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Item 11a - Approving Pension Obligation Bonds & Preliminary Official Statement
DATE: October 6, 2020 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager By: Hue Quach, Administrative Services Director SUBJECT: SETTING THE ISSUANCE AMOUNT OF PENSION OBLIGATION BONDS AT $90 MILLION FOR THE PURPOSE OF ADDRESSING THE CITY’S UNFUNDED ACCRUED ACTUARIAL LIABILITY AND THE RELATED PRELIMINARY OFFICIAL STATEMENT RESOLUTION NO. 7338 APPROVING THE FORM OF A PRELIMINARY OFFICIAL STATEMENT AND A CONTINUING DISCLOSURE CERTIFICATE IN CONNECTION WITH THE ISSUANCE OF BONDS TO REFUND CERTAIN PENSION OBLIGATIONS OF THE CITY AND APPROVING ADDITIONAL ACTIONS RELATED THERETO Recommendation: Adopt SUMMARY In June 2019, the City Council approved a contract with Urban Futures, Inc. (“UFI”) to provide pension advisory services to assist the Citizen’s Financial Advisory Committee (“CFAC”) with developing recommendations to address the City’s rising pension costs and its unfunded accrued actuarial liabilities (“UAL”) with the California Public Employees’ Retirement System (“CalPERS”). On February 18, 2020, the City Council approved the Comprehensive Management Plan to address the City’s UAL by adopting Resolution No. 7294 that established Policies for Addressing Unfunded Retirement Costs, directed staff to proceed with the issuance of Pension Obligation Bonds (the “Bonds”), and adopted Resolution No. 7295 that authorized an additional budget appropriation of $30,000 for the purpose of entering into professional services, as bond counsel, with Stradling Yocca Carlson & Rauth, to commence with the judicial validation proceeding in anticipation of issuing Pension Obligation Bonds. The City Council provided further guidance for City staff to meet with the CFAC to determine the recommended amount and structure of the Bonds. City staff solicited bond underwriting services through a competitive Request for Proposals (“RFP”) that included a two-part process to include a written proposal followed by a 10-question interview. Eleven (11) responses were received and Stifel Nicolaus & Co. was unanimously recommended and approved on September 15, 2020. Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 2 of 7 City staff and UFI met with the CFAC on September 3, 2020, and September 10, 2020, to discuss bond sizing and structure. The CFAC evaluated a number of scenarios and discussed the potential risks associated with the timing and amount of POBs to be issued. The CFAC unanimously recommended the issuance of $90 million in POBs, in conjunction with the other elements of the Pension Comprehensive Management Plan listed below. It is recommended that the City Council direct staff to issue $90 million in pension obligation bonds and adopt Resolution No. 7338 approving the form of a Preliminary Official Statement and a Continuing Disclosure Certificate in connection with the issuance of bonds to refund certain pension obligations of the City and approving additional actions related thereto. DISCUSSION As of the most recent CalPERS actuarial report, dated June 30, 2019, the City had an unfunded accrued actuarial liability equal to $157 million. The projected UAL for Fiscal Year 2021-22 is comprised of 46 amortization bases: • 24 Amortization Bases for the Miscellaneous Plan = $51.4 million • 22 Amortization Bases for the Safety Plan = $105.9 million The CFAC developed a Comprehensive Funding Plan that utilizes 5 different strategies, which were adopted by the City Council. These strategies will be implemented over the next 3-5 years to achieve a 95% funded ratio, as summarized below: The Successor Agency recently completed the refunding of its 2010 TABs and the City anticipates, with future budget years, to program for Additional Discretionary Payments (“ADPs”) totaling $6.2 million from Water, Sewer & General Fund reserves. Moreover, the City plans to incorporate the tax-exempt exchange options during our annual budgeting preparation period, for those Equipment Replacement purchases and Capital Solution Fund Amount Base Years Savings Existing Reserves Water 2,000,000 #17 27 3,341,676 Existing Reserves Sewer 1,000,000 #17 27 1,670,838 2 Leverage Refunding RDA 470,000 #15 27 613,157 3 Annual Surplus (ADPs)General 3,246,397 #17 27 5,424,204 ($2.0 million x 4 years)General 8,000,000 #15 27 10,436,719 Tax-Exempt Exchange Water 6,844,483 #15 26 6,171,766 Tax-Exempt Exchange General 8,078,043 #10 24 6,875,686 Tax-Exempt Exchange General 8,078,043 #10 24 4,658,696 Tax-Exempt Exchange General 8,078,043 #10 24 2,586,744 5 POBs General 89,398,333 42,077,392 Funded Level 95%135,193,341$ 83,856,879$ 1 4 Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 3 of 7 Improvement Projects over the next 5-10 years, as recommended by the Pension Comprehensive Management Plan. It is important to note that the City will not address all of the outstanding $157 million liability, approximately $22 million will remain. The Pension Comprehensive Management Plan, once implemented, will target a 95% funding level. Most pension funding strategies aim for 85-90% funded status. This funding level may fluctuate in the future as new bases are added or credited toward the UAL. The City can make additional ADPs, from available excess revenues and reserves over the next several years to address the outstanding UAL and additional bases. Validation Proceedings The deadline for filing a protest to the validation passed on August 17, 2020, without event. Due to COVID-related delays, the LA County Superior Court accepted the default judgement on September 18, 2020. Upon the lapse of the 30-day appeal period, the City will have authorization to issue POBs any time after October 18, 2020. One note on the judgement was that the City had sought approval of up to $150 million in bonds to be issued all at once or over a series of issuances to provide flexibility to future City Councils. The judge’s ruling only authorized the issuance of a single series of bonds. Should the City seek to issue POBs again in the future, it would be required to obtain approval via an additional validation action. Preliminary Official Statement and Continuing Disclosure Certificate The City Council authorized the issuance of the Bonds on February 18, 2020. It was expected that the financing team would return to the City Council for final approval of amount of the POBs and approval of the Preliminary Official Statement (“POS”) and the Continuing Disclosure Certificate. The POS is the offering document required if the Bonds will be sold by public offering and must contain all material information to enable investors to determine whether to purchase Bonds. The Continuing Disclosure Certificate requires the City to provide certain annual financial information to investors. The proposed POS and Continuing Disclosure Certificate are attached to this report. Timing of Sale/Bond Structure During the interviews, each underwriter mentioned the historic market and interest rate volatility around the period of the presidential elections. Many recommended selling the Bonds prior to the election. Given this expected volatility, the financing team is seeking the ability to sell the Bonds prior to the 2020 election. If approved, the bonds are expected to be sold the week of October 15, 2020 (i.e., prior to the Presidential Election). The CFAC recommended a $90 million POB issuance, with a 20-year final maturity, refinancing the following amortization bases: Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 4 of 7 Debt Service Level Analysis Although the issuance of Bonds and making payment to CalPERS with Bond proceeds has been designed to provide significant savings to the City, staff further conducted a debt service level analysis to ensure the financial viability of the General Fund. The financial modeling considers normal inflationary growth for ongoing expenditures, with the newly added annual debt service of $6.3 million, and applying conservative revenue growth factors to major revenue sources such as: Property Tax, Sales Tax, Utility User’s Tax, Business Licenses, and other categories. The conservative assumptions of revenue accounts for the effect of COVID-19 through Fiscal Year 2021-22. Thereafter, most of major revenue sources assumed a 2.0% annual growth rate. For General Fund expenditures, assumption of an annual inflationary factor of 3.0% was applied for personnel and all other operating expenditures. The analysis not only determined whether projected revenue growth can sustain growing expenditures, especially with the newly-added debt service, but also whether there would be significant margin to manage additional cost outflow from future unknowns. For example, it could be from additional CalPERS contributions should a policy change that would reduce the current expected Discount Rate (investment rate of return) or additional contribution requirements due to CalPERS’s inability to meet their investment earning objectives. As the chart below shows, starting in Fiscal Year 2021-22, the General Fund is projected to produce surplus of roughly $3.2 million and continues in that range through Fiscal Year 2029-30, per the 10-year forecast model. These surplus balances do take into consideration any “savings” of the Bond proceed payment to CalPERS, and as such, will reduce annual employer contribution billings from CalPERS. Optimistically, as noted earlier, the revenue assumptions used are very conservative and it is expected that under a “normal” economic growth period, future revenue would provide a greater surplus margin for the outgoing years. MISCELLANEOUS PLAN SAFETY PLAN Year Reason Ramp Term Balance Payment Year Reason Ramp Term Balance Payment 1 2003 Assumption Change NO 4 1,857,897$ 510,048$ 1 2008 Fresh Start (30-Year)NO 19 (5,900,641)$ (451,447)$ 2 2004 Method Change NO 5 (174,509) (39,087) 2 2009 Assumption Change NO 10 2,653,179 327,136 3 2007 Benefit Change NO 7 1,381,104 229,721 3 2009 Special (gain)/loss NO 20 9,347,208 691,459 4 2009 Assumption Change NO 10 3,281,463 404,603 4 2010 Special (gain)/loss NO 21 1,657,982 118,870 5 2009 Special (gain)/loss NO 20 3,938,844 291,376 5 2011 Assumption Change NO 12 3,358,747 358,308 7 2011 Benefit Change NO 12 2,151,128 229,480 6 2011 Pre-Ret Option NO 11 211,194 24,123 8 2011 Assumption Change NO 11 254,249 29,041 7 2011 Special (gain)/loss NO 22 3,391,508 236,167 9 2011 Special (gain)/loss NO 22 (183,609) (12,786) 8 2012 Payment (gain)/loss NO 23 30,207 2,047 10 2012 Payment (gain)/loss NO 23 240,241 16,280 9 2012 (Gain)/Loss NO 23 38,011,472 2,575,832 11 2012 (Gain)/Loss NO 23 7,125,763 482,874 12 2014 (Gain)/Loss 100%25 (13,594,432) (922,205) 12 2013 (Gain)/Loss 100%24 15,959,673 1,112,620 13 2015 (Gain)/Loss 100%26 12,377,094 818,459 14 2014 (Gain)/Loss 100%25 (12,549,762) (851,338) 14 2016 Assumption Change 80%17 4,899,513 360,519 16 2016 Discount: 7.50% - 7.375%80%17 2,809,861 206,757 16 2017 Assumption Change 60%18 6,523,095 355,149 18 2017 Discount: 7.375% - 7.25%60%18 2,729,101 148,585 17 2017 (Gain)/Loss 60%28 (9,691,969) (380,881) 19 2017 (Gain)/Loss 60%28 (5,100,693) (200,450) 18 2018 Method Change 40%19 2,261,897 82,481 20 2018 Method Change 40%19 1,293,790 47,179 19 2018 Assumption Change 40%19 9,504,974 346,603 21 2018 Discount: 7.25% - 7.00%40%19 5,296,423 193,136 20 2018 (Gain)/Loss 40%29 (4,505,078) (119,752) 22 2018 (Gain)/Loss 40%29 (1,448,581) (38,506) SAFETY PLAN BASES 60,535,950$ 4,422,868$ MISCELLANEOUS PLAN BASES 28,862,383$ 2,759,533$ TOTAL Bases for POBs 89,398,333$ 7,182,401$ Selected Amortization Bases for Pension Obligation Bonds (POBs) Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 5 of 7 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 Actuals Projection Projection Projection Projection Projection Operating Surplus/Deficits 401,274 397,058 3,210,863 3,770,551 3,424,663 3,027,134 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 Projection Projection Projection Projection Projection Operating Surplus/Deficits 3,324,526 3,114,395 2,891,799 2,915,344 2,936,243 ENVIRONMENTAL ANALYSIS The proposed actions do not constitute a project under the California Environmental Quality Act (“CEQA”), and it can be seen with certainty that it will have no impact on the environment. Thus, this matter is exempt from CEQA. FISCAL IMPACT The issuance of POBs is part of a Pension Comprehensive Management Plan. If the City were to issue POBs under the current interest rate environment, the POBs are projected to have an estimated True Interest Cost of 3.35%. The City is issuing POBs to refinance the UAL for a portion of the UAL. The expected annual debt service on $90 million in POBs will be approximately $6.3 million, compared to approximately $7.2 million in required UAL payments. The POBs would generate $42.7 million in total savings over the next 20 years. 60 65 70 75 80 85 90 95 FY 2018- 19 FY 2019- 20 FY 2020- 21 FY 2021- 22 FY 2022- 23 FY 2023- 24 FY 2024- 25 FY 2025- 26 FY 2026- 27 FY 2027- 28 FY 2028- 29 FY 2029- 30Millions Expenditures Revenue & Sources Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 6 of 7 The UAL is a dynamic liability – each year CalPERS adds new bases that adjust the UAL either up or down depending on actual investment returns and experiences. POBs will provide the City additional financial capacity to afford any new bases that add to the City’s obligations. CalPERS investment return for Fiscal Year 2019-20 (June 30, 2020), was equal to 4.70%. UFI has estimated that CalPERS will add a new base equal to $6.9 million next year, which will require roughly an additional $750,000 in additional UAL payments for 20 years. The POBs are expected to generate more than $900,000 in actual budgetary cash flow savings, which will enable the City to absorb this new base without increasing payments from the Fiscal Year 2020-21 UAL required level. The POBs will be structured with 20-year level debt service, which will further enable the City to absorb the financial impact of any new bases added in the future. The 5 financing strategies, collectively, will enable the City to realize significant savings and enable it to better withstand future UAL increases. The Cost of Issuance associated with issuing the Bonds will be paid from the proceeds of the bond sale. All fees have been previously determined in prior City Council actions, except for the financial advisory fees. Urban Futures, Inc. (“UFI”) will serve as the Municipal Advisor on the transaction, the fees will be $110,000 including expenses. UFI was previously engaged on an hourly basis. The following is a summary of the Cost of Issuance for the proposed bond transaction. These fees are contingent upon the sale of the Bonds and will be paid from the proceeds of the bond sale: $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 POB Savings POB Debt Service Unrefunded UAL Payments UAL Payments $90 MIllion Par Value $42.7 Million Deferred UAL Savings $30.6 Million NPV -33% (@3.35%) Resolution Approving the Preliminary Official Statement & Continuing Disclosure Certificate in Connection with the Issuance of Pension Obligation Bonds October 6, 2020 Page 7 of 7 The Underwriters will be paid an underwriting fee for the sale of the bonds, which is contingent upon the sale of the bonds, and which will be equal to $3.00 per bond or 0.30%. The underwriter and fees were approved on the September 15, 2020, City Council meeting. RECOMMENDATION It is recommended that the City Council direct staff to issue $90 million in pension obligation bonds and adopt Resolution No. 7338 approving the form of a Preliminary Official Statement and a Continuing Disclosure Certificate in connection with the issuance of bonds to refund certain pension obligations of the City and approving additional actions related thereto. Attachments: Resolution No. 7338 Preliminary Official Statement Continuing Disclosure Certificate Stradling Yocca Carlson & Rauth Draft of 9/29/20 This Preliminary Official Statement and the information contained herein are subject to completion or amendment. These securities may not be sold, nor may offers to buy them be accepted, prior to the time the Official Statement is delivered in final form. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of, these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER __, 2020 NEW ISSUE—BOOK-ENTRY ONLY RATINGS: See the caption “RATINGS” In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, but is exempt from State of California personal income tax. See the caption “TAX MATTERS.” $__________* CITY OF ARCADIA 2020 TAXABLE PENSION OBLIGATION BONDS Dated: Date of Delivery Due: December 1, as shown on the inside front cover page The City of Arcadia (the “City”) is issuing its $__________* aggregate principal amount of 2020 Taxable Pension Obligation Bonds (the “Bonds”), pursuant to a Trust Agreement, dated as of November 1, 2020, by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee, and pursuant to Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Part 1 of Division 2 of Title 5 of the California Government Code. The Bonds are being issued: (i) to pay all or a portion of the City’s currently unamortized, unfunded accrued actuarial liability to the California Public Employees Retirement System with respect to the City’s defined benefit retirement plans for City employees; and (ii) to pay costs of issuance of the Bonds. See the caption “PLAN OF REFINANCING.” The Bonds will be delivered in fully registered form only, and when delivered will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). See the caption “THE BONDS—General.” So long as Cede & Co. is the registered owner of the Bonds, references herein to the owners of the Bonds mean Cede & Co. and do not mean the Beneficial Owners of the Bonds. Interest on the Bonds is payable semiannually on June 1 and December 1 of each year, commencing December 1, 2021, through the maturity date of such Bonds. The Bonds will be issued in denominations of integral multiples of $5,000. The Bonds will be issued in such principal amounts, and will bear interest at the rates, payable on the dates as shown on the inside front cover page of this Official Statement. The Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described under the caption “THE BONDS.” THE OBLIGATIONS OF THE CITY UNDER THE BONDS, INCLUDING THE OBLIGATION TO MAKE ALL PAYMENTS OF THE INTEREST ON AND THE PRINCIPAL OF THE BONDS WHEN DUE OR UPON PRIOR REDEMPTION, ARE ABSOLUTE AND UNCONDITIONAL, WITHOUT ANY RIGHT OF SET-OFF OR COUNTERCLAIM. THE BONDS DO 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. SEE THE CAPTION “SECURITY AND SOURCE OF PAYMENT FOR THE BONDS.” ____________________________________ THIS COVER PAGE CONTAINS CERTAIN INFORMATION FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF THIS ISSUE. INVESTORS MUST READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO THE MAKING OF AN INFORMED INVESTMENT DECISION. MATURITY SCHEDULE (See inside front cover page) The Bonds are offered when, as and if issued and received by the Underwriter, subject to the approval of the valid, legal and binding nature of the Bonds by Stradling Yocca Carlson & Rauth, a Professional Corporation, Bond Counsel, and certain other conditions. Certain matters will be passed upon for the City by the City Attorney, and by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel, for the Underwriter by its counsel, Kutak Rock LLP, and for the Trustee by its counsel. It is anticipated that the Bonds will be available for delivery through the facilities of The Depository Trust Company on or about November ___, 2020. [STIFEL] Dated: October __, 2020 * Preliminary, subject to change. MATURITY SCHEDULE BASE CUSIP†: _____ $__________* CITY OF ARCADIA 2020 TAXABLE PENSION OBLIGATION BONDS Maturity (December 1) Principal Amount Interest Rate Yield Price CUSIP† $ % % $_________ _____% Term Bond due December 1, 20__; Yield _____; Price _____%; CUSIP†: _______ * Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Capital IQ. Copyright© 2020 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. Neither the City nor the Underwriter takes any responsibility for the accuracy of such numbers. CITY OF ARCADIA COUNTY OF LOS ANGELES, CALIFORNIA CITY COUNCIL Roger Chandler, Mayor Sho Tay, Mayor Pro Tem Tom Beck, Council Member Paul P. Cheng, Council Member April Verlato, Council Member CITY OFFICIALS Dominic Lazzaretto, City Manager Jason Kruckeberg, Assistant City Manager/Development Service Director Hue Quach, Administrative Services Director Henry Chen, Financial Services Manager Gene Glasco, City Clerk _____________ CITY ATTORNEY Best Best & Krieger LLP Ontario, California _____________ BOND COUNSEL AND DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California _____________ TRUSTEE The Bank of New York Mellon Trust Company, N.A. Los Angeles, California _________________ MUNICIPAL ADVISOR Urban Futures, Inc. Tustin, California _________________ No dealer, broker, salesperson or other person has been authorized by the City 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 City. 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 which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact. 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, their 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. This Official Statement and the information that is contained herein are subject to completion or amendment without notice, and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other parties that are described herein since the date hereof. These securities may not be sold, nor may an offer to buy them be accepted, prior to the time that the Official Statement is delivered in final form. This Official Statement is being submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose, unless authorized in writing by the City. All summaries of documents and laws are made subject to the provisions thereof and do not purport to be complete statements of any or all such provisions. Certain statements which are included or incorporated by reference in this Official Statement constitute “forward- looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “project,” “budget,” “intend” or similar words. Such forward-looking statements include, but are not limited to, certain statements contained under the captions “THE CITY” and “CITY FINANCIAL INFORMATION” and in Appendix B. As described under the caption “THE CITY—COVID-19 Outbreak” the COVID-19 pandemic is expected to materially adversely impact the City’s financial condition. Historical information set forth in the Official Statement is not intended to be predictive of future results. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN EVALUATING SUCH STATEMENTS, POTENTIAL INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE BONDS TO CERTAIN DEALERS, DEALER BANKS, BANKS ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE 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, AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. The City maintains a website; however, information presented there is not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the Bonds. TABLE OF CONTENTS i INTRODUCTION ............................................................. 1 General .......................................................................... 1 The Bonds ..................................................................... 1 Validation ...................................................................... 2 Continuing Disclosure ................................................... 2 Miscellaneous ................................................................ 2 THE BONDS .................................................................... 2 General .......................................................................... 2 Optional Redemption of the Bonds ............................... 3 Mandatory Sinking Fund Redemption of the Bonds ..... 3 Notice of Redemption ................................................... 4 SECURITY AND SOURCE OF PAYMENT FOR THE BONDS .................................................................... 4 Bond Payments .............................................................. 4 Revenue Fund ................................................................ 5 Limited Obligations ....................................................... 5 Additional Bonds........................................................... 6 No Reserve Fund ........................................................... 6 CITY PENSION PLANS .................................................. 6 PLAN OF REFINANCING ............................................ 12 ESTIMATED SOURCES AND USES OF FUNDS ....... 13 ANNUAL DEBT SERVICE REQUIREMENTS ........... 14 THE CITY ....................................................................... 14 General ........................................................................ 14 Government and Administration ................................. 15 Risk Management ........................................................ 16 COVID-19 Outbreak ................................................... 16 CITY FINANCIAL INFORMATION ............................ 19 Accounting and Financial Reporting ........................... 19 General Economic Condition and Outlook of the City 20 Budget Procedure, Current Budget and Historical Budget Information ..................................................... 21 Change in Fund Balance of the City General Fund ..... 24 General Fund Balance Sheets of the City .................... 25 Tax Revenues of the City ............................................ 25 Property Taxes............................................................. 26 Sales Taxes .................................................................. 29 Utility Users Taxes ...................................................... 30 Other Taxes and Other Revenues ................................ 30 State of California Motor Vehicle In-Lieu Payments .. 31 Other Indebtedness ...................................................... 31 City Investment Policy ................................................ 32 Other Post-Employment Benefits ................................ 34 City Financial Statements ............................................ 36 STATE OF CALIFORNIA BUDGET INFORMATION ............................................................. 36 General ........................................................................ 36 Budget for State Fiscal Year 2019-20 ......................... 37 Budget for State Fiscal Year 2020-21 ......................... 37 Potential Impact of State Financial Condition on the City .............................................................................. 40 Future State Budgets ................................................... 40 RISK FACTORS ............................................................. 40 City Obligations .......................................................... 40 Certain Risks Associated with Sales Tax and Other Local Tax Revenues .................................................... 41 Assessed Value of Taxable Property ........................... 41 Increasing Retirement-Related Costs .......................... 42 Dependence on State for Certain Revenues................. 42 No Reserve Fund ......................................................... 42 Litigation ..................................................................... 42 Natural Disasters ......................................................... 43 Climate Change ........................................................... 43 Hazardous Substances ................................................. 44 Cybersecurity .............................................................. 44 Limitation on Sources of Revenues ............................. 45 Economy of City and State .......................................... 45 Limitation on Remedies; Bankruptcy .......................... 45 Limitation on Trustee’s Obligations ............................ 47 Limited Secondary Market .......................................... 47 Changes in Law ........................................................... 47 CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS ....................................................... 47 Article XIIIA of the State Constitution ....................... 47 Property Tax Ballot Measures ..................................... 48 Article XIIIB of the State Constitution........................ 49 Proposition 62 ............................................................. 49 Proposition 218 ........................................................... 50 Unitary Property .......................................................... 51 Proposition 1A ............................................................ 51 Proposition 22 ............................................................. 52 Proposition 26 ............................................................. 52 Future Initiatives ......................................................... 52 TAX MATTERS ............................................................. 52 VALIDATION ................................................................ 53 CERTAIN LEGAL MATTERS ...................................... 53 LITIGATION .................................................................. 54 RATINGS ....................................................................... 54 CONTINUING DISCLOSURE ...................................... 55 UNDERWRITING .......................................................... 55 MUNICIPAL ADVISOR ................................................ 55 MISCELLANEOUS........................................................ 55 APPENDIX A—AUDITED FINANCIAL STATEMENTS ...................................................... A-1 APPENDIX B—ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF ARCADIA ............ B-1 APPENDIX C—SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT .. C-1 APPENDIX D—FORM OF BOND COUNSEL OPINION ............................................................... D-1 APPENDIX E—FORM OF CONTINUING DISCLOSURE CERTIFICATE ............................. E-1 APPENDIX F—BOOK-ENTRY SYSTEM ................. F-1 1 $__________* CITY OF ARCADIA 2020 TAXABLE PENSION OBLIGATION BONDS INTRODUCTION This Introduction contains only a brief summary of certain of the terms of the Bonds being offered and a brief description of the Official Statement. All statements contained in this Introduction are qualified in their entirety by reference to the entire Official Statement. References to, and summaries of, provisions of the Constitution and laws of the State of California (the “State”) and any documents referred to herein do not purport to be complete, and such references are qualified in their entirety by the complete documents. This Official Statement speaks only as of its date, and the information contained herein is subject to change. General This Official Statement provides certain information concerning the issuance, sale and delivery of the City of Arcadia 2020 Taxable Pension Obligation Bonds (the “Bonds”), in the aggregate principal amount of $__________*. The Bonds are being issued pursuant to the Trust Agreement, dated as of November 1, 2020 (the “Trust Agreement”), by and between the City of Arcadia (the “City”) and The Bank of New York Mellon Trust Company, N.A., Los Angeles, California, as trustee (the “Trustee”). For definitions of certain words and terms which are used herein but not otherwise defined, see Appendix C. The Bonds are being issued: (i) to pay all or a portion of the City’s currently unamortized, unfunded accrued actuarial liability (the “Pension Liability”) to the California Public Employees’ Retirement System (“CalPERS”) with respect to the City’s defined benefit retirement plans for City employees; and (ii) to pay costs of issuance of the Bonds. See the caption “PLAN OF REFINANCING.” The obligation of the City to make all payments of interest on and principal of the Bonds when due, are absolute and unconditional, without any right of set-off or counterclaim. The Bonds are not limited as to payment to any special source of funds of the City. THE BONDS DO 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 PAYMENTS ON THE BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. The Bonds The City is a member of CalPERS, an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California (the “State”), including the City. As such, the City is obligated by the Public Employees’ Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code (the “Retirement Law”), and the contract, dated July 1, 1948 (as amended, the “CalPERS Contract”), by and between the City Council of the City (the “City Council”) and the Board of Administration of CalPERS, to make contributions to CalPERS: (a) to fund pension benefits for City employees who are members of CalPERS; (b) to amortize the unfunded actuarial liability with respect to such pension benefits; and (c) to appropriate funds for such purposes. * Preliminary, subject to change. 2 The City is authorized pursuant to Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the California Government Code (the “Refunding Bond Law”), to issue bonds for the purpose of refunding obligations evidenced by the CalPERS Contract. The Bonds are authorized and issued pursuant to the Trust Agreement and a resolution adopted by the City Council on March 17, 2020 (the “Resolution”). The proceeds of the sale of the Bonds (exclusive of amounts applied to pay costs of issuance) will be used to refund all or a portion of the City’s obligations evidenced by the CalPERS Contract, representing the Pension Liability with respect to certain pension benefits under the Retirement Law. Validation On March 23, 2020, the City filed a complaint in the Superior Court of the State of California for the County of Los Angeles (the “Court”) in a matter entitled City of Arcadia v. All Persons Interested et al. (Case No. 20STCV11639) (the “Validation Petition”). The City filed the Validation Petition in order to seek judicial validation of the issuance of the Bonds and any future bonds issued to refund the Bonds. On September 18, 2020, the Court entered a default judgment (the “Validation Judgment”) in favor of the City with respect to the Validation Petition. See the caption “VALIDATION.” Continuing Disclosure The City has covenanted for the benefit of the Holders of the Bonds to provide, or to cause to be provided, to the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System certain annual financial information and operating data and, in a timely manner, notice of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time (“Rule 15c2-12”). See the caption “CONTINUING DISCLOSURE” and Appendix E for a description of the specific nature of the annual report and notices of enumerated events. Miscellaneous The information and expressions of opinion herein speak only as of their date and are subject to change without notice. Neither the delivery of this Official Statement nor any sale made hereunder nor any future use of this Official Statement will, under any circumstances, create any implication that there has been no change in the affairs of the City since the date hereof. Included herein are brief summaries of the Trust Agreement and certain documents and reports, which summaries do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. See Appendix C. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Holders of the Bonds. Copies of the documents are on file and available for inspection at the corporate trust office of the Trustee in Los Angeles, California. All capitalized terms used in this Official Statement and not otherwise defined have the meanings given to such terms in the Trust Agreement. THE BONDS General The Bonds will be issued in fully registered form only and, when delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as Securities Depository for the Bonds. Ownership interests in the Bonds may be purchased in book- entry form only, in the denominations hereinafter set forth. Principal, premium, if any, and interest on the 3 Bonds will be payable by the Trustee to DTC, which is obligated in turn to remit such principal and interest to DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. See Appendix F. The Bonds will be dated the date of delivery, mature on the dates and in the principal amounts and bear interest at the rates set forth on the inside front cover page of this Official Statement. The Bonds will be delivered in denominations equal to $5,000 or any integral multiple thereof. Interest on the Bonds will be payable on each June 1 and December 1, commencing December 1, 2021 (each, an “Interest Payment Date”). Interest on each Bond will accrue from the Interest Payment Date for the Bonds next preceding the date of authentication and delivery thereof, unless: (i) such date of authentication is an Interest Payment Date, in which event interest will be payable from such date of authentication; (ii) it is authenticated after a Record Date and before the close of business on the immediately following Interest Payment Date, in which event interest thereon will be payable from such Interest Payment Date; or (iii) it is authenticated prior to the close of business on the first Record Date, in which event interest thereon will be payable from the Closing Date; provided, however, that if at the time of authentication of any Bond interest thereon is in default, interest thereon will be payable from the Interest Payment Date to which interest has previously been paid or made available for payment or, if no interest has been paid or made available for payment, from the Closing Date. Principal, premium, if any, and interest on the Bonds will be payable in currency of the United States of America which at the time of payment is legal tender for the payment of public and private debts. Payments of interest on any of the Bonds will be made on each Interest Payment Date by check of the Trustee sent by Mail, or by wire transfer to any Holder of $1,000,000 or more of Bonds, to the account specified by such Holder in a written request delivered to the Trustee on or prior to the Record Date for such Interest Payment Date, to the Holder thereof on the Record Date; provided, however, that payments of defaulted interest will be payable to the person in whose name such Bond is registered at the close of business on a special record date fixed therefor by the Trustee which will not be more than 15 days and not less than ten days prior to the date of the proposed payment of defaulted interest. Payment of the principal of the Bonds upon redemption or maturity will be made upon presentation and surrender of each such Bond, at the Principal Office of the Trustee. Optional Redemption of the Bonds The Bonds maturing on or after December 1, 20__ may be redeemed at the option of the City from any source of funds on any date on or after December 1, 20__ in whole or in part from such maturities as are selected by the City and by lot within a maturity at a redemption price equal to the principal amount to be redeemed, together with accrued interest to the date of redemption, without premium. Mandatory Sinking Fund Redemption of the Bonds The Bonds maturing December 1, 20__ (the “Term Bonds”) are subject to mandatory sinking fund redemption at a redemption price equal to the principal amount thereof, plus accrued interest to the redemption date, without premium. The Term Bonds will be so redeemed on the following dates and in the following amounts: Redemption Date (December 1) Principal Amount $ * * Final maturity. 4 On or before each November 15 next preceding any mandatory sinking fund redemption date, the Trustee will proceed to select for redemption pro-rata from all Term Bonds subject to mandatory sinking fund redemption at that time, an aggregate principal amount of such Term Bonds equal to the amount for such year as set forth in the table above and will call such Term Bonds or portions thereof for redemption and give notice of such redemption in accordance with the terms of the Trust Agreement. At the option of the City, to be exercised by delivery of a written certificate to the Trustee on or before June 1 next preceding any mandatory sinking fund redemption date, it may: (a) deliver to the Trustee for cancellation Term Bonds or portions thereof (in the amount of an Authorized Denomination) of the stated maturity subject to such redemption; or (b) specify a principal amount of such Term Bonds or portions thereof (in the amount of an Authorized Denomination) which prior to said date have been purchased or redeemed (otherwise than under the mandatory sinking fund redemption provisions of the Indenture) and cancelled by the Trustee at the request of the City and not theretofore applied as a credit against any mandatory sinking fund redemption requirement. Each such Term Bonds or portion thereof so delivered or previously redeemed will be credited by the Trustee at 100% of the principal amount of the Term Bonds so delivered to the Trustee by the City against the obligation of the City on such mandatory sinking fund redemption date. Notice of Redemption Notice of redemption will be given by the Trustee, not less than 30 nor more than 60 days prior to the redemption date: (i) in the case of Bonds not registered in the name of a Securities Depository or its nominee, to the respective Holders of the Bonds designated for redemption at their addresses appearing on the registration books of the Trustee; (ii) in the case of Bonds registered in the name of a Securities Depository or its nominee, to such Securities Depository for such Bonds; and (iii) to the Information Services. Notice of redemption to the Holders pursuant to clause (i) above will be given by mail at their addresses appearing on the registration books of the Trustee, or any other method agreed upon by such Holder and the Trustee. Notice of redemption to the Securities Depositories pursuant to clause (ii) above and the Information Services pursuant to clause (iii) above will be given by electronically secure means, or any other method agreed upon by such entities and the Trustee. Each notice of redemption will state the Bonds or designated portions thereof to be redeemed, the date of redemption, the place of redemption, the redemption price, the CUSIP number (if any) of the Bonds to be redeemed, the distinctive numbers of the Bonds of such maturity to be redeemed, in the case of Bonds to be redeemed in part only, the respective portions of the principal amount thereof to be redeemed, the original issue date, the interest rate and the stated maturity date of each Bond to be redeemed in whole or part. Each such notice will also state that on said date there will become due and payable on each of the Bonds to be redeemed the redemption price, and redemption premium, if any, thereof, and that from and after such redemption date interest thereon will cease to accrue. Failure to give the notices described above or any defect therein will not in any manner affect the redemption of any Bonds. Any notice sent as provided in the Indenture will be conclusively presumed to have been given whether or not actually received by the addressee. The City has the right to rescind any notice of redemption previously sent pursuant to the Indenture. Any such notice of rescission will be sent in the same manner as the notice of redemption. Neither the City nor the Trustee will incur any liability, to Bond Owners, DTC, or otherwise, as a result of a rescission of a notice of redemption. SECURITY AND SOURCE OF PAYMENT FOR THE BONDS Bond Payments The City will provide for payment of principal or redemption price of and interest on the Bonds from any source of legally available funds of the City. If any Bonds are Outstanding, the City will, no later than 5 three Business Days preceding each Interest Payment Date, beginning December 1, 2021, deliver funds to the Trustee for deposit to the Revenue Fund in an aggregate amount equal to the portion of the Annual Debt Service coming due on such Interest Payment Date (less amounts on deposit in the Revenue Fund). The obligations of the City under the Bonds, including the obligation to make all payments of principal, premium, if any, and interest when due, are absolute and unconditional, without any right of set-off or counterclaim. The Bonds are obligations of the City payable from any lawfully available funds, are not limited as to payment to any special source of funds of the City, and is subject to appropriation in accordance with the Trust Agreement. The Bonds do 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. Revenue Fund There has been created pursuant to the Trust Agreement a Fund to be held by the Trustee designated “Revenue Fund” (the “Revenue Fund”). There has been created in the Revenue Fund two separate Accounts designated the “Bond Interest Account” and the “Bond Principal Account.” All amounts received by the Trustee from the City in respect of interest payments on the Bonds will be deposited in the Bond Interest Account and will be disbursed to the applicable Bondholders to pay interest on the Bonds. All amounts held at any time in the Bond Interest Account will be held for the security and payment of interest on the Bonds pursuant to the Trust Agreement. If at any time funds on deposit in the Bond Interest Account are insufficient to provide for the payment of such interest, the City will promptly deposit funds to such Account to cure such deficiency. On June 2 of each year, so long as no Event of Default has occurred and is continuing, the Trustee will transfer all amounts on deposit in the Bond Interest Account to the Revenue Fund to be used for any lawful purpose. All amounts received by the Trustee from the City in respect of principal payments on the Bonds will be deposited in the Bond Principal Account and all amounts in the Bond Principal Account will be disbursed to pay principal on the Bonds pursuant to the Trust Agreement. If at any time funds on deposit in the Bond Principal Account are insufficient to provide for the payment of such principal, the City will promptly deposit funds to such Account to cure such deficiency. The moneys in such Fund and Accounts will be held by the Trustee in trust and applied as provided in the Trust Agreement and, pending such application, will be subject to a lien and charge in favor of the holders of the Bonds issued and Outstanding under the Trust Agreement and for the further security of such holders until paid out or transferred as provided in the Trust Agreement. Limited Obligations THE BONDS ARE GENERAL OBLIGATIONS OF THE CITY PAYABLE FROM ANY LAWFULLY AVAILABLE FUNDS OF THE CITY AND ARE NOT LIMITED AS TO PAYMENT TO ANY SPECIAL SOURCE OF FUNDS OF THE CITY. THE BONDS DO 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 PAYMENTS WITH RESPECT TO THE BONDS CONSTITUTES AN INDEBTEDNESS OF THE CITY, THE STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. 6 Additional Bonds From time to time, the City may enter into: (a) one or more other trust agreements or indentures; and/or (b) one or more agreements supplementing and/or amending the Trust Agreement, for the purpose of providing for the issuance of Additional Bonds: (i) to refund the Bonds; or (ii) to refund any Pension Liability under the CalPERS Contract arising subsequent to the issuance of the Bonds or any other obligations due to CalPERS. Such Additional Bonds may be issued solely on a parity with the Bonds. No Reserve Fund The City has not funded a reserve fund in connection with the issuance of the Bonds. CITY PENSION PLANS Accounting and financial reporting by state and local government employers for defined benefit pension plans is governed by Governmental Accounting Standards Board (“GASB”) Statement No. 68 (“GASB 68”). GASB 68 governs the accounting treatment of defined benefit pension plans, including how expenses and liabilities are calculated and reported by state and local government employers in their financial statements. GASB 68 includes the following components: (i) unfunded pension liabilities are included on the employer’s balance sheet; (ii) pension expense incorporates rapid recognition of actuarial experience and investment returns and is not based on the employer’s actual contribution amounts; (iii) lower actuarial discount rates are required to be used for underfunded plans in certain cases for purposes of the financial statements; (iv) closed amortization periods for unfunded liabilities are required to be used for certain purposes of the financial statements; and (v) the difference between expected and actual investment returns will be recognized over a closed five-year smoothing period. GASB 68 affects the City’s accounting and reporting requirements, but it does not change the City’s pension plan funding obligations. The City participates in a Miscellaneous Plan and a Safety Plan to fund pension benefits for employees. The City’s pension plans are administered by CalPERS. CalPERS administers an agent multiple- employer public employee defined benefit pension plan for all of the City’s full-time and certain part-time employees. CalPERS provides retirement, disability and death benefits to plan members and beneficiaries and acts as a common investment and administrative agent for participating public entities within the State, including the City. CalPERS plan benefit provisions and all other requirements are established by State statute and the City Council. 7 City employees are subject to different benefit levels based on their hire date. Current benefit provisions for City employees are set forth below. City of Arcadia CalPERS Pension Plans – Summary of Benefit Provisions Miscellaneous Plan Tier I Hybrid Tier II Tier III Hire date Prior to July 1, 2011 Hired between July 1, 2011 – October 8, 2011 On or after October 9, 2011 On or after January 1, 2013 Benefit formula 2.5% @ 55 2.5% @ 55 2.0% @ 60 2.0% @ 62 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 50-63 50-63 50-63 52 - 67 Monthly benefits, as a % of eligible compensation 2.0% - 2.5% 2.0% - 2.5% 1.092%-2.418% 1.0% to 2.0% Required employee contribution rates Total 8%. 7% paid by City (EMPC)(1) 8.00%(2) 7.00%(3) 6.00%(4) Required employer contribution rates Total 30.952%. Employee pays 8% of employer cost through cost- sharing 30.952% 30.952% 30.952% Safety Plan Tier I Hybrid Tier II Tier III Hire date Prior to July 1, 2011 Hired between July 1, 2011 – October 8, 2011 On or after October 9, 2011 On or after January 1, 2013 Benefit formula 3.0% @ 50 3.0% @ 50 3% @ 55 2.7% @ 57 Benefit vesting schedule 5 years service 5 years service 5 years service 5 years service Benefit payments monthly for life monthly for life monthly for life monthly for life Retirement age 50-55 50-55 50-55 52 - 67 Monthly benefits, as a % of eligible compensation 3.0% 3.0% 2.4%-3.0% 2.0% to 2.7% Required employee contribution rates Total 9%. 9% paid by City (EMPC) (5) 9.00%(6) 9.00%(7) 10.75%(8) Required employer contribution rates Total 54.782%. Employee pays 9% of employer cost through cost- sharing 54.782% 54.782% 54.782% (1) The City makes an 87.5% portion of the employee contribution on behalf of Miscellaneous Tier 1 employees. (2) Miscellaneous Hybrid employees are required to make the full employee contribution. (3) Miscellaneous Tier 2 employees are required to make the full employee contribution. (4) Miscellaneous employees who were hired on or after January 1, 2013 who were not previously CalPERS members are required to make the full employee contribution. (5) The City makes the full employee contribution on behalf of Safety Tier 1 employees. (6) Safety Hybrid employees are required to make the full employee contribution. (7) Safety Tier 2 employees are required to make the full employee contribution. (8) Safety employees who were hired on or after January 1, 2013 who were not previously CalPERS members are required to make the full employee contribution. Source: City. City employees who were hired on and after January 1, 2013 and who were not previously CalPERS members receive benefits based on the following formulas: (i) 2.0% at age 62 formula for Miscellaneous employees; and (ii) 2.7% at age 57 for Safety employees. Such employees are required to make the full amount of required employee contributions themselves under the California Public Employees’ Pension Reform Act of 2013 (“AB 340”), which was signed by the State Governor on September 12, 2012. AB 340 established a new pension tier for such employees. Benefits for such participants are calculated on the highest average annual compensation over a consecutive 36-month period. Employees are required to pay at least 50% 8 of the total normal cost rate. AB 340 also capped pensionable income as noted below. Amounts are set annually, subject to Consumer Price Index increases, and retroactive benefits increases are prohibited, as are contribution holidays and purchases of additional non-qualified service credit. City of Arcadia Pensionable Income Caps for Calendar Year 2020 (AB 340 and Non-AB 340 Employees) Employees Hired Before January 1, 2013 (Non-AB 340 Employees) Employees Hired After January 1, 2013 (AB 340 Employees) Maximum Pensionable Income $280,000 $151,549 Maximum Pensionable Income if also Participating in Social Security N/A $126,291 Source: City. Additional employee contributions, limits on pensionable compensation and higher retirement ages for new members as a result of the passage of AB 340 are expected to reduce the City’s unfunded pension lability and potentially reduce City contribution levels in the long term. The City is also required to contribute the actuarially determined remaining amounts necessary to fund benefits for its members. Employer contribution rates for all public employers are determined on an annual basis by the CalPERS actuary and are effective on the July 1 following notice of a change in the rate. Total plan contributions are determined through the CalPERS annual actuarial valuation process. The total minimum required employer contribution is the sum of the plan’s employer normal cost rate (expressed as a percentage of payroll) plus the employer unfunded accrued liability contribution amount (billed monthly). The normal cost rate is the annual cost of service accrual for the upcoming Fiscal Year of active employees. For Fiscal Years 2019 and 2020, required employer normal cost rates were 9.469% and 10.230% for all Miscellaneous benefit levels, respectively, and 19.213% and 20.425%, respectively, for all Safety benefit levels, and the total required employer payment of the unfunded accrued liability was $8,710,807 and $10,078,308, respectively. Required employer normal cost rates for Fiscal Year 2021 are 10.748% for all Miscellaneous benefit levels, and 21.689% for all Safety benefit levels, respectively. The total required employer payment of the unfunded accrued liability for Fiscal Year 2021 is $11,064,426. The City’s combined Miscellaneous and Safety plan contributions for Fiscal Years 2018 and 2019 were $11,251,261 and $13,247,324, respectively. The City currently expects its combined annual required contribution for the Miscellaneous and Safety plans in Fiscal Year 2020 to be $14,498,486 (based on unaudited actual Fiscal Year 2020 results). The City notes that contributions in future years may increase as a result of losses in CalPERS’ portfolio resulting from stock market declines in the wake of the COVID-19 outbreak. See the caption “THE CITY—COVID-19 Outbreak.” The City’s required contributions to CalPERS fluctuate each year and, as noted, include a normal cost component and a component equal to an amortized amount of the unfunded liability. Many assumptions are used to estimate the ultimate liability of pensions and the contributions that will be required to meet those obligations. The CalPERS Board of Administration has adjusted and may in the future further adjust certain assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City’s required contributions to CalPERS in future years. Accordingly, the City cannot provide any assurances that the City’s required contributions to CalPERS in future years will not significantly increase (or otherwise vary) from any past or current projected levels of contributions. CalPERS earnings reports for Fiscal Years 2010 through 2020 report investment gains of approximately 13.3%, 21.7%, 0.1%, 13.2%, 18.4%, 2.4%, 0.6%, 11.2%, 8.6%, 6.7% and 4.7%, respectively. Future earnings performance may increase or decrease future contribution rates for plan participants, including the City. It is possible that CalPERS’ earnings will be reduced in Fiscal Year 9 2021 as a result of stock market declines in the wake of the COVID-19 outbreak, which could increase future contribution rates for plan participants, including the City. See the caption “THE CITY—COVID-19 Outbreak.” On December 21, 2016, the CalPERS Board of Administration voted to lower its discount rate from the current rate of 7.50% to 7.00%. Effective with its June 2017 Comprehensive Annual Financial Report, CalPERS reduced its discount rate to 7.15% and its investment rate of return to 7.15%. The discount rate for Fiscal Year 2020 is 7.00%. For public agencies such as the City, the new discount rate took effect July 1, 2017. Lowering the discount rate means that employers that contract with CalPERS to administer their pension plans will see increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013 will also see their contribution rates rise under AB 340. The reduction of the discount rate will result in average employer rate increases of approximately 1% to 3% of normal cost as a percentage of payroll for most retirement plans such as the City’s plans. Additionally, many employers will see a 30% to 40% increase in their current unfunded accrued liability payments (relative to the unfunded accrued liability payments projected in the June 30, 2015 valuation report) for pension plans. These payments are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the long-term. Portions of the above information are primarily derived from information that has been produced by CalPERS, its independent accountants and its actuaries. The City has not independently verified such information and neither makes any representations nor expresses any opinion as to the accuracy of the information that has been provided by CalPERS. The comprehensive annual financial reports of CalPERS are available on CalPERS’ Internet website at www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information that concerns benefits and other matters. The textual reference to such Internet website is provided for convenience only. None of the information on such Internet website is incorporated by reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are “forward-looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. The City’s Miscellaneous plan had a total net pension liability of approximately $51,831,721 for the Fiscal Year ended June 30, 2019, while the City’s Safety plan had a total net pension liability of approximately $104,967,009 for the Fiscal Year ended June 30, 2019. The net pension liability is the difference between the total pension liability and the fair market value of pension assets. The City’s total pension assets include funds that are held by CalPERS, and its net pension asset or liability is based on such amounts. The City notes that its net pension liability could increase in the future as a result of losses in CalPERS’ portfolio resulting from stock market declines in the wake of the COVID-19 outbreak. See the caption “—COVID-19 Outbreak.” For Fiscal Years 2018, 2019 and 2020, the City incurred Miscellaneous plan pension expenses of $7,686,450, $7,267,317 and $6,947,311 (based on unaudited actual results), respectively, and Safety plan pension expenses of $13,369,811, $12,742,267 and $15,492,020 (based on unaudited actual results), respectively. 10 A summary of principal assumptions and methods used to determine the total pension liability for Fiscal Year 2019 is shown below. City of Arcadia Actuarial Assumptions for CalPERS Pension Plans Miscellaneous Safety Valuation Date June 30, 2018 June 30, 2018 Measurement Date June 30, 2019 June 30, 2019 Actuarial Cost Method Entry Age Normal in Accordance with the Requirements of GASB 68 Actuarial Assumptions: Discount Rate 7.00% 7.00% Inflation 2.50% 2.50% Salary Increases Varies by Entry Age and Service Mortality Rate Table(1) Derived using CalPERS’ Membership Data for all Funds Post Retirement Benefit Increase Contract COLA up to 2.00% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter (1) The mortality table used was developed based on CalPERS-specific data. The table includes 15 years of mortality improvements using the Society of Actuaries Scale 90% of scale MP 2016. For more details on this table, please refer to the December 2017 experience study report (based on CalPERS demographic data from 1997 to 2015) that can be found on the CalPERS website. Source: City. Changes in the net pension liability for the City’s pension plans in the most recent Fiscal Year for which information is available were as follows: City of Arcadia Changes in CalPERS Pension Plans Net Pension Liability Miscellaneous Plan Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability (Asset) Balance at June 30, 2018 $ 152,890,594 $ 106,432,727 $ 46,457,867 Changes during the year: Service Cost $ 2,471,582 $ - $ 2,471,582 Interest on the Total Pension Liability 10,829,020 - 10,829,020 Change of Assumptions - - - Differences between Expected and Actual Experience 1,256,812 - 1,256,812 Net Plan to Plan Resource Movement - - - Contributions - Employer - 4,372,487 (4,372,487) Contributions - Employees - 1,058,595 (1,058,595) Net Investment Income - 6,963,383 (6,963,383) Benefit Payments, including Refunds of Employee Contributions (7,856,734) (1,856,734) - Administrative Expense - (75,953) 75,953 Other Miscellaneous Income/(Expense) - 248 (248) Net Changes 6,700,680 4,462,026 2,238,654 Balance at June 30, 2019 $ 159,591,274 $ 110,894,753 $ 48,696,521 Source: City. 11 City of Arcadia Changes in CalPERS Pension Plans Net Pension Liability Public Safety Plan Increase (Decrease) Total Pension Liability Plan Fiduciary Net Position Net Pension Liability (Asset) Balance at June 30, 2018 $ 258,395,235 $ 150,730,832 $ 99,918,690 Changes during the year: Service Cost $ 4,550,453 $ - $ 4,550,453 Interest on the Total Pension Liability 18,202,912 - 18,202,912 Change of Assumptions - - - Differences between Expected and Actual Experience 93,353 - 93,353 Net Plan to Plan Resource Movement - - - Contributions - Employer - 8,413,611 (8,413,611) Contributions - Employees - 1,465,739 (1,465,739) Net Investment Income - 10,474,946 (10,474,946) Benefit Payments, including Refunds of Employee Contributions (12,355,271) (12,355,271) - Administrative Expense - (113,915) 113,915 Other Miscellaneous Income/(Expense) - 372 (372) Net Changes 10,491,447 7,885,482 2,605,965 Balance at June 30, 2019 $ 268,886,682 $ 167,515,483 $ 101,371,199 Source: City. The table below presents the net pension liability of the City’s pension plans, calculated using the discount rate applicable to Fiscal Year 2019 (7.00%), as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage point lower (6.00%) or 1 percentage point higher (8.00%) than the Fiscal Year 2019 rate: City of Arcadia Sensitivity of the CalPERS Miscellaneous Pension Plans Net Pension Liability to Changes in the Discount Rate Miscellaneous Safety 1% Decrease 6.00% 6.00% Net Pension Liability $ 73,604,386 $143,259,005 Current Discount Rate 7.00% 7.00% Net Pension Liability $ 51,831,721 $104,967,009 1% Increase 8.00% 8.00% Net Pension Liability $ 33,949,258 $ 86,128,350 Source: City. The City is currently unable to quantify the effect of the COVID-19 outbreak on its pension obligations in the future given how rapidly the outbreak is evolving, and no assurance can be provided that such expenses will not increase as in the future a result of the COVID-19 outbreak or other factors. See the caption “—COVID-19 Outbreak.” 12 For additional information relating to the City’s pension plans, see Note 8 to the City’s audited financial statements set forth in Appendix A. PLAN OF REFINANCING On September 18, 2020, the Court entered the Validation Judgment to the effect, among other things, that: (i) the Trust Agreement is a valid, legal and binding obligation of the City and the approval thereof was in conformity with applicable provisions of law; and (ii) the City has the authority under State law to provide for the refunding of its Pension Liability and its normal annual contributions for the current fiscal year by issuing the Bonds and applying the proceeds of the Bonds to the retirement of its Pension Liability and payment of its current year normal annual contributions. On October 18, 2020, the Validation Judgment became binding and conclusive in accordance with State law. See the caption “VALIDATION.” CalPERS has notified the City as to the amount of the Pension Liability based on the June 30, 2019 actuarial valuation, which is the most recent actuarial valuation performed by CalPERS for the City’s Miscellaneous Plan and Safety Plan. City of Arcadia Unfunded Accrued Liability of CalPERS Pension Plans Miscellaneous Plan Safety Plan Combined Accrued Liability $ 162,760,047 $ 272,532,843 $ 435,292,890 Market Value of Assets 110,928,326 167,565,834 278,494,160 Unfunded Accrued Liability $ 51,831,721 $ 104,967,009 $ 156,798,730 Percentage of Accrued Liability Funded 68.15% 61.48% 63.98% Source: CalPERS Actuarial Valuations as of June 30, 2019. The Bonds are being issued to finance a portion of the rolled forward Pension Liability as of June 30, 2019 as projected by CalPERS [and to prepay the remaining portion of the Fiscal Year 2021 unfunded actuarial liability]. Upon the issuance of the Bonds, the City will pay $__________ to CalPERS for deposit to the CalPERS Payment Fund. With this deposit, the City will not be required to make any further payments to CalPERS with respect to the portion of the Pension Liability refinanced by the Bonds. It is possible that CalPERS will determine at a future date that an additional Pension Liability exists if actual pension plan experience differs from the current actuarial estimates. The City will continue to make payments towards the remaining Pension Liability. The City may choose to pay such remaining or additional Pension Liability consistent with current procedures, or the City could choose to issue Additional Bonds at some time in the future and apply the proceeds to pay the remaining Pension Liability. 13 ESTIMATED SOURCES AND USES OF FUNDS The proceeds to be received from the sale of the Bonds are estimated to be applied as set forth below. Sources(1) Principal Amount of Bonds $ Plus/Less Net Original Issue Premium/Discount Total Sources $ Uses(1) Funding of Pension Liability [and Annual Contribution](2) $ Costs of Issuance(3) Total Uses $ (1) Amounts rounded to the nearest dollar. Totals may not add due to rounding. (2) Deposit to CalPERS Payment Fund. See the caption “PLAN OF REFINANCING.” (3) Includes Underwriter’s discount, fees of rating agencies, Municipal Advisor, Bond Counsel, Disclosure Counsel and Trustee, printing costs and other costs of issuance. 14 ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth scheduled debt service on the Bonds, assuming no optional redemptions prior to maturity. City of Arcadia Debt Service Schedule Year Ending June 30* Principal* Interest Total 2021 $ $ $ 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 Total $ __________ $ __________ $ __________ * Preliminary, subject to change. Source: Underwriter. THE CITY General The City is located in the County of Los Angeles (the “County”) approximately 20 miles northeast of the downtown Los Angeles in the San Gabriel Valley and at the base of the San Gabriel Mountains. The City was incorporated in 1903 and became a charter city in 1951. The City encompasses approximately 11.1 square miles and has an estimated 2020 population of 57,212. 15 The City is home to the Santa Anita Park racetrack and home to the Los Angeles County Arboretum and Botanic Garden. Interstate 210 runs through the City, providing access to employment centers and recreational opportunities throughout southern California. The City is a charter city, operating under a Council/Manager form of government. The City is governed by a City Council of five members elected by geographical district, who selects the City Manager who is responsible for day-to-day administration of the City under the policy direction of the City Council. The City Council elects from its membership a Mayor to serve as its presiding officer for a one-year term. The City provides a full range of services, including Police and Fire protection, Administrative Services, Public Works Services, Development Services, Recreation and Community Services, and Library and Museum Services. The City also operates and maintains its own water utility and offers a transit program that provides fixed route and door-to-door transportation services for residents. Government and Administration The City had 303 full time equivalent authorized employees as of June 30, 2020. City employees are represented by five employee associations, which represented approximately 291 employees as of June 30, 2020. Relations between the City and the employee bargaining units are governed by memoranda of understanding, all of which expire on June 30, 2021. A total of approximately 54 management and confidential employees are exempt from collective bargaining. Salaries for exempt employees are set by the City Council. The City has never experienced a strike, slowdown or work stoppage. The City operates under a Council/Manager form of government. The City Council members and the expiration dates of their respective terms are as follows: Name Office Term Expires Roger Chandler Mayor November 2022 Sho Tay Mayor Pro Tem November 2022 Tom Beck Council Member November 2022 Paul P. Cheng Council Member November 2024 April Verlato Council Member November 2024 The City Council employs a City Manager to carry out its policies, to serve as executive officer of the City and to supervise the work of other City administrators. The names and backgrounds of the City Manager and some senior administrative staff are set forth below. Dominic Lazzaretto has served as the City Manager for the City since 2012 and brings over 26 years of experience to the community. Mr. Lazzaretto oversees an annual budget of approximately $120 million and a full-time staff of over 300 employees. Mr. Lazzaretto also served as the City Manager in La Palma, California from 2007-2012. He is focused on employee and organizational development and serves as Vice President of Cal-ICMA. Mr. Lazzaretto has earned a Master of Public Administration from California State University, Long Beach and a Bachelor of Science from the Schreyers Honors College at Pennsylvania State University. Jason Kruckeberg has served as the Assistant City Manager/Development Services Director since December 2009 and has been with the City since 2006. Mr. Kruckeberg has over 23 years of experience in local government in Oregon and California, having served as Planning Director for the City of Canby, Oregon, Senior Planner for the City of Pasadena, California, and Community Development Administrator for the City prior to his current position. Mr. Kruckeberg has a Bachelor of Arts from the University of California at Santa Cruz and a Master of Community and Regional Planning from the University of Oregon. 16 Hue Quach has served as the Administrative Services Director and has been with the City since July 2008. Mr. Quach has over 26 years of experience in local government, having served as the Director of Finance for the City of Norwalk and Assistant Finance Director for the City of Bellflower. Mr. Quach has a Bachelor of Science in Finance and a Master of Public Administration, both from California State University, Los Angeles. Henry Chen has served as the Financial Services Manager since February 2019 and has been with the City since September 2018. Mr. Chen has over 16 years of experience in local government, both as an external auditor and as a Principal Accountant with the City of Pasadena. Mr. Chen has a Bachelor of Arts in Economics from University of California, Los Angeles. Risk Management General Liability. The City is self-insured for the first $500,000 on each general liability claim against the City. The insurance coverage in excess of the self-insured amount is provided by California Insurance Pool Authority (“CIPA”), a public entity risk pool currently operating as a common risk management and insurance program for 12 California cities. The City pays an annual premium to the pool for its excess general liability insurance coverage. The agreement for formation of the CIPA provides that the pool will be self-sustaining through member premiums. General liability insurance in excess of the City’s self-insured amount is provided by CIPA. As a member of CIPA, all participating members share any losses in excess of the City’s self-insured amount ($500,000) up to $3,000,000. Costs of covered claims above $3,000,000 to $40,000,000 per occurrence are currently paid by reinsurance acquired by CIPA. Worker’s Compensation. The City has had a self-insured workers’ compensation program for a number of years. For the Fiscal Year 2020, the self-insured retention was $500,000. Insurance in excess of the City’s self-insured amount is provided by CIPA. As a member of CIPA, all participating members share any losses in excess of the City’s self-insured amount ($500,000) up to $2,000,000. The costs of covered claims above $2,000,000 to $25,000,000 per occurrence are currently paid by reinsurance acquired by CIPA. Property, Cyber, and Earthquake Coverage. The City participates in CIPA comprehensive pooled coverages for property, cyber, and earthquake. CIPA pools property insurance with Travelers for an all risk limit of $750,000,000 with a $25,000 deductible. Within the property coverage there is a boiler and machinery limit of $100 million and an earthquake limit of $75,000,000. The City is also covered through the CIPA pooled insurance for cyber liability. CIPA contracts their insurance with Indian Harbor Insurance Co. for a $5,000,000 per occurrence, and $9,000,000 aggregate limit of cyber coverage for information security and privacy, privacy notification, penalties, website media, cyber extortion, and data protection. The City’s self- insured retention is $50,000. Claims have not exceeded the City’s insurance coverage in any of the last three years. The Trust Agreement does not require the City to maintain insurance coverage in any particular amount or with respect to any particular risks. No assurance can be given as to the adequacy of the insurance that is maintained now or in the future by the City to fund necessary repairs or replacement of any portion of City facilities. Significant damage to City facilities or liability imposed upon the City could negatively affect City operations. See the caption “RISK FACTORS—Natural Disasters.” COVID-19 Outbreak The spread of the novel strain of coronavirus called SARS-CoV-2, which causes the disease known as COVID-19 (“COVID-19”), and local, state and federal actions in response to COVID-19, are having a significant impact on the City’s operations and finances. In response to the increasing number of cases of 17 COVID-19 infections and fatalities, health officials and experts have recommended, and some governments have mandated, a variety of responses ranging from travel bans and social distancing practices to complete shut-downs of certain services and facilities. The World Health Organization has declared the COVID-19 outbreak to be a pandemic and on March 4, 2020, as part of the State’s response to address the outbreak, the Governor declared a state of emergency. On March 13, 2020, the President declared a national emergency, freeing up funding for federal assistance to state and local governments. Many school districts across the State have temporarily closed some or all school campuses (including Arcadia Unified School District schools within the City) in response to local and State directives or guidance. On March 19, 2020, the Governor issued Executive Order N-33-20, a mandatory Statewide stay-at-home order applicable to all non-essential services. The current stay-at-home directives have been extended indefinitely until certain indicators for modifying the stay-at-home order have been met. The County has also declared a state of emergency in response to the COVID-19 outbreak. Similarly, the City Council passed Resolution No. 7300 on March 17, 2020 to declare a local emergency due to the COVID-19 outbreak. On March 27, 2020, the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Stabilization Act (the “CARES Act”) which provides, among other measures, $150 billion in financial assistance to states, tribal governments and local governments to provide emergency assistance to those most significantly impacted by COVID-19. Under the CARES Act, local governments are eligible for reimbursement of certain costs which are expended to address the impacts of the pandemic, although the City cannot predict what State and/or federal funding or other relief it will ultimately receive. Any funds received by the City under the CARES Act are not available for payment of debt service on the Bonds and cannot be used to backfill City revenue losses related to COVID-19. The effects of the COVID-19 outbreak and governmental actions responsive to it are altering the behavior of businesses and people in a manner that is having significant negative impacts on global and local economies. In addition, financial markets in the United States and globally have experienced significant volatility attributed to COVID-19 concerns. Volatility in the financial markets has impacted CalPERS’ earnings, which could result in a significant increase in the City’s unfunded pension liability and future pension costs, commencing in Fiscal Year 2023. See the caption “CITY PENSION PLANS.” The outbreak has resulted in increased pressure on State finances, as budgetary resources are directed towards containing the pandemic and tax revenues sharply decline. Identified cases of COVID-19 and deaths attributable to the COVID-19 outbreak are continuing to increase throughout the United States, including the City. The COVID- 19 outbreak is expected to result in material declines in major General Fund revenues, including in sales taxes, business license taxes and fees and transient occupancy taxes. In addition, the Governor extended the deadline to file and pay spring 2020 property taxes for residential and certain commercial property owners, and first quarter 2020 sales and use tax returns by 90 days for all but the very largest taxpayers. As a result of the extended deadline to file sales and use tax returns, it is estimated that up to 361,000 California businesses with less than $5 million in taxable annual sales will be allowed to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. These actions will result in delays in the receipt by the City of its portion of the payments. See the captions “CITY FINANCIAL INFORMATION—Property Taxes” and “CITY FINANCIAL INFORMATION—Sales Taxes.” Other potential impacts to the City associated with the COVID-19 outbreak include, but are not limited to, increasing costs and challenges to the public health system in and around the City, cancellations of public events and disruption of the regional and local economy with corresponding decreases in the City’s revenues, including transient occupancy tax revenue, sales tax revenue and other revenues, and potential declines in property values. In an effort to limit large gatherings of employees, certain City personnel are telecommuting or working from alternate locations and the City has staggered shifts at critical facilities. In addition, on-site personnel are wearing masks and practicing social distancing while working. As permitted by applicable orders by the Governor regarding COVID-19, City Council meetings are being conducted telephonically 18 instead of in-person, with full opportunity for the public to participate telephonically. The City does not expect its operations to be materially affected by such actions. However, there can be no assurance that absences of employees or City leadership due to COVID-19 will not adversely impact City operations. The City has implemented numerous policies and procedures in response to COVID-19. In addition to complying with the Families First Coronavirus Response Act (“FFCRA”) and closely monitoring updates from Los Angeles County Department of Public Health Quarantine and Isolation Orders to ensure compliance, the City put into place Standard Operating Procedures (“SOP”) to safeguard all employees. As part of the enhanced Citywide measures contained in the SOP, the City put in place protective shields and marked social distancing spacers to prohibit groups from forming at all public counters in City facilities. The City communicated heightened cleaning requirements to its vendors who have primary sanitation responsibilities and made cleaning/sanitizing supplies readily available to all employees for their workspace in City facilities. Additionally, the City provided all employees with face masks and personal use hand sanitizers which are replenished as needed. Each City facility where public presence is prevalent have signs informing residents of the need to wear face masks before entering the building as well as to not enter if they are exhibiting symptoms similar to COVID-19. The City has limited the need for in-person meetings unless absolutely essential. All City departments continue to utilize alternate platforms for meetings such as teleconferencing or video conferencing. City policies provide that if an in-person meeting is held, it must take place in a well-ventilated area that allows for sufficient space to appropriately socially distance. Cleaning supplies and hand sanitizer are made available when in-person meetings are held. The City requires that all employees take necessary steps to protect themselves from the spread of COVID-19. If an employee is feeling ill, or are exhibiting symptoms similar to COVID-19, they must stay home or they will be sent home if they report to work ill. Employees continue to monitor and screen their health and wellness. The City has implemented mandatory temperature checks for police and fire facilities, with voluntary temperature checks at all other City facilities. On the City’s intranet there are resources and comprehensive information on managing stressors, assistance in dealing with finances, and alternate ways to exercise during the COVID-19 pandemic. The City has also made readily available and has sent out Employee Assistance Program information to help employees get assistance. The COVID-19 outbreak is ongoing, and the duration and severity of the outbreak and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to treat its impact are uncertain. The ultimate long-term impact of COVID-19 on the operations and finances of the City is unknown at this time. The City had projected, as a result of the COVID-19 outbreak, that the General Fund would end the Fiscal Year 2020 with a deficit of $3.2 million due to expected reductions of sales tax and transient occupancy tax revenues during the third and fourth quarters of the fiscal year. However, as the result of better than expected revenues, primarily due to better than expected tax revenues and reduced expenditures for Fiscal Year 2020, the City experienced a General Fund operating surplus of approximately $400,000 (based on unaudited actual results and exclusive of approximately $935,000 of certain discretionary General Fund capital expenditures made in Fiscal Year 2020). See the captions “CITY FINANCIAL INFORMATION— General Economic Condition and Outlook of the City” and “CITY FINANCIAL INFORMATION—Fiscal Year 2020 Budget.” The City’s Fiscal Year 2021 General Fund budget, which includes consideration of the effect of the COVID-19 outbreak and an anticipated recession, reflects the City’s expectation of a balanced budget, resulting in a projected surplus of approximately $251,700. Such surplus is expected as a result of revenues generated by the Measure A Sales Tax (as such term is defined under the caption “CITY FINANCIAL INFORMATION—General Economic Condition and Outlook of the City”), a 0.75% sales tax measure that was approved by the voters in June 2019. Fiscal Year 2021 is the first year in which the City will receive Measure A Sales Tax revenues for a full Fiscal Year. See the caption “CITY FINANCIAL INFORMATION—Budget Procedure, Current Budget and Historical Budget Information—Fiscal Year 2021 Budget.” 19 Notwithstanding the foregoing, the City does not currently believe that the COVID-19 outbreak will materially adversely affect its ability to pay debt service on the Bonds. See the caption “CITY FINANCIAL INFORMATION—General Economic Condition and Outlook of the City.” CITY FINANCIAL INFORMATION Accounting and Financial Reporting The basic financial statements of the City are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) as applied to governmental agencies. 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 with a separate set of self-balancing accounts that comprise its assets, liabilities, fund equity, 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. The Government-Wide Financial Statements are presented on an economic resources measurement focus and the accrual basis of accounting. Accordingly, all of the City’s assets and liabilities, including capital assets, as well as infrastructure assets, and long-term liabilities, are included in the accompanying Statement of Net Position. The Statement of Activities presents changes in net position. Under the accrual basis of accounting, revenues are recognized in the period in which they are earned while expenses are recognized in the period in which the liability is incurred. Fiduciary activities of the City are not included in these statements. Certain types of transactions are reported as program revenues for the City in three categories: (i) charges for services, (ii) operating grants and contributions and (iii) capital grants and contributions. Certain eliminations have been made in regards to interfund activities, payables, and receivables. All internal balances in the statement of net position have been eliminated except those representing balances between the governmental activities and the business-type activities, which are presented as internal balances and eliminated in the total primary government column. In the statement of activities, transactions between governmental and business-type activities have not been eliminated. The following interfund activities have been eliminated: (i) due from/to other funds, and (ii) transfers in/out. All governmental funds, such as the City’s General Fund (the “General Fund”), are accounted for on a spending or current financial resources measurement focus and the modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the balance sheet. The statement of revenues, expenditures, and changes in fund balances presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. An accompanying schedule is presented to reconcile and explain the differences in fund balances as presented in these statements to the net position presented in the government-wide financial statements. Revenues are recognized as soon as they are both “measurable” and “available”. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For these purposes, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property taxes, sales taxes, certain grant revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. See the caption “—City Financial Statements” for a discussion of the City’s audited financial statements for Fiscal Year 2019. 20 The General Fund is the general operating fund of the City. It is used to account for all financial resources except those that are required to be accounted for in another fund. The tables below set forth certain historical and current Fiscal Year budget information for the General Fund. Information on the remaining governmental funds of the City as of June 30, 2019, is set forth in Appendix A. General Economic Condition and Outlook of the City Fiscal Policies. The City believes that its ongoing review and control over expenditure growth has been, and will continue to be, a critical factor in maintaining and improving the City’s overall financial health. The City has implemented an emergency reserve policy to maintain its operating fund balance at 20% of the General Fund expenditures, and it is more than fully funded. To the extent that the issuance of the Bonds results in budget savings in the City’s Pension Liability for Fiscal Years 2021 and 2022, the City expects to apply such savings to increase the City’s reserve funds and to make additional payments to CalPERS in the form of Additional Discretionary Employer Contributions to further reduce the City’s remaining unfunded accrued liability balances for its pension plans. See the caption “PLAN OF REFINANCING.” In 2019, City voters voted in favor of a 0.75% sales tax measure which became effective January 1, 2020 (the “Measure A Sales Tax”). The Measure A Sales Tax does not sunset. It is estimated that the City will generate approximately $8.6 million in annual revenues from the Measure A Sales Tax, and such revenues will be used to maintain the current level of service offered by the City, to help address the expected increasing pension liabilities, and to allow for the City to balance its yearly budget. The Fiscal Year 2021 budget was adopted as a balanced budget largely as a result of the Measure A Sales Tax. The City is aware that increased sales tax revenues are dependent on the state of the economy. Under the leadership of the City Council, the City has been diligent at maintaining the City’s long- term viability and, where appropriate, the City Council has made necessary and appropriate policy changes to adjust course to ensure fiscal solvency. The City Council engages with civic leaders and resident volunteers to ensure that the community’s voice is heard on important matters. A Citizens’ Oversight Committee was established to serve in an advisory capacity to the City Council with respect to the Measure A Sales Tax. The Citizen’s Oversight Committee’s duties include: (i) an annual review of the City’s revenue and expenditures from the Measure A Sales Tax; (ii) the scheduling of periodic public meetings to discuss the Measure A Sales Tax, as directed by the City Council (such meetings are currently scheduled to occur four times per year); and (iii) an annual review of audit reports related to the Measure A Sales Tax and the preparation of written reports to the City Council that summarize the committee’s findings and recommendations. Summary of General Fund Results and Budgets. As of June 30, 2020, the General Fund ended the Fiscal Year with an operating surplus (revenues in excess of expenditures) of approximately $400,000 (based on unaudited actual results and exclusive of approximately $935,000 of certain discretionary General Fund capital expenditures made in Fiscal Year 2020), exceeding the anticipated year-end deficit of approximately $3.1 million set forth in the City’s revised Fiscal Year 2020 estimates due to the COVID-19 outbreak. The surplus is largely attributed to better than expected tax revenues and reduced expenditures of approximately $1.8 million. In particular, sales tax revenues, which were originally budgeted at approximately $13.6 million for Fiscal Year 2020 and revised down to approximately $10.7 million due to the COVID-19 outbreak, totaled approximately $12.4 million, and property tax revenues, which were budgeted at approximately $15.9 million for Fiscal Year 2020, totaled approximately $16.4 million. Due to uncertainty related to the COVID-19 outbreak, the City took a very conservative approach when preparing the Fiscal Year 2021 Budget. The Fiscal Year 2021 budget assumes ongoing State and local restrictions related to the COVID-19 outbreak and the possibility of a full shutdown this winter. Such a scenario would have a significant impact on the City’s operations and ability to generate revenues and the budget takes into account impacts to Sales Tax revenues, Transient Occupancy Tax revenues, Fees for Services 21 revenues, and other revenues. Additionally, to ensure that the City can respond to significant negative variances, financial updates will be provided to the City Council on a quarterly basis to make adjustments as expeditiously as possible. The projected Measure A Sales Tax revenues, which take into account the COVID- 19 outbreak and related economic downturn, allowed the City to adopt a balanced Fiscal Year 2021 General Fund operating budget that does not use reserve funds. The adopted Fiscal Year 2021 Budget does not contain new programs; instead, significant cuts have been made throughout all departments—but most significantly in the Library & Museum and Recreation & Community Services Departments, whose operations are most directly impacted by the ongoing restrictions related to the COVID-19 outbreak. For Fiscal Year 2021, the adopted General Fund operating budget projects revenues of approximately $68.2 million, which is approximately $835,000 (1.2%) more than total revenues for Fiscal Year 2020 (based on unaudited actual results). In addition, the adopted Fiscal Year 2021 General Fund operating budget projects expenditures of approximately $68.0 million, an increase of approximately $102,000 (0.15%) over Fiscal Year 2020 expenditures (based on unaudited actual results). The adopted Fiscal Year 2021 General Fund operating budget anticipates total operating revenues of $65.6 million and total operating expenses of $63.9 million exclusive of Fund Transfers In & Out. The Fiscal Year 2021 General Fund Operating Budget, as adopted, reflects a balanced budget and an expected surplus of $251,700. Such surplus would add to the ending Operating Fund Balance which the City currently expects to be approximately $6,842,730, revised up from $3,216,900 due to better than expected tax revenues and reduced expenditures in the third and fourth quarters of Fiscal Year 2020, as discussed below under the caption “—Fiscal Year 2020 Budget.” Based on a recent assessment of the City’s cash flow, the City expects to have the necessary liquidity and capacity to weather the COVID-19 outbreak and anticipated economic downturn. The City continues to meet the need for setting aside an Emergency Reserve Fund, which currently has a balance of approximately $10.1 million. The sum of all reserve balances—the Emergency Reserve Fund plus other Unrestricted Reserve Balances (such as the Workers’ Compensation and Liability Claims Fund, the Capital Improvement Fund, and the Equipment Replacement Fund)—equals approximately $27.9 million. See the caption “—Budget Procedure, Current Budget and Historical Budget Information” for additional information relating to the adopted budget for Fiscal Year 2021. Budget Procedure, Current Budget and Historical Budget Information General. The City’s budgetary process is guided by the City Council’s priorities, with input from residents, neighborhood groups, boards, commissions and businesses following neighborhood meetings and various year-round opportunities for suggestions and comments. Annual budgets are adopted on a basis that is consistent with generally accepted accounting principles for governmental funds, except that encumbrances are shown in the year incurred for budgetary purposes. All annual appropriations lapse at fiscal year-end. On or before March of each year, all operational units submit requests for appropriations to the City Manager for budget preparation purposes. From March through April of each year, budget requests are scrutinized by the City’s Finance Division and preliminary revenue estimates are projected. Thereafter, the City Manager and Finance Division staff meet with operational unit managers to discuss proposed budget amounts. The City Manager submits a proposed budget to the City Council in mid-May of each year. It is within this timeframe that the City Council holds budget study sessions to discuss the proposed budget, recommendations of new programs, and makes necessary adjustments to reach a balance budget. The proposed budget is presented at a City Council meeting which is held as a public hearing for the final approval no later than June 30. The budget for Fiscal Year 2021 was approved on June 16, 2020. The appropriated budget is prepared by fund, function and department. The City’s department directors, with approval of the Finance Services Manager and City Manager, may make transfers of 22 appropriations within a department and between departments within a fund. The legal level of budgetary control (i.e., the level at which expenditures may not legally exceed appropriations) is the fund level. Under encumbrance accounting, purchase orders, contracts and other commitments for expenditures are recorded to reserve that portion of the applicable appropriation. Encumbrance accounting is employed as an extension of formal budgetary accounting. Unexpended appropriations lapse at year-end regardless of encumbrances. Fiscal Year 2020 Budget. The City Council adopted the Fiscal Year 2020 budget on June 18, 2019. Budgeted General Fund revenues was approximately $67.4 million and expenditures totaled approximately $67.9 million for Fiscal Year 2020. Although such budget projected a deficit of $482,215, such deficit was expected to be eliminated through the typical vacancy factor experienced by the City. As a result of COVID-19 and uncertainties it caused, both revenues and expenditures were revised accordingly to respond to its effects. Consequently, significant reduction of revenues in sales tax and transient occupancy tax were forecasted. The City’s revised budget for Fiscal Year 2020 projected a deficit of $3.1 million. However, actual expenditures for the General Fund for Fiscal Year 2020 were approximately $65.2 million, which is approximately $1.8 million (2.5%) less than the revised budget for Fiscal Year 2020. In addition, tax revenues were better than expected, and the General Fund ended the fiscal year with an operating surplus (revenues in excess of expenditures) of approximately $400,000 (based on unaudited actual results and exclusive of approximately $935,000 of certain discretionary General Fund capital expenditures made in Fiscal Year 2020). Fiscal Year 2021 Budget. The City Council adopted a budget for Fiscal Year 2021 on June 16, 2020 which takes into account the effects of the COVID-19 outbreak. Budgeted expenditures for the General Fund total approximately $68.0 million for Fiscal Year 2021, an increase of approximately $101,985 (0.15%) above Fiscal Year 2020 budgeted expenditures. Budgeted revenues for the General Fund total approximately $68.2 million for Fiscal Year 2021, an increase of approximately $835,900 (1.24%) above Fiscal Year 2020 budgeted revenues. Such increase is primarily a result of increased property and sales taxes, as Fiscal Year 2021 is the first full year in which the Measure A Sales Tax would be accounted for. The City’s Fiscal Year 2021 General Fund budget, which includes consideration of the effects of the COVID-19 outbreak and an anticipated recession, reflects the City’s expectation of a balanced budget, resulting in a projected surplus of approximately $251,700. Budget History. Set forth in Table 1 below are the General Fund budgets for Fiscal Years 2018 through 2021, the audited General Fund results for Fiscal Years 2018 and 2019 and unaudited actual Fiscal Year 2020 results. During the course of each fiscal year, the budget is amended and revised as necessary by the City Council; budgeted amounts shown below reflect such amendments and revisions in certain fiscal years. 23 Table 1 City of Arcadia General Fund Budgets and Results Adopted Fiscal Year 2018 Budget Audited Fiscal Year 2018 Results Adopted Fiscal Year 2019 Budget Audited Fiscal Year 2019 Results Adopted Fiscal Year 2020 Budget Actual Fiscal Year 2020 Results(1) Adopted Fiscal Year 2021 Budget Revenues Taxes(2) $ 38,703,700 $ 37,797,893 $ 39,707,200 $ 39,436,524 $ 41,868,400 $ 40,518,563 $ 44,034,500 Licenses and Permits 4,210,500 4,636,689 5,292,500 4,647,777 4,392,300 4,510,580 4,556,200 Fines and Forfeitures 575,500 496,828 583,500 442,858 527,500 440,352 416,500 Use of Money and Property 1,510,400 1,359,379 1,668,000 2,178,868 1,562,000 2,086,308 1,517,800 Intergovernmental 7,005,500 7,084,640 7,405,000 7,545,240 7,603,300 7,982,689 8,771,800 Charges for Services 4,436,000 5,038,450 4,507,400 4,834,282 5,031,900 4,455,089 4,121,300 Other Revenues 3,117,100 3,152,046 3,188,000 2,866,610 2,296,800 2,547,802 2,209,500 Total Revenues $ 59,558,700 $ 59,565,925 $ 62,351,600 $ 61,952,159 $ 63,282,200 $ 62,541,383 $ 65,627,600 Expenditures General Government City Council $ 233,700 $ 230,385 $ 242,800 $ 230,610 $ 245,900 $ 219,422 $ 218,700 City Manager 892,300 866,465 912,800 1,017,731 936,400 893,472 907,300 City Clerk 437,800 411,000 319,500 395,484 604,100 347,188 242,500 City Attorney 649,300 580,618 573,500 516,710 594,800 476,404 663,700 General City 1,748,200 1,946,674 2,002,900 1,978,800 2,099,200 2,362,452 2,381,700 Administrative services 4,408,300 3,609,092 4,284,600 3,465,001 3,394,700 3,394,698 3,452,800 Public Safety Police 22,008,900 20,727,096 22,873,700 22,801,184 23,247,600 22,439,292 23,473,400 Fire 14,854,400 15,697,715 15,863,000 16,464,591 17,700,400 17,597,640 16,775,300 Public Works Services 3,984,100 3,943,572 4,187,100 4,066,700 4,434,200 4,117,426 4,219,900 Community Development 4,557,900 4,069,124 5,032,400 4,303,013 4,751,915 4,313,168 4,637,200 Library 3,856,800 3,746,990 3,968,500 3,829,073 3,303,700 4,017,622 2,767,700 Recreation and Community Services 3,289,100 3,180,516 3,358,700 3,254,180 4,171,100 2,943,768 4,141,500 Debt Service: Principal Retirement -- -- -- 58,028 -- 58,028 -- Total Expenditures $ 60,920,800 $ 59,009,247 $ 63,619,500 $ 62,381,105 $ 65,484,015 $ 63,180,580 $ 63,881,700 Excess (Deficiency) of Revenues Over (Under) Expenditures $ (1,362,100) $ 556,678 $ (1,267,900) $ (428,946) $ (2,201,815) $ (639,197) $ 1,745,900 Other Financing Sources (Uses) Transfers In $ 1,626,300 $ 1,500,417 $ 1,675,300 $ 1,580,943 $ 4,126,400 $ 1,790,425 $ 2,616,900 Transfers Out (1,492,400) (2,116,845) (3,159,700) (3,077,204) (2,406,800) (1,642,492) (4,111,100) Proceeds from Capital Lease Obligations(3) -- -- -- 290,140 -- -- -- Total Other Financing Sources (Uses) $ 133,900 $ (616,428) $ (1,484,400) $ (1,206,121) $ 1,719,600 $ 147,933 $ (1,494,200) Net Change in Fund Balances $ (1,228,200) $ (59,750) $ (2,752,300) $ (1,635,067) $ (482,215) $ ($491,264) $ 251,700 Fund Balances – Beginning N/A $ 31,184,088 N/A $ 31,124,338 N/A $ 29,489,271 N/A Fund Balances – Ending N/A $ 31,124,338 N/A $ 29,489,271 N/A $ 28,998,007 N/A (1) Reflects unaudited actual Fiscal Year 2020 results; subject to change. (2) See the caption “—Tax Revenues of the City” for a breakdown of tax revenues for the past five Fiscal Years. (3) See the caption “—Other Indebtedness—Other Long-Term Debt— Capital Lease Obligations.” Sources: Adopted budgets of the City for Fiscal Years 2018 through 2021; audited financial statements of the City for Fiscal Years 2018 and 2019; City for Fiscal Year 2020 actual results. 24 Change in Fund Balance of the City General Fund Set forth in Table 2 below are the City’s audited General Fund statements of revenues, expenditures and changes in fund balance for Fiscal Years 2016 through 2019 and the City’s estimated General Fund statement of revenues, expenditures and changes in fund balance for Fiscal Year 2020 based on available information to date. Table 2 City of Arcadia General Fund Statement of Revenues, Expenditures and Changes in Fund Balances Fiscal Year Ended June 30, 2016 2017 2018 2019 2020(1) Revenues Taxes(2) $ 36,882,562 $ 37,491,396 $ 37,797,893 $ 39,436,524 $ 40,518,563 Licenses and Permits 6,387,403 6,030,346 4,636,689 4,647,777 4,510,580 Fines and Forfeitures 572,435 434,858 496,828 442,858 440,352 Use of Money and Property 1,527,839 1,310,176 1,359,379 2,178,868 2,086,308 Intergovernmental 6,390,849 6,673,424 7,084,640 7,545,240 7,982,689 Charges for Services 4,548,949 4,276,787 5,038,450 4,834,282 4,455,089 Other Revenues 3,086,958 2,825,632 3,152,046 2,866,610 2,547,802 Total Revenues $ 59,396,958 $ 59,042,619 $ 59,565,925 $ 61,952,159 $ 62,541,383 Expenditures General Government City Council $ 260,386 $ 274,724 $ 230,385 $ 230,610 $ 219,422 City Manager 749,203 804,420 866,465 1,017,731 893,472 City Clerk 435,526 255,076 411,000 395,484 347,188 City Attorney 463,340 584,740 580,618 516,710 476,404 General City 2,610,690 1,855,081 1,946,674 1,978,800 2,362,452 Administrative services 3,847,140 4,286,662 3,609,092 3,465,001 3,394,698 Public Safety Police 19,057,936 20,245,999 20,727,096 22,801,184 22,439,292 Fire 14,147,306 14,752,629 15,697,715 16,464,591 17,597,640 Public Works Services 4,512,667 3,652,048 3,943,572 4,066,700 4,117,426 Community Development 4,520,057 4,268,614 4,069,124 4,303,013 4,313,168 Library 3,491,033 3,608,439 3,746,990 3,829,073 4,017,622 Recreation and Community Services 2,899,418 2,982,607 3,180,516 3,254,180 2,943,768 Debt Service: Principal Retirement -- -- -- 58,028 58,028 Interest and Fiscal Charges -- -- -- -- -- Total Expenditures $ 56,994,703 $ 57,571,039 $ 59,009,247 $ 62,381,105 $ 63,180,580 Excess (Deficiency) of Revenues Over (Under) Expenditures $ 2,402,293 $ 1,471,580 $ 556,678 $ (428,946) $ (639,197) Other Financing Sources (Uses) Transfers In $ 1,521,376 $ 1,509,438 $ 1,500,417 $ 1,580,943 $ 1,790,425 Transfers Out (8,809,086) (3,749,574) (2,116,845) (3,077,204) (1,642,492) Proceeds from Capital Lease Obligations(3) -- -- -- 290,140 -- Total Other Financing Sources (Uses) $ (7,287,710) $ (2,240,136) $ (616,428) $ (1,206,121) $ 147,933 Net Change in Fund Balances $ (4,885,417) $ (768,556) $ (59,750) $ (1,635,067) $ ($491,264) Fund Balances – Beginning of Fiscal Year $ 36,838,061 $ 31,952,644 $ 31,184,088 $ 31,124,338 $ 29,489,271 Fund Balances – End of Fiscal Year $ 31,952,644 $ 31,184,088 $ 31,124,338 $ 29,489,271 $ 28,998,007 (1) Reflects unaudited actual Fiscal Year 2020 results; subject to change. (2) See the caption “—Tax Revenues of the City” for a breakdown of tax revenues for the past five Fiscal Years. (3) See the caption “—Other Indebtedness—Other Long-Term Debt—Capital Lease Obligations.” Source: Audited financial statements of the City for Fiscal Years 2016 through 2019; City for Fiscal Year 2020. 25 General Fund Balance Sheets of the City Set forth in Table 3 below are the City’s audited General Fund balance sheets for Fiscal Years for Fiscal Years 2016 through 2019 and the City’s unaudited actual General Fund balance sheet for Fiscal Year 2020. Table 3 City of Arcadia General Fund Balance Sheet Summary Fiscal Year Ended June 30, 2016 2017 2018 2019 2020(1) Assets Cash and Investments $ 29,143,884 $ 28,552,600 $ 27,775,761 $ 26,224,774 $ 25,544,473 Accounts Receivable 211,120 199,749 192,823 288,236 310,764 Interest Receivable 71,548 90,906 113,943 141,825 123,034 Due from Other Funds 360,323 53,111 44,089 117,576 419,680 Due from Other Governments 4,823,137 3,845,726 4,058,502 3,870,182 3,905,637 Prepaid items and deposits 45,424 60,291 83,465 59,173 37,022 Inventories 751,881 785,222 985,511 852,060 761,707 Advances to Other Funds -- -- -- 201,614 201,614 Total Assets $ 35,407,317 $ 33,587,605 $ 33,254,094 $ 31,755,430 $ 31,303,931 Liabilities Accounts Payable $ 1,242,329 $ 1,539,457 $ 1,195,696 $ 1,180,687 $ 1,271,886 Accrued Salaries Payable 1,996,467 606,684 641,120 781,838 945,221 Due to Other Funds -- -- -- -- -- Unearned Revenue 215,887 257,376 287,004 297,998 80,731 Deposits -- -- 1,950 1,650 4,100 Retentions Payable -- -- 3,986 3,986 3,986 Total Liabilities $ 3,454,673 $ 2,403,517 $ 2,129,756 $ 2,266,159 $ 2,305,924 Fund Balances Nonspendable(2) $ 797,305 $ 845,513 $ 1,068,976 $ 1,112,837 $ 1,000,343 Restricted(3) -- -- -- -- -- Assigned(4) 24,756,336 23,015,454 22,829,444 23,295,469 23,296,691 Unassigned 6,399,003 7,323,121 7,225,918 5,080,965 4,700,973 Total Fund Balances $ 31,952,644 $ 31,184,088 $ 31,124,338 $ 29,489,271 $ 28,998,007 Total Liabilities and Fund Balances $ 35,407,317 $ 33,587,605 $ 33,254,094 $ 31,755,430 $ 31,303,931 (1) Reflects unaudited actual numbers; subject to change. (2) This classification includes amounts that cannot be spent because they are either not in a spendable form or are legally or contractually required to be maintained intact. (3) This classification includes amounts that are constrained by external creditors, grantors, contributors or laws or regulations of other governments or by law through constitutional provisions or enabling legislation. (4) Assigned funds are intended to be used for specific purposes but are not formally constrained by City Council action. Source: Audited financial statements of the City for Fiscal Years 2016 through 2019; City for Fiscal Year 2020. Tax Revenues of the City A summary of taxes and certain fees received by the City in the last five Fiscal Years is set forth in Table 4 below. Certain general taxes currently imposed by the City are affected by various State Constitutional provisions. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” 26 Table 4 City of Arcadia General Fund Major Tax Revenues and Fees by Source Fiscal Year Ended June 30, % of Total General Fund Revenues(3) 2016 2017 2018 2019 2020(1) 2021(2) Property Tax(4) $ 21,286,077 $ 22,612,125 $ 23,871,206 $ 25,610,660 $ 26,844,097 $ 27,409,800 43.8% Sales Tax(5) 11,441,622 10,766,558 11,115,292 11,399,632 12,430,661 16,506,400 26.4 Utility Users Tax 6,816,464 6,773,169 6,856,067 6,591,834 6,779,875 6,638,100 10.6 Transient Occupancy Tax 3,531,944 3,543,908 3,320,953 3,447,186 2,748,642 2,035,600 3.3 Business/Other Taxes/Fees (6) 3,932,776 3,918,320 3,852,578 3,216,776 3,119,636 3,848,000 6.2 TOTAL(7) $ 47,008,883 $ 47,614,080 $ 49,016,096 $ 50,266,088 $ 51,922,911 $ 56,437,900 90.3% (1) Reflects unaudited actual Fiscal Year 2020 results; subject to change. (2) Reflects budgeted Fiscal Year 2021 amounts. (3) Reflects percentage of total estimated Fiscal Year 2020 General Fund revenues of $62,541,383. May not foot due to rounding. (4) Includes vehicle license fees and property taxes in lieu of vehicle license fees. See the captions “—Property Taxes” and “—State of California Motor Vehicle In-Lieu Payments.” (5) The 0.75% Measure A Sales Tax became effective January 1, 2020. (6) Includes property transfer tax, amusement tax, franchise fees and business license taxes and fees. Decrease in Fiscal Year 2019 reflects a change in methodology for charging an administrative fee to the City’s enterprise funds. (7) Differs from amounts shown in the “Taxes” line item in the tables under the caption “—Change in Fund Balance of the City General Fund” because the above amounts include franchise fees, business license taxes and other tax revenues in the “Business/Other Taxes/Fees” line item. Source: Audited financial statements of the City for Fiscal Years 2016 through 2019; City for Fiscal Years 2020 and 2021. Property Taxes Fiscal Year 2019 property tax receipts of $25,610,660 provided the largest tax revenue source for the City in Fiscal Year 2019. Property taxes contributed approximately 50.9% of General Fund tax revenues and approximately 41.3% of total General Fund revenues in Fiscal Year 2019. Based on unaudited actual Fiscal Year 2020 results, the City estimates Fiscal Year 2020 property tax receipts to be $26,844,097. Property in the State 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 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 the secured property, regardless of the time of the creation of other liens. The exclusive means of compelling the payment of delinquent taxes with respect to secured property is the sale of the property securing the taxes for the amount of taxes that are delinquent. The taxing authority has three methods of collecting unsecured personal property taxes: (1) filing a civil action against the taxpayer; (2) obtaining a judgment lien on certain property of the taxpayer from the county clerk or county recorder; and (3) seizing and selling personal property, improvements or possessory interests belonging or taxable to the assessee. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, beginning on the July 1 following a delinquency, interest begins accruing at the rate of 1.5% per month on the amount delinquent. 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 10% penalty also applies to the delinquent taxes or property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning on the varying dates related to the tax billing date. In an attempt to mitigate the effects of the COVID-19 pandemic on State property taxpayers, on May 6, 2020, the Governor signed Executive Order N-61-20 (“Order N-61-20”). Under Order N-61-20, certain provisions of the State Revenue and Taxation Code are suspended until May 6, 2021, to the extent that 27 they require a tax collector to impose penalties, costs or interest for the failure to pay secured or unsecured property taxes, or to pay a supplemental bill, before the date that such taxes become delinquent. Such penalties, costs and interest will be cancelled under the conditions provided for in Order N-61-20, including if the property is residential real property occupied by the taxpayer or the real property qualifies as a small business under certain State laws, the taxes were not delinquent prior to March 4, 2020, the taxpayer files a claim for relief with the tax collector and the taxpayer demonstrates economic hardship or other circumstances that have arisen due to the COVID-19 pandemic or due to a local, state, or federal governmental response thereto. The City did not see a material decrease in property tax receipts due to Order N-61-20. However, no assurance can be given that such order will not affect Fiscal Year 2021 property tax results. See the caption “THE CITY—COVID-19 Outbreak.” As discussed in the paragraph below Table 5 (“Assessed Valuation History”), the County has not adopted the “Teeter Plan” and the City is therefore exposed to the risk of delinquencies in the payment of property taxes. State law also provides for the supplemental assignment and taxation of property as of the occurrence of a change in ownership or completion of new construction. Collection of taxes based on supplemental assessments occurs throughout the year. Taxes due are prorated according to the amount of time remaining in the tax year. See the caption “RISK FACTORS—Split Roll Initiative” for a discussion of an initiative that will appear on the November 2020 Statewide ballot which will amend provisions of State law relating to property taxes, including the provisions that are discussed above. For a number of years, the State Legislature shifted property taxes from cities, counties and special districts to the Educational Revenue Augmentation Fund (“ERAF”). In Fiscal Years 1993 and 1994, in response to serious budgetary shortfalls, the State Legislature and administration permanently redirected over $3 billion of property taxes from cities, counties, and special districts to schools and community college districts pursuant to ERAF shifts. The Fiscal Year 2005 State Budget included an additional $1.3 billion shift of property taxes from certain local agencies, including the City, in Fiscal Years 2005 and 2006. On November 2, 2010, State voters approved Proposition 22, which: (i) prohibits the State of California from shifting or delaying the distribution of funds from special districts to schools and community colleges; (ii) eliminates the authority to shift property taxes temporarily during a severe financial hardship of the State; and (iii) restricts the State’s authority to use fuel tax revenues to pay debt service on transportation bonds, to borrow or change the distribution of fuel tax revenues or to use vehicle license fee revenues to reimburse local governments for state-mandated costs. Despite the passage of Proposition 22, there can be no assurance that 1% ad valorem property tax revenues which the City currently expects to receive will not be temporarily shifted from the City or reduced pursuant to State legislation enacted in the future. If the property tax formula is permanently changed in the future, it could have a material adverse effect on the receipt of its share of 1% property tax revenues by the City. 28 Set forth in Table 5 below are the secured and unsecured assessed valuations for property in the City for the Fiscal Years 2016 through 2020. Table 5 City of Arcadia Assessed Valuation History (Dollars in Thousands) Fiscal Year Secured Value Unsecured Value Total Assessed Value % Increase 2017 $14,468,019,735 $205,509,909 $14,673,529,644 N/A% 2018 15,476,508,029 199,963,533 15,676,471,562 6.8 2019 16,392,536,722 209,538,965 16,602,075,687 5.9 2020 17,394,201,586 222,430,476 17,616,632,062 6.1 2021 18,165,436,683 219,267,889 18,384,704,572 4.4 Source: City. Set forth in Table 6 below are property tax collections (including amounts that do not constitute General Fund money) and delinquencies in the City as of June 30 for Fiscal Years 2016 through 2020. The County has not adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (known as the “Teeter Plan”), as provided for in Section 4701 et seq. of the Revenue and Taxation Code of the State (under which the County would pay the City 100% of property taxes due to the City regardless of actual collections). The City is therefore exposed to the risk of delinquencies in the payment of property taxes. However, the City does receive penalties and interest when property taxes are paid late. The City also receives supplemental taxes throughout the year. Table 6 City of Arcadia Property Tax Levies and Collections Fiscal Year Total Tax Levy Collections within the Fiscal Year of Levy Percent of Levy Collected within the Fiscal Year of Levy Collections in Subsequent Years Percent of Levy Collected to Date 2016 $ 916,767 $ 957,245 104.42% $22,813 106.90% 2017 986,300 1,020,512 103.47 25,356 106.04 2018 967,300 964,452 99.71 32,920 103.11 2019 990,300 948,177 95.75 25,303 98.30 2020(1) 1,001,500 992,051 99.06 13,148 100.37 (1) Reflects unaudited actual Fiscal Year 2020 results; subject to change. Source: City. 29 The 10 largest secured and unsecured taxpayers in the City as shown on the Fiscal Year 2020 tax roll, the assessed valuation and the percentage of the City’s total property tax revenues attributable to each are set forth in Table 7 below. Table 7 City of Arcadia 10 Largest Secured and Unsecured Taxpayers Rank Property Owner Type of Business Fiscal Year 2021 Assessed Valuation % of Total(1) 1. Santa Anita Borrower LLC Commercial $ 415,954,188 2.36% 2. Methodist Hospital of So. California Healthcare 219,450,550 1.24 3. Santa Anita Land Holdings LLC Entertainment 218,125,219 1.24 4. Scannell Properties 255 LLC LSEE Industrial 124,974,616 0.71 5. Baldwin Arcadia Center LP Commercial 84,185,263 0.48 6. JLJ Properties Arcadia I LLC Commercial 64,577,626 0.37 7. SAICP Hotel LLC Hospitality 49,490,400 0.28 8. Chang Chih International Investment LLC Commercial 40,940,872 0.23 9. VG Property Investments LLC Commercial 38,108,776 0.22 10. PI Properties No 42 LLC Commercial 35,976,045 0.20 TOTAL $ 1,291,783,555 7.33% (1) Fiscal Year 2020 Taxable Assessed Value: $17,616,632,062. Sources: Los Angeles County Assessor. The City is currently projecting an increase of approximately 4.9% in property tax revenues in Fiscal Year 2021 above the Fiscal Year 2020 budgeted amount. However, an extended recession caused by the COVID-19 outbreak could impact assessed values with the City and result in decreased property tax revenues. See the caption “THE CITY—COVID-19 Outbreak.” Sales Taxes Fiscal Year 2019 sales tax receipts of $11,399,632 provided the second largest tax revenue source for the City in Fiscal Year 2019. Sales taxes contributed approximately 18% of General Fund tax revenues and approximately 29% of total General Fund revenues in Fiscal Year 2019. Based on unaudited actual Fiscal Year 2020 results, the City estimates Fiscal Year 2020 sales tax receipts to be $12,430,661. A sales tax is imposed on retail sales or consumption of personal property and collected and distributed by the State Board of Equalization (the “SBE”). The basic sales tax rate is established by the State Legislature, and local overrides may be approved by voters. The current sales tax rate in the City is 10.25%, which includes the 0.75% Measure A Sales Tax that was approved by City voters in April 2019 and does not sunset. See the caption “—General Economic Condition and Outlook of the City—Fiscal Policies.” The City estimates that the Measure A Sales Tax will result in approximately $8.6 million per year in increased sales tax revenues for each year that the measure is in effect. Additional information relating to sales tax receipts by the City is set forth in Appendix B. As discussed under the caption “THE CITY—COVID-19 Outbreak,” the Governor extended the deadline to file and pay first quarter sales and use tax returns by 90 days for all but the very largest taxpayers, and up to 361,000 California businesses with less than $5 million in taxable annual sales will be allowed to defer up to $50,000 in sales tax and enter into 12-month payment plans at zero interest. The extension will result in a delay in the receipt by the City of its portion of sales tax payments. 30 As a result of such extension, as well as an anticipated general economic slowdown and the closure of business in the wake of the COVID-19 outbreak, the City’s Fiscal Year 2021 budget reflects the receipt of approximately $16.5 million in sales tax revenues in Fiscal Year 2021, an increase of approximately $5 million (44%) from the Fiscal Year 2020 budgeted amount. However, in a normal economic period, such sales tax projection would have been approximately $20.2 million for Fiscal Year 2021, because the Measure A Sales Tax would have been projected to generate approximately $8.6 million and Fiscal Year 2021 would have been the first full year in which Measure A Sales Tax revenues would have been recognized. Utility Users Taxes Fiscal Year 2019 utility users tax receipts of $6,591,834 provided the third largest tax revenue source for the City in Fiscal Year 2019. Utility users taxes contributed approximately 16.7% of General Fund tax revenues and approximately 10.6% of total General Fund revenues in Fiscal Year 2019. Based on unaudited actual Fiscal Year 2020 results, the City estimates Fiscal Year 2020 utility users tax receipts to be $6,779,875. The utility users tax is imposed within the City limits on all users of natural gas, electricity, water at the rate of 7% and telecommunication services at the rate of 5%. Water conservation efforts that were imposed by the State and electricity credits issued by SoCal Edison contributed to lower utility users tax revenues in Fiscal Year 2016. The electricity credits were issued to eligible commercial and residential customers and applied prior to the calculation of the City’s utility users tax, thereby negatively impacting the utility users tax collected from SoCal Edison. Other factors contributing to lower utility users revenues have been the reduction of telephone lines in homes, lower cost mobile telephone plans and increased solar power usage for homes. Since 2016, the City has collected a utility users tax on prepaid mobile telephones. Proceeds of the utility users tax are used to fund activities funded by the General Fund. The utility users tax does not have a sunset provision. The City’s Fiscal Year 2021 budget reflects the receipt of approximately $6.6 million in utility users tax revenues in Fiscal Year 2021, a decrease of approximately $145,000 (2%) from the Fiscal Year 2020 budgeted amount. Other Taxes and Other Revenues Fiscal Year 2019 revenues from transient occupancy taxes, property transfer taxes, franchise fees, business license taxes and fees and certain other taxes and fees collectively totaled $6,663,962. Such amount collectively provided approximately 16.8% of General Fund tax revenues and 10.7% of total General Fund revenues during Fiscal Year 2019. Based on unaudited actual Fiscal Year 2020 results, the City estimates Fiscal Year 2020 receipts from such other taxes to be $5,868,278. Transient occupancy taxes, which are levied on users of hotels in the City, are currently imposed at the rate of 10%. As a result of an anticipated general economic slowdown and the closure of business in the wake of the COVID-19 outbreak, the City’s Fiscal Year 2021 budget reflects the receipt of approximately $5.9 million in other tax revenues in Fiscal Year 2021, a decrease of approximately $2.05 million (25.8%) from the Fiscal Year 2020 budgeted amount. Historically, parimutual revenues received from Santa Anita Race Track provided adequate funding for yearly capital improvement projects. However, this revenue source has been decreasing over the past several years due to less horse racing interest and the changing format for wagering. The current annual 31 parimutual revenue level has not kept up with the demands and cost of capital improvements. The City has budgeted to receive $225,000 in parimutual revenues from the Santa Anita Race Track for Fiscal Year 2021. State of California Motor Vehicle In-Lieu Payments The State imposes a Vehicle License Fee (the “VLF”), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The VLF is based on vehicle value and declines as the vehicle ages. Prior to the adoption of the Fiscal Year 2005 State Budget, the VLF was 2% of the value of a vehicle. Through legislation in prior Fiscal Years, the State enacted VLF reductions under which the State was required to “backfill” local governments for their revenue losses resulting from the lowered fee. The Fiscal Year 2005 State Budget permanently reduced the VLF from 2% to 0.65% of the value of a vehicle and deleted the requirement for backfill payments, providing instead that the amount of the backfill requirement will be met by an increase in the property tax allocation to cities and counties. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION.” VLF revenues for the last five Fiscal Years, all of which were distributed from property tax receipts, are shown in the below table. Table 8 City of Arcadia State of California Motor Vehicle In-Lieu Payments Fiscal Year Ended June 30, Source 2016 2017 2018 2019 2020(1) Motor Vehicle In-Lieu Payments $ 6,136,909 $ 6,461,508 $ 6,906,050 $ 7,309,525 $ 7,773,430 (1) Reflects unaudited actual Fiscal Year 2020 results; subject to change. Source: City. Other Indebtedness General Fund-Supported Obligations. The obligations set forth in Table 9 below are payable from general revenues of the City as are the Bonds. The City may issue other obligations payable from its general revenues at any time. See the caption “RISK FACTORS—City Obligations.” Table 9 City of Arcadia Summary of General Fund-Supported Obligations Obligation Outstanding Amount(1) Year of Maturity 2011 General Obligation Bonds $ 5,245,000 2031 2012 General Obligation Bonds 4,045,000 2031 Capital Lease Obligations 116,057 2023 TOTAL $ 9,406,057 (1) As of October 1, 2020. Source: City. Each of the obligations that are summarized in the above table is described in further detail below. 32 2011 Bonds. In 2011, the City issued its General Obligation Bonds, Election of 2006 (Bond Measure A), Series 2011 (Bank Qualified) (the “2011 Bonds”), which mature in 2031. Net proceeds of the 2011 Bonds were used to finance the costs of constructing, installing, acquiring and improving of a grade separation at the intersection of Santa Anita Avenue and the proposed Foothill Extension of the Metropolitan Transit Authority Gold Line. The 2011 Bonds bear interest at rates ranging from 2.00% to 5.00%. As of October 1, 2020, the 2011 Bonds were outstanding in the aggregate principal amount of $5,245,000. 2012 Bonds. In 2012, the City issued its General Obligation Refunding Bonds, Series 2012 (Police Station Project) (Bank Qualified) (the “2012 Bonds”), which mature in 2031. Net proceeds of the 2012 Bonds were used to refund the City’s Series A of 2001 General Obligation Bonds of Arcadia (Police Station Project). The 2012 Bonds bear interest at rates ranging from 2.00% to 5.00%. As of October 1, 2020, the 2012 Bonds were outstanding in the aggregate principal amount of $4,045,000. Capital Lease Obligations. The City has entered into a capital lease with options to purchase for paramedic equipment. The lease is payable through 2023 and bears interest at the rate of 0% per annum. As of October 1, 2020, the lease was outstanding in the aggregate principal amount of $116,057. See Note 5 to the City’s audited financial statements set forth in Appendix A for further information with respect to General Fund-supported obligations. Short-Term Debt. The City currently has no short-term debt outstanding. City Investment Policy General. The City invests its funds in accordance with the City’s investment policy (the “Investment Policy”), which was adopted on June 16, 2020. In accordance with Section 53600 et seq. of the California Government Code, idle cash management and investment transactions are the responsibility of the City Treasurer. The City’s Financial Services Manager serves as the City Treasurer, and is appointed and supervised by the Administrative Services Director. The City’s Investment Policy sets forth the policies and procedures applicable to the investment of City funds and designates eligible investments. The Investment Policy sets forth the following stated objectives, which are listed in priority order: (i) preservation of capital and protection of investment principal, (ii) maintenance of sufficient liquidity to meet anticipated cash flows, (iii) attainment of a market rate of return, and (iv) diversification to avoid incurring unreasonable market risks. Eligible investments include United States Treasury bills and notes, obligations issued by United States Government-sponsored agencies, repurchase agreement collateralized by United States Treasury bills and notes or obligations issued by United States Government-sponsored agencies, certain supranational obligations not exceeding 30% of the City’s portfolio, prime commercial paper not exceeding 25% of the City’s portfolio, eligible bankers acceptances not exceeding 15% of the City’s portfolio, medium term notes of certain corporations or depository institutions not exceeding 30% of the City’s portfolio, certain asset-backed securities not exceeding 20% of the City’s portfolio, negotiable certificates of deposit not exceeding 30% of the City’s portfolio, non-negotiable certificates of deposit not exceeding 20% of the City’s portfolio, placement service deposits not exceeding 20% of the City’s portfolio, the State of California’s Local Agency Investment Fund, money market mutual funds not exceeding 20% of the City’s portfolio, local government investment pools, and municipal and state obligations. Most investments have a maximum maturity of five years. The Treasurer provides a monthly investment report to the Administrative Services Director, the City Manager and the City Council. For each investment, the report includes the following information: (i) investment type, issuer, date of maturity, par value, and dollar amount invested in all securities, investments, and monies held by the City, (ii) a description of the funds, investments, and programs, (iii) a monthly report of investment transactions, (iv) a market value as of the date of the report (or the most recent valuation as to assets, (v) a statement of compliance with the investment policy or an explanation for noncompliance, and (vi) a statement of the ability to meet expenditure requirements for six months, and an explanation of why money will not be available if that is the case not valued monthly) and the source of the 33 valuation. The City only transacts business with banks, savings and loan institutions and registered investment securities dealers. Collateralization is required for repurchase agreements, with a collateral level of at least 102% of the dollar amount of the funds borrowed. The City may not invest any funds in inverse floaters, range notes, or interest-only strips that are derived from a pool of mortgages. The City may hold previously permitted but currently prohibited investments until their maturity dates. Summary of Investments. A summary of the City’s investments as of August 31, 2020, is set forth in the below table. General Fund cash and investments (based on market values) were equal to approximately $74.4 million (90.7%) of the total cash and investment portfolio as of August 31, 2020. Table 10 City of Arcadia Summary of Investments and Cash as of August 31, 2020(1) Investments Local Agency Investment Fund $ 10,534,050 California Asset Management Program 2,955,892 Certificates of Deposit 2,499,493 U.S. Treasury Notes 19,306,988 Federal Home Loan Bank 5,569,434 Federal Home Loan Mortgage Corporation 6,769,469 Federal National Mortgage Association 8,067,722 Supra-National Bonds 377,531 Municipal Bonds 795,526 Asset Backed Securities 6,445,650 Bank Notes 269,999 Corporate Bonds 10,817,171 Total $ 74,408,925 Investments with Fiscal Agent Money Market Funds $ 4,426,280 Local Agency Investment Fund 1,632,529 Total $ 6,058,809 Total Investments $ 80,467,734 Cash Petty Cash and Change Funds $ 18,955 Demand Deposits 1,001,835 Restricted Cash Held by City 532,948 Total $ 1,553,738 Total Investments and Cash $ 82,021,472 (1) Reflects market values. Totals may not add due to rounding. Source: City. See Note 2 in Appendix A for further information with respect to City investments. 34 Other Post-Employment Benefits OPEB Benefit Plan. In addition to the pension benefits that are described under the caption “CITY PENSION PLANS,” the City provides certain post-employment healthcare benefits (the “OPEB Benefits”) for retired employees and eligible dependents. The City Council has the authority to establish and amend the benefits offered by the single-employer plan. The City Council approved contracts with employees capping the maximum monthly retiree health benefit contribution made by the City for existing employees who retire on or after July 1, 2011; reducing retiree health insurance benefits for employees hired on or after July 1, 2011, to the mandatory minimum contribution established by California Government Code Section 22892(b). An eligible retiree is an employee who retires on a service retirement and has 125 days of accumulated sick leave at the date of retirement. Such payment shall cease by the employee’s sixty-fifth (65) birthday. If the retired employee has other group medical coverage available to them, then this other group insurance shall be primary and the City’s health insurance plan shall function as a secondary coinsurance. An employee who has fewer than 125 days of accumulated sick leave at the date of retirement may become eligible for coverage by paying the City an amount equal to the employee’s daily pay rate at the time of retirement times the number of days needed to meet the 125 days of accumulated sick leave requirement with restrictions. The requirement varies slightly among different employee groups. Employees of the City are eligible for retiree health benefits if they are between 50-55 years of age as of the last day of work prior to retirement and are a vested member of CalPERS. Membership in the plan consisted of the following at June 30, 2019, the date of the latest actuarial valuation: Active plan members 312 Inactive employees or beneficiaries currently receiving benefit payments 147 Inactive employees entitled to but not yet receiving benefit payments - Total 459 OPEB Benefit expenses of approximately $1,793,967 and $1,793,967, respectively, were recognized for Fiscal Years 2018 and 2019. The City’s net OPEB liability was measured as of June 30, 2019, and the total OPEB liability used to calculate the net OPEB liability was determined by an actuarial valuation as of June 30, 2019. The total OPEB liability in the June 30, 2019, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified: Table 11 City of Arcadia Actuarial Assumptions for OPEB Benefit Plan Funding method Entry Age Normal Cost, level percent of pay Discount Rate 7.00% as of June 30, 2018 and 6.85% as of June 30, 2019 Inflation 2.50% Aggregate payroll Increases 3.00% Expected Long-Term Investment Rate of Return 7.00% as of June 30, 2018 and 6.75% as of June 30, 2019 Mortality Improvement Scale MacLeod Watts Scale 2018 applied generationally from 2015 PPACA High Cost Plan Excise Tax Excluded due to 2019 repeal of this provision of the Affordable Care Act Healthcare Tread Rate An annual healthcare cost trend rate of 6.50% initially reduced by decrements to an ultimate of 4.00% therefore. Source: City. 35 Changes in the net liability for the City’s OPEB Benefit plan for calendar year 2018, the latest period for which such information is available, were as follows. Table 12 City of Arcadia Changes in OPEB Benefit Plan Liability Increase (Decrease) Total OPEB Liability (a) Plan Fiduciary Net Position (b) Net OPEB Liability/ (Asset) (c) = (a) - (b) Balance at June 30, 2018 $ 21,042,152 $ 3,040,261 $ 18,001,891 Changes Recognized for the Measurement Period: Service Cost $ 624,092 $ - $ 624,092 Interest on the total OPEB liability 1,473,509 - 1,473,509 Changes of benefit terms - - - Differences between expected and actual experience - - - Contributions from the employer - 2,143,818 (2,143,818) Assumption Changes 926,042 - 926,042 Plan experience (4,103,434) - (4,103,434) Net investment income - 229,602 (229,602) Administrative expenses - (826) 826 Other expenses - - - Benefit payments (1,232,218) (1,232,218) - Net Changes during July 1, 2018 to June 30, 2019 $ (2,312,009) $ 1,140,376$ $ (3,452,385) Balance at June 30, 2019 (Measurement Date) $ 18,730,143 $ 4,180,637 $ 14,549,506 Source: City. Table 13 below presents the net liability of the City’s OPEB Benefit plan, calculated using the discount rate applicable to calendar year 2019 (6.85%), as well as what the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (5.85 percent) or 1-percentage- point higher (7.85 percent) than the current discount rate: Table 13 City of Arcadia Sensitivity of the OPEB Benefit Plan Net Liability to Changes in the Discount Rate Current Discount Rate - 1% (5.85%) Current Discount Rate (6.85%) Current Discount Rate + 1% (7.85%) $16,470,140 $14,549,506 $12,904,033 Source: City. The City established an IRS Section 115 trust account for OBEP stabilization. The market value of the trust was $3.0 million as of June 30, 2018 and $3.0 million as of June 30, 2019. This trust fund is not included in the calculation of the City’s net OPEB liability, as the assets are not in the custody of the plan administrator, CalPERS. Future changes in funding policies and assumptions, including those related to assumed rates of investment return and healthcare cost inflation, could trigger increases in the City’s annual required OPEB Benefit plan contributions, and such increases could be material to the finances of the City. No assurance can be provided that such expenses will not increase significantly in the future. The City does not expect that any 36 increased funding of OPEB Benefits will have a material adverse effect on the ability of the City to pay the Bonds. For additional information relating to the City’s OPEB Benefit plan, see Note 9 to the City’s audited financial statements set forth in Appendix A. City Financial Statements A copy of the most recent audited financial statements of the City (the “Financial Statements”) for the Fiscal Year ended June 30, 2019, prepared by Moss, Levy & Hartzheim, LLP, Culver City, California (the “Auditor”), are included as Appendix A to this Official Statement. The Auditor’s letter dated January 28, 2020 is set forth therein. The Financial Statements are public documents and are included within this Official Statement without the prior approval of the Auditor. Accordingly, the Auditor has not performed any post- audit analysis of the financial condition of the City, nor has the Auditor reviewed or audited this Official Statement. Certain financial information that is set forth in this Official Statement is derived from the Financial Statements and the City’s audited financial statements for prior years (excluding certain non-cash items and after certain other adjustments) and is qualified in its entirety by reference to such statements, including the notes thereto. The Auditor has not reviewed or audited such financial information or any other portion of this Official Statement. In the Financial Statements, data relating to governmental funds such as the General Fund focus on current financial resources. Under the current financial resources measurement focus, only current assets and current liabilities are generally included on the City’s balance sheets. The Statement of Revenues, Expenditures and Changes in Fund Balances (which is set forth under the caption “—Change in Fund Balance of the City General Fund”), presents increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in fund balances. Under the modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For these purpose, the City considers revenues to be available if they are collected within 60 days of the end of the current fiscal period. The primary revenue sources, which have been treated as susceptible to accrual by the City, are property taxes, sales taxes, certain grant revenues and other taxes. Expenditures are recorded in the accounting period in which the related fund liability is incurred. STATE OF CALIFORNIA BUDGET INFORMATION General Information about the State budget is regularly available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance (the “DOF”), http://www.dof.ca.gov, under the heading “California Budget.” An impartial analysis of the budget is posted by the Legislative Analyst’s Office (the “LAO”) at http://www.lao.ca.gov. In addition, various State official statements, many of which contain a summary of the current and past State budgets and the impact of those budgets on cities in the State, may be found at the website of the State Treasurer, http://www.treasurer.ca.gov. The information referred to is prepared by the respective State agency maintaining each website and not by the City, and the City takes no responsibility for the continued accuracy of these Internet addresses or for the accuracy, completeness or timeliness of information posted there, and such information is not incorporated herein by these references. 37 Budget for State Fiscal Year 2019-20 On June 27, 2019, the Governor signed into law the State budget for State Fiscal Year 2019-20 (the “2019-20 Budget”). The following information is drawn from summaries of the 2019-20 Budget prepared by the DOF and the LAO. For State Fiscal Year 2018-19, the 2019-20 Budget projected total State General Fund revenues and transfers of approximately $138 billion and total expenditures of $142.7 billion. The State was projected to end the State Fiscal Year 2018-19 with total available State General Fund reserves of approximately $20.7 billion, including approximately $5.4 billion in the traditional State General Fund reserve, $14.4 billion in the Budget Stabilization Account (the “BSA”) and $900 million in the Safety Net Reserve Fund for the CalWORKs and Medi-Cal programs. For State Fiscal Year 2019-20, the 2019-20 Budget projected total State General Fund revenues and transfers of approximately $143.8 billion and authorized expenditures of approximately $147.8 billion. The State was projected to end Fiscal Year 2019-20 with total available State General Fund reserves of approximately $18.8 billion, including $1.4 billion in the traditional State General Fund reserve, $16.5 billion in the BSA and $900 million in the Safety Net Reserve Fund. For State Fiscal Year 2019-20, the 2019-20 Budget set the minimum school funding guarantee at $81.1 billion. Other significant features of the 2019-20 Budget include a $3.15 billion payment to the California State Teachers Retirement System and CalPERS to reduce long-term liabilities for K-14 school districts. Of this amount, the remaining $2.3 billion would be paid towards employers’ long-term unfunded liability. For additional information regarding the 2019-20 Budget, see the DOF and LAO websites. The information presented on such websites is not incorporated herein by reference. Budget for State Fiscal Year 2020-21 On January 10, 2020, prior to the COVID-19 outbreak, the Governor released his proposed State budget for State Fiscal Year 2020-21. On May 14, 2020, the Governor released the May Revision to the Proposed 2020-21 State Budget (the “May Revision”). The May Revision noted that the COVID-19 pandemic and resulting recession has changed the State’s fiscal landscape dramatically. Unemployment claims have surged, with increased unemployment claims of 4.4 million from mid-March to May 9, 2020. Job losses have occurred in nearly every sector of the economy and personal income is projected to decline by 9% in 2020. Following record economic expansion, the United States economy entered into a recession in March 2020, causing an immediate negative impact on State revenues, with all three of the State’s major revenue sources showing significant declines relative to the Governor’s original budget forecast. From Fiscal Years 2018-19 through 2020-21, the May Revision baseline revenue estimate decreased by over $43 billion, before accounting for transfers. The changes in the three largest State tax sources are: • Personal income tax revenues, which were revised downward by $32.6 billion (including $6.9 billion less in State Fiscal Year 2019-20 and $26.3 billion less in State Fiscal Year 2020-21) due to a decline in all income sources, but particularly wages, proprietorship income and capital gains; • Sales and use tax receipts, which were revised downward by almost $10 billion ($2.2 billion less in State Fiscal Year 2019-20 and $7.7 billion less in State Fiscal Year 2020-21) due mainly to lower consumption and investment by business; and • Corporate tax revenues, which were revised downward by over $5 billion based on a significant drop in corporate profits. 38 On June 29, 2020, the Governor signed into law the State budget for State Fiscal Year 2020-21 (the “2020-21 Budget”). The following information is drawn from summaries of the 2020-21 Budget prepared by the DOF and the LAO. The 2020-21 Budget acknowledges that the rapid onset of COVID-19 has had an immediate and severe impact on the State’s economy. The ensuing recession has caused significant job losses, precipitous drops in family and business income and has exacerbated income inequality. The May Revision forecast included a peak unemployment rate of 24.5% in the second quarter of 2020 and a decline in personal income of nearly 9%. The 2020-21 Budget reports that the official unemployment rate exceeded 16% in both April and May 2020. The 2020-21 Budget includes a number of measures intended to address a projected deficit of $54.3 billion and occasioned principally by declines in the State’s three main tax revenues (personal income, sales and use and corporate, as discussed above). The measures included in the 2020-21 Budget, and described below, are intended to close this deficit and set aside $2.6 billion in the State’s traditional State General Fund reserve, including $716 million for the State to respond to the changing conditions of the COVID-19 pandemic: • Drawdown of Reserves – The 2020-21 Budget draws down $8.8 billion in total State reserves, including $7.8 billion from the BSA, $450 million from the Safety Net Reserve and all money in the Public School System Stabilization Account. • Triggers – The 2020-21 Budget includes $11.1 billion in reductions and deferrals that would be restored if at least $14 billion in federal funds are received by October 15, 2020. If the State receives less than this amount, reductions and deferrals would be partially restored. The triggers include $6.6 billion in deferred spending on education, $970 million in funding for the California State University and University of California systems, $2.8 billion in State employee compensation and $150 million for courts, as well as funding for various other State programs. The triggers would also fund an additional $250 million for county programs to backfill revenue losses. • Federal Funds – The 2020-21 Budget relies on $10.1 billion in federal funds, $8.1 billion of which has already been received. This relief includes recent Congressional approval for a temporary increase in the federal government’s share of Medicaid costs, a portion of the State’s Coronavirus Relief Fund allocation pursuant to the CARES Act and federal funds provided for childcare programs. • Borrowing/Transfers/Deferrals – The 2020-21 Budget relies on $9.3 billion in special fund borrowing and transfers, as well as deferrals to K-14 education spending. Approximately $900 million of special fund borrowing is associated with reductions to State employee compensation and is subject to the triggers discussed above. • Increased Revenues – The 2020-21 Budget temporarily suspends for three years net operating loss tax deductions for medium and large businesses and limits business tax credits, with an estimated increase in tax revenues of $4.3 billion in State Fiscal Year 2020-21. • Cancelled Expansions, Updated Assumptions and Other Measures – The 2020-21 Budget includes an additional $10.6 billion of measures, including cancelling multiple programmatic expansions, anticipated governmental efficiencies, higher ongoing revenues above the forecast included in the May Revision and lower health and human services caseload costs than assumed by the May Revision. 39 For State Fiscal Year 2019-20, the 2020-21 Budget projects total State General Fund revenues and transfers of $137.6 billion and authorizes expenditures of $146.9 billion. The State is projected to end State Fiscal Year 2019-20 with total available State General Fund reserves of $17 billion, including $16.1 billion in the BSA and $900 million in the Safety Net Reserve Fund. For State Fiscal Year 2020-21, the 2020-21 Budget projects total State General Fund revenues and transfers of $137.7 billion and authorizes expenditures of $133.9 billion. The State is projected to end State Fiscal Year 2020-21 with total available State General Fund reserves of $11.4 billion, including $2.6 billion in the traditional State General Fund reserve (of which $716 million is earmarked for COVID-19-related responses), $8.3 billion in the BSA and $450 million in the Safety Net Reserve Fund. As a result of the projected reduction of State revenues occasioned by the COVID-19 pandemic, the 2020-21 Budget estimates that the Proposition 98 minimum funding guarantee for Fiscal Year 2020-21 is $70.1 billion, approximately $10 billion below the revised prior-year funding level. For K-12 school districts, this results in per-pupil spending in Fiscal Year 2020-21 of $10,654, a reduction of $1,339 from the prior year. The 2020-21 Budget proposes several measures intended to ameliorate the immediate impact of State revenue declines, and avoid a permanent decline in education funding: • Local Control Funding Formula – The 2020-21 Budget provides for $1.9 billion in Local Control Funding Formula apportionment deferrals for State Fiscal Year 2019-20. The deferrals increase to $11 billion in State Fiscal Year 2020-21, which results in Local Control Funding Formula funding remaining at 2019-20 levels in both years. The 2020-21 Budget also suspends the statutory cost of living adjustment in State Fiscal Year 2020-21. Of the total deferrals, $5.8 billion will be cancelled in State Fiscal Year 2020-21 if sufficient federal funding for this purpose is received. • CalSTRS/CalPERS – The 2020-21 Budget redirects $2.3 billion in funds that were previously appropriated for prefunding California State Teachers Retirement System (“CalSTRS”) and CalPERS liabilities, instead applying them to further reduce local educational agency contribution rates for such programs in State Fiscal Years 2020-21 and 2021-22. This reduces CalSTRS employer rates to 16.15% in Fiscal Year 2020-21 and 16.02% in Fiscal Year 2021-22. CalPERS employer rates are reduced to 20.7% in Fiscal Year 2020-21 and 22.84% in Fiscal Year 2021-22. • Federal Funds – In addition to the CARES Act funding previously discussed, the 2020-21 Budget appropriates $1.6 billion in federal Elementary and Secondary School Emergency Relief funds recently awarded to the State. Of this amount, approximately $1.5 billion will be allocated to local educational agencies in proportion to the amount of federal Title I-A funding such agencies receive, to be used for COVID-19 related costs. The remaining amount will be allocated to state- level activities. • Temporary Revenue Increases – As discussed above, as part of closing the State’s projected deficit, the 2020-21 Budget provides for a temporary revenue increase of approximately $4.3 billion in Fiscal Year 2020-21, of which approximately $1.6 billion counts towards the Proposition 98 funding guarantee. For additional information regarding the 2020-21 Budget, see the DOF and LAO websites. The information presented on such websites is not incorporated herein by reference. None of the websites or webpages that are referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The City makes no representation whatsoever as to the accuracy or completeness of any of the information on such websites. 40 There can be no assurance that additional legislation will not be enacted in the future to implement provisions relating to the State budget, address the COVID-19 outbreak or otherwise that may affect the City or its General Fund revenues. Potential Impact of State Financial Condition on the City The State has experienced significant financial stress in recent years, with budget shortfalls in the several billions of dollars. Currently, the COVID-19 pandemic is materially adversely impacting the financial condition of the State and the waning of the infection crisis is expected to be followed by the onset of a recession and significant increases in unfunded liabilities of the two main retirement systems managed by State entities, CalPERS and the California State Teachers’ Retirement System. The State also has a significant unfunded liability with respect to other post-employment benefits. Current and future State budgets will be significantly affected by the COVID-19 pandemic and other factors over which the City has no control. The City cannot determine what actions will be taken in the future by the State Legislature and the Governor to deal with the COVID-19 pandemic, any coming recession and resulting changing State revenues and expenditures. There can be no assurance that, as a result of the COVID-19 pandemic or otherwise, the State will not significantly reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of its efforts to address State financial conditions. Although the State is not a significant source of City revenues, there can be no assurance that State actions to respond to the COVID-19 pandemic will not materially adversely affect the financial condition of the City. Future State Budgets No prediction can be made by the City as to whether the State will continue to encounter budgetary problems in future years, and if it were to do so, it is not clear what measures would be taken by the State to balance its budget, as required by law. In addition, the City cannot predict the final outcome of future State budget negotiations, the impact that such budgets will have on City finances and operations or what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. There can be no assurance that actions taken by the State to address its financial condition will not materially adversely affect the financial condition of the City. Current and future State budgets will be affected by national and State economic conditions and other factors, including the current COVID-19 pandemic and associated economic downturn, over which the City has no control. RISK FACTORS Prospective purchasers of the Bonds should carefully consider all possible factors that may affect the ability of the City to pay principal of and interest on the Bonds. The Bonds may not be a suitable investment for all prospective purchasers. The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating the purchase of the Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Bonds and there can be no assurance that other risk factors will not become material in the future. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. City Obligations The City has other obligations payable from its General Fund and other lawfully available funds of the City, including but not limited to debt obligations, lease obligations and certain other liabilities. The Trust Agreement does not prohibit the County from incurring additional debt, lease or other obligations payable 41 from the City’s General Fund and other lawfully available funds in the future (including Additional Bonds to finance Pension Liability), which may reduce City moneys available to pay the Bonds. In addition, although the Bonds are payable from all lawfully available funds of the City, the City has no obligation to levy taxes in order to raise sufficient revenues to pay the Bonds. See the caption “CITY FINANCIAL INFORMATION—Other Indebtedness” for a description of the City’s current obligations. Certain Risks Associated with Sales Tax and Other Local Tax Revenues For the past several Fiscal Years, sales tax revenues have been the second largest source of General Fund revenues to the City. Sales and use tax revenues are based upon the gross receipts of retail sales of tangible goods and products by retailers with taxable transactions in the City, which could be impacted by a variety of factors. For example, in times of economic recession, the gross receipts of retailers often decline, and such a decline would cause the sales tax revenues received by the City to decline. An economic recession would also be expected to affect hotel occupancy within the City, and consequently, the City’s receipt of transient occupancy taxes. See the caption “THE CITY—COVID-19 Outbreak,” “CITY FINANCIAL INFORMATION—Sales Taxes” and “CITY FINANCIAL INFORMATION—Other Taxes.” In addition, changes or amendments in the laws applicable to the City’s receipt of sales tax revenues or other local taxes, whether implemented by State legislative action or voter initiative, including any initiative by City voters under Article XIIIC of the California Constitution to repeal the Measure A Sales Tax, could have an adverse effect on sales tax revenues received by the City. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” Finally, many categories of transactions are exempt from the Statewide sales tax, and additional categories could be added in the future. Currently, most sales of food products for human consumption are exempt; this exemption, however, does not apply to liquor or to restaurant meals. The rate of sales tax levied on taxable transactions in the City or the fee charged by the State Board of Equalization for administering the City’s sales tax could also be changed. Assessed Value of Taxable Property Property taxes are the largest source of the City’s General Fund revenues. 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 extensive damage to taxable property. Other natural or manmade disasters, such as flood, fire, wildfire, ongoing drought, toxic dumping, erosion or acts of terrorism, could cause a reduction in the assessed value of taxable property within the City. See the captions “—Natural Disasters” and “—Hazardous Substances.” In addition, economic and market forces, such as a downturn in the regional economy, could affect assessed values, particularly as these forces might reverberate in the residential housing and commercial property markets as has been experienced in the past. 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). 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 property taxes. Section 2(b) of Article XIIIA of the State Constitution and Section 51 of the State Revenue and Taxation Code, which were adopted pursuant to Proposition 8, which was adopted in 1978, require the County assessor to annually enroll either a property’s adjusted base year value (the “Proposition 13 Value”) or its current market value, 42 whichever is less. When the current market value replaces the higher Proposition 13 Value on the assessor’s roll, such lower value is referred to as the “Proposition 8 Value.” Although the annual increase for a Proposition 13 Value is limited to no more than 2%, the same restriction does not apply to a Proposition 8 Value. The Proposition 8 Value of a property is reviewed annually as of January 1; the current market value must be enrolled as long as the Proposition 8 Value falls below the Proposition 13 Value. Thus, any subsequent increase or decrease in market value is enrolled regardless of any percentage increase or decrease. Only when a current Proposition 8 Value exceeds the Proposition 13 Value attributable to a piece of property (adjusted for inflation) does a county assessor reinstate the Proposition 13 Value. Decreases in the assessed value of taxable property within the City resulting from a natural disaster or other calamity, economic recession, reclassification by ownership or use or as a result of the implementation of Proposition 8 all may have an adverse impact on property tax collections by the City, and consequently, the General Fund revenues that are available to make debt service payments on the Bonds. Increasing Retirement-Related Costs The City is required to make contributions to CalPERS and to the OPEB Benefit plan for City employees and retirees. Such obligations are a significant financial obligation of the City and could increase in the future. Actual contribution rates will depend on a variety of factors, including but not limited to actual investment returns and future changes to benefits or actuarial assumptions. The City notes that pension contributions in future years may increase as a result of losses in CalPERS’ portfolio resulting from stock market declines in the wake of the COVID-19 outbreak. See the caption “THE CITY—COVID-19 Outbreak.” There can be no assurances that actual increases in required contributions will not be higher than the amounts which are currently projected by the City. See the captions “CITY PENSION PLANS” and “CITY FINANCIAL INFORMATION—Other Post-Employment Benefits.” Dependence on State for Certain Revenues A number of the City’s revenues are collected and dispersed by the State (such as sales taxes and the VLF) or allocated in accordance with State law (most importantly, property taxes). Therefore, State budget decisions can have an impact on City finances. In the event of a material economic downturn in the State, including as a result of the COVID-19 outbreak that is discussed under the caption “THE CITY—COVID-19 Outbreak,” there can be no assurance that any resulting revenue shortfalls to the State will not reduce revenues to local governments (including the City) or shift financial responsibility for programs to local governments as part of the State’s efforts to address any such related State financial difficulties. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION.” No Reserve Fund The City has not funded a reserve fund in connection with the issuance of the Bonds. Litigation The City may be or become a party to litigation that has an impact on the General Fund. Although the City maintains certain insurance policies that provide liability coverage under certain circumstances and with respect to certain types of incidents (as discussed under the caption “THE CITY—Risk Management”), the City cannot predict what types of liabilities may arise in the future. See the caption “LITIGATION.” 43 Natural Disasters The occurrence of any natural disaster in the City, including, without limitation, earthquake, wildfire, drought, high winds, landslide or flood, which results in significant damage within the City or otherwise significantly impacts the economy of the City could materially adversely affect the financial condition of the City. See the caption “THE CITY—Risk Management.” Earthquakes are considered a threat to the City due to the City’s highly active seismic region and the proximity of fault zones, including the San Andreas, Sierra Madre and Whittier-Elsinore fault zones. These and other fault zones could influence the entire coastal portion of the State. In addition, there are several local faults located within the City that are considered potentially active, such as the San Jose, Indian Hill, Chino and Central Avenue faults, and there are likely to be unmapped faults in or near the City. Portions of the City lie within Seismic Hazard Zones for soil liquefaction and earthquake-induced landslides. Seismically induced ground shaking has affected the City in the past and is expected to affect the City in the future. The City currently maintains limited earthquake insurance for certain City facilities, but it is not required to do so in the future. An earthquake along one of the faults in the vicinity of the City, either known or unknown, could cause a number of casualties and extensive property damage, particularly to residential buildings, older wooden or unreinforced masonry buildings and mobile homes. The effects of such an earthquake could be aggravated by aftershocks and secondary effects such as fires, landslides, dam failure, liquefaction, floods and other threats to public health, safety and welfare. The potential direct and indirect consequences of a major earthquake could easily exceed the resources of the City and would require a high level of self-help, coordination and cooperation. The State, including the City, is periodically subject to wildfires. The last major wildfire in the vicinity of the City was the Bobcat Fire in September 2020. In response to the Bobcat Fire one foothill neighborhood of the City was evacuated for a short period of time. Although the Bobcat Fire encroached into the City limits, no residential or commercial real property or other personal property was damaged. When wildfires scorch land, they destroy all vegetation on mountains and hillsides. As a result, when heavy rain falls in the winter, there is nothing to stop the rain from penetrating directly into the soil. In addition, waxy compounds in plants and soil that are released during fires create a natural barrier in the soil that prevents rain water from seeping deep into the ground. The result is erosion, mudslides, and excess water running off the hillsides often causing flash flooding. The occurrence of natural disasters in the City could result in substantial damage to the City which, in turn, could substantially affect the City’s economy and reduce General Fund revenues, which could affect the payment of the principal of and interest on the Bonds. In particular, if a natural disaster were to result in reduced assessed valuations of property within the City, the amount of property tax revenues (which constitute the City’s largest source of General Fund revenues) could be reduced. See the caption “CITY FINANCIAL INFORMATION—Property Taxes.” The City maintains liability insurance and property casualty insurance (including limited earthquake coverage) for City infrastructure. See the caption “THE CITY—Risk Management.” However, there can be no assurance that specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable insurers. Climate Change The State has historically been susceptible to wildfires and hydrologic variability. As greenhouse gas emissions continue to accumulate in the atmosphere as a result of economic activity, climate change is expected to intensify, increasing the frequency, severity and timing of extreme weather events such as coastal 44 storm surges, drought, wildfires, floods and heat waves, and raising sea levels. The future fiscal impact of climate change on the City is difficult to predict, but it could be significant and it could have a material adverse effect on the General Fund by requiring greater expenditures to counteract the effects of climate change or by changing the operations and activities of City residents and business establishments. Hazardous Substances The discovery of any hazardous substance that would limit the beneficial use of a property within the City could result in a reduction in the assessed value of affected parcels. 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 had anything 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 a purchaser, upon becoming an owner, will become obligated to remedy the condition just as is the seller. Such reduction could adversely impact the property tax revenues received by the City, which could significantly and adversely affect the operations and finances of the City and the City’s ability to pay the Bonds. See the caption “—Assessed Valued of Taxable Property.” The City has not independently verified, but is not aware of, the presence of any hazardous substances in the City except in connection with everyday business activities such as gas stations and dry cleaning establishments. Hazardous substance liabilities may arise in the future with respect to any of the property in the City resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Additionally, such liabilities may arise from the method of handling such substance. These possibilities could significantly affect the value of a parcel. Cybersecurity Municipal agencies, like other business entities, face significant risks relating to the use and application of computer software and hardware. Recently, there have been significant cybersecurity incidents affecting municipal agencies, including a freeze affecting computer systems of the City of Atlanta, an attack on the City of Baltimore’s 911 system, an attack on the Colorado Department of Transportation’s computers and an attack that resulted in the temporary closure of the Port of Los Angeles’ largest terminal. The City employs a multi-level cyber protection scheme that includes network firewalls, server- and personal computer- level anti-virus software, anti-spam/malware software, Barracuda Email Security Gateway for email protection as well as intrusion protection and domain name system filtering software. In 2020, the City underwent a full cybersecurity audit and thereafter implemented all of the resulting recommendations. To date, the City has not experienced an attack on its computer operating systems. However, there can be no assurance that a future attack or attempted attack would not result in disruption of City operations, particularly given that employee access of City computer systems from home in light of the COVID-19 pandemic may increase the risks of intrusion by third parties. The City employs high-level intrusions protection and expects that any such disruptions would be temporary in nature. 45 Limitation on Sources of Revenues Although the Bonds are payable from all lawfully available funds of the City, the City has no obligation to levy taxes, assessments, fees or charges in order to raise sufficient revenues to pay the Bonds. In the event that the City were to choose to do so, the State Constitution contains significant limitations and imposes significant procedural requirements which affect the City’s ability to increase City revenues. See the caption “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” In addition, under the State Constitution, voters of the State have the ability to initiate legislation and require a public vote on legislation passed by the State Legislature through the powers of initiative and referendum, respectively. The City is unable to predict whether any such initiatives or referenda might be submitted to or approved by the voters, the nature of such initiatives or referenda or their potential impact on the City and its operations. Economy of City and State A deterioration in the level of economic activity in the City, the State or the United States, including as a result of the COVID-19 outbreak that is discussed under the caption “THE CITY—COVID-19 Outbreak,” could have a material adverse effect on the City’s general revenues and on the ability of the City to pay principal of and interest on the Bonds. But for the passage of the Measure A Sales Tax, the City expects that it would experience significant reductions in sales tax revenues in the fourth quarter of Fiscal Year 2020 and in Fiscal Year 2021. See the caption “STATE OF CALIFORNIA BUDGET INFORMATION” for information about the State’s economy and State budget. Limitation on Remedies; Bankruptcy General. The enforcement of any remedies that are provided for in the Trust Agreement could prove both expensive and time consuming. The rights and remedies that are provided in the Trust Agreement may be limited by and are subject to: (i) the limitations on legal remedies against cities in the State, including State Constitutional limits on expenditures and limitations on the enforcement of judgments against funds that are needed to serve the public welfare and interest; (ii) federal bankruptcy laws, as now or later enacted, as discussed in detail under the caption “—Bankruptcy” below; (iii) applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or later in effect; (iv) equity principles which may limit the specific enforcement under State law of certain remedies; (v) the exercise by the United States of America of the powers delegated to it by the Constitution; and (vi) the reasonable and necessary exercise, in certain exceptional situations, of the police powers that are 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 legal opinions that will be delivered concurrently with the delivery of the Bonds will be qualified, as to the enforceability of the Bonds, the Trust Agreement and other related documents, by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against cities in the State. Failure by the City to pay principal of or interest on the Bonds or failure to observe and perform any other terms, covenants or conditions of the Trust Agreement for a period of 60 days after written notice of such failure and request that it be remedied has been given to the City by the Trustee, constitute events of default under the Trust Agreement and permit the Trustee to pursue the remedies that are described in the Trust 46 Agreement. In the event of a default, there is no right under any circumstances to accelerate payment of the Bonds or otherwise declare any Bonds that are not then in default to be immediately due and payable. Any suit for money damages against the City would be subject to limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Bankruptcy. Enforceability of the rights and remedies of the Owners of the Bonds, and the obligations incurred by the City, may become subject to the provisions of Title 11 of the United States Code (the “Bankruptcy Code”) and applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or later in effect, 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, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. 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. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings for public agencies such as the City, involuntary petitions are not permitted. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Bonds and the Trustee could be prohibited from taking any steps to enforce their rights under the Trust Agreement or from taking any steps to collect amounts due from the City on the Bonds. In particular, if the City were to become a debtor under the Bankruptcy Code, the City would be entitled to all of the protective provisions of the Bankruptcy Code as applicable in a Chapter 9 case. Among the adverse effects of such a bankruptcy might be: (i) the application of the automatic stay provisions of the Bankruptcy Code, which, until relief is granted, would prevent collection of payments from the City or the commencement of any judicial or other action for the purpose of recovering or collecting a claim against the City, and which could prevent the Trustee from making payments from funds in its possession; (ii) the avoidance of preferential transfers occurring during the relevant period prior to the filing of a bankruptcy petition; (iii) the existence of unsecured or secured debt which may have a priority of payment that is superior to that of Owners of the Bonds; and (iv) the possibility of the adoption of a plan (an “Adjustment Plan”) for the adjustment of the City’s various obligations over the objections of the Trustee or all of the Owners of the Bonds and without their consent, which Adjustment Plan may restructure, delay, compromise or reduce the amount of any claim of the Owners if the Bankruptcy Court finds that such Adjustment Plan is “fair and equitable” and in the best interests of creditors. The Bonds are not secured by any property other than the funds that the City has actually deposited with the Trustee. If the City is in bankruptcy, it may not be obligated to make any further deposits with the Trustee, it may not be obligated to make any further allocations to the Bonds and it may not be obligated to turn over to the Trustee any moneys that have been allocated to the Bonds in the City treasury. As a result, the Bonds would likely be treated as unsecured obligations of the City in the bankruptcy case. Under such circumstances, the Owners of the Bonds could suffer substantial losses. The Adjustment Plans approved by the bankruptcy courts in connection with the bankruptcies of the Cities of Stockton and San Bernardino, among others, resulted in significant reductions in the amounts payable by such city under pension obligation bonds that were substantially identical or similar to the Bonds. Specifically, in the Stockton bankruptcy, the court held that CalPERS was an unsecured creditor of the city with a claim on parity with those of other unsecured creditors. Additionally, in the San Bernardino bankruptcy, the court held that in the event of a municipal bankruptcy, payments on pension obligation bonds, such as the Bonds, were unsecured obligations and not entitled to the same priority of payments made to 47 CalPERS. The City can provide no assurances about the outcome of the bankruptcy cases of other municipalities or the nature of any Adjustment Plan if it were to file for bankruptcy. The City may be able, without the consent and over the objection of the Trustee or the Owners of the Bonds, to alter the priority, interest rate, payment terms, maturity dates, payment sources, covenants and other terms or provisions of the Trust Agreement and the Bonds, as long as the bankruptcy court determines that the alterations are fair and equitable. There may be delays in payments on the Bonds while the court considers any of these issues. There may be other possible effects of a bankruptcy of the City that could result in delays or reductions in payments on the Bonds, or result in losses to the Owners of the Bonds. Regardless of any specific adverse determinations in a City bankruptcy proceeding, the fact that a City bankruptcy proceeding has occurred could have an adverse effect on the liquidity and value of the Bonds. Limitation on Trustee’s Obligations The Trustee has no obligation to advance its own funds to pursue any remedies. As a consequence, the Trustee’s willingness and ability to pursue any of the remedies provided in the Trust Agreement may be dependent upon the availability of funds from an interested party. There can be no assurance that the Trustee will be willing and able to perform its duties under the Trust Agreement. Limited Secondary Market Investment in the Bonds poses certain economic risks which may not be appropriate for certain investors, and only persons with substantial financial resources who understand the risks of investment in the Bonds should consider such investment. There can be no guarantee that there will be a secondary market for purchase or sale of the Bonds or, if a secondary market exists, that the Bonds can or could be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing in connection with a particular issue is suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon the then prevailing circumstances. Such prices could be substantially different from the original purchase price. In addition, the City will enter into a continuing disclosure undertaking pursuant to Rule 15c2-12 in connection with the issuance of the Bonds. Any material failure to comply with such undertaking and Rule 15c2-12 in the future may adversely affect the liquidity of the affected Bonds and their market price in the secondary market. See the caption “CONTINUING DISCLOSURE.” Changes in Law There can be no assurance that the electorate of the State will not adopt additional initiatives or that the State Legislature will not enact legislation that will amend the laws or the Constitution of the State in a manner that results in a reduction of General Fund revenues of the City and consequently, has an adverse effect on the security for the Bonds. CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS Article XIIIA of the State Constitution On June 6, 1978, State voters approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the State Constitution. The amendment, which added Article XIIIA to the State 48 Constitution, among other things affects the valuation of real property for the purpose of taxation in that it defines the full cash property value to mean “the county assessor’s valuation of real property as shown on the 1975/76 tax bill under ‘full cash value’, or thereafter, the appraised value of real property newly constructed, or when 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 a reduction in the consumer price index or comparable local data at a rate not to exceed 2% per year, or reduced in the event of declining property value caused by damage, destruction or other factors including a general economic downturn. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value, except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to December 1, 1978 and bonded indebtedness for the acquisition or improvement of real property approved on or after December 1, 1978 by two-thirds of the votes cast by the voters voting on the proposition (55% in the case of certain school facilities). Property taxes that are subject to Proposition 13 are a significant source of the City’s General Fund revenues. See the caption “CITY FINANCIAL INFORMATION—Property Taxes.” Legislation enacted by the State Legislature to implement Article XIIIA provides that all taxable property is shown at full assessed value as described above. Tax rates for voter approved bonded indebtedness are also applied to 100% of assessed value. Future assessed valuation growth allowed under Article XIIIA (for new construction, change of ownership or 2% annual value growth) is allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and school districts share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each agency’s allocation the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above the 1% limit except for taxes to support indebtedness approved by the voters as described above. Article XIIIA has subsequently 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, and to provide 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 and in certain other limited circumstances. See the caption “—Property Tax Ballot Measures” below for a discussion of an initiative that has qualified for the November 2020 Statewide ballot. If adopted, the Split Roll Initiative would amend provisions of Article XIIIA for large commercial properties. Property Tax Ballot Measures On May 29, 2020, a proposed voter initiated ballot initiative became eligible and subsequently qualified for the November 2020 Statewide ballot (the “Proposition 15”). If approved by a majority of voters casting a ballot at the November 2020 Statewide election, Proposition 15 would amend Article XIIIA such that the “full cash value” of commercial and industrial real property, for each lien date, would be equal to the fair market value of that property. If approved, Proposition 15 would not affect the “full cash value” of residential property, real property used for commercial agricultural production, or commercial and industrial real property with combined value of $3 million or less, which would continue to be subject to annual increases not to exceed 2%. In addition, Proposition 15 would eliminate the business tangible personal property tax on equipment and fixtures for small businesses and provide a $500,000 per year exemption for all other businesses. After compensating the State General Fund for resulting reductions in State personal income tax and corporate tax revenues, and compensating cities, counties and special districts for the cost of implementing Proposition 15, approximately 40% of the remaining additional tax revenues generated as a result of Proposition 15 would be deposited into a fund created pursuant to Proposition 15 called the Local School and Community College Property Tax Fund, with such funds being used to supplement, and not replace, existing funding school districts and community college districts receive under the State’s constitutional minimum funding requirement. With respect to the tax revenues deposited into the Local School and Community College Property Tax Fund, 11% would be allocated by the Board of Governors of the California Community 49 Colleges to community college districts and 89% of such tax revenues would be allocated by the Superintendent of Public Instruction to school districts, charter schools and county offices of education. On July 1, 2020, a legislatively referred constitutional amendment was filed with the Secretary of State and subsequently qualified for the November 2020 Statewide ballot (“Proposition 19”). If approved by a majority of voters casting a ballot at the November 2020 Statewide election, Proposition 19 would amend Article XIIIA to: (i) expand special rules that give property tax savings to homeowners that are over the age of 55, severely disabled, or whose property has been impacted by wildfire or natural disaster, when they buy a different home; (ii) narrow existing special rules for inherited properties; and (iii) dedicate most of the potential new State revenue generated from Proposition 19 toward fire protection. The City cannot predict whether Proposition 15 or Proposition 19 will be approved by a majority of voters casting a ballot. Moreover, if either Proposition 15 or Proposition 19 is adopted, the City is unable to predict how they would affect the relationship of the assessed value between land use types (i.e. residential versus commercial) in the City or what other impacts Proposition 15 or Proposition 19 might have on the local economy or the City’s financial condition. Article XIIIB of the State Constitution On November 6, 1979, State voters approved an initiative entitled “Limitation on Government Appropriations,” which added Article XIIIB to the State Constitution. Under Article XIIIB, State and local government entities have an annual “appropriations limit” which limits the ability to spend certain moneys which are called “appropriations subject to limitation” (consisting of tax revenues and investment proceeds thereof, certain State subventions and regulatory license fees, user charges and user fees to the extent that the proceeds thereof exceed the costs of providing such services, together called “proceeds of taxes,” and certain other funds) in an amount higher than the “appropriations limit.” Article XIIIB does not affect the appropriation of moneys which are excluded from the definition of “appropriations limit,” including debt service on indebtedness existing or authorized as of October 1, 1979 or bonded indebtedness subsequently approved by the voters. In general terms, the “appropriations limit” is to be based on certain 1978-79 expenditures and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if those entities’ revenues in any year exceed the amounts permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. Increases in appropriations by a governmental entity are permitted: (i) if financial responsibility for providing services is transferred to a governmental entity; or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced accordingly to prevent any aggregate increase above the Constitutional limit. Decreases are required where responsibility for providing services is transferred from the government entity. Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter-approved change can only be effective for a maximum of four years. The City’s appropriations have never exceeded the limitation on appropriations under Article XIIIB of the State Constitution. Proposition 62 On November 4, 1986, State voters approved an initiative (“Proposition 62”) which: (a) requires that any tax for general governmental purposes imposed by local governmental entities 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; (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within the jurisdiction; (c) restricts the use of revenues from a special tax to the purposes or for the 50 service for which the special tax is imposed; (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA; (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities; and (f) requires that any tax that is 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, 1988. The requirements imposed by Proposition 62 were upheld by the State Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal.4th 220 (1995). Following the Guardino decision upholding Proposition 62, several actions were filed challenging taxes imposed by public agencies since the adoption of Proposition 62. In 2001, the State Supreme Court released its decision in one of these cases, Howard Jarvis Taxpayers Association v. City of La Habra, et al., 25 Cal.4th 809 (2001). In La Habra, the court held that a public agency’s continued imposition and collection of a tax is an ongoing violation upon which the statute of limitations period begins anew with each collection. The court also held that, unless another statute or constitutional rule provided differently, the statute of limitations for challenges to taxes subject to Proposition 62 is three years. Accordingly, a challenge to a tax subject to Proposition 62 may only be made for those taxes received within three years of the date the action is brought. The City believes that all of the taxes that the City currently collects comply with the requirements of Proposition 62. However, the requirements of Proposition 62 are largely subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, 1996. See the caption “—Proposition 218” below. Proposition 218 On November 5, 1996, State voters approved Proposition 218, an initiative measure entitled the “Right to Vote on Taxes Act.” 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 (meaning any levy or charge upon real property for a special benefit conferred upon the real property) and property-related fees and charges. Proposition 218 states that all taxes which are imposed by local governments are deemed to be either general taxes or special taxes. Special purpose districts, including school districts, have no power to levy general taxes. No local government may impose, extend or increase any general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No local government may impose, extend or increase any special tax unless and until such tax is submitted to the electorate and approved by a two-thirds vote. Proposition 218 also provides that no tax, assessment, fee or charge may be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except: (a) the ad valorem property tax imposed pursuant to Articles XIII and XIIIA of the State Constitution; (b) any special tax receiving a two-thirds vote pursuant to the State Constitution; and (c) assessments, fees and charges for property-related services as provided in Proposition 218. Proposition 218 then goes on to add voter requirements for assessments and fees and charges imposed as an incident of property ownership, other than fees and charges for sewer, water, and refuse collection services. In addition, all assessments and fees and charges imposed as an incident of property ownership, including sewer, water and refuse collection services, are subjected to various additional procedures, such as hearings and stricter and more individualized benefit requirements and findings. The effect of such provisions is to increase the difficulty a local agency will have in imposing, increasing or extending such assessments, fees and charges. In the case of assessments, fees and charges, in most instances, in the event that the City is unable to collect revenues relating to specific programs as a consequence of Proposition 218, the City will curtail such services rather than use amounts in the General Fund to finance such programs. However, no assurance can be given that the City may or will be able to reduce or eliminate such services to avoid new costs for the City 51 General Fund in the event that the assessments, fees or charges which presently finance them are reduced or repealed. Proposition 218 also extends the initiative power to reducing or repealing any local taxes, assessments, fees and charges. This extension of the initiative power is not limited to taxes imposed on or after November 6, 1996, the effective date of Proposition 218, and is not limited to property-related taxes or other charges, and could result in retroactive repeal or reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional principles relating to the impairments of contracts. Legislation implementing Proposition 218 provides that the initiative power provided for in Proposition 218 “shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after (the effective date of Proposition 218) assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights” protected by the United States Constitution. However, no assurance can be given that the voters of the City will not, in the future, approve an initiative which reduces or repeals local taxes, assessments, fees or charges that currently are deposited into the City’s General Fund. Although a portion of the City’s General Fund revenues are derived from general taxes purported to be governed by Proposition 218, as discussed under the caption “CITY FINANCIAL INFORMATION,” the City believes that all of such taxes were imposed in accordance with the requirements of Proposition 218. Unitary Property Some amount of property tax revenue of the City is derived from utility property which is considered part of a utility system with components located in many taxing jurisdictions (“unitary property”). Under the State Constitution, such property is assessed by the SBE as part of a “going concern” rather than as individual pieces of real or personal property. State-assessed unitary and certain other property is allocated to the counties by the SBE, taxed at special county-wide rates, and the tax revenues distributed to taxing jurisdictions (including the City) according to a statutory formula that is generally based on the distribution of taxes in the prior year. Proposition 1A As part of former Governor Schwarzenegger’s agreement with local jurisdictions, Senate Constitutional Amendment No. 4 was enacted by the State Legislature and subsequently approved by the voters as Proposition 1A (“Proposition 1A”) at the November 2, 2004 general election. Proposition 1A amended the State Constitution to, among other things, reduce the State Legislature’s authority over local government revenue sources by placing restrictions on the State’s access to local governments’ property, sales, and VLF revenues as of November 3, 2004. Beginning with Fiscal Year 2009, the State was entitled to borrow up to 8% of local property tax revenues, but only if the Governor proclaimed that such action was necessary due to a severe State fiscal hardship and two-thirds of both houses of the State Legislature approved the borrowing. The amount borrowed was required to be paid back within three years with interest. The State also was not able to borrow from local property tax revenues for more than two Fiscal Years within a period of ten Fiscal Years. In addition, the State could not reduce the local sales tax rate or restrict the authority of local governments to impose or change the distribution of the Statewide local sales tax. The Fiscal Year 2010 State budget included a Proposition 1A diversion of $1.935 billion in local property tax revenues from cities, counties, and special districts to the State to offset State General Fund spending. Such diverted revenues were required to be repaid, with interest, by no later than June 30, 2013. Many provisions of Proposition 1A were superseded by Proposition 22. See the caption “—Proposition 22.” 52 Proposition 22 On November 2, 2010, State voters approved Proposition 22, which eliminates the State’s ability to borrow or shift local revenues and certain State revenues that fund transportation programs. It restricts the State’s authority over a broad range of tax revenues, including property taxes allocated to cities (including the City), counties and special districts, the VLF, State excise taxes on gasoline and diesel fuel, the State sales tax on diesel fuel and the former State sales tax on gasoline. It also makes a number of significant other changes, including restricting the State’s ability to use motor vehicle fuel tax revenues to pay debt service on voter- approved transportation bonds. Proposition 22 superseded certain provisions of Proposition 1A. See the captions “—Proposition 1A” and “CITY FINANCIAL INFORMATION—Property Taxes.” Proposition 26 On November 2, 2010, State voters approved Proposition 26. Proposition 26 amended Article XIIIC of the State Constitution to expand the definition of “tax” to include “any levy, charge, or exaction of any kind imposed by a local government” except the following: (a) a charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; (b) a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product; (c) a charge imposed for the reasonable regulatory costs of a local government for issuing licenses and permits, performing investigations, inspections and audits, enforcing agricultural marketing orders and the administrative enforcement and adjudication thereof; (d) a charge imposed for entrance to or use of local government property, or the purchase, rental or lease of local government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of government or a local government as a result of a violation of law; (f) a charge imposed as a condition of property development; and (g) assessments and property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26 provides that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. The City does not believe that Proposition 26 will adversely affect its General Fund revenues. Future Initiatives Articles XIIIA and XIIIB and Propositions 62, 218, 1A, 22 and 26 were each adopted as measures that qualified for the ballot pursuant to the State’s initiative process. The limitations imposed upon the City by these provisions hinder the City’s ability to raise revenues through taxes or otherwise and may therefore prevent the City from meeting increased expenditure requirements. From time to time other initiative measures could be adopted, further affecting the City’s current revenues or its ability to raise and expend revenues. Any such future initiatives could have a material adverse effect on the City’s financial condition. TAX MATTERS In the opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California (“Bond Counsel”), under existing statutes, regulations, rulings and judicial decisions, and assuming the accuracy of certain representations and compliance with certain covenants and requirements described herein, interest on the Bonds is not excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the “Code”), but is exempt from State of California personal income tax. With certain exceptions, the difference between the issue price of a Bond (the first price at which a substantial amount of the Bonds of the same maturity is to be sold to the public) and the stated redemption 53 price at maturity with respect to such Bond (to the extent the redemption price at maturity is greater than the issue price) constitutes original issue discount. Original issue discount accrues under a constant yield method. The amount of original issue discount deemed received by the Beneficial Owner of a Bond will increase the Beneficial Owner’s basis in the Bond. Beneficial Owners of the Bonds should consult their own tax advisors with respect to taking into account any original issue discount on the Bonds. The amount by which a Bond Beneficial Owner’s original basis for determining loss on sale or exchange in the applicable Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an earlier call date) constitutes amortizable bond premium, which the Beneficial Owner of a Bond may elect to amortize under Section 171 of the Code; such amortizable bond premium reduces the Bond Beneficial Owner’s basis in the applicable Bond (and the amount of taxable interest received with respect to the Bonds), and is deductible for federal income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a Bond Beneficial Owner realizing a taxable gain when a Bond is sold by the Beneficial Owner for an amount equal to or less (under certain circumstances) than the original cost of the Bond to the Beneficial Owner. The Beneficial Owners of the Bonds that have a basis in the Bonds that is greater than the principal amount of the Bonds should consult their own tax advisors with respect to whether or not they should elect such premium under Section 171 of the Code. In the event of a legal defeasance of the Bonds, such Bonds might be treated as retired and “reissued” for federal tax purposes as of the date of the defeasance, potentially resulting in recognition of taxable gain or loss to the applicable Beneficial Owner generally equal to the difference between the amount deemed realized from the deemed prepayment and reissuance and the Beneficial Owner’s adjusted tax basis in such Bond. The tax discussion set forth above is included for general information only and may not be applicable depending upon a Bond Owner’s particular situation. The ownership and disposal of the Bonds and the accrual or receipt of interest on the Bonds may otherwise affect the tax liability of certain persons. Bond Counsel expresses no opinion regarding any such tax consequences. BEFORE PURCHASING ANY OF THE BONDS, ALL POTENTIAL PURCHASERS SHOULD CONSULT THEIR INDEPENDENT TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES RELATING TO THE BONDS AND THE TAXPAYER’S PARTICULAR CIRCUMSTANCES. A copy of the proposed form of opinion of Bond Counsel with respect to the Bonds is set forth in Appendix D. VALIDATION On March 23, 2020, the City, acting pursuant to the provisions of Section 860 et seq. of the California Code of Civil Procedure, filed the Validation Petition in the Court seeking judicial validation of the transactions relating to the CalPERS Contract and the Bonds and certain other matters. On September 18, 2020, the court entered the Validation Judgment to the effect, among other things that: (i) the Trust Agreement will be a valid, legal and binding obligation of the City and the approval thereof was in conformity with applicable provisions of law; and (ii) the City has the authority under State law to provide for the refunding of its Pension Liability by issuing the Bonds and applying the proceeds of the Bonds to the retirement of its Pension Liability. Pursuant to Section 870 of the California Code of Civil Procedure, the last day to timely file a notice of appeal to the Validation Judgment was October 18, 2020. On October 18, 2020, the judgment became binding and conclusive in accordance with State law. The City is unaware of any threatened challenge to the Validation Judgment. In issuing its approving opinion, Bond Counsel will rely, among other things, upon the Validation Judgment. CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is set forth in Appendix D. Certain 54 additional matters will be passed upon by Stradling Yocca Carlson & Rauth, a Professional Corporation, as Disclosure Counsel to the City. Certain legal matters will be passed upon for the City by Best Best & Krieger, LLP (the “City Attorney”), for the Underwriter by its counsel, Kutak Rock LLP, and for the Trustee by its counsel. Bond Counsel has not undertaken any responsibility to the owners of the Bonds for the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Bonds, and expresses no opinion relating thereto. Bond Counsel and Disclosure Counsel will receive compensation from the City contingent upon the sale and delivery of the Bonds. From time to time, Bond Counsel represents the Underwriter on matters unrelated to the Bonds. Counsel to the Underwriter will receive compensation contingent upon the issuance of the Bonds. LITIGATION To the best knowledge of the City there is no action, suit or proceeding known to be pending or threatened, restraining or enjoining the execution and delivery or the issuance of the Bonds or the execution and delivery of the Trust Agreement, or in any way contesting or affecting the validity 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 against the City. In the opinion of the City Attorney, such other lawsuits and claims which are presently pending will not have a material adverse effect on the ability of the City to pay the principal of and interest on the Bonds. RATINGS The City expects that S&P Global Ratings, a Standard & Poor’s Financial Services LLC business (“S&P”) will assign the Bonds the rating of “___ (__________ outlook).” A rating is not a recommendation to buy, sell or hold securities. Future events, including the impacts of the COVID-19 pandemic that is described under the caption “THE CITY—COVID-19 Outbreak,” could have an adverse impact on the rating of the Bonds, and there is no assurance that any credit rating that is given to the Bonds will be maintained for any period of time or that a rating may not be qualified, downgraded, lowered or withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant, nor can there be any assurance that the criteria required to achieve the rating on the Bonds will not change during the period that the Bonds remain outstanding. Any qualification, downward revision, lowering or withdrawal of the ratings on the Bonds may have an adverse effect on the market price of the Bonds. Such ratings reflect only the current views of S&P (which could change at any time), and an explanation of the significance of such ratings may be obtained from S&P. Generally, S&P bases its ratings on information and materials furnished to them (which may include information and material from the City that is not included in this Official Statement) and on investigations, studies and assumptions by S&P. The City has covenanted in the Continuing Disclosure Certificate to file notices of any rating changes on the Bonds with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System. See the caption “CONTINUING DISCLOSURE” and Appendix E. Notwithstanding such covenant, information relating to rating changes on the Bonds may be publicly available from S&P prior to such information being provided to the City and prior to the date by which the City is obligated to file a notice of rating change. Purchasers of the Bonds are directed to S&P and its website and official media outlets for the most current ratings with respect to the Bonds after the initial issuance of the Bonds. 55 CONTINUING DISCLOSURE The City has covenanted in a Continuing Disclosure Certificate, dated the date of issuance of the Bonds (the “Continuing Disclosure Certificate”), for the benefit of the Owners and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the City by not later than each April 1 following the end of the City’s Fiscal Year (currently its Fiscal Year ends on June 30) (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. The Annual Report and the notices of enumerated events will be filed by the City with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System. The specific nature of the information to be contained in the Annual Report and the notice of enumerated events is set forth in Appendix E. These covenants have been made in order to assist the Underwriter in complying with Section (b)(5) of Rule 15c2-12. Within the last five years, the City and its related entities have not failed to comply with the terms of its prior continuing disclosure undertakings in any material respect in the last five years. In order to assure compliance with its continuing disclosure obligations going forward, the City has adopted a Debt Management Policy which includes continuing disclosure procedures and retained Urban Futures, Inc. to assist in the preparation and filing of continuing disclosure reports. UNDERWRITING The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the “Underwriter”), pursuant to a purchase agreement, dated the date hereof, by and between the City and the Underwriter. The Underwriter will purchase the Bonds from the City at an aggregate purchase price of $__________, representing the principal amount of the Bonds, plus/less $_________ of net original issue premium/discount and less $__________ of Underwriter’s discount. The initial public offering prices stated on the inside front cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. MUNICIPAL ADVISOR The City has retained Urban Futures, Inc., Tustin, California (the “Municipal Advisor”) as its municipal advisor in connection with the sale of the Bonds. The Municipal Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy, completeness or fairness of the information contained herein. The Municipal Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal or other public securities. MISCELLANEOUS The foregoing and subsequent summaries or descriptions of provisions of the Bonds and the Trust Agreement and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof. Reference is made to said documents for full and complete statements of the provisions of such documents. The appendices attached hereto are a part of this Official Statement. Copies of the Trust Agreement, in reasonable quantities, may be obtained during the offering period from the Underwriter and thereafter upon request to the principal corporate trust office of the Trustee. Any statements made in this Official Statement involving matters of opinion or estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. 56 The execution and delivery of this Official Statement has been duly authorized by the City. This Official Statement is not to be construed as a contract or an agreement between the City and the purchasers or owners of any of the Bonds. CITY OF ARCADIA By: City Manager A-1 APPENDIX A AUDITED FINANCIAL STATEMENTS B-1 APPENDIX B ECONOMIC AND DEMOGRAPHIC INFORMATION REGARDING THE CITY OF ARCADIA This Appendix sets forth general information about the City of Arcadia (the “City”) including information with respect to its finances. The following information concerning the, the County of Los Angeles (the “County”) and the State of California (the “State”) is included only for general background purposes. It is not intended to suggest that the Bonds are payable from any source other than the moneys that are described herein. General Information The City is located in the County of Los Angeles, approximately 20 miles northeast of downtown Los Angeles, in the San Gabriel Valley and at the base of the San Gabriel Mountains. The City was incorporated in 1903 and became a charter city in 1951. The City encompasses approximately 11.1 square miles and had an estimated 2020 population of 57,212. The City is home to the Santa Anita Park racetrack and home to the Los Angeles County Arboretum and Botanic Garden. Interstate 210 runs through the City, providing access to employment centers and recreational opportunities throughout southern California. The City is a charter city, operating under a Council/Manager form of government. Councilmembers are elected by geographical district for overlapping four-year terms and a mayor is elected at large for a one-year term. The City Council appoints the City Manager, who is responsible for day-to-day administration of the City under the policy direction of the City Council. The City provides a wide range of municipal services, including public safety (police), sewer maintenance, street sweeping, park maintenance, building inspection, library, water and sanitation services. Population The City has an estimated current population of 57,212. The table below sets forth recent total population information for the City, the County of Los Angeles (the “County”) and the State of California (the “State”). Table B-1 City of Arcadia, County of Los Angeles and State of California Population January 1 City of Arcadia County of Los Angeles State of California 2015 57,105 10,126,423 38,870,150 2016 57,370 10,158,196 39,131,307 2017 57,249 10,193,753 39,398,702 2018 57,287 10,209,676 39,586,646 2019 57,262 10,184,378 39,695,376 2020 57,212 10,172,951 39,782,870 Source: State of California, Department of Finance, E-4 Population Estimates for Cities, Counties and State, 2011-2020, with 2010 Census Counts. B-2 Employment and Industry The table below summarizes recent civilian labor force, civilian employment and civilian unemployment figures in the City, the County, the State and the United States. Table B-2 City of Arcadia, County of Los Angeles, State of California and United States Labor Force, Employment and Unemployment Yearly Average Year and Area Civilian Labor Force Civilian Employment(1) Civilian Unemployment(2) Civilian Unemployment Rate(3) 2015 Arcadia 28,300 27,300 1,100 3.8% Los Angeles County 5,011,700 4,674,800 336,900 6.7 California 18,981,800 17,798,600 1,183,200 6.2 United States 157,130,000 148,834,000 8,296,000 5.3 2016 Arcadia 29,200 28,100 1,100 3.9% Los Angeles County 5,030,500 4,765,900 264,600 5.3 California 19,044,500 18,002,800 1,041,700 5.5 United States 159,187,000 151,436,000 7,751,000 4.9 2017 Arcadia 29,700 28,600 1,100 3.6% Los Angeles County 5,084,000 4,841,900 242,200 4.8 California 19,205,300 18,285,500 919,800 4.8 United States 160,381,000 153,861,000 6,520,000 4.1 2018 Arcadia 29,800 28,800 1,000 3.5% Los Angeles County 5,095,500 4,860,300 235,200 4.6 California 19,398,200 18,582,800 815,400 4.2 United States 162,075,000 155,761,000 6,314,000 3.9 2019 Arcadia 30,000 29,000 1,000 3.4% Los Angeles County 5,121,600 4,894,300 227,300 4.4 California 19,411,600 18,627,400 784,200 4.0 United States 163,539,000 157,538,000 6,001,000 3.7 (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. Source: California Employment Development Department, March 2019 Benchmark; U.S. Department of Labor, Bureau of Labor Statistics. B-3 The table below sets forth recent industry employment and labor force for the Los Angeles-Long Beach-Glendale MSA Metropolitan Statistical Area (the “MSA”). Annual industry employment information is not compiled by sector for the City. Table B-3 Los Angeles-Long Beach-Glendale MSA Industry Employment and Labor Force Annual Average Type of Employment 2015 2016 2017 2018 2019 Total Farm 5,000 5,300 5,700 4,600 4,500 Total Nonfarm 4,274,200 4,397,700 4,451,000 4,518,100 4,566,900 Total Private 3,707,800 3,821,000 3,864,900 3,927,500 3,972,700 Goods Producing 490,800 497,300 489,800 489,400 490,500 Mining and Logging 3,900 2,400 2,000 1,900 1,900 Construction 126,100 134,000 138,700 146,300 149,300 Manufacturing 360,800 360,800 349,000 341,200 339,200 Durable Goods 202,400 203,400 201,300 199,800 201,400 Nondurable Goods 158,400 157,400 147,700 141,300 137,800 Service Providing 3,783,400 3,900,400 3,961,200 4,028,700 4,076,500 Private Service Producing 3,217,000 3,323,800 3,375,100 3,438,100 3,482,200 Trade, Transportation and Utilities 817,800 835,600 845,700 851,600 851,500 Wholesale Trade 227,000 222,100 221,500 223,200 220,500 Retail Trade 420,500 424,600 426,100 424,800 417,300 Transportation, Warehousing and Utilities 170,400 188,900 198,200 203,600 213,800 Information 202,700 229,400 214,900 216,400 217,300 Financial Activities 214,200 219,800 221,600 223,200 223,900 Professional and Business Services 600,300 603,000 612,100 630,400 642,800 Educational and Health Services 742,200 772,700 800,600 821,300 843,600 Leisure and Hospitality 488,100 510,000 524,600 536,500 544,700 Other Services 151,700 153,300 155,700 158,800 158,400 Government 566,400 576,700 586,100 590,600 594,200 Total, All Industries 4,279,200 4,403,000 4,456,700 4,522,700 4,571,400 Note: The “Total All Industries” data is not directly comparable to the employment data found herein. Source: State of California, Employment Development Department, Labor Market Information Division, Los Angeles-Long Beach-Glendale MSA Industry Employment & Labor Force - by Annual Average, March 2019 Benchmark. B-4 Major Employers The table below sets forth the principal employers in the City as of June 30, 2019. Table B-4 City of Arcadia Principal Employers Employer Number of Employees Nordstrom Inc. 420 Macy’s West 341 Fedex Ground Package System, Inc. #910 216 Healthcare Partners Affiliates Medical 206 Dave & Buster’s 181 JC Penney Corp. Inc. 178 The Cheesecake Factory Restaurants, Inc. 177 Forever 21, Retail, Inc. 141 99 Ranch Market 7 139 Arcadia Health Care Center 139 Source: City of Arcadia, Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 2019; page 176. Commercial Activity The table below presents taxable sales for the years 2015 through 2019 for the City. Table B-5 City of Arcadia Total Taxable Transactions and Number of Sales Permits(1) Year Retail and Food Permits Retail and Food Taxable Transactions Total Permits Total Outlets Taxable Transactions 2015 1,605 $830,892,651 2,432 $931,655,703 2016 1,587 856,473,318 2,427 973,420,791 2017 1,630 868,294,509 2,492 981,408,991 2018 1,626 867,254,238 2,586 984,601,476 2019 1,638 856,424,115 2,679 974,006,907 (1) Reflects latest information available. Source: Taxable Sales in California, California Department of Tax and Fee Administration for 2015-2019. B-5 Table B-6 City of Arcadia Taxable Retail Sales(1) Type of Business 2015 2016 2017 2018 2019 Motor Vehicle & Parts Dealers $ 71,329,191 $ 85,766,243 $ 87,040,867 $ 77,344,196 $ 74,831,940 Home Furnishings & Appliance Stores 16,031,702 13,808,895 14,797,037 15,153,566 12,808,246 Building Materials & Garden Equipment & Supplies 8,561,056 9,927,690 9,741,006 8,789,354 10,040,866 Food & Beverage Stores 38,370,384 36,654,310 36,532,431 40,247,691 38,925,792 Gasoline Stations 75,880,850 62,581,472 64,776,478 71,630,087 72,007,938 Clothing & Clothing Accessories Stores 223,226,970 241,003,051 233,026,306 233,252,511 216,843,680 General Merchandise Stores 85,089,519 83,208,224 83,380,091 80,413,282 75,797,803 Food Services & Drinking Places 180,792,115 193,413,050 212,655,641 213,704,400 221,774,449 Other Retail Group 131,610,864 130,110,383 126,344,652 126,719,151 133,393,401 Retail Stores Totals $ 830,892,651 $ 856,473,318 $ 868,294,509 $ 867,254,238 $ 856,424,115 All Other Outlets 100,763,052 116,947,473 113,114,482 117,347,238 117,582,792 Total All Outlets $ 931,655,703 $ 973,420,791 $ 981,408,991 $ 984,601,476 $ 974,006,907 (1) Reflects latest information available. (2) Dollar amounts are in thousands. Source: California State Board of Equalization. Building Activity The table below summarizes recent building activity in the City, reflecting the latest available information. Table B-7 City of Arcadia Building Permit Valuations (in thousands of dollars) Type 2015 2016 2017 2018 2019 Valuation ($000’s) Residential: $134,629,801 $114,520,046 $107,640,363 $ 50,698,226 $ 55,015,689 Non-Residential: 17,700,488 48,429,981 46,130,066 14,288,673 47,385,671 Total Valuation: $152,330,289 $162,950,027 $153,770,429 $ 64,986,899 $102,401,360 New Housing Units: Single Family 141 112 138 51 66 Multi Family 13 21 107 21 27 Total Units: 154 133 245 72 93 Note: Totals may not add to sums because of independent rounding. Source: Construction Industry Research Board. C-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE TRUST AGREEMENT The following is a summary of certain provisions of the Trust Agreement that are not described elsewhere. This summary does not purport to be comprehensive and reference should be made to the applicable document for a full and complete statement of the provisions thereof. DEFINITIONS; INTERPRETATION Certain Defined Terms. The terms defined in the Indenture will, for all purposes of the Trust Agreement, have the meanings specified below unless the context clearly requires otherwise. “Account” means any account established pursuant to the Trust Agreement. “Additional Bonds” means bonds issued in accordance with the Trust Agreement. “Annual Debt Service” means, for any Bond Year, the sum of the aggregate amount of principal required to be paid on Bonds during such Bond Year either at maturity or pursuant to a mandatory sinking fund payment and the interest due on the Bonds on each Interest Payment Date during such Bond Year. “Authorized City Representative” means the City Manager, the Director of Administrative Services, or any officer authorized to act on their respective behalves. “Authorized Denominations” means $5,000 and any integral multiple thereof (except that while Bonds are registered in book-entry form, they may be held in amounts other than an integral multiple so long as the amount exceeds $5,000). “Beneficial Owner” means, whenever used with respect to a Bond, the person in whose name such Bond is recorded as the beneficial owner of such Bond by a Participant on the records of such Participant or such person’s subrogee. “Bond” or “Bonds” means the bonds issued under the Trust Agreement and designated as “City of Arcadia 2020 Taxable Pension Obligation Bonds.” “Bond Counsel” means: (a) Stradling Yocca Carlson & Rauth, a Professional Corporation; or (b) a firm of attorneys nationally recognized as experts in the area of municipal finance who are familiar with the transactions contemplated under the Trust Agreement and acceptable to the City. “Bond Interest Account” means the Account of that name established within the Revenue Fund pursuant to the Trust Agreement. “Bond Principal Account” means the Account of that name established within the Revenue Fund pursuant to the Trust Agreement. “Bond Year” means the twelve-month period commencing on each July 2 and ending on the next succeeding December 1, except that the first Bond Year will commence on the Closing Date and end on December 1, 2021. “Book-Entry Bonds” means the Bonds held by DTC (or its nominee) as the registered owner thereof pursuant to the terms and provisions of the Trust Agreement. C-2 “Business Day” means a day: (a) other than a day on which banks located in the City of New York, New York or the cities in which the respective principal offices of the Trustee or any Paying Agent are located, are required or authorized by law or executive order to close; and (b) on which the New York Stock Exchange is open. “Closing Date” means November __, 2020. “Consultant” means the accountant, attorney, consultant, municipal finance consultant or investment banker, or firm thereof, retained by the City to perform acts and carry out the duties provided for such Consultant in the Trust Agreement. Such accountant, attorney, consultant, municipal finance consultant or investment banker, or firm thereof, must be nationally recognized within its profession for work of the character required. “Continuing Disclosure Certificate” means that certain Continuing Disclosure Certificate d executed and delivered by the City and acknowledged and accepted by the dissemination agent listed therein, dated November __, 2020, as originally executed and as it may be amended from time to time in accordance with the terms thereof. “Defeasance Securities” means any of the following: (a) non-callable direct obligations of the United States of America (“Treasuries”); (b) evidence 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; and (c) pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and Moody’s, respectively (or any combination thereof), which are authorized to be used to effect defeasance of the Bonds. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York, and its successors and assigns. “Event of Default” means any occurrence or event specified as such in the Trust Agreement. “Fiduciary or Fiduciaries” means the Trustee, any Paying Agent, or any or all of them, as may be appropriate. “Fiscal Year” means the period of time beginning on July 1 of each given year and ending on June 30 of the immediately subsequent year, or such other period as the City designates as its fiscal year. “Fund” means any fund established pursuant to the Trust Agreement. “Holder,” or “Bondholder,” “owner” or “registered owner” means the registered owner of any Bonds, including DTC or its nominee as the sole registered owner of Book-Entry Bonds. “Information Services” means any one or more of the national information services that Trustee determines are in the business of disseminating notices of redemption of obligations such as the Bonds. “Interest Payment Date” means June 1 and December 1 of each year commencing December 1, 2021. “Mail” means by first-class United States mail, postage prepaid. “Moody’s” means Moody’s Investors Service, Inc., New York, New York, and its successors, and, if such corporation for any reason no longer performs the functions of a securities rating agency, “Moody’s” will be deemed to refer to any other nationally recognized rating agency designated by the City. “Opinion of Bond Counsel” means a written opinion of Bond Counsel. “Outstanding,” with respect to the Bonds, means all Bonds which have been authenticated and delivered under the Trust Agreement, except: (a) Bonds cancelled or purchased by the Trustee for cancellation or delivered to or acquired by the Trustee for cancellation and, in all cases, with the intent to extinguish the debt represented C-3 thereby; (b) Bonds deemed to be paid in accordance with the Trust Agreement; (c) Bonds in lieu of which other Bonds have been authenticated under the Indenture; (d) Bonds that have become due (at maturity, on redemption, or otherwise) and for the payment of which sufficient moneys, including interest accreted or accrued to the due date, are held by the Trustee or a Paying Agent; and (e) For purposes of any consent or other action to be taken by the Holders of a specified percentage of Bonds Outstanding under the Trust Agreement, Bonds held by or for the account of the City or by any person controlling, controlled by or under common control with the City, unless such Bonds are pledged to secure a debt to an unrelated party, in which case such Bonds will, for purposes of consents and other Bondholder action, be deemed to be Outstanding and owned by the party to which such Bonds are pledged. Nothing in the Trust Agreement will be deemed to prevent the City from purchasing Bonds from any party out of any funds available to the City. “Participant” means the participants of DTC which include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. “Paying Agent” means any paying agent for the Bonds, or successor thereto, appointed by the City pursuant to the Trust Agreement, and any successor appointed pursuant thereto. “Permitted Investments” means the following: (1) Direct obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America (“U.S. Government Securities”); (2) Direct obligations1 of the following federal agencies which are fully guaranteed by the full faith and credit of the United States of America: a. Export-Import Bank of the United States – Direct obligations and fully guaranteed certificates of beneficial interest; b. Federal Housing Administration – debentures; c. General Services Administration – participation certificates; d. Government National Mortgage Association (“GNMA”) – guaranteed mortgage-backed securities and guaranteed participation certificates; e. Small Business Administration – guaranteed participation certificates and guaranteed pool certificates; f. U.S. Department of Housing & Urban Development – local authority bonds; g. U.S. Maritime Administration – guaranteed Title XI financings; and h. Washington Metropolitan Area Transit Authority – guaranteed transit bonds; (3) Direct obligations of the following federal agencies which are not fully guaranteed by the faith and credit of the United States of America: a. Federal National Mortgage Association (“FNMA”) – senior debt obligations rated Aaa by Moody’s and AAA by S&P; b. Federal Home Loan Mortgage Corporation (“FHLMC”) – participation certificates and senior debt obligations rated Aaa by Moody’s and AAA by S&P; c. Federal Home Loan Banks – consolidated debt obligations; d. Student Loan Marketing Association – debt obligations; and e. Resolution Funding Corporation – debt obligations; (4) Direct, general obligations of any state of the United States of America or any subdivision or agency thereof whose uninsured and unguaranteed general obligation debt is rated, at the time of purchase, A2 or better by Moody’s and A or better by S&P, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose uninsured and unguaranteed general obligation debt is rated, at the time of purchase, A2 or better by Moody’s and A or better by S&P; (5) Commercial paper (having original maturities of not more than 270 days) rated, at the time of purchase, P-1 by Moody’s and A-1 or better by S&P; (6) Certificates of deposit, savings accounts, deposit accounts or money market deposits in amounts that are continuously and fully insured by the Federal Deposit Insurance Corporation (the “FDIC”), including the Bank Insurance Fund and the Savings Association Insurance Fund, and including funds for which the Trustee or its affiliates provide investment advisory or other management services; (7) Certificates of deposit, deposit accounts, federal funds or bankers’ acceptances (in each case having maturities of not more than 365 days following the date of purchase) of any domestic commercial bank or United States branch office of a foreign bank, provided that such bank’s short-term certificates of deposit are rated P-1 by Moody’s and A-1 or better by S&P (not considering holding company ratings); (8) Investments in money-market funds rated AAAm or AAAm-G by S&P, including funds for which the Trustee and its affiliates provide investment advisory or other management services; (9) Repurchase agreements that meet the following criteria: a. A master repurchase agreement or specific written repurchase agreement, substantially similar in form and substance to the Public Securities Association or Bond Market Association master repurchase agreement, governs the transaction; b. Acceptable providers consist of: (i) registered broker/dealers subject to Securities Investors’ Protection Corporation (“SIPC”) jurisdiction or commercial banks insured by the FDIC, if such 1 The following are explicitly excluded from the securities enumerated in clauses 2 and 3: (i) All derivative obligations, including without limitation inverse floaters, residuals, interest-only, principal-only and range notes; (ii) Obligations that have a possibility of returning a zero or negative yield if held to maturity; (iii) Obligations that do not have a fixed par value or those whose terms do not promise a fixed dollar amount at maturity or call date; and (iv) Collateralized Mortgage-Backed Obligations. C-4 broker/dealer or bank has an uninsured, unsecured and unguaranteed rating of A3/P 1 or better by Moody’s and A-/A-1 or better by S&P; or (ii) domestic structured investment companies rated Aaa by Moody’s and AAA by S&P; c. The repurchase agreement requires termination thereof if the counterparty’s ratings are suspended, withdrawn or fall below A3 or P-1 from Moody’s, or A- or A-1 from S&P. Within ten days, the counterparty will repay the principal amount plus any accrued and unpaid interest on the investments; d. The repurchase agreement will limit acceptable securities to U.S. Government Securities and to the obligations of GNMA, FNMA or FHLMC described in clauses 2(d), 3(a) and 3(b) above. The fair market value of the securities in relation to the amount of the repurchase obligation, including principal and accrued interest, is equal to a collateral level of at least 104% for U.S. Government Securities and 105% for GNMAs, FNMAs or FHLMCs. The repurchase agreement will require: (i) the Trustee or the Agent to value the collateral securities no less frequently than weekly; (ii) the delivery of additional securities if the fair market value of the securities is below the required level on any valuation date; and (iii) liquidation of the repurchase securities if any deficiency in the required percentage is not restored within two business days of such valuation; e. The repurchase securities will be delivered free and clear of any lien to the Trustee or to an independent third party acting solely as agent (“Agent”) for the Trustee, and such Agent is: (i) a Federal Reserve Bank; or (ii) a bank which is a member of the FDIC and which has combined capital, surplus and undivided profits or, if appropriate, a net worth, of not less than $50 million, and the Trustee has received written confirmation from such third party that such third party holds such securities, free and clear of any lien, as agent for the Trustee; f. A perfected first security interest in the repurchase securities will be created for the benefit of the Trustee, and the issuer and the Trustee will receive an opinion of counsel as to the perfection of the security interest in such repurchase securities and any proceeds thereof. g. The repurchase agreement will have a term of one year or less, or will be due on demand. h. The repurchase agreement must establish the following as events of default, the occurrence of any of which requires the immediate liquidation of the repurchase securities: (i) insolvency of the broker/dealer or commercial bank serving as the counterparty under the repurchase agreement; (ii) failure by the counterparty to remedy any deficiency in the required collateral level or to satisfy the margin maintenance call under clause 9(d) above; or (iii) failure by the counterparty to repurchase the repurchase securities on the specified date for repurchase; (10) Investment agreements, collateralized at 102%, (also referred to as guaranteed investment contracts) that meet the following criteria: a. A master agreement or specific investment agreement governs the transaction. b. Acceptable providers of uncollateralized investment agreements consist of: (i) domestic FDIC-insured commercial banks, or U.S. branches of foreign banks, rated at least Aa2 by Moody’s and AA by S&P; (ii) domestic insurance companies rated Aaa by Moody’s and AAA by S&P; and (iii) domestic structured investment companies rated Aaa by Moody’s and AAA by S&P; c. Acceptable providers of collateralized investment agreements consist of: (i) registered broker/dealers subject to SIPC jurisdiction, if such broker/dealer has an uninsured, unsecured and unguaranteed rating of Al or better by Moody’s and A+ or better by S&P; (ii) domestic FDIC-insured commercial banks, or U.S. branches of foreign banks, rated at least A1 by Moody’s and A+ by S&P; (iii) domestic insurance companies rated at least A1 by Moody’s and A+ by S&P; and (iv) domestic structured investment companies rated Aaa by Moody’s and AAA by S&P. Required collateral levels will be as set forth in clause 10(f) below; d. The investment agreement will provide that if the provider’s ratings fall below Aa3 by Moody’s or AA- by S&P, the provider will within ten days either: (i) repay the principal amount plus any accrued and interest on the investment; or (ii) deliver Permitted Collateral as provided below; e. The investment agreement must provide for termination thereof if the provider’s ratings are suspended, withdrawn or fall below A3 from Moody’s or A- from S&P. Within ten days, the provider will repay the principal amount plus any accrued interest on the agreement, without penalty to the City. f. The investment agreement will provide for the delivery of collateral described in clauses (i) or (ii) below (“Permitted Collateral”) which will be maintained at the following collateralization levels at each valuation date: (i) U.S. Government Securities at 104% of principal plus accrued interest; or (ii) Obligations of GNMA, FNMA or FHLMC (described in clauses 2(d), 3(a) and 3(b) above) at 105% of principal and accrued interest. g. The investment agreement will require the Trustee to determine the market value of the Permitted Collateral not less than weekly and notify the investment agreement provider on the valuation day of any deficiency. Permitted Collateral may be released by the Trustee to the provider only to the extent that there are excess amounts over the required levels. Market value, with respect to collateral, may be determined by any of the following methods: (i) the last quoted “bid” price as shown in Bloomberg, Interactive Data Systems, Inc., The Wall Street Journal or Reuters; (ii) valuation as performed by a nationally recognized pricing service, whereby the valuation method is based on a composite average of various bid prices; or (iii) the lower of two bid prices by nationally recognized dealers. Such dealers or their parent holding companies will be rated investment grade and be market makers in the securities being valued. h. Securities held as Permitted Collateral will be free and clear of all liens and claims of third parties, held in a separate custodial account and registered in the name of the Trustee or the Agent. i. The provider will grant the Trustee a perfected first security interest in any collateral delivered under an C-5 investment agreement. For investment agreements collateralized initially and in connection with the delivery of Permitted Collateral under clause 10(f) above, the Trustee will receive an opinion of counsel as to the perfection of the security interest in the collateral; j. The investment agreement will provide that moneys invested under the agreement must be payable and putable at par to the Trustee without condition, breakage fee or other penalty, upon not more than two business days’ notice, or immediately on demand for any reason for which the funds invested may be withdrawn from the applicable fund or account established under the authorizing document, as well as the following: (i) In the event of a deficiency in the debt service account; (ii) Upon acceleration after an event of default; (iii) Upon refunding of the Bonds in whole or in part; (iv) Reduction of any debt service reserve requirement for the Bonds; or (v) If a determination is later made by a nationally recognized bond counsel that investments must be yield-restricted. Notwithstanding the foregoing, the agreement may provide for a breakage fee or other penalty that is payable in arrears and not as a condition of a draw by the Trustee if the City’s obligation to pay such fee or penalty is subordinate to its obligation to pay debt service on the Bonds and to make deposits to any debt service reserve fund established for the Bonds. (k) The investment agreement must establish the following as events of default, the occurrence of any of which require the immediate liquidation of the investment securities: (i) Failure of the provider or the guarantor (if any) to make a payment when due or to deliver Permitted Collateral of the character, at the times or in the amounts described above; (ii Insolvency of the provider or the guarantor (if any) under the investment agreement; (iii) Failure by the provider to remedy any deficiency with respect to required Permitted Collateral; (iv) Failure by the provider to make a payment or observe any covenant under the agreement; (v) The guaranty (if any) is terminated, repudiated or challenged; or (vi) Any representation of warranty furnished to the Trustee or the issuer in connection with the agreement is false or misleading. (l) The investment agreement must incorporate the following general criteria: (i) “Cure periods” for payment default may not exceed two business days; (ii) The agreement must provide that the provider will remain liable for any deficiency after application of the proceeds of the sale of any collateral, including costs and expenses incurred by the Trustee; (iii) Neither the agreement or guaranty agreement, if applicable, may be assigned (except to a provider that would otherwise be acceptable under these guidelines); (iv) If the investment agreement is for a debt service reserve fund, reinvestments of funds will be required to bear interest at a rate at least equal to the original contract rate; (v) The provider is required to immediately notify the Trustee of any event of default or any suspension, withdrawal or downgrade of the provider’s ratings; and (vi) The agreement will be unconditional and will expressly disclaim any right of set-off or counterclaim. (11) Forward delivery agreements in which the securities delivered mature on or before each interest payment date (for debt service or debt service reserve funds) or draw down date (construction funds) that meet the following criteria: (a) A specific written investment agreement governs the transaction. (b) Acceptable providers are limited to (i) any registered broker/dealer subject to SIPC jurisdiction, if such broker/dealer or bank has an uninsured, unsecured and unguaranteed obligation rated A3/P-1 or better by Moody’s and A /A-1 or better by S&P; (ii) any commercial bank insured by the FDIC, if such bank has an uninsured, unsecured and unguaranteed obligation rated A3/P-1 or better by Moody’s and A /A-1 or better by S&P; and (iii) domestic structured investment companies rated Aaa by Moody’s and AAA by S&P; (c) The forward delivery agreement provides for termination or assignment (to a qualified provider under the Trust Agreement) of the agreement if the provider’s ratings are suspended, withdrawn or fall below A3 or P-1 from Moody’s or A or A-1 from S&P. Within ten days, the provider will fulfill any obligations it may have with respect to shortfalls in market value. There will be no breakage fee payable to the provider in such event; (d) Permitted securities will include the investments listed in 1, 2 and 3 above; (e) The forward delivery agreement includes the following provisions: (i) The permitted securities must mature at least one business day before a debt service payment date or scheduled draw. The maturity amount of the permitted securities must equal or exceed the amount required to be in the applicable fund on the applicable valuation date; (ii) The agreement will include market standard termination provisions, including the right to terminate for the provider’s failure to deliver qualifying securities or otherwise to perform under the agreement. There may be no breakage fee or penalty payable to the provider in such event; (iii) Any breakage fees will be payable only on debt service payment dates and will be subordinated to the payment of debt service and debt service reserve fund replenishments; (iv) The provider must submit at closing a bankruptcy opinion to the effect that upon any bankruptcy, insolvency or receivership of the provider, the securities will not be considered to be a part of the provider’s estate; (v) The agreement may not be assigned (except to a provider that would otherwise be acceptable under these guidelines); (12) Forward delivery agreements in which the securities delivered mature after the funds may be required but provide for the right of the City or the Trustee to put the securities back to the provider under a put, guaranty or other hedging arrangement; (13) Maturity of investments will be governed by the following: a. Investments of monies (other than reserve funds) will be in securities and obligations maturing not later than the dates on which such monies will be needed to make payments; b. Investments will be considered as maturing on the first date on which they are redeemable without penalty at the option of the holder or the date on which the Trustee C-6 may require their repurchase pursuant to repurchase agreements; c. Investments of monies in reserve funds not payable upon demand will be restricted to maturities of five years or less; (14) Any other investment which the City is permitted by law to make, including without limitation investment in the Local Agency Investment Fund of the State of California, provided that any investment of the type authorized pursuant to paragraphs (d), (f), (h) and (i) of Section 53601 of the California Government Code are additionally restricted as provided in the appropriate paragraph or paragraphs above applicable to such type of investment and provided further that investments authorized pursuant to paragraphs (k) and (m) of Section 53601 are not permitted. To the extent that any of the requirements concerning Permitted Investments embodies a legal conclusion, the Trustee is entitled to conclusively rely upon a certificate from the appropriate party or an opinion from counsel to such party that such requirement has been met. “PERS” means the California Public Employees’ Retirement System. “PERS Contract” means the contract between the Board of Administration of PERS and the City Council of the City, effective July 1, 1948. “Principal Office of the Trustee” means the office of the Trustee at the address set forth in the Trust Agreement, provided for transfer, exchange, registration, surrender and payment of Bonds means care of the corporate trust office of The Bank of New York Mellon Trust Company, N.A. in ______, _____ or such other office designated by the Trustee. “Rating Agencies” means Moody’s and S&P. “Rating Category” means: (a) with respect to any long-term rating category, all ratings designated by a particular letter or combination of letters, without regard to any numerical modifier, plus or minus sign or other modifier; and (b) with respect to any short-term or commercial paper rating category, all ratings designated by a particular letter or combination of letters and taking into account any numerical modifier, but not any plus or minus sign or other modifier. “Record Date” means the fifteenth day of each calendar month preceding any Interest Payment Date, regardless of whether such day is a Business Day. “Redemption Fund” means the Fund of that name established pursuant to the Trust Agreement. “Refunding Law” means Articles 10 and 11 (commencing with Section 53570) of Chapter 3 of Division 2 of Title 5 of the California Government Code. “Registrar” means, for purposes of the Trust Agreement, the Trustee or its successor or assignee. “Representation Letter” means the Letter of Representations from the City to DTC with respect to the Bonds. “Requisition” or “Written Requisition” means a Requisition or Written Requisition, substantially in the form attached to the Trust Agreement. “Responsible Officer” means an officer of the Trustee assigned by the Trustee to administer the Trust Agreement. “Retirement Law” means Public Employees’ Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code. “Revenue Fund” means the Fund of that name established pursuant to the Trust Agreement. C-7 “S&P” means S&P Global Ratings, LLC, a Standard & Poor’s Financial Services LLC business, and its successors, and, if such company for any reason no longer performs the functions of a securities rating agency, “S&P” will be deemed to refer to any other nationally recognized rating agency designated by the City. “Securities Depositories” means any of The Depository Trust Company or, in accordance with then-current guidelines of the Securities and Exchange Commission, such other securities depositories, or if no such depositories, as the City may indicate in a certificate of the City delivered to the Trustee. “State” means the State of California. “Total Bond Obligation” means, as of any date of calculation, the aggregate principal amount of the Bonds then Outstanding. “Trust Agreement” means the Trust Agreement dated as of November 1, 2020 between the City and the Trustee, as it may be amended, supplemented or otherwise modified from time to time. “Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized and existing under the laws of the United States of America, until a successor replaces it, and thereafter means such successor. “Unfunded Liability” means City’s unamortized, unfunded accrued actuarial liability with respect to pension benefits under the Retirement Law. EXECUTION, AUTHENTICATION AND EXCHANGE OF BONDS; BOOK ENTRY BONDS Transfer or Exchange of Bonds. Subject to the Trust Agreement: (a) All Bonds will be issued in fully registered form. Upon surrender for transfer of any Bond at the Principal Office of the Trustee, the Trustee will deliver in the name of the transferee or transferees a new fully authenticated and registered Bond or Bonds of Authorized Denominations of the same maturity for the aggregate principal amount which the Bondholder is entitled to receive. (b) All Bonds presented for transfer, redemption or payment will be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form and with guaranty of signature satisfactory to the City, duly executed by the Bondholder or by his duly authorized attorney. The Trustee also may require payment from the Bondholder of a sum sufficient to cover any tax, or other governmental fee or charge that may be imposed in relation thereto. Such taxes, fees and charges will be paid before any such new Bond is delivered. (c) Bonds delivered upon any transfer as provided in the Trust Agreement, are valid obligations of the City, evidencing the same debt as the Bond surrendered, are secured by the Trust Agreement and are entitled to all of the security and benefits thereof to the same extent as the Bond surrendered. (d) The City, the Trustee and the Paying Agent will treat the Bondholder, as shown on the registration books kept by the Trustee, as the person exclusively entitled to payment of principal, premium, if any, and interest with respect to such Bond and to the exercise of all other rights and powers of the Bondholder, except that all interest payments will be made to the party who, as of the Record Date, is the Bondholder. Book-Entry Bonds. (a) Except as provided in paragraph (c) below, the registered owner of all of the Bonds is DTC and the Bonds will be registered in the name of Cede & Co., as nominee for DTC. Except as provided in paragraph (d) below, payment of principal, interest and premium, if any, for any Bonds registered in the name of Cede & Co. will be made as provided in the Representation Letter. (b) The Bonds will be initially issued in the form of a separate single authenticated fully registered Bond for each separate stated maturity of the Bonds. The Trustee, the Registrar and the City may treat DTC (or its C-8 nominee) as the sole and exclusive owner of the Bonds registered in its name for the purposes of payment of the principal or redemption price of, or interest on, the Bonds, selecting the Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Bondholders under the Trust Agreement, registering the transfer of Bonds, obtaining any consent or other action to be taken by Bondholders and for all other purposes whatsoever, and neither the Trustee, the Registrar nor the City will be affected by any notice to the contrary. Neither the Trustee, the Registrar nor the City have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Bonds under or through DTC or any Participant or any other person which is not shown on the registration books as being a Bondholder, with respect to: (i) the accuracy of any records maintained by DTC or any Participant; (ii) the payment by DTC or any Participant of any amount in respect of the principal or redemption price of or interest on the Bonds; (iii) any notice which is permitted or required to be given to Bondholders under the Trust Agreement; (iv) the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Bonds; or (v) any consent given or other action taken by DTC as a Bondholder. The Trustee will pay, from funds held under the terms of the Trust Agreement or otherwise provided by the City, all principal or redemption price of and interest on the Bonds only to DTC as provided in the Representation Letter and all such payments will be valid and effective to satisfy and discharge fully the City’s obligations with respect to the principal or redemption price of and interest on the Bonds to the extent of the sum or sums so paid. No person other than DTC will receive authenticated Bonds evidencing the obligation of the City, to make payments of principal or redemption price and interest pursuant to the Trust Agreement. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions in the Trust Agreement with respect to Record Dates, the name “Cede & Co.” in the Trust Agreement will refer to such new nominee of DTC. (c) In the event the City determines that it is in the best interest of the Beneficial Owners that they be able to obtain Bond certificates and notifies DTC, the Trustee and the Registrar of such determination, then DTC will notify the Participants of the availability through DTC of Bond certificates. In such event, the Trustee will authenticate and the Registrar will transfer and exchange Bonds certificates as requested by DTC and any other Bondholders in appropriate amounts. DTC may determine to discontinue providing its services with respect to the Bonds at any time by giving notice to the City and the Trustee and discharging its responsibilities with respect thereto under applicable law. Under such circumstances (if there is no successor securities depository), the City and the Trustee are obligated to deliver Bond certificates as described in the Trust Agreement. In the event Bond certificates are issued, the provisions of the Trust Agreement will apply to, among other things, the transfer and exchange of such certificates and the method of payment of principal of and interest on such certificates. Whenever DTC requests the City and the Trustee to do so, the Trustee and the City will cooperate with DTC in taking appropriate action after reasonable notice: (i) to make available one or more separate certificates evidencing the Bonds to any Participant having Bonds credited to its DTC account; or (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Bonds. (d) Notwithstanding any other provision of the Trust Agreement to the contrary, so long as any Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to the principal or redemption price of and interest on such Bonds and all notices with respect to such Bonds will be made and given, respectively, to DTC as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Bondholders pursuant to the Trust Agreement by the City or the Trustee with respect to any consent or other action to be taken by Bondholders, the City or the Trustee, as the case may be, will establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Notice to DTC will be given only when DTC is the sole Bondholder. (f) If the City purchases, or causes the Trustee to purchase, any of the Bonds, such purchase of Bonds will be deemed to have occurred upon the purchase of beneficial ownership interests in the Bonds from a Participant. Upon receipt by DTC of notice from the City and a Participant that a purchase of beneficial ownership interests in the Bonds has been made by the City from such Participant, DTC will surrender to the Trustee the Bonds referenced in such notice and, if the principal amount referenced in said notice is less than the principal amount of the Bonds so surrendered, the Trustee will authenticate and deliver to DTC, in exchange for the Bonds so surrendered, a new Bond or Bonds, as the case may be, in Authorized Denominations and in a principal amount C-9 equal to the difference between: (i) the principal amount of the Bonds so surrendered; and (ii) the principal amount referenced in said notice. (g) Notwithstanding any provision in the Indenture to the contrary, the City and the Trustee may agree to allow DTC, or its nominee, Cede & Co., to make a notation on any Bond redeemed in part to reflect, for informational purposes only, the principal amount and date of any such redemption. (h) In the event that DTC notifies the City that it is discontinuing the book-entry system for the Bonds, the City may either appoint another entity to hold the Bonds in book-entry form or deliver Bond certificates to the beneficial owners or Participants, as directed by DTC. Mutilated, Lost, Stolen or Destroyed Bonds. (a) In the event any Bond is mutilated or defaced but identifiable by number and description, the City will execute and the Trustee will authenticate and deliver a new Bond of like date, maturity and denomination as such Bond, upon surrender thereof to the Trustee; provided that there will first be furnished to the City and the Trustee proof satisfactory to the Trustee that the Bond is mutilated or defaced. The Bondholder will accompany the above with a deposit of money required by the City for the cost of preparing the substitute Bond and all other expenses connected with the issuance of such substitute. The City will then cause proper record to be made of the cancellation of the original, and thereafter the substitute will have the validity of the original. (b) In the event any Bond is lost, stolen or destroyed, the City may execute and the Trustee may authenticate and deliver a new Bond of like date, maturity and denomination as that Bond lost, stolen or destroyed; provided that there is first furnished to the Trustee evidence of such loss, theft or destruction satisfactory to the Trustee, together with indemnity satisfactory to it. (c) The City and the Trustee will charge the Holder of such Bond all transfer taxes, if any, and their reasonable fees and expenses in such connection. All substitute Bonds issued and authenticated pursuant to the Trust Agreement will be issued as a substitute and numbered, if numbering is provided for by the Trustee, as determined by the Trustee. In the event any such Bond has matured or has been called for redemption, instead of issuing a substitute Bond, the Trustee may pay the same without surrender thereof upon receipt of indemnity satisfactory to the Trustee. Destruction of Bonds. Whenever any Outstanding Bonds are delivered to the Trustee for cancellation pursuant to the Trust Agreement, upon payment of the principal amount and interest represented thereby or for replacement or transfer pursuant to the Trust Agreement, such Bond will be cancelled and destroyed by the Trustee and counterparts of a certificate of destruction evidencing such destruction will, upon the City’s request, be furnished by the Trustee to the City. Temporary Bonds. (a) Pending preparation of definitive Bonds, the City may execute and the Trustee will authenticate and deliver, in lieu of definitive Bonds and subject to the same limitation and conditions, interim receipts, certificates or temporary bonds which will be exchanged for the Bonds. (b) If temporary Bonds are issued, the City will cause the definitive Bonds to be prepared and to be executed and delivered to the Trustee, and the Trustee, upon presentation to it of any temporary Bond, will cancel the same and deliver in exchange therefor at the place designated by the Bondholder, without charge to the Bondholder thereof, definitive Bonds of an equal aggregate principal amount, of the same series, maturity and bearing interest at the same rate or rates as the temporary Bonds surrendered. Until so exchanged, the temporary Bonds will in all respects be entitled to the same benefit and security of the Trust Agreement as the definitive Bonds to be issued and authenticated thereunder. REDEMPTION OF BONDS Payment of Bonds Called for Redemption; Effect of Redemption Call. (a) Upon surrender to the Trustee or the Trustee’s agent, Bonds called for redemption will be paid at the redemption price stated in the notice, plus interest accrued to the redemption date. C-10 (b) On the date so designated for redemption, notice having been given in the manner and under the conditions provided in the Trust Agreement relating to such Bonds as are to be redeemed and moneys for payment of the redemption price being held in trust to pay the redemption price, the Bonds so called for redemption will become and be due and payable on the redemption date, interest on such Bonds will cease to accrue, such Bonds will cease to be entitled to any lien, benefit or security under the Trust Agreement and the owners of such Bonds will have no rights in respect thereof except to receive payment of the redemption price and accrued interest to the redemption date. (c) Bonds which have been duly called for redemption under the provisions of the Trust Agreement and for the payment of the redemption price of which moneys are deposited in the Redemption Fund or otherwise held in trust for the Holders of the Bonds to be redeemed, all as provided in the Trust Agreement, will not be deemed to be Outstanding under the provisions of the Trust Agreement. Bonds Redeemed in Part. Bonds are subject to redemption pro rata within a maturity. Upon surrender of a Bond to be redeemed in part, the Trustee will authenticate for the registered owner a new Bond or Bonds of the same maturity and tenor equal in principal amount to the unredeemed portion of the Bond surrendered. CREATION OF CERTAIN FUNDS AND ACCOUNTS Creation of Redemption Fund. A Fund to be held by the Trustee has been created and designated the “City of Arcadia 2020 Taxable Pension Obligation Bonds Redemption Fund” (the “Redemption Fund”). All moneys deposited by the City with the Trustee for the purpose of redeeming Bonds will be deposited in the Redemption Fund. All amounts deposited in the Redemption Fund will be used and withdrawn by the Trustee solely for the purpose of redeeming Bonds (including the payment of accrued interest on Bonds to be redeemed) in the manner, at the times and upon the terms and conditions specified in the Trust Agreement; provided that, at any time prior to giving such notice of redemption, the Trustee will, upon receipt of written instructions from an Authorized City Representative, 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) as directed by the City. Moneys Held in Redemption Fund. All moneys which have been withdrawn from the Revenue Fund and deposited in the Redemption Fund for the purpose of paying any of the Bonds secured by the Trust Agreement, either at the maturity thereof or upon call for redemption, will be held in trust for the respective Holders of such Bonds. Unclaimed Moneys. Any moneys which are set aside or deposited in the Redemption Fund, the Bond Principal Account, the Bond Interest Account or any other Fund or Account for the benefit of Holders of Bonds and which remain unclaimed by the Holders of such Bonds for a period of one year after the date on which such Bonds have become due and payable (or such longer period as required by State law) will be paid to the City, and thereafter the Holders of such Bonds will look only to the City for payment and the City will be obligated to make such payment, but only to the extent of the amounts so received without any interest thereon, and the Trustee and any Paying Agent have no responsibility with respect to any of such moneys. CONCERNING PAYING AGENT Paying Agent; Appointment and Acceptance of Duties. The City has appointed the Trustee as the Paying Agent for the Bonds. Paying Agent - General Responsibilities. (a) The City may at any time or from time to time appoint a different Paying Agent or Paying Agents for the Bonds, and each Paying Agent, if other than the Trustee, must be a commercial bank with trust powers and designate to the City and the Trustee its principal office and signify its acceptance of the duties and obligations imposed upon it under the Trust Agreement by a written instrument of acceptance delivered to the City under which each such Paying Agent will agree, particularly: (i) to hold all sums held by it for the payment of the principal of, and premium or interest on, Bonds in trust for the benefit of the Bondholders until such sums are paid to such Bondholders or otherwise disposed of as provided in the Trust Agreement; (ii) to keep such books and records as are consistent with prudent industry practice, to make such books C-11 and records available for inspection by the City and the Trustee at all reasonable times upon reasonable prior notice; and (iii) upon the request of the Trustee, to forthwith deliver to the Trustee all sums so held in trust by such Paying Agent. (b) The Paying Agent will perform the duties and obligations set forth in the Trust Agreement, and in particular will hold all sums delivered to it by the Trustee for the payment of principal or premium of and interest on the Bonds for the benefit of the Bondholders until such sums are paid to such Bondholders or otherwise disposed of as provided in the Trust Agreement. (c) In performing its duties under the Trust Agreement, the Paying Agent is entitled to all of the rights, protections and immunities accorded to the Trustee under the terms of the Trust Agreement. Certain Permitted Acts. Any Fiduciary may become the owner of any Bonds, with the same rights it would have if it were not a Fiduciary. To the extent permitted by law, any Fiduciary may act as depositary for, and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bondholders or to effect or aid in any reorganization growing out of the enforcement of the Bonds or the Trust Agreement, whether or not any such committee represents the owners of a majority in Total Bond Obligation of the Bonds then Outstanding. Resignation or Removal of Paying Agent and Appointment of Successor. (a) Any Paying Agent may at any time resign and be discharged of the duties and obligations created by the Trust Agreement in accordance with the provisions set forth in the Trust Agreement for the removal of the Trustee by giving at least 60 days’ written notice to the City and the other Fiduciaries. Any Paying Agent may be removed at any time upon 30 days prior written notice by an instrument filed with such Paying Agent and the Trustee and signed by an Authorized City Representative. Any successor Paying Agent will be appointed by the City with the approval of the Trustee and must be a commercial bank with trust powers or trust company organized under the laws of any state of the United States, having capital stock and surplus aggregating at least $100,000,000, and willing and able to accept the office on reasonable and customary terms and authorized by law to perform all the duties imposed upon it by the Trust Agreement. (b) In the event of the resignation or removal of any Paying Agent, such Paying Agent will assign and deliver any moneys and Bonds, including authenticated Bonds, held by it to its successor, or if there be no successor, to the Trustee. In the event that for any reason there is a vacancy in the office of any Paying Agent, the Trustee will act as such Paying Agent. COVENANTS OF THE CITY Payment of Principal and Interest. The City has covenanted and agreed that it will duly and punctually pay or cause to be paid the principal, premium, if any, and interest on every Bond at the place and on the dates and in the manner specified in the Trust Agreement and in the Bonds, according to the true intent and meaning thereof, and that it will faithfully do and perform all covenants and agreements contained therein and in the Bonds and the City has agreed that time is of the essence in the Trust Agreement. The obligations of the City under the Bonds, including the obligation to make all payments of principal, premium, if any, and interest when due, are absolute and unconditional, without any right of set-off or counter claim. The City will in each Fiscal Year include in its budget a provision to provide funds in an amount sufficient to pay the principal, premium, if any, and interest on the Bonds coming due in such Fiscal Year, but only to the extent that such amounts exceed the amount of available funds then on deposit in the Revenue Fund, and will make annual appropriations for all such amounts. If such principal, premium, if any, and interest on the Bonds coming due in any Fiscal Year exceeds the sum of amounts budgeted in respect thereof together with amounts then on deposit in the Revenue Fund, then the City will amend or supplement the budget to provide for such excess amounts. The covenants contained in the Trust Agreement are deemed to be and will be duties imposed by law and it is the duty of each and every public official of the City to take such action and do such things as are required by law in the performance of the official duty of such officials to enable the City to carry out and perform the covenants and agreements in the Trust Agreement agreed to be carried out and performed by the City. C-12 Performance of Covenants by City; Authority; Due Execution. The City has covenanted that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in the Trust Agreement, in any and every Bond executed, authenticated and delivered thereunder and in all of its proceedings pertaining thereto. The City has covenanted that it is duly authorized under the Constitution and laws of the State to issue the Bonds. Instruments of Further Assurance. The City has covenanted that it will do, execute, acknowledge and deliver, or cause to be done, executed, acknowledged and delivered such further acts, instruments and transfers as the Trustee may reasonably request for the better assuring and confirming to the Trustee all the rights and obligations of the City under and pursuant to the Trust Agreement. The City will, upon the reasonable request of the Trustee, from time to time execute and deliver such further instructions and take such further action as may be reasonable and as may be required to effectuate the purposes of the Trust Agreement or any provisions thereof; provided, however, that no such instruments or actions will pledge the full faith and credit or the taxing powers of the State. No Inconsistent Action. The City has covenanted that no contract or contracts will be entered into or any action taken by the City which is inconsistent with the provisions of the Trust Agreement. No Adverse Action. The City has covenanted that it will not take any action which will have a material adverse effect upon the rights of the Holders of the Bonds. Maintenance of Powers. The City has covenanted that it will at all times use its best efforts to maintain the powers, functions, duties and obligations now reposed in it pursuant to applicable law and will not at any time voluntarily do, suffer or permit any act or thing the effect of which would be to hinder, delay or imperil either the payment of the indebtedness evidenced by any of the Bonds or the performance or observance of any of the covenants contained in the Trust Agreement. Covenants of City Binding on Successors. All covenants, stipulations, obligations and agreements of the City contained in the Trust Agreement will be deemed to be covenants, stipulations, obligations and agreements of the City to the full extent authorized or permitted by law. If the powers or duties of the City are later transferred by amendment of any provision of the Constitution or any other law of the State or in any other manner there is a successor to the City, and if such transfer relates to any matter or thing permitted or required to be done under the Trust Agreement by the City, then the entity that succeeds to such powers or duties of the City will act and be obligated in the place and stead of the City as provided in the Trust Agreement, and all such covenants, stipulations, obligations and agreements therein will be binding upon such successor or successors thereof from time to time and upon any officer, board, body, district, authority or commission to whom or to which any power or duty affecting such covenants, stipulations, obligations and agreements will be transferred by or in accordance with law. Except as otherwise provided in the Trust Agreement, all rights, powers and privileges conferred and duties and liabilities imposed upon the City by the provisions of the Trust Agreement will be exercised or performed by the City or by such officers, board, body, district, authority or commission as may be required by law to exercise such powers or to perform such duties. Trust Agreement to Constitute a Contract. The Trust Agreement is executed by the City for the benefit of the Bondholders and constitutes a contract with the Bondholders. City to Perform Pursuant to Continuing Disclosure Certificate. The City has covenanted and agreed that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Trust Agreement, failure of the City to comply with the Continuing Disclosure Certificate will not be considered an Event of Default under the Trust Agreement; provided, however, the obligations of the City to comply with the provisions of the Continuing Disclosure Certificate will be enforceable by any Participating Underwriter or any Holder of Outstanding Bonds, or by the Trustee on behalf of the Holders of Outstanding Bonds; provided, further, that the Trustee is not required to take any enforcement action whatsoever except at the written direction of the Holders of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding who have provided the Trustee with security and indemnity to its satisfaction, including without limitation, attorney’s fees and expenses. The Participating Underwriters’, Holders’ and Trustee’s rights to enforce C-13 the provisions of the Continuing Disclosure Certificate are limited solely to a right, by action in mandamus or for specific performance, to compel performance of the City’s obligations under the Continuing Disclosure Certificate. Notwithstanding the foregoing, the City is entitled to amend or rescind the Continuing Disclosure Certificate to the extent permitted by law. INVESTMENTS Investments Authorized. Money held by the Trustee in any fund or account under the Trust Agreement will be invested by the Trustee in Permitted Investments pending application as provided therein solely at the prior written direction of an Authorized City Representative, will be registered in the name of the Trustee where applicable, as Trustee and will be held by the Trustee. The City will direct the Trustee prior to 12:00 p.m. Pacific time on the last Business Day before the date on which a Permitted Investment matures or is redeemed as to the reinvestment of the proceeds thereof. In the absence of such direction, the Trustee will invest in investments authorized under clause (8) contained in the definition of “Permitted Investments.” The Trustee may rely on the City’s certification in such investment instructions that such investments are permitted by law and by any policy guidelines promulgated by the City. Money held in any fund or account under the Trust Agreement may be commingled for purposes of investment only. The Trustee may, with the prior written approval of an Authorized City Representative, purchase from or sell to itself or any affiliate, as principal or agent, investments authorized by the Trust Agreement. Any investments and reinvestments will be made after giving full consideration to the time at which funds are required to be available under the Trust Agreement and to the highest yield practicably obtainable giving due regard to the safety of such funds and the date upon which such funds will be required for the uses and purposes required by the Trust Agreement. The Trustee or any of its affiliates may act as agent in the making or disposing of any investment and may act as sponsor or advisor with respect to any Permitted Investment. For investment purposes, the Trustee may commingle the funds and accounts established under the Trust Agreement, but will account for each separately. Reports. The Trustee will furnish monthly to the City a report of all investments made by the Trustee and of all amounts on deposit in each fund and account maintained under the Trust Agreement. Valuation and Disposition of Investments. For the purpose of determining the amount in any fund or account under the Trust Agreement, all Permitted Investments will be valued at the market value thereof not later than July 1 of each year. With the prior written approval of an Authorized City Representative, the Trustee may sell at the best price obtainable, or present for redemption, any Permitted Investment so purchased by the Trustee whenever it is necessary in order to provide money to meet any required payment, transfer, withdrawal or disbursement from any fund or account under the Trust Agreement, and the Trustee is liable or responsible for any loss resulting from such investment or sale, except any loss resulting from its own negligence or willful misconduct. Application of Investment Earnings. Investments in any Fund or Account will be deemed at all times to be a part of such Fund or Account, and any profit realized from such investment will be credited to such Fund or Account and any loss resulting from such investment will be charged to such Fund or Account. Interest earnings on investments in any Fund or Account will be deposited in the Bond Interest Account of the Revenue Fund. DEFEASANCE Discharge of Bonds; Release of Trust Agreement. Bonds or portions thereof (such portions to be in an Authorized Denomination) which have been paid in full or which are deemed to have been paid in full will no longer be entitled to the benefits of the Trust Agreement except for the purposes of payment from moneys and Defeasance Securities. When all Bonds which have been issued under the Trust Agreement have been paid in full or are deemed to have been paid in full, and all other sums payable thereunder by the City, including all necessary and proper fees, compensation and expenses of the Trustee and any Paying Agents, have been paid or are duly provided for, then the Trustee will cancel, discharge and release the Trust Agreement, execute, acknowledge and deliver to the City such instruments of satisfaction and discharge or release as requisite to evidence such release and such satisfaction and discharge and assign and deliver to the City any amounts at the time subject to the Trust Agreement which may then be in the Trustee’s possession, except funds or securities in which such funds are invested and held by the Trustee or the Paying Agents for the payment of the principal, premium, if any, and interest on the Bonds. C-14 Bonds Deemed Paid. (a) A Bond will be deemed to be paid within the meaning of the Trust Agreement and for all purposes thereof when: (i) payment with respect thereto of the principal, interest and premium, if any, either: (1) has been made or caused to be made in accordance with the terms of the Bonds and the Trust Agreement; or (2) has been provided for, as certified to the Trustee by a Consultant who is a certified public accountant, by irrevocably depositing with the Trustee in trust and irrevocably setting aside exclusively for such payment: (x) moneys sufficient to make such payment; and/or (y) Defeasance Securities maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment; and (ii) all necessary and proper fees, compensation and expenses of the Trustee and any Paying Agents pertaining to the Bonds with respect to which such deposit is made have been paid or provision made for the payment thereof. At such times as Bonds will be deemed to be paid under the Trust Agreement, such Bonds will no longer be secured by or entitled to the benefits of the Trust Agreement, except for the purposes of payment from such moneys and Defeasance Securities. (b) Notwithstanding the foregoing paragraph, no deposit under clause (i)(2) of the immediately preceding paragraph will be deemed a payment of such Bonds until: (i) proper notice of redemption of such Bonds has been given in accordance with the Trust Agreement, or in the event such Bonds are not to be redeemed within the next succeeding 60 days, until the City has given the Trustee irrevocable instructions to notify, as soon as practicable, the holders of the Bonds in accordance with the Trust Agreement, that the deposit required by clause (i)(2) above has been made with the Trustee and that such Bonds are deemed to have been paid in accordance with the Trust Agreement and stating the maturity or redemption date upon which moneys are to be available for the payment of the principal of, premium, if any, and unpaid interest on such Bonds; or (ii) the maturity of such Bonds. DEFAULTS AND REMEDIES Events of Default. Each of the following events constitute and is referred to in the Trust Agreement as an “Event of Default”: (a) a failure to pay the principal or premium, if any, on any of the Bonds when the same become due and payable at maturity or upon redemption; (b) a failure to pay any installment of interest on any of the Bonds when such interest become due and payable; (c) a failure by the City to observe and perform any covenant, condition, agreement or provision (other than as specified in clauses (a) and (b) above) contained in the Bonds or in the Trust Agreement on the part of the City to be observed or performed, which failure continues for a period of 60 days after written notice, specifying such failure and requesting that it be remedied, has been given to the City by the Trustee; provided, however, that the Trustee will be deemed to have agreed to an extension of such period if corrective action is initiated by the City within such period and is being diligently pursued; or (d) if the City files a petition in voluntary bankruptcy, for the composition of its affairs or for its corporate reorganization under any state or federal bankruptcy or insolvency law, or makes an assignment for the benefit of creditors, or admits in writing to its insolvency or inability to pay debts as they mature, or consents in writing to the appointment of a trustee or receiver for itself. Upon its actual knowledge of the occurrence of any Event of Default, the Trustee will immediately give written notice thereof to the City. Remedies. Upon the occurrence and continuance of any Event of Default, the Trustee in its discretion may, and will upon the written direction of the holders of a majority of the Total Bond Obligation of the Bonds then Outstanding and, in each case, receipt of indemnity to its satisfaction, in its own name and as the Trustee of an express trust: (1) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Bondholders under the Trust Agreement, as the case may be, and require the City to carry out any agreements with or for the benefit of the Bondholders and to perform its or their duties under the Refunding Law or any other law to which it is subject and the Trust Agreement; provided that any such remedy may be taken only to the extent permitted under the applicable provisions of the Trust Agreement; (2) bring suit upon the defaulted Bonds; (3) commence an action or suit in equity to require the City to account as if it were the trustee of an express trust for the Bondholders; or (4) by action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Bondholders under the Trust Agreement. The Trustee will be under no obligation to take any action with respect to any Event of Default unless the Trustee has actual knowledge of the occurrence of such Event of Default. Restoration to Former Position. In the event that any proceeding taken by the Trustee to enforce any right under the Trust Agreement has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, then the City, the Trustee and the Bondholders will be restored to their former positions and rights C-15 thereunder, respectively, and all rights, remedies and powers of the Trustee will continue as though no such proceeding had been taken. Bondholders’ Right to Direct Proceedings on their Behalf. Anything in the Trust Agreement to the contrary notwithstanding, Holders of a majority in Total Bond Obligation have the right, at any time, by an instrument in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all remedial proceedings on their behalf available to the Trustee under the Trust Agreement to be taken in connection with the enforcement of the terms of the Trust Agreement or exercising any trust or power conferred on the Trustee by the Trust Agreement; provided that such direction may not be otherwise than in accordance with the provisions of the law and the Trust Agreement and that there is provided to the Trustee security and indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred as a result thereof by the Trustee; provided further that the Trustee has the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Bondholders not parties to such direction. Limitation on Bondholders’ Rights to Institute Proceedings. No owner of any Bond has the right to institute any suit, action or proceeding at law in equity, for the protection or enforcement of any right or remedy under the Trust Agreement, or applicable law with respect to such Bond, unless: (a) such owner has given to the Trustee written notice of the occurrence of an Event of Default; (b) the owners of not less than a majority in Total Bond Obligation have made written request upon the Trustee to exercise the powers granted in the Trust Agreement or to institute such suit, action or proceeding in its own name; (c) such owner or 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 and said tender of indemnity has been made to, the Trustee; and (e) the Trustee has not received contrary directions from the owners of a majority in aggregate principal amount of the Total Bonds Obligation. No Impairment of Right to Enforce Payment. Notwithstanding any other provision in the Trust Agreement, the right of any Bondholder to receive payment of the principal of and interest on such Holder’s Bond, on or after the respective due dates expressed therein, or to institute suit for the enforcement of any such payment on or after such respective date, will not be impaired or affected without the consent of such Bondholder. Proceedings by Trustee Without Possession of Bonds. All rights of action under the Trust Agreement or under any of the Bonds secured thereby which are enforceable by the Trustee may be enforced by it without the possession of any of the Bonds, or the production thereof at the trial or other proceedings relative thereto, and any such suit, action or proceeding instituted by the Trustee will be brought in its name for the equal and ratable benefit of the Bondholders, as the case may be, subject to the provisions of the Trust Agreement. No Remedy Exclusive. No remedy conferred upon or reserved to the Trustee or to Bondholders is intended to be exclusive of any other remedy or remedies, and each and every such remedy will be cumulative, and in addition to every other remedy given under the Trust Agreement, or now or later existing at law or in equity or by statute; provided, however, that any conditions set forth in the Trust Agreement to the taking of any remedy to enforce the provisions of the Trust Agreement or the Bonds will also be conditions to seeking any remedies under any of the foregoing pursuant to the Trust Agreement No Waiver of Remedies. No delay or omission of the Trustee or of any Bondholder to exercise any right or power accruing upon any default will impair any such right or power or be construed to be a waiver of any such default, or an acquiescence therein and every power and remedy given by the Trust Agreement to the Trustee and to the Bondholders, respectively, may be exercised from time to time and as often as may be deemed expedient. Application of Moneys. (a) Any moneys received by the Trustee for the benefit of Bondholders, by any receiver or by any Bondholder pursuant to any right given or action taken under the provisions of the Trust Agreement, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and of the fees, expenses, liabilities and advances incurred or made by the Trustee (including without limitation reasonable fees and reasonable expenses of its attorneys), will be deposited in the Revenue Fund and all moneys so deposited in the Revenue Fund during the continuance of an Event of Default will be applied: (i) first, to the payment to the persons entitled thereto of all installments of interest then due on the Bonds, with interest on overdue C-16 installments, if lawful, at the rate per annum borne by the Bonds, as the case may be, in the order of maturity of the installments of such interest (if the amount available for such interest installments is not sufficient to pay in full any particular installment of interest, then to the payment ratably, according to the amounts due on such installment), and if the amount available for such interest is not sufficient to make payment thereof, then to the payment thereof ratably according to the respective aggregate amounts due; and (ii) second, to the payment to the persons entitled thereto of the unpaid principal, as applicable, of any of the Bonds which have become due with interest on such Bonds at their respective rate from the respective dates upon which they became due (if the amount available for such unpaid principal and interest is not sufficient to pay in full Bonds due on any particular date, together with such interest, then to the payment ratably, according to the amount of principal and interest due on such date, in each case to the persons entitled thereto, without any discrimination or privilege among Holders of Bonds), and, if the amount available for such principal and interest is not sufficient to make full payment thereof, then to the payment thereof ratably according to the respective aggregate amounts due. (b) Whenever moneys are to be applied pursuant to the provisions of the Trust Agreement, such moneys will be applied at such times, and from time to time, as the Trustee determines, having due regard to the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Trustee applies such funds, it will fix the date (which must be an Interest Payment Date unless it deems another date more suitable) upon which such application is to be made and upon such date interest on the amounts to be paid on such date will cease to accrue. The Trustee will give notice of the deposit with it of any such moneys and of the fixing of any such date by Mail to all Bondholders and is not required to make payment to any Bondholder until such Bonds are presented to the Trustee for appropriate endorsement or for cancellation if fully paid. Severability of Remedies. It is the purpose and intention of the Trust Agreement to provide rights and remedies to the Trustee and the Bondholders which may be lawfully granted under the provisions of applicable law, but should any right or remedy therein granted be held to be unlawful, the Trustee and the Bondholders are entitled, as above set forth, to every other right and remedy provided in the Trust Agreement and by applicable law. Additional Events of Default and Remedies. So long as any Bonds are Outstanding, the Events of Default and remedies as set forth in the Trust Agreement may be supplemented with additional Events of Default and remedies as set forth from time to time in a supplemental agreement. TRUSTEE; REGISTRAR Acceptance of Trusts. The Trustee has accepted and agreed to execute the trusts specifically imposed upon it by the Trust Agreement, but only upon the additional terms set forth therein, to all of which the City has agreed and the respective Bondholders agree by their acceptance of delivery of any of the Bonds. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee will exercise its rights and powers and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in the Trust Agreement and no others; and (ii) in the absence of negligence on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed, upon certificates or opinions furnished to the Trustee and conforming to the requirements of the Trust Agreement. However, the Trustee will examine the certificates and opinions to determine whether they conform to the requirements of the Trust Agreement. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (i) the foregoing does not limit the effect of clause (b) above; (ii) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer unless the Trustee was negligent in ascertaining the pertinent facts; (iii) the Trustee will not be liable with respect to any action it takes or fails to take in good faith in accordance with a direction received by it from Bondholders or the City in the manner provided in the Trust Agreement; and (iv) no provision of the Trust Agreement requires the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its C-17 duties thereunder or in the exercise of any of its rights or powers if repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Every provision of the Trust Agreement that in any way relates to the Trustee is subject to all the paragraphs of the Trust Agreement. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (f) The Trustee is not liable for interest on any cash held by it except as the Trustee may agree with the City. Rights of Trustee. (a) The recitals of facts contained in the Trust Agreement and in the Bonds will be taken as statements of the City, and the Trustee assumes no responsibility for the correctness of the same (other than the certificate of authentication of the Trustee on each Bond), and makes no representations as to the validity or sufficiency of the Trust Agreement or of the Bonds or of any Permitted Investment and will not incur any responsibility in respect of any such matter, other than in connection with the duties or obligations expressly assigned to or imposed upon it in the Trust Agreement or in the Bonds. The Trustee is, however, responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee is not liable in connection with the performance of its duties under the Trust Agreement, except for its own negligence, willful misconduct or breach of the express terms and conditions thereof. The Trustee and its directors, officers, employees or agents may in good faith buy, sell, own, hold and deal in any of the Bonds and may join in any action which any Holder of a Bond may be entitled to take, with like effect as if the Trustee was not the Trustee under the Trust Agreement. (b) The Trustee may execute any of the trusts or powers of the Trust Agreement and perform the duties required of it thereunder by or through attorneys, agents or receivers, and is entitled to advice of counsel concerning all matters of trust and its duty thereunder, and the opinion of such counsel will be authorization for any action taken or not taken in reliance on such opinion, but the Trustee is answerable for the negligence or misconduct of any such attorney, agent or receiver selected by it. (c) No permissive power, right or remedy conferred upon the Trustee under the Trust Agreement will be construed to impose a duty to exercise such power, right or remedy. (d) The Trustee is not bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee determines to make such further inquiry or investigation, it is entitled to examine the books, records and premises of the City, personally or by agent or attorney. (e) The Trustee is not responsible for the application or handling by the City of any moneys transferred to or pursuant to any requisition or request of the City in accordance with the terms and conditions of the Trust Agreement. (f) Whether or not therein expressly so provided, every provision of the Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to all provisions of the Trust Agreement. (g) The Trustee will be protected in acting upon any notice, resolution, request, consent, order, certificate, report, facsimile transmission, electronic mail, opinion, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (h) The Trustee will not be considered in breach of or in default in its obligations under the Trust Agreement or progress in respect thereto in the event of delay in the performance of such obligations due to unforeseeable causes beyond its control and without its fault or negligence, including, but not limited to, Acts of C-18 God or of the public enemy or terrorists, acts of a government, acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or arbitration involving a party or others relating to zoning or other governmental action or inaction pertaining to the project, malicious mischief, condemnation, and unusually severe weather or delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences beyond the control of the Trustee. (i) The Trustee has agreed to accept and act upon facsimile transmission of written instructions and/or directions pursuant to the Trust Agreement provided, however, that: (x) subsequent to such facsimile transmission of written instructions and/or directions the Trustee forthwith receives the originally executed instructions and/or directions; (y) such originally executed instructions and/or directions must be signed by a person as may be designated and authorized to sign for the party signing such instructions and/or directions; and (z) the Trustee has received a current incumbency certificate containing the specimen signature of such designated person. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Bonds and may otherwise deal with the City with the same rights it would have if it were not Trustee. Any Paying Agent or other agent may do the same with like rights. Trustee’s Disclaimer. The Trustee makes no representations as to the validity or adequacy of the Trust Agreement or the Bonds, it is not accountable for the City’s use of the proceeds from the Bonds paid to the City and it is not responsible for any statement in any official statement or other disclosure document or in the Bonds other than its certificate of authentication. Notice of Defaults. If an event occurs which with the giving of notice or lapse of time or both would be an Event of Default, and if the event is continuing and if it is actually known to the Trustee, the Trustee will mail to each Bondholder notice of the event within 90 days after it occurs. Except in the case of a default in payment or purchase on any Bonds, the Trustee may without the notice to Bondholders if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Bondholders. Compensation of Trustee. The City will from time to time, but only in accordance with a written agreement in effect with the Trustee, pay to the Trustee reasonable compensation for its services and reimburse the Trustee for all its reasonable advances and expenditures, including but not limited to advances to and fees and expenses of independent appraisers, accountants, consultants, counsel, agents and attorneys-at-law or other experts employed by it in the exercise and performance of its powers and duties under the Trust Agreement. The Trustee will not otherwise have any claims or lien for payment of compensation for its services against any other moneys held by it in the funds or accounts established under the Trust Agreement, except as provided therein, but may take whatever legal actions are lawfully available to it directly against the City. To the extent permitted by applicable law, the City has agreed to indemnify and save the Trustee, its officers, employees, directors and agents, harmless against any costs, expenses, claims or liabilities whatsoever, including, without limitation, fees and expenses of its attorneys, that it may incur in the exercise and performance of its powers and duties under the Trust Agreement which are not due to its negligence or willful misconduct. The foregoing agreement will survive the payment of the Bonds, the discharge of the Trust Agreement and the appointment of a successor trustee. Eligibility of Trustee. The Trust Agreement will always have a Trustee that is a trust company, a bank or association having trust powers and is organized and doing business under the laws of the United States or any state or the District of Columbia, is subject to supervision or examination by United States, state or District of Columbia authority and has a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. Replacement of Trustee. (a) The Trustee may resign as trustee under the Trust Agreement by notifying the City in writing prior to the proposed effective date of the resignation. The Holders of a majority in Total Bond Obligation of the Bonds may remove the Trustee by notifying the removed Trustee and may appoint a successor Trustee with the City’s consent. The City may remove the Trustee, by notice in writing delivered to the Trustee 30 days prior to the proposed removal date; provided, however, that the City has no right to remove the Trustee during any time when an Event of Default has occurred and is continuing unless: (i) the Trustee fails to comply with the C-19 Trust Agreement; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) the Trustee otherwise becomes incapable of acting; or (iv) the City determines that the Trustee’s services are no longer satisfactory to the City. No resignation or removal of the Trustee under the Trust Agreement will be effective until a new Trustee has taken office. If the Trustee resigns or is removed or for any reason is unable or unwilling to perform its duties under the Trust Agreement, the City will promptly appoint a successor Trustee. (b) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the City. Immediately thereafter, the retiring Trustee will transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee will then (but only then) become effective and the successor Trustee will have all the rights, powers and duties of the Trustee under the Trust Agreement. If a Trustee is not performing its duties under the Trust Agreement and a successor Trustee does not take office within 60 days after the retiring Trustee delivers notice of resignation or the City delivers notice of removal, the retiring Trustee, the City or the Holders of a majority in Total Bond Obligation of the Bonds may petition any court of competent jurisdiction for the appointment of a successor Trustee. Successor Trustee or Agent by Merger. If the Trustee, any Paying Agent or Registrar consolidates with, merges or converts into, or transfers all or substantially all its assets (or, in the case of a bank or trust company, its corporate trust business) to, another corporation, the resulting, surviving or transferee corporation without any further act will be the successor Trustee, Paying Agent or Registrar. Registrar. The City will appoint the Registrar for the Bonds and may from time to time remove a Registrar and name a replacement upon notice to the Trustee. The City has appointed the Trustee as Registrar. Each Registrar, if other than the Trustee, will designate to the Trustee, the Paying Agent, and the City its principal office and signify its acceptance of the duties imposed upon it under the Trust Agreement by a written instrument of acceptance delivered to the City and the Trustee under which such Registrar will agree, particularly, to keep such books and records as are consistent with prudent industry practice and to make such books and records available for inspection by the City, the Trustee, and the Paying Agent at all reasonable times. Other Agents. The City or the Trustee may from time to time appoint other agents to perform duties and obligations under the Trust Agreement which agents may include, but not be limited to, authenticating agents all as provided by resolution of the City. Several Capacities. Anything in the Trust Agreement to the contrary notwithstanding, the same entity may serve under the Trust Agreement as the Trustee, Registrar and any other agent as appointed to perform duties or obligations under the Trust Agreement or an escrow agreement, or in any combination of such capacities, to the extent permitted by law. Accounting Records and Reports of Trustee. (a) The Trustee will at all times keep, or cause to be kept, proper books of record and account in which complete and accurate entries are made of all transactions made by it relating to the proceeds of the Bonds and all Funds and Accounts established pursuant to the Trust Agreement and held by the Trustee. Such books of record and account must be available for inspection by the City and any Bondholder, or his agent or representative duly authorized in writing, at reasonable hours and under reasonable circumstances. (b) The Trustee will file and furnish to the City and to each Bondholder who has filed his name and address with the Trustee for such purpose (at such Bondholder’s cost), on an annual basis (or, with respect to the City, such other interval that the City may request), a complete financial statement (which may be its regular account statements and which need not be audited) covering receipts, disbursements, allocation and application of moneys in any of the funds and accounts established pursuant to the Trust Agreement for the preceding year. No Remedy Exclusive. No remedy conferred upon or reserved to the City is intended to be exclusive of any other remedy or remedies, and each and every such remedy will be cumulative, and in addition to every other remedy given under the Trust Agreement, or now or later existing at law or in equity or by statute. MODIFICATION OF THE TRUST AGREEMENT C-20 Limitations. The Trust Agreement may not be modified or amended in any respect subsequent to the first delivery of fully executed and authenticated Bonds except as provided in and in accordance with and subject to the provisions of the Trust Agreement. Supplemental Agreements Not Requiring Consent of Bondholders. (a) The City may, from time to time and at any time, without the consent of or notice to the Bondholders, execute and deliver supplemental agreements supplementing and/or amending the Trust Agreement as follows: (i) to cure any defect, omission, inconsistency or ambiguity in the Trust Agreement; (ii) to add to the covenants and agreements of the City in the Trust Agreement other covenants and agreements, or to surrender any right or power reserved or conferred upon the City, and which do not adversely affect the interests of the Bondholders; (iii) to confirm, as further assurance, any interest of the Trustee in and to the Funds and Accounts held by the Trustee or in and to any other moneys, securities or funds of the City provided pursuant to the Trust Agreement or to otherwise add security for the Bondholders; (iv) to comply with the requirements of the Trust Indenture Act of 1939, as from time to time amended; (v) to modify, alter, amend or supplement the Trust Agreement in any other respect which, in the judgment of the City, is not materially adverse to the Bondholders; (vi) to qualify the Bonds for a rating or ratings by any Rating Agency; and (vii) to authorize the issuance of Additional Bonds in accordance with the Trust Agreement. (b) Before the City, pursuant to the Trust Agreement, executes any supplemental agreement there must be delivered to the City an Opinion of Bond Counsel to the effect that such supplemental agreement: (i) is authorized or permitted by the Trust Agreement and the Refunding Law; and (ii) will, upon the execution and delivery thereof, be valid and binding upon the City in accordance with its terms, subject to the typical exceptions. Supplemental Agreement Requiring Consent of Bondholders. (a) Except for any supplemental agreement entered into pursuant to the Trust Agreement, the Holders of not less than a majority in Total Bond Obligation have the right from time to time to consent to and approve the execution by the City of any supplemental agreement deemed necessary or desirable by the City for the purposes of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in the Trust Agreement or in a supplemental agreement; provided, however, that, unless approved in writing by the Holders of all the Bonds then Outstanding, nothing contained in the Trust Agreement permits or will be construed as permitting: (i) a change in the times, amounts or currency of payment of the principal of or interest on any Outstanding Bonds; or (ii) a reduction in the principal amount or redemption price of any Outstanding Bonds or the rate of interest thereon; and provided that nothing contained in the Trust Agreement, will, unless approved in writing by the Holders of all the Bonds then Outstanding, permit or be construed as permitting: (1) a preference or priority of any Bond or Bonds over any other Bond or Bonds; or (2) a reduction in the aggregate principal amount of Bonds the consent of the Holders of which is required for any such supplemental agreement. Nothing contained in the Trust Agreement, however, will be construed as making necessary the approval by Holders of the execution of any supplemental agreement as authorized in the Trust Agreement. (b) If at any time the City desires to enter into any supplemental agreement for any of the purposes of the Trust Agreement, the City will cause notice of the proposed execution of the supplemental agreement to be given by Mail to all Holders. Such notice will briefly set forth the nature of the proposed supplemental agreement and state that a copy thereof is on file at the office of the City for inspection by all Holders. (c) Within two weeks after the date of the first mailing of such notice, the City may execute and deliver such supplemental agreement in substantially the form described in such notice, but only if there has first been delivered to the City: (i) the required consents, in writing, of Holders; and (ii) an opinion of Bond Counsel stating that such supplemental agreement is authorized or permitted by the Trust Agreement and other applicable law, complies with their respective terms and, upon the execution and delivery thereof, will be valid and binding upon the City in accordance with its terms. (d) If Holders of not less than the percentage of Bonds required by the Trust Agreement have consented to and approved the execution and delivery thereof as therein provided, no Holders will have any right to object to the adoption of such supplemental agreement, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the execution and delivery thereof, or to enjoin or restrain the City from executing the same or from taking any action pursuant to the provisions thereof. C-21 Effect of Supplemental Agreements. Upon execution and delivery of any supplemental agreement pursuant to the provisions of the Trust Agreement, the Trust Agreement and all supplemental agreements will be, and will be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Trust Agreement and all supplemental agreements of the City, the Trustee, the Registrar, any Paying Agent and all Holders will thereafter be determined, exercised and enforced under the Trust Agreement and all supplemental agreements, subject in all respects to such modifications and amendments. Supplemental Agreements to be Part of the Trust Agreement. Any supplemental agreement adopted in accordance with the provisions of the Trust Agreement will thereafter form a part of the Trust Agreement or the supplemental agreement which they supplement or amend, and all of the terms and conditions contained in any such supplemental agreement as to any provision authorized to be contained therein will be and will be deemed to be part of the terms and conditions of the Trust Agreement which they supplement or amend for any and all purposes. MISCELLANEOUS PROVISIONS Parties in Interest. Except as otherwise specifically provided in the Trust Agreement, nothing in the Trust Agreement expressed or implied is intended or will be construed to confer upon any person, firm or corporation other than the City, the Paying Agent, the Trustee, and the Bondholders any right, remedy or claim under or by reason of the Trust Agreement, the Trust Agreement being intended to be for the sole and exclusive benefit of the City, the Paying Agent, the Trustee and the Bondholders. Severability. In case any one or more of the provisions of the Trust Agreement, or of any Bonds issued thereunder will, for any reason, be held to be illegal or invalid, such illegality or invalidity will not affect any other provisions of the Trust Agreement or of Bonds, and the Trust Agreement and any Bonds issued thereunder will be construed and enforced as if such illegal or invalid provisions had not been contained therein. No Personal Liability of City Officials; Limited Liability of City to Bondholders. (a) No covenant or agreement contained in the Bonds or in the Trust Agreement will be deemed to be the covenant or agreement of any present or future official, officer, agent or employee of the City in his individual capacity, and neither the members of the City Council of the City nor any person executing the Bonds will be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. (b) Except for the payment when due of the payments and the observance and performance of the other agreements, conditions, covenants and terms required to be performed by it contained in the Trust Agreement, the City will not have any obligation or liability to the Bondholders with respect to the Trust Agreement or the preparation, execution, delivery, transfer, exchange or cancellation of the Bonds or the receipt, deposit or disbursement of the payments by the Trustee, or with respect to the performance by the Trustee of any obligation required to be performed by it contained in the Trust Agreement. Execution of Instruments; Proof of Ownership. (a) Any request, direction, consent or other instrument in writing required or permitted by the Trust Agreement to be signed or executed by Bondholders or on their behalf by an attorney-in-fact may be in any number of concurrent instruments of similar tenor and may be signed or executed by such Bondholders in person or by an agent or attorney-in-fact appointed by an instrument in writing or as provided in the Bonds. Proof of the execution of any such instrument and of the ownership of Bonds is sufficient for any purpose of the Trust Agreement and will be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: (i) the fact and date of the execution by any person of any such instrument may be proved by the certificate of any officer in any jurisdiction who, by the laws thereof, has power to take acknowledgments within such jurisdiction, to the effect that the person signing such instrument acknowledged before him the execution thereof, or by an affidavit of a witness to such execution; and (ii) the ownership of Bonds will be proved by the registration books kept under the provisions of the Trust Agreement; (b) Nothing contained in the Trust Agreement will be construed as limiting the Trustee to such proof. The Trustee may accept any other evidence of matters therein stated which it may deem sufficient. Any request, consent of, or assignment by any Bondholder will bind every future Bondholder of the same Bonds or any Bonds issued in lieu thereof in respect of anything done by the Trustee or the City in pursuance of such request or consent. C-22 Governing Law; Venue. The Trust Agreement is made in the State under the Constitution and laws of the State and is to be so construed. If any party to the Trust Agreement initiates any legal or equitable action to enforce the terms of the Trust Agreement, to declare the rights of the parties under the Trust Agreement or which relates to the Trust Agreement in any manner, each such party has agreed that the place of making and for performance of the Trust Agreement will be the City of Arcadia, State of California, and the proper venue for any such action is the Superior Court of the State of California, in and for the City of Arcadia. Notices. The Trustee will give written notice to the Rating Agencies if at any time: (i) a successor Trustee is appointed under the Trust Agreement; (ii) there is any amendment to the Trust Agreement; (ii) Bonds are to be redeemed pursuant to the Trust Agreement; (iv) notice of any defeasance of the Bonds; or (v) if the Bonds are no longer Book-Entry Bonds. Notice in the case of an event referred to in clause (ii) above will include a copy of any such amendment. Holidays. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in the Trust Agreement, is not a Business Day, such payment may, unless otherwise provided in the Trust Agreement be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided in the Trust Agreement, and no interest will accrue for the period from and after such nominal date. D-1 APPENDIX D FORM OF BOND COUNSEL OPINION [Closing Date] City Council City of Arcadia Arcadia, California Re: $__________ City of Arcadia 2020 Taxable Pension Obligation Bonds Ladies and Gentlemen: We have examined certified copies of proceedings of the City of Arcadia (the “City”) relative to the issuance and sale by the City of its 2020 Taxable Pension Obligation Bonds in the aggregate principal amount of $__________ (the “Bonds”), and such other information and documents as we consider necessary to render this opinion. The Bonds have been issued pursuant to the authority contained in Articles 10 and 11 of Chapter 3 of Division 2 of Title 5 of the Government Code of the State of California, as now in effect and as it may from time to time hereafter be amended or supplemented, and the Trust Agreement, dated as of November 1, 2020 (the “Trust Agreement”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The Bonds have been issued for the purpose of refunding the City’s obligations to the California Public Employees Retirement System (“CalPERS”) evidenced by the contract between the Board of Administration of CalPERS and the City Council of the City, effective July 1, 1948, as such contract has been amended from time to time, to pay unamortized, unfunded accrued liability with respect to pension benefits under the Public Employees’ Retirement Law, constituting Part 3 of Division 5 of Title 2 of the California Government Code. In such connection, we have reviewed the Trust Agreement, certificates of the City, the Trustee, and others, opinions of City Attorney and counsel to the Trustee, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the City, the initial purchasers of the Bonds and others. We have not undertaken to verify through independent investigation the accuracy of the representations and certifications relied upon by us. The opinions expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions, including the default judgment entered on September 18, 2020 by the Superior Court of the County of Los Angeles in the action entitled City of Arcadia v. All Persons Interested et al., Case No. 20STCV11639, and cover certain matters that are not directly addressed by such authorities. The opinions that are expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement as to the Bonds terminates as of the date of issuance of the Bonds. The Bonds are dated the date hereof, and mature on the dates and bear interest at the rates per annum set forth in the Trust Agreement. The Bonds are registered bonds in the forms set forth in the Trust D-2 Agreement, redeemable in the amounts, at the times and in the manner provided for in the Trust Agreement. All terms which are not defined herein have the meanings ascribed to those terms in the Trust Agreement. Based upon our examination of all of the foregoing, and in reliance thereon and on all matters of fact as we deem relevant under the circumstances, and upon consideration of applicable laws, we are of the opinion that: 1. The Trust Agreement has been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the Trustee, constitutes the valid and binding obligation of the City enforceable in accordance with its terms. 2. The Bonds have been duly authorized and issued by the City and are valid and binding obligations of the City enforceable in accordance with their terms. The Bonds do not constitute a debt of the City, the State of California or any political subdivision thereof within the meaning of any constitutional or statutory debt limit or restriction, and do not constitute an obligation for which the City, the State of California or any political subdivision thereof is obligated to levy or pledge any form of taxation or for which the City, the State of California or any political subdivision thereof has levied or pledged any form of taxation. 3. Upon issuance and authentication of the Bonds in accordance with the Trust Agreement, the Bonds will be entitled to the benefits of the Trust Agreement. 4. Interest on the Bonds is exempt from State of California personal income tax. The opinions that are expressed herein may be affected by actions taken (or not taken) or events occurring (or not occurring) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. Our engagement with respect to the Bonds terminates on the date of their issuance. The Trust Agreement permits certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is provided with respect thereto. Other than expressly stated herein, we express no other opinion regarding tax consequences with respect to the Bonds. Our opinion is limited to matters governed by the laws of the State of California. We assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction. The opinions that are expressed herein are based upon our analysis and interpretation of existing statutes, regulations, rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention to the fact that the rights and obligations under the Trust Agreement and the Bonds are subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State; provided, however, that we express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum or waiver provisions contained in the Bonds or the Trust Agreement. We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds and expressly disclaim any duty to advise the Owners of the Bonds with respect to matters contained in the Official Statement. Respectfully submitted, E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE Upon issuance of the Bonds, the City proposes to enter into a Continuing Disclosure Certificate in substantially the following form: This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Arcadia (the “City”) in connection with the issuance by the City of its $_____ 2020 Taxable Pension Obligation Bonds (the “Bonds”). The Bonds are being issued pursuant to a Trust Agreement, dated as of November 1, 2020 (the “Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The City covenants and agrees as follows: 1. Purpose of this 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 the Rule. 2. Definitions. In addition to the definitions that are set forth in the Indenture, which apply to any capitalized term that is used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term “Beneficial Owner” means any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes. EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. Financial Obligation. The term “Financial Obligation” means a: (A) debt obligation; (B) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (C) guarantee of (A) or (B). The term “Financial Obligation” does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule. Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year. Holder. The term “Holder” means a registered owner of the Bonds. Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term “Official Statement” means the Official Statement dated October __, 2020 relating to the Bonds. Participating Underwriter. The term “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. E-2 3. Provision of Annual Reports. (a) The City shall provide not later than each April 1 following the end of its Fiscal Year (commencing April 1, 2021 with the Fiscal Year 2020 Annual Report) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send in a timely manner to EMMA a notice in the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) To the extent not included in the audited financial statements provided pursuant to the foregoing Section 4(a), the Annual Report shall contain the following information: (i) The principal amount of the Bonds outstanding; (ii) The City’s adopted general fund budget for the Fiscal Year then ended; (iii) Total property assessed values within the City, which may be in the form of Table 5 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement; (iv) Property tax charges and delinquencies, which may be in the form of Table 6 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement; and (v) Top twenty secured taxpayers within the City, which may be in the form of Table 7 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement. The items described above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to EMMA; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; E-3 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB); 6. tender offers; 7. defeasances; 8. ratings changes; 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person; and 10. default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties. (b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after occurrence: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bond holders; 3. optional, unscheduled or contingent Bond redemptions; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 7. appointment of a successor or additional trustee or the change of the name of a trustee; and 8. incurrence of a Financial Obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which affect security holders, if material. E-4 (c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event. 6. Customarily Prepared and Public Information. Upon request, the City shall provide to any person financial information and operating data regarding the City which is customarily prepared by the City and is publicly available. 7. Termination of Obligation. The City’s obligations under this Disclosure Certificate with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If any such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 8. 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, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. 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 notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount 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 or the Lease Agreement, 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. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: ___________, 2020 CITY OF ARCADIA By: Its: City Manager F-1 APPENDIX F BOOK-ENTRY SYSTEM The information in this section concerning DTC and DTC’s book-entry only system has been obtained from sources that the City and the Underwriter believe to be reliable, but none of the City or the Underwriter takes any responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value, if any, and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such annual maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. 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 its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of 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. 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 effect any change in beneficial ownership. DTC has no knowledge of the actual F-2 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 notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend 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 City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. A Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant’s interest in the Bonds, on DTC’s records, to the Trustee. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Bonds to the Trustee’s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, bonds will be printed and delivered to DTC. THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. Stradling Yocca Carlson & Rauth Draft of 9/29/20 CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the “Disclosure Certificate”) is executed and delivered by the City of Arcadia (the “City”) in connection with the issuance by the City of its $__________ 2020 Taxable Pension Obligation Bonds (the “Bonds”). The Bonds are being issued pursuant to a Trust Agreement, dated as of November 1, 2020 (the “Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”). The City covenants and agrees as follows: 1. Purpose of this 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 the Rule. 2. Definitions. In addition to the definitions that are set forth in the Indenture, which apply to any capitalized term that is used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report. The term “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. Beneficial Owner. The term “Beneficial Owner” means any person which: (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax purposes. EMMA. The term “EMMA” means the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access System for municipal securities disclosures, maintained on the Internet at http://emma.msrb.org/. Financial Obligation. The term “Financial Obligation” means a: (A) debt obligation; (B) derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (C) guarantee of (A) or (B). The term “Financial Obligation” does not include municipal securities as to which a final official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule. Fiscal Year. The term “Fiscal Year” means the one-year period ending on the last day of June of each year. Holder. The term “Holder” means a registered owner of the Bonds. Listed Events. The term “Listed Events” means any of the events listed in Sections 5(a) and (b) of this Disclosure Certificate. Official Statement. The term “Official Statement” means the Official Statement dated October __, 2020 relating to the Bonds. Participating Underwriter. The term “Participating Underwriter” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. Rule. The term “Rule” means Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. 3. Provision of Annual Reports. (a) The City shall provide not later than each April 1 following the end of its Fiscal Year (commencing April 1, 2021 with the Fiscal Year 2020 Annual Report) to EMMA an Annual Report relating to the immediately preceding Fiscal Year which is consistent with the requirements of Section 4 of this Disclosure 2 Certificate, which Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Disclosure Certificate. (b) If the City is unable to provide to EMMA an Annual Report by the date required in subsection (a), the City shall send in a timely manner to EMMA a notice in the manner prescribed by the Municipal Securities Rulemaking Board. 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements of the City for the prior Fiscal Year, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the City’s audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they come available. (b) To the extent not included in the audited financial statements provided pursuant to the foregoing Section 4(a), the Annual Report shall contain the following information: (i) The principal amount of the Bonds outstanding; (ii) The City’s adopted general fund budget for the Fiscal Year then ended; (iii) Total property assessed values within the City, which may be in the form of Table 5 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement; (iv) Property tax charges and delinquencies, which may be in the form of Table 6 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement; and (v) Top twenty secured taxpayers within the City, which may be in the form of Table 7 set forth under the caption “CITY FINANCIAL INFORMATION—Property Taxes” in the Official Statement. The items described above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have been submitted to EMMA; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the City shall clearly identify each such document so included by reference. 5. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) Business Days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 3 5. adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB); 6. tender offers; 7. defeasances; 8. ratings changes; 9. bankruptcy, insolvency, receivership or similar proceedings. Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person; and 10. default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties. (b) Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not more than ten (10) Business Days after occurrence: 1. unless described in Section 5(a)(5), other notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other events affecting the tax status of the Bonds; 2. modifications to the rights of Bond holders; 3. optional, unscheduled or contingent Bond redemptions; 4. release, substitution or sale of property securing repayment of the Bonds; 5. non-payment related defaults; 6. the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; 7. appointment of a successor or additional trustee or the change of the name of a trustee; and 8. incurrence of a Financial Obligation of the City, if material, or agreement to covenants, events of default, remedies, priority rights, or other similar terms of a Financial Obligation of the City, any of which affect security holders, if material. (c) If the City determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the City shall file a notice of such occurrence with EMMA in a timely manner not more than ten (10) Business Days after the event. 4 6. Customarily Prepared and Public Information. Upon request, the City shall provide to any person financial information and operating data regarding the City which is customarily prepared by the City and is publicly available. 7. Termination of Obligation. The City’s obligations under this Disclosure Certificate with respect to the Bonds shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If any such termination occurs prior to the final maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). 8. 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, in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. 9. 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 notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall not thereby have any obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Holders or Beneficial Owners of at least 50% aggregate principal amount 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 or the Lease Agreement, 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. No Holder or Beneficial Owner of the Bonds may institute such action, suit or proceeding to compel performance unless they shall have first delivered to the City satisfactory written evidence of their status as such, and a written notice of and request to cure such failure, and the City shall have refused to comply therewith within a reasonable time. 11. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Participating Underwriter and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Dated: ___________, 2020 CITY OF ARCADIA By: Its: City Manager