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d. (Form) Preliminary Official StatementPRELIMINARY OFFICIAL STATEMENT DATED ____, 2020 RWG Draft 6/1/2020 NEW ISSUE - BOOK-ENTRY ONLY RATING: S&P: “___” See “RATING” In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law : (i) assuming continuing compliance with certain covenants and the accuracy of certa in representations, interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax, and (ii ) interest on the Bonds is exempt from State of California personal income taxes. Interest on the Bonds may be subject to certain federal income taxes imposed only on certain corporations. Bond Counsel expresses no opinion as to any other tax consequ ences regarding the Bonds. For a more complete discussion of the tax aspects, see “TAX MATTERS” herein. $[principal amount]* ORANGE CITY PUBLIC FACILITIES FINANCING AUTHORITY LEASE REVENUE BONDS SERIES 2020A Dated: Closing Date Due: November 1, as shown on the inside front cover This cover page contains information for quick reference only. It is not a summary of this issue. Potential purchasers must read the entire Official Statement to obtain information essential to making an informed investment decision. See the section of this Official Statement entitled “BONDOWNERS’ RISKS” for a discussion of certain of the risk factors that should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Bonds. The Orange City Public Facilities Financing Authority (the “Authority”) will issue its Lease Revenue Bonds, Series 2020A (the “Bonds”) pursuant to an Indenture, dated as of [July] 1, 2020 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as Trustee. Proceeds of the Bonds will be used to: (i) finance the construction of a new fire station headquarters, roof and other improvements to the City’s police station headquarters and the City’s other fire stations, and installation of security improvements at various City facilities; and (ii) pay costs of issuance of the Bonds. See “PLAN OF FINANCE”. The Bonds will be payable from Revenues, which primarily consist of base rental payments (“Base Rental Payments”) to be made by the City to the Authority as rental for certain real properties as described herein (the “Leased Properties”), pursuant to a Sublease Agreement, dated as of [July] 1, 2020 (the “Sublease”), by and between the Authority and the City. Such Base Rental Payments will be payable from any source of legally available funds (subject to abatement under certain circumstances described in the Sublease) as more fully described herein. See “THE LEASED PROPERTIES” and “SECURITY FOR THE BONDS.” The Bonds will be subject to optional redemption,* mandatory sinking account redemption* and extraordinary redemption prior to their maturity as described herein. See “THE BONDS.” The Bonds will be issued in fully registered form and, when issued, wi ll 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 of the Bonds. Individual purchases of the Bonds may be made in book-entry form only, in integral multiples of $5,000 each. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal of and interest on the Bonds will be paid directly to DTC by the Trustee. Principal of the Bonds is payable on their maturity da tes set forth on the inside cover hereof. Interest on the Bonds is payable on May 1 and November 1 of each year, commencing November 1, 2020. Upon its receipt of payments of principal and interest, DTC is in turn obligated to remit such principal and int erest to DTC participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. THE BONDS WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS UNDER THE SUBLEASE WILL 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 BASE RENTAL PAYMENTS UNDER THE SUBLEASE CONSTITUTES AN INDEBTEDNESS OF THE CITY, STATE OR ANY OF ITS POLITICAL SUBDIVISIONS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATIONS. The Bonds are offered, when, as and if issued, subject to the approval as to their legality by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel. In addition, certain legal matters will be passed on for the Authority by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by its counsel, Stradling Yocca Carlson & Rauth, A Professional Corporation, Newport Beach, California. It is anticipated that the Bonds will be available for delivery through the facilities of DTC on or about July _____, 2020. Raymond James Dated: [pricing date], 2020 * Preliminary, subject to change. 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 be accepted prior to the dated date of the Official Statement. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or a 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. $[principal amount]* ORANGE CITY PUBLIC FACILITIES FINANCING AUTHORITY LEASE REVENUE BONDS SERIES 2020A MATURITY SCHEDULE $___ Serial Bonds Maturity Date (November 1)* Principal Amount Interest Rate Yield Price CUSIP† (Base:___) $____ – ___% Term Bonds due November 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 Global Market Intelligence. 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 fo r the CGS database. CUSIP® numbers are provided for convenience of reference only. None of the Authority, the City or the Underwriter or their agents or counsel assume responsibility for the accuracy of such numbers. ORANGE CITY PUBLIC FACILITIES FINANCING AUTHORITY ORANGE, CALIFORNIA CITY COUNCIL/AUTHORITY BOARD Mark Murphy Michael Alvarez Kimberlee Nichols Chip Monaco Vacant Mayor/Chair Councilmember, Member Councilmember, Member Councilmember, Member Councilmember, Member CITY/AUTHORITY STAFF Rick Otto, City Manager/Executive Director Will Kolbow, Assistant City Manager/Administrative Services Director Richard A. Rohm, City Treasurer Pamela Coleman, City Clerk Gary A. Sheatz, City Attorney/Authority Counsel SPECIAL SERVICES Bond Counsel and Disclosure Counsel Richards, Watson & Gershon A Professional Corporation Los Angeles, California Trustee U.S. Bank National Association Los Angeles, California Municipal Advisor Urban Futures, Inc. Tustin, California 11281-0009\2397273v8.doc GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT Preparation and Use of Official Statement. Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable. This Official Statement is submitted in connection with the offer and sale of the Bonds and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. For purposes of compliance with Rule 15c2-12 of the United States Securities and Exchange Commission, as amended (“Rule 15c2-12”), this Preliminary Official Statement constitutes an “official statement” of the Authority with respect to the Bonds that has been deemed “final” by the A uthority and the City as of its date except for the omission of no more than the information permitted by Rule 15c2 -12. Estimates and Forecasts. Certain statements included or incorporated by reference in this Official Statement and in any continuing disclosure by the City, any press release and in any oral statement made with the approval of an authorized officer of the City or any other entity described or referenced herein, constitute “forward - looking statements.” Such statements are generally identifia ble by the terminology used such as “plan,” “expect,” “anticipate,” “estimate,” “budget,” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involves 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. While the City has undertaken to provide certain on-going financial and other data pursuant to a Continuing Disclosure Agreement (see “CONTINUING DISCLOSURE” and APPENDIX E), the City does not plan to issue any updates or revisions to those forward-looking statements if or when their expectations or events, conditions or circumstances on which such statements are based change. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Offici al Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or co mpleteness of such information. Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or 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 in this Official Statement and if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the City or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Information as of Dated Date of Official Statement. The information and expressions of opinions in this Official Statement are subject to change without notice and neither delivery of this Official Statement nor any sale made of the Bonds shall, under any circumstances, create any implication that there has been no change in the affairs of the City or any other entity described or referenced in this Official Statement since the dated date shown on the front cover. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which 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 and others at prices lower tha n the public offering prices set forth on the inside front cover and said public offering prices may be changed from time to time by the Underwriter. No Incorporation of Websites. References to internet websites in this Official Statement are shown for reference and convenience only, and none of the content of such internet websites (including, but not limited to, the content of the City’s website) is incorporated by reference. The City makes no representation regarding the accuracy or completeness of information presented on such websites. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UND ER THE SECURITIES LAW OF ANY STATE. NOT FDIC INSURED NO BANK GUARANTEE TABLE OF CONTENTS i INTRODUCTION ................................................ 1 General ........................................................... 1 Security for the Bonds .................................... 1 The City .......................................................... 2 COVID-19 Impact .......................................... 2 Continuing Disclosure .................................... 3 Summaries of Documents............................... 3 Other Information ........................................... 3 PLAN OF FINANCE ............................................ 4 ESTIMATED SOURCES AND USES................. 4 ANNUAL DEBT SERVICE ................................. 6 THE LEASED PROPERTIES .............................. 4 THE BONDS ........................................................ 7 General ........................................................... 7 Redemption .................................................... 7 Book-Entry Only System ............................... 8 SECURITY FOR THE BONDS ........................... 9 General ........................................................... 9 Abatement .................................................... 10 Additional Bonds .......................................... 10 Reserve Account ........................................... 11 Substitution or Release of Leased Properties ............................................... 11 Covenants to Maintain Insurance ................. 12 THE CITY .......................................................... 14 General ......................................................... 14 City Government .......................................... 14 Employee Relations ...................................... 16 Risk Management ......................................... 16 CITY FINANCIAL INFORMATION ................ 17 Budgetary Process; General Fund Budget .................................................... 17 Budget Summary .......................................... 17 Financial Statements ..................................... 19 Major Revenues ............................................ 22 Sales Taxes ................................................... 23 Property Taxes .............................................. 24 State of California Motor Vehicle In -Lieu Payments ................................... 29 Transient Occupancy Tax ............................. 30 Reserve Policies ........................................... 30 Investment Portfolio ..................................... 30 Long-Term Liabilities .................................. 31 Capital Improvement Plan ............................ 32 Statement of Direct and Overlapping Debt ................................... 32 Pension Plans ................................................ 34 Other Post-Employment Benefits Other Than Pensions .............................. 40 THE AUTHORITY ............................................ 42 BONDOWNERS’ RISKS ................................... 43 COVID-19 Pandemic ................................... 43 Limited Obligations with Respect to the Bonds ............................................... 44 Abatement ..................................................... 44 Risk of Uninsured Loss ................................. 44 City General Fund ......................................... 45 Additional Obligations .................................. 45 State Finances ............................................... 45 Natural or Manmade Disasters ...................... 46 Hazardous Substances ................................... 47 Cybersecurity ................................................ 47 Limited Recourse on Sublease Default .................................................... 47 Limitations on Remedies; Bankruptcy ............................................. 47 Loss of Tax Exemption ................................. 51 Early Redemption Risk ................................. 51 Investment of Funds ...................................... 51 Future Initiative and Legislation ................... 51 Secondary Market ......................................... 52 LIMITATIONS ON REVENUES AND APPROPRIATIONS ........................................... 52 Property Tax Limitations - Article XIIIA ...................................................... 52 Article XIIIA Implementing Legislation .............................................. 53 Challenges to Article XIIIA .......................... 53 Appropriations Limitations: Article XIIIB ...................................................... 53 Propositions 218 and 26: Article XIIIC and Article XIID .......................... 53 Proposition 62 ............................................... 55 Unitary Property ............................................ 55 Proposition 1A .............................................. 56 ABSENCE OF LITIGATION ............................. 56 CONTINUING DISCLOSURE .......................... 56 CERTAIN LEGAL MATTERS .......................... 57 TAX MATTERS ................................................. 57 UNDERWRITING .............................................. 59 RATING .............................................................. 60 FINANCIAL STATEMENTS ............................. 60 MISCELLANEOUS ............................................ 60 TABLE OF CONTENTS i APPENDIX A – ADDITIONAL GENERAL INFORMATION REGARDING THE CITY OF ORANGE ......................................................................................................... A-1 APPENDIX B – FORM OF BOND COUNSEL OPINION ....................................................................... B-1 APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS ................................................................................................................. C-1 APPENDIX D – DTC’S BOOK-ENTRY ONLY SYSTEM ....................................................................... D-1 APPENDIX E – FORM OF CONTINUING DISCLOSURE AGREEMENT ............................................ E-1 APPENDIX F – CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019 ................................................................ F-1 1 $[principal amount]* ORANGE CITY PUBLIC FACILITIES FINANCING AUTHORITY LEASE REVENUE BONDS SERIES 2020A INTRODUCTION This introduction does not purport to be complete, and reference is made to the body of this Official Statement, appendices and the documents referred to herein for more complete information with respect to matters concerning the Bonds. Potential investors are encouraged to read the entire Official Statement. Capitalized terms used and not defined in the forepart of this Official Statement shall have the meanings set forth in “APPENDIX D – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS.” General This Official Statement, including the cover page, inside cover page and appendices, is provided to furnish information in connection with the sale by the Orange City Public Facilities Financing Authority (the “Authority”) of its $[principal amount]* aggregate principal amount of Lease Revenue Bonds, Series 2020A (the “Bonds”). The Bonds will be issued pursuant to the provisions relating to the joint exercise of powers found in Chapter 5 of Division 7 of Title 1 of the California Government Code, including the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 (the “Bond Law”), and an Indenture, dated as of [July] 1, 2020 (the “Indenture”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”). Proceeds from the sale of the Bonds will be used to (i) finance the construction of a new fire station headquarters, roof and other improvements to the City’s police station headquarters and the City’s other fire stations, and installation of security improvements at various City facilities; and (ii) pay costs of issuance of the Bonds. See “PLAN OF FINANCE.” The Bonds will be dated the Closing Date, and will mature on November 1 in the years and in the amounts shown on the inside front cover of this Official Statement. Interest on the Bonds will be calculated at the rates shown on the inside cover page of this Official Statement, payable semiannually on May 1 and November 1 in each year, commencing on November 1, 2020. The Bonds will be executed and delivered as one fully-registered Bond for each maturity (unless the Bonds of a maturity bear different interest rates, then one certificate for each interest rate among such maturity), in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), as registered owner of all Bonds. See “THE BONDS – Book-Entry Only System” and “APPENDIX D – DTC’S BOOK-ENTRY ONLY SYSTEM.” Security for the Bonds The Bonds will be payable from Revenues, which primarily consist of base rental payments (“Base Rental Payments”) to be made by the City to the Authority for leasing certain properties (collectively, the “Leased Properties”) pursuant to a Sublease Agreement, dated as of [July] 1, 2020 (the “Sublease”), by and between the City, as lessee, and the Authority, as lessor. See “LEASED PROPERTIES.” Pursuant to the Indenture and an Assignment Agreement, dated as of [July] 1, 2020 (the “Assignment Agreement”), by and between the Authority and the Trustee, the Authority will assign to the Trustee for the benefit of the Owners of the Bonds, certain of its rights under the Sublease, including its rights to receive Base Rental Payments for the purpose of securing the payment of debt service on the Bonds. The City will covenant under the Sublease to take such action as necessary to include the Base Rental Payments and additional rental payments due under the Sublease (“Additional Rental Payments”) in its annual budget and to make all necessary appropriations therefor (subject to abatement under certain circumstances described in the Sublease). See “SECURITY FOR THE BONDS” and “BONDOWNERS’ RISKS.” * Preliminary, subject to change. 2 THE BONDS WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS UNDER THE SUBLEASE WILL 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. The City The City is located in the north-central portion of Orange County (the “County”), California, approximately 32 miles southeast of Los Angeles and 94 miles north of San Diego. Incorporated on April 6, 1888 as a general law city, the City currently functions under a Council/Manager form of government. All five members of the City Council were elected at large. Starting with the November 2020 election, the City will implement a by-district election. There will be six voting districts in the City. The Council seats for four of the districts will be subject to election every four years starting with the November 2020 election. For the two remaining districts, the Council members elected pursuant to the November 2020 election will serve for two years and, therefore, those Council seats will be subject to election every four years. The Mayor will remain a separately elected office directly elected by the voters every two years. According to State of California Department of Finance estimates, the City has a population of approximately 140,065 as of January 1, 2020. See “THE CITY” and “APPENDIX A - ADDITIONAL GENERAL INFORMATION REGARDING THE CITY OF ORANGE” for more information about the City. COVID-19 Impact A coronavirus disease, known as COVID-19 (“COVID-19”) is an infectious disease caused by a novel strain of the coronavirus known as severe acute respiratory syndrome coronavirus 2 (SARS -CoV-2). The disease was first identified in China in late 2019, and has spread globally. The first cases in California were confirmed in the end of January 2020. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic. On March 13, 2020, the President of the United States declared a national state of emergency. In California, Governor Newsom declared a state of emergency on March 4, 2020. The County and the City have also declared local emergencies, on February 26, 2020 and March 16, 2020, respectively. Throughout the State (including in the City and County), other parts of the country and many nations, stay at home or similar orders (prohibiting social gatherings, closing of non-essential businesses and public venues, and imposition of social distancing measures at locations that provide essential services) have been imposed. This has caused major disruptions in the economy, at the local level as well as globally. The COVID-19 Dashboard by the Center for Systems Science and Engineering at Johns Hopkins University reported that, as of [May 28], 2020, there have been [1,700,350] confirmed cases of COVID-19 in the United States, with [100,576] deaths attributable to the disease. In late April, California Governor Newsome presented a Pandemic Resilience Roadmap, as a framework to reopen businesses, schools and activities statewide. The Roadmap consists of four stages: Stage 1 – Safety and Preparedness: Making essential workforce environments as safe as possible. Stage 2 – Lower Risk Workplaces: Creating opportunities for lower risk sections to adapt and re - open; modified school programs and childcare re-open. Stage 3 – Higher Risk Workplaces: Creating opportunities for higher risk sections to adapt and re - open. Stage 4 – End of Stay-at-Home Order: Return to expanded workforce in highest risk workplace; require therapeutics. On May 7, 2020, California State Public Health Officer issued an order (the “State Order”) allowing local jurisdictions to begin gradual movements into Stage 2 and announced that there will be a progressive 3 designation of sectors, businesses, establishments or activities that may reopen with certain modifications based on public health and safety needs. The State Order allows a local health jurisdiction to implement or continue more restrictive public health measures if the local health officer believes that it is warranted by the conditions in that jurisdiction. The State Public Health Officer also established a “variance” process through which a county may implement the full extent of re-opening permitted within Stage 2 faster, based on the county’s ability to meet certain readiness criteria (including epidemiologic stability of COVID -19, protection of Stage 1 essential workers, testing capacity, containment capacity and hospital capacity). [On Saturday, May 23, 2020, the County of Orange received approval by the State of California to move Orange County further into Stage 2, which allows the following businesses (in addition to essential businesses) to open with appropriate social distancing and some capacity limitations: retail, restaurant takeout, delivery, and dine-in, office-based businesses, outdoor museums, childcare, shopping malls, strip malls, logistics and manufacturing.] As of the printing of this Official Statement, scientists are still working to develop an effective vaccine for COVID-19. It is unclear how long various protective measures will remain in place to protect public health and how they will change at each location as the situation evolves. The information about the City’s finances under “THE CITY” and “CITY FINANCIAL INFORMATION” and elsewhere in this Official Statement is based on historical data. The City anticipates significant negative impacts on its finances for the fiscal years 2019 -20 and 2020-21. However, at this time, the City cannot predict the ultimate impact of this unprecedented episode and how long it will take for the economy to fully recover, even after the COVID-19 pandemic subsides. [Confirm - As of the date of this Official Statement, the City does not believe that the impacts of the spread of COVID-19 will prevent the City from making Base Rental Payments when due.] See also “BONDOWNERS’ RISKS – COVID-19 Pandemic.” Continuing Disclosure The City will covenant in a Continuing Disclosure Agreement, for the benefit of the beneficial holders of the Bonds, to prepare and deliver an annual report of certain financial information and operating data relating to the City and to provide certain other information in compliance with Rule 15c2 -12 of the Securities and Exchange Commission. See “CONTINUING DISCLOSURE” and “APPENDIX E – FORM OF CONTINUING DISCLOSURE AGREEMENT.” Summaries of Documents This Official Statement contains descriptions of the Bonds, the Indenture, the Sublease, and various other agreements and documents. The descriptions and summaries of documents herein do not purport to be comprehensive or definitive, and reference is made to each such document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each such document and, with respect to certain rights and remedies, to laws and principles of equity relating to or affecting creditors’ rights generally. Capitalized terms not defined herein shall have the meanings set forth in the Indenture or the Sublease. Copies of the Indenture and the Sublease are available for inspection during business hours at the corporate trust office of the Trustee in Los Angeles, California. Other Information This Official Statement speaks only as of its date as set forth on the cover, and the information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Authority or the City since the date of this Official Statement. Unless otherwise expressly noted, all references to internet websites in this Official Statement, including without limitation, the City’s website, are shown for reference and convenience only, and none of their content is incorporated herein by reference. The City makes no representation to potential investors of the Bonds regarding the accuracy or completeness of the information presented on such websites. 4 PLAN OF FINANCE A portion of the proceeds of the Bonds, together with other moneys, are expected to finance: (i) the construction of a new Fire Station No. 1 Headquarters (estimated to be approximately $34 million) (the “Fire HQ Project”), and if there are sufficient bond proceeds after application toward the Fire HQ Project, (ii) roof and related improvements at the Police Station Headquarters (estimated to be approximately $5 million); (iii) roof and other improvements to the City’s other fire stations (estimated to be approximately $500,000); and (iv) installation of security improvements at various City facilities (estimated to be approximately $500,000). The foregoing reflects the City’s current expectations only. The City may spend proceeds of the Bonds on other projects. ESTIMATED SOURCES AND USES The following table shows the estimated sources and uses of the proceeds from the sale of the Bonds: Sources: Par amount of the Bonds $ Net original issue [discount/premium] Underwriter’s discount Total Sources $ Uses: $ Project Fund [Reserve Account] Costs of Issuance Fund (1) Total Uses $ ____________________ (1) Costs of Issuance include fees and expenses for Bond Counsel, Disclosure Counsel, Trustee, printing expenses, rating fee and other costs. THE LEASED PROPERTIES [to be updated] Simultaneously with the delivery of the Bonds, the Authority will acquire a leasehold interest in the Leased Properties from the City. The Authority will sublease the Leased Properties to the City pursuant to the Sublease. The Leased Properties will consist of the following three properties: [description to come, to be consistent with Appraisal]: • Fire Station No. 1 Headquarters located at 105 South Water Street and Water Division operation center located at 189 S. Water Street • Civic Center located at 300 East Chapman • Grijalva Park Sports Center located at 368 North Prospect Street While the City is in possession of the Leased Properties, all maintenance and repair of the Leased Properties is the responsibility of the City. The City has determined that the annual fair rental value of the Leased Properties is in excess of the annual Base Rental Payments. Pursuant to the Sublease, the City may substitute the Leased Properties, in whole or in part, by other properties, or release a portion of the Leased Properties, upon the satisfaction of certain conditions. The City contemplates that, after completion of the Fire HQ Project, it may have the Fire HQ Property (or the parcel that includes the Fire HQ Property) as the sole Leased Property under the Lease and the Sublease (and thereby 5 releasing all of the other Leased Properties). For more detailed discussion of the conditions for a substitution or release of Leased Properties see “SECURITY FOR THE BONDS – Substitution or Release of Leased Properties” and “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS – Sublease.” 6 ANNUAL DEBT SERVICE The following table shows the annualized debt service for the Bonds, assuming no optional redemption or extraordinary redemption prior to maturity: Bond Year Ending November 1 Principal (1) Interest Total Annual Debt Service 2020 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 2048 2049 2050 Total $__ $__ $_ (1) Payments from November 1, 20__ through November 1, 20__ are Sinking Account Installments for the Term Bond maturing on November 1, 20__. See “THE BONDS – Redemption – Mandatory Sinking Account Redemption.” 7 THE BONDS General The Bonds will be issued in the aggregate principal amount and will mature on the dates and bear interest at the rates per annum as set forth on the inside front cover of this Official Statement. The Bonds will be issued in integral multiples of $5,000 and will be dated their date of delivery. Interest on the Bonds will be calculated on the basis of a 360-day year of twelve 30-day months and will be payable on May 1 and November 1 of each year, commencing November 1, 2020 (each an “Interest Payment Date”), until maturity or earlier redemption thereof. The Bonds will be initially delivered as one fully registered certificate for each maturity (unless the Bonds of such maturity bear different interest rates, then one certificate for each interest rate among such maturity) and will be delivered by means of the book-entry system of DTC. See “-Book-Entry Only System” below. Redemption* Optional Redemption.* The Bonds maturing on or before November 1, 20__ will not be subject to optional redemption. The Bonds maturing on or after November 1, 20__ will be subject to redemption prior to their respective maturity dates, as a whole or in part, from prepayments of Base Rental made at the option of the City pursuant to the Sublease on any date with respect to which such prepayment s have been made (which will be on or after November 1, 20__), at a redemption price equal to 100 percent of the principal amount of the Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. Mandatory Sinking Fund Redemption.* The Bonds maturing on November 1, 20__ will be subject to redemption in part by lot from sinking account payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed with accrued interest thereon to the redemption date, without premium, in the aggregate respective principal amounts and on the respective dates as set f orth in the following table: Term Bonds Maturing on November 1, 20__ Redemption Date (November 1) Principal Amount to be Redeemed $ (Maturity) Extraordinary Redemption. The Bonds will be subject to redemption prior to their respective maturity dates, as a whole or in part on a pro rata basis (as much as practicable) among the maturities, on any date, from amounts on deposit in the Redemption Fund pursuant to the Sublease (from Net Proceeds received by the City from insurance payments or condemnation awards with respect to the Leased Properties or any portion thereof under the circumstances and upon the conditions and terms prescribed in the Sublease, together with additional money, if any, transferred by the City at its discretion for such p urpose), at a redemption price equal to the sum of the principal of the Bonds to be redeemed plus accrued interest thereon to the date fixed for redemption, without premium. Notice of Redemption. The Trustee, on behalf and at the expense of the Authority, will send (by first class mail or if the Owner of such Bonds is a depository, by such method as acceptable to such depository) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective * Preliminary, subject to change. 8 addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services by such manner of delivery as then acceptable to such entities, at least 30 but not more than 60 days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so sent nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice will state the date of the notice, the redemption date, the redemption place and the redemption price and will specify the CUSIP numbers, the Bond numbers and the maturity or maturities (in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and will require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Neither the Authority nor the Trustee will have any responsibility for any defect in the CUSIP number that appears on any Bond or in any redemption notice with respect thereto, and any such redemption notice may contain a statement to the effect that CUSI P numbers have been assigned by an independent service for convenience of reference and that neither the Authority nor the Trustee will be liable for any inaccuracy in such numbers. Right to Rescind Optional Redemption. The Authority (upon direction by the City, at the City’s option) may rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. In addition, any notice of optional redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an Event of Default under the Indenture. The Authority, the City and the Trustee will have no liability to the Owners or any other party related to or arising from such rescission. The Trustee will send notices of such rescission in the same manner as that prescribed in the Indenture for notices of redemption. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee will select the Bonds to be redeemed from all Outstanding Bonds or such given portion thereof not previously called for redemption, on a pro rata basis among the maturities (unless the maturity or maturities are otherwise specified in the Indenture or in writing by the Authority) and by lot within a maturity in any manner which the Trustee in its discretion will deem appropriate. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 portions and such portions will be treated as separate Bonds, which may be separately redeemed. Partial Redemption of Bonds. In the event only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same maturity date, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond being redeemed. A partial redemption will be valid upon payment of the amount required to be paid to the Owner, and the Authority and the Trustee will be released and discharged from all liability to the extent of such payment. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption will have been duly provided, such Bonds so called will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon from and after the redemption date. All Bonds redeemed pursuant to the Indenture will be canceled by the Trustee. All moneys held by or on behalf of the Trustee for the payment of principal of or interest or premium on Bonds, whether at redemption or maturity, will be held in trust for the account of the Owners thereof and the Trustee will not be required to pay Owners any interest on, or be liable to Owners for any interest earned on, moneys so held. Book-Entry Only System The Bonds will be issued as one fully registered bond certificate without coupons for each matur ity (unless the Bonds of such maturity bear different interest rates, then one certificate for each interest rate among such maturity) and, when issued, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Individual purchases may be made in book-entry form only, in integral multiples of $5,000. Purchasers will not receive certificates representing their interest in the Bonds purchased. Principal and interest will be paid to DTC, which will in turn remit such principal and 9 interest to its participants for subsequent disbursement to the beneficial owners of the Bonds as described herein. So long as DTC’s book-entry system is in effect with respect to the Bonds, notices to Owners of the Bonds by the Authority or the Trustee will be sent to DTC. Notices and communication by DTC to its participants, and then to the beneficial owners of the Bonds, will be governed by arrangements among them, subject to then effective statutory or regulatory requirements. See “APPENDIX D – DTC’S BOOK-ENTRY ONLY SYSTEM.” If such book-entry system is discontinued with respect to the Bonds, the Authority will execute and deliver replacements in the form of registered certificates and, thereafter, the Bonds will be t ransferable and exchangeable on the terms and conditions provided in the Indenture. In addition, the following provisions would then apply: The principal of, and redemption premium, if any, on the Bonds will be payable on the surrender thereof at maturity or the redemption date, as applicable, at the corporate trust office of the Trustee in St. Paul, Minnesota, or such other office as the Trustee may designate . The interest on the Bonds will be payable by check or draft mailed by first class mail on each Interest Payment Date to the registered owners thereof as shown on the registration books of the Trustee as of the close of business on the Record Date (i.e., the 15th calendar day of the month preceding the Interest Payment Date); provided, that a registered owner of $1,000,000 or more in aggregate principal amount of Bonds may specify in writing to the Trustee on or before the applicable Record Date that the interest payment payable on each succeeding Interest Payment Date be made by wire transfer. SECURITY FOR THE BONDS General The Authority and the City will enter into a Lease, dated as of [July] 1, 2020 (“Lease”), pursuant to which the City will lease the Leased Properties to the Authority and concurrently will enter into a Sublease pursuant to which the Authority will sublease the Leased Properties back to the City. As security for the Bonds, the Authority will assign to the Trustee pursuant to the Assignment Agreement all of its right, title and interest in the Sublease (with certain exceptions) for the benefit of the Owners, including the right to receive Base Rental Payments to be paid by the City under the Sublease. Amounts of the scheduled Base Rental Payments will be calculated to be sufficient in time and in amount to pay debt service on the Bonds. Base Rental Payments will be paid by the City to the Trustee, as annual rental for the use and possession of the Leased Properties, on each Payment Date. Pursuant to the Indenture, the Bonds will be secured by a first lien on and pledge of all of the Revenues and a pledge of all the moneys in the Lease Revenue Fund, including all amounts derived from the investments of such moneys. The Bonds will be equally secured by a pledge, charge and lien upon the Revenues and such moneys without priority for number, date of the Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any portion thereof will be secured by an exclusive pledge, charge and lien upon the Revenues and such moneys. See “BONDOWNERS’ RISKS.” “Revenues” will be defined in the Indenture as follows: (a) all Base Rental Payments payable by the City pursuant to the Sublease (including prepayments); (b) any proceeds of Bonds originally deposited with the Trustee and held by the Trustee in the Lease Revenue Fund and the accounts thereof; (c) investment income with respect to any moneys held by the Trustee in the Lease Revenue Fund and the accounts thereof (other than amounts payable to the United States of America for arbitrage rebate purposes pursuant to the Code); and (d) any insurance proceeds or condemnation awards received by or payable to the Trustee with respect to the Leased Properties, including rental interruption insurance. The City will covenant under the Sublease to take such action as may be necessary to include all Base Rental Payments and Additional Rental Payments due under the Sublease in its annual budget and to make the necessary appropriations for any amount of Base Rental Payments and Additional Rental Payments. THE BONDS WILL BE LIMITED OBLIGATIONS OF THE AUTHORITY PAYABLE SOLELY FROM REVENUES AND CERTAIN FUNDS AND ACCOUNTS HELD UNDER THE INDENTURE. 10 THE AUTHORITY HAS NO TAXING POWER. THE OBLIGATION OF THE CITY TO MAKE BASE RENTAL PAYMENTS UNDER THE SUBLEASE WILL 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. Abatement The obligation of the City to pay Base Rental and Additional Rental will be abated during any period in which, by reason of any damage, destruction, condemnation or impairment of leasehold interest, there is substantial interference with the use and occupancy of the Leased Properties or any portion thereof by the City. Such abatement will be in an amount agreed upon by the City and the Authority such that the resulting Base Rental in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Properties as to which such damage, destruction, taking or impairment do not substantially interfere with the City’s use and right of possession. Such abatement will continue for the period commencing with the date of such interference and ending with the restoration of the relevant Leased Properties to tenantable condition. To the extent that any Base Rental is to be paid or prepaid from insurance or condemnation proceeds deposited with the Trustee pursuant to the Sublease, such Base Rental will not be reduced or abated. In addition, if an abatement event has occurred such that all Base Rental payments have not been made, the Expiration Date of the Sublease will be automatically extended to ____ 1, 20__. Upon the cessation of the occurrence of any abatement event during the term of the Sublease, the City and the Authority shall, in good faith, determine the current fair rental value of the Leased Properties. If such fair rental value is greater than the fair rental value of the Leased Properties determined under the Sublease as of the Commencement Date, the Base Rental will be increased by the lesser of (i) such incremental value or (ii) the amount needed to recoup all amounts abated during the remaining term of the Sublease. Except as otherwise set forth in the Sublease, in the event of any damage, destruction of condemnation, the Sublease will continue in full force and effect and the City waives any right to terminate the Sublease by virtue of such damage, destruction or condemnation. Under the Sublease, the City waives the benefit of Sections 1932(1), 1932(2), 1933(4), 1941 and 1942 of the California Civil Code. See also “BONDOWNERS’ RISKS – Abatement” and “– Risk of Uninsured Loss.” Additional Bonds Subject to the provisions of the Indenture, the Authority may from time to time issue one or more series of Additional Bonds payable from and secured by Revenues on parity with all other Outstanding Bonds. Additional Bonds will be issued under a Supplemental Indenture at the request of the Authority but only upon receipt by the Trustee of the following documents or money or securities: (1) a certified copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (2) a Request of the Authority as to the delivery of such Additional Bonds; (3) an opinion of Bond Counsel substantially to the effect that (i) the Authority has the right and power under the Act to execute and deliver such Supplemental Indenture, and such Supplemental Indenture has been duly executed and delivered by the Authority, and the Indenture and such Supplemental Indentures are in full force and effect and are valid and binding upon the Authority and enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights and similar qualifications); (ii) such Additional Bonds are valid and binding special obligations of the Authority, enforceable in accordance with their terms (exc ept as enforcement may be limited by bankruptcy, insolvency, reorganization and other similar laws relating to the enforcement of creditors’ rights) and are subject to the terms of the Indenture and all Supplemental Indentures and entitled to the benefits of the Indenture and all such Supplemental Indentures and the Act, and such Additional Bonds have been duly and validly issued in accordance with the Act and the Indenture and all such Supplemental Indentures; and (iii) the obligation of the City to make t he Base Rental 11 Payments during the term of the Sublease as amended pursuant to the Indenture is a valid and binding obligation of the City; and (4) a Certificate of the Authority: (i) certifying that the Authority is in compliance in all material respects with all agreement and covenants contained in the Indenture and that no Event of Default has occurred or is continuing; (ii) stating that the Authority and the City have entered into an amendment to the Sublease pursuant to which the City is obligated to make Base Rental Payments at times and in amounts sufficient to provide for payment of the principal of and interest on the Bonds (including such Additional Bonds) which will be Outstanding following the sale and delivery of such Additional Bonds. See “APPENDIX C –SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS.” [Reserve Account The Trustee will establish and maintain a Reserve Account under the Indenture. As defined in the Indenture, the “Reserve Requirement” will mean, as of any calculation date, an amount equal to the least of (i) ten percent of the principal amount of the Bonds upon issuance (or, if the Issue Price (as defined in the Code) is less than the principal amount, then such other amount subject to Section 148 of the Code and related regulations); (ii) 125 percent of Average Annual Debt Service of the Bonds; or (iii) Maximum Annual Debt Service of the Bonds. A portion of the proceeds of the Bonds, upon issuance, in the amount of $______ will be deposited in the Reserve Account, which will satisfy the initial Reserve Requirement. See “ESTIMATED SOURCES AND USES.” Moneys in the Reserve Account will be used solely for the purpose of replenishing the Interest Account or the Principal Account in such order, in the event of any deficiency at any time in either of such accounts, or for the purpose of paying the interest on or principal of the Bonds, or for the retirement of all Bonds then Outstanding. Any amount in the Reserve Account in excess of the Reserve Requirement will be determined and transferred in accordance with the Indenture, to the Interest Account to be applied toward the interest payment of the Bonds, unless otherwise directed by a Request of the City. The Reserve Requirement may be satisfied at any time by crediting to the Reserve Account moneys or one or more Qualified Reserve Account Credit Instruments or any combination thereof, which in the aggregate make funds available in the Reserve Account in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of such Qualified Reserve Account Credit Instrument, the Trustee shall release moneys then on hand in the Reserve Account to the City, to be used for any lawful purpose, in an amount equal to the face amount of the Qualified Reserve Account Credit Instrument. See “APPENDIX C - SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS.”] Substitution or Release of Leased Properties The City will have the option to substitute the Leased Properties, in whole or in part, by other properties, or a portion of the Leased Properties may be released from the Sublease, at the option of the City, provided that the following conditions have been satisfied: (i) such substitution or release does not, in the opinion of Bond Counsel, adversely affect the Tax-Exempt status of the Bonds; (ii) the City provided a certificate to the Authority and the Trustee that the fair market value of the Leased Properties, after the proposed substitution or release, is equal to or greater than the aggregate amount of the principal component of the Base Rental (i.e., the principal amount of the Outstanding Bonds); (iii) the City certifies to the Authority and the Trustee that, based on the City’s determination, the annual fair rental value of the Leased Properties, after such substitution or release, is at 12 least equal to the maximum annual Base Rental remaining unpaid under the terms of the Sublease, and the expected useful life of the Leased Properties, after such substitution or release, extends to at least the Expiration Date; (iv) Except as provided in the Sublease, the City has notified the rating agency (or agencies) then rating the Bonds regarding such substitution or release; (v) in the event that the substituted property consists in whole or in part of real property, a California Land Title Association insurance policy (or, at the City’s sole discretion, an American Land Title Association insurance policy) on the substituted property has been obtained, along with evidence that, other than Permitted Encumbrances, no prior liens exist as to the substituted property; (vi) the City will provide to the Authority and the Trustee evidence that any existing title insurance with respect to the portion of the Leased Properties remaining after such substitution or release is not affected; and (vii) the City and the Authority will amend the Sublease to properly reflect such substitution or release. After the completion of the Fire HQ Project, the City may choose to release a portion of the Leased Properties under the Lease and the Sublease; and in that connection, so long as the Fire Station HQ Property will remain among the Leased Properties after such release, then the City will not be required to provide notice to any rating agency as described in paragraph (iv) above. Covenants to Maintain Insurance Title Insurance. The Sublease will require the City to obtain one or more California Land Title Association insurance policies (or, at the City’s sole discretion, American Land Title Association insurance policies) at the time of and dated as of the Closing Date in an aggregate amount not less than the aggregate principal amount of the Bonds, payable to the Trustee, insuring the respective interests of the City and the Authority in the Leased Properties, and insuring the validity of the Sublease, subject only to Permitted Encumbrances, naming the Trustee as an insured thereunder, issued by a title insurance company qualified to do business in the State of California and acceptable to the Trustee. Fire and Extended Coverage Insurance. Under the Sublease, the City must maintain or cause to be maintained fire, lightning and extended coverage insurance on the Leased Properties in an amount equal to (i) 100 percent of the then current replacement cost of the Leased Properties, excluding the then fair market value of the land as unimproved, or (ii) the principal amount of all outstanding Bonds, whichever is less (except that such insurance may be subject to a deductible clause not to exceed 10 percent of the amount of such policy). Earthquake insurance will be maintained on the Leased Properties only if available on the open market from reputable insurance companies at a reasonable cost. The extended coverage endorsement will, as nearly as practicable, cover loss or damage by explosion, windstorm, riot, aircraft, vehicle damage, smoke, vandalism, malicious mischief, dumping or other deposit of any pollutant or other debris and such other hazards as are normally covered by such endorsement. Each such policy of insurance must be in form reasonably satisfactory to the Authority, and must contain a clause naming the Trustee as an additional insured and making all losses payable to the Trustee, and all proceeds thereof will be paid over to the party contractually responsible for making repairs of casualty damage. In the event of any damage to or destruction of the Leased Properties caused by the perils covered by such insurance, the proceeds of such insurance will be utilized to repair, reconstruct or replace the Leased Properties to the end that the project will be restored to at least the same condition that it was in prior to such damage or destruction. Any balance of such proceeds not required for such repair, reconstruction or replacement will be transferred to the Authority and treated as Revenues and applied in the manner prov ided in the Indenture. 13 Liability Insurance. The Sublease requires the City to maintain or cause to be maintained public liability insurance with limits of not less than $3,000,000 for one person and $5,000,000 for more than one person involved in one accident to protect the Authority and the Trustee from all direct or contingent loss or liability for damages for bodily injury or death occasioned by reason of the construction, condition or operation of the Leased Properties. The City will also maintain or cause to be maintained insurance against liability for property damage resulting from any casualty attributable to the operation of the project in an amount not less than $1,000,000 for each accident. The public liability insurance and property damage insurance may be subject to a deductible clause for anyone accident of not to exceed $250,000. The insurance coverage required by the Sublease may be effected by blanket policies covering the Leased Properties issued to the party contractually responsible for the maintenance and operation of the project and such insurance policy or policies must name the Trustee as an additional insured. Rental Interruption Insurance. The Sublease requires the City to maintain or cause to be maintained rental interruption or use and occupancy insurance to cover loss, total or partial, of the use of the Leased Properties as a result of any of the hazards covered by the insurance required by the Fire and Extended Coverage Insurance section above in an amount not less than the greatest of the aggregate Base Rental payable by the City under the Sublease for a period of any future 24 months. Any such insurance policy will be in form satisfactory to the Authority and must contain a clause naming the Trustee as an additional insured and making any loss thereunder payable to the Trustee as its interests may appear. Any proceeds of such insurance must be used by the Trustee to pay Annual Debt Service on the Outstanding Bonds for the period during which the payment of rental under the Sublease is abated [or will be deposited in the Reserve Account to the extent necessary to restore the balance therein to the Reserve Requirement,] and any proceeds of such insurance not so used will be applied as provided in the Indenture to the extent required to pay administrative costs of the Authority in connection with the Leased Properties. Self-Insurance; Alternative Plan of Protection. As an alternative to providing the liability insurance described above, the City may provide or cause to be provided a self-insurance method or plan of protection if and to the extent such self-insurance method or plan of protection will afford reasonable protection to the City and the Authority, and their directors, officers, agents and employees and the Trustee, it s directors, officers, agents and employees in light of all circumstances, giving consideration to cost, availability and similar plans or methods of protection adopted by public entities in the State of California other than the City; provided that the obligation of the Authority or City to make payments under such self -insurance will be limited to money in a designated fund balance established by the Authority or City and that the Authority or City will not be obligated to replenish such designated fund balance from the General Fund or be otherwise obligated to make payments except from such designated fund balance. After the Commencement Date, before any substitute method or plan may be provided by the City, there must be filed with the Trustee a certificate of an actuary, independent insurance consultant or other qualified person, stating that, in the opinion of the signer, the substitute method or plan of protection is in accordance with the requirements of the Sublease and, when effective, would afford adequate protection to the City and the Authority, and their directors, officers, agents and employees and the Trustee and its directors, officers, agents and employees against loss and damage from the hazards and risks covered thereby; provided, however, that in the event the City provides a self-insurance method or plan of protection for the required rental interruption insurance described above, the designated fund balance established by the City will be funded in an amount at least equal to the greatest of the aggregate Base Rental payable by the City under the Sublease for a period of any future 24 months. Moreover, as an alternative to providing the required liability insurance described above, the City may provide a self-insurance method or plan of protection through the California Insurance Pool Authority (or another insurance risk sharing pool joint powers authority formed in the State) or any successor entity as the City may reasonably determine. Damage, Destruction And Condemnation; Application of Net Proceeds If: (i) the whole, or any portion, of the Leased Properties is destroyed (in whole or in part) or is damaged by fire of other casualty or taken by eminent domain proceedings (or sold to a government threatening to exercise the power of eminent domain), or (ii) the leasehold title in all or a portion of the Leased Properties is materially impaired by reason of a defect in title, then 14 (b) the City, but only to the extent permitted by law, must substitute other property for the portion of the Leased Properties that has been destroyed, or taken, or affected by the defective title in accordance with the Sublease; or (c) the City will require the Net Proceeds of any insurance payment (other than the Net Proceeds of rental interruption insurance which will be applied pursuant to the Sublease) or any condemnation award to be held by the Trustee in a special trust fund to be applied and disbursed by the Trustee as follows: (i) If less than all of the Leased Properties has been destroyed or taken or affected by defective title and the remainder is usable, then the Sublease will continue in full force and effect as to such remainder and (A) if the portion taken or destroyed is replaced by one or more properties of equal or greater fair market value (as demonstrated by an MAI fair market appraisal), the Trustee upon written direction of the City will disburse such proceeds to the party that incurred the expense of making such replacement and there will not be any abatement of the Base Rental under the Sublease; or (B) failing the making of such replacement, there will be a partial abatement of the Base Rental under the Sublease and the Trustee will apply such Net Proceeds, together with any other money then available to it for such purpose, to the Redemption Fund under the Indenture for the redemption of outstanding Bonds in accordance with the Indenture. (ii) If less than all of the Leased Properties is destroyed or taken or affected by defective title and the remainder is not usable, or if all of the Leased Properties has been so destroyed or taken or affected by the defective title, then the term of the Sublease will cease as of the day that possession will be so taken; and the Trustee will apply such Net Proceeds, together with any other money then available to it for such purpose, to the Redemption Fund under the Indenture for the redemption of outstanding Bonds in accordance with the Indenture. THE CITY General The City was incorporated on April 6, 1888 as a general law city and is located in the north-central portion of Orange County (the “County”), approximately 32 miles southeast of Los Angeles and 94 miles north of San Diego. The City encompasses an area of approximately 2 4 square miles with an average elevation of 197 feet above sea level. The City provides a full range of services for its citizens. These services include police, fire, paramedic, emergency transportation, library, recreation and parks, senior services, planning and development, street improvements and lighting, and general administration. The City also operates a water utility and contracts for refuse collection services. In addition, the City provides aid to its citizens in the form of residential and commercial rehabilitation loans and economic development. See “APPENDIX A - ADDITIONAL GENERAL INFORMATION REGARDING THE CITY OF ORANGE” and “CITY FINANCIAL INFORMATION.” City Government The City operates under a Council-Manager form of government. The current members of the City Council were elected at large. Starting with the November 2020 election, the City will implement a by- district election. There will be six voting districts in the City. The Council seats for four of the districts will be subject to election every four years starting with the November 2020 election. For the two remaining districts, the Council members elected pursuant to the November 2020 election will serve for two years and, therefore, those Council seats will be subject to election every four years. The Mayor will remain a separately elected office directly elected by the voters every two years. The City Treasurer and City Clerk are also elected at large. The City Council is responsible for, among other things, passing ordinances, adopting the budget, and appointing the City Manager. 15 [There is currently one vacant Councilmember seat.] The members of the City Council and expiration dates of their respective terms are as follows: Council Member Term Mark A. Murphy, Mayor 2018-2020 Mike Alvarez, Councilmember 2016-2020 Kim Nichols, Councilmember 2018-2022 Chip Monaco, Councilmember 2018-2022 Vacant In addition to sitting as the governing board of the City, the Mayor and the City Council act as the Board of Directors for various component units of the City, including the Authority and the Successor Agency to the Redevelopment Agency of the City of Orange. The City Manager is responsible for carrying out the policies and ordinances of the City Council and for appointing heads of the City's various departments. City full-time employees numbered 729 as of June 30, 2019, of which 386 are assigned to the Police Department. The following are short biographies of the City Manager and the Administrative Services Director: Rick Otto, City Manager. Mr. Otto has served as the City Manager for the City of Orange since March 2015. During Mr. Otto’s 22 years at the City, he has served in a number of different capacities including Assistant City Manager, Community Development Director, Economic Development Manager, and Assistant to the City Manager. Mr. Otto has 31 years of local government experience having worked for four different cities in Orange County and Los Angeles County. Mr. Otto has experience in multiple areas of local government, including economic development, public works, planning, human resources, public information, finance, information technology and public safety. Mr. Otto also serves on a number of regional boards and committees including the Metro Cities Fire Authority, the County Solid Waste Committee, and the North County Service Planning Area Committee, for which he serves as Chair. Mr. Otto has a Bachelor’s degree in Public Administration and a Master’s degree in Public Policy from California State University, Long Beach. Will Kolbow, Assistant City Manager and Administrative Services Director. Mr. Kolbow has been the Assistant City Manager and Administrative Services Director for the City since 2018. Prior to this, he was the City’s Finance Director for approximately 4 years. His prior work experience includes Director of Finance of the City of San Bernardino Municipal Water Department and Finance Officer of the Cucamonga Valley Water District. Mr. Kolbow has a Bachelor’s Degree in Business Administration from California State University, Fullerton, and a Master’s Degree in Public Administration from California State University, Dominguez Hills. Mr. Kolbow is a member of the Government Finance Officers Association and the California Society of Municipal Finance Officers. Mr. Kolbow is a Certified Public Accountant in the State of California. 16 Employee Relations As of June 30, 2019, the City had 729 full-time equivalent employee positions. The following table identifies the employee unions and the number of employees covered, as well as the expiration date of the current contract. Employee Group Number of Employees Covered(1) Term of MOU Orange Management Association 47 December 31, 2022 Orange Municipal Employees’ Association 140 December 31, 2022 Orange City Firefighters, Inc. Local 2384 of the International Association of Firefighters, AFL-CIO 117 June 30, 2022 Orange Fire Management Association 5 June 30, 2022 Orange Police Association 183 June 30, 2022 Orange Police Management Association 34 June 30, 2022 Water Division Employees’ Association 21 December 31, 2022 Orange Maintenance and Crafts Employees’ Association 58 December 31, 2022 ________________________ (1) Number is approximate and includes vacant funded positions. Risk Management The City is exposed to various risks of loss related to torts, theft, damage and destruction of assets, errors and omission, road and walkway design hazards, vehicle accidents, and natural disasters for which the City maintains various insurance programs. The City has entered into contracts with outside vendors to supervise end eliminate these programs. In addition, the City completes an annual actuarial for the Workers' Compensation and Liability Funds to determine appropriate funding levels. General Liability. The City is self-insured for General and Auto Liability claims up to $350,000 per occurrence. For amounts in excess of $350,000 and up to $3,000,000 the City participates in a public entity risk pool maintained through the California Insurance Pool Authority (CIPA). CIPA is a consortion of California cities under one joint powers authority agreement, which was established to pool resources, share risk, purchase excess insurance, and to share costs for professional risk management and claims administration. For amounts in excess of $3,000,000, the pool purchases commercial insurance and has coverage up to $33,000,000. Workers' Compensation. The City has a self-insurance program for any liability to City employees arising under the Workers' Compensation laws of the State of California. The City pays up to $500,000 per occurrence. For amounts in excess of $500,000 and up to $2,000,000, the City participates in CIPA. For amounts in excess of $2,000,000, the pool purchases commercial insurance and has coverage up to $52,000,000 per occurrence. Liabilities are recorded when it is probable that a loss has occurred and the amount of the loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNR). The liability for claims and judgments is reported in the appropriate Internal Service Fund. An amount for current claims payable is calculated based on the current year expenses and the remainder is shown as noncurrent claims payable. 17 General Liability Workers’ Compensation Totals Unpaid claims, July 1, 2017 $2,243,126 $13,368,633 $15,611,759 Incurred claims 1,039,399 3,542,762 4,582,161 Less claim payments (681,441) (2,462,145) (3,143,586) Unpaid claims, June 30, 2018 $2,601,084 $14,449,250 $17,050,334 Less current portion of unpaid claims (728,272) (3,195,911) (3,924,183) Noncurrent unpaid claims, June 30, 2018 $1,613,849 $10,616,914 $12,230,763 Unpaid claims, July 1, 2018 $2,601,084 $14,449,250 $17,050,334 Incurred claims 881,960 3,963,426 4,845,386 Less claims payments (1,197,186) (2,769,864) (3,967,050) Unpaid claims, June 30, 2019 $2,285,858 $15,642,812 $17,928,670 Less current portion of unpaid claim (1,040,871) (4,375,480) (5,416,351) Noncurrent unpaid claims, June 30, 2019 $1,244,987 $11,267,332 $12,512,319 CITY FINANCIAL INFORMATION Budgetary Process; General Fund Budget The annual budget is adopted by July 1 for all funds of the City on a basis consistent with generally accepted accounting principles. The budget is monitored to ensure compliance with legal provisions embodied in the appropriated budget as approved or amended by the City Council throughout the year. City staff is responsible for monitoring the appropriated budgets for all funds. The budget is prepared by fund, department (e.g. police), and activity (e.g. patrol). Transfers of appropriations between funds, between departments within a fund, and between capital outlay or debt service and another object group classification within a department, require City Council approval. All other transfers of appropriations can be made with City management approval. Budget Summary The table below shows the City’s budget and actual results for General Fund revenues and expenditures for the fiscal years shown, and the City’s budget for fiscal year 20 19-20. The City’s budget for fiscal year 2019-20 has not been revised to reflect anticipated impacts of the COVID--19 pandemic. See “-- Potential Impacts of COVID-19 Pandemic” and Table 2 below. 18 Table 1 City of Orange General Fund Budget Summary Fiscal Years 2017-18 through 2019-20 Fiscal Year 2017-18 Adopted Budget (5) Fiscal Year 2017-18 Audited Actual (6) Fiscal Year 2018-19 Adopted Budget (7) Fiscal Year 2018-19 Audited Actual (8) Fiscal Year 2019-20 Adopted Budget (9) Revenues: Taxes (1) $88,128,083 $88,183,290 $91,469,540 $96,937,045 $95,272,616 Franchise fees 2,542,619 2,541,850 2,609,432 2,551,456 2,591,495 Licenses and permits 4,679,970 4,807,460 4,744,425 5,770,360 4,645,460 Use of money and property 1,537,243 1,148,474 2,084,353 3,279,397 2,083,860 Intergovernmental 1,894,873 1,905,719 1,932,184 1,963,642 1,412,403 Charges for services and fees 7,050,360 7,374,837 7,286,892 8,393,003 8,076,890 Fines and forfeitures 1,820,000 1,852,674 1,658,000 2,194,948 2,012,000 Miscellaneous (2) 1,974,077 3,293,171 2,420,313 3,151,409 1,465,810 Total revenues $109,627,225 $111,107,475 $114,205,139 $124,241,260 $117,560,534 Expenditures: Current: General government $13,706,289 $10,897,704 $13,012,819 $12,709,494 $18,578,076 Public safety 73,427,623 72,433,022 76,799,776 76,141,504 79,596,057 Public works 8,367,221 7,397,919 8,487,165 7,779,267 8,592,752 Community development 4,881,881 4,488,092 4,788,594 4,479,327 4,813,579 Parks and library 14,570,420 13,492,079 15,131,064 13,903,160 14,785,450 Economic development 186,287 173,191 205,971 196,787 201,670 Debt Service - Principal (3) -- -- 92,339 92,339 237,778 Capital outlay 165,950 123,612 209,333 76,420 114,770 Total expenditures $115,305,671 $109,005,619 $118,727,061 $115,378,298 $126,920,132 Excess (Deficiency) of Revenues Over (Under) Expenditures $(5,678,446) $2,101,856 $(4,521,922) $8,862,962 $(9,359,598) Other Financing Sources (Uses): Transfers in -- -- -- -- -- Transfers out (4) $(3,142,261) $(3,142,261) $(4,950,000) $(4,950,000) $(1,800,000) Total Other Financing Sources (Uses) $(3,142,261) $(3,142,261) $(4,950,000) $(4,950,000) $(1,800,000) Net Change in Fund Balance (8,820,707) (1,040,405) (9,471,922) 3,912,962 (11,159,598) Fund Balances, Beginning of Year 35,898,961 35,898,961 34,858,556 34,858,556 38,771,518 Fund Balances (Deficits), End of Year $27,078,254 $34,858,556 $25,386,634 $38,771,518 $27,611,920 _____________ Source: City of Orange, Finance Department (1) Consists of sales taxes, property taxes and transient occupancy taxes. See “CITY FINANCIAL INFORMATION - Sales Taxes and - Property Taxes” below. Also see “-Potential Impacts of COVID-10 Pandemic” and Table 2 below. (2) Miscellaneous revenues in the General Fund consist mainly of reimbursement for the annual street fair and reimbursements from other agencies for emergency services provided. (3) See “CITY FINANCIAL INFORMATION - Long-Term Liabilities” below. (4) Transfers from the General Fund to the Capital Improvement Fund or Internal Service Funds. Interfund transfers are used to (1) fund general funded capital projects, vehicle replacements, information systems, computer replacements, and liability claims; (2) fund improvements to City facilities, and (3) to provide funding for liability claims expense. (5) As provided in the City’s Annual Adopted Budget for fiscal ye ar ended June 30, 2018. (6) As provided in the City’s Comprehensive Annual Financial Report for fiscal year ended June 30, 201 8. (7) As provided in the City’s Annual Adopted Budget for fiscal year ended June 30, 2019. (8) As provided in the City’s Comprehensive Annual Financial Report for fiscal year ended June 30, 2019. (9) As provided in the City’s Annual Adopted Budget for fiscal year ended June 30, 20 20. 19 Potential Impacts of COVID-19 Pandemic. At this time, the City does not plan to amend the budget for fiscal year 2019-20 as a result of the COVID-19 pandemic, but is evaluating the expected impacts to the City’s finances as the situation progresses. As of May 26, 2020, the City estimates a recession through fiscal year 2020-21 as a result of the COVID-19 pandemic, with a revised projected revenue estimate of approximately $114.0 million for fiscal year 2019-20 and estimated expenditures of approximately $114.9 million, resulting in a deficit of approximately $900,000 for fiscal year 2019 -20. The decrease in revenues is largely due to the stay at home orders, resulting in severe declines in retail, travel, manufacturing, and service industries, and their resulting tax revenues. The City projects declines in sales tax and transient occupancy tax revenues during this period. For fiscal year 2020-21, the City is projecting approximately $106.6 million in revenues (a decrease of 6.6% from fiscal year 2019-20), and $122.4 million in expenditures, resulting in a $15.8 million deficit. The decrease of 6.6% in revenues is based on annualizing half of the second half of the second calendar quarter 2020 sales tax loss projections, in addition to no increases in property tax revenue due to potential non-payments from residents. The increase in expenditures for fiscal year 2020-21 is in part due to increases in CalPERs retirement costs, labor cost increases, general municipal election costs, contractual obligations for various maintenance agreements and sales tax sharing agreements and departmental operating budgets. The City will be considering implementing several budget reduction measures to reduce the expenditures, including but not limited to, reducing summer hiring for summer programs, freezing vacant positions, operational budget reductions and renegotiating labor agreements. Assuming budget reduction measures include a decrease of $3.6 million in renegotiated labor costs and $4.2 million in operating savings, the projected deficit for fiscal year 2020-21 would be $8.1 million, which the City plans on funding through use of catastrophic reserves and transfers from the capital projects fund and CalPERS set -aside. See “INTRODUCTION - COVID-19 Impact” and “BONDOWNERS’ RISKS -- COVID-19 Pandemic.” See also “CITY FINANCIAL INFORMATION -- Pension Plans.” The following table shows the City’s revised revenue projections for fiscal year 2019-20 and fiscal year 2020-21 as of May 26, 2020: Table 2 City of Orange General Fund Revenue Projections for Fiscal Years 2019-20 and 2020-21 (as of May 26, 2020) Type of Revenues Fiscal Year 2019-20 Fiscal Year 2020-21 Sales Tax $42,705,369 $38,965,165 Property Tax 43,958,186 43,958,186 Transient Occupancy Tax 3,800,000 2,960,000 Franchises 2,545,036 2,290,532 Licenses & Permits 5,264,862 4,738,376 Use of Money & Property 2,003,288 1,602,630 Fees for Services 5,399,921 5,129,925 Interfund Revenue 2,460,903 2,510,121 Other Revenues 5,905,258 4,407,871 Total Revenues $114,042,823 $106,562,717 ___________________ Source: City of Orange Financial Statements Set forth in the following pages are the City’s General Fund balance sheets and statements of revenues, expenditures and changes in General Fund balance for the years shown, based on the City’s audited financial statements. The balance sheets and statements presented in this Official Statement are subject to the various notes attached to the City’s audited financial statements for the respective years. The City’s Comprehensive Annual Financial Report for fiscal year ended June 30, 2019, which includes the City’s 2018- 20 19 audited financial statements, are set forth in APPENDIX F. See also “INTRODUCTION - COVID-19 Impact” and “BONDOWNERS’ RISKS - COVID-19 Pandemic.” Table 3 City of Orange General Fund Balance Sheets Fiscal Years 2014-15 through 2018-19 Fiscal Year 2014-15 Fiscal Year 2015-16 Fiscal Year 2016-17 Fiscal Year 2017-18 Fiscal Year 2018-19 ASSETS: Cash and investments (1) $31,616,748 $29,461,017 $31,882,704 $29,842,077 $33,242,359 Receivables: Accounts receivable 1,068,639 872,932 1,179,496 2,257,971 1,829,734 Taxes (2) 5,505,688 12,035,131 7,992,231 7,533,198 9,862,480 Interest 119,734 130,276 211,388 239,460 356,644 Intergovernmental -- 19,051 40,000 -- -- Inventories 109,731 88,354 88,269 95,178 82,345 Prepaid costs -- -- -- -- 78,415 Total Assets $38,420,540 $42,606,761 $41,394,088 $39,987,884 $45,460,977 LIABILITIES: Accounts payable $1,873,595 $2,047,707 $2,360,009 $1,698,953 $2,498,006 Accrued liabilities 4,308,789 4,998,517 1,850,216 2,170,557 2,994,553 Deposits payable 41,234 184,810 50,803 54,431 67,384 Due to other agencies 114,979 142,357 179,638 225,469 279,474 Unearned revenues 403,654 347,549 338,331 360,395 401,752 Total Liabilities $6,742,251 $7,720,940 $4,778,997 $4,509,805 $6,191,169 DEFERRED INFLOWS OF RESOURCES: Unavailable revenues $74,995 $64,970 $716,130 $619,523 $498,920 Total deferred inflows of resources $74,995 64,970 716,130 619,523 498,290 FUND BALANCES: Nonspendable: Inventories $109,731 $88,354 $88,269 $95,178 $82,345 Prepaids -- -- -- -- 78,415 Unassigned 31,493,563 34,732,497 35,810,692 34,763,378 38,610,758 Total fund balances $31,603,294 $34,820,851 $35,898,961 $34,858,556 $38,771,518 Total liabilities, deferred inflows of resources and fund balances $38,420,540 $42,606,761 $41,394,088 $39,987,884 $45,460,977 _____________ Source: City of Orange Comprehensive Annual Financial Reports for Fiscal Years 2014-15 through 2018-19. (1) See “CITY FINANCIAL INFORMATION - Investment Portfolio” below. See also Note 2 to APPENDIX F - CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019. (2) Consists of sales taxes, property taxes and transient occupancy taxes. See “CITY FINANCIAL INFORMATION - Sales Taxes and - Property Taxes” below. 21 Table 4 City of Orange Statements of Revenues, Expenditures and Changes in General Fund Balance Fiscal Years 2014-15 through 2018-19 Fiscal Year 2014-15 Fiscal Year 2015-16 Fiscal Year 2016-17 Fiscal Year 2017-18 Fiscal Year 2018-19 Revenues: Taxes (1)(2) $68,727,586 $73,120,967 $86,752,001 $88,183,290 $96,937,045 Franchise fees 2,862,006 2,785,987 2,505,636 2,541,850 2,551,456 Licenses and permits 4,080,299 5,443,388 4,966,017 4,807,460 5,770,360 Use of money and property 931,732 1,364,340 1,005,391 1,148,474 3,279,397 Intergovernmental (2) 13,081,439 13,353,941 1,964,941 1,905,719 1,963,642 Charges for services and fees 7,092,877 7,000,239 7,478,765 7,374,837 8,393,003 Fines and forfeitures 2,138,246 1,725,785 1,706,291 1,852,674 2,194,948 Miscellaneous (3) 1,511,705 3,423,544 6,368,251 3,293,171 3,151,409 Total revenues $100,425,890 $108,218,191 $112,747,293 $111,107,475 $124,241,260 Expenditures: Current: General government $9,471,637 $10,802,528 $10,888,617 $10,897,704 $12,709,494 Public safety 63,389,991 67,591,325 69,493,282 72,433,022 76,141,504 Public works 7,120,026 7,210,762 7,330,102 7,397,919 7,779,267 Community development 3,687,909 3,971,673 4,318,703 4,488,092 4,479,327 Parks and library 11,940,452 11,675,323 13,042,652 13,492,079 13,903,160 Economic development 67,108 62,992 97,669 173,191 196,787 Debt Service - Principal(4) -- -- -- -- 92,339 Capital outlay 727,918 858,888 132,898 123,612 76,420 Total expenditures $96,405,041 $102,173,491 $105,303,923 $109,005,619 $115,378,298 Excess (Deficiency) of Revenues Over (Under) Expenditures $4,020,849 $6,044,700 $7,443,370 $2,101,856 $8,862,962 Other Financing Sources (Uses): Transfers in -- -- -- -- -- Transfers out (5) $(6,785,395) $(2,827,143) $(6,365,260) $(3,142,261) $(4,950,000) Total Other Financing Sources (Uses) $(6,785,395) $(2,827,143) $(6,365,260) $(3,142,261 $(4,950,000) Net Change in Fund Balance (2,764,546) 3,217,557 1,078,110 (1,040,405) 3,912,962 Fund Balances, Beginning of Year 34,367,840 31,603,294 34,820,851 35,898,961 34,858,556 Fund Balances (Deficits), End of Year $31,603,294 $34,820,851 $35,898,961 $34,858,556 $38,771,518 _____________ Source: City of Orange Comprehensive Annual Financial Reports for Fiscal Years 2014-15 through 2018-19. (1) Consists of sales taxes, property taxes and transient occupancy taxes. See “CITY FINANCIAL INFORMATION - Sales Taxes and - Property Taxes” below. (2) Effective Fiscal Year 2016-17, the City began accounting for Property Taxes in lieu of Motor Vehicle License Fees in the Taxes category. There is a corresponding increase in Taxes and a decrease in Intergovernmental revenues. (3) Miscellaneous revenues in the General Fund consist mainly of reimbursement for the annual street fair and reimbursements from other agencies for emergency services provided. (4) See “CITY FINANCIAL INFORMATION - Long-Term Liabilities” below. (5) Transfers from the General Fund to the Capital Improvement Fund or Internal Service Funds. Interfund transfers are used to (1) fund general funded capital projects, vehicle replacements, information systems, computer replacements, and liability claims; (2) fund improvements to City facilities, and (3) to provide funding for liab ility claims expense. 22 Major Revenues The City derives its General Fund revenues from a variety of sources including sales taxes, ad valorem property taxes, transient occupancy taxes, licenses, permits, charges for services provided by the City and other miscellaneous revenues. Sales taxes and property taxes constitute the two top major sources of General Fund revenues, with sales taxes consisting of approximately 45.18% of the City’s Fiscal Year 2018- 19 General Fund tax revenues, and property taxes comprising approximately 26.03% of Fiscal Year 2018-19 General Fund tax revenues. See “-Sales taxes” and “-Property Taxes” below. See also “LIMITATIONS ON REVENUES AND APPROPRIATIONS.” The City’s total General Fund revenues for selected major revenue sources for the past five fiscal years are set forth below. Table 5 City of Orange Selected Major Revenue Sources (Fiscal Years 2014-15 through 2018-19) Revenue Category 2014-15 2015-16 2016-17 2017-18 2018-19 Sales Taxes $40,446,744 $42,161,349 $42,415,659 $41,316,133 $48,304,886 Property Taxes 23,021,657 24,994,172 25,776,881 27,443,002 27,824,816 Property Tax in lieu of VLF(1) 11,313,325 11,951,577 12,332,783 12,990,608 13,656,544 Transient Occupancy Taxes 4,544,477 5,200,107 5,412,976 5,475,877 5,399,684 Charges for Services and fees 4,994,008 4,899,239 5,377,765 5,275,587 5,955,233 Licenses and Permits 4,080,299 5,443,388 4,966,016 4,807,460 5,770,360 Total $88,400,510 $94,649,832 $96,282,080 $97,308,667 $106,911,523 (1) Inclusive of VLF. See “—State of California Motor Vehicle Vehicle-In-Lieu Payments.” Source: City of Orange. As discussed above under “--Budget Summary,” the City anticipates a decline in general fund revenues (including most, if not all, of categories of revenues described below) beginning in March 2020 as a result of the COVID-19 pandemic. Due to the ongoing and evolving nature of the COVID-19 pandemic, at this time, the City cannot predict how long, or to what extent, the decline in general fund revenues will be. See “INTRODUCTION—COVID-19 Impact”, “--Budget Summary” and “BONDOWNERS’ RISKS—COVID-19 Pandemic.” The following tables shows a comparison of the selected major revenues for fiscal year 2018-19 as compared to the projected major revenues for fiscal years 2019-20 and 2020-21: Table 6 City of Orange Selected Major Revenue Sources (Fiscal Year 2018-19 actual, Fiscal Years 2019-20 and 2020-21 projected) Revenue Category 2018-19 actual 2019-20 projected(2) 2020-21 projected(2) Sales Taxes $48,304,886 $42,705,369 $38,965,165 Property Taxes(1) 41,481,360 43,958,186 43,958,186 Transient Occupancy Taxes 5,399,684 3,800,000 2,960,000 Charges for Services and fees 5,955,233 5,399,921 5,129,925 Licenses and Permits 5,770,360 5,264,862 4,738,376 Total $106,911,523 $101,128,338 $95,751,652 (1) Inclusive of VLF. See “—State of California Motor Vehicle Vehicle-In-Lieu Payments.” (2) Projections are as of May 26, 2020 and are subject to change as the COVID-19 Pandemic evolves. Source: City of Orange. 23 Sales Taxes Sales Tax is the largest source of General Fund revenue. A sales tax is imposed on retail sales or consumption of personal property. The sales tax rate in the City is 7.75%. In fiscal year 2018-19, the City’s sales tax increased by $7.2 million or 16.9% from Fiscal Year 2017-18, primarily due to SC Fuels (a fuel distribution and service company and a major sales tax revenue producer) increase in service stations through several regional wholesale fuel distributor acquisitions. The City entered into a participation agreement to abate sales tax with a local business under the City of Orange Municipal Code Section 3.25 Sales Tax Sharing Program. Under the Municipal Code, the City may grant sales tax abatements of the amount of sales tax a business generates within the City, for the purpose of attracting or retaining business within their jurisdictions. For the year ended June 30, 2019, the City abated sales taxes totaling $3,701,913. Potential Impacts of COVID-19 Pandemic. The City anticipates a decline in sales tax revenues beginning in the month of March 2020 due to the COVID-19 pandemic. In addition, the City anticipates a delay in the receipt of sales tax revenues due to the COVID -19 Pandemic. Effective April 2, 2020, the State is allowing small business taxpayers (i.e., those with less than $5 million in taxable annual sales), to participate in a 12-month, interest-free, payment plan for up to $50,000 of sales and use tax liability. For fiscal year 2019-20, the City’s adopted budget projected $45.3 million in sales tax revenue, which is $250,000 (0.5%) below the fiscal year 2018-19 estimate. Due to the COVID-19 pandemic, as of May 26, 2020, the City projects sales tax revenue to be $42.7 million for fiscal year 2019 -20 and $39.0 million for fiscal year 2020- 21. However, due to the ongoing and evolving nature of the COVID-19 pandemic, at this time, the City cannot predict how long, or to what extent, the decline in sales tax revenues will be. See “INTRODUCTION - COVID-19 Impact,” “-Budget Summary,” “-Major Revenues” and “BONDOWNERS’ RISKS - COVID-19 Pandemic.” The valuation of taxable transactions in the City is presented in the following table. Table 7 City of Orange Taxable Retail Sales Valuation of Taxable Transactions (Calendar Years 2015-2019) Calendar Year Retail and Food Services Taxable Transactions All Other Outlets Taxable Transactions Total 2015 $2,334,890,765 $1,239,390,114 $3,574,280,879 2016 2,358,325,438 1,243,640,936 3,601,966,374 2017 2,476,445,375 1,289,138,034 3,765,583,409 2018 2,464,310,677 1,410,509,132 3,874,819,809 2019 2,466,809,109 1,766,554,556 4,233,363,665 _______________ Source:California Department of Tax and Fee Administration, Taxable Sales in California (Taxable Sales, by City). 24 Largest Sales Taxpayers. The 25 largest payers of sales taxes in the City for calendar year 2019 comprised 47% of sales tax revenue in the City. The following is a table of the 25 largest sales taxpayers in the City in alphabetical order for calendar year 2019: Table 8 CITY OF ORANGE 25 LARGEST SALES TAXPAYERS Calendar Year 2019 Arco Food Mart Ralph’s Best Buy SC Fuels Chevron Selman Chevrolet Claflin Medical Equipment Source North America Corp. DMG Corporation Stadium Nissan Enterprise Rent-a-car Target Ford of Orange Thompson Building Materials Foundation Building Materials Toyota Lease Trust Home Depot Toyota of Orange L&W Supply Villa Ford Mazda of Orange Verco Decking MS International Walmart Nike Factory Store _____________ Source: City of Orange Property Taxes The City’s second largest revenue source, property tax, is imposed on real property (land and permanently attached improvements, such as buildings) and tangible personal property (moveable property) located within the City. Property is initially assessed by the County Assessor at a tax rate of 1.0% of the assessed value subject to inflationary increases of no more than 2.0% each year plus adjustments resulting from reassessment upon transfers and new construction. The City’s adopted budget for fiscal year 2019-20 estimates property tax revenues to be $43.8 million, generating an additional $1.7 million, or a 4.1% increase over fiscal year 2018-19, due to expected increases in home assessed values, and commercial properties sold at higher property values. Property tax revenue consists of two primary sources. First, a portion of the 1% ad valorem tax, of which the City’s share is approximately 13.6%. The fiscal year 2019-20 adopted budget projects this to be approximately $29.6 million. The second source is Property Tax in lieu of Motor Vehicle License Fees, which is expected to be $14.1 million according to the City’s fiscal year 2019-20 adopted budget. The State of California swapped this revenue source in 2004 as part of a budget saving measure. As a result, the City receives a share of the Education Revenue Augmentation Fund, which is also part of the 1% ad valorem tax, instead of Vehicle License Fees. See “State of California Motor Vehicle In-Lieu Payments.” Tax Levies and Delinquencies. Taxable valuation within the City is established by the Orange County Assessor, except for utility property, which is assessed by the State Board of Equalization. Taxes are levied by Orange County for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1. Effective July 1, 1983, real property that changes ownership or is newly constructed is reassessed at the time the change in ownership occurs or the new construction is completed. If the property is reassessed at a higher value, one or more supplemental tax statements will be added to the annual tax bill. If the property is reassessed at a lower value, the property owner may receive a refund. 25 Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year, and if unpaid become delinquent on December 10 and April 10, respectively. If the first installment is not paid by December 10, a ten percent delinquent penalty is added to any unpaid balance. If the second installment is not paid by April 10, a ten percent penalty plus a charge of $10 is added to the unpaid balance. Since supplemental tax bills are mailed throughout the year, they may or may not be due or delinquent at the same time as annual tax bills. The same penalties and charges accrue for delinquent supplemental taxes as for delinquent annual taxes. The County of Orange bills and collects the property taxes, and subsequently remits the amount due to the City of Orange in installments during the year. For counties that have adopted the Teeter Plan (an Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, pursuant to Sections 4701 through 4717 of the California Revenue and Taxation Code), local agencies would receive 100 percent of the amount of the taxes due to such agencies regardless of any default in payment of such taxes from property owners. Orange County has adopted the Teeter Plan. However, the City does not participate in the County’s Teeter Plan. Historically, the City has received substantially all of the taxes levied within two years from the date they are levied. However, the City cannot predict how the COVID-19 pandemic will affect Orange County’s ability to collect property taxes in a timely manner, and whether there will be any impact on the County’s remittance of property taxes to the City. See “-Potential Impacts of COVID-19 Pandemic” below. Economic and other factors beyond the City's control, such as economic recession, deflation or land values, or the complete or partial destruction of taxable property caused by, among other eventualities, earthquake, flood or other natural disaster could cause a reduction in the assessed value of taxable property in the City. Potential Impacts of COVID-19 Pandemic. In response to the COVID-19 outbreak described under the caption “BONDOWNERS’ RISKS—COVID-19 Pandemic,” the Orange County Treasurer-Tax Collector has stated that the County will waive penalties for failure to timely pay property taxes on or before April 10, 2020, if a property owner can demonstrate significant economic hardship due to COVID-19. After June 30, property owners that do not meet such criteria for significant economic hardship, can participate in a five year payment plan, which requires a 20 percent deposit of the amount of the property taxes due plus a set -up fee of $25, and annual payments of 20 percent by April 10 of each year until paid. Interest is charged at 1.5 percent monthly (18 percent annually) with no prepayment penalty. The City cannot predict whether the County’s potential waiver of late payment penalties will result in significant property tax delinquencies. The waiver of late payment penalties and resulting property tax delinquencies could have a material adverse impact on the timely payment of property taxes with respect to property in the City. The City cannot predict whether the COVID-19 pandemic will have an effect on the remittance by the County of the City’s property tax revenues. See “-Budget Summary,” “-Major Revenues” and “-Tax Levies and Delinquencies” above. See also “INTRODUCTION - COVID-19 Impact” and “BONDOWNERS’ RISKS— COVID-19 Pandemic.” ERAF. In response to past severe financial and budgetary distress of California, the State Legislature adopted legislation impacting the City’s allocation of revenues from property taxes, including, in particular, provisions relating to the Education Revenue Augmentation Fund (“ERAF”). Beginning in Fiscal Year 1992- 93 and in various fiscal years thereafter, the State required local governments to remit a portion of their property tax revenues to ERAF. The Fiscal Year 2005-06 state budget required a $13 billion shift from local governments to ERAF. While the State budgets for each of Fiscal Years 2006-07 through 2019-20 did not contain provisions for additional ERAF property tax shifts from cities (although the 2008-09, 2009-10, and 2010-11 State Budgets contained provisions for additional ERAF property tax shifts from redevelopment agencies), there can be no assurance that future State Budgets will not require additional ERAF property tax shifts from the City. Proposition 13 Limitations. Article XIIIA of the State Constitution provides that, beginning with the 1978-79 Fiscal Year, property taxes in California are limited to one percent of full cash value, except for taxes to pay debt service on indebtedness approved by the voters prior to July 1, 1978. Article XIIIA defines full cash value as the County Assessor’s valuation of real property as shown on the 1975-76 tax bill (“base year”), except in the case of newly-constructed property or property which undergoes a change in ownership. Yearly 26 taxable value increases following the base year are limited to the growth in the consumer price index, but may not exceed two percent annually. For assessment and collection purposes, property is classified either as “secured” or “unsecured,” and is listed accordingly on separate parts of the assessment roll. The “secured roll” is that part of the assessment roll containing State assessed property and property the taxes on which are a lien on real property sufficient, in the opinion of the County Assessor, to secure payment of the taxes. Other property is assessed on the “unsecured roll.” See “LIMITATIONS ON REVENUES AND APPROPRIATIONS – Property Tax Limitations – Article XIIIA.” 27 A summary of the City’s assessed values of taxable property for the last ten years is as follows: Table 9 Assessed Valuation and Estimated Actual Value of Taxable Property Fiscal Years 2010-11 to 2019-20 Fiscal Year Residential Property Commercial Property Industrial Property Other Property (1) Unsecured Property Total Taxable Assessed Value (2) Percent Change 2010-11 $11,209,458,546 $2,813,393,317 $1,187,764,045 $144,232,772 $887,866,476 $16,242,715,156 -- 2011-12 11,449,468,586 2,780,268,096 1,180,034,751 127,091,117 838,675,714 16,375,538,264 0.82% 2012-13 11,600,854,367 2,806,579,387 1,206,046,882 126,089,684 798,146,350 16,537,716,670 0.99% 2013-14 11,897,583,003 3,022,280,941 1,252,000,989 124,904,467 887,649,963 17,184,419,363 3.91% 2014-15 12,644,540,532 3,011,391,468 1,265,709,334 128,311,780 888,708,529 17,938,661,643 4.39% 2015-16 13,322,413,898 3,272,604,405 1,317,401,040 144,255,656 888,595,478 18,945,270,477 5.61% 2016-17 13,907,361,557 3,337,299,634 1,367,159,238 132,085,598 822,433,022 19,566,339,049 3.28% 2017-18 14,610,327,072 3,512,922,693 1,453,073,836 156,165,662 810,904,924 20,543,394,187 4.99% 2018-19 15,319,876,353 3,724,151,268 1,512,959,481 159,884,568 858,358,308 21,575,229,978 5.02% 2019-20 16,062,120,394 4,004,538,771 1,610,831,980 185,216,681 908,066,728 22,770,774,554 5.54% ______________ Source: HdL Coren & Cone, Orange County Assessor’s Office Combined Tax Rolls (1) Other property includes agricultural, government owned, miscellaneous, vacant, SBE nonunitary, and cross reference propert y. (2) Tax-exempt property is excluded from the total taxable assessed va lue. A-28 A summary of the City’s property tax levies and collections for the last ten fiscal years is as follows: Table 10 CITY OF ORANGE PROPERTY TAX LEVIES AND COLLECTIONS Last Ten Fiscal Years Collected within Fiscal Year of Levy Total Collections within the Fiscal Year (2) Fiscal Year Ended June 30 Taxes Levied for the Fiscal Year(1) Amount Percent of Levy Collections in Subsequent Fiscal Years (2) Amount Percent of Levy (1)(2) 2010 $33,846,120 $29,976,047 88.57% $857,893 $30,833,940 91.10% 2011 33,281,667 32,633,605 98.05% 567,671 33,201,276 99.76% 2012 33,642,208 33,002,184 98.10% 380,718 33,382,902 99.23% 2013 34,034,193 33,480,125 98.37% 349,943 33,830,069 99.40% 2014 35,409,021 34,931,104 98.65% 269,749 35,200,852 99.41% 2015 36,798,892 36,291,294 98.62% 221,433 36,512,727 99.22% 2016 38,795,999 38,103,619 98.22% 215,265 38,318,884 98.77% 2017 40,013,475 39,374,323 98.40% 184,816 39,559,139 98.86% 2018 41,745,695 41,237,300 98.78% 185,252 41,422,552 99.23% 2019 43,559,522 42,987,182 98.69% 176,111 43,163,293 99.09% _______________________ Source: Urban Futures, Inc. (1) Includes secured, unsecured, and supplemental property tax revenues as well as Vehicle License Fee in lieu amounts. (2) Includes the total amount of delinquent taxes collected in each fiscal year. The Orange County Auditor-Controller tax ledger does not provide detailed information regarding the levy year to which delinquent tax collections pertain. Excludes penalties and interest amounts. Redevelopment Dissolution. The State’s Community Redevelopment Law (codified in Part 1 of Division 24 of the California Health and Safety Code) authorized the redevelopment agency of any city or county to receive an allocation of tax revenues resulting from increases in assessed va lues of properties within designated redevelopment project areas (the “incremental value”) occurring after the year the project area is formed. In effect, local taxing agencies, such as the City, realize tax revenues only in the assessed value of such property at the time the redevelopment project is created for the duration of such redevelopment project. Although Assembly Bill No. 26 (“AB X1 26”), enacted on June 29, 2011 as Chapter 5 of Statutes of 2011, statutorily dissolved redevelopment agencies as of February 1, 2012, the enforceable obligations of dissolved redevelopment agencies, continue to be paid from property taxes derived from such incremental value until the enforceable obligations are paid in full in accordance with Parts 1.8 (commencing with Section 34161) and 1.85 (commencing with Section 34170) of Division 24 of the Health and Safety Code of the State, as amended on June 27, 2012 by Assembly Bill No. 1484 (“AB 1484”), enacted as Chapter 26, Statutes of 2012, and as such statutory provisions may further be amended from time to time (as amended, the “Dissolution Act”). Under the Dissolution Act, taxing entities, such as the City, are to receive distributions (in proportion to such taxing entity’s share of property tax revenues in the tax rat e area for the applicable fiscal year) of residual amounts of property taxes attributable to incremental value on each June 1 and January 2, commencing June 1, 2012, after payment of (i) tax sharing obligations established previously pursuant to the Community Redevelopment Law, (ii) enforceable obligations of the successor agency to the former redevelopment agency, and (iii) an administrative cost allowance to such successor agency. As enforceable obligations of the former redevelopment agency and its succ essor agency are paid and retired, residual amounts of property tax revenues attributable to redevelopment project area incremental value are 29 expected to increase over time. Top Tax Payers. The top ten property taxpayers, based on local secured assessed values of taxable property in the City for the fiscal year 2019 as compared to fiscal year 2010, are set forth in the following table: Table 11 CITY OF ORANGE PRINCIPAL PROPERTY TAXPAYERS Fiscal Years 2019 vs. 2010 2019 2010 Taxpayer Industry/Type of Business Taxable Assessed Value Percentage of Total Taxable Assessed Value Taxable Assessed Value Percentage of Total Taxable Assessed Value Orange City Mills LP Retail $168,113,758 0.82% $135,369,377 0.82% Irvine Company LLC Apartments 152,827,876 0.74 -- 0.00 Children's Hospital of Orange County Medical 134,660,799 0.65 -- 0.00 Bex Porftfolio Inc. Apartments 132,332,101 0.64 -- 0.00 OC OET Owner LLC Office Tower 115,015,200 0.56 -- 0.00 St Joseph Hospital of Orange Medical 107,505,446 0.52 -- 0.00 The Village at Orange LLC Retail 102,419,996 0.50 -- 0.00 Orange Center Tower Owner LLC Officer Tower 92,500,000 0.45 -- 0.00 Windsor at Main Place I LLC Apartments 90,493,094 0.44 103,530,000 0.00 3091 Chapman Ave Apts Investors Apartments 90,044,006 0.44 95,196,600 0.57 Mullrock Executive Tower Fee LLC -- -- 0.00 134,640,000 0.81 Orange City SQ JV LLC -- -- 0.00 133,309,094 0.80 Passco TVO-S LLC -- -- 0.00 96,523,159 0.58 Bre Properties Inc -- -- 0.00 96,270,285 0.58 Orange County Realty Investors LLC -- -- 0.00 95,706,011 0.58 NHP of PMB Orange LLC -- -- 0.00 86,565,228 0.52 Maguire Properties City Tower -- -- 0.00 82,486,500 0.50 $1,185,912,276 5.32% $1,059,596,254 6.40% Source: City of Orange Comprehensive Annual Financial Report for Fiscal Year 2018-19 State of California Motor Vehicle In-Lieu Payments The State imposes a vehicle license fee (“VLF”), which is the portion of the fees paid in lieu of personal property taxes on a vehicle. The vehicle license fee is based on vehicle value a nd declines as the vehicle ages. Prior to the adoption of the Fiscal Year 2004-05 State Budget, the fee was 2 percent of the value of a vehicle. Through legislation in prior Fiscal Years, the State enacted vehicle license fee reductions under which the State was required to “backfill” local governments for their revenue losses resulting from the lowered rates. The Fiscal Year 2004-05 State Budget permanently reduced the vehicle license fee from 2 percent to 0.65 percent and deleted the requirement for backf ill 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 “BONDOWNERS’ RISKS—Dependence on State for Certain Revenues.” 30 For Fiscal Year 2018-19, the City received approximately $13.7 million in total VLF, which was distributed from property tax receipts. VLF comprised 14% of the City’s General Fund tax revenues in Fiscal Year 2018-19. See Table 5 above. Transient Occupancy Tax A transient occupancy tax is imposed on persons staying 30 days or less in a hotel, motel, inn or other lodging place within the City. The current transient occupancy tax rate is 1 0.00% of the room rate. Payments are made to the City on a monthly basis and are deposited to the City’s General Fund. In fiscal year 2018-19, transient occupancy tax receipts were $5,399,864, providing 5.6% of General Fund tax revenues and approximately 4.3% of total General Fund revenues. Transient occupancy tax receipts decreased by approximately $76,000 (1.4%) in fiscal year 2018-19 over fiscal year 2017-18 year-end results. The City’s Adopted Budget forecasted an increase of approximately 0.9% in transient occupancy tax receipts in fiscal year 2019-20. However, the City now anticipates a decline in transient occupancy tax revenues beginning in March 2020, due to the COVID-19 pandemic. As of May 26, 2020, the City projects transient occupancy tax revenues for fiscal year 2019-20 to be $3.8 million, a substantial decrease from $5.4 million in fiscal year 2018-19. The City projects further declines in transient occupancy tax revenues to $3.0 million for fiscal year 2020-21. Due to the ongoing and evolving nature of the COVID -19 pandemic, at this time, the City cannot predict how long, or to what extent, the COVID-19 pandemic and the federal, state, and local responses thereto will cause declines in transient occupancy tax. See “INTRODUCTION - COVID-19 Impact” and “BONDOWNERS’ RISKS- COVID-19 Pandemic.” Reserve Policies Historically, the City's Reserve Policy provided for as much as a 25% set-aside of budgeted General Fund operating expenditures as a designation of fund balance (Designated for Contingencies), which is included in Unassigned fund balance. This policy was established to provide a contingency in case of a catastrophic, or other severe economic event. The current set-aside is 17.3% of Fiscal Year 2019-20 budgeted General Fund operating expenditures. The City intends to use a portion of these reserves to fill budget gaps due to loss of revenues resulting from the COVID-19 pandemic. See “CITY FINANCIAL INFORMATION - Budget Summary - Potential Impacts of COVID-10 Pandemic.” Investment Portfolio The City invests all idle cash in various investment instruments pursuant to the City’s Statement of Investment Policy, as authorized by California Government Code 53601. Cash and investments at June 30, 2019 consisted of the following: Petty Cash $12,200 Bank Balance (net of outstanding checks) (1,632,415) Investments 152,870,146 Total $151,249,931 31 As of June 30, 2019 the City had the following investments: Investment Type Fair Value Minimum Rating S&P Rating % of investments Federal Home Loan Bank $15,595,336 Not applicable AA+ 10.44% Federal National Mtg. Assn. 40,856,277 Not applicable AA+ 26.73 Federal Farm Credit Bank 14,952,754 Not applicable AA+ 9.78 Medium Term Note: Apple 1,980,646 AA- AA+ 1.30 Microsoft 3,995,241 AA- AAA 2.61 Toyota 9,932,427 AA- AA- 6.50 Local Agency Investment Fund 57,297,914 Not rated Not rated 37.48 Money Market Mutual Funds 4,532,857 Not applicable AAA 2.97 Held by trustee: Money Market Mutual Funds 285,012 Not applicable AAA 0.19 U.S. Treasury Bond 1,538,703 Exempt Exempt 1.00 Federal National Mtg. Assn. 1,543,979 Not applicable AA+ 1.00 Total $152,870,146 100.00% See “APPENDIX F – CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019 - Note 2.” Long-Term Liabilities The following table shows the City’s long term liabilities for Fiscal Year ended June 30, 2019: Beginning Balance Additions Deletions Ending balance Amounts Due Within One Year Amounts Due Beyond One year Governmental Activities Direct borrowing Loans Payable $538,733 $570,619 $92,339 $1,017,013 $237,778 $779,235 Other liabilities: Compensated absences 8,062,555 3,495,019 3,646,640 7,910,934 3,578,063 4,332,871 Claims payable 17,050,334 4,845,386 3,967,050 17,928,670 5,416,351 12,512319 Total Govt. activities 25,651,622 8,911,024 7,706,029 26,856,617 9,232,192 17,624,425 Business-type activities Compensated absences 555,444 158,970 120,776 593,638 129,168 464,470 Total $26,207,066 $9,069,994 $7826,805 $27,450,255 $9,361,360 $18,088,895 32 In April 2018 and May 2019, the City entered into a series of loan agreements with Southern California Edison for LED retrofit of city-owned streetlights. The loans are payable from the General Fund and total $1,682,026 with a zero percent interest rate. The outstanding balance at June 30, 2019 is $1,017,013. The annual payments are as follows: Fiscal Year Payment 2019-20 $237,778 2020-21 237,778 2021-22 237,778 2022-23 156,530 2023-24 70,095 2024-25 49,772 2025-26 27,372 Total $1,017,013 See “APPENDIX F – CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019 - Note 9.” Capital Improvement Plan The City’s preliminary budget for Fiscal Year 2020-21 proposes a five year capital improvement plan (“CIP”) for Fiscal Year 2020-21 through 2024-25. In total, the City plans to invest about $67.0 million in capital improvements in Fiscal Year 2020-21 and $143.8 million over the five-year planning horizon. Funding for the CIP comes from different sources including Gas Taxes, Measure “M”, Development Impact Fees, State and Federal Grants, former Redevelopment Bond Proceeds, and Community Development Block Grants, anticipated revenue over the next seven years and private donations. The Fiscal Year 2020-21 Five-Year Capital Improvement Plan (CIP) identified 160 proposed projects. For Fiscal year 2020-21, there are 23 newly budgeted projects and 137 projects that are either a continuation of previously approved plans, or anticipated to start during the out-years. The following are highlights of the Fiscal Year 2020-21 Five-Year Capital Improvement Plan projects:  Construction of Fire Station Headquarters.  Rehabilitation of the Police Headquarters Atrium.  Installation of shade sails over existing tot lot equipment at El Camino Park.  Landscape renovation improvements at Santiago Hills  Installation of LED lighting at El Camino Park tennis courts.  Renovations to update El Modena Park.  Handy Park renovation and video surveillance installation.  Renovation of the Children’s Homework Center at the Orange Public Library & History Center  Rehabilitation of Children’s Courtyard at the Orange Public Library & History Center.  Commitment of $5.57 million to the Pavement Management Program and an additional $6.2 million for street maintenance and rehabilitation efforts at various locations throughout the City.  Commitment of $5.6 million towards 17 projects intended to maintain or improve the City’s water production and distribution, including $1.1 million for pipeline replacement. 33  Commitment of $750,000 toward various City infrastructure, facility and parking lot improvements. [Remainder of Page Intentionally Left Blank] Statement of Direct and Overlapping Debt Shown below is a statement of direct and overlapping debt for the City as of April 15, 2020. City of Orange Statement of Direct and Overlapping Debt 2019-20 Assessed Valuation: $22,844,350,739 OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 4/15/20 Metropolitan Water District 0.738% $ 275,274 Irvine Ranch Water District, Improvement District No. 125 0.930 1,647,342 Irvine Ranch Water District, Improvement District No. 225 0.010 25,435 Irvine Ranch Water District, Improvement District No. 153-253 0.073 14,228 North Orange County Joint Community College District 0.158 449,935 Rancho Santiago Community College District 27.682 60,945,809 Anaheim Union High School District 0.458 1,298,311 Anaheim School District 0.781 2,153,853 Tustin Unified School District School Facilities Improvement District No. 2002 -1 0.056 23,754 Tustin Unified School District School Facilities Improvement District No. 2008-1 0.058 48,242 Tustin Unified School District School Facilities Improvement District No. 2012 -1 0.040 15,958 Orange Unified School District 59.302 106,971,913 Orange Unified School District Community Facilities District No. 2005-1 100. 5,895,000 Orange Unified School District Community Facilities District No. 2005 -2 100. 5,405,000 City of Orange Community Facilities District No. 91 -2 100. 22,295,000 City of Orange Community Facilities District No. 06 -1 100. 22,230,000 City of Orange 1915 Act Bonds 100. 135,000 TOTAL OVERLAPPING TAX AND ASSESSMENT DEBT $229,830,054 DIRECT AND OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 3.651% $14,120,060 Orange County Pension Obligation Bonds 3.651 3,779,287 Orange County Board of Education Certificates of Participation 3.651 492,520 North Orange County Regional Occupation Program Certificates of Participation 0.162 14,499 Orange Unified School District Certificates of Participation and Benefit Obligations 59.302 55,253,036 Anaheim Union High School District Certificates of Participation 0.458 148,392 City of Orange 100. 0 (1) TOTAL DIRECT AND OVERLAPPING GENERAL FUND DEBT $73,807,794 OVERLAPPING TAX INCREMENT DEBT (Successor Agencies): City of Orange Tax Allocation Bonds 100. % $38,765,000 Orange County Neighborhood Redevelopment Project Area Tax Allocation Bonds 0.417 18,598 TOTAL OVERLAPPING TAX INCREMENT DEBT $38,783,598 COMBINED TOTAL DEBT $342,421,446 (2) Ratios to 2019-20 Assessed Valuation: Total Overlapping Tax and Assessment Debt ....................... 1.01% Direct Debt ($0) ................................................................... 0.00% Combined Total Debt ............................................................ 1.50% 34 Ratios to 2019-20 Redevelopment Incremental Valuation ($4,751,131,673): Total Overlapping Tax Increment Debt ................................. 0.82% ___________________________ (1) Excludes issue to be sold. (2) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non -bonded capital lease obligations. Pension Plans The City contributes to the California Public Employees' Retirement System (CalPERS), an agent multiple-employer public employee defined benefit pension plan (the Plan). CalPERS provides retirement and disability benefits, annual cost-of-living adjustments, and death benefits to plan members and their beneficiaries. CalPERS acts as a common investment and administrative agent for participating public entities within the State of California. Benefit provisions and all other requirements are established by state statute and memoranda of understanding with employee bargaining units. Plan Description, Benefits Provided and Employees Covered. The Plan provides benefits for two membership classifications, Miscellaneous and Safety, and those benefits are tiered based upon date of CalPERS membership. Safety membership is extended to those in active law enforcement and fire suppression, while all others are classified as Miscellaneous members. Assembly Bill (AB) 340, also known as the Public Employees’ Pension Reform Act (PEPRA), became effective on January 1, 2013. PEPRA created new benefit formulas and a final compensation period as well as new contribution requirements for new employees. Under PEPRA, “new employees” are those hired on or after January 1, 2013, and had never been a member of CalPERS previously. All employees hired prior to January 1, 2013, or whom, regardless of their hire date had previously been a member of CalPERS, will continue to be covered under the pre - PEPRA plan. All “new employees”, per PEPRA, will not be eligible for the pre-PEPRA plan, and instead will be covered under the PEPRA tiered plan. PEPRA: (i) requires public retirement systems and their participating employers to share equally with employees the normal cost rate for such retirement systems; (ii) prohibits employers from paying employer -paid member contributions to such retirement systems for employees hired after January 1, 2013; (iii) establishes a compulsory maximum non-safety benefit formula of 2.5% at age 67; (iv) defines final compensation as the highest aver age annual pensionable compensation earned during a 36-month period; and (v) caps pensionable income at $110,100 ($132,120 for employees not enrolled in Social Security) subject to Consumer Price Index increases. Other provisions reduce the risk of the City incurring additional unfunded liabilities, including prohibiting retroactive benefits increases, generally prohibiting contribution holidays, and prohibiting purchases of additional non-qualified service credit. A summary of the plan benefits in effect at June 30, 2019 is shown on the following table: Miscellaneous Hire Date Prior to January 1, 2013 On or After January 1, 2013 Benefit Formula 2.7% @ 55 2% @ 62 Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Retirement age 50 - 67 52 - 67 Monthly benefits, as a % of eligible compensation 2.0% - 2.7% 1.0% - 2.5% Required employee contribution rates 8.0% 6.0% Required employer contribution rates: Normal cost rate 10.495% 10.459% Payment of unfunded liability $5,098,284 -- 35 Safety Hire Date Prior to January 1, 2013 On or After January 1, 2013 Benefit Formula 3.0% @ 50 2.7% @ 57 Benefit vesting schedule 5 years of service 5 years of service Benefit payments monthly for life monthly for life Retirement age 50 -55 50 - 57 Monthly benefits, as a % of eligible compensation 3.00% 2.0% - 2.7% Required employee contribution rates 9% 11% Required employer contribution rates: Normal cost rate 18.173% 18.173% Payment of unfunded liability $7,392,025 -- At the June 30, 2018 measurement date, the following employees were covered by the benefit terms of the Plan: Miscellaneous Safety Inactive employees or beneficiaries currently receiving benefits 641 441 Inactive employees entitled to but not yet receiving benefits 483 112 Active Employees 360 258 Total 1,481 811 Actuarial Methods and Assumptions Used to Determine Total Pension Liability . The City’s net pension liability for each Plan is measured as the total pensi on liability, less the pension plan’s fiduciary net position. The net pension liability of each of the Plans is measured as of June 30, 2018, using an annual actuarial valuation as of June 30, 2017 rolled forward to June 30, 2018 using standard update procedures. A summary of principal assumptions and methods used to determine the net pension liability is shown below: Miscellaneous Safety Valuation Date June 30, 2017 June 30, 2017 Measurement Date June 30, 2018 June 30, 2018 Actuarial Cost Method Entry Age Normal Cost Method Entry Age Normal Cost Method Actuarial Assumptions Discount Rate 7.15% 7.15% Inflation 2.50% 2.50% Projected Salary Increase (1) (1) Mortality Rate Table (2) (2) Post Retirement Benefits Income (3) (3) _______________________________ 36 (1) Depending on age, service and type of employment (2) The probabilities of mortality are derived using CalPERS’ membership data for all funds. The mortality table used was development based on CalPERS’ specific data. The table includes 15 years of mortality improvements using Society of Actuaries Scale MP 2016. For more details on this table, please refer to the December 17 experience study report. (3) Contract COLA up to 2.0% until Purchasing Power Protection Allowance Floor on Purchasing Power applies, 2.50% thereafter. Discount Rate. The discount rate used to measure the total pension liability was 7.15 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members will be made at the current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Changes in the Net Pension Liability-Miscellaneous Plan. The following table shows the changes in net pension liability for the Miscellaneous Plan recognized over the measurement period. Increase (Decrease) Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability/(Assets) (c)=(a)-(b) Balance at: 6/30/2017 (Measurement Date) $345,505,847 $245,112,738 $100,393,109 Changes Recognized for the Measurement Period: Service Cost 5,267,383 -- 5,267,383 Interest on the Total Pension Liability 24,067,324 -- 24,067,324 Difference between Expected and Actual Experience (1,306,394) -- (1,306,394) Changes of Assumptions (1,376,690) -- (1,376,690) Plan to Plan Resource Movement -- (599) 599 Contribution from the Employer -- 7,864,464 (7,864,464) Contributions from Employees -- 2,088,111 (2,088,111) Net Investment Income -- 20,755,507 (20,755,507) Benefit Payments including Refunds of Employee Contributions (17,701,058) (17,701,058) -- Administrative Expense -- (381,953) 381,953 Other Miscellaneous Income/(Expenses)(1) -- (725,336) 725,336 Net Changes During 2017-18 $8,950,565 $11,899,136 $(2,948,571) Balance at: 6/30/2018 (Measurement Date) $354,456,412 $257,011,874 $97,444,538 Sensitivity of the Miscellaneous Plan Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the Miscellaneous Plan as of the measurement date, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculat ed using a discount rate that is 1 percentage-point lower (6.15 percent) or 1 percentage-point higher (8.15 percent) than the current rate: Discount Rate - 1% (6.15%) Current Discount Rate (7.15%) Discount Rate +1% (8.15%) 37 Plan’s Net Pension Liability/(Assets) $143,323,722 $97,444,538 $59,492,735 Changes in the Net Pension Liability-Safety Plan. The following table shows the changes in net pension liability for the Safety Plan recognized over the measurement period. Increase (Decrease) Total Pension Liability (a) Plan Fiduciary Net Position (b) Net Pension Liability/(Assets) (c) = (a) - (b) Balance at 6/30/2017 (Measurement Date) $516,533,401 $351,926,047 $164,607,354 Changes Recognized for the Measurement Period: Service Cost 8,684,357 -- 8,684,357 Interest on the Total Pension Liability 36,374,391 -- 36,374,391 Difference between Expected and Actual Experience 2,812,674 -- 2,812,674 Changes of Assumptions (2,407,807) -- (2,407,807) Plan to Plan Resource Movement -- (864) 864 Contribution from the Employer -- 12,902,982 (12,902,982) Contributions from Employees -- 2,863,563 (2,863,563) Net Investment Income -- 29,531,053 (29,531,053) Benefit Payments including Refunds of Employee Contributions (25,095,404) (25,095,404) -- Administrative Expense -- (548,398) 548,398 Other Miscellaneous Income/(Expense)(1) -- (1,041,417) 1,041,417 Net Changes During 2017-18 $20,368,211 $18,611,515 $1,756,696 Balance at: 6/30/2018 (Measurement Date) $536,901,612 $370,537,562 $166,364,050 (1) During Fiscal Year 2017-18, as a result of Governmental Accounting Standards Board Statement (GASB) No. 75, Accounting and Financial Reporting for Postemployment Benefit Plans Other than Pensions, CalPERS reported its proportionate share of activity related to postemployment benefits for participation in the State of California’s agent OPEB plan. Accordingly, CalPERS recorded a one -time expense as a result of the adoption of GASB 75. Additionally, CalPERS employees participate in various State of California a gent pension plans and during Fiscal Year 2017-18, CalPERS recorded a correction to previously reported financial statement to properly reflect its proportionate share of activity related to pensions in accordance with GASB Statement No. 68, Accounting and Financial Reporting for Pensions. Sensitivity of the Safety Plan Net Pension Liability to Changes in the Discount Rate. The following presents the net pension liability of the Safety Plan as of the measurement date, calculated using the discount rate of 7.15 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is 1 percentage-point lower (6.15 percent) or 1 percentage-point higher (8.15 percent) than the current rate: Discount Rate (6.15%) Current (7.15%) Discount Rate (8.15%) Plan’s Net Pension Liability/(Assets) $240,211,745 $166,364,050 $105,898,652 38 Pension Expense and Deferred Outflows and Deferred Inflows of Resources Related to Pensions. As of the start of the measurement period (July 1, 2017), the net pension liability is $100,393,109 for the Miscellaneous Plan and $164,607,354 for the Safety Plan. For the measurement period ending June 30, 2018 (the measurement date), the City of Orange incurred a pension expense of $15,342,804 for the Miscellaneous Plan and $20,491,524 for the Safety Plan, allocated as follows: Governmental Activities Business-type Activities Fiduciary Funds Totals Miscellaneous Plan $12,120,815 $3,068,561 $153,428 $15,342,804 Safety Plan 20,491,524 -- -- 20,491,524 Total Pension Expense $32,612,339 $3,068,561 $153,428 $35,834,328 As of the end of the measurement period (June 30, 2018) and as presented in the June 30, 2019 Statement of Net Position, the net pension liability is $97,444,538 for the Miscellaneous Plan a nd $166,364,050 for the Safety Plan, allocated as follows: Governmental Activities Business-type Activities Fiduciary Funds Totals Miscellaneous Plan $76,981,187 $19,488,907 $974,444 $97,444,538 Safety Plan 166,364,050 -- -- 166,364,050 Total Net Pension Liability $ 243,345,237 $19,488,907 $974,444 $263,808,588 As of the fiscal year ended June 30, 2019, the City of Orange has deferred outflows and deferred inflows of resources related to pensions as follows: Miscellaneous Plan Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $8,889,983 -- Change of Assumptions 904,267 $(803,069) Differences between Expected and Actual Experiences -- (1,041,899) Net Difference between Projected and Actual Earnings on Pension Plan Investments 383,858 -- Total $10,178,108 $(1,844,968) Safety Plan Deferred Outflows of Resources Deferred Inflows of Resources Pension contributions subsequent to measurement date $14,630,050 -- Change of Assumptions 14,844,911 $(1,774,174) Differences between Expected and Actual Experiences 2,072,497 (2,359,043) Net Difference between Projected and Actual Earnings on Pension Plan Investments 977,478 -- 39 Total $32,524,936 $(4,133,217) $23,520,033 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ended June 30, 2020. Amounts reported as deferred outflows and deferred inflows of resources related to pensions will be recognized in future pension expense as shown on the following table: Miscellaneous Plan Safety Plan Fiscal Year ended June 30: Deferred Outflows/(Inflows) of Resources Deferred Outflows/(Inflows) of Resources 2020 $2,604,065 $10,902,362 2021 182,852 7,396,039 2022 (2,628,546) (3,583,232) 2023 (715,214) (953,500) 2024 and thereafter -- -- At June 30, 2019, the City had no outstanding amount of contributions to the pension plan required for the year ended June 30, 2019. The tables below show the historic required City contribution from fiscal years 201 8-19 to 2020-21 and projected City contributions for fiscal years 2021-22 to 2023-24, as reported in the annual valuation reports provided by CalPERS. The projections are based on various assumptions, which actuarial assumptions are subject to periodic review and revisions. Actual contributions will be subject to such revisions. For the tables below, “Normal Cost” means the annual cost of service accrual for the upcoming fiscal year for active employees. “UAL” means Unfunded Accrued Liability. When a plan or pool’s value of assets is less than its Accrued Liability (i.e., the total dollars needed as of the valuation date to fund all benefits earned in the past for current members), the difference is the plan or pool’s Unfunded Accrued Liability (or unfunded liability). If the unfunded liability is positive, the plan or pool will have to pay contributions exceeding the Normal Cost. Miscellaneous Plan Required Contribution Projected Future Employer Contribution(1) 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Normal Cost % 10.875% 11.543% 12.410% 12.4% 12.4% 12.4% UAL Payment $6,271,908 $7,286,697 $7,933,826 $8,793,000 $9,479,000 $9,888,000 _______________________ (1) Assumes 7.00 percent return for fiscal year 2018-19, but see discussion above regarding certain assumptions used by CalPERS. Safety Plan Required Contribution Projected Future Employer Contribution(1) 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 Normal Cost % 18.572% 19.306% 20.392% 20.4% 20.4% 20.4% UAL Payment $9,157,459 $10,797,646 $11,971,214 $13,424,000 $14,641,000 $15,397,000 _______________________ (1) Assumes 7.00 percent return for fiscal year 2018-19, but see discussion above regarding certain assumptions used by CalPERS. 40 See “BONDOWNERS’ RISKS - COVID-19 Pandemic” for information regarding the potential impact of the COVID-19 outbreak on the City’s unfunded pension liability. See also “INTRODUCTION - COVID-19 Impact.” See Note 6 to the audited financial statements in “APPENDIX F - CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019” for additional information regarding the City’s pension plan. Other Post-Employment Benefits Other Than Pensions Plan Descriptions. The City administers an Agent Multiple-Employer defined benefit post- employment healthcare plan for eligible City retirees and their dependents through the California Public Employees' Retirement System (CalPERS). Retirees from the City enrolled in the Public Employees Medical and Hospital Insurance Program (PEMHCA), who retire at age 50 or later and have at least 5 years of service in the CalPERS system are eligible for these benefits. These health insurance benefits are authorized through City Resolutions/Memorandas of Understanding defining health care benefits and contribution levels and through the contractual agreement between the City and CalPERS. The City currently contributes $136 per month for each retiree and the retiree is responsible for the balance of the premium amount. Employees Covered. As of the June 30, 2017 actuarial valuation, the following current and former employees were covered by the benefit terms under the plan: Inactive employees or beneficiaries currently receiving benefits 269 Active employees 621 Total 890 Total OPEB Liability. The City’s OPEB liability of $32,490,025 was measured as of June 30, 2018 and was determined by an actuarial valuation as of June 30, 2017. 41 Actuarial Assumptions and Other Inputs. The total OPEB liability as of the June 30, 2017 actuarial valuation was determined using the following actuarial assumptions and other inputs, applied to all periods included in the measurement, unless otherwise specified: Valuation Date June 30, 2017 Measurement Date June 30, 2018 Actuarial Cost Method Entry-Age Normal , Level % of Salary Actuarial Assumptions: Discount Rate 3.62% Inflation 2.50% Projected Salary Increase 2.75%; Additional merit based increases based on CalPERS Merit Salary Increase Table Expected Long Term Investment Rate of Return 3.50% Health Care Cost Trend Rates 6.5% in first year, trending down to 3.84% over 58 years Pre-retirement Turnover Derived from CalPERS OPEB Assumption Model, revised December 20, 2017 Mortality Rate Derived from CalPERS OPEB Assumption Model, revised December 20, 2017 The discount rate used to measure the total OPEB liability is 3.62%. The City’s OPEB Plan is an unfunded plan, therefore the discount rate was set to the rate of tax exempt, high-quality 20-year municipal bonds, as of the valuation date. Changes in Total OPEB Liability. The changes in the OPEB liability are as follows: Total OPEB Liability Balance as of June 30, 2017 (Measurement Date) $31,590,309 Changes in the Year: Service Cost 1,360,032 Interest on the total OPEB liability 1,119,120 Changes in assumptions (371,560) Contribution - employer (427,427) Implicit subsidy fulfilled (780,449) Net Changes 899,716 Balance at June 30, 2018 (Measurement Date) $32,490,025 Sensitivity of the Total OPEB Liability to Changes in the Discount Rate The following presents the total OPEB liability of the City, calculated using the discount rate for the Plan, as well as what the City’s total OPEB liability would be if it were calculated using a discount rate that is 1 percentage point lower or 1 percentage rate higher than the current rate: Discount Rate - 1% (2.62%) Current Discount Rate (3.62%) Discount Rate + 1% (4.62%) 42 Total OPEB Liability $37,187,190 $32,490,025 $28,608,144 Sensitivity of the Total OPEB Liability to Changes in the Healthcare Cost Trend Rates. The following presents the total OPEB liability of the City, as well as what the City’s total OPEB liability would be if it were calculated using healthcare cost trend rates that are 1 percentage point lower or 1 percentage rate higher than the current healthcare cost trend rates: 1% Decrease 5.50% Decreasing to 2.84% Current Healthcare Cost Trend Rates 6.50% decreasing to 3.84% 1% Increase 7.50% Decreasing to 4.84% Total OPEB Liability $27,917,149 $32,490,025 $38,227,151 OPEB Expense and Deferred Outflows of Resources Related to OPEB Deferred Outflows of Resources Contributions subsequent to measurement date $466,929 Implied subsidy 838.946 Total Deferred Outflows $1,305,875 Deferred Inflows of Resources Changes in assumptions (amortized over 7.9) $324,527 The $1,305,875 reported as deferred outflows of resources related to contributions subsequent to the measurement date will be recognized as a reduction of the total OPEB liability in the year ended June 30, 2020. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized as OPEB expense as follows: Year Ending June 30 Amount 2020 $(47,033) 2021 (47,033) 2022 (47,033) 2023 (47,033) 2024 (47,033) Thereafter (89,362) For additional information regarding the City’s OPEB plan, see Note 8 to the audited financial statements in APPENDIX F - “CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019.” THE AUTHORITY The Orange City Public Facilities Financing Authority is a joint powers authority established pursuant to the Bond Law and a Joint Exercise of Powers Agreement, dated as of March 19, 2020, by and 43 between the City and the California Statewide Communities Development Authority. The Authority is qualified to assist in the financing or refinancing of certain public improvements and to issue the Bonds under the Bond Law. The Authority has no taxing power. Under the Bond Law, the Authority may purchase bonds issued by any local agency at public or negotiated sale and may sell bonds to public or private purchasers at public or negotiated sale. The Authority is governed by a five-member board of directors, which consists of the Mayor and the other members of the City Council of the City of Orange. The Mayor acts as the Chair of the Authority, the City Manager as its Executive Director, the City Clerk as its Secretary and the Treasurer of the City as its Treasurer. The Authority and the City are each separate and distinct legal entities, and the debts and obligations of each such entity are not debts or obligations of the other entity. BONDOWNERS’ RISKS Investment in the Bonds involves elements of risk. The following section describes certain specific risk factors affecting the payment and security of the bonds. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the bonds and the order of discussion of such risks does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information in this official statement in evaluating the bonds. There can be no assurance that other risk factors not discussed under this caption will not become material in the future. COVID-19 Pandemic The spread of COVID-19 is having significant negative impacts throughout the world, including in the City, County and State. See “INTRODUCTION - COVID-19 Impact.” The City, County and State have all declared states of emergency on March 17, 2020, February 26, 2020 and March 4, 2020, respectively. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak to be a pandemic and on March 13, 2020, the President of the United States declared a national state of emergency. The purpose behind these declarations is to coordinate and formalize emergency actions across federal, state and local governmental agencies, and to proactively prepare for a wider spread of the virus. To date there have been a number of confirmed cases of COVID -19 and the deaths caused by COVID-19 in the City and County. The outbreak has resulted in the imposition of restrictions on gatherings and temporary closings of non-essential businesses, schools and universities. Such impacts may lead to business failures. In addition, the United States is restricting certain non-US citizens and permanent residents from entering the country. Further, stock markets in the United States and globally have been volatile, with significant realized and unrealized losses in investment portfolios attributed to COVID-19 concerns. Potential impacts to the City associated with the COVID-19 outbreak include, but are not limited to, disruption of the regional and local economy due to decreased commercial activity, with corresponding decreases in the City’s major revenues, including but not limited to, sales tax, transient occupancy tax and property tax, and increased costs of City operations. In addition, CalPERS has reportedly lost significant value in its investments as a result of declines in the stock market, which could result in a significant increase in the City’s unfunded pension liability. See the captions “CITY FINANCIAL INFORMATION—Budget Summary - Potential Impacts of COVID-19 Pandemic,” “—Sales Taxes - Potential Impacts of COVID-19 Pandemic,” “—Property Taxes - Potential Impacts of COVID-19 Pandemic,” and “—Pension Plans”. The ultimate impact of COVID-19 on the City’s operations and finances is difficult to predict due to the evolving nature of the COVID-19 transmission, including uncertainties relating to the duration and severity of the outbreak, and what actions will be taken by governmental authorities to contain or mitigate the outbreak or to treat its impact. [Confirm - As of the date of this Official Statement, the City does not believe that the impacts of the spread of COVID-19 will prevent the City from making Base Rental Payments when due.] 44 Limited Obligations with Respect to the Bonds The Bonds are limited obligations of the Authority payable from Revenues, which primarily consist of Base Rental Payments payable by the City under the Sublease and amounts on deposit from time to time in the funds and accounts held by the Trustee. If for any of the reasons described herein, or for any other reason, the Base Rental Payments are not sufficient to pay debt service on the Bonds, the Authority will be obligated to utilize money on deposit in the funds and accounts established under the Indenture. The obligation of the City to pay Base Rental Payments and Additional Rental Payments under the Sublease also constitute a current expense of the City payable from any legally available funds. The Authority has no taxing power. The obligation of the City to pay Base Rental Payments and Additional Rental Payments under the Sublease does not constitute an obligation of the City for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to make Base Rental Payments under the Sublease does not constitute a debt or indebtedness of the City, the Authority, the State or any of its political subdivisions within the meaning of any constitutional or statutory debt limitations. Abatement The obligation of the City under the Sublease to pay Base Rental Payments and Additional Rental Payments is in consideration for the use and possession of the Leased Properties. Except to the extent provided in the Sublease, the obligation of the City to pay Base Rental Payments and Additional Rental Payments due under the Sublease will be abated in accordance with the Sublease during any period in which, by reason of damage, destruction, condemnation or impairment of leasehold interest, there is substantial interference with the use and occupancy by the City of all or such portion of the Leased Properties. The Sublease provides that the amount of abatement will be in an amount agreed upon by the City and Authority such that the resulting rental payments in any year during which such interference continues does not exceed the fair rental value of the portions of the Leased Properties as to which such damage, destruction, condemnation or impairment do not substantially interfere with the City’s use and possession. Such abatement will continue for the period commencing with the date of such interference and ending with the restoration of the relevant Leased Properties to tenantable condition. Except as provided in the Sublease, in the event of such damage, destruction or taking, the Sublease will continue in full force and effect and the City waives any right to terminate the Sublease by virtue of any such damage, destruction or taking. See “SECURITY FOR THE BONDS – Abatement.” The spread of COVID-19 has resulted in the imposition of restrictions on mass gatherings, temporary closings of non-essential businesses and schools (including within the City) and implementation of stay at home orders for citizens to remain at home except for certain essential purposes. See “INTRODUCTION - COVID-19 Impact” and “BONDOWNERS’ RISKS – COVID-19 Pandemic.” These restrictions limit public access to certain City-owned facilities that include portions of the Leased Properties but will not cause Base Rental payments to be abated under the Sublease. Risk of Uninsured Loss The Sublease obligates the City to procure and maintain throughout the term of the Sublease, various forms of insurance, to assure repair of the Leased Properties in the event of damage or destruction to the Leased Properties. The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy required to be procured and maintained by the Sublease. Certain risks, such as damage from earthquakes, may not be covered by such property insurance. The City does not currently maintain and is not required to maintain earthquake insurance. In the event the Leased Properties are partially or completely damaged or destroyed due to any uninsured or underinsured event, it is likely that Base Rental Payments will be partially or completely 45 abated. Apart from the Net Insurance Proceeds, the City will have no obligation to expend any funds to repair or replace such damaged or destroyed property. City General Fund The Base Rental Payments and other payments due under the Sublease are payable from funds lawfully available to the City. A variety of national, state or regional factors, which are beyond the control of the City could reduce the City’s General Fund revenues or increase the City’s General Fund expenditures. See for example, the discussion under “-COVID-19 Pandemic” above. The City is permitted to enter into other obligations which constitute additional charges against its revenues without the consent of Owners of the Bonds. If the amounts which the City is obligated to pay in a fiscal year exceed the City’s revenues for such year, the City may choose to make some payments rather than making other payments, including Base Rental Payments, based on the perceived needs of the City. The same result could occur if, because of California Constitutional limits on expenditures, the City is not permitted to appropriate and spend all of its available revenues or is required to expend available revenues to preserve the public health, safety and welfare. See “CITY FINANCIAL INFORMATION” for a more detailed discussion of revenues deposited in and expenditures from the City’s General Fund. Also see “LIMITATIONS ON REVENUES AND APPROPRIATIONS – Appropriations Limitations: Article XIIIB.” Additional Obligations The City may incur additional obligations payable from the City’s General Fund. Such additional obligations would increase debt service payable from the City’s General Fund and could adversely affect debt service coverage with respect to the Base Rental Payments. See “SECURITY FOR THE BONDS - Additional Bonds.” State Finances The State’s financial condition and budget policies affect communities and local public agencies throughout California. A number of the City’s revenues are collected and dispersed by the State (such as sales tax and motor-vehicle license fees) 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, 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. State budgets are affected by regional, national or even international economic conditions and a multitude of other factors over which the City has no control. The City cannot give any assurances regarding the financial conditions of the State during any period of time. Some of the State’s budget solutions have caused in the past, and may cause in the future, increased financial stress to cities, counties and other local governments by: (i) decreasing local revenues (for example, the property tax, road improvement funding, public safety or other categorical funded initiatives), or (ii) increasing directly or indirectly demand for local programs (such as public safety or indigent health programs). In recent years, the State has faced significant financial and budgetary stress. AB X1 26 enacted in 2011, pursuant to which all redevelopment agencies in the State were dissolved, was enacted during the Fiscal Year 2011-12 budget process and was just one example where cities and counties throughout the State were significantly impacted. Even though Calif ornia has experienced significantly improved fiscal condition during the past few fiscal years, the State is still facing continuing financial challenges and unfunded long-term liabilities. According to the State Constitution, the Governor is required to propose a budget to the State Legislature by no later than January 10 of each year, and a final budget must be adopted by the vote of each house of the Legislature no later than June 15, although this deadline has been frequently breached in the past. The State budget becomes law upon the signature of the Governor, who may veto specific items of 46 expenditure. The Governor signed the Fiscal Year 2019-20 budget for the State on June 27, 2019 and on January 10, 2020, introduced a proposed 2020-21 State budget. The City does not anticipate any material adverse effect on the City’s finances based on the Fiscal Year 2019-20 State budget or the Fiscal Year 2020- 21 proposed State budget. However, the City can make no predictions regarding the changes, if any, that will be made to the proposed budget before it is finally adopted, particularly in light of the effects of COVID-19 pandemic. The City also cannot predict what measures the State will adopt to respond to any future financial difficulties. The City can provide no guarantees regarding the outcome of future State budget negotiations, the actions that will be taken in the future by the State Legislature and Governor to deal with changing State revenues and expenditures, or the impact that such budgets or a ctions will have on the City’s finances and operations. Information about the State budget and State spending is available at various State-maintained websites. Text of proposed and adopted budgets may be found at the website of the State Department of Finance, www.dof.ca.gov. An analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca.gov. In addition, various official statements for State-issued bonds, many of which contain a summary of the current and past State budgets may be found at the website of the State Treasurer, www.treasurer.ca.gov. None of the websites referenced above is in any way incorporated into this Official Statement. They are cited for informational purposes only. The City makes no representation concerning, and does not take any responsibility for, the accuracy or timeliness of information posted on such websites or the continued maintenance of such websites by the respective entities. Natural or Manmade Disasters The occurrence of any natural or manmade calamity, including but not limited to an earthquake, uncontrolled fire or a major flood, may result in the substantial interference with the use and occupancy of the Leased Properties, which could result in Base Rental Payments being subject to abatement. Under such circumstances, although the City maintains property insurance and rental interruption insurance and is required to continue to maintain such insurance under the Sublease (see “SECURITY FOR THE BONDS – Abatement; Insurance”), no assurance can be given that the insurance or other resources would be available to make repairs to the Leased Properties or to make Base Rental Payments under the Sublease. Furthermore, substantial damage to property located in the City could lead to successful appeals for reduction of assessed values of such property, impacting property tax revenues, or also cause interruption of commercial activities, impacting sales tax and other revenues. For more information, see the Public Safety Element of the City’s General Plan on file with the City Clerk. The City, like most regions in the State, are subject to a risk of damage from unpredictable seismic activity. The City is located in a seismically active area. Several significant historical events (5.8 magnitude or greater on the Richter scale) have affected Orange County in the last 100 years. According to the City’s Safety Element of the General Plan, the City is not located within a designated earthquake fault zone. However, other regional faults could produce earthquakes which may impact the City. Overall, the possibility of ground acceleration or shaking in the City is considered similar to the southern California region as a whole. Aside from structural damage, earthquake activity can produce other types of adverse effects such as landslides, subsidence/settlement, and liquefaction. Portions of the City are within 100-year flood plains, according to Federal Emergency Management Agency maps. Parts of the City are considered to be susceptible to flood events from either a major storm or a dam failure resulting from a significant earthquake. Dams are present along Santiago Creek at two locations: Villa Park Dam and Santiago Dam (Irvine Lake). Both are located in the foothills of eastside of the City. Peters Canyon Dam is located within Peters Canyon about two miles west of Irvine Lake. Unlike Santiago Creek, which flows generally northwest, Peters Canyon drains to the south in this area. Prado Dam is another nearby dam. Areas below (downstream from) these dams, including large areas within the City, have high potential for inundation in the unlikely event of catastrophic dam failure. These dams and their reservoirs prevent periodic flooding that would be expected to occur in a natural setting. 47 Fire and its destructive potential are safety concerns within both the urban areas of the City and the undeveloped hillsides. Wildland fires are most problematic along the developed residential fringes of the hillsides, known as the wildland-urban interface. On a seasonal basis, dry vegetation, little seasonal rain, and Santa Ana wind conditions combine to increase wildfire potential. Newer developments, particularly in the eastern portion of City, may be subject to fire hazard due to higher level of interface between resi dential development and open grassland and vegetation along hillsides. The City has strived to keep neighborhoods buffered from both urban and wildland fire hazards to reduce incidents requiring response, and minimize damage to property when fires do occur. In addition, urban fire hazards are always a concern for industrial areas. Hazardous Substances The City knows of no existing hazardous substances which require remedial action on or near the Leased Properties. However, it is possible such substances do currently or may in the future exist and that the City is not aware of them. Owners and operators of real 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 whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly and adversely affect the operations and finances of the City, may result in the reduction in the assessed value of property, and therefor property tax revenue. Cybersecurity The City, like many other public and private entities, relies on a large and complex technology environment to conduct its operations. As a recipient and provider of personal, private, or sensitive information, the City is subject to multiple cyber threats including, but not limited to, hacking, viruses, malware and other attacks on computer and other sensitive digital networks and systems. Entities or individuals may attempt to gain unauthorized access to the City’s digital systems for the purposes of misappropriating assets or information or causing operational disruption and damage. [Confirm - To date, the City has not experienced an attack on its computer operating systems which resulted in a breach of its cybersecurity systems that are in place. The City has implemented measures to protect against cybersecurity attacks, but no assurances can be given that the City’s efforts to manage cyber threats and attacks will be successful or that any such attack will not materially impact the operations or finances of the City.] Limited Recourse on Sublease Default If an event of default occurs and is continuing under the Sublease, there is no remedy of acceleration of any Base Rental Payments which have not come due, and no right for the Authority to terminate the Sublease. The remedy provided for in the Sublease is to exercise any action at law or in equity necessary or desirable to collect the amounts due under the Sublease. In addition, if on November 1, 20__, the City is in default with respect to any Base Rental Payment, the Expiration Date of the Sublease will be automatically extended to ____ 1, 20__. Limitations on Remedies; Bankruptcy Remedies available to the Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest and premium, if any, on the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and the Indenture to the extent that enforce ability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditor’s rights, by equitable principles and by the 48 exercise of judicial discretion. Additionally, the Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Indenture. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay in the exercise of, or limitations on or modifications to, the rights of the Owners. Enforceability of the rights and remedies of the Owners, and the obligations incurred by the Authority or the City, may become subject to the United States Bankruptcy Code (the “Bankruptcy Co de”) and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter 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 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. Bankruptcy proceedings, or the exercise of related powers by the federal or State government, if initiated, could subject the Owners 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. Bankruptcy of the City. Under Chapter 9 of the United State Bankruptcy Code (Title 11, United States Code) (the “Bankruptcy Code”), which governs bankruptcy proceedings of public entities such as the City, no involuntary bankruptcy petition may be filed against a public entity; however, upon satisfaction of certain prerequisite conditions, a voluntary bankruptcy petition may be filed by the City. If the City is in a Chapter 9 bankruptcy proceeding, parties may be prohibited from taking any action to collect any amount from the City or to enforce any obligation of the City, unless the bankruptcy court grants permission to take such action. This prohibition may also prevent the Trustee from making payments to the Owners from funds in the Trustee’s possession. In the event of a City bankruptcy filing, the City may be able to borrow additional money that is secured by a lien on any of its property, including the sources of funds for payment to the Trustee of the assigned Base Rental Payments and Additional Rental payments under the Sublease (including, without limitation, the General Fund of the City and funds deposited in the General Fund), which lien could have priority over the pledges made under the Indenture, so long as the bankruptcy court determines that the rights of the Owners will be adequately protected. The City may also be able to cause some of the Base Rental Payments and Additional Rental payments to be released to it, free and clear of the lien of the Indenture, so long as the bankruptcy court determines that the rights of the Owners will be adequately protected. The City may be able, without the consent and over the objection of the Trustee and the Owners, to alter the priority, interest rate, principal amount, payment terms, collateral, maturity dates, payment sources, covenants (including tax-related covenants), and other terms or provisions of the Indenture and the Bonds, so long as the bankruptcy court determines that the alterations are fair and equitable. The City is informed that CalPERS (the City’s pension system) has significant unfunded liabilities, and the City is unable to predict what the amount of unfunded liabilities will be in the future or the amount of contributions that the City may be required to make. In a bankruptcy of the City, the amounts of current and, if any, accrued (unpaid) contributions owed to CalPERS or any other pension system (collectively the “Pension Systems”), as well as future material increases in required contributions, reduce the City’s ability to pay Base Rental and Additional Rental payments. Given that municipal pension systems in California are usually administered pursuant to State constitutional provisions and, as applicable, other state and/or city law, the Pension Systems may take the position, among other possible arguments, that (1) their claims enjoy a priority over all other claims, (2) Pension Systems are instrumentalities of the State and have the right to enforce payment by injunction or other proceedings outside of a City bankruptcy case, and (3) their claims cannot be the subject of adjustment or other impairment under the Bankruptcy Code because that would purportedly constitute a violation of state statutory, constitutional and/or municipal law. It is uncertain how a bankruptcy judge in a bankruptcy of the City would rule on these matters. In addition, this area of law is 49 unsettled because issues of pension underfunding claim priority, pension contribution enforcement and related bankruptcy plan treatment of such claims (among other pension -related matters) are presently the subject of litigation in the Chapter 9 cases of several Califor nia municipalities, but did not result in appellate rulings giving definitive guidance on these matters. Recharacterization of the Lease and the Sublease as a Financing Arrangement. In bankruptcy proceedings, a bankruptcy court is not required to accept the characterization of an agreement as a “lease,” but will look to the economic realities of the transaction as a whole. In the event the City files for bankruptcy, a bankruptcy court could determine that each of the Lease and the Sublease is either (1) an unexpired lease or executory contract (defined below) under Section 365 (“Section 365”) of the Bankruptcy Code (a “True Lease”) or (2) part of a loan or other financing arrangement secured by a lien (a “Financing Arrangement”). The Bankruptcy Code specifies different treatment for True Leases and Financing Arrangements. In bankruptcy proceedings, courts have been required to determine whether arrangements with features similar to the Lease and the Sublease were True Leases or Financing Arrangements. There are court decisions arising out of bankruptcy proceedings that have found certain relationships to be disguised Financing Arrangements, where a government agency granted an interest in property to an entity and then leased that interest back and where the terms of the lease relate not to the market value of the property leased but to bond financing, e.g., the lease-back is in exchange for payments equaling bond debt service and related costs and/or the term of the lease is tied to the final payment on the relevant bonds. There can be no guarantee that a bankruptcy court would not recharacterize the Lease and the Sublease together as a Financing Arrangement. If a bankruptcy court did so, the payment obligations of the City might be substantially reduced. A borrower in a bankruptcy proceeding that has given a security interest in property in connection with a Financing Arrangement may retain such property, provided that it make payments over time giving the lender the economic value of the security interest. If such economic value is less than the balance due on the debt in the Financing Arrangement, the difference is then treated as an unsecured debt. In the case of the City, were the Lease and the Sublease to be determined to be part of a Financing Arrangement, the City would very likely be permitted to remain in possession of the Leased Properties if it made payments for that right, but the amount required to be paid is primarily dependent upon the value of the Trustee’s security interest under the Indenture, not the payment terms of the Sublease. Therefore, there is a risk that payment will be delayed or reduced from the amounts specified in the Sublease, even if the value of the Trustee’s security interest is greater than the amount of the debt o wed by the City. Treatment of the Lease and the Sublease as True Leases. Section 365 requires an entity in bankruptcy to make considered decisions either to keep (“assume”) or repudiate (“reject”) its “executory” contracts (that are as yet incomplete as to both parties’ performances), and its leases. Section 365 thus requires that a lessee under a True Lease must either (1) assume the lease or the executory contract and fully perform all of its obligations or (2) reject such lease or executory contract and surrender the Leased Properties. In the event of a bankruptcy case with respect to the City in which a bankruptcy court determined that the Lease and the Sublease were each a True Lease or executory contract, the City would then have these two options. Assuming the Sublease would require that the City cure all monetary defaults (including any unpaid amounts due under the Sublease) and most non-monetary defaults, if any. The City would also have to provide adequate assurance that defaults would not occur in the future. If the Sublease is treated as a True Lease by a bankruptcy court and the City rejects the Sublease, the rights of the Trustee (and thus the Owners) to receive Base Rental Payments and Additional Rental Payments would be terminated. Under such circumstances, the Owners could suffer substantial losses, and any claim for damages may be significantly limited. Rejection of the Sublease could result in a claim for damages against the City in connection with the Bonds that would rank as a general unsecured debt of the City. In the 50 event of such rejection of the Sublease, the amount of any corresponding claim could also likely be limited by the cap on landlord claims provided in the Bankruptcy Code, i.e., to the Base Rental Payments payable under the Sublease (without acceleration) for the greater of one year or 15% of the remaining term of the Sublease, but not to exceed three years, following the earlier of (a) the date the bankruptcy petition was filed, and (b) the date on which the City surrendered (voluntarily or involuntarily) the Leased Properties, plus any unpaid Base Rental Payments and Additional Rental Payments under the Sublease (without acceleration) existing on the earlier of such dates. Thus, if the Sublease is treated as a True Lease under Section 365 and rejected in a bankruptcy of the City, the damage claim could be severely limited resulting in reduced funds available to pay the Bonds. In addition, payments by a lessee within 90 days prior to a bankruptcy filing may be deemed to be “avoidable preferences” under the Bankruptcy Code. Accordingly, payments made pursuant to the Sublease could be subject to recapture in a bankruptcy of the City, subject to certain defenses that may be available to the Authority or the Trustee. There may be delays in payments with respect to the Bonds while the bankruptcy 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 with respect to the Bonds, or result in losses to the Owners. Actions could be taken in a bankruptcy of the City that could adversely affect the exclusion of interest evidenced by the Bonds from gross income for federal income tax purposes. Regardless of any specific adverse determinations in a bankruptcy proceeding of the City, the mere commencement of such a bankruptcy proceeding could have an adverse effect on the liquidity and market value of the Bonds. Bankruptcy of the Authority. The Authority could potentially become a debtor in a bankruptcy case. In a bankruptcy case of the Authority, the legal principles and risks discussed above, in connection with a bankruptcy case filed by the City, would apply, with uncertain consequences to the Owners. Because the Authority is not assigning all its rights under the Lease and the Sublease to the Trustee, if the Authority became the subject of a bankruptcy proceeding, the Authority may be able to obtain authorization from the bankruptcy court to sell to a third party all rights under the Lease and the Sublease, including the Base Rental Payments and Additional Rental Payments, free and clear of rights of the Trustee and the Owners. While the Trustee (and thus the Owners) would be entitled to receive the value of the Base Rental Payments and Additional Rental Payments as determined by the bankruptcy court, the bankruptcy court’s valuation may be substantially different that the value placed on such payments by the Owners, and the Owners may suffer a loss. The Trustee and the Owners would be prohibited from taking any action to enforce any of their respective rights or remedies against the Authority or its property, unless the permission of the bankruptcy court was first obtained. This could prevent the Trustee from making payments to the Owners from funds in the possession of the Trustee. In addition, the provisions of the transaction documents that require the City to make payments directly to the Trustee, rather than to the Authority, may no longer be enforceable, and all payments may be required to be made to the Authority. There may be delays in payments on the Bonds while the bankruptcy court considers any of these issues. There may be other possible effects of a bankruptcy of the Authority that could result in delays or reductions in payments with respect to the Bonds, or result in losses to the Owners. Actions could be taken in a bankruptcy of the Authority that could adversely affect the exclusion of interest evidenced by the Bonds from gross income for federal income tax purposes. Regardless of any specific adverse determinations in a bankruptcy proceeding of the Authority, the mere commencement of such a bankruptcy proceeding could have an adverse effect on the liquidity and market value of the Bonds. 51 Loss of Tax Exemption As discussed under the caption “TAX MATTERS” below, interest on the Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Bonds were issued as a result of future acts or omissions of the Authority or the City in violation of their respective covenants in the Sublease and the Indenture. Should such an event of taxability occur, the Bonds are not subject to a special redemption and will remain outstanding until maturity or until prepaid under the prepayment provisions contained in the Indenture. The Internal Revenue Service (the “IRS”) has initiated an expanded program for the auditing of tax- exempt bond issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit by the IRS. It is also possible that the market value of the Bonds might be affected as a result of such an audit of the Bonds (or by an audit of similar obligations). Legislation affecting the tax exemption of interest on the Bonds may be considered by the United States Congress and the State legislature. Federal and state court proceedings and the outcome of such proceedings could also affect the tax exemption of interest on the Bonds. No assurance can be given that legislation enacted or proposed, or actions by a court, after the date of issuance of the Bonds will not have an adverse effect on the tax exemption of interest on the Bonds or the market value of the Bonds. Early Redemption Risk Early prepayment of the Base Rental Payments and redemption of the Bonds may occur in whole or in part without premium, on any date if the Leased Properties or a portion thereof is damaged or destroyed beyond repair or taken by eminent domain (see “THE BONDS - Redemption - Extraordinary Redemption”), or if the City exercises its right to prepay Base Rental Payments in whole or in part pursuant to the provisions of the Sublease and the Indenture. Investment of Funds All funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See “APPENDIX C – SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS.” All investments, including Permitted Investments, authorized by law from time to time for investments by the Authority contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected, decline in market value and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture could have a material adverse effect on the security for the Bonds. Future Initiative and Legislation As discussed under “LIMITATIONS ON REVENUES AND APPROPRIATIONS,” California’s Constitutional initiative process has resulted in the adoption of measures which pose certain limits on the ability of cities and local agencies to generate revenues, through property taxes or otherwise. From time to time, other initiative measures could be adopted, affecting the City’s ability to generate revenues and to increase appropriations. No assurances can be given as to the potential impact of any future initiative or legislation on the finances and operations of the City. Split Roll Initiative. An initiative measure (the “Split Roll Initiative”) to amend Article XIIIA (Proposition 13) has qualified for the State’s November 2020 ballot. If adopted, the Split Roll Initiative would base property taxes for commercial and industrial properties on market values beginning in tax year 2020-21. Such market values would be reassessed by the applicable county assessor’s office at least once every three years. The Split Roll Initiative includes exceptions for businesses with a total market value of less than $2 million (adjusted for inflation), which would continue to be subject to property taxes based on purchase price, and exempts from property tax assessments up to $500,000 of the value of personal property, 52 or all personal property for businesses with fewer than 50 employees. There can be no assurance that the Split Roll Initiative will be adopted. Moreover, if the Split Roll Initiative is adopted, the City is unable to predict how it would affect the level of commercial building activity within the City and the relationship of the assessed value between land use types (i.e. residential versus commercial) in the City, or what other impacts the Split Roll Initiative might have on the local economy. Secondary Market There can be no assurance that there will be a secondary market for the Bonds, or if a secondary market exists, that such Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, pricing of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could substantially differ from the original purchase price. LIMITATIONS ON REVENUES AND APPROPRIATIONS There are a number of provisions in the State of California Constitution that limit the ability of the City to raise and expend revenues. Contained below is a description of some of these limitations. In addition to the ones discussed in this section below, other initiative measures could be adopted from time to time further affecting the City’s revenues and finances. Property Tax Limitations - Article XIIIA California voters, on June 6, 1978, approved an amendment (commonly referred to as “Proposition 13” or the “Jarvis-Gann Initiative”) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property 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 when purchased, newly constructed, or a change in ownership has occurred aft er the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. Article XIIIA further limits the amount of any ad valorem tax on real property to one percent of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in August 1986 by initiative that exempts from the one percent limitation any bonded indebtedness approved by two -thirds of the votes cast by voters for the acquisition or improvement of real property. On December 22, 1978, the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Amador Valley Joint Union School District v. State Board of Equalization). In the general election held on November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amended Article XIIIA. Proposition 58 amended Article XIIIA to provide that the terms “purchased” and “change of ownership,” for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amended Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60. 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, to provide that there 53 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 minor or technical ways. Article XIIIA Implementing Legislation Legislation has been enacted and amended a number of times since 1978 to implement Article XIIIA. Under current law, local agencies are no longer permitted to levy directly any property tax (except to pay voter-approved indebtedness). The one percent property tax is automatically levied by the county and distributed according to a formula among taxing agencies. The formula apportions the tax roughly in proportion to the relative shares of taxes levied prior to 1978. Increases of assessed valuation resulting from reappraisals of property due to new construction, change in ownership or from the two percent annual adjustment are allocated among the various jurisdictions in the “taxing area” based on their respective “situs.” Any such allocation made to a local agency continues as part of its allocation in future years. Beginning in the 1981-82 fiscal year, assessors in California no longer record property values on tax rolls at the assessed value of 25 percent of market value, which was expressed as $4 per $100 of assessed value. All taxable property is now shown at full market value on the tax rolls. Consequently, the tax rate is expressed as $1 per $100 of taxable value. Unless otherwise noted, all taxable property value included in this Official Statement (unless noted differently) is shown at 100 percent of market value and all tax rates reflect the $1 per $100 of taxable value. Challenges to Article XIIIA California trial and appellate courts have upheld the constitutionality of Article XIIIA’s assessment rules in three significant cases. The United States Supreme Court, in an appeal to one of these cases, upheld the constitutionality of Article XIIIA’s tax assessment system. The City cannot predict whether there will be any future challenges to California’s present system of property tax assessment and cannot evaluate the ultimate effect on the City’s receipt of property tax revenues should a future decision hold unconstitutional the method of assessing property. Appropriations Limitations: Article XIIIB On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. Article XIIIB limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the government entity. The “base year” for establishing such appropriations limit is the 1978-79 fiscal year, and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in the cost of services provided by these public agencies. Revenues received in excess of the appropriations limit must be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years. Propositions 218 and 26: Article XIIIC and Article XIID On November 5, 1996, California voters approved Proposition 218, “the Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the California Constitution, providing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments, and property- related fees and charges. Provisions of Article XIIIC (i) require taxes for general governmental purposes to be submitted to the electorate and approved by a majority vote, and taxes for specific purposes, even if deposited into the General Fund, to be submitted to the electorate and approved by two -thirds vote, (ii) require any general 54 purpose tax which the City imposed, extended or increased, without voter approval, after December 31, 1994, to be submitted to the electorate and approved by majority vote on November 5, 1998 and (iii) provide that all taxes, assessments, fees and charges to reduction or repeal at any time through the initiative process, subject to overriding constitutional principles relating to the impairment of contracts. Provisions of Article XIIID that affect the ability of the City to fund certain services or programs that it may be required or choose to fund include (ii) adding notice, hearing, protest and, in some cases, voter approval requirements to impose, increase or extend certain assessments, fees and charges and (ii) adding stricter requirements for finding individualized benefits associated with such levies. On November 2, 2010, California voters approved Proposition 26, the "Supermajority Vote to Pass New Taxes and Fees Act." Relevant to local governments, Proposition 26 amended Article XIIIC of the California Constitution by adding an expansive definition for the term "tax," which previously was not defined under the California Constitution. As a result, Proposition 26 requires a local government to obtain two-thirds voter approval for many fees, charges and levies that a local government was previously authorized to adopt by a majority vote of its legislative body. Specifically, Proposition 26 defines a "tax" as any levy, charge, or exaction of any kind imposed by a local government except those enumerated in seven specified exceptions, as follows: (1) A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. (2) A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. (3) A charge imposed for the reasonable regulatory costs to a local government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof. (4) A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property. (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law. (6) A charge imposed as a condition of property development. (7) Assessments and property-related fees imposed in accordance with the provisions of Article XIII D. In the event that charges included in the definition of a “tax” in Article XIIIC canno t be appropriately increased, the City may have to choose whether to reduce or eliminate the service financed by such taxes or finance such service from its General Fund. Further, no assurance can be given that the City mayor will be able to reduce or eliminate such services in the event the fees and charges that presently finance them are reduced or repealed. The foregoing discussion of Propositions 218 and 26 should not be considered an exhaustive or authoritative treatment of the provisions of Propositions 218 and 26 or the possible effects of Propositions 218 and 26. Interim rulings, final decisions, legislative proposals and legislative enactments affecting Propositions 218 and 26 may impact the City’s ability to make Rental Payments. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity related to these issues. The City does not believe any of the fees or charges constituting City General Fund revenues are imposed in violation of Propositions 218 or 26. 55 Proposition 62 On November 4, 1986, California voters adopted Proposition 62, which requires that (i) any local tax for general governmental purposes (a “general tax”) must be approved by a majority vote of the electorate; (ii) any local tax for specific purposes (a “special tax”) must be approved by a two-thirds vote of the electorate; (iii) any general tax must be proposed for a vote by two -thirds of the legislative body; and (iv) proceeds of any tax imposed in violation of the vote requirements must be deducted from the local agency’s property tax allocation. Most of the provisions of Proposition 62 were affirmed by the 1995 California Supreme Court decision in Santa Clara County Local Transportation Authority v. Guardino, which invalidated a special sales tax for transportation purposes because fewer than two-thirds of the voters voting on the measure had approved the tax. The City does not believe any of the taxes constituting City revenues are levied in violation of Proposition 62. Unitary Property AB 454 (Chapter 921, Statutes of 1986) provides that revenues derived from most utility property assessed by the State Board of Equalization (“Unitary Property”), commencing with the 1988-89 fiscal year, will be allocated as follows: (i) each jurisdiction will receive up to 102 percent of its prior year State - assessed revenue; and (ii) if county-wide revenues generated from Unitary Property are less than the previous year’s revenues or greater than 102 percent of the previous year’s revenues, each jurisdiction will share the burden of the shortfall or benefit of the excess revenues by a specified formula. This provision applies to all Unitary Property except railroads, whose valuation will continue to be allocated to individual tax rate areas. 56 The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties nor a revision of the methods of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county. Proposition 1A On November 2, 2004, California voters approved Proposition 1A, which amends the State Constitution to significantly reduce the State’s authority over major local government revenue sources. Under Proposition 1A, the State may not (i) reduce local sales tax rates or alter the method of allocating the revenue generated by such taxes, (ii) shift property taxes from local governments to schools or community colleges, (iii) change how property tax revenues are shared among local governments without two-third approval of both houses of the State Legislature, or (iv) decrease Vehicle License Fees revenues without providing local governments with equal replacement funding. Beginning in Fiscal Year 2008 -09, the State may shift to schools and community colleges a limited amount of local government property tax revenue if certain conditions are met, including (a) a proclamation by the Governor that the shift is needed due to a severe financial hardship of the State, and (b) approval of the shift by the State Legislature with a two-thirds vote of both houses. Under such a shift, the State must repay local governments for their property tax losses, with interest, within three years. Proposition 1A does allow the State to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the Vehicle License Fee rate currently in effect, which is 1.15% of vehicle value effective July 1, 2011, the State must provide local governments with equal replacement revenues. Further, Proposition 1A required the State, beginning March 1, 2006, to suspend State mandates affecting cities, counties and special districts, schools or community colleges, except mandates relating to employee rights, in any year that the State does not fully reimburse local governments for their costs of comp liance with such mandates. The 2020-21 proposed budget of the State did not include any Proposition 1A diversion. ABSENCE OF LITIGATION To the Authority’s and the City’s knowledge, there is no litigation pending or threatened to restrain or enjoin the issuance, execution or delivery of the Bonds, to contest the validity of the Bonds, the Indenture, the Lease, the Sublease or any proceedings of the City or the Authority with respect thereto. In the opinion of the Authority and its counsel, there is no lawsuit or claim pending against the Authority which will materially impair the Authority’s ability to enter into the Indenture or restrain or enjoin the collection of Revenues as contemplated therein. In the opinion of the City and the City Attorney, there is no lawsuit or claim pending against the City which will materially impair the City’s ability to enter into the Sublease or restrain or enjoin the payment of Base Rental Payments. CONTINUING DISCLOSURE The City has undertaken for the benefit of holders and beneficial owners of the Bonds to provide certain financial information relating to the City and other data by not later than March 31 after the close of each fiscal year, commencing March 31, 2021 with the report for Fiscal Year 2019-20 (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of significant events will be filed by ___, as the Dissemination Agent on behalf of the City, with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the Annual Report or the notices of enumerated events is set forth in “APPENDIX E – FORM OF CONTINUING DISCLOSURE AGREEMENT.” This undertaking has been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the “Rule”) promulgated by the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended. The City has previously entered into continuing disclosure agreements in connection with its prior bond issuances. 57 Continuing Disclosure History. Prior to the printing of this Official Statement, an examination was conducted of the continuing disclosure filings by the City during the past five years. The result of such examination indicated a few instances of filing delays. The portion of the annual filings comprised of updated information of certain tables and portions of the Official Statement for the: (1) $33,450,000 Orange Redevelopment Agency Orange Merged and Amended Redevelopment Project Area 2008 Tax Allocation Bonds, Series A and $6,180,000 Orange Redevelopment Agency Orange Merged and Amended Redevelopment Project Area 2008 Taxable Tax Allocation Refunding Bonds, Series B, and (2) $28,850,000 Orange Redevelopment Agency Orange Merced and Amended Redevelopment Project Area 2014 Tax Allocation Refunding Bonds, Series A, that were each due March 31, 2016, were both filed one day late, on April 1, 2016. Similarly, the updated information of certain tables and portions of the Official Statement for the: (1) $28,810,000 City of Orange Community Facilities District No. 91-2 (Serrano Heights Public Improvements) 2013 Special Tax Refunding Bonds, and (2) $23,920,000 Community Facilities District No. 06-1 (Del Rio Public Improvements) 2015 Special Tax Refunding Bonds, that were each due March 1, 2017, were both filed on March 7, 2017. The City believes that their procedures with the Dissemination Agent are sufficient in the normal due course to assure substantial compliance with its continuing disclosure undertakings in the future. A failure by the City to comply with the provisions of the Continuing Disclosure Agreement is not an event of default under the Indenture (although the holders and beneficial owners of the Bonds do have remedies at law and in equity). However, a failure to comply with the provisions of the Continuing Disclosure Agreement must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds. Therefore, a failure by the City to comply with the provisions of the Continuing Disclosure Agreement may adversely affect the marketability of the Bonds on the secondary market. CERTAIN LEGAL MATTERS The legality of the issuance of the Bonds will be subject to the approval of Richards Watson & Gershon, a Professional Corporation, Los Angeles, California, as Bond Counsel. Bond Counsel’s opinion with respect to the Bonds will be substantially in the form set forth in APPENDIX B of this Official Statement. In addition, certain other legal matters will be passed on by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, as Disclosure Counsel. TAX MATTERS The Internal Revenue Code of 1986, as amended (the “Code”), establishes certain requirements which must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause interest on the Bonds to be included in gross income for federal income tax purposes retroactive to their date of issue. These requirements include, but are not limited to, provisions which limit how the proceeds of the Bonds may be spent and invested, and generally require that certain investment earnings be rebated on a periodic basis to the United States of America. The City and the Authority have made certifications and representations and have covenanted to maintain the exclusion of the interest on the Bonds from gross income for federal income tax purposes pursuant to Section 103 of the Code. In the opinion of Richards, Watson & Gershon, a Professional Corporation, Bond Counsel, under existing law and assuming the accuracy of such certifications and representations by, and compliance with such covenants of, the City and the Authority, (i) interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Code, and (ii) the Bonds are not “specified private activity bonds” within the meaning of Section 57(a)(5) of the Code and, therefore, interest on the Bonds is not a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. Bond Counsel is also of the opinion that, under existing law, interest on the Bonds is exempt from 58 State of California personal income taxes. Bond counsel expresses no opinion as to any other tax consequences regarding the Bonds. Under the Code, interest on the Bonds may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. Under the Code, the exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals otherwise eligible for the earned income tax credit. The applicability and extent of these and other tax consequences will depend upon the particular tax status or other tax items of the owner of the Bonds. Bond Counsel will express no opinion regarding these and other such consequences. Bond Counsel has not undertaken to advise in the future whether any circumstances or events occurring after the date of issue of the Bonds may affect the tax status of interest on the Bonds. Legislation affecting tax-exempt obligations is regularly considered by the United States Congress and may also be considered by the State legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of obligations such as the Bonds. No assurance can be given that legislation enacted or proposed, or actions by a court, after the date of issue of the Bonds, will not contain provisions which could eliminate, or directly or indirectly reduce the benefit of the exclusion of interest on the Bonds from gross income for federal income tax purposes, or have an adverse effect on the market value or marketability of the Bonds. For example, federal tax legislation enacted on December 22, 2017, reduced corporate tax rates, modified individual tax rates, eliminated many deductions, repealed the corporate alternative minimum tax for taxable years beginning after December 31, 2017, and generally eliminated tax-exempt advance refunding bonds, among other things. This legislation may increase, reduce, or otherwise change the financial benefits currently provided to certain owners of state and local government bonds. In addition, investors in the Bonds should be aware that future legislative actions may retroactively change the treatment of all or a portion of the interest on the Bonds for federal income tax purposes for all or certain taxpayers. In all such events, the market value of the Bonds may be adversely affected and the ability of holders to sell their Bonds in the secondary market may be reduced. The Bonds are not subject to special mandatory redemption, and the interest rates on the Bonds are not subject to adjustment, in the event of any such change. Investors should consult their own financial and tax advisors to analyze the importance of these risks. Certain requirements and procedures contained or referred to in relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any Bond, or the interest thereon, if any such change occurs or action is taken upon the advice or approval of bond counsel other than Richards, Watson & Gershon, A Professional Corporation. If the issue price of a Bond (the first price at which a substantial amount of the bonds of a maturity are sold to the public) is less than the stated redemption price at maturity of such Bond, the difference constitutes original issue discount, the accrual of which is excluded from gross income for federal income tax purposes to the same extent as interest on the Bonds. Further, such original issue discount accrues actuarially on a constant yield method over the term of each such Bond and the basis of each Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount may be taken into account as an increase in 59 the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Bonds. Purchasers who acquire Bonds with original issue discount are advised that they should consult with their own independent tax advisors with respect to the state and local tax consequences of owning such Bonds. If the issue price of a Bond is greater than the stated redemption price at maturity of such Bond, the difference constitutes original issue premium, the amortization of which is not deductible from gross income for federal income tax purposes. Original issue premium is amortized over the period to maturity of such Bond based on the yield to maturity of that Bond (or, in the case of a Bond callable prior to its stated maturity, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on that Bond), compounded semiannually. For purposes of determining gain or loss on the sale or other disposition of such Bond, the purchaser is required to decrease such purchaser’s adjusted basis in such Bond by the amount of premium that has amortized to the date of such sale or other disposition. As a result, a purchaser may realize taxable gain for federal income tax purposes from the sale or other disposition of such Bond for an amount equal to or less than the amount paid by the purchaser for that Bond. A purchaser of that Bond in the initial public offering at the issue price for that Bond who holds it to maturity (or, in the case of a callable Bond, to its earlier call date that results in the lowest yield on that Bond) will realize no gain or loss upon its retirement. Payments of interest on tax-exempt obligations, including the Bonds, are generally subject to IRS Form 1099-INT information reporting requirements. If an owner of a Bond is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the exclusion of such interest from gross income for federal income tax purposes. Prospective purchasers of the Bonds should consult their own independent tax advisers regarding pending or proposed federal and state tax legislation and court proceedings, and prospective purchasers of the Bonds at other than their original issuance at the respective prices indicated on the inside cover of this Official Statement should also consult their own tax advisers regarding other tax considerations such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion. Bond Counsel’s engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Authority or the owners of the Bonds regarding the tax status of interest thereon in the event of an audit examination by the IRS. The IRS has a program to audit tax-exempt obligations to determine whether the interest thereon is includible in gross income for federal income tax purposes. If the IRS does audit the Bonds, under current IRS procedures, the IRS will treat the Authority as the taxpayer and the beneficial owners of the Bonds will have only limited rights, if any, to obtain and participate in judicial review of such audit. Any action of the IRS, including but not limited to selection of the Bonds for audit, or the course or result of such audit, or an audit of other obligations presenting similar tax issues, may affect the market value of the Bonds. A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix B. UNDERWRITING The Underwriter has agreed, subject to certain conditions, to purchase the Bonds at a purchase price of $_____ (equal to the principal amount of the Bonds, plus/less original issue premium/discount of $_____ and less an underwriter’s discount of $_____). The Underwriter intends to offer the Bonds to the public initially at the prices set forth on the inside cover page of this Official Statement, which prices may subsequently change without any requirement of prior notice. 60 RATING S&P Global Ratings (“S&P”) has assigned a rating of “__” to the Bonds. S&P’s rating reflects only the views of such organization and any explanation of the significance of such rating may be obtained from S&P. There is no assurance such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of the ratings may have an adverse effect on the market price of the Bonds. FINANCIAL STATEMENTS The City’s Comprehensive Annual Financial Report for fiscal year ended June 30, 2019, which includes the City’s 2018-19 financial statements and the Independent Auditor’s Report issued by White Nelson Diehl Evans LLP, Certified Public Accountants, Irvine, California, (the “Auditor”) regarding such financial statements, is set forth in APPENDIX F. The Auditor was not requested to consent to the inclusion of its report in APPENDIX F and it has not undertaken to update financial statements included in APPENDIX F. No opinion is expressed by the Auditor with respect to any event subsequent to its report. MISCELLANEOUS All of the preceding description and summaries of the Bonds, the Indenture and the Sublease, other applicable agreements, legislation and other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. This Official Statement does not constitute a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or of 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. The Authority and the City have duly authorized the execution and delivery of this Official Statement by their duly authorized officers. ORANGE CITY PUBLIC FACILITIES FINANCING AUTHORITY By: Executive Director CITY OF ORANGE By: City Manager A-1 APPENDIX A ADDITIONAL GENERAL INFORMATION REGARDING THE CITY OF ORANGE The following information concerning the City of Orange (“City”) and the surrounding area is included only for the purpose of supplying general information regarding the community. Population The following table shows the estimated population growth for the City, the County of Orange and the State of California (the “State”) for the years shown: City, County and State Population Growth Calendar Years 1980, 1990, 2000, 2010, 2015-2020 Calendar Year(1) City of Orange % Change from Prior Period Orange County % Change from Prior Period State of California % Change from Prior Period 1980 91,000 17.62%(2) 1,919,400 35.05%(2) 23,782,000 18.68%(2) 1990 110,100 20.99 2,398,400 24.96 29,558,000 24.29 2000 128,253 16.49 2,831,799 18.07 33,721,583 14.09 2010 136,237 6.22 3,008,855 6.25 37,223,900 10.39 2015 140,167 2.88 3,155,578 4.88 38,952,462 4.64 2016 140,186 0.01 3,174,945 0.61 38,379,842 (1.47) 2017 140,411 0.16 3,199,509 0.77 39,504,609 2.93 2018 141,116 0.50 3,213,275 0.43 39,740,508 0.60 2019 140,410 -0.50 3,192,987 -0.63 39,695,376 -0.11 2020 140,065 -0.20 3,194,332 0.04 39,782,870 0.22 __________ Source: State of California Department of Finance. (1) As of January 1 of each year. (2) Percent change since 1970. Major Employers The following table sets forth the top ten major employers located in the City during 2019. CITY OF ORANGE MAJOR EMPLOYERS (2019) Name Employees Type of business or entity UCI Medical Center 4,800 Medical Center CHOC Children’s Hospital 3,500 Medical Center St. Joseph Hospital of Orange 2,900 Medical Center Chapman University 1,235 Education Santiago Canyon College 950 Education CalOptima Health Plans 930 Healthcare American Advisors Group (AAG) 869 Reverse Mortgage Loans Western Dental Services, Inc. 730 Dental Services City of Orange 729 Local Government AECOM Technology Corp 541 Infrastructure Construction _______________ Source: City of Orange, Comprehensive Annual Financial Report — For the Year Ending June 30, 2019. A-2 Construction Activity The following table presents construction permit valuations for the City for the calendar years shown. City of Orange Construction Permits Calendar Years 2014-2018 Residential Commercial/Industrial Year Permits Issued Valuation Permits Issued Valuation Total Valuation 2015 2016 2017 2018 2019 Source: City of Orange. Employment and Industry According to the State of California Employment Development Department, the [April] 2020 preliminary estimated unemployment rates for the City, the County and the S tate were [12.4] percent, [13.6] percent and [16.1] percent, respectively. See “BONDOWNERS’ RISKS - COVID-19 Pandemic”. The following table shows certain employment statistics for the City and the County for calendar years shown. City of Orange City, County and State Employment Statistics Calendar Years 2015 through 2019(1) Orange City Orange County State Year Labor Force Employed Unemployment Rate Unemployment Rate Unemployment Rate 2015 71,700 68,700 4.2% 4.5% 6.2% 2016 72,100 69,300 4.0 4.0 5.5 2017 72,200 69,700 3.4 3.5 4.8 2018 72,300 70,100 3.0 3.0 4.2 2019 72,500 70,500 2.7 2.8 4.0 _____________ (1) Not seasonally adjusted. March 2019 benchmark. Source: State of California, Employment Development Department. A-3 The following table summarizes the historical numbers of workers by industry in the Anaheim- Santa Ana Irvine Metropolitan Division (which covers Orange County) for the last five years: Anaheim-Santa Ana-Irvine MD (Orange County) Industry Employment & Labor Force - by Annual Average Category 2015 2016 2017 2018 2019 Civilian Labor Force 1,584,300 1,597,300 1,607,800 1,617,900 1,623,400 Civilian Employment 1,513,500 1,532,700 1,551,500 1,569,800 1,578,300 Civilian Unemployment 70,800 64,500 56,300 48,100 45,100 Civilian Unemployment Rate 4.5% 4.0% 3.5% 3.0% 2.8% Total Farm 2,400 2,400 2,100 2,000 1,900 Total Nonfarm 1,545,900 1,585,800 1,618,700 1,651,200 1,672,500 Total Private 1,389,500 1,426,200 1,458,500 1,490,000 1,509,600 Goods Producing 249,900 255,900 263,000 267,400 266,700 Mining, Logging and Construction 92,100 97,700 102,300 106,800 106,800 Mining and Logging 400 300 500 500 500 Construction 91,700 97,400 101,800 106,300 106,400 Manufacturing 157,800 158,200 160,700 160,700 159,800 Durable Goods 116,100 116,200 117,500 118,500 118,700 Nondurable Goods 41,800 42,000 43,200 42,200 41,100 Service Providing 1,296,000 1,329,900 1,355,700 1,383,800 1,405,900 Private Service Providing 1,139,600 1,170,300 1,195,500 1,222,600 1,242,900 Trade, Transportation & Utilities 257,400 258,500 260,500 261,600 259,400 Information 24,900 26,000 26,800 26,700 26,100 Financial Activities 116,400 118,000 119,600 118,700 117,400 Professional & Business Services 289,200 299,300 304,400 317,000 328,200 Educational & Health Services 198,900 206,200 215,900 224,700 231,800 Leisure & Hospitality 203,800 212,000 218,100 222,600 228,000 Other Services 48,900 50,500 50,300 51,400 52,000 Government 156,400 159,600 160,200 161,200 162,900 Total, All Industries 1,548,300 1,588,300 1,620,800 1,653,200 1,674,400 ________________ Note: The "Total, All Industries" data is not directly comparable to the employment data found herein. Data may not add due to rounding. Source: State of California, Employment Development Department, Labor Market Information Division, Anaheim- Santa Ana-Irvine Metropolitan Division (Orange County), Industry Employment & Labor Force - by Annual Average, March 2019 Benchmark. A-4 Median Household Income The following table shows the estimated median household income for the City, County, the State and the United States for the years shown. City of Orange, Orange County, California and the United States Median Household Income(1) Calendar Years 2014 through 2018 Year City County State United States 2014 $77,086 $75,998 $61,489 $53,482 2015 78,513 76,500 61,818 53,889 2016 79,192 78,145 63,783 55,322 2017 83,500 81,851 67,169 57,652 2018 96,027 85,398 71,228 60,293 ________________ (1) Estimated. Inflation adjusted based on corresponding year. Source: U.S. Census Bureau, American Community Survey. B-1 APPENDIX B FORM OF OPINION OF BOND COUNSEL Upon issuance of the Bonds, Richards Watson & Gershon, a Professional Corporation, Bond Counsel, proposes to render its final approving opinion in substantially the following form: [to come] C-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE PRINCIPAL LEGAL DOCUMENTS D-1 APPENDIX D DTC’S BOOK-ENTRY ONLY SYSTEM The information in this APPENDIX Concerning The Depository Trust Company (“DTC”), New York, New York, and DTC’s book-entry system has been obtained from DTC and neither the Authority nor the City takes responsibility for the completeness or accuracy thereof. The Authority and the City cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with 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 certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. 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. Acce ss 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. The information set forth in such website is not incorporated herein by reference. 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 ea ch 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 inter ests 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 Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. D-2 To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping accou nt 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). Principal, premium (if any), and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the 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. Principal, premium (if any), and interest payments with respect to the Bonds 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. 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, certificates representing the Bonds 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, representing the Bonds will be printed and delivered to DTC in accordance with the provisions of the Indenture. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the City and the Authority believe to be reliable, but the City and the Authority take no responsibility for the accuracy thereof. E-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT F-1 APPENDIX F CITY OF ORANGE COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2019