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SR-203-001-06 (4) PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER , 1999 NEW ISSUE-BOOK-ENTRY ONLY RATINGS: In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other things, compliance with certain covenants, interest on the Series 1999 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 State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 1999 Bonds is not a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that it is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding other tax consequences caused by the ownership or disposition of, or the accrual or receipt of interest on, the Series 1999 Bonds. See “CONCLUDING INFORMATION – Tax Matters” herein. $63,515,000* REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA EARTHQUAKE RECOVERY REDEVELOPMENT PROJECT AREA TAX ALLOCATION BONDS, SERIES 1999 Dated: November 1, 1999 Due: July 1, as shown below The Series 1999 Bonds will be issued by the Redevelopment Agency of the City of Santa Monica (the “Agency”) pursuant to an Indenture, dated as of _____ __ , 1999 (the “Indenture”), by and between the Agency and BNY Western Trust Company, as trustee. The proceeds of the Series 1999 Bonds will be used to purchase approximately 11.3 acres in the Civic Center area of the City or for other redevelopment purposes as specified herein (the “Project”), to fund the Reserve Account and to pay certain costs of issuance of the Series 1999 Bonds. See “PLAN OF FINANCE.” The Series 1999 Bonds are special obligations of the Agency payable from and secured by Tax Revenues, as defined in the Indenture, attributable to the Earthquake Recovery Redevelopment Project Area of the Agency (the “Project Area”) and from amounts held under the Indenture other than the Rebate Fund. See “SECURITY FOR THE SERIES 1999 BONDS.” The Series 1999 Bonds will be available in denominations of $5,000 or integral multiples thereof, and will mature in the years and amounts as set forth below. Interest on the Series 1999 Bonds is payable on January 1 and July 1 of each year, commencing July 1, 2000. The Series 1999 Bonds will be delivered in fully registered form only, and when authenticated and delivered, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”) which will act as securities depository of the Series 1999 Bonds. Purchasers of interests in the Series 1999 Bonds will not receive physical delivery of bond certificates, except as described herein. See “THE SERIES 1999 BONDS” and “APPENDIX F – BOOK-ENTRY ONLY SYSTEM.” The Series 1999 Bonds are subject to optional redemption and mandatory sinking fund redemption as described in this Official Statement. DOCSLA1:319991.6 40233-4MKH THE OBLIGATIONS OF THE AGENCY UNDER THE INDENTURE, AND ANY ADDITIONAL BONDS (AS DEFINED HEREIN) ARE PAYABLE SOLELY FROM TAX REVENUES (AS DEFINED HEREIN) ALLOCATED AND PAID TO THE AGENCY WITH RESPECT TO THE PROJECT AREA AND CERTAIN AMOUNTS PLEDGED UNDER THE INDENTURE. THE SERIES 1999 BONDS ARE NOT A DEBT OF THE CITY OF SANTA MONICA OR THE STATE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS OTHER THAN THE AGENCY, AND NEITHER THE CITY, THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS OTHER THAN THE AGENCY IS LIABLE THEREFOR. THE AGENCY HAS NO TAXING POWER. THE SERIES 1999 BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMIT OR RESTRICTION. NEITHER THE MEMBERS OF THE AGENCY, THE CITY, NOR ANY PERSONS EXECUTING THE SERIES 1999 BONDS ARE LIABLE PERSONALLY ON THE SERIES 1999 BONDS BY REASON OF THEIR ISSUANCE. The payment of the principal of and interest on all or a portion of the Series 1999 Bonds when due may, at the successful bidder’s option, be insured by a municipal bond insurance policy to be issued by [Bond Insurer] simultaneously with the delivery of the Series 1999 Bonds. [INSURER LOGO] This cover page contains certain information for reference only. Investors must read the entire official statement in order to obtain information essential in making an informed investment decision. MATURITY SCHEDULE Year Interest Year Interest (July 1) Amount Rate Price (July 1) Amount Rate Price 2000 2015 2001 2016 2002 2017 2003 2018 2004 2019 2005 2020 2006 2021 2007 2022 2008 2023 2009 2024 2010 2025 2011 2026 2012 2027 2013 2028 2014 2029 The Series 1999 Bonds are offered, when, as and if delivered to and received by the Underwriter, subject to the approval as to their legality by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. Certain legal matters will be passed on for the Agency DOCSLA1:319991.6 40233-4MKH by Kane, Ballmer & Berkman, Special Counsel to the Agency. Public Resources Advisory Group served as financial advisor to the Agency with respect to the Series 1999 Bonds. It is anticipated that the Series 1999 Bonds in book-entry form will be available for delivery in New York, New York on or about December ___, 1999. Dated: November ___, 1999 * Preliminary, subject to change. DOCSLA1:319991.6 40233-4MKH REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA ____________________ MEMBERS OF THE AGENCY Pam O’Connor, Chairperson Ken Genser, Vice Chairperson Richard Bloom, Member Michael Feinstein, Member Robert T. Holbrook, Member Kevin McKeown, Member Paul Rosenstein, Member AGENCY STAFF John Jalili, Executive Director Mike Dennis, Agency Treasurer Jeff Mathieu, Director of Resource Management Maria M. Stewart, Agency Secretary Marsha Jones Moutrie, Agency Counsel ____________________ PROFESSIONAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California Special Counsel to the Agency Kane, Ballmer & Berkman Los Angeles, California Financial Advisor Public Resources Advisory Group Los Angeles, California Fiscal Consultant HdL Coren & Cone Diamond Bar, California Trustee BNY Western Trust Company Los Angeles, California DOCSLA1:319991.6 40233-4MKH NO DEALER, BROKER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFER OR SALE OF THE SERIES 1999 BONDS, OTHER THAN AS CONTAINED IN THIS OFFICIAL STATEMENT, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE AGENCY, THE CITY OR THE UNDERWRITER. THIS OFFICIAL STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE DESCRIBED ON THE COVER PAGE OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SERIES 1999 BONDS BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. THE OFFICIAL STATEMENT IS NOT TO BE CONSTRUED AS A CONTRACT WITH THE PURCHASERS OF THE SERIES 1999 BONDS. No dealer, broker, salesperson or other person has been authorized by the Agency or the City to provide any information or to make any representations other than as contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the Agency or the City. This Official Statement is not to be construed as a contract with the purchasers of the Series 1999 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly described herein, are intended solely as such and are not to be construed as a representation of facts. Certain information set forth herein has been obtained from sources which are believed by the Agency and the City to be reliable but it is not guaranteed as to accuracy or completeness. The information and expression of opinion herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the City. DOCSLA1:319991.6 40233-4MKH TABLE OF CONTENTS Page INTRODUCTION.....................................................................................................................1 The Series 1999 Bonds...................................................................................................1 Use of Proceeds..............................................................................................................2 The City.........................................................................................................................2 The Agency and the Earthquake Recovery Redevelopment Project Area........................2 Tax Allocation Financing...............................................................................................3 Bondowner’s Risks.........................................................................................................4 Additional Bonds............................................................................................................4 Continuing Disclosure....................................................................................................5 Further Information........................................................................................................5 PLAN OF FINANCE.................................................................................................................5 ESTIMATED SOURCES AND USES OF FUNDS...................................................................6 ANNUAL DEBT SERVICE ON THE SERIES 1999 BONDS...................................................7 THE SERIES 1999 BONDS.......................................................................................................7 Description.....................................................................................................................7 Optional Redemption......................................................................................................8 Purchase in Lieu of Redemption.....................................................................................9 Notice of Redemption.....................................................................................................9 Selection of Bonds for Redemption..............................................................................10 Transfer and Exchange.................................................................................................10 SECURITY FOR THE SERIES 1999 BONDS........................................................................10 Pledge of Tax Revenues...............................................................................................10 Municipal Bond Insurance............................................................................................10 Investment of Moneys in Funds and Accounts..............................................................10 Allocation of Taxes......................................................................................................11 Low and Moderate Income Housing Fund....................................................................13 Statutory Pass Through Payments.................................................................................14 County Collection Charges...........................................................................................14 Reserve Account...........................................................................................................15 Additional Bonds..........................................................................................................16 MUNICIPAL BOND INSURANCE........................................................................................17 THE AGENCY........................................................................................................................17 General.........................................................................................................................17 Powers .........................................................................................................................17 Agency Finances..........................................................................................................18 THE PROJECT AREA............................................................................................................18 TAX REVENUES....................................................................................................................22 General.........................................................................................................................22 Ten Largest Property Tax Payers..................................................................................22 Historic Assessed Values and Projected Tax Revenues.................................................25 Assessment Appeals.....................................................................................................28 Projected Tax Revenues................................................................................................29 Debt Service and Estimated Coverage..........................................................................30 RISK FACTORS.....................................................................................................................31 Bonds Are Limited Obligations and Not General Obligations.......................................31 DOCSLA1:319991.6 i 40233-4MKH TABLE OF CONTENTS Page Reduction of Tax Revenues..........................................................................................31 Concentration of Ownership.........................................................................................32 Reduction in Inflationary Rate......................................................................................32 State Diversion of Property Tax Increment...................................................................33 Controls, Land Use and Building Restrictions...............................................................33 Year 2000 Compliance.................................................................................................33 Seismic Considerations.................................................................................................34 Loss of Tax Exemption.................................................................................................35 Assumptions and Projections........................................................................................35 LIMITATIONS ON TAX REVENUES...................................................................................36 Property Tax Collection Procedures..............................................................................36 Supplemental Assessments...........................................................................................37 Tax Collection Fees......................................................................................................37 Property Tax Rate Limitations – Article XIIIA of the California Constitution...............37 Legislation Implementing Article XIIIA.......................................................................38 Appropriation Limitations; Article XIIIB of the California Constitution.......................38 California Constitution Article XIIIC and Article XIIID...............................................39 Unitary Taxation of Utility Property.............................................................................39 Proposition 87..............................................................................................................40 Housing Set-Aside........................................................................................................40 Future Initiatives or Legislation....................................................................................40 CONCLUDING INFORMATION...........................................................................................41 Tax Matters..................................................................................................................41 Certain Legal Matters...................................................................................................42 No Litigation................................................................................................................42 Continuing Disclosure..................................................................................................42 Ratings.........................................................................................................................43 Underwriting................................................................................................................43 Financial Advisor.........................................................................................................43 Fiscal Consultant..........................................................................................................43 Professional Fees..........................................................................................................44 Additional Information.................................................................................................44 APPENDIX A FISCAL CONSULTANT’S REPORT...........................................................A-1 APPENDIX B AGENCY AUDITED FINANCIAL STATEMENTS....................................B-1 APPENDIX C INFORMATION ON THE CITY OF SANTA MONICA..............................C-1 APPENDIX D SUMMARY OF THE INDENTURE............................................................D-1 APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL............................E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM..................................................................F-1 APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE.........................G-1 -ii- DOCSLA1:319991.6 40233-4MKH * $63,515,000 REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA EARTHQUAKE RECOVERY REDEVELOPMENT PROJECT AREA TAX ALLOCATION BONDS, SERIES 1999 INTRODUCTION This Official Statement, including the cover page and appendices hereto, is provided to furnish information in connection with the sale by the Redevelopment Agency of the City of Santa * Monica (the “Agency”) of its $63,515,000 aggregate principal amount of Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds, Series 1999 (the “Series 1999 Bonds”). This Introduction contains a brief summary of certain information contained in this Official Statement. It is not intended to be complete and is qualified by the more detailed information contained elsewhere in this Official Statement. Terms used in this Official Statement and not otherwise defined shall have the meanings given to them in “APPENDIX D – SUMMARY OF THE INDENTURE.” The Series 1999 Bonds The Series 1999 Bonds are being issued under the authority granted to the Agency by the Community Redevelopment Law of the State of California (the “State”), constituting Part 1 of Division 24 (commencing with Section 33000) of the California Health and Safety Code, as amended (the “Law”). Furthermore, the Series 1999 Bonds are being issued pursuant to an Indenture (the “Indenture”), dated as of _____ __ , 1999, by and between the Agency and BNY Western Trust Company, as trustee (the “Trustee”). The Series 1999 Bonds are special obligations of the Agency payable from and secured by Tax Revenues, as defined below, attributable to the Earthquake Recovery Redevelopment Project Area of the Agency (the “Project Area”) and from amounts held under the Indenture other than the Rebate Fund. See “SECURITY FOR THE SERIES 1999 BONDS.” Tax Revenues for each Fiscal Year, are the taxes (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) allocable to the Agency pursuant to the Law in connection with the Project Area, excluding (a) amounts, if any, required to be deposited by the Agency in the Housing Fund and used for certain housing purposes, provided, however, that such amounts shall not be excluded if and to the extent that the Agency makes such amounts available as Tax Revenues, and (b) amounts, if any, payable pursuant to Sections 33607.5 and 33607.7 of the Law but only to the extent such amounts are not subordinated to the payment of debt service on the Series 1999 Bonds. With respect to the Series 1999 Bonds, the Agency will make such amounts deposited into its Low and Moderate Income Housing Fund with respect to the Project Area available to pay debt service on the Series 1999 Bonds and, as such, all Tax Revenues received by the Agency, including the 20% housing set-aside, will be pledged to repayment of the Series 1999 Bonds. See “PLAN OF FINANCE.” Tax Revenues and all money in the Revenue Fund, and in the funds or accounts so specified and provided for in the Indenture * Preliminary, subject to change. DOCSLA1:319991.6 40233-4MKH (except the Rebate Fund), are irrevocably pledged under the Indenture to the punctual payment of the interest on and principal of and redemption premiums, if any, on the Series 1999 Bonds, and the Tax Revenues and such other money shall not be used for any other purpose while any of the Series 1999 Bonds remain Outstanding. Payment of the principal of and interest on all or a portion of the Series 1999 Bonds when due may, at the successful bidder’s option, be guaranteed by a municipal bond insurance policy (the “Insurance Policy”) to be issued simultaneously with the delivery of the Series 1999 Bonds by ______ (the “Insurer”). See “MUNICIPAL BOND INSURANCE” herein. Use of Proceeds The net proceeds of the Series 1999 Bonds will be used to purchase approximately 11.3 acres in the Civic Center area of the City or for other redevelopment purposes as specified herein (the “Project”). See “PLAN OF FINANCE.” The balance of the proceeds of the Series 1999 Bonds will also be used to fund the Reserve Account created pursuant to the Indenture, and to pay costs of issuance of the Series 1999 Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS.” The City The City of Santa Monica (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. The City encompasses an area slightly greater than eight square miles and has an estimated population of 94,220 persons, making it the 18th largest city in Los Angeles County. 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 Los Angeles International 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. See APPENDIX C – “INFORMATION ON THE CITY OF SANTA MONICA.” The Agency and the Earthquake Recovery Redevelopment Project Area The City adopted a redevelopment plan (the “Redevelopment Plan”) pursuant to which it established the Redevelopment Plan for the Santa Monica Earthquake Recovery Redevelopment Project (the “Project”), adopted and approved as the Redevelopment Plan for the Project by Ordinance No. 1747, which was adopted by the City Council of the City on June 21, 1994. The Redevelopment Plan was prepared by the Agency pursuant to the Law, as then constituted, the Community Redevelopment Financial Assistance and Disaster Project Law (Health & Safety Code Sections 34000 et seq., the “Disaster Project Law”), the California Constitution, and all applicable local codes and ordinances. The Project Area encompasses approximately 3.6 square miles or 43.4% of the City’s total land area. The Project Area is generally bounded by Pico Boulevard on the south, 26th Street on the east, Montana Avenue on the north and Ocean Avenue on the west. More than one- half of the City’s population resides in the Project Area. DOCSLA1:319991.6 -2- 40233-4MKH According to the Los Angeles County Assessor, there are 7,786 parcels in the Project Area which comprise approximately 34% of the 22,615 parcels in the City. The Project Area is almost entirely developed with 44% commercial, 38% residential, 3% industrial and 15% governmental and other uses by assessed value. The Fiscal Year 1999-2000 total assessed value of the Project Area is $5.002 billion or 43.8% of the City’s Fiscal Year 1999-2000 total assessed valuation of $11.413 billion (which does not reflect deductions for homeowners exemptions as shown in the table entitled “Assessed Valuation of Taxable Property” at APPENDIX C – “INFORMATION ON THE CITY OF SANTA MONICA – Assessed Valuations.” This Fiscal Year 1999-2000 total assessed value of $5.002 billion has been estimated by the Fiscal Consultant net of roll corrections, successful appeals and exemption adjustments. See “TAX REVENUES” and APPENDIX A – “FISCAL CONSULTANT’S REPORT.” The Redevelopment of the Project Area pursuant to the Redevelopment Plan will attain the purposes of the Law and the Disaster Project Law by: (1) planning, design and/or redevelopment of areas which are in need of maintenance, repair, restoration, demolition or replacement as a result of the 1994 Northridge Earthquake; (2) protecting and promoting sound development and redevelopment of earthquake–stricken areas and injurious conditions through the employment of appropriate means; (3) installation of new or repairing or replacing existing public improvements, facilities and utilities in areas which are currently inadequately served with regard to such improvements, facilities and utilities; and (4) other means as determined appropriate by the Agency. The principal amount of bonded indebtedness which can be outstanding at any one time and payable in whole or in part from tax increment revenue from the Project Area (exclusive of certain payments defined in the Redevelopment Plan relating to affordable housing and payments to Taxing Entities) is $95,000,000. See “THE PROJECT AREA.” Tax Allocation Financing The Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. Subject to the more detailed discussion contained under the caption “SECURITY FOR THE SERIES 1999 BONDS,” the taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, or as may otherwise be agreed to among taxing agencies, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll (except such portion generated by rates levied to pay voter-approved bonded indebtedness after January 1, 1989 for the acquisition or improvement of real property), generally referred to as tax increment revenues, are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Tax Revenues consist of a portion of such taxes. See “SECURITY FOR THE SERIES 1999 BONDS.” Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes described above. Attached hereto as Appendix A is a report (the “Fiscal Consultant’s Report”) prepared by HdL Coren & Cone (the “Fiscal Consultant”). The purpose of the Fiscal Consultant’s Report is to examine the current fiscal year and project for the subsequent fiscal years the amount of Tax Increment Revenues anticipated to be received by the Agency from the Project Area. The Tax Revenues that the Agency may DOCSLA1:319991.6 -3- 40233-4MKH utilize for purposes of debt service are determined by provisions of the Law and the Redevelopment Plan and the mandatory payments from the Agency to the taxing entities pursuant to Section 33607.5 of the Law. See APPENDIX A – “FISCAL CONSULTANT’S REPORT.” Any future decrease in the taxable valuation in the Project Area or in the applicable tax rates will reduce the Tax Revenues (as more particularly described under the caption “SECURITY FOR THE SERIES 1999 BONDS – Tax Revenues”) allocated to the Agency from the Project Area and consequently may have an adverse impact on the ability of the Agency to pay debt service on the Series 1999 Bonds. See “RISK FACTORS” herein. The 1993-94 Equalized Assessment Roll is the Base Year Assessment Roll (“Base Year”) for the allocation of taxes pursuant to Section 33670 of the Law for the Project Area. The Los Angeles County Auditor-Controller reports that the 1999-2000 tax assessment roll for of the Project Area is approximately $5,002,321,104 and the Base Year Value is currently $3,867,832,535. The incremental assessed value for the 1999-2000 fiscal year was approximately $1,134,488,569. The Fiscal Consultant has estimated that the Agency will receive approximately $8,969,534 of tax increment revenues for the current fiscal year with respect to the Project Area, after adjustments to taxable values resulting from various property tax appeals. As set forth in the Fiscal Consultant’s Report, the County’s parcel valuations identified value reductions of $117,408,957 due to 1993-94 appeals heard after the formation of the base year and $72,754,955 related to 1992-93 appeals which were heard after the base year was formed and not duplicated in 1993-94. While further reductions to the base year value may occur due to additional appeal activity, the Agency has taken no action to reduce the base year value and the projections herein and in the Fiscal Consultant’s Report assume the current Base Year Value of $3,867,832,535. See “TAX REVENUES” and APPENDIX A – “FISCAL CONSULTANT’S REPORT.” Bondowner’s Risks The projections of Tax Revenues contained in this Official Statement (See “TAX REVENUES AND DEBT SERVICE”) are based on current assessed valuations within the Project Area and the current tax rates applicable to the taxable property in the Project Area. Any future decrease in the receipt of taxes, the assessed valuation of the Project Area, the applicable tax rates, or the economic stability of the Project Area would reduce the Tax Revenues allocated to the Agency and correspondingly would have an adverse impact on the ability of the Agency to pay debt service on the Series 1999 Bonds. See “RISK FACTORS” and “LIMITATIONS ON TAX REVENUES” herein. Additional Bonds The Indenture provides that the Agency may at any time after the issuance and delivery of the Series 1999 Bonds issue Additional Bonds payable from Tax Revenues and secured by a lien and charge upon Tax Revenues equal to and on a parity with the lien and charge securing the Outstanding Bonds issued under the Indenture for the purpose of aiding in financing the Project and/or refunding any then Outstanding Bonds or other indebtedness related to the Project, including payment of all costs incidental to or connected with the issuance of such Additional Bonds. See “SECURITY FOR THE SERIES 1999 BONDS Additional Bonds” herein. The – Series 1999 Bonds and any Additional Bonds are collectively referred to herein as the “Bonds.” DOCSLA1:319991.6 -4- 40233-4MKH Continuing Disclosure The Agency has covenanted for the benefit of owners of the Series 1999 Bonds to provide, so long as the Series 1999 Bonds are outstanding certain financial information and operating data relating to the Agency by not later than the March 1 following the end of the Agency’s fiscal year (which is currently June 30), commencing March 1, 2000 for the 1998-99 Fiscal Year report (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events, if material. See “CONCLUDING INFORMATION – Continuing Disclosure” and APPENDIX G – “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Further Information This Official Statement contains brief descriptions of, among other things, the Series 1999 Bonds, the Indenture, the Agency, the City and the Project Area. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by reference to such documents, and references to the Series 1999 Bonds are qualified in their entirety by reference to the form of the Series 1999 Bonds included in the Indenture. Additional information regarding this Official Statement and copies of the documents referred to herein are available, upon request and payment to the City of a charge for copying, mailing and handling, from the City Clerk at the City of Santa Monica, 1685 Main Street, Santa Monica, California 90401. PLAN OF FINANCE The Series 1999 Bonds are being issued (i) to provide funds to the Agency to purchase approximately 11.3 acres in the Civic Center area of the City directly across Main Street from City Hall or to finance other redevelopment activities of benefit to the Project Area or to refinance other indebtedness related to the Project Area (the “Project”); (ii) fund a Reserve Account for the Series 1999 Bonds (which may be funded with a letter of credit, or an insurance policy, which meets the requirements of the Indenture); and (iii) pay costs of issuance of the Series 1999 Bonds. The Agency will deposit at least 20% of the proceeds of the Series 1999 Bonds into its Low and Moderate Income Housing Fund (the “Housing Fund”). Consequently, the Agency will use amounts deposited in the Housing Fund to pay debt service on the Series 1999 Bonds and all Tax Revenues received by the Agency, including the 20% housing set-aside, will be pledged to repayment of the Series 1999 Bonds as permitted under the Indenture. DOCSLA1:319991.6 -5- 40233-4MKH ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds (excluding accrued interest) with respect to the Series 1999 Bonds are shown below. Sources: Principal Amount $ Original Issue Premium/Discount Total Sources $ Uses: Series 1999 Housing Account $ [Housing Fund] Reserve Account Underwriting Discount Expense Fund Total Uses $ DOCSLA1:319991.6 -6- 40233-4MKH ANNUAL DEBT SERVICE ON THE SERIES 1999 BONDS The following table sets forth the debt service requirements for the Series 1999 Bonds: Table 1 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area ? Series 1999 Bonds Annual Debt Service Bond Year (ending July 1,) Principal Interest Total 2000 $850,000 $1,935,045 $2,785,045 2001 885,000 3,834,391 4,719,391 2002 930,000 3,793,238 4,723,238 2003 975,000 3,747,854 4,722,854 2004 1,025,000 3,698,617 4,723,617 2005 1,075,000 3,645,009 4,720,009 2006 1,135,000 3,587,497 4,722,497 2007 1,195,000 3,525,639 4,720,639 2008 1,260,000 3,459,317 4,719,317 2009 1,335,000 3,388,127 4,723,127 2010 1,410,000 3,311,364 4,721,364 2011 1,495,000 3,228,879 4,723,879 2012 1,580,000 3,139,927 4,719,927 2013 1,675,000 3,044,337 4,719,337 2014 1,780,000 2,942,162 4,722,162 2015 1,890,000 2,832,692 4,722,692 2016 2,005,000 2,715,512 4,720,512 2017 2,130,000 2,590,400 4,720,400 2018 2,265,000 2,457,062 4,722,062 2019 2,405,000 2,315,046 4,720,046 2020 2,560,000 2,164,012 4,724,012 2021 2,720,000 2,002,988 4,722,988 2022 2,890,000 1,831,628 4,721,628 2023 3,070,000 1,649,269 4,719,269 2024 3,265,000 1,455,245 4,720,245 2025 3,475,000 1,248,897 4,723,897 2026 3,695,000 1,028,930 4,723,930 2027 3,925,000 795,036 4,720,036 2028 4,175,000 546,191 4,721,191 2029 4,440,000 281,496 4,721,496 Total $63,515,000 $76,195,801 $139,710,801 THE SERIES 1999 BONDS Description The Series 1999 Bonds will be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof, in the aggregate principal amount, and will be dated, and ? Preliminary, subject to change. DOCSLA1:319991.6 -7- 40233-4MKH will mature in the amounts and on the dates as set forth on the cover hereof. Interest on the Series 1999 Bonds will be payable semiannually on January 1 and July 1 (each an “Interest Payment Date”) of each year, commencing July 1, 2000 and will be calculated on the basis of a 360-day year comprised of twelve 30-day months. The Series 1999 Bonds shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless such date of authentication is during the period from the 16th day of the month next preceding an Interest Payment Date to and including such Interest Payment Date, in which event they shall bear interest from such Interest Payment Date, or unless such date of authentication is on or before the fifteenth day of the month next preceding the first Interest Payment Date, in which event they shall bear interest from their dated date; provided, however, that if, at the time of authentication of any Series 1999 Bond, interest is then in default on the Outstanding Series 1999 Bonds, such Series 1999 Bond shall bear interest from the Interest Payment Date to which interest previously has been paid or made available for payment on the Outstanding Series 1999 Bonds. Payment of interest on the Series 1999 Bonds due on or before the maturity or prior redemption of such Series 1999 Bonds shall be made to the person whose name appears on the bond registration books of the Trustee as the registered owner thereof, as of the close of business on the 15th day of the month next preceding the Interest Payment Date, such interest to be paid by check mailed by first class mail to such registered Owner at such Owner’s address as it appears on such books, or, upon written request received prior to the 15th day of the month preceding an Interest Payment Date of an Owner of at least $1,000,000 in aggregate principal amount of Series 1999 Bonds, by wire transfer in immediately available funds to an account within the continental United States designated by such Owner. Principal of and redemption premium, if any, on the Series 1999 Bonds shall be payable upon the surrender thereof at maturity or the earlier redemption thereof at the principal corporate trust office of the Trustee. Notwithstanding the foregoing, while the Series 1999 Bonds are held in the book- entry only system of DTC, all such payments of principal, interest and premium, if any, will be made to Cede & Co. as the registered owner of the Series 1999 Bonds, for subsequent disbursement to Participant and beneficial owners. See “APPENDIX F – BOOK-ENTRY ONLY SYSTEM.” Optional Redemption Series 1999 Bonds due on or before July 1, 2009 are not subject to redemption before their respective stated maturities. Series 1999 Bonds maturing on or after July 1, 2010 are subject to redemption, as a whole or in part as designated by the Agency, or, absent such designation, pro rata among maturities and by lot within any one maturity if less than all of the Series 1999 Bonds of a single maturity are to be redeemed, prior to their respective maturity dates, at the option of the Agency, on any date on or after July 1, 2009, from funds derived by the Agency from any source, at the redemption price of the principal amount of Series 1999 Bonds called for redemption, together with interest accrued thereon to the date fixed for redemption as set forth in the following table. DOCSLA1:319991.6 -8- 40233-4MKH Redemption Dates Redemption Price July 1, 2009 through June 30, 2010 101% July 1, 2010 and thereafter 100% Mandatory Redemption The Series 1999 Bonds maturing on July 1, 20__ (the “20__ Series 1999 Term Bonds”) are subject to mandatory redemption in part by lot prior to maturity from sinking account payments made on July 1, 20__ and on each July 1 thereafter to and including July 1, 20__ at a redemption price equal to 100% of the principal amount thereof plus accrued interest, if any, to the redemption date, without premium, as set forth in the following table. Series 1999 Term Bonds Due July 1, 20__ Redemption Date Principal Redemption Date Principal July 1 Amount July 1 Amount 20__ (maturity) The Series 1999 Bonds maturing on July 1, 20__ (the “20__ Series 1999 Term Bonds”) are subject to mandatory redemption in part by lot prior to maturity from sinking account payments made on July 1, 20__ and on each July 1 thereafter to and including July 1, 20__ at a redemption price equal to 100% of the principal amount thereof plus accrued interest, if any, to the redemption date, without premium, as set forth in the following table. Series 1999 Term Bonds Due July 1, 20__ Redemption Date Principal Redemption Date Principal July 1 Amount July 1 Amount 20__ (maturity) Purchase in Lieu of Redemption In lieu of redemption of any Term Bond, amounts on deposit in the Debt Service Fund or in the Sinking Account therein may also be used and withdrawn by the Trustee at any time, upon the Written Request of the Agency, for the purchase of such Term Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued DOCSLA1:319991.6 -9- 40233-4MKH interest, which is payable from the Interest Fund) as the Agency may in its discretion determine, but not in excess of the principal amount thereof plus accrued interest to the purchase date. The principal amount of any Term Bonds so purchased by the Trustee in any twelve-month period ending 60 days prior to any Principal Payment Date in any year shall be credited towards and shall reduce the principal amount of such Term Bonds required to be redeemed on such Principal Payment Date in such year. Notice of Redemption Notice of redemption shall be mailed by first class mail by the Trustee, not less than 30 nor more than 60 days prior to the redemption date to (i) the respective Owners of Bonds designated for redemption at their addresses appearing on the bond registration books of the Trustee, (ii) to one or more Information Services designated in writing to the Trustee by the Agency, and (iii) the Securities Depositories. Each such notice shall also state that on said date there will become due and payable on each of such Bonds the redemption price thereof or of said specified portion of the principal amount thereof in the case of a Bond to be redeemed in part only, together with interest accrued thereon to the redemption date, and that from and after such redemption date interest thereon shall cease to accrue, and shall require that such Bonds be then surrendered at the address or addresses of the Trustee specified in the redemption notice. Failure by the Trustee to give notice of redemption pursuant to the Indenture to any one or more of the Information Services or Securities Depositories, or the insufficiency of any such notice shall not affect the sufficiency of the proceedings for redemption. The failure of any Owner to receive any redemption notice mailed to such Owner and any defect in the notice so mailed shall not affect the sufficiency of the proceedings for redemption. The Agency shall have the right to rescind any optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice of optional redemption shall be canceled and annulled if for any reason funds are not available on the date fixed for redemption for the payment in full of the Bonds then called for redemption, and such cancellation shall not constitute an Event of Default under the Indenture. The Agency and the Trustee shall have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee shall mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent. Selection of Bonds for Redemption Whenever less than all Outstanding Bonds maturing on any one date are called for redemption at any one time, the Trustee shall select the Series 1999 Bonds to be redeemed from the Outstanding Bonds maturing on such date not previously selected for redemption, by lot in any manner which the Trustee deems appropriate. For purposes of selecting Series 1999 Bonds for redemption, the Series 1999 Bonds shall be deemed to be composed of $5,000 portions and any such portions may be separately redeemed. Notwithstanding the foregoing schedules for Sinking Account Redemption, if some but not all of such Term Series 1999 Bonds have been optionally redeemed pursuant to the Indenture, the total amount of all future Sinking Account Installments set forth in the foregoing schedules for Sinking Account Redemption shall be reduced, as appropriate, by the aggregate principal amount of Series 1999 Bonds so redeemed, to DOCSLA1:319991.6 -10- 40233-4MKH be allocated among such Sinking Account Installments as are thereafter payable, as designated by the Agency, or, absent such designation, on a pro rata basis, in integral multiples of $5,000. Transfer and Exchange The Series 1999 Bonds may be transferred or exchanged at the principal corporate trust office of the Trustee, provided that the Trustee shall not be required to register the transfer of any Series 1999 Bond 15 days before any Interest Payment Date or any redemption date or any Series 1999 Bonds which have been selected for redemption. The Trustee, under certain circumstances, shall replace Series 1999 Bonds which have been mutilated, lost, destroyed or stolen. The Trustee shall require the payment by the Owner requesting the transfer or replacement of any Series 1999 Bond of any tax or other governmental charge required to be paid with respect to such transfer or replacement. SECURITY FOR THE SERIES 1999 BONDS Pledge of Tax Revenues The Series 1999 Bonds are secured by a pledge of and lien on all of the Tax Revenues and a pledge of all of the moneys in the Revenue Fund created pursuant to the Indenture, including the Interest Account, the Principal Account, the Sinking Account and the Reserve Account therein. “Tax Revenues” are defined in the Indenture as set forth herein under the caption “INTRODUCTION.” The Tax Revenues are allocated by the Indenture in their entirety to the payment of the principal of, if any, and interest on the Series 1999 Bonds, and any Additional Bonds issued on a parity with the Series 1999 Bonds and the transfer of amounts to the Reserve Account, and to the replenishment of the Reserve Account to the Reserve Requirement, if needed. See APPENDIX D--“SUMMARY OF THE INDENTURE.” Municipal Bond Insurance Payment of the principal of and interest on all or a portion of the Series 1999 Bonds when due may, at the successful bidder’s option, be guaranteed by a municipal bond insurance policy (the “Insurance Policy”) to be issued simultaneously with the delivery of the Series 1999 Bonds by ______ (the “Insurer”). See “MUNICIPAL BOND INSURANCE” herein. Investment of Moneys in Funds and Accounts Upon the written direction of the Agency, received by the Trustee at least two business days prior to such investment, moneys in the Debt Service Fund, the Interest Account, the Principal Account, any Sinking Account, the Expense Fund, the Rebate Fund or the Reserve Account shall be invested by the Trustee in Authorized Investments. In the absence of such instructions the Trustee shall invest in the investments described in paragraph (___) of the definition of Authorized Investments, except as otherwise provided in the Indenture. The obligations in which moneys in the Debt Service Fund, the Interest Account, the Principal Account or any Sinking Account are so invested shall mature prior to the date on which such moneys are estimated to be required to be paid out under the Indenture. The obligations in which moneys in the Reserve Account are so invested shall be invested in obligations maturing no more DOCSLA1:319991.6 -11- 40233-4MKH than five years from the date of purchase by the Trustee or on the final maturity date of the Series 1999 Bonds, whichever date is earlier; provided, however, that if an obligation may be redeemed at par on the business day prior to each Interest Payment Date during which such obligation is outstanding, such obligation may have any maturity. Any interest, income or profits from the deposits or investments of all funds (except the Revenue Fund, Redevelopment Fund, Expense Fund and Rebate Fund) and accounts shall be deposited in the Debt Service Fund. All earnings on amounts in the Revenue Fund, Expense Fund, Redevelopment Fund and Rebate Fund shall remain in such funds. For purposes of determining the amount on deposit in any fund or account held under the Indenture, all Authorized Investments credited to such fund or account shall be valued at the amortized cost thereof. Amounts deposited in the Revenue Fund and the Redevelopment Fund may be invested in any investment permitted by law for Agency funds. The Trustee or any of its affiliates may act as principal or agent in the acquisition or disposition of investments under the Indenture. The Trustee may commingle moneys in any of the funds or accounts created hereunder for purposes of investment. Absent negligence, bad faith or willful misconduct by the Trustee, the Trustee shall not be responsible or liable for any loss suffered in connection with any investment of funds made by it in accordance with the Indenture. Allocation of Taxes Taxes are due in two equal installments. Installments of taxes levied upon secured property become delinquent after December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31. The County disburses tax increment revenue to all redevelopment agencies from November through August with approximately 35% of secured revenues apportioned by the end of December and a total of 75% of the secured revenues by the end of the following April. Unsecured revenues are disbursed in November, March and August of each fiscal year. The November payment consists of an 80% advance on the total unsecured levy. As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Law (commencing with Section 33670 of the California Health and Safety Code) and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in Project Area each year by or for the benefit of the State and any city, and county, city and county, district or other public corporation (herein collectively referred to as “taxing agencies”) for fiscal years beginning after the effective date of Project Area are divided as follows: 1. To Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said taxing agencies upon the total sum of the assessed value of the taxable property in the Project as shown upon the assessment roll used in connection with the taxation of that property by the taxing agency, last equalized prior to the effective date of the ordinance, shall be allocated to and when collected shall be paid to the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid (for the purpose of allocating taxes levied by or for any taxing agency or agencies which did not include the territory in the DOCSLA1:319991.6 -12- 40233-4MKH Project on the effective date of the ordinance but to which that territory has been annexed or otherwise included after that effective date, the assessment roll of the County last equalized on the effective date of the ordinance shall be used in determining the assessed valuation of the taxable property in the Project on the effective date); and 2. To the Agency: Except as provided in paragraph (3) below, that portion of the levied taxes each year in excess of that amount shall be allocated to and when collected shall be paid into a special fund of the Agency to pay the principal of an interest on loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the Project. Unless and until the total assessed valuation of the taxable property in the Project exceeds the total assessed value of the taxable property in the Project as shown by the last equalized assessment roll referred to in paragraph (1) hereof, all of the taxes levied and collected upon the taxable property in the Project shall be paid to the respective taxing agencies. When the loans, advances, and indebtedness, if any, and interest thereon, have been paid, all moneys thereafter received from taxes upon the taxable property in the Project shall be paid to the respective taxing agencies as taxes on all other property are paid. 3. To Taxing Agencies: That portion of the taxes in excess of the amount identified in paragraph (1) above which are attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness for the acquisition or improvement of real property shall be allocated to, and when collected shall be paid into, the fund of that taxing agency. This paragraph shall only apply to taxes levied to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989. Under the provisions of the Redevelopment Plan, the following limitations are imposed: (1) no loans, advances or indebtedness to finance in whole or in part projects and programs for the Project Area shall be established or incurred by the Agency after June 21, 2014; (2) the time limit on the effectiveness of the Redevelopment Plan shall not exceed 30 years from the effective date of the ordinance adopting the Redevelopment Plan (June 21, 2024 with respect to the Project); and (3) the time limit for the repayment of indebtedness shall not exceed June 21, 2039. The Redevelopment Plan limits the amount of bonded indebtedness outstanding at any one time and payable from the tax increment revenues allocated to Project Area to $95,000,000. Such limitation is exclusive of: (1) any payments made from such principal amount by the Agency of any taxing agency pursuant to Sections 33401 and 33676 of the Law to alleviate financial burden; and (2) any funds required by Section 33333.2 of the Law and the Redevelopment Plan to be deposited by the Agency in a low and moderate income housing fund as a result of such payments to taxing agencies. With respect to the Series 1999 Bonds, the Agency will make such amounts deposited into its Low and Moderate Income Housing Fund with respect to the Project Area available to pay debt service on the Series 1999 Bonds and all Tax Revenues received by the Agency, including the 20% housing set-aside, will be pledged to repayment of the Series 1999 Bonds. See “PLAN OF FINANCE.” DOCSLA1:319991.6 -13- 40233-4MKH The Agency has no power to levy and collect taxes, and any property tax limitation, legislative measure, voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate, or the value of property subject to ad valorem taxation, must necessarily reduce the amount of Tax Revenues that would otherwise be available to pay the principal of, premium, if any, and interest on, the Series 1999 Bonds. Likewise, broadened property tax exemptions or successful appeals of assessed valuations could have a similar effect. See “RISK FACTORS” and “LIMITATIONS ON TAX REVENUES” herein. The Series 1999 Bonds are not a debt of the City, the State or any of its political subdivisions other than the Agency, and neither the City, the State, nor any of its political subdivisions, is liable therefor. The principal of, premium (if any) and interest on the Series 1999 Bonds are payable solely from the Tax Revenues. The Series 1999 Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limit or restriction. Low and Moderate Income Housing Fund Sections 33334.2 and 33334.3 of the Law require redevelopment agencies to set-aside 20% of all tax increment derived from redevelopment project areas established after December 31, 1976 in a low and moderate income housing fund. Section 33334.2 provides that this low and moderate income housing requirement can be reduced or eliminated if a redevelopment agency finds annually by resolution, consistent with the housing element of the community’s general plan, the following: (a) that no need exists in the community to improve, increase or preserve the supply of low and moderate income housing, including its share of the regional housing needs of very low income households and persons and families of low or moderate income; or (b) that some stated percentage less than 20% of the tax increment is sufficient to meet the housing needs of the community, including its share of the regional housing needs of persons and families of low or moderate income and very low income households; or (c) that the community is making substantial efforts, consisting of direct financial contributions of funds from state, local and federal sources for low and moderate income housing of equivalent impact, to meet its existing and projected housing needs (including its share of regional housing needs). The pledge of all of the Tax Revenues and all of the moneys in the Revenue Fund created pursuant to the Indenture excludes moneys to be used for the Housing Set-Aside, except to the extent that the Agency makes such amounts available as Tax Revenues. The Agency deposited at least 20% of the proceeds of the Series 1999 Bonds into the Housing Fund and to use amounts deposited in the Housing Fund to pay debt service on the Series 1999 Bonds. Accordingly, all Tax Revenues received by the Agency, including the 20% housing set-aside, will be pledged to repayment of the Series 1999 Bonds as provided under the Indenture. See “PLAN OF FINANCE.” Statutory Pass Through Payments Pursuant to the Redevelopment Plan, all amounts calculated pursuant to this section shall be calculated after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted from the total amount of tax increment funds received by the Agency in the applicable fiscal year. The payments made pursuant to Sections 33607.5 and DOCSLA1:319991.6 -14- 40233-4MKH 33607.7 of the Law to certain taxing entities specified herein (the “Affected Taxing Entities”) (see, “THE AGENCY – Agency Finances”) shall be allocated among such entities in proportion to the percentage share of property taxes each Affected Taxing Entity receives during the fiscal year the funds are allocated. Agency payments to the Affected Taxing Entities shall be reduced in accordance with the provisions of Section 33607.5 of the Law or any other applicable provisions of law. 1. Commencing with the first fiscal year in which the Agency receives tax increments and continuing through the last fiscal year in which the Agency receives tax increment, the Agency shall pay to the Affected Taxing Entities an amount equal to twenty-five percent (25%) of the tax increment received by the Agency after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted. 2. Commencing with the 11th fiscal year in which the Agency receives tax increment, the Agency shall pay to the Affected Taxing Entities, in addition to the amounts paid under paragraph one above, and after deducting the amount allocated to the Low and Moderate Income Housing Fund, and amount equal to 21 percent of the portion of tax increments received by the Agency, which shall be calculated by applying the tax rate against the amount of assessed value by which the current year assessed value exceeds the first adjusted base year assessed value. The first adjusted base year assessed value is the assessed value of the Project Area in the 10th fiscal year in which the Agency receives tax increment. 3. Commencing with the 31st fiscal year in which the Agency receives tax increments and continuing through the last fiscal year in which the Agency receives tax increments, the Agency shall pay to the Affected Taxing Entities in addition to the amounts paid pursuant to paragraphs one and two above, and after deducting the amount allocated to the Low and Moderate Income Housing Fund and amount equal to 14 percent of the portion of tax increments received by the Agency, which shall be calculated by applying the tax rate against the amount of assessed value by which the current year assessed value exceeds the second adjusted base year assessed value. The second adjusted base year assessed value is the assessed value of the Project Area in the 30th fiscal year in which the Agency receives tax increments. The payments made as described above are the exclusive payments that are required to be made by the Agency to Affected Taxing Entities during the term of the Redevelopment Plan. County Collection Charges Counties are permitted to recover charges for property tax administration in an amount equal to their 1989-90 property tax administration costs, adjusted annually. For the 1998-99 fiscal year, the amount of County collection charges attributed to the Project Area is $108,287, which is equal to a rate of 1.9% of the Tax Increment Revenue. For purposes of the projections set forth in this Official Statement, the Fiscal Consultant has assumed that the County will continue to charge the Agency for property tax administration and that such charge will remain at this rate for the remainder of the projection periods as set forth herein. DOCSLA1:319991.6 -15- 40233-4MKH Reserve Account Under the Indenture, the Reserve Account (the “Reserve Account”) is to be funded with proceeds of the Series 1999 Bonds in the amount of the Reserve Requirement. As defined in the Indenture, the “Reserve Requirement” means an amount equal to the least of (a) 10% of the proceeds (within the meaning of Section 148 of the Code) of each Series of Bonds Outstanding, (b) 125% of Average Annual Debt Service, and (c) Maximum Annual Debt Service; provided that for the purpose of such calculations, there shall be excluded an amount of Bonds or debt service thereon equal to the amount deposited in any escrow fund established pursuant to Trust Agreement. The Trustee shall set aside from the Debt Service Fund and deposit in the Reserve Account an amount of money (or other authorized deposit of security, as contemplated by the following paragraphs) equal to the Reserve Requirement. No deposit need be made in the Reserve Account so long as there shall be on deposit therein an amount equal to the Reserve Requirement. All money in (or available to) the Reserve Account shall be used and withdrawn by the Trustee solely for the purpose of replenishing the Interest Account, the Principal Account or the Sinking Account in such order, in the event of any deficiency at any time in any of such accounts, or for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Series 1999 Bonds in the event that no other money of the Agency is lawfully available therefor, or for the retirement of all Series 1999 Bonds then Outstanding, except that for so long as the Agency is not in default hereunder, any amount in the Reserve Account in excess of the Reserve Requirement shall be transferred from the Reserve Account by the Trustee to the Debt Service Fund. In lieu of making the Reserve Requirement deposit in the Reserve Account or in replacement of moneys then on deposit in the Reserve Account (which shall be transferred by the Trustee to the Agency upon delivery of a letter of credit satisfying the requirements stated in the Indenture), the Agency, and with prior written notification to S&P and/or Moody’s if the Series 1999 Bonds are then rated by S&P and/or Moody’s, may deliver to the Trustee (i) an irrevocable letter of credit issued by a financial institution having, at the time of such delivery, unsecured debt obligations rated in at least the second highest rating category (without respect to any negative modifier) of S&P and/or Moody’s, in an amount, together with moneys, Authorized Investments or insurance policies (as described in the Indenture) on deposit in the Reserve Account, equal to the Reserve Requirement; or (ii) an insurance policy securing an amount, together with moneys, Authorized Investments or letters of credit (as described in the Indenture) on deposit in the Reserve Account, no less than the Reserve Requirement, issued by an insurance company licensed to issue insurance policies guaranteeing the timely payment of debt service on the Series 1999 Bonds and whose unsecured debt obligations (or for which obligations secured by such insurance company’s insurance policies), at the time of such delivery, are rated in the two highest rating categories (without respect to any negative modifier) of S&P and/or Moody’s. If and to the extent that the Reserve Account has been funded with a combination of cash (or Authorized Investments) and a letter of credit, or an insurance policy, which meets the requirements of the Indenture (a “Qualified Reserve Instrument”), then all such cash (or Authorized Investments) shall be completely used before any demand is made on such Qualified Reserve Instrument, and replenishment of the Qualified Reserve Instrument shall be made prior to any replenishment of any cash (or Authorized Investments). If the Reserve Account is funded, DOCSLA1:319991.6 -16- 40233-4MKH in whole or in part, with more than one Qualified Reserve Instrument, then any draws made against such Qualified Reserve Instrument shall be made pro rata. Additional Bonds The Indenture provides that the Agency may at any time after the issuance and delivery of the Series 1999 Bonds issue Additional Bonds payable from Tax Revenues and secured by a lien and charge upon Tax Revenues equal to and on a parity with the lien and charge securing the Outstanding Bonds theretofore issued under the Indenture, provided, among other things, that the proceeds of such Additional Bonds to be applied solely for (i) the purpose of aiding in financing the Project, including payment of all costs incidental to or connected with such financing, and/or (ii) the purpose of refunding any Bonds or other indebtedness related to the Project, including payment of all costs incidental to or connected with such refunding; and that the Tax Revenues, based upon the assessed valuation of taxable property in the Project Area as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date issuance of such Additional Bonds, plus, at the option of the Agency, the Additional Allowance, shall be in an amount equal to at least 150% of the Maximum Annual Debt Service on all then Outstanding Bonds and such Additional Bonds and any loans, advances or indebtedness payable from Tax Revenues pursuant to the Law on a basis that is not subordinate to the payment of the Bonds; provided, however, that if either (i) the aggregate assessed value of the properties within the Project Area owned by the top ten taxpayers in the Project Area, as shown on the most recently equalized assessment roll, is less than 50% of the remainder of (x) the aggregate assessed value of all properties within the Project Area, as shown on the most recently equalized assessment roll, less (y) the aggregate assessed value of all properties within the Project Area, as shown on the equalized assessment roll for the 1993-94 Fiscal Year, or (ii) the aggregate assessed value of the properties within the Project Area owned by the top two taxpayers in the Project Area, as shown on the most recently equalized assessment roll, is less than 20% of the remainder of (x) the aggregate assessed value of all properties within the Project Area, as shown on the most recently equalized assessment roll, less (y) the aggregate assessed value of all properties within the Project Area, as shown on the equalized assessment roll for the 1993-94 Fiscal Year, then the Tax Revenues, based upon the assessed valuation of taxable property in the Project Area as shown on the most recently equalized assessment roll and the most recently established tax rates preceding the date issuance of such Additional Bonds, plus, at the option of the Agency, the Additional Allowance, need only be in an amount equal to at least 125% of the Maximum Annual Debt Service on all then Outstanding Bonds and such Additional Bonds and any loans, advances or indebtedness payable from Tax Revenues pursuant to the Law on a basis that is not subordinate to the payment of the Bonds. As defined in the Indenture, the term ““Additional Allowance” means, as of any date of calculation, the sum of (a) the amount of Tax Revenues that, as shown in a Consultant’s Report of an Independent Redevelopment Consultant, are estimated to be allocable to the Agency in the next succeeding Fiscal Year as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction that has been completed but has not yet been reflected on the tax roll, or (ii) the transfer of ownership, or any other interest, in real property that is not then reflected on the tax roll, plus (b) the amount of Tax Revenues that, as shown in a Consultant’s Report of an Independent Redevelopment Consultant, are estimated to be allocable to the Agency in the next succeeding Fiscal Year as a result of increases in the assessed valuation DOCSLA1:319991.6 -17- 40233-4MKH of taxable property in the Project Area due to inflation at an assumed annual inflation rate equal to the lesser of (i) the annual rate of inflation as shown in the consumer price index or comparable data for the Project Area during the most recent twelve month-period for which figures are available, or (ii) 2%. For purposes of such definition, the phrase “increases in the assessed valuation” means the amount by which the assessed valuation of taxable property in the Project Area in the next succeeding Fiscal Year is estimated, as of the date on which such calculation is made, to exceed the assessed valuation of taxable property in the Project Area (as evidenced by a written document from an appropriate official of the County). For the purposes of the issuance of Additional Bonds, Outstanding Bonds shall not include any Bonds the proceeds of which are deposited in an escrow fund held by an escrow agent, provided that the Supplemental Indenture authorizing issuance of such Additional Bonds shall provide that: (A) such proceeds shall be deposited or invested with or secured by an institution rated “A” by S&P or “A” by Moody’s (without regard to negative modifiers) at a rate of interest which, together with amounts made available by the Agency from bond proceeds or otherwise, is at least sufficient to pay Annual Debt Service on the foregoing Bonds, (B) moneys may be transferred from said escrow fund only if Tax Revenues for the next preceding Fiscal Year will be at least equal to 150% of Maximum Annual Debt Service on all Outstanding Bonds (or 125% of Maximum Annual Debt Service on all Outstanding Bonds if the Agency satisfies the terms of the proviso above permitting an Additional Allowance in an amount equal to at least 125% of the Maximum Annual Debt Service) less a principal amount of Bonds which is equal to moneys on deposit in said escrow fund after each such transfer, and (C) Additional Bonds shall be redeemed from moneys remaining on deposit in said escrow fund at the expiration of a specified escrow period in such manner as may be determined by the Agency. In the event such Additional Bonds are to be issued solely for the purpose of refunding and retiring any Outstanding Bonds, interest and principal payments on the Outstanding Bonds to be so refunded and retired from the proceeds of such Additional Bonds being issued shall be excluded from the foregoing computation of Maximum Annual Debt Service. Nothing contained in the Indenture shall limit the issuance of any tax allocation bonds of the Agency payable from Tax Revenues and secured by a lien and charge on Tax Revenues if, after the issuance and delivery of such tax allocation bonds, none of the Bonds theretofore issued under the Indenture will be Outstanding, nor shall anything contained in the Indenture prohibit the issuance of any tax allocation bonds or other indebtedness by the Agency secured by a pledge of tax increment revenues (including Tax Revenues) subordinate to the pledge of Tax Revenues securing the Bonds. See “SECURITY FOR THE SERIES 1999 BONDS – Additional Bonds” herein. MUNICIPAL BOND INSURANCE [TO COME] DOCSLA1:319991.6 -18- 40233-4MKH THE AGENCY General The Agency was established by the Santa Monica City Council on August 13, 1957 pursuant to the Law. With the approval of the Council, the Mayor appointed the original five members of the Agency simultaneously with its creation. Appointive members continued to serve until May 1972 when the Council, pursuant to Section 33200 of the Law, declared itself to be the Agency and assumed all the rights, powers, duties privileges and immunities vested in the Agency. The purpose of the Agency is to eliminate blight and to promote economic revitalization within designated project areas of the City. The Agency has four project areas: the Downtown Redevelopment Project Area, the Earthquake Recovery Redevelopment Area, Ocean Park Redevelopment Project Area 1A and Ocean Park Redevelopment Project Area 1B. Powers Redevelopment in the State of California is carried out pursuant to the Law. Section 33020 of the Law defines redevelopment as the planning, development, replanning, redesign, clearance, reconstruction or rehabilitation, or any combination of these, of all or part of a survey area and the provision of such residential, commercial, industrial, public or other structures or spaces as may be appropriate or necessary in the interest of the general welfare, including recreational and other facilities incidental or appurtenant to them. All powers of the Agency are vested in its seven members. The Agency exercises governmental functions in carrying out projects and has authority to acquire, develop, administer and sell or lease property, including the right to acquire property, to issue bonds and expend their proceeds. The Agency can clear buildings and other improvements, can develop as a building site any real property owned or acquired, and in connection with such development can cause streets, highways, and sidewalks to be constructed or reconstructed and public utilities to be installed. The Agency may, out of the funds available to it for such purposes, pay for all or part of the value of the land and the cost of buildings, facilities, structures or other improvements to be publicly owned and operated to the extent that such improvements are of benefit to the project area and no other reasonable means of financing is available. The Agency must sell or lease remaining property within a project for redevelopment by others in strict conformity with the redevelopment plan, and may specify a period within which such redevelopment must begin and be completed. Agency Finances The Agency has issued its tax allocation bonds for the Downtown Redevelopment Project Area, Ocean Park Redevelopment Project Area 1A and Ocean Park Redevelopment Project Area 1B. These bonds are not payable from the same source of revenues as the Tax Revenues securing the Series 1999 Bonds. The Agency has entered into various promissory notes and reimbursement agreements with the City totaling $22.1 million as of July 1, 1999 payable by the Earthquake Recovery Redevelopment Project Area. The two promissory notes in an aggregate DOCSLA1:319991.6 -19- 40233-4MKH amount of $1.1 million are payable by the Earthquake Recovery Redevelopment Project Area for repayment of project start-up operating cash advances. The three reimbursement agreements in an aggregate amount of $21 million are for the construction costs associated with the Pico Streetscape Project, for the funding of the 1116-1146 Fourth Street housing project public parking facilities, and for the funding of Fiscal Year 1999-2000 operating costs for the Project. The City has agreed to subordinate repayment of these promissory notes and reimbursement agreements to the payment of debt service on any bonded indebtedness of the Agency. The Agency’s audited financial statements for the fiscal year ending June 30, 1998 are included as Appendix B to this Official Statement. The auditors have not completed an audit of any financial statements of the Agency as of any date or for any period subsequent to June 30, 1998. The information contained herein accurately summarizes the Agency’s financial condition as of the date hereof and there has been no material adverse change in the Agency’s financial condition as compared to the information set forth in the Agency’s financial statements for the fiscal year ending June 30, 1998. THE PROJECT AREA On January 17, 1994, the “Northridge Earthquake” occurred with disastrous consequences in the City. The Governor of the State of California, certified the need for assistance by directing the execution of the State Emergency Plan for the County of Los Angeles, by directing the Office of Emergency Services and other State departments and agencies to perform all appropriate actions under State law, and by requesting federal assistance in a letter to the President of the United States. The President declared the earthquake to be a major disaster under federal law. On June 21, 1994, pursuant to the Law, the Disaster Project Law, the California Constitution, and all applicable local codes and ordinances, the City adopted the Redevelopment Plan for the Project and established the Project Area. The Redevelopment of the Project Area pursuant to the Redevelopment Plan is expected to attain the purposes of the Law and the Disaster Project Law by: (1) planning, design and/or redevelopment of areas which are in need of maintenance, repair, restoration, demolition or replacement as a result of the Northridge Earthquake; (2) protecting and promoting sound development and redevelopment of earthquake– stricken areas and injurious conditions through the employment of appropriate means; (3) installation of new or repairing or replacing existing public improvements, facilities and utilities in areas which are currently inadequately served with regard to such improvements, facilities and utilities; and (4) other means as determined appropriate by the Agency. The Project Area encompasses approximately 3.6 square miles or 43.4% of the City’s total land area of 8.3 square miles. As set forth on the map of the Project Area below, the Project Area is generally bounded by Pico Boulevard on the south, 26th Street on the east, Montana Avenue on the north and Ocean Avenue on the west. More than one-half of the City’s population of 94,200 resides in the Project Area. Selection of the Project Area boundaries was guided by inclusion of the most severely damaged properties in need of public assistance for repair and recovery. DOCSLA1:319991.6 -20- 40233-4MKH According to the Los Angeles County Assessor, there are 7,786 parcels in the Project Area which comprise approximately 34% of the 22,615 parcels in the City. The Project Area is almost entirely developed with 44% commercial, 38% residential, 3% industrial and 15% governmental and other uses by assessed value. The Fiscal Year 1999-2000 total assessed value of the Project Area is $5.002 billion or 43.8% of the City’s Fiscal Year 1999-2000 total assessed valuation of $11.413 billion (which does not reflect deductions for homeowners exemptions as shown in the table entitled “Assessed Valuation of Taxable Property” at APPENDIX C – “INFORMATION ON THE CITY OF SANTA MONICA - Assessed Valuations”). This Fiscal Year 1999-2000 total assessed value of $5.002 billion has been estimated by the Fiscal Consultant net of roll corrections, successful appeals and exemption adjustments. See “TAX REVENUES” and APPENDIX A – “FISCAL CONSULTANT’S REPORT.” The Redevelopment Plan limits the amount of bonded indebtedness outstanding at any one time and payable from the tax increment revenues allocated to Project Area to $95,000,000. Such limitation is exclusive of: (1) any payments made from such principal amount by the Agency of any taxing agency pursuant to Sections 33401 and 33676 of the Law to alleviate financial burden; and (2) any funds required by Section 33333.2 of the Law and the Redevelopment Plan to be deposited by the Agency in a low and moderate income housing fund as a result of such payments to taxing agencies. No loan, advance or other indebtedness to finance, in whole or in part, the Project and to be repaid from the division and allocation of taxes to the Agency shall be established or incurred by the Agency after twenty (20) years from adoption of the Redevelopment Plan, except by amendment of the Redevelopment Plan as authorized by applicable law. This limit, however, shall not prevent the Agency from incurring debt to be paid from the Agency’s Low and Moderate Income Housing Fund or establishing more debt in order to fulfill the Agency’s housing obligations under Section 33413 of the Law. The Loans, advances or indebtedness may be repaid over a period of time longer than this time limit as provided in this section. No indebtedness to finance, in whole or in part, the Project and which is to be repaid from the division and allocation of taxes to the Agency shall be repaid with such taxes beyond forty-five (45) years from the adoption of the Redevelopment Plan. The provisions of the Redevelopment Plan shall be effective and the provisions of other documents formulated pursuant to the Redevelopment Plan may be made effective for the period ending thirty (30) years from the adoption of the Redevelopment Plan. For a description of these limitations see “SECURITY FOR THE SERIES 1999 BONDS – Allocation of Taxes.” DOCSLA1:319991.6 -21- 40233-4MKH PROJECT AREA BOUNDARY MAP] [ An electronic version of this attachment is not available for review. The document is available for review at the City Clerk’s Office and the Libraries. DOCSLA1:319991.6 -22- 40233-4MKH TAX REVENUES General The table below illustrates the Project Area’s composition by land use and assessed secured value: Table 2 Redevelopment Agency of the City of Santa Monica Redevelopment Project Area Land Use and Assessed Value (Fiscal Year 1999-2000) No. of Property Use Parcels Assessed Value % Share Residential 5,952 $1,912,289,951 38.23% Commercial 1,041 2,204,920,711 44.08 Industrial 205 169,120,778 3.38 Institutional 88 38,058,666 0.76 Vacant Land 150 123,482,096 2.47 Miscellaneous 197 80,242,981 1.60 (1) Possessory Interest [58] 64,495,107 1.29 (1) Unsecured [3,842] 409,710,814 8.19 (2) Exempt 153 -- 0.00 Total Project Value 7,786 $5,002,321,104 100.00% (1) Unsecured and Possessory Interest parcels are shown in brackets because they reflect tax bills that are assigned to secured parcels already accounted for in other categories. (2) The Exempt category figures include the value for exempt parcels such as those owned by the City, Agency, State or other governmental agencies. Source: HdL Coren & Cone. See “APPENDIX A – FISCAL CONSULTANT’S REPORT.” Ten Largest Property Tax Payers The following table sets forth the ten largest property tax payers within the Project Area. Within the Project Area, the aggregate total taxable value of the ten largest assessees totaled $1,022,833,032 or 20.45% of total property values and 90.16% of the incremental value of the Project Area. The top ten property owners account for 22.02% of the secured value within the Project Area and 2.77% of the unsecured value, corresponding to approximately 90.16% of incremental assessed valuation. DOCSLA1:319991.6 -23- 40233-4MKH Table 3 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area (1) Ten Largest Property Tax Payees Secured Unsecured Total % of No. of % of No. of % of Total (2) Assessee Value Parcels AV Value Parcels AV Value Use Value (3) Colorado Place Partners LLC $ 257,688,010 2 5.61% $ - - 0.00% $ 257,688,010 5.15% Commercial Douglas Emmett Realty Fund 163,932,416 5 3.57 - - 0.00 163,932,416 3.28 Commercial Water Garden Company 153,201,174 2 3.34 - - 0.00 153,201,174 3.06 Commercial SHCI Santa Monica Beach Hotel LLC 116,255,011 4 2.53 9,130,000 1 2.23 125,385,011 2.51 Hotel (3)(4) Sisters of Charity Leavenworth Health 85,641,588 38 1.86 - - 0.00 85,641,588 1.71 Commercial, Institutional - 24 1299 Ocean LLC & Teletec Assoc. 54,548,622 2 1.19 - - 0.00 54,548,622 1.09 Commercial - Santa Monica HSP LP 47,868,461 1 1.04 2,200,000 1 0.54 50,068,461 1.00 Hotel (3) Kilroy Realty Limited Partnership 48,858,883 3 1.06 - - 0.00 48,858,883 0.98 Commercial Irvine Apartment Communities LP 44,917,622 1 0.98 - - 0.00 44,917,622 0.90 Residential ET Whitehall Santa Monica Partner 38,591,245 2 0.84 - - 0.00 38,591,245 0.77 Hotel Total $1,011,503,032 60 22.02% $ 11,330,000 2 2.77% $1,022,833,032 20.45% Project Area Assessed Valuation Totals: $4,592,610,290 $409,710,814 $5,002,321,104 Project Area Incremental Value Totals: $941,214,985 107.47% $193,273,584 5.86% $1,134,488,569 90.16% (1) 1999-2000 top property owners current as of June 30, 1999. (2) Based upon fiscal year 1999-2000, total secured and unsecured Project Area value of $5,002,321,104. (3) Adjusted for 1999-2000 roll corrections not reflected on the 1999-2000 Lien Date Roll. (4) Adjusted for exemptions not reflected on the 1999-2000 Lien Date Roll. Source: HdL Coren & Cone. DOCSLA1:319991.6 40233-4MKH The following information describes, the ten largest property tax payers within Project Area that account for 20.45% of Project Area assessed value. Colorado Partners. Colorado Partners LLC owns the MGM Plaza, a full block (654,211 sq. ft. in two parcels) containing five multi-story office buildings offering approximately 1.4 million sq. ft. of space resting on extensively landscaped grounds. Major tenants include MGM/United Artists Studios and related media and hi-technology companies, Gensler, Random House, Symantec, IBM, Hewlett Packard, Apple and IBM. MGM, with 989 employees is among the top 10 employers in the City, and Symantec, with 226 employees is among the top 30 employers in the City. The two parcels have a Fiscal Year 1999-2000 total assessed value of $258 million. Douglas Emmet Realty Fund. The Realty Fund owns five major office buildings in downtown Santa Monica. 100 Wilshire is an ocean front 21-story office building offering approximately 285,000 sq. ft. of space. Its Fiscal Year 1999-2000 assessed value is $76.5 million. 401 Wilshire is a large office building with a Fiscal Year 1999-2000 assessed value of $40.5 million housing First Federal Bank and a variety of financial and professional services offices. 1333 2nd Street is a 22,499 sq. ft. building with a Fiscal Year 1999-2000 assessed value of $19.7 million housing Ruben Postaer Advertising with 288 employees and the corporate home of Wolfgang Puck Food Co. 120 Broadway is a five story 109,636 sq. ft. office building with a Fiscal Year 1999-2000 assessed value of $17.3 million. 530 Wilshire is a four story 48,913 sq. ft. office building with primarily professional offices with a Fiscal Year 1999-2000 total assessed value of $9.9 million. Water Garden Co. The Water Garden complex currently consists of two seven story office buildings with 762,304 sq. ft. of space at the corner of Olympic Boulevard and 26th Street. The site includes extensive landscaping and water fountains. Among the major tenants are Candle Corporation with 516 employees, Aurora Life Insurance with 349 employees, RAND Corporation, Lucent Technologies, and a variety of media companies, financial services and law offices. Construction of an additional two office buildings with an aggregate of 600,000 sq. ft. and a 1.4 acre lake at the center of the site is currently underway and expected to be completed in the summer of 2000. SCHI Santa Monica Beach Hotel. The 350 room, eight story hotel is also known as Loews Beach Hotel and sits on a 116,741 sq. ft. lot on the west side of Ocean Avenue overlooking the Pacific Ocean. The hotel has 7,000 sq. ft. of conference space, 447 employees and its posted room rates range from $265 to $345 per night. Sisters of Charity Levenworth Health. The Sisters of Charity own St. John’s Hospital (with 1,542 employees, the City’s largest private employer) and associated professional office buildings totaling 906,665 sq. ft. The Sisters also own smaller office buildings containing the John Wayne Institute for Cancer Research with 37,618 sq. ft., the Santa Monica Bank at 2221 Santa Monica Boulevard and Union Bank at 2001 Wilshire Boulevard. LLC & Teletec Associates. This ownership consists of a 102,157 sq. ft. office building at the corner of Ocean Avenue and Arizona Street overlooking Palisades Park and the Pacific DOCSLA1:319991.6 25 40233-4MKH Ocean in downtown Santa Monica. It has a variety of financial and legal services tenants including Merrill Lynch, Wilshire Associates and the Welk Group. Santa Monica HSP LTD Partnership. The Doubletree Suites Hotel has 243 one bedroom suites and 10,620 sq. ft. of conference space. It is located opposite Santa Monica City Hall on Fourth Street. Its posted room rate is $338 per night. Kilroy Realty LP. This partnership owns two office buildings in the Project Area. The first, 2100 Colorado Avenue, is a 224,725 sq. ft. three story building occupied by Sony Electronics, Sony Music Entertainment, Epic and Columbia Records. The second, 501 Santa Monica Boulevard, is a 79,054 sq. ft. building housing by California Federal Bank and a variety of financial, media and professional offices. Irvine Apartment Communities, LP. This ownership consists of a 119 unit residential apartment building located at 1221 Ocean Avenue opposite Palisades Park and the Pacific Ocean. It was purchased in 1998 for $44.1 million and is currently undergoing major interior remodeling with a permit valuation of $5.9 million to be marketed as luxury class apartments. ET Whitehall Santa Monica Partnership. Shutters on the Beach is a 198 room hotel located on the beach at 1 Pico Boulevard. The hotel has 362 employees and its posted room rates range from $325 to $700 per night. Historic Assessed Values and Projected Tax Revenues The following table shows the historical assessed values for Project Area for Fiscal Year 1995-96 through 1999-2000. The tax increment figures set forth below do not include one time adjustments, which are reflected in Table 6. On average, assessed values have increased over the Fiscal Years 1995-96 through 1999-2000. See “RISK FACTORS” herein. -26- DOCSLA1:319991.6 40233-4MKH Table 4 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Historic Assessed Valuations BASE YEAR 1993-94 1995-96 1996-97 1997-98 1998-99 1999-2000 (1) Secured Land $1,794,484,113 $1,798,363,568 $1,810,694,762 $1,842,702,236 $1,927,337,502 $2,192,586,523 Improvements 2,064,295,402 2,135,349,992 2,120,148,100 2,162,849,822 2,225,317,818 2,504,065,215 Personal Property 43,156,789 36,437,208 23,083,682 28,211,207 29,718,353 24,620,678 Exemptions (250,540,999) (293,028,505) (211,496,692) (211,547,411) (197,180,013) (120,921,202) TOTAL SECURED 3,651,395,305 3,677,122,263 3,742,429,862 3,822,215,854 3,985,193,660 4,600,351,214 Unsecured (2) Improvements 90,742,357 0 106,013,528 105,777,233 121,386,953 86,290,295 (2) Personal Property 294,721,559 0 471,956,223 461,813,664 372,434,369 325,804,067 (2) Exemptions (269,026,686) 0 (251,600,119) (256,844,999) (86,506,448) (2,383,548) TOTAL UNSECURED 216,437,230 0 326,369,632 310,745,898 407,314,874 409,710,814 GRAND TOTAL 3,867,832,535 3,677,122,263 4,068,799,494 4,132,961,752 4,392,508,534 5,010,062,028 Roll Corrections 96,949,439 Exemption Adjustment (99,139,907) Successful Appeals (5,550,456) Adjusted Grand Total 5,002,321,104 (1) Secured values include state assessed non-unitary utility property. (2) Unsecured values are not reported by Los Angeles County in the first year of a new project area. Source: County of Los Angeles Lien Date Rolls; compiled by HdL Coren & Cone. The following table sets forth the historic receipts of gross tax increment revenues, including revenues from supplemental assessments, homeowner’s exemptions, public utilities and prior year collections as well as County withholdings for appeal refunds and other amounts. -27- DOCSLA1:319991.6 40233-4MKH Table 5 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Historic Gross Tax Increment Revenues Collected by the Agency BASE YEAR 1993-94 1995-96 1996-97 1997-98 1998-99 (1) Real Property $3,698,980,873 $3,640,685,055 $3,825,359,698 $3,899,781,880 $4,076,862,260 (2) Personal Property 168,851,662 36,437,208 243,439,796 233,179,872 315,646,274 (3) Total Taxable Value 3,867,832,535 3,677,122,263 4,068,799,494 4,132,961,752 4,392,508,534 Less Base Year Value 3,867,832,535 3,867,832,535 3,867,832,535 3,867,832,535 3,867,832,535 Incremental Taxable Value 0 0 200,966,959 265,129,217 524,675,999 (1) Real Property consists of Land and Improvements. (2) Unsecured values are not reported by Los Angeles County in the first year of a project area (1995-96). (3) County of Los Angeles Lien Date Rolls. Source: HdL Coren & Cone. As shown in the Fiscal Consultant’s Report, total Project Area receipts for the Agency for 1998-99 were $7,569,414, inclusive of revenues from supplemental assessments, homeowner’s exemptions, public utilities and prior year collections as well as County withholdings for appeal refunds of $342,930. Receipts for the Agency for 1998-99 were also reduced by the County administration fee of $108,287 for the Project Area. The following table shows the tax collection for the past three fiscal years. Table 6 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Tax Collections Fiscal Years 1996-97 through 1998-99 Percentage Percentage Current Year Prior Year Total Current Year Total Fiscal Year Tax Levy Collections Collections Collections Collection Collection 1996-97 $ 547,619 $ 501,125 $193,699 $ 694,824 91.51% 126.88% 1997-98 2,487,097 2,388,999 1,031,769 3,420,768 96.06% 137.54% 1998-99 6,008,896 5,872,815 1,696,599 7,569,414 97.74% 125.97% Source: HdL Coren & Cone. Assessment Appeals As set forth in the Fiscal Consultant’s Report, since 1993-94 there have been 2,695 assessment appeals filed on properties within the Project Area. Of the 2,695 appeals filed, 835 have been allowed with a reduction in value and 1,483 have been denied or withdrawn. There are 377 appeals currently pending on 267 properties within the Project Area. Based on the historical averages, the Fiscal Consultant has estimated that 96 of the currently pending appeals will be allowed and that these successful appeal will result in an assessed value reduction of -28- DOCSLA1:319991.6 40233-4MKH $52,189,801. This reduction has been incorporated in the projections herein as a reduction to the 2000-01 assessed value. Reduction in revenue for refunds resulting from these successful appeal not have been estimated. The Fiscal Consultant’s estimates are based upon the historical averages of successful appeals and amounts of value reductions. Actual appeals, reductions and refunds may vary from historical averages. The following table summarizes the potential losses that are incorporated into the projections. Est. Reduction on Pending Appeals Resolved No. of Estimated No. Allowed Appeals Total No. of Successful Average No. of Appeals of Appeals (2000-01 AV (1999-2000 AV Appeal Appeals Reduction Pending Allowed Adjustment) Adjustment) 2,695 835 22.82% 267 96 $52,189,901 $5,550,456 Many of the appeals filed in the Project Area are based on Section 51 of the Revenue and Taxation Code which requires that for each lien date the value of real property shall be the lessor of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in values. Reductions made under this code section may be initiated by the Assessor or requested by the property owner. After a roll reduction is granted under this Section 51, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases shall be in accordance with the actual full cash value of the property and it may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See “LIMITATIONS ON TAX REVENUES.” Projected Tax Revenues The following table shows the projected Tax Revenues for Project Area for the fiscal years 1999-2000 through 2003-04, as projected by the Fiscal Consultant. While the projections are based on assumptions which are believed by the Fiscal Consultant to be reasonable, there can be no assurance that such projections will be realized. See “RISK FACTORS” herein. The projections of Tax Revenues are based on the following assumptions: For the purposes of the projections, it is assumed that there will be value added to the tax rolls as a result of new construction activity identified by Agency staff. See “APPENDIX A – FISCAL CONSULTANT’S REPORT.” Tax rates used in the determination of Tax Revenues each year are reduced from the prior year’s rate by a constant percentage for the portion of the tax override rate allocable to County uses. The decline, which is due to the gradual redemption of general obligation debt, is projected to continue until the tax rate stabilizes at the rate of $1.0089 per $100 of taxable value reflecting -29- DOCSLA1:319991.6 40233-4MKH the 1% basic tax levy plus the override rate for the Metropolitan Water District of Southern California. See “LIMITATIONS ON TAX REVENUES – Property Tax Rate Limitations – Article XIIIA of the California Constitution” herein and “APPENDIX A FISCAL – CONSULTANT’S REPORT.” Real property values are assumed to increase 2% annually for inflation, as allowed by Article XIIIA of the California Constitution. See “LIMITATIONS ON TAX REVENUES – Property Tax Rate Limitations – Article XIIIA of the California Constitution” herein. The taxable value of Personal Property is also established on the lien dates and is not subject to the annual two percent limit of locally assessed Real Property. The revenue attributable to state assessed utility property is assumed at zero. See “LIMITATIONS ON TAX REVENUES – Unitary Taxation of Utility Property” herein. Table 7 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Projected Tax Revenues Fiscal Years 1998-99 through 2003-04 (000’s omitted) Reported Projected 2000-01 2001-02 2002-03 2003-04 1998-99 1999-2000 Real Property Value $4,076,862 $4,654,280 $4,779,631 $5,042,878 $5,143,735 $5,246,610 Personal Property 315,446 348,041 348,041 348,041 348,041 348,041 Total Taxable Value 4,392,509 5,002,321 5,127,672 5,390,919 5,491,777 5,594,651 Less Base Year Value 3,867,833 3,867,833 3,867,833 3,867,833 3,867,833 3,867,833 Incremental Taxable Value 524,675 1,134,489 1,259,840 1,523,086 1,623,944 1,726,819 (1) Gross Tax Increment Revenue 7,569 11,484 12,750 15,409 16,423 17,458 Unitary Tax Revenue 0 0 0 0 0 0 (2) Less: SB 2557 Admin. Fee (108) (218) (242) (293) (312) (331) Adjusted Gross Revenues 7,461 11,266 12,508 15,116 16,112 17,126 (3) Less: Taxing Entity Pass Through (1,514) (2,297) (2,550) (3,082) (3,285) (3,492) Pledged Tax Revenues 5,947 8,970 9,958 12,034 12,827 13,635 (1) See Table 1 of Fiscal Consultant’s Report dated October 21, 1999. Growth in real property land and improvement values have been limited to new development described in Section VIII of the Fiscal Consultant’s Report and an assumed rate of growth of real property taxable values of two percent annually as allowed under Article XIIIA of the State Constitution for all future years. Should the growth of taxable value in the Project Area be less than two percent, the resultant Gross Tax Revenues would be reduced proportionately. See “RISK FACTORS - Assumptions and Projections” and APPENDIX A – “FISCAL CONSULTANT’S REPORT.” (2) Estimated by HdL Coren & Cone at 1.9% of Gross Tax Increment Revenue. (3) All Taxing Entities receive their shares of 25% of total tax increment revenue net of housing set aside. In addition, after year 10 Fiscal Year 2007-08, Taxing Entities receive 21% of tax revenue of incremental value above the year 10 value net of housing set aside. After year 30 Fiscal Year 2027-28, Taxing Entities receive 14% of tax revenue of incremental value above the year 30 value net of housing set aside. Source: HdL Coren & Cone. -30- DOCSLA1:319991.6 40233-4MKH Debt Service and Estimated Coverage The following table sets forth the debt service and estimated coverage on the Series 1999 Bonds during the next five Fiscal Years. Estimated total revenues are based on the following assumptions: that the Fiscal Consultant’s projections of net Tax Revenues as summarized in Table 8 and as set forth in APPENDIX A hereto are realized through Fiscal Year 2003-04; and that debt service is based on the maturity schedule and interest rates for the Series 1999 Bonds as set forth on the cover page hereof. The estimates in Table 8 are further based on the assumption that the Agency will not incur parity debt for Project Area during the years shown. However, it is likely the Agency will incur such parity debt as its Tax Revenues increase, although it is difficult to predict the timing or amount of any such debt. See “SECURITY FOR THE SERIES 1999 BONDS Additional – Bonds.” Table 8 Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area (1) Estimated Debt Service Coverage Estimated Debt Estimated Service on Fiscal Tax Increment Series 1999 Coverage Year Revenues Bonds Ratio 1999-2000 $8,969,534 $2,785,045 3.22x 2000-01 9,957,759 4,719,391 2.10 2001-02 12,034,305 4,723,238 2.54 2002-03 12,826,860 4,722,854 2.71 2003-04 13,634,805 4,723,617 2.88 (1) Projected debt service computed by Public Resources Advisory Group assuming $63,515,000 par amount and market rates as of October 19, 1999. Source: HdL Coren & Cone. RISK FACTORS The following factors, along with all other information in this Official Statement, should be considered by potential investors in evaluating the Series 1999 Bonds. For further information regarding certain matters described below, see “APPENDIX A – FISCAL CONSULTANT’S REPORT.” Bonds Are Limited Obligations and Not General Obligations The Series 1999 Bonds and the interest thereon are limited obligations of the Agency and do not constitute a general obligation of the Agency. See “SECURITY FOR THE SERIES 1999 BONDS” herein. No Owner of the Series 1999 Bonds may compel exercise of the taxing power of the State of California or any of its political subdivisions or agencies to pay the principal of or premium, if any, or interest due on the Series 1999 Bonds. -31- DOCSLA1:319991.6 40233-4MKH Reduction of Tax Revenues Tax Revenues allocated to the Agency (which constitute the principal source of repayment of the principal of and interest on the Series 1999 Bonds, as discussed herein) are a portion of the taxes allocated to the Agency each year which are determined by the amount of incremental valuation of taxable property in the Project Area, the current rate or rates at which property in the Project Area is taxed and the percentage of taxes collected in the Project Area. The Agency has no taxing power, nor does the Agency have the power to affect the rate at which property is taxed. At least four types of events that are beyond the control of the Agency could occur and cause a reduction in Tax Revenues arising from the Project Area, thereby impairing the ability of the Agency to make payments of principal of and interest and premium (if any) when due on the Series 1999 Bonds. First, a reduction of taxable values of property or tax rates in the Project Area or a reduction of the rate of increase in taxable values of property in the Project Area caused by economic or other factors beyond the Agency’s control (such as a relocation out of the Project Area by one or more major property owners, successful appeals by property owners for a reduction in a property’s assessed value, a reduction of the general inflationary rate, a reduction in transfers of property, construction activity (which is also subject to development risks associated with real estate) or other events that permit reassessment of property at lower values, or the destruction of property caused by natural or other disasters, including earthquake) could occur, thereby causing a reduction in Tax Revenues. Second, the California electorate or legislature could adopt limitations with the effect of reducing Tax Revenues payable to the Agency. Such limitation already exists under Article XIIIA of the California Constitution, which was adopted pursuant to the initiative process. For a – further descriptions of Article XIIIA, see “LIMITATIONS ON TAX REVENUES Property Tax Rate Limitations – Article XIIIA of the California Constitution,” herein. Third, a reduction in the tax rate applicable to property in the Project Area by reason of discontinuation of certain override tax levies in excess of the 1% basic levy will reduce Tax Revenues otherwise available to pay debt service. Such override can be expected to decline over time until it reaches the 1% basic levy and may be discontinued at any time, which may cause a reduction in Tax Revenues. Fourth, delinquencies in the payment of property taxes by the owners of land in the Project Area could have an adverse effect on the Agency’s ability to make timely debt service payments on the Series 1999 Bonds. Concentration of Ownership The largest property taxpayer in the Project Area accounts for approximately 5.1% of the total assessed value and approximately 22.7% of the incremental assessed value of the total Project Area, and the ten largest property taxpayers account for approximately 20.4% of the total assessed value in the Project Area and approximately 90.1% of the incremental assessed value in the Project Area. Concentration of ownership presents a risk in that if one or more of the largest -32- DOCSLA1:319991.6 40233-4MKH property owners were to default on their taxes, or were to successfully appeal the tax assessments on property within the Project Area, a substantial decline in Tax Revenues could result. Reduction in Inflationary Rate As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value basis of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis. For Fiscal Year 1999-2000, the inflationary factor as determined under Article XIIIA has resulted in an increase in assessed valuation of 1.85%. For Fiscal Year 1998-99, the inflationary factor was 2.0%. For Fiscal Year 1997-98, the inflationary factor was 2.0%. For Fiscal Year 1996-97, the inflationary factor was 1.11%. The Agency has projected Tax Revenues to be received by it based, among other things, upon a 2% annual inflationary increases in real property. Should the assessed value of real property not increase at the allowed annual rate of 2%, the Agency’s receipt of future Tax – Revenues may be adversely affected. See “LIMITATIONS ON TAX REVENUES Property Tax Rate Limitations – Article XIIIA of the California Constitution,” herein. State Diversion of Property Tax Increment In connection with its approval of a budget for the 1993-94 fiscal year, the State Legislature enacted Senate Bill 1135 which, among other things, reallocated approximately $65 million from redevelopment agencies to school districts by shifting approximately 5.675% of each redevelopment agency’s tax increment, net of amounts due to other taxing agencies, to school districts for the then current and immediately subsequent fiscal years. The amount required to be paid by a redevelopment agency under such legislation was apportioned among all of its redevelopment project areas on a collective basis, and was not allocated separately to individual project areas. The State has not subsequently diverted any additional property tax increment from redevelopment agencies to other governmental agencies in the State. The Agency cannot predict whether future State Budget legislation will further divert moneys from redevelopment agencies. Controls, Land Use and Building Restrictions All real property in Project Area is subject to the controls and restrictions of the Redevelopment Plan. The Redevelopment Plan requires that real property in the Project Area shall be developed, rehabilitated and otherwise changed in conformance with the provisions of the Redevelopment Plan and in accordance with the City’s General Plan. Except as set forth in the Redevelopment Plan, the type, size and height of buildings shall be limited by applicable Federal, State and local statutes, codes, ordinances and regulations and as provided in the Redevelopment Plan. The Redevelopment Plan allows for commercial, industrial, residential, and public uses within Project Area in accordance with the General Plan. Year 2000 Compliance As a result of a generalized lack of century designation among computer applications currently in operation worldwide, namely, the inability of certain software and hardware -33- DOCSLA1:319991.6 40233-4MKH applications to correctly distinguish whether calendar dates fall or will fall in the 20th or 21st century, the potential exists that the Year 2000 will begin with some uncertainty in the operations of financial and banking businesses, among others. The breadth and longevity of such operational difficulties, if any, is currently unable to be determined with certainty on an individual or national level. The inability of many computer programs to distinguish between the years 2000 and 1900 (the “Year 2000 Problem”) could disrupt the ability of the City and others to provide municipal services in general and services pertaining to the Project Area and the Series 1999 Bonds in particular and/or could increase the cost of providing such services. For example, the Year 2000 Problem could impede or make more costly (i) the City’s collection and dissemination of revenues and the City’s compliance with on-going disclosure requirements, and with restrictions applicable to investment yield and rebate, (ii) the Trustee’s maintenance of the funds and accounts held by it under the Indenture, and (iii) DTC’s (and its Direct Participants’ and Indirect Participants’) distributions to the Beneficial Owners of the Series 1999 Bonds their respective shares of the principal and interest with respect to the Series 1999 Bonds. The Agency utilizes the facilities and services of the County for the assessment and collection of taxes. Tax Revenues are collected on the same bill at the same time as County taxes by reference to the same tax rolls as the County and special district taxes within the County. The County reports that it believes that it has completed its Year 2000 programming of its property tax system ad that the system has been tested and certified. With respect to its general operations, the City has established a Year 2000 Task Force to ensure that all computer software, hardware and electronic systems relied upon for its operations are Year 2000 compliant. The Task Force has prepared a detailed inventory of all systems to be reviewed and has assigned responsibility to City Departments and vendors for ensuring Year 2000 compliance. Funding for this effort has been obtained. The City has replaced most of its key software systems, including its financial management system, payroll system and business licensing system with new systems that are Year 2000 compliant. The City has also purchased new computer hardware to run the new software programs. Testing of newly installed hardware and software systems is being completed and contingency plans have been developed for mission critical systems. The City expects that all systems relied upon for City operations will be Year 2000 compliant before January 1, 2000. The Trustee has established a Year 2000 compliance program consisting of, among other things, updating major proprietary application systems and evaluating the Year 2000 compliance efforts of vendors of major vendor-supplied systems and certain other business partners. The Trustee believes that its Year 2000 compliance program is currently on schedule to meet the needs of its customers and the compliance deadlines defined by its regulators. As of December 31, 1998, testing and renovation of the proprietary application systems that the Trustee deems “mission critical” were substantially completed and these systems are currently being used by the Trustee. In addition, all vendor applied software systems that the Trustee deems mission critical have been tested and, based upon such testing, the Trustee believes that such systems will not be adversely affected in a material way by the date change to the Year 2000. -34- DOCSLA1:319991.6 40233-4MKH Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of suppliers, customers and other business partners, the Trustee is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Trustee and its ability to perform its obligations under the Indenture. The Year 2000 compliance program is intended to reduce significantly the Trustee’s level of uncertainty about the Year 2000 problem and, in particular, the Year 2000 compliance and readiness of the Trustee and its material business partners. The Trustee believes that, with completion of its Year 2000 compliance program as scheduled, the possibility of significant interruptions of normal operations should be reduced. However, because of the unprecedented nature of the Year 2000 problem, there can be no certainty as to its impact. The foregoing information has been furnished by the Trustee for use in this Official Statement. Such information has not been independently confirmed or verified by the Agency. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof. [INSURER INFORMATION TO COME] For information relating to DTC’s Year 2000 readiness, see APPENDIX F – “BOOK- ENTRY ONLY SYSTEM – DTC Year 2000 Compliance.” In addition to the Trustee and DTC, the City has also inquired about the Year 2000 readiness of other external third parties with whom the City has substantial financial relationships. However, the City has no control over the Year 2000 readiness of such third parties (including the Trustee and DTC), and it is possible that even if the City were fully Year 2000 compliant, the noncompliance of such third parties could adversely affect the timeliness or the amount of the payments to bondholders. Seismic Considerations The City, like most regions that border the Pacific Ocean, is an area that is subject to potentially destructive earthquakes and in some instances liquefaction in the event of an earthquake. The San Andreas fault is the major active fault in the State, and is approximately 40 miles from the Project Area. Several active or potentially active faults are located closer to the Project Area, including the Santa Monica fault, the Malibu Coast fault and the Newport- Inglewood fault. According to the City of Santa Monica Final Master Environmental Assessment (dated April 1996), the City is subject to sometimes violent shaking from periodic earthquakes. On January 17, 1994, a 6.7 magnitude earthquake occurred in Northridge, California which resulted in 450 injuries and 3 fatalities in the City. The City sustained significant (assigned a red or yellow tag) damage to 530 buildings, including 2,300 housing units and the temporary shutdown of St. John’s Hospital. As of January 1, 1999, 517 of the 530 red or yellow tagged buildings have been repaired or assigned repair permits and 8 of the red or yellow tagged multifamily projects contain some unhabitable units. As a result of its response to the disaster, the City obtained $33 million in federal multi- family housing aid to ensure the future protection of affordable housing stock. With an -35- DOCSLA1:319991.6 40233-4MKH expedited permit process and quick action by property owners to secure SBA or other financing, the City has issued over 2,148 repair permits for subsequent work required in severely damaged buildings. As of one year after the earthquake, 2,847 residential and business property owners had secured $136 million in SBA assistance. Over 8,500 FEMA grants have been issued totaling $24.5 million with most of the FEMA funded reconstruction complete. St. John’s Hospital re- opened for business in early 1995 and a $3.2 million Economic Development Administration grant was received to assist in the City’s business recovery. In the event of a severe earthquake, there may be significant damage to both property and infrastructure in the City, which could result in a decrease in the taxable valuation in the Project Area or in the applicable tax rates and impact the ability of the Agency to make debt service when due and, accordingly, could have an adverse effect on the Agency’s ability to make timely payments of principal and interest with respect to the Series 1999 Bonds. Loss of Tax Exemption In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Series 1999 Bonds, the Agency has covenanted in the Indenture to comply with each applicable requirement of Section 103 and Sections 141 through 150 of the Internal Revenue Code of 1986, as amended. The interest on the Series 1999 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the Series 1999 Bonds, as a result of acts or omissions of the Agency in violation of covenants in the Indenture. Should such an event of taxability occur, the Series 1999 Bonds are not subject to acceleration, redemption or any increase in interest rates and will remain Outstanding until maturity or until redeemed under one of the redemption provisions contained in the Indenture. See “CONCLUDING INFORMATION – Tax Matters” herein. Assumptions and Projections Any reduction in Tax Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency’s ability to make timely payments of principal of, premium, if any, and interest on the Series 1999 Bonds, which are secured by such Tax Revenues. To estimate the total Tax Revenues available to pay debt service on the Series 1999 Bonds, the Fiscal Consultant has made certain assumptions with regard to the assessed valuation in the Project Area, future tax rates, the percentage of taxes collected, the amount of funds available for investment and the interest rate at which those funds will be invested. Among these assumptions, the Fiscal Consultant has assumed that growth in real property land and improvement values will be limited to new development and an assumed rate of growth of real property taxable values of two percent annually as allowed under Article XIIIA of the State Constitution for all future years. A two percent growth rate has been assumed because it is the maximum inflationary growth rate permitted by law and this rate of growth has been realized in all but four years since 1981. Should the growth of taxable value in the Project Area be less than two percent, the resultant Gross Tax Revenues would be reduced proportionately and the neither the Agency nor the Fiscal Consultant make, nor can either make, any representation that taxable values will actually grow at two percent. See APPENDIX A – “FISCAL CONSULTANT’S REPORT” for a full discussion of the assumptions underlying the projections set forth herein with respect to Tax Revenues. The Agency believes these assumptions to be reasonable, but to -36- DOCSLA1:319991.6 40233-4MKH the extent that the assessed valuations, the tax rates, the percentage of taxes collected or the interest rate at which funds are invested are less than the Agency’s assumptions, the total Tax Revenues available will, in all likelihood, be less than those projected herein. See “TAX REVENUES -– Debt Service and Estimated Coverage” herein. LIMITATIONS ON TAX REVENUES Property Tax Collection Procedures In California, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured property includes property on which any property tax levied by a county becomes a lien on that property. Unsecured property typically includes value for tenant improvements, fixtures and personal property. The “secured roll” is that part of the assessment roll containing state-assessed public utilities’ property and property the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. The taxes levied on unsecured property are levied at the previous year's secured property tax rate. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. The method of collecting delinquent taxes is substantially different for the two classifications of property. Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The payment of delinquent taxes with respect to property on the secured roll may be enforced only through the sale of the property securing the taxes to the State for the amount of taxes that are delinquent. Such property may thereafter be redeemed by payment of the delinquent taxes and penalties. Unsecured personal property taxes may be collected, in the absence of timely payment by the taxpayer, through (1) a civil action against the taxpayer; (2) filing a certificate of delinquency for record in the county recorder’s office, in order to obtain a lien on property of the taxpayer; (3) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer; and (4) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer. The valuation of all taxable property is determined as of January 1 each year, and equal installments of taxes levied upon secured property become delinquent after the following December 10 and April 10. Taxes on unsecured property are due March 1 and become delinquent August 31, and such taxes are levied at the prior year’s secured tax rate. Real Property reflects the reported assessed values for secured and unsecured land and improvements. Pursuant to Article XIIIA of the State Constitution the value of locally assessed Real Property may only be increased up to two percent annually to reflect inflation. Real Property values are also permitted to increase as a result of a change of ownership or new construction. Utility property assessed by the State Board of Equalization may be revalued annually and such assessments are not subject to the inflation limitations of Article XIIIA. The -37- DOCSLA1:319991.6 40233-4MKH taxable value of Personal Property is also established on the lien dates and is not subject to the annual two percent limit of locally assessed Real Property. Supplemental Assessments Legislation enacted in 1983, SB 813 (Chapter 498, Statutes of 1983), provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, California law enabled the assessment of such changes only as of the next tax lien date following the change, and thus delayed the realization of increased property taxes from new assessments. SB 813 provided increased revenue to redevelopment agencies to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the tax lien date. To the extent such state supplemental assessments occur within Project Area, the Tax Revenues may increase. Collection of taxes based on supplemental assessments will occur throughout the year. Taxes due will be pro-rated according to the amount of time remaining in the tax year, with the exception of tax bills dated January 1 through May 31, which will be calculated on the basis of the remainder of the current fiscal year and the full twelve months of the next fiscal year. Tax Collection Fees Legislation enacted by the State Legislature authorizes county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities which are subject to a property tax administration charge. See APPENDIX A – “FISCAL CONSULTANT’S REPORT.” Property Tax Rate Limitations – Article XIIIA of the California Constitution Article XIIIA of the California Constitution limits the amounts of ad valorem tax on real property to 1% of “full cash value” as determined by the county assessor. Article XIIIA defines “full cash value” to mean “the County Assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value,” or thereafter the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment period.” Furthermore, all real property valuation may be increased to reflect the inflationary rate, as shown by the consumer price index, not to exceed 2% per year, or may be reduced in the event of declining property values caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax limitation any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978 by two-thirds of the voters voting on the proposition approving such bonds, and requires a vote of two-thirds of the qualified electorate to impose special taxes, while totally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State legislature to change any State tax law resulting in increased tax revenues. -38- DOCSLA1:319991.6 40233-4MKH In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend Article XIIIA. Proposition 58 amends Article XIIIA to provide that the terms “purchased” and “change of ownership,” for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children. Proposition 60 amends Article XIIIA and allows persons age 55 or older to transfer the lower assessed value of their current residence to another newly purchased residence of equal or lesser value. For the exemption to apply, the new residence must be located in the same county and be purchased within two years after the sale of the previous residence. Proposition 60, as such, has no direct state or local fiscal effect unless the county board of supervisors passes an ordinance implementing it. The County of Los Angeles has adopted such an ordinance. The passage of Proposition 58 and Proposition 60 may result in diminution of future increase in property taxes for the Agency. Although the extent of the decrease in revenues in future years cannot be predicted, the Agency does not anticipate that such decreased tax increment revenues will have a material adverse impact on the Agency’s ability to repay the Series 1999 Bonds. Legislation Implementing Article XIIIA Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA. Effective as of the 1981-82 Fiscal Year, assessors in California record all taxable property value at 100% of market value with general tax rates reflecting the $1 per $100 of taxable value. Future assessed valuation growth allowed under Article XIIIA (i.e., new construction, change of ownership, and 2% annual value growth) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs. Local agencies and schools will share the growth of “base” revenue from the tax rate area. Each year’s growth allocation becomes part of each school district’s allocation in the following year. Article XIIIA effectively prohibits the levying of any other ad valorem property tax above those described above, even with the approval of the affected voters. Appropriation Limitations; Article XIIIB of the California Constitution Article XIIIB of the California Constitution limits the annual appropriations from the proceeds of taxes of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. Article XIIIB includes a requirement that if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax or fee schedules over the subsequent two years. -39- DOCSLA1:319991.6 40233-4MKH Section 33678 of the Law provides that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances or indebtedness incurred for redevelopment activity shall not be deemed the receipt by such agency of proceeds of taxes within the meaning of Article XIIIB, nor shall such portion of taxes be deemed receipt of proceeds of taxes by, or any appropriation subject to the limitation of, any other public body within the meaning or the purpose of the Constitution and laws of the State, including Section 33678 of the Law. Two California appellate court decisions have upheld the constitutionality of Section 33678, and in the one case in which a petition for review was filed in the California Supreme Court, such petition was denied. California Constitution Article XIIIC and Article XIIID On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which contain a number of provisions affecting the ability of the local governments to levy and collect both existing and future taxes, assessments, fees and charges. Because the Bonds are not payable from or secured by any such sources of revenue, Proposition 218 does not affect the issuance or sale of, or the security for, the Series 1999 Bonds. Unitary Taxation of Utility Property AB 454 (Statutes of 1987, Chapter 921) provides a revised method of reporting and allocating property tax revenues generated from most State-assessed unitary properties commencing with Fiscal Year 1988-89. Under AB 454, the State reports to each county auditor- controller only the county-wide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor- controllers to use in order to determine the allocation of unitary property taxes generated by the county-wide unitary value, which are: (i) for revenue generated from the 1% tax rate, each jurisdiction is to receive up to 102% of its prior year unitary property tax increment revenue; however, if county-wide revenues generated from unitary properties are greater than 102% of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction’s share of secured property taxes; (ii) for revenue generated from the application of the debt service tax rate to county-wide unitary taxable value, each jurisdiction is to receive a percentage share of revenue based on the jurisdiction’s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. The provisions of AB 454 apply to all State-assessed property, except railroads and non- unitary properties the valuation of which will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or a revision of the method of assessing utilities by the State Board of Equalization. AB 454 allows, generally, valuation growth or decline of State-assessed unitary property to be shared by all jurisdictions within a county. -40- DOCSLA1:319991.6 40233-4MKH Proposition 87 Under prior State law, if a taxing entity increased its tax rate to obtain revenues to repay general obligation bonds approved by two-thirds of the voters, the redevelopment agency with a project area which includes property affected by the tax rate increase would realize a proportionate increase in tax increment. Proposition 87, approved by the voters of the State on November 8, 1988, requires that all revenues produced by a tax rate increase (approved by the voters on or after January 1, 1989) go directly to the taxing entity which increases the tax rate to repay the general obligation bonded indebtedness. As a result, redevelopment agencies no longer receive an increase in tax increment when taxes on property in the project area are increased to repay voter approved general obligation debt. Housing Set-Aside Sections 33334.2 and 33334.3 of the Law require redevelopment agencies to set aside 20% of all tax increment derived from redevelopment project areas established after December 31, 1976 in a low and moderate income housing fund. Section 33334.2 provides that this low and moderate income housing requirement can be reduced or eliminated if a redevelopment agency finds annually by resolution, consistent with the housing element of the community’s general plan, the following: (a) that no need exists in the community to improve, increase or preserve the supply of low and moderate income housing, including its share of the regional housing needs of very low income households and persons and families of low or moderate income; (b) that some stated percentage less than 20% of the tax increment is sufficient to meet the housing needs of the community, including its share of the regional housing needs of persons and families of low or moderate income and very low income households; or (c) that the community is making substantial efforts, consisting of direct financial contributions of funds from state, local and federal sources for low and moderate income housing of equivalent impact, to meet its existing and projected housing needs (including its share of regional housing needs). As amended by AB 315 (Chapter 872, Statutes of 1991), Section 33334.2 has additional restrictions on the ability to reduce or eliminate the low and moderate income housing requirement. A community can claim that no need exists, or can claim that less than 20% of tax increment revenue is sufficient, only if that claim is consistent with the housing element of the community’s general plan. The authority for communities to claim an “equivalent effort” exemption was repealed as of June 30, 1993, except for obligations incurred prior to May 1, 1991, which were entered into with the understanding that the “equivalent effort” exemption would remain intact. Future Initiatives or Legislation Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID were each adopted as measures that qualified for the ballot pursuant to California’s initiative process and the legislation described above was adopted by the California legislature. From time to time other initiative measures or legislation could be adopted, further affecting Agency revenues or the Agency’s ability to expend revenues. -41- DOCSLA1:319991.6 40233-4MKH CONCLUDING INFORMATION Tax Matters In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, and assuming, among other matters, application of current law and compliance with certain covenants, interest on the Series 1999 Bonds will be excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and will be exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 1999 Bonds will not be a specific preference item for purposes of federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings when calculating corporate alternative minimum taxable income. A copy of the proposed form of opinion of Bond Counsel is set forth in Appendix E hereto. Series 1999 Bonds purchased, whether at original issuance or otherwise, for an amount greater than their principal amount payable at maturity (or, in some cases, at their earlier call date) (“Premium Bonds”) will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, a purchaser’s basis in a Premium Bond, and under Treasury Regulations the amount of tax exempt interest received, will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 1999 Bonds. The Agency has covenanted to comply with certain restrictions designed to insure that interest on the Series 1999 Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Series 1999 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 1999 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series 1999 Bonds may adversely affect the value of, or the tax status of interest on, the Series 1999 Bonds. Further, no assurance can be given that pending or future legislation or amendments to the Code, if enacted into law, or any proposed legislation or amendments to the Code, will not adversely affect the value of, or the tax status of interest on, the Series 1999 Bonds. Prospective Owners are urged to consult their own tax advisors with respect to proposals to restructure the federal income tax. Certain 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 Series 1999 Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bond or the interest thereon if any such change occurs or -42- DOCSLA1:319991.6 40233-4MKH action is taken or omitted upon the advice or approval of counsel other than Orrick, Herrington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Series 1999 Bonds is excluded from gross income for federal income tax purposes and that the Series 1999 Bonds and the interest thereon are exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Series 1999 Bonds may otherwise affect an owner’s federal or state tax liability. The nature and extent of these other tax consequences will depend upon the Bondholder’s particular tax status and the owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Certain Legal Matters Orrick, Herrington & Sutcliffe LLP, Bond Counsel, will render an opinion on the date of delivery of the Series 1999 Bonds substantially in the form set forth in Appendix E to this Official Statement. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of the Official Statement. Certain legal matters will be passed on for the Agency by Kane, Ballmer & Berkman, Special Counsel to the Agency. No Litigation At the time of delivery of and payment for the Series 1999 Bonds, the Agency will certify that, among other things, there is no litigation pending against the Agency, affecting the existence of the Agency or the titles of its officers to their respective offices, or affecting or seeking to prohibit, restrain or enjoin the sale, issuance or delivery of the Series 1999 Bonds or the pledge and lien of the Series 1999 Bonds on the Tax Revenues, or contesting or affecting as to the Agency the validity or enforceability of the Series 1999 Bonds or the Indenture, or contesting the tax-exempt status of interest on the Series 1999 Bonds, or contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement, wherein an unfavorable decision, ruling or finding would materially adversely affect the authorization, execution, delivery or performance by the Agency of the Indenture, nor, to the knowledge of the Agency, is there any basis therefor. Continuing Disclosure The Agency has covenanted for the benefit of owners of the Series 1999 Bonds to provide certain financial information and operating data relating to the Agency by no later than March 1 following the end of each fiscal year of the Agency (which is currently June 30), commencing March 1, 2000 for the 1998-99 Fiscal Year report (the “Annual Report”) and to provide notices of the occurrence of certain enumerated events, if material. The Agency will cause the Annual Report to be filed with each Nationally Recognized Municipal Securities Information Repository. The Agency will cause the notices of material events to be filed with the Municipal Securities Rulemaking Board. These covenants have been made in order to assist the Underwriter in complying with Securities Exchange Commission Rule 15c2-12(b)(5). The specific nature of the information to be contained in the Annual Report or the notices of material -43- DOCSLA1:319991.6 40233-4MKH events by the Agency is set forth in “APPENDIX G – FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Ratings Fitch IBCA, Inc., Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., have assigned ratings of “___,”“___,” and “___,” respectively, to the Series 1999 Bonds. An explanation of the significance of the ratings may be obtained by contacting them at: Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004, Moody’s Investors Service, 99 Church Street, New York, New York 10007, and Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041. Such ratings are not a recommendation to buy, sell or hold the Series 1999 Bonds. There is no assurance that such ratings will continue for any given period of time or that such ratings will not be revised downward or withdrawn entirely by such organizations, if in their judgment circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Series 1999 Bonds. Underwriting The Series 1999 Bonds are being purchased by _____, as Underwriter. The Underwriter has purchased the Series 1999 Bonds from the Agency at a competitive sale at an aggregate purchase price representing the principal amount of the Series 1999 Bonds, plus $______ of original issue premium, plus $______ of accrued interest and less $______ of Underwriter’s discount. The Series 1999 Bonds are offered for sale at the initial prices stated on the cover page of this Official Statement, which may be changed from time to time by the Underwriter. The Series 1999 Bonds may be offered and sold to certain dealers at prices lower than the public offering prices. Financial Advisor Public Resources Advisory Group has served as financial advisor to the Agency with respect to the planning, structuring, sale and issuance of the Series 1999 Bonds and provided other financial advise regarding the Agency’s financial plan. The financial advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume any responsibility for the accuracy or completeness of the information contained in this Official Statement. Fiscal Consultant HdL Coren & Cone, Diamond Bar, California, has prepared a report dated October 21, 1999, titled “Projected Taxable Values and Anticipated Tax Increment Revenues.” This report is set forth in Appendix A hereto, with the Fiscal Consultant’s consent, and should be read in its entirety by prospective purchasers of the Series 1999 Bonds. The City, the Agency and the Underwriters have relied upon the analysis and conclusions contained in such report. -44- DOCSLA1:319991.6 40233-4MKH Professional Fees In connection with the issuance of the Series 1999 Bonds, fees payable to certain professionals, including Orrick, Herrington & Sutcliffe LLP, as Bond Counsel are contingent upon the issuance of the Series 1999 Bonds. Additional Information The purpose of this Official Statement is to supply information to prospective buyers of the Series 1999 Bonds. Quotations and summaries and explanations of the Series 1999 Bonds and documents referred to in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements of their provisions. The preparation and distribution of this Official Statement have been authorized by the Agency. REDEVELOPMENT AGENCY OF THE CITY OF SANTA MONICA By: -45- DOCSLA1:319991.6 40233-4MKH APPENDIX A FISCAL CONSULTANT’S REPORT An electronic version of this attachment is not available for review. The document is available for review at the City Clerk’s Office and the Libraries. DOCSLA1:319991.6 A-1 40233-4MKH APPENDIX B AGENCY AUDITED FINANCIAL STATEMENTS An electronic version of this attachment is not available for review. The document is available for review at the City Clerk’s Office and the Libraries. DOCSLA1:319991.6 B-1 40233-4MKH APPENDIX C INFORMATION ON THE CITY OF SANTA MONICA The following information is presented as general background data. The Series 1999 Bonds are payable solely from Tax Revenues as described in the body of the Official Statement. The taxing power of the City, the State, or any political subdivision thereof are not pledged to the payment of the Series 1999 Bonds. See the section entitled “SECURITY FOR THE SERIES 1999 BONDS” in the Official Statement. General The City of Santa Monica 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 westThe . City encompasses an area slightly greater than eight square miles and has an estimated population of 94,220 persons, making it the 18th largest city in Los Angeles County. 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 Los Angeles International 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. 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 City’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 Council members or four Council members are elected. After each election, Council members select one of their group to act as Mayor, who then presides over Council meetings. The City Council appoints a City Manager, City Attorney and City Clerk. The City Manager is responsible for supervising day-to-day operations of the City and for carrying out policies set by the Council. C-1 DOCSLA1:319991.6 40233-4MKH Population The following table sets forth population data for the City of Santa Monica. Population Year (as of January 1) *Population 1995 89,985 1996 90,262 1997 91,405 1998 92,578 1999 94,220 Source: State of California Department of Finance. Self-Supporting Operations Santa Monica operates an airport, bus line, cemetery, auditorium, cable communications, parking authority and pier, and provides water, refuse collection, street sweeping, recycling, wastewater and stormwater services. A portion of the net income from these enterprises is annually paid to the City’s General Fund for various administrative support services provided to the enterprises. The Santa Monica Airport is a 227-acre general aviation airport, located at the southeastern edge of the City. It is the base of approximately 550 aircraft. The City rents an average of 250 of its own aircraft tie-down spaces, and also receives commercial lease revenues and commissions on fuel sold at the airport. In 1998, the City’s 163 buses carried more than 20.6 million revenue passengers, while travelling approximately 3.94 million miles. The system provides excellent coverage at low cost (a bus route operates within a quarter-mile of almost every resident, regular fares are $.50 with discount fares available for the elderly, handicapped and students through the purchase of tokens). The City’s Transportation Department also manages shuttle services (using 3 electric buses) and paratransit services which together carried 172,000 revenue passengers in 1998. In addition, charter and excursion programs are also provided. Woodlawn Cemetery was purchased by the City in 1897 and the mausoleum was purchased in 1972. They are operated as a self-supporting enterprise, competitive with comparable private facilities. It is located in the south-central portion of the City. The Santa Monica Pier is a Los Angeles County and national historical landmark built at the turn of the century. It currently contains an amusement park, carousel, games, restaurants, entertainment venues, and retail. In the mid-1990’s, a $12 million restoration of the Pier was completed, following which Santa Monica Amusements, a privately-owned enterprise, constructed and opened Pacific Park, with its ferris wheel, roller coaster, action ride theater, games and a food court. The Pier’s famous 1900-vintage carousel has been completely restored. The UCLA Ocean Discovery Center, opened in 1996, brings hands-on education about marine life to children of all ages. C-2 DOCSLA1:319991.6 40233-4MKH The Water Division of Santa Monica is operated as a self-supporting enterprise. About 19% of the City’s water is supplied by its own wells, stored in over 16 acres of well fields and reservoir grounds on City-owned property inside and outside the city limits. The remaining 81% of the water is purchased from the Metropolitan Water District of Southern California. The City’s modern, automated system delivers over 12 million gallons per day to approximately 15,900 water accounts. The City’s own water chemists supervise over 9,500 separate water quality and safety tests per year in State-licensed laboratories, to ensure that the highest standards are met before delivering the water to the customer’s tap. During the State’s drought years, the City implemented several conservation programs. One of the City’s water/wastewater conservation programs is a program of retrofitting bathrooms in the City with ultra low flow toilets and low flow showerheads. This program, which currently results in a wastewater reduction of approximately 1.4 million gallons per day, significantly reduces the City’s wastewater treatment and disposal costs by eliminating the need for the City to acquire additional capacity in the local Hyperion Sewage Treatment Plant. Retirement System The City contributes to the State of California Public Employees’ Retirement System (PERS), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for cities in the State. The City’s payroll for employees covered by PERS for the year ended June 30, 1999 was $79,266,912. Total payroll for the City for the year ended June 30, 1999 was $96,350,698. All full-time City employees and part-time City employees who have worked over 1,000 hours during a fiscal year are eligible to participate in PERS, with benefits vesting after 5 years of service. Employees are designated as safety (police officers, firefighters and others designated as safety by law) or miscellaneous (all others). Safety employees who retire at or after age 50 with 5 years of credited service are entitled to an annual retirement benefit, payable monthly for life, in an amount equal to a benefit factor multiplied by their final compensation which is the average monthly pay rate for the last consecutive 12 months of employment (or any 12-month period in which pay was higher). The benefit factor is an amount equal to between 2.0% and 2.7% multiplied by the number of years of credited employment. The percentage amount is based upon the age of the employee at retirement, increasing from age 50 to age 55. Miscellaneous members who retire at age 50 with 5 years of credited service are entitled to an annual retirement benefit, payable monthly for life, in an amount equal to a benefit factor multiplied by their final compensation. Final compensation for miscellaneous members is the average monthly pay rate for the last consecutive 36 months (or any 36 months during which the pay may have been higher) of employment. The benefit factor is an amount equal to between 1.092% and 2.418% multiplied by the number of years of credited employment. The percentage amount is based upon the age of the employee at retirement, increasing from age 50 to age 63. PERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute and City ordinance. C-3 DOCSLA1:319991.6 40233-4MKH PERS requires that miscellaneous employees contribute 7% and safety employees contribute 9% of their annual salary to PERS. However, this benefit, like all others, is subject to collective bargaining. All but one of the City’s bargaining units has negotiated for the City to contribute this portion on behalf of the employee. The City is required to contribute the remaining amounts necessary to fund the benefits for its members using the actuarial basis recommended by the PERS actuaries and actuarial consultants and adopted by the PERS Board of Administration. For Fiscal Year 1998-99, employer contribution rates were as follows: Annual Rate Miscellaneous Safety Category Components Category Fire Police A. Normal cost rate 4.831% 13.285% 13.903% B. Unfunded liability rate (4.831) 15.003 4.756 C. Total required 0.000% 28.288% 18.659% The contribution to PERS for Fiscal Year 1998-99 of $11,264,373 was made in accordance with actuarially determined requirements computed through an actuarial valuation performed as of June 30, 1997. The contribution consisted of (a) $5,919,896 normal cost (7.5% of current covered payroll) and (b) $5,344,477 amortization of the unfunded actuarial accrued liability (6.7% of current covered payroll). The City contributed $5,176,047 (6.5% of current covered payroll); employees contributed $6,088,326 (7.7% of current covered payroll), $6,020,502 of which was paid by the City and $67,824 was paid by employees. Labor Relations In accordance with the Meyers-Milias-Brown Act, the City has adopted an Ordinance which establishes the procedures for the administration of employer-employee relations. This includes the procedure by which the City meets and confers with representatives of recognized employee organizations (i.e., unions and associations) regarding matters within the scope of representation, including wages, hours and other terms and conditions of employment within the appropriate unit. Of the approximately 1,663 budgeted permanent City employees, most are represented by nine unions and/or associations, including 750 by the Municipal Employees Association, 208 by the Santa Monica Police Officers Association, 100 by Local 1109 of the Firefighters Association, 237 by the United Transportation Union, 42 by the Management Team Associates, 113 by the Supervisory Team Associates and 126 by the Administrative Team Associates. All City employees are covered by existing multiple- or single-year contracts. Industry and Employment The Santa Monica business community is comprised of a diverse collection of businesses ranging from traditional retailers to cutting edge information highway providers. Tourism, restaurants and retail augment the large service business sector. Mainstay firms like Rand Corporation, Saint John’s and UCLA-Santa Monica Hospitals, Gillette Papermate, and automobile salesrooms occupy a more traditional niche as large institutional property owners, C-4 DOCSLA1:319991.6 40233-4MKH sales tax producers, and employers. Major entertainment and multimedia/software industry firms like Sony Music, MGM, Apple, Todd-AO Studios, Digital Magic, Symantec-Peter Norton, Candle and MTV are among over 200 hi-tech, multimedia, and related entertainment firms of all sizes. These companies relocate to Santa Monica and West Los Angeles because they appreciate the quality of life and because there is a growing critical mass of support firms and other similar firms in the area. The City invests significant government resources in its pedestrian-oriented commercial districts, including such nationally-recognized venues as the Third St. Promenade, Santa Monica Place Mall, the Santa Monica Pier, Main Street, and Montana Avenue. This investment has paid off in a healthy tourism industry and a strong retail base, led by Santa Monica Place and the Third St. Promenade, which together generate over $3 million annually in sales tax revenue to the City. The three largest economic segments producing taxable goods in the City are: restaurants, 17%; new automobile sales, 16%; and miscellaneous retail, 12%, which contribute significantly to the $21.4 million provided annually by sales taxes. Tourism spending totals approximately $516 million per year in the City, and is a significant factor. Casa del Mar, the rehabilitation of the Pritikin Institute, recently opened adding 125 rooms to the City’s 2,875 rooms. Le Merigot, scheduled to open later this year, will add 175 high-end hotel rooms. The City’s tourism industry and occupancy rates benefit from its proximity to Southern California points of interest, including the new Getty Center in nearby Brentwood. 1998 occupancy rates in the City’s hotels averaged 80.88%, a healthy figure considering its average room rate of $160.75 per night. Local hotels generate over $14 million annually in hotel occupancy tax. The City continues to attract significant new economic development. The Arboretum development currently underway will bring 323,000 square feet of office development and 350 apartment units and restaurants onto the market by the end of 1999. The Water Garden II development nearby expects to complete 600,000 square feet of office space by July 2000. The City also invests in rehabilitation of other commercial areas and its downtown core. For example, a $7.5 million streetscape improvement project which will be completed on Pico Boulevard in 2000 is expected to stimulate economic improvement along that corridor. Additional projects underway include the Downtown Transit Mall, the Breakwater, and various beach and circulation improvements to the waterfront area. As of 1999, almost 66,800 persons were employed in the City, and are paid over $2.9 billion in salaries. This figure does not include a substantial number of self-employed persons or contract workers, estimated to add 15% to that total. Unemployment in the City remains low, at 4.0% as of July 1999. Even with the additional office space coming online, the office vacancy rate is only 7.5%, favorable when compared with a 10.0% rate for the general West Los Angeles market. The City’s focus on “quality of life” issues has created a wonderful environment in the Southern California region in which to live, work and visit. The resulting environment has attracted a stable, dynamic business base and a strong local economy. C-5 DOCSLA1:319991.6 40233-4MKH The following table summarizes 1998 employment and wage information within the City as of August 1999. 1998 Employment and Payroll By Major Industry Division City of Santa Monica As of August 1999 % of Average % of Major Industry Total Annual % of Total Annual Total Average Firms Firms Employment Employment Payroll Salaries Payroll Division Agriculture, Forestry, 42 0.6% 443 0.7% $ 14,671,052 0.5% $33,117 Fishing and Mining Construction 218 3.2 1,604 2.4 56,662,796 1.9 35,326 Manufacturing 194 2.9 4,517 6.8 206,871,672 7.0 45,798 Durable and Non- Durable Goods Utilities and 119 1.8 1,706 2.6 72,393,428 2.4 42,435 Transportation Wholesale Trade 274 4.0 2,012 3.0 92,863,404 3.2 46,155 Retail Trade 1,041 15.4 15,097 22.6 329,883,092 11.2 21,851 Finance, Insurance, 589 8.7 5,301 7.9 336,081,780 11.4 63,400 Real Estate Services 4,267 63.0 30,421 45.5 1,640,037,436 55.7 53,911 Non-classified 4 0.1 3 0.0 434,632 0.0 144,877 Local Government 17 .3 5,659 8.5 197,104,920 6.7 34,830 Total Employment 6,765 100.0 66,763 100.0 $2,947,004,212 100.0 Source: State of California, Employment Development Department, Labor Market Information Division. C-6 DOCSLA1:319991.6 40233-4MKH The major employers within the City boundaries and the number of persons employed by each organization are shown below: City of Santa Monica Major Employers As of June 30, 1999 (Unaudited) Company Number of Employees City of Santa Monica 1,650 Santa Monica College 1,595 Saint John’s Hospital Medical Center 1,542 Santa Monica-Malibu Unified School District 1,300 Santa Monica-UCLA Medical Center 1,000 Metro Goldwyn Mayer, Inc. 989 The Rand Corporation 964 Lear Astronics Corporation 686 The Gillette Company Stationery 682 Specialty Laboratories, Inc. 619 Total jobs provided by principal employers 11,027 Total jobs in Santa Monica 66,763 Principal Employers As Percent Of Total Jobs 16.5% Source: Most recent voluntary reporting of employment levels to the City of Santa Monica by individual organizations. Total jobs is provided by the State of California Employment Development Department. Unaudited City of Santa Monica Comprehensive Annual Financial Report for Fiscal Year 1998-99. The following chart provides a comparison, for the years indicated, of the average annual unemployment rates in the City of Santa Monica, the City of Los Angeles, the County of Los Angeles, the State of California and the United States. Annual Average Unemployment Rates For Calendar Years 1995 through 1999 City of City of County of State of Year Santa Monica Los Angeles Los Angeles California United States 1995 5.2% 8.9% 7.9% 7.8% 5.6% 1996 5.4 9.3 8.2 7.2 5.4 1997 4.5 7.8 6.8 6.3 4.9 1998 4.3 7.4 6.5 5.9 4.5 (1) 19994.0 7.0 6.2 5.6 4.3 ______________________________ (1) As of July 1999 Source: State of California, Employment Development Department. C-7 DOCSLA1:319991.6 40233-4MKH Personal Income Between 1995 and 1997, the City of Santa Monica’s median household effective buying power rose 4.9% compared to 4.2% for the Los Angeles-Long Beach Statistical Area, 5.7% for the State and 7.4% for the United States. For 1997, the City’s median household effective buying power remained greater than the median household effective buying power for the Los Angeles-Long Beach Statistical Area and the United States. The following table summarizes the total effective buying power for the City, the Los Angeles-Long Beach Statistical Area, the State and the United States for calendar years 1995 through 1997. City of Santa Monica Effective Buying Power For Calendar Years 1995 Through 1997 (1) Total Effective Median Household Buying Power Effective Year and Area (000s omitted) Buying Power 1995 City of Santa Monica $ 2,142,224 $33,643 Los Angeles-Long Beach MSA 129,910,738 32,979 California 477,640,503 34,533 United States 3,964,285,118 32,238 1996 City of Santa Monica $ 2,178,326 $34,047 Los Angeles-Long Beach MSA 133,522,302 33,272 California 492,516,991 35,216 United States 4,161,512,384 33,482 1997 City of Santa Monica $ 2,432,086 $35,295 Los Angeles-Long Beach MSA 142,050,140 34,356 California 524,439,600 36,483 United States 4,399,998,035 34,618 _______________________________________ (1) Data on effective buying power available only after calendar year 1995. Source: Sales and Marketing Management, Survey of Buyer Power. C-8 DOCSLA1:319991.6 40233-4MKH Education Public instruction in the City is provided by the Santa Monica-Malibu Unified School District with nine elementary schools, three middle schools, two high schools, one adult education school and one alternative school. Total enrollment for the last five school years was as follows: City of Santa Monica Public School Enrollment For 1994-95 through 1998-99 Year Enrollment 1994-95 10,242 1995-96 10,598 1996-97 11,094 1997-98 11,524 1998-99 12,041 _____________________________________ Source: Santa Monica-Malibu Unified School District. The Santa Monica-Malibu Unified School District also provides additional programs, such as bilingual education, computer literacy, the Gifted and Talented program, the Regional Occupation Program (vocational skills), and pre-school and school age child care programs. There are 19 private and five parochial schools in Santa Monica. The City also has one community college, Santa Monica College, which includes technical and vocational schools, including the Academy of Entertainment and Technology, and an Emeritus College. Culture and Recreation Each year, Southern California’s natural and commercial attractions bring millions of visitors to the region. Good weather, miles of Pacific coastline, and picturesque mountain ranges combine with world class destinations such as the new Getty Center, Disneyland, the Los Angeles Music Center, the Rose Bowl, Knott’s Berry Farm, Universal Studios Hollywood, and the Long Beach Aquarium to make the Los Angeles basin one of the most traveled to places in the world. Santa Monica’s strong recreational identity is historically tied to the beachside community’s extraordinary natural setting and mild climate. Residents walk, bike, skate, participate in cultural events, experience nature, and engage in a wide range of active sports throughout the year. In the most fundamental sense, recreation within a town like Santa Monica has to do with establishing ties between people and building a sense of community by creating opportunities for physical, social and cultural interaction. Santa Monica residents and visitors see the entire City as their park system – where users enjoy the community’s renowned public gathering places, green streets, 209 acres of beach and 24 parks to pursue their recreational activities of choice. Within the City limits are three major recreational venues including Pacific Park on the Santa Monica Pier, the Third Street Promenade, and the Santa Monica Civic Auditorium. C-9 DOCSLA1:319991.6 40233-4MKH The City continues to have a profound effect on the development of art and culture in this country. More visual and performing artists, arts presenters, designers, architects, and film and music producers per capita can be found in Santa Monica than in any other city in the State. Santa Monica has over 70 galleries, three major museums (including the Santa Monica Museum of Art, the California Heritage Museum, and the Museum of Flying), over a dozen theaters and performance spaces presenting a wide range of music, dance and performance art, bookstores, photography, video, film, and award-winning architecture – all thriving in its many walkable and attractive neighborhoods. The exceptional physical, recreational, and cultural environment in Santa Monica provides residents with a wide range of arts and leisure opportunities. C-10 DOCSLA1:319991.6 40233-4MKH Taxable Transactions Taxable Transactions for the City in 1997 increased by approximately 8.3% over the 1996 level. Total taxable transactions have been showing a gradual increase in each year since 1993. The future rate of growth of taxable transactions may be adversely affected by the growth of electronic commerce to the extent that Federal and/or State laws, policies and sales tax collection procedures are not altered to include taxable transactions via electronic commerce. The following table indicates the growth of taxable transactions in the City by type of business from calendar years 1993 through 1997. City of Santa Monica Taxable Transactions by Type of Business for Calendar Years 1993 through 1997 (in Thousands of Dollars) Business 1993 1994 1995 1996 1997 Apparel Stores $ 116,980 $ 119,417 $ 122,415 $ 125,821 $ 126,215 General Merchandise 99,133 103,007 104,099 113,767 149,370 * Drug Stores 28,770 27,346 25,620 28,124 Food Stores 48,918 47,451 50,739 58,794 64,491 * Packaged Liquor Stores 9,901 10,387 10,529 10,345 Eating/Drinking Places 205,821 213,990 223,749 236,466 252,286 Home Furn. & Appliances 45,438 47,371 50,358 57,718 63,468 Bldg. Mat. & Farm Impl. 44,437 51,800 47,261 49,687 49,021 Auto Dirs. & Auto Suppl. 230,685 246,938 269,935 275,349 301,345 Service Stations 43,369 40,907 43,504 47,544 48,712 Other Retail Stores 199,797 215,599 250,667 283,637 313,145 Retail Stores Total 1,073,249 1,124,213 1,198,876 1,287,252 1,368,053 All Other Outlets 306,067 315,288 379,334 389,712 447,505 Total All Outlets $1,379,316 $1,439,501 $1,578,210 $1,676,964 $1,815,558 * State Board of Equalization converted some of their categories in calendar year 1997. “Packaged Liquor Stores” was merged with “Other Retail Stores” and “Drug Stores” was merged with the “General Merchandise” category. Source: State Board of Equalization, Agency Planning and Research Division. The Sales Tax The sales tax is generally imposed upon the same transactions and items subject to the sales tax levied statewide by the State, with generally the same exceptions. Voter initiative and/or the State legislature could change the transactions and items upon which the statewide tax and the sales tax are imposed. In October 1998, Congress enacted the Internet Tax Freedom Act (“ITFA”) as part of the fiscal 1999 omnibus appropriations act (P.L. 105-288), which establishes a three-year moratorium on state and local taxes on Internet access or multiple or discriminatory taxes. The term “multiple tax” does not include a sales or use tax imposed within a state by the state or one or more local governments within the state on the same electronic commerce or a tax on persons engaged in electronic commerce which also may have been subject to a sales or use tax thereon. On January 28, 1999, Senator Robert Smith introduced legislation (S. 328) to make permanent the three-year moratorium. ITFA also establishes an Advisory Commission on C-11 DOCSLA1:319991.6 40233-4MKH Electronic Commerce composed of representatives from the federal government, state and local governments, and industry. The Advisory Commission is to conduct a study of federal, state, local and international taxation of transactions using the Internet. The City and the Agency are aware of other similar studies currently being conducted, including the National Tax Association Communications and Electronic Commerce Tax Project. It is not possible at this time to predict the outcome of these studies or the effect they may have on any future tax legislation. However, if purchases and sales of personal property over the Internet are given favorable tax treatment, there could be a material adverse effect on sales tax revenues in the City. The California Internet Tax Freedom Act (“CITFA”), effective January 1, 1999, imposes a similar three-year moratorium on discriminatory and new sales and use taxation of Internet access and online computer services, and the use of such services, by California cities and towns. However, CITFA does not directly affect the application of California’s sales and use tax to the purchase and sale of goods and services over the Internet. Although the California sales and use tax may apply to a variety of transactions in an electronic commerce environment, there are currently no specific California statutes or other defined policies governing the application of the California sales and use tax to sales of personal property made over the Internet. In the absence of specific statutes or policies, the law and issues applicable to mail order sales may provide a basis for determining sales and use tax treatment of sales made by electronic commerce. It is not possible at this time to predict when or whether specific statutes or other policies governing the taxation of sales over the Internet will be adopted in California or the effect such statutes would have on the Project Area. Under the Commerce Clause of the United States Constitution, out-of-state vendors that do no more than communicate with customers within a state by mail or common carrier as part of an interstate business, and that have no physical presence in the state, cannot constitutionally be required to collect taxes of such state, under the U.S. Supreme Court’s ruling in Quill Corp. v. North Dakota. However, no broad-based bright line currently exists as to what constitutes physical presence sufficient to trigger a nexus in an electronic commerce environment. In general, the statewide sales tax applies to the gross receipts of retailers from the sale of tangible personal property. The use tax is imposed on the storage, use or other consumption in California of property purchased from a retailer for such storage, use or other consumption. Since the use tax does not apply to cases where the sale of the property is subject to the sales tax, the application of the use tax generally is to purchases made outside of California for use within the State. Many categories of transactions are exempt under the sales and use tax law. For example, most food products are exempt; however, this exemption does not apply to liquor or to restaurant meals. “Occasional sales” (i.e., sales of property not held or used by a seller in the course of activities for which he or she is required to hold a seller’s permit) are generally exempt; however, the “occasional sales” exemption does not apply to the sale of an entire business and other sales of machinery and equipment used in a business. Sales of property to be used outside the County which are shipped to a point outside the County, pursuant to the contract of sale, by delivery to such point by the retailer, or by delivery by the retailer to a carrier for shipment to a consignee at such point, are exempt from the tax. C-12 DOCSLA1:319991.6 40233-4MKH Building Permit Activity The following table shows the number and value of building permits issued in the City from Fiscal Years 1994-95 through 1998-99. On May 25, 1999, the City Council of the City adopted a 45-day moratorium, and on June 29, 1999, adopted a 9-month moratorium continuation, on multi-family development within the City’s multi-family residential districts, with certain exceptions. The purpose of the temporary moratorium is to allow time for the City to evaluate and develop requirements and programs to preserve the City’s character, diversity, and quality of life as these relate to multi- family neighborhoods and affordable housing. The moratorium currently lasts through March 28, 2000 and does not affect commercial development or development in single-family neighborhoods. City of Santa Monica Building Construction For Fiscal Years 1994-95 through 1998-99 Fiscal Year Commercial Construction Residential Construction Ended Number of Value Number of Value (1) (2) June 30 UnitsUnits (3) 1995 3 $ 26,990,115 40 $19,814,478 (4) 1996 8 30,415,222 179 28,796,176 (5) 1997 14 32,632,266 116 30,962,726 (6) 1998 27 115,975,087 437 74,013,351 1999 15 142,841,619 610 68,016,702 _________________________________________ (1) Represents the number of new commercial buildings. (2) Represents the number of new dwelling units. (3) Does not include $47,729,804 in earthquake-related building permits. (4) Does not include $33,073,621 in earthquake-related building permits. (5) Does not include $18,749,731 in earthquake-related building permits. (6) Does not include $35,164,309 in earthquake-related building permits. Source: Santa Monica Planning and Community Development Department. C-13 DOCSLA1:319991.6 40233-4MKH Principal Property Taxpayers The ten principal property taxpayers in the City and their gross assessed values are listed below. CITY OF SANTA MONICA Principal Property Taxpayers For Fiscal Year 1999-2000 (Based on Taxes Paid) Assessed Valuation (Incl. Secured % of Property Taxpayer /Type of Business & Unsecured) Total Colorado Place Partners LLC/Commercial Real Estate - Land Development $ 257,688,010 2.27% Douglas Emmett Realty Fund–Various Partnerships/Property Management 164,067,575 1.45 Water Garden Company/Real Estate Development 153,201,174 1.35 SHCI Santa Monica Beach Hotel/Hotel 125,385,011 1.11 Santa Monica Place Associates/Real Estate Investment 104,485,883 0.92 Sisters of Charity Leavenworth Medical Center/Property Management 85,641,588 0.76 Kilroy Realty Limited Partnership/Real Estate Development 71,521,174 0.63 1299 Ocean LLC/Commercial Rental 54,548,622 0.48 ET Whitehall Seascape LLC/Hotel 50,691,930 0.45 Santa Monica HSP Limited Partnership/Hotel 50,068,461 0.44 Total principal property taxpayers assessed value $ 1,117,299,428 9.86% (1) Total City Assessed Value $11,335,026,057 100.00% ________________________ (1) Includes homeowner exemption of $77,987,850. The total assessed valuation, including such value for the homeowners exemption, is $11,413,013,907. Source: City of Santa Monica Finance Department (from data from Los Angeles County Assessor). Assessed Valuations The City uses the facilities and services of the County of Los Angeles (the “County”) for the assessment and collection of taxes. City taxes are collected at the same time and on the same tax rolls as are the County, City and special district taxes. Assessed valuations are the same for both City and County taxing purposes. The valuation of property in the City is established by the Los Angeles County Assessor, except for public utility property which is assessed by the State Board of Equalization. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – Unitary Property.” Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. Prior to Fiscal Year 1981-82, assessed valuations were reported at 25% of the full value of the property. See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” C-14 DOCSLA1:319991.6 40233-4MKH The California State Legislature adopted two types of State-reimbursed exemptions beginning in the tax year 1969-70. The first currently exempts 100% of the full value of business inventories from taxation. The second exemption currently provides a credit of $7,000 of the full value of an owner-occupied dwelling for which application has been made to the Los Angeles County Assessor. Revenue estimated to be lost to local taxing agencies due to the above exemptions has in the past been reimbursed from State sources. Reimbursement is based upon total taxes due upon such exemption values and therefore is not reduced by any estimated amount of actual delinquencies. City of Santa Monica Assessed Value of Taxable Property For Fiscal Years 1995-96 through 1999-2000 Fiscal Year Ended Personal Public Less Net Total Assessed (1) (2) June 30 Real Property Secured Gross Secured Net Property Utilities Exemptions Unsecured Valuations 1996 $ 9,065,614,254 $65,802,080 $2,024,159 $9,133,440,493 $426,349,915 $ 8,707,090,578 $558,481,477 $ 9,265,572,055 1997 9,062,358,128 51,375,296 586,379 9,114,319,803 339,998,231 8,774,321,572 613,327,854 9,387,649,426 1998 9,240,696,382 54,672,870 586,249 9,295,955,501 343,228,944 8,952,726,557 581,356,280 9,534,082,837 1999 9,718,344,418 48,065,652 577,895 9,766,987,965 327,617,031 9,439,370,934 763,269,831 10,202,640,765 (3) 2000 10,778,139,650 48,350,204 577,895 10,827,067,749 264,038,252 10,563,029,497 771,996,560 11,335,026,057 ____________________________________ (1) Consists of land and improvements. (2) Includes homeowner exemption. (3) Includes homeowner exemption of $77,987,850. The total assessed valuation, including such value for the homeowners exemption, is $11,413,013,907. Source: Los Angeles County Auditor-Controller. Ad Valorem Property Taxes Taxes are levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding January 1However, upon a change in ownership of . real property or completion of new construction, State law permits an accelerated recognition and taxation of increases in real property assessed valuation (known as a “floating lien date”) . For assessment and collection purposes, property is classified either as “secured” or “unsecured” and is listed accordingly on separate parts of the assessment rollThe “secured roll” is that part . of the assessment roll containing State and County assessed property secured by a lien which is sufficient, in the opinion of the assessor, to secure payment of the taxesOther property is . assessed on the “unsecured roll.” See “CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS.” The County levies a one percent property tax on behalf of all taxing agencies in the County. The taxes collected are allocated on the basis of a formula established by State law enacted in 1979. Under this formula, the County and all other taxing entities receive a base year allocation plus an allocation on the basis of “situs” growth in assessed value (new construction, change of ownership, inflation) prorated among the jurisdictions which serve the tax rate areas within which the growth occurs. Tax rate areas are specifically defined geographic areas which were developed to permit the levying of taxes for less than county-wide or less than city-wide C-15 DOCSLA1:319991.6 40233-4MKH special and school districts. In addition, the County levies and collects additional approved property taxes and assessments on behalf of any taxing agency within the County. Property taxes on the secured roll are due in two installments, on November 1 and February 1. If unpaid, such taxes become delinquent after December 10 and April 10, respectively, and a ten percent penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to which taxes are delinquent is declared tax-defaulted on or about June 30. Such property may thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus costs and redemption penalty of one and one-half percent per month to the time of redemption. If taxes are unpaid for a period of five years or more, the tax- defaulted property is subject to sale by the Treasurer and Tax Collector of the County of Los Angeles. Property taxes on the unsecured roll are assessed as of the January 1 lien date and become delinquent, if unpaid, on August 31. A ten percent penalty attaches to delinquent taxes on property on the unsecured roll and an additional penalty of one and one-half percent per month begins to accrue on November 1. The taxing authority has four ways of collecting delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for recordation in the County Recorder’s office in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal property, improvements or possessory interests belonging or assessed to the taxpayer. City taxes are collected on the same bill as County taxes. The following tabulation shows the secured taxes levied by the City during the past five fiscal years, together with the total amounts and percentages of taxes uncollected as of June 30 of each fiscal year. C-16 DOCSLA1:319991.6 40233-4MKH City of Santa Monica Assessed Valuations, Property Tax Rates, Secured Levies and Collections and Delinquencies For Fiscal Years 1993-94 through 1999-2000 Fiscal Year Property Tax Outstanding Ended Rates per $100 Outstanding Delinquent Taxes as June 30 Total Assessed Assessed Total Secured Delinquent Percent of Total (1)(2) Valuation Valuation Tax Levy Taxes Secured Tax Levy 1996 $9,265,572,055 $1.06 $12,066,921 $692,554 5.7% 1997 9,387,649,426 1.07 12,243,953 644,358 5.3 1998 9,534,082,837 1.07 12,388,966 650,574 5.3 1999 10,202,640,765 1.07 12,926,343 699,015 5.4 2000 11,335,026,057 1.07 - - - ____________________________________ (1) Consists of real property, secured and net unsecured property, public utilities, less total exemptions (2) The data presented represents the City’s proportionate allocation of County-wide totals and is not based on the actual amount of taxes uncollected within the City Source: County of Los Angeles Auditor-Controller. Long-Term Debt The City may issue general obligation bonds for the acquisition and improvement of real property, subject to the approval of two-thirds of the voters voting on the bond proposition. A tax on all real property within the City to pay principal of and interest on general obligation bonds is levied by the City and collected by the County on the secured and unsecured property tax bills. As of June 30, 1999, the City had $4,110,000 in general obligation bonds outstanding. In the November 1998 general election of the registered voters of the City, two-thirds of the qualified electors voting on such bond proposition approved the issuance of up to $25,000,000 in general obligation bonds for library improvements. As of June 30, 1999, these general obligation bonds for library improvements had not been issued. The City Charter of the City limits general obligation bonded indebtedness to 10.0% of the total assessed valuation of property within the City, exclusive of any indebtedness that has been or may be incurred for the purpose of acquiring and establishing a system of waterworks for the supplying of water, or for the purpose of constructing sewers or drains in the City, for which purposes a further indebtedness may be incurred by the issuance of bonds, subject only to the provisions of the California Constitution and of the City Charter. On June 5, 1998, Fitch IBCA, Inc. rated the City’s outstanding general obligation bonds “AAA”. In issuing the rating, Fitch IBCA, Inc. referenced the City’s strong economy, characterized by a tourism base with stable underpinnings, growing entertainment, high- technology, and multimedia employment, and very sound financial operations and debt management. On June 10, 1998, Moody’s Investors Service, Inc. assigned and affirmed an “Aaa” rating on the City’s outstanding general obligation bonds. In issuing the rating, Moody’s Investors Service, Inc. referenced the City’s healthy and diverse economy, modest debt levels, and strong financial operations. C-17 DOCSLA1:319991.6 40233-4MKH On April 5, 1999, Standard & Poor’s Ratings Services upgraded the City’s outstanding general obligation bonds from “AA” to “AAA”. In issuing the upgraded rating, Standard & Poor’s Ratings Services referenced the City’s diversified economy and enhanced financial policies and reserves. The City may enter into certain long-term lease obligations without first obtaining voter approval. The City has entered into various lease arrangements under which the City is obligated to make annual payments. Securities have been issued which certificate or are payable from these lease arrangements. As of June 30, 1999, there were $23,710,000 in non-voter approved bonded or certificated City lease obligations outstanding. Contained within the City are overlapping local agencies providing public services which have issued general obligation bonds and other types of indebtedness. A table setting forth the direct and overlapping debt of the City as of June 30, 1999 is provided below: City of Santa Monica Statement of City Direct and Overlapping Debt As of June 30, 1999 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: Gross Debt % Applicable Debt 6/30/99 Los Angeles County $ 53,005,000 2.0390% $ 1,080,772 Los Angeles County Flood Control District 38,735,000 2.0890 809,174 Metropolitan Water District 578,035,000 1.1130 6,433,530 Santa Monica Community College District 21,890,000 69.6190 15,239,599 Los Angeles Unified School District 698,690,000 0.0003 2,096 Santa Monica-Malibu Unified School District 106,145,034 69.6660 73,946,999 City of Santa Monica 4,110,000 100.0000 4,110,000 Los Angeles County Regional Park and Open Space Assessment District 485,855,000 2.0390 9,906,583 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $111,528,753 DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT: Los Angeles County General Fund Obligations $1,670,723,547 2.0390% $ 34,066,053 Los Angeles County Pension Obligations 2,179,752,396 2.0390 44,445,151 Los Angeles County Superintendent of Schools Certificates of Participation 3,290,000 2.0390 67,083 Los Angeles County Flood Control District Certificates of Participation 187,185,000 2.0890 3,910,295 Los Angeles Community College District Certificates of Participation 62,950,000 0.0090 5,666 Santa Monica Community College District Certificates of Participation 36,555,000 67.8750 24,811,706 Los Angeles Unified School District Certificates of Participation 189,805,000 0.0003 569 Santa Monica-Malibu Unified School District Certificates of Participation 3,685,152 67.9280 2,503,250 City of Santa Monica Redevelopment Agency Refunding 8,410,000 100.0000 8,410,000 City of Santa Monica Parking Authority Refunding Lease Revenue 12,135,000 100.0000 12,135,000 City of Santa Monica Lease Revenue Bonds, Series 1999 13,200,000 100.0000 13,200,000 City of Santa Monica Airport Refunding Certificates of Participation 3,165,000 100.0000 3,165,000 TOTAL GROSS DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $146,719,773 Less: Los Angeles County Certificates of Participation (100% self-supporting from 2,952,268 leasehold revenues on properties in Marina Del Rey) TOTAL NET DIRECT AND OVERLAPPING GENERAL FUND OBLIGATION DEBT $149,672,041 GROSS COMBINED TOTAL DEBT $245,048,526 (1) NET COMBINED TOTAL DEBT $258,248,526 OVERLAPPING DEBT $227,476,258 ____________________________________ (1) Excludes tax and revenue anticipation notes, revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations Source: Compiled from data provided by California Municipal Statistics, Inc. The following table sets forth assessed value within the City, the applicable debt limit, the ratio of bonded debt to assessed value and the bonded debt per capita. C-18 DOCSLA1:319991.6 40233-4MKH City of Santa Monica Assessed Value, Debt Limit and Ratio of Bonded Debt to Assessed Value and Per Capita For Fiscal Years 1994-95 through 1998-99 Ratio of Fiscal Total Total Bonded Bonded Year Assessed Legal Debt Legal Debt Bonded Debt to Debt Ended Estimated Value Limit Margin Debt Assessed Per (1(2)(3)(4)(5) June 30 Population (000)s (000)s (000)’s (000)’s Value Capita ) 1995 89,985 10,236,334 $1,023,633 $ 990,009 $77,725 0.76 $863.76 1996 90,262 10,077,103 1,007,710 975,353 76,145 0.82 843.60 1997 91,405 9,984,080 998,408 967,621 74,460 0.75 814.62 1998 92,578 10,139,995 1,014,000 971,962 73,010 0.72 788.63 1999 94,220 10,622,328 1,062,233 1,021,355 71,090 0.67 754.51 ____________________________________ (1) Per State Department of Finance (2) Assessed values include exempt property (3) Pursuant to the City’s Charter (4) After adjustment for assets in debt service funds available for payment of principal (5) Includes all bonds of the Redevelopment Agency, general obligation library bonds and wastewater bonds. Does not include certificates of participation. Source: City of Santa Monica Comprehensive Annual Financial Report. Future Borrowing The City expects to issue general obligation bonds for library improvements prior to Fiscal Year 2002-03. In addition, the City may issue from time to time additional wastewater enterprise revenue bonds for sewer system improvements. The Redevelopment Agency of the City of Santa Monica may issue from time to time tax allocation bonds for redevelopment agency projects. Investment of City Funds The City may invest moneys not immediately required for operations in a manner consistent with the City’s Investment Policy (the “Investment Policy”). The Investment Policy. The Investment Policy, originally adopted in 1985 and last revised in February 1999, applies to all cash and financial investments of those City funds specified in the Investment Policy. The Investment Policy is reviewed annually by the City’s Investment Committee and submitted annually to the City Council. Amendments may only be made with the approval of a majority of the City’s Investment Committee, which is composed of the City’s Director of Finance, the City Treasurer/Revenue Manager (the “City Treasurer”) and a representative from the City Manager’s Office. The Investment Committee meets at least once each calendar quarter to review and evaluate previous investment activity and yield, to review the current status of all funds held by the City, to discuss anticipated cash requirements and investment activity for the next quarter, and to recommend investment strategy to the City Treasurer. The Investment Committee also meets at least annually with the City’s outside auditors to review accounting controls and to design audit procedures to identify non-compliance with the Investment Policy. C-19 DOCSLA1:319991.6 40233-4MKH The Investment Policy establishes three objectives for City investment: Safety of principal: The overall value of City funds shall not be diminished in the process of securing and investing those funds or over the duration of the investments. Liquidity of funds: Funds shall be made available to meet all anticipated City obligations and a prudent reserve shall be kept to meet unanticipated cash requirements. Return on investment: Earn the optimum interest income from City funds commensurate with the objectives of safety and availability of principal invested. Specific Investment Restrictions. The Investment Policy mandates “prudent” investment in those instruments specifically authorized by State law and establishes additional diversification guidelines with respect to instruments, maturity, and deposit institutions. All investments are marked to market annually. It is the City Treasurer’s policy to hold investments to maturity and he does not anticipate any event in the future that would require selling investments prior to maturity. The Investment Policy restricts the average weighted maturity of all pooled City investments to a maximum of 547 days. The Investment Policy does not permit investment of the City’s non-pool securities” either in derivatives or reverse repurchase agreements, nor does it permit leveraging of the City’s investment portfolio. Although the Investment Policy can only be amended with approval of the Investment Committee, there is no assurance that State law and/or the Investment Policy will not be amended in the future to allow for investments that are currently prohibited, or that the stated objectives of the City with respect to investments will not change. The Monthly Report. Section 711 of the City Charter delegates investment authority to the City Treasurer. The Investment Policy requires the City Treasurer to (i) keep a record of all investment transactions, (ii) submit a report at the end of the City’s Fiscal Year to the Director of Finance detailing the status of the City’s investments, and (iii) make monthly reports to the Investment Committee and the City Manager detailing and summarizing all transactions and stating the present status of City investments (the “Monthly Report”). The Monthly Report dated as of June 30, 1999 indicates that 77% of the City’s investment portfolio ($260,333,343.70) was invested in Federal Agency securities, 18% ($59,353,945.33) was invested in intermediate term, coupon-bearing United States Treasury securities, 5% ($18,598,378.94) was invested in the Local Agency Investment Fund (LAIF) and less than 1% ($578,197.91) was invested in money market funds. The book value of the City’s investment portfolio was 99.2% of its market value (excluding accrued interest). For the 1998-99 Fiscal Year, the City Treasurer reports that the average annual yield of the City’s investment portfolio was 5.16% and the average weighted maturity was 293 days. C-20 DOCSLA1:319991.6 40233-4MKH APPENDIX D SUMMARY OF THE INDENTURE The following is a brief summary of the provisions of the Indenture (ATTACHMENT 3). Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof. [SUMMARY TO COME, See Attachment 3 of Staff Report] DOCSLA1:319991.6 D-1 40233-4MKH APPENDIX E PROPOSED FORM OF OPINION OF BOND COUNSEL [Date of Delivery] Redevelopment Agency of the City of Santa Monica Santa Monica, California Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds, Series 1999 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the Redevelopment Agency of the City of Santa Monica (the “Agency”) of $____________ aggregate principal amount of Redevelopment Agency of the City of Santa Monica Earthquake Recovery Redevelopment Project Area Tax Allocation Bonds, Series 1999 (the “Bonds”), issued pursuant to the provisions of the Community Redevelopment Law of the State of California (being Part I of Division 24 of the Health and Safety Code of the State of California), as amended, a Resolution adopted by the Agency on _____ __ , 1999 (the “Resolution”) and an Indenture, dated as of _____ __ , 1999 (the “Indenture”), by and between the Agency and BNY Western Trust Company, as trustee (the “Trustee”). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Indenture, the Tax Certificate of the Agency, dated the date hereof (the “Tax Certificate”), opinions of counsel to the Agency, certifications of the Agency, the Trustee and others, 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, the 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 ourselves. 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 have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this letter. We have assumed the genuineness DOCSLA1:319991.6 E-1 40233-4MKH of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by any parties other than the Agency. 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 contained in the opinions, referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained 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, the Indenture and the Tax Certificate and their enforceability may be 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 redevelopment agencies in the State of California. We express no opinion with respect to any indemnification, contribution, choice of law, choice of forum or waiver 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 valid and binding limited obligations of the Agency. 2. The Indenture has been duly executed and delivered by, and constitutes the valid and binding obligation of, the Agency. The Indenture creates a valid and binding pledge, to secure the payment of the principal of and interest on the Bonds of the Tax 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, except the Rebate Fund, subject to the provisions of the Indenture permitting the application thereof for the purposes and upon the terms and conditions set forth in the Indenture. 3. The Bonds are not a lien or charge upon the funds or property of the Agency except to the extent of the aforementioned pledge. Neither the faith and credit nor the taxing power of the State of California or of any political subdivision thereof is pledged to the payment of the principal of or interest on the Bonds. The Bonds are not a debt of the City of Santa Monica or the State of California and said City of Santa Monica and said State of California are not liable for the payment thereof. DOCSLA1:319991.6 E-2 40233-4MKH 4. 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 State of California personal income taxes. 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 when calculating corporate alternative minimum taxable income. We express 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 LLP Per DOCSLA1:319991.6 E-3 40233-4MKH APPENDIX F BOOK-ENTRY ONLY SYSTEM The Depository Trust Company (“DTC”), New York, New York, will act as securities depository for the Series 1999 Bonds. The Series 1999 Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered Bond certificate will be issued for each maturity of the Series 1999 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC is a limited purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants (“Participants”) deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. Purchases of Series 1999 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 1999 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 1999 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 1999 Bonds, except in the event that use of the book-entry system for the Series 1999 Bonds is discontinued. To facilitate subsequent transfers, all Series 1999 Bonds deposited by Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. The deposit of Series 1999 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 1999 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 1999 Bonds are credited, which may or may not be the Beneficial Owners. The DOCSLA1:319991.6 F-1 40233-4MKH Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Series 1999 Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. will consent or vote with respect to Series 1999 Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the Agency as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 1999 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments on the Series 1999 Bonds will be made to DTC. DTC’s practice is to credit Direct Participants’ accounts on the payable date in accordance with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on the payable date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Trustee, or the Agency, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Agency or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the Series 1999 Bonds at any time by giving reasonable notice to the Agency or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 1999 Bond certificates are required to be printed and delivered. The Agency may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Series 1999 Bond certificates will be printed and delivered. The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the Agency believes to be reliable, but the Agency takes no responsibility for the accuracy thereof. For so long as the Series 1999 Bonds are registered in the name of DTC or its nominee, Cede & Co., the Agency and the Trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the Series 1999 Bonds for all purposes, including payments, notices and voting. Conveyance of notices and other communications by DTC to DTC Participants, by DTC Participants to Indirect DTC Participants and by DTC DOCSLA1:319991.6 F-2 40233-4MKH Participants and Indirect DTC Participants to Beneficial Owners of the Series 1999 Bonds will be governed by arrangements among DTC, DTC Participants, Indirect Participants and Beneficial Owners, subject to any statutory and regulatory requirements as may be in effect from time to time. The Agency and the Trustee cannot and do not give any assurances that DTC, DTC Participants or Indirect Participants will distribute to the Beneficial Owners (i) payments of interest, principal or premium, with respect to the Series 1999 Bonds, (ii) certificates representing an ownership interest in or other confirmation of ownership interests in the Series 1999 Bonds; or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Series 1999 Bonds, or that they will do so on a timely basis or that DTC, DTC Participants or Indirect Participants will service or act in the manner described in this Official Statement. Neither the Agency nor the Trustee will have any responsibility or obligations to the DTC Participants, the Indirect Participants or the Beneficial Owners with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants or any Indirect Participants with respect to any ownership interest in the Series 1999 Bonds; (ii) the payment by DTC or any DTC Participants or any Indirect Participants of any amount due to any Beneficial Owner in respect of the principal amount, redemption price or interest with respect to Series 1999 Bonds; (iii) the delivery by DTC or any DTC Participants or any Indirect Participants of any notice which is required or permitted under the terms of the Indenture to be given to Bondowners; (iv) the selection of the Beneficial Owners to receive payment in the event of any partial redemption of the Series 1999 Bonds; or (v) any consent given or other action taken by DTC as the Bondowner. DTC Year 2000 Compliance DTC management is aware that some computer applications, systems, and the like for processing data (“Systems”) that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter “Year 2000 problems.” DTC has informed its Participants and other members of the financial community (the “Industry”) that it has developed and is implementing a program so that its Systems, as the same relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within DTC (“DTC Services”), continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, DTC’s plans include a testing phase, which is expected to be completed within appropriate time frames. However, DTC’s ability to perform properly its services is also dependent upon other parties, including but not limited to issuers and their agents, as well as third party vendors from whom DTC licenses software and hardware, and third party vendors on whom DTC relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. DTC has informed the Industry that it is contacting (and will continue to contact) third party vendors from whom DTC acquires services to: (i) impress upon them the importance of such services being Year 2000 compliant; and (ii) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, DTC is in the process of developing such contingency plans, as it deems appropriate. DOCSLA1:319991.6 F-3 40233-4MKH According to DTC, the foregoing information with respect to DTC has been provided to the Industry for information purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. Discontinuation of Book-Entry Only System If at any time the Securities Depository notifies the Agency that it is unwilling or unable to continue as Securities Depository with respect to the Series 1999 Bonds, or if the Agency determines that DTC is unable to discharge its responsibilities with respect to the Series 1999 Bonds or that it is no longer desirable to utilize a book-entry only system, as the case may be, then the Agency shall execute and the Bond Registrar shall authenticate and deliver certificates representing the Series 1999 Bonds of such type as described above. In the event that the book-entry only system for the Series 1999 Bonds, or any of them, is discontinued, Series 1999 Bonds in fully-registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC Participants may specify (which may be the Indirect DTC Participants or Beneficial Owners), in authorized denominations. The ownership of the Series 1999 Bonds so delivered (and any Series 1999 Bonds thereafter delivered upon a transfer or exchange) shall be registered in registration books to be kept by the Trustee at its Trust Office, and the Agency and the Trustee shall be entitled to treat the registered owners of such Series 1999 Bonds, as their names appear in such registration books as of the appropriate dates, as the owners thereof for all purposes described herein and in the Indenture. DOCSLA1:319991.6 F-4 40233-4MKH APPENDIX G FORM OF CONTINUING DISCLOSURE CERTIFICATE An electronic version of this attachment is not available for review. The document is available for review at the City Clerk’s Office and the Libraries. DOCSLA1:319991.6 G-1 40233-4MKH