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SR-0 (87) CITY OF SANTA MONICA City Council Judy Abdo, Mayor Ken Censer, Mayor Pro Tempore Robert T Holbrook Herbert Katz KeIly Olsen Antonio Vazquez Denrns T. Zane City Manager John Jalili DlTector of Finant:e Charles M. Denms Director of General Servlces Stanley E. Scholl Intenm Utihties Manager F. J. Schroeder City Attorney Robert M. Myers Deputy City Attorney Linda A Moxon City Treasurer Ralph E. Bursey City Clerk Oance Dykhouse Bond Counsel Omck, Hernngton & SutclIffe Los Angeles, CalIfOrnIa Rate Consultant Kennedy /Jenks/Chilton Ventura, CaIiforma Financial Advisor Connell and Associates Los Angeles, California Trustee Bank of Amenca Nahonal Trost and Savings Assocrahon Los Angeles, California No dealerl broker, salesperson or other person has been authorized by the City of Santa Monica to give information or make representations other than those contamed herein andl if given or made, such other information or representation must not be relied on as having been authorized by the City. The information in "DESCRIPTION OF THE BONDS-Book-Entry Only System" herein has been furnished by The Depository Trust Company and no representation is made by the City or the Financial Advisor as to the completeness or accuracy of such information. [The information in the section "OTHER INFORMA TION-Munidpal Bond Insurance" herein has been furnished by Insurance Company and no representation IS made by the City or the Financial Advisors as to the completeness or accuracy of such information.] 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 oHerl solicitation or sale. TABLE OF CONT~S Pa2"e APPENDIX B APPENDIX C APPENDIX D APPENDIX E APPENDIX F INTRODUCTION General Terms _ . The City and the Enterpnse DESCRIPTION OF THE 1991 SERIES A BONDS _ General Terms .. Redemption ProvIsions Book-Entry Only System APPLICATION OF 1991 SERIES A BOND PROCEEDS THE PROJECT SECURITY FOR THE 1991 SERIES A BONDS Source of Payment Pledge of Revenues Rate Covenan t Reserve Fund Addlhonal Bonds Insurance BONDOWNERS' RISKS THE ENTERPRISE Local System Hypenon Plant REVENUES AND DEBT SERVICE COVERAGE Sewer Rates and Revenues H1stonca1 Sewer Rates and Charges Rate Setting Process BulIng and Collechon Cash Receipts and Thsbursements OperatIon and Maantenance Expenses Pro Forma Statement of Revenues and Expenditures Outstandmg Bonded Indebtedness . Annual Debt Service Reqwrements Analysis of Debt Service Coverage REGULA TORY REQUIREMENTS TAX EXEMPTION OTHER INFORMATION LItigation _ _ Legal Opmion . MUniCIpal Bond Insurance Ratings LlJIlltation of Remedies ...... u u_ u FinanCIal Advisor .. .. u. FlIIancial Statements . .. . .... ..... . .. u... MiscellaneoU! .... . .. . APPENDIX A Combmed Financial Statements, Combrmng Balance Sheets - All EnteIpnse Funds, and Independent Auchtors' Report for the Year Ended June 30, 1990. and Unaudlted Balance Sheets - Wastewater Enterpnse for the Year Ended June 30, 1991 Summary of Wastewater Revenue and Rate Analysis. Summary of Certam ProvlSlons of the Indenture The City of Santa MOnica. .... ... ... Form of Opmion of Bond Counsel Specimen MumClpal Bond Insurance Pohcy .... ....... ... .... .. . .. .. OFFIQAL STATEMENT $331980,000" CITY OF SANTA MONICA WASTt.WATER Th'TERPRISE REVENUE BONDS (HYPERION PROJECT) 1991 SERIES A INTRODUCTION General This OffICial Statement, mcludmg the cover page and appendIces, IS furmshed In connectIon With the issuance by the CIty of Santa MOnica, CahfomIa (the "CIty") of Its $33,980,000- Wastewater Enterpnse Revenue Bonds, (Hypenon Project), 1991 Senes A (the "1991 Series A Bonds") The 1991 Senes A Bonds are bemg issued pursuant to SectIon 400 of the CIty Charter of the City of Santa MOnica and Chapter 6.5 of ArtIcle II of the Mumopal Code of the Gty, relatmg to revenue bonds, incorporatmg certam provlS]Ons of the Revenue Bond Law of 1941, bemg Chapter 6 of DIVISIon 2 of Title 5 of the Cahforrua Government Code, and under the provisIons of the Indenture, dated November 1, 1991 (the "Indenture"), by and between the CIty and Bank of Amenca NatIonal Trust and Savmgs AsSOCiation, as Trustee (the 'Trustee"). The 1991 Series A Bonds and any AddI bonal Bonds (as defined In AppendIX C) issued under and secured by the Indenture are herem referred to as the ''Bonds'' CertaIn capItahzed terms used herein have the meaning as set forth m APPENDIX C, "Summary of CertaIn ProVlS]Ons of the Indenture," hereto. The 1991 Senes A Bonds are specIal obhgahons of the CIty payable solely from the Revenues (as defmed herem) and other amounts held by the Trustee, as proVlded In the Indenture, The General Fund of the Gty IS not hable, and the credIt or taxmg power of the CIty IS not pledged for the payment of the 1991 Senes A Bonds or theIr mterest. The Owners of the 1991 Series A Bonds shall never have the nght to compel the exerCIse of the taxmg power of the City or the forfeiture of any property of the CIty. The principal of and mterest on the 1991 Senes A Bonds and any prenuums upon the redemptIon of any thereof shall not be a debt of the City, nor a legal or eqmtable pledge, charge, lIen or encumbrance upon any property of the City or upon any of Its mcome, receIpts or revenues except the Revenues, and other amounts held by the Trustee, pledged to the payment thereof as proVIded In the Indenture. The City and the Enterprise The City was Incorporated In 1886 and adopted its Gty Charter In 1945 In 1947 a Counol-Manager form of government was estabhshed follOWIng a vote of the CIty'S residents and approval by the CalIforma Legtslature. The City IS situated on the western SIde of Los Angeles County, bordered by the City of Los Angeles on three Sides and by the PaCIfIC Ocean to the west. Santa Momca encompasses an area shghtly greater than eIght square rmles and has an estImated current population of 86,900, winch makes ]t the SIxteenth largest CIty In Los Angeles County. The "Enterprise" COnsIsts of the whole and each and every part of the mUnicipal wastewater collectIon, treatment and disposal system of the City, includmg the CIty'S interest in the Hyperion Plant (as defmed herem) pursuant to the Hypenon Agreement (as defined herein), and all additions, betterments and extenSIOns to said wastewater system or any part thereof The term "Hyperion Plant" means the Hyperion Treatment Plant and appurtenant faCUltIes located at 12000 Vista del Mar, Los Angeles, CalIfOrnIa, together WIth any wastewater collectIon, treatment and dIsposal faCIlIties related to the Hyperion Plant, and In WhICh facIlItIes the City has an mterest pursuant to the Hypenon Agreement, and any alteration, expansion, Improvement, relocation, replacement or reconstructIon thereof. The Tenn "Hypenon Agreement" means the Jomt Powers Agreement, made and entered Into February 21, 1964, by and between The CIty of Los Angeles ("Los Angeles") "Prehrmnary; subject to change. 1 .. and the CIty governIng the treatment of sewage at the Hyperion Plant, and as such agreement may be amended, modIfied or restated and Includes any agreement between such partIes governmg the treatment of sewage at the Hypenon Plant that replaces or supersedes the eXIsting HyperlOn Agreement The Hypenon Agreement provIdes, among other thIngs, that the City may dIscharge certam permItted sewage flows Into the sewerage system of Los Angeles, and that Los Angles wIll convey such sewage to the Hypenon Plant for treatment and dISposal. The term "Local System" means all of the Enterprise except the CIty's mterest m the Hypenon Plant The Local System IS managed by the City'S Department of General SerVices, Uhhhes OffIce. The operahon of the Local System Involves clearung, Inspecting and repainng approximately 125 miles of sarutary sewers, 20 mIles of storm drams and 825 catch baSInS as well as a pumpmg plant The system serves an eight square mile area with a populatIon of approXImately 86,900. The Uhhhes OffIce IS also responsible for implemenhng and enforcmg the City'S Industnal Waste Control Program. ThiS Involves Inspecting and samplmg approximately 900 CIty busmesses in order to ensure that discharges to the CIty'S sewer and storm drams remam WIthm the acceptable standards of the CIty of Santa MOnIca, Los Angeles, and the state and federal governments. In addluon, In support of the Enterpnse, the Environmental Programs DIVISion, created m FIscal Year 1989-90, IS responsible for developmg and Implemenbng water/wastewater and energy conservahon programs and for the admimstrahon of the Oty's enVIronmental ordInances. The EnVironmental Programs DIvisIOn reSides 10 the CIty Manager's OffIce and is parbally funded by the Revenues (as defmed herein). Los Angeles is the planning agency, pnnClpal owner and operator of the HyperlOn Plant In February, 1987, Los Angeles entered mto an amended consent decree With the Uruted States Government and the State of CalIforma, whereIn Los Angeles agreed to upgrade the degree of treatment at the Hypenon Plant This followed. an earlIer consent decree requmng that Los Angeles dIscontInue the discharge of sewage sludge mto the ocean Both the ongInal and amended consent decrees were necessItated by federal and state regulatory requIrements relating to the elInunatIon of dIscharges of pollutants mto naVIgable waters. TIus Offtclal Statement containS bnef descnptions of, among other th1Ogs, the 1991 Senes A Bonds, the Indenture, the City and the ProJed (as defmed herem) Such descriptions do not purport to be comprehensive or defInItIve All references 10 thIS OffICIal Statement to documents are qualIfied In then entIrety by references to such documents and references to the 1991 Senes A Bonds are quahhed In their entirety by reference to the form of 1991 Series A Bond mduded 10 the Indenture For certain financial informatIon WIth respect to the CIty and the Enterpnse see APPENDIX A, "Combmed F10anclal Statements and Combmmg Balance Sheets - All EnterprIse Funds," hereto. For a diSCUSSIon of governmental, demographIc, and econonuc mfonnabon with respect to the City, see APPENDIX D, "The City of Santa Moruca," hereto. Caples of the Indenture and addItional information may be obtamed upon request from the Ofhce of the CIty Manager, CIty of Santa Momca, 1685 Mam Street, Santa Moruca, Cahfornla 90401 DESCRIPTION OF lEE 1991 SERIES A BONDS General Terms The 1991 Series A Bonds WIll be ISSUed m the aggregate pnnopal amount of $33,980,000", wIll bear mterest at the rates per annum and WIll mature in the pnncipal amounts In each year (subject to pnor redemptIon), as set forth on the cover page hereof. The 1991 Senes A Bonds WIll be ISSUed. m fully registered form and, when ISSUed, wIll be regtstered in the name of Cede & Co., as nominee of The DepoSItory Trust Company, New York, New York ("OTC"). DTC will act as securihes depository for the 1991 Senes A Bonds IndlVldual purchases wIll be made m book~ntry form Purchasers will not receive cerhfIcates representing then mterest m the Bonds. So long as Cede & CO. IS the registered owner of the 1991 Senes A Bonds, as normnee of DTC, references herem to the bondholders or regtstered owners of the 1991 Senes A Bonds shall mean Cede & Co, as aforesaId, and shall not mean the BenefICIal Owners (as defined herem) of the 1991 Senes A Bonds. "Preliminary; subject to change. 2 , The 1991 Series A Bonds Wlll be dated November I, 1991 and bear interest from that date, payable on July I, 1992 and each January 1 and July 1 thereafter, calculated on the baSIS of a 360-day year conSIsting of twelve 30- day consecutIve months. Interest on each 1991 Senes A Bond shall be payable from the 10terest payment date next preceding the date of authenticatIon thereof unless It IS authentIcated as of a day during the penod from the 16th day of the month next preced10g any interest payment date to the Interest payment date, or unless It is authenticated on or before June 15, 1992,10 which event it shall bear mterest from November 1, 1991. The Interest on the 1991 Senes A Bonds shall be payable to the person whose name appears on the bond regtstrahon books of the Trustee as the Owner (as dehned in Appendix C) thereof as of the close of bUSIness on the 15th day of the month immediately precedmg an Interest payment date, whether or not such day IS a BUSIness Day (as defmed In AppendIX 0, such 10terest to be paId by check matled to such Owner at such address as he may have filed WIth the Trustee for that purpose. The pnnapal of and prenuum, If any, on the 1991 Series A Bonds shall be payable to the Owner thereof, upon the surrender thereof at the prinCIpal corporate trust offtce of the Trustee, in San Francisco, California. BenefIcial interests in the 1991 Series A Bonds will be avaIlable 10 denommatlons of $5,000 and mtegral multiples thereof. So long as Cede & Co. IS the regIstered owner of the 1991 Series A Bonds, pnnClpal of and mterest on the 1991 Senes A Bonds wIll be payable by the Trustee by WIre transfer of New York cleanng house or equivalent next day funds, to Cede & Co., as nommee for DTC. DTe will, in turn, remit such amounts to the DTC PartICIpants, as defined herem, for subsequent dIsbursement to the BenehClal Owners See "Book-Entry Only System" herem. Redemption Provisions Extraordmary Redemphon. The City has the nght, on any date, to redeem the 1991 Series A Bonds, as a whole, or m part by lot WIthin each maturity so that Annual Debt ServIce (as defmed in Appendix C) for aU years 10 whIch 1991 Senes A Bonds shall mature after such redemphon shall be as nearly equal as practical, from proceeds of InSurance or proceeds of eminent domaIn proceedIngs, upon the terms and condIbons of, and as prOVIded for in the Indenture, at the pnnclpal amount thereof and accrued interest thereon to the date fixed for redemptIon, without prenuum. Optional Redemption. 1991 Senes A Bonds due on or after January 1, 2003 are subJfCt to redemptIon pnor to therr respective stated matuntles, at the optIon of the City, from and to the extent of any source of avaIlable funds, as a whole on any date on or after January I, 2002, or In part on any Interest payment date on or after January 1,2002 of such maturities or portions of maturities and of such tenor as shall be determined by the CIty If less than all of the 1991 Series A Bonds are to be called for prior redemption and by lot Wlthm any such maturity and tenor if less than all of the 1991 Senes A Bonds of such matunty and tenor be redeemed, at the pnnclpal amount thereof and accrued mterest thereon to the date fIxed for redemptIon, plus a premIum (expressed as a percentage of such pnncIpal amount) as set forth m the followmg schedule' Bonds Redeemed On or After J anucu:;y 1 Prior to J anucu:;y 1 Premium 2002 2003 2004 2003 2004 and thereafter 2% 1% 0% The following prOVISions concerning mandatory sInkmg fund redemption are contaIned in the Indenture The actual principal amounts redeemable In any year, If any, WIll be determIned by btdders respondrng to the Notice InvIting Bids relattng to the 1991 Series A Bonds 3 , Mandatory Sinking Fund Redempbon 1991 5enes A Bonds matunng on January 1. 20 ("Term 1991 Senes A Bonds"), are further subject to redemptIon pnor to then respectIve stated maturities on each January 1 on or after January I, 20 , and by lot wttlun any such matunty If less than all of the 1991 Senes A Bonds of such matunty and tenor be redeemed, upon payment of the pnncipal amount thereof and accrued Interest thereon to the date fixed for redemptIon, Without premIUm, but only In amounts equal to, and In accordance WIth, the schedule of the pnnclpal amounts of 1991 Senes A Bonds to be redeemed In each such year as set forth below. January 1 Principal Amount of Term 1991 Series A Bonds to be Redeemed $ . .. Maturity If, pnor to November 1 In any year, Term 1991 Senes A Bonds shall have preVIously been redeemed or purchased by or on behalf of the Oty, and dehvered to the Trustee for cancellatIOn, in an amount m excess of the pnnClpal amount of the Term 1991 Senes A Bonds IdentIfied In the preceding paragraph, there shall be deemed to have been a reduction of the remamIng amounts stated In the preceding schedule on a ProportIOnate BaSIS (as defmed m AppendIX 0. Notice and Effect of Redemphon Notlce of redemptIon WIll be maIled by the Trustee, not less than 30 days nor more than 60 days pnor to the redemptIon date, to (i) the respectIve Owners of any 1991 Senes A Bonds deSIgnated for redempbon at theIr addresses appeanng on the bond registratIon books of the Trustee, (n) the SecuntIes Depositones (as defIned m AppendIX C) and (In) one or more Information ServIces (as defIned In AppendIX C). Each notice of redemptIon shall state the date of such notice, the 5enes of Bonds to be redeemed, the date of issue of the 1991 Senes A Bonds, the redemptIon date, the redemptIon pnce, the place or places of redemption (includmg the name and appropnate address or addresses of the Trustee), the CUSIP number (If any) of the maturity or matunhes, and, If less than all of any such matunty is to be redeemed, the dIstInctIve certIficate numbers of the 1991 Senes A Bonds of such matunty, to be redeemed, and m the case of 1991 Senes A Bonds to be redeemed in part only, the respectIve portIons of the principal amount thereof to be redeemed. Each such notIce will also state that on saId date there WIll become due and payable on each of said 1991 Senes A Bonds the pnncIpal amount thereof or of said specified porhon of the pnncipal amount thereof In the case of a 1991 Senes A Bond to be redeemed In part only, together WIth Interest accrued thereon to the redemptIon date, and the prenuum, If any, thereon (such premium to be specifIed) and that from and after such redemptIon date interest thereon shall cease to accrue, and shall require that such 1991 5enes A Bonds be then surrendered at the address or addresses of the Trustee speoned m the redemptIon notice. FaIlure by the Trustee to gtve notice to anyone or more of the InformatIon Services or SecuntIes DepOSItories or the InsuffiCIency of any such notices shall not affect the sufficiency of the proceedmgs for redemptIon. NeIther faIlure by the Trustee to mall notIce of redemptIon to anyone or more of the respectIve Owners of any 1991 Senes A Bonds deSIgnated for redemptIon nor any defect in such notIce shall affect the suffiCiency of the proceedmgs for redemptIon WIth respect to the Owners to whom such notIce was mailed. When notIce of redemptIon has been duly gIVen as aforesaId, and moneys for payment of the redemphon pnce are held by the Trustee, the 1991 Series A Bonds so called for redemption shall, on the redemphon date deSIgnated in such notIce, become due and payable at the redemptIon pnce SpecIfIed m such notIce; and from and after the date so designated Interest on the 1991 Series A Bonds SO called for redempbon shall cease to accrue, saId 1991 Series A Bonds shall cease to be enbtled to any benefit or secunty under the Indenture, and the Owners of said 1991 Senes A Bonds shall have no rights in respect thereof except to receive payment of the redemptIon pnce thereof. 4 Book-Entry Only System The DepOSitory Trust Company, New York, New York ("OTe') wIll act as securities depository for the 1991 Senes A Bonds. The 1991 Senes A Bonds will be issued irntially In the form of separate, single, fully regtstered Bonds for each separate matunty, as set forth on the cover page, each In the aggregate principal amount of such matunty, and will be regtstered in the name of Cede & Co., as nOmInee for DTC DTC 15 a hmIted-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "cleanng corporatIon" wltlun the meamng of the New York Urnform CommerCial Code, and a "clearing agency" regIstered pursuant to the provlSlons of SectIon 17A of the SecuntIes Exchange Act of 1934, as amended. DTC was created to hold secunbes of its partiCIpants (the "DTe PartIcipants") and to faCilItate the clearance and settlement of securities transactIons among DTC Participants in such securities through electromc book-entry changes in accounts of the DTC PartIopants, thereby ehmInating the need for phYSical movement of secunbes certificates DTC Participants Include securitIes brokers and dealers, banks, trust compames, clearing corporations and certain other orgaruzations, some of whom (and/or their representatives) own DTe. Access to the DTC system IS also avaIlable to banks, brokers, dealers and trust compames that clear through or mamtaIn a custochal relationship with a DTe PartICipant, directly or mdIrectly. Ownership Interests m the 1991 Series A Bonds may be purchased by or through DTC Participants Such DTC Participants and the persons for whom they acquire mterests in the 1991 Senes A Bonds as nOmInees will not receive certificated Bonds, but each DTC PartICIpant wIll receive a credit balance In the records of DTC In the amount of the DTC Participant's mterest in the 1991 Senes A Bonds, wluch wIll be confirmed to such orc ParticIpant In accordance Wlth DTC's standard procedures. Each such person for which a DTe PartIcIpant acquires an interest in the 1991 Senes A Bonds, as nominee, may deSire to make arrangements with such DTC Parhcipant to receive a credIt balance In the records of such DTC ParbClpant, and may desire to make arrangements With such DTC ParticIpant to have all notIces of redemptIon or other commumcabons to OTC, wluch may affect such persons, to be forwarded in wntmg by such DTC Participant and to have notIncatlon made of all mterest payments. NEITHER THE CITY NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DTC PARTICIPANTS, OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (I) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC P ARTICIP ANT; (II) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO BONDHOLDERS UNDER THE INDENTURE, (ill) THE SELECTION BY DTC OR ANY ore P ARTICIP ANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE 1991 SERIES A BONDS; (IV) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIP AL OR REDEMPTION PREMIUM, IF ANY, OR INTEREST DUE WITH RESPECT TO THE 1991 SERIES A BONDS; OR (V) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER. In this OffiCIal Statement, the term "Beneficial Owner" shall mean the person for which the orc Partiopant acquires an interest m the 1991 Series A Bonds. So long as Cede & CO IS the regIstered owner of the 1991 Senes A Bonds, as nominee for DTC, references herein to the Bondholders, owners or registered owners of the 1991 Senes A Bonds shall mean Cede & Co., as aforesaid, and shall not mean BeneflC1al Owners of the 1991 Senes A Bonds DTC will receIve payments from the Trustee to be remItted to the orc PartIcipants who will In turn remIt such payment to the Beneficial Owners. The ownerslup mterest of each Beneficial Owner m the 1991 Series A Bonds wIll be recorded on the records of the DTC PartIcipants whose ownership mterest Will be recorded on a computenzed book~try system operated by DTe. When reference IS made to any achon which is requIred or permitted to be taken by the BenefICIal Owners, such reference shall only relate to those permitted to act (by statute, regulahon or othetwlse) on behalf of such Beneficial Owners for such purposes. When notices are gtven, they shall be sent by the City or Trustee to DTC only. The ore PartICIpants shall receJ.ve a credit balance m the records of DTC. The ownership interest of each purchaser of each 1991 Senes A Bond will be recorded through the records of the DTC PartIcIpant. Beneficial Owners will receive wntten cOnfIrmatIOn of theIr purchase detaIlmg the terms of the 1991 Series A Bonds acqurred. Transfers of ownershIp 10terests 10 the 1991 Senes A Bonds Will be accomphshed by book enmes 5 made by DTC and, in turn, by the DTC PartIcipants who act on behalf of the BenefiCIal Owners. BenefICIal Owners wIll not receive certIficates representIng theIr ownership interests In the 1991 Senes A Bonds, except as specIfIcally prOVIded In the Indenture Interest and pnncipal WIll be paId to DTC by the Trustee, then paid by DTC to the DTC ParhClpants and thereafter paid by the DTC PartICIpants to the BenefICIal Owners. For every transfer and exchange of the 1991 Senes A Bonds, or Interest thereIn, the BenefIClal Owners may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be Imposed In relation thereto. DTC may determine to discontinue prOVIdIng its servtces With respect to the 1991 Senes A Bonds at any time by givmg notIce to the Trustee and the G.ty and dischargIng Its responsIbIlItIes WIth respect thereto under apphcable law. Under such circumstances (]f there is not a successor secuntles depoSitory), bond certIfIcates wIll be delivered as descnbed in the Indenture. If the CIty detenmnes that It ]S In the best Interest of the Eeneflclal Owners that such owners be able to ohtilln bond certIfIcates, the G.ty shall notify OTC, and direct that DTC notIfy the DTC PartICipants, of the avaIlability of bond certIficates. In such event, the City or Its agent shall Issue transfer and exchange bond cerbflcates as requested by DTC and any other Eondholders in appropnate amounts. APPliCATION OF 1991 SERIES A BOl\'D PROCt::t:.lJS The proceeds of the 1991 Senes A Bonds (excludIng accrued mterest which wIll be depoSited to the Interest Fund) are to be applIed as follows. Sources: PnncIpal Amount of the 1991 Senes A Bonds ............ ........... $ Less Ongmal Issue DIscount(t) .......... ....... .. .......... $ Total Sources...... ............................................... ......... $ Uses: DepoSIt to Improvement Fund (2)...................... .... ........ .. $ DepOSit to the Bond Reserve Fund (3)... ............... ..... $ Depos]t to the 1991 Senes A Expenses Fund(4) . .. . .. . on. .. . $ Underwn ters' Discount........... ........ ............... ..................... $ Total Uses.. ....... ................ ........... ........... ............. ......... $ (1) Net of ongtnallssue prenuum of $ (2) To be held by the Trustee and applied to pay costs of the Project. (3) To be held by the Trustee The deposit is an amount equal to Max]mum Annual Debt Servtce (as dehned In AppendiX C) (calculated on a Fiscal Year baSIS) on the 1991 Senes A Bonds (4) Includes estImated fees and expenses for Bond Counsel, FmancIal AdVIsor, consulbng engtneers, auditors, pnntmg, rating agency fees and other costs related to the issuance of the 1991 Senes A Bonds 1HE PROjECI' Pursuant to the Hyperion Agreement, the City IS required to pay to Los Angeles an annual operatIon and mamtenance charge for sewage transportation, treatment and diSposal. AdditIonally, the Hypenon Agreement requires the City to pay a proporhonate share of the capital costs of alteratIOn, Improvement, relocatIon, replacement or reconstructIon of the Hypenon Plant and the connectIng sewers in Los Angeles between the CIty and the Hyperion Plant. A portIon of the proceeds of the 1991 Senes A Bonds will be applIed by the City to the costs of the upgrade of a portIon of the Hypenon Plant (the "Project"). Los Angeles is the plannIng agency, principal owner and operator of the Hypenon Plant In February, 1987, Los Angeles entered mto an amended consent decree wIth the Umted States Govemment and the State of California, wherem Los Angeles agreed to upgrade the degree of treatment at the Hyperion Plant ThIS followed an earlIer consent decree requinng that Los Angeles discontInue the discharge of sewage sludge mto the ocean. Eoth the ongmal and amended consent decrees were necessitated by federal and state regulatory reqUirements relatIng to the ehmination of discharges of pollutants mto naVigable waters In accordance With 6 the proVIsIons of federal and state law, and the amended consent decree, Los Angeles IS now carrYIng out a majOr program of constructIon to upgrade and expand the Hypenon Plant Under the terms of the Hypenon Agreement, the City IS obhgated to share in some of these costs. It is estImated by Los Angeles that the Hypenon upgrade wIll cost approxImately $2899 bIlhon to complete over the next ten years. The City's payments toward the upgrade, pursuant to the Hypenon Agreement, WIll be approXImately $64.2 mIlhon over the next ten years, mcludlng current bIlls The Project conSIsts of the payment of costs related to the Hypenon upgrade through FIscal Year 1993-94. It IS anticipated that additIonal senes of bonds wIll be ISSUed over the next ten years to hnance the remainder of the City's contnbubon. SECURITY FOR THE 1991 SERIES A BONDS Source of Payment All Revenues receIved by the City are deposited mto the Wastewater Enterpnse Fund (the "Revenue Fund") held by the City The Revenue Fund has been operated as a separate fund of the City smce It was created by an ordinance. All expenditures related to the constructIon, operation, mamtenance and repaIr of the Enterpnse are accounted for in the Revenue Fund. Audited Combined Fmanclal Statements, Combining Balance Sheets - All Enterprise Funds for the year ended June 30, 1990 and UnaudIted Balance Sheets - Wastewater Enterpnse for the year ended June 30, 1991 are attached as APPENDIX A. Pursuant to the Indenture, the City 15 reqUIred to annually prepare audIted financIal statements of the Revenue Fund "Revenues," means, for any FIscal Year or other penod, all rates, fees and charges received for, and all other Income and receipts denved by the City from, the operation of the Enterprise or ansmg from the Enterpnse determmed m accordance WIth generally accepted accountIng pnnaples, mdudmg all proceeds of insurance covenng business interruphon loss relating to the Enterpnse, mvestment earmngs on amounts held m the Revenue Fund and Reserve Fund, estabhshed under the Indenture, and all other money howsoever derived by the Oty from the operatIon of the Enterpnse or ansmg from the Enterpnse, but exdudmg connectIOn fees and charges, refundable deposits made to estabhsh credIt and advances or contnbutlOns in aid of constructIon; prOVIded, however, that Revenues shall Include connecbon fees and charges collected dunng such Fiscal Year or other penod, but only to the extent that such connection fees and charges could be properly expended on a project for which the proceeds of the Bonds were used or are available to be used. Proceeds of the 1991 Series A Bonds will not be expended on a project for which connectlOn fees and charges could be properly used. Consequently, the Revenues available for payment of the 1991 Senes A Bonds do not Include any connectIon fees or charges. (See "REVENUES AND DEBT SERVICE COVERAGE" herem.) Pledge of Revenues Under the terms of the Indenture, all Revenues and any other amounts (includmg proceeds of the sale of Bonds) held by the Trustee in any fund or account established under the Indenture (other than amounts on deposit m the Rebate Fund created pursuant thereto) are Irrevocably pledged to the payment of the interest on and pnnclpal of the Bonds as proVIded thereIn, and the Revenues may not be used. for any other purpose wlule any of the Bonds remam Outstandmg (as defIned m AppendIx C); prOVIded, however, that out of the Revenues and other moneys there may be apphed such sums for such purposes as are pennttted under the Indenture. Such pledge conshtutes a hrst pledge of and charge and hen upon the Revenues and all other amounts held by the Trustee m the funds and accounts estabhshed under the Indenture (other than amounts on depoSIt In the Rebate Fund created pursuant thereto) for the payment of the mterest on and pnncipal of the Bonds m accordance WIth the terms thereof and of the Indenture In the Indenture, the City covenants that so long as any Bonds are Outstanding, the City WIll not Issue any bonds or obhgations payable from Revenues or secured by a pledge, hen or charge upon Revenues pnor to or on a panty WIth the Bonds, other than the Bonds, provided that letter of credIt agreements entered mto m connectton WIth vanable note or tender option Additional Bonds may be payable on a panty WIth the Bonds. AddItionally, the CIty covenants in the Indenture that it will not mortgage or OtherWIse encumber, pledge or place any charge upon the Enterpnse or any part thereof, or upon any of the Revenues, prior to or on a panty WIth the Bonds, provided that letter of crecht agreements entered mto In connection with varIable note or tender optIon Addlttonal Bonds may be payable on a panty with the Bonds. 7 NotwIthstandmg the foregomg. notlung In the Indenture prevents the City from authonzing and issumg bonds, notes, warrants, certifIcates or other obhgatIons or eVIdences of mdebtedness whIch as to pnnopal or Interest, or both, (i) are payable from Revenues after and subordmate to the payment from Revenues of the pnnclpal of and mterest on the Bonds, or (n) are payable from moneys which are not Revenues as such term IS defmed In the Indenture. Rate Covenant The City has covenanted in the Indenture that It will, at all times whIle any of the Bonds remain Outstanding, establish, fix, prescnbe and collect rates, fees and charges m connechon With the wastewater services and facilitIes furnIshed by the Enterprise which WIll be suffIcient to YIeld dunng each FIscal Year, after making reasonable allowances for contIngencies and error In the estImates, Net Revenues equal to at least 120% of the estimated Debt ServIce (as defmed In AppendIX C) for such FIscal Year "Net Revenues" means, for any Fiscal Year or other penod, the Revenues durmg such Fiscal Year or penod, less the OperatIon and Mamtenance Costs of the Enterprise dunng such Fiscal Year or period. The City may make adjustments from tIme to tIme in such rates, fees and charges and may make such claSSification thereof as It deems necessary, but shall not reduce the rates, fees and charges then m effect unless the Net Revenues from such reduced rates, fees and charges will at all times be suffICIent to meet thIS requirement of the Indenture Reserve Fund Under the terms of the Indenture, the Reserve Fund IS required to be created and funded in an amount equal to the ''ReqUired Reserve", winch is an amount equal to the least of (i) the Maximum Annual Debt Service on all Bonds Outstandmg, (il) 125% of Average Annual Debt Service (as defmed m AppendIX C) on all Bonds Outstandmg, and , (in) the amount of proceeds of Bonds permItted to be held in the Reserve Fund by the arbitrage bond regulabons ISSUed by the United States Department of the Treasury, as such regulahons are, at the tIme, apphcable and m effect, WIthout the impoSition of YIeld restnctIons. At the hme of Issuance of the 1991 Senes A Bonds $_Wlll be deposited into the 1991 Senes A Reserve Account, created under the Indenture, WIthin the Reserve Fund whIch wIll be the ReqUired Reserve followmg the Issuance of the 1991 Senes A Bonds. Moneys held In the Reserve Fund are to be used for the purpose of paYIng pnnclpal of and Minimum Smkmg Fund Account payments WIth respect to, and interest on the Bonds if on any pnnclpal, redemptIon or interest payment date the amounts in the PrinCipal Fund and Interest Fund available therefor are insuffICient to pay In full the amounts then due, as descnbed In APPENDIX C - "Flow of Funds - DepoSIts to the Interest Fund, Pnncipal Fund and Bond Reserve Fund, .. hereto. Additional Bonds General In addItIon to the 1991 Series A Bonds, the City may, subject to the reqUIrements of the Law, by Supplemental Indenture estabhsh one or more other senes of Additional Bonds payable from Revenues on a panty WIth the 1991 Senes A Bonds and secured by a hen upon and pledge of Revenues equal to the hen and pledge secunng the 1991 Series A Bonds, m such pnnCIpal amount and for such lawful purpose or purposes as shall be deternuned by the Oty m such Supplemental Indenture. The Issuance of such Additional Bonds, is subjeCt to the satisfaction of certain condItIons precedent specifIed in the Indenture, includmg the hhng of the follOWIng documents with the Trustee: (d a certIficate of the City setbng forth (a) for any penod of 12 consecutIve calendar months out of the 18 calendar months next precedmg the authentication and delIvery of such AddItIonal Bonds, the Net Revenues for such 12-month penod and (b) the Annual Debt SeIVlce for such 12-month penod, and demonstrating that for such 12-month period, Net Revenues equalled at least 120% of the Annual Debt ServIce for such 12-month penod, (n) a written report of a Quahhed Independent Consultant (as defined In AppendiX C> setting forth for the next Fiscal Year, or If interest with respect to such AdditIonal Bonds is bemg capItalIZed from the proceeds of such Addlbonal Bonds, the one Fiscal Year following the Fiscal Year m which such interest IS capItalIzed in full, estImates of (a) Revenues, (b) OperatIon and Maintenance Costs of the Enterpnse, and (c) Net Revenues; proVided, however, for purposes of such estImates, the detemunanon of Revenues may take mto account any Increases (and shall be 8 adjusted for any decreases) m rates, fees and charges for wastewater serviCes and facIhtles furnIshed by the Enterpnse whIch have been authonzed by the City to be Implemented and which WIll he effectIve prior to the hme of issuance of the Additional Bonds, and (11l) a certlncate of the City settmg forth (a) the estimates of Net Revenues, as set forth in a wntten report of a Qualified Independent Consultant pursuant to (ii) above, for each of such FIscal Year, and (b) the Annual Debt Sel'Vlce for each of such Fiscal Year, and demonstratIng that the estImated Net Revenues set forth m (Ii) above is at least equal to 120% of Annual Debt Service for the correspondmg FIscal Year. Refundtng Bonds. In adchhon to the 1991 SerIes A Bonds, the City may, subject to the requirements of the Law, by Supplemental Indenture establish one or more other series of AdditIonal Bonds on a panty WIth the 1991 Series A Bonds and secured by a hen upon and pledge of Revenues equal to the lien and pledge secunty the 1991 Senes A Bonds, for the purpose of refundmg any Bonds Issued under the Indenture and then Outstanding The issuance of such AddItional Bonds for refundmg is subject to the sahsfactIon of certaIn conditlOns precedent speclned in the Indenture, including the filing with the Trustee of a certificate of an Independent CertifIed Public Accountant (as dehned in AppendIX C) that the Average Annual Debt Sel'Vlce for such senes of Additional Bonds (during the penod from theIr Issuance to theIr last matunty date) IS equal to or less than the Average Annual Debt Semce on the Bonds to be refunded (dunng the penod from the issuance of the series of AddItional Bonds to the last matunty date of the Bonds to be refunded). Insurance In the Indenture, the CIty covenants to procure and mamtain such msurance relatmg to the Enterpnse WhIch It shall deem advisable or necessary to protect its mterests and the mterests of the Trustee. Such Insurance must afford protection 10 such amounts and agamst such nsks as are usually covered 10 connectlon WIth murocipal wastewater collectIon, treatment and dIsposal systems slIlular to the Enterprise; prOVided, that any such msurance may be maintamed under a self-msurance program so long as such self-Insurance program IS maintained m the amounts and manner usually mamtamed in connection with mumcrpal wastewater collechon, treatment and disposal systems sirmlar to the Enterpnse and IS, m the opmlon of an mdependent msurance consultant, nnanclally sound. All POlICIes of Insurance reqwred to be maintamed under the Indenture must proVide that the Trustee wdl be a loss payee and shall be given 30 days' written notice of any mtended cancellation thereof or reduction of coverage provided thereby. The CIty covenants m the Indenture to promptly adVIse the Trustee in writing If any change 10 the Insurance coverage occurs. The City has obtained commerCIal insurance haVIng broits of at least $25 mIllIon for nsks of phYSical damage to real and personal property. ThIs covers all locabons for "all nsk" property insurance includmg extra expenses The City has a $5 mllhon bOIler and machinery pohey, and a program of $20 rmlhon m hability coverage which conszsts of a combinabon of self-msurance poohng and commercIal coverages. The Indenture prOVIdes that In the event of any damage to or destructIon of the Enterpnse caused by the penIs covered by the InSurance descnbed above, the proceeds of such InSurance received by the Trustee are to be apphed to the repair, reconstruchon or replacement of the damaged or destroyed porbon of the Enterpnse. The City wdl cause such repair, reconstruction or replacement to begin promptly after such damage or destruction shall occur and to conbnue and to be properly completed. as expeditIously as poSSIble, and the Trustee wIll pay out of the proceeds of such insurance all costs and expenses in connection with such repair, reconstructIon or replacement so that the same shall be completed and the Enterprise shall be free and clear of all claims and liens. If the proceeds received by the Trustee by reason of any such loss shall exceed the costs of such repall', reconstruction or replacement, the Trustee WIll transfer such excess to the City for deposit 10 the Revenue Fund and such excess will be treated as Revenues. NotwIthstand1Og the forego1Og, if the proceeds of such insurance are sufficient to enable the CIty to rehre all Outstanchng Bonds, whether at matunty or on redemption pnor to maturity or any combmabon thereof, the City may elect not to repall', reconstruct or replace the damaged or destroyed portIOn of the Enterprise, and thereupon, upon recezpt of a written request of the CIty, the proceeds of such insurance WIll be apphed by the Trustee WIthm tlurteen months to redeem Bonds pursuant to the Indenture. 9 The Indenture proVides that the City must procure, and maintam at all hmes wrole any of the Bonds shall be Outstandmg. adequate fIdehty Insurance or bonds on all of Its offIcers, employees and agents handlIng or responsIble for any Revenues or funds of the Enterpnse, such msurance or bonds to be m an aggregate amount at least equal to the maXImum amount of such Revenues or funds at anyone ttme In the custody of all such offIcers and employees or In the amount of $1,000,000, whIchever IS less. BONDOWNERSt RISKS The following factors, along with other information presented In this offIcIal Statement, should be constdered by potential mvestors in evaluating the purchase of the 1991 Senes A Bonds General. The 1991 Series A Bonds are payable solely from Revenues of the Enterpnse and from certam funds held under the Indenture. No assurance can be made that Revenues, estImated or otherwIse, wIll be reahzed by the Enterpnse In amounts suffICIent to pay pnnclpal of and mterest on the 1991 5enes A Bonds. The realizatIon of future Net Revenues is subject to, among other thmgs, the capabihhes of management of the Enterpnse, the abihty of the Enterprise to provide wastewater seTVlce to Its customers suffIcient to proVlde the reqUITed debt service coverage as well as pay for Operahon and Maintenance Costs of the Enterpnse. Accordingly, there can be no assurances made to the Owners that the Revenues of the Enterpnse wilt not decrease dunng the term of the 1991 Senes A Bonds. Wastewater Servzce Demand and Growth. There can be no assurance that demand for wastewater seTVlces In the City WIll be mamtamed at the projected levels descnbed In thIs OffICIal Statement In partIcular, econormc and demographIc factors could have an adverse effect on wastewater seTVlce demand Reducbon m levels of servIce would requIre further Increases In rates or charges m order to comply with the rate covenant. Completion of the Hyperion Upgrade. There can be no assurance that the Hypenon upgrade w1l1 be completed for the costs and WIthIn the times set forth In this OffICIal Statement. Failure to complete the prOject or excessive Increases in costs could require further mcreases m rates or charges m order to comply with the rate covenant. Earthquake and Other Natural Disaster. Wastewater faclhties of the City are deSigned and constructed in accordance with sound engmeenng pracbce and all applIcable seIsrmc standards. To date, no such faClhbes have suffered any damage as a result of seismic activity. AddItionally, the City has prepared an emergency operatlons plan for the operahon of the major local components of the Enterpnse In the event of a major earthquake. Accordmg to Los Angeles staff, Hyperion Plant capItal improvements have been constructed to Zone 4 selsrmc standards under the issue of the Uniform BUlldmg Code in effect at the time of penrnttmg. In SpIte of these precautIons, there can be no assurance that earthquakes or other natural dIsasters WIll not mterrupt the ability of the Enterpnse to realize Revenues sufficient to pay principal and mterest on the 1991 Series A Bonds. Drought and Water Conservatton Measures. As the State of California is currently suffenng from severe drought condItions, the Oty has adopted an ordmance requinng mandatory 20 percent cutbacks in water usage from 1990 levels. These cutbacks, which apply to all City water customers, went into effect in Apnl, 1991, and will remam m effect until CalIfornia water supphes reach normal levels. Whlle the sewer servIce charges adopted. by the CIty m October, 1991, contam a fixed charge component wluch is mdependent of water usage, conbnued drought conditIons could adversely affect wastewater revenues. In addition to the mandatory water conservatIon program, the City is progressIng WIth Its program of retrofitbng bathrooms In the CIty with ultra low flow tOllets and low flow showerheads. ThIs program, which WIll result 10 a reductIon m wastewater generation of approXImately 1.7 millIon gallons per day, is expected to signihcantly reduce the City's wastewater treatment and dIsposal costs, by ehminatmg the need for the City to acquire additJonal capacity In the Hypenon Plant. However, it also has the potentJal to adversely affect wastewater revenues. 10 lnabihty of the City and Los Angeles to Reach Accord on Future Contractual Terms. Should Los Angeles be unable to reach accord wtth the City and Wlth other Subscnbmg Agencies on the terms and conditIons of the Proposed Hypenon Agreement, it IS possible that Los Angeles wIll pursue a course of litigatIon. It cannot be predicted what the outcome of such libgahon mIght be or what Impact It mIght have on the costs to the CIty for wastewater treatment and disposal AddItional Bonds. The Indenture permits the issuance of AdditIonal Bonds, wluch shall be payable on a parity With the 1991 Series A Bonds. Such AdditIonal Bonds would Increase debt service reqUIrements, and could adversely affect debt service coverage on the 1991 Series A Bonds. In such event, however, the rate covenant descrIbed herem wIll remam in effect. mE ENlliKPRISE Local System The Local System is owned by the City and IS managed. operated and maintamed by the UtIlihes Office of the City, Department of General SerVIces Management of the Local System Involves phYSical faclhhes planning; ftnanclal plannmg and budgetmg; development of operatIng systems and procedures; halson With Los Angeles and other agencies on matters affectmg the Enterpnse; and bllhng and collection actIVities Opera non of the Local System Involves clearung, inspectmg and repaznng approximately 125 miles of samtary sewers, 20 rmles of storm drams and 825 catch basins, as well as a pumpmg plant The Local System serves an area of eight square miles with a population of approxunately 86,900 There are approximately 15,500 active sewer service accounts, and average wastewater flow from the Local System to the Hypenon Plant IS currently approximately 93 milhon gallons per day. In recent years, this flow rate has decreased as a result of permanent water conservation measures and temporary water ranoning measures taken by the City When current drought conditions in Cahfomia end, and the temporary water ratlornng measures are hfted, then some increase in sewage flow is expected. Engmeenng deSign of Local System improvements is performed by the Ofhce of the City Engtneer, ubhzmg eIther Dty engineering staff or external consultIng engtneers. ConstructIon of Local System Improvements IS performed by quahhed contractors under the duection of the City Engineer. The City EnVironmental Programs Division is responsible for developing and implementing water and energy conservatIon programs and wastewater flow reduchon programs, as well as for admirustenng the City's envlfonmental ordmances. Both the Office of the City Engtneer and the Environmental Programs DiviSIOn work in close halsan With the Utilities OffIce. The Utilil:1es Office is also responsible for implemenhng and enforcing the City's Industnal Waste Control Program ThIS mvolves mspectIng and samphng approximately 900 City busmesses In order to ensure that discharges to the Local System and subsequently to the Hypenon Plant satIsfy the regulatory reqUIrements of the City, Los Angeles, and the state and federal governments. (See ''REGULATORY REQUIREMENTS" herem) . Hyperion Plant The Los Angeles Hyperion Wastewater System (the 'Hyperion System") proVIdes wastewater coJJection, treatment and dIsposal servtces for an area of approximately 600 square mdes. In addItion to Los Angeles, It serves 29 other agencies pursuant to sewage disposal contracts executed and In force WIth each agency The Hyperion System COnsiSts of the Hyperion Plant, two water reclamation plants, twenty etght pumpmg plants, and a series of local, collector and Interceptor sewers tenninahng at the Hyperion Plant The current capacIty of the Hypenon Plant ]5 420 mgd, WIth an average dry weather flow of 361 rogd. The plant prOVIdes pnmary treatment for all mfluent flow and secondary treatment for 150 mgd, unhzing the acnvated sludge process. 11 Contractual Agreements Between the CIty and Los Angeles Since 1926, the CIty and Los Angeles have had vanous contractual agreements governmg the transportahon, treatment and dIsposal of sewage. The current agreement between the two mumapahtIes, the Hypenon Agreement, is dated February 21, 1964, and provIdes that Los Angeles allocate to the CIty an average flow in the Hypenon Plant of 11 00 mgd or 11/420ths of the average flow through the plant, whIchever is greater It also allocates certam peak flow capacItIes m Los Angeles connectIng sewers between the City and the Hypenon Plant In the event that addItIonal capacIty IS needed by the CIty, an amendment may be negohated between the parhes. The Hypenon Agreement also provIdes that the CIty pay annual sewage transportatlOn, treatment and dISposal charges which shall be a proportIOnate share of the operation and mamtenance expendItures by Los Angeles CapItal costs for alteration, expanSIOn, Improvement, relocation, replacement, construction or reconstruchon shall also be borne by the parties, proportioned on the baSIS of flow. The Hypenon Agreement, as well as agreements between Los Angeles and other contnbutors to the Hypenon System (the "Subscnbmg AgenCIes"), has been found not to be In comphance Wlth all requirements of the EnVIronmental ProtectIon Agency ("EPA") and Califorma State Water Resources Control Board ("SWRCB"). SpecifIC areas where contractual changes are bemg mandated by these agenCIes are as follows' (t) Operation, maintenance and replacement charges must be based on sewage flow and strength rather than JUst sewage flow, as provided m the Hyperion Agreement, (2) Differences in charge systems for vanous contnbutors to the Hypenon System must be elImInated, and charge systems replaced WIth a consIstent system whIch IS faIr and eqUItable; (3) Operahon, mamtenance and replacement costs of the three Hypenon System treatment plants must be amalgamated; (4) Responslblbty for system-Wlde complIance WIth EPA mdustnal dIscharge pre-treatment requlfements must be assumed by Los Angeles. Thus the current Hypenon Agreement must be amended or a new contract executed between the CIty and Los Angeles. Los Angeles IS currently developing two new standard agreements for presentahon to those outSIde agenCIes WhICh contnbute sewage to the Hypenon System. One agreement will deal WIth the responsIbllltles of the Subscn.bing Agencies and Los Angeles WIth respect to industnal discharge pre-treatment reqUIrements. Smce the City has already implemented and is now enforcmg an mdustrial waste control program whIch meets the reqUIrements of the CIty, Los Angeles, and state and federal regulatory authontles, It IS expected that thts mdustrial waste agreement will have httle new Impact on the Oty The second agreement bemg developed (the ''Proposed Hypenon Agreement") will address issues being mandated by regulatory agenCIes. Los Angeles also proposes to mcorporate mto thiS agreement proviSIOns whtch WIll SimplIfy and standardIze its billIng and payment terms, as weU as a number of other prOVISIons. Many of the prOVISIOns of the Proposed Hypenon Agreement have been developed jointly by Los Angeles and the Subscribmg AgenCIes, but other prOVISIons have yet to be negotIated. Los Angeles IS assunung that negotIatIons WIll be completed and the Proposed Hypenon Agreement WIll be 10 full force and effect by July 1, 1992. However, any new contract must be approved by the CIty Councils of both the CIty and Los Angeles, and unhl the terms of the Proposed Hypenon Agreement have been negotIated, there IS no assurance that tIus WIll occur. In the meantIme, the CIty Will conhnue to use the Hypenon Plant under the terms of the Hypenon Agreement. In the Indenture relahng to the 1991 Series A Bonds, the City covenants that it wdl not enter mto or consent or agree to any amendment, modIfication, restatement, replacement or supersedmg of the Hypenon Agreement unless and until the CIty CouncIl of the City finds and determines that such amendment, modification, restatement, replacement or superseding WIll not materially ImpaIr the security for the 1991 Senes A Bonds. 12 Hypenon Upgrade and Expanslon Program. The Los Angeles Wastewater System CapItal Improvement Program is an ongoIng cap1tal expenditure program whIch is expected to contInue through Fiscal Year 2000-01. Planned improvements in the program Include installahon of major Interceptor sewers, renovatIon or replacement of other major sewers and pumpmg stahons, and modernizatIon, expansIon and upgradmg of sewage treatment facIlitIes, Including the Hypenon Plant The CIty'S Involvement In the program IS lirmted to its contnbution to the upgrade of the Hyperion Plant pursuant to the Hyperion Agreement. A summary of estimated future year expend1tures for the Hyperion upgrade, exclUSive of any capacIty expanSIon, 1S presented in the table below. The estimated share of these expend1tures wluch are to be borne by the CIty is also shown. SInce Fiscal Year 1986-87 and pnor to the issuance of the 1991 Senes A Bonds, the CIty has paId to Los Angeles approxl1nately $8.81 rnilhon toward its share of the capItal costs of the Hypenon upgrade. It is antIcIpated that the 1991 Senes A Bonds will fund capItal billIngs from Los Angeles of $8.8 nuIlion for the penod. of FIscal Year 1988-89 through 1990-91 and future capItal costs through Fiscal Year 1993- 94. The amounts shown In the table below as Santa Monica's share represent esbmates by Los Angeles. It 1S the City'S understandIng that the estimates are based on an allocahon of costs assummg that the contractual arrangements are brought mto complIance WIth the consent decree CITY OF SANTA MONICA SHARE OF HYPERION CAYnAL IMPROVEMENT PROGRAM On Thousands) Fiscal Year 1991-92................... 1992-93................... 1993-94................... 1994-95................ .. 1995-96....... ............ 1996-97................ .. 1997-98................... 1998-99................... 1999-00...... on......... 2000-01...... ............ Subtotal........... Los Angeles Hyperion Upgrade C~ital Costs $ 371,766 447,235 374,968 335,843 356,517 293,698 191,843 198,483 175,111 153.958 $2,899,422 Santa Monica Share of Hyperlon Upgrade Capital Costs $ 5,064 11,348 7,000 6,145 6,613 5,121 3,222 3,920 3,761 3214 $55,408 Source' Oty of Los Angeles, August, 1991. Regulatory Requirements. OperatIons at the Hypenon Plant are subject to regulatory reqUIrements contamed in the 1972 Federal Water PollutIon Control Act, as amended, (the "Clean Water Act") and in the State of Cahfornia Porter-Cologne Water Quality Control Act of 1969, as amended Both federal and state regulations are administered through the SWRCB, and generally deal with the quality of effluent which may be discharged from the wastewater treatment facilitIes, the diSposal of sludge from the wastewater treatment plant, the discharge of pollutants Into the groundwater, and the nature of waste matenal (partIcularly mdustrial waste) which may be dIscharged into the collectIon system. Additional requirements were imposed when Los Angeles applied for and receIved federal EPA grant funds under the Clean Water Act. In addlbon to the aforementioned regulatory reqUIrements, Los Angeles must comply WIth provisions of an amended consent decree negot18.ted in 1987 WIth the United States Government and the State of Cahforma. Tlus amended consent decree reqUIres that Los Angeles upgrade the degree of treatment provided at the Hypenon Plant within an established compbance schedule. Los Angeles has met many of the requIrements of the amended consent decree, and has plans to construct and put into operatIon the necessary facilities for satIsfyIng other requirements relating to 1ts wastewater dIscharges. A proporhonate share of fInanCIng for the required Improvements to the Hyperion Plant must be prOVIded by the CIty and other agencies contnbuting sewage to the Hypenon Plant. 13 REVENUES M'D DEBT SERVICE COVERAGE Sewer Rates and Revenues The City currently recovers the cost of operating, maintaining, repamng, replaCing and expanding the Enterprise through bve user fees plus Interest earrungs. The five users fees are: 1) Sewer Service Charges, 2) lndustnal Waste Fees, 3) Sewer Connection Fees, 4) Hazardous Waste Fees, and 5) Mlscellaneous Revenues All revenues denved from the five fees hsted above, pursuant to the Santa Monica Murudpal Code and subject to the hnutatIons of Cahforma Government Code Section 66000-66003 ("ABI600") as they relate to Sewer ConnectIOn Fees, are placed Into the Revenue Fund and are expended only for sewer, storm drain, Industrial waste or hazardous waste purposes. All interest earmngs on moneys held in the Revenue Fund are retamed In the Fund. The methodology for developing the fee schedules for the above outlined charges IS governed m part by the Santa Maruca Mumclpal Code and the SWRCB, actmg on behalf of the EPA The Mumclpal Code of the City requires that the Income from the fees and charges assessed for sewer services equal the overall cost of operation, maintenance, debt coverage and capital Improvements of the EnterprIse. Additionally, the SWRCB and the EPA reqUire that the City'S wastewater mcome structure be such that users of the system pay according to use of the system and the quahty of wastewater discharged mto the system. Rate Study The City contracted with the independent consulhng firm of Kennedy/Jenks/Chllton to prepare a comprehensive wastewater revenue and rate analYSIS. The consultant's study report (the "Study") dated September 11, 1991, contams an assessment of wastewater revenue reqUirements and recommendations on wastewater rates to cover all operation and maintenance costs, capital Improvement costs, and debt serVlce costs through Fiscal Year 2000-01 The consultant recommended that the City modify ItS wastewater rate structure to mclude a nxed charge component, thus stablhzmg wastewater revenue and makmg It less dependent upon water usage The consultant also recommended that the rate structure Include a wastewater strength component to satisfy state and federal reqUirements assooated with grant fundmg of portions of the Hypenon upgrade. A recommended 37% rate Increase during Fiscal Year 1991-92 has been approved by the City Council and Will become effectIve on December 1, 1991. (See APPENDIX B, "Summary of Wastewater Revenue and Rate Analysis," herein). Water Conservation Measures. Effecbve Apnll, 1991, mandatory 20 percent cutbacks from 1990 usage for all City water customers went mto effect. Rahomng IS expected to remain In force until the Cahfomla drought emergency ceases. In addition to the mandatory water conservatlon program, the Gty IS progressmg at a rapid pace With the BAYSAVER Fixture Retrofit Program Over 18,000 residential bathrooms in the Clty have been retrofitted With ultra low flow tollets and low flow showerheads through the BA YSA VER program smce Its Inception In December 1989. The new proposed goal for the program IS to retrofit an addlbonal20,OOO bathrooms over the next two years. TIus represents a BA YSA VER program retroht target of 50 percent of all reSidential bathrooms In the City. Acluevement of a 50 percent retrofit goal will reduce the City's water and wastewater generahon by approXImately 1.7 nulhon gallons per day. The Impact of the emergency water conservation program and the ongoing BA YSA VER Fixture Retront Program on proJe<:1:ed Revenues for Fiscal Year 1991-92 is esbmated to be a reductIon of 16 percent. TIus decrease 10 Revenues is partially nubgated by a new wastewater rate structure which recovers fixed system costs and does not rely solely on charges based on water consumption. One half of the total budgeted costs for water conservation programs IS funded through the Revenue Fund. 14 Current Sewer Sennce Charge. The City's current Sewer Service Charge rate is $1 59 per hundred cubic feet of water used, muItiphed by the following percentages. 1Jrpe of Acmunt Percentage of Water Billing Units Used Smgle Family Business In Residence Duplexes Triplexes Fourplexes Over Four Apartments Industry Commercial Pubhc Schools Churches 50% 50% 68% 76% 85% 90% 100% 100% 50% 100% The ten largest customers of the Enterpnse, as measured by estImated current Sewer ServIce Charge billings for Fiscal Year 1990, are estimated to be responsible for approximately seven percent of Sewer ServIce Charge revenue In Fiscal Year 1990-91. The following table shows estimated Sewer SerYlce Charge bllhngs for the ten largest customers of the Enterprise in FIscal Year 1990-91. SEWER SERVICE CHARGE REVENUE PROVIDED BY Tt;N LARGEST CUSTOM.t:.KS (1) FISCAL YEAR 1990.91 lIEl Fiscal Year 1990-91 Billings St. John's HospItal Santa Momca Hospital Santa Monica Bay Hotel Kern Land Company Miramar Hotel Ocean Towers GilIette/Papermate Huntley Hotel Sports Connection National MedIcal Enterpnses $ 109,675.02 87,233.76 57,890.31 54,242.85 48,944.97 48,011.64 32,402.61 32,505.96 22,620.93 22.054.89 $515,582.94 Source: City of Santa Momca UtilIties Office. (1) Customers ranked on baSIS of Sewer ServIce Charge revenue. 15 Sewer Serrnce Charge After December 1, 1991 The Sewer ServIce Charge after December t 1991 wIll be compnsed of a fIxed charge and vanable charges for flow and strength, multlphed by the appropnate discharge factor. The charges are as follows: BI-MONTHL Y FIXED SEWER SERVICE CHARGE User Class By Meter Size 5/8-3/4" Single Family $ 16 98 23.77 30.56 49.24 186.76 237.69 356.53 492.36 I" 11/2" 2" 3" 4" 6" 8" Multi- Family $ 34.54 48.36 62.17 100.17 379.94 483.56 725.34 1,00166 CommerdaV Industrial No Permit $ 42.81 59.94 77.07 124.16 470 96 599.40 899.10 1,241 62 BI-MONTHL Y VARIABLE FLOW CHARGE U~er Cla~s Single Fanuly BUSIness In ResIdence Duplex TrIplex Fourplex Over Four Apartments CommerCIal and Industnal MUnlClpal and Other Inshtuhonal Pubhc Schools and Churches Single Family Mulh-fanuly Government and Inshtuhonal Commercral, no mdustnal dIscharge pemut requIred CommerClal, mdustnal dIscharge penrut reqUIred lndustnal , no Industnal dIscharge penrot reqUired Industnal, mdustnal dIscharge permit required Commercial! Industrial Permitted $ 70.54 98.75 126 97 204 56 775.92 987.53 1,48129 2,045.60 Discharge Factor 51% 51% 80% 85% 90% 95% 89% 89% 89% Variable Flow Charg~ (I) $ 1.13 per Hcf 1.13 per Hcf 1.13 per Hcf 1.13 per Hcf 0.84 per Hcf 1.13 per Hcf o 84 per Hcf BI-MONlHL Y VARIABLE STRENGTH CHARGE User Class Commercial, industnal dIscharge penrot reqUired Industnal, mdustnal discharge penrut reqUIred CommerClal, industrial discharge penrut reqUired Industnal, mdustnal discharge pemut reqUIred Hi-monthly Charge (2) $ 0.15 per pound BOD $ 0.15 per pound BOD $ 0 38 per pound 5S $ 0.38 per fKlund 5S Source: CIty of Santa Mornca Uhhtles OffIce. (1) Includes bUSInesses such as restaurants and photo finishers. (2) Industrial users whose dIscharge strength would be no greater than that of resIdenhal users. (3) Hd refers to hundred cubic feet. (4) BOD refers to biocherrucal oxygen demand and S5 refers to suspended sohds 16 Industrial Waste Fees. Pursuant to Ordinance 1373 (City Council Series), the City assesses an lndustnal Waste Fee on targeted businesses to ensure that they do not dIscharge more than a specifIed brrut of mdustnal waste Into the wastewater system. The targeted busmess are separated mto SIX categones based on type of wastewater discharge and number of InspectIons reqUIred each year. The fee consists of a bimonthly inspechon/samphng fee and a pernut apphcatIon fee renewable every three years The table below lIsts and defines each category. CategoQ" Annual Sampling ~~tion Fee Tri-Annual Permit Fee 1 Restaurants, Gas Stations, Others 2 Pnnters, Others 3 Auto Repair, Problem Restaurants 4 Large Photo FinIShers 5 Significant Users 6 Categoncal (Specified major Industry categones) $ 117 432 648 939 1,410 4,578 $78 78 78 78 78 128 Revenue from the Industnal Waste Fee IS $475,294 for Fiscal Year 1990-91. The three largest mdustnal waste customers IdentIfied below account for approXImately two percent of an Industnal Waste Fee revenues. INDUSTRIAL WASTE l't;t: REVENUE PROVIDED BY TImEE LARGEST INDUSTRIAL WASTE CUSTOMERS FISCAL YEAR 1990-91 lW:t Estimated Billings Gillette Co /Papermate DIVISion Am.encan Apphance Co. Lansdale Sermconductor $ 4,706 00 4,706 00 4,70t7 00 $14,118.00 Source: CIty of Santa Moruca, UtIhtIes Off1ce. ". 17 Current Sewer Connection Fees' The City charges a Sewer Connection Fee for connechon to the Enterprise The connection fee for new residential construcbon or reconstruction IS based on the number of dwelhng urnts For commerC1al development, the fee IS based on square footage, the number of seats m a restaurant, or the number of umts m a hotel. Use of these fees 1S subject to the prov1sions of ABl600. For purposes of the 1991 Senes A Bonds, Sewer ConnectIOn Fees are not used. In general, ABl600 requ1res a city or county to establish a reasonable relatlOnslup between a development project or class of development project and the pubhc Improvement for wluch the developer fee IS charged, and to segregate and account for the money separate from general revenues Revenue from the Sewer Connection Fee IS estImated to be $Soo,ooo for F1scal Year 1990-91 The fees are as follows: Smgle-fanuly res1dence Mulh-fanuly reSIdence 1 bedroom 2 bedroom 3 bedroom Hotel/Motel Commercial BUllding Medical Buddmg Restaurant/Bar SIt Down Carry Out Storage BU1ldmg Industrtal BUlldmg CurrE"nt Fees $1,312 SO/umt Fees as of December 1.1991 $l,98200/umt 656.25 /urot 843.7S/umt 1,03125/unit 1,68750/umt 1.125/sq ft 1.S0/sq. ft 99100/umt 1,48700/umt 1,982.00/umt 1,140.00/umt 107/sq. ft. 1.98/sq it 247.75/seat 263 60/100sq. it 0.248/sq. ft. O.991/sq ft. 9375/seat 400.00/100 sq ft. o 1125/ sq ft. 0.75 / sq ft. Source CIty of Santa Monica, Utlhhes Ofnce. Hazardous Waste Fees. The City charges a Hazardous Waste Fee based on the size and degree of the potenhal hazard that a busmess poses to the commumty. The Size of a busmess IS detemuned by the physical plant sIZe and the number of employees. The degree of hazard is based upon the type, volume and number of hazardous matenals handled at the faCIlIty The fee 1S charged to those busmesses reqUired to ide a hazardous matenals business plan, to recover the costs to the City of adrmrustering the program. Pursuant to a City CouncIl Resolution, each busmess WIthm the CIty is claSSified into one of the followmg four categones, based on a formula developed for tlus purpose; Category Typical Business Descri!'tion 1 Low volume photographic shop, small dry cleaner, small pnnt shop, small auto repaIr faCIlity, smgle practitIOner medical facIhty. 2 Gas statIon, cabinet and furnIture refmIsher, medIUm SIze auto repa1r fac1lIty, multI. practItIoner medIcal office. 3 Large auto repaIr faCIlIty (dealerslup), small manufacturer and industnal shop, small cherrucal producer. 4 Large scale manufacturer, hospital, utIlity company. .. Based on the costs assoCIated with the time requirements for each pemut type, annual fees are assessed accordmg to the fee structure outline below: Cate:gor:y Fee Amount Number of Businesses 1 2 3 4 $ 172 295 552 1,()99 180 190 155 25 18 Forty-four percent of the revenues denved from these fees accrue to the Revenue Fund to reImburse for wastewater program costs. The remalOmg 56 percent of the revenues IS receIved by the General Fund to rermburse for costs of adrmnistenng the program MzscelIl1neous Revenues: These mclude saddle fees, underground tank penruts, relmbursement from the Oty of Los Angeles for a portlOn of the operahon and maintenance of the Moss A venue Pump Stahon, sale of fixed assets, and other lTltscellaneous revenues Historical Sewer Rates and Charges The folloWIng table shows historical levels of the CIty'S Sewer Service Charges. HISTORIC RATES Fiscal Year Sewer Service Charge Per Billing Unit (1) Average Hi-monthly Residential Sewer Service Charge (2) 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 $026 0.39 0.58 0.8778 1.59 1.59 $4.16 624 928 14.04 25.44 25.44 Source. CIty of Santa Moruca, UtI.hties Office. (1) MultIphed by appropriate percentage for each user group (2) Fee for a single fanuly dwelltng assuming 32 Hc:f per bi-monthly period. The table below presents a companson of the CIty'S current connectIon fees and average bi-monthly resldenttal sewer bill Wlth that of other communitIes 10 the county as of July 1, 1991. COMPARISON OF AVERAGE BI-MONTIiLY SEWER. SERVICE CHARGES Utility City of Santa Monica.. ....................................... ........................ City of Los Angeles . ............................................................ ....... Cl ty of Burbank..... ..... .............................................. ................. City of Culver City.............................. .............:......................... CIty of Glendale.............. ....... ................ ........ ............................. City of Beverly HIlls...... ............................................................ Average (excludmg Santa Monica)...................... ................ ........ C~nt Bill (1) $2544 3315 26.96 37.47 4224 46.70 Fiscal Year 1992-93 Bill $ 41.63 39.30 (2) (2) (2) (2) Source: Kennedy fJenks/Oulton. (1) All bills are bi-monthly and based on water usage of 32 Hd/bilhng penod. (2) Unknown FIscal Year 1992-93 rates. 19 Rate Setting Process The CIty IS requIred by the Indenture, at all hmes whIle any Bonds remam Outstandmg to establIsh, fIX prescnbe and collect rates, fees and charges m connection with the wastewater services and facIlItIes furmshed by the Enterpnse whIch will be sufflcent to YIeld dunng each Fiscal Year, after makmg reasonable allowances for contmgencles and error m the eshmates, Net Revenues equal to at least 120% of the eShmated Debt ServIce m such year. The Sewer Service Charge, Sewer Connection Fee, Industnal Waste Fee, Hazardous Waste Fee and other miscellaneous fees and charges are authorized by ordmance The amounts of such fees and charges are reVIsed penodically by resoluhon of the CIty CounCIl. The CIty Manager annually reviews the system of rates and charges as part of the budgetary process. In May each year, the CIty Manager submits to CIty Councll a proposed operahng budget for the Fiscal Year commencmg the following July 1. The operating budget includes proposed expendItures and expenses and the means of fmancmg them Pubhc heanngs are conducted by the Cay Counal to obtam CItIzen comments. The budget IS adopted, prior to June 30, through passage of appropnate resolutIons The fmal adopted budget 15 subject to mId-year reVlslOns to reflect any slgrufIcant changes In expenditures or revenues due to state or federally mandated programs, emergencIes, or other unforeseen occurrences. Billing and Collection Sewer Sermce Charge. Sewer SefV1ce Charges for reSidential and commercal users are bIlled bImonthly for approximately 61 days of servIce. The UtIhties Off]ce of the Department of General Services prepares a bill covenng charges for water, sewer, refuse and water conservahon servIces. A separate bIll IS sent for the Industnal Waste Fee. A bIlling summary IS sent to the Finance Department monthly, at which time accounts receivables are created and revenue is credIted to the Revenue Fund. When the actual momes are recelved, the accounts receivable ]S reduced accordingly. Payments received by the UtIlities OlvislOn are credIted to the bdled accounts m the followmg order: refuse, sewer, water conservabon, and water. Payments receIved are credited hrst to the accounts in arrears and then to the current amounts for each utihty in the order stated above H an account is not paId wIthm 31 days of date of bIlling, a second notIce ]5 sent After 45 days from the date of bdhng, the accounts appear on a shut off hst at which bme an mspector is sent to the servtce address to elther collect the amount due or dlsconb.nue water service. On closed accounts, the customer recelves a closmg renunder noUce 21 days after the dosing bill was sent. If they have not paid Wltlun one week of sending the closmg reminder, the account IS referred to the Finance Department for coUeehon. Sewer Connection Fees The Sewer Connechon Fee ]5 collected as part of the buddmg permIt and sewer connection penmt applIcation procedures. Pernnts are not granted unbl payment has been received The fee ]S deposIted mto a deferred Revenue Fund account, under the provisions of AB1600, until specfic and appropnate projects to be funded by the deferred momes are identified by the CIty. Industrial Waste Fees. The Industrial Waste Fee consists of an mspectlOn/samplmg fee and a permIt applIcation fee due every three years. The inspectlOn/samphng fee IS billed bimonthly and the permIt apphcanon fee appears on the same bIll at the appropnate renewal date. Industrial Waste Fee bills become dehnquent if not paid wttlun 30 days of the invOIce date, at wluch tIme a dehnquent nobce ]5 sent Delinquent nohCes prOVIde an addItion 15 days for payments and nobhcabon that if payment]s not receIved, the bIll will be turned over to the CIty Attorney for coIlechon. Hazardous Waste Fees. The Hazardous Waste Fee COnsIsts of an annual fIlmg fee assocIated with the subnuttal of hazardous materials busmess plans. TIus fee IS due at the appropnate annual renewal date for the busmess. The fee payment ]5 received by the Environmental Programs DIVIsion and forwa.rded to the Treasury DIVIsion of the CIty'S Fmance Department for processing. Busmesses wluch do not pay the apphcable fee pnor to their renewal date are referred to the Ctty Attorney's Office for appropnate legal achon. 20 Cash Receipts and Disbursements The following table presents unaudIted cash revenues and expenses of the Revenue Fund for the past fIVe Fiscal Years. REVENUE FUND mSTORIC REVENUES A1\TD EXPE1\,'OITURES Un Thousands) REVENUES: Sewer Service Charges... .......... .............................. Industrial Waste Fees.. .... ............ ............. ............ Hazardous Waste Fees (1).. .................. .................... Miscellaneous Revenues.... ....... .... ......... ............. .... Total Operatmg Revenues............ ........ ............ ..... DEFERRED REVENUES: Sewer Connection Fees.... .......................................... Total Revenues................... ....................... ............... EXPENSES Operating (2)......... .................. ......................... .... Interfund Transfers ........................ ............ ........... Total Expenses......... .... ...... .... ........... ....... ..... ...... NET OPERATING INCOME Capital Expenditures..... ........... ............ .........___.... 1986-87 1987-88 1988-89 $2,272 o o 646 $2,920 442 $3,362 $2,049 o $2,049 $1,313 3,826 $2,949 o o 296 $3,247 l.425 $4,672 $3,782 Q $3,782 $890 REVENUES OVER EXPENSES Excess/(Deficitl.. .... $(2,514) $(1,533) 2,423 BEGINNING FUND BALANCE................. ....... ..... Prior Penod Adjustment........... ..... ............... ..... .... ENDING FUND BALANCE... ............................... $5,786 o $3,272 $3,272 371 $2,11 0 Source' City of Santa Monica, Utibties Ofhce. (1) The Hazardous Waste Fees were not adopted until Fiscal Year 1990-91. (2) Excludes depreoahon expenses 21 $4,077 o o 414 $4,491 941 $5,432 $4,125 o $4,125 $1,307 289 $1,018 $2,110 o $3,128 1989-90 1990-91 $8,987 272 o 860 $10,119 594 $10,713 $4,743 o $4,743 $5,970 818 $5,152 $3,128 o $8,280 $7,907 375 42 lrO~7 $9,361 819 $10,180 $6,246 291 $6,537 $3,643 2,477 ($2,885) $8,280 o $5,395 Operation and Maintenance Expenses OperatIon and mamtenance expenses Include those Incurred for the Local System plus the City'S proportIonate share of operatIon and mamtenance costs of the Hypenon Plant, as provided In the Hypenon Agreement. A projectIon of the City's share of operabon and mamtenance costs for the Hypenon Plant through Fiscal Year 1995-96 IS shown In the folloWing table. These projectIons may differ somewhat from estimates made by Los Angeles due to permanent flow reductIon from water conservatIon measures CnY OF SANTA MONICA'S SHARE OF HYPERION OPERATION AND MAINTENANCE COSTS (In Thousands) Fiscal Year 1991-92 1992-93 1993-94 1994-95 1995-96 Projected Operation & Maintenance Billings $3,707 3,543 2,942 3,205 3,429 Source. City of Santa Monica UtIlitIes Office. Pro Forma Statement of Revenues and Expenditures The following table IS a pro forma operatIons statement developed by the City m conjunctIon With Its rate consultant, Kennedy/]enks/Chtlton. The table shows the revenue mcreases requIred to meet the cost of operatIOn and maintenance of eXIstmg and proposed faCIhties and to meet proJeCted debt service requirements while mamtammg Net Revenues of 120% of Annual Debt Service. Future revenues are based on current rates and anbapated growth levels, reflectIng current and proposed polICies regardmg buildmg permit limItatIOns and conservation measures. The indicated revenue increases are overall averages. Individual rates and charges WIll be increased at different rates to reflect the related cost of service. 22 PRO FORMA STAT~OF FINANQAL OPERATIONS an Thousands) Budgeted 1991-92 1992-93 1993-94 1994.95 1995.96 1996-97 REVENUES. Sewer Service Charges... ...... .... ........... $7,550 $7,751 $7,510 $7,362 57,215 S7}J67 Industrial Waste Fees .... ............. ......... 384 375 375 375 3&J 399 Hazardous Waste Fees . ........... ............ 88 100 100 100 115 115 Other Revenues (1)............... ............ ..... 384 458 4Sl 522 565 584 Total Revenues...... .................. +t. ......... 58,406 $8,684 $8,442 58,359 58,275 $8,165 Add'} Revenues from Rate Increases (2)... 1,397 2,860 2,.929 2,999 3,071 3,145 Add'l Revenues from Rate Increases (3).... 835 855 876 Pm Add'l Revenues from Rate Increases (4) on 897 919 941 Add'l Revenues from Rate Increases {S).... 966 990 Add'l Revenues from Rate Increases (6)... 1,043 Total Revenues.......................... ........... . $9,803 $11,544 $12,206 $13,110 514,107 $15,181 EXPENSES Opera ting (7)............ ........... .................... 5,502 5,433 4,898 5,2.26 5,521 5,874 Envlr. Programs (less reimbursement).. .. .. 1,155 1,212 1,273 1,337 1,403 1,474 Interfund Transfers Out.. ....n. .......... ... S94 632 664 6W 732 769 Total Expenses....... ..... ............ ............... $7,251 $7;277 $6.835 $7,2fJJ 57,6.56 58,117 NET OPERATING INCOME........ ........ $2,552 S4-267 $5,371 55,850 $6,451 $7))64 Debt Service - 1991 Senes A Bonds........... 3,243 2,866 2.864 2.870 2,869 Debt ServIce - 1995 Series Bonds (8)......... 1,707 1,712 Capltal Expenditures (repau/replacmt ).... 2,092 2,020 1,924 1,924 2,020 2,121 REVENUES TO EXPENSES ExceSS/(DefiClt) $460 ($9%) $581 $1,062 (5146) 5362 BEGINNING FUND BALANCE....... ...... $4,al7 S5;1D7 $4,271 $4,852 $5,914 55,768 ENDING FUND BALANCE...... ..... ..... . $5,267 $4~ $4,852 $.5,914 $5,768 $6,130 RESTRICTED REVENUE Begtnnmg Balance $1,999 $2,.473 $2.115 $1,746 1,366 $ 976 Restncted AB1600 Revenue. ........ ...... . 996 957 1,012 1,070 1,133 1.198 Capital ExpansIon Expenditures.. .. ..... 522 1,315 1,381 1,450 1,523 1,599 RESTRICTED REVENUE Ending Balance.. $2,473 $2,.115 $1,746 $1,366 $ 976 S 575 Source: Kennedy/Jenks/Culton. (1) Includes mterest revenue. (2) 37% Revenue mcrease effect1ve 12/1/91. (3) 8% Revenue mcrease effectlve 7/1/93. (4) 8% Revenue increase effectlve 7/1/94. (5) 8% Revenue increase effective 7/1/95 (6) 8% Revenue lncrease effective 7/1/96. (7) Excludes depreclanon expenses. (8) Assumes the Issuance of $18.9 nullion of Bonds In nud Fiscal Year 1994-95 with a 30 year term and an approximate average mterest cost of 8.25%. Outstanding Bonded lndebledness As of the date of the Ofhoal Statement, there is no prior bonded mdebtedness of the Enterpnse. 23 Annual Debt Service Requirements The following table shows the amounts reqUIred each FIscal Year for the payment of pnnClpal of and mterest on the Bonds. For purposes of calculatmg the principal payable m any year, the relevant senal matunty or mandatory smkmg fund redempbon amount IS used. un' OF SANTA MONICA WASTEWATER ENTERPRISE REVENUE BONDS (HYPERlON PROJEen 1991 SERIES A ESTIMAT.t:U DEBT SERVICE Prindnal Interest Total Debt Service Fht'al Year "Ending June 30 1993.......... ................. ..... ...... 1994 ........... ......................... 1995 ..... ..... .................... ..... 1996............... ..................... ... 1997...... .................... ..... ... 1998... ...................................... 1999.... ............ ....... .............. 2000... ....... ... . .... ............ .. 2001.... .... ................... ........ 2002...... .......................... ....... 2003 .... .................... ........... 2004 ...... ............................... 2005......... ............. ............ ..... 2006.... ...... ... ........... ...... ........... 2007... .......................... .......... 2008........... .................. ......... 2009.......... . ............................ 2010................................. .... .. 2011......................................... 2012..................... ...... ............ 2013......... ....... ........... ... ........... 2014.......... ...... ............... ...... .. 2015.... ....... ........ ..... ................ 2016..... ... ............................. 2017.. ........ ........ ........ ........ ...... 2018.. ..... ................ .... ...... ...... 2019.. ..... ................................. 2020.. ....................n. ............... 2021 ... .................................... 2022............. .... ...................... Total.. ............ $ $ $ 24 Analysis of Debt Service Coverage The foDowing table shows projected debt serv1ce coverage for Fiscal Years 1990-91 through 1995-96. DEBT SERVICE COVERAGE PROJECtIONS (In Thousands) Budgeted 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 Net Operating Income With Increases (1)...... $2.552 $4.267 $5,371 $5,850 $6,451 $7,064 PrinCipal & Interest 1991 Senes A Bonds (2)... 0 3,243 4866 2,864 2.870 2.869 PrinCipal & Interest 1995 Senes Bonds (3)..... 0 0 0 0 1,707 1,712 Total Projected Pnnclpal & Interest............... 0 3,243 2,866 2.864 4,577 4,581 PrOjected Debt Sel'Vlce Coverage ...................... N/A 1.32 1.87 2.04 141 1.54 Source: Kennedy /Jenks/Chilton. (1) Net operahng income mcludes rate mcreases shown In Proforma Statement of OperatIons table on page 23. (2) Estunated debt service for 1991 Senes A Bonds. (3) 1995 Senes Bonds scheduled for January 1995. REGULATORY REQUIREMENTS SInce the Dty dIscharges wastewater to the Hyperion Plant for treatment and dIsposal, the City's wastewater operatIons are subject to many of the same regulatory requirements as are those of the City of Los Angeles. These reqUirements are contained m the Clean Water Act, and in the State of Cahfomla Porter- Cologne Water Quality Control Act of 1969, as amended. Both federal and state regula nons are adrmmstered through the SWRCB, and generally deal with the quahty of effluent discharged from the wastewater treatment faCIlities, the disposal of sludge from the wastewater treatment plant, the dIscharge of pollutants mto the groundwater and the nature of waste material (particularly industnal waste) dIscharged into the collectIOn system. AddItional reqwrements were imposed on Los Angeles and an contracting agenCIes, includmg the CIty, when Los Angeles applIed for and received federal EPA grants under the Clean Water Act There were grant-related requirements regardmg planning methodologies, deSIgn criteria, construction actiVIties, and the operation, mamtenance and financing of faCllities. To comply with mandated effluent quality and disposal cnteria, Los Angeles must operate its wastewater treatment facilIhes accordmg to requirements set forth In National Pollutant Discharge EhrmnatlOn System (NPDES) permits. It must also comply WIth proViSions of an Amended Consent Decree negotiated With the United States Government and the State of Cabforma. TIus Amended Consent Decree estabbshes a comphance schedule for systematically upgrading the degree of treatment prOVided at the Hyperion Plant. Los Angeles has met many of the reqUirements of the Amended Consent Decree, and has plans to construct and put into operation the necessary facllitles to satisfy the many reqUirements relating to its wastewater discharges. A proportIonate share of fundmg will be prOVIded by the Gty and other contributors to the Hyperion System. To comply with regulations and grant reqwrements dealing With the discharge of waste matenals mto the sewer system, Los Angeles and all contracting agencies must administer and enforce industrial pre-treatment standards on certain users of thelr collection systems. Since 1986, the City has had such a program, the prOVIsions of wluch are contaIned m Chapter 4, ArtIcle V of the Santa Monica MunIcipal Code. The costs of this program. are borne by industrial waste fees paid by industnal waste dISChargers to the system. Another grant-related regulatory requIrement is that Los Angeles and all contracting agencies have approved user charge systems to recover annual operabng, mamtenance and replacement costs from users of the system in a proporhonate manner, according to the customer's level of use. DelIvery flow rate and strength of wastewater are considered in detemuning pro}X)rtionate use The City has such a system wherem user fee rates are reVIewed periodIcally and established at a level sufficIent to recover aU costs assooated WIth the 25 operation of the system, including contractual costs of wastewater treatment and disposal by Los Angeles. The City must penodica1ly fde reports with the SWRCB descnbmg Its wastewater revenue program. At the present time, agreements between Los Angeles and other Subscnb10g Agenc]es to the Hypenon System do not 10clude a1l of the federal and state regulatory requirements and do not adequately descnbe the manner 10 which costs of upgradmg, operatmg and mamta10mg the Hyper]on System wl1l be apportioned among contributors. Thus, Los Angeles and other Subscnbmg Agenoes, mcludmg the CIty, are Involved In negotlations to modify the form and content of these agreements to achieve comphance wIth applicable wastewater dIscharge regulations, and to establIsh a methodology for cost shanng. TAX EXEMPTION General In the opInIon of Omek, Hemngton & Sutchffe, Los Angeles, Cahfomla, Bond Counsel, based on existIng statutes, regulatIons, ruhngs and court decISIons and assunung, among other matters, comphance wIth certam covenants, mterest on the 1991 Series A Bonds IS excluded from gross income for federal mcome tax purposes and ]5 exempt from State of California personal Income taxes. The Internal Revenue Code of 19B6 (the "Code"), Imposes vanous restnctions, condll1ons and requirements relatIng to the exclUSIOn from gross mcome for federal mcome tax purposes of mterest on obhgatIons such as the 1991 Series A Bonds. The CIty has covenanted to comply WIth certaIn restnctlOns designed to assure that mterest on the-1991 Senes A Bonds w1l1 not be mcluded 10 federal gross mcome. Failure to comply with these covenants may result 10 the Interest on the 1991 Senes A Bonds bemg mcluded In federal gross mcome, poSSibly from the date of issuance of the 1991 Senes A Bonds. The opimon of Bond Counsel assumes comphance WIth these covenants. Bond Counsel has not undertaken to determme (or to mform any person) whether any actIons taken (or not taken) or events occumng (or not occumng) after the date of Issuance of the 1991 Senes A Bonds may affect the tax status of the Interest on the 1991 Senes A Bonds Bond Counsel is further of the opmlOn that mterest on the 1991 Senes A Bonds is not a speohc preference Item for purposes of the federal indIVIdual or corporate alternative nummum taxes However, Bond Counsel observes that such mterest IS included 10 adJusted current earnings In calculatmg corporate alternative nummum taxable mcome. CertaIn requirements and procedures contained or referred to in the Indenture and other relevant documents may be changed and certain actions (includIng, Without limitatIon, defeasance of the 1991 Series A Bonds) may be taken, under the circumstances and subjeCt to the terms and condItions set forth 10 such documents, upon the advice or Wlth the approvmg opinIon of nationally recognized bond counsel. Omck, Hernngton & Sutchffe expresses no opmion as to any Bond or the mterest thereon if any such change occurs or acbon IS taken upon the ad vice or approval of bond counsel other than Ornck, Hemngton & SutclIffe. Although Bond Counsel has rendered an opImon that mterest on the 1991 Senes A Bonds is excluded from federal gross Income, the accrual or receIpt of such interest may otherwise affect a Bondowner's federal income tax lIabIlIty. The nature and extent of these other tax consequences will depend upon each Bondowner's partIcular tax status and Bondowner's other Items of mcome or deductIon. Bond Counsel expresses no oplmon regardmg any such other tax consequences. 01l11:iK INFORMATION Litigation There is no controversy of any nature now pendmg against the City or, to the knowledge of Its respectIve officers, threatened, seeking to restraIn or enjom the Issuance, sale, execution or delivery of the 1991 Senes A Bonds or In any way contestIng or affectIng the vahdIty of the 1991 Senes A Bonds or any proceedmgs of the City taken WIth respect to the Issuance or sale thereof, or the pledge or application of any moneys or secunty provided for the payment of the 1991 Senes A Bonds or the use of the 1991 Senes A Bond proceeds. 26 There are no pendmg laWsuIts which m the opinion of the CIty Attorney challenge the validIty of the above issue, the corporate eXIstence of the CIty, or the btIe of the offIcers to theIr respectIve offlces. The OffIce of the CIty Attorney, as of , has prepared the followmg statement concern1Og pending or threatened matenal bugatJon involVing elauns agamst the City whIch may be payable from the Revenue Fund: [TO BE l..lYuAu~u] In the opinion of the City Attorney, the City has sufficient defenses against such claIms and lawsuits and that m no event should these claims and laWSUits result In JUdgments or settlements whIch, In the aggregate, would have a material adverse effect on the Revenue Fund's fmancial poSItion. Legal Opinion The legal opmIOn of Ornck, Hemngton & Sutchffe, Los Angeles, Cahfornia, Bond Counsel, approVlng the validity of the Bonds, WIll be furroshed to purchasers without charge at the hme of dehvery of the Bonds. The proposed form of such legal oplmon IS attached hereto as APPENDIX E. Municipal Bond Insurance Concurrently with the issuance of the 1991 Senes A Bonds, Insurance Company, domg bUSIness In Cahfomla as Insurance Company ( ) wi)] Issue its Municipal Bond New Issue Insurance Polley for the 1991 Series A Bonds WIth a stated matunty of (the "Pohcy"). Only those 1991 Senes A Bonds with a stated maturity of WIll be Insured by the Pobcy. No msurance is prOVIded with respect to any other 1991 Series A Bonds. Those 1991 Series A Bonds WIth a stated matunty of are 10 the follOWIng paragraphs referred to as the ''Insured Bonds." A specimen of the Mumclpal Bond New Issue Insurance Policy and the Endorsement thereto are included as APPENDIX F to thiS QffIoal Statement. The following mfonnabon has been proVIded by OffIcial Statement. for use in tlus [INSURANCE LANGUAGE IF APPLICABLE} Ratings Moody's Investors Service, Inc. and Standard & Poor's CorporatIon have rated the 1991 Senes A Bonds and , respectIvely. The CIty applIed for such raongs and supplIed certain mformation to such ratIng agenaes to be conSIdered in evaluatIng the 1991 Series A Bonds Such ratIngs reflect only the respectIve VIeWS of such ratIng agencies, and any explanation of the SIgnificance of such ratings should be obtamed from the rabng agency furnIshing the same. There IS no assurance that either of such ratings WIll be retamed for any given penod of brne or that the same WIll not be l'eVlsed downward or withdrawn entIrely by the rating ageney furnislung the same if, in its judgment, crcumstances so warrant. The City undertakes no responsIbilIty eIther to bring to the attenbon of owners of the 1991 Series A Bonds any downward reVISion or WIthdrawal of either such rating or to oppose any such reVISIOn or withdrawal. Any such downward reVIsion or WIthdrawal of such ratIngs. may have an adverse effect on the market pnce of the 1991 Senes A Bonds. I In addJbon, Moody's Investor Service, Inc. and Standard & Poor's CorporatIon have aSSigned therr mumcipal bond ratings of and respectively, to the Insured Bonds with the understandIng that, upon delivery of the 1991 Series A Bonds, a policy msuring payment when due of the pnncipal of an mterest on the Insured Bonds will be ISSued by_Insurance Company.] 27 Limitation of Remedies In addition to the lumtatIons on remedies contained In the Indenture, the nghts and remedies provided In the Indenture may be hnuted by and are subjeCt to bankruptcy, Insolvency, reorgamzatlon, moratonum and other slmllar laws affectmg creditors' nghts, to the apphcatlon of equitable pnnclples, and to the exercIse of JudiCIal mscretlOn in appropriate cases. Financial Advisor Connell and ASSOCIates served as hnancial adVIsor to the Oty in connectIon with the Issuance of the 1991 Series A Bonds Financial Statements The Combined FinanClaI Statements, CombmIng Balance Sheet - All Enterpnse Funds of the CIty for the Fiscal Year ended June 30, 1990 and Unaudited Balance Sheets - Wastewater Enterpnse for the year ended June 30,1991, are Included herem as APPENDIX A These combined financIal statements of the City have been audited by Peat MaTWlck Main & Co , independent pubhc accountants, as stated In theIr report Miscellaneous This OffIcial Statement has been duly approved, executed and delivered by the City. There are appended to thIs OffICIal Statement a summary of certain prOVISIOns of the Indenture, AudIted Fmancial Statements of the City, the proposed from of opinion of Bond Counsel, and general mformatIon regardmg the City. The appendIces are mtegral parts of thiS OffiCial Statement and must be read together With all other parts of this Official Statement. ThIS Official Statement is not to be construed as a contract or agreement between the CIty and the purchasers or holders of any of the 1991 Series A Bonds. Any statements made In thiS OffiCial Statement mvolvmg matters of opinion, whether or not expressly so stated are Intended merely as an OpinIOn and not as representations of fact The mfonnabon and expressions of opmion herem are subJeCt to change Without notice and neIther the dehvery of thIS OffIcial Statement nor any sale made hereunder shall, under any circumstances, create any implicabon that there has been no change in the affaus of the City smce the date hereof. All references to the Law and the Indenture are bnef outhnes of certam prOVIsIons thereof. Such outhnes do not purport to be complete and reference IS made to such laws and such documents for a full and complete statement of such proviSIOns. CITY OF SANTA MONICA BY Judy Abdo, Mayor 28 APPENDIX A Combined Financial Statements and Combining Balance Sheets - All Enterprise Funds and Independent Auditors Report Year Ended June 30, 1990 Unaudited Balance Sheets - Wastewater Enterprise Year Ended June 30, 1991 APPENDIX C Summary of Certain Provisions of the Indenture Code The term "Code" means the Internal Revenue Code of 1986. Costs of Issuanc~ .Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the City and related to the authorization, execution and delivery of the Indenture and the related sale of the Bonds, including, but Dot limited to, costs of preparation and reproductIon of documents, costs of rating agencies, filing fees, initial fees and charges of Trustee (including Trustee counsel fees), fees and charges of the City, legal fees and charges, fees and expenses of consultants and professionals, fees and expenses of any financial advisor, fees and charges for preparation, execution and safekeeping of the Bonds and any other charge, cost or fee in connection with the original sale, executiOn and delivery of the Bonds. Credit Provider The term "Credit Provider" refers to a Municipal Bond Insurer that has issued an outstanding policy of municipal bond insurance or a QuaIified Bank that is the issuer of an outstanding Letter of Credit which, in each case, secures payment of prmcipal of, and interest on, or tender price of, all or a portion of a Series of Bonds; provided that this term shall not refer to a Reserve Provider. Current Interest Bonds The term "Current Interest Bonds", as to the 1991 Series A Bonds, means all of such 1991 Series A Bonds and as to Bonds of subsequent Series means Bonds designated as Current Interest Bonds in the Supplemental Indenture providing for the issuance of such SerIes of Bonds and which pay interest at least semiannually to the Owners thereof excludmg the first payment of interest thereon. Debt Service The term "Debt Service" means the sum of all principal and interest becoming due on the Bonds, calculated as provided in the definition of Maximum ,Annual Debt Service. ~ The term "DTe" means The Depository Trust Company, a limited-purpose trust company organi7ed under the laws of the State of New York, and its successors as securities depositary for the 1991 Series A Bonds including any such successor appointed pursuant to the Indenture. Entefllrise The term 'Enterprise" means the whole and each and every part of the municipal wastewater collection, treatment and disposal system of the City, including the City's interest in the Hyperion Plant pursuant to the Hyperion Agreement, and all of said municipal wastewater system of the City existing as of the date of the Indenture and all additions, betterments, and extensIons to said wastewater system or any part thereof made after the date of the Indenture. LAl-10U7.1 C-3 4O'233-2-GPH-IOl07/9I shall have a maturity of one year or less and shall have been issued in bearer form, shall mean the bearer of such Bond. Bond Reserve Fund Policy The term "Bond Reserve Fund Policy" means a policy of insurance or surety bond issued by a Municipal Bond Insurer, obligations insured by which have a rating by Moody's and S&P of "A" or better, or a Letter of Credit issued by a Qualified Bank, to satisfy all or a portion of the Required Reserve. ;Bonds The term "Bonds" means the City of Santa Monica Wastewater Enterprise Revenue Bonds authorized by, and at any time Outstanding pursuant to, the Indenture or any Supplemental Indenture, including any Additional Bonds authorized by, and at any time Outstanding pursuant to, the Indenture and any Supplemental Indenture, and includes bonds, notes or other eVIdences of indebtedness payable from Revenues on a parity with the Outstanding Bonds. Book-Entry Bonds The term "Book-Entry Bonds" means the 1991 Series A Bonds regIstered in the name of the nominee of DTC, or any successor securities depository for the 1991 Series A Bonds, as the regIstered owner thereof pursuant to the terms and provisions of the Indenture. Business Day The term "Business Day" means any day other than (1) a Saturday, Sunday or day upon which commercial banks in Los Angeles, California are authorized or requited to be closed and (2) for purposes of payments and other actions relating to Bonds secured by a Letter of CredIt, a day upon WhICh commercial banb in the city in which is located the office of the QualIfied Blink at which demands for payment under the Letter of Credit are to be presented are authorized to be closed. Caoital Aooreciation Bonds The term "Capital Appreciation Bonds" means Bonds desIgnated as Capital Appreciation Bonds in the Supplemental Indenture providing for the issuance of such Bonds and on which interest is compounded and pllld at maturity or on prior redemption. Cede & Co. The term "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to the 1991 Series A Bonds. City "City" means the City of Santa Monica, a mumcipal corporation and charter city, duly org~nl?.ed and existing under and by virtue of the Constitution and laws of the State. LA.l.104!'7 1 C-2 40233..2.QPH.IOl<17 /91 SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE The following statements summarize certain provisions of the Indenture This summary does not purport to be complete and reference is made to the Indenture for a full and complete statement of such provisIons. DU'lrunONS Accreted VaIue "A~icuxl Value" means, with respect to any Capital Appreciation Bonds, as of the date of calculation, the initial amount thereof plus the interest accrued thereon to such date of calculation, from the date of initial delivery at the approximate interest rate thereof compounded semiannllally. as determin~ in accordance with the table of accreted values for any Capital Appreciation Bond prepared by the City at the time of sale thereof, assuming in any year that such Accreted Value increases in equal daily amounts on the basis of a year of three hundred sixty (360) days composed of twelve (12) months of thirty (30) days each. Additional Bonds The term "Additional Bonds n me.an~ bonds, notes or other obligations of the City payable from Revenues and rankmg on a parity with the Bonds and authorized to be issued under and pursuant to the Indenture. Annual Debt Service The Will "Annual Debt Service" means the sum of prinCipal and mterest becoming due on the Bonds, calculated as prOVided in the definition of Maximum Annual Debt Service, as computed for the Fiscal Year or other twelve-month period to which reference is made. Avera2e Annual Debt Service The term Of Average Annual Debt Service" means total Debt Service. divided by the number of twelve-month periods ending on June 30 (including any fractional periods) remaining until the last maturity date of any Outstanding Bond. Bond Oblieation The term "Bond Obligation" means~ as of any given date of calculation, (1) with respect to any Outstanding Current Interest Bond, the principal amount of such Bond. and (2) with respect to any Outstanding Capital Appreciation Bond. the Accreted Value thereof as of the January I or July 1 next preceding such date of calculation (unless such date of calculation is a January 1 or July I in which case as of such dare). Bondowner. Owner The term "Bondowner" or "Owner" means any person who shall be the registered owner of any Outstanding Bond, including DTC, or any successor securities depository for the 1991 Series A Bonds, or its n(lmin~, as the sole registered owner of Book-Entry Bonds, or, if such Outstandmg Bond 1.\1-104S'7.1 C-l 40233-%-aPH-I0107191 Federal Securities The term "Federal Securities" means United States treasury notes, bonds, bills or certificates of indebtedness, or obligations for whIch the full faith and credit of the United States of America are pledged for the payment of principal and interest (including obligatIOns issued or held in book-entry form and securities which represent an undiVIded interest in such direct obligations), and also any securities now or hereafter authorized, both the principal of and interest on which is guaranteed directly by the full faith and credit of the United States of America. Fiscal Year The term "Fiscal Year" means the period beginnmg on July I of each year ~nd ending on the next succeeding June 30, or such other fiscal year as may be adopted by the City for its general accounting purposes. Generallv Accented Accountin2' Princioles - - "Generally Accepted Accounting Principles" means the uniform accounting and reponing procedures set forth in publications of the American Institute of Certified. Public ACCQUDtants or its successor and the Governmental Accounting Standards Board or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Financial Accounting Standards Board or its successor. Hyp~rion A2'reement The term "Hyperion Agreement" means the Joint Powers Agreement, made and entered into February 21, 1964, by and between The City of Los Angeles and the City governing the treatment of sewage at the Hyperion Plant, and as such agreement may be amended, modified or restated and shall include any agreement between such parties governing the treatment of sewage at the Hyperion Plant that replaces or supersedes the existing Hyperion Agreement. Hvoerion Plant The term "Hyperion Plant- means the Hyperion Treatment Plant and appurtenant facilities lOC!!~ at 12000 Vista del Mar, Los Angeles, California, together with any wastewater col1ection, treatment and disposal facilities related to the Hyperion Plant, and in which facilities the City has an interest pursuant to the Hyperion Agreement, and any alteration, expansion, improvement, relocation, replacement or reconstruction thereof. In<l~~re The term "Indenture" means the Indenture, dated as of I, 1991, by and between the Trustee and the City, as originally executed or as it may from time to time be supplemented or amended by any Supplemental Indenture delivered pursuant to the provisions of the Indenmre. Indenendent Certified Public Accountant The term "Independent Certified Public Accountant" means any certified public accountant or firm of such accountants appointed and paid by the City, and who, or each of whom - LAI-IOO7 1 C-4 .wz33-%-aPK-I0101I9l (i) is in fact independent and not under domm~tlon of the City; (ii) does not have any substantial interest, direct or indirect, with the City; and (iii) is not connected with the City as an officer or employee of the City, but who may be regularly retained to make annual or other audits of the books of or reports to the City. Information Services The term "Information Services" means Financial Information, Inc. 's "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' IICalled Bond Service: 65 Broadway, 16th Floor, New York, New York 10006; Moody's ItMunicipal and Government," 99 Church Street, 8th Floor, New York, New York 10007, Attention: Municipal News Reports; an(l S&P's "Called Bond Record," 2S Broadway, 3rd Floor, New York, New York 10004; or, in accordance with then~rrent guidelines of the Securities and Exchange Commission, such other addresses and/or such other services providing mformation with respect to called bonds, or no such services, as the CIty may designate in a written request of the City delivered to the Trustee. Law The term "Law" means the Charter, the Santa Monica Revenue Bond Act (being Chapter 6.5 of Article IT of the Santa Monica Municipal Code) and all laws of the State of Cahforma supplemental thereto, including the Revenue Bond Law of 1941, to the extent made applicable by the Santa Monica Revenue Bond Act. Leeal Investtnents The term "Legal. Investments" means bonds, notes, cenificates of indebtedness, buts. acceptances or other securities in which funds of the City may now or hereafter be legally invested as provided by the law in effect at the tIme of such investment. Letter of Credit The term ItLeuer of Credit" means an irrevocable and unconditionallerter of credit, a standby purchase agreement, a line of credit or other similar credit arrangement issued by a Qualified Ban1c to secure payment of Variable Rate Indebtedness. Tender Tnd~tedness or a Senes of Bonds or to satisfy all or a portion of the Required Reserve. Letter of Credit A~eement The term "Letter of Credit Agreement" means an agreement betWeen the City and a Qualified Bank" pursuant to which the Qualified Bank agrees to issue a Letter of Credit and WhIch sets forth the repayment obligation of the City to the Qualified Bank on account of any payment under the Letter of Credit. lAl-l0U7 I C-5 4023~2...(j}1H-101a7191 Local System The term "Local System" means all of the Enterprise except the City's interest in the Hyperion Plant. Maximum Annual Debt Service The term "Maximum Annual Debt Service" means. at any point in time. with respect to Bonds then Outstanding, the maximum amount of principal and interest becoming due in the then current or any future Fiscal Year, calculated as provided in this definition. For purposes of calculating MaxImum Annual Debt Service, the following assumptions are to be used to calculate the principal and interest becoming due in any Fiscal Year: (i) in determining the principal amount due in each year, payment shall (unless a different subsection of this definition applies for purposes of determining principal maturities or amortization) be assumed to be made in accordance with any amortization schedule established for such debt. including any Minimum Sinking Fund Account Payments or any scheduled redemption or payment of Bonds on the basis of Accreted Value, and for such purpose, the redemption payment or payment of Accreted Value shall be deemed a principal payment and interest that is compounded and paid as Accreted Value shall be deemed due on the scheduled redemption or payment date of such Capital Appreciation Bond; (ii) if any Outstanding Bonds constitute Tender Indebtedness or if Bonds then proposed to be issued would constitute Tender Indebtedness, then for purposes of detennining the amounts of principal and interest due in any Fiscal Year on such Bonds. the options or obligations of the owners of such Bonds to tender the same for purchase or payment prior to their stated maturity or matunties shall be treated as a principal maturity occurring on the first date on which owners of such Bonds mayor are required to tender such Bonds except that any such option or obhgation to tender Bonds shall be ignored and not treated as a principal maturity, if (1) such Bonds are rated in one of the three highest long-term rating categories (without reference to gradations such as "plus" or "min1lS") by Moody's and by S&P or such Bonds are rated in the highest short-term, note or C(lmm~rcial paper rating categories by Moody's and by S&P and (2) the obligation, if any. the City may have under a Letter of Credit Agreement with respect to such Bonds. other than its obligations on such Bonds, shall either be subordinated to the obligation of the City on the Bonds or be incurred under the conditions and meeting the tests for the issuance of Additional Bonds set forth in the Indenture; (iii) if any Outstanding Bonds constitute Variable Rate Indebtedness, the interest rate on such Bonds shall be assumed to be 110% of the greater of (a) the daily average interest rate on such Bonds during the 12 months ending with the month preceding the date of calculation. or such shorter period that such Bonds shall have been Outstanding, or (b) the rate of interest on such Bonds on the date of calculation; and (iv) if Bonds proposed to be issued will be Variable Rate Indebtedness, then such Bonds shall be assumed to bear interest at the rate quoted in The Bond Buyer - ~ Revenue Bond Index for the last week of the month preceding the date of sale of such Additional Bonds, as published in The Bond Buver, or if that index is no longer published, another similar index selected by the City, or if the City fails to select a replacement index, an interest rate equal to 80 % of the yield for outstanding U oited States Treasury bonds having an equivalent maturity as Ul-10U7.1 C-6 40233-2-GPH-10l07f91 the Additional Bonds proposed to be issued, or if there are no such Treasury bonds having equivalent matUrities, 80% of the lowest prevailing prime rate of the five largest commercial banks in the United. States ranked by assets. Minimum Sinkme: Fund Account Payments The term "Miniml1m Sinking Fund Account Payments" means the aggregate amounts required by the Indenture and any subsequent Supplemental Indenture or Supplemental Indentures to be deposited in Sinking Fund Accounts for the payment of Term Bonds. Moodv's The term "Moody's" means Moody's Investors Service, Inc., a corporation duly orgllni7.ed and existing under ~nd by virtue of the laws of the State of Delaware. and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. Municinal Bond Insurer The term "Municipal Bond Insurer" means any insurance company or companies which has or have issued a policy of municipal bond insurance insuring payment of the principal of and mterest on any of the Bonds of any Series or a Bond Reserve Fund Policy and are so designated as such in the Indenture or a Supplemental Indenture. Net Revenues The term "Net Revenues" means, for any Fiscal Year or other period, the Revenues during such Fiscal Year or period, less the Operation and Maintenance Costs of the Enterprise during such Fiscal Year or period. 1991 Series A Bonds The term "1991 Series A Bonds" means the $ principal amount of the City of Santa Monica Wastewater Enterprise Revenue Bonds (Hyperion Project), 1991 Series A issued pursuant to the Indenture. ODeration and Maintenance Costs of the Enterorise - - The term "Operation and Maintemtnt;:e Costs of the Enterprise" means the reasonable and necessary costs of operating and maintaining the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, includmg (among other things) salaries and wages, fees for servIces, costs of materials, supplies and fuel, reasonable expenses of management, legal fees, &CC01.ulting fees, repairs and other expenses necessary to ml!!intain and preserve the Enterprise in good repair and working order. and reasonable amounts for administration, overhead, insurance, taxes (if any) and other similar costs, And the payment of pension charges and proportionate payments to such compensation and other insurance or outside reserve funds as the City may establish or require with respect to employees of the City, which costs shall include operation and maintenance costs attributable to the Hyperion Plant and payable by the City pursuant to the Hyperion Agreement, but excluding in all cases (i) depreciation and 1.-\.t.UMS7 1 C-7 40233-z..oPH.1Of07191 obsolescence charges or reserves therefor, (ii) amortization of intangibles or other bookkeeping entries of a similar nature, (Iii) costs of capital additions. replacements, betterments, extensIOns or improvements to the Enterprise (including such capital costs attributable to the Hyperion Plant and payable by the City pursuant to the Hyperion Agreement). which under Generally Accepted Accountmg Prmciples are chargeable to a capital account or to a reserve for depreciation. and (iv) charges for the payment of principal and interest on any revenue bonds or other indebtedness heretofore or hereafter issued for Enterprise purposes. Outstandinsr The term. "Outstanding," when used as of any particular time with reference to Bonds, means (subject: to the provisions of the Indenture relating to disqualified Bonds) all Bonds theretofore executed, issued and delivered by the City under the Indenture except - (1) Bonds theretofore cancelled by the Trustee or surrendered to the Trostee for cancellation; (2) Bonds for the payment or redemption of which funds or securities in the necessary amount (as set forth in the Indenture) shall have theretofore been deposited with a fiduciary (whether upon or prior to the maturity or redemption date of such Bonds), prOVided that, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in the Indenture provided or provision satisfactory to the Trustee shall have been made for the giving of such notIce; and (3) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered by the City pursuant to the Indenture. Participant The term "Participant" means any entity which is recognized as a participant by DTC m the book~tty system of maintaining records with respect to Book-Entry Bonds. Pavment Date The term "Payment Date" meaD.! any interest, or interest and principal, payment date on which payment of the principal of or interest on the Bonds is due or on which any Term Bonds are required to be redeemed from any Minimllm Sinking Fund Account Payments. Permitted Investmeqts The term "Permitted Investments" means any of the following: (1) Federal Securities; (2) Bonds, consolidated bonds, collateral trust debentures, consolidated debentures or other obligations issued by federal land lt~nh or federal intermediate credit banh. established under the Federal Farm Loan Act. as amended; debentures and consolidated debentures issued by the Central Bank for Cooperatives and banh for cooperatives established under the Farm Credit Act of 1933, as amended; bonds or debentureS of the Federal Home Loan Bank Board LAI-IOO7.1 C-8 4m33-2-GPH-IOIO'7I91 established under the Federal Home Loan Bank Act and bonds of any federal home loan bank: established under said act; bonds, debentures, panicipation certificateS or other oblIgations of the Government National Mortgage Association or the Federal National Mongage ASSOCIation establIShed under the NatIonal Housing Act, as amended; and also any securities now or hereafter authorized, both the pnncipal of and interest on which is guaranteed indirectly by the full faith and credit of the United States of America; (3) Time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank or trust company, including the Trustee, or a state or federal savings and loan association, provided that such certificates of deposit shall be (i) continuously and fully insured by the Federal DepOSit Insurance Corporation or (ii) issued by any bank or trust company organi7.ed under the laws of any state of the United States, or any national bankIng association (including the Trustee), having a combmed capital and surplus of at least $100,000,000, and such certificates shall have matUrities of six months or less, or (iii) continuously and fully secured by such securities as are described in clauses (1) or (2) above, which securities shall have a market value (exclusive of accrued interest) at all times at least equal to the principal amount of such certificates of deposit; (4)' Bankers' acceptances which are issued by a bank or trust company org~ni7.ed under the laws of any state of the United States or any national banking asSOCIation (including the Trustee) rated" A" or higher by Moody's and S&P; provided, that such banker's acceptances may not exceed 270 days' maturity; (5) Any repurchase agreement with any bank or trust company organi7.ed under the laws of any state oithe United States or any national banking association (including the Trustee) or government bond dealer reporting to, trading with and recognized as a primary dealer by, the Federal Reserve Bank of New York. which agreement is secured by anyone or more of the securities described in clauses (1) or (2) above, provided the underlying securities are requited by the repurchase agreement to be held by any such b~nk, trust company or primary dealer having a combined capital and surplus of at least $100,000,000 and hemg independent of the issuer of such repurchase agreement, and provided the securities are continuously m::lintained at a market value of not less than the amount so invested; (6) Commercial paper of "prime" quality of the highest r-anking or of the highest letter and numerical rating as provided by Moody's and S&P, which commercial paper is limited to issuing corporations that are org::lni7.ed and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an It A" or higher rating for the issuer's debentures, other than commercial paper, as provided by Moody's and S&P; '[)rovided that purchases of eligible commercial paper may not exceed one hundred eighty (180) days' maturity nor represent more than ten percent (10%) of the outstanding commercial paper of an issuer corporation; (7) Bonds, notes, warrants or other evideD.Cc:: of indebtedness of any of the states of the United States or of any political subdivision or public agency thereof which are rated in one oithe two highest short-term or long-term rating categories by Moody's and S&P; (8) Any investment agreement with (i) any b::lnk or trust company org:mized under the laws of any state of the United States of America or any national banking association (mcluding the Trustee) or government bond dealer reponing to, trading WIth and recognized as LAl-100lS7 I C-9 40233-2.0PH-1010'7J9I a primary dealer by, the Federal Reserve Bank of New York, havmg a combined capital and surplus of at least $100.000,000. or (ii) any corporation that is organized and operating within the United States of Amenca and that has total assets in excess of five hundred rmllion dollars ($500,000,000) and that has an "A" or higher rating for its debt, other than comm~rcial paper, as provided by Moody's and S&P; (9) Investments in a money market fund (mcluding a tax-exempt money market fund) rated "AAAm" or "AAAm-G" or better by S & P or which mvests only in Federal Securities. Policy Costs The term "Policy Costs" means the amounts owing to a Reserve Provider, including the principal amount of any draw on a Bond Reserve Fund Policy, interest thereon and reasonable expenses incurred by the Reserve Provider in enforcing payment of Policy Costs, as more fuUy set forth JD the agreement pursuant to which such Bond Reserve Fund Policy is issued. Prooortionate Basis The term "Proportionate Basis," when used with respect to the redemption of Bonds, means that the amount of Bonds of each maturity to be redeemed shall be deterrnin~ as nearly as practicable by multiplying the total amount of funds available for redemption by the ratio which the amount of Bond ObligatIon of Bonds of such maturity bears to the amount of all Bond Obligation of Bonds to be redeemed, provided that if the amount available for redemption of Bonds of any maturity is insufficient to redeem a multiple of $5,000 principal amount or Accreted Value payable at maturity, such amount shall be applied to the redemption of the highest possible integral multiple (if any) of $S ,000 principal amount or Accreted Value payable at maturity. For purposes of the foregoing, Term Bonds shall be deemed to mature in the years and in the amounts of the Minimum Smking Fund Account Payments and Capital Appreciation Bonds and Current Interest Bonds maturing or subject to Minimum Sinking Fund Account Payments in the same year shall be treated as separate maturities. When used with respect to the payment or purchase of Bonds, "Proportionate Basis" shall have the same meamng set forth above except that "pay" or "purchase" shall be substituted for "redeem" or "redemption" and "paid" or "purchased" shall be substituted for "redeemed. n Oualified Bank The term "Qualified Bank" means a state or national bAnk or trust company or savings and loan association or a foreign bank with a domestic branch or agency which is org.anj,~ed and in good standing under the laws of the United States or any state thereof or any foreign country, which has a capital and surplus of $50,000,000 or more and which has a short term debt rating of the highest tanking or of the highest letter and numerical rating as provided by Moody's or by S&P. Oualified Indeoendent Consultant The term "Qualified Independent Consultant" means a person or a firm who or which engages in the business of advising the management of public agencies concerning the operation and financing of public utilities, including public wastewater collection, tre:ltment and disposal systems, and also including advice and consultation generally concerning the use and operation of public utilities, includmg public wastewater collection. treatment and disposal systems, and which person or firm, by reason of his or its knowledge and experience, has acquired a reputatIon as a recognized consultant. Such lAl-lOO7 I C.lO 40233-Z-GPH-IOlO'7/91 Qualified Independent Consultant may include a person or firm rendermg professional engineermg or accounting services ill addition to his or its occupation as a public utility consultant and may include any person or firm regularly employed by the City as a consultant to the City. Reauired Reserve The term "Required Reserve" means, as of any date of calculation, an amount equal to the least of (i) Maximum Annual Debt Service on all Bonds OutStanding, (ii) 125 % of Average Annual Debt Service on all Bonds Outstanding, and (Hi) the amount of proceeds of Bonds permitted to be held in the Reserve Fund by the arbitrage bond regulations issued by the Umted States Department of the Treasury, as such regulations are, at the time, applicable and in effect, without the imposItlon of yield restrictions (as shown by a certificate of the City delivered to the Trustee at the time of issuance of a particular Series of Bonds); provided, however, that such Required Reserve or a ponion thereof may be provided by one or more Bond Reserve Fund Policies. Re$~rve Provider The term ItReserve Provider" means the issuer of a Bond Reserve Fund Pohey. Revenues The term "Revenues" means, for any Fiscal Year or other period, all rates, fees and charges received for, and all other mcome and receipts derived by the City from, the operatIOn of the Enterprise or arising from the Enterprise determined in accordance with Generally Accepted Accounting Principles, mcludmg all proceeds of insurance covering business interruption loss relating to the Enterpnse, investment earnings on amounts held in the Revenue Fund and Reserve Fund and all other money howsoever derived by the City from the operation of the Enterprise or arising from the Enterprise, but excluding connection fees and charges, refundable deposits made to establish credit and advances or contribunons in aid of construction; provided, however, that Revenues shall include connection fees and charges collected during such FJSCa1 Year or other period, but only to the extent that such connectJ.on fees and charges could be properly expended on a project for which the proceeds of Subject Bonds were used or are available to be used. Securities Deoositories The term It Securities Depositories" means the following: The Depository Trust Company, 711 Stewart Avenue, Garden City, New Yorl;. 11530, Fax-(S16) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures-Call Notification, 440 South LaSalle Street, Chicago, lllinois 60605, Fax.(312) 663-2343; Philadelphia Depository Trust Company, ReorgAOIzation Division. 1900 Market Street, Philadelpbi~ Pennsylvania 19103, Attention: Bond Department, Dex-(21S) 496-5058; or, in accordance with then-current guidelmes of the Securities and Exchange City, to such other addresses and/or such other securities depositories, or no such depositories, as the City may designate in a written request of the City delivered to the Trustee. Serial Bonds The term .Serial Bonds" as to the 1991 Series A Bonds means 1991 Sene! A Bonds designated as Serial Bonds in the Indenture and. as to Bonds of subsequent Series. means Bonds lAl-lOO7 1 C-ll 4(W3.2-(;PH-IOl07191 designated as Serial Bonds in the Supplemental Indenture providing for the issuance of such Series and for which no Mimmum Sinking Fund Account Payments are provided. Series The term n Series n means the inItial series of Bonds executed, authenticated and delivered on' the date of initial issuance of the Bonds and identified pursuant to the Indenture as the 1991 Series A Bonds, any additional series of Bonds issued pursuant to the Indenture, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. Sinbn~ Fuqd Accounts The term "Sinking Fund Accounts" means the 1991 Series A SinHng Fund Account established pursuant to the Indenture and any SpecIal account established by any Supplemental Indenture in the Principal Fund (established pursuant to the Indenture) for the payment of Term Bonds. S&P The term "S&pn means Standard & Poor's Corporation, a corporation duly organi7~ and existing under and by virtue of the laws of the State of New York, and its successors and assigns, except that if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term II S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. Subject Bonds The term "Subject Bonds" means, for any Fiscal Year or other period, each Senes of Bonds, any portion of the proceeds of which were expended or are available to be expended for additions, enlargements, betterments, extensions or other improvements to or related to, or the equipping of. the Enterprise, and with respect to which (i) any of such Bonds were Outstanding during such Fiscal Year or other period, or (ii) if such Bonds were refunded with the proceeds of refunding Bonds, any of such refunding Bonds were Outstanding during such FIscal Year or other period. SUDoIemental Indenture The term n Supplemental Indenture" means any indenture amendatory of or supplemental to the Indenture; but only if and~ to the extent that such Supplemental Indenture is specifically authorized under the Indenture. Tax Certificate The term MTax Certificate" means the Tax Certificate executed and delivered by the City at the time of issuance and uehvery of the 1991 Series A Bonds, as the same may be amended. or supplemented in accordance with its terms. LA 1-111457 1 C-12 <WZ3J-2-GPH.I01a7191 Tender Indebtedness The term "Tender Indebtedness. means any Bonds or portions of Bonds a feature of which is an option, on the part of the Bondowners, or an obligatIon, under the terms of such Bonds, to tender all or a portion of such Bonds to the City, the Trustee or other fiduciary or agent for payment or purchase and requiring that such Bonds or ponions of Bonds be purchased if properly presented. Term Bonds The term "Term Bonds", as to the 1991 Series A Bonds, means 1991 Series A Bonds designated as Term Bonds in the Indenture and, as to Bonds of subsequent Series, means Bonds designated as Term Bonds in the Supplemental Indenture providing for the issuance of such Series and which are payable at or before their specified maturity date or dates from MinimlIDl Sinking Fund Account Payments established for that purpose and calculated to retire such Bonds on or before their specified maturity date or dates. Trustee The term "Trustee" means Bank of America National Trust and Savings Association, its successors and assigns, and any other corporation or asSOCIation which may at any time be substituted in its place, as provided in the Indenture. Variable Rate Indebtedness. The term "Variable Rate Indebtedness" means any portion of indebtedness the interest rate on which is not fixed at the time of incurrence of such indebtedness, and bas not at some subsequent date been fixed, at a single numerical rate for the entire term of the indebtedness. CERTAIN PROVISIONS OF THI!; INDENTURE Equal Security In consideration of the acceptance of the Bonds by those who shall hold the same from time to time, the Indenture shall be deemed to be and shall constitute a contract between the City, the Trustee and the Owners from time to time of the Bonds to secure the full and final payment of the interest and principal on the Bonds, subject to the agreements, conditions, covenants and terms contaIned therein; and the covenants_ and agreements therein set forth to be performed on behalf of the City or the Trustee shall be for the equal and proportionate benefit, security and protection of all Owners of the Bonds without preference, pnority or distinction as to security or otherwise of any of the Bonds over any of the others by reason of the Series, number or date thereof or the time of issue. sale, execution or delivery thereof. or otherwise for any cause whatsoever. except as expressly provided therein or in the Indenmre FLOW OF FUNDS AODlication of Proceeds of 1991 Series A Bonds The proceeds received from the sale of the 1991 Series A Bonds shall be deposited with the Trustee. who shall forthwith set aside such proceeds in the following respective funds: LAI-l0457.1 C-13 40233-2-oPH-l0f01I9I (1) The Trustee shall deposit in the Interest Fund to be established pursuant to the Indenwre, the accrued interest received on the 1991 Series A Bonds. (2) The Trustee shall deposit in the Bond Reserve Fund to be established pursuant to the Indenture, an amount equal to the Required Reserve. (3) The Trustee shall deposit in the 1991 Series A Expenses Fund to be established pursuant to the Indenture, an amount estim::J!~ by the City to be sufficient to pay the Costs of Issuance with respect to the 1991 Series A Bonds. The money in the 1991 Series A Expenses Fund shall be used and disbursed in the manner provided in the Indenture for the purpose of paying all Costs of Issuance incidental to or connected with the issuance of the 1991 Series A Bonds (or for D'IJlking reimbursements to the City or any other person, firm or corporation for such Costs of Issuance theretofore paid by him. or it). Any balance of money reIl'Jlining in the 1991 Series A Expenses Fund after the payment of all Costs of Issuance incidental to or connected with the isstJ1lnl':"-e of the 1991 Series A Bonds or on July 1, 1992, whichever is earlier, shall be transferred by the Trustee to the Bond Reserve Fund to the extent necessary at that time to restore the Bond Reserve Fund to the amount of the Required Reserve, and any then rema.ining balance of money shall be transferred by the Trustee to the Improvement Fund establjshed pursuaDt to the Indenture. (4) The Trustee sban deposit in the Improvement Fund to be established pursuant to the Indenture, the remainder of the proceeds of the 1991 Series A Bonds. The Trustee shall establish and maintain, m trust, so long as any Bonds are Outstanding, the Improvement Fund established under the Indenture. The moneys in the Improvement Fund shall be applied to the costs of acquiSition, construction, expansion, improvement, financing and refinancing of additions, enlargements. betterments, extensions and other improvements to or related to. and the equipping of, the Enterprise and the expenses incident thereto or connected therewith, including. if necessary, interest to the extent permitted by law, reimhursement to the City for expenses incurred prior to the issuance of the 1991 Series A Bonds or in connection with additions. enlargements, betterments, extensions and other improvements to or related to, and the equipping of, the Enterprise, architectural, engineering and inspection fees and expenses, apparatus. equipment and furnishings for additions, enlargements, betterments, extensions and other improvements to or related to, and the equipping of, the Enterprise, testing and inspection, surveys. insurance prenuums, losses during construction not insured against because of deductible amounts, the fees and expenses of the Trustee, expenses in connection with the preparation, issuance. sale and delivery of the Bonds, legal, accounting and consultant fees and expenses, and similar expenses. _ All Revenues received by the City shall be deposited when and as received in the Revenue Fund, which fund the City agrees and covenants to establish and maintain so long as Bonds shall be Outstanding. So long as the interest and principal. of the Bonds and all charges to protect or secure them are paid when due, the City shall pay all Operation and Maintenance Costs of the Enterprise (including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance Costs of the Enterprise the payment of which is not immediately required). Thereafter, subject to the provisions of the Indenture relating to the rebate requirements applicable under the Code, money in the Revenue Fund shall be transferred to the Trustee to the extent necessary and deposited in one or more of the following respective special funds at the times therein specified. LA 1-10U7 1 C-14 40233-2.QPH.10107191 Bond Reserve Fund: Reserve Accounts. On or before the tenth day of each month. beginning on or before December 10. 1991. the City shall pay to the Trustee for deposit in the Bond Reserve Fund (the initial payment into which is provided for in the Indenture) one-twelfth (1/12) of the aggregate amount of each unreplenished prior withdrawal from the Bond Reserve Fund untIl there is on depoSIt in the Bond Reserve Fund a balance equal to the Required Reserve (or such larger balance as may be requIred by any Supplemental Indenture). No deposit need to made into the Bond Reserve Fund so long as there shall be in the Bond Reserve Fund an amount equal to the Required Reserve, or when and if the sum of the amounts contained (excluding aU Bond Reserve Fund Policies) therein and in the Interest Fund and in the Principal Fund is at least equal to the sum. of the aggregate principal amount of all of the Bonds then Outstanding and all of the interest then due or thereafter to become due on all such Bonds. The Trustee shall establish and hold within the Bond Reserve Fund a 1991 Series A Reserve Account with respect to the 1991 Series a Bonds and a similar account for each additional Series of Bonds issued ~mder the Indenture. Each Reserve Account shall be funded in an amount equal to the pro rata portion of the Required Reserve allocable to the Series to which it relates. Moneys in the respective Reserve Accounts within the Bond Reserve Fund shall be used and withdrawn by the Trustee solely, and the Trustee shall withdraw such moneys for the purpose of paying the principal of, Minimum Sinking Fund Account Payments with respect to. and interest on the corresponding Series of Bonds to which such Reserve Account relates in the event that no other moneys are available therefor, or for payment or redemption of all of the Bonds of such Series then Outstanding. Funds or a Bond Reserve Fund Pohcy on deposit in a Reserve Account sball be applied solely to the payment of the Series of Bonds to which such Reserve Account relates and shall not be available for payment of any other Series of Bonds. Deposits to the Bond Reserve Fund shall be applied on a pro rata basis to the respective Reserve Accounts, calculated by reference to the amounts requIred to be maintained in such Reserve Accounts. and within each Reserve Account first to the pro rata payment of Policy Costs and upon satisfaction of such Policy Costs to satisfying any portion of the Required Reserve to be maintained within such Reserve Account not covered by a Bond Reserve Fund Policy. So long as the City is not in default under the Indenture, and in each Reserve Account there is a balance equal to the pro rata portion of the Required Reserved allocable to the Senes of Bonds for wbich such Reserve Account was established, any amount in the Bond Reserve Fund in excess of the Required Reserve will be withdrawn by the Trustee semiannually, on June 20 and December 20 of each year and transferred to the City for deposit in the Revenue Fund or, during the period of construction of additions, enlargements, betterments, extensions or other improvements to related to, or equipping of, the Enterprise, or any portion thereof, the Improvement Fund. Denosit and Investment of Monevs in Funds: Interest Rate Swans - - - All moneys held by the City in the Revenue Fund may be invested in Legal Investments, maturing not later than the date on whIch such moneys are required for payment by the City. All moneys held by the Trustee and allocated to any of the funds or accounts held by it, subject to the restrictions set forth in the Tax Certificate, may be invested, at the written direction of the City, in Permitted Investments maturing not later than the date on which such moneys are required for payment by the Trustee, except that moneys in the Bond Reserve Fund may be invested in Permitted Investments which mature not more than five years from the date of investment or the fin~] date of maturity of the Outstanding Bonds, whichever is earlier. In the absence of direction from the City with respect to such investment, the Trustee shall invest such moneys in Permitted Investments described in paragraph (9) of the definition thereof. For the purpose of determining the amount of money in the Bond Reserve Fund, all investments of moneys therein shall be valued semi-annually on June 20 and December 20 at the market value of such investments. LAl-l04S7 I C-16 4O'233-2-GPH-10l07191 Interest Fund. On or before the fifth Business Day preceding each January 2 and July I, commlIDcing July I, 1992, the City will pay to the Trustee for deposIt in the Interest Fund an amount which, together with other amounts on deposit in the Interest Fund and available for payment thereof, is equal to the interest becoming due and payable on the Outstanding Bonds (except for Additional Bonds constItuting VarIable Rate Indebtedness, as to which special provisions apply) on the following January I, or July I, respectively. No deposit need be made into the Interest Fund if the amount contained therein is at least equal to the interest to become due and payable on the next interest payment date upon all of the Bonds issued under the Indenture and then Outst~nding (but excluding any moneys on deposit in the Interest Fund that were deposited therein in order to pay interest on any future interest payment following s31d next interest payment date). Moneys in the Interest Fund will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity pursuant to the Indenture) . Principal Fund: Sinbng Fund Accounts. On or before the fifth Business Day pr~-eding each January 1. commencing January I, 1993, the City will pay to the Trustee for deposit in the Principal Fund an amount which together with other amounts on deposit in the Principal Fund and available for payment thereof, is equal to (i) the amount of Bond Obligation becoming due and payable on the Outstanding Serial Bonds of all Series having maturity dates on the next succeeding January 1, plus (ii) the Minimum Sin1cil1g Fund Account Payments to be paid on the next succeeding January 1 into the respective Sinking Fund Accounts for the Term Bonds of all Series for which Sinking Fund Accounts shall have been created and for which mandatory redemption is required from such Sinking Fund Accounts on the next succeeding January I, plus (Hi) if any Letter of Credit Agreement has been entered into on a parity with the Bondst sufficient amounts to pay when due the obligations of the City under such Letter of Credit Agreement due on or prior to the second succeeding ] anuary 1. All of the aforesaid Minimum SlJ\ldng Fund Account Payments shall be made without priority of my payment into anyone such Sinking Fund Account over any other such payment. No deposit need be made into the Principal Fund so long as there sha1l be in such fund (i) moneys sufficient to pay the Bond Obligations of all Serial Bonds issued under the Indenture and then Outstanding and maturing by their terms on the next succeeding January 1, plus (ii) the aggregate of aU Minimum Sinking Fund ACcount Payments requited to be made on the next succeeding January It plus (Hi) moneys sufficient to pay said Letter of Credit obligations due in the twelve-month period ending on the second succeeding January 1. An moneys in the Principal Fund shall be used and withdrawn by the Trustee solely for the purpose of paying the Bond Obligation of the Bonds and said Letter of Credit Agreement obligations when due and payable, except that all moneys in any Sinking Fund Account shall (except otherwise provided in the Indenture) be used and withdrawn by the Trustee only to redeem or to pay at maturity Term Bonds of the Series for which such Sinking Fund Account was created, as provided in the Indenture or in any Supplemental Indenture. The Trustee will establish and hold within the Principal Fund a 1991 Series A Sinking. Fund Account, which the City covenants and agrees to cause to be maiD!ai!'led, for payment of the principal of the 1991 Series A Term Bonds. The Trustee, on or before the fifth Business Day preceding January 1 of each year (commencing with the first year in which Minimum Sinking Fund Account Payments are required to be made with respect to the 1991 Series A Bonds). wiII deposit in the 1991 Series A Sinking Fund Account from the Principal Fund moneys in an amount which shall be sufficient to call and redeem or to pay at maturity. as the case may be. the principal of 1991 Series A Term Bonds in the respective principal amounts, on the dates, set forth under the heading "DESCRIPTION OF THE 1991 SERIES A BONDS - Redemption Provisions - Mandatory Sinking Fund Redemption. II LAt-tOO7.1 C~IS .w233-2.oPH.I0107J91 The City may and the Trustee shall, upon the written request or statement of the City, and provided that the Trustee is supplied with an opInion of counsel to the effect that such actIon is permitted under the laws of the State of California, enter into an interest rate swap agreement corresponding to the interest rate or rates payable on a Series of Bonds or any portIon thereof and the amounts received by the City or the Trustee, if any, pursuant to such a swap agreemem may be applied to the deposits required under the Indenture. The entity With which the City or the Trustee may contract for an interest rate swap is limited to entities that are rated in one of the two highest short~term or long-term debt rating categories by Moody's and S&P If the City so designates, amounts payable under the interest rate swap agreement shall be made on a parity basis With payments on the Bonds and, in such event, the City shall pay to the Trustee for deposit in the Interest Fund, at the times and in the nUlnner provided by the Indenture, the amounts to be paid under such interest rate swap agreement, as if such amounts were additional interest due on the Bonds to which such interest tate swap relates. COVENANTS AlZainst Encumbrances The City will not mortgage or otherwise encumber, pledge or place any charge upon the Enterprise or any part thereof, or upon any of the Revenues, prior to or on a parity with the Bonds, provided that Letter of Credit Agreements entered into in connection with Variable Rate Indebtedness or Tender Indebtedness may be payable on a parity with the Bonds. So long as any Bonds are Outstanding, the City will not issue any bonds or obligations payable from Revenues or secured by a pledge, lien or charge upon Revenues prior to or on a panty With the Bonds, other than the Bonds, provided that Letter of Credit Agreements entered. into in connection with Variable Rate Indebtedness or Tender Indebtedness may be payable on a parity with the Bonds. Nothing in the 1ndenture, and particularly nothing in the preceding two paragraphs, shall prevent the City from authorizing and issuing bonds, notes, warrants, certificates or other obligations or evidences of indebtedness which as to principal or interest, or both, (1) are payable from Revenues after and subordinate to the payment from Revenues of the principal of and interest on the Bonds, or (2) are payable from moneys which are not Revenues as such term is defmed in this Indenture. AlZainst Sale or Other DisDosltion of Pronenv - ~ The City will not sell, lease or otherwise dispose of the Enterprise or any part thereof essential to the proper maintenance of the Revenues, and will not enter into any agreemem or lease which would lIDparr the operation of the Enterprise or any part theteof necessary to secure adequate Revenues for the payment of the Bonds; !)rovided, that any real or personal property which has become nonoperative or which is not needed for the efficient and proper operatIon of the Local System, or any material or equipment which has become worn out, may be sold if such sale will not reduce the Net Revenues below the requirements to be mamtained under the Indenture. Liens and Claims The City will keep the Local System and all parts thereof free from judgments, from mechanics' and materialmen's liens and from all liens and claims of whatsoever nature or character, to the end that the security provided pursuant to the Indenture may at all times be maintained and preserved, LAI-I0C57.J C-17 40233-2-GPH-JOI07191 and the City will keep the Enterprise and the Revenues free from any liability which IDlght hamper the City in conducting its busmess or operating the Enterprise. Insurance (a) The City sbaH procure and ~Rmt~in such insurance relating to the Enterprise which it shall deem advisable or necessary to protect its interests and the interests of the Trustee, which insurance shall afford protectlon in such amounts and agam!!.t such risks as are usually covered in connection with municipal wastewater collection, treatment and disposal systemS simil at to the Enterprise; provided. that any such insurance may be maintained under a self-insurance program so long as such self-insurance program is mamt~jned in the amounts and manner usually maintained in connectIon with municipal wastewater collection, treatment and disposal systems similar to the Enterprise ~nrJ is, in the opinion of an independent insurance consultant, financially sound. (b) In the event of any damage to or destruction of the Enterprise caused by the perils covered by the InSurance provided pursuant to paragraph (a), above, the proceeds of such InSurance received by the Trustee shall be applied to the repair, reconstruction or replacement of the damaged or destroyed portion of the Enterprise, and the City shall cause such repair, reconstruction or replacement to begin promptly after such damage or destruction shall occur and to continue and to be properly completed as expeditiously as possible. and the Trustee shall payout of the proceeds of such insurance all costs and expenses in connection with such repair, reconstruction or replacement so that the same shall be completed and the Enterprise shall be free and clear of all claim!!. and liens. If the proceeds received by the Trustee by reason of any such loss shall exceed the costs of such repair, reconstruction or replacement, the Trustee shall transfer such excess to the City for deposit in the Revenue Fund and such excess shall be treated as Revenues. Notwithstanding the foregoing, if the proceeds of such insurance are sufficient to enable the CIty to retire all Outstanding Bonds, whether at maturity or on redemption prior to maturity or any combination thereof, the City may elect not to repair. reconstruct or replace the damaged or destroyed portion of the Enterprise, and thereupon, upon receipt of a written request of the City, the proceeds of such insurance shall be applied by the Trustee withm thirteen months to redeem Bonds pursuant to the Indenture. Books and Accounts: Financial Statements (a) The City will keep proper books of record and accounts of the Enterprise, separate from all other records and accounts of the City. in which complete and correct entries shall be made of all transactiOns relating to the Enterprise. Such books of record and accounts shall at all times durmg business hours be subject to the inspection of the Trustee or of any Owner of Bonds then Outstanding or their representatives authorized in WrIting, at reasonable hours and under reasonable conditions. (b) The City will prepare and file with the Trustee llnnlJally within six months after the close of each Fiscal Year, so long as any of the Bonds are Outstanding. financial statements of the Enterprise for the preceding Fiscal Year, prepared in accordance with Generally Accepted Al..COunting Principles applied on a consistent basis from year to year (which financial statements shall include a statement showing the balances in each fund required to be established under the provisions of the Indenture). including a balance sheet, statement of income. statement of retained earnings and contributed. capital. and statement of changes in financial position, which financial statements shall be examined by and include the certificate or opinion of an Independent Certified Pubhc Accountant. Such financial statements shall be accompamed by a certificate of the City stating that no Event of Default under the lAl-1007.1 C-18 40233-2-GPH-IOlO'7/9l Indenture has occurred or is continumg as of the end of each Fiscal Year, or specifying the nature of the Events of Default under the Indenture, if any, which bave occurred and are continuing. Ente1llrise Budeets The City shall prepare an annual budget for the Enterprise for each Fiscal Year. Such budget shall set forth in reasonable detail the Revenues anticipated to be derived in such Fiscal Year and the expenditures anticipated to be paid or provided for therefrom in such Fiscal Year including, without limitation, the amounts required to provide for the payment of the principal of and interest and redemption premium, if any, on the Bonds during such Fiscal Year, to payor provide for OperatIon and Maintenance Costs of the Enterprise for such Fiscal Year, to make up any deficiencies in any fund or account anticipated for the then current Fiscal Year, and to payor provide for the payment of all other claim!:. or obliganons required to be paid from Revenues in such Fiscal Year, and shall show that Net Revenues shall be at least adequate to satisfy the requirements of the Indenture. The City shall supply to the Trustee a copy of the annual budget for the Fiscal Year covered by such budget. The Trustee shall provide a copy of such budget to any Owner requesting the same. Maintenance of Revenues The City shall not acquire, construct, operate or maintain, and shall not within the scope of its powers permit any other public or pnvate corporation, political subdivision, district or agency or any person whatsoever to acquire, construct, operate or maintam, within the City or any part thereof, any system or utility competitive with the Enterprise. The City will have in effect, or cause to have in effect, at all times an ordmance or resolutIon requiring all customers of the Enterprise to pay the fees, rateS and charges applicable to the services and facilities furnished by the Enterprise. The City will not provide any wastewater service of the Enterprise free of charge to any person, firm or corporation, or to any public agency (including the United States of America, the State of California and any public corporation, political subdivision, city, county, district or agency of any thereof), except (i) for free use by the City and its agencies, (ii) to the extent that any such free use is required by the terms of any existing contract or agreement and (Hi) for incidental insignificant free use so long as such free use does not prevent the City from satisfying the other covenants of the Indenture. Eminent Domain Proceeds If ail or any part of the Enterprise shall be taken by or under threat of eminent domain proceedings, the net proceeds realized by the City (excluding any portion thereof payable to the United States of America or the State of California or required by the United States of America or the State of California to be deposited m a restricted fund) shall be deposited by the City in a special fund in trust and applied and disbursed by the City subject to the following conditions: (a) If such eminent domain proceedings have had a material adverse effect upon the Revenues and the security of the Bonds, the City shall by resolution determine to apply such proceeds for one of the following purposes: (1) The City may determin~ to apply such proceeds to the purchase. defeasance or redemption of Bonds then Outstanding. In that event, the City shall transfer such proceeds to the Trustee who shall apply such proceeds on a Proportionate Basis to the redemption, defeasance or purchase of Bonds of each Series then Outstanding LAI-I04S7.1 C-19 .w23J-2-0PH-IOl07191 in the proportion which the Bond Obligation amount of each Series bears to the aggregate Bond Obligation amount of all Bonds then Outstanding. (2) The City may determine to apply such proceeds to the cost of additions or improvements to or extensions of the Enterprise if (A) the City first secures and files with the Trustee a written report of a Qualified Independent Consultant showing (i) the loss in ann1l3l Revenues. if any. suffered~ or to be suffered~ by the City by reason of such P.111inent domain proceedings~ (ii) a general description of the additions. improvements or extensions then proposed to be acquired by the City from such proceeds, and (iii) an estimate of the additional Revenues to be derived from such additions ~ improvements or extensions; and (B) such written report states that such additional Revenues will sufficiently offset the loss of Revenues resulting from such eminent domain proceedings so that the ability of the City to meet its obligations under the Indenture will not be substantially impaired. The City shall then promptly proceed with the construction of the additions, improvements or extensions substantially in accordance with such written report. Payments for such construction shall be made by the City from such proceeds. A:IJ.y balance of such proceeds not required by the City for the purposes aforesaid shall be deposited in the Revenue Fund and applied as provided in the Indenture. (b) If such emment domain proceedings have had no material effect upon the Revenues and the security of the Bonds, and a Qualified Independent Consultant so concludes in a written report filed with the Trustee, the City may determin~ to apply such proceeds to the costs of additions or improvements to or extensions of the Enterprise or may deposit such proceeds in the Revenue Fund~ to be applied as provided in the Indenture. Tax Covenants The City shall not use or permit the use of any pr~~ of 1991 Series A Bonds or any funds of the City, directly or indirectly ~ to acquire any securities or obligations. and shall not take or permit to be taken any other action or actions. which would cause any 1991 Series A Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code or "federally guaranteed" within the meaning of Section 149(b) of the Code and any such applicable requirements promulgated from ti:m~ to time thereunder and under Section l03(c) oftbe Internal Revenue Code of 1954, as amended. The City shall observe and not violate the requirements of Section 148 of the Code and any such applicable regulations. The City shall comply with all requirements of Sections 148 and 149(d) of the Code to the eXteDt applicable to the 1991 Series A Bonds. The City shall not use or permit the use of any proceeds of the 1991 Series A Bonds or any funds of the City ~ directly or indirectly, in any manner, and shall not take or omit to take any action that would cause any of the 1991 Series A Bonds to be treated as an obligation not described in Section 103(a) of the Code. Hvnerion Alrreement The City will faithfully observe and perform all of its covenants, and the conditions and requirements applicable to it, under the Hyperion Agreement and will not suffer or permit any default to occur thereunder. The City will take such action as is reasonably necessary to ensure that The City of Los A:IJ.geles observes and performs all of its covenants, and the conditions and requirements applicable LAI-J04S7.1 C-20 40233-2-0PH-IOlO7/91 . to it, under the Hyperion Agreement. if and to the extent that the non-performance or non-observance thereof would materially adversely affect the Owners. The City shall not enter into or consent or agree to any amendment. modification. restatement. replacement or superseding of the Hyperion Agreement unless and until the City Council of the City finds and determines that such amendment. mOdlficatlon. restatement. replacement or superseding will not materially impair the security for the Bonds. EVENTS OF DEFAULT AND REMEDIES OF BONDOWNERS Events of Default: Acceleration: Waiver of Default. If one or more of the following events (herein called "Events of Default") shall happen. that is to say- (a) if default shall be made in the due and punctual payment of the principal of. or the premium (if any) on. any Bond when and as the same shall become due and payable, whether at maturity as therein expressed. by proceedings for redemption. by declaration or otherwIse, or if default shall be made in the redemption from any Sinking Fund Account of any Term Bonds in the amounts and at the times provided therefor; (b) if default shall be made in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable; (e) if default shall be made by the City in the observance of any of the other covenants. agreements or conditions on its pan in the Indenture or in the Bonds contained. and such default shall have continued for a period of sixty days after written notice thereof. specifying such default and requiring the same to be remedied. shall have been given to the City by the Trustee or by a Credit Provider. or to the City and the Trustee by the Owners of not less than twenty-five percent (25 %) of the Bond Obligation; or (d) if the City shall file a petition or answer seeking reorg:mi7:ation or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America. or if a court of competent jurisdiction shall approve a petition. filed with or without the consent of the City. as the case may be. seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if. under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the City or of the whole or any substantial part of the property of either; then and in each and every such case during the continuance of such Event of Default, the Trustee may. and upon the written request of the Owners of not less than a majority in aggregate amount of the Bond Obligation or of a Credit Provider shall, upon notice in writing to the City. declare the principal of all of the Current Interest Bonds then Outstanding. and the interest accrued thereon, and of all Capital Appreciation Bonds then Outstanding. in the amount of the Accreted Value thereof. to be due and payable immediately. and upon any such declaration the sam\; shall become and shall be imme(ltately due and payable, anything in this Indenture or in the Bonds contained to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the principal of the Bonds shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered. the City shall deposit with the Trustee a sum sufficient to pay all principal and Accreted Value of the Bonds maturing prior to such declaration LA.l-104S7 .1 C-21 .w233-2-0PH-10Ia7191 and all matured installments of interest (if any) upon all the Current Interest Bonds. with interest on such overdue payments of principal and Accreted Value and interest installments at the rate or rates of interest borne by the respective Bonds, and the reasonable expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal and Accreted Value of and interest on the Bonds due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee, or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, (i) if such declaration shall have been made by the Trustee, the Trustee, or (ii) if such declaration shall bave been made upon the WrItten request of Bondowners, the Owners of not less than a majority in aggregate amount of the Bond Obligation of the Bonds then Outstanding, or (iii) if such declaration shall have been made upon the written request of a Credit Provider. such Credit Provider, may. by written notice to the City and. in cases (ii) and (Iii) above, to the Trustee. on behalf of the Owners of all of the Bonds, rescind and annul such declaration and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon. Suits at Law or in Eauitv and Mandamus In case one or more of the Events of Default shall happen, then and in every such case the Owner of any Bond at the time Outstanding shall be entitled to proceed to protect and enforce the rights vested in such Owner by the Indenture by such appropriate judicial proceeding as such Owner shall deem most effectual to protect and enforce any such right, either by suit in equity or by action at law, whether for the specific performance of any covenant or agreement contained in the Indenture, or in aid of the exercise of any power granted in the Indenture, or to enforce any other legal or equitable right vested in the Owners of Bonds by the Indenture or by law; provided, however, that no such Bondowner shall have the right to institute any such judicial proceeding unless (a) such Owner shall bave previously given to the Trustee written notice of the occurrence of an Event of Default hereunder; (b) the Owners of at least a majority in aggregate amount of Bond Obligation of the Bonds then Outstanding shall have made written request to the Trustee to exercise the powers herein granted or to institute such action, SUit or proceeding in its own njlme; (c) such Owner or said Owners shall have tendered to the Trustee reasonable indemnity again~t the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee shall have refused or omitted to comply with such request for a period of sixty (60) days after such written request shall have been received by, and said tender of indemmty shall have been made to, the Trustee. The provisions of the Indenture shall constitute a contract with the Owners of the Bonds, and such contract and duties of the City and of the officers and employees of the City and shall be enforceable by any Bondowner by mandamus or other appropriate suit, action or proceeding in any court of competent jurisdiction. MODIFICATION OR AMENDMENT OF mE INDENTURE Amem;tments Permitted (a) The Indenture and the rights and obligations of the City and of the Owners of the Bonds and of the Trustee may be modthed or amended at any time by a Supplemental Indenture which shall become binding when the written consents of the Owners of a majority in aggregate amount of the Bond Obligation of the Bonds Outstanding (or, if such Supplemental Indenture is only applicable to a Series of Bonds, such Series of Bonds) then Outstanding, exclusive of Bonds disqualified as provided in the Indenture. and of each Credit Provider (so long as such Credit Provider is not in default under the policy of municipal bond insurance or Letter of Credit issued by it in connection with any Series of Bonds) shall have been filed with the Trustee (provided, that no such Credit Provider shall unreasonably LAl-1<M5'7 1 C.22 40233-2-GPH-10lrtTJ91 withhold consent to such modification or amendment). No such modification or amendment shall (A) extend the fixed maturities of the Bonds, or extend the time for making any Minimum Sinking Fund Account Payments, or reduce the rate of interest thereon, or extend the time of payment of mterest, or reduce the amount of principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the Owner of each Bond so affected, or (B) reduce the aforesaid percentage of the Bond Obligation the consent of the Owners of which is required for the execution of any amendment or modification of the Indenture, or (C) modify any of the rights or obhgations of the Trustee without its written consent thereto. (b) The Indenture and the rights and obligations of the City and of the Owners of the Bonds may also be modIfied or amended at any time by a Supplemental Indenture which shall become binding upon execution and delivery thereof by the City and the Trustee, without the consent of any Bondowners or any Credit Provider, but only to the extent permitted by law and only if the Trustee determines, which determination may be based upon a good faith reliance upon an Opinion of Counsel, that the provisions of such Supplemental Indenture shall not materially adversely affect the interests of the Owners, including, without limItation, for anyone or more of the followmg purposes - (1) to add to the covenants and agreements of the City in the Indenture CODtained other covenants and agreements thereafter to be observed or to surrender any right or power therein reserved to or conferred upon the City; (2) to cure, correct or supplement any ambiguous or defective provision or omission or mistake contained in the Indenture or in regard to questions arising under the Indenture, as the City may deem necessary or desirable; and (3) to provide for the issuance of additional Series of Bonds, and to provide the terms and conditions under which such additional Series of Bonds may be issued, subject to and in accordance with the provisions of the Indenture. DEFEASANCE DischarlZe of Indenture If the City shall pay and discharge the entire indebtedness on all Bonds Outstanding in anyone or more of the following ways- (a) by well and truly paying or causing to be paid the principal of (including redemption premiums. if any) and interest on all Bonds Outstanding, as and when the same become due and payable; or (b) by depositing with the Trustee, an escrow agent or other fiduciary, in trust. at or before maturity. money which, together with the amounts then on deposit in the Principal Fund, the Interest fund, the Bond Reserve Fund and the Redemption Fund. is fully sufficient to payor redeem all Bonds Outstanding, including all principal. interest and redemption premiums. if any; or (c) by delivering to the Trustee, for cancellation by it, all Bonds Outstanding; or LAI-I04S7.i C-23 40233-2-0PH-IOlO7I91 (d) by depositing with the Trustee, an escrow agent or other fiduciary, in trust, Federal SecurIties in such amount which, in the determin$l1:ion of an Independent Certified Public AccouDtant, who shall certify such determination to the Trustee, shall. together with the income or increment to accrue thereon and any other moneys of the City made available for such purpose, be fully sufficient to pay and discharge the indebtedness on all Bonds (including all principal, interest and redemption premiums, if any) at or before their respective maturity dates; and if the City shall also pay or cause to be paid all other sum!il payable under the Indenture by the City, including all Policy Costs, then and in that case, at the election of the City (evidenced by a certificate of the City signifying its intention to pay and discharge all such indebtedness, which shall be filed with the Trustee), and notwithstandmg that any Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture and all other obligations of the City under the Indenture shall cease, terminate and be completely discharged. except only as provided in the Indenblre, and the Owners of the Bonds not so surrendered and paid shall thereafter be entitled to paymem only out of the money or Federal Securities deposited with the Trustee, escrow agent or other fiduciary as aforesaId for their payment; subject. however, to the provisions of the Indenture. The City may at any time surrender to the Trustee for cancellation by it any Bonds previously issued and delivered. which the City may have acquired in any manner whatsoever, and such Bonds. upon such surrender and cancellation. shall be deemed to be paid and retired. Dischare:e of Llabihtv on Bonds Upon the deposit with the Trustee. an escrow agent or other fiduciary, in trust. at or before matunty. of money or Federal Securities in the necessary amount to payor redeem Outstanding Bonds (whether upon or prior to their maturity or the redemption date of such Bonds), provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in the Indenture provided or provision satisfactory to the Trustee shall have been made for the giving of such notice. then all liability of the City in respect of such Bonds shall cease, determin~ and be completely dIscharged, except only that thereafter the Owners thereof shall be entitled to payment of the principal of and interest on such Bonds by the City, and the City shall remain liable for such payment, but only out of the money or Federal Securities deposited in an escrow fund established for this purpose and held by the Trustee. an escrow agent. or other fiduciary. as aforesaid for their payment, subject, however, to the provisions of the Indenture. U,l-l0f57.I C-24 40233-2-GPH-IO/f1119I THE CITY OF SANTA MONICA GENERAL AND ECONOMIC INFORMATION The City of Santa Monica 15 situated on the western side of Los Angeles County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. Santa Moruca encompasses an area slightly greater than eight square miles and has an estimated current populatton of 86,900, wluch makes it the sixteenth largest city in Los Angeles County. The climate is generally mild with an average annual mean temperature of about 62 degrees (P). Extremes range from an average nunimum temperature of S6 degrees (F) to an average high of 68 degrees (F). Annual rainfall has averaged about 14 Inches. Elevation ranges from sea level to 400 feet above sea level. Government and Administration The City of Santa Monica was incorporated in 1886 and adopted its City Charter in 1945. In 1947 a CouncIl-Manager form of government was established following a vote of the Dty's residents and approval by the California LegIslature. The City Council consists of seven members With overlapping terms of four years. Elections are held every two years, at which time three or four Council members are elected. After each election, Counal members select one of their group to act as Mayor, who then presides over Council meetIngs. The City Council appoints, at its pleasure, a CIty Manager who serves as Cluef Executive OffIcer and is responsible for supel'Vlsmg day-to-day operations of the City and for carrying out pohoes set by the Council. The City Council also appoints the City Attorney and the City Clerk. During Fiscal Year 1988-89, the City began operating its "Public Electronic Network" (PEN) system. PEN enables the CIty's residents to "talk" to elected Officials and City workers via theIr home-based personal computers. This two-way computer communication system allows residents who have personal computers With modems to access the City library's main card catalog, send electromc messages to City staff to lodge complaints or ask for information, read City Council agendas and staff reports, access a wide range of Information published by the City, and conduct public electronic "conferences" on selected issues. PEN has enhanced the ability of residents to participate m their local government. Further, the Dty uses its own cable television channel to broadcast Dty Council and other comnuSSlon and board meetings and a wide range of City-created public information programs about the City, its people, and government operattons. Listed below are bnef biographies of the Mayor, City Council members, City Manager, Drrector of Finance and Director of General Services of the Oty of Santa Monica. ludv Abdo, Mayor, was elected to the Dty Council in 1988, and selected to serve as Mayor in November 1990, for a one year term. Previously, she served as a member of the Pier Restorabon Corporation board from 19~1988. She is currently a Church Administrator. Ken Censer. Mayor Pro Tempore, was elected to the City Council in 1988 and was selected Mayor Pro Tempore in November 1990. Mr. Genser served on the Dty Planning Commission from 1983-1985 and was a member of the City's PIer Restoration Corporation board from 1986-1988. He IS currently a Development Coordinator. 0-1 Herb Katz. Council Member, was elected. to the Oty Council m 1984 and re-elected in 1988. He served as Mayor Pro Tempore from 1986 to 1988. Mr. Katz is an ArchItect. DennIs T. Zane. Council Member, was elected to the CIty Council in 1981 and re-elected in 1984 and 1988. Mr. Zane served as Mayor lor a two year term from December 1988 to November 1990. Mr. 7~"e is a public affarrs commurucations producer and consultant. Kelly Olsen. Council Member, was elected to the City Council in November 1990. Ms. Olsen is a screenwriter. AntOnIO <Tony) Vaz'!uez. Council Member, was elected to the City Council m November 1990. Mr. Vazquez is a community planner/educator and works for United Way. Robf:rt T. H9lbrook. Council Member, was elected to the City Council in 1990. Mr. Holbrook preVIously served two terms on the Board of the Santa Monica-Malibu Unified School District, from 1983-1990. He is an Assistant Professor of Cluucal Phannacy and Dtrector of the University of Southern California Phannacy. T9hn 1alili. City Manager, was appointed City Manager in 1984. Prior to his appointment, Mr. Jalili served as the City's Assistant Manager for, five years. From 1974 to 1979, Mr. JaHIi served as the City's Community Development Director. Mr. Jalili has a Bachelor's Degree !rom Colgate Umversity and a Master's Degree from the Umversity of Oklahoma. Charles M Dennis. Drrector of Finance, has been his current position since May 1983. Previously, for three years, Mr. Dennis was Drrector of FInancial StudIes for a private consultmg hrm and for tlurteen years held various finanoal management positions With Los Angeles County. Mr. Dennis has a Bachelor's Degree in Political Science and Master's Degree m Public AdIDlIDstration from UCLA and has completed all requirements, except dISsertation, for a PhD in Public Admirustratlon from Use. Stanley E. Scholl. Director of General Services, has been in Ius present position since 1977. Mr. Scholl has been the City's chief representative in negotiations WIth the Los Angeles Wastewater Program Management team. regardIng costs, capaCIty and other technical matters. Mr. Scholl is a Registered Civil Engineer in California and other states. He holds BS/MS Degrees from the University of Illinois in Civil Engineering and an MP A Degree from the University of Southern California. Accounting Policies and Financial Reporting The City's accounting records are organized and operated on a "fund" basis, which is the basic fiscal and accounting entity In governmental accounting. The three broad fund categories mclude Governmental Funds, Proprietary Funds and Fiduoary Funds. The operations of each fund are accounted for with a separate set of sell-balancing accounts that comprise its assets, ha1nlities, fund balance/equity, and revenues and expenses. The basis of accounting for all funds 15 more fully explamed in the notes to the City of Santa Monica combined financial statements contained in APPENDIX A. For the seventh straight year, the California Society of Municipal Finance offIcers awarded its Outstanding Financial Reporting award and the Government Finance Officers Association awarded a Certlhcate of Aduevement for Excellence in Finanoal Reporting to the City for its Comprehensive Annual FinancIal Report for the Fiscal Year Ended June 30, 1990. The City'S Comprehensive Annual Financial Report for the FJSCaI Year ended June 30,1991 will be submitted for similar awards. 0-2 Budgetuy Process Dunng May of each year, the Oty Manager submits to the Oty Council a proposed operabng and capital improvement budget for the fiscal year commencing the following July 1. The operabng and capItal improvement budget mdudes proposed expenditures and expenses and the means of fmanong them. Public heanngs are conducted by the City Coundl to obtain atizen comments, and pnor to June 30, the budget is adopted through passage of appropriate resolutions. Transportation The Santa Monica Freeway passes through the approximate center of the City on an east- west course and provides direct connection with downtown Los Angeles, approximately 16 miles to the east. About six miles southeast of the City IS the Los Angeles Intemabonal AIrport, which is easily accessible via the San DIego Freeway, about one mile beyond the eastern border of Santa Monica on a north-south course. During the Fall of 1989, the City purchased property to encourage and facilitate the possible future extension of a light rail commuter line from downtown Los Angeles to the Oty. The property could be used as a rau station apd/or SWItching station. Regional transportation authonties are currently coI\5idenng such an exteI\5ion. F~~y The City of Santa Monica is a center of electronic, engineering, research and allied industnes. Among ItS largest manufacturing employers are Paper Mate Manufacturing and LouverDrape, Inc.. Santa Moruca Hospital, St. John's Hospital and the Rand Corporation are the largest non-manufacturing and non-govemmental employers in Santa Momca. ApproXlmate1y 4,280 new enterprises took out business licenses dunng Fiscal Year 1989-90 in order to parhClpate in the almost $3.8 bullon Oty economy. During FISCal Year 1989-90, the CIty also completed its $12.6 million renovation of the Thud Street Mall which is now called the Third Street Promenade. The renovation included 300 additional parking spaces in adjacent parking structures and a completely remodeled TIurd Street area to enhance use by shoppers and those seeking night time entertainment at several new movie complexes, restaurants, theaters and other public-serving facilities. This renovation has not only increased Oty revenues, but has also further enhanced Santa Monica as a desirable residential and commeroa1locabon In the region. In addition, dunng the past two years, two major new hotels opened JI\ the Oty which added 603 upscale rooms to the now current stock of 2,700 hotel/motel rooms. Taking advantage of the City's highly desirable environment, the American Film. Institute has decIded to hold, in Santa Monica for the next four years beginning in 1991, its annual nine- day international meeting for independent movie producers to sell theIr films. Associated WIth this event was a Location Expo, a three-day event at which more than 100 film comnussions worldWIde meet to promote their locabOns for filming. More than 10,000 participants annually are expected for both events. In addItion to these cultural and entertainment developments, the 660,000 square foot first phase of the Water Gardens office development 15 scheduled to open during 1991. When totally completed, the complex will consist of 1.26 million square feet. 0-3 Finally, a well known magaZIne, "Sunset - The Magazme of Western Living", recently dubbed Santa Momca "Art CIty", More than forty gallenes have recently opened, nearly half dunng the past two years. Galleries In Santa Monica feature many of Los Angeles' leadmg edge art makers and those from other parts of the world. In additIon, a recent survey of the twelve leading Los Angeles area restaurants lists four in the City of Santa Monica. Population The followmg chart Indicates the growth in population of the City from 1985 to 1991. LriY OF SANTA MONICA POPULATION }J:.u Pqpulatioft 1985............................. ........................................... 93,095 1986.. .......... ......... ........................ ............... ....... ..... 94,060 1987............ ......... ......... ...... ......... ..... ................. ..... 96,100 1988............ ..... .... ..... ..... .............. ..... .......... ............ 97,212 1989............................... ................... ...................... 96,461 1990... ........... ......... ............... .................................. 86,905 1991..... ......... ..... ..... ......... .......... .......... .... ..... .......... 86,862 Source: US. Census for 1990; other figures are State Oepai'l1~\I!nt of Finance estimates as of January 1 each year, received by the City by May of each year. State Oepaiullent of Finance estImates are based on the 1980 and 1990 Census data. Self - Supporting Operations Santa Monica operates an airport, bus line, cemetery and pier and prOVides its reSidents with water and wastewater ServIce. A portion of the net income from these enterprises, as determined In accordance With federal cost allocation guidelmes, IS transferred annually to the General Fund to pay for admimstrative support services provided by General Fund departments. The Santa Monica airport is a 215 acre general aViation airport, located at the southeastern comer of the City. It is the base of approximately 550 aIrcraft. SIgnificant revenue 15 received through vanous leaseholds. The City rents an average of 180 to 240 of its own aircraft tie-down spaces, and also receives cOmIIUSSlOns on fuel sold at the auport. In FISCal Year 1990-91, the uty's 125 buses carried over 19.4 million revenue passengers, while traveling 4 million nules. The system provides excellent coverage {a bus route operates within a quarter-mile of almost every resident} at a low cost (regular fares are $0.50 with discount fares available for the elderly, disabled and students). The City's Transportation DepalUilent also sponsors charter and excursion programs. The City'S transit system,. the BIg Blue Bus, has been the recipient of awards for excellence in public transportation. In" Q87, the Big Blue Bus received the American PublIc Transit Association's prestigious Public Transportation System Outstandmg Achievement Award for extraordinary achievement in efficiency and effectiveness. In 1990, the North Amencan Transit Research Group bestowed upon the Big Blue Bus its first annual National Transit Performance Award for Total Performance. The organizahon ranked the Big Blue Bus the best of 45 SImilarly sized systems 1ft North America. 0-4 The Woodlawn Cemetery and Mausoleum was purchased by the City in 1976 and IS operated as a self-supporting enterpnse competibve with comparable pnvate facilities. It IS located in the south central portion of the City. The Santa Monica PIer is a Los Angeles County and City of Santa Morna landmark built at the turn of the century, It currently contains various restaurants, amusement and other retail estabhshments. The Pier's famous 1900-vintage carousel, which has been designated a national historical landmark, has been completely restored and a new entry-way to the Pier containing a children's park, additional deck space and rewl space has been constructed. The Water Division of the City IS operated as a self-supporting enterprise. About 50% of the City's water is supplied by its own wells, stored in over 16 acres of well fields and reservoir grounds on Cty owned property inside and outside the City lunits. The remaming 50% of the water is purchased from the Metropolitan Water DIStrict of Southern California. The City's automated system delivers over 11 million gallons per day to 16,000 water accounts. The City's own water chemist supervises over 1,700 separate water quality and safety tests per year in stare-licensed laboratories, to ensure high standards are met before delivering the water to the customer's tap. Elhployment Santa Monica's locahon m Los Angeles County, the second largest metropolitan area in the United. States, provides access to vaned employment opportunities for its cihzens, many of whom work outside the City. The following table summarizes historical employment of non-agricultural wage and salary workers m Los Angeles County since 1985. The figures presented are annual averages, based on a calendar year, eshmated. by the California Employment Development I)eptiUlumt. LOS ANGELES COUNTY ES'l1MATt;i.) A "yt;KAGE ANNUAL EMPLOYMENT WAGE AND SALARY WORKERS an Thousands) Forecast m.s 1986 1987 1988 m! ma 1993 (2) Agriculture 10.8 11.0 113 12.1 12.1 12.8 12.5 Muting 12.4 10.5 9.5 9.8 9.8 8.4 7.9 Construcbon 120.9 130.1 143.1 148.4 155.9 160.5 161.5 Manufacturing 887.1 891.4 905.9 904.3 910.6 858.9 882.5 Transportation & Pubhc Utilities 200.9 202.7 204.4 204.3 2063 221.6 2253 Wholesale & Retail Trade 894.9 910.2 920.9 951.5 972.2 972.0 1,036.8 Fmance, Insurance & Real Estate 260.9 273.6 286.1 286.0 296.0 292.5 316.3 Services 970.7 1,001.7 1,054.3 1,098.2 .. ,136.6 1245.7 1,306.0 Go~iunent 477.2 467.4 494.9 ~Q7.4 509.9 538.4 525.8 Total (1) 3,835.8 3,919.2 4,031.1 4,121.9 4,209.4 4,310.6 4,480.6 Source: California Employment Development Department. (1) Totals may not add due to mdependent rounding. (2) Forecast numbers are only produced every two years. 0-5 The following chart provides a comparison, for the years mdicated, of the unemployment rates in the City of Santa Monica, the Oty of Los Angeles, the County of Los Angeles, the State of CalifornIa and. the United States. ANNUAL AVERAGE UNEMPLOYMENT RATES Calendar City of City of County of State of United lBL. Santa Monica Lm; ~les Los Ar\vles California States 1985 5.1% 7.9% 7.0% 7.2% 7.2% 1986 4.8 7.5 6.7 6.7 7.0 1987 4.2 6.6 5.9 5.8 6.2 1988 3.5 5.5 4.9 5.3 5.5 1989 5.4 5.2 4.7 5.1 5.3 1990 4.2 6.6 5.9 5.4 5.3 1991 (1) . Source; State of CalIfonua, Employment Development Department (l) Estimates as of September 1, 1991. The Major employers within the Oty and the number of persons employed by each company are shown below: u:n' OF SANTA MONICA MAJOR EMPLOYERS (as of June 30,1990) Compal'\Y Number of En\plqyees St. John's Hospital Santa Monica Hospital City of Santa Monica Santa Monica College Santa Monica/Malibu Unified School District Rand Corporation Lear Astronics Corporation Paper Mate Manufacturing Nabonal Medical Enterpnses LouverDrape, Inc. 2,000 1,475 1,408 1,274 1,067 958 900 821 773 740 Source: Santa Monica Chamber of Commerce. Retirement System CIty Employees participate in CalIfornia's Pubhc Employees' Retirement System (PERS). The City has particIpated in PERS since 1944. Contnbutions are made by both employees and the City. The City's cost varies according to whether an employee is in the "Safety" (police, fire, etc.) or "Miscellaneous" (all other) category. As of July 1, 1991, Santa Monica will contribute an amount equal to 27.578% of the annual payroll for Fire, 25.9579% for Police and 13.7662% for Miscellaneous employees. The City generally pays the employee as wen as the employer shares to PERS. These contribuhons by the City include amounts necessary to fund D-6 PERS costs for current benehts and to fully amortlZe vanous unfunded liabilities not later than the year 2001. Labor Relations The City has adopted a procedure by which Its employees meet and confer With the Oty on all negobable matters under the Meyer-M'ilia!l;..Brown Act. Most permanent City employees are represented by one of nine unions, includmg 300 by the CLOCEA Union, 265 by the Municipal Employees Association, 146 by the Transportation Umon, 152 by the Santa Monica Police Officers Association and 95 by the Santa Momca Firefighters Assodabon. There are currently various mulb-year contracts In effect through June 1993, with renewal dates staggered over this period. The City has not experienced interruption in City services due to labor dlsputes. Self - Insurance The City Uhh7.e5 internal service funds for its self-insurance programs. Four separate funds are maintained, prOViding for the followmg insurance coverages: general liability, automobile liability, bus Operabons liability and workers' compensation. The City has obtained excess liabJIity coverage through the Authority for California Cities Excess liability (ACCEL), a joint powers authority of medium Size California municipalities. ACCEL pools for virtually every catastrophic loss incurred by its members, thereby eliminating the need for commercial excess insurance protection. The following are the retentions and insurance coverages for each self-insurance fund: Self-Insuran~e Fund General liability Automobile liability Bus Operations liability Workers Compensabon Self-Insurance Retention (SIR) $1,000,000 1,000,000 100,000 500,000 Excess Coverage (Amount Over SIR) $ 9,000,000 (1) 9,000,000 1,000,000 (2) 10,000,000 Source: City of Santa Monica Comprehensive Annual Financial Report, FISCal Year Ended June 30, 1990. (1) Coverage prOVIded through ACCEL (2) Additional excess coverage up to $10 million proVided by ACCEL 0-7 Retail Sales Retail sales for the Clty m 1990 increased 2.9% over the 1989 level. Between 1985 and 1990, Santa Monica expenenced an average annual growth in taxable sales of 4.2%. The following table illustrates the growth of taxable transactlons in the Oty by type of business. CIn' OF SANTA MONICA TAXABLE TRANSACTIONS BY TYPE OF BUSINESS FOR On Millions} 198,; n86 128Z ~ 1989 1990 Apparel Stores $ 60.5 $ 70.5 $ 85.1 $ 82.9 85.5 $ 93.2 General Merchanchse 112.1 110.0 113.5 109.9 106.8 100.6 Drug Stores 21.6 23.3 20.7 22.4 23.4 24.0 Food Stores 35.1 36.3 39.7 41.7 45.4 48.6 Packaged Uquor Stores 13.5 11.7 9.5 9.2 10.1 9.7 EatIng & Drinkmg Places 154.0 161.0 173.1 175.7 185.3 195.7 Home Furnishings & Appliances 41.3 42.3 45.3 53.9 56.1 58.1 Building Materials & Farm Implements 49.0 48.3 47.4 57.3 61.2 58.7 Auto Dealers & Auto Supplies 275.7 287.8 266.5 278.8 302.7 305.2 Service Stabons 44.2 38.3 44.6 41.9 43.0 46.2 Other Retail Stores 100.s 1449 164.1 171.0 190A 208A Retail Stores Total $ 937.5 $ 974.4 $1,009.5 $1,044.7 $1,109.9 $1,148.4 All Other Outlets 233.7 218.4 254A 278.1 286.8 289 J TOTAL ALL OUTLETS $1,171.2 $1,1928 $1,263.9 $1,322.8 $1,396.7 $1,437.5 Source: California State Board of EqualIZation. Building Permit Activity The following table shows the number and value of resldential and commercial units constructed m the Oty between Fiscal Years 1985-86 and 1990-91. CITY OF SANTA MONICA NEW BUILDING PERMIT VALUATION an Thousands) 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 Construcbon Value New Resldential $41,617 $38,495 $52,456 $66,788 $75,091 $45,927 New Commeraal 88.518 59.026 118.435 164.826 102.038 103.6$9 TOTAL VALUE $130,135 $97,521 $170,891 $231,614 $177,129 $149,586 New Units New Resldential 296 223 355 429 390 260 New Commercial J J ~ J ---1 - - TOTAL UNITS 305 226 AAA 435 391 260 Source: City of Santa Monica Comprehensive Annual Fmandal Report, Fiscal Year Ended June 30, 1990. Bank Deposits The followmg table shows the amount of bank deposits in the CIty for the last flve fIscal years. D-8 CITY OF SANTA MONICA BANK DEPOSITS Un Thousands ) Year Ended Total Bank June go Deposits 1985............ ..... ...... ..... .......... ............ ........ $1,142,474 1986.. ............... ............. ............... ..... ........ 1,079.143 1987.............. ...... ..... .................... ........ ..... 1,139,226 1988. ................. ............... ..... ....... ............. 1,245,021 1989..... ....... ........... ..... .......... ..... ....... ........ 1,288.866 1990... .............. ............... ............. ............. 1,313.947 Source: City of Santa Monica ComprehensIve Annual Financial Report, Fiscal Year Ended June 30, 1990. Assessed Valuation The valuation of property in the Oty is established Or the Los Angeles County Assessor, except for public utility property wroc:h 15 assessed by the State Board of Equalization. Assessed valuations are reported at 100% of the full value of the property, as defined In Article XIll A of the Califorrna Constitubon. Prior to Fiscal Year 1981-82, assessed valuations were reported at 25% of the full value of the pro~i.y. 0-9 Assessed Valuation The valuabon of property in the CIty 15 establl5hed by the Los Angeles County Assessor, except for pubhc ubhty property which 15 assessed by the State Board of Equahzanon. Assessed valuabOns are reported at 100% of the full value of the property, as dehned in Article XIll A of the Cahforma ConstitutIon Pnor to Flscal Year 1981-82, assessed valuabons were reported at 25% of the full value of the property. ern OF SANTA MONICA ASSESSED V ALUAnONS, TAX RATES, SECURED LEVIES AND COLLECTIONS AND DF-UNQUENCIES Total Tax Rates City Uncollected Assessed (Per $100 Secured Cwrent Percent Valuation (2) Assessed Valuation) 'tax Le"" I&n<3) Delinquent(3) 1981 735,093,000 4.30 3,689,342 167,698 4.5 1982 3,495,381,000 1.07 4,475,494 262,088 5.9 1983 3,950,330,000 1.06 5,182,774 324,661 6.3 1984 4,318,545,000 1.06 5,705,064 395,903 6.9 1985 4,645,203,000 1.05 6,413,485 454,587 7.1 1986 4,966,788,000 1.05 6,804,226 475,162 7.0 1987 5,351,764,000 1.04 7,392,846 509,819 6.9 1988 5,863,413,000 1.04 8,173,076 433,711 5.3 1989 6,025,429,000 1.03 9,044,682 595,775 6.6 1990 6,745,846,000 1.03 10,205,146 663,673 6.5 Source: City of Santa Monica Comprehensive Annual Financial Report, Fiscal Year Ended June 30, 1990. (1) Effective Flscal Year 1981-82, assessed values are stated as 100% of full cash value rather than 25% as m previous years. (2) Consists of real property, secured and unsecured personal property, pubhc utihties, less total exemptions. Rounded to the nearest 1,000. (3) The data presented represents the Oty's proportionate allocation of County-WIde totals and is not based on the actual amount of taxes uncollected within the Oty. Long-Term Debt As of June 30, 1990, the combined total outstanding long term debt of the CIty was approximately $42,635,000, all of whIch IS self-supported. from revenues. The CIty'S long-term debt is prOVIded on the follOWIng table: D-I0 e~=o~ ~ ~ ~~ ~ ";:s lO\ ~~ ~ "OClll" tri' ~ .:c ~ It"l' ~ ~ ... Clll- "a ;:s r... ... ::1 N c~ c- rt S- 0""_ ~ OIJ' .... .... ~ ,..l0,:0 ! ui u-"c ~ i ~, ~~ f3 !-~..- I " :::lI .. ~ i 1100 _ ;:s Sf i c "0 ... ... ~ ~ ... ... C") .m .Q,1 ~'O e ~ ~, -:J =-llll'i ~Q,1 ~~;:Si: i 0 0 0 0 ~ Q,1 > ClllC .. ;:s 52 - c .. C ..... o - ........c i: ,..l "i .5=1 (5~~ E I .. .. '2i -,,= ~ ~ ~ ~ 1ft z~g- .. ~ ~ ~ ; ..'0 E7o.~~ lB c: o~" ~ ~ ~ >-~ OIl - "a ;:s ~ ::E I ~ c~ c- I ->. 0""_ rJJS ~ ~ <0- ,..l0,:0 .... ... ~Z"2 ~fo O'tl t:'< Cf.I-~ - . -~ ~ ~ ~ ~ I 8.- "" ;:s " ""0:; 0... .5 Q,1 ~ O~" E O.!!.'l ~' ~ ~;f ~~f ~Q.. 65~ < .. : rt . 0 rJJS .., ca 0 .... .... '0- o ~ c ~ ~.!l l'll Q,1 ="" ~- J f#! ~! ~ f#! ~ae ~~ u it 0 ~ ... \CI~ (I) ... l:( \CI 0- !~ eCl\ e- Q IX) \CI ! ~ <] =-1 ... ... .... ~ I'll ~ ~ ~ _ lft " 0 I I i I (Il'O - liB i ~~ >- ~ 0- CJ\ - - ... ... ... lS..~ :_j ~ ~ !! l:B ~ E 'C ..... 8.5 .. 0 - - - - Q ... ..... ~ ..... ~ e =' ~ .... Q - - .-< e tIC tol o e '2 to ~:i2 .... e:s .. lieS II ii I 8 ~ J~ :g e ~ ~~ u ~ lICool!! tol :E -= ~~ 'c S ~ ... - ~'C c< 'tI c I c :0 o ''c " o_lICC 0 0 S _ :!: ::E-ll':: == 5.5~ ::E~ ::E... ~ ::Er::0!:,g 0.... llC:s - Soc~ SEIICc: ,e.lj s= C ~ e -g tIO:Y: soct: c.cclll c~.g'2 C ~.9 ~ c Q,.S\ :!: .- '0 ~O.- e ~ 0.,:.5 :; U::s -"QI .2 Gl U Q., ~~III- c:i1-;1a_ rJi,gelS - ta Q., t: .. u .....e::s> Q:~O!:fijc Q:~u ..... <.l D.< -~e-~ ~~ o \C 'u ~... j o III ~ e ~il~~ ~'€'2~ ~t € l;2 oQlC'tI >.C D.. ~i :c! =- -GlCJ\e ..- GJ C ,_WIlla.. ~:::. !- 0 01;.::1::::'_ ucc:c.", UUCl.O UUCl.O U~< 0-11 UTY OF SANTA MONICA LEGAL DEBT MARGIN June 30,1990 Net assessed value Plus exempt property Total assessed value $6,709,519,679 295.778.252 $7,005,297,931 $700 ,529 ,793 Debt limit-10 percent of total assessed value{l} Amount of debt applicable to debt lunit: Total bonded debt Less: Assets in debt service funds available for payment of pnnapaI Total amount of debt applicable to debt limit $25,505,000 (2) 2.128.626 $ 23.376.374 Legal debt margm $ 677,153,419 Source: Oty of Santa Monica Comprehensive Annual Fmancial Report, Flscal Year Ended June 30,1990 (1) Per Sechon 607 of the City Charter, bonded mdebtedness of the Gty may not exceed 10% of total assessed valuation of property Wlthin the City, exclusive of any indebtedness mcurred for the purpose of water supply or sewers or stonn drains. (2) Includes Revenue Bonds and Tax Allocation Refundmg/Refinancmg Bonds for Redevelopment Agency, and the Oty's General ObIigabon Bonds. D-12 Direct and Overlapping Debt Direct and overlappmg bonded lndebtedness is shown in the folloWIng table compiled by California Municipal Stabstics, Inc.~ of San Francisco, Califorma. CITY OF SANTA MONICA STATEMENT OF DlRECI' AND O\iCKi.APPlNG DEBT The 1989-90 Assessed Valuation was $6,606,166,659, after deducting $205,042,468 redevelopment tax allocabon mcrement and adding $65,363,128 homeowner exemptions. Share of Authorized and Unsold Bonds: Metropohtan Water District Los Angeles Flood Control District State School Building Aid Repayable as of 6/30/90 TO BE UPDAn.o , j Los Angeles County Los Angeles County Building Authorities Los Angeles County Flood Control District Los Angeles County Flood Control District Cerbficates of Participation Metropolitan Water District Santa Momca Community CoUege District Ce~ficatesofPamcipation Los Angeles Unihed School District Los Angeles County Supenntendent of Schools City of Santa Monica Cernficates of Partidpatlon (1985- Airport, 1986- Third St. Mall) (1) Oty of Santa Monica Redevelopment Agency (1978 Revenue Bonds - Downtown) City of Santa Monica General Obligation Bonds (1990 - Main Library Improvements) Total Direct and Overlapping Bonded Debt (2) Ratios to Assessed Valuation: Direct Debt ($33,950,O<X)) Total Debt % ADDlicable Debt 6/30/90 $ 1.672,284 29,523,468 3,185,410 893,328 7,645,695 11,056.670 242 74,979 17,130,000 1.909 1.909 2.005 2.oos 1.067 70.492 0.001 1.909 l00.()(X) 100.000 12,320,000 100.000 4.500.000 ~~8Ioo2,076 0.51% 1.42% $533,500 $369,923 $ o Source: Cal1fornia Municipal Statistics, Inc. (1) Excludes 1966 Parking Authonty Bonds which have been defeased. (2) Includes cerbficates of participation, but excludes tax allocabon bonds and non-bonded capital lease obligations. Lease - Purchase Obligations The City has eight lease-purchase obligations outstanding. All currently outstanding lease-purchase obligations will be paid witlun six years. These short tenn obligations were incurred for the lease-purchase of the followmg items: the City Hall telephone system, an aerial ladder fire truck, two tnple combination fire trucks, computer equipment and two Kodak Ectapnnt machines. The total principal amount outstanding for the lease- purchases is $803,401. 0-13 Upon delivery of the 1991 Series A Bonds, Onick, Herrington & Sutcliffe, Los Angeles, California, Bond COWlSel, proposes to render its final approving opinion with respect to tile 1991 Series A Bonds in substantially ale following form: [Date of Issuance] City of Santa Monica 1685 Main Street Santa Monica, California Re: City of Santa Monica Wastewater Enterprise Revenue Bonds (Hvoerion Proiect). 1991 Series A (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the City of Santa Monica (the "City") of $ aggregate prinCIpal amount of its Wastewater Enterprise Revenue Bonds (Hyperion Project), 1991 Series A (the "Bonds"), issued pursuant to the Charter of the City, the Santa Monica Revenue Bond Act (being Chapter 6.5 of Article II of the Santa Monica Municipal Code) and all laws of the State of California supplemental thereto, including the Revenue Bond Law of 1941 to the extent made applicable by said Charter and said Santa Monica Revenue Bond Act (collectively, the "Law.). In such connection, we have reviewed the Indenture, dated as of 1991 (the "Indenture") between the City and Bank of America National Trust and Savings Association. as trustee (the "Trustee"). authorizing issuance of the Bonds, the Charter of the City, the Tax Certificate, dated the date hereof (the "Tax Certificate"). certificates of the City, the Trustee, and others, opinions of counsel to the City, and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Indenture. the Tax Certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ounelves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We LAl-t0441 1 B-1 4OZl3-HIPH-lomJ9l City of Santa Monica [Date of Issuance] Page 2 have not undertaken to detennine, or to inform any person, whether any such actions or events are taken or do occur_Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions coI!t.l!.ined in the opinion, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements CODtained in the Indenture and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Bonds and the Indenture are subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State of California. We express no opinion with respect to any indenmification provisions contained in the foregoing documents. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Bonds constitute the valid and binding special obligations of the City, payable solely from the Revenues (as defmed in the Indenture) and other amounts held by the Trustee, as provided in the Indenture. 2. The Indenture has been duly authorized, executed and delivered by, and constitutes the valid and binding obligation of, the City. The Indenture creates a valid pledge, to secure the payment of the princIpal of and interest on the Bonds, of the Revenues and any other amounts (including proceeds of the sale of the Bonds) held by the Trustee in any fund or account established pursuant to the Indenture (other than amounts on deposit in the Rebate Fund created pursuant to the Indenture), subject to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. . 3. Interest on the Bonds is excluded from gross income for federal income taX purposes under section 103 of the Internal Revenue Code of 1986 and is exempt from California personal income tax. Interest on the Bonds is not a specIfic preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express U,I-IOUI.I E-2 40233-Z-GPH.10I0Sm City of Santa Monica [Date of Issuance] Page 3 no opinion regarding other tax consequences related to the ownership or disposition of. or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE per / , LAl-IOUI 1 Ev3 <<mJ.2-OPH-IGr'll1I!'J