELECTED OFFICIALS AND ADMINISTRATIVE PERSONNEL JUNE 30, 2016 ELECTED OFFICIALS Mayor Vice-Mayor Council Member Council Member Council Member Kevin Romick Sue Higgins Doug Hardcastle Vanessa Perry Randy Pope ADMINISTRATIVE PERSONNEL City Manager City Attorney Finance Director Chief of Police City Clerk City Engineer Bryan H. Montgomery Derek Cole Deborah Sultan Chris Thorsen Libby Vreonis Kevin Rohani Vlll

107 Government Finance Officers Association Certificate of Achie vement for Excellence in Financial Reporting Presented to City of Oakley California For its Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2015 Executive J)irector/CEO IX

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109 FINANCIAL SECTION

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111 Change in Accounting Principles Management adopted the provisions of the following Governmental Accounting Standards Board Statement, which became effective during the year ended June 30, 2016 as discussed in Note 21 to the financial statements: S~tement No. 72 -Fair Value Measurement and Application Management early-implemented the provisions of the following Governmental Accounting Standards Board Statement during the year ended June 30, 2016 as noted in the Pension-Related Required Supplementary Information: Statement No. 82 -Pension Issues-An Amendment ofgasb Statements No. 67, No. 68, and No. 73 The emphasis of this matter does not constitute a modification to our opinions. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that Management's Discussion and Analysis and other Required Supplementary Information as listed in the Table of Contents be presented to supplement the basic financial statements. Such information, although not a part of the basic fmancial 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 opinions on the financial statements that collectively comprise the City's basic fmancial statements as a whole. The Introductory Section, Supplemental Information, and Statistical Section listed in the Table of Contents are presented for purposes of additional analysis and are not a required part of the basic financial statements. The Supplemental Information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic fmancial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic fmancial statements or to the basic fmancial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Supplemental Information is fairly stated, in all material respects, in relation to the basic fmancial statements as a whole. The Introductory and Statistical Sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on them. 2

112 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated November 28, 2016 on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City's internal control over financial reporting and compliance. Pleasant Hill, California November 28,

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114 MANAGEMENT'S DISCUSSION AND ANALYSIS This discussion and analysis of the City of Oakley's financial performance for the fiscal year ended June 30, 2016, provides an overview of year ending results based on the government-wide statements, an analysis on the City's overall financial position and results of operations to assist users in evaluating the City's financial position, and discussions of both significant changes that occurred in funds and significant budget variances. In addition, it describes the activities during the year for capital assets and long-term debt. It concludes with a description of currently known facts, decisions, and conditions that are expected to have a significant effect on the financial position or results of operations. Please read this MD&A in conjunction with the City's financial statements. FINANCIAL HIGHLIGHTS Government-wide net position increased by $10,264,297, or 5.45 percent this year. Government-wide program expenses exceeded program revenues by $7,886,596. General Fund revenues were $1,605,535 more than budgeted; expenditures were $2,761,585 less than budgeted. The General Fund balance at the end of the year was $17,570,455 of which $9,067,909 was available/unassigned. USING THIS ANNUAL REPORT This annual report consists of a series of financial statements. The Statement of Net Position and Statement of Activities (on pages 16 and 17) provide information about the activities of the City as a whole and present a long-term view of the City's finances. Fund financial statements start on page 20. For governmental activities, the fund financial statements tell how these services were financed in the short term as well as what remains for future spending. Fund financial statements also report the City's operations in more detail than the government-wide statements by providing information about the City's most significant funds and other funds. The remaining fiduciary fund statement provides financial information about activities for which the City acts solely as a trustee or agent for the benefit of those outside of the government. 5

115 REPORTING THE CITY AS A WHOLE The Statement of Net Position and the Statement of Activities: Our analysis of the City as a whole begins on page 7. One of the most important questions asked about the City's finances is "Is the City as a whole better off or worse off as a result of the year's activities?" The Statement of Net Position and the Statement of Activities report information about the City as a whole and about its activities to answer this question. These statements include all assets, deferred outflows/inflows of resources and liabilities of the City using the accrual basis of accounting, which is similar to the accounting used by most private-sector companies. All of the current year's revenues and expenses are taken into account regardless of when cash is received or paid. These two statements report the City's net position and changes in net position. Net position is the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources, which is one way to measure the City's financial health, or financial position. Over time, increases or decreases in the City's net position is an indication of whether its financial health is improving or deteriorating. To put the City's financial health in perspective, you will likely need to consider certain non-financial factors, such as changes in the economy, that impact consumer spending or property values. In the statement of Net Position and the Statement of Activities, we include City Activities from two categories: Governmental activities -Most of the City's basic services are reported in this category, and include: general government (city manager, city clerk, finance, etc.), community development (planning, building and public works), police protection, and recreation. Property taxes, sales tax, transient occupancy tax, user fees, interest income, franchise fees, state and federal grants, contributions from other agencies, and other revenues finance these activities. Component unit activities - The City includes one additional legal entity in its report - the Oakley Public Financing Authority. Although legally separate, the City is financially accountable for this "component unit". REPORTING THE CITY'S MOST SIGNIFICANT FUNDS Fund Financial Statements The fund financial statements provide detailed information about the most significant funds (called "major" funds) and other funds (called "non-major" funds)- not the City as a whole. Some funds are required by State law and/or by bond covenants; however, management has established other funds to help it control and manage money for particular purposes or to show that it is meeting legal responsibilities for the use of certain taxes, grants, and other resources. The City's funds are classified as Governmental Funds, Proprietary Funds or Fiduciary Funds. 6

116 Governmental Funds Most of the City's basic services are reported in governmental funds, which focus on how money flows in and out of those funds and the balances left at year-end that are available for spending. These funds are reported using an accounting method called modified accrual accounting, which measures cash and all other financial assets that can readily be converted to cash. The governmental fund statements provide a detailed short-term view of the City's general government operations and the basic services it provides. Governmental fund information helps determine whether there are more or fewer financial resources that can be spent in the near future to finance the City's programs. The differences of results in the Governmental Fund financial statements to those in the Government-Wide financial statements are explained in a reconciliation following each Governmental Fund financial statement. Proprietary Funds - Internal Service Activities The City has established Equipment Replacement and Capital Facilities Maintenance and Replacement Internal Services Funds. Internal Service Funds are operated in a manner similar to a private business enterprise. In the case of the Equipment Replacement Fund, it charges the other City funds to accumulate amounts sufficient to replace the equipment at the end of its useful life. The Capital Facilities Maintenance and Replacement Fund charges the other City Funds to accumulate amounts sufficient pay for major repairs and building systems replacements when they may occur. These Funds are reported using the accrual basis of accounting. Trust and Agency Funds - Reporting the City's Fiduciary Responsibilities The City is the trustee, or fiduciary, for certain funds held on behalf of bondholders and other governmental agencies. The City's fiduciary activities are reported in separate Statements of Fiduciary Net Position and Changes in Fiduciary Net Position. We exclude these activities from the City's other financial statements because the City doesn't own these assets and cannot use them to finance its operations. The City is the Successor Agency to the Oakley Redevelopment Agency; and the Successor Agency's assets and liabilities are accounted for in a private purpose trust fund reported with the City's other fiduciary funds. THE CITY AS A WHOLE For fiscal year the City's combined net position increased $10,264,297 from $188,234,059 to $198,498,356. The analysis below focuses on the net position (Table 1) and changes in net position (Table 2) of the City's governmental activities. 7

117 Table 1 Net Position As of June 30, 2016 and 2015 Governmental Activities Assets Current and restricted assets $ 50,964,648 $ 48,055,023 Capital assets 159,349, ,800,264 Total Assets 210,314, ,855,287 Deferred Outflows of Resources 1,133, ,613 Related to pensions (Note 11) Liabilities Long-term liabilities outstanding 6,415,000 6,690,000 Other liabilities 6,052,254 6,897,662 Total Liabilities 12,467,254 13,587,662 Deferred Inflows of Resources 482, ,179 Related to pensions (Note 11) Net Position Net Investment in Capital Assets 153,509, ,685,029 Restricted 27,204,962 26,651,145 Unrestricted 17,784,114 13,897,885 Total Net Position $ 198, $ 188~234~059 The City's Net Position is made-up of three components: Net Investment in Capital Assets; Restricted Net Position; and Unrestricted Net Position. Net Investment in Capital Assets, the part of net position representing capital assets, and principally infrastructure assets, accounts for the majority of the City's governmental activities net position. The increase in Net Investment in Capital Assets resulted primarily from the transfer of assets from the Successor Agency pursuant to the approved Long Range Property Management Plan. The increase in Restricted Net Position is primarily due to an increase in the funds restricted for capital projects as a result of ongoing project expenditures. The increase in Unrestricted Net Position is primarily attributed to the strong performance in the City's General Fund. 8

118 Table 2 Changes in Net Position As of June 30, 2016 and 2015 Governmental Activities REVENUES Program revenues: Charges for Services Operating Grants & Contributions Capital Grants & Contributions General revenues: Property tax Sales tax Other taxes Use of money and property Miscellaneous Total Revenues EXPENSES Legislative Administrative Services Law Enforcement Community Development and Housing Public Works Recreation Interest on long-term debt Total Expenses Change in Net Position Before Special Items Special Items-Assets transferred to/from the Successor Agency Change in Net Position Net Position- Beginning Net Position- Ending $10,214,541 $8,798,069 1,356,209 1,714,266 5,040,381 2,714,899 5,814,454 5,330,952 1,752,799 1,506,300 1,793,061 1,613, , ,977 1,905,671 1,071,777 28,434,703 23,268, , ,418 1,219,985 1,341,183 8,230,259 8,313,841 2,236,736 1,887,781 11,478,077 10,640, , , , ,528 24,497,727 23,474,438 3,936,976 (205,542) 6,327, ,182 10,264, , ,234, ,077,419 $198A $188!234!059 9

119 Governmental Activities Total revenue was $28,434,703. Charges for services which accounts for 36% ofrevenue increased $1,416,472 due to increased developer fees ($912,055) and special assessments for lighting and landscape districts and public safety assessments ($492,290). Property taxes increased $483,502 due to increased property values and the increase in new homes. Capital grants and contributions increased $2,325,482 as the City received grant money and traffic fees for ongoing street projects. Most other categories experienced slight increases. Total expenses were $24,497,727. Public Works, with $11,478,077 of expenses, represented the largest component of total governmental expenses. The $837,607 increase in Public Works expenses resulted from increased seasonal staff; lighting zone costs, remedial maintenance work and depreciation expense. Administrative Services expenses decreased $121,198 due to the increase in insurance premiums and retirement costs being offset by changes in deferred outflows/inflows related to pensions. The increase of $348,955 in Community Development expenses resulted from increased staff and expenses related to the increased activity in building and development. The special items of $6,327,321 represent the transfers from the Successor Agency for land for government use and future development as defined in the Long Range Property Management Plan approved by the State Department of Finance. See Note ISA for further information. Fiscal Year 2016 Government Activities Sources of Revenues Operating Grants and Contributions 5% Charges for Services 36% Other Taxes 6% Use of Money & Property 2% ' l - 7% I 10

120 Functional Expenses THE CITY'S FUNDS On page 20, the governmental funds balance sheet is shown. The combined fund balance was $34,3 84,240, an increase of $4,361,859. The largest contributor to the change in fund balance was the increase in the General Fund ($4,528,331 ), resulting from the transfer of assets from the Successor Agency ($2,903,630). The combined fund balance includes the General Fund balance of$17,570,455. The General Fund balance increased by $4,528,331 from the prior year. This was a larger increase than in 2015, when fund balances increased $660,163. Revenues increased $1,726,750 due primarily to increases in property taxes, sales tax and licenses and permits; and expenditures increased $1,006,793 due primarily to increases in Community Development and Capital Outlay. The increases in expenditures are due to increased staffing and purchase of land for capital improvement projects. General Fund Unassigned fund balances increased by $1,129,741. General Fund revenues were $3,075,073 more than expenditures before transfers. Other major funds and non-major fund balance changes are noted below: The Traffic Impact Fee Fund balance increased by $509,074 to $4,218,699 due primarily to special assessments exceeding capital project expenditures for the year. The General Capital Projects Fund balance decreased by $761,707 to $271,662 due primarily to increased capital outlay. The non-major Gas Tax Fund balance decreased $680,251 primarily due to increased capital outlay. 11

121 General Fund Budgetary Highlights For the City's General Fund, actual revenues of $12,772,318 were $1,605,535 more than the final budgeted revenues of $11, 166, 783. Property, sales and other tax revenues exceeded budget by $302,956. Original budgeted property and sales tax were increased by $415,000 during the year. The increase in assessed value of property was approximately 3% better than projected and the City received better than expected sales tax revenues. Licenses & Permits exceeded budget by $891,490 due to the increase in building permits and new residential development. Actual General Fund expenditures of $9,697,245 were $2,761,585 less than final budget of $12,458,830. The primary increase to the original budget was in capital outlay for $1,420,000 for the purchase of two properties needed for capital improvements in the City. Savings were primarily in law enforcement where expenditures were $1,579,588 less than budget and capital outlay savings were $743,171. The majority of the savings resulted from staff vacancies and the termination of the contract with the Contra Costa Sheriffs Department. The formation of the City's own Police Department in May terminated that contract two months prior to the end of the fiscal year. The savings in capital outlay resulted from the purchase of one of the properties was not completed by June 30, CAPITAL ASSETS AND DEBT ADMINISTRATION Capital Assets At the end of 2016, the City had $159,349,513 invested in a broad range of capital assets including land, streets, bridges, drainage systems, traffic lights, parks, buildings, vehicles and equipment. (See Table 3). Table 3 Capital Assets As of June 30, 2016 and2015 Governmental Activities Non Depreciable -Land -Construction in progress Depreciable, net of accumulated depreciation: -Machinery, equipment and vehicles -Buildings and improvements -Park improvements -Infrastructure Total Capital Assets 2016 $13,641,305 3,248, ,446 7,515,735 8,512, ,716,738 $ $9,902,951 3,581, ,974, ,526,433 $ Capital assets increased by $5,549,249 during fiscal year as land was transferred from the Successor Agency pursuant to the Long Range Property Management Plan approved by the State of California Department of Finance. 12

122 The City's fiscal year capital improvement budget calls for it to spend $8,214,485 for new capital projects, the majority being the construction of parks and a recreation center, roadways, drainage, and landscaping improvements. The work projects will be financed primarily with Traffic Impact fees, General Fund allocations, and grant funds. Additional information about the capital assets can be found in Note 7 of the financial statements. Debt At year-end, the City's governmental activities had $6,415,000 as shown in Table 4. The decrease of $275,000 from a year ago is due to payment of scheduled debt service. No new debt was issued in the current year. Additional information about the City' s debt can be found in Note 8 of the financial statements. Table 4 Outstanding Debt at Year-End Governmental Activities 2006 Certificates of Participation Total Debt 2016 $6,415,000 $6,415, $6,690,000 $6,690,000 During the year, the City made all of its current year debt service payments in a timely manner. CONTACTING THE CITY FOR FINANCIAL INFORMATION This financial report is designed to provide our 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 Department at the City offices at Main Street, Oakley, California, by calling (925) , or forwarding your inquiry via the "contact us" page on the City's website ( This CAFR, as well as other financial documents, is posted in the Finance Department section of the City's website. 13

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124 CITY OF OAKLEY STATEMENT OF NET POSITION AND STATEMENT OF ACTIVITIES The Statement of Net Position and the Statement of Activities summarize the entire City's financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the City's assets and deferred outflows of resources and all its liabilities and deferred inflows of resources, as well as all its revenues and expenses. This is known as the full accrual basis-the effect of all the City's transactions is taken into account, regardless of whether or when cash changes hands, but all material internal transactions between City funds have been eliminated. The Statement of Net Position reports the difference between the City's total assets and deferred outflows of resources and the City's total liabilities and deferred inflows of resources, including all the City's capital assets and all its long-term debt. The Statement of Net Position focuses the reader on the composition of the City's Net Position, by subtracting total liabilities from total assets. The Statement of Net Position summarizes the financial position of all of the City's Governmental Activities in a single column. The City's Governmental Activities include the activities of its General Fund, along with all its Special Revenue, Capital Projects and Debt Service Funds. The Statement of Activities reports increases and decreases in the City's Net Position. It is also prepared on the full accrual basis, which means it includes all the City's revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures. The Statement of Activities presents the City's expenses first, listed by program. Program revenues-that is, revenues which are generated directly by these programs-are then deducted from program expenses to arrive at the net expense of each governmental program. The City's general revenues are then listed in the Governmental Activities and the Change in Net Position is computed and reconciled with the Statement of Net Position. Both these Statements include the financial activities of the City and the Oakley Public Financing Authority, which is legally separate but is a component unit of the City because it is controlled by the City, which is financially accountable for the activities of the entity. 15

125 CITY OF OAKLEY STATEMENT OF NET POSITION JUNE 30, 2016 Governmental Activities ASSETS Cash and investments available for operations (Note 3) Cash and investments with fiscal agent (Note 3) Accounts receivable, net of allowance for doubtful accounts (Note IF) Interest receivable Prepaids and deposits Loans receivable (Note 5) Land held for resale (Note 6) Capital assets (Note 7): Land and construction in progress Depreciable, net Total Assets DEFERRED OUTFLOWS OF RESOURCES Related to pensions (Note 11) LIABILITIES Accounts payable Accrued liabilities Deposits payable Unearned revenue Interest payable Claims payable - due in one year (Note 14) Compensated absences (Note IH): Due within one year Due in more than one year Long-term debt (Note 8): Due within one year Due in more than one year Net pension liability (Note 11) Total Liabilities DEFERRED INFLOWS OF RESOURCES Related to pensions (Note 11) NET POSITION (Note 10) Net investment in capital assets Restricted for: Capital projects Debt service Low and moderate income housing Total Restricted Net Position Unrestricted net position Total Net Position $30,753,425 1,197,883 1,351,599 28, ,500 12,728,377 4,732,066 16,890, ,459, ,314,161 1,133,729 1,478, ,843 1,048,164 1,190,866 45,839 45, , , ,000 6,130,000 1,380,410 12,467, , ,509,280 17,408,150 10,029 9,786,783 27,204,962 17,784,114 $198,498,356 See accompanying notes to financial statements 16

126 CITY OF OAKLEY STATEMENT OF ACTMTIES FOR THE YEAR ENDED JUNE 30, 2016 Functions/Programs Governmental Activities: Legislative Administrative Services Community Development Public Works Housing Programs Law Enforcement Recreation Interest and fiscal charges Expenses $481,397 1,219,985 2,152,116 11,478,077 84,620 8,230, , ,675 Charges for Services $395,293 2,133,172 3,950,587 3,637,681 97,808 Program Revenues Operating Grants and Contributions $250,000 16, , ,358 54,392 Capital Grants and Contributions $720,167 4,320,214 Net (Expense) Revenue and Change in Net Position Governmental Activities ($481,397) (574,692) 718,187 (2,359,781) (84,620) (4,405,220) (407,398) {291,6752 Total Governmental Activities $24,497,727 $10,214,541 $1, $5,040,381 (7,886,596) General revenues: Taxes: Property taxes Sales taxes Business license taxes Transient occupancy taxes Franchise taxes Intergovernmental, unrestricted: Motor vehicle in lieu Use of money and property Miscellaneous Special items: Assets tranferred from the Successor Agency (Notes 6 and 7) Total General Revenues and Special Items Change in Net Position Net Position-Beginning Net Position-Ending 5,814,454 1,752, , ,763 1,435,709 15, ,587 1,890,020 6,327,321 18,150,893 10,264, ,234,059 $198,498,356 See accompanying notes to financial statements 17

127 FUND FINANCIAL STATEMENTS Major funds are defined generally as having significant activities or balances in the current year. MAJOR GOVERNMENTAL FUNDS The funds described below were determined to be Major Funds by the City in fiscal Individual non-major funds may be found in the Supplemental Section. GENERAL FUND The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. Revenues deposited in the General Fund include property tax, sales tax, franchise fees, business licenses, fines and forfeitures and fees for services. This fund is used to finance most of the City's basic services including Legislative, General Administration, Law Enforcement, Public Works and Community Development. LIGHTING AND LANDSCAPING DISTRICTS SPECIAL REVENUE FUND This fund accounts for assessments made upon parcels of land within the Lighting and Landscaping Zones # 1, #2 and #3 and their use in accordance with the provisions of the State of California Streets and Highway Code. PUBLIC PROTECTION SPECIAL REVENUE FUND This fund accounts for dedicated Police Services Special Taxes and State COPS program funds. LOW AND MODERATE INCOME HOUSING ASSET SPECIAL REVENUE FUND This fund accounts for the housing assets of the former Oakley Redevelopment Agency and loan repayments restricted to low and moderate income housing projects. TRAFFIC IMP ACT FEES CAPITAL PROJECTS FUND This fund accounts for fees assessed on new development to provide street and road improvements. GENERAL CAPITAL PROJECTS FUND This fund accounts for revenues and expenditures related to General Fund contributions, grants and other funding sources for capital projects not accounted for in other capital projects funds. It accounts for the total expenditures for each project charged to this fund. 19

128 CITY OF OAKLEY GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2016 ASSETS General Lighting and Landscaping Districts Cash and investments available for operations (Note 3) $10,967,403 $7,292,346 Cash and investments with fiscal agent (Note 3) Accounts receivable, net of allowance for doubtful accounts (Note IF) 1,229,137 Interest receivable 12,299 6,850 Prepaids and deposits 172,500 Loans receivable (Note 5) 1,822,742 Advances to other funds (Note 4B) 272,732 Land held for resale (Note 6) 4,732,066 Total Assets $19,208,879 $7,299,196 LIABILITIES Accounts payable $720,719 $156,400 Accrued liabilities 314,195 Deposits payable 20,766 Unearned revenue 463,703 Advances from other funds (Note 4B) 66,732 Total Liabilities 1,519, ,132 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - accounts receivable 119,041 Unavailable revenue - loans receivable Unavailable revenue - interest on advances to other funds Total Deferred Inflows of Resources 119,041 FUND BALANCES Fund balance (Note 10): Nonspendable 7,000,040 Restricted 559,498 7,076,064 Assigned 943,008 Unassigned 9,067,909 Total Fund Balances (Deficits) 17,570,455 7,076,064 Total Liabilities, Deferred Inflows of Resources and Fund Balances $19,208,879 $7,299,196 Low and Moderate Public Income Housing Protection Asset $130,317 $8, ,871,881 $130,621 $10,880,228 $1, ,821 $1,093, ,621 1,093,445 10,871,881 10,871,881 {1,085,098} {1,085,098} $130,621 $10,880,228 See accompanying notes to financial statements 20

129 Traffic General Other Total Impact Capital Governmental Governmental Fees Projects Funds Funds $4,264,835 $636,198 $6,074,364 $29,373,731 1,197,883 1,197,883 66,710 55,752 1,351,599 3,736 (247) 4,360 27, ,500 33,754 12,728, , ,839 1,366, $4,854,931 $ $7,873,198 $50, $421,203 $52,433 $101,124 $1,453,679 1, ,843 1,027,398 1,048, , , ,734 1,190, A ,041 10,871, , ,190,745 7,000,040 4,218, ,093 5,783,821 18,152, ,012 1,565,020 { } {732375} , , ,240 $ $ $ $

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131 CITY OF OAKLEY Reconciliation of the GOVERNMENTAL FUNDS - BALANCE SHEET with the STATEMENT OF NET POSITION JUNE 30, 2016 Total fund balances reported on the governmental funds balance sheet: $34,384,240 Amounts reported for Governmental Activities in the Statement of Net Position are different from those reported in the Governmental Funds above because of the following: CAPITAL ASSETS Capital assets used in Governmental Activities are not current assets or financial resources and therefore are not reported in the Government Funds. 159,349,513 ALLOCATION OF INTERNAL SERVICE FUND NET ASSETS Internal service funds are not governmental funds. However, they are used by management to charge the costs of certain activities, such as insurance and central services and maintenance, to individual governmental funds. The net current assets of the Internal Service Funds are therefore included in Governmental Activities in the Statement of Net Position. 1,356,178 NON-CURRENT REVENUES Revenues which are unavailable on the Fund Balance Sheets because they are not available currently are taken into revenue in the Statement of Activities. LONG TERM ASSETS AND LIABILITIES The assets and liabilities below are not due and payable in the current period and therefore are not reported in the Funds: Long-term debt Interest payable Compensated absences Net pension liability and pension-related deferred outflows/inflows ofresources Claims Payable NET POSITION OF GOVERNMENTAL ACTIVITIES 11,190,745 (6,415,000) (45,839) (546,602) (728,961) (45,918) $198,498,356 See accompanying notes to financial statements 23

132 CITY OF OAKLEY GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2016 General Lighting and Landscaping Districts Public Protection Low and Moderate Income Housing Asset REVENUES Property taxes $5,323,685 Sales tax 1,752,799 Other taxes 1,645,472 Licenses and permits 2,024,190 Charges for services 108,808 Fines and forfeits 138,383 Intergovernmental: Motor vehicle in lieu 15,651 Other 399,284 $55,332 Developer fees Special assessments 3,441,106 Loan repayments Use of money and property 248,225 20,603 Miscellaneous 1,115, Total Revenues 12,772!318 3:557,541 EXPENDITURES Current: Legislative 482,763 Administrative Services 1,335,242 Community Development 1,592,691 Public Works 618,182 3,507,677 Housing programs Law Enforcement 4,498,740 Recreation 492,798 Capital outlay 676, ,945 Debt service: Principal Interest and fiscal charges 264 Total Expenditures ,800,886 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES {243,3452 $114,618 3,483,908 $260, , ,599,392 84, OTHER FINANCING SOURCES (USES) Proceeds from sale of property 79,035 Transfers in (Note 4A) ,471 Transfers (out) (Note 4A) { } Total Other Financing Sources (Uses) (1,450,372} NET CHANGE IN FUND BALANCES BEFORE SPECIAL ITEMS 1,624,701 1, ,105 Specials item (Note 6) Assets tranferred from Successor Agency ,630 NET CHANGE IN FUND BALANCES 4,528,331 1,126 FUND BALANCES (DEFICIT) AT BEGINNING OF YEAR ,124 7, FUND BALANCES (DEFICIT) AT END OF YEAR $ $7,076, ,105 { } {$ ,098} See accompanying notes to financial statements 24

133 Traffic General Other Total Impact Capital Governmental Governmental Fees Projects Funds Funds $490,769 $5,814,454 1,752,799 1,645,472 2,024, , ,383 15,651 $1,054,166 1,391,386 3,014,786 $2,349,601 22,865 1,702,328 4,074, ,253 7,394, ,795 14,613 16, ,476 82, ,846 1,866,877 2,364,214 1,159,741 4,698,426 28,413, ,763 1,335, ,229 2,273, ,279 1,389,605 5,650,743 84,620 8,098,132 73, ,361 1,719,861 3,116,148 2,163,091 7,968, , , l,855j40 3,116, , (1,956,407) (177,306) 1, ,035 1,195, ,035 2,311,099 { {2,311, ,000 89,936 79, ,074 (761,407) (87,370) 1,458, , ,074 (761,407) (87,370) 4,361, ,381 $4,218,699 $271,662 $62332,458 $34,384,240 25

134 CITY OF OAKLEY Reconciliation of the NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS with the STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2016 The schedule below reconciles the Net Changes in Fund Balances reported on the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balance, which measures only changes in current assets and current liabilities on the modified accrual basis, with the Change in Net Position of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis. NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENTAL FUNDS $4,361,859 Amounts reported for governmental activities in the Statement of Activities are different because of the following: CAPITAL ASSETS TRANSACTIONS Governmental Funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. Capital outlay and certain departmental expenditures are added back to fund balance Depreciation expense is deducted from fund balance (Depreciation expense is net of internal service fund depreciation of $505,863 which has already been allocated to serviced funds.) Capital assets transferred from the Successor Agency are added to fund balance 8,131,532 (5,940,036) 3,423,691 LONG TERM DEBT PROCEEDS AND PAYMENTS Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Position. Repayment of bond principal is an expenditure in the governmental funds, but in the Statement of Net Position the repayment reduces long-term liabilities. Repayment of debt principal is added back to fund balance 275,000 NON-CURRENT ITEMS The amounts below included in the Statement of Activities do not provide or (require) the use of current fmancial resources and therefore are not reported as revenue or expenditures in governmental funds (net change): Non-current portion of compensated absences Interest payable Unavailable revenue Net pension liability and deferred outflows/inflows related to pensions Claims payable (106,941) 1,834 (58,561) 406,838 20,934 ALLOCATION OF INTERNAL SERVICE FUND ACTIVITY Internal Service Funds are used by management to charge the costs of certain activities, such as equipment acquisition and maintenance to individual funds. The portion of the net revenue (expense) of these Internal Service Funds arising out of their transactions with governmental funds is reported with governmental activities, because they service those activities. Change in Net Assets - Internal Service Fund CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES (251,853) $10,264,297 See accompanying notes to financial statements 26

135 CITY OF OAKLEY GENERAL FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 Original Amended Bud~et Bud~et REVENUES Property taxes $4,913,000 $5,233,000 Sales taxes 1,598,000 1,693,000 Other taxes 1,533,000 1,493,000 Licenses and permits 1,132,700 1,132,700 Charges for services 47,000 47,000 Fines and forfeits 151, ,500 Intergovernmental: Motor vehicle in lieu Other 325, ,000 Use of money and property 207, ,000 Miscellaneous 810, ,583 Total Revenues 10,717,242 11,166,783 EXPENDITURES Current: Legislative 475, ,634 Administrative Services 1,793,828 1,490,491 Community Development 1,496,983 1,681,022 Public Works 544, ,281 Law Enforcement 6,279,000 6,078,328 Recreation 491, ,074 Capital outlay 1,420,000 Total Expenditures 11,081,089 12,458,830 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES (363,8472 (1,292,0472 OTHER FINANCING SOURCES (USES) Proceeds from sale of property 139,000 Transfers in Transfers (out) (725,0002 (1,530,0002 Total Other Financing Sources (Uses) ~725,0002 (1,391,0002 NET CHANGE IN FUND BALANCES BEFORE SPECIAL ITEMS ($1,088,8472 ($2,683,047) SPECIAL ITEMS (Note 6) Assets transferred from the Successor Agency NET CHANGE IN FUND BALANCES Fund balance at beginning of year Fund balance at end of year Actual Variance Positive (Negative2 $5,323,685 $90,685 1,752,799 59,799 1,645, ,472 2,024, , ,808 61, ,383 (13,117) 15,651 15, ,284 58, ,225 41,225 1,115, ,238 12,772,318 1,605, ,763 16,871 1,335, ,249 1,592,691 88, , ,099 4,498,740 1,579, ,798 14, , ,171 9,697,245 2,761,585 3,075,073 4,367,120 79,035 (59,965) (1,530,000) ~1,450,3722 ~59,3722 1,624,701 $4,307,748 2,903,630 4,528,331 13,042,124 $17,570,455 See accompanying notes to financial statements 27

136 CITY OF OAKLEY LIGHTING AND LANDSCAPING DISTRICTS SPECIAL REVENUE FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 Original Amended Budget Budget Actual REVENUES Intergovernmental $58,000 $55,332 Special assessments $3,410,376 3,410,376 3,441,106 Use of money and property 20,603 Miscellaneous 40,500 Total Revenues 3,410,376 3,468,376 3,557,541 EXPENDITURES Current: Public Works 3,427,458 4,684,178 3,507,677 Capital outlay 250, , ,945 Debt service: Interest and fiscal charges 264 Total Expenditures 3,677,458 4,985,462 3,800,886 EXCESS (DEFICIENCY) OF REVENUES OVER (UNDER) EXPENDITURES {267,0822 {1,517,0862 {243,3452 OTHER FINANCING SOURCES (USES) Transfers in 206, , ,471 Transfers (out) {113,000) {113,0002 Total Other Financing Sources (Uses) 93, , ,471 NET CHANGE IN FUND BALANCES {$173,934) ($1,3 02,93 8) 1,126 Variance Positive (Negative) ($2,668) 30,730 20,603 40,500 89,165 1,176,501 8,339 (264) 1,184,576 1,273,741 (82,677) 113,000 30,323 $1,304,064 Fund balance at beginning of year 7,074,938 Fund balance at end of year $7,076,064 See accompanying notes to financial statements 28

137 CITY OF OAKLEY PUBLIC PROTECTION SPECIAL REVENUE FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 REVENUES Intergovernmental: Other Special assessments Use of money and property Original Budget $100,000 3,421, Amended Budget $100,000 3,421, Actual Variance Positive (Negative) $114,618 $14,618 3,483,908 62, Total Revenues 3,521, , ,392 77,892 EXPENDITURES Current: Law Enforcement 3,521, ,400 3,599,392 (75,992) Total Expenditures ,523,400 3,599,392 (752992) NET CHANGE IN FUND BALANCES ($12900) $1,900 Fund balance at beginning of year Fund balance at end of year See accompanying notes to financial statements 29

138 CITY OF OAKLEY LOW AND MODERATE INCOME HOUSING ASSET SPECIAL REVENUE FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 REVENUES Loan repayment Use of money and property Original Budget Amended Budget $2,400 $2,400 12,000 12,000 Actual $260,795 1,325 Variance Positive (Negative) $258,395 (10,675) Total Revenues , ,720 EXPENDITURES Current: Housing programs Debt service: Principal Interest 3,500 3,500 10, , (81,120) Total Expenditures (75,615) NET CHANGE IN FUND BALANCES 172,105 $ Fund balance (deficit) at beginning of year { } Fund balance (deficit) at end of year {$ } See accompanying notes to financial statements 30

139 PROPRIETARY FUNDS INTERNAL SERVICE FUNDS Internal service funds account for City operations financed and operated in a manner similar to a private business enterprise. The intent of the City is that the cost of providing goods and services to other City funds be financed through user fees to those funds The concept of major funds does not extend to internal service funds because they do not do business with outside parties. For the Statement of Activities, the net revenues or expenses of the internal service fund is eliminated by netting them against the operations of the other City departments which generated them. The remaining balance sheet items are consolidated with these same funds in the Statement of Net Position. 31

140 CITY OF OAKLEY PROPRIETARY FUNDS STATEMENT OF NET POSITION JUNE 30, 2016 Governmental Activities - Internal Service Funds ASSETS Current: Cash and investments available for operations (Note 3) Receivables: Interest Total Current Assets Noncurrent: Capital assets (net of accumulated depreciation) (Note 7) Total Assets LIABILITIES Accounts payable Total Assets $1,379, ,381, 111 7,163,056 8,544, NET POSITION (Note 10) Net investment in capital assets Unrestricted Total Net Position 7,163,056 1,356,178 $8,519,234 See accompanying notes to financial statements 32

141 CITY OF OAKLEY PROPRIETARY FUNDS STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2016 Governmental Activities - Internal Service Funds OPERATING REVENUES Charges for services Total Operating Revenues OPERATING EXPENSES Supplies Depreciation Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Interest income Other nonoperating revenue Total Nonoperating Revenues Income (Loss) Before Contributions Contributions Change in net position BEGINNING NET POSITION ENDING NET POSITION $150, ,000 84, , ,971 (439,971) 5,871 8,234 14,105 (425,866) 174,013 (251,853) 8,771,087 $8,519,234 See accompanying notes to financial statements 33

142 CITY OF OAKLEY PROPRIETARY FUNDS STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016 Governmental Activities - Internal Service Funds CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers Cash Flows from Operating Activities $158,234 (59,717) 98,517 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Acquisition of capital assets Cash Flows from Capital Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest Net Cash Flows Cash and investments at beginning of period Cash and investments at end of period NONCASH TRANSACTIONS Contribution of capital assets (265,912) (265,912) (162,089) 1,541,783 $1,379,694 $174,013 Reconciliation of Operating Income (Loss) to Cash Flows from Operating Activities: Operating income (loss) Adjustments to reconcile operating income (loss) to cash flows from operating activities: Depreciation Other nonoperating revenue Net change in liabilities: Accounts payable Cash Flows from Operating Activities ($439,971) 505,863 8, $98,517 See accompanying notes to financial statements 34

143 FIDUCIARY FUNDS FIDUCIARY FUNDS These funds are used to account for assets held by the City as an agent for individuals, private organizations, and other governments. The financial activities of these funds are excluded from the City-wide financial statements, but are presented in separate Fiduciary Fund financial statements. Fiduciary assets are held for others, therefore they are reported in aggregate without indicating whether they are restricted or unrestricted. Successor Agency to the Redevelopment Agency Private Purpose Trust Fund is used to account for the activities of the Successor Agency to the former Redevelopment Agency of the City of Oakley. Agency Funds are used to account for assets held by the City as an agent for individuals, private organizations, and other governments. 35

144 CITY OF OAKLEY FIDUCIARY FUNDS STA 1EMENT OF FIDUCIARY NET POSITION JUNE 30, 2016 Successor Agency to the Redevelopment Agency Private Purpose Trust Fund Agency Funds ASSETS Cash and investments (Note 3) Cash and investments with fiscal agent (Note 3) Accounts receivable Interest receivable Loans receivable (Note 16B) Capital assets (Note 16D): Land and construction in progress Depreciable, net Total Assets $2,069,066 2,005, ,887 1,239, ,993 16,114,544 22,551,126 $2,394,430 1,442,927 1,359 $3,838,716 LIABILITIES Accounts payable Accrued liabilities Due to other agencies Due to bondholders Long-term debt (Note 16E): Due within one year Due in more than one year Total Liabilities NET POSITION 427, , ,000 28,870,000 30,211,709 $866,314 2,972,402 $3,838,716 Held in Trust for the Successor Agency and Other Governments ($7,660,583) See accompanying notes to fmancial statements 36

145 CITY OF OAKLEY FIDUCIARY FUNDS STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED JUNE 30, 2016 Successor Agency to the Redevelopment Agency Private-Purpose Trust Fund ADDITIONS Property taxes Charges for services Use of money and property Miscellaneous Total Additions DEDUCTIONS Redevelopment and Economic Development Depreciation Loss from sale of property Debt service: Interest and fiscal charges Total Deductions Change in Net Position Before Special Items SPECIAL ITEMS Transfer land held for redevelopment and capital assets to City (Notes 16C and 16D) Change in Net Position $2,133,349 12, ,872 89,276 2,430, , ,556 5,000 1,785,673 2,822,891 (392,814) (6,327,321) (6,720,135) NET POSITION HELD IN TRUST FOR SUCCESSOR AGENCY AND OTHER GOVERNMENTS Beginning of year End of year (940,448) ($7,660,583) See accompanying notes to financial statements 37

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147 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Oakley was incorporated as a general law city on July 1, Oakley is a community of approximately 38,000 residents situated in Contra Costa County on the east side of San Francisco Bay. Oakley is located approximately 50 miles east of the City of San Francisco. The City operates under the Council-Manager form of government and provides the following services: law enforcement, highways and streets, public improvements, planning and zoning, recreation, and general administration services. In April 2015, the City Council voted to notify Contra Costa County of the City's intent to form its own Municipal Police Department and elect to not extend its contract with the County to provide such services effective June 30, Subsequent to that notification, the City and the County agreed to a transition date of May 6, The financial statements and accounting policies of the City conform with generally accepted accounting principles applicable to governments. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. Significant accounting policies are summarized below: A. Reporting Entity The City is governed by a five member council elected by City residents. The City is legally separate and fiscally independent which means it can issue debt, set and modify budgets and fees and sue or be sued. The accompanying basic financial statements include only the financial activities of the City and the Oakley Public Financing Authority, which is a component unit controlled by and dependent on the City. The Authority is included ("blended") with funds of the City since it is governed by the City Council sitting in a separate capacity. The Oakley Public Financing Authority is a separate governmental entity whose purpose is to assist in the financing and refinancing of certain redevelopment activities of the former Redevelopment Agency and certain programs and projects of the City. The Authority's activities to date consist only of the purchase and resale of City or Redevelopment Agency debt issues, and the issuance of the Limited Obligation Bonds, the Infrastructure Revenue Bonds, the 2006 Certificates of Participation and the Refunding Revenue Bonds, Series Separate financial statements are not issued for the Oakley Public Financing Authority. B. Basis of Presentation The City's Basic Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the United States of America. Government-wide Statements: The Statement of Net Position and the Statement of Activities display information about the primary government (the City) and its component units. These statements include the financial activities of the overall City government. Eliminations have been made to minimize the double counting of internal activities. Governmental activities generally are financed through taxes, intergovernmental revenues, and other nonexchange transactions. 39

148 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the City's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meeting the operational needs of a particular program and ( c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues. Fund Financial Statements: The fund financial statements provide information about the City's funds, including blended component units. The emphasis of fund financial statements is on major individual governmental funds, each of which is displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds. C. Major Funds Major governmental funds are identified and presented separately in the fund financial statements. All other funds, called non-major funds, are combined and reported in a single column, regardless of their fund-type. Major funds are defined as funds that have either assets and deferred outflows of resources, liabilities and deferred inflows of resources, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is always a major fund. The City may also select other funds it believes should be presented as major funds. The City reported the following major governmental funds in the accompanying financial statements: General Fund - The General Fund is the general operating fund of the City. It is used to account for all financial resources except those required to be accounted for in another fund. Revenues deposited in the General Fund include property tax, sales tax, franchise fees, business licenses, fines and forfeitures and fees for services. This fund is used to account for most of the City's basic services including Legislative, General Administration, Law Enforcement, Recreation and Community Development. Lighting and Landscaping Districts Special Revenue Fund - This fund accounts for assessments made upon parcels of land within the Lighting and Landscaping Zones # 1, #2 and #3 and their use in accordance with the provisions of the State of California Streets and Highway Code. Public Protection Special Revenue Fund - This fund accounts for dedicated Police Services Special Taxes and State COPS program funds. Low and Moderate Income Housing Asset Special Revenue Fund - This fund accounts for the housing assets of the former Oakley Redevelopment Agency and loan repayments restricted to low and moderate income housing projects. Traffic Impact Fees Capital Projects Fund - This fund accounts for fees assessed on new development to provide street and road improvements. General Capital Projects Fund - This fund accounts for revenues and expenditures related to General Fund contributions, grants and other funding sources for capital projects not accounted for in other capital projects funds. It accounts for the total expenditures for each project charged to this fund. 40

149 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The City also reports the following fund types: Internal Service Funds - The funds account for equipment replacement and capital facilities maintenance and replacement; all of which are provided to City departments on a cost reimbursement basis. Fiduciary Funds - These funds account for assets held by the City as an agent for various functions. The Successor Agency to the Redevelopment Agency Private-Purpose Trust Fund accounts for the accumulation of resources to be used for payments at appropriate amounts and times in the future. Agency funds are used to account for assets held by the City as an agent for the Assessment Districts and and assets held on behalf of the County for regional mitigation fees. The financial activities of these funds are excluded from the City-wide financial statements, but are presented in separate Fiduciary Fund fmancial statements. D. Basis of Accounting The government-wide and fiduciary fund financial statements are reported using the economic resources measurement focus. and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The City considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured. Governmental capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of governmental long-term debt and acquisitions under capital leases are reported as other financing sources. Those revenues susceptible to accrual are sales tax, transfer tax, fines, interest revenue and gross receipts taxes. Charges for services, and licenses and permits are not susceptible to accrual because they are not measurable until received in cash. Non-exchange transactions, in which the City gives or receives value without directly receiving or giving equal value in exchange, include taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied or assessed. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied. The City may fund programs with a combination of cost-reimbursement grants, categorical block grants, special purpose revenues and general purpose revenues. While both restricted and unrestricted Net Position may be available to finance program expenditures the City's policy is to first apply restricted purpose revenues to such programs, followed by general purpose revenues if necessary. Certain indirect costs are included in program expenses reported for individual functions and activities. 41

150 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1- SUM.MARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) E. Deferred Outflows/Inflows of Resources In addition to assets, the statement of financial position or balance sheet report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period( s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. In addition to liabilities, the statement of financial position or balance sheet report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position or fund balance 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 only one item, which arises only under a modified accrual basis of accounting, that qualifies for reporting in this category. Accordingly, the item, unavailable revenue, is reported only in the governmental funds balance sheet. The governmental funds report unavailable revenues from three sources: accounts receivable, interest on interfund advances and loans receivable. These amounts are deferred and recognized as an inflow of resources in the period that the amounts become available. F. Accounts Receivable Receivables at June 30, 2016 were comprised of the following: Inter- Total Governmental Activities: Taxes Accounts Governmental Receivables General Fund $563,097 $376,476 $289,564 $1,229,137 Non-Major Governmental Funds 122, ,462 Total Accounts Receivable, net of allowance for doubtful accounts $563,097 $376,476 $412,026 $1,351,599 G. Property Taxes and Special Assessment Revenue Revenue is recognized in the fiscal year for which the tax and assessment is levied. The County of Contra Costa levies, bills and collects property taxes and special assessments for the City; under the County's "Teeter Plan" the County remits the entire amount levied for secured taxes and handles all delinquencies, retaining interest and penalties. Secured and unsecured property taxes are levied on January 1 of the preceding fiscal year. Secured property tax is due in two installments, on November 1 and February 1 and becomes a lien on those dates. It becomes delinquent on December 10 and April I 0, respectively. Unsecured property tax is due on July 1, and becomes delinquent on August 31. The term "unsecured" refers to taxes on personal property other than real estate, land and buildings. These taxes are secured by liens on the personal property being taxed. Secured and unsecured property tax revenues are recognized by the City in the fiscal year they are assessed, provided they become available as defined above. 42

151 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) H. Compensated Absences Compensated absences comprise unpaid vacation and certain compensated time off, which are accrued as earned. For all governmental funds amounts expected to be paid out for permanent liquidation are recorded as fund liabilities; the long-term portion is recorded in the Statement of Net Position. The liability for compensated absences is determined annually. The changes in the compensated absences were as follows: Governmental Activities Beginning Balance Additions Payments $439, ,579 (353,638) Ending Balance Current Portion $546,602 $353,638 The long-term portion of governmental activities compensated absences is liquidated primarily by the General Fund. L Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are inputs - other than quoted prices included within level 1 - that are observable for an asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for an asset or liability. If the fair value of an asset or liability is measured using inputs from more than one level of the fair value hierarchy, the measurement is considered to be based on the lowest priority level input that is significant to the entire measurement. J. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 43

152 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) K. New Fund and Re-Opened Fund The Community Facilities District Special Revenue Fund was established to account for the activities associated with the maintenance of neighborhood parks, community parks, regional parks, street lighting, landscaping and stormwater detention facilities at Emerson Ranch. The City re-opened the Assessment District Capital Projects Fund to account for additional funds received from the 2006 Infrastructure Revenue Bonds that will ultimately be used to purchase infrastructure assets built by developers in the Assessment District area. I NOTE 2 - BUDGETS AND BUDGETARY ACCOUNTING I A. Budget Policy The City follows these procedures in establishing the budgetary data reflected in the financial statements: B. Encumbrances 1. The City Manager submits to the City Council a proposed operating budget for the fiscal year commencing the following July 1. The operating budget includes proposed expenditures and the means of financing them. 2. Work sessions are conducted to obtain citizen's comments. 3. The budget is legally enacted by City Council resolution. 4. All appropriations transfers between funds must be approved by the City Council by resolution during the fiscal year. The City Manager is authorized to transfer unencumbered appropriations within a fund. In addition, amendments that are made to authorize spending of increased or new special purpose revenues may be approved by the City Manager. The legally adopted budget requires that expenditures not exceed total appropriations at the fund level. 5. Budgets are adopted for all Governmental Funds except the Cypress Grove Project Capital Projects Fund, which is governed by bond convents. 6. Formal budgetary integration is employed as a management control device during the year for all budgeted funds. 7. Budgets are adopted on a basis consistent with generally accepted accounting principles (GAAP). 8. Budgeted amounts appearing in the budgetary comparison statements are as originally adopted or as amended by the City Council or the City Manager, as authorized. Under encumbrance accounting, purchase orders, contracts and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation. Encumbrance accounting is employed as an extension of formal budgetary integration in all budgeted funds. Unexpended operating appropriations lapse at year end and must be reappropriated in the following year. Unexpended capital projects appropriations are automatically reappropriated in the following year. Encumbrances outstanding at year-end are recorded as restricted, committed or assigned fund balance, depending on the classification of the resources to be used to liquidate the encumbrance, since they do not constitute expenditures or liabilities. 44

153 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016!NOTE 2 -BUDGETS AND BUDGETARY ACCOUNTING (Continued) C. Expenditures in Excess of Appropriations The following funds incurred expenditures in excess of appropriations: Fund Public Protection Special Revenue Fund Low and Moderate Income Housing Asset Special Revenue Fund Youth Development Special Revenue Fund Community Facilities District Special Revenue Fund Public Facilities Impact Fee Capital Projects Fund Fire Impact Fees Capital Projects Fund Street Maintenance Reserve Capital Projects Fund Excess of Expenditures Over Appropriations $75,992 75,615 11,770 3,096 1,523 1, The funds had sufficient revenues or other resources to fmance these expenditures. I NOTE 3 - CASH AND INVESTMENTS I The City pools cash from all sources and all funds, except cash of the Successor Agency and cash with fiscal agents, so that it can be invested at the maximum yield, consistent with safety and liquidity, while individual funds can make expenditures at any time. A. Policies The City and its fiscal agents invest in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. Individual investments are generally made by the City's fiscal agents as required under its debt issues. In order to maximize security, the City employs the Trust Department of a bank as the custodian of all City managed investments, regardless of their form. California Law requires banks and savings and loan institutions to pledge government securities with a market value of 110% of the City's cash on deposit, or first trust deed mortgage notes with a market value of 150% of the deposit, as collateral for these deposits. Under California Law this collateral is held in a separate investment pool by another institution in the City's name and places the City ahead of general creditors of the institution. The City's investments are carried at fair value, as required by generally accepted accounting principles. The City adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments in income for that fiscal year. 45

154 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I B. Classification Cash and investments are classified in the financial statements as shown below: City cash and investments: Cash and investments available for operations Cash and investments with fiscal agent Total City Cash and Investments Cash and investments in Fiduciary Funds (Separate Statement): Successor Agency to the Redevelopment Agency Private Purpose Trust Fund: Cash available for operations Cash and investments with fiscal agent Agency Funds: Cash and investments available for operations Cash and investments with fiscal agent Total Cash and Investments $30,753,425 1,197,883 31,951,308 2,069,066 2,005,151 2,394,430 1,442,927 $39,862,882 46

155 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I C. Investments Authorized by the California Government Code and the City's Investment Policy The City's Investment Policy and the California Government Code allow the City to invest in the following, provided the credit ratings of the issuers are acceptable to the City; and approved percentages and maturities are not exceeded. The table below also identifies certain provisions of the California Government Code or the City's Investment Policy: Authorized Investment Type Maximum Maturity Maximum Minimum Maximum Investment Credit Percentage In One Quality of Portfolio Issuer U.S. Government Securities 5 years No Limit No Limit U.S. Government Agency Securities: Federal Home Loan Bank Federal National Mortgage Association Federal Farm Credit Bank Federal Home Loan Mortgage Corporation Student Loan Marketing Association Government National Mortgage Association 5 years No Limit No Limit State of California Warrants, Treasury Notes or Bonds 5 years No Limit No Limit California Local Agency Investment Fund NIA NIA $65 million per account Certificates of Deposit Bankers Acceptances Medium Term Corporate Notes 5 years 180 days 5 years Al/Pl 30% No Limit Al/Pl 40% 30% AAA 30% No Limit Money Market Funds NIA Top rating 20% No Limit category Investment Trust of California (CalTRUST) NIA NIA No Limit Repurchase Agreements 1 year No Limit No Limit 47

156 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I D. Investments Authorized by Debt Agreements The City and Successor Agency must maintain required amounts of cash and investments with trustees or fiscal agents under the terms of certain debt issues. These funds are unexpended bond proceeds or are pledged reserves to be used if the City fails to meet its obligations under these debt issues. The California Government Code requires these funds to be invested in accordance with City resolutions, bond indentures or State statutes. The table below identifies the investment types that are authorized for investments held by fiscal agents. The table also identifies certain provisions of these debt agreements: Authorized Investment Type U.S. Government Securities U.S. Government Agency Securities Local Agency Investment Fund Bankers Acceptances Commercial Paper Money Market Funds Municipal Obligations Pre-refunded Municipal Obligations General Obligations Investment Agreements/Contracts Repurchase Agreements Investments fully insured by the FDIC Tax-exempt Obligations Short term Certificates of Deposit Certificates of Deposit California Asset Management Program Shares in a California Common Law Trust E. Interest Rate Risk and Fair Value Hierarchy Maximum Maturity NIA NIA NIA 360 days 270 days NIA NIA NIA NIA NIA NIA NIA NIA 360 days NIA NIA NIA Minimum Credit Quality Aaa/AAA NIA $65 million per account Al/Al+/Pl A-1+/P-1 AIAAAm/AAAm Aaa/AAA Highest A2/A A NIA NIA Highest Rating Al/Al+/Pl A NIA NIA Interest rate risk is the risk that changes in market interest rates will adversely affect the fair value of an investment. Normally, the longer the maturity of an investment, the greater the sensitivity of its fair value to changes in market interest rates. The City generally manages its interest rate risk by holding investments to maturity. 48

157 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I Information about the sensitivity of the fair values of the City's investments (including investments held by bond trustees) to market interest rate fluctuations is provided by the distribution of the City's investments by maturity. At June 30, 2016, all of the City's investments mature in 12 months or less, except the Certificates of Deposit held by fiscal agents, which mature on May 16, 2017 ($500,000) and May 18, 2017 ($250,000). The City categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure fair value of the assets. Level 1 inputs are quoted prices in an active market for identical assets; Level 2 inputs are significant other observable inputs; and Level 3 inputs are significant unobservable inputs. Investments Measured at Investments Measured at Investment Type Level 1 Level2 Net Asset Value Amortized Cost Total Cash and Investments in City Treasury: Money Market Funds $1,775,416 $1,775,416 Local Agency Investment Fund $19,838,402 19,838,402 Cal TRUST 9,092,704 9,092,704 Held by Fiscal Agents: California Asset Management Program $2,005,144 2,005,144 Money Market Funds 1,890,817 1,890,817 Certificates ofdeposit $750, ,000 Total Investments $750,000 $28,931, 106 $2,005,144 $3,666,233 35,352,483 Cash deposits in banks and petty cash 4,510,399 Total Cash and Investments $39,862,882 Negotiable Certificates of Deposit, classified in Level 1 of the fair value hierarchy, are valued using quoted prices in active markets. The City is a participant in the Local Agency Investment Fund (LAIF) that is regulated by California Government Code Section under the oversight of the Treasurer of the State of California. The City reports its investment in LAIF at the fair value amount provided by LAIF, which is the same as the value of the pool share. The balance is available for withdrawal on demand, and is based on the accounting records maintained by LAIF, which are recorded on an amortized cost basis. Included in LAIF's investment portfolio are collateralized mortgage obligations, mortgage-backed securities, other assetbacked securities, loans to certain state funds, and floating rate securities issued by federal agencies, government-sponsored enterprises, United States Treasury Notes and Bills, and corporations. At June 30, 2016 these investments matured in an average of 167 days. The Local Agency Investment Fund, classified in Level 2 of the fair value hierarchy, is valued based on the fair value factor provided by the Treasurer of the State of California, which is calculated as the fair value divided by the amortized cost of the investment pool. 49

158 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I The City is a participant in the Short-Term Fund of the Investment Trust of California (CalTrust), a joint powers authority and public agency established by its members under the provisions of Section of the California Government Code. Members and participants are limited to California public agencies. CalTrust is governed by a Board of Trustees of seven Trustees, at least seventy-five percent of whom are from the participating agencies. The City reports its investment in CalTrust at the fair value amount provided by CalTrust, which is the same as the value of the pool shares. The balance is available for withdrawal on demand, and is based on the accounting records maintained by CalTrust. Included in CalTrust's investment portfolio are: United States Treasury Notes, Bills, Bonds or Certificates of Indebtedness; registered state warrants or treasury notes or bonds; California local agency bonds, notes, warrants or other indebtedness; federal agency or United States government-sponsored enterprise obligations; bankers acceptances; commercial paper; negotiable certificates of deposit; repurchase agreements; medium-term notes; money market mutual funds; notes, bonds or other obligation secured by a first priority security interest in securities authorized under Government Code Section 53651; and mortgage passthrough securities, collateralized mortgage obligations, and other asset - backed securities. CalTrust's Short-Term Fund has a target portfolio duration of 0 to 2 years. At June 30, 2016, these investments matured in an average of 409 days. The investment in CalTrust, classified in Level 2 of the fair value hierarchy, is valued based on the fair value factor provided by the CalTrust, which is calculated as the average cost to net asset value per share of the Short-Term Fund. At June 30, 2016, the fair value approximated the City's cost. The Successor Agency is a participant in the California Asset Management Program (CAMP). CAMP is an investment pool offered by the California Asset Management Trust (the Trust). The Trust is a joint powers authority and public agency created by the Declaration of Trust and established under the provisions of the California Joint Exercise of Powers Act (California Government Code Sections 6500 et seq., or the "Act") for the purpose of exercising the common power of its Participants to invest certain proceeds of debt issues and surplus funds. CAMP' s investments are limited to investments permitted by subdivisions (a) to (n), inclusive, of Section of the California Government Code. The Agency reports its investments in CAMP at the fair value amounts provided by CAMP, which is the same as the value of the pool share in accordance with GASB 79 requirements. At June 30, 2016, the fair value approximated the Agency's cost. At June 30, 2016, these investments have an average maturity of 47 days. The Agency, as a CAMP shareholder, may withdraw all or any portion of the funds in its CAMP account at any time by redeeming shares. The CAMP Declaration of Trust permits the CAMP trustee to suspend the right of withdrawal from CAMP or to postpone the date of payment of redemption proceeds if the New York Stock Exchange is closed other than for customary weekend and holiday closings, if trading on the New York Stock Exchange is restricted, or if, in the opinion of the CAMP trustees, an emergency exists such that disposal of the CAMP pool securities or determination of its net asset value is not reasonably practicable. If the right of withdrawal is suspended, the Agency may either withdraw its request for that withdrawal or receive payment based on the net asset value of the CAMP pool next determined after termination of the suspension of the right of withdrawal. Money market funds are available for withdrawal on demand and at June 30, 2016 matured in an average of 46 days. 50

159 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 3 - CASH AND INVESTMENTS (Continued) I F. Credit Risk Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The actual ratings as of June 30, 2016 for CalTRUST is AAf, California Asset Management Program is rated AAAm, and all the City's Money Market Funds are AAAm as provided by Standard and Poor' s investment ratings service. The Local Agency Investment Fund external investment pool and the certificates of deposit were not rated as of June 30, G. Concentration of Credit Risk Investments in any one issuer, other than money market mutual funds, Local Agency Investment Fund, CalTRUST and California Asset Management Program, that represent 5% or more of total investments at the Entity-wide level or in individual funds were as follows at June 30, 2016: Issuer Agency Funds: GE Capital Discover Bank Goldman Sachs Investment Type Certificate ofdeposit Certificate ofdeposit Certificate ofdeposit Amount $250, , ,000 I NOTE 4 - INTERFUND TRANSACTIONS A. Transfers Between Funds With Council approval, resources may be transferred from one City fund to another. Transfers between Funds during the fiscal year ended June 30, 2016 and the purpose for each were as follows: Fund Receiving Transfer General Fund Lighting and Landscaping Districts Special Revenue Fund Lighting and Landscaping Districts Special Revenue Fund General Cap ital Projects Fund Non-Major Governmental Funds Non-Major Governmental Funds Fund Making Transfers Non-Major Governmental Funds Non-Major Governmental Funds General Fund General Fund General Fund Non-Major Governmental Funds Total Interfund Transfers Transfer Amount $593 (A) 209,471 (A) 35,000 (B) 1,195,000 (B) 300,000 (B) 571,035 (C) $2,311,099 (A) To fund operations. (B) To fund capital projects. (C) To fund debt service. 51

160 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 4 - INTERFUND TRANSACTIONS (Continued) B. Long-Term Interfund Advances At June 30, 2016 the funds below had made advances which were not expected to be repaid within the next year. The balances in the funds with the advance to other funds are offset by unavailable revenue or nonspendable fund balance. Advances to Other Funds General Fund General Fund Traffic Impact Fees Non-Major Funds Advances from Other Funds Lighting and Landscaping Districts Special Revenue Fund Non-Major Funds Low and Moderate Income Housing Asset Special Revenue Fund Low and Moderate Income Housing Asset Special Revenue Fund Total Interfund Advances Advanced Amount $66, , , ,839 $1,366,177 Since the City's formation in 1999, the General Fund has, on occasion, made advances to the Lighting and Landscaping Districts Special Revenue Fund to cure operating deficits in two of the Landscaping Districts. The advances bear interest at the City's investment pool rate. The balance of these advances totaled $66,732 at June 30, The General Fund agreed to advance $150,000 to the Public Facilities Impact Fee Capital Projects Fund to fund a debt service shortfall. During fiscal year 2015, the General Fund made an additional advance of $96,000. The advances bear interest at the City's investment pool rate. The balance of the advance totaled $206,000 at June 30, The Traffic Impact Fees Capital Projects Fund, Park Impact Fees Capital Projects Fund, and Public Facilities Impact Fees Capital Projects Fund agreed to accept deferred payment of impact fees by the former Redevelopment Agency to assist with the Courtyards at Cypress Grove affordable housing project. Although no cash was advanced, these obligations were recorded as advances to the former Redevelopment Agency. The City's Low and Moderate Income Housing Asset Special Revenue Fund, as Housing Successor to the former Redevelopment Agency's housing activities, assumed the obligation to repay the advances, which will be repaid from future loan collections. The advances bear interest at the City's annual pooled investment rate which was of 0.425% for fiscal year The balance outstanding at June 30, 2016 was $1,093,

161 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 INOTE5-LOANSRECEIVABLE A. Low and Moderate Income Housing and City Loans Receivable The former Redevelopment Agency engaged in programs designed to encourage construction of or improvement in low-to-moderate income housing. Under these programs, grants or loans were provided under favorable terms to homeowners or developers who agreed to expend these funds in accordance with the Agency's terms. With the dissolution of the Redevelopment Agency as discussed in Note 16, the City agreed to become the successor to the Redevelopment Agency's housing activities and as a result the Low and Moderate Income Housing Asset Fund assumed the loans receivable of the Redevelopment Agency's Low and Moderate Income Housing Fund. In addition, the City has made loans to certain employees and to local businesses for economic development. Although these loans and notes are expected to be repaid in full, their balance has been offset by unavailable revenue or nonspendable fund balance. The balances of the loans receivable, including accrued interest, at June 30, 2016 are set forth below: Golden Oak Manor Silver Oak Apartments Oakley Senior Housing Oakley Cypress Associates Carol Lane First Time Homebuyer Employee Home Loans Manuel's Five Star Restaurant, Inc. New Lifeline Ministries Total $1,103, , ,069 3,293,750 4,940, , ,346 1,295,396 33,754 $12,728,377 B. Golden Oak Manor Under the terms of a Loan Agreement dated December 19, 1994 between the Redevelopment Agency and the Developer, Golden Oak Manor, L.P., the Agency loaned the amount of $780,000 to construct 50 senior residential rental units, with 24 of the units being restricted to very low income households. The loan is secured by a deed of trust on the property, is due in 2054 and bears simple annual interest of 3 percent. Interest and principal are deferred for 60 years or upon transfer of the property to an unqualified entity. Any unpaid amounts are considered deferred; all deferred principal and interest is due when the note matures. C. Silver Oak Apartments Under the terms of a Loan Agreement dated May 1, 1998 between the Redevelopment Agency and the Developer, Ecumenical Association for Housing, the Agency loaned $374,220 along with an additional $99,206 in January 1999, for a total loan amount of $473,426, to fund the construction of 24 affordable housing units. The loan is secured by a deed of trust on the property, is due in 2058 and bears simple annual interest of 3 percent with principal and interest due annually to the extent there is "residual receipts" as defined in the agreement. Any unpaid amounts are considered deferred; all deferred principal and interest is due when the note matures. 53

162 I NOTE 5 - LOANS RECEIVABLE (Continued) D. Oakley Senior Housing CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 Under the terms of a Loan Agreement dated February 8, 2000 between the Redevelopment Agency and the Developer, Oakley Senior Associates, L.P., the Agency loaned the amount of $1,800,000 to fund the acquisition and development costs to construct eighty units of affordable housing for low and moderate income seniors. The loan is secured by a deed of trust on the property, is due in 55 years from the issuance of the certificate of completion, but not later than 2058, and bears simple annual interest of 3 percent, with principal and interest due annually to the extent there is "residual receipts" as defined in the agreement. Any unpaid amounts are considered deferred; all deferred principal and interest is due when the note matures. The Agency received a payment of $547,000 from the developer during fiscal year A portion of the loan had been funded by the Redevelopment Agency Projects Fund, and with the dissolution of the Agency effective February 1, 2012, the assets of the Redevelopment Agency Projects Fund, including a portion of the Oakley Senior Housing loan in the amount of $623,082, were assumed by a Successor Agency as discussed in Note 16. E. Oakley Cypress Associates Under the terms of the Loan Agreement dated December 1, 2005, the Redevelopment Agency loaned $2.5 million to Oakley Cypress Associates to assist in the development of 96 affordable housing units. The loan is secured by a deed of trust on the property and bears simple interest of 3 percent annually. Principal and interest payments are due annually to the extent that Oakley Cypress Associates has "residual receipts" as defined in the agreement. The remaining balance of unpaid principal and accrued interest is due fifty-five years after the issuance of the certificate of completion, but no later than December 1, F. Carol Lane Under the terms of a Loan Agreement dated February 23, 2007 between the Redevelopment Agency and the Developer, 59 Carol Lane, L.P., the Agency loaned the amount of $3,858,753 to fund the acquisition and development costs to construct two hundred and eight units of senior and family affordable housing for low and very-low income households. The loan is secured by a deed of trust on the property, is due in 55 years from the issuance of the certificate of completion, but not later than 2062, and bears simple interest of 3 percent annually, with principal and interest due annually to the extent there are "residual receipts" as defined in the agreement. Any unpaid amounts are considered deferred; all deferred principal and interest is due when the note matures. G. First-Time Homebuyer Program The Redevelopment Agency administered a First-Time Homebuyers Program funded by Bond proceeds in the amount of $512,392 in 1994, under which low and moderate income individuals may qualify for first-time home buyer deferred second mortgages to purchase homes in the Oakley area. The individual loans are 30-year fixed rate deferred loans, bearing interest at a rate equal to two percent below the Lender's rate and do not exceed $50,000. These loans are due thirty years from the date of issuance, but principal and accrued interest will be forgiven at maturity if the unit was owner occupied for the full thirty years. Under the terms of the Program, loans must be repaid in full if the property is sold to a nonqualified buyer. 54

163 I NOTE 5 - LOANS RECEIVABLE (Continued) H. Employee Home Loans CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 On December 1, 2005, the City loaned $550,000 and $70,000 to a City employee for the purpose of purchasing a home. The loan of $550,000 is secured by a deed of trust, has a term of 30 years and bears interest of 2.5%. The $70,000 loan was repaid in January In March 2009 the City amended the employment agreement to extend the final payment of the housing assistance loan by one year to December In June 2010 the City again amended the employment agreement to extend the final payment from December 2036 to December Each extension reflected a one-year deferral of mortgage payments and included no forgiveness of principal. The loan is being repaid timely and at June 30, 2016 had a remaining balance of $437,176. On December 15, 2007, the City loaned $100,000 to a second City employee for the purpose of purchasing a home. The loan of $100,000 is secured by a deed of trust, has a term of 15 years and bears interest of 2.5%. This employee left the City during fiscal year 2009 and the City entered into a supplemental agreement with the employee that does not require the employee to immediately repay the loan. The City retains an interest in the home and will receive repayment depending on the sales price. However, the City has agreed to forgive its loan if the sales proceeds are less than the outstanding balance on the first deed of trust on the home. The home has not been sold as of June 30, 2016, and at June 30, 2016 the loan has a remaining balance of $90, 170. As of June 30, 2016, the combined balance of these loans is $527,346. L Manuel's Five Star Restaurant, Inc. As discussed in Note 15B, the City entered into an agreement with Manuel's Five Star Restaurant, Inc. (MFSR), in August 2011 to provide loans of the former Redevelopment Agency's funds. The City entered into a second amendment to the agreement in April 2013 to provide an additional loan of $160,000 for construction costs incurred by the developer that were in excess of amounts anticipated under the original agreement. Due to restrictions applicable under the Dissolution Act, the General Fund made this additional construction loan of$160,000. The loan bears interest of 5% on outstanding principal, is secured by a deed of trust and is payable in monthly installments. The loan is subject to the same terms of the original agreement and is due upon the sale of the property. As discussed in Note ISA, a settlement agreement was executed between the City and Department of Finance and the Contra Costa County Auditor-Controller which allowed the City to acquire all rights and interest in the Disposition and Development Agreement (DDA) and the associated construction loan receivable from MFSR, while the Successor Agency retains the enhancement loan. The construction loan bears interest of 5% on outstanding principal and unpaid interest, is secured by a first deed of trust and is payable in monthly installments. The loan becomes due upon sale of the property. The balance of the construction loan at the time of the settlement agreement was $1,176,195. The outstanding balance of the loans was $1,295,396 at June 30,

164 I NOTE 5 - LOANS RECEIVABLE (Continued) I CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 Under the terms of the DDA, MFSR is responsible for the payment of property taxes, fees and assessments on the property. In October 2015, the City notified MFSR that they were in default under the terms of the DDA for failure to pay Ironhouse Sanitary District fees for fiscal years 2014 and 2015 of $22,862. In order to protect the rights in the property, the City paid the delinquent fees in October 2015, including penalties of $365. MFSR was to repay the $23,227 over a twelve month period, with an initial payment of $4,027 and equal monthly payments of $1,600. During fiscal year 2016, MFSR repaid the full amount due. The City continued to pay the fees on the property and MFSR agreed to reimburse the City. However, subsequent to fiscal year end, MFSR was again in default for failure to pay fees due in fiscal year 2017 totaling $43,088, including penalties. The City intends to enter into a termination agreement in fiscal year J. New Lifeline Ministries The City installed frontage improvements that are to be paid by the property owner, New Lifeline Ministries. Under the terms of a June 2015 reimbursement agreement, New Lifelfue Ministries agreed to reimburse the City for its costs incurred in the amount of $36,165. The loan is unsecured, bears interest of 1 % and is repayable in equal monthly installments over 15 years. I NOTE 6 - LAND HELD FOR RESALE I The City has purchased parcels that are expected to be resold in the near future. Such land parcels are accounted for at the lower of cost or net realizable value or agreed-upon sales price if a disposition agreement has been made with a developer. As discussed in Note 16D, pursuant to the terms of the Long-Range Property Management Plan, the Successor Agency transferred land parcels with a book value of$2,903,630 to the City during fiscal year The balance of land held for resale in the General Fund at June 30, 2016 was $4, 732,066. I NOTE 7 - CAPITAL ASSETS I All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair market value on the date contributed. All capital assets with limited useful lives are depreciated over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year's pro rata share of the cost of capital assets. 56

165 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 7 - CAPITAL ASSETS (Continued) Depreciation is provided using the half-year convention method which is like the straight-line method in that the cost of the asset is divided by its expected useful life in years, but the asset is depreciated over 6 months instead over one year in its first year. The result is charged to expense each year until the asset is fully depreciated. The capitalization threshold for equipment with a cost of $5,000 or more and a useful life of more than two years, and for all buildings, improvements and infrastructure with a cost of $50,000 or more and a useful life of more than two years. The City has assigned the useful lives listed below to capital assets: Buildings Improvements Machinery and Equipment Vehicles Roadways: Streets (includes pavement, sidewalk, curb & gutters, trees & signs) Traffic Signals Street Lights Bridges Parks and Recreation: General Improvement Specialty Features 40 years 5-15 years 5 years 5 years years 25 years 40 years 100 years 25 years 10 years Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. 57

166 !NOTE 7 - CAPITAL ASSETS (Continued) I A. Capital Assets Additions and Retirements CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 Capital asset balances comprise the following: Transfer from Balance as of Successor Balance as of June 30, 2015 Additions Transfers Ag encl'. June 30, 2016 Governmental Activities: Capital assets not being depreciated: Land $9,902,951 $676,963 $3,061,391 $13,641,305 Construction in Progress 3,581,063 7,337,940 ($7,670,146) Total capital assets not being depreciated 13,484,014 8,014,903 (7,670,146) 3,061,391 16,890,162 Capital assets being depreciated: Buildings and Improvements 9,758, , , ,675 10,611,659 Machinery and Equipment 2,159, ,541 2,454,357 Vehicles 1,435, ,581 1,561,792 Roadways: Pavement 161,176,234 6,044, ,220,967 Sidewalks 9,797,203 9,797,203 Curbs and Gutters 9,678, ,668 9,931,181 Traffic Signals 2,986, ,754 3,209,749 Regulatory Signs and Street Trees 1,353,223 84,678 1,437,901 Street Lights 3,239,203 3,239,203 Bridges 4,422,722 4,422,722 Parks and Recreation Structures 12,021, ,760,994 Total capital assets being depreciated 218,029, ,670, ,64 7' 728 Less accumulated depreciation for: Buildings and Improvements (2,784,035) (282,514) (29,375) (3,095,924) Machinery and Equipment (1,975,959) (115,331) (2,091,290) Vehicles (1,062,866) (147,547) (1,210,413) Roadways: Pavements (58,482,197) (4,762,518) (63,244,715) Sidewalks (2,799,251) (130,616) (2,929,867) Curbs and Gutters (2,731,301) (132,172) (2,863,473) Traffic Signals (1,219,878) (123,933) (1,343,811) Regulatory Signs and Street Trees (919,786) (140,084) (1,059,870) Street Lights (994,001) (80,979) (1,074,980) Bridges (981,246) (44,226) (1,025,472) Parks and Recreation Structures (3,762,583) (485,979) (4,248,562) Total accumulated depreciation (77,713,103) (6,445,899) (29,375) (84, 188,3 77) Net capital assets being depreciated 140,316,250 (5,889,345) 7,670, , ,459,351 Governmental activities capital assets, net $153,800,264 $3,423,691 $159,349,513 As discussed in Notes 16C and 16D, pursuant to the terms of the Long-Range Property Management Plan, the Successor Agency transferred land parcels with a book value of $3,061,391 and a building with a book value of $362,300 to the City during fiscal year

167 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 7 - CAPITAL ASSETS (Continued) B. Capital Asset Contributions Some capital assets may be acquired using federal and State grant funds, or they may be contributed by developers or other governments. These contributions are accounted for as revenues at the time the capital assets are contributed. C. Depreciation Allocation Depreciation expense is charged to functions and programs based on their usage of the related assets. The amounts allocated to each function or program are as follows: Governmental Activities Administrative Services Public W orlcs Internal Service Funds Total Gowrnmental Activities $36,613 5,903, ,863 $6,445,899 I NOTE 8 - LONG-TERM DEBT I The City generally incurs long-term debt to finance projects or purchase assets which will have useful lives equal to or greater than the related debt. The City's long-term debt is recorded only in the government-wide financial statements. In governmental fund types, debt discounts and issuance costs are recognized in the current period. A. Current Year Transactions and Balances The City's debt issue and transaction is shown below and discussed in detail thereafter. Original Issue Amount Balance June 30, 2015 Retirements Balance June 30, 2016 Current Portion 2006 Certificates of Participation %, due 5/1/2032 $8,500,000 $6,690,000 ($275,000) $6,415,000 $285,000 B Certificates of Participation On December 5, 2006, the City issued the 2006 Certificates of Participation (COPs) in the principal amount of $8,500,000 to finance the acquisition of property and construction of improvements to the City's Civic Center. The COPs are collateralized by revenue from the Civic Center lease agreement. The City intends to use public facilities impact fees to make the lease payments, however the lease payments are payable from any legally available funds. Principal is payable annually and the interest is payable semi-annually through

168 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 8 - LONG-TERM DEBT (Continued) C. Debt Service Requirements Annual debt service requirements are shown below for the City's long-term debt: For the Year Ending June 30 Principal Interest 2017 $285,000 $275, , , , , , , , , ,915, , ,395, , ,000 24,750 $6,415,000 $2,647,410 I NOTE 9 -ASSESSMENT DEBT WITH NO CITY COMMITMENT I On August 3, 2004, and July 19, 2006, the Oakley Public Financing Authority issued $17,150,000 principal amount of Revenue Bonds and $11,460,000 principal amount of Infrastructure Revenue Bonds to finance the construction and acquisition of certain public improvements within the City's Special District Nos and , respectively. On March 3, 2012, the 2004 Bonds were refunded by the Refunding Revenue bonds, Series 2012 in the principal amount of $14,775,000. On October 15, 2014, the Oakley Public Financing Authority issued Refunding Revenue Bonds, Series 2014, in the principal amount of $9,070,000 to refund the 2006 Bonds. The Bonds are secured only by revenues received as payment of assessments levied against property within Special District Nos and Neither the faith and credit nor the general taxing power of the City of Oakley have been pledged to the payment of the Bonds. Therefore, the Bonds have been excluded from the accompanying financial statements. The outstanding balances of the Bonds were $13,235,000 and $8,710,000, respectively, at June 30,

169 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 10-NET POSITION AND FUND BALANCES I Net Position is measured on the full accrual basis, while Fund Balance is measured on the modified accrual basis. A. Net Position Net Position is the excess of all the City's assets and deferred outflows ofresources over all its liabilities and deferred inflows of resources, regardless of fund. Net Position is divided into three captions. These captions apply only to Net Position, which is determined only at the Government-wide level, and are described below: Net investment in capital assets describes the portion of Net Position which is represented by the current net book value of the City's capital assets, less the outstanding balance of any debt issued to finance these assets. Restricted describes the portion of Net Position which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the City cannot unilaterally alter. These principally include developer fees received for use on capital projects, debt service requirements, and redevelopment funds restricted to low and moderate income purposes. Unrestricted describes the portion of Net Position which is not restricted to use. B. Fund Balances Governmental fund balances represent the net current assets of each fund. Net current assets generally represent a fund's cash, receivables and deferred outflows of resources, less its liabilities and deferred inflows of resources. The City's fund balances are classified based on spending constraints imposed on the use of resources. For programs with multiple funding sources, the City prioritizes and expends funds in the following order: Restricted, Committed, Assigned, and Unassigned. Each category in the following hierarchy is ranked according to the degree of spending constraint: Nonspendable represents balances set aside to indicate items do not represent available, spendable resources even though they are a component of assets. Fund balances required to be maintained intact, such as Permanent Funds, and assets not expected to be converted to cash, such as prepaids, notes receivable, and land held for redevelopment are included. However, if proceeds realized from the sale or collection of nonspendable assets are restricted, committed or assigned, then nonspendable amounts are required to be presented as a component of the applicable category. Restricted fund balances have external restrictions imposed by creditors, grantors, contributors, laws, regulations, or enabling legislation which requires the resources to be used only for a specific purpose. Committed fund balances have constraints imposed by formal action of the City Council, such as by Resolution or Ordinance, which are equally binding, and may be altered only by the same formal action of the City Council. 61

170 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 10 - NET POSITION AND FUND BALANCES (Continued) Assigned fund balances are amounts constrained by the City's intent to be used for a specific purpose, but are neither restricted nor committed. Intent is expressed by the City Council or its designee and may be changed at the discretion of the City Council or its designee under the Appropriations Control Policy, the City Manager. This category includes encumbrances that are not to be liquidated by restricted or committed resources; nonspendables, when it is the City's intent to use proceeds or collections for a specific purpose; and residual fund balances, if any, of Special Revenue, Capital Projects and Debt Service Funds, which have not been restricted or committed. Unassigned fund balance represents residual amounts that have not been restricted, committed, or assigned. This includes the residual general fund balance and residual fund deficits, if any, of other governmental funds. Detailed classifications of the City's Fund Balances, as of June 30, 2016, are below: Fmd Balance Classifications General Fund Major Special Revenue Funds Low and Mod Lighting and Income Landscaping Housing District Asset Major Capital Projects Funds Traffic General Other Impact Capital Governmental Fees Projects Funds Total Nonspendables: Items not in spendable form: Prepaids and Deposits Loans Receivable Land Held for resale Advances $172,500 1,822,742 4,732, ,732 $172,500 1,822,742 4,732, ,732 Total Nonspendable Fund Balances 7,000,040 7,000,040 Restricted for: Dutch Slough Lighting and landscaping services Traffic impact projects Fire impact projects Street maintenance and improvement Assessment District NPDES projects Commmity Facilities District #1 Commmity Facilities District Agricultural Conservation Childcare facilities projects Debt Service Park Impact Fees Cypress Grove improvements 559,498 $7,076,064 $4,218,699 $162,525 $514, ,208 69,466 1,023,741 1,311, ,861 11, , , , , ,498 7,076,064 4,218, ,525 1,103,301 69,466 1,023,741 1,311, ,861 11, , , , ,388 Total Restricted Fund Balances 559,498 7,076,064 4,218, ,093 5,783,821 18,152,175 Assigned to: Termination Payments Uninsured Claims Payable Main Street Projects 132,500 25, , , ,500 25,000 1,407,520 Total Assigned Fund Balances 943, ,012 1,565,020 Unassigned: General fund Other fund deficits 9,067,909 ($1,085,098) (242,431) (73,375) 9,067,909 (1,400,904) Total Unassigned Fund Balances 9,067,909 (1,085,098) (242,431) (73,375) 7,667,005 Total Fund Balances $17,570,455 $7,076,064 ($1,085,098) $4,218,699 $271,662 $6,332,458 $34,384,240 62

171 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 10 - NET POSITION AND FUND BALANCES (Continued) C. Minimum Fund Balance Policies The City's Budget Policies require the City to strive to maintain the following fund balances: 1) 20% of the annual operating expenditures in the General Fund's Unassigned Fund Balance for emergencies and unforeseen operating or capital needs. The primary purpose of this reserve is to protect the City's essential service programs and funding requirements during periods of economic downturn (defined as a recession lasting two or more years) or other unforeseen catastrophic costs not covered by the annually budgeted Contingency Reserve. 2) Budget a Contingency Reserve each year for non-recurring unanticipated expenditures or to set aside funds to cover known contingencies with unknown costs. The level of the Contingency Reserve will be established as needed but shall not be less than 2% of General Fund operating expenditures. The balance of the reserve, which is a component of the General Fund's Unassigned Fund Balance was $194,000 as ofjune 30, ) Establish an account to accumulate funds to be used for payment of accrued employee benefits for terminated employees. The accumulated amount in the reserve will equal the projected payout of accumulated benefits requiring conversion to pay on retirement for employees then eligible for retirement so there are funds to pay out accumulated benefits requiring conversion to pay on termination. The balance of the reserve was $132,500 as of June 30, ) Claims Reserves will be budgeted at a level which, together with purchased insurance, adequately protects the City. The City will maintain a reserve of two times its deductibles for those claims covered by the insurance pool of which the City is a member (currently the Municipal Pooling Authority of Northern California). In addition, the City will perform an annual analysis of past claims not covered by the pool, and reserve an appropriate amount to pay for uncovered claims. The balance of the reserve was $25,000 as ofjune 30, ) The City will establish a Street Maintenance Reserve Fund for the acc1:1mulation of funds for the long-term maintenance of the City's streets. The amounts transferred into the reserve will be used to augment the City's Gas Tax, Measure J, and other street improvement revenues in completing street maintenance and improvement projects. The reserve shall be considered fully funded when the balance and the combination of anticipated special revenues eligible for street maintenance is sufficient to pay for the next 3 years' anticipated maintenance. The City anticipates to fully fund the reserve by June 30, The balance of the reserve was $224,411 as of June 30, ) The City will establish a Vehicle and Equipment Replacement Reserve Fund for the accumulation of funds for the replacement of worn and obsolete vehicles and other capital equipment. The accumulated amount in the reserve will equal at least 50% of the accumulated depreciation on the City's books for these assets, plus any amounts necessary to ensure the City's ability to replace them when they reach the end of their useful lives. Network and Computer replacement will be gauged using a 3 year lifecycle. The balance of the reserve was $1,169,712 as of June 30, 2016, which does not meet the targeted level. However, management believes the balance is sufficient to fund all anticipated replacements. 63

172 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 10 -NET POSITION AND FUND BALANCES (Continued) 8) The City will seek to build and maintain a Facilities Maintenance Capital Asset Reserve Fund for capital costs associated with the maintenance of all City building facilities. The reserve will be maintained at a level at least equal to projected five year facilities maintenance capital costs. Park operating funds shall budget annual capital replacement costs and use them to fund reserves for future equipment replacement and resurfacing needs. The balance of the Facilities Maintenance Capital Asset Reserve was $186,466 as of June 30, 2016 and many of the park operating funds do not have sufficient revenues to adequately fund reserves, which does not meet the targeted level. However, management believes the balance is sufficient to fund all anticipated replacements. 9) The City will seek to build and maintain a Storm Drain Depreciation Reserve for costs associated with the major maintenance and capital improvement costs included in the Storm Drain (NPDES) program budget. The minimum reserve level will be 50% of the costs projected over the next five years, or $262,500 as of June 30, The balance of the reserve which is a component of the NPDES Special Revenue Fund's Restricted Fund Balance was $262,500 as of June 30, ) The City will establish a Reserve for Qualifying Expenditures and will transfer into it from current revenues all amounts necessary to ensure compliance with Gann Limit provisions. These funds will be used solely to pay for Gann Limit excludable capital expenditures. To qualify, they must be for assets having a value greater than $100,000 and having a useful life of at least 10 years. The City was in compliance with the Gann Limit provisions as of June 30, 2016, and therefore was not required to establish a Reserve for Qualifying Expenditures as of June 30, I NOTE 11-PENSION PLAN A. General Information about the Pension Plan Plan Description - All qualified permanent, probationary and part-time employees are eligible to participate in the City's Safety (police) and Miscellaneous (all other) Employee Pension Rate Plans. The City's Miscellaneous and Safety Rate Plans are part of the public agency cost-sharing multiple-employer defined benefit pension plan (PERF C), which is administered by the California Public Employees' Retirement System (CalPERS). PERF C consists of a miscellaneous pool and a safety pool (also referred to as "risk pools"), which are comprised of individual employer miscellaneous and safety rate plans, respectively. Individual employers may sponsor more than one miscellaneous and safety rate plan. The employer participates in one cost-sharing multiple-employer defined benefit pension plan regardless of the number of rate plans the employer sponsors. The City sponsors four rate plans (three miscellaneous and one safety). Benefit provisions under the Plan are established by State statute and City resolution. CalPERS issues publicly available reports that include a full description of the pension plan regarding benefit provisions, assumptions and membership information that can be found on the CalPERS website. Benefits Provided - CalPERS provides service retirement and disability benefits, annual cost of living adjustments and death benefits to plan members, who must be public employees and beneficiaries. Benefits are based on years of credited service, equal to one year of full time employment. Members with five years of total service are eligible to retire at age 50 with statutorily reduced benefits. All members are eligible for non-duty disability benefits after 10 years of service. The death benefit is one of the following: the Basic Death Benefit, the 1957 Survivor Benefit, or the Optional Settlement 2W Death Benefit. The cost of living adjustments for each plan are applied as specified by the Public Employees' Retirement Law. 64

173 I NOTE 11-PENSION PLAN (Continued) CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 In August 2010, the City Council authorized an amendment to the contract between the City and the CalPERS in order to establish a Tier 2 retirement benefits structure. The Tier 2 changed the retirement benefit formula from 2.5%@55 to 2%@60 for new miscellaneous employees hired on or after October 18, A Tier 3 structure was established to implement the provisions of the Pension Reform Act of 2013 (PEPRA), Assembly Bill 340, and is applicable to employees new to CALPERS, and hired after December 31, 2012, and not subject to grandfathering into the previously existing Tier 2 Rate Plan. Effective August 12, 2015, the City established a Safety Plan that provides benefits for safety employees hired after January 1, 2013 using the 2.7%@ 57 benefit formula. The Plan's provisions and benefits in effect at June 30, 2016, are summarized as follows: Classic Tier 1 Miscellaneous Classic Tier 2 PEPRA Tier3 Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits, as a% of eligible compensation Required employee contribution rates Required employer contribution rates Prior to October 18, %@55 5 years service monthly for life %to 2.5% 8.000% 9.671% On or after October 18, %@60 5 years service monthly for life % % 7.000% 7.163% On or after January 1, %@62 5 years service monthly for life %- 2.5% 6.250% 6.237% Hire date Benefit formula Benefit vesting schedule Benefit payments Retirement age Monthly benefits, as a% of eligible compensation Required employee contribution rates Required employer contribution rates Safety PEP RA On or after January 1, %@57 5 years service monthly for life %-2.7% % % Beginning in fiscal year 2016, CalPERS collects employer contributions for the Plan as a percentage of payroll for the normal cost portion as noted in the rates above and as a dollar amount for contributions toward the unfunded liability and side fund. The dollar amounts are billed on a monthly basis. The City's required contribution for the unfunded liability and side fund was $84,347 in fiscal year Contributions - Section 20814(c) of the California Public Employees' Retirement Law requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. Funding contributions for the Plan are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability. The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. For the year ended June 30, 2016, the City's contributions to the Plan were $382,

174 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 11- PENSION PLAN (Continued) B. Pension Liabilities, Pension Expenses and Deferred Outflows/Inflows of Resources Related to Pensions For purposes of measuring the net pension liability and deferred outflows/inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the Plan and additions to/deductions from the Plan's fiduciary net position have been determined on the same basis as they are reported by the CalPERS Financial Office. For this purpose, benefit payments (including refunds of employee contributions) are recognized when currently due and payable in accordance with the benefit terms. Investments are reported at fair value. As of June 30, 2016, the City reported a net pension liability for its proportionate share of the net pension liability of the Plan of $1,380,410. The City's net pension liability for the Plan is measured as the proportionate share of the net pension liability. The net pension liability of the Plan is measured as of June 30, 2015, and the total pension liability for the Plan used to calculate the net pension liability was determined by an actuarial valuation as of June 30, 2014 rolled forward to June 30, 2015 using standard update procedures. The City's proportion of the net pension liability was based on a projection of the City's long-term share of contributions to the pension plan relative to the projected contributions of all participating employers, actuarially determined. The City's proportionate share of the net pension liability for the Plan as of June 30, 2014 and 2015 was as follows: Proportion - June 30, 2014 Proportion - June 30, 2015 Change - Increase (Decrease) % % % For the year ended June 30, 2016, the City recognized pension expense of ($24,069). At June 30, 2016, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Pension contributions subsequent to measurement date Differences between actual and expected experience Changes in assumptions Change in employer's proportion and differences between the employer's contributions and the employer's proportionate share of contributions Net differences between projected and actual earnings on plan investments Total Deferred Outflows of Resources $382,769 19, ,949 $1,133,729 Deferred Inflows of Resources ($179,857) (212,258) (90,165) ($482,280) 66

175 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 11 - PENSION PLAN (Continued) $3 82, 7 69 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized as pension expense as follows: YearFnded Annual June 30 Amortization 2017 $17, , , , Thereafter Actuarial Assumptions- For the measurement period ended June 30, 2015, the total pension liability was determined by rolling forward the June 30, 2014 total pension liability. The June 30, 2015 total pension liabilities were based on the following actuarial methods and assumptions for all benefit tiers: Valuation Date Measurement Date Actuarial Cost Method Actuarial Assumptions: Discount Rate Inflation Salary Increases Investment Rate of Return Mortality Post Retirement Benefit Increase June 30, 2014 June 30, 2015 Entry-Age Normal Cost Method 7.65% 2.75% (1) 7.65% (2) Derived using CalPERS Membership Data for all Funds (3) Contract COLA up to 2.75% until Purchasing Power applies, 2.75% thereafter (1) Depending on age, service and type of employment (2) Net of pension plan investment expenses, including inflation (3) The mortality table used was developed based on CalPERS' specific data. The table includes 20 years of mortality improvements using Society of Actuaries Scale BB. For more details on this table, please refer to the 2014 experience study report. All other actuarial assumptions used in the June 30, 2014 valuation were based on the results of a January 2015 actuarial experience study for the period 1997 to 2011, including updates to salary increase, mortality and retirement rates. Further details of the Experience Study can be found on the CalPERS website under Forms and Publications. 67

176 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 11-PENSION PLAN (Continued) Change of Assumptions - GASB 68, paragraph 68 states that the long long-term expected rate of return should be determined net of pension plan investment expense, but without reduction for pension plan administrative expense. The discount rate of 7.50% used for the June 30, 2014 measurement date was net of administrative expenses. The discount rate of 7.65% used for the June 30, 2015 measurement date is without reduction of pension plan administrative expense. All other assumptions for the June 30, 2014 measurement date were the same as those used for the June 30, 2015 measurement date. Discount Rate -The discount rate used to measure the total pension liability was 7.65% for the Plan. To determine whether the municipal bond rate should be used in the calculation of a discount rate for each plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. Therefore, the current 7.65% discount rate is adequate and the use of the municipal bond rate calculation is not necessary. The long term expected discount rate of 7.65% will be applied to all plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed report that can be obtained from the CalPERS website. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Such cash flows were developed assuming that both members and employers will make their required contributions on time and as scheduled in all future years. Using historical returns of all the funds' asset classes, expected compound (geometric) returns were calculated over the short-term (first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and rounded down to the nearest one quarter of one percent. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These geometric rates of return are net of administrative expenses. New Real Return Asset Class Strategic Allocation Years 1 - lo(a) Global Equity 51.0% 5.25% Global Fixed Income 19.0% 0.99% Inflation Sensitive 6.0% 0.45% Private Equity 10.0% 6.83% Real Estate 10.0% 4.50% Infrastructure and Forestland 2.0% 4.50% Liquidity 2.0% -0.55% Total 100.0% (a) An expected inflation of2.5% used for this period. (b) An expected inflation of 3. 0% used for this period. 68 Real Return Years 1 l+(b) 5.71% 2.43% 3.36% 6.95% 5.13% 5.09% -1.05%

177 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 11-PENSION PLAN (Continued) Sensitivity of the Proportionate Share of the Net Pension Liability to Changes in the Discount Rate - The following presents the City's proportionate share of the net pension liability for the Plan, calculated using the discount rate for the Plan, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate that is I-percentage point lower or 1- percentage point higher than the current rate: 1% Decrease 6.65% Net Pension Liability $2,214,343 Current Discount Rate 7.65% Net Pension Liability $1,380,410 1%Increase 8.65% Net Pension Liability $691,901 Pension Plan Fiduciary Net Position - Detailed information about each pension plan's fiduciary net position is available in the separately issued CalPERS financial reports. I NOTE 12- OTHER POST-EMPLOYMENT BENEFITS I The City established a post-employment health care defined contribution plan in May 2016, pursuant to a negotiated Memoranda of Understanding (MOU) with its Oakley Police Officers Association employee bargaining unit. The City's funding obligation for the plan is defined within the MOU and is a specified contribution of $450 per month per police employee. The administration of benefits for the plan rests with the plan administrator. The administrator for the plan is the Peace Officers Research Association of California (PORAC) Retiree Medical Trust. There are no vesting requirements to be eligible to use these funds post-employment. The benefit can only be used to purchase post-employment health insurance. Contributions to the plan during fiscal year 2016 were $24,300, which included a one-time set~up fee of $1,350. I NOTE 13 - DEFERRED COMPENSATION PLANS City employees may also defer a portion of their compensation under City sponsored Deferred Compensation Plans. The City offers the opportunity to participate in one of two plans, one created in accordance with Internal Revenue Code Section 457, and one created in accordance with Internal Revenue Code 401a. Under the 457 plan, participants are not taxed on the deferred portion of their compensation until distributed to them; under the 401a plan different rules apply and amounts contributed may be either pre-tax or after-tax depending on applicable plan rules. Under both plans, distributions may be made only at termination, retirement, death or in an emergency as defined by the Plan. The laws governing deferred compensation plan assets require plan assets to be held by a Trust for the exclusive benefit of plan participants and their beneficiaries. Since the assets held under these plans are not the City's property and are not subject to City control, they have been excluded from these financial statements. 69

178 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 INOTE 14-RISKMANAGEMENT A. Municipal Pooling Authority of Northern California (MPA) The City is a member of the Municipal Pooling Authority of Northern California. The Authority provides coverage against various types of loss risks under the terms of a joint-powers agreement with the City and several other cities and governmental agencies. The City participates in the coverage programs as follows: Types of Coverage (Deductible) Liability ($25,000) Vehicle - Physical Damage ($3,000 for police vehicles, $2,000 for all others) Worker's Compensation (no deductible) Property: All Risk and Copper Claims ($25,000), Water Claims ($150,000) Flood* Pollution Liability ($100,000) Boiler and Machinery ($5,000) Cyber Liability ($50,000) Government Crime ($10,000) Employment Liability ($50,000) Coverage Limits $29,000, ,000 Statutory Limit l,000,000,000 25,000,000 1,000, ,000,000 2,000,000 1,000,000 2,000,000 * $100,000 minimum deductible per occurrence, except Zones A and V, which are subject to a $250,000 deductible per occurrence. The Authority is governed by a Board consisting of representatives from member municipalities. The Board controls the operations of the Authority, including selection of management and approval of operating budgets, independent of any influence by member municipalities beyond their representation on the Board. The City's deposits with the Authority are in accordance with formulas established by the Authority. Actual surpluses or losses are shared according to a formula developed from overall loss costs and spread to member entities on a percentage basis after a retrospective rating. Audited financial statements for the Authority are available from MPA, 1911 San Miguel Drive, Suite 200, Walnut Creek, CA B. Liability for Uninsured Claims Claims and judgments, including a provision for claims incurred but not reported, are recorded when a loss is deemed probable of assertion and the amount of the loss is reasonably determinable. As discussed, above, the City has coverage for such claims, but it has retained the risk for the deductible, or uninsured portion of these claims. Settlements have not exceeded insurance coverage for the past three fiscal years. 70

179 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 14 - RISK MANAGEMENT (Continued) The City's liability for uninsured liability claims at June 30 was estimated by management based on claims experience during the fiscal year and was computed as follows: Balance at beginning of year Liability for current fiscal year claims Change in liability for prior fiscal year claims and claims incurred but not reported (IBNR) Claims paid Balance at end of year June $66,852 5,204 21,998 (48,136) $45, $25,000 64,003 (22,151) $66,852 I NOTE 15 - COMMITMENTS AND CONTINGENCIES A. Construction and Other Commitments The City has the following outstanding construction commitments as of June 30, 2016 which are included in the balance of encumbrances in Note 15E: Marsh Creek Restoration - Creekside Park Main Street Resurfacing - Bridgehead to Big Break Highway 160 and Main Street Gateway Sign and Landscaping Street Repair and Resurfacing Planning Department Office Construction $5,556 73,405 4,997 4,305 19,829 In addition to the commitments above, the City agreed to grant up to $925,000 of Childcare Development Fees to a developer for the construction of a childcare facility. The City has disbursed $350,000 to date, and as of June 30, 2016 the undisbursed amount is $575,000. B. Litigation The City is subject to litigation arising in the normal course of business. In the opinion of the City Attorney, there is no presently filed litigation which is likely to have a material adverse effect on the financial position of the City. C. Federal and State Grant Programs The City participates in several federal and State grant programs. These programs are subject to audit by the City's independent accountants in accordance with the provisions of the federal Single Audit Act as amended and applicable State requirements. No cost disallowances have been proposed as a result of audits completed to date; however, these programs are still subject to further examination by the grantors and the amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time. The City expects such amounts, if any, to be immaterial. 71

180 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 I NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued) ]). Encunibrances Encumbrances outstanding as ofjune 30, 2016 by fund were as follows: Major Governmental Fund: General Fund Lighting and Landscaping Districts Special Revenue Fund Public Protection Special Revenue Fund Traffic Impact Fees Non-Major Governmental Funds Total Encumbrances $785,508 56,541 2,200 69, ,474 $1,524,398 I NOTE 16 -REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES A. REJJEVELOPMENT ])JSSOLUTION In an effort to balance its budget, the State of California adopted ABxl 26 on June 28, 2011, amended by AB1484 on June 27, 2012 (collectively referred to as the Dissolution Act), which suspended all new redevelopment activities except for limited specified activities as of that date and dissolved redevelopment agencies on January 31, The suspension provisions prohibited all redevelopment agencies from a wide range of activities, including incurring new indebtedness or obligations, entering into or modifying agreements or contracts, acquiring or disposing of real property, taking actions to adopt or amend redevelopment plans and other similar actions, except actions required by law or to carry out existing enforceable obligations, as defined inabxl 26. In addition, the Dissolution Act directs the State Controller to review the activities of all redevelopment agencies and successor agencies to determine whether an asset transfer between an agency and any public agency occurred on or after January 1, If an asset transfer did occur and the public agency that received the asset is not contractually committed to a third party for the expenditure or encumbrance of the asset, the legislation purports to require the State Controller to order the asset returned to the redevelopment agency. The State Controller's Office completed its asset transfer review in July 2015, which did not require the transfer of any additional assets to the Successor Agency. Effective January 31, 2012, the Redevelopment Agency was dissolved. In accordance with the Dissolution Act, certain assets of the Redevelopment Agency Low and Moderate Income Housing Fund were distributed to a Housing Successor; and all remaining Redevelopment Agency assets and liabilities were distributed to a Successor Agency. Under the provisions of ABxl 26, the City was eligible to elect to become the Housing Successor and retain the housing assets and elected to do so. On February 1, 2012, the Agency's housing assets were transferred to the City's Low and Moderate Income Housing Asset Special Revenue Fund. The activities of the Housing Successor are reported in the Low and Moderate Income Housing Assets Special Revenue Fund as the City has control of those assets, which may be used in accordance with the low and moderate income housing provisions of California Redevelopment Law. 72

181 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) The City also elected to become the Successor Agency and on February 1, 2012 the Redevelopment Agency's remaining assets were distributed to and liabilities were assumed by the Successor Agency. ABxl 26 requires the establishment of an Oversight Board to oversee the activities of the Successor Agency and one was established on April 17, The activities of the Successor Agency are subject to review and approval of the Oversight Board, which is comprised of seven members, including one member of City Council and one former Redevelopment Agency employee appointed by the Mayor. The activities of the Successor Agency are reported in the Successor Agency to the Redevelopment Agency Private-Purpose Trust Fund as the activities are under the control of the Oversight Board and the Department of Finance. The City provides administrative services to the Successor Agency to wind down the affairs of the former Redevelopment Agency. The Department of Finance issued the Successor Agency a Finding of Completion on August 15, Cash and investments of the Successor Agency as of June 30, 2016 includes the following: Cash available for operations: Cash available for operations Cash held for September 2, 2016 debt service payment Cash and investments with fiscal agent Total Cash and Investments $892,379 1,176,687 2,005,151 $4,074,217 Details regarding cash and investments are discussed in Note 3. Information presented in the following footnotes represents other assets and liabilities of the Successor Agency as of June 30, B. LOANS RECEIVABLE The Successor Agency assumed the non-housing loans receivable of the Redevelopment Agency as of February 1, The Redevelopment Agency engaged in programs designed to encourage construction of or improvement to low-to-moderate income housing. Under these programs, grants or loans were provided under favorable terms to homeowners or developers who agreed to expend these funds in accordance with the Agency's terms. The balance of the portion of the Oakley Senior Housing loan assumed by the Successor Agency as discussed in Note SD above, including accrued interest was $640,181 as ofjune 30,

182 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) Manuel's Five Star Restaurant, Inc. Under the terms of its Cooperation Agreement with the Redevelopment Agency and following existing law at the time, on August 9, 2011 the City entered into an agreement with Manuel's Five Star Restaurant, Inc., to provide loans of Agency funds to develop a restaurant and associated improvements. The loans consist of a construction loan of up to $1,200,000 to construct the restaurant and an enhancement loan of up to $600,000 to enhance the exterior of the restaurant building and on-site amenities. The construction loan bears interest of 5% on outstanding principal and unpaid interest beginning three months after the start of operations of the restaurant, is secured by a first deed of trust, and is payable in monthly installments also beginning after the start of operations of the restaurant. The construction loan becomes due upon sale of the property. The enhancement loan does not bear interest and will be forgiven if the borrower operates the restaurant for ten consecutive years. The borrower had drawn down $39,800 of the loans as of January 31, With the dissolution of the Agency effective February 1, 2012, the outstanding loan as of that date in the amount of $39,800 was assumed by the Successor Agency. The State Department of Finance determined that the loans are not enforceable obligations of the Successor Agency, and the Department and the Agency representatives have gone through a meet and confer process in an attempt to resolve their differences. Notwithstanding this effort, the Department continued to deny the loans, relying on legislation later validated by the State Supreme Court ending redevelopment that included, amongst other things, language that retroactively invalidates virtually all agreements between agencies and their sponsoring entities. The Department contended that as a result of this provision, the loans are a City obligation and not an obligation of the Successor Agency. They did, however, provide that because the enhancement loan was funded with proceeds of Redevelopment Agency bonds, then once the Agency obtains a "Finding of Completion" by complying with provisions of a new law passed in June 2012, the enhancement loan would be allowed. This dispute between the State Department of Finance and the City and Agency regarding the Cooperation Agreement was litigated, and ultimately resolved through settlement. The settlement agreement was executed between the City and Department of Finance and the Contra Costa County Auditor-Controller allowed the City to acquire all rights and interest in the DDA and the associated loan receivable of $1,200,000 from Manuel's Five Star Restaurant. The balance of the loan at the date of the transfer to the City was $1,176,195. The borrower had drawn down $599,304 of the enhancement loan, which was the balance outstanding as of June 30, C. LAND HELD FOR REDEVELOPMENT I The Successor Agency assumed the land held for redevelopment of the Redevelopment Agency as of February 1, The Redevelopment Agency had purchased parcels of land as part of its efforts to develop or redevelop blighted properties within the Project Area. Such land parcels are accounted for at the lower of cost or net realizable value or agreed-upon sales price if a disposition agreement has been made with a developer. As discussed in Note 16D, pursuant to the terms of the Long-Range Property Management the Successor Agency transferred land parcels with a book value of $3,272,107 to the City during fiscal year

183 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) D. CAPITAL ASSETS The Successor Agency assumed the capital assets of the Redevelopment Agency as of February 1, All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair market value on the date contributed. All capital assets with limited useful lives are depreciated over their estimated useful lives. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year's pro rata share of the cost of capital assets. Depreciation is provided using the half-year convention method which is like the straight-line method in that the cost of the asset is divided by its expected useful life in years, but the asset is depreciated over 6 months instead over one year in its first year. The result is charged to expense each year until the asset is fully depreciated. The capitalization threshold for equipment with a cost of $5,000 or more and a useful life of more than two years, and for all buildings, improvements and infrastructure with a cost of $50,000 or more and a useful life of more than two years. The Successor Agency has assigned the useful lives listed below to capital assets: Buildings Improvements Machinery and Equipment Vehicles Roadways: Streets (includes pavement, sidewalk, curb & gutters, trees & signs) Traffic Signals Parks and Recreation: General Improvements Specialty Features Useful lives 40 years 5-15 years 5 years 5 years years 25 years 25 years 10 years 75

184 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) Major outlays for capital assets and improvements are capitalized as projects are constructed. futerest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Capital assets recorded at June 30 comprise: Balance Transfer to Balance June 30, 2015 Additions the City June 30, 2016 Capital assets not being depreciated: Land $3,694,908 ($2, 722,915) $971,993 Total capital assets not being depreciated 3,694,908 (2,722,915) 971,993 Capital assets being depreciated: Buildings and improvements 5,916,790 (391,675) 5,525,115 Machinery and equipment 65,957 65,957 Roadways: Pavement 12,593,840 12,593,840 Traffic Signals 400, ,859 Street Trees 25,000 25,000 Parks and Recreation 818, ,890 Total capital assets being depreciated 19,821,336 (391,675) 19,429,661 Less accumulated depreciation for: Buildings and improvements (1,206,245) ($210,632) 29,375 (1,387,502) Machinery and equipment (65,957) (65,957) Roadways: Pavement (1,118,957) (334,320) (1,453,277) Traffic Signals (127,220) (16,034) (143,254) Street Trees (938) (625) (1,563) Parks and Recreation (222,619) (40,945) (263,564) Total accumulated depreciation (2,741,936) (602,556) 29,375 (3,315,117) Net capital assets being depreciated 17,079,400 (602,556) (362,300) 16,114,544 Capital assets, net $20,774,308 ($602,556) ($3,085,215) $17,086,537 Pursuant to Health and Safety Code (HSC) section (b ), the City of Oakley Successor Agency (Agency) submitted a Long-Range Property Management Plan (LRPMP) to the California Department of Finance (Finance) on November 26, The Agency subsequently submitted a revised LRPMP to Finance on December 17, The Agency received a Finding of Completion on December 3 0, 2015 and Finance approved the Agency's use or disposition of all the properties listed on the LRPMP During fiscal year 2016, the Agency conveyed the approved properties with a book value of $3,085,215 to the City. 76

185 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) E. LONG-TERM DEBT The Successor Agency assumed the long-term debt of the Redevelopment Agency as of February 1, J. Current Year Transaction and Balances All of the long-term debt of the Successor Agency is comprised of Tax Allocation Bonds issued by the Redevelopment Agency. The Bonds are special obligations of the Agency and are secured only by the Agency's tax increment revenues. Tax Allocation Bond transactions were as follows: Original Issue Balance Balance. Current Amount June 30, 2015 Retirements June 30, 2016 Portion 2008 Subordinate Tax Allocation Bonds %, due 9/1/2038 $25,095,000 $24,050,000 ($425,000) $23,625,000 $465, A Tax Allocation Bonds %, due 9/01/2028 2,595,000 2,595,000 2,595, B Tax Allocation Bonds %, due 9/01/2024 3,115,000 3,115,000 3,115,000 Total $29,760,000 ($425,000) $29,335,000 $465, Redevelopment Agency 2008 Subordinate Tax Allocation Bonds On May 10, 2008, the Agency issued Subordinate Tax Allocation Bonds, Series 2008A, to provide financing for various redevelopment projects. The bonds are secured by the Agency's tax increment, however, the 2008A Bonds were subordinated to the 2003 Tax Allocation Bonds that were refunded by the 2015 Tax Allocation Bonds. The 2008 Bonds are on parity with the 2015 Bonds discussed below. Principal is payable annually and the interest is payable semi-annually through Redevelopment Agency 2015 Tax Allocation Bonds On May 6, 2015, the Agency issued $2,595,000 in 2015 Tax Allocation Bonds, Series A, and $3,115,000 in 2015 Tax Allocation Bonds, Series B. The proceeds of these bonds, secured by property tax revenues in the Redevelopment Property Tax Trust Fund, were used to refund and defease the outstanding 2003 Tax Allocation Bonds. The 2003 Bonds were called on June 19, The 2015 Bonds are secured by the Successor Agency's property tax revenues in the Redevelopment Property Tax Trust Fund. Annual principal payments on the 2015 Bonds are due September 2, and semi-annual interest payments are due March 1 and September 1, through

186 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) 4. Pledge of Tax Revenues As discussed above, the Agency had pledged all future tax increment revenues, less amounts required to be set aside in the Redevelopment Agency Low and Moderate Income Housing Capital Projects Fund and certain tax increment pass through payments, for the repayment of both the 2003 and 2008A Tax Allocation Bonds (non-housing revenues). The Agency had also pledged tax increment revenues required to be set aside in the Redevelopment Agency Low and Moderate Income Housing Capital Projects Fund (housing revenue) for the repayment of a portion of the 2003 Tax Allocation Bonds. With the issuance of the 2015 Bonds, the tax increment revenue is pledged on parity with the 2008 and 2015 Bonds. The pledge of all future tax increment revenues ends upon repayment of the $47,966,997 remaining debt service on the 2008 and 2015 Bonds above, which is scheduled to occur in With the dissolution of the Redevelopment Agency discussed above, Tax Increment is no longer distributed, and instead the Successor Agency receives payments from the County's Redevelopment Property Tax Trust Fund (RPTTF) that are to be used to fund debt service on the Bonds, with no distinction between housing and non-housing revenues. Beginning in fiscal year 2012, under the provisions of the laws dissolving the Redevelopment Agency, the Successor Agency only receives the funds necessary to fulfill its approved obligations. Total property taxes available for distribution to the Successor Agency and other taxing entities for fiscal year 2016 calculated by the County Auditor-Controller was $2,3 82,626 and the total received by the Successor Agency for fiscal year 2016 debt service was $2,133,349, which represented of 123% of the $1,735,054 of debt service. 5. Debt Service Requirements Annual debt service requirements for the Bonds are shown below: For the Year Ending June 30 Princi2al Interest 2017 $465,000 $1,337, ,000 1,317, ,000 1,293, ,040,000 1,261, ,070,000 1,224, ,895,000 5,447, ,650,000 4,004, ,470,000 2,329, ,435, ,375 $29,335,000 $18,631,997 78

187 CITY OF OAKLEY NOTES TO BASIC FINANCIAL STATEMENTS For fiscal year ended June 30, 2016 NOTE 16 - REDEVELOPMENT AGENCY DISSOLUTION AND SUCCESSOR AGENCY ACTIVITIES (Continued) F. COMMITMENTS AND CONTINGENCIES 1. State Approval of Enforceable Obligations The Successor Agency prepares a Recognized Obligation Payment Schedule (ROPS) semi-annually that contains all proposed expenditures for the subsequent six-month period. The ROPS is subject to the review and approval of the Oversight Board as well as the State Department of Finance. Although the State Department of Finance may not question items included on the ROPS in one period, they may question the same items in a future period and disallow associated activities. The amount, if any, of current obligations that may be denied by the State Department of Finance in the future cannot be determined at this time. 2. State Asset Transfer Review The activities of the former Redevelopment Agency and the Successor Agency were also subject to further examination by the State of California. The State Controller's Office conducted a review of the propriety of asset transfers between the former Redevelopment Agency or the Successor Agency and any public agency that occurred on or after January 1, The results of that review were issued in July 2015 and although the review did identify ineligible transfers of assets from the former Redevelopment Agency to the City, the report reflected the current year and prior year transfers discussed in Note ISA and made no further demands for the return of assets to the Successor Agency. 79

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189 REQUIRED SUPPLEMENTARY INFORMATION

190 REQUIRED SUPPLEMENTARY INFORMATION Miscellaneous and Safety Rate Plans, a Cost Sharing-Employer Defined Pension Plan Last 10 Years* SCHEDULE OF THE CITY'S PROPORTIONATE SHARE OF THE NET PENSION LL..\BILITY Measurement Date 6/30/2014 6/30/2015 Plan's Proportion of the Net Pension Liability (Asset) % % Plan's Proportionate Share of the Net Pension Liability/(Asset) $1,102,233 $1,380,410 Plan's Covered Payroll $1,972,266 $2,494,839 Plan's Proportionate Share of the Net Pension Liability/(Asset) as a Percentage of its Covered Payroll Plan's Proportionate Share of the Fiduciary Net Position as a Percentage of the Plan's Total Pension Liability 55.89% 80.04% 55.33% 77.46% Notes to Schedule: * - Fiscal year 2015 was the 1st year of implementation. 81

191 REQUIRED SUPPLEMENTARY INFORMATION Miscellaneous and Safety Rate Plans, a Cost Sharing-Employer Defined Pension Plan Last 10 Years* SCHEDULE OF CONTRIBUTIONS For the year Ended June Actuarially determined contribution $296,613 Contributions in relation to the actuarially determined contributions 296,613 Contribution deficiency (excess) $0 Covered payroll $2,494, $382, ,769 $0 $3,497,131 Contributions as a percentage of covered payroll 11.89% 10.95% * - Fiscal year 2015 was the 1st year of implementation. 82

192 SUPPLEMENTAL INFORMATION

193 MAJOR GOVERNMENTAL FUNDS, OTHER THAN GENERAL FUND AND SPECIAL REVENUE FUNDS TRAFFIC IMP ACT FEES CAPITAL PROJECTS FUND This fund accounts for fees assessed on new development to provide street and road improvements. GENERAL CAPITAL PROJECTS FUND This fund accounts for revenues and expenditures related to General Fund contributions, grants and other funding sources for capital projects not accounted for in other capital projects funds. It accounts for the total expenditures for each project charged to this fund. 83

194 CITY OF OAKLEY MAJOR GOVERNMENTAL FUNDS OTIIBR THAN Tiffi GENERAL FUND AND SPECIAL REVENUE FUNDS SCHEDULE OF REVENUES, EXPENDITTJRES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 TRAFFIC IMP ACT FEES GENERAL CAPITAL PROJECTS Variance Variance Positive Positive Bud~et Actual (Ne~ative) Bud~et Actual (Ne~ative) REVENUES Intergovernmental: Other $2,490,000 $1,054,166 ($1,435,834) Developer fees $1,800,000 $2,349,601 $549,601 22,865 22,865 Use of money and property 14,613 14,613 Miscellaneous 15,000 82,710 67,710 Total Revenues 1,800,000 2,364, ,214 2,527,865 1,159,741 (1,368,124) EXPENDITTJRES Current: Public Works 180, ,279 44,988 Capital outlay 3,783,537 1,719,861 2,063,676 5,378,002 3,116,148 2,261,854 Total Expenditures 3,963,804 1,855,140 2,108,664 5,378,002 3,116,148 2,261,854 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITTJRES (2,163,804) 509,074 2,672,878 (2,850,137) (1,956,407) 893,730 OTIIBR FINANCING SOURCES (USES) Transfers in 1,195,000 1,195,000 NET CHANGE IN FUND BALANCES ($2, 163,804) 509,074 $2,672,878 ($1,655,137) (761,407) $893,730 Fund balance at beginning of year 3,709,625 1,033,069 Fund balance at end of year $4,218,699 $271,662 84

195 NON-MAJOR GOVERNMENTAL FUNDS SPECIAL REVENUE FUNDS GAS TAX This fund accounts for revenues and expenditures received from the State of California under Street and Highways Code Sections 2105, 2106, 2107 and The allocations must be spent for street maintenance and construction. NPDES This fund accounts for storm water utility fees assessed on properties city-wide and used to pay for the ''National Pollution Discharge Elimination System" to prevent further polluting of our streams and bays as mandated by the Federal government. DEVELOPER DEPOSITS This fund accounts for deposits received from contractors and property owners to offset the cost of providing certain Community Development services including processing applications and reviewing grading plans of applicant projects. YOUTH DEVELOPMENT This fund accounts for youth development grant programs. COMMUNITY FACILITIES DISTRICT #1 This fund accounts for maintenance and operations related to drainage and flood control at the Cypress Grove development. COMMUNITY FACILITIES DISTRICT This fund accounts for the activities associated with the maintenance of neighborhood parks, community parks, regional parks, street lighting, landscaping and storm water detention facilities at Emerson Ranch. OAKLEY WELCOMING This fund accounts for the activities associated with the grant-funded Oakley Welcoming program under the You Me We Oakley! brand. AG CONSERVATION This fund accounts for the activities associated with establishing and carrying out the City's agricultural conservation program. CAPITAL PROJECTS FUNDS MEASUREJ This fund accounts for the City's portion of the half-cent County-wide sales tax levied to fund transportation improvements to local streets. PARK IMPACT FEES This fund accounts for fees assessed on new development to provide for park acquisition and development. 85

196 CHILDCARE IMP ACT FEES NON-MAJOR GOVERNMENTAL FUNDS (Continued) This fund accounts for fees assessed on new developments to provide for childcare facilities. PUBLIC FACILITIES IMP ACT FEE This fund accounts for fees assessed on new development to provide for public facilities. MAJNSTREET This fund accounts for Main Street related projects funded by the General Fund. FIRE IMPACT FEES This fund accounts for fees assessed on new developments to provide for fire protection capital facilities. CYPRESS GROVE CAPITAL PROJECT This fund accounts for funds from the Limited Obligation Bonds used to purchase infrastructure assets built by developers in the Assessment District area. STREET MAJNTENANCE RESERVE This fund was established to account for the accumulation of funds for the long-term maintenance of the City's streets. The amounts transferred into the reserve will be used to augment the City's Gas Tax, Measure J, and other street improvement revenues in completing street maintenance and improvement projects. The reserve shall be considered fully funded when the balance and the combination of anticipated special revenues eligible for street maintenance is sufficient to pay for the next 3 years' anticipated maintenance, which is anticipated to occur by June 30, ASSESSMENT DISTRICT CAPITAL PROJECTS This fund accounts for funds from the 2006 Infrastructure Revenue Bonds that will ultimately be used to purchase infrastructure assets built by developers in the Assessment District area. DEBT SERVICE FUND 2006 CERTIFICATES OF PARTICIPATION This fund accounts for principal and interest payments on the City's 2006 Certificates of Participation. 86

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198 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2016 SPECIAL REVENUE FUNDS Developer Gas Tax NPDES Deposits Youth Development ASSETS Cash and investments available for operations $340,109 $1,053,280 $987,548 Cash with fiscal agent Accounts receivable, net 55,752 Interest receivable 375 1,105 Prepaids and deposits Advances to other funds Total Assets $340,484 $1,054,385 $1,043,300 $52, $52,928 LIABILITIES Accounts payable $20,689 $30,644 $15,902 Accrued liabilities Deposits payable 1,027,398 Unearned revenue Advances from other funds Total Liabilities 20,689 30,644 1,043,300 $139 52,789 52,928 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - interest on advances to other funds Total Deferred Inflows of Resources FUND BALANCES Nonspendable Restricted 319,795 1,023,741 Assigned Unassigned Total Fund Balance 319,795 1,023,741 Total Liabilities, Deferred Inflows of Resources and Fund Balances $340,484 $1,054,385 $1,043,300 $52,928 88

199 SPECIAL REVENUE FUNDS CAPITAL PROJECTS FUNDS Community Facilities District #1 Community Facilities District Oakley Welcoming Ag Conservation Measure J Park Impact Fees Childcare Impact Fees $1,320,580 $156,738 $55,211 $ll,778 $291,246 $426,125 $559,151 1, ,702 $1,321,869 $156,861 $55,256 $11,790 $291,666 $836,148 $559,734 $10,834 $663 1,648 $22,253 52,945 10,834 55,256 22,253 $74,871 74,871 l,3 ll,035 $156,861 $ll, , ,277 $559,734 l,3 ll, ,861 11, , , ,734 $1,321,869 $156,861 $55,256 $11,790 $291,666 $836,148 $559,734 (Continued) 89

200 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2016 CAPITAL PROJECTS FUNDS Public Fire Facilities Impact Main Impact Fee Street Fees Cypress Grove Capital Project ASSETS Cash and investments available for operations $25,509 $397,601 $162,389 Cash with fiscal agent Accounts receivable, net Interest receivable (56) 136 Prepaids and deposits Advances to other funds 131,137 Total Assets $156,590 $397,601 $162,525 $7 553,650 (269) $553,388 LIABILITIES Accounts payable Accrued liabilities Deposits payable Unearned revenue Advances from other funds $206,000 Total Liabilities 206,000 DEFERRED INFLOWS OF RESOURCES Unavailable revenue - interest on advances to other funds 23,965 Total Deferred Inflows of Resources 23,965 FUND BALANCES Nonspendable Restricted $162,525 Assigned $397,601 Unassigned ~73,375} Total Fund Balance (73,375} 397, ,525 $553, ,388 Total Liabilities, Deferred Inflows of Resources $156,590 $397,601 $162,525 $553,388 90

201 CAPITAL PROJECTS FUNDS DEBT SERVICE FUND Street Maintenance Assessment Reserve District 2006 Certificates of ParticiEation Total Nonmajor Governmental Funds $224,411 $69,466 $9, , $6,074,364 1,197,883 55,752 4, ,839 $224,411 $69,466 $584,796 $7,873,198 $101,124 1,648 1,027, , ,000 1,441,904 98,836 98,836 $224,411 $69,466 $584,796 5,783, ,012 {73,375] 224,411 69, ,796 6,332,458 $224,411 $69,466 $584,796 $7,873,198 91

202 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2016 SPECIAL REVENUE FUNDS Developer Gas Tax NPDES Deposits REVENUES Property taxes $490,769 Intergovernmental: Other $862,495 Developer fees 30,000 $657,802 Special assessments Use of money and property 1,840 4,948 Miscellaneous 1,479 3,520 Total Revenues 865, , ,802 EXPENDITURES Current: Community Development 657,802 Public Works 492, ,775 Recreation Capital outlay 894, ,176 Debt Service: Principal Interest and fiscal charges Total Expenditures 1,386, , ,802 Youth Development $192 18,578 18,770 18,770 18,770 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (520,780) (259,714) OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) ~159,471) Total Other Financing Sources (Uses) (159,471) NET CHANGE IN FUND BALANCES (680,251) (259,714) Fund balance (deficit) at beginning of year 1,000,046 1,283,455 Fund balances (deficit) at end of year $319,795 $1,023,741 92

203 Community Facilities District #1 $299,748 5, , , , ,086 (91,940) (50,000) (50,000) (141,940) 1,452,975 $1,311,035 SPECIAL REVENUE FUNDS Community Facilities District $169, ,722 12,861 12, , ,861 $156,861 Oakley Welcoming $151 54,642 54,793 54,793 54,793 Ag Conservation $ ,500 7,500 (7,451) (7,451) 19,241 $11, CAPITAL PROJECTS FUNDS MeasureJ $528,891 1, , , , ,438 (339,302) (339,302) 608,715 $269,413 Park Impact Fees $294,359 $ ,952 11,372 11, ,580 (593) ~593) 282, ,290 $761,277 Childcare Impact Fees $1,755 1,755 27,051 27,051 (25,296) (25,296) 585,030 $559,734 (Continued)

204 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2016 CAPITAL PROJECTS FUNDS Public Fire Facilities Impact Main Impact Fee Street Fees REVENUES Property taxes futergovernmental: Other Developer fees $635,530 $84,637 Special assessments Use of money and property (133) $312 Miscellaneous Total Revenues 635,397 84,949 Cypress Grove Capital Project ($479) 480, ,684 EXPENDITURES Current: Community Development 19,977 3,450 Public Works $6,046 Recreation Capital outlay 45,208 Debt Service: Principal futerest and fiscal charges 1,046 Total Expenditures 21,023 51,254 3,450 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 614,374!51,254) 81, ,684 OTHER FINANCING SOURCES (USES) Transfers in 150,000 Transfers (out) (571,035) Total Other Financing Sources (Uses)!571,035) 150,000 NET CHANGE 1N FUND BALANCES 43,339 98,746 81,499 Fund balance (deficit) at beginning of year (116, ,855 81,026 Fund balances (deficit) at end of year ($73,375) $397,601 $162, ,684 73,704 $553,388 94

205 CAPITAL PROJECTS FUNDS DEBT SERVICE FUND Total Street Nonmajor Maintenance Assessment Certificates of Governmental Reserve District Participation Funds $490,769 1,391,386 1,702, ,253 $2 $754 16,844 69, ,846 69, ,698, ,229 1,389,605 73,563 $589 2,163, , , , , ,198 4,875,732 (589) 69,466 (566,444) (177,306) 150, , ,035 {781,099) 150, ,035 89, ,411 69,466 4,591 (87,370) 75, ,205 6,419,828 $224,411 $69,466 $584,796 $6,332,458 95

206 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 SPECIAL REVENUE FUNDS GAS TAX N.P.D.E.S. Variance Variance Positive Positive Bud~et Actual (Negative) Budget Actual (Negative) REVENUES Property taxes $461,000 $490,769 $29,769 Intergovernmental: Other $882,169 $862,495 ($19,674) Developer fees 30,000 30,000 Special asl!cssments Use of money and property 1,840 1,840 4,948 4,948 Miscellaneous 1,479 1,479 3,520 3,520 Total Revenues 882, ,814 (16,355) 491, ,237 38,237 EXPENDITURES Current: Community Development Public Works 619, , ,388 1,123, , ,587 Recreation Capital Outlay 1,045, , , , , ,824 Debt Service: Principal Interest and fiscal charges Total Expenditures 1,664,729 1,386, ,135 1,533, , ,411 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (782,560) (520,780) 261,780 (1,042,362) (259,714) 782,648 OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) (164,148) (159,471) 4,677 Total Other Financing Sources (Uses) (164,148) (159,471) 4,677 NET CHANGE IN FUND BALANCES ($946,708) (680,251) $266,457 ($1,042,362) (259,714) $782,648 Fund balances (deficit) at beginning of year 1,000,046 1,283,455 Fund balances (deficit) at end of year $319,795 $1,023,741 96

207 SPECIAL REVENUE FUNDS DEVELOPER DEPOSITS Variance Positive Budget Actual (Negative) YOUTH DEVELOPMENT Variance Positive Budget Actual (Negative) COMMUNITY FACILITIES DISTRICT #1 Variance Positive Budget Actual (Negative) $753,998 $657,802 ($96,196) $192 $7,000 18,578 $192 11,578 $299,428 $299,748 1,000 5,398 $320 4, , ,802 (96,196) 7,000 18,770 11, , ,146 4, , ,802 96,196 7,000 18,770 (11,770) 198, , , ,527 55,091 96, , ,802 96,196 7,000 18,770 (11,770) 549, , ,948 (248,606) (91,940) 156,666 (50,000) (50,000) (50,000) (50,000) ($298,606) (141,940) $156,666 1,452,975 $1,311,035 (Continued) 97

208 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 SPECIAL REVENUE FUNDS COMMUNITY FACILITIES DISTRICT Variance Positive Budget Actual (Negative) Budget OAKLEY WELCOMING Variance Positive Actual (Negative) REVENUES Property taxes Intergovernmental: Other Developer fees Special assessments Use of money and property Miscellaneous $169,000 $169, $ $78,183 $151 54,642 $151 (23,541) Total Revenues 169, , ,183 54,793 (23,390) EXPENDITURES Current: Community Development Public Works Recreation Capital Outlay Debt Service: Principal Interest and fiscal charges 9,765 12,861 (3,096) 78,183 54,793 23,390 Total Expenditures 9,765 12,861 (3,096) 78,183 54,793 23,390 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 159, ,861 (2,374) OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) Total Other Financing Sources (Uses) NET CHANGE IN FUND BALANCES $159, ,861 ($2,374) Fund balances (deficit) at beginning of year Fund balances (deficit) at end of year $156,861 98

209 SPECIAL REVENUE FUNDS CAPITAL PROJECTS FUNDS Budget AG CONSERVATION Variance Positive Actual (Negative) Budget JvIEASUREJ Actual Variance Positive (Negative) Budget PARK IMPACT FEES Actual Variance Positive (Negative) $512,000 $528,891 $16,891 $900,000 $294,359 ($605,641) $49 $49 1,245 1, , ,136 18, , ,952 (605,048) $17,500 7,500 10, , , ,888 56,000 11,372 44, , , , $19 17,500 7,500 10,000 1,124, , ,123 56,019 11,372 44,647 (17,500) (7,451) 10,049 (612,561) (339,302) 273, , ,580 (560,401) (593) ~593) (593) (593) ($17,500) (7,451) $10,049 ($612,561) (339,302) $273,259 $843, ,987 ($560,994) 19, , ,290 $11,790 $269,413 $761,277 (Continued) 99

210 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 CAPITAL PROJECTS FUNDS CHILDCARE IMP ACT FEES PUBLIC FACILITIES IMPACT FEE Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Property taxes Intergovernmental: Other Developer fees $558,000 $635,530 $77,530 Special assessments Use of money and property $1,755 $1,755 (133) (133) Miscellaneous Total Revenues 1,755 1, , ,397 77,397 EXPENDITURES Current: Community Development $800, ,000 19,500 19,977 (477) Public Works Recreation Capital Outlay 6,000 27,051 (21,051) Debt Service: Principal Interest and fiscal charges 1,046 (1,046) Total Expenditures 806,000 27, ,949 19,500 21,023 (1,523) EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (806,000) (25,296) 780, , ,374 75,874 OTHER FINANCING SOURCES (USES) Transfers in Transfers (out) (571,035) (571,035) Total Other Financing Sources (Uses) (571,035) (571,035) NET CHANGE IN FUND BALANCES ($806,000) (25,296) $780,704 ($32,535) 43,339 $75,874 Fund balances (deficit) at beginning of year 585,030 (116,714) Fund balances (deficit) at end of year $559,734 ($73,375) 100

211 CAPITAL PROJECTS FUNDS Budget MAIN STREET Actual Variance Positive (Negative) Budget FIRE IMP ACT FEE Actual Variance Positive (Negative) CYPRESS GROVE CAPITAL PROJECT Variance Positive Budget Actual (Negative) $125,000 $84,637 ($40,363) ($479) 480,163 ($479) 480, ,000 84,949 (40,051) 479, ,684 $4,000 $6,046 ($2,046) 1,500 3,450 (1,950) 400,000 45, ,792 $64,000 64, ,000 51, ,746 1,500 3,450 (1,950) 64,000 64,000 (404,000) (51,254) 352, ,500 81,499 (42,001) (64,000) 479, , , , , ,000 ($254,000) 98,746 $352,746 $123,500 81,499 ($42,001) ($64,000) 479,684 $543, ,855 81,026 73,704 $397,601 $162,525 $553,388 (Continued) 101

212 CITY OF OAKLEY NON-MAJOR GOVERNMENTAL FUNDS COMBINING SCHEDULES OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2016 CAPITAL PROJECTS FUND DEBT SERVICE FUND 2006 CERTIFICATES OF STREET MAINTENANCE RESERVE PARTICIPATIO:N" Variance Variance Positive Positive Budget Actual (Negative) Budget Actual (Negative) REVENUES Property taxes Intergovernmental: Other Developer fees Special assessments Use of money and property $754 $754 Miscellaneous Total Revenues EXPENDITURES Current: Community Development Public Works Recreation Capital Outlay $589 ($589) Debt Service: Principal $275, ,000 Interest and fiscal charges 296, ,198 3,837 Total Expenditures 589 (589} 571, ,198 3,837 EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (589} ~589) (571,035) (566,444} 4,591 OTHER FINANCWG SOURCES (USES) Transfers in $150, , , ,035 Transfers (out) Total Other Financing Sources (Uses) 150, , , ,035 NET CHANGE W FUND BALANCES $150, ,411 ($589} 4,591 $4,591 Fund balances (deficit) at beginning of year 75, ,205 Fund balances (deficit) at end ofyear $224,411 $584,

213 INTERNAL SERVICE FUNDS Internal Service Funds are used to finance and account for special activities and services performed by a designated department for other departments in the City on a cost reimbursement basis. The concept of major funds does not extend to internal service funds because they do not do business with outside parties. For the Statement of Activities, the net revenues or expenses of each internal service fund be eliminated by netting them against the operations of the other City departments which generated them. The remaining balance sheet items are consolidated with these same funds in the Statement of Net Position. However, internal service funds are still presented separately in the Fund fmancial statements, including the funds below. EQUIPMENT REPLACEMENT This fund is used to fmance and account for the replacement of equipment used by City departments. CAPITAL FACILITIES MAINTENANCE AND REPLACEMENT This fund is used to account for the maintenance and replacement of the City's capital facilities used by City departments. 103

214 CITY OF OAKLEY INTERNAL SERVICE FUNDS COMBINING STATEMENT OF NET POSITION JUNE 30, 2016 Equipment ReElacement Capital Facilities Maintenance and Replacement ASSETS Current: Cash and investments available for operations $1,193,406 $186,288 Receivables: Interest 1, Total Current Assets 1,194, ,466 Noncurrent: Capital assets (net of accumulated depreciation) ,448,610 Total Assets 1,909,091 6,635,076 LIABILITIES Accounts payable 24,933 Total Assets 24,933 Total $1,379,694 1,417 1,381, 111 7,163,056 8,544,167 24,933 24,933 NET POSITION Net investment in capital assets 714,446 6,448,610 Unrestricted Total Net Position $ $6, ,163, $

215 CITY OF OAKLEY INTERNAL SERVICE FUNDS COMBINING STATEMENT OF REVENUE, EXPENSES AND CHANGES IN FUND NET POSITION FOR THE YEAR ENDED JUNE 30, 2016 Equipment Replacement Capital Facilities Maintenance and Replacement Total OPERATING REVENUES Charges for services $100,000 $50,000 Total Operating Revenues 100,000 50,000 OPERATING EXPENSES Supplies 40,716 43,392 Depreciation 262, ,985 Total Operating Expenses 303, ,377 Operating Income (Loss) (203,594) (236,377) NONOPERATING REVENUES (EXPENSES) Interest income 5, Other operating revenue Total Nonoperating Revenues Income (Loss) Before Contributions (190,045) (235,821) Contributions Change in net position (16,032) (235,821) BEGINNING NET POSITION 1,900,190 6,870,897 ENDING NET POSITION $12884,158 $ $150, ,000 84, , ,971 (439,971) 5, (425,866) (251,853) 8,771,087 $8,519,

216 CITY OF OAKLEY INTERNAL SERVICE FUNDS COMBINING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED JUNE 30, 2016 Equipment ReElacement Capital Facilities Maintenance and ReElacement Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $108,234 Payments to suppliers {16,325} Cash Flows from Operating Activities 91,909 CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Acquisition of capital assets (247,109} Cash Flows from Noncapital Financing Activities {247,109} CASH FLOWS FROM INVESTING ACTMTIES futerest 4,820 Net Cash Flows (150,380) Cash and investments at beginning of period 1,343,786 Cash and investments at end of period $1,193,406 NONCASH TRANSACTIONS Contribution of capital assets $174,013 $50,000 $158,234 {43,392} {59,717} 6,608 98,517 (18,803} (265,912} {18,803} {265,912} 486 5,306 (11,709) (162,089) 197,997 1,541,783 $186,288 $1,379,694 $174,013 Reconciliation of Operating fucome (Loss) to Cash Flows from Operating Activities: Operating income (loss) ($203,594) Adjustments to reconcile operating income (loss) to cash flows from operating activities: Depreciation 262,878 Other nonoperating revenue 8,234 Net change in liabilities: Accounts payable 24,391 Cash Flows from Operating Activities $91,909 ($236,377) ($439,971) 242, ,863 8,234 24,391 $6,608 $98,

217 AGENCY FUNDS Agency Funds account for assets held by the City as an agent for individuals, governmental entities and non-public organizations. ASSESSMENT DISTRICT This fund accounts for Assessment District special assessment collections and debt service payments. REGIONAL MITIGATION FEES This fund accounts for fees established by the County to fund future County capital facilities from development. The fees are collected via building permits and submitted to the County. ASSESSMENT DISTRICT This fund accounts for Assessment District special assessment collections and debt service payments. 107

218 CITY OF OAKLEY AGENCY FUNDS STATEMENT OF CHANGES IN ASSETS AND LIABILITIES FOR THE YEAR ENDED JUNE 30, 2016 Balance Balance June 30, 2015 Additions Reductions June 30, 2016 Assessment District Assets Cash and investments $1,086,071 $1,362,750 $1,573,217 $875,604 Cash with fiscal agent 1,259, ,908 1,104,677 Interest receivable Total Assets $22346,132 $12363,626 $ $1,981,157 Liabilities Due to bondholders $ $ $ $ Total Liabilities $ $1,363,626 $ $ Regional Mitigation Fees Fund Assets Cash and investments $ $3, $32697,234 $ Liabilities Due to other agencies $ $3,671,415 $ $ Total Liabilities $ $3,671,415 $32697,234 $866,314 Assessment District Assets Cash and investments $675,794 $762,445 $785,727 $652,512 Cash with fiscal agent 338, ,250 Interest receivable Total Assets $ $ $ $991,245 Liabilities Due to bondholders $ $ $ $ Total Liabilities $12014,298 $ $ $ Totals - All Agen~ Funds Assets Cash and investments $2,653,998 $5,796,610 $6,056,178 $2,394,430 Cash with fiscal agent 1,597, ,908 1,442,927 Interest receivable Total Assets $ $ $ $ Liabilities Due to other agencies $892,133 $3,671,415 $3,697,234 $866,314 Due to bondholders Total Liabilities $42252,563 $ $ $3,

219 STATISTICAL SECTION

220 STATISTICAL SECTION This part of the City'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 City's overall financial health. In contrast to the financial section, the statistical section information is not subject to independent audit. Financial Trends These schedules contain trend information to help the reader understand how the City's financial performance and wellbeing have changed over time: 1. Net Position by Component 2. Changes in Net Position 3. Fund Balances of Governmental Funds 4. Changes in Fund Balance of Governmental Funds Revenue Capacity These schedules contain information to help the reader assess the City's most significant local revenue source, the property tax: 1. Assessed and Estimated Actual Value of Taxable Property 2. Property Tax Rates, All Overlapping Governments 3. Principal Property Tax Payers 4. Property Tax Levies and Collections Debt Capacity These schedules present information to help the reader assess the affordability of the City's current levels of outstanding debt and the City's ability to issue additional debt in the future: 1. Ratio of Outstanding Debt by Type 2. Computation of Direct and Overlapping Debt 3. Computation of Legal Bonded Debt Margin 4. Bonded Debt Pledged Revenue Coverage, Former Redevelopment Agency Tax Allocation Bonds 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: 1. Demographic and Economic Statistics 2. Principal Employers 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 the activities it performs: 1. Budgeted Full-Time Equivalent City Government Employees by Function 2. Operating Indicators by Function/Program 3. Capital Asset Statistics by Function/Program Sources Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. 109

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222 CITY OF OAKLEY Net Position by Component (OOO's) Last Ten Fiscal Years (accrual basis of accounting) $200 "O "' c 1il = 0..c f-< $150 $100 $50 $ (a) C Net of Related Debt Restricted Unrestricted Primary government Governmental activities Net investment in capital assets Restricted Unrestricted Total governmental activities net position Fiscal Year Ended June 30, (a) $76,945 $126,106 $136,077 $ 136,320 $145,396 $149,394 $148,296 48,240 35,170 37,745 40,968 34,572 28,647 28,996 9,894 10,473 9,727 9,979 9, ,462 12,975 $135,079 $171,749 $183,549 $187,267 $189,68 1 $189,503 $190, $147,874 $147,685 $153,509 27,042 26, ,205 14,338 13,898 17,784 $189,254 $188,234 $198,498 NOTES: (a) The City implemented the provisions ofgasb Statement 63 in fiscal year 2013, which replaced the term.. net assets" with the term "net position." 111

223 CITY OF OAKLEY Changes in Net Position (OOO's) Last Ten Fiscal Years (Accrual Basis of Accounting) Fiscal Year Ended June 30, (e) Expenses Governmental Activities: Legislative $370 $574 $835 $492 $500 $466 $492 $446 $466 $481 Administrative Services 957 1, ,301 1,341 1,220 Community Development 11,308 7,914 (a) 7,258 2,572 (b) 1,830 1,711 1,802 1,819 1,843 2,152 Public Works 3,074 (a) 3,994 8,687 (b) 9,181 12,507 (c) 9,631 10,177 10,640 11,478 Redevelopment and Economic Development 3,147 2,511 2,052 3,610 2, (d) Housing Programs Law Enforcement 5,530 6,703 7,228 7,280 7,259 7,462 7,338 7,694 8,314 8,230 Recreation Interest and fiscal charges 890 ~ 2,012 2,030 2, (d) Total Governmental Activities Expenses 22,745 24,515 24,829 25,895 23,979 24,813 20,989 22,240 23,474 24,498 Total Primary Government Expenses $22,745 $24,515 $24,829 $25,895 $ $24,813 $ $ $23,474 $24,498 Program Revenues Governmental Activities: Charges for Services: Administrative Services $689 $271 $164 $239 $156 $154 $235 $266 $252 $395 Community Development 8,190 3,606 2,010 1,954 1,341 1,186 1,461 1,154 1,375 2,133 Public Works 2,780 3,062 3,307 3,209 3,266 3,391 3,499 3,592 3,951 Law Enforcement 1,654 2,070 2,231 2,328 2,426 2,718 3,038 3,232 3,506 3,638 Recreation Operating Grants and Contributions 1, ,196 1,225 1,116 1,630 1,371 1,503 1,714 1,356 Capital Grants and Contributions 20,977 ~ 12,839 8,671 5,940 8,433 3,360 2,625 2,715 5,040 Total Government Activities Program Revenues 32,700 ~ 21,543 17,771 14,230 17,461 12,910 12,348 13,227 16,611 Total Primary Government Program Revenues $32,700 $37,413 $21,543 $17,771 $14,230 $17,461 $12,910 $12,348 $13,227 $16,611 Net (Expense)/Revenue Governmental Activities $9,955 $12,898 ($3,286) ($8,124) ($9,749) ($7,352) ($8,079) ($9,892) ($10,247) ($7,887) Total Primary Government Net Expense $9,955 $12,898 ($3,286) ($8,124) ($9,749) ($7,352) ($8,079) ($9,892) ($10,247) ($7,887) General Revenues and Other Changes in Net Position Governmental Activities: Taxes: Property Taxes $9,579 $10,096 $9,652 $7,370 $7,050 $5,561 (d) $4,359 $4,499 $5,331 $5,814 Sales Taxes 1,268 1,617 1,466 1,343 1,413 1,590 1,618 1,521 1,506 1,753 Motor Vehicle In-Lieu Transient Occupancy Tax Nomegulatory Franchise and Business ,062 1,136 1,222 1,341 1,418 1,584 Interest Earnings and Use of Property 3,412 2,774 1, Other 2,522 1,072 1,134 1,171 1, , ,056 1,890 Extraordinary I Special Item (2,820) (d) 362 (f) 6,327 (g) ---- Total Government Activities 17,726 16,510 15,086 11,842 12,162 7, ,404 18,151 Total Primary Government $17,726 $16,510 $15,086 $11,842 $12,162 $7,176 $8,842 $8,879 $10,404 $18,151 Change in Net Position Governmental Activities $27,681 $29,408 $11,800 $3,718 $2,413 ($176) $763 ($1,013) $157 $10,264 Total Primary Government $27,681 $ $11,800 $3,718 $2,413 ($176) $763 ($1,013) $157 $10,264 NOTES: (a) The City established Public Works in fiscal year Some of the activities in this department were previously reported in Community Development and Recreation. (b) Capital assets previously constructed by or dedicated to Community Development were reassigned to Public Works in fiscal year As a result, depreciation expense associated with those capital assets is now reflected in Public Works. (c) The City conveyed a completed fire station project totaling $3.3 million to the East Contra Costa County Fire Protection District which was recorded as an expenditnre in the Statement of Activities. ( d) The Redevelopment Agency was dissolved effective January 31, 2012 and its non-housing assets and liabilities were assmned by a Successor Agency (e) The City implemented the provisions of GASB Statement 63 in fiscal year 2013, which replaced the term "net assets" with the term "net position." (f) Pursuant to a settlement agreement with the Department of Finance, the City transferred assets to the Successor Agency and the Successor Agency transferred assets to the City. (g) Pursuant to the Long Range Property Management Plan, the Successor Agency transferred assets to the City. 112

224 CITY OF OAKLEY Fund Balances of Governmental Funds (OOO's) Last Ten Fiscal Years (Modified Accrual Basis of Accounting) Millions $70 $60 $50 $40 $30 $20 $ 10 $ (a) Reserved Unreserved Fiscal Year Ended June 30, (a) General Fund Reserved $2,210 $2,074 Unreserved 7,493 5,656 $1,834 4,748 $1,593 5,353 Nonspendable Restricted Assigned Unassigned Total General Fund $9,703 $7,730 $6,582 $2,847 $2, ,347 5,255 $6,946 $7,908 $8,757 $3,301 $3, ,151 7,837 $11,002 $12,382 $4,375 $7, ,938 9,068 $13,042 $17,570 (c) All Other Governmental Funds Reserved $12,353 $11,049 Unreserved, reported in: Special revenue fimds 3,178 5,109 Capital project fimds 30,518 35,903 $8,939 6,204 36,634 $11,565 7,526 31,761 Nonspendable Restricted Assigned Unassigned Total all other governmental funds $46,049 $52,061 $5 1,777 $497 42,404 $19,210 1, (1,339) (1,320) $50,852 $42,906 $18,774 (b) $19,898 $18, (1,645) (1,467) $18,951 $17,434 $17,525 $17, (1,374) (1,401) $16,980 $16,8 14 (c) NOTES: (a) The City implemented the provisions ofgasb Statement 54 in fiscal year 2011, and years prior to 2011 have not been restated to conform with the new presentation. (b) The Redevelopment Agency was dissolved effective January 31, 2012 and its assets and liabilities were assmned by a Successor Agency on Febrnary 1, 2012, which is reported as a Fiduciary Fund. As a result, governmental fund balances are lower beginning in (c) The change in total fund balance for the General Fund and other governmental funds is explained in Management's Discussion and Analysis. 113

225 CITY OF OAKLEY Changes in Fund Balance of Governmental Funds (OOO's) Last Ten Fiscal Years (Modified Accrual Basis of Accounting) Fiscal Year Ended June 30, (c) Revenues Taxes $11,514 $12,403 $11,799 $9,017 $9,526 $8,344 $7,729 $7,446 $8,331 $9,213 Licenses, permits and fees 3,652 1,909 1,252 1, ,178 1,345 1,285 2,024 Fines and forfeitures Use of money and property 3,210 2,313 1, Intergovernmental revenues 2,401 2,319 1,715 4,210 2,538 2,164 3,306 2,471 2,651 3,030 Charges for services 14,334 13,166 8,152 10,323 7,378 8,293 8,648 8,941 9,259 11,578 Other 11,522 1,071 1,133 1,171 1, , ,116 1,867 Total Revenues 46,831 33,315 25,820 26,963 22,503 21,277 22,286 21,564 23,096 28,413 Expenditures Current: Legislative Administrative services ,110 1,287 1,335 Community development 8,895 4,014 (a) 2,575 2,338 1,788 1,677 1,771 1,787 1,821 2,274 Public works 3,074 (a) 4,627 3,877 3,682 3,641 4,015 4,608 4,661 5,651 Redevelopment and economic development 6, Housing programs 85 Law enforcement 5,599 6,633 6,952 6,955 7,002 7,437 7,186 7,458 7,975 8,098 Recreation (a) Pass through to County and other agencies SERAF payment 1, Estimated reduction in value of property held for resale Capital outlay 21,359 40,822 (b) 6,962 7,123 10,644 5,946 4,502 5,253 5,293 7,969 Debt service: Principal repayment Interest and fiscal charges 833 2,137 1,864 2,043 2,011 1, Total Expenditures 45,773 60,603 27,252 27,526 28,745 22,814 19,865 21,701 22,624 27,034 Excess (deficiency) of revenues over (under) expenditures 1,058 (27,288) (1,432) (563) (6,242) (1,537) 2,421 (137) 472 1,379 Other Financing Sources (Uses) Transfers in Transfers (out) Proceeds (loss) from sale of property Tax allocation bonds issued 2,925 (2,925) 714 5,530 (5,530) 6,233 25,095 3,560 (3,560) 2,110 (2,110) 3,214 (3,952) 2,100 (2,100) (14) 925 (925) 1,067 (1,067) 2,227 (2,227) 10 2,311 (2,311) 79 Certificates of participation issued 8,500 Contribution from County Payments to refunded bond escrow Other Total other financing sources (uses) 9,214 31,328 (738) (14) Special item (274) 2,904 Extraordinary item (21,734) Net Change in fund balances $10,272 $4,040 ($1,432) ($563) ($6,980) ($23,285) $2,421 ($137) $208 $4,362 Debt service as a percentage of noncapital expenditures 5.2% 4.5% -38.2% 13.8% 12.7% 13.0% 4.0% 3.3% 3.3% 3.0% NOTES: (a) The City established Public Works in fiscal year Some of the activities in this department were previously reported in Community Development and Recreation. (b) Includes the use of funds from the and Assessment Districts to acquire infrastructure assets. The Assessment District Bonds are not debt of the City, and therefore proceeds from the bonds are not included in Other Financing Sources. The Districts contributed the project funds to the City to acquire the infrastructure assets which is reflected in other revenues in 2005 and (c) The Redevelopment Agency was dissolved effective January 31, 2012 and its assets and liabilities were assumed by a Successor Agency on February 1, 2012, therefore, activities in various areas were lower in the current year, including property taxes, community development and debt service. 114

226 ~-. CITY OF OAKLEY ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY (MILLIONS) LAST TEN FISCAL YEARS Unsecured Property --secured Property Real Property Total Real Fiscal Residential Commercial Industrial Secured Unsecured Year Property Property Property Other Property Property 2007 $2,514 $96 $28 $250 $2,888 $ , , , , , , , , , , , , , , , , , , Total Total Estimated Direct Assessed (a) Full Market (a) Tax Rate (b) $2,929 $2,929 1% 3,562 3,562 1% 3,375 3,375 1% 2,636 2,636 1% 2,561 2,561 1% 2,462 2,462 1% 2,447 2,447 1% 2,629 2,629 1% 3,161 3, 161 1% 3,4 17 3,417 1% Source: Contra Costa County Auditor Controller Office Certificate of Assessed Valuations Notes: (a) The State Constitution requires property to be assessed at one hundred percent of the most recent purchase price, plus the value of any new construction, plus an increment of no more than two percent annually. These values are considered to be full market values. (b) California cities do not set their own direct tax rate. The state constitution establishes the rate at 1 % and allocates a portion of that amount, by an annual calculation, to all the taxing entities within a tax rate area. The City of Oakley includes 44 tax rate areas. 115

227 CITY OF OAKLEY PROPERTY TAX RA TES ALL OVERLAPPING GOVERNMENTS LAST TEN FISCAL YEARS $1.2 $1.0 "'.15 $0.8 $0.6 ;r: ~ $0.4 $0.2 $0.0 Antioch Unified School District Liberty Union School District Las Positas Community College D Brentwood Elementary School District East Bay Regional Park District BART Contra Costa Community College Oakley Union School District C Basic County Wide Levy Basic East Bay County Regional Fiscal Wide Park Year Levy District Oakley Liberty Brentwood Union Union Elementary Contra Costa School School School Community District District District College Contra Chabot Antioch Costa Las Positas Unified Water Corqmunity School BART Land Levy College District Total 2007 $ $ $ $ $ $ $ $ $ $ $ Source: Contra Costa County Auditor-Controller 116

228 CITY OF OAKLEY Principal Property Tax Payers Current Year and Nine Years Ago (OOO's) Tax~ayer Taxable Assessed Value Rank Percentage of Total City Taxable Assessed Value Taxable Assessed Value Rank Percentage of Total City Taxable Assessed Value Christopher Noble $23,506, % Cypress Square S&R Associates 18,462, % $16,237, % Neroly Sports Club Investors 11,816, % HPH Properties LP 11,313, % Shea Homes LP 8,959, % Shurgard Storage Center 7,602, % Forecast Land Investment LLC 7,257, % 10,541, % Lucky No California Investor LLC 6,956, % BNAS Enterprises LLC 6,502, % Albert D. Seeno Construction 6,384, % Pulte Home Corporation 36,789, % Centex Homes 18,500, % West Coast Home Builders 12,844, % W Pacific Housing-Laurel Woods 12,307, % Standard Pacific Corporation 11,272, % Main St. Housing Partners 9,191, % Discovery Builders Inc. 8,028, % Simon-Oakley Town Center LLC 7,490, % Subtotal $108,762, % $143,203, % Total Net Assessed Valuation (OOO's): Fiscal Year Fiscal Year $3,417,000,000 $2,929,000,000 Source: HdL Companies (Contra Costa County Assessor 2015/2016 and 2006/2007 Combined Tax Rolls) 117

229 CITY OF OAKLEY PROPERTY TAX LEVIES AND COLLECTIONS (THOUSANDS) LAST TEN FISCAL YEARS $3.0 $2.8 $2.6 $2.4 $2.2 $2.0 $1.8 "' = $1.6 E ~ $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $ Tax Collections Total Tax Levy (a) Fiscal Year Current Percent Delinquent Total Total Tax of Levy Tax Tax Tax Levy (a) Collections Collected Collections Collections $2,388 $2, % (a) $2,388 2,659 2, % (a) 2,659 2,465 2, % (a) 2,465 1,430 (b) 1, % (a) 1,430 1,882 1, % (a) 1,882 1,773 1, % (a) 1,773 2,3 88 (b) 2, % (a) 2,388 1,941 1, % (a) 1,941 2,3 64 2, % (a) 2,364 2,593 2, % (a) 2,593 Percent of Total Tax Collections to Tax Levy 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: City of Oakley Records NOTES: Amounts reported above include only the 1 % basic property taxes allocated to the City. They do not include special taxes, assessments, or property taxes received in lieu of vehicle license fees. (a) The County apportions taxes under the alternative method of apportionment authorized under Revenue & Taxation Code sections 4701 et seq, under which the County provides the City with 100% of its tax levy. The County retains any penalty and delinquency charges collected. (b) $443 thousand of the decline in the 2010 tax levy was caused by the State's borrowing of property tax revenue under the provisions of Proposition la; and the increase in 2013 included the repayment of the loan. 118

230 CITY OF OAKLEY Ratio of Outstanding Debt by Type Last Ten Fiscal Years Fiscal Year Tax Allocation Bonds Governmental Activities (in thousands} Jurisdictional Repayment Transfer Agreement Agreement Note Certificates of with Coun!l'. Pass - Throughs Pa;yable Partici2ation Total Percentage of Personal Income (a) Per Ca2ita {a) $8,005 32,905 (b) 32,700 32,490 32,265 0 (c) $0 $1,097 $0 $8, , , , , , , , , ,415 $17,602 42,087 41,407 40,687 39,945 7,450 7,210 6,955 6,690 6, % $ % 1, % 1, % 1, % 1, % % % % % 160 Notes: Sources: Debt amounts exclude any premiums, discounts, or other amortization amounts. City of Oakley (a) See the Demographic Statistics schedule for personal income and population data. (b) The Redevelopment Agency issued its 2008 Subordinate Tax Allocation Bonds during fiscal year (c) Upon the dissolution of the Redevelopment Agency effective January 31, 2012, a Successor Agency assumed the liabilities of the former Redevelopment Agency, including the Tax Allocation Bonds. 119

231 CITY OF OAKLEY COMPUTATION OF DIRECT AND OVERLAPPING DEBT JUNE 30, Assessed Valuation, Excluding the Redevelopment Agency $3,074,034,320 OVERLAPPING TAX AND ASSESSMENT DEBT: Contra Costa County Pension Obligations CCC Lease Revenue Bonds Bay Area Rapid Transit District Bond East Bay Regional Park District Bond Liberty Union High School District Bonds Brentwood Union School District Bonds Oakley Union School District Bonds Antio.ch Unified School District School Facilities Improvement District No. 1 Contra Costa Community College District Bonds TOTAL GROSS OVERLAPPING TAX AND ASSESSMENT DEBT Net Debt Outstanding $212,765, ,437, ,046,226 65,804,219 83,592,658 74,904,704 24,435,000 92,765, ,775,000 $1,625,525,995 Percentage Amount Applicable Applicable To City of To City of Oakley Oakley 1.981% $4,214, % 6,346, % 3,407, % 1,303, % 15,788, % 17, % 21,379, % 5,237, % 11,507,161 $69,201,679 DIRECT DEBT: City of Oakley Certificates of Participation $6,415, % $6,415,000 TOTAL DIRECT AND OVERLAPPING DEBT $75,616,679 (1) ( 1) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Direct Debt Overlapping Debt Total Debt RATIOS TO ASSESSED VALUATION: 0.21% 2.25% 2.46% Source: HdL Coren & Cone NOTE: Overlapping governments are those that coincide, at least in part, with the geographic boundaries of the City. The percentage of overlapping debt applicable is estimated by using taxable assessed values. Applicable percentages were estimated by detennining the portion of another governmental unit's taxable assessed value that is within the City's boundaries and dividing it by each unit's total taxable assessed value. 120

232 CITY OF OAKLEY COMPUTATION OF LEGAL BONDED DEBT MARGIN JUNE 30, 2016 ASSESSED VALUATION: Secured property assessed value, net of exempt real property $3,417,000,000 BONDED DEBT LIMIT (3.75% OF ASSESSED VALUE) (a) $128,137,500 AMOUNT OF DEBT SUBJECT TO LIMIT: Total Bonded Debt Less Tax Allocation Bonds and Sales Tax Revenue Bonds, Certificate of Participation not subject to limit $0 0 Amount of debt subject to limit 0 LEGAL BONDED DEBT MARGIN $128,137,500 Total net debt Total Net Debt Legal applicable to the limit Fiscal Debt Applicable to Debt as a percentage Year Limit Limit Margin of debt limit 2007 $109,848,863 0 $109,848, % ,576, ,576, % ,616, ,616, % ,087, ,087, % ,075, ,075, % ,325, ,325, % ,762, ,762, % ,587, ,587, % ,537, ,537, % ,137, ,137, % NOTES: (a) California Government Code, Section sets the debt limit at 15%. The Code section was enacted prior to the change in basing assessed value to full market value when it was previously 25% of market value. Thus, the limit shown as 3.75% is one-fourth the limit to account for the adjustment of showing assessed valuation at full cash value. 121

233 CITY OF OAKLEY BONDED DEBT PLEDGED REVENUE COVERAGE FORMER REDEVELOPMENT AGENCY TAX ALLOCATION BONDS LAST TEN FISCAL YEARS ~ <I.I ::l 0,..c:: E-< $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ Tax Increment Revenue Debt Service Payment Tax Debt Service Reguirements Fiscal Increment Year Revenue Princi~al Interest Total Coverage $4,161,415 4,160,358 3,982,760 2,880,794 2,685,494 2,686,625 2,332,827 2,180,805 2,525,004 2,133,349 (a)(b) (b) (b) (b) (b) $190, , , , , , , , , ,000 $480,595 $670, , ,953 1,458,624 1,663,624 1,673,080 1,883,080 1,644,221 1,869,221 (a) 1,631,824 (a) 1,866,824 (c) 1,6 19,876 (c) 2, 179,876 (c) 1,585,609 (c) 2,195,609 (c) 1,555,802 (c) 2,215,802 (c) 1,310,054 (c) 1,735, (a) (b) (c) The Redevelopment Agency was dissolved effective January 31, 2012, and its liabilities were assumed by a Successor Agency. Amounts reported here include tax revenue and debt service of both the former Redevelopment Agency and the Successor Agency. Beginning in fiscal year 2012, tax increment reported in this table is the amount calculated by the County Auditor-Controller. Under the provisions of the laws dissolving the Redevelopment Agency, the Successor Agency only receives the funds necessary to fulfill its approved obligations. Debt service is paid by the Successor Agency. Source: City of Oakley Annual Financial Statements 122

234 CITY OF OAKLEY DEMOGRAPHIC AND ECONOMIC STATISTICS LAST TEN FISCAL YEARS $1,100 $1,000 $900 $800 "' $700 = ~ $600 ~ $500 $400 $300 $200 $ City Population as a % of County Population I Total Personal Income j $30 'O "' = ~ $25 0..c:,... $20 $15 $ m Per Capita Personal Income Unemployment Rate (%) Contra Total Per Capita Costa City Fiscal City Personal Personal Unemployment County Population Year Population Income Income Rate(%) (a) Population % of County ,906 $776,037,000 $26, % 1,042, % , ,436,000 27, % 1,051, % , ,881,000 27, % 1,060, % , ,926,000 27, % 1,060, % , ,043,000 22, % 1,060, % , ,688,000 24, % 1,056, % , ,583,000 25, % 1,065, % , ,323,000 25, % 1,074, % ,124 1,0 10, 134,000 26, % 1,088, % ,141 1,046,700,000 26, % 1,102, % (a) Data reported is for the prior calendar year. Sources: HdL Coren & Cone U.S. Department of Commerce, California State Department of Finance, Employment Development Department 123

235 CITY OF OAKLEY Principal Employers Current Year and Nine Years Ago Number of Employer Employees Rank Percentage of Total City EmElorment Percentage Number of of Total City EmElorees Rank Employment Oakley Union Elementary School District 438 Lucky's 56 2 Diamond Hills Sports Club and Spa 55 3 Raley's 51 4 Delta Black Bear Diner 36 5 McDonalds 33 6 Continente Nut LLC 33 6 Foundation Constructors 32 7 Ironhouse Sanitary 32 7 Burger King 27 8 Rain for Rent 27 8 Jack in the Box Oakley Hotels LLC BMS Investments, LLC DBA Comfort Suites Molly Maid Centromart Scheer Home Systems Subtotal 868 Total City Day Population (A) 2, % 2.4% 2.3% 2.1% 1.5% 1.4% 1.4% 1.3% 1.3% 1.1% 1.1% 1.1% 1.0% 36.5% % % % % % % % % % % % 1,208 Source: City of Oakley Finance Department - Business Licenses Notes: (A) Total City Day Population is the number of employees reported on business license applications by businesses located in Oakley. 124

236 CITY OF OAKLEY Budgeted Full-Time Equivalent City Government Employees by Function Last Ten Fiscal Years i-l I-< "' t1 General govenunent' II Law enforcement* C Public works' II Planning Recreation Building&Snfety Redevelopment Ado[!ted for Fiscal Year Ended June 30, Function General government* Community development: Public works* Planning Building & Safety* Redevelopment Law enforcement* Recreation Total Notes: Amounts reported are Full Time Equivalent (FTEs). n/a means not available. * The City Contracts for the following services: City Attorney and IT services are contracted with an outside finn and included in the General Government total. Police Services were contracted with the County Sheriff through April 30, 2016 and include contracting for a specific number ofofficers. Building Inspection and Engineering Services were contracted with an outside finn until October Source: City of Oakley Operating Budgets 125

237 CITY OF OAKLEY Operating Indicators by Fnnction/Program Last Ten Fiscal Years 2007 Fiscal Year Fnnction/Program Law enforcement: Police (a) (b): Violent crimes Property crimes Public Works: Street resurfacing (miles) (c) (c) Leisure Services: Recreation: Recreation activities participants 8,050 9,940 9,700 9,700 11,500 13,300 16,486 22,663 29,630 32,386 Source: City of Oakley Notes: Data prior to July I, 2004 is not available. (a) Prior calendar year (b) Data from FBI Uniformed Crime Reports (UCR) ( c) The 2007 and 2008 projects were combined into a single project constructed in

238 CITY OF OAKLEY Capital Asset Statistics by Function/Program Last Ten Fiscal Years Fiscal Year Function/Program Law enforcement: Police stations 1 Police patrol vehicles Public works: Miles of streets Street lights 1,782 1,915 2,047 2,047 2,347 2,794 3,032 3,050 3,050 3,104 Traffic Signals Recreation: Community services: City parks City parks acreage 77.l Community centers Baseball/softball diamonds Soccer/football fields Skate features BMX dirt track Source: City of Oakley 127

239 APPENDIX C SUMMARY OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of the provisions of (i) the Lease and (ii) the Indenture relating to the Bonds that are not set forth in the main body of the Official Statement. Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof. CERTAIN DEFINITIONS Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary: Additional Rental Payments means the amounts of additional rental payments which are payable by the City under the Lease or which are otherwise identified as Additional Rental Payments under the Lease. Bond Counsel means (a) Jones Hall, A Professional Law Corporation, or (b) any other attorney or firm of attorneys appointed by or acceptable to the Authority of nationally-recognized experience in the issuance of obligations the interest on which is excludable from gross income for federal income tax purposes under the Tax Code. Bond Fund means the fund by that name established and held by the Trustee under the Indenture. Bond Insurance Policy means the insurance policy issued by the Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due. Bond Year means each twelve-month period extending from May 2 in one calendar year to May 1 of the succeeding calendar year, both dates inclusive; except that the first Bond Year commences on the Closing Date and extends to and including May 1, Business Day means a day (other than a Saturday or a Sunday) on which banks are not required or authorized to remain closed in the City in which the Office of the Trustee is located. Closing Date means the date of delivery of the Bonds to the Original Purchaser. Federal Securities means: means: (a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), for which the full faith and credit of the United States of America are pledged; (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America. Fiscal Year means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority as its official fiscal year period. C-1

240 Insurer means Assured Guaranty Municipal Corp., a New York stock insurance company, or any successor thereto or assignee thereof. Interest Account means the account by that name established and held by the Trustee in the Bond Fund under the Indenture. Late Payment Rate means the lesser of (a) the greater of (i) 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 (ii) the then applicable highest rate of interest on the Bonds and (b) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate of such national bank as the Insurer shall specify. Lease Payment Date means, with respect to any Interest Payment Date, the fifteenth (15th) Business Day immediately preceding such Interest Payment Date. Net Proceeds means amounts derived from any policy of casualty insurance or title insurance with respect to the Leased Property, or the proceeds of any taking of the Leased Property or any portion thereof in eminent domain proceedings (including sale under threat of such proceedings), to the extent remaining after payment therefrom of all expenses incurred in the collection and administration thereof. Nominee means (a) initially, Cede & Co. as nominee of DTC, and (b) any other nominee of the Depository designated under the Indenture. Office means the corporate trust office of the Trustee in San Francisco, California. Any such office or offices may be re-designated by the Trustee from time to time pursuant to written notice filed with the City and the Authority. Owner, whenever used in the Indenture with respect to a Bond, means the person in whose name the ownership of such Bond is registered on the Registration Books. Permitted Encumbrances means, as of any time: (a) liens for general ad valorem taxes and assessments, if any, not then delinquent, or which the City may permit to remain unpaid under the Lease; (b) the Site Lease, the Lease and the Assignment Agreement; (c) any right or claim of any mechanic, laborer, material man, supplier or vendor not filed or perfected in the manner prescribed by law; (d) the exceptions disclosed in the title insurance policy with respect to the Leased Property issued as of the Closing Date by Stewart Title Guaranty Company; and (e) easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants, conditions or restrictions which exist of record and which the City certifies in writing will not materially impair the use of the Leased Property for its intended purposes. Permitted Investments means any of the following: (a) any direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the C-2

241 Treasury of the United States of America), for which the full faith and credit of the United States of America are pledged. (b) obligations of any agency, department or instrumentality of the United States of America, the timely payment of principal and interest on which are directly or indirectly secured or guaranteed by the full faith and credit of the United States of America. (c) Any direct or indirect obligations of an agency or department of the United States of America whose obligations represent the full faith and credit of the United States of America, or which are rated A or better by S&P. (d) Interest-bearing deposit accounts (including certificates of deposit) in federal or State chartered savings and loan associations or in federal or State of California banks (including the Trustee), provided that: (i) the unsecured obligations of such commercial bank or savings and loan association are rated A or better by S&P; or (ii) such deposits are fully insured by the Federal Deposit Insurance Corporation or secured at all times by collateral described in (a) or (b) above. (e) Commercial paper rated A-1+ or better by S&P. (f) Federal funds or bankers acceptances with a maximum term of one year of any bank which an unsecured, uninsured and unguaranteed obligation rating of A-1+ or better by S&P. (g) Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of at least AAAm-G, AAAm or AAm, which funds may include funds for which the Trustee, its affiliates, parent or subsidiaries provide investment advisory or other management services. (h) Obligations the interest on which is excludable from gross income pursuant to Section 103 of the Tax Code and which are either (a) rated A or better by S&P, or (b) fully secured as to the payment of principal and interest by Permitted Investments described in clauses (a) or (b). (i) Obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P. (j) Bonds or notes issued by any state or municipality which are rated A or better by S&P. (k) Any investment agreement with, or guaranteed by, a financial institution the long-term unsecured obligations or the claims paying ability of which are rated A or better by S&P at the time of initial investment, by the terms of which all amounts invested thereunder are required to be withdrawn and paid to the Trustee in the event either of such ratings at any time falls below A. C-3

242 (l) The Local Agency Investment Fund of the State of California, created pursuant to Section of the California Government Code, to the extent the Trustee is authorized to register such investment in its name. (m) shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by Section of Title 5, Division 2, Chapter 4 of the Government Code of the State of California, provided the Trustee has access to, and control over withdrawals from and deposits to, such trust. Principal Account means the account by that name established and held by the Trustee in the Bond Fund under the Indenture. Project Costs means, with respect to the 2016 Project, all costs of the acquisition and construction thereof which are paid from moneys on deposit in the Project Fund, including but not limited to: (a) all costs required to be paid to any person under the terms of any agreement for or relating to the acquisition and construction of the 2016 Project; (b) obligations incurred for labor and materials in connection with the acquisition and construction of the 2016 Project; (c) the cost of performance or other bonds and any and all types of insurance that may be necessary or appropriate to have in effect in connection with the acquisition and construction of the 2016 Project; (d) all costs of engineering, architectural services and other preliminary investigation expenses, including the actual out-of-pocket costs for site investigations, surveys, hazardous materials investigations, test borings, surveys, estimates, plans and specifications and preliminary investigations therefor, development fees, sales commissions, and for supervising construction, as well as for the performance of all other duties required by or consequent to the proper acquisition and construction of the 2016 Project; (e) any sums required to reimburse the Authority or the City for advances made for any of the above items or for any other costs incurred and for work done, including but not limited to administrative costs of the Authority or the City, which are properly chargeable to the acquisition and construction of the 2016 Project; (f) all financing costs incurred in connection with the acquisition and construction of the 2016 Project, including but not limited to Costs of Issuance and other costs incurred in connection with the Indenture and the financing of the 2016 Project; and (g) the interest components of the Lease Payments prior to the Completion Date. Project Fund means the fund by that name established and held by the Trustee under the Indenture. C-4

243 Registration Books means the records maintained by the Trustee under the Indenture for the registration and transfer of ownership of the Bonds. Reserve Account means the fund by that name established and held by the Trustee under the Indenture. Reserve Policy means the municipal bond debt service reserve insurance policy issued by the Insurer guaranteeing payments to be applied to the payment of principal and interest on the Bonds as provided in therein. Reserve Requirement means, as of the date of calculation thereof, an amount equal to the least of (a) 10% of the original principal amount of the Bonds, determined in accordance with the Tax Code, (b) the maximum amount of principal of and interest on the Bonds coming due and payable on the Bonds in the current or any future Bond Year, or (c) 125% of the average amount of principal of and interest on the Bonds coming due and payable on the Bonds in the current or any future Bond Year. S&P means S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC, its successors and assigns. Tax Code means the Internal Revenue Code of 1986 as in effect on the Closing Date or (except as otherwise referenced in the Indenture) as it may be amended to apply to obligations issued on the Closing Date, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance published, under said code. Term Bonds means the Bonds maturing May 1, 2036 and May 1, Lease of Leased Property; Term THE LEASE Under the Lease, the Authority leases the Leased Property to the City. The term of the Lease (the Term ) ends on a date that is expected to allow the Authority to pay debt service on the Bonds in full on a timely basis. Lease Payments The City agrees to pay semiannual Lease Payments, subject to abatement as described in this Official Statement, as the rental for the use and occupancy of the Leased Property. On each Lease Payment Date, the City is obligated to deposit with the Trustee the full amount of the Lease Payments, except that amount held in the Bond Fund, the Interest Account and the Principal Account on any Lease Payment Date (other than amounts resulting from the prepayment of the Lease Payments in part but not in whole under the Lease, and amounts required for payment of past due principal or interest on any Bonds not presented for payment) will be credited towards the Lease Payment then required to be paid. C-5

244 Security Deposit The City has the option to secure the payment of the Lease Payments allocable to the Leased Property, in whole or in part, by depositing with the Trustee an amount of cash, which, together with other available amounts on deposit in the funds and accounts established under the Indenture, is either: (a) sufficient to pay such Lease Payments, including the principal and interest components thereof, in accordance with the Lease Payment schedule set forth in the Lease, or (b) invested in whole or in part in non-callable Federal Securities in such amount as will, in the opinion of an independent certified public accountant, (which opinion must be addressed and delivered to the Trustee), together with interest to accrue thereon and together with any cash which is so deposited, be fully sufficient to pay such Lease Payments when due under the Lease. If the City makes a security deposit with respect to all unpaid Lease Payments, subject tot the terms of the Lease (a) the Term of the Lease will continue, (b) all obligations of the City under the Lease, and all security provided by the Lease for said Lease Payments, will cease and terminate, excepting only the obligation of the City to make, or cause to be made all of said Lease Payments from such security deposit, and (c) under the Lease, title to the Leased Property will vest in the City on the date of said deposit automatically and without further action by the City or the Authority. Such security deposit constitutes a special fund for the payment of Lease Payments in accordance with the provisions of the Lease. Maintenance, Utilities, Taxes and Modifications The City, at its own expense, has agreed to repair and maintain or cause to be repaired and maintained the Leased Property; the Authority has no responsibility for such maintenance. The City will also pay for or otherwise arrange for the payment of all utility services supplied to the Leased Property. The City is further obligated to pay all taxes and assessments charged to the Authority or the City affecting the Leased Property or the respective interests or estates in the Leased Property. The City has the right under the Lease to remodel the Leased Property and to make additions, modifications and improvements to the Leased Property, provided that the Leased Property, upon completion of any additions, modifications and improvements, must be of a value which is not substantially less than the value of the Leased Property immediately prior to the making of such additions, modifications and improvements. Except for certain Permitted Encumbrances, the City will not permit any mechanic s or other lien to be established or to remain against the Leased Property, except that the City has the right in good faith to contest any such lien. Insurance The Lease require the City to maintain or cause to be maintained the following insurance against risk of physical damage to the Leased Property and other risks for the protection of the Bond Owners, the Authority and the Trustee: Liability and Property Damage Insurance. The City shall maintain or cause to be maintained throughout the Term of the Lease from insurers rated A- or better from S&P, a standard commercial general liability insurance policy or policies in protection of the Authority, C-6

245 the City, and their respective members, officers, agents, employees and assigns. Said policy or policies shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the operation of the Leased Property. Such policy or policies shall provide coverage in an amount equal to the replacement cost of the Leased Property and be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of self-insurance by the City acceptable to the Insurer, subject to the provisions of the Lease, or in the form of the participation by the City in a joint powers agency or other program providing pooled insurance. The proceeds of such liability insurance must be applied toward extinguishment or satisfaction of the liability with respect to which paid. Casualty Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, casualty insurance against loss or damage to all buildings situated on the Leased Property, in an amount at least equal to the lesser of (a) 100% of the replacement value of the insured buildings, or (b) 100% of the aggregate principal amount of the outstanding Bonds. Such insurance must, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke and such other hazards as are normally covered by such insurance, and must include earthquake insurance if available at reasonable cost from reputable insurers in the judgment of the City. Such insurance may be subject to such deductibles as the City deems adequate and prudent. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance must be applied as provided in the Lease. Rental Interruption Insurance. The City shall procure and maintain, or cause to be procured and maintained, throughout the Term of the Lease, rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of any portion of the Leased Property constituting buildings or other improvements as a result of any of the hazards covered in the insurance required by the Lease, in an amount at least equal to the maximum such Lease Payments coming due and payable during any consecutive two Fiscal Years. Such insurance may be maintained as part of or in conjunction with any other insurance coverage carried by the City, and may be maintained in whole or in part in the form of the participation by the City in a joint powers agency or other program providing pooled insurance; provided that such insurance may not be maintained by the City in the form of self-insurance. The Net Proceeds of such insurance, if any, must be paid to the Trustee and deposited in the Bond Fund, to be applied as a credit towards the payment of the Lease Payments allocable to the insured improvements as the same become due and payable, or to the extent there has been a draw on the Reserve Policy, to reimburse the Insurer for amounts due under the Indenture as a result of a draw on the Reserve Policy. Title Insurance. On or before the Closing Date the City shall, at its expense, (a) cause the Site Lease, the Assignment Agreement and the Lease, or a memorandum thereof or thereof in form and substance approved by Bond Counsel, to be recorded in the office of the Contra Costa County Recorder, and (b) obtain a CLTA title insurance policy insuring the City s leasehold estate under the Lease in the Leased Property, subject only to Permitted Encumbrances, in an amount at least equal to the aggregate principal amount of the Bonds. A copy of such policy shall be delivered to the Insurer. All Net Proceeds received under any such C-7

246 title insurance policy must be deposited with the Trustee in the Bond Fund to be credited towards the prepayment of the remaining Lease Payments under the Lease. Assignment; Subleases The Authority has assigned certain of its rights under the Lease to the Trustee under the Assignment Agreement. The City may sublease all or a portion of the Leased Property, but only under the conditions contained in the Lease, including the condition that such sublease not cause the interest component of the Lease Payments to become included in gross income for purposes of federal income taxation or to become subject to personal income taxation by the State of California and the Insurer consents to such sublease. Amendment of Lease The Authority (or the Trustee, if still the assignee of the Authority) and the City may at any time amend or modify any of the provisions of the Lease, but only: (i) with the prior written consent of the Insurer and the Owners of a majority in aggregate principal amount of the outstanding Bonds; or (ii) without the consent of the Trustee or any of the Bond Owners, but with the prior written consent of the Insurer and only if such amendment or modification is for any one or more of the following purposes: (a) to add to the covenants and agreements of the City contained in the Lease, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the City; (b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained therein, to conform to the original intention of the City and the Authority; (c) to modify, amend or supplement the Lease in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; (d) to amend the description of the Leased Property to reflect accurately the property originally intended to be included therein, or in connection with any substitution or release of property under the Lease; (e) to obligate the City to pay additional amounts of rental for the use and occupancy of the Leased Property, but only if (A) such additional amounts of rental are pledged or assigned for the payment of any bonds, notes, leases or other obligations the proceeds of which are applied to finance or refinance the acquisition or construction of any real or personal property for which the City is authorized to expend funds subject to its control, (B) the City has obtained and filed with the Trustee an appraisal showing that the appraised value of the Leased Property is at least equal to the aggregate principal amount of the Outstanding Bonds and all such other bonds, notes, leases or other obligations, and (C) the City has filed with the Trustee written evidence that the amendments made under this clause will not of themselves cause a reduction or withdrawal of any rating then assigned to the Bonds; or (f) in any other respect whatsoever as the Authority and the City deem necessary or desirable, if in the opinion of Bond Counsel such modifications or amendments do not materially adversely affect the interests of the Owners of the Bonds. C-8

247 Subject to the procedures and conditions set forth in the Lease, the Lease may be amended or modified to substitute and/or release Leased Property without the prior written consents of the Owners of a majority in aggregate principal amount of the outstanding Bonds, but subject to the satisfactions of the requirements set forth in the Lease. No such modification or amendment may (a) extend or have the effect of extending any Lease Payment Date or reducing any Lease Payment or any premium payable upon the prepayment thereof, without the express consent of the Owners of the affected Bonds, or (b) modify any of the rights or obligations of the Trustee without its written assent thereto. Events of Default Each of the following constitutes an Event of Default under and as defined in the Lease: (a) Failure by the City to pay any Lease Payment or other payment required to be paid under the Lease at the time specified in the Lease; (b) Failure by the City to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in the preceding subsection (a), for a period of 30 days after written notice specifying such failure and requesting that it be remedied has been given to the City by the Authority, the Insurer or the Trustee. If, in the reasonable opinion of the City, the failure stated in the notice can be corrected, but not within such 30-day period, the failure will not constitute an Event of Default if the City commences to cure the failure within such 30-day period and, thereafter, diligently and in good faith cures the failure in a reasonable period of time; provided that any extension of time beyond 60 days shall require the prior written consent of the Insurer; and (c) The filing by the City of a voluntary petition in bankruptcy, or failure by the City promptly to lift any execution, garnishment or attachment, or adjudication of the City as a bankrupt, or assignment by the City for the benefit of creditors, or the entry by the City into an agreement of composition with creditors, or the approval by a court of competent jurisdiction of a petition applicable to the City in any proceedings instituted under the provisions of the Federal Bankruptcy Code, as amended, or under any similar acts which may be enacted in the future. Remedies on Default Upon the occurrence and continuance of any Event of Default, the Authority has the right to exercise any and all remedies available pursuant to law or granted pursuant to the Lease and the Trustee acting at the direction of the Insurer, shall have the right to re-enter and re-let the Leased Property and to terminate the Lease subject to the Lease. THERE SHALL BE NO RIGHT UNDER ANY CIRCUMSTANCES TO ACCELERATE THE LEASE PAYMENTS OR OTHERWISE DECLARE ANY LEASE PAYMENTS NOT THEN IN DEFAULT TO BE IMMEDIATELY DUE AND PAYABLE. Under the Assignment Agreement, the Authority assigns all of its rights with respect to remedies in an Event of Default to the Trustee, so that all such remedies will be exercised by the Trustee and the Bond Owners as provided in the Indenture; provided, however, that the Insurer shall have the right to control all remedies for default under both this Lease Agreement and the Indenture. C-9

248 INDENTURE OF TRUST Flow of Funds Project Fund. There will be deposited into the Project Fund from the proceeds of the Bonds the amounts required to be deposited therein pursuant to the Indenture Amounts in the Project Fund shall be disbursed for Project Costs. Disbursements from the Project Fund shall be made by the Trustee upon receipt of a sequentially numbered Written Request of the City. Such requisition shall: (i) set forth the amounts to be disbursed for payment or reimbursement of previous payments of Project Costs and the person or persons to whom said amounts are to be disbursed; and (ii) state that the amounts to be disbursed constitute Project Costs, that said amounts are required to be disbursed pursuant to a contract entered into therefor by or on behalf of the City, or were necessarily and reasonably incurred, and that said amounts are not being paid in advance of the time, if any, fixed for payment. The Trustee shall be responsible for the safekeeping and investment (in accordance with the Indenture) of the moneys held in the Project Fund, and the payment thereof in accordance with the Indenture, but the Trustee shall not be responsible for the truth or accuracy of such requisitions and shall be under no duty to investigate or verify any statements made therein. Upon completion (or otherwise when the City determines that it no longer needs amounts in the Project Fund for payment of Project Costs), the City shall file a Certificate of City with the Trustee to such effect, and the Trustee shall transfer any moneys in the Project Fund to the Bond Fund. Thereupon, the Project Fund shall be closed. Bond Fund; Deposit and Transfer of Amounts In the Bond Fund. All Revenues will be deposited by the Trustee in the Bond Fund promptly upon receipt; except that all moneys received by the Trustee and required under the Indenture or under the Lease to be deposited in the Redemption Fund or the Insurance and Condemnation Fund shall be promptly deposited in such funds. On or before each Interest Payment Date, the Trustee shall transfer from the Bond Fund and deposit into the following respective accounts (each of which the Trustee will establish and maintain within the Bond Fund), the following amounts in the following order of priority: (a) Interest Account. The Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest coming due and payable on such Interest Payment Date on all outstanding Bonds. (b) Principal Account. The Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such Interest Payment Date, including by mandatory sinking account payments pursuant to the Indenture. C-10

249 (c) Reserve Account. The Trustee shall deposit in the Reserve Account an amount, if any, required to cause the amount on deposit in the Reserve Account to be equal to the Reserve Requirement. The Trustee shall credit the Reserve Policy to the Reserve Account in satisfaction of the Reserve Requirement upon delivery of the Bonds. The Trustee shall draw on the Reserve Policy in accordance with its terms and conditions and the terms of the Indenture. The amounts available under the Reserve Policy shall be used and withdrawn by the Trustee solely for the purpose of making transfers to the Reserve Account for the purpose of making transfers to the Interest Account and the Principal Account in accordance with the Indenture. The Trustee shall comply with all documentation relating to the Reserve Policy as shall be required to maintain the Reserve Policy in full force and effect and as shall be required to receive payments thereunder in the event and to the extent required to make any payment when and as required under the Indenture, including the reimbursement of all amounts due and owing to the Insurer in respect of the Reserve Policy. The Authority shall have no obligation to replace the Reserve Policy or to fund the Reserve Account with cash if, at any time that the Bonds are Outstanding, amounts are not available under the Reserve Policy or if the rating of the claims-paying ability of the Insurer is downgraded. All amounts in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying interest on the Bonds as it comes due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity). All amounts in the Principal Account shall be used and withdrawn by the Trustee solely to pay the principal amount of the Bonds at their respective maturity dates, including principal of any Term Bonds payable as a result of mandatory sinking fund redemption (if any shall exist). Any surplus remaining in the Bond Fund, after payment in full of (i) the principal of and interest on the Bonds or provision therefore under the Indenture, and (ii) any applicable fees and expenses to the Trustee, shall be withdrawn by the Trustee and remitted to the City. Reserve Account. All amounts in the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying principal of or interest on the Bonds when due and payable, to the extent that moneys deposited in the Interest Account or the Principal Account are not sufficient for such purpose, and (ii) making the final payments of principal of and interest on the Bonds. If the amounts on deposit in the Reserve Account are insufficient at any time to pay the full amount of principal of and interest on the Bonds then required to be paid from the Reserve Account, the Trustee shall apply such amounts first, to the payment of interest and second, to the payment of principal. If at any time the amounts on deposit in the Reserve Account are sufficient to enable the Authority to pay or redeem all of the Outstanding Bonds and the interest thereon, the Trustee shall apply the amounts in the Reserve Account for that purpose at the Written Request of the Authority. On the date on which all Bonds are retired or provision is made therefor under the Indenture, after payment of any amounts then owed to the Trustee, all moneys then on deposit in the Reserve Account shall be withdrawn by the Trustee and paid to the City as a refund of overpaid Lease Payments. C-11

250 If the amount held in the Reserve Account on May 1 or November 1 in any year is excess of the Reserve Requirement, the Trustee shall transfer such amount to the Bond Fund to be applied in accordance with the Indenture. Redemption Fund. The Trustee will establish and maintain a Redemption Fund, into which the Trustee shall deposit a portion of the Revenues received in amounts which shall be used and withdrawn by the Trustee solely for the purpose of paying the principal and premium (if any) of the Bonds to be redeemed under the Indenture, other than the principal of any Term Bonds payable as a result of mandatory sinking fund redemption (if any shall exist). At any time prior to giving notice of redemption of any such Bonds, the Trustee may apply such amounts to the purchase of 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 the Authority directs, except that the purchase price (exclusive of accrued interest) may not exceed the redemption price then applicable to the Bonds. Insurance and Condemnation Fund; Application of Net Proceeds. Any Net Proceeds of insurance or condemnation awards with respect to the Leased Property will be deposited in the Insurance and Condemnation Fund pursuant to the terms of the Indenture and the Lease. In the event of an insurance or eminent domain award, the Net Proceeds on deposit in the Insurance and Condemnation Fund will be used, as directed by the City, either: (a) to replace, repair, restore, modify or improve the Leased Property if the City determines that such is economically feasible or in the best interests of the City, or (b) to the extent not so used, to redeem outstanding Bonds. Notwithstanding the foregoing, however, in the event of damage or destruction of the Leased Property in full, the Net Proceeds of such insurance are required to be used by the City to rebuild or replace the Leased Property if such proceeds are not sufficient to redeem outstanding Bonds equal in aggregate principal amount to the unpaid Lease Payments. Reserve Policy. The Reserve Requirement will be satisfied in the form of the issuance of the Reserve Policy. Under the terms and conditions of the Reserve Policy and in the Indenture, the Trustee shall deliver to the Insurer a demand for payment under the Reserve Policy in the required form at least five (5) Business Days before the date on which funds are required for the purposes set forth in the Indenture. The Trustee shall comply with all of the terms and provisions of the Reserve Policy and in the Indenture for the purpose of assuring that funds are available thereunder when required for the purposes of the Reserve Account, within the limits of the coverage amount provided by the Reserve Policy. All amounts drawn by the Trustee under the Reserve Policy will be deposited into the Reserve Account and applied to the payment of principal of and interest on the Bonds in accordance with the Indenture. Investment of Funds; Determination of Value of Investments All moneys in any of the funds or accounts held by the Trustee under the Indenture will be invested by the Trustee solely in Permitted Investments as directed by the Authority in advance of the making of such investments. In the absence of any such direction of the Authority, the Trustee will invest any such moneys in Permitted Investments consisting of money market funds, except as otherwise provided pursuant to the Indenture. Permitted Investments purchased as an investment of moneys in any fund shall be deemed to be part of C-12

251 such fund or account. To the extent Permitted Investments are registrable, such Permitted Investments must be registered in the name of the Trustee. 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 Bond Fund, provided, however, that earnings on the investment of the amount in the Reserve Account shall be retained therein to the extent required to maintain the Reserve Requirement, and otherwise shall be transferred to the Bond Fund. For the purpose of determining the amount in any fund or account established under the Indenture, the value of investments credited to such fund will be calculated at the market value thereof, in accordance with the procedures specified in the Indenture. Covenants of the Authority Payment of Bonds. The Authority will punctually pay or cause to be paid the principal of and interest and premium (if any) on the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, but only out of the Revenues and other assets pledged for such payment as provided in the Indenture. Except as permitted by the Indenture, the Authority will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are outstanding, except the pledge and assignment created by the Indenture. Accounting Records and Financial Statements. The Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with corporate industry standards, in which complete and accurate entries will be made of all transactions relating to the proceeds of the Bonds, the Revenues, the Lease and all funds and accounts established pursuant to the Indenture. Such books of record and account will be available for inspection by the Authority and the City, during business hours, upon reasonable notice, and under reasonable circumstances. No Additional Obligations. Except as otherwise provided in the Lease, the Authority covenants that no additional bonds, notes or other indebtedness will be issued or incurred which are payable out of the Revenues in whole or in part. Tax Covenants. The Authority will not take, nor permit nor suffer to be taken by the Trustee or otherwise, any action with respect to the proceeds of any of the Bonds which would cause any of the Bonds to be arbitrage bonds or private activity bonds within the meaning of the Tax Code. The Authority will cause to be calculated all excess investment earnings which are required to be rebated to the United States of America under the Tax Code, and will cause all required amounts to be rebated from payments made by the City for such purpose under the Lease. Enforcement of Lease. The Trustee will promptly collect all amounts due from the City pursuant to the Lease. Subject to the provisions of the Indenture governing the enforcement of remedies upon the occurrence of an Event of Default, the Trustee is required to enforce, and take all steps, actions and proceedings which the Trustee determines to be reasonably necessary for the enforcement of all of its rights thereunder as assignee of the Authority and for the enforcement of all of the obligations of the City under the Lease. Further Assurances. The Authority will make, execute and deliver any and all such further indentures, instruments and assurances as may be reasonably necessary or proper to C-13

252 carry out the intention or to facilitate the performance of the Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in the Indenture. The Authority will take all actions necessary to assure the continued validity of the Bonds, including any actions that are necessary to maintain its existence. Events of Default Events of Default Defined. The following events constitute events of default under the Indenture: (a) Failure to pay any installment of the principal of any Bonds when due, whether at maturity as therein expressed, by proceedings for redemption, by acceleration, or otherwise. (b) Failure to pay any installment of interest on the Bonds when due. (c) Failure by the Authority to observe and perform any of the other covenants, agreements or conditions on its part contained in the Indenture or in the Bonds, if such failure has continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, has been given to the Authority by the Trustee; provided, however, if in the reasonable opinion of the Authority the failure stated in the notice can be corrected, but not within such 30-day period, such failure shall not constitute an Event of Default if the Authority institutes corrective action within such 30-day period and thereafter diligently and in good faith cures the failure in a reasonable period of time. (d) The commencement by the Authority of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. (e) The occurrence and continuation of any Event of Default under and as defined in the Lease. See THE LEASE Events of Default above. Remedies. If any Event of Default occurs, then, and in each and every such case during the continuance of such Event of Default, the Trustee may, and at the written direction of the Owners of a majority in aggregate principal amount of the Bonds at the time outstanding shall, in each case, upon receipt of indemnification satisfactory to Trustee against the costs, expenses and liabilities to be incurred in connection with such action, upon notice in writing to the Authority, declare the principal of all of the Bonds then outstanding, and the interest accrued thereon, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in the Indenture or in the Bonds contained to the contrary notwithstanding. Any such declaration is subject to the condition that if, at any time after such declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Authority deposits with the Trustee a sum sufficient to pay all the principal of and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the rate borne by the respective Bonds to the extent permitted by law, and the reasonable fees, charges and expenses (including those of its legal counsel, including the allocated costs of internal attorneys) of the Trustee, and any and all other Events of Default known to the Trustee (other than in the payment of principal of and interest on the C-14

253 Bonds due and payable solely by reason of such declaration) have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate has been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Bonds then outstanding, by written notice to the Authority, the City and the Trustee, may, on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences and waive such Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent Event of Default, or shall impair or exhaust any right or power consequent thereon. Application of Revenues and Other Funds After Default. If an Event of Default has occurred and is continuing, all Revenues and any other funds then held or thereafter received by the Trustee under any of the provisions of the Indenture will be applied by the Trustee as follows and in the following order: (a) To the payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its legal counsel including outside counsel and the allocated costs of internal attorneys, advisors and agents) incurred in and about the performance of its powers and duties under the Indenture; (b) To the payment of the principal of and interest then due on the Bonds (upon presentation of the 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, as follows: First: To the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, and, if the amount available shall not be 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; and Second: To the payment to the persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by acceleration or redemption, with interest on the overdue principal at the rate borne by the respective Bonds (to the extent permitted by law), and, if the amount available shall not be sufficient to pay in full all the Bonds, 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. Limitation on Bond Owners Right to Sue. No Owner of any Bond has the right to institute any suit, action or proceeding at law or in equity, for any remedy under the Indenture, unless (a) such Owner has given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of a majority in aggregate principal amount of all the Bonds thenoutstanding have requested the Trustee in writing to exercise its powers under the Indenture; (c) said 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 refused or failed to comply with such request for a period of 60 days after such written request has been received by the Trustee and said tender of indemnity is made to the Trustee; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60- C-15

254 day period by the Owners of a majority in aggregate principal amount of the Bonds thenoutstanding. Amendment of Indenture The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds and of the Trustee may be modified or amended from time to time and at any time by supplemental indenture, which the Authority and the Trustee may enter into with the written consents of the Owners of a majority in aggregate principal amount of all Bonds then outstanding. No such modification or amendment may (i) extend the fixed maturity of any Bonds, or reduce the amount of principal thereof or extend the time of payment, or change the method of computing the rate of interest thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect 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 Bonds of the lien created by the Indenture on such Revenues and other assets (except as expressly provided in the Indenture), without the consent of the Owners of all of the Bonds then outstanding. The Indenture may also be modified or amended at any time by a supplemental indenture, without the consent of any Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes: (a) to add to the covenants and agreements of the Authority in the Indenture contained, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power therein reserved to or conferred upon the Authority; (b) to cure any ambiguity, inconsistency or omission, or to cure or correct any defective provision, contained in the Indenture, or in regard to matters or questions arising under the Indenture, as the Authority deems necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Bond Owners, in the opinion of Bond Counsel filed with the Trustee; (c) to modify, amend or supplement the Indenture in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; (d) to modify, amend or supplement the Indenture in such manner as to assure that the interest on the Bonds remains excluded from gross income under the Tax Code; or (e) to facilitate the issuance of additional obligations of the City under the Lease as provided therein. C-16

255 Discharge of Indenture The Authority may pay and discharge the indebtedness on any or all of the outstanding Bonds in any one or more of the following ways: (a) by paying or causing to be paid the principal of and interest and premium (if any) on the Bonds, as and when the same become due and payable; (b) by depositing with the Trustee, in trust, at or before maturity, cash and/or non-callable Federal Securities which, together with the investment earnings to be received thereon, have been verified by an independent accountant to be sufficient to pay or redeem such Bonds when and as the same become due and payable; or (c) Bonds. by delivering to the Trustee, for cancellation by it, all of such Upon such payment, and notwithstanding that any Bonds have not been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other obligations of the Authority under the Indenture with respect to such Bonds, will cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose. Any funds thereafter held by the Trustee, which are not required for said purposes, will be paid over to the Authority. Notwithstanding the foregoing provisions, in the event that the principal, interest and premium (if any) on by the Bonds are paid by the Insurer under the Bond Insurance Policy or the Reserve Policy, the obligations of the Trustee and the Authority shall continue in full force and effect and the Insurer shall be fully subrogated to the rights of all Owners of the Bonds so paid. In addition, the obligations of the Trustee and the Authority under the Indenture shall continue in full force and effect, and shall not be terminated, until such time as the Authority shall have paid all amounts (if any) as shall be due and owing to the Insurer under the Bond Insurance Policy and the Reserve Policy; and the Trustee shall not distribute any funds to the Authority unless the Authority shall have certified to the Trustee that there are no obligations then due and owing by the Authority to the Insurer under the Bond Insurance Policy and the Reserve Policy. PROVISIONS RELATING TO THE BOND INSURANCE POLICY Amendments, Supplements and Consents. The Insurer s prior written consent is required for all amendments and supplements to the Indenture, with the exceptions noted below. The Successor Agency shall send copies of any such amendments or supplements to the Insurer and the rating agencies which have assigned a rating to the Bonds. (a) Consent of Insurer for Deposits of Cash in Reserve Account. The prior written consent of the Insurer shall be a condition precedent to the deposit of any credit instrument provided in lieu of a cash deposit into the Reserve Account. Notwithstanding anything to the contrary set forth in the Indenture, amounts on deposit in the Reserve Account shall be applied solely to the payment of debt service due on the Bonds. C-17

256 (b) Insurer as Owner. The Insurer shall be deemed to be the sole Owner of the Bonds for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the Owners of the Bonds are entitled to take pursuant to this Indenture pertaining to (i) defaults and remedies and (ii) the duties and obligations of the Trustee. In furtherance thereof and as a term of the Indenture and each Bond, the Trustee and each Owner of the Bonds appoint the Insurer as their agent and attorney-infact with respect to the Bonds and agree that the Insurer may at any time during the continuation of any proceeding by or against the Authority or the City under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an 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 direction 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 addition, the Trustee and each Owner of the Bonds delegate and assign to the Insurer, to the fullest extent permitted by law, the rights of the Trustee and each Owner of the Bonds with respect to the Bonds 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. (c) Consent of Insurer for Acceleration. The maturity of Bonds shall not be accelerated without the consent of the Insurer and in the event the maturity of the Bonds is accelerated, the Insurer may elect, in its sole discretion, to pay accelerated principal and interest accrued, on such principal to the date of acceleration (to the extent unpaid by the Authority) and the Trustee shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, the Insurer's obligations under the Bond Insurance Policy with respect to such Bonds shall be fully discharged. (d) (e) (f) Grace Period of Defaults. No grace period for a covenant default shall exceed 30 days or be extended for more than 60 days, without the prior written consent of the Insurer. No grace period shall be permitted for payment defaults. Consent of Insurer for Redemptions. Upon the occurrence of an extraordinary optional, special or extraordinary mandatory redemption in part, the selection of Bonds to be redeemed shall be subject to the approval of the Insurer. Consent of Insurer in Addition to Owner Consent. Any amendment, supplement, modification to, or waiver of, the Indenture or any other transaction document (each a Related Document ), that requires the consent of Owners or adversely affects the rights and interests of the Insurer shall be subject to the prior written consent of the Insurer. 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 Bonds or the rights of the Owners, the Trustee shall consider the effect of any such amendment, consent, waiver, action or inaction as if there were no Insurance Policy. (g) Use of Project Fund Upon Default. Unless the Insurer otherwise directs, upon the occurrence and continuance of an Event of Default or an event which with notice or lapse of time would constitute an Event of Default, amounts on deposit in the Project Fund shall C-18

257 not be disbursed, but shall instead be applied to the payment of debt service or redemption price of the Bonds. (h) Exercise of Rights by the Insurer. The rights granted to the Insurer under the Indenture or any other Related Document to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Bond Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit, or on behalf, of the Owners and such action does not evidence any position of the Insurer, affirmative or negative, as to whether the consent of the Owners or any other person is required in addition to the consent of the Insurer. Insurer as Third Party Beneficiary. The Insurer is a third party beneficiary to the Indenture, the Lease and the Site Lease. Defeasance. Only (1) cash, (2) non-callable direct obligations of the United States of America ( Treasuries ), (3) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying Treasuries are not available to any person claiming through the custodian or to whom the custodian may be obligated, (4) subject to the prior written consent of the Insurer, pre-refunded municipal obligations rated "AAA" and "Aaa" by S&P and Moody's, respectively, or (5) subject to the prior written consent of the Insurer, securities eligible for "AAA" defeasance under then existing criteria of S&P or any combination thereof, shall be used to effect defeasance of the Bonds unless the Insurer otherwise approves. To accomplish defeasance of the Bonds, the Authority shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Insurer ( Accountant ) verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ( Verification ), (ii) an escrow deposit agreement or other irrevocable refunding instructions (which shall be acceptable in form and substance to the Insurer), (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under the Indenture and (iv) a certificate of discharge of the Trustee with respect to the Bonds; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Authority, Trustee and Insurer. The Insurer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow. Bonds shall be deemed "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 Bond Insurance Policy shall not be deemed paid for purposes of the Indenture and the Bonds relating to such payments shall remain Outstanding and continue to be due and owing until paid by the Authority in accordance with he Indenture. The Indenture shall not be discharged unless all amounts due or to become due to the Insurer have been paid in full or duly provided for. Further Assurances. The Authority and the City covenant and agree to take such action (including, as applicable, filing of UCC financing statements and continuations thereof) as is C-19

258 necessary from time to time to preserve the priority of the pledge of the Revenues under applicable law. Payment Procedure Under the Bond Insurance Policy. (a) Claims Upon the Bond Insurance Policy and Payments by and to the Insurer. If, on the third Business Day prior to the related scheduled interest payment date or principal payment date ( Payment Date ) 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 Bonds due on such Payment Date, the Trustee shall 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 Payment Date, there continues to be a deficiency in the amount available to pay the principal of and interest on the Bonds due on such Payment Date, the Trustee shall make a claim under the Bond 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 Bonds and the amount required to pay principal of the 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 Bond Insurance Policy. The Trustee shall designate any portion of payment of principal on 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 Bonds registered to the then current Owner of the Bonds, whether DTC or its nominee or otherwise, and shall issue a replacement 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 Bond shall have no effect on the amount of principal or interest payable by the Authority on any Bond or the subrogation rights of the Insurer. The Trustee shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account (defined below) and the allocation of such funds to payment of interest on and principal of any Bond. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Trustee. Upon payment of a claim under the Bond Insurance Policy, the Trustee shall establish a separate special purpose trust account for the benefit of Owners of the Bonds referred to in the Indenture as the Policy Payments Account and over which the Trustee shall have exclusive control and sole right of withdrawal. The Trustee shall receive any amount paid under the Bond Insurance Policy in trust on behalf of Owners of the Bonds and shall 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 shall be disbursed by the Trustee to Owners of the Bonds in the same manner as principal and interest payments are to be made with respect to the Bonds under the sections of the Indenture regarding payment of Bonds. It shall not be 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 Authority agrees to pay, or C-20

259 cause the City to pay, to the Insurer (i) a sum equal to the total of all amounts paid by the Insurer under the Bond 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 per annum (collectively, the Insurer Reimbursement Amounts ). The Authority covenants in the Indenture and agrees 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 debt service due on the Bonds. Funds held in the Policy Payments Account shall 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 a Payment Date shall promptly be remitted to the Insurer. (b) (c) (d) (e) Subrogation of Rights. The Insurer shall, to the extent it makes any payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy (which subrogation rights shall also include the rights of any such recipients in connection with any Insolvency Proceeding). Each obligation of the Authority to the Insurer under the Related Documents shall survive discharge or termination of such Related Documents. Additional Payments. The Authority shall pay or reimburse, or cause the City to 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 any Related Document; (ii) the pursuit of any remedies under the Indenture or any other Related Document or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Indenture or any other Related Document whether or not executed or completed, or (iv) any litigation or other dispute in connection with the Indenture or any other Related Document or the transactions contemplated thereby, other than costs resulting from the failure of the Insurer to honor its obligations under the Bond 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 or any other Related Document. Application of Funds Upon Default. After payment of reasonable expenses of the Trustee, the application of funds realized upon default shall be applied to the payment of expenses of the Authority or rebate only after the payment of past due and current debt service on the Bonds and amounts required to restore the Reserve Account to the Reserve Requirement. Payment of Principal and Interest. The Insurer shall be entitled to pay principal or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Authority (as such terms are defined in the Bond Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with the Indenture, whether or not the Insurer has received a Notice of Nonpayment (as such terms are defined in the Bond Insurance Policy) or a claim upon the Bond Insurance Policy. Notice and Other Information to be given to the Insurer. (a) The notice address of the Insurer is: Assured Guaranty Municipal Corp., 1633 Broadway, New York, New York 10019, Attention: Managing Director Surveillance, Re: Policy No. C-21

260 N, Telephone: (212) ; Telecopier: (212) In each case in which notice or other communication refers to an Event of Default, then a copy of such notice or other communication shall also be sent to the attention of the General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (b) The Insurer shall be provided with the following information by the Authority or the Trustee, as the case may be: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) Notice of any draw upon the Reserve Account within two Business Days after knowledge thereof other than (a) withdrawals of amounts in excess of the Reserve Requirement and (b) withdrawals in connection with a refunding of Bonds; Notice of any default known to the Trustee or the Authority within five Business Days after knowledge thereof; Prior notice of the advance refunding or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; Notice of the resignation or removal of the Trustee and the appointment of, and acceptance of duties by, any successor thereto; Notice of the commencement of any Insolvency Proceeding; 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 Bonds; A full original transcript of all proceedings relating to the execution of any amendment, supplement, or waiver to the Related Documents; All reports, notices and correspondence to be delivered to Owners under the terms of the Related Documents; and Annual audited financial statements of the City within 180 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 Lease), and the City s annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time to time; In addition, all information furnished pursuant to the Continuing Disclosure Certificate shall also be provided to the Insurer, simultaneously with the furnishing of such information to the Owners of the Bonds. (c) (d) The Insurer shall have the right to receive such additional information as it may reasonably request. The Trustee shall notify the Insurer of any known failure of the Authority and the City to provide notices, certificates and other information under the Related Documents. C-22

261 Limitation on Additional Obligations. (a) (b) (c) Notwithstanding satisfaction of the other conditions to the issuance of additional obligations set forth in the Indenture or the Lease, no such issuance may occur (1) 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 such default shall be cured upon such issuance and (2) unless the Reserve Account is fully funded at the Reserve Requirement (including the proposed issue) upon the issuance of such additional bonds, in either case unless otherwise permitted by the Insurer. No contract shall be entered into or any action taken by which the rights of the Insurer or security for or sources of payment of the Bonds may be impaired or prejudiced in any material respect except upon obtaining the prior written consent of the Insurer. Neither the Authority nor the City shall enter into any interest rate exchange agreement or any other interest rate maintenance agreement secured by and payable from the Revenues without the prior written consent of the Insurer. PROVISIONS RELATING TO THE RESERVE POLICY Payment of Draws and Expenses. The Authority shall repay, or cause the City to repay, any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer and shall pay interest thereon from the date of payment by the Insurer at the Late Payment Rate. If the interest provisions of this subparagraph (a) shall 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 shall, without further agreement or notice between or by any party hereto, be applied as additional interest for any later periods of time when amounts are outstanding under the Idneture 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 shall be applied upon principal immediately upon receipt of such moneys by the Insurer, with the same force and effect as if the Authority 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 shall 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. Draws on Reserve Policy. Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, Policy Costs ) shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12 of the aggregate of Policy Costs related to such draw. Amounts in respect of Policy Costs paid to the Insurer shall 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. All cash and investments in the Reserve Account established for the Bonds shall be transferred to the Bond Fund for payment of debt service on Bonds before any drawing may be C-23

262 made on the Reserve Policy or any other credit facility credited to the Reserve Account in lieu of cash ( Credit Facility ). Payment of any Policy Costs shall 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 shall 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 shall 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. Remedies of Bond Insurer. If the Authority shall fail to pay any Policy Costs in accordance with the requirements of the Indenture, the Insurer shall 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 Bonds or (ii) remedies which would adversely affect owners of the Bonds. Discharge of Indenture. The Indenture and the Lease shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full. The Authority's and the City s obligation to pay such amounts shall expressly survive payment in full of the Bonds. Notice to Insurer. The Trustee shall ascertain the necessity for a claim upon the Reserve Policy in accordance with the provisions of the Indenture and provide notice to the Insurer in accordance with the terms of the Reserve Policy at least five (5) business days prior to each date upon which interest or principal is due on the Bonds. Security Interest. The obligation to pay Policy Costs shall be secured by a valid lien on all revenues and other collateral pledged as security for the Bonds (subject only to the priority of payment provisions set forth under the Indenture). C-24

263 APPENDIX D FORM OF OPINION OF BOND COUNSEL December 15, 2016 Board of Directors Oakley Public Financing Authority 3231 Main Street Oakley, California OPINION: $10,025,000 Oakley Public Financing Authority 2016 Lease Revenue Bonds Ladies and Gentlemen: We have acted as bond counsel to the Oakley Public Financing Authority (the Authority ) in connection with the issuance by the Authority of the above captioned bonds dated the date hereof (the Bonds ). In such capacity, we have examined such law and such certified proceedings, certifications, and other documents as we have deemed necessary to render this opinion. The Bonds are issued pursuant to (i) Article 4 of Chapter 5, Division 7, Title 1 of the Government Code of the State of California, commencing with Section 6584 of said Code (the Bond Law ), (ii) the Indenture of Trust (the Indenture ), dated as of December 1, 2016, by and between the Authority and U.S. Bank National Association, as trustee (the Trustee ), (iii) a resolution adopted by the Board of Directors (the Board ) of the Authority on November 8, 2016 (the Authority Resolution ), and (iv) a resolution adopted by the City Council (the City Council ) of the City of San Leandro (the City ) on November 8, 2016 (the City Resolution ). Under the Indenture, the Authority has pledged certain revenues (the Revenues ) for the payment of principal, premium (if any), and interest on the Bonds when due, including lease payments to be made by the City pursuant to a Lease Agreement, dated as of December 1, 2016, between the City and the Authority (the Lease ). Regarding questions of fact material to our opinion, we have relied on representations of the Authority contained in the Indenture and the City contained in the Lease, and in the certified proceedings and other certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based on the foregoing, we are of the opinion that, under existing law: D-1

264 1. The Authority is a duly created and validly existing joint exercise of powers authority with the power to adopt the Authority Resolution, to enter into the Indenture, and to perform the agreements on its part contained therein, and issue the Bonds. 2. The City is a municipal corporation and general law city duly organized and existing under the Constitution and laws of the State of California, with power to adopt the City Resolution, to enter into the Lease, and to perform the agreements on its part contained therein. 3. The Indenture has been duly authorized, executed and delivered by the Authority, and constitutes a valid and binding obligation of the Authority, enforceable against the Authority. 4. The Lease has been duly authorized, executed and delivered by the Authority and the City, and constitutes a valid and binding obligation of the Authority and the City, enforceable against the Authority and the City. 5. The Indenture creates a valid lien on the Revenues and other funds pledged by the Indenture for the security of the Bonds. 6. The Bonds have been duly authorized and executed by the Authority, and are valid and binding limited obligations of the Authority, payable solely from the Revenues and other funds provided therefor in the Indenture. 7. Interest on the Bonds is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the Authority and the City comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the delivery of the Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Authority and the City have covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds. 8. Interest on the Bonds is exempt from personal income taxation imposed by the State of California. The rights of the owners of the Bonds and the enforceability of the Bonds and the Indenture are limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights generally, and by equitable principles, whether considered at law or in equity. D-2

265 This opinion is given as of the date hereof, and we assume no obligation to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention, or any changes in law that may hereafter occur. Our engagement with respect to this matter has terminated as of the date hereof. Respectfully submitted, A Professional Law Corporation D-3

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267 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE $10,025,000 OAKLEY PUBLIC FINANCING AUTHORITY 2016 LEASE REVENUE BONDS This CONTINUING DISCLOSURE CERTIFICATE (this Disclosure Certificate ) is executed and delivered by the City of Oakley (the City ), on behalf of itself and the Oakley Public Financing Authority (the Authority ), in connection with the issuance of the bonds captioned above (the Bonds ). The Bonds are being executed and delivered pursuant to an Indenture of Trust dated as of December 1, 2016 (the Indenture ) by and between the Authority and U.S. Bank National Association, as trustee for the Bonds. The City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth above and in the Indenture, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings: Annual Report means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Annual Report Date means the date that is nine months after the end of the City s fiscal year (currently March 31 based on the City s fiscal year end of June 30). Dissemination Agent shall mean, initially, NBS Government Finance Group, doing business as NBS, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designed in writing by the City and which has been filed with the then current Dissemination Agent a written acceptance of such designation. MSRB means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future. Official Statement means the final official statement executed by the City in connection with the issuance of the Bonds. Participating Underwriter means the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as it may be amended from time to time. E-1

268 Significant Events means any of the events listed in Section 5(a) of this Disclosure Certificate. Section 3. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 31, 2017 with the Annual Report for the fiscal year ended June 30, 2016, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the City shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the City) has not received a copy of the Annual Report, the Dissemination Agent shall contact the City to determine if the City is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the City may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City s fiscal year changes, it shall give notice of such change in the same manner as for a Significant Event under Section 5(c). The City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the City hereunder. (b) If the City does not provide (or cause the Dissemination Agent to provide) an Annual Report by the Annual Report Date, the City in a timely manner shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A. (c) With respect to each Annual Report, the Dissemination Agent shall: (i) determine each year prior to the Annual Report Date the thenapplicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and (ii) if the Dissemination Agent is other than the City, file a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The City s Annual Report shall contain or incorporate by reference the following: (a) The City s audited financial statements 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 Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. (b) Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the City E-2

269 for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) summary of investments held in the City's investment portfolio for the most recently-completed fiscal year, including market value, book value and a description of any investments that do not comply with the City's investment policies; general fund budget for the fiscal year during which the annual report is filed; general fund balance sheet for the most recently-completed fiscal year; general fund summary of revenues and expenditures for the most recentlycompleted fiscal year; general fund tax revenues by source for the most recently-completed fiscal year; assessed valuation of property in the City for the most recently-completed fiscal year and, provided the City is not currently on the Teeter Plan (or its equivalent) and such information is available from the County, information about property tax levies and collections for the most recently completed fiscal year; the 20 largest payers of secured property taxes in the City for the most recent-completed fiscal year; taxable transactions in the City for the most recently-completed fiscal year; and description of the City's outstanding general fund debt and lease obligations as of the end of the most recently-completed fiscal year, including long-term general fund obligations. (c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the City shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. (d) Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which are available to the public on the MSRB s Internet web site or filed with the Securities and Exchange Commission. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Significant Events. (a) The City shall give, or cause to be given, notice of the occurrence of any of the following Significant Events with respect to the Bonds: E-3

270 (i) (ii) (iii) Principal and interest payment delinquencies; Non-payment related defaults, if material; Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit enhancements reflecting financial difficulties; (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; Modifications to rights of security holders, if material; Bond calls, if material, and tender offers; Defeasances; Release, substitution, or sale of property securing repayment of the securities, if material; Rating changes; Bankruptcy, insolvency, receivership or similar event of the City or other obligated person; The consummation of a merger, consolidation, or acquisition involving the City or an obligated person, or the sale of all or substantially all of the assets of the City or an obligated person (other than in the ordinary course of business), the entry into a definitive agreement to undertake such an action, or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) Whenever the City obtains knowledge of the occurrence of a Significant Event, the City shall, or shall cause the Dissemination Agent (if not the City) to, file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Significant Event. Notwithstanding the foregoing, notice of Significant Events described in subsections (a)(viii) and (ix) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Indenture. E-4

271 (c) The City acknowledges that the events described in subparagraphs (a)(ii), (a)(vii), (a)(viii) (if the event is a bond call), (a)(x), (a)(xiii), and (a)(xiv) of this Section 5 contain the qualifier if material. The City shall cause a notice to be filed as set forth in paragraph (b) above with respect to any such event only to the extent that the City determines the event s occurrence is material for purposes of U.S. federal securities law. (d) For purposes of this Disclosure Certificate, any event described in paragraph (a)(xii) above is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the City in a proceeding under the United States 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 City, or if such jurisdiction has been assumed by leaving the existing governing 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 City. Section 6. Identifying Information for Filings with the MSRB. All documents provided to the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB. Section 7. Termination of Reporting Obligation. The City s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Significant Event under Section 5(c). Section 8. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any Dissemination Agent, with or without appointing a successor Dissemination Agent. Any Dissemination Agent may resign by providing 30 days written notice to the City. Initially, NBS Government Finance Group, doing business as NBS will act as dissemination hereunder. Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the E-5

272 consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. The Dissemination Agent shall not be obligated to enter into any amendment increasing or affecting its duties or obligations hereunder. A notice of any amendment made pursuant to this Section 9 shall be filed in the same manner as for a Significant Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Significant Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice of occurrence of a Significant Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Significant Event. Section 11. Default. If the City fails to comply with any provision of this Disclosure Certificate, the Participating Underwriter 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 to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which 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 negligence or willful E-6

273 misconduct. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the City hereunder, and shall not be deemed to be acting in any fiduciary capacity for the City, the Bond holders or any other party. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. (b) 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 shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. E-7

274 Section 14. Counterparts. This Disclosure Certificate may be executed in several counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument. Date: December 15, 2016 CITY OF OAKLEY By: Name: Title: AGREED AND ACCEPTED: NBS GOVERNMENT FINANCE GROUP, d/b/a NBS, AS DISSEMINATION AGENT By: Name: Title: E-8

275 EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Issue: Oakley Public Financing Authority $10,025,000 Oakley Public Financing Authority 2016 Lease Revenue Bonds Date of Issuance: December 15, 2016 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Certificate dated December 15, The City anticipates that the Annual Report will be filed by. Dated: DISSEMINATION AGENT: By: Its: E-9

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277 APPENDIX F DTC AND THE BOOK-ENTRY ONLY SYSTEM The information in this section regarding DTC and its book-entry system has been obtained from DTC s website, for use in securities offering documents, and the City, the Authority and the Underwriter takes no responsibility for the accuracy or completeness thereof or for the absence of material changes in such information after the date hereof. The Depository Trust Company ( DTC ), New York, New York, acts as securities depository for the Bonds. The Bonds were issued as fully registered securities registered in the name of Cede & Co. (DTC s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate was issued for each maturity of each series of the Bonds, each in the aggregate principal amount of such 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 1934, as amended. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non- U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. F-1

278 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults and proposed amendments to the Bond documents. For example, Beneficial Owners of Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them. While the Bonds are in the book-entry-only system, redemption notices will be sent to DTC. If less than all of the Bonds of a maturity are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the 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 Authority as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Authority or the Trustee on the 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 Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such F-2

279 circumstances, in the event that a successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered. The Authority may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates representing the Bonds will be printed and delivered to DTC. The information in this Appendix F concerning DTC and DTC s book-entry system has been obtained from sources that the City and the Authority believe to be reliable, but neither the City, the Authority nor the Underwriter takes any responsibility for the accuracy thereof. F-3

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281 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY G-1

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283 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