Proposition 87. Appeals of Assessed Values

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1 proceeds of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including section of the Redevelopment Law. The constitutionality of section has been upheld in two California appellate court decisions. On the basis of these decisions, the Successor Agency has not adopted an appropriations limit. Proposition 87 On November 8, 1988, the voters of the State approved Proposition 87, which amended Article XVI, Section 16 of the State Constitution to provide that property tax revenue attributable to the imposition of taxes on property within a redevelopment project area for the purpose of paying debt service on certain bonded indebtedness issued by a taxing entity (not the Redevelopment Agency or the Successor Agency) and approved by the voters of the taxing entity after January 1, 1989 will be allocated solely to the payment of such indebtedness and not to redevelopment agencies. Appeals of Assessed Values Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner s property by filing a written application, in a form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. In the County, a property owner desiring to reduce the assessed value of such owner s property in any one year must submit an application to the County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of each application by the staff of the County Assessor s Office, the staff makes a recommendation to the Appeals Board on each application which has not been rejected for incompleteness or untimeliness or withdrawn. The Appeals Board holds a hearing and either reduces the assessment or confirms the assessment. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal s filing date. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level for fiscal years following the year for which the reduction application is filed. However, if the taxpayer establishes through proof of comparable values that the property continues to be overvalued (known as "ongoing hardship"), the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year as well. Appeals for reduction in the "base year" value of an assessment, which generally must be made within three years of the date of change in ownership or completion of new construction that determined the base year, if successful, reduce the assessment for the year in which the appeal is taken and prospectively thereafter. Moreover, in the case of any reduction in any one year of assessed value granted for "ongoing hardship" in the then current year, and also in any cases involving stipulated appeals for prior years relating to base year and personal property assessments, the property tax revenues from which Pledged Tax Revenues are derived attributable to such properties will be reduced in the then current year. In practice, such a reduced assessment may remain in effect beyond the year in which it is granted. See "THE REDEVELOPMENT PROJECT" for information regarding historical and pending appeals of assessed valuations by property owners in the Redevelopment Project to

2 Proposition 8 Proposition 8, approved in 1978 (section 51(b) of the California Revenue and Taxation Code), provides for the assessment of real property at the lesser of its originally determined (base year) full cash value compounded annually by the inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to damage, destruction, obsolescence or other factors causing a decline in market value. Reductions under this code section may be initiated by the County Assessor or requested by the property owner. After a roll reduction is granted under this code section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. 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. For a summary of the recent history of Proposition 8 reductions in the Redevelopment Project, see "THE REDEVELOPMENT PROTECT Histnrici1 AssseA \Ti1,ic" Propositions 218 and 26 On November 5, 1996, California voters approved Proposition 218Voter Approval for Local Government Taxes Limitation on Fees, Assessments, and Charges Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and propertyrelated fees and charges. On November 2, 2010, California voters approved Proposition 26, the "Supermajority Vote to Pass New Taxes and Fees Act." Proposition 26 amended Article XIIIC of the California Constitution by adding an expansive definition for the term "tax," which previously was not defined under the California Constitution. Pledged Tax Revenues are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which are limited by Proposition 218 and Proposition 26. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California s initiative process. From time to time other initiative measures could be adopted, further affecting Successor Agency revenues or the Successor Agency s ability to expend revenues. THE SUCCESSOR AGENCY As described in "INTRODUCTORY STATEMENT," the Dissolution Act dissolved the Redevelopment Agency as of February 1, Thereafter, pursuant to section of the Redevelopment Law, the City Council of the City became the Successor Agency to the Redevelopment Agency. Subdivision (g) of section of the Redevelopment Law, added by AB 1484, expressly affirms that the Successor Agency is a separate public entity from the City, that the two entities shall not merge, and that the li- -25-

3 abilities of the Redevelopment Agency will not be transferred to the City nor will the assets of the Redevelopment Agency become assets of the City. The Successor Agency is governed by the City Council of the City. Successor Agency Powers All powers of the Successor Agency are vested in its five members who are elected members of the City Council. Pursuant to the Dissolution Act, the Successor Agency is a separate public body from the City and succeeds to the organizational status of the Redevelopment Agency but without any legal authority to participate in redevelopment activities, except to complete any work related to an approved enforceable obligation. The Successor Agency is tasked with expeditiously winding down the affairs of the Redevelopment Agency, pursuant to the procedures and provisions of the Dissolution Act. Under the Dissolution Act, substantially all Successor Agency actions are subject to approval by the Oversight Board, as well as review by the DOF. California has strict laws regarding public meetings (known as the Ralph M. Brown Act), which generally make all Successor Agency and Oversight Board meetings open to the public in similar manner as City Council meetings. The Dissolution Act required the creation of a new seven-member oversight board by May which acts by majority vote. The City Council appointed members to the Oversight Board in The Oversight Board is comprised of: (1) one member each appointed by the County board of supervisors, (2) one member each appointed by the Mayor for the City, (3) one member each appointed by the largest special district, by property tax share, with territory in the territorial jurisdiction of the former redevelopment agency, (4) one member each appointed by the County board of education, (5) one member each appointed by the Chancellor of the California Community Colleges, (6) one member of the public appointed by the county board of supervisors, and (7) one member representing the employees of the for - mer redevelopment agency appointed by the Mayor of the City. The members and officers of the Oversight Board are listed below: Name Jan Arbuckle, Chair Donna Fitting, Vice Chair Tom Last Terry Lamphier Chris Yatooma Keith Sauers Nick Wilcox Occupation Appointing Body Mayor of the City County Superintendent Former Agency Employee County Board of Supervisors Community College District Public Member Nevada Irrigation District -26-

4 THE REDEVELOPMENT PROJECT General The Redevelopment Project encompasses 488 acres and has remained unchanged in its configuration since it was adopted. At the time of adoption, the majority of the Redevelopment Project, or 84 percent, was considered developed or an integral part of a developed area. Twenty three percent of the Redevelopment Project was public land and the remaining 15 percent was considered undeveloped or vacant. The Redevelopment Project contains the historical downtown of the City and the commercial strip that runs along Main Street out to Hughes Avenue. The Redevelopment Project also includes much of the older residential development in the City. Redevelopment Plan Limitations In 1993, the California Legislature enacted AB Among the changes to the Redevelopment Law accomplished by AB 1290 was a provision limiting the period for incurring and repaying loans, advances and indebtedness payable from tax increment revenues. In 1998, the California Legislature enacted AB 1342, permitting redevelopment agencies, such as the Redevelopment Agency, to extend by five years the period of effectiveness of redevelopment plans, such as the Redevelopment Plan, and thereby, the period for repayment of loans, advances and indebtedness from tax increment revenues. In general a redevelopment plan may terminate not more than 40 years following the date of original adoption, and loans, advances and indebtedness may be repaid during a period extending not more than 10 years following the date of termination of the redevelopment plan. In order to comply with AB 1290, the City Council adopted Ordinance No. 516 on November 22, 1994, As permitted by AB The City Council adopted Ordinance No. 568 on March 9, In those connections, the City Council enacted the following limitations: 1.Establishing loans, advances and indebtedness: This limitation has been eliminated. 2. Payment of indebtedness and receipt of property taxes: The Agency may not pay indebtedness or receive property taxes after November 8, The Agency covenants in the Indenture to comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues. including without limitation, the timely filing of necessary statements of indebtedness with appropriate officials of the County. The Redevelopment Plan limits taxes, as defined in section of the Redevelopment Law, that may be divided and allocated to the Redevelopment Agency to an aggregate amount of $82 million, and the Redevelopment Agency is subject to a limit of an aggregate of $25 million in bonded indebtedness that may be outstanding at any time. The plan limitations for the Redevelopment Project are summarized below. The Redevelopment Law was amended by the California legislature in 2001 ("SB 211") to provide that, as to redevelopment plans originally adopted prior to January 1, 1994, the legislative body of an agency could enact an ordinance eliminating the deadline on incurring indebtedness except that the redevelopment agency must make the statutory tax sharing payments to affected taxing entities from the date -27-

5 each constituent plan reaches the previously existing deadline to incur debt. On November City Council adopted its Ordinance No. 687 in accordance with SB , 2007, the The following table shows the history of the Redevelopment Plan adoption and amendments: Redevelopment Plan History Action Date Ordinance Purpose Original Adoption 11/8/ Plan adoption Amendment 1 11/22/ Set debt incurrence limit and last date to receive increment. Amendment 2 3/3/ Extended the effectiveness of the Redevelopment Plan and the last date to receive tax increment revenues by five years. Amendment 3 11/27/ Deleted debt incurrence limitation. Extended the effectiveness of the Redevelopment Plan and the last date to receive tax increment revenues by one year. Imposed statutory pass-through obligations. - The following table shows the current Redevelopment Plan limitations: Redevelopment Plan Limitations Plan Life 11/8/2029 Last Date to Establish Debt Eliminated Last Date to Repay Debt 11/8/2039 Cumulative Tax Increment Limit I $82,000,000 Bonded Indebtedness Limit $25,000,000 As shown above, the Redevelopment Plan contains a cumulative limit on the amount of tax increment the Successor Agency can be allocated of $82 million. It is unclear whether, under the Dissolution Act, the tax increment limit is still in existence. Section 34182(c) (1) of the Dissolution Act states that the amount of revenue previously received by redevelopment agencies prior to dissolution are deemed property tax revenues, which would support the idea that tax increment limits no longer exist, since there is no longer any tax increment being distributed to agencies. It is also unclear, if the limit is still in effect, what counts towards the limit, whether all former tax increment or only that portion which is received by the Successor Agency to pay for enforceable obligations. If it is assumed that all tax increment continues to be subject to the limit, then the Successor Agency has received approximately $24.1 million in tax increment under the cumulative tax increment limit through If only the amount the Successor Agency receives is subject to the limit, then the total cumulative tax increment received through is approximately $23.1 million. If the cumulative limit is based on total tax increment, then based on the projections of tax increment shown in this Official Statement, which are based on a 2 percent trend in real property values, the cumulative tax increment limit will not be reached before the 2013 Bonds are repaid in Based on a 5 trend in real pr values (which is the average increase since the adoption of the Redevelopment Plan), the cumulative tax increment limit, based on total tax increment, would be reached in A map of the City, highlighting the Redevelopment Project, is shown on the following page:

6 [MAP TO BE INSERTED] 29

7 Proposed Development The following lists the proposed development in the Redevelopment Proiec: Habitat for Humanity-9 lots remaining. 2 currently under construction. Norm Doolittle-4,000 sq. ft. expansion of commercial building in historic district. 125 Mill Street. Sergio s Restaurantrelocation and significant remodel/addition at 109 Mill Street. Several on-going fa ade replacements and upgrades in the downtown historic district. Several on-going additions, remodels and upgrades to single family homes and multifamily projects. There are several approved projects in the Redevelopment Project that have not started construction and still have valid entitlements (62 housing units off Whiting Street, redevelopment of a gas station site off Railroad Ave.,Village at South Auburn mixed useproject, several residential subdivision including Bisnet 12 units, Sierra Terrace 36 units, and several units approved off of Mill St. and Marshall Street). Assessed Valuation The Base Year assessed valuation was established in fiscal year in the amount of $92,746,258. A breakdown of the fiscal year assessed valuation in the Redevelopment Project by category of use is shown in the following table. This information is based on land use designations a provided by the County through tax roll data. It should be noted that the County land use designations do not necessarily parallel Town land use and zoning designations. Unsecured values are connected with parcels that are already accounted for in other categories. Breakdown of Assessed Valuation by Category of Use Category No. Parcels Taxable Value % of Total Residential 985 $171,847, c Commercial ,551, Industrial 6 1,331, Vacant Land 78 4,782, Other 66 4,966, Total Secured 1,336 $261,479, % Unsecured/State Assessed 15,286, Grand Total $276,766, % Source: Nevada County Assessor Combined Tax Rolls Note: Unsecured and possessory interest parcels are not shown because they are, in reality, tax bills that are assigned to secured parcels already accounted for in other categories. The figures do not include the value for exempt parcels such as those owned by the City, the Successor Agency, the State or other governmental agencies. The following table shows the actual assessed values for Fiscal Years to based upon the County Auditor/Controller s equalized rolls and incremental values of property within the Redevelopment Project based on an exclusion of assessed values from the unsecured roll. Historical Taxable Values and Total Incremental Value Fiscal Years EndedJune 30, -30-

8 Assessed Values Secured $302,874,584 $279,843,029 $274,471,585 $265,488,130 $261,479,446 Unsecured 16,273,005 18,175,867 16,819,205 15,406,582 15,286,939 Total Taxable Values $319,147,589 $298,018,896 $291,290,790 $280,894,712 $276,766,385 Percentage Change 1% -7% -2% -4% -1% Total Incremental Value $184,020,127 (1) $226,401,331 $205,272,638 $198,544, ,148,454 Source: Nevada County Auditor-Controller Office. Taxable Value above base year value of $92,746,258. The aggregate total secured taxable value for the ten largest taxpayers for Fiscal Year totals $35,290,308. This amount is 20.23% of the Redevelopment Project incremental value and 13.50% of the total Redevelopment Project assessed value. Largest Fiscal Year Property Taxpayers, by Assessed Value Assessee Type of Use % of % of Total Incremental Secured Value (1) Value > Value (2) Gold Miners Inn, LLC Hotel $1,555, % 4.33% James B Conley & Alma 0 Conley Apartment 6,252, Pardini General Partnership Retail 4,434, Wendell C. Smith Family Holdings LLC Mix of Uses 3,674, Grass Valley Courtyard Suites Hotel 2,879, Hilltop Commons 2005 Apartment 2,576, Saadeh & Hilda Hattar, Trustee Retail 2,232, Creekside Partners Vacant 2,055, Ronald Pezzolo Trustee Apartments 1,879, MSBK Royal Investments LLC Retail 1,750, Total Secured Valuation $35,290, % 20.23% Source: Nevada County Assessor Secured and Unsecured Tax Rolls Based on ownership of locally-assessed secured property. (2) Based on Project Area secured taxable value of $264,479,446 and incremental secured taxable value of $174,461,302. Annual Tax Receipts to Tax Levy The Agency received a total of $1,572,780 in tax increment revenue from the Redevelopment Project for fiscal year net of certain tax sharing obligations. This total is inclusive of revenues from supplemental assessments, homeowner s exemptions, public utilities and prior year collections and net of County withholdings for refunds. The County administration fee was deducted from the Successor Agency s fiscal year tax increment revenuesbut jinclt&liroveanipirnt Y_ 7u

9 The following table shows historical receipts to levy for Fiscal Years to : Historical Receipts to Levy Tax Increment Total Receipts Less % of Levy Tax Increment % of Levy Net Levy Supplementals Received Supplementals (2) Receipts (3) Received $1,592,980 $1,572, N/A $1,572, % ,713,393 1,588, % N/A 1,588, % ,786,798 1,771, % (12,475) 1,758, % ,957,597 1,935, ol (1,717) 1,933, % ,795,634 1,791, % 37,984 1,829, % Average Receipts to Levy 97.89% 98.11% Source: (1) Initial levy reported by Nevada County and actual receipts, exclusive of Section revenues and Senior Pass-through payments, which are net from the allocation of revenue. (2) After the Dissolution Act, the County is not providing a breakdown of supplemental revenue. (3) Excludes interest allocated by County. (4) The RPTTF allocation for June 2012 did not include the final payment of tax increment in this year, which typically ep uals five percent of tax increment, and caused the receipts to levy percentage to be low. Any property tax levied by the County on real property becomes a lien on that property. A tax levied on personal property does not become a lien against the personal property, but may become a lien on certain real property owned by the owner of the personal property located within the City. Classifications. Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding March 1. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The secured classification includes property on which any property tax levied by a county becomes a lien on that property. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Teeter Plan. The Board of Supervisors of the County has adopted 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. Pursuant to the Teeter Plan, the County has established a tax loss reserve fund and a tax resources account and each entity levying property taxes in the County may draw on the amount of uncollected taxes and assessments credited to its fund, in the same manner as if the amount credited had been collected. The County is responsible for determining the amount of the tax levy on each parcel in the taxing entity, which is entered onto the secured real property tax roll. Upon completion of the secured real property tax roll, the County s Auditor-Controller determines the total amount of taxes and assessments actually extended on the roll for each fund for which a tax levy has been included, and apportions 100% of the tax and assessment levies to that fund s credit. Such moneys may thereafter be drawn against by the taxing agency in the same manner as if the amount credited had been collected ff -4 /

10 So long as the Teeter Plan remains in effect, the Successor Agency s receipt of revenues with respect to the levy of ad valorem property taxes will not be dependent upon actual collections of the ad valorem property taxes by the County. However, under the statute creating the Teeter Plan, the Board of Supervisors could under certain circumstances terminate the Teeter Plan in its entirety and, in addition, the Board of Supervisors could terminate the Teeter Plan as to taxing entities within the Project Area if the delinquency rate for all ad valorem property taxes levied within the Project Area in any year exceeds three percent. In the event that the Teeter Plan were terminated, the amount of levy of ad valorem property taxes in the Project Area would depend upon the collections of the ad valorem property taxes and delinquency rates experienced with respect to the parcels within the Project Area. Collections. Secured and unsecured property are entered separately on the assessment roll maintained by the County Assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (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. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes which are delinquent. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. Property taxes on the unsecured roll are due as of the March 1 lien date and become delinquent, if unpaid, on August 31 of the fiscal year. A ten percent (10%) penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll with respect to which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1-1/2% per month to the time of redemption. If taxes are unpaid for a period of five years or more, the property is deeded to the State and then is subject to sale by the County Tax Collector. A ten percent (10%) penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1-1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The valuation of property is determined as of November 1 each year and installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due November 10 and become delinquent August 31, and such taxes are levied at the prior year s second tax rate. Legislation enacted in 1983 (statues of 1983, Chapter 498), provides for the supplemental assessment and taxation of property upon the occurrence of a change of ownership or completion of new construction. Previously, statutes enabled the assessment of such changes only as of the next November 1 tax lien date following the change and thus delayed the realization of increased property taxes from the new assessments for up to a year. To the extent such supplemental assessments occur within the Project Area, Agency revenues may increase z

11 Revenues are paid to the Successor Agency in anticipation of tax receipts. A reconciliation between tax revenue paid to a redevelopment agency and secured tax collections actually received by the County for the redevelopment project is prepared in January. A similar methodology is used for the remainder of the fiscal year, resulting in approximately 85% to 95% of cumulative revenues being allocated through May. Revenue reconciliations due to county assessor roll changes are prepared for secured taxes in April and July, and subsequent final apportionments resulting from collection reconciliations are prepared in July. Unsecured tax revenues are disbursed to redevelopment agencies based upon actually unsecured taxes received by the County. Payments are generally remitted in December, January and July of each fiscal year. A reconciliation payment is made in July concurrent with the final secured reconciliation. A collection charge of twenty-five hundredths of one percent (0.25%) of actual taxes collected is deducted by the County from each secured and unsecured tax disbursement. Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be prorated according to the amount of time remaining in the tax year, with the exception of tax bills dated November 1 through March 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. For supplemental tax bills mailed during the months of March through November, the first installment of taxes becomes delinquent on December 11 of the same year, the second installment becomes delinquent after the last day of the month following the month in which the bill was mailed and the second installment becomes delinquent four months later. Appeals of Assessed Values Pursuant to California law, property owners may apply for a reduction of their property tax assessment by filing a written application, in the form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board. After the applicant and the assessor have presented their arguments, the Appeals Board makes a final decision on the proper assessed value. The Appeals Board may rule in the assessor s favor, in the applicant s favor or the Appeals Board may set its own opinion of the proper assessed value, which may be more or less than either the assessor s opinion or the applicant s opinion. Any reduction in the assessment ultimately granted applies to the year for which application is made and during which the written application was filed. After a reduction is allowed, the property is reviewed on an annual basis to determine its full cash value and the valuation may be adjusted accordingly. This may result in further reductions or increases in value. Such increases are in accordance with the actual cash value of the property and may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it is once again subject to the annual inflationary growth rate allowed under Article XIIIA. 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 after that. The "base year" is determined by the completion date of new construction or the date of change of ownership. Any base year appeal must be made within four years of the change of ownership or new construction date F-45

12 Refunds for taxpayer overpayment of property taxes may include refunds for overpayment of taxes in years after that which was appealed. Any taxpayer payment of property taxes that is based on a value that is subsequently adjusted downward will require a refund for overpayment. The Successor Agency has reviewed the properties making up the top ten assesses in the Redevelopment Project. There was only one pending appeal in the Redevelopment Project. The owner has requested a reduction in value of $285,796, which, if granted, would reduce tax increment by less than $2,900. Tax Sharing Agreements Contractual Tax-Sharing Agreements. The Agency and the City have entered into tax-sharing (pass-through) agreements with the County, the Grass Valley School District and the Nevada Union High School District (collectively, the "Contractual Tax-Sharing Agreements") requiring the Successor Agency to pay annual amounts of tax increment from the Redevelopment Project (collectively, the "passthrough amounts") to the those entities. Pursuant to the Contractual Tax-Sharing Agreement with the County, for each year that the Redevelopment Plan is in effect and the Successor Agency is receiving property taxes from the project, the property taxes are to be distributed in the following order: (a) First, the County is to retain its customary share of the property tax revenues, plus its customary share of all additional property tax revenues arising from the first two percent of annual growth in assessed valuation as permitted by Article XIIIA of the State Constitution. (b) Next, the Successor Agency is to receive all (if any) additional property tax revenues attributable to an aggregate average increase in assessed valuation in the Redevelopment Project up to six percent. (c) Next, the County is to retain its customary share of additional property tax revenues attributable to an aggregate average increase in assessed valuation in the Redevelopment Project in excess of six percent. In addition, the County is to receive any other property tax revenues attributable to an aggregate average increase in assessed valuation in the Redevelopment Project in excess of six percent (which otherwise would go to the Successor Agency), in an amount sufficient to reimburse (repay) the County for all revenue foregone by the County pursuant to provisions described in paragraph (b) above: provided however, that the amount of reimbursement to be made by the Successor Agency to the County, in any fiscal year, is to be limited to the amount of funds received by the Successor Agency during the prior three fiscal years under the provisions described in paragraph (b) above that would have otherwise been paid to the County had the Successor Agency not been in existence. As used above, the term "property tax revenues (or tax revenues) which are attributable to an aggregate average increase in assessed valuation in the project area up to six percent" means that amount of property taxes that would be derived if the assessed valuation in the Redevelopment Project increased each year at a constant rate of six percent (as shown in specified portions of the Redevelopment Plan). The terms "customary share" or "county s share," as used above, means that percentage of property tax that the County would receive from the Redevelopment Project if the Redevelopment Agency did not exist i-44

13 The Contractual Tax-Sharing Agreement with each of the Nevada Union High School District and the Grass Valley School District provides that the Successor Agency is to provide annually in its budget an amount equal to the respective District s Share (as defined below) expected to be received by the Successor Agency for that fiscal year for payments to the respective District or for construction by the Successor Agency of District projects. The payments to be made to the schools under their Tax-Sharing Agreements are subordinate to the payments to be made of debt service on the 2013 Bonds. As used above, the term "District s Share" means an amount equal to the tax revenues that would have been allocated and paid to the District pursuant to former subdivision (a) of section of the Redevelopment Law, but for the Agreement, less the portion required to be set aside by the Successor Agency for low- and moderate-income housing pursuant to section of the Redevelopment Law. In no event, however, are the costs to construct District projects to cause the District to receive more property taxes, including amounts received under the respective Agreement, than the District would have received had tax increment funds not been received by the Successor Agency. Statutory Tax Sharing Payments. By the adoption of its ordinance pursuant to SB 211, the Successor Agency is required to share certain tax increment revenues with any taxing agencies having territory located within the Redevelopment Project for which the Successor Agency does not have a contractual tax sharing agreement (the "Statutory Taxing Agencies"). Commencing with the first fiscal year following adoption of the SB 211 ordinance, the Successor Agency will be required to pay to the Statutory Taxing Agencies, an amount equal to 25% of their share of non-housing tax increment revenues that would otherwise accrue to the Statutory Taxing Agencies during the remaining term of the Redevelopment Plan (Fiscal Years through ), and 21% of each Statutory Taxing Agencies of non-housing tax increment revenues that would otherwise accrue to the District during years of the Redevelopment Plan (Fiscal Years through ). Statutory pass-through payments have not been subordinated to the Successor Agency s obligations with respect to the 2013 Bonds. Proposition 13 Inflationary Adjustments Article XIII A of the California Constitution (referred to below as "Proposition 13") and State Board of Equalization ("SBE") Rule 460, subdivision (b)(5) provide that "the full value of real property shall be modified to reflect the percentage change in cost of living... provided that such value shall not reflect an increase in excess of 2 percent of the taxable value of the preceding lien date." The California Consumer Price Index ("CCPI") establishes the inflation rate used to determine the "percentage change in cost of living." This annual inflationary rate is determined by the SBE and is based on the statewide consumer price index for the previous year (October to October). In most years, the CCPI has exceeded 2 percent and has been reflected in the 2% Proposition 13 limitation on upward valuation adjustments (described under the heading "CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING TAX REVENUESProperty Tax LimitationsArticle XIIIA"). Since 1978, there have been five occurrences when the inflationary adjustment rate was less than 2%; fiscal years , , , , and The inflationary adjustments for these fiscal years were 1.01%, %, %, % and %, respectively. In more than 30 years since the passage of Proposition 13, the annual inflationary adjustment has never resulted in a reduction to the prior year assessed valuation calculated from the Proposition 13 base year values adjusted for the CCPI annual inflationary rate. In December, 2009, the SBE announced that the preliminary CCPI inflation factor for Fiscal Year is ertimated to-4e-was % (referred to as a "deflation factor"). The egtimated deflation factor -36-

14 is only an estimate at this time and the SBE is expected to announce the actual CCPI adjustment factor. The blanket application of the deflation factor was applied to all properties in the Redevelopment Project, nd imp- 4,cted the assessed value growth rate of properties that were not sold or newly constructed_and will reduce the amount of property taxes received by the Successor Agency. Information on the CCPI from August 2013 compared to August 2012 shows an inflation rate of approximately 1.2%. Historical Tax Increment Revenue and Projected Tax Increment Revenues and Debt Service Coverage The table below shows the Successor Agency s historical analysis of tax increment revenues for fiscal years through : Historical Analysis of Tax Revenues Tax Increment $2,213,304 $2,241,708 $2,037,159 $1,860,115 $1,860,461 Supplemental Taxes 37,984 (1,717) (12,475) - - Total Tax Increment (1) 2,251,288 2,239,991 2,024,684 1,860,115 1,860,461 Adjustments to Tax Revenue: Property Tax Administration Fees 37,408 38,952 38,375 38,052 54,274 Section Allocations 147, , , , ,296 Liens on Tax Increment: Housing Set-Aside (2) 420, , , Senior Tax Sharing Payment 274, , , , ,385 Tax Revenue $1,371,731 $1,478,161 $1,346,735 $1,550,011 $1,518,506 Subordinate Tax Sharing Payment (4) 135, , , , ,804 Net Tax Increment 1,097,659 1,329,428 1,237,262 1,438,005 1,400,121 Source: Reflects actual receipts based on the records of the Successor Agency. Amount shown is inclusive of Section allocations and Senior Tax Sharing payments. (2) Based on 20 percent of total tax increment less Section allocations. Beginning in under the Dissolution Act, the housing set-aside is no longer required. (3) Reflects payments to Nevada County per pass-through agreement. (4) Payments to Grass Valley School District and Nevada Union High School District. -37-

15 The table below shows the Successor Agency s estimate of tax increment revenues for fiscal year Estimate of Tax Revenue for Fiscal Year Local Secured Land Improvements Personal Property Gross Local Secured Exempt Net Local Secured State Assessed Unsecured Land Improvements Personal Property Penalty Total Unsecured Exempt Net Unsecured Total Value Base Year Taxable Value Incremental Taxable Value Tax Increment Adjustments to Tax Increment Revenue: Property Tax Administration Fees Section Allocations Senior Pass-Through Payment (3) Tax Revenues Subordinate Pass-Through Payment (4) Net Tax Increment Taxable Value $93,876, ,926,252 1,477, ,279,557 5,800, ,479, ,650 9,494,244 5,374, ,582 15,482, ,888 15,286, ,766,385 92,746, ,020,127 1,840,201 59, , ,512 1,475, ,787 $1,312,012 Taxable values per Nevada County Assessor s Office. (2) Estimated based on 3.2 percent of tax increment. (3) Reflects payments to Nevada County per tax sharing agreement. (4) Payments to Grass Valley School District and Nevada Union High School District. -38-

16 The following tables depict the projected gross tax increment revenues and the net tax increment revenues available to pay debt service on the 2013 Bonds, based on two percent growth of assessed valuation in the Redevelopment Project through fiscal year Projection of Tax Increment Revenue (000 s Omitted) Value (1) (2) Over Gross Tax Fiscal Real Other Total Base of- Increment Year Property Property Value $92,746 Revenue 2014 $269,856 $6,910 $276,766 $184,020 $1, ,253 6, , ,417 1, ,759 6, , ,922 1, ,374 6, , ,537 2, ,101 6, , ,265 2, ,943 6, , ,107 2, ,902 6, , ,066 2, ,980 6, , ,144 2, ,180 6, , ,343 2, ,503 6, , ,667 2, ,953 6, , ,117 2, ,532 6, , ,696 2, ,243 6, , ,407 2, ,088 6, , ,252 2, ,070 6, , ,233 2, ,191 6, , ,355 2, ,455 6, , ,619 2, ,864 6, , ,028 2, ,421 6, , ,585 2, ,130 6, , ,294 3, ,992 6, , ,156 3, ,012 6, , ,176 3, ,192 6, , ,356 3, ,536 6, , ,700 3, ,047 6, , ,211 3, ,728 6, , ,892 3,569 Source: Successor Agency (1) Prior Year Real Property values increased by 2 percent per year. (2) Includes the value of secured and unsecured personal property, and state-assessed railroad and non-unitary property. (3) Based on the application of 1% tax rate to incremental taxable value F IS

17 Projection of Tax Revenues (000 s Omitted) (1) (2) (3) Less: Less: Senior Gross Tax Less: Less: Less: Senior Tax Bonds Remaining Fiscal Increment Property Tax Housing Sharing Net Debt Net Tax Year Revenue Adjustment Admin. Fees Set-Aside Payment Revenues Service Revenues 2014 $1,840 $(180) $(59) $(332) $(126) $1,144 $(217) $ ,894 (190) (61) (341) (133) 1,170 (210) ,949 (200) (63) (350) (140) 1,197 (208) ,005 (211) (64) (359) (147) 1,224 (210) 1, ,063 (221) (66) (368) (154) 1,252 (208) 1, ,121 (232) (68) (378) (162) 1,281 (210) 1, ,181 (243) (70) (387) (170) 1,310 (207) 1, ,241 (255) (72) (397) (178) 1,340 (209) 1, ,303 (266) (74) (407) (186) 1,370 (211) 1, ,367 (278) (76) (418) (194) 1,401 (207) 1, ,431 (290) (78) (428) (202) 1,433 (208) 1, ,497 (302) (80) (439) (211) 1,465 (209) 1, ,564 (315) (82) (450) (220) 1,497 (320) 1, ,633 (328) (84) (461) (229) 1,531 (320) 1, ,702 (341) (87) (472) (238) 1,565 (319) 1, ,774 (354) (89) (484) (247) 1,600 (318) 1, ,846 (367) (91) (496) (256) 1,635 (316) 1, ,920 (381) (94) (508) (266) 1,672 (319) 1, ,996 (395) (96) (520) (276) 1,708 (315) 1, ,073 (410) (99) (533) (286) 1,746 (321) 1, ,152 (424) (101) (545) (296) 1,785 (316) 1, ,232 (439) (104) (559) (307) 1,824-1, ,314 (454) (106) (572) (317) 1,864-1, ,397 (470) (109) (585) (328) 1,905-1, ,482 (486) (112) (599) (339) 1,946-1, ,569 (502) (115) (613) (350) 1,989-1,989 Source: Successor Agency. (1> Payments allocated per former section to the City of Grass Valley, the Nevada Irrigation District, the County Superintendent of Schools and Sierra College. (2) Per SB 2557, reflects Project Area share of Nevada County s property tax administrative costs. Per tax sharing agreement with Nevada County. -40-

18 The following table sets forth the Pledged Tax Revenues and debt service coverage, for the life of the 2013 Bonds. Fiscal Year Projection of Pledged Tax Revenues, 2013 Bonds Debt Service and 2013 Bonds Debt Service Coverage (000 s Omitted) Remaining Net Tax Revenues Add back Housing Set-Aside Less: Statutory Pass-through Pledged Tax Revenues (1) 2013 Bonds Debt Service * 2013 Bond Debt Service Coverage * 2014 $926 $332 (0) $1,259 $ x (0) 1, x (0) 1, x , (0) 1, x , (0) 1, x , (0) 1, x , (0) 1, x , (3) 1, x , (8) 1, x , (13) 1, x , (19) 1, x , (25) 1, x , (31) 1, x , (37) 1, x , (43) 1, x , (49) 1, x , (55) 1, x , (62) 1, x , (68) 1, x , (75) 1, x , (82) 1, x , (89) 2, x , (96) 2, x , (103) 2, x , (110) 2, x , (118) 2, Source: Successor Agency; Piperjaffray & Co. for debt service data. *Preliminary, subject to change. (1> Projection of Pledged Tax Revenue based on the assumptions as stipulated in "Projection of Gross Tax Increment" and "Projection of Tax Revenues" tables. However, assuming no growth in the real property taxable values within the Redevelopment Project and assuming the available Pledged Tax Revenues remain at the projected level, the debt service coverage ratio of Pledged Tax Revenues to maximum annual debt service on the 2013 Bonds (based on the preliminary debt service numbers show in the table above, which are subject to change) would be approximately 1.98 times. The foregoing projections reflects the Successor Agency s understanding of the assessment and tax apportionment procedures employed by the County. The County procedures are subject to change as a reflection of policy revisions or legislative mandate. While the Successor Agency believes the estimates -41-

19 to be reasonable, taxable values resulting from actual appraisals may vary from the amounts assumed in the projections. No assurances are provided by the Successor Agency as to the certainty of the projected tax increment revenues shown on the foregoing table. Actual revenues may be higher or lower than what has been projected and are subject to valuation changes resulting from new developments or transfers of ownership not specifically identified herein, actual resolution of outstanding appeals, future filing of appeals, or the non-payment of taxes due. RISK FACTORS The following information should be considered by prospective investors in evaluating the 2013 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the 2013 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks. The various legal opinions to be delivered concurrently with the issuance of the 2013 Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by State and federal laws, rulings and decisions affecting remedies, and by bankruptcy, reorganization or other laws of general application affecting the enforcement of creditors rights, including equitable principles. Recognized Obligation Payment Schedule The Dissolution Act provides that only those payments listed in a Recognized Obligation Payment Schedule may be made by a successor agency from the funds specified in the Recognized Obligation Payment Schedule. Before each six-month period, the Dissolution Act requires each successor agency to prepare and approve, and submit to the successor agency s oversight board and the DOF for approval, a Recognized Obligation Payment Schedule pursuant to which enforceable obligations (as defined in the Dissolution Act) of the successor agency are listed, together with the source of funds to be used to pay for each enforceable obligation. Consequently, Pledged Tax Revenues will not be withdrawn from the Redevelopment Property Tax Trust Fund by the County Auditor-Controller and remitted to the Successor Agency without a duly approved and effective Recognized Obligation Payment Schedule. See "SECURITY FOR THE 2013 BONDSRecognized Obligation Payment Schedule" and "PROPERTY TAXATION IN CALIFORNIAProperty Tax Collection Procedures Recognized Obligation Payment Schedule." In the event the Successor Agency were to fail to file a Recognized Obligation Payment Schedule with respect to a six-month period, the availability of Pledged Tax Revenues to the Successor Agency could be adversely affected for such period. Under the Redevelopment Property Tax Trust Fund distribution provisions of the Redevelopment Law, a county auditor-controller is to distribute funds for each six-month period in the following order specified in section of the Redevelopment Law: (i) first, subject to certain adjustments for subordinations to the extent permitted under the Dissolution Act (if any, as described above under "SECURITY FOR THE 2013 BONDS-Statutory Pass-Through Amounts") and no later than each January 2 and June 1, to each local agency and school entity, to the extent applicable, amounts required for pass-through payments such entity would have received under provisions of the Redevelopment Law, as those pro- -42-