Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
SR 07-27-2021 8A
City Council Report City Council Meeting: July 27, 2021 Agenda Item: 8.A 1 of 6 To: Mayor and City Council From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue Subject: Adoption of Resolution Authorizing Issuance of Water Enterprise Revenue Bonds, Series 2021 Recommended Actions Staff recommends that the City Council: 1. Adopt the attached Resolution Authorizing Issuance of Water Enterprise Revenue Bonds, Series 2021 (Attachment A), and approve the related documents required for the Issuance of Water Enterprise Revenue Bonds, Series 2021 (Attachments B, C, D, and E). Summary Staff recommends that the City Council approve documents required for the issuance of Water Enterprise Revenue Bonds, Series 2021 to finance Water System capital improvements undertaken as part of the Sustainable Water Master Plan (SWMP). The determination to issue revenue bonds is made based on the City’s intent to distribute the cost of the SWMP over its useful life and the City’s access to low-cost financing. The Water Enterprise Revenue Bonds would constitute the first issuance of revenue bonds by the City for the Water System. The revenue bonds would not have any impacts on the current water rates adopted for 2020 through 2024 and would reduce the burden on future water rates by spreading repayment of the capital investment over a 30 year period. The revenue bonds, along with the grants and state revolving fund loans already obtained, could reduce the original projected average local water production costs by as much as 20% or savings of roughly $300 per acre-feet of water produced locally. The attached resolutions and documents establish general parameters for the proposed Series 2021 Bonds, including: (1) a maximum principal amount of $78,000,000; (2) a final maturity date of July 1, 2051; (3) a maximum underwriting discount of 0.50%; and 8.A Packet Pg. 487 2 of 6 (4) a maximum true interest cost of 3.50%. These amounts are higher than the expected levels to provide a cushion to absorb possible market movements before the Series 2021 Bonds are priced in August. True interest cost measures the average financing cost taking bond yields and underwriting discount into account. Background At its March 23, 2021 meeting, the City Council authorized the City Manager to submit an application for credit assistance for up to $84,520,000 through the U.S. EPA’s Water Infrastructure Finance and Innovation Act (WIFIA) Program. Council also directed staff to proceed with an analysis of issuing revenue bonds as an alternative to the WIFIA loan and to return to Council for authorization to issue such a bond if it is determined to be more favorable than the WIFIA loan. On May 11, 2021, staff notified the City Council by Information Item that the analysis determined that the cost of the two financing options was comparable, and that the revenue bond option provided some advantages, including: • earlier receipt of the funds to avoid inflationary cost increases and maintenance of project schedules, • a more flexible and efficient cash flow, and • avoidance of certain administrative costs related to federal procurement project requirements. Staff also determined that the actual financing needed was $78 million. The Water Revenue Bond would finance $63,000,000 in Sustainable Water Master Plan (SWMP) projects not previously funded and $15,000,000 in Advanced Water Metering projects for total funding of $78,000,000. The SWMP projects include: Arcadia Water Treatment Plant enhancements $47,000,000 Groundwater Resiliency Wells 8,700,000 Olympic Wellfield Restoration Project 5,500,000 SWIP Injection Well (SM-10iSustainable Water Infrastructure 900,000 Total SWMP Project Funding $63,000,000 8.A Packet Pg. 488 3 of 6 Discussion Staff is recommending that the City issue revenue bonds in an amount not to exceed $78.0 million to fund the SWMP and advanced water metering projects. Completion of these projects would achieve the Council’s goal of water self-sufficiency, protection of Santa Monica Bay from urban runoff and stormwater pollutions, create a drought resilient water supply for Santa Monica, and provide local cost control of Santa Monica’s Water supply. The revenue bonds would not have any impacts on the current water rates adopted for 2020 through 2024 and would reduce the burden on future water rates by spreading repayment of the SWMP capital investment over a 30 year period. When determining whether to issue bonds to cover this capital cost, the City has considered a number of factors. First, the City’s adopted financial policies assert the prudence of using debt financing to distribute the cost of a facility over its useful life. Also, owing to its sound financial health and resulting high credit ratings, the City can benefit from low-cost financing. This allows for greater flexibility in allocating existing resources. Finally, the City is able to take advantage of favorable conditions in the municipal bond market due to the currently low level of interest rates. The Series 2021 Bonds would be payable from the Water Fund and would not be an obligation of the General Fund or any other fund of the City. Once the Bonds are issued, the City will be required to set rates for customers of the Water System sufficient to generate Net Water System Revenues (Revenues less Operating and Maintenance Costs) equal to 1.20 x annual debt service on the Bonds. This is consistent with the City’s debt policy for revenue bonds. The covenants under the Water Bond Indenture are similar to those contained in the Wastewater System Revenue Bond Indenture that the City has been following since 1991. Staff is proposing to sell the Series 2021 Bonds through a negotiated sale whereby the bond underwriter is predetermined, and the Bond interest rates are set through a process of negotiation. A negotiated sale, as compared to an open competitive bid, is the best way to ensure the bond underwriter is in compliance with the City’s banking 8.A Packet Pg. 489 4 of 6 services Resolution (Resolution No. 11025). Upon Council approval of the Series 2021 Bond issuance, the City’s financial advisor will assist staff in determining the fair market value for the Bond interest rates at the time of sale. To select a bond underwriter, the City’s financial advisor distributed a Request for Qualifications (“RFQ”) to 13 commercial and investment banking institutions active in the California municipal bond market. The RFQ required respondents to certify the firm was in compliance with the City’s banking services Resolution. Nine firms responded to the RFQ. The financial advisor rated the firms based on a combination of factors including their recommended approach to the bond sale, relevant experience with similar financings, methodology to execute the bond sale, compensation, and compliance with City social responsibility guidelines per Resolution 11025. The recommendations were then presented to Finance Department staff who made the final selection of Morgan Stanley and Co. LLC as lead manager and Siebert Williams Shank, and Co. and Stifel Nicolaus Co., Inc. as co-managers. In preparation for issuance of the bonds, credit ratings were requested from Standard & Poors, the same credit rating agency that has previously rated the City’s wastewater enterprise revenue bonds. The attached resolutions and documents permit the City to proceed with all steps necessary for the issuance of the Series 2021 Bonds. The resolutions approve the attached documents and authorize their execution and delivery by the specified agency’s officials and employees. The resolutions also approve the preparation, execution, and delivery of a Final Official Statement; the execution and delivery of any additional documents and certificates; and the performance of such acts or related actions as may be necessary or desirable to effect the offering, sale, and issuance of the Series 2021 Bonds. Financial Impacts & Budget Actions Approving the recommended actions will result in the City issuing up to $78,000,000 in Water Enterprise Revenue Bonds, Series 2021. The estimated annual debt service, to 8.A Packet Pg. 490 5 of 6 be paid from the Water Fund would be approximately $1.1 million in FY 2021-22, $2.4 million in FY 2022-23, and $3.7 million between FY 2023-24 and FY 2050-51. In enterprise funds such as the Water Fund, bond proceeds (including premiums), as well as the principal portion of debt service payments, are recorded on the fund’s balance sheet and require no budget actions. Other accounts required to record transactions related to the cost of bond issuance and the interest portion of debt service payments are listed in the table below. Any necessary budget changes will be made as part of the FY 2020-21 Year-End Budget Report after the bonds are issued and exact amounts are known. Account Estimated Amount Series 2021 Water Revenue Bond Issue Costs (costs of issuance, underwriter’s discount) 50500001.540000 $460,000 Series 2021 Water Revenue Bonds Interest Expense 505000001.535010 $1,100,000 Prepared By: David Carr, Assistant City Treasurer Approved Forwarded to Council Attachments: A. Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 B. Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 C. Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... 8.A Packet Pg. 491 6 of 6 D. Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228- 2157 1 E. Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 8.A Packet Pg. 492 4141-0150-4045.3 City Council Meeting July 27, 2021 Santa Monica, California RESOLUTION NO. _______ (CCS) (CITY COUNCIL SERIES) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AUTHORIZING THE EXECUTION AND DELIVERY BY THE CITY OF AN INDENTURE, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE CERTIFICATE IN CONNECTION WITH THE ISSUANCE OF CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021, APPROVING THE ISSUANCE OF SUCH BONDS IN AN AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $78,000,000, AUTHORIZING THE DISTRIBUTION OF AN OFFICIAL STATEMENT IN CONNECTION WITH THE OFFERING AND SALE OF SUCH BONDS AND AUTHORIZING THE EXECUTION OF NECESSARY DOCUMENTS AND CERTIFICATES AND RELATED ACTIONS WHEREAS, the City of Santa Monica (the “City”) is a municipal corporation and charter city, duly organized and existing under a freeholders’ charter pursuant to which the City has the right and power to make and enforce all laws and regulations in respect to municipal affairs and certain other matters in accordance with and as more particularly provided in sections 3, 5 and 7 of article XI of the Constitution of the State of California and section 400 of the Charter of the City; WHEREAS, the City Council of the City, acting under and pursuant to the powers reserved to the City under article XI of the Constitution of the State of California and section 400 of the Charter of the City, has enacted Chapter 2.36 of Article 2 of the Municipal Code of the City, relating to revenue bonds (the “Revenue Bond Act”), which incorporates, to the extent made applicable by the Revenue Bond Act, the Revenue Bond Law of 1941, being Chapter 6 of Division 2 of Title 5 of the California Government Code, as enacted and as thereafter amended; WHEREAS, the City owns and operates facilities for the production, storage, treatment and distribution of water for domestic use, industrial use, fire protection, recreation or any other public or private use and appurtenances necessary, useful or convenient for the production, storage, treatment and distribution of water and lands, rights of way and other real or personal property useful in connection therewith (the “Enterprise”); WHEREAS, the City has determined that it is necessary that funds be raised by the City for the purpose of constructing and financing certain improvements to the Enterprise; WHEREAS, in order to provide such funds, the City desires to provide for the issuance, pursuant to the Revenue Bond Act, of its City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Bonds”), in the aggregate principal amount of not to exceed $78,000,000; 8.A.a Packet Pg. 493 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 2 4141-0150-4045.3 WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City and U.S. Bank National Association, as trustee (the “Trustee”), propose to enter into an Indenture (such Indenture, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Indenture”); WHEREAS, Morgan Stanley & Co. LLC (the “Representative”), on behalf of itself Siebert Williams Shank & Co., LLC and Stifel, Nicolaus & Company, Incorporated, has presented a proposal, in the form of a Bond Purchase Agreement by and between the Representative and the City, to purchase the Bonds from the City (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Purchase Agreement”); WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 (“Rule 15c2-12”) requires that, in order to be able to purchase or sell the Bonds, the underwriters thereof must have reasonably determined that the issuer thereof has, or one or more appropriate obligated persons have, undertaken in a written agreement or contract for the benefit of the holders of the Bonds to provide disclosure of certain financial information and certain material events on an ongoing basis; WHEREAS, in order to cause such requirement to be satisfied, the City desires to execute and deliver a Continuing Disclosure Certificate (such Continuing Disclosure Certificate, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Continuing Disclosure Certificate”); WHEREAS, a form of the Preliminary Official Statement to be distributed in connection with the public offering of the Bonds has been prepared (such Preliminary Official Statement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the “Preliminary Official Statement”); WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Indenture; (b) the Purchase Agreement; (c) the Continuing Disclosure Certificate; and (d) the Preliminary Official Statement; WHEREAS, the City desires to authorize the execution of such documents and the performance of such acts as may be necessary or desirable to effect the offering, sale and issuance of the Bonds; WHEREAS, Section 5852.1 of the California Government Code (the “Government Code”) requires that the City Council of the City (the “City Council”) obtain from an underwriter, financial advisor or private lender and disclose, in a meeting open to the public, prior to 8.A.a Packet Pg. 494 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 3 4141-0150-4045.3 authorization of the issuance of the Bonds, good faith estimates of (a) the true interest cost of the Bonds, (b) the sum of all fees and charges paid to third parties with respect to the Bonds, (c) the amount of proceeds of the Bonds expected to be received net of the fees and charges paid to third parties and any reserves or capitalized interest paid or funded with proceeds of the Bonds, and (d) the sum total of all debt service payments on the Bonds calculated to the final maturity of the Bonds, plus the fees and charges paid to third parties not paid with the proceeds of the Bonds; WHEREAS, in compliance with Government Code Section 5852.1, the City Council has obtained from Public Resources Advisory Group, as the City’s municipal advisor (the “Municipal Advisor”), the required good faith estimates and such estimates are disclosed and set forth in Exhibit A attached hereto; and WHEREAS, all acts, conditions and things required by the Constitution, laws of the State of California and the City Charter of the City to exist, to have happened and to have been performed precedent to and in connection with the consummation of the transactions authorized hereby do exist, have happened and have been performed in regular and due time, form and manner as required by law, and the City is now duly authorized and empowered, pursuant to each and every requirement of law, to consummate such transactions for the purpose, in the manner and upon the terms herein provided; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Santa Monica, as follows: Section 1. The foregoing recitals are true and correct, and the City Council of the City (the “City Council”) so finds and determines. Section 2. The form of the Indenture, on file with the City Clerk, is hereby approved. Each of the Mayor of the City, or such other member of the City Council as the Mayor may designate, the City Manager of the City, the Director of Finance/Treasurer of the City and the Assistant City Treasurer of the City (each, an “Authorized Officer”) is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate principal amount of the Bonds in excess of $78,000,000, shall not result in a final maturity date of the Bonds later than July 1, 2051 and shall not result in a true interest cost for the Bonds in excess of 3.50%. Section 3. The form of the Purchase Agreement, on file with the City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Purchase Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an 8.A.a Packet Pg. 495 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 4 4141-0150-4045.3 aggregate underwriters’ discount (not including any original issue discount) from the principal amount of the Bonds in excess of 0.50% of the aggregate principal amount of the Bonds. Section 4. The form of the Continuing Disclosure Certificate, on file with the City Clerk, is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute and deliver the Continuing Disclosure Certificate in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Certificate by such Authorized Officer. Section 5. The form of the Preliminary Official Statement, on file with the City Clerk, with such changes, insertions and omissions therein as may be approved by an Authorized Officer, is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers are each hereby authorized to certify on behalf of the City that the Preliminary Official Statement is deemed final as of its date, within the meaning of Rule 15c2-12 (except for the omission of certain final pricing, rating and related information as permitted by Rule 15c2-12). Section 6. The preparation and delivery of a final Official Statement (the “Official Statement”), and its use in connection with the offering and sale of the Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement, with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the City, to execute the final Official Statement and any amendment or supplement thereto. Section 7. The City Council hereby approves the execution and delivery of all agreements, documents, certificates and instruments referred to herein with electronic signatures as may be permitted under the California Uniform Electronic Transactions Act and digital signatures as may be permitted under Section 16.5 of the California Government Code using DocuSign. Section 8. The Authorized Officers and the officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the City to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. Section 9. All actions heretofore taken by the officers and employees of the City with respect to the issuance and sale of the Bonds, or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. 8.A.a Packet Pg. 496 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 5 4141-0150-4045.3 Section 10. The City Clerk shall certify to the adoption of this Resolution and thenceforth and thereafter the same shall be in full force and effect. APPROVED AS TO FORM: GEORGE S. CARDONA Interim City Attorney Adopted and approved this __ day of _________, 2021. Sue Himmelrich, Mayor 8.A.a Packet Pg. 497 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 4141-0150-4045.3 I hereby certify that the foregoing Resolution No. __________ (CCS) was duly adopted by the City Council of the City of Santa Monica at a meeting thereof held on July 27, 2021 by the following Council vote: Ayes: Councilmembers: Noes: Councilmembers: Abstain: Councilmembers: Absent: Councilmembers: ATTEST: Denise Anderson-Warren, City Clerk 8.A.a Packet Pg. 498 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing A-1 EXHIBIT A GOOD FAITH ESTIMATES The good faith estimates set forth herein are provided with respect to the Bonds in accordance with California Government Code Section 5852.1. Such good faith estimates have been provided to the City by Public Resources Advisory Group, the City’s municipal advisor (the “Municipal Advisor”). Principal Amount. The Municipal Advisor has informed the City that, based on the City’s financing plan and current market conditions, its good faith estimate of the aggregate principal amount of the Bonds to be sold is $66,635,000 (the “Estimated Principal Amount”). True Interest Cost of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the true interest cost of the Bonds, which means the rate necessary to discount the amounts payable on the respective principal and interest payment dates to the purchase price received for the Bonds, is 2.28%. Finance Charge of the Bonds. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the finance charge for the Bonds, which means the sum of all fees and charges paid to third parties (or costs associated with the Bonds), is $461,419. Amount of Proceeds to be Received. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the amount of proceeds expected to be received by the City for sale of the Bonds, less the finance charge of the Bonds, as estimated above, and any reserves or capitalized interest paid or funded with proceeds of the Bonds, is $78,000,000. Total Payment Amount. The Municipal Advisor has informed the City that, assuming that the Estimated Principal Amount of the Bonds is sold, and based on market interest rates prevailing at the time of preparation of such estimate, its good faith estimate of the total payment amount, which means the sum total of all payments the City will make to pay debt service on the Bonds, plus the finance charge for the Bonds, as described above, not paid with the proceeds of the Bonds, calculated to the final maturity of the Bonds, is $109,319,523, which excludes any reserves or capitalized interest paid or funded with proceeds of the Bonds (which may offset such total payment amount). The foregoing estimates constitute good faith estimates only and are based on market conditions prevailing at the time of preparation of such estimates. The actual principal amount of the Bonds issued and sold, the true interest cost thereof, the finance charges thereof, the amount of proceeds received therefrom and total payment amount with respect thereto may differ from such good faith estimates due to (a) the actual date of the sale of the Bonds being different than the date assumed for purposes of such estimates, (b) the actual principal amount of Bonds sold 8.A.a Packet Pg. 499 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing A-2 4141-0150-4045.3 being different from the Estimated Principal Amount, (c) the actual amortization of the Bonds being different than the amortization assumed for purposes of such estimates, (d) the actual market interest rates at the time of sale of the Bonds being different than those estimated for purposes of such estimates, (e) other market conditions, or (f) alterations in the City’s financing plan, or a combination of such factors. The actual date of sale of the Bonds and the actual principal amount of Bonds sold will be determined by the City based on the timing of the need for proceeds of the Bonds and other factors. The actual interest rates borne by the Bonds will depend on market interest rates at the time of sale thereof. The actual amortization of the Bonds will also depend, in part, on market interest rates at the time of sale thereof. Market interest rates are affected by economic and other factors beyond the control of the City. 8.A.a Packet Pg. 500 Attachment: Resolution - City of Santa Monica Water Rev Bonds 2021 4141-0150-4045 3 [Revision 1] (4615 : Adoption of Resolution Authorizing 4143-0702-1101.3 INDENTURE by and between CITY OF SANTA MONICA and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE Dated as of _____________ 1, 2021 Relating to City of Santa Monica Water Enterprise Revenue Bonds 8.A.b Packet Pg. 501 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing TABLE OF CONTENTS Page i 4143-0702-1101.3 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY Section 1.01. Definitions................................................................................................................ 3 Section 1.02. Rules of Construction ............................................................................................ 14 Section 1.03. Equal Security ........................................................................................................ 15 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds; Special, Limited Obligations .......................................... 16 Section 2.02. Terms of Series 2021 Bonds .................................................................................. 16 Section 2.03. Execution of Bonds ................................................................................................ 17 Section 2.04. Authentication of Bonds ........................................................................................ 17 Section 2.05. Registration Books ................................................................................................. 18 Section 2.06. Transfer and Exchange of Bonds ........................................................................... 18 Section 2.07. Book-Entry System ................................................................................................ 18 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen .......................................................... 20 Section 2.09. Temporary Bonds................................................................................................... 21 ARTICLE III ISSUANCE OF SERIES 2021 BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS; PARITY DEBT Section 3.01. Issuance of Series 2021 Bonds .............................................................................. 22 Section 3.02. Application of Proceeds ......................................................................................... 22 Section 3.03. Costs of Issuance Fund .......................................................................................... 22 Section 3.04. Improvement Fund ................................................................................................. 22 Section 3.05. Conditions for the Issuance of Additional Bonds .................................................. 23 Section 3.06. Procedure for the Issuance of Additional Bonds ................................................... 25 Section 3.07. Conditions for the Incurrence of Parity Debt ......................................................... 26 Section 3.08. Procedure for the Incurrence of Parity Debt .......................................................... 28 Section 3.09. Additional Bonds; Parity Debt; Subordinate Obligations ...................................... 28 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series 2021 Bonds ......................................................................... 29 Section 4.02. Notice of Redemption ............................................................................................ 30 8.A.b Packet Pg. 502 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing TABLE OF CONTENTS Page ii 4143-0702-1101.3 Section 4.03. Selection of Bonds for Redemption ....................................................................... 31 Section 4.04. Partial Redemption of Bonds ................................................................................. 31 Section 4.05. Effect of Notice of Redemption ............................................................................. 31 ARTICLE V SECURITY FOR PARITY OBLIGATIONS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledges ................................................................................................................... 32 Section 5.02. Water Fund............................................................................................................. 32 Section 5.03. Bond Fund .............................................................................................................. 34 Section 5.04. Redemption Fund ................................................................................................... 34 Section 5.05. Rebate Fund ........................................................................................................... 34 Section 5.06. Investment of Moneys............................................................................................ 35 ARTICLE VI COVENANTS Section 6.01. Compliance with Indenture .................................................................................... 37 Section 6.02. Punctual Payment................................................................................................... 37 Section 6.03. Extension of Payment of Bonds ............................................................................. 37 Section 6.04. Against Encumbrances........................................................................................... 37 Section 6.05. Against Sale or Other Disposition of Property ...................................................... 37 Section 6.06. Operation and Maintenance of the Enterprise ....................................................... 38 Section 6.07. Budgets; Books and Records; Audits .................................................................... 38 Section 6.08. Amounts of Rates and Charges .............................................................................. 38 Section 6.09. Payment of Claims ................................................................................................. 39 Section 6.10. Compliance with Contracts .................................................................................... 39 Section 6.11. Insurance ................................................................................................................ 39 Section 6.12. Eminent Domain Proceeds ..................................................................................... 40 Section 6.13. Protection of Security and Rights of Owners ........................................................ 40 Section 6.14. Payment of Taxes and Compliance with Governmental Regulations ................... 40 Section 6.15. Collection of Rates and Charges; No Free Service ................................................ 40 Section 6.16. Against Competitive Facilities ............................................................................... 40 Section 6.17. Tax Covenants ....................................................................................................... 41 Section 6.18. Continuing Disclosure ........................................................................................... 41 8.A.b Packet Pg. 503 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing TABLE OF CONTENTS Page iii 4143-0702-1101.3 Section 6.19. Further Assurances ................................................................................................. 41 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default ................................................................................................... 42 Section 7.02. Acceleration; Annulment of Acceleration ............................................................. 42 Section 7.03. Remedies ................................................................................................................ 43 Section 7.04. Remedies Not Exclusive ........................................................................................ 43 Section 7.05. Application of Net Revenues After Default........................................................... 43 Section 7.06. Power of Trustee to Enforce .................................................................................. 44 Section 7.07. Owners’ Direction of Proceedings ......................................................................... 45 Section 7.08. Limitation on Owners’ Right to Sue ...................................................................... 45 Section 7.09. Absolute Obligation ............................................................................................... 45 Section 7.10. Termination of Proceedings ................................................................................... 45 Section 7.11. No Waiver of Default ............................................................................................. 46 ARTICLE VIII TRUSTEE Section 8.01. Duties and Liabilities of Trustee ............................................................................ 47 Section 8.02. Qualifications; Removal and Resignation; Successors .......................................... 47 Section 8.03. Liability of Trustee ................................................................................................ 48 Section 8.04. Right to Rely on Documents and Opinions ........................................................... 50 Section 8.05. Accounting Records and Financial Statements...................................................... 51 Section 8.06. Preservation and Inspection of Documents............................................................ 51 Section 8.07. Compensation and Indemnification of the Trustee ................................................ 51 ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures ........................................................................................ 52 Section 9.02. Effect of Supplemental Indenture .......................................................................... 53 Section 9.03. Endorsement of Bonds; Preparation of New Bonds .............................................. 53 Section 9.04. Amendment of Particular Bonds ............................................................................ 53 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ......................................................................................... 54 8.A.b Packet Pg. 504 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing TABLE OF CONTENTS Page iv 4143-0702-1101.3 Section 10.02. Bonds Deemed To Have Been Paid ..................................................................... 54 Section 10.03. Unclaimed Moneys .............................................................................................. 55 ARTICLE XI MISCELLANEOUS Section 11.01. Successor Is Deemed Included in All References to Predecessor ....................... 56 Section 11.02. Limitation of Rights ............................................................................................. 56 Section 11.03. Destruction of Bonds ........................................................................................... 56 Section 11.04. Severability of Invalid Provisions ........................................................................ 56 Section 11.05. Notices ................................................................................................................. 56 Section 11.06. Evidence of Rights of Owners ............................................................................. 57 Section 11.07. Disqualified Bonds............................................................................................... 57 Section 11.08. Money Held for Particular Bonds ........................................................................ 58 Section 11.09. Funds and Accounts ............................................................................................. 58 Section 11.10. Business Days ...................................................................................................... 58 Section 11.11. Waiver of Personal Liability ................................................................................ 58 Section 11.12. Conclusive Evidence of Regularity ..................................................................... 58 Section 11.13. Governing Laws ................................................................................................... 58 Section 11.14. Electronic Signature ............................................................................................. 59 Section 11.15. Execution in Several Counterparts ....................................................................... 59 EXHIBIT A PERMITTED INVESTMENTS .......................................................................... A-1 EXHIBIT B FORM OF SERIES 2021 BOND ......................................................................... B-1 8.A.b Packet Pg. 505 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 4143-0702-1101.3 INDENTURE THIS INDENTURE (this “Indenture”), dated as of _____________ 1, 2021, is by and between the CITY OF SANTA MONICA, a municipal corporation and charter city organized and existing under the laws of the State of California (the “City”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, as Trustee (the “Trustee”). W I T N E S S E T H: WHEREAS, the City is a municipal corporation and charter city, duly organized and existing under a freeholders’ charter pursuant to which the City has the right and power to make and enforce all laws and regulations in respect to municipal affairs and certain other matters in accordance with and as more particularly provided in sections 3, 5 and 7 of article XI of the Constitution of the State of California and section 400 of the Charter of the City; WHEREAS, the City Council of the City, acting under and pursuant to the powers reserved to the City under article XI of the Constitution of the State of California and section 400 of the Charter of the City, has enacted Chapter 2.36 of Article 2 of the Municipal Code of the City, relating to revenue bonds (the “Revenue Bond Act”), which incorporates, to the extent made applicable by the Revenue Bond Act, the Revenue Bond Law of 1941, being Chapter 6 of Division 2 of Title 5 of the California Government Code, as enacted and as thereafter amended; WHEREAS, the City owns and operates facilities for the production, storage, treatment and distribution of water for domestic use, industrial use, fire protection, recreation or any other public or private use and appurtenances necessary, useful or convenient for the production, storage, treatment and distribution of water and lands, rights of way and other real or personal property useful in connection therewith (the “Enterprise”) WHEREAS, the City has determined that it is necessary that funds be raised by the City for the purpose of constructing and financing certain improvements to the Enterprise; WHEREAS, in order to provide such funds, the City desires to provide for the issuance, pursuant to the Revenue Bond Act, of its City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Series 2021 Bonds”), in the aggregate principal amount of $___________; WHEREAS, the City desires to provide for the issuance of additional bonds (the “Additional Bonds”) payable on a parity with the Series 2021 Bonds, provided that said issuance is in accordance with the Revenue Bond Act and this Indenture (the Series 2021 Bonds and any such Additional Bonds being collectively referred to as the “Bonds”); WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the City has authorized the execution and delivery of this Indenture; and WHEREAS, the City has determined that all acts and proceedings required by law necessary to make the Bonds, when executed by the City, authenticated and delivered by the 8.A.b Packet Pg. 506 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 2 4143-0702-1101.3 Trustee and duly issued, the valid, binding and legal special, limited obligations of the City, and to constitute this Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken, and the execution and delivery of this Indenture has been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, premium, if any, and the interest on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby acknowledged, the City does hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: 8.A.b Packet Pg. 507 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 3 4143-0702-1101.3 ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION; EQUAL SECURITY Section 1.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. “Additional Bonds” means Bonds other than Series 2021 Bonds issued hereunder in accordance with the provisions of Sections 3.05 and 3.06. “Adjusted Net Revenues” means, for any period, the Net Revenues for such period, less amounts, if any, transferred during such period from the Rate Stabilization Account to the Water Fund. “Administrative Costs” means the ordinary and necessary administrative costs and incidental expenses related to this Indenture and the Parity Obligations, including (a) fees and expenses of the Trustee (including fees and expenses of its counsel) and indemnification of the Trustee pursuant hereto, and (b) fees and expenses of a loan servicer or other Person performing similar services with respect to Parity Obligations. “Assumed Debt Service” means, for any period the sum of (a) the interest on all Parity Obligations payable during such period, assuming that principal payments with respect to such Parity Obligations are made on each principal payment date for such Parity Obligations in accordance with the maturity, principal payment, amortization or similar schedule for such Parity Obligations, including mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments; provided, however, that if a different assumption with respect to such maturity, principal payment, amortization or similar schedule is set forth below, such assumption shall apply for purposes of determining such maturity, principal payment, amortization or similar schedule, and (b) the principal of such Parity Obligations payable during such period, assuming that payment of such principal is made on each principal payment date for such Parity Obligations in accordance with the maturity, principal payment, amortization or similar schedule for such Parity Obligations, including mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments and, for such purpose, the scheduled payment at maturity, redemption payment or prepayment shall be deemed a principal payment; provided, however, that if a different assumption with respect to such maturity, principal payment, amortization or similar schedule is set forth below, such assumption shall apply for purposes of determining such maturity, principal payment, amortization or similar schedule. For purposes of calculating Assumed Debt Service, the following assumptions shall be used: (i) in determining the interest on any Parity Obligations due in each period, interest payable at a fixed rate shall be assumed to be made at such fixed rate and on the interest payment dates for such Parity Obligations; (ii) if any Outstanding Parity Obligations constitute Variable Rate Obligations, the interest rate on such Parity Obligations shall be assumed to be 110% of the rate of interest on such Parity Obligations on the date of calculation; 8.A.b Packet Pg. 508 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 4 4143-0702-1101.3 (iii) if Parity Obligations proposed to be incurred will be Variable Rate Parity Obligations, then such Parity Obligations shall be assumed to bear interest (A) if such Parity Obligations will be Tax-Exempt Obligations, at an interest rate equal to 100% of the Revenue Bond Index for the last week of the month preceding the date of sale of such Parity Obligations, as published in The Bond Buyer, or if that index is no longer published, another comparable index selected by the City, and (B) if such Parity Obligations will not be Tax-Exempt Obligations, at an interest rate equal to the yield for outstanding United States Treasury bonds having an equivalent maturity as the Parity Obligations proposed to be incurred, plus 50 basis points (0.50); (iv) if any Outstanding Parity Obligations constitute Balloon Obligations (and such Parity Obligations do not constitute Short-Term Obligations excluded from the calculation of Assumed Debt Service pursuant to paragraph (v), below) or if Parity Obligations proposed to be incurred would constitute Balloon Obligations (and such Parity Obligations would not constitute Short-Term Obligations excluded from the calculation of Assumed Debt Service pursuant to paragraph (v), below), then such amounts as constitute Balloon Obligations shall, unless the City elects to use the actual scheduled principal payment date thereof for purposes of such determination, be treated as if the principal amount of such Parity Obligations were amortized from the date originally incurred in substantially equal installments of principal and interest over a term of 30 years; the interest rate used for such computation shall be (A) if such Parity Obligations are or will be Tax-Exempt Obligations, at an interest rate equal to 100% of the Revenue Bond Index for the last week of the month preceding the date of sale of such Parity Obligations, as published in The Bond Buyer, or if that index is no longer published, another comparable index selected by the City, and (B) if such Parity Obligations are or will not be Tax-Exempt Obligations, at an interest rate equal to the yield for outstanding United States Treasury bonds having an equivalent maturity as the Parity Obligations proposed to be incurred, plus 50 basis points (0.50); (v) if any Outstanding Parity Obligations constitute Short-Term Obligations or if Parity Obligations proposed to be incurred would constitute Short-Term Obligations, and such Short-Term Obligations are or will be payable only out of Net Revenues of the Fiscal Year in which such Short-Term Obligations are incurred, then Debt Service on such Short-Term Obligations shall be disregarded and not included in calculating Assumed Debt Service; (vi) if (A) amounts payable as interest on Parity Obligations are, pursuant to the terms of such Parity Obligations, scheduled to be advanced or drawn thereunder in some amount or for some period, then the interest payable with respect to such Parity Obligations from such amounts or during such period, as applicable, shall be disregarded and not included in calculating Assumed Debt Service, or (B) amounts constituting capitalized interest have been deposited in a fund or account and dedicated to pay interest on such Parity Obligations, then the interest payable with respect to such Parity Obligations from such amounts shall be disregarded and not included in calculating Assumed Debt Service; 8.A.b Packet Pg. 509 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 5 4143-0702-1101.3 (vii) if, during such period, the City is entitled to receive a Governmental Debt Service Subsidy with respect to Parity Obligations, then Debt Service on such Parity Obligations for such period shall be reduced by an amount equal to such Governmental Debt Service Subsidy in calculating Assumed Debt Service; (viii) if monies or Defeasance Securities, or both, have been deposited by the City into a separate fund or account held by the Trustee, by the City or by a fiduciary to be used to pay Debt Service on specified Parity Obligations, and such Parity Obligations are, as a consequence thereof, discharged, or no longer Outstanding, pursuant to the terms of the Obligation Instrument pursuant to which such Parity Obligations are incurred, then the Debt Service to be paid from such monies or Defeasance Securities, or both, or from the earnings on such Defeasance Securities, shall be disregarded and not included in calculating Assumed Debt Service; (ix) the amount on deposit in a Reserve Fund established for Parity Obligations shall, on any date of calculation of Assumed Debt Service for such Parity Obligations, be deducted from the amount of principal due at the final maturity of such Parity Obligations and in each preceding year until such amount is exhausted; and (x) with respect to payments of Parity Obligations, which payments are not comprised of separate payments of interest and principal but that, rather, are required pursuant to the Obligation Instrument pursuant to which such Parity Obligations are incurred to be paid in amounts sufficient to pay principal of and interest on bonds, notes or other obligations of a Person other than the City, for purposes of calculating Assumed Debt Service, interest payments and principal payments (whether at maturity or by mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments) with respect to such bonds, notes or other obligations shall be deemed to be interest payments and principal payments with respect to such Parity Obligations. “Assumed Debt Service Coverage Ratio” means, for any period, the ratio of (a) Adjusted Net Revenues for such period, to (b) Assumed Maximum Annual Debt Service on all Parity Obligations to be Outstanding immediately after the incurrence of such Parity Obligations. “Assumed Maximum Annual Debt Service” means, at any point in time, with respect to Parity Obligations to be Outstanding immediately after the incurrence of the Parity Obligations in connection with the incurrence of which Assumed Maximum Annual Debt Service is being determined, the maximum amount of Assumed Debt Service on such Parity Obligations in the then current or any future Fiscal Year. “Authorized Denominations” means (a) with respect to the Series 2021 Bonds, $5,000 and any integral multiple thereof, and (b) with respect to each Series of Additional Bonds, the authorized denominations for such Series of Additional Bonds specified in the Supplemental Indenture pursuant to which such Additional Bonds are issued. “Authorized Representative” means, with respect to the City, the Mayor of the City, the City Manager of the City, the Director of Finance/Treasurer of the City, the Assistant City Treasurer 8.A.b Packet Pg. 510 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 6 4143-0702-1101.3 of the City, and any other Person designated as an Authorized Representative of the City in a Written Certificate of the City filed with the Trustee. “Balloon Obligations” means Parity Obligations 50% or more of the principal of which matures or is payable on the same date and that is not required by the Obligation Instrument pursuant to which such Obligations are incurred to be amortized by payment or redemption prior to such date. “Beneficial Owners” means those Persons for which the Participants have caused the Depository to hold Book-Entry Bonds. “Bond Counsel” means a firm of nationally recognized bond counsel selected by the City. “Bond Fund” means the fund by that name established and held by the Trustee pursuant to Section 5.03. “Bond Year” means the twelve-month period beginning on July 2 in each year and extending to the next succeeding August 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on August 1, 2021. “Bonds” means the City of Santa Monica Water Enterprise Revenue Bonds issued hereunder, and includes the Series 2021 Bonds and any Additional Bonds. “Book-Entry Bonds” means the Bonds of a Series registered in the name of the Depository, or the Nominee thereof, as the registered owner thereof pursuant to the terms and provisions of Section 2.07. “Business Day” means a day which is not (a) a Saturday, Sunday or legal holiday in the State, (b) a day on which banking institutions in the State, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. “Cede & Co.” means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book-Entry Bonds. “City” means the City of Santa Monica, a municipal corporation and charter city organized and existing under the laws of the State, and any successor thereto. “Closing Date” means the date upon which the Series 2021 Bonds are delivered to the Original Purchaser, being _________, 2021. “Code” means the Internal Revenue Code of 1986. “Continuing Disclosure Certificate” means the Continuing Disclosure Certificate, dated as of _____________ 1, 2021, executed by the City, as originally executed and as it may from time to time be amended in accordance with the provisions thereof. 8.A.b Packet Pg. 511 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 7 4143-0702-1101.3 “Costs of Issuance” means all items of expense directly or indirectly payable by or reimbursable to the City relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Trustee and its counsel, including the Trustee’s first annual administrative fee, fees, charges and disbursements of attorneys, municipal advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds, any premium for a bond insurance policy securing payment of the Bonds, any premium for a reserve facility and any other cost, charge or fee in connection with the original issuance of the Bonds. “Costs of Issuance Fund” means the fund by that name established and held by the Trustee pursuant to Section 3.03. “Debt Service” means, for any period the sum of (a) the interest on all Parity Obligations payable during such period, assuming that principal payments with respect to such Parity Obligations are made on each principal payment date for such Parity Obligations in accordance with the maturity, principal payment, amortization or similar schedule for such Parity Obligations, including mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments; provided, however, that if a different assumption with respect to such maturity, principal payment, amortization or similar schedule is set forth below, such assumption shall apply for purposes of determining such maturity, principal payment, amortization or similar schedule, and (b) the principal of such Parity Obligations payable during such period, assuming that payment of such principal is made on each principal payment date for such Parity Obligations in accordance with the maturity, principal payment, amortization or similar schedule for such Parity Obligations, including mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments and, for such purpose, the scheduled payment at maturity, redemption payment or prepayment shall be deemed a principal payment; provided, however, that (i) if (A) amounts payable as interest on Parity Obligations are, pursuant to the terms of such Parity Obligations, scheduled to be advanced or drawn thereunder in some amount or for some period, then the interest payable with respect to such Parity Obligations from such amounts or during such period, as applicable, shall be disregarded and not included in calculating Debt Service, or (B) amounts constituting capitalized interest have been deposited in a fund or account and dedicated to pay interest with respect to such Parity Obligations, then the interest payable with respect to such Parity Obligations from such amounts shall be disregarded and not included in calculating Debt Service, (ii) if, during such period, the City receives or is entitled to receive a Governmental Debt Service Subsidy with respect to Parity Obligations, then Debt Service on such Parity Obligations for such period shall be reduced by an amount equal to such Governmental Debt Service Subsidy in calculating Debt Service, (iii) if monies or Defeasance Securities, or both, have been deposited by the City into a separate fund or account held by the Trustee, by the City or by a fiduciary to be used to pay Debt Service on specified Parity Obligations, and such Parity Obligations are, as a consequence thereof, discharged, or no longer Outstanding, pursuant to the terms of the Obligation Instrument pursuant to which such Parity Obligations are incurred, then the Debt Service to be paid from such monies or Defeasance Securities, or both, or from the earnings on such Defeasance Securities, shall be disregarded and not included in calculating Debt Service, (iv) interest income received on investment of monies in a Reserve Fund established for Parity Obligations and transferred to a debt service or similar fund for such Parity Obligations or otherwise made available to pay Debt Service in such period shall, for the purpose of calculating Debt Service, offset interest 8.A.b Packet Pg. 512 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 8 4143-0702-1101.3 payments and principal payments with respect to such Parity Obligations required to be made in such period, (v) the amount on deposit in a Reserve Fund established for Parity Obligations shall, on any date of calculation of Debt Service for such Parity Obligations, be deducted from the amount of principal due at the final maturity of such Parity Obligations and in each preceding year until such amount is exhausted, and (vi) with respect to payments of Parity Obligations, which payments are not comprised of separate payments of interest and principal but that, rather, are required pursuant to the Obligation Instrument pursuant to which such Parity Obligations are incurred to be paid in amounts sufficient to pay principal of and interest on bonds, notes or other obligations of a Person other than the City, for purposes of calculating Debt Service, interest payments and principal payments (whether at maturity or by mandatory redemptions or prepayments that are, or are equivalent to, sinking fund redemptions or prepayments) with respect to such bonds, notes or other obligations shall be deemed to be interest payments and principal payments with respect to such Parity Obligations. “Debt Service Coverage Ratio” means, for any Fiscal Year, the ratio of (a) Net Revenues for such period, to (b) Debt Service on the Outstanding Parity Obligations for such Fiscal Year. “Defeasance Securities” means (a) non-callable direct obligations of the United States of America (“United States Treasury Obligations”), and (b) evidences of ownership of proportionate interests in future interest and principal payments on United States Treasury Obligations held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying United States Treasury Obligations are not available to any Person claiming through the custodian or to whom the custodian may be obligated. “Depository” means DTC, and its successors as securities depository for any Series of Book-Entry Bonds, including any such successor appointed pursuant to Section 2.07. “DTC” means The Depository Trust Company, a limited-purpose trust company organized under the laws of the State of New York. “Electronic Means” means e-mail, facsimile transmission, secure electronic transmission containing applicable authorization codes, passwords and/or authentication keys issued by the Trustee, or another method or system specified by the Trustee as available for use in connection with its services hereunder. “Enterprise” means any and all facilities of the City for the production, storage, treatment and distribution of water for domestic use, industrial use, fire protection, recreation or any other public or private use and all other appurtenances necessary, useful or convenient for the production, storage, treatment and distribution of water and any necessary lands, rights of way and other real or personal property useful in connection therewith. “Event of Default” means any event specified in Section 7.01. “Fiscal Year” means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the City. 8.A.b Packet Pg. 513 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 9 4143-0702-1101.3 “Generally Accepted Accounting Principles” means the uniform accounting and reporting procedures set forth in publications of the American Institute of Certified Public Accountants, or its successor, and the Governmental Accounting Standards Board, or its successor, or by any other generally accepted authority on such procedures, and includes, as applicable, the standards set forth by the Financial Accounting Standards Board, or its successor. “Governmental Debt Service Subsidy” means, with respect to Parity Obligations, any subsidy, reimbursement or other payment from the federal government of the United States of America in connection with, or related to, payments of Debt Service such Parity Obligations. “Improvement Fund” means the fund by that name established and held by the Trustee pursuant to Section 3.04. “Indenture” means this Indenture, dated as of _____________ 1, 2021, by and between the City and U.S. Bank National Association, as originally executed and as it may be modified or amended from time to time by any Supplemental Indenture. “Independent Financial Consultant” means any consultant or firm of such consultants selected by the City and who, or each of whom (a) is generally recognized to be qualified in the financial consulting field, (b) is in fact independent and not under the control of the City, (c) does not have any substantial interest, direct or indirect, with or in the City, and (d) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports to the City. “Independent Utilities Consultant” means any consultant or firm of such consultants selected by the City and who, or each of whom (a) is generally recognized to be qualified in the business of advising public agencies concerning the operation and financing of public utilities, including water production, storage, treatment and distribution systems, (b) is in fact independent and not under the control of the City, (c) does not have any substantial interest, direct or indirect, with or in the City, and (d) is not connected with the City as an officer or employee thereof, but who may be regularly retained to make reports to the City. “Interest Account” means the account by that name within the Bond Fund established and held by the Trustee pursuant to Section 5.03. “Interest Payment Dates” means February 1 and August 1 of each year, commencing February 1, 2022. “Letter of Representations” means the Letter of Representations from the City to the Depository, in which the City makes certain representations with respect to issues of its securities for deposit by the Depository. “Maximum Reserve Requirement” means, with respect to any Parity Obligations for which, pursuant to the Obligation Instrument pursuant to which such Parity Obligations are incurred, a Reserve Fund is required to be established, as of the date of any calculation, the least of (a) “10% of the proceeds of the issue,” within the meaning of Section 148 of the Code, (b) maximum annual Assumed Debt Service on such Parity Obligations, and (c) 125% of average annual Assumed Debt Service on such Parity Obligations. 8.A.b Packet Pg. 514 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 10 4143-0702-1101.3 “Moody’s” means Moody’s Investors Service, Inc., a corporation duly organized and existing under the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “Moody’s” shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. “Net Proceeds” means, when used with respect to any insurance, self-insurance or condemnation award, the proceeds from such award remaining after payment of all expenses (including attorneys’ fees) incurred in the collection of such proceeds. “Net Revenues” means, for any period, the remainder of (a) the Revenues for such period, minus (b) the Operation and Maintenance Costs for such period. “Nominee” means the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to Section 2.07. “Obligation Instrument” means the indenture (including this Indenture), fiscal agent agreement, trust agreement, loan agreement, credit agreement, credit facility, line of credit, installment purchase agreement, installment sale agreement, financing lease or other substantively similar instrument, agreement or contract, howsoever denominated, pursuant to which Parity Obligations are issued or incurred. “Obligees” means, with respect to any Obligations (a) if such Obligations are Bonds, the Owners of such Bonds, and (b) if such Obligations are Parity Debt, the Person or Persons to whom payments under such Parity Debt are payable, as provided in the Obligation Instrument pursuant to which such Parity Debt is incurred. “Office of the Trustee” means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the City by the Trustee in writing; provided, however, that with respect to presentation of Bonds for payment or for registration of transfer and exchange, such term shall mean the office or agency of the Trustee at which, at any particular time, its corporate trust agency business shall be conducted, which other office or agency shall be specified to the City by the Trustee in writing. “Operation and Maintenance Costs” means, for any period, the reasonable and necessary costs expended or incurred by the City for maintaining and operating the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, including the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and including salaries and wages of employees, payments to its employee retirement systems (to the extent paid from Revenues), overhead, insurance, taxes if any, fees of auditors, accountants, attorneys or engineers and insurance premiums, and Administrative Costs, but excluding in all cases (a) depreciation, replacement and obsolescence charges or reserves therefor, (b) amortization of intangibles or other bookkeeping entries of a similar nature, (c) costs of capital additions, betterments, extensions or improvements to the Enterprise that, under Generally Accepted Accounting Principles, are chargeable to a capital account or to a reserve for depreciation, and (d) debt service payable on debt (determined in accordance with Generally Accepted 8.A.b Packet Pg. 515 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 11 4143-0702-1101.3 Accounting Principles) incurred by the City with respect to the Enterprise, including Parity Obligations. “Original Purchaser” means the original purchaser of the Series 2021 Bonds from the City. “Outstanding” means, when used as of any particular time (a) with respect to Bonds, subject to the provisions of Section 11.07, all Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (i) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (ii) Bonds with respect to which all liability of the City shall have been discharged in accordance with Section 10.01, and (ii) Bonds in lieu of which other Bonds shall have been authenticated and delivered by the Trustee, or that have been paid without surrender thereof, pursuant to Section 2.08, and (b) with respect to Parity Debt, any of such Parity Debt that, as of such time (i) has not, in accordance with the provisions thereof or of the Obligation Instrument pursuant to which such Parity Debt was issued or incurred, been paid or deemed to be paid or otherwise been discharged, defeased or extinguished, and (ii) has not expired, terminated or been discharged by its terms or by mutual agreement of the parties thereto. “Owner” means, with respect to a Bond, the Person in whose name such Bond is registered on the Registration Books. “Parity Debt” means (a) bonds (other than Bonds) and notes, including bond anticipation notes and commercial paper notes, and other substantively similar evidences of indebtedness payable, in accordance with the terms hereof, on a parity with the Bonds (whether or not any Bonds are Outstanding), and (b) loan payments, installment payments, lease payments, rental payments or similar payments of interest and principal or, if there are no separate payments of interest and principal, the loan payments, installment payments, lease payments, rental payments or similar payments payable by the City under and pursuant to loan agreements, credit agreements, credit facilities, lines of credit, installment purchase agreements, installment sale agreements, financing leases or other substantively similar agreements or contracts of the City, howsoever denominated, which payments are, in accordance with the terms hereof, payable on a parity with the Bonds (whether or not any Bonds are Outstanding). “Parity Obligations” means the Bonds and any Parity Debt. “Participant” means any entity which is recognized as a participant by DTC in the book-entry system of maintaining records with respect to Book-Entry Bonds. “Participating Underwriter” has the meaning ascribed to such term in the Continuing Disclosure Certificate. “Permitted Investments” is defined in Exhibit A hereto. “Person” means an individual, corporation, limited liability company, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. 8.A.b Packet Pg. 516 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 12 4143-0702-1101.3 “Principal Account” means the account by that name within the Bond Fund established and held by the Trustee pursuant to Section 5.03. “Project” means any additions, enlargements, betterments, extensions and other improvements to or related to, and the equipping of, the Enterprise. “Rate Stabilization Account” means the account by that name within the Water Fund established and held by the City pursuant to Section 5.02. “Rebate Fund” means the fund by that name established and held by the Trustee pursuant to Section 5.05. “Rebate Requirement” has the meaning ascribed to such term in the Tax Certificate. “Record Date” means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. “Redemption Fund” means the fund by that name established and held by the Trustee pursuant to Section 5.04. “Redemption Price” means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. “Registration Books” means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.05. “Reserve Fund” means (a) a reserve fund to secure the payment of Debt Service on Additional Bonds of a Series established pursuant to the Supplemental Indenture pursuant to which such Additional Bonds are issued, and (b) a reserve fund to secure the payment of Debt Service on Parity Debt established pursuant to the Obligation Instrument pursuant to which such Parity Debt is incurred. “Revenue Bond Act” means the Charter of the City of Santa Monica, the Santa Monica Revenue Bond Act (being Chapter 2.36 of Article 2 of the Santa Monica Municipal Code) and all laws of the State of California supplemental thereto, including the Revenue Bond Law of 1941, to the extent made applicable by the Santa Monica Revenue Bond Act. “Revenues” means, for any period (a) all income and revenue received by the City from the operation or ownership of the Enterprise, determined in accordance with Generally Accepted Accounting Principles, including all rates and charges received by the City for the services of the Enterprise, investment income (to the extent generally available to pay costs with respect to the Enterprise), proceeds of insurance relating to business interruption loss relating to the Enterprise and all other money howsoever derived by the City from the operation or ownership of the Enterprise or arising from the Enterprise, but excluding (i) refundable deposits made to establish credit, (ii) advances or contributions in aid of construction, and (iii) ad valorem property taxes levied to pay debt service on any outstanding obligations of the City, (b) amounts, if any, transferred during such period from the Rate Stabilization Account to the Water Fund, and (c) an amount equal to all 8.A.b Packet Pg. 517 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 13 4143-0702-1101.3 Governmental Debt Service Subsidies, if any, for such period; provided, however, that, for purposes of calculating Assumed Debt Service Coverage Ratio or Debt Service Coverage Ratio for such period, the Revenues for such period shall not include any such Governmental Debt Service Subsidies. “S&P” means S&P Global Ratings, a business unit of Standard and Poor’s Financial Services, LLC, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term “S&P” shall be deemed to refer to any other nationally recognized securities rating agency selected by the City. “Series” means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Indenture as the Series 2021 Bonds, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. “Series 2021 Bonds” means the City of Santa Monica Water Enterprise Revenue Bonds, Series 2021, issued hereunder. “State” means the State of California. “Subordinate Obligations” (a) bonds and notes, including bond anticipation notes and commercial paper notes, and other substantively similar evidences of indebtedness payable, in accordance with the terms hereof, on a basis subordinate to the Parity Obligations, and (b) loan payments, installment payments, lease payments, rental payments or similar payments of interest and principal or, if there are no separate payments of interest and principal, the loan payments, installment payments, lease payments, rental payments or similar payments payable by the City under and pursuant to loan agreements, credit agreements, credit facilities, lines of credit, installment purchase agreements, installment sale agreements, financing leases or other substantively similar agreements or contracts of the City, howsoever denominated, which payments are, in accordance with the terms hereof, payable on a basis subordinate to the Parity Obligations. “Supplemental Indenture” means any supplemental indenture modifying or amending this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. “Tax Certificate” means the Tax Certificate executed by the City at the time of issuance of the Series 2021 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof. “Tax-Exempt” means, with respect to any Parity Obligations, that interest on such Parity Obligations is excluded from gross income of the owners thereof for federal income tax purposes, whether or not such interest is includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax, under the Code. 8.A.b Packet Pg. 518 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 14 4143-0702-1101.3 “Trustee” means U.S. Bank National Association, a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee hereunder substituted in its place as provided herein. “Variable Rate Obligations” means any portion of any Parity Obligations the interest rate on which is not established at the time of incurrence such Parity Obligations and has not, at some subsequent date, been established at a rate that is not subject to fluctuation or subsequent adjustment. “Verification Report” means, with respect to the deemed payment of Bonds pursuant to clause (ii) of Section 10.02(a), a report of a nationally recognized certified public accountant, or firm of such accountants, verifying that the Defeasance Securities and cash, if any, deposited in connection with such deemed payment satisfy the requirements of clause (ii) of Section 10.02(a). “Water Fund” means the fund by that name established and held by the City pursuant to Section 5.02. “Written Certificate” and “Written Request” of the City mean, respectively, a written certificate or written request signed in the name of the City by an Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Rules of Construction. (a) The terms defined herein expressed in the singular shall, unless the context otherwise indicates, include the plural and vice versa. (b) The use herein of the masculine, feminine or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine or neuter gender, as appropriate. (c) References herein to a document shall include all amendments, supplements or other modifications to such document, and any replacements, substitutions or novation of, that document. (d) Any term defined herein by reference to another document shall continue to have the meaning ascribed thereto whether or not such other document remains in effect. (e) The use herein of the words “including” and “includes,” and words of similar import, shall be deemed to be followed by the phrase “without limitation.” (f) Headings of Articles and Sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (g) All references herein to designated “Articles,” “Sections,” “Exhibits,” “subsections,” “paragraphs,” “clauses,” and other subdivisions are to the designated Articles, Sections, Exhibits, subsections, paragraphs, clauses, and other subdivisions of this Indenture. 8.A.b Packet Pg. 519 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 15 4143-0702-1101.3 (h) The words “hereof” (except when preceded by a specific Section or Article reference) “herein,” “hereby,” “hereunder,” “hereinabove,” “hereinafter,” and other equivalent words and phrases used herein refer to this Indenture and not solely to the particular portion hereof in which any such word is used. Section 1.03. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the City, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the City shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. 8.A.b Packet Pg. 520 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 16 4143-0702-1101.3 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds; Special, Limited Obligations. (a) The City hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Revenue Bond Act and other applicable laws of the State. The Bonds may consist of one or more Series of varying denominations, dates, maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. The Bonds shall be designated generally as the “City of Santa Monica Water Enterprise Revenue Bonds,” each Series thereof to bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. (b) The Bonds shall be special, limited obligations of the City, payable, as provided herein, solely from Net Revenues and the other assets pledged therefor hereunder. The Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 2.02. Terms of Series 2021 Bonds. (a) The Series 2021 Bonds shall be designated “City of Santa Monica Water Enterprise Revenue Bonds, Series 2021.” The aggregate principal amount of Series 2021 Bonds that may be issued and Outstanding under this Indenture shall not exceed $_________, except as may be otherwise provided in Section 2.08. (b) The Series 2021 Bonds shall be issued in fully registered form without coupons in Authorized Denominations, so long as no Series 2021 Bond shall have more than one maturity date. The Series 2021 Bonds shall be dated as of the Closing Date, shall be in the aggregate principal amount of $________, shall mature on August 1 of each year, shall bear interest at the rates per annum (calculated on the basis of a 360-day year comprised of twelve 30-day months) and shall be in the principal amounts as follows: Maturity Date (August 1) Principal Amount Interest Rate 8.A.b Packet Pg. 521 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 17 4143-0702-1101.3 (c) Interest on the Series 2021 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2021 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Series 2021 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series 2021 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Series 2021 Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series 2021 Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series 2021 Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (d) The principal of the Series 2021 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. (e) The Series 2021 Bonds shall be subject to redemption as provided in Article IV. (f) The Series 2021 Bonds shall be in substantially the form set forth in Exhibit B hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the City with the manual or facsimile signature of the Mayor of the City attested by the manual or facsimile signature of the City Clerk of the City. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the City as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the City by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the City although at the nominal date of such Bonds any such Person shall not have been such officer of the City. Section 2.04. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit B hereto for the Series 2021 Bonds, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of the Trustee shall be 8.A.b Packet Pg. 522 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 18 4143-0702-1101.3 conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.05. Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the City. Upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds. Section 2.06. Transfer and Exchange of Bonds. (a) Any Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be so surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. (b) The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. (c) The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. Section 2.07. Book-Entry System. (a) Prior to the issuance of a Series of Bonds, the City may provide that such Series of Bonds shall initially be issued as Book-Entry Bonds, and in such event, the Bonds of such Series for each maturity date shall be in the form of a separate single fully registered Bond (which may be typewritten). Upon initial issuance, the ownership of each such Bond of such Series shall be registered in the Registration Books in the name of the Nominee, as nominee of the Depository. The Series 2021 Bonds shall initially be issued as Book-Entry Bonds. Payment of principal of, and interest and premium, if any, on, any Book-Entry Bond registered in the name of the Nominee shall be made on the applicable payment date by wire transfer of New York clearing house or equivalent next day funds or by wire transfer of same day funds to the account of the Nominee. Such payments shall be made to the Nominee at the address which is, on the Record Date, shown for the Nominee in the Registration Books. (b) With respect to Book-Entry Bonds, the City and the Trustee shall have no responsibility or obligation to any Participant or to any Person on behalf of which such a Participant holds an interest in such Book-Entry Bonds. Without limiting the immediately 8.A.b Packet Pg. 523 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 19 4143-0702-1101.3 preceding sentence, the City and the Trustee shall have no responsibility or obligation with respect to (i) the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in Book-Entry Bonds, (ii) the delivery to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any notice with respect to Book-Entry Bonds, including any notice of redemption, (iii) the selection by the Depository and its Participants of the beneficial interests in Book-Entry Bonds of a maturity to be redeemed in the event such Book-Entry Bonds are redeemed in part, (iv) the payment to any Participant or any other Person, other than an Owner as shown in the Registration Books, of any amount with respect to principal of, or premium, if any, or interest on Book-Entry Bonds, or (v) any consent given or other action taken by the Depository as Owner. (c) The City and the Trustee may treat and consider the Person in whose name each Book-Entry Bond is registered in the Registration Books as the absolute Owner of such Book- Entry Bond for the purpose of payment of principal of, and premium, if any, and interest on such Bond, for the purpose of selecting any Bonds, or portions thereof, to be redeemed, for the purpose of giving notices of redemption and other matters with respect to such Book-Entry Bond, for the purpose of registering transfers with respect to such Book-Entry Bond, for the purpose of obtaining any consent or other action to be taken by Owners and for all other purposes whatsoever, and the City and the Trustee shall not be affected by any notice to the contrary. (d) In the event of a redemption of all or a portion of a Book-Entry Bond, the Depository, in its discretion (i) may request the Trustee to authenticate and deliver a new Book-Entry Bond, or (ii) if the Depository is the sole Owner of such Book-Entry Bond, shall make an appropriate notation on the Book-Entry Bond indicating the date and amounts of the reduction in principal thereof resulting from such redemption, except in the case of final payment, in which case such Book-Entry Bond must be presented to the Trustee prior to payment. (e) The Trustee shall pay all principal of, and premium, if any, and interest on the Book-Entry Bonds only to or “upon the order of” (as that term is used in the Uniform Commercial Code as adopted in the State) the respective Owner, as shown in the Registration Books, or such Owner’s respective attorney duly authorized in writing, and all such payments shall be valid and effective to fully satisfy and discharge the obligations with respect to payment of principal of, and premium, if any, and interest on the Book-Entry Bonds to the extent of the sum or sums so paid. No Person other than an Owner, as shown in the Registration Books, shall receive an authenticated Book-Entry Bond. Upon delivery by the Depository to the Owners, the City and the Trustee of written notice to the effect that the Depository has determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein with respect to Record Dates, the word Nominee in this Indenture shall refer to such nominee of the Depository. (f) In order to qualify the Book-Entry Bonds for the Depository’s book-entry system, the City shall execute and deliver to the Depository a Letter of Representations. The execution and delivery of a Letter of Representations shall not in any way impose upon the City or the Trustee any obligation whatsoever with respect to Persons having interests in such Book-Entry Bonds other than the Owners, as shown on the Registration Books. Such Letter of Representations may provide the time, form, content and manner of transmission, of notices to 8.A.b Packet Pg. 524 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 20 4143-0702-1101.3 the Depository. In addition to the execution and delivery of a Letter of Representations by the City, the City and the Trustee shall take such other actions, not inconsistent with this Indenture, as are reasonably necessary to qualify Book-Entry Bonds for the Depository’s book-entry program. (g) In the event the City determines that it is in the best interests of the Beneficial Owners that they be able to obtain certificated Bonds and that such Bonds should therefore be made available and notifies the Depository and the Trustee of such determination, the Depository will notify the Participants of the availability through the Depository of certificated Bonds. In such event, the Trustee shall transfer and exchange certificated Bonds as requested by the Depository and any other Owners in appropriate amounts. In the event (i) the Depository determines not to continue to act as securities depository for Book-Entry Bonds, or (ii) the Depository shall no longer so act and gives notice to the Trustee of such determination, then the City shall discontinue the Book-Entry system with the Depository. If the City determines to replace the Depository with another qualified securities depository, the City shall prepare or direct the preparation of a new single, separate, fully registered Bond of the appropriate Series for each maturity date of such Book-Entry Bonds, registered in the name of such successor or substitute qualified securities depository or its nominee. If the City fails to identify another qualified securities depository to replace the Depository, then the Book-Entry Bonds shall no longer be restricted to being registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Bonds shall designate, in accordance with the provisions of Sections 2.06, 2.08 and 2.09. Whenever the Depository requests the City to do so, the City shall cooperate with the Depository in taking appropriate action after reasonable notice (i) to make available one or more separate certificates evidencing the Book-Entry Bonds to any Participant having Book-Entry Bonds credited to its account with the Depository, and (ii) to arrange for another securities depository to maintain custody of certificates evidencing the Book-Entry Bonds. (h) Notwithstanding any other provision of this Indenture to the contrary, if the Depository is the sole Owner of the Bonds of a Series, so long as any Book-Entry Bond of such Series is registered in the name of the Nominee, all payments of principal of, and premium, if any, and interest on such Book-Entry Bond and all notices with respect to such Book-Entry Bond shall be made and given, respectively, as provided in the Letter of Representations or as otherwise instructed by the Depository. (i) In connection with any notice or other communication to be provided to Owners pursuant to this Indenture by the City or the Trustee, with respect to any consent or other action to be taken by Owners of Book-Entry Bonds, the Trustee shall establish a record date for such consent or other action and give the Depository notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the City, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like principal amount in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the City. If any Bond shall 8.A.b Packet Pg. 525 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 21 4143-0702-1101.3 be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity reasonably satisfactory to the Trustee shall be given, the City, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of the same Series and maturity in a like aggregate principal amount in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The City may require payment by the Owner of a sum not exceeding the actual cost of preparing the replacement Bond delivered thereto under this Section and the expenses incurred by the City and the Trustee in connection therewith. Any Bond of a Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.09. Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds may be printed, lithographed or typewritten, shall be of such Authorized Denominations as may be determined by the City, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the City and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the City issues temporary Bonds of a Series it shall execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds of such Series may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of such Series and maturities in Authorized Denominations. Until so exchanged, the temporary Bonds of such Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. 8.A.b Packet Pg. 526 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 22 4143-0702-1101.3 ARTICLE III ISSUANCE OF SERIES 2021 BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS; PARITY DEBT Section 3.01. Issuance of Series 2021 Bonds. The City may at any time execute the Series 2021 Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Series 2021 Bonds and deliver the Series 2021 Bonds to the Original Purchaser upon receipt of a Written Request of the City and upon receipt of the purchase price therefor. Section 3.02. Application of Proceeds. On the Closing Date, the proceeds of the sale of the Series 2021 Bonds received by the Trustee, $___________, shall be deposited by the Trustee as follows: (a) the Trustee shall deposit the amount of $_________ in the Costs of Issuance Fund; and (b) the Trustee shall deposit the amount of $__________ in the Improvement Fund. Section 3.03. Costs of Issuance Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Costs of Issuance Fund.” On the Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 3.02. There shall additionally be deposited in the Cost of Issuance Fund the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. (b) The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made, (ii) the amount to be paid and instructions for such payment, (iii) the purpose for which the obligation was incurred, (iv) that such payment is a proper charge against the Costs of Issuance Fund, and (v) that such amount has not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On the last Business Day that is no later than six months after the Closing Date, the Trustee shall transfer any amount remaining in the Costs of Issuance Fund to the Improvement Fund and, upon making such transfer, the Costs of Issuance Fund shall be closed. (c) If the Costs of Issuance Fund has been closed in accordance with the provisions hereof, a Costs of Issuance Fund shall be reestablished by the Trustee in connection with the issuance of any Additional Bonds, if so provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued. Section 3.04. Improvement Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Improvement Fund.” On the Closing Date, the Trustee shall deposit in the Improvement Fund the amount required to be deposited therein pursuant to Section 3.02. There shall additionally be deposited in the Improvement Fund the portion, if any, of the 8.A.b Packet Pg. 527 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 23 4143-0702-1101.3 proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. (b) The moneys in the Improvement Fund shall be used and withdrawn by the Trustee from time to time to pay the costs of a Project upon submission of a Written Request of the City stating (i) the Person to whom payment is to be made, (ii) the amount to be paid and instructions for such payment, (iii) the purpose for which the obligation was incurred, (iv) that such payment constitutes a cost of a Project and is a proper charge against the Improvement Fund, and (v) that such amount has not been the subject of a prior disbursement from the Improvement Fund, in each case together with a statement or invoice for each amount requested thereunder. Upon the filing of a Written Certificate of the City stating (i) that the portion of a Project to be financed from proceeds of Bonds deposited in the Improvement Fund has been completed and that all costs of such Project have been paid, or (ii) that such portion of such Project has been substantially completed and that all remaining costs of such portion of such Project have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount of the proceeds of such Series of Bonds remaining in the Improvement Fund (less any such retention) is equal to or greater than $25,000, transfer the portion of such amount equal to the largest integral multiple of $5,000 that is not greater than such amount to the Redemption Fund, to be applied to the redemption of Bonds of such Series as directed by the City, and (B) after making the transfer, if any, required to be made pursuant to the preceding clause (A), transfer all of the amount of such proceeds of such Series of Bonds remaining in the Improvement Fund (less any such retention) to the Interest Account, to be applied to the payment of interest on the Bonds. Section 3.05. Conditions for the Issuance of Additional Bonds. The City may at any time issue one or more Series of Additional Bonds payable from Net Revenues as provided herein on a parity with all Parity Obligations theretofore incurred, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) upon the issuance of such Additional Bonds, no Event of Default shall have occurred and be continuing hereunder; (b) the issuance of such Additional Bonds shall have been authorized under and pursuant to this Indenture and the Revenue Bond Act and shall have been provided for by a Supplemental Indenture which shall specify the following: (i) the purposes for which the proceeds of such Additional Bonds are to be applied, which purposes may include any purposes to which Revenues may be legally applied; (ii) the designation of such Series of Additional Bonds, the aggregate principal amount of the Additional Bonds of such Series, and the principal amount of, and the interest rate to be borne by, each maturity of such Additional Bonds; (iii) that such Additional Bonds shall be payable as to interest on the Interest Payment Dates, except that the first installment of interest may be payable 8.A.b Packet Pg. 528 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 24 4143-0702-1101.3 on either February 1 or August 1 and shall be for a period of not longer than twelve months; provided, however, that, if such Additional Bonds constitute Variable Rate Obligations, interest thereon may be payable on such payment dates as shall be specified in the Supplemental Indenture pursuant to which such Additional Bonds are issued; (iv) the date, the maturity date or dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, however, that each such maturity date and date on which a mandatory sinking fund redemption is to be made shall be an August 1 and, provided, further, that serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; (v) the redemption premiums and terms, if any, for such Additional Bonds; (vi) the form of such Additional Bonds; (vii) if, pursuant to the Supplemental Indenture pursuant to which such Additional Bonds are issued a Reserve Fund is to be established to secure the payment of Debt Service on such Additional Bonds (A) that such Reserve Fund is subject to the provisions of this Indenture applicable thereto, (B) the reserve requirement for such Additional Bonds, which shall not exceed the Maximum Reserve Requirement with respect to such Additional Bonds, (C) the maximum amount required, pursuant to such Supplemental Indenture, to be deposited into such Reserve Fund in any period, which amount shall not exceed the amount specified in paragraph (iii) of Section 5.02(c), and (D) the amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in such Reserve Fund; and (viii) such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (c) Subject to the provisions of paragraph (d), below, the City shall have delivered to the Trustee either (i) a Written Certificate the City demonstrating that, for any 12 consecutive calendar months during the 24 calendar month period ending prior to the date of issuance of such Additional Bonds, the Assumed Debt Service Coverage Ratio, determined in accordance with Generally Accepted Accounting Principles and as shown by the books of the City, is not less than 1.20:1; provided, however, that, for the purpose of calculating such Assumed Debt Service Coverage Ratio, the Adjusted Net Revenues may be adjusted for (A) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of issuance of such Additional Bonds, (B) customers added to the Enterprise subsequent to the commencement of the applicable 12 month computation period but prior to the date of issuance of such Additional Bonds, and (C) the estimated change in available Adjusted Net Revenues that will result from the 8.A.b Packet Pg. 529 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 25 4143-0702-1101.3 connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Additional Bonds and, provided, further that; for purposes of preparing such Written Certificate of the City, the City may rely upon financial statements prepared by the City that have not been subject to audit by an independent certified public accountant if audited financial statements for the applicable period are not available, or (ii) both (A) a written report of an Independent Utilities Consultant setting forth for the Fiscal Year immediately succeeding the Fiscal Year in which such Additional Bonds are issued, or if interest on such Additional Bonds is being capitalized from the proceeds of such Additional Bonds, the Fiscal Year following the Fiscal Year in which such interest is capitalized in full, estimates of (I) Revenues, (II) Operation and Maintenance Costs, and (III) Adjusted Net Revenues; provided, however, that, for the purpose of estimating Revenues for such purpose, Revenues may be adjusted for (aa) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of issuance of such Additional Bonds, and (bb) the estimated change in available Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Additional Bonds, and (B) a certificate of an Independent Financial Consultant demonstrating that, based on the estimate of Adjusted Net Revenues set forth in such written report of such Independent Utilities Consultant, the Assumed Debt Service Coverage Ratio is not less than 1.20:1; and (d) Notwithstanding the provisions of paragraph (c), above, if (i) such Additional Bonds are being issued to refund previously incurred Parity Obligations, and (ii) Debt Service in each Fiscal Year, calculated for all Parity Obligations that will be Outstanding after the issuance of such Additional Bonds, will be less than or equal to Debt Service in such Fiscal Year, calculated for all Parity Obligations that are Outstanding immediately prior to the issuance of such Additional Bonds, the receipt of the certificate described in paragraph (c), above, shall not be a condition precedent to the issuance of such Additional Bonds. Section 3.06. Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with this Indenture and the Revenue Bond Act, such Additional Bonds shall be executed by the City for issuance hereunder and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: (a) a certified copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (b) a Written Request of the City as to the delivery of such Additional Bonds; (c) a Written Certificate of the City stating that the conditions precedent to the issuance of such Additional Bonds specified in Section 3.05 have been satisfied; 8.A.b Packet Pg. 530 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 26 4143-0702-1101.3 (d) an opinion of Bond Counsel substantially to the effect that (i) this Indenture, as modified and amended by all Supplemental Indentures theretofore, or thereupon being, entered into has been duly authorized, executed and delivered by, and constitute the valid and binding obligation of, the City, enforceable in accordance with their terms, (ii) such Additional Bonds constitute valid and binding special, limited obligations of the City, and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on any Tax-Exempt Parity Obligations Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes; (e) the proceeds of the sale of such Additional Bonds; and (f) such further documents or money as are required by the provisions hereof or by the provisions of the Supplemental Indenture pursuant to which such Additional Bonds are issued. Section 3.07. Conditions for the Incurrence of Parity Debt. The City may at any time incur Parity Debt payable from Net Revenues as provided herein on a parity with all Parity Obligations theretofore incurred, but only subject to the following conditions, which are hereby made conditions precedent to the incurrence of such Parity Debt: (a) Obligation Instrument pursuant to which such Parity Debt is incurred shall specify the following: (i) the purposes for which the proceeds of such Parity Debt are to be applied, which purposes may include any purposes to which Revenues may be legally applied; (ii) the principal amount of such Parity Debt and the interest rate or rates to be borne by such Parity Debt; (iii) the interest payment dates on which interest on such Parity Debt is payable and the principal payment dates on which principal of such Parity Debt is payable; (iv) the redemption or prepayment premiums and terms, if any, for such Parity Debt; (v) if, pursuant to the Obligation Instrument pursuant to which such Parity Debt is incurred a Reserve Fund is to be established to secure the payment of Debt Service on such Parity Debt (A) that such Reserve Fund is subject to the provisions of this Indenture applicable thereto, (B) the reserve requirement for such Parity Debt, which shall not exceed the Maximum Reserve Requirement with respect to such Parity Debt, (C) the maximum amount required, pursuant to such Obligation Instrument, to be deposited into such Reserve Fund in any period, which amount shall not exceed the amount specified in paragraph (iii) of Section 5.02(c), and (D) the amount, if any, to be deposited from the proceeds of such Parity Debt in such Reserve Fund; and 8.A.b Packet Pg. 531 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 27 4143-0702-1101.3 (vi) such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) Subject to the provisions of paragraph (c), below, the City shall have delivered to the Trustee either (i) a Written Certificate the City demonstrating that, for any 12 consecutive calendar months during the 24 calendar month period ending prior to the date of incurrence of such Parity Debt, the Assumed Debt Service Coverage Ratio, determined in accordance with Generally Accepted Accounting Principles and as shown by the books of the City, is not less than 1.20:1; provided, however, that, for the purpose of calculating such Assumed Debt Service Coverage Ratio, the Adjusted Net Revenues may be adjusted for (A) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of incurrence of such Parity Debt, (B) customers added to the Enterprise subsequent to the commencement of the applicable 12 month computation period but prior to the date of incurrence of such Parity Debt, and (C) the estimated change in available Adjusted Net Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Parity Debt and, provided, further that; for purposes of preparing such Written Certificate of the City, the City may rely upon financial statements prepared by the City that have not been subject to audit by an independent certified public accountant if audited financial statements for the applicable period are not available, or (ii) both (A) a written report of an Independent Utilities Consultant setting forth for the Fiscal Year immediately succeeding the Fiscal Year in which such Parity Debt is incurred, or if interest on such Parity Debt is being capitalized from the proceeds of such Parity Debt, the Fiscal Year following the Fiscal Year in which such interest is capitalized in full, estimates of (I) Revenues, (II) Operation and Maintenance Costs, and (III) Adjusted Net Revenues; provided, however, that, for the purpose of estimating Revenues for such purpose, Revenues may be adjusted for (aa) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of incurrence of such Parity Debt, and (bb) the estimated change in available Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Parity Debt, and (B) a certificate of an Independent Financial Consultant demonstrating that, based on the estimate of Adjusted Net Revenues set forth in such written report of such Independent Utilities Consultant, the Assumed Debt Service Coverage Ratio is not less than 1.20:1; and (c) Notwithstanding the provisions of paragraph (b), above, if (i) such Parity Debt is being incurred to refund previously incurred Parity Obligations, and (ii) Debt Service in each Fiscal Year, calculated for all Parity Obligations that will be Outstanding after the incurrence of such Parity Debt, will be less than or equal to Debt Service in such Fiscal Year, calculated for all Parity Obligations that are Outstanding immediately prior to the incurrence of such Parity Debt, the receipt of the certificate described in paragraph (b), above, shall not be a condition precedent to the incurrence of such Parity Debt. 8.A.b Packet Pg. 532 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 28 4143-0702-1101.3 Section 3.08. Procedure for the Incurrence of Parity Debt. Subject to the provisions of Section 3.07, the City may at any time incur Parity Debt, but only upon delivery to the Trustee of the following: (a) a certified copy of the Obligation Instrument pursuant to which such Parity Debt is incurred; (b) a Written Certificate of the City stating that the conditions precedent to the incurrence of such Parity Debt specified in Section 3.07 have been satisfied; (c) an opinion (i) of counsel selected by the City substantially to the effect that (A) the Obligation Instrument pursuant to which such Parity Debt is incurred has been duly authorized, executed and delivered by, and constitutes the valid and binding obligation of, the City, enforceable in accordance with its terms, and (ii) such Parity Debt constitutes a valid and binding special, limited obligation of the City, and (B) of Bond Counsel substantially to the effect that the incurrence of such Parity Debt, in and of itself, will not adversely affect the exclusion of interest on any Tax-Exempt Parity Obligations Outstanding prior to the incurrence of such Parity Debt from gross income for federal income tax purposes; (d) such further documents or money as are required by the provisions of the Obligation Instrument pursuant to which such Parity Debt is incurred. Section 3.09. Additional Bonds; Parity Debt; Subordinate Obligations. (a) The City shall not incur any obligations payable from Net Revenues on a parity with the Parity Obligations, except as provided in Sections 3.05 and 3.06 or Sections 3.07 and 3.08, as applicable. (b) The City may, in accordance with the terms hereof, at any time and from time to time incur Subordinate Obligations, which incurrence shall not be subject to the provisions of Section 3.05, Section 3.06, Section 3.07 or Section 3.08; provided, however, that (i) if any default with respect to any Outstanding Parity Obligations shall have occurred and be continuing, the Obligees of all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all Debt Service payments and all other payments payable pursuant to such Parity Obligations as the same become due and payable in accordance with the provisions of the Obligation Instruments pursuant to which such Parity Obligations are incurred before the obligees of such Subordinate Obligations are entitled to receive any payment from the Net Revenues or amounts on deposit in the Revenue Fund, and (ii) that such Subordinate Obligations shall only be subject to acceleration if all Outstanding Parity Obligations subject to acceleration have become, or have been declared to be, due and payable, and such declaration has not been annulled in accordance with the provisions of Article VII hereof and any annulment of such acceleration of such Parity Obligation shall, ipso facto, constitute an annulment of such acceleration of such Subordinate Obligations. 8.A.b Packet Pg. 533 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 29 4143-0702-1101.3 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series 2021 Bonds. (a) Optional Redemption. The Series 2021 Bonds maturing on and after August 1, 20__, shall be subject to optional redemption, in whole, or in part in Authorized Denominations, on any date on or after August 1, 20__ from any source of available funds, at a Redemption Price equal to the principal amount of the Series 2021 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. The City shall give the Trustee written notice of its intention to redeem Series 2021 Bonds pursuant to this subsection not less than 35 days prior to the applicable redemption date, unless a later date is agreed to by the Trustee. (b) Mandatory Sinking Fund Redemption. The Series 2021 Bonds maturing August 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on August 1 in each year, commencing August 1, 20__, at a Redemption Price equal to the principal amount of the Series 2021 Bonds maturing August 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed _______ (Maturity) If some but not all of the Series 2021 Bonds maturing on August 1, 20__ are redeemed pursuant to Section 4.01(a), the principal amount of the Series 2021 Bonds maturing on August 1, 20__ to be redeemed pursuant to Section 4.01(b) on any subsequent August 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Series 2021 Bonds maturing on August 1, 20__ redeemed pursuant to Section 4.01(a). The Series 2021 Bonds maturing August 1, 20__ shall be subject to mandatory sinking fund redemption, in part, on August 1 in each year, commencing August 1, 20__, at a Redemption Price equal to the principal amount of the Series 2021 Bonds maturing August 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: 8.A.b Packet Pg. 534 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 30 4143-0702-1101.3 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed (Maturity) If some but not all of the Series 2021 Bonds maturing on August 1, 20__ are redeemed pursuant to Section 4.01(a), the principal amount of the Series 2021 Bonds maturing on August 1, 20__ to be redeemed pursuant to Section 4.01(b) on any subsequent August 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Series 2021 Bonds maturing on August 1, 20__ redeemed pursuant to Section 4.01(a). Section 4.02. Notice of Redemption. The Trustee on behalf and at the expense of the City shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid within the meaning of Section 10.02, such notice shall state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the City shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Bonds pursuant to such notice of redemption. 8.A.b Packet Pg. 535 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 31 4143-0702-1101.3 Section 4.03. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the City, and (b) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate. For purposes of such selection, each Bond shall be deemed to be comprised of separate denominations equal to the minimum Authorized Denomination for such Bond and such separate denominations shall be treated as separate Bonds that may be separately redeemed. Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of the same Series in Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of the Bonds surrendered. Section 4.05. Effect of Notice of Redemption. Notice of redemption of the Bonds subject to redemption having been mailed as aforesaid, and moneys for the Redemption Price thereof, and the interest thereon to the applicable date fixed for redemption, having been set aside with the Trustee, such Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. 8.A.b Packet Pg. 536 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 32 4143-0702-1101.3 ARTICLE V SECURITY FOR PARITY OBLIGATIONS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledges. (a) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds and the Parity Debt in accordance with their terms and the provisions of this Indenture, the City hereby pledges to the Obligees, and grants thereto a lien on and a security interest in, all of the Net Revenues. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the City, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, this Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. (b) Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms and the provisions of this Indenture, the City hereby pledges to the Owners, and grants thereto a lien on and a security interest in, all of the amounts held in the Bond Fund and the Redemption Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the City, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, this Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. (c) If the Supplemental Indenture pursuant to which Additional Bonds of a Series are issued provides for the establishment of a Reserve Fund for such Additional Bonds, the City may, pursuant to such Supplemental Indenture, pledge to the Owners of the Additional Bonds of such Series, and grant thereto a lien on and a security interest in, all of the amounts held in such Reserve Fund. Section 5.02. Water Fund. (a) The City shall establish and maintain within its treasury a separate fund designated the “Water Fund.” Within the Water Fund, the City shall establish and maintain a separate account designated the “Rate Stabilization Account” The City shall deposit in the Water Fund all of the Revenues as and when received. The City may from time to time transfer amounts on deposit in the Water Fund to the Rate Stabilization Account; provided, however, that (i) any such transfer (A) that is made on or before the date that is ten days after the Closing Date, and (B) that is not in an amount greater than {$1,000,000], shall not be taken into account for purposes of calculating Adjusted Net Revenues, and (ii) the City shall not at any time make any such transfer to the Rate Stabilization Account if and to the extent that such transfer would result in there being insufficient amounts in the in the Water Fund to pay Operation and Maintenance Costs becoming due and payable. The City may from time to time transfer amounts on deposit in the Rate Stabilization Account to the Water Fund. 8.A.b Packet Pg. 537 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 33 4143-0702-1101.3 (b) The City shall pay from the Water Fund all of the Operation and Maintenance Costs as and when the same become due and payable. (c) After having paid, or having made provision for the payment of, the Operation and Maintenance Costs, the City shall transfer to the Trustee legally available Net Revenues from the Water Fund in the amounts set forth below in the following order of priority (including curing any existing deficiency in transfers required on any prior date), the requirements of each transfer of each priority to be fully satisfied, leaving no deficiencies, prior to any transfer later in priority; provided, however, that on a parity with such transfers, the City shall transfer to the respective Obligees thereof amounts to pay Debt Service on Parity Debt in accordance with the provisions of the Obligation Instrument pursuant to which such Parity Debt is issued, which transfers shall be proportionate in the event such amounts are insufficient to provide for all transfers required as of any date to be made with respect to the Bonds and any such Parity Debt: (i) Interest Account. On the fifth Business Day preceding each February 1 and August 1, the City shall transfer to the Trustee for deposit in the Interest Account an amount that, together with other amounts on deposit therein, is equal to the interest becoming due and payable on the Outstanding Bonds (except for Bonds constituting Variable Rate Obligations) on the following February 1 or August 1, respectively; provided, however, that, with respect to Bonds constituting Variable Rate Indebtedness, on or before the second Business Day preceding each interest payment date for such Bonds, or on such other day as shall be provided in the Supplemental Indenture pursuant to which such Bonds constituting Variable Rate Obligations are issued, the City shall transfer to the Trustee for deposit in the Interest Account an amount that, together with other amounts on deposit therein, is equal to the interest becoming due and payable on the Outstanding Bonds constituting Variable Rate Obligations on the following interest payment date; (ii) Principal Account. On the fifth Business Day preceding each August 1, the City shall transfer to the Trustee for deposit in the Principal Account an amount that, together with other amounts on deposit therein, is equal to the principal, if any, due on the Bonds on such August 1, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds; and (iii) Reserve Funds. If the City has issued one or more Series of Additional Bonds for which a Reserve Fund has been established, and the amount on deposit in any such Reserve Fund is less than the reserve requirement therefor, which deficiency is the result of a withdrawal therefrom of amounts to pay Debt Service on the Additional Bonds of such Series, on the fifth Business Day preceding each February 1 and August 1, the City shall transfer to the Trustee for deposit in such Reserve Fund an amount equal to one-half of the amount of such amounts so withdrawn until the amounts so transferred to the Trustee are equal to the amounts so withdrawn. Any Net Revenues remaining in the Water Fund after the foregoing transfers to the Trustee have been made shall be held free and clear of the pledge thereof, lien thereon and security interest therein granted pursuant to this Indenture and the City may use and apply such Net Revenues for any lawful purpose, including the payment of debt service on Subordinate Obligations. 8.A.b Packet Pg. 538 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 34 4143-0702-1101.3 Section 5.03. Bond Fund. (a) The Trustee shall establish and maintain a separate fund designated the “Bond Fund.” Within the Bond Fund, the Trustee shall establish and maintain a separate account designated the “Principal Account” and a separate account designated the “Interest Account.” The Trustee shall deposit in the Interest Account and the Principal Account from time to time the amounts required to be deposited therein pursuant to Section 5.02. There shall additionally be deposited in the Interest Account the portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. (b) On each Interest Payment Date, the Trustee shall withdraw from the Interest Account for payment to the Owners of the Bonds the interest on the Bonds then due and payable. (c) On each August 1 on which principal of the Bonds is due and payable, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds, the Trustee shall withdraw from the Principal Account for payment to the Owners of the Bonds such principal then due and payable. Section 5.04. Redemption Fund. (a) The Trustee shall establish and maintain a special fund designated the “Redemption Fund.” The Trustee shall deposit in the Redemption Fund (i) amounts received from the City in connection with the City’s exercise of its rights to optionally redeem Series 2021 Bonds pursuant to Section 4.01, and (ii) amounts required to be deposited therein pursuant to any Supplemental Indenture. (b) Amounts in the Redemption Fund shall be disbursed therefrom for the payment of the Redemption Price of Series 2021 Bonds redeemed pursuant to Section 4.01 and for the payment of the Redemption Price of Additional Bonds redeemed pursuant to the Supplemental Indenture pursuant to which such Additional Bonds are issued (other than mandatory sinking fund redemptions thereof). Section 5.05. Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the “Rebate Fund.” There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the City. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Bonds pursuant to Article X or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate, which is hereby incorporated herein as if fully set forth herein. The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the City, and shall have no liability or responsibility to enforce compliance by the City with the terms of the Tax Certificate. The Trustee may conclusively rely upon the City’s determinations, calculations and certifications required by the Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the City’s calculations. (b) Any funds remaining in the Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon receipt by the Trustee of a Written Request of the City, be withdrawn by the Trustee and remitted to the City. 8.A.b Packet Pg. 539 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 35 4143-0702-1101.3 Section 5.06. Investment of Moneys. (a) Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in a Written Request of the City received by the Trustee no later than two Business Days prior to the making of such investment. Moneys in all such funds and accounts shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture; provided, however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds and, provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent a timely Written Request of the City with respect to the investment of moneys in any of the funds or accounts established pursuant to this Indenture held by the Trustee, the Trustee shall invest such moneys in Permitted Investments described in paragraph (7) of the definition thereof; provided, however, that any such investment shall be made by the Trustee only if, prior to the date on which such investment is to be made, the Trustee shall have received a Written Request of the City specifying a specific money market fund that satisfies the requirements of said paragraph in which such investment is to be made and, if no such Written Request of the City is so received, the Trustee shall hold such moneys uninvested. (b) Subject to the provisions of Section 5.05, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture (other than the Improvement Fund) shall be retained therein. Subject to the provisions of Section 5.05, all interest, profits or other income received from the investment of moneys in the Improvement Fund shall be transferred to the Interest Account. (c) Permitted Investments acquired as an investment of moneys in any fund or account established under this Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund or account shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each May 15 and December 15. In determining the market value of Permitted Investments, the Trustee may use and rely upon generally recognized pricing information services, including brokers and dealers in securities, available to it. (d) The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the City, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments are credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. The Trustee, in making or disposing of any investment permitted by this Section, may deal with itself (in its individual capacity) or with any one or more of its affiliates, whether it or such affiliate is acting as an agent of the Trustee or for any third person or dealing as a 8.A.b Packet Pg. 540 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 36 4143-0702-1101.3 principal for its own account but only if such dealing is not in conflict with, contrary to or in violation of any of the Trustee’s fiduciary obligations as Trustee hereunder. (e) The City acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the City the right to receive brokerage confirmations of security transactions as they occur, at no additional cost, the City specifically waives receipt of such confirmations to the extent permitted by law. The Trustee shall furnish the City periodic cash transaction statements, which shall include detail for all investment transactions made by the Trustee hereunder. 8.A.b Packet Pg. 541 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 37 4143-0702-1101.3 ARTICLE VI COVENANTS Section 6.01. Compliance with Indenture. The City shall faithfully observe and perform all the agreements, conditions, covenants and terms contained herein required to be observed and performed by it. Section 6.02. Punctual Payment. The City shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Net Revenues and other assets pledged for such payment as provided in this Indenture and received by the City or the Trustee. Section 6.03. Extension of Payment of Bonds. The City shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the City to issue Bonds for the purpose of refunding any Outstanding Bonds in accordance with the provisions hereof, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 6.04. Against Encumbrances. (a) The City shall not mortgage or otherwise encumber, pledge or place any charge upon the Enterprise or any part thereof, or upon any of the Revenues that would impair the City’s ability to comply with its obligations under this Indenture. (b) The City shall not incur obligations payable from the Revenues or Net Revenues or secured by a pledge, lien or charge upon the Revenues or Net Revenues, except as provided herein. Section 6.05. Against Sale or Other Disposition of Property. (a) The City shall not sell, lease or otherwise dispose of the Enterprise or any part thereof essential to the proper operation of the Enterprise or to the maintenance of the Revenues; provided, however, that any real or personal property which has become non-operative or that is not needed for the efficient and proper operation of the Enterprise, or any material or equipment that has become worn out, may be sold if such sale will not materially reduce the Net Revenues and if the proceeds of such sale are deposited in the Water Fund. (b) The City shall not enter into any agreement or lease that would (i) impair the operation of the Enterprise or any part thereof necessary to secure adequate Net Revenues for the payment of the Bonds, (ii) impair the rights of the Trustee with respect to the Net Revenues, or (iii) otherwise materially impair the operation of the Enterprise. Notwithstanding the foregoing, the City may sell or lease the Enterprise or any part thereof if (A) the Enterprise or such part thereof is sold or leased to another local governmental agency or to a nonprofit corporation that 8.A.b Packet Pg. 542 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 38 4143-0702-1101.3 is organized for the purpose of assisting one or more local governmental agencies in financing or refinancing capital projects, (B) in the case of a sale of the Enterprise or a part thereof, the City, as part of that same sale transaction, simultaneously repurchases the Enterprise or such part thereof, (C) in the case of a lease of the Enterprise or a part thereof, the City, as part of that same lease transaction, simultaneously leases back, for a term that is not substantially less than the term of such lease, the Enterprise or such part thereof, and (D) the net financing proceeds obtained by the City from such sale and repurchase or lease and lease back are used by the City, or set aside for use by the City, either to pay for improvements to the Enterprise or to refund or refinance Bonds. Section 6.06. Operation and Maintenance of the Enterprise. The City shall maintain and preserve the Enterprise in good repair and working order at all times and will operate the Enterprise in an efficient and economical manner and shall pay all of its Operation and Maintenance Costs as they become due and payable, but the City shall not be required to pay such Operation and Maintenance Costs if the validity thereof shall be contested in good faith, so long as such nonpayment will not materially adversely affect the City’s ability to perform its obligations hereunder. Section 6.07. Budgets; Books and Records; Audits. (a) On or before August 1 of each Fiscal Year, commencing August 1, 2022, the City shall adopt a budget approved by the City Council of the City that appropriates amounts for the payment of the Bonds payable during such Fiscal Year. (b) The City shall keep adequate books and records of accounts in which complete and correct entries shall be made. (c) The City shall have its books and records for each Fiscal Year audited by an independent certified public accountant or firm of such accountants as having been prepared in accordance with Generally Accepted Accounting Principles, which audit the City shall use its best efforts to have completed no later than the December 31 next occurring after the end of such Fiscal Year, Section 6.08. Amounts of Rates and Charges. (a) The City shall, to the extent permitted by applicable law, fix, prescribe and collect rates and charges for the services of the Enterprise that will be at least sufficient to yield during each Fiscal Year (i) Revenues of the City for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to this Indenture to be made in such Fiscal Year, including (A) payments of Operation and Maintenance Costs, and (B) all transfers required by Section 5.02(c), and (ii) a Debt Service Coverage Ratio for such Fiscal Year of not less than 1.20:1. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Revenues and Debt Service Coverage Ratio from such reduced rates and charges will at all times be sufficient to meet the requirements of this Section. (b) The City shall not be in default under this Section if it fails to satisfy the requirements set forth in subsection (a) of this Section for a Fiscal Year, so long as (i) the City has satisfied the requirements of clause (i) of subsection (a) of this Section for such Fiscal Year, 8.A.b Packet Pg. 543 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 39 4143-0702-1101.3 and (ii) the City has delivered to the Trustee, no later than 90 days after the end of such Fiscal Year, a written report describing the cause or causes of such failure and describing the measures that the City has taken or is in the process of taking in order to prevent such a failure in the Fiscal Year next succeeding such Fiscal Year; provided, however, that the City shall be in default under this Section if it fails to satisfy the requirements set forth in subsection (a) of this Section for two consecutive Fiscal Years. Section 6.09. Payment of Claims. The City shall pay and discharge any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien on Net Revenues or any part thereof or on any funds in the hands of the City, but the City shall not be required to pay such claims if the validity thereof shall be contested in good faith, so long as such nonpayment will not materially adversely affect the City’s ability to perform its obligations hereunder. Section 6.10. Compliance with Contracts. The City shall comply with, keep, observe and perform all agreements, conditions, covenants and terms, express or implied, required to be performed by it contained in all contracts for the use of the Enterprise and all other contracts affecting or involving the Enterprise to the extent that the City’s failure to so comply, keep, observe or perform would have a material adverse effect on the City’s ability to perform its obligations hereunder. Section 6.11. Insurance. (a) The City shall procure and maintain or cause to be procured and maintained casualty insurance on the Enterprise with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), in such amounts and against such risks, including accident to or destruction of the Enterprise, as are reasonably determined by the City to provide, in the event of any damage to or destruction of any material portion of the Enterprise, sufficient Net Revenues to reconstruct, repair or replace the damaged or destroyed portion of the Enterprise. In the event of any damage to or destruction of any material portion of the Enterprise caused by the perils covered by such insurance or self-insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Enterprise. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Enterprise shall be free and clear of all claims and liens, unless the City determines that such damaged or destroyed portion of the Enterprise is not necessary to the efficient or proper operation of the Enterprise and therefore determines not to reconstruct, repair or replace such damaged or destroyed portion. If either (i) the City determines not to reconstruct, repair or replace such damaged or destroyed portion of the Enterprise, or (ii) such Net Proceeds exceed the costs of such reconstruction, repair or replacement, then the excess Net Proceeds shall be deposited in the Water Fund and be available for other proper uses of funds deposited in the Water Fund. (d) The City shall procure and maintain or cause to be procured and maintained standard comprehensive general liability insurance in protection of the City and its directors, officers, agents and employees with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), which insurance shall provide for indemnification of said parties against direct or contingent loss or 8.A.b Packet Pg. 544 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 40 4143-0702-1101.3 liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Enterprise in such amounts as are reasonably determined by the City to protect the City and said parties against such risks. Section 6.12. Eminent Domain Proceeds. If all or any part of the Enterprise shall be taken by eminent domain proceedings, the Net Proceeds thereof shall be applied to the replacement of the property or facilities so taken, unless the City determines that such property or facility is not necessary to the efficient or proper operation of the Enterprise and therefore determines not to replace such property or facilities. Any Net Proceeds of such award not applied to such replacement, or remaining after such work has been completed, shall be deposited in the Water Fund and be available for other proper uses of funds deposited in the Water Fund. Section 6.13. Protection of Security and Rights of Owners. The City shall preserve and protect the security hereof and the rights of the Trustee and the Owners hereunder and the payments required to be made by the City hereunder and shall warrant and defend such rights against all claims and demands of all Persons. Section 6.14. Payment of Taxes and Compliance with Governmental Regulations. The City shall pay and discharge all taxes, assessments and other governmental charges that may hereafter be lawfully imposed upon the Enterprise or any part thereof or upon the Revenues when the same shall become due, but the City shall not be required to pay any such tax, assessment or other governmental charge if the validity thereof shall be contested in good faith, so long as such nonpayment will not materially adversely affect the City’s ability to perform its obligations hereunder. The City shall duly observe and comply with all valid regulations and requirements of any governmental authority relative to the operation of the Enterprise or any part thereof, but the City shall not be required to comply with any regulations or requirements so long as the validity or application thereof shall be contested in good faith. Section 6.15. Collection of Rates and Charges; No Free Service. The City shall have in effect at all times rules and regulations for the payment of bills for services of the Enterprise. The City shall not permit any part of the Enterprise or any facility thereof to be used or taken advantage of free of charge by any Person, or by any public agency (including the United States of America, the State and any city, county, district, political subdivision, public authority or agency of any thereof), except (a) to the extent that any such free use is required by the terms of any existing contract, agreement or arrangement, or (b) for incidental insignificant free use so long as such free use does not prevent the City from satisfying its other covenants under this Indenture, including Section 6.08. Section 6.16. Against Competitive Facilities. The City shall not, to the extent permitted by law, acquire, purchase, maintain or operate and will not, to the extent permitted by law and within the scope of its powers, permit any other public or private agency, corporation, district or political subdivision or any Person whomsoever to acquire, purchase, maintain or operate any water system competitive with the Enterprise, unless the City Council of the City determines by resolution that any such actions with respect to competitive facilities will not materially adversely affect the ability of the City to fulfill its obligations under this Indenture. 8.A.b Packet Pg. 545 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 41 4143-0702-1101.3 Section 6.17. Tax Covenants. (a) The City shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Series 2021 Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the City shall comply with the requirements of the Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Series 2021 Bonds. (b) In the event that at any time the City is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the City shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the City shall provide to the Trustee an opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Series 2021 Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.18. Continuing Disclosure. The City shall comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of this Indenture, failure of the City to comply with the Continuing Disclosure Certificate shall not constitute an Event of Default hereunder; provided, however, that the Trustee may (and, at the written direction of the Participating Underwriters or the Owners of at least 25% of the aggregate principal amount of Outstanding Series 2021 Bonds, and upon receipt of indemnification reasonably satisfactory to the Trustee, shall) or any Owner or Beneficial Owner of the Series 2021 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.19. Further Assurances. The City shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the rights and benefits provided in this Indenture. 8.A.b Packet Pg. 546 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 42 4143-0702-1101.3 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. (a) The following events shall be Events of Default: (i) failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise; (ii) failure to pay any installment of interest on any Bonds when and as the same shall become due and payable; (iii) failure by the City to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 30 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the City by the Trustee, or to the City and the Trustee by the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, that, if in the reasonable opinion of the City the failure stated in the notice can be corrected, but not within such 30 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the City within such 30 day period and the City shall thereafter diligently and in good faith cure such failure in a reasonable period of time, provided, further, that, unless otherwise consented to by the Trustee, such period of time shall not exceed 180 days; or (iv) the commencement by the City of a voluntary case under Title 11 of the United States Code or any substitute or successor statute. (b) If an Event of Default shall have occurred, the City shall, as soon as practicable, and in any event within ten days after the occurrence of such Event of Default, notify the Trustee of the occurrence such Event of Default, which notice shall state the nature of such event and the action that the City proposes to take with respect thereto. (c) If an Event of Default shall have occurred and be continuing, the City shall, upon demand of the Trustee, account, as if it were the trustee of an express trust, for all Revenues of and all other amounts held in the Water Fund for such period as shall be stated in such demand. Section 7.02. Acceleration; Annulment of Acceleration. If the City is in default under any Parity Debt and, in accordance with the terms of the Obligation Instrument pursuant to which such Parity Debt was incurred, such Parity Debt is accelerated, then the entire principal amount of the Bonds, and the accrued interest thereon, shall become immediately due and payable, anything contained herein to the contrary notwithstanding, with, to the extent permitted by law, interest on such accelerated amount at a rate per annum equal to the highest rate borne by the Bonds. If any Parity Debt is accelerated, the City shall immediately provide the Trustee with written notice thereof. If at any time after the entire principal amount of the Bonds, and the accrued interest thereon, shall have been so accelerated and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, all accelerations of Parity 8.A.b Packet Pg. 547 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 43 4143-0702-1101.3 Debt shall have been rescinded, then and in every such case the Trustee, by written notice to the City, shall rescind and annul the acceleration of the Bonds and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default by the City or shall impair or exhaust any right or power consequent thereon. Section 7.03. Remedies. If an Event of Default shall have occurred and be continuing, the Trustee shall have the right: (a) by mandamus, suit, action or proceeding, to compel the City and its officers, agents or employees to perform each and every term, provision and covenant contained in this Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the City and the fulfillment of all duties imposed upon it by this Indenture and the Revenue Bond Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the rights of the Trustee or the Owners; (c) by suit, action or proceeding in any court of competent jurisdiction, to require the City and its officers and employees to account as if it and they were the trustees of an express trust; or (d) by suit, action or proceeding in any court of competent jurisdiction, to have a receiver or receivers appointed for the Enterprise and of the issues, earnings, income, products and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer. Section 7.04. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy or remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.05. Application of Net Revenues After Default. If an Event of Default shall occur and be continuing, the City shall apply all Net Revenues then and thereafter held by it, with respect to Parity Obligations, to payment of the Obligees of the Parity Obligations and, with respect to Subordinate Obligations, to Person or Persons to whom payments under such Subordinate Obligations are payable, in accordance with the rights and interests, in timing and amount of such Obligees and Persons. If an Event of Default shall occur and be continuing, the Trustee shall apply all Net Revenues and any other funds thereafter received by the Trustee under any of the provisions of this Indenture, as follows: (a) unless all Outstanding Bonds have become, or have been declared to be, due and payable, or if such declaration has been annulled in accordance with the provisions of this Article: 8.A.b Packet Pg. 548 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 44 4143-0702-1101.3 First: to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; Second: to the payment to the Persons entitled thereto of all installments of interest on the Bonds then due in the order of the maturity of such installments and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Third: to the payment to the Persons entitled thereto of all installments of principal of the Bonds then due, whether at maturity or by call for redemption or prepayment, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference (b) if all Outstanding Bonds have become, or have been declared to be, due and payable and such declaration has not been annulled in accordance with the provisions of this Article: First: to the payment of any expenses incurred by the Trustee necessary in the opinion of the Trustee to protect the interests of the Bonds and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; and Second: to the payment to the Persons entitled thereto of all amounts due and payable with respect the Bonds as a result of such acceleration until all such Bonds have been paid in full and, if the amount available shall not be sufficient to pay in full the whole amount due and unpaid on each such Bond, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference. Section 7.06. Power of Trustee to Enforce. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Indenture. Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Owner any plan of reorganization, arrangement, adjustment, or composition affecting the Bonds or the rights of any Owner thereof, or to authorize the Trustee 8.A.b Packet Pg. 549 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 45 4143-0702-1101.3 to vote in respect of the claim of any Owner in any such proceeding without the approval of the Owners so affected. Section 7.07. Owners’ Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee hereunder; provided, however, that such direction shall not be otherwise than in accordance with the provisions of this Indenture, the Revenue Bond Act and other applicable law and, provided, further, that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Section 7.08. Limitation on Owners’ Right to Sue. No Owner of any Bond shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Revenue Bond Act or any other applicable law with respect to such Bond, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by such Owner’s or Owners’ action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners, or to enforce any right under the Bonds, this Indenture, the Revenue Bond Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners, subject to the provisions of this Indenture. Section 7.09. Absolute Obligation. Nothing in this Indenture or the Bonds contained shall affect or impair the obligation of the City, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners as the same become due, as herein provided, but only out of the Net Revenues and other assets pledged therefor hereunder, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Section 7.10. Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Owners, then in every such case the City, the Trustee and the Owners, subject to any 8.A.b Packet Pg. 550 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 46 4143-0702-1101.3 determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the City, the Trustee and the Owners shall continue as though no such proceedings had been taken. Section 7.11. No Waiver of Default. No delay or omission of the Trustee or of any Owner to exercise any right or power arising upon the occurrence of any default or Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or Event of Default or an acquiescence therein, and every power and remedy given by this Indenture to the Trustee or to the Owners may be exercised from time to time and as often as may be deemed expedient. 8.A.b Packet Pg. 551 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 47 4143-0702-1101.3 ARTICLE VIII TRUSTEE Section 8.01. Duties and Liabilities of Trustee. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default that may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default that has not been cured or waived, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs. Section 8.02. Qualifications; Removal and Resignation; Successors. (a) The Trustee initially a party hereto and any successor thereto shall at all times be a trust company, national banking association or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, which is (or if such trust company, national banking association or bank is a member of a bank holding company system, its parent bank holding company is) (i) a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $250 million of assets, or (ii) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets. If such trust company, national banking association or bank publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such trust company, national banking association or bank shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) The City may, by an instrument in writing, upon at least 30 days’ notice to the Trustee, remove the Trustee initially a party hereto and any successor thereto unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee initially a party hereto and any successor thereto if (i) at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing), or (ii) the Trustee shall cease to be eligible in accordance with subsection (a) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee. (c) The Trustee may at any time resign by giving written notice of such resignation by first-class mail, postage prepaid, to the City, and to the Owners at the respective addresses shown on the Registration Books. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of subsection (a) of this Section, the Trustee shall resign immediately in the manner and with the effect specified in this Section. (d) Upon removal or resignation of the Trustee, the City shall promptly appoint a successor Trustee by an instrument in writing. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by 8.A.b Packet Pg. 552 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 48 4143-0702-1101.3 the successor Trustee; provided, however, that any successor Trustee shall be qualified as provided in subsection (a) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following notice of removal or notice of resignation as aforesaid, the removed or resigning Trustee or any Owner (on behalf of such Owner and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice, if any, as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the City and to its predecessor Trustee a written acceptance thereof, and thereupon such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the City or the request of the successor Trustee, such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the successor Trustee shall, within 15 days after such acceptance, mail, by first-class mail postage prepaid, a notice of the succession of such Trustee to the trusts hereunder to the Owners at the addresses shown on the Registration Books. (e) Any trust company, national banking association or bank into which the Trustee may be merged or converted or with which it may be consolidated or any trust company, national banking association or bank resulting from any merger, conversion or consolidation to which it shall be a party or any trust company, national banking association or bank to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such trust company, national banking association or bank shall be eligible under subsection (a) of this Section, shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the City and the Trustee shall not assume responsibility for the correctness of the same or incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture and the Trustee shall incur no responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the City or others in accordance with this Indenture. 8.A.b Packet Pg. 553 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 49 4143-0702-1101.3 (c) The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. (d) No provision of this Indenture or any other document related hereto shall require the Trustee to risk or advance its own funds. (e) The Trustee may execute any of its powers or duties hereunder through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. (f) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (g) The immunities and protections extended to the Trustee also extend to its directors, officers, employees and agents. (h) Before taking action under Article VII, under this Article or upon the direction of the Owners, the Trustee may require indemnity satisfactory to the Trustee be furnished to it to protect it against all fees and expenses, including those of its attorneys and advisors, and protect it against all liability it may incur. (i) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (j) The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a majority in aggregate principal amount of the Bonds then Outstanding. (k) The Trustee shall have no responsibility with respect to any information, statement, or recital in any official statement, offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (l) The Trustee shall not be liable for the failure to take any action required to be taken by it hereunder if and to the extent that the Trustee’s taking such action is prevented by reason of an act of God, terrorism, war, riot, strike, fire, flood, earthquake, epidemic or other, similar occurrence that is beyond the control of the Trustee and could not have been avoided by exercising due care. (m) The Trustee shall not be deemed to have knowledge of an Event of Default hereunder unless it has actual knowledge thereof. 8.A.b Packet Pg. 554 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 50 4143-0702-1101.3 (n) The permissive right of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and it shall not be answerable for other than its negligence or willful misconduct. (o) The Trustee shall not be responsible for or accountable to anyone for the subsequent use or application of any moneys that shall be released or withdrawn in accordance with the provisions hereof. Section 8.04. Right to Rely on Documents and Opinions. (a) The Trustee shall be protected in acting upon any notice, requisition, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The Trustee shall have the right to accept and act upon a Written Request of the City delivered using Electronic Means. If the City elects to deliver a Written Request of the City to the Trustee using Electronic Means and the Trustee acts upon such Written Request, the Trustee’s understanding of such Written Request shall be deemed controlling. The City understands and agrees that the Trustee cannot determine the identity of the actual sender of such Written Request and that the Trustee shall conclusively presume that Written Requests of the City that purport to have been sent by an Authorized Representative of the City have been sent by such Authorized Representative. The City shall be responsible for ensuring that only Authorized Representatives transmit such Written Requests of the City to the Trustee and that the City is solely responsible to safeguard the use and confidentiality of applicable user and authorization codes, passwords and/or authentication keys upon receipt thereof by the City. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee’s reliance upon and compliance with such Written Requests of the City delivered using Electronic Means notwithstanding such directions conflict or are inconsistent with a subsequent written Written Request of the City. The City agrees (i) to assume all risks arising out of the use of Electronic Means to submit Written Requests of the City to the Trustee, including without limitation the risk of the Trustee acting on unauthorized Written Requests of the City, and the risk of interception and misuse by third parties, (ii) that it is fully informed of the protections and risks associated with the various methods of transmitting Written Requests of the City to the Trustee and that there may be more secure methods of transmitting Written Requests of the City than the method selected by the City, (iii) that the security procedures, if any, to be followed in connection with its transmission of Written Requests of the City provide to it a commercially reasonable degree of protection in light of its particular needs and circumstances, and (iv) to notify the Trustee immediately upon learning of any compromise or unauthorized use of the security procedures. Notwithstanding the foregoing, the provisions of this subsection, and the Trustee’s actions pursuant hereto, are subject to the Trustee’s standard of care and limitations on liability set forth in Sections 8.03 and 8.04; provided, however, that the Trustee’s reliance on a Written Request of the City that purports to have been sent by an Authorized Representative of the City delivered in accordance with this Section using Electronic Means shall not, in and of itself, be construed as negligence. (c) Whenever in the administration of the duties imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be 8.A.b Packet Pg. 555 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 51 4143-0702-1101.3 herein specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the City, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. (d) The Trustee may consult with counsel, who may be counsel to the City, with regard to legal questions, including with respect to compliance herewith of amendments hereto or to the Lease Agreement or the Ground Lease, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Section 8.05. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with prudent corporate trust industry standards, in which accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Lease Revenues received by it and all funds and accounts established by it pursuant to this Indenture. Such books of record and account shall be available for inspection by the City during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by the Trustee. The Trustee shall deliver to the City a monthly accounting of the funds and accounts it holds under this Indenture; provided, however, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (a) has a balance of zero, and (b) has not had any activity since the last reporting date. Section 8.06. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during business hours and upon reasonable notice to the inspection of the City, the Owners and their agents and representatives duly authorized in writing. Section 8.07. Compensation and Indemnification of the Trustee. The City shall pay to the Trustee from time to time all reasonable compensation pursuant to a pre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre-approved fee letter and other disbursements pursuant to a pre-approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. The City shall, to the extent permitted by law, indemnify and save the Trustee and its officers, directors and employees harmless against any costs, suits, judgments, damages, liabilities, claims, expenses, including legal fees and expenses, and liabilities that it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and that are not due to its negligence or its willful misconduct. The duty of the City to indemnify the Trustee shall survive the resignation or removal of the Trustee and the discharge and satisfaction of this Indenture. 8.A.b Packet Pg. 556 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 52 4143-0702-1101.3 ARTICLE IX SUPPLEMENTAL INDENTURES Section 9.01. Supplemental Indentures. (a) This Indenture and the rights and obligations of the City, the Trustee and the Owners hereunder may be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into when there are filed with the Trustee the written consents of the Owners of a majority of the aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in Section 11.07. No such modification or amendment shall (i) extend the fixed maturity of any Bond, reduce the amount of principal thereof or the rate of interest thereon, extend the time of payment thereof or alter the redemption provisions thereof, without the prior written consent of the Owner of each Bond so affected, (ii) permit any pledge of, or the creation of any lien on, security interest in or charge or other encumbrance upon the assets pledged under this Indenture prior to or on a parity with the pledge contained in, and the lien and security interest created by, this Indenture or deprive the Owners of the pledge contained in, and the lien and security interest created by, this Indenture, except as expressly provided in this Indenture, without the prior written consents of the Owners of all Bonds then Outstanding, or (iii) modify or amend this Section without the prior written consents of the Owners of all Bonds then Outstanding. (b) This Indenture and the rights and obligations of the City, the Trustee and the Owners hereunder may also be modified or amended from time to time and at any time by a Supplemental Indenture, which the City and the Trustee may enter into without the consent of any Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the City in this Indenture contained, other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the City; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder; (iii) to provide for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of Article III; (iv) to permit the qualification of this Indenture under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect; (v) to cause interest on Tax-Exempt Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and 8.A.b Packet Pg. 557 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 53 4143-0702-1101.3 (vi) in any other respect whatsoever as the City may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the rights or interests of the Owners hereunder. (c) Promptly after the execution by the City and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the City), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the City, the Trustee and the Owners shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the effective date of any Supplemental Indenture pursuant to this Article may and, if the City so determines, shall bear a notation by endorsement or otherwise in form approved by the City and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date and presentation of such Bond for such purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the City and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the City and authenticated by the Trustee and, in that case, upon demand of the Owner of any Bond Outstanding at the time of such effective date, and presentation of such Bond for such purpose at the Office of the Trustee, such a new Bond in equal principal amount of the same Series, interest rate and maturity shall be exchanged for such Owner’s Bond so surrendered. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Owner from accepting any amendment or modification as to any particular Bond owned by it, provided that due notation thereof is made on such Bond. 8.A.b Packet Pg. 558 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 54 4143-0702-1101.3 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. (a) If the City shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners shall cease to be entitled to the pledge of the Net Revenues and the other assets pledged therefor hereunder, and all agreements, covenants and other obligations of the City hereunder shall thereupon cease, terminate and become void and this Indenture shall be discharged and satisfied. In such event, the Trustee shall execute and deliver to the City all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the City all money or securities held by it pursuant hereto that are not required for the payment of the principal of and interest and premium, if any, on the Bonds. (b) Subject to the provisions of subsection (a) of this Section, if the City shall pay or cause to be paid to the Owner of an Outstanding Bond the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, such Owner shall cease to be entitled to the pledge of the Net Revenues and the other assets pledged therefor hereunder and all agreements, covenants and other obligations of the City hereunder shall thereupon cease, terminate and become void and this Indenture shall be discharged and satisfied as to such Bond. (c) Notwithstanding the discharge and satisfaction of this Indenture or the discharge and satisfaction of this Indenture in respect of any Bond, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owner of such Bond, and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on such Bond, and to pay to the Owner of such Bond the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the discharge and satisfaction of this Indenture, the obligation of the City to indemnify the Trustee pursuant to Section 8.07 shall remain in effect and be binding upon the City. Section 10.02. Bonds Deemed To Have Been Paid. (a) If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bond and the payment of the interest thereon to the maturity or redemption date thereof, such Bond shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01. Any Outstanding Bond shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 if (i) in case such Bond is to be redeemed on any date prior to its maturity date, the City shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.02, notice of redemption of such Bond on said redemption date, said notice to be given in accordance with Section 4.02, (ii) there shall have been deposited with the 8.A.b Packet Pg. 559 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 55 4143-0702-1101.3 Trustee either (A) money in an amount which shall be sufficient, or (B) Defeasance Securities, the principal of and the interest on which when due, and without any reinvestment thereof, together with the money, if any, deposited therewith, will provide moneys which shall be sufficient to pay when due the interest to become due on such Bond on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bond, and (iii) in the event such Bond is not by its terms subject to redemption within the next succeeding 60 days, the City shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the Owner of such Bond that the deposit required by clause (ii) above has been made with the Trustee and that such Bond is deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bond. (b) No Bond shall be deemed to have been paid pursuant to clause (ii) of subsection (a) of this Section unless the City shall have caused to be delivered to the City and the Trustee (i) an executed copy of a Verification Report with respect to such deemed payment, addressed to the City and the Trustee, in form and in substance acceptable to the City, (ii) a copy of the escrow agreement entered into in connection with the deposit pursuant to clause (ii)(B) of subsection (a) of this Section resulting in such deemed payment, which escrow agreement shall be in form and in substance acceptable to the City and which escrow agreement shall provide that no substitution of Defeasance Securities shall be permitted except with other Defeasance Securities and upon delivery of a new Verification Report, and no reinvestment of Defeasance Securities shall be permitted except as contemplated by the original Verification Report or upon delivery of a new Verification Report, and (iii) a copy of an opinion of Bond Counsel, dated the date of such deemed payment and addressed to the City and the Trustee, in form and in substance acceptable to the City, to the effect that such Bond has been paid within the meaning and with the effect expressed in this Indenture, all agreements, covenants and other obligations of the City hereunder have ceased, terminated and become void and the Indenture has been discharged and satisfied as to such Bonds. Section 10.03. Unclaimed Moneys. Any moneys held by the Trustee in trust for the payment of the principal of, or premium or interest on, any Bond that remain unclaimed for two years after the date when such principal, premium or interest has become payable, if such moneys were held by the Trustee at such date, or for two years after the date of deposit of such moneys if deposited with the Trustee after the date when such principal, premium or interest become payable, shall be repaid by the Trustee to the City as its absolute property free from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owner of such Bond shall look only to the City for the payment of such principal, premium or interest. The Trustee shall hold any such moneys uninvested. 8.A.b Packet Pg. 560 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 56 4143-0702-1101.3 ARTICLE XI MISCELLANEOUS Section 11.01. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the City or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained required hereby to be performed by or on behalf of the City or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.02. Limitation of Rights. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Trustee, the City and the Owners, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Trustee, the City and the Owners. Section 11.03. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the City of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.04. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. The City hereby declares that it would have entered into this Indenture and each and every other Section, subsection, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.05. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the City: City of Santa Monica 1685 Main Street, Mail Stop 9 Santa Monica, California 90401 Attention: Director of Finance 8.A.b Packet Pg. 561 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 57 4143-0702-1101.3 If to the Trustee: U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, California 90071 Attention: Corporate Trust Department Each such notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender’s receipt of an appropriate answerback or other written acknowledgment, (c) if given by electronic mail, on the date sent, but only if confirmation of the receipt of such electronic mail is received or if notice is concurrently sent by another means specified herein, (d) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (e) if given by any other means, upon delivery at the address specified in this Section. Section 11.06. Evidence of Rights of Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Owners in person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and the City if made in the manner provided in this Section. The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to such notary public or such officer the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the City in accordance therewith or reliance thereon. Section 11.07. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds that are actually known by the Trustee to be owned or held by or for the account of the City, or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided, however, that if 100% of the Bonds are so 8.A.b Packet Pg. 562 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 58 4143-0702-1101.3 owned or held, such Bonds shall be deemed to be Outstanding. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee’s right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the City or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Upon request of the Trustee, the City shall specify in a Written Certificate of the City delivered to the Trustee which Bonds, if any, are, as of the date of such Written Certificate, owned or held by or for the account of the City. Section 11.08. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owner entitled thereto, subject, however, to the provisions of Section 10.03, but without any liability for interest thereon. Section 11.09. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account, but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with prudent corporate trust industry standards, and with due regard for the requirements hereof and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish any such additional funds or accounts as it deems necessary to perform its obligations hereunder. Section 11.10. Business Days. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Indenture, shall not be a Business Day, such payment may be made or act performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the nominal date provided in this Indenture and, unless otherwise specifically provided in this Indenture, no interest shall accrue for the period from and after such nominal date. Section 11.11. Waiver of Personal Liability. No member, officer, agent or employee of the City or the City shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof, but nothing herein contained shall relieve any such member, officer, agent or employee from the performance of any official duty provided by any applicable provision of law or by this Indenture. Section 11.12. Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Revenue Bond Act relative to their issuance. Section 11.13. Governing Laws. This Indenture shall be governed by and construed in accordance with the laws of the State. 8.A.b Packet Pg. 563 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 59 4143-0702-1101.3 Section 11.14. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Indenture may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Indenture using an electronic signature, it is signing, adopting, and accepting this Indenture and that signing this Indenture using an electronic signature is the legal equivalent of having placed its handwritten signature on this Indenture on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Indenture in a usable format. Section 11.15. Execution in Several Counterparts. This Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. 8.A.b Packet Pg. 564 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing 4143-0702-1101.3 IN WITNESS WHEREOF, the City has caused this Indenture to be signed in its name by its representative thereunto duly authorized, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF SANTA MONICA By: ATTEST: ____________________________________ Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: George S. Cardona, Interim City Attorney U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE By: [Signature Page to Indenture] 8.A.b Packet Pg. 565 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing A-1 4143-0702-1101.3 EXHIBIT A PERMITTED INVESTMENTS “Permitted Investments” means the following: (1) Direct general obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury of the United States of America); (2) Obligations of any of the following federal agencies, which obligations represent the full faith and credit of the United States of America, including: - Export-Import Bank - Rural Economic Community Development Administration - U.S. Maritime Administration - Small Business Administration - U.S. Department of Housing & Urban Development (PHAs) - Federal Housing Administration - Federal Financing Bank; (3) Direct obligations of any of the following federal agencies, which obligations are not fully guaranteed by the full faith and credit of the United States of America: - Senior debt obligations issued by the Federal National Mortgage Association (FNMA), Federal Farm Credit Bank (FFCB), or Federal Home Loan Mortgage Corporation (FHLMC) - Obligations of the Resolution Funding Corporation (REFCORP) - Senior debt obligations of the Federal Home Loan Bank System; (4) U.S. dollar denominated deposit accounts, demand deposits, including time deposits, trust funds, trust accounts, overnight bank deposits, interest-bearing deposits, other deposit products, certificates of deposit, including those placed by a third party pursuant to an agreement between the Trustee and the City, federal funds and bankers’ acceptances with domestic commercial banks (which may include the Trustee and its affiliates) that have a rating on their short term certificates of deposit on the date of purchase of “P-1” by Moody’s and “A-1” or “A-1+” by S&P and maturing not more than 360 calendar days after the date of purchase (ratings on holding companies are not considered as the rating of the bank); (5) Commercial paper that is rated at the time of purchase in the single highest classification, “P-1” by Moody’s and “A-1+” by S&P and that matures not more than 270 calendar days after the date of purchase; (6) Investments in a money market fund rated “AAAm” or “AAAm-G” or better by S&P, including a fund for which the Trustee, its parent holding company, if any, or any affiliates or subsidiaries of the Trustee receive and retain a fee in a reasonable amount for services provided to the fund whether as a custodian, transfer agent, investment advisor or trustee; 8.A.b Packet Pg. 566 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing A-2 4143-0702-1101.3 (7) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state that are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (a) that are rated, based on an irrevocable escrow account or fund (the “escrow”), in the highest rating category of Moody’s or S&P or any successors thereto; or (b) (i) that are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph (1) or (2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (8) Municipal obligations rated “Aa2/AA” or general obligations of states with a rating of “A2/A” or higher by both Moody’s and S&P; (9) Investment agreements with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least “Aa3” by Moody’s and “AA-” by S&P; provided, that, by the terms of the investment agreement: (a) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days’ prior notice; (b) the investment agreement shall state that it is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; (c) the Trustee or the City receive the opinion of domestic counsel that such investment agreement is legal, valid and binding and enforceable against the provider in accordance with its terms and of foreign counsel (if applicable); (d) the investment agreement shall provide that if during its term (i) the provider’s rating by either Moody’s or S&P falls below “Aa3” or “AA-,” respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (A) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of 8.A.b Packet Pg. 567 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing A-3 4143-0702-1101.3 entries on the provider’s books) to the Trustee or a holder of the collateral, collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to Moody’s and S&P to maintain an “A” rating in an “A” rated structured financing (with a market value approach); or (B) repay the principal of and accrued but unpaid interest, on the investment, and (ii) the provider’s rating by either Moody’s or S&P is withdrawn or suspended or falls below “A3” or “A-,” respectively, the provider must, at the direction of the City or the Trustee, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the Trustee; (e) the investment agreement shall state, and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the holder of collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the holder of collateral is in possession); and (f) the investment agreement must provide that if during its term (i) the provider shall default in its payment obligations, the provider’s obligations under the investment agreement shall, at the direction of the City or the Trustee, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Trustee, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc., the provider’s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Trustee. (10) Investments in the Local Agency Investment Fund created pursuant to Section 16429.1 of the California Government Code. Except as described in paragraph (6) above, ratings of Permitted Investments referred to herein shall be determined at the time of purchase of such Permitted Investments and without regard to rating subcategories. The Trustee shall have no responsibility to monitor the ratings of Permitted Investments after the initial purchase of such Permitted Investments or the responsibility to validate the ratings of Permitted Investments prior to the initial purchase. 8.A.b Packet Pg. 568 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-1 4143-0702-1101.3 EXHIBIT B FORM OF SERIES 2021 BOND No. _____ $____________ CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BOND SERIES 2021 INTEREST RATE MATURITY DATE DATED DATE CUSIP _____% August 1, 20__ ______, 2021 __________ REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Santa Monica (the “City”), for value received, hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the “Registered Owner”), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Interest Rate identified above in like lawful money from the date hereof payable semiannually on February 1 and August 1 in each year, commencing February 1, 2022 (the “Interest Payment Dates”), until payment of such Principal Amount in full. This Bond is one of a series of a duly authorized issue of bonds designated “City of Santa Monica Water Enterprise Revenue Bonds, Series 2021” (the “Series 2021 Bonds”) in the aggregate principal amount of $__________. The Series 2021 Bonds are issued pursuant to the Indenture, dated as of _____________ 1, 2021 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (said entity or any successor thereto as trustee under the Indenture, the “Trustee”), and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. The Indenture is entered into, and this Bond is issued under, the City of Santa Monica Revenue Bond Act and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Pursuant to and as more particularly provided in the Indenture, additional bonds (“Additional Bonds”) may be issued by the City on a parity with the Series 2021 Bonds. The Series 2021 Bonds and any Additional Bonds are collectively referred to as the “Bonds.” Furthermore, pursuant to and as more particularly provided in the Indenture, Parity Debt may be incurred by the City on a parity with the Series 2021 Bonds. 8.A.b Packet Pg. 569 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-2 4143-0702-1101.3 Interest on the Series 2021 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2021 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon shall be payable from such Interest Payment Date, (ii) a Series 2021 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series 2021 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Series 2021 Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series 2021 Bond that is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series 2021 Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. The principal of the Series 2021 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Bonds are special, limited obligations of the City, payable, as provided in the Indenture, solely from Net Revenues and the other assets pledged therefor thereunder. The Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. Pursuant to and as more particularly provided in the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds and the Parity Debt in accordance with their terms and the provisions of the Indenture, the City pledges to the Obligees, and grants thereto a lien on and a security interest in, all of the Net Revenues. Said pledge constitutes a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the City, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. Pursuant to and as more particularly provided in the Indenture, subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms and the provisions of the Indenture, the City pledges to the Owners, and grants thereto a lien on and a security interest in, all of the amounts held in the Bond Fund and the Redemption Fund. Said pledge constitutes a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the City, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in 8.A.b Packet Pg. 570 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-3 4143-0702-1101.3 accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The Series 2021 Bonds are subject to redemption on the dates, at the Redemption Prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Series 2021 Bond or any portion thereof shall be given as provided in the Indenture. The Series 2021 Bonds are issuable as fully registered Bonds without coupons in Authorized Denominations ($5,000 and any integral multiple thereof). Any Series 2021 Bond may be transferred upon the Registration Books by the Person in whose name it is registered, in person or by such Person’s duly authorized attorney, upon surrender of such Series 2021 Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Series 2021 Bond or Series 2021 Bonds shall be so surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new Series 2021 Bond or Series 2021 Bonds of the same maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Series 2021 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Series 2021 Bonds of the same maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Indenture and the rights and obligations of the City, the Owners and the Trustee may be modified or amended in the manner, to the extent, and upon the terms provided in the Indenture. The Indenture contains provisions permitting the City to make provision for the payment of the principal of and the interest and premium, if any, on any of the Bonds so that such Bonds shall no longer be deemed to be Outstanding under the terms of the Indenture. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. 8.A.b Packet Pg. 571 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-4 4143-0702-1101.3 IN WITNESS WHEREOF, the City has caused this Bond to be signed in its name and on its behalf by the manual or facsimile signature of the Mayor of the City, attested by the manual or facsimile signature of the City Clerk of the City, all as of the Dated Date identified above. CITY OF SANTA MONICA By: Mayor ATTEST: City Clerk 8.A.b Packet Pg. 572 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-5 4143-0702-1101.3 CERTIFICATE OF AUTHENTICATION This is one of the Series 2021 Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: __________ U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Officer 8.A.b Packet Pg. 573 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing B-6 4143-0702-1101.3 ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto __________________________________, whose address and social security or other tax identifying number is ____________________, the within-mentioned Bond and hereby irrevocably constitute(s) and appoint(s) ______________________________ attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature guarantee shall be made by a guarantor institution participating in the Securities Transfer Agents Medallion Program or in such other guarantee program acceptable to the Trustee. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. 8.A.b Packet Pg. 574 Attachment: Indenture Santa Monica Water Bonds 2021 Financing 4143-0702-1101 2 [Revision 1] (4615 : Adoption of Resolution Authorizing Stradling Yocca Carlson & Rauth Draft of 7/12/2021 1 4823-3083-7232v3/024112-0083 $__________ CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021 BOND PURCHASE AGREEMENT _____, 2021 City of Santa Monica 1685 Main Street, Mail Stop 09 Santa Monica, California 90401 Attention: City Manager Ladies and Gentlemen: Morgan Stanley & Co. LLC, acting on behalf of itself and as representative (the “Representative”) of Siebert Williams Shank & Co., LLC and Stifel, Nicolaus & Company, Incorporated (collectively, the “Underwriters”) offers to enter into this Bond Purchase Agreement (this “Purchase Agreement”) with the City of Santa Monica (the “City”) with regard to the Bonds described below, which Purchase Agreement, upon the acceptance hereof by the City, will be binding upon the City and the Underwriters. This offer is made subject to the written acceptance of this Purchase Agreement by the City and the delivery of such acceptance to the Representative at or prior to 11:59 p.m., California time, on the date hereof, and, if it is not so accepted, such offer may be withdrawn by the Representative upon written notice to the City by the Representative at any time before its acceptance. Capitalized terms used herein without definition shall have the meanings given to such terms in the Indenture, dated as of _____ 1, 2021 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”). The Representative represents that it has been duly authorized by the other Underwriters to act hereunder on its behalf and has full authority to take such action as it may deem advisable in respect of all matters pertaining to this Purchase Agreement and that the Representative has been duly authorized to execute this Purchase Agreement. Any action taken under this Purchase Agreement by the Representative will be binding upon all the Underwriters. Section 1. Purchase and Sale. Upon the terms and conditions and upon the basis of the representations, warranties, and agreements hereinafter set forth, the Underwriters, jointly and severally, hereby agree to purchase from the City for reoffering to the public, and the City hereby agrees to sell to the Underwriters for such purpose, all (but not less than all) of the $__________ aggregate principal amount of the City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Bonds”). The purchase price of the Bonds shall be $__________ (representing the par amount of the Bonds, [plus/less] a [net] original issue [premium/discount] of $__________, and less an Underwriters’ discount of $__________). Section 2. The Bonds and Related Documents. The Bonds shall mature on the dates and in the amounts, and will bear interest at the rates, set forth in Exhibit A hereto and as further described in the Official Statement. The Bonds shall be as described in, and shall be secured under 8.A.c Packet Pg. 575 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 2 4823-3083-7232v3/024112-0083 and pursuant to the Indenture substantially in the form previously submitted to the Underwriters with only such changes therein as shall be mutually agreed upon by the City and the Representative. The proceeds of the Bonds shall be used to (i) finance certain improvements to the Enterprise, as further described in the Official Statement and (ii) pay the costs incurred in connection with the issuance of the Bonds. The Indenture, the Continuing Disclosure Certificate, dated as of _____, 2021 (the “Continuing Disclosure Certificate”), executed and delivered by the City, and this Purchase Agreement are collectively referred to herein as the “City Documents.” Section 3. Public Offering and Establishment of Issue Price. (a) The Underwriters agree to make an initial public offering of all of the Bonds at the public offering prices (or yields) set forth on Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriters reserve the right to change the public offering prices (or yields) as the Underwriters deem necessary in connection with the marketing of the Bonds, provided that the Underwriters shall not change the interest rates set forth on Exhibit A. The Bonds may be offered and sold to certain dealers at prices lower than such initial public offering prices. The City acknowledges and agrees that: (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm’s-length commercial transaction between the City, on one hand, and the Underwriters, on the other; (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriters are and have been acting solely as principals and not as Municipal Advisors (as defined in Section 15B of The Securities Exchange Act of 1934, as amended); (iii) the Underwriters have not assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriters have provided other services or are currently providing other services to the City on other matters); (iv) the Underwriters have financial and other interests that differ from those of the City; and (v) the City has consulted its own legal, financial and other advisors to the extent it has deemed appropriate. (b) The Representative, on behalf of the Underwriters, agrees to assist the City in establishing the issue price of the Bonds and the Representative shall execute and deliver to the City at Closing an “issue price” or similar certificate, together with the supporting pricing wires or equivalent communications, substantially in the form attached hereto as Exhibit B, with such modifications as may be appropriate or necessary, in the reasonable judgment of the Representative, the City and Bond Counsel, to accurately reflect, as applicable, the sales price or prices or the initial offering price or prices to the public of the respective allotted Bonds. All actions to be taken by the City under this section to establish the issue price of the Bonds may be taken on behalf of the City by the City’s municipal advisor, Public Resources Advisory Group, Los Angeles, California (the “Municipal Advisor”) and any notice or report to be provided to the City may be provided to the Municipal Advisor. (c) Except as otherwise set forth in Exhibit A, the City will treat the first price at which 10% of each maturity of the Bonds (the “10% test”) is sold to the public as the issue price of that maturity (if different interest rates apply within a maturity, each separate CUSIP number within that maturity will be subject to the 10% test). At or promptly after the execution of this Purchase Agreement, the Representative shall report to the City the price or prices at which the Underwriters 8.A.c Packet Pg. 576 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 3 4823-3083-7232v3/024112-0083 have sold to the public each maturity of Bonds. If at that time the 10% test has not been satisfied as to any maturity of the Bonds, the Representative agrees to promptly report to the City the prices at which Bonds of that maturity have been sold by the Underwriters to the public. That reporting obligation shall continue, whether or not the Closing Date has occurred, until either (i) all Bonds of that maturity have been sold or (ii) the 10% test has been satisfied as to the Bonds of that maturity, provided that, the Underwriters’ reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Representative, the City or Bond Counsel. (d) The Representative confirms that the Underwriters have offered the Bonds to the public on or before the date of this Purchase Agreement at the offering price or prices (the “initial offering price”), or at the corresponding yield or yields, set forth in Exhibit A, except as otherwise set forth therein. Exhibit A also sets forth, identified under the column “Hold the Offering Price Rule Used,” as of the date of this Purchase Agreement, the maturities, if any, of the Bonds for which the 10% test has not been satisfied and for which the City and the Representative, on behalf of the Underwriters, agree that the restrictions set forth in the next sentence shall apply, which will allow the City to treat the initial offering price to the public of each such maturity as of the sale date as the issue price of that maturity (the “hold-the-offering-price rule”). So long as the hold-the-offering-price rule remains applicable to any maturity of the Bonds, the Underwriters will neither offer nor sell unsold Bonds of that maturity to any person at a price that is higher than the initial offering price to the public during the period starting on the sale date and ending on the earlier of the following: (i) the close of the fifth (5th) business day after the sale date; or (ii) the date on which the Underwriters have sold at least 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. The Representative shall promptly advise the City promptly after the close of the fifth (5th) business day after the sale date whether the Underwriters have sold 10% of that maturity of the Bonds to the public at a price that is no higher than the initial offering price to the public. (e) The Representative confirms that: (i) any agreement among underwriters, any selling group agreement and each third-party distribution agreement (to which the Representative is a party) relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each Underwriter, each dealer who is a member of the selling group and each broker-dealer that is a party to such third-party distribution agreement, as applicable: (A) (i) to report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Representative that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Representative, and (ii) to comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Representative and as set forth in the related pricing wires; 8.A.c Packet Pg. 577 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 4 4823-3083-7232v3/024112-0083 (B) to promptly notify the Representative of any sales of Bonds that, to its knowledge, are made to a purchaser who is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below; and (C) to acknowledge that, unless otherwise advised by the Underwriter, dealer or broker-dealer, the Representative shall assume that each order submitted by the Underwriter, dealer or broker-dealer is a sale to the public. (ii) any agreement among underwriters or selling group agreement relating to the initial sale of the Bonds to the public, together with the related pricing wires, contains or will contain language obligating each Underwriter or dealer that is a party to a third-party distribution agreement to be employed in connection with the initial sale of the Bonds to the public to require each broker-dealer that is a party to such third-party distribution agreement to (A) report the prices at which it sells to the public the unsold Bonds of each maturity allocated to it, whether or not the Closing Date has occurred, until either all Bonds of that maturity allocated to it have been sold or it is notified by the Representative or such Underwriter or dealer that the 10% test has been satisfied as to the Bonds of that maturity, provided that, the reporting obligation after the Closing Date may be at reasonable periodic intervals or otherwise upon request of the Representative or such Underwriter or dealer, and (B) comply with the hold-the-offering-price rule, if applicable, if and for so long as directed by the Representative or the Underwriter or the dealer and as set forth in the related pricing wires. (f) The City acknowledges that, in making the representations set forth in this section, the Representative will rely on (i) the agreement of each Underwriter to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in an agreement among underwriters and the related pricing wires, (ii) in the event a selling group has been created in connection with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the selling group to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in a selling group agreement and the related pricing wires, and (iii) in the event that an Underwriter or dealer who is a member of the selling group is a party to a third-party distribution agreement that was employed in connection with the initial sale of the Bonds to the public, the agreement of each broker-dealer that is a party to such agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, as set forth in the third-party distribution agreement and the related pricing wires. The City further acknowledges that each Underwriter shall be solely liable for its failure to comply with its agreement regarding the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds, and that no Underwriter shall be liable for the failure of any other Underwriter, or of any dealer who is a member of a selling group, or of any broker-dealer that is a party to a third-party distribution agreement, to comply with its corresponding agreement to comply with the requirements for establishing issue price of the Bonds, including, but not limited to, its agreement to comply with the hold-the-offering-price rule, if applicable to the Bonds. 8.A.c Packet Pg. 578 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 5 4823-3083-7232v3/024112-0083 (g) The Underwriters acknowledge that sales of any Bonds to any person that is a related party to an underwriter participating in the initial sale of the Bonds to the public (each such term being used as defined below) shall not constitute sales to the public for purposes of this section. Further, for purposes of this section: (i) “public” means any person other than an underwriter or a related party; (ii) “underwriter” means: (A) any person that agrees pursuant to a written contract with the City (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the public; and (B) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (A) to participate in the initial sale of the Bonds to the public (including a member of a selling group or a party to a third-party distribution agreement participating in the initial sale of the Bonds to the public); (iii) a purchaser of any of the Bonds is a “related party” to an underwriter if the underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (B) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (C) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other); and (iv) “sale date” means the date of execution of this Purchase Agreement by all parties. Section 4. The Official Statement. By its acceptance of this proposal, the City ratifies, confirms and approves of the use and distribution by the Underwriters prior to the date hereof of the preliminary official statement relating to the Bonds dated _____, 2021 (including the cover page, all appendices and all information incorporated therein and any supplements or amendments thereto and as disseminated in its printed physical form or in electronic form in all respects materially consistent with such physical form, the “Preliminary Official Statement”) that authorized officers of the City deemed “final” as of its date, for purposes of Rule 15c2-12 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”), except for certain information permitted to be omitted therefrom by Rule 15c2-12. The Underwriters have reviewed the Preliminary Official Statement in compliance with their obligations under section (b)(1) of Rule 15c2-12. The City hereby agrees to deliver or cause to be delivered to the Underwriters, within seven business days of the date hereof, copies of the final official statement, dated the date hereof, relating to the Bonds (including all information previously permitted to have been omitted by Rule 15c2-12), including the cover page, all appendices, all information incorporated therein and any amendments or supplements as have been approved by the City and the Representative (the “Official Statement”) in such quantity as the Underwriters shall reasonably request to comply with Section (b)(4) of Rule 15c2-12 and the rules of the Municipal Securities Rulemaking Board (the “MSRB”). 8.A.c Packet Pg. 579 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 6 4823-3083-7232v3/024112-0083 The Underwriters hereby agree that they will not request that payment be made by any purchaser of the Bonds prior to delivery by the Underwriters to the purchaser of a copy of the Official Statement. The Underwriters agree to provide the City with final pricing information on the Bonds on a timely basis. The Representative agrees to promptly file a copy of the Official Statement, including any supplements prepared by the City with the MSRB at http://emma.msrb.org. The City hereby approves of the use and distribution by the Underwriters of the Preliminary Official Statement in connection with the offer and sale of the Bonds. The City will cooperate with the Representative in the filing by the Representative of the Official Statement with the MSRB. Section 5. Closing. At 8:30 a.m., California time, on _____, 2021, or at such other time or date as the City and the Representative agree upon (the “Closing Date”), the City shall deliver or cause to be delivered to the Trustee, the Bonds, in definitive form, registered in the name of Cede & Co., as the nominee of The Depository Trust Company (“DTC”), so that the Bonds may be authenticated by the Trustee and credited to the account specified by the Representative under DTC’s FAST procedures. Concurrently with the delivery of the Bonds, the City will deliver the documents hereinafter mentioned at the offices of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California (“Bond Counsel”), or another place to be mutually agreed upon by the City and the Representative. The Representative will accept such delivery and pay the purchase price of the Bonds as set forth in Section 1 hereof by wire transfer in immediately available funds. This payment for and delivery of the Bonds, together with the delivery of the aforementioned documents, is herein called the “Closing.” The Bonds shall be registered in the name of Cede & Co., as nominee of DTC in denominations of five thousand dollars ($5,000) or any integral multiple thereof. The City acknowledges that the services of DTC will be used initially by the Underwriters in order to permit the issuance of the Bonds in book-entry form, and agree to cooperate fully with the Underwriters in employing such services. Section 6. Representations, Warranties and Covenants of the City. The City represents, warrants, and covenants to the Underwriters that: (a) The City is a chartered city duly organized and existing under and by virtue of the laws of the State of California (the “State”). (b) The City has full legal right, power and authority to adopt or enter into, as the case may be, and to carry out and consummate the transactions on its part contemplated by the City Documents and the City resolution approving the execution and delivery of the City Documents and the issuance of the Bonds (the “City Resolution”). (c) By all necessary official action, the City has adopted the City Resolution and has duly authorized and approved the City Documents, has duly authorized and approved the Preliminary Official Statement and the Official Statement, and has duly authorized and approved the execution and delivery of, and the performance by the City of the obligations on its part contained in, the City Documents and the consummation by it of all other transactions contemplated by the City Documents in connection with the issuance of the Bonds. As of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered, and assuming due execution and delivery by the other parties thereto, if applicable, the City Documents will constitute the legally valid and binding obligations of the City enforceable in accordance with their respective terms, except as enforcement may be limited by 8.A.c Packet Pg. 580 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 7 4823-3083-7232v3/024112-0083 bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors’ rights generally, or by the exercise of judicial discretion and the limitations on legal remedies against municipal corporations in the State. The City has complied, and will at the Closing be in compliance in all material respects, with the terms of the City Documents. (d) The City is not in any material respect in breach of or default under any applicable constitutional provision, law or administrative regulation of any state or of the United States, or any agency or instrumentality of either, or any applicable judgment or decree, or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party which breach or default has or may have a materially adverse effect on the ability of the City to perform its obligations under the City Documents, and no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; and the adoption, execution and delivery of the City Documents, if applicable, and compliance with the provisions on the City’s part contained therein, will not conflict in any material way with or constitute a material breach of or a material default under any constitutional provision, law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the City is a party nor will any such execution, delivery, adoption or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the City or under the terms of any such law, regulation or instrument, except as may be provided by the City Documents. (e) All material authorizations, approvals, licenses, permits, consents and orders of any governmental authority, legislative body, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by the City of its obligations in connection with the City Documents have been duly obtained or, when required for future performance, are expected to be obtained, other than such approvals, consents and orders as may be required under the Blue Sky or securities laws of any state in connection with the offering and sale of the Bonds; except as described in or contemplated by the Preliminary Official Statement, all authorizations, approvals, licenses, permits, consents and orders of any governmental authority, board, agency or commission having jurisdiction of the matter which are required for the due authorization by, or which would constitute a condition precedent to or the absence of which would materially adversely affect the due performance by, the City of its obligations under the City Documents have been duly obtained. (f) The Preliminary Official Statement was as of its date, and the Official Statement is, and at all times subsequent to the date of the Official Statement up to and including the Closing will be, true and correct in all material respects, and the Preliminary Official Statement and the Official Statement do not and will not contain and up to and including the Closing will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading (except that this representation does not include statements in the Official Statement under the caption “UNDERWRITING” and information regarding DTC and its book-entry only system, as to which no view is expressed). (g) The City will advise the Representative promptly of any proposal to amend or supplement the Official Statement. The City will advise the Representative promptly of the institution of any proceedings known to it by any governmental authority prohibiting or otherwise 8.A.c Packet Pg. 581 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 8 4823-3083-7232v3/024112-0083 affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. (h) As of the time of acceptance hereof and the Closing, except as disclosed in the Official Statement, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, governmental authority, public board or body, pending, with service of process upon the City having been accomplished, or threatened in writing to the City: (i) in any way questioning the corporate existence of the City or the titles of the officers of the City to their respective offices; (ii) affecting, contesting or seeking to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or of any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity of the Bonds, or the City Documents or the consummation of the transactions contemplated thereby or hereby, or contesting the exclusion of the interest on the Bonds from taxation, or contesting the powers of the City to issue the Bonds; (iii) which would be likely to result in any material adverse change relating to the business, operations or financial condition of the City or the Enterprise; and (iv) contesting the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserting that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (i) To the City’s knowledge, there is no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of paragraph 6(h). (j) Until the date which is twenty-five (25) days after the “end of the underwriting period” (as hereinafter defined), if any event shall occur of which the City is aware that would cause the Official Statement to contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading (except that this representation does not include information regarding DTC and its book entry only system, as to which no view is expressed), the City shall forthwith notify the Representative of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, in the Representative’s reasonable opinion, so that the statements therein as so supplemented will not be misleading in the light of the circumstances existing at such time and the City shall promptly furnish to the Underwriters a reasonable number of copies of such supplement. As used herein, the term “end of the underwriting period” means the later of such time as: (i) the City delivers the Bonds to the Underwriters; or (ii) the Underwriters do not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Representative gives notice to the contrary, the “end of the underwriting period” shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the Representative at or prior to the Closing Date of the Bonds and shall specify a date (other than the Closing Date) to be deemed the “end of the underwriting period.” (k) Except as disclosed in the Preliminary Official Statement and the Official Statement, the City has not within the last five years failed to comply in any material respect with any continuing disclosure undertakings with regard to Rule 15c2-12, to provide annual reports or notices of material events specified in such rule. 8.A.c Packet Pg. 582 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 9 4823-3083-7232v3/024112-0083 (l) The City will refrain from taking any action, or permitting any action to be taken, with regard to which the City may exercise control, that results in the loss of the tax-exempt status of the interest on the Bonds. (m) The financial statements relating to the receipts, expenditures and cash balances of the City as of June 30, 2020 attached as Appendix B to the Official Statement fairly represent the receipts, expenditures and cash balances of the City. Except as disclosed in the Official Statement or otherwise disclosed in writing to the Representative, there has not been any materially adverse change in the financial condition of the City or the Enterprise, or in their respective operations, since June 30, 2020 and there has been no occurrence, circumstance or combination thereof which is reasonably expected to result in any such materially adverse change. (n) To the extent required by law, the City will undertake, pursuant to the Continuing Disclosure Certificate and the other City Documents, to provide annual reports and notices of certain events, if material. A description of this undertaking is set forth in Appendix E to the Preliminary Official Statement and will also be set forth in the Official Statement. (o) The Indenture creates a valid pledge of, first lien upon, the Net Revenues of the Enterprise. (p) Any certificate signed by any officer of the City authorized to execute such certificate in connection with the execution, sale and delivery of the Bonds and delivered to the Representative shall be deemed a representation and warranty of the City to the Underwriters as to the statements made therein but not of the person signing such certificate. Section 7. Conditions to the Obligations of the Underwriters. The Underwriters have entered into this Purchase Agreement in reliance upon the representations and warranties of the City contained herein. The obligations of the Underwriters to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Representative, to the accuracy in all material respects of the statements of the officers and other officials of the City, as well as authorized representatives of Bond Counsel and the Trustee made in any Bonds or other documents furnished pursuant to the provisions hereof; to the performance by the City of its obligations to be performed hereunder at or prior to the Closing Date; and to the following additional conditions: (a) The representations, warranties and covenants of the City contained herein shall be true and correct at the date hereof and at the time of the Closing, as if made on the Closing Date. (b) At the time of Closing, the City Documents shall be in full force and effect as valid and binding agreements between or among the various parties thereto, and the City Documents, and the Official Statement shall not have been amended, modified or supplemented except as may have been agreed to in writing by the Representative, and the City Resolution shall be in full force and effect. (c) At the time of the Closing, no material default shall have occurred or be existing under the City Documents or any other agreement or document pursuant to which any of the City’s financial obligations were executed and delivered, and the City shall not be in default in the payment of principal or interest with respect to any of its financial obligations, which default would 8.A.c Packet Pg. 583 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 10 4823-3083-7232v3/024112-0083 materially adversely impact the ability of the City to pay debt service on the Bonds from Net Revenues. (d) In recognition of the desire of the City and the Underwriters to effect a successful public offering of the Bonds, and in view of the potential adverse impact of any of the following events on such a public offering, the Underwriters shall have the right to cancel their obligation to purchase the Bonds and to terminate this Purchase Agreement by written notice to the City if, between the date of this Purchase Agreement to and including the Closing Date, in the Representative’s sole and reasonable judgment any of the following events shall occur regardless of whether any of the following events were in existence or known of on the date of this Purchase Agreement: (i) any event shall occur which makes untrue any material statement or results in an omission to state a material fact necessary to make the statements in the Official Statement, in the light of the circumstances under which they were made, not misleading, which event, in the reasonable opinion of the Representative would materially or adversely affect the ability of the Underwriters to market the Bonds; or (ii) the marketability of the Bonds or the market price thereof, in the opinion of the Representative, has been materially adversely affected by an amendment to the Constitution of the United States or by any legislation in or by the Congress of the United States or by the State, or the amendment of legislation pending as of the date of this Purchase Agreement in the Congress of the United States, or the recommendation to Congress or endorsement for passage (by press release, other form of notice or otherwise) of legislation by the President of the United States, the Treasury Department of the United States, the Internal Revenue Service or the Chairman or ranking minority member of the Committee on Finance of the United States Senate or the Committee on Ways and Means of the United States House of Representatives, or the proposal for consideration of legislation by either such Committee or by any member thereof, or the presentment of legislation for consideration as an option by either such Committee, or by the staff of the Joint Committee on Taxation of the Congress of the United States, or the favorable reporting for passage of legislation to either House of the Congress of the United States by a Committee of such House to which such legislation has been referred for consideration, or any decision of any federal or state court or any ruling or regulation (final, temporary or proposed) or official statement on behalf of the United States Treasury Department, the Internal Revenue Service or other federal or State authority affecting the federal or State tax status of the City, or the interest on or with respect to bonds or notes (including the Bonds); or (iii) any legislation, ordinance, rule or regulation shall be enacted by any governmental body, department or authority of the State, or a decision by any court of competent jurisdiction within the State shall be rendered which materially adversely affects the market price of the Bonds; or (iv) an order, decree or injunction issued by any court of competent jurisdiction, or order, ruling, regulation (final, temporary or proposed), official statement or other form of notice or communication issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental authority having jurisdiction of the subject matter, to the effect that: (i) obligations of the general character of the Bonds, or the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust Indenture Act of 8.A.c Packet Pg. 584 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 11 4823-3083-7232v3/024112-0083 1939, as amended; or (ii) the issuance, offering or sale of obligations of the general character of the Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of the federal securities laws as amended and then in effect; or (v) legislation shall be enacted by the Congress of the United States, or a decision by a court of the United States shall be rendered, to the effect that obligations of the general character of the Bonds, or the Bonds are not exempt from registration under or other requirements of the Securities Act of 1933, as amended and as then in effect, or the Securities Exchange Act of 1934, as amended and as then in effect, or that the Indenture is not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended and as then in effect; or (vi) any new restriction on transactions in securities materially affecting the market for securities (including the imposition of any limitation on interest rates) or the extension of credit by, or a charge to the net capital requirements of, underwriters shall have been established by the New York Stock Exchange, the SEC, any other federal or State agency or the Congress of the United States, or by Executive Order; or (vii) a material disruption in securities settlement, payment or clearance services affecting the Securities shall have occurred; or (viii) a general banking moratorium shall have been declared by federal, State or New York authorities; or (ix) the market price or marketability of the Bonds, or the ability of the Underwriters to enforce contracts for the sale of the Bonds, shall be materially adversely affected by any of the following events: (A) there shall have occurred (i) an outbreak or escalation of hostilities or the declaration by the United States of a national emergency or war or (ii) any other calamity or crisis in the financial markets of the United States or elsewhere or the escalation of such calamity or crisis; or (B) a general suspension of trading on the New York Stock Exchange or other major exchange shall be in force, or minimum or maximum prices for trading shall have been fixed and be in force, or maximum ranges for prices for securities shall have been required and be in force on any such exchange, whether by virtue of determination by that exchange or by order of the Securities and Exchange Commission or any other governmental authority having jurisdiction; or (C) any rating of the Bonds or the rating of any obligations of the City secured by the City’s general fund shall have been downgraded or withdrawn by a national rating service, which, in the opinion of the Representative, materially adversely affects the market price of the Bonds; or (D) the commencement of any action, suit or proceeding described in Section 6(h). 8.A.c Packet Pg. 585 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 12 4823-3083-7232v3/024112-0083 (e) at or prior to the Closing, the Representative shall receive the following documents, in each case to the reasonable satisfaction in form and substance of the Representative: (i) The City Resolution; (ii) The City Documents duly executed and delivered by the respective parties thereto, with only such amendments, modifications or supplements as may have been agreed to in writing by the Representative; (iii) The approving opinion of Bond Counsel dated the Closing Date and addressed to the City, in substantially the form attached as Appendix F to the Official Statement, and a reliance letter thereon addressed to the Underwriters; (iv) A supplemental opinion of Bond Counsel dated the Closing Date and addressed to the Underwriters, to the effect that: (A) the statements in the Official Statement under the captions “INTRODUCTION,” “THE SERIES 2021 BONDS” (excluding therefrom all information pertaining to DTC and its book-entry only system, as to which no opinion is expressed), “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS,” and “TAX MATTERS,”” and in Appendix C— “DEFINITIONS AND SUMMARY OF INDENTURE,” excluding any material that may be treated as included under such captions and appendices by any cross-reference, insofar as such statements expressly summarize provisions of the Bonds, the Indenture, Bond Counsel’s final opinion concerning certain federal tax matters relating to the Bonds, are accurate in all material respects as of the Closing Date, provided that Bond Counsel need not express any opinion with respect to any financial or statistical data contained therein or with respect to the book-entry system in which the Bonds are initially delivered; (B) The Purchase Agreement and the Continuing Disclosure Certificate have been duly executed and delivered by the City and are the valid and binding agreements of the City, enforceable in accordance with their respective terms, except that the rights and obligations under the Purchase Agreement and the Continuing Disclosure Certificate are subject to bankruptcy, insolvency, reorganization, receivership, arrangement, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against joint powers authorities in the State, and provided that no opinion is expressed with respect to any indemnification contribution, liquidated damages, penalty (including any remedy deemed to constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum, choice of venue, non-exclusivity of remedies, waiver or severability provisions contained in such documents, nor is any opinion provided with respect to the state or quality of title to or interest in any real or personal property described as subject to the lien of the Indenture, or the accuracy or sufficiency of the descriptions contained therein of, or the remedies available to enforce liens on, any such property; and provided further that no opinion, conclusion or view is expressed regarding the adequacy of the Continuing Disclosure Certificate for purposes of Rule 15c2-12; and (C) The Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; 8.A.c Packet Pg. 586 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 13 4823-3083-7232v3/024112-0083 (v) The Official Statement, executed on behalf of the City, and the Preliminary Official Statement; (vi) Evidence that the ratings on the Bonds are as described in the Official Statement; (vii) A certificate, dated the Closing Date, signed by a duly authorized officer of the City satisfactory in form and substance to the Representative to the effect that: (i) the representations, warranties and covenants of the City contained in this Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date by the City, and the City has complied with, in all material respects, all of the terms and conditions of the Purchase Agreement required to be complied with by the City at or prior to the Closing Date; (ii) no event affecting the City has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purposes for which it is to be used or which is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the information and statements contained in the Preliminary Official Statement did not as of its date and as of the date of this Purchase Agreement, and the Official Statement did not as of its date and does not as of the Closing (in each case excluding therefrom the information under the caption “UNDERWRITING” and information regarding DTC and its book entry only system) contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading in any material respect; and (iv) the City is not, in any material respect, in breach of or default under any applicable law or administrative regulation of the State or the United States or any applicable judgment or decree or any loan agreement, indenture, bond, note, resolution, agreement (including but not limited to the Indenture) or other instrument to which the City is a party or is otherwise subject, which would have a material adverse impact on the City’s ability to perform its obligations under the City Documents, and no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute such a default or event of default under any such instrument; (viii) an opinion dated the Closing Date and addressed to the Underwriters and the Trustee, of the City Attorney, as counsel to the City, to the effect that: (A) The City is a municipal corporation, duly organized and existing under and by virtue of the laws of the State; (B) The City Resolution has been duly adopted by the City Council, is in full force and effect and has not been modified, amended, rescinded or repealed since its date of adoption; (C) The City Documents have been duly authorized, executed and delivered by the City and, assuming due authorization, execution and delivery by the other parties to them, constitute the valid, legal and binding obligations of the City enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting enforcement of creditors’ rights or by the application of equitable principles if equitable remedies are sought; (D) Except as otherwise disclosed in the Official Statement, there is no litigation, proceeding, action, suit, or investigation at law or in equity before or by any court, 8.A.c Packet Pg. 587 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 14 4823-3083-7232v3/024112-0083 governmental authority or body, pending, with service of process upon the City having been accomplished, or, to the best knowledge of such counsel, threatened in writing against the City, challenging the creation, organization or existence of the City, or the validity of the City Documents or seeking to restrain or enjoin the repayment of the Bonds or in any way contesting or affecting the validity of the City Documents or contesting the authority of the City to enter into or perform its obligations under any of the City Documents, or which, in any manner, questions the right of the City to pay debt service on the Bonds from Net Revenues; (E) To the best of such counsel’s knowledge the execution and delivery of the City Documents and compliance with the provisions thereof, do not and will not in any material respect conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument to which the City is a party or by which it is bound or any existing law, regulation, court order or consent decree to which the City is subject, which breach or default has or may have a material adverse effect on the ability of the City to perform its obligations under the City Documents; 8.A.c Packet Pg. 588 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 15 4823-3083-7232v3/024112-0083 (ix) A letter of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, in its capacity as Disclosure Counsel, dated the Closing Date and addressed to the City and the Underwriters, to the effect that, based upon the information made available to them in the course of their participation in the preparation of the Preliminary Official Statement and the Official Statement and without passing on and without assuming any responsibility for the accuracy, completeness and fairness of the statements in the Preliminary Official Statement or the Official Statement, and having made no independent investigation or verification thereof, and stated as a matter of fact and not opinion that, during the course of its representation of the City on this matter, (a) no facts had come to the attention of the attorneys rendering legal services with respect to the Preliminary Official Statement which caused them to believe as of the date of the Preliminary Official Statement and the date of the Purchase Agreement, based on the documents, drafts and facts in existence and received as of those dates, that the Preliminary Official Statement contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except any information marked as preliminary or subject to change, any information permitted to be omitted by Rule 15c2-12 or otherwise left blank), and (b) no facts had come to the attention of the rendering legal service with respect to the Official Statement which caused them to believe that the Official Statement contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, they express no view or opinion, with respect to both the Preliminary Official Statement and the Official Statement, about any CUSIP numbers, financial, accounting, statistical or economic, engineering or demographic data or forecasts, numbers, charts, tables, graphs, estimates, projections, assumptions or expressions of opinion, any information about verification, feasibility, valuation, appraisals, real estate or environmental matters, any management discussion and analysis, any statements about compliance with prior continuing disclosure undertakings, the Appendices thereto, or any information about book-entry, The Depository Trust Company, Cede & Co., ratings, rating agencies, tax-exemption, the Municipal Advisor, the Underwriters and underwriting, included or referred to therein or omitted therefrom and no responsibility is undertaken or view expressed with respect to any other disclosure document, materials or activity, or as to any information from another document or source referred to by or incorporated by reference in the Preliminary Official Statement or the Official Statement; (x) An opinion of Stradling Yocca Carlson & Rauth, a Professional Corporation, counsel to the Underwriters, in form and substance satisfactory to the Representative; (xi) An opinion or opinions of counsel to the Trustee, addressed to the Underwriters and dated the Closing Date, in form and substance satisfactory to the Representative and to Bond Counsel; (xii) A certificate or certificates, dated the Closing Date, signed by a duly authorized official of the Trustee in form and substance satisfactory to the Representative; (xiii) A certified copy of the general resolution of the Trustee authorizing the execution and delivery of certain documents by certain officers of the Trustee, which resolution authorizes the execution and delivery of the Indenture and the authentication and delivery of the Bonds by the Trustee; 8.A.c Packet Pg. 589 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 16 4823-3083-7232v3/024112-0083 (xiv) The preliminary and final Statement of Sale required to be delivered to the California Debt and Investment Advisory Commission pursuant to Section 53583 of the Government Code and Section 8855(g) of the Government Code; (xv) A copy of the executed Blanket Issuer Letter of Representations by and between the City and DTC relating to the book-entry system; (xvi) The tax and nonarbitrage certificate of the City, relating to the Bonds, in form and substance to the reasonable satisfaction of Bond Counsel and the Representative; (xvii) A certificate, dated the date of the Preliminary Official Statement, of the City, as required under Rule 15c2-12; (xviii) Such additional legal opinions, certificates, proceedings, instruments or other documents as Bond Counsel or the Underwriters may reasonably request. Section 8. Changes in Official Statement. After the Closing, the City will not adopt any amendment of or supplement to the Official Statement to which the Representative shall reasonably object in writing. Within 90 days after the Closing or within 25 days following the “end of the underwriting period” (as defined herein), whichever occurs first, if any event relating to or affecting the Bonds, the Trustee, or the City shall occur as a result of which it is necessary, in the opinion of the Representative, to amend or supplement the Official Statement in order to make the Official Statement not misleading in any material respect in the light of the circumstances existing at the time it is delivered to a purchaser, the City will forthwith prepare and furnish to the Underwriters an amendment or supplement that will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time the Official Statement is delivered to purchaser, not misleading. The City shall cooperate with the Representative in the filing by the Representative of such amendment or supplement to the Official Statement with the MSRB. The Underwriters acknowledges that the “end of the underwriting period” will be the Closing Date. Section 9. Expenses. The City will pay or cause to be paid the approved expenses incident to the performance of its obligations hereunder and certain expenses relating to the sale of the Bonds, including, but not limited to (a) the cost of the preparation and printing or other reproduction of the City Documents (other than this Purchase Agreement); (b) the fees and disbursements of Bond Counsel, Disclosure Counsel, the Municipal Advisor and any other experts or other consultants retained by the City; (c) the costs and fees of the credit rating agencies; (d) the cost of preparing and delivering the definitive Bonds; (e) the cost of providing immediately available funds on the Closing Date; (f) the cost of the printing or other reproduction of the Preliminary Official Statement and Official Statement and any amendment or supplement thereto, including a reasonable number of certified or conformed copies thereof; (g) the Underwriters’ out-of-pocket expenses (included in the expense component of the Underwriter’s discount) incurred by the Underwriters on behalf of the City’s employees which are incidental to implementing this Purchase Agreement; and (h) the fees for counsel to the Underwriters. The Underwriters will pay the expenses of the preparation of this Purchase Agreement, including CDIAC fees, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriters in connection with the public offering and distribution of the Bonds. 8.A.c Packet Pg. 590 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 17 4823-3083-7232v3/024112-0083 Section 10. Notices. Any notice or other communication to be given to the Underwriters under this Purchase Agreement may be given by delivering the same in writing to Morgan Stanley & Co. LLC, 1999 Avenue of the Stars, Suite 2400, Los Angeles, CA, 90067, Attention: Daniel Kurz. The approval of the Representative when required hereunder or the determination of its satisfaction as to any document referred to herein shall be in writing signed by the Representative and delivered to the City. All notices or communications hereunder by any party shall be given and served upon each other party. Any notice or communication to be given the City under this Purchase Agreement may be given by delivering the same in writing to the City of Santa Monica, 1685 Main Street, Mail Stop 09, Santa Monica, California 90401, Attention: City Manager. Section 11. Parties in Interest. This Purchase Agreement is made solely for the benefit of the City and the Underwriters (including the successors or assigns thereof) and no other person shall acquire or have any right hereunder or by virtue hereof. All representations, warranties and agreements of the City in this Purchase Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Underwriters and shall survive the delivery of and payment for the Bonds. Section 12. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 13. Electronic Signature. Each of the parties hereto agrees that the transaction consisting of this Purchase Agreement may be conducted by electronic means. Each party agrees, and acknowledges that it is such party’s intent, that if such party signs this Purchase Agreement using an electronic signature, it is signing, adopting, and accepting this Purchase Agreement and that signing this Purchase Agreement using an electronic signature is the legal equivalent of having placed its handwritten signature on this Purchase Agreement on paper. Each party acknowledges that it is being provided with an electronic or paper copy of this Purchase Agreement in a usable format. Section 14. Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. [SIGNATURES ON FOLLOWING PAGE.] 8.A.c Packet Pg. 591 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing S-1 4823-3083-7232v3/024112-0083 Section 15. Governing Law. This Purchase Agreement shall be governed by and construed in accordance with the laws of the State. MORGAN STANLEY & CO. LLC By: Title: Authorized Officer Accepted as of the date first stated above: CITY OF SANTA MONICA By: Its: Director of Finance/City Treasurer Time of Execution: _____ p.m. California Time 8.A.c Packet Pg. 592 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing A-1 4823-3083-7232v3/024112-0083 EXHIBIT A MATURITY SCHEDULE CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021 Maturity Date (August 1) Principal Amount Interest Rate Initial Offering Price Yield 10% Test Used Hold the Offering Price Rule Used ________________ T Term Bonds. C Priced to yield to optional redemption date of _____ 1, 20__ at _____. 8.A.c Packet Pg. 593 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing B-1 4823-3083-7232v3/024112-0083 EXHIBIT B FORM OF ISSUE PRICE CERTIFICATE The undersigned, Morgan Stanley & Co. LLC (“Morgan Stanley”), on behalf of itself and as representative (the “Representative”) of Siebert Williams Shank & Co., LLC and Stifel, Nicolaus & Company, Incorporated (together with the Representative, the “Underwriting Group”), hereby certifies as set forth below with respect to the sale and issuance of the above-captioned bonds (the “Bonds”). 1. Bond Purchase Agreement. On _____, 2021 (the “Sale Date”), the Representative and the City of Santa Monica executed a Bond Purchase Agreement (the “Purchase Agreement”) in connection with the sale of the Bonds. The Representative has not modified the Purchase Agreement since its execution on the Sale Date. 2. Sale of the General Rule Maturities. As of the date of this certificate, for each Maturity of the Bonds listed as a “10% Test Maturity” in Exhibit A attached to the Purchase Agreement, the first price at which at least 10% of such Maturity was sold to the Public is the respective price listed in Exhibit A attached to the Purchase Agreement. 3. Initial Offering Price of the Hold-the-Offering-Price Maturities. (a) The Underwriting Group offered the “Hold-the-Price Maturities” (as listed in Exhibit A attached to the Purchase Agreement) to the Public for purchase at the respective initial offering prices listed in Exhibit A attached to the Purchase Agreement (the “Initial Offering Prices”) on or before the Sale Date. (b) With respect to the Hold-the-Price Maturities, as agreed to in writing by the Representative in the Purchase Agreement, the Representative has (i) retained the unsold Bonds of each Hold-the-Price Maturity and not allocated any such Bonds to any other member of the Underwriter and (ii) not offered or sold unsold Bonds of any of the Hold-the-Price Maturities to any person at a price that is higher than or a yield lower than the respective Initial Offering Prices for such Maturities of the Bonds during the Holding Period. 4. Pricing Wire or Equivalent Communication. A copy of the pricing wire or equivalent communication for the Bonds is attached to this certificate as Schedule A. 5. Defined Terms. (a) 10% Test Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “10% Test Maturities.” (b) Hold-the-Price Maturities means those Maturities of the Bonds listed in Schedule A hereto as the “Hold-the-Price Maturities.” (c) Holding Period means, with respect to a Hold-the-Price Maturity, the period starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the Sale Date, or (ii) the date on which at least 10% of such Hold-the-Price Maturity was sold to the Public at prices that are no higher than or yields that are no lower than the Initial Offering Price for such Hold-the-Price Maturity. 8.A.c Packet Pg. 594 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing B-2 4823-3083-7232v3/024112-0083 (d) Issuer means the City of Santa Monica. (e) Maturity means Bonds with the same credit and payment terms. Bonds with different maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as separate maturities. (f) Public means any person (including an individual, trust, estate, partnership, association, company, or corporation) other than an Underwriter or a related party to an Underwriter. (g) Related Party. A purchaser of any Bonds is a “Related Party” to an Underwriter if the Underwriter and the purchaser are subject, directly or indirectly, to (i) more than 50% common ownership of the voting power or the total value of their stock, if both entities are corporations (including direct ownership by one corporation of another), (ii) more than 50% common ownership of their capital interests or profits interests, if both entities are partnerships (including direct ownership by one partnership of another), or (iii) more than 50% common ownership of the value of the outstanding stock of the corporation or the capital interests or profit interests of the partnership, as applicable, if one entity is a corporation and the other entity is a partnership (including direct ownership of the applicable stock or interests by one entity of the other). (h) Tax Certificate means the Tax Certificate, dated _____, 2021, executed and delivered by the Issuer in connection with the issuance of the Bonds. (i) Underwriter means (i) any person that agrees pursuant to a written contract with the Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of the Bonds to the Public (including a member of a selling group or a party to a retail distribution agreement participating in the initial sale of the Bonds to the Public). The representations set forth in this certificate are limited to factual matters only. Nothing in this certificate represents Morgan Stanley’s interpretation of any laws, including specifically Sections 103 and 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. The undersigned understands that the foregoing information will be relied upon by the Issuer with respect to certain of the representations set forth in the Tax Certificate and with respect to compliance with the federal income tax rules affecting the Bonds, and by Bond Counsel in connection with rendering their opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes, the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice that it may give to the Issuer from time to time relating to the Bonds. The certifications contained herein are not necessarily based on personal knowledge, but may instead be based on either inquiry deemed adequate by the undersigned or institutional knowledge (or both) regarding the matters set forth herein. 8.A.c Packet Pg. 595 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing B-3 4823-3083-7232v3/024112-0083 MORGAN STANLEY & CO. LLC By: Name: Dated: _____, 2021 8.A.c Packet Pg. 596 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing B-4 4823-3083-7232v3/024112-0083 SCHEDULE A PRICING WIRE OR EQUIVALENT COMMUNICATION (Attached) 8.A.c Packet Pg. 597 Attachment: Bond Purchase Agreement (City of Santa Monica Water Enterprise Revenue B... (4615 : Adoption of Resolution Authorizing 4138-3228-2157.1 CONTINUING DISCLOSURE CERTIFICATE CITY OF SANTA MONICA Dated as of [____] 1, 2021 Relating to City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 8.A.d Packet Pg. 598 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 4138-3228-2157.1 CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of [____] 1, 2021, is executed and delivered by the City of Santa Monica (the “City”). WHEREAS, pursuant to the Indenture, dated as of [____] 1, 2021 (the “Indenture”), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), the City has issued $[______] aggregate principal amount of its City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Bonds”); and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Disclosure Certificate have the meanings herein specified. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 hereof. “Annual Report Date” means the date in each year that is nine months after the end of the City’s fiscal year, which date, as of the date of this Disclosure Certificate, is April 1. “Dissemination Agent” means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means (a) a debt obligation of the City, (b) a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation of the City, or (c) a guarantee of (i) a debt obligation of the City, or (ii) a derivative instrument described in clause (b), above; provided, however, that the term “Financial Obligation” shall not include “municipal securities” (as such term is defined in the Securities Exchange Act of 1934, as amended) as to which a “final official statement” (as such term is defined in the Rule) has been provided to the MSRB consistent with the Rule. “Listed Events” means any of the events listed in Section 4(a) or (b) hereof. “MSRB” means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement, dated [_________], 2021 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. 8.A.d Packet Pg. 599 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 2 4138-3228-2157.1 “Participating Underwriters” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to provide to the MSRB an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2020-21 fiscal year. The Annual Report may include by reference other information as provided in Section 3 hereof; provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City’s fiscal year changes, it shall, or it shall instruct the Dissemination Agent to, give notice of such change in a filing with the MSRB. (b) During any period in which the City is the Dissemination Agent, the City shall file each Annual Report with the MSRB not later than the Annual Report Date for such Annual Report. (c) During any period in which the City is not the Dissemination Agent (i) the City shall, not later than 15 Business Days prior to each Annual Report Date (a), provide to the Dissemination Agent the Annual Report to be filed not later than such Annual Report Date, (ii) the Dissemination Agent shall (A) not later than such Annual Report Date, file such Annual Report received by it with the MSRB, as provided herein, and (B) file a report with the City certifying that such Annual Report has been filed with the MSRB pursuant to this Disclosure Certificate and stating the date such Annual Report was so filed. (d) If the City is unable to file, or cause the Dissemination Agent to file, an Annual Report with the MSRB by the Annual Report Date for such Annual Report, the City shall, in a timely manner, file or cause to be filed with the MSRB, a notice in substantially the form attached as Exhibit A. Section 3. Content of Annual Reports. The City’s Annual Report shall contain or include by reference the following: (a) Audited financial statements of the City for the preceding fiscal year, prepared in accordance with the generally accepted auditing standards for municipalities in the State of California. If the City’s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 2(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when such audited financial statements become available. (b) To the extent not included in the audited financial statements of the City, the Annual Report shall include the principal amount of the Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and 8.A.d Packet Pg. 600 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 3 4138-3228-2157.1 (c) To the extent not included in the audited financial statements of the City, the Annual Report shall include the following items, providing financial and operating data (as of the end of the preceding fiscal year) substantially similar to that provided in the corresponding tables and charts in the Official Statement: (i) [To come; and] (ii) [To come.] Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities that have been made available to the public on the MSRB website. The City shall clearly identify each such other document so included by reference. Section 4. Reporting of Listed Events. (a) Pursuant to the provisions of this Section, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) tender offers; (vii) defeasances; (viii) rating changes; (ix) bankruptcy, insolvency, receivership or similar event of the City; and (x) Default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation, any of which reflect financial difficulties. For purposes of the event identified in paragraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been 8.A.d Packet Pg. 601 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 4 4138-3228-2157.1 assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: (i) unless described in paragraph (v) of subsection (a) of this Section, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; (ii) modifications to rights of Owners; (iii) optional, unscheduled or contingent bond calls; (iv) release, substitution or sale of property securing repayment of the Bonds; (v) non-payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; (vii) appointment of a successor or additional Trustee or the change of name of a Trustee; and (viii) Incurrence of a Financial Obligation, or agreement to covenants, events of default, remedies, priority rights or other similar terms of a Financial Obligation, any of which affect holders of the Bonds. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the City shall determine if such event would be material under applicable Federal securities laws. (d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under applicable Federal securities laws, the City shall file, or shall cause the Dissemination Agent to file, within ten business days of such occurrence, a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in paragraph (iii) of subsection (b) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. 8.A.d Packet Pg. 602 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 5 4138-3228-2157.1 Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Section 6. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give, or, if the City is not the Dissemination Agent, cause the Dissemination Agent to give, notice of such termination in a filing with the MSRB. Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the City. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 2(a), Section 3 or Section 4(a) or (b) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment or waiver in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements (i) notice of such change shall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative 8.A.d Packet Pg. 603 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 6 4138-3228-2157.1 form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice required to be filed pursuant to this Disclosure Certificate, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice required to be filed pursuant to this Disclosure Certificate. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. City Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The City covenants that, if a Dissemination Agent other than the City has been appointed pursuant to Section 7 hereof, the City will indemnify and save such Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to such Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of such Dissemination Agent and payment of the Bonds. Section 12. Electronic Signature. The City acknowledges that the transaction consisting of this Disclosure Certificate may be conducted by electronic means. The City agrees, and acknowledges that it is its intent, that by signing this Disclosure Certificate using an electronic signature, it is signing, adopting, and accepting this Disclosure Certificate and that signing this Disclosure Certificate using an electronic signature is the legal equivalent of having placed its handwritten signature on this Disclosure Certificate on paper. The City acknowledges that it is being provided with an electronic or paper copy of this Disclosure Certificate in a usable format. 8.A.d Packet Pg. 604 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing 7 4138-3228-2157.1 Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and the Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. CITY OF SANTA MONICA By: ATTEST: Nikima Newsome, Assistant City Clerk APPROVED AS TO FORM: George S. Cardona, Interim City Attorney 8.A.d Packet Pg. 605 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing A-1 4138-3228-2157.1 EXHIBIT A FORM OF NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Santa Monica Name of Issue: City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 Date of Issuance: [________], 2021 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 2 of the Continuing Disclosure Certificate, dated as of [____] 1, 2021, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by _____________.] Dated: _______________ CITY OF SANTA MONICA By: 8.A.d Packet Pg. 606 Attachment: Cont Disclosure Cert - City of Santa Monica Water Rev Bonds 2021 4138-3228-2157 1 (4615 : Adoption of Resolution Authorizing OH&S 7/18/21 Draft 4140-7650-4109.4 PRELIMINARY OFFICIAL STATEMENT DATED JULY __, 2021 NEW ISSUE – FULL BOOK-ENTRY RATING: Standard & Poor’s: “___” (See “RATING” herein) In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2021 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986. In the further opinion of Bond Counsel, interest on the Series 2021 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. Bond Counsel is also of the opinion that interest on the Series 2021 Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the amount, accrual or receipt of interest on, the Series 2021 Bonds. See “TAX MATTERS.” LOGO $_________∗ CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021 Dated: Date of Delivery Due: August 1, as shown on the inside cover page The City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Series 2021 Bonds”) are being issued pursuant to an Indenture, dated as of August 1, 2021 (the “Indenture”), by and between the City of Santa Monica (the “City”) and U.S. Bank National Association, as trustee (the “Trustee”). The Series 2021 Bonds are payable from Net Revenues of the water Enterprise (each as defined herein). See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein. The Series 2021 Bonds are being issued to provide funds to (i) finance certain improvements to the Enterprise and (ii) pay the costs incurred in connection with the issuance of the Series 2021 Bonds. See “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS” herein. In accordance with the Indenture, the City will pledge and grant a lien on and a security interest in all of the Net Revenues for the benefit of Owners of the Series 2021 Bonds. The City is permitted to make parity pledges of Net Revenues for Additional Bonds and Parity Obligations (each as defined herein) in accordance with the Indenture. The Series 2021 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Interest on the Series 2021 Bonds is payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2022. Purchasers will not receive certificates representing their interest in the Series 2021 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of, and premium, if any, and interest on the Series 2021 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2021 Bonds. See APPENDIX D – “BOOK-ENTRY-ONLY SYSTEM” herein. The Series 2021 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See “THE SERIES 2021 BONDS – Redemption” herein. THE SERIES 2021 BONDS ARE, AND ALL BONDS SHALL BE, SPECIAL OBLIGATIONS OF THE CITY, PAYABLE, AS PROVIDED IN THE INDENTURE, SOLELY FROM NET REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. THE BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE CITY, THE STATE OF CALIFORNIA (THE “STATE”), OR ANY POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire official statement to obtain information essential to the making of an informed investment decision. The Series 2021 Bonds will be offered when, as and if issued and received by the Underwriters, subject to the approval as to their validity by Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the City and certain other conditions. Certain legal matters will be passed on for the City by the City Attorney of the City and by Orrick, Herrington & Sutcliffe LLP, Los Angeles California, as Disclosure Counsel. Certain legal matters will be passed upon for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation. Public Resources Advisory Group has served as municipal advisor to the City in connection with the issuance of the Series 2021 Bonds. It is anticipated that the Series 2021 Bonds in definitive form will be available for delivery through the facilities of DTC on or about August ___, 2021. Morgan Stanley Siebert Williams Shank & Co., LLC Stifel Dated August __, 2021 ∗ Preliminary, subject to change. 8.A.e Packet Pg. 607 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 MATURITY SCHEDULE∗ CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021 (Base CUSIP No.† _______) Maturity Date (August 1) Principal Amount Interest Rate Yield CUSIP Suffix† $_______ ____% Term Bonds due August 1, 20__ - Yield: ____% CUSIP suffix† ____ ∗ Preliminary, subject to change. † CUSIP® is a registered trademark of the American Bankers Association. CUSIP Global Services (CGS) is managed on behalf of the American Bankers Association by S&P Global Market Intelligence. Copyright© 2021 CUSIP Global Services. All rights reserved. CUSIP® data herein is provided by CUSIP Global Services. This data is not intended to create a database and does not serve in any way as a substitute for the CGS database. CUSIP® numbers are provided for convenience of reference only. The City, the Municipal Advisor and the Underwriters take no responsibility for the accuracy of such numbers. 8.A.e Packet Pg. 608 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 No dealer, broker, salesperson or other person has been authorized by 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 City. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2021 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Series 2021 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. The information set forth herein has been obtained from official sources which are believed by 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 City since the date hereof. The information in this Official Statement has been provided by the City and sources the City considers reliable. The Underwriters have provided the following sentence for inclusion in this Official Statement. The Underwriters have reviewed the information in this Official Statement in accordance with, and as part of, their respective responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2021 BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY OFFER AND SELL THE SERIES 2021 BONDS TO CERTAIN DEALERS, INSTITUTIONAL INVESTORS AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED ON THE INSIDE COVER PAGE HEREOF AND SUCH PUBLIC OFFERING PRICES MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITERS. This Official Statement contains forward-looking statements within the meaning of the federal securities laws. Such statements are based on currently available information, expectations, estimates, assumptions, projections and general economic conditions. Such words as expects, intends, plans, believes, estimates, anticipates or variations of such words or similar expressions are intended to identify forward-looking statements and include, but are not limited to, statements under the captions “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” and “REVENUES AND DEBT SERVICE COVERAGE – Projected Operating Results.” The forward- looking statements are not guarantees of future performance. Actual results may vary materially from what is contained in a forward-looking statement. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. No assurance is given that actual results will meet the City’s forecasts in any way, regardless of the level of optimism communicated in the information. The City assumes no obligation to provide public updates of forward-looking statements. The City maintains a website, however, the information presented therein is not a part of this Official Statement and should not be relied on in making an investment decision with respect to the Series 2021 Bonds. 8.A.e Packet Pg. 609 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 CITY OF SANTA MONICA (County of Los Angeles, California) City Council Sue Himmelrich, Mayor Kristin McCowan, Mayor Pro Tempore Phil Brock Gleam Davis Oscar de la Torre Lana Negrete Christine Parra City Manager [John Jalili (Interim City Manager)] City Attorney George Cardona (Interim City Attorney) City Clerk Denise Anderson-Warren Director of Finance/City Treasurer Gigi Decavalles-Hughes Acting Director of Public Works Rick Valte Water Resources Manager Sunny Wang, P.E. Municipal Advisor Public Resources Advisory Group Bond Counsel Orrick, Herrington & Sutcliffe LLP Disclosure Counsel Orrick, Herrington & Sutcliffe LLP Trustee U.S. Bank National Association 8.A.e Packet Pg. 610 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 (THIS PAGE INTENTIONALLY LEFT BLANK) 8.A.e Packet Pg. 611 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution TABLE OF CONTENTS Page -i- 4140-7650-4109.4 SUMMARY STATEMENT ........................................................................................................................ 1 INTRODUCTION ....................................................................................................................................... 1 THE SERIES 2021 BONDS ........................................................................................................................ 2 General .................................................................................................................................................. 2 Redemption ........................................................................................................................................... 3 Transfer and Exchange of Bonds .......................................................................................................... 5 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS ........................................................... 6 Pledge of Net Revenues......................................................................................................................... 6 Water Fund ............................................................................................................................................ 8 Bond Fund ............................................................................................................................................. 9 Rate Covenant ....................................................................................................................................... 9 No Reserve Fund for the Series 2021 Bonds ....................................................................................... 10 Other Covenants of the City ................................................................................................................ 10 Additional Bonds and Parity Obligations ............................................................................................ 10 Investment of Funds ............................................................................................................................ 13 Insurance ............................................................................................................................................. 13 ESTIMATED SOURCES AND USES OF FUNDS ................................................................................. 14 DEBT SERVICE PAYMENT SCHEDULE ............................................................................................. 15 PLAN OF FINANCE ................................................................................................................................. 15 The Project .......................................................................................................................................... 15 Sustainability Goals of the Project ...................................................................................................... 17 CITY OF SANTA MONICA ..................................................................................................................... 18 General ................................................................................................................................................ 18 Government and Administration ......................................................................................................... 18 City Finances – Water Fund ................................................................................................................ 18 Basis of Financial Reporting ............................................................................................................... 19 THE WATER ENTERPRISE .................................................................................................................... 19 General ................................................................................................................................................ 19 Management ........................................................................................................................................ 22 Water Sources and Production ............................................................................................................ 22 Current Water Supply and Reliability ................................................................................................. 26 Water Storage Capacity ....................................................................................................................... 29 Water Treatment Plants ....................................................................................................................... 29 Recent Water Resources Division Actions in Response to the COVID-19 Pandemic ........................ 30 Recent Water Resources Division Actions in Response to Drought Conditions ................................ 30 8.A.e Packet Pg. 612 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution TABLE OF CONTENTS (continued) Page -ii- 4140-7650-4109.4 Future Sources of Water Supply and Reliability ................................................................................. 30 Water Conservation Programs and Urban Water Management Plan .................................................. 31 Risks to Water Supply ......................................................................................................................... 32 Water Quality ...................................................................................................................................... 32 Environmental Regulation ................................................................................................................... 33 REVENUES AND DEBT SERVICE COVERAGE ................................................................................. 34 Water Rates and Revenues .................................................................................................................. 34 Largest Customers ............................................................................................................................... 36 Historical and Projected Water Rates and Charges ............................................................................. 37 Rate Setting Process ............................................................................................................................ 42 Billing and Collection Procedures ....................................................................................................... 43 Water Reserves Fund ........................................................................................................................... 44 Operation and Maintenance Expenses ................................................................................................. 44 Capital Improvement Plan ................................................................................................................... 45 Water Fund Financial Summary .......................................................................................................... 49 Projected Coverage and Five-Year Forecast ....................................................................................... 53 Outstanding Indebtedness .................................................................................................................... 56 Additional Indebtedness ...................................................................................................................... 56 Investment of City Funds .................................................................................................................... 57 Insurance ............................................................................................................................................. 58 Retirement System .............................................................................................................................. 60 Other Postemployment Benefits .......................................................................................................... 67 Medical Trusts ..................................................................................................................................... 68 Labor Relations ................................................................................................................................... 68 WATER ENTERPRISE REGULATORY REQUIREMENTS ................................................................. 69 General ................................................................................................................................................ 69 Federal Requirements .......................................................................................................................... 69 State Regulations ................................................................................................................................. 70 Proposed Regulations .......................................................................................................................... 70 Permits and Licenses ........................................................................................................................... 70 Dam Licensing and Safety Issues ........................................................................................................ 70 RISK FACTORS ....................................................................................................................................... 71 Special Obligations .............................................................................................................................. 71 Acceleration; Limitations on Remedies .............................................................................................. 71 Enterprise Expenses and Collections ................................................................................................... 72 Risks Relating to the Water Supply ..................................................................................................... 72 Risks Relating to Water Sales; Water Supply Shortages .................................................................... 73 8.A.e Packet Pg. 613 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution TABLE OF CONTENTS (continued) Page -iii- 4140-7650-4109.4 Current Drought Conditions ................................................................................................................ 73 Climate Change and Sea Level ............................................................................................................ 74 Seismic Activity and Natural Disasters ............................................................................................... 77 Infectious Disease Outbreak – COVID-19 .......................................................................................... 78 Statutory and Regulatory Compliance ................................................................................................. 80 Environmental Laws and Regulations ................................................................................................. 81 Dam Safety .......................................................................................................................................... 81 Hazardous Substances ......................................................................................................................... 81 Future Legislation ................................................................................................................................ 81 Constitutional Limit on Fees and Charges .......................................................................................... 82 Rate-Setting Process Under Proposition 218....................................................................................... 82 Possible Insufficiency of Insurance Proceeds ..................................................................................... 82 Cybersecurity ....................................................................................................................................... 83 Change in Law ..................................................................................................................................... 84 Uncertainties of Projections, Forecasts and Assumptions ................................................................... 84 Economic, Political, Social, and Environmental Conditions ............................................................... 85 Loss of Tax Exemption ....................................................................................................................... 85 Risk of Tax Audit ................................................................................................................................ 85 Secondary Market ................................................................................................................................ 85 CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES .............. 85 Article XIIIA of the California Constitution ....................................................................................... 85 Article XIIIB of the California Constitution ....................................................................................... 86 Articles XIIIC and XIIID of the California Constitution .................................................................... 87 Tiered Municipal Water Rate Structures After Capistrano Taxpayers Association Case ................... 89 Statutory Spending Limitations ........................................................................................................... 90 Proposition 26 ...................................................................................................................................... 90 Future Initiatives .................................................................................................................................. 90 TAX MATTERS ........................................................................................................................................ 91 CERTAIN LEGAL MATTERS................................................................................................................. 93 ABSENCE OF MATERIAL LITIGATION .............................................................................................. 93 INFORMATION CONCERNING THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA ..................................................................................................................... 93 UNDERWRITING .................................................................................................................................... 94 RATING .................................................................................................................................................... 94 MUNICIPAL ADVISOR ........................................................................................................................... 95 CONTINUING DISCLOSURE ................................................................................................................. 95 8.A.e Packet Pg. 614 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution TABLE OF CONTENTS (continued) Page -iv- 4140-7650-4109.4 MISCELLANEOUS .................................................................................................................................. 95 APPENDIX A - GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA ...................................................................................................... A-1 APPENDIX B - EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020 ........ B-1 APPENDIX C - DEFINITIONS AND SUMMARY OF INDENTURE ................................................. C-1 APPENDIX D - BOOK-ENTRY-ONLY SYSTEM................................................................................ D-1 APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE........................................ E-1 APPENDIX F - PROPOSED FORM OF OPINION OF BOND COUNSEL ......................................... F-1 8.A.e Packet Pg. 615 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 SUMMARY STATEMENT This Summary Statement is subject in all respects to the more complete information contained in this Official Statement, and the offering of the Series 2021 Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not otherwise defined in this Summary Statement have the meanings ascribed to them in this Official Statement. Purpose. The Series 2021 Bonds are being issued to provide funds to: (i) finance certain improvements to the City’s water system including well fields, wells, water treatment plants (“WTP”) and meeting technology, the most significant components of which are the Olympic Well Field Restoration Project, Arcadia Water Treatment Plant Expansion Project, Sustainable Water Infrastructure Project (SWIP) Injection Well, Groundwater Resiliency Enhancement at the Charnock Well Field, and Advanced Metering Infrastructure Upgrade, each designed to further develop a diverse, sustainable, and drought-resilient local water supply in accordance with the City’s Sustainable Water Master Plan as discussed herein; and (ii) to pay costs of issuance of the Series 2021 Bonds, all as more fully described herein. Security for the Series 2021 Bonds. The Series 2021 Bonds are special obligations of the City payable solely from Net Revenues of the City’s water Enterprise remaining after payment of Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under the Indenture. The City is permitted to make parity pledges of Net Revenues for the benefit of owners of Additional Bonds and Parity Obligations (each as defined herein) in accordance with the Indenture. The obligation of the City to pay principal of and interest on the Series 2021 Bonds pursuant to the Indenture does not constitute an obligation for which the City is obligated to levy or pledge any form of taxation or for which the City has levied or pledged any form of taxation. The obligation of the City to pay principal of and interest on the Series 2021 Bonds is a special obligation of the City, payable, as provided in the Indenture, solely from Net Revenues and the other assets pledged therefor under the Indenture. The Series 2021 Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Series 2021 Bonds. Rate Covenant. The City will agree in the Indenture, to the fullest extent permitted by law, to fix, prescribe and collect rates and charges for the services of the Enterprise that will be at least sufficient to yield during each Fiscal Year (i) Revenues of the City for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to the Indenture to be made in such Fiscal Year, including (A) payments of Operation and Maintenance Costs, and (B) all transfers required pursuant to and in the priorities set forth, with respect to the Bonds and any Parity Debt as described herein, and (ii) a Debt Service Coverage Ratio for such Fiscal Year of not less than 1.20:1. Additional Contracts and Bonds Test. The Indenture permits the City to execute any Additional Bonds and Parity Obligations on a parity with the obligation to pay principal of and interest on the Series 2021 Bonds, provided that certain conditions are satisfied as described herein. No Reserve Fund. The City has not funded a debt service reserve fund for the Series 2021 Bonds. Redemption of Series 2021 Bonds. The Series 2021 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. The City. The City 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 8.A.e Packet Pg. 616 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 2 4140-7650-4109.4 approval by the California State Legislature. The City is situated on the western side of Los Angeles County, bordered by the City of Los Angeles on three sides and by the Pacific Ocean to the west. Santa Monica encompasses an area slightly greater than eight square miles. As of January 1, 2021, the City had an estimated residential population of 92,968 making it the 18th largest of the 88 cities in Los Angeles County. The City’s Water Enterprise. The “Enterprise” means any and all facilities of the City for the production, storage, treatment and distribution of water for domestic use, industrial use, fire protection, recreation or any other public or private use and all other appurtenances necessary, useful or convenient for the production, storage, treatment and distribution of water and any necessary lands, rights of way and other real or personal property useful in connection therewith. The City currently owns and operates five groundwater well fields (a total of ten groundwater wells), two water treatment facilities, four water storage reservoirs, and over 200 miles of water distribution pipelines. The Enterprise is managed by the City’s Department of Environmental and Public Works Management, Water Resources Division (the “Water Resources Division”). The Enterprise serves an eight square mile area, providing water services to over 93,000 residents and over 2,700 commercial customers in the City. The Water Resources Division is also responsible for the City’s wastewater operations, including cleaning, inspecting and repairing approximately 125 miles of sanitary sewers, 20 miles of storm drains and 825 catch basins as well as a pumping plant, and implementing and enforcing the City’s Industrial Waste Control Program. The wastewater enterprise does not support operations of the Enterprise and is not a source of funds for the payment of the principal of and interest on the Series 2021 Bonds. This Official Statement contains brief descriptions of, among other things, the Series 2021 Bonds, the Indenture, the City and the Enterprise. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by references to such documents, and references to the Series 2021 Bonds are qualified in their entirety by reference to the form of Series 2021 Bonds included in the Indenture. For certain financial information with respect to the City and the Enterprise see APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” For a discussion of governmental, demographic, and economic information with respect to the City see APPENDIX A – “GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA.” Copies of the Indenture and additional information may be obtained upon request from the City of Santa Monica City Clerk, 1685 Main Street, Santa Monica, California 90401. 8.A.e Packet Pg. 617 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 OFFICIAL STATEMENT $_________∗ CITY OF SANTA MONICA WATER ENTERPRISE REVENUE BONDS, SERIES 2021 INTRODUCTION This Official Statement (which includes the cover page, inside cover page and Appendices hereto), provides certain information concerning the sale and issuance by the City of Santa Monica (the “City”) of $_________* aggregate principal amount of its City of Santa Monica Water Enterprise Revenue Bond, Series 2021 (the “Series 2021 Bonds”). The Series 2021 Bonds are being issued in fully registered book-entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Interest on the Series 2021 Bonds is payable semiannually on February 1 and August 1 of each year, commencing on February 1, 2022. Purchasers will not receive certificates representing their interest in the Series 2021 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of, and premium, if any, and interest on the Series 2021 Bonds will be paid by U.S. Bank National Association, as trustee (the “Trustee”) to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2021 Bonds. See APPENDIX D – “BOOK-ENTRY-ONLY SYSTEM” herein. The Series 2021 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See “THE SERIES 2021 BONDS – Redemption” herein. The Series 2021 Bonds are payable from Net Revenues of the water Enterprise (each as defined herein). See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein. In accordance with the Indenture, the City will pledge and grant a lien on and a security interest in all of the Net Revenues for the benefit of Owners of the Series 2021 Bonds. The City is permitted to make parity pledges of Net Revenues for the benefit of owners of Additional Bonds and Parity Obligations (each as defined herein) in accordance with the Indenture. The proceeds of the sale of the Series 2021 Bonds will be applied to finance certain improvements to the Enterprise. See “PLAN OF FINANCE” herein. The finances and operations of the City have been significantly impacted by SARS-CoV-2, the virus which causes the coronavirus disease (“COVID-19”), which has been characterized as a pandemic (the “Pandemic”) by the World Health Organization and is currently affecting many parts of the world, including the United States and the State of California (the “State”). See “RISK FACTORS – Infectious Disease Outbreak – COVID-19.” The Pandemic had a direct impact on the City’s commercial and institutional customer base and associated water revenues. The commercial and institutional customers make-up of approximately 20% of the Enterprise’s customer base and accounts for nearly 30% of the water revenues. With the water revenues primarily impacted by the commercial and institutional sector, the Enterprise experienced a revenue decline of approximately 10% to 15% in Fiscal Year 2019-20 and Fiscal Year 2020-21. See “THE WATER ENTERPRISE – Recent Water Resources Division Actions in Response to the COVID-19 Pandemic.” To balance the Pandemic impacts on water revenues, the Enterprise reduced operating and maintenance expenditures by extending asset life and delayed non-critical maintenance activities. One of the major savings came from deferring capital improvement projects to straddle multiple Fiscal Years for financial flexibility (e.g., reduced and deferred annual water ∗ Preliminary, subject to change. 8.A.e Packet Pg. 618 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 2 4140-7650-4109.4 main replacement program to future years once revenues recover). The City released its Proposed Biennial Budget for Fiscal Year 2021-23 on May 10, 2021, followed by budget study sessions on May 25 and May 26, 2021. The City adopted its Fiscal Year 2021-23 Biennial Budget on June 22, 2021. The overall budget for the City of Santa Monica is $707.8 million in Fiscal Year 2021-22 and $598.9 million in Fiscal Year 2022-23, net of reimbursements and transfers, adopted as a balanced biennial budget focused on community priorities of a safe and clean Santa Monica, addressing homelessness, and an equitable and inclusive economic recovery. The City will not fund a reserve fund for the Series 2021 Bonds. Amounts held or to be held in a reserve fund or account established for any other series of bonds or any reserve fund credit policy for any other series of bonds will not be used or drawn upon to pay principal of, and premium, if any, and interest on the Series 2021 Bonds. For a description of the Water Reserves Fund maintained by the Enterprise, see “REVENUES AND DEBT SERVICE COVERAGE – Water Reserves Fund.” THE SERIES 2021 BONDS ARE, AND ALL BONDS SHALL BE, SPECIAL OBLIGATIONS OF THE CITY, PAYABLE, AS PROVIDED IN THE INDENTURE, SOLELY FROM NET REVENUES AND THE OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE. THE BONDS SHALL NOT BE DEEMED TO CONSTITUTE A DEBT OR LIABILITY OF THE CITY, THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY OR THE STATE, OR ANY POLITICAL SUBDIVISION THEREOF, IS PLEDGED TO THE PAYMENT OF THE BONDS. The City has agreed to provide, or cause to be provided, certain annual financial information and operating data through the Electronic Municipal Market Access (“EMMA”) website of the Municipal Securities Rulemaking Board (“MSRB”), or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to S.E.C. Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”). These covenants have been made in order to assist the Underwriters in complying with SEC Rule 15c2-12(b)(5). See “CONTINUING DISCLOSURE.” For a complete listing of items of information which will be provided in the Annual Report and notices of enumerated events, see APPENDIX E – “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” The summaries or references to the Indenture and other documents, agreements and statutes referred to herein, and the description of the Series 2021 Bonds included in this Official Statement, do not purport to be comprehensive or definitive, and such summaries, references and descriptions are qualified in their entireties by reference to each such document or statute. All capitalized terms used in this Official Statement (unless otherwise defined herein) which are defined in the Indenture shall have the meanings set forth therein, some of which are summarized in APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE.” THE SERIES 2021 BONDS General The Series 2021 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof (each, an “Authorized Denomination”). The Series 2021 Bonds will be dated as of and bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the dated date thereof at the rates set forth on the inside cover page hereof. Interest on the Series 2021 Bonds will be paid semiannually on February 1 and August 1 (each, an “Interest Payment Date”) of each year, commencing on February 1, 2022. 8.A.e Packet Pg. 619 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 3 4140-7650-4109.4 Interest on the Series 2021 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2021 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event interest thereon will be payable from such Interest Payment Date, (ii) a Series 2021 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the Closing Date, or (iii) interest on any Series 2021 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has previously been paid or duly provided for. As defined in the Indenture, the term “Record Date” means, with respect to interest payable on any Interest Payment Date, the 15th calendar day of the month preceding such Interest Payment Date, whether or not such day is a Business Day. Interest will be paid in lawful money of the United States on each Interest Payment Date. Interest will be paid by check of the Trustee mailed by first-class mail, postage prepaid, on each Interest Payment Date to the Owners of the Series 2021 Bonds at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series 2021 Bond which is not punctually paid or duly provided for on any Interest Payment Date will, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series 2021 Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which will be given to such Owner not less than ten days prior to such special record date. The principal of and premium, if any, on the Series 2021 Bonds will be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. The Series 2021 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to actual purchasers of the Series 2021 Bonds (the “Beneficial Owners”) in the denominations set forth above, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined herein) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Series 2021 Bonds. See APPENDIX D – “BOOK-ENTRY-ONLY SYSTEM” herein. Redemption Optional Redemption. The Series 2021 Bonds maturing on and after August 1, 20__, are subject to optional redemption, in whole, or in part in Authorized Denominations, on any date on or after August 1, 20__ from any source of available funds, at a Redemption Price equal to the principal amount of the Series 2021 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption. The City will give the Trustee written notice of its intention to redeem Series 2021 Bonds pursuant to this subsection not less than 35 days prior to the applicable redemption date, unless a later date is agreed to by the Trustee. Mandatory Sinking Fund Redemption. The Series 2021 Bonds maturing August 1, 20__ are subject to mandatory sinking fund redemption, in part, on August 1 in each year, commencing August 1, 20__, at a Redemption Price equal to the principal amount of the Series 2021 Bonds maturing August 1, 20__ to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: 8.A.e Packet Pg. 620 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4 4140-7650-4109.4 Sinking Fund Redemption Date (August 1) Principal Amount to be Redeemed † (Maturity) If some but not all of the Series 2021 Bonds maturing on August 1, 20__ are optionally redeemed, the principal amount of the Series 2021 Bonds maturing on August 1, 20__ to be redeemed from sinking fund payments on any subsequent August 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by the City in a Written Certificate of the City filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of the Series 2021 Bonds maturing on August 1, 20__ optionally redeemed. Notice of Redemption. So long as the Bonds are held in book-entry form, notices of redemption will be mailed by the Trustee only to DTC, and not to any Beneficial Owners, at least 20 but not more than 60 days prior to the date fixed for redemption. Such notice will state the date of the notice, the redemption date, the redemption place and the Redemption Price and will designate the CUSIP numbers, if any, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed will be deemed to have been paid within the meaning specified in the Indenture, such notice will state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the Redemption Price of, and accrued interest on, the Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the City will not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of Bonds as described in the conditional notice of redemption will not be made and the Trustee will, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there will be no redemption of Bonds pursuant to such notice of redemption. Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of less than all of the Bonds, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the City, and (b) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate. For purposes of such selection, each Bond shall be deemed to be comprised of separate 8.A.e Packet Pg. 621 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 5 4140-7650-4109.4 denominations equal to the minimum Authorized Denomination for such Bond and such separate denominations shall be treated as separate Bonds that may be separately redeemed. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond or Bonds of the same Series in Authorized Denominations in an aggregate principal amount equal to the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price thereof, and the interest thereon to the applicable date fixed for redemption, having been set aside with the Trustee, such Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the Redemption Price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the Redemption Price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed as aforesaid and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon. Transfer and Exchange of Bonds The following provisions regarding the exchange and transfer of the Bonds apply only during any period in which the Bonds are not subject to DTC’s book-entry system. While the Bonds are subject to DTC’s book-entry system, their exchange and transfer will be effected through DTC and the Participants and will be subject to the procedures, rules and requirements established by DTC. Any Bond may, in accordance with its terms, be transferred upon the books required to be kept by the Trustee pursuant to the provisions of the Indenture by the Person in whose name it is registered, in person or by his or her duly authorized attorney, upon surrender of such Bond to the Trustee for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the City shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any Authorized Denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other Authorized Denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. 8.A.e Packet Pg. 622 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 6 4140-7650-4109.4 SECURITY AND SOURCES OF PAYMENT FOR THE BONDS Pledge of Net Revenues The Series 2021 Bonds are an obligation payable exclusively from the Water Fund of the City and certain other funds and accounts pledged under the Indenture. The Series 2021 Bonds are secured by a pledge of and lien upon the Net Revenues of the Enterprise on a parity with other obligations of the Enterprise payable from the Water Fund and issued from time to time pursuant to the Indenture. As defined in the Indenture, “Net Revenues” means, for any period, the remainder of (a) the Revenues for such period, minus (b) the Operation and Maintenance Costs for such period (each as defined in the Indenture and set forth below). The Water Fund is established and maintained as a separate fund held by the City. The City utilizes the Water Fund to account for revenues and expenses of providing water service to the citizens of the City. The City covenants in the Indenture to deposit in the Water Fund all of the Revenues as and when received. As provided in the Indenture, in order to secure the payment of the principal of, premium, if any, and interest on the Bonds and the Parity Debt in accordance with their terms and the provisions of the Indenture, the City pledges to the Obligees, and grants thereto a lien on and a security interest in, all of the Net Revenues and, to the Owners of the Bonds, the City pledges and grants thereto a lien on and a security interest in, all of the amounts held in the Bond Fund and the Redemption Fund. Said pledge shall constitute a first lien on and security interest in such assets, which shall immediately attach to such assets and be effective, binding and enforceable against the City, its successors, purchasers of any of such assets, creditors and all others asserting rights therein, to the extent set forth in, and in accordance with, the Indenture, irrespective of whether those parties have notice of the pledge of, lien on and security interest in such assets and without the need for any physical delivery, recordation, filing or further act. The term “Obligees” means, with respect to the Series 2021 Bonds, the Owners of such Series 2021 Bonds. See “Additional Bonds and Parity Debt” below. “Enterprise” means any and all facilities of the City for the production, storage, treatment and distribution of water for domestic use, industrial use, fire protection, recreation or any other public or private use and all other appurtenances necessary, useful or convenient for the production, storage, treatment and distribution of water and any necessary lands, rights of way and other real or personal property useful in connection therewith. “Obligees” means, with respect to any Obligations (a) if such Obligations are Bonds, the Owners of such Bonds, and (b) if such Obligations are Parity Debt, the Person or Persons to whom payments under such Parity Debt are payable, as provided in the Obligation Instrument pursuant to which such Parity Debt is incurred. “Revenues” means, for any period (a) all income and revenue received by the City from the operation or ownership of the Enterprise, determined in accordance with Generally Accepted Accounting Principles, including all rates and charges earned by the City for the services of the Enterprise, investment income (to the extent generally available to pay costs with respect to the Enterprise), proceeds of insurance relating to business interruption loss relating to the Enterprise and all other revenue howsoever derived by the City from the operation or ownership of the Enterprise or arising from the Enterprise, but excluding (i) refundable deposits made to establish credit, (ii) advances or contributions in aid of construction, and (iii) ad valorem property taxes levied to pay debt service on any outstanding obligations of the City, (b) amounts, if any, transferred during such period from the Rate Stabilization Account to the Water Fund, and (b) an amount equal to all Governmental Debt Service Subsidies, if any, for such period; provided, however, that, for purposes of calculating Assumed Debt Service Coverage Ratio or Debt 8.A.e Packet Pg. 623 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 7 4140-7650-4109.4 Service Coverage Ratio for such period, the Revenues for such period shall not include any such Governmental Debt Service Subsidies. “Debt Service Coverage Ratio” means, for any Fiscal Year, the ratio of (a) Net Revenues for such period, to (b) Debt Service on the Outstanding Parity Obligations for such Fiscal Year. “Assumed Debt Service Coverage Ratio” means, for any period, the ratio of (a) Adjusted Net Revenues for such period, to (b) Assumed Maximum Annual Debt Service on all Parity Obligations to be Outstanding immediately after the incurrence of such Parity Obligations. “Operation and Maintenance Costs” means, for any period, the reasonable and necessary costs expended or incurred by the City for maintaining and operating the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, including the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and including salaries and wages of employees, payments to its employee retirement systems (to the extent paid from Revenues), overhead, insurance, taxes if any, fees of auditors, accountants, attorneys or engineers and insurance premiums, and Administrative Costs, but excluding in all cases (a) depreciation, replacement and obsolescence charges or reserves therefor, (b) amortization of intangibles or other bookkeeping entries of a similar nature, (c) costs of capital additions, betterments, extensions or improvements to the Enterprise that, under Generally Accepted Accounting Principles, are chargeable to a capital account or to a reserve for depreciation, and (d) debt service payable on debt (determined in accordance with Generally Accepted Accounting Principles) incurred by the City with respect to the Enterprise, including Parity Obligations. “Governmental Debt Service Subsidy” means, with respect to Parity Obligations, any subsidy, reimbursement or other payment from the federal government of the United States of America in connection with, or related to, payments of Debt Service such Parity Obligations. “Parity Debt” means (a) bonds (other than Bonds) and notes, including bond anticipation notes and commercial paper notes, and other substantively similar evidences of indebtedness payable, in accordance with the terms of the Indenture, on a parity with the Bonds (whether or not any Bonds are Outstanding), and (b) loan payments, installment payments, lease payments, rental payments or similar payments of interest and principal or, if there are no separate payments of interest and principal, the loan payments, installment payments, lease payments, rental payments or similar payments payable by the City under and pursuant to loan agreements, credit agreements, credit facilities, lines of credit, installment purchase agreements, installment sale agreements, financing leases or other substantively similar agreements or contracts of the City, howsoever denominated, which payments are, in accordance with the terms of the Indenture, payable on a parity with the Bonds (whether or not any Bonds are Outstanding). “Parity Obligations” means the Bonds and any Parity Debt. The Series 2021 Bonds are, and all Bonds shall be, special obligations of the City, payable, as provided in the Indenture, solely from Net Revenues and the other assets pledged therefor under the Indenture. The Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. 8.A.e Packet Pg. 624 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 8 4140-7650-4109.4 Water Fund The City has established and covenants under the Indenture to maintain within its treasury a separate fund designated the “Water Fund.” The City shall deposit in the Water Fund all of the Revenues as and when received, and the City shall pay from the Water Fund all of the Operation and Maintenance Costs as and when the same become due and payable. On or before August 1 of each Fiscal Year, commencing August 1, 2022, the City shall adopt a budget approved by the City Council of the City that appropriates amounts for the payment of the Bonds payable during such Fiscal Year. After having paid, or having made provision for the payment of, the Operation and Maintenance Costs, the City shall transfer to the Trustee legally available Net Revenues from the Water Fund in the amounts set forth below in the following order of priority (including curing any existing deficiency in transfers required on any prior date), the requirements of each transfer of each priority to be fully satisfied, leaving no deficiencies, prior to any transfer later in priority; provided, however, that on a parity with such transfers, the City shall transfer to the respective Obligees thereof amounts to pay Debt Service on Parity Debt in accordance with the provisions of the Obligation Instrument pursuant to which such Parity Debt is issued, which transfers shall be proportionate in the event such amounts are insufficient to provide for all transfers required as of any date to be made with respect to the Bonds and any such Parity Debt: (i) Interest Account. On the fifth Business Day preceding each February 1 and August 1, the City shall transfer to the Trustee for deposit in the Interest Account an amount that, together with other amounts on deposit therein, is equal to the interest becoming due and payable on the Outstanding Bonds (except for Bonds constituting Variable Rate Obligations) on the following February 1 or August 1, respectively; provided, however, that, with respect to Bonds constituting Variable Rate Indebtedness, on or before the second Business Day preceding each interest payment date for such Bonds, or on such other day as shall be provided in the Supplemental Indenture pursuant to which such Bonds constituting Variable Rate Obligations are issued, the City shall transfer to the Trustee for deposit in the Interest Account an amount that, together with other amounts on deposit therein, is equal to the interest becoming due and payable on the Outstanding Bonds constituting Variable Rate Obligations on the following interest payment date; (ii) Principal Account. On the fifth Business Day preceding each August 1, the City shall transfer to the Trustee for deposit in the Principal Account an amount that, together with other amounts on deposit therein, is equal to the principal, if any, due on the Bonds on such August 1, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds; and (iii) Reserve Funds. If the City has issued one or more Series of Additional Bonds for which a Reserve Fund has been established, and the amount on deposit in any such Reserve Fund is less than the reserve requirement therefor, which deficiency is the result of a withdrawal therefrom of amounts to pay Debt Service on the Additional Bonds of such Series, on the fifth Business Day preceding each February 1 and August 1, the City shall transfer to the Trustee for deposit in such Reserve Fund an amount equal to one-half of the amount of such amounts so withdrawn until the amounts so transferred to the Trustee are equal to the amounts so withdrawn. The City will not fund a reserve fund for the Series 2021 Bonds. Any Net Revenues remaining in the Water Fund after the foregoing transfers to the Trustee have been made shall be held free and clear of the pledge thereof, lien thereon and security interest therein granted pursuant to the Indenture and the City may use and apply such Net Revenues for any lawful purpose, including the payment of debt service on Subordinate Obligations. 8.A.e Packet Pg. 625 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 9 4140-7650-4109.4 Within the Water Fund, the City will establish and maintain a separate account designated the “Rate Stabilization Account” The City may from time to time transfer amounts on deposit in the Water Fund to the Rate Stabilization Account; provided, however, that (i) any such transfer (A) that is made on or before the date that is ten days after the Closing Date, and (B) that is not in an amount greater than [$1,000,000], shall not be taken into account for purposes of calculating Adjusted Net Revenues, and (ii) the City shall not at any time make any such transfer to the Rate Stabilization Account if and to the extent that such transfer would result in there being insufficient amounts in the in the Water Fund to pay Operation and Maintenance Costs becoming due and payable. The City may from time to time transfer amounts on deposit in the Rate Stabilization Account to the Water Fund. Bond Fund The Trustee shall establish and maintain a separate fund designated the “Bond Fund.” Within the Bond Fund, the Trustee shall establish and maintain a separate account designated the “Principal Account” and a separate account designated the “Interest Account.” The Trustee shall deposit in the Interest Account and the Principal Account from time to time the amounts required to be deposited therein pursuant to and in the priorities set forth in paragraph (c) under the caption “Water Fund” above. There shall additionally be deposited in the Interest Account the portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. On each Interest Payment Date, the Trustee shall withdraw from the Interest Account for payment to the Owners of the Bonds the interest on the Bonds then due and payable. On each August 1 on which principal of the Bonds is due and payable, including principal due and payable by reason of mandatory sinking fund redemption of the Bonds, the Trustee shall withdraw from the Principal Account for payment to the Owners of the Bonds such principal then due and payable. Rate Covenant The City has covenanted in the Indenture, to the extent permitted by applicable law, fix, prescribe and collect rates and charges for the services of the Enterprise that will be at least sufficient to yield during each Fiscal Year (i) Revenues of the City for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to the Indenture to be made in such Fiscal Year, including (A) payments of Operation and Maintenance Costs, and (B) all transfers required pursuant to and in the priorities set forth, with respect to the Bonds and any Parity Debt, under the caption “Water Fund” above, and (ii) a Debt Service Coverage Ratio for such Fiscal Year of not less than 1.20:1. The City may make adjustments from time to time in such rates and charges and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Revenues and Debt Service Coverage Ratio from such reduced rates and charges will at all times be sufficient to meet the requirements of the Indenture as summarized in this paragraph. The City shall not be in default with respect to this rate covenant if it fails to satisfy the requirements set forth in the paragraph immediately above for a Fiscal Year, so long as (i) the City has satisfied the requirements of clause (i) above for such Fiscal Year, and (ii) the City has delivered to the Trustee, no later than 90 days after the end of such Fiscal Year, a written report describing the cause or causes of such failure and describing the measures that the City has taken or is in the process of taking in order to prevent such a failure in the Fiscal Year next succeeding such Fiscal Year; provided, however, that the City shall be in default of its Rate Covenant if it fails to satisfy the requirements set forth in the paragraph immediately above for two consecutive Fiscal Years. 8.A.e Packet Pg. 626 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 10 4140-7650-4109.4 The City’s rate covenant is subject to compliance by the City with the provisions of Article XIIID of the California State Constitution. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES – Articles XIIIC and XIIID of the California Constitution.” No Reserve Fund for the Series 2021 Bonds The City will not fund a reserve fund for the Series 2021 Bonds. Amounts held or to be held in a reserve fund or account established for any other Series of Bonds or any reserve fund credit policy for any other Series of Bonds will not be used or drawn upon to pay principal of, and premium, if any, and interest on the Series 2021 Bonds. For a description of the Water Reserves Fund maintained by the Enterprise, see “REVENUES AND DEBT SERVICE COVERAGE – Water Reserves Fund.” If the Supplemental Indenture pursuant to which Additional Bonds are issued provides for the establishment of a Reserve Fund for such Additional Bonds, the City may, pursuant to such Supplemental Indenture, pledge to the Owners of the Additional Bonds of such Series, and grant thereto a lien on and a security interest in, all of the amounts held in such Reserve Fund. See “Additional Bonds and Parity Debt” below. Other Covenants of the City In addition to the covenant described under the heading “Rate Covenant” above, under the Indenture, the City makes certain other covenants, including covenants relating to the operation of the Enterprise, insurance covenants and covenants related to the tax-exempt status of the Series 2021 Bonds. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE.” Additional Bonds and Parity Obligations Conditions for the Issuance of Additional Bonds. The City may at any time issue one or more Series of Additional Bonds payable from Net Revenues as provided in the Indenture on a parity with all Parity Obligations theretofore incurred for any purposes to which Revenues may be legally applied, provided that upon the issuance of such Additional Bonds, no Event of Default shall have occurred and be continuing under the Indenture, and that such Additional Bonds shall be payable as to interest on the Interest Payment Dates, except that the first installment of interest may be payable on either February 1 or August 1 and shall be for a period of not longer than twelve months; provided, however, that, if such Additional Bonds constitute Variable Rate Obligations, interest thereon may be payable on such payment dates as shall be specified in the Supplemental Indenture pursuant to which such Additional Bonds are issued. Subject to the provisions of the paragraph immediately below, the City shall have delivered to the Trustee either (i) a Written Certificate the City demonstrating that, for any 12 consecutive calendar months during the 24 calendar month period ending prior to the date of issuance of such Additional Bonds, the Assumed Debt Service Coverage Ratio, determined in accordance with Generally Accepted Accounting Principles and as shown by the books of the City, is not less than 1.20:1; provided, however, that, for the purpose of calculating such Assumed Debt Service Coverage Ratio, the Adjusted Net Revenues may be adjusted for (A) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of issuance of such Additional Bonds, (B) customers added to the Enterprise subsequent to the commencement of the applicable 12 month computation period but prior to the date of issuance of such Additional Bonds, and (C) the estimated change in available Adjusted Net Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Additional Bonds and, provided, further that; for purposes of 8.A.e Packet Pg. 627 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 11 4140-7650-4109.4 preparing such Written Certificate of the City, the City may rely upon financial statements prepared by the City that have not been subject to audit by an independent certified public accountant if audited financial statements for the applicable period are not available, or (ii) both (A) a written report of an Independent Utilities Consultant setting forth for the Fiscal Year immediately succeeding the Fiscal Year in which such Additional Bonds are issued, or if interest on such Additional Bonds is being capitalized from the proceeds of such Additional Bonds, the Fiscal Year following the Fiscal Year in which such interest is capitalized in full, estimates of (I) Revenues, (II) Operation and Maintenance Costs, and (III) Adjusted Net Revenues; provided, however, that, for the purpose of estimating Revenues for such purpose, Revenues may be adjusted for (aa) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of issuance of such Additional Bonds, and (bb) the estimated change in available Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Additional Bonds, and (B) a certificate of an Independent Financial Consultant demonstrating that, based on the estimate of Adjusted Net Revenues set forth in such written report of such Independent Utilities Consultant, the Assumed Debt Service Coverage Ratio is not less than 1.20:1. As defined in the Indenture, the term “Adjusted Net Revenues” means, for any period, the Net Revenues for such period, less amounts, if any, transferred during such period from the Rate Stabilization Account to the Water Fund. If such Additional Bonds are being issued to refund previously incurred Parity Obligations, and Debt Service in each Fiscal Year, calculated for all Parity Obligations that will be Outstanding after the issuance of such Additional Bonds, will be less than or equal to Debt Service in such Fiscal Year, calculated for all Parity Obligations that are Outstanding immediately prior to the issuance of such Additional Bonds, the receipt of the certificate described in the paragraph immediately above shall not be a condition precedent to the issuance of such Additional Bonds. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE – Conditions for the Issuance of Additional Bonds” and “– Procedure for the Issuance of Additional Bonds.” Conditions for the Incurrence of Parity Debt. The City may at any time incur Parity Debt payable from Net Revenues as provided in the Indenture on a parity with all Parity Obligations theretofore incurred, which purposes may include any purposes to which Revenues may be legally applied. If, pursuant to the Obligation Instrument pursuant to which such Parity Debt is incurred a Reserve Fund is to be established to secure the payment of Debt Service on such Parity Debt (A) that such Reserve Fund is subject to the provisions of the Obligation Instrument pursuant to which such Parity Debt is incurred applicable thereto, (B) the reserve requirement for such Parity Debt, which shall not exceed the Maximum Reserve Requirement with respect to such Parity Debt, (C) the maximum amount required, pursuant to such Obligation Instrument, to be deposited into such Reserve Fund in any period, which amount shall not exceed the amount required to be deposited therein pursuant to and in the priorities set forth in paragraph (c) under the caption “Water Fund” above, and (D) the amount, if any, to be deposited from the proceeds of such Parity Debt in such Reserve Fund. “Maximum Reserve Requirement” means, with respect to any Parity Obligations for which, pursuant to the Obligation Instrument pursuant to which such Parity Obligations are incurred, a Reserve Fund is required to be established, as of the date of any calculation, the least of (a) “10% of the proceeds of the issue,” within the meaning of Section 148 of the Code, (b) maximum annual Assumed Debt Service on such Parity Obligations, and (c) 125% of average annual Assumed Debt Service on such Parity Obligations. Subject to the provisions of the paragraph immediately below, the City shall have delivered to the Trustee either (i) a Written Certificate the City demonstrating that, for any 12 consecutive calendar 8.A.e Packet Pg. 628 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 12 4140-7650-4109.4 months during the 24 calendar month period ending prior to the date of incurrence of such Parity Debt, the Assumed Debt Service Coverage Ratio, determined in accordance with Generally Accepted Accounting Principles and as shown by the books of the City, is not less than 1.20:1; provided, however, that, for the purpose of calculating such Assumed Debt Service Coverage Ratio, the Adjusted Net Revenues may be adjusted for (A) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of incurrence of such Parity Debt, (B) customers added to the Enterprise subsequent to the commencement of the applicable 12 month computation period but prior to the date of incurrence of such Parity Debt, and (C) the estimated change in available Adjusted Net Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Parity Debt and, provided, further that; for purposes of preparing such Written Certificate of the City, the City may rely upon financial statements prepared by the City that have not been subject to audit by an independent certified public accountant if audited financial statements for the applicable period are not available, or (ii) both (A) a written report of an Independent Utilities Consultant setting forth for the Fiscal Year immediately succeeding the Fiscal Year in which such Parity Debt is incurred, or if interest on such Parity Debt is being capitalized from the proceeds of such Parity Debt, the Fiscal Year following the Fiscal Year in which such interest is capitalized in full, estimates of (I) Revenues, (II) Operation and Maintenance Costs, and (III) Adjusted Net Revenues; provided, however, that, for the purpose of estimating Revenues for such purpose, Revenues may be adjusted for (aa) any changes in rates and charges for the services of the Enterprise that have been adopted prior to the date of incurrence of such Parity Debt, and (bb) the estimated change in available Revenues that will result from the connection of existing residences or businesses to the Enterprise within one year following completion of any improvements to the Enterprise to be financed by, or any system to be acquired from the proceeds of, such Parity Debt, and (B) a certificate of an Independent Financial Consultant demonstrating that, based on the estimate of Adjusted Net Revenues set forth in such written report of such Independent Utilities Consultant, the Assumed Debt Service Coverage Ratio is not less than 1.20:1. If such Parity Debt is being incurred to refund previously incurred Parity Obligations, and Debt Service in each Fiscal Year, calculated for all Parity Obligations that will be Outstanding after the incurrence of such Parity Debt, will be less than or equal to Debt Service in such Fiscal Year, calculated for all Parity Obligations that are Outstanding immediately prior to the incurrence of such Parity Debt, the receipt of the certificate described in the paragraph immediately above shall not be a condition precedent to the incurrence of such Parity Debt. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE – ISSUANCE OF SERIES 2021 BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS; PARITY DEBT – Conditions for the Incurrence of Parity Debt” and “– Procedure for the Incurrence of Parity Debt.” Additional Bonds; Parity Debt; Subordinate Obligations. The City shall not incur any obligations payable from Net Revenues on a parity with the Parity Obligations, except as provided in the Indenture including as summarized above under the headings “Conditions for the Issuance of Additional Bonds,” “Conditions for the Incurrence of Parity Debt” and “Conditions for the Incurrence of Parity Debt” and the related procedures for the issuance or incurrence of such debt. The City may, in accordance with the terms of the Indenture, at any time and from time to time incur Subordinate Obligations, which incurrence shall not be subject to the provisions of the Indenture including as summarized above under the headings “Conditions for the Issuance of Additional Bonds,” “Conditions for the Incurrence of Parity Debt” and “Conditions for the Incurrence of Parity Debt” and the related procedures for the issuance or incurrence of such debt; provided, however, that (i) if any default with respect to any Outstanding Parity Obligations shall have occurred and be continuing, the Obligees of 8.A.e Packet Pg. 629 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 13 4140-7650-4109.4 all Outstanding Parity Obligations shall be entitled to receive payment in full in cash of all Debt Service payments and all other payments payable pursuant to such Parity Obligations as the same become due and payable in accordance with the provisions of the Obligation Instruments pursuant to which such Parity Obligations are incurred before the Obligees of such Subordinate Obligations are entitled to receive any payment from the Net Revenues or amounts on deposit in the Revenue Fund, and (ii) that such Subordinate Obligations shall only be subject to acceleration if all Outstanding Parity Obligations subject to acceleration have become, or have been declared to be, due and payable, and such declaration has not been annulled in accordance with the Indenture, and any annulment of such acceleration of such Parity Obligation shall, ipso facto, constitute an annulment of such acceleration of such Subordinate Obligations. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE – ISSUANCE OF SERIES 2021 BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS; PARITY DEBT – Additional Bonds; Parity Debt; Subordinate Obligations” and “EVENTS OF DEFAULT AND REMEDIES.” Investment of Funds All moneys held in the funds and accounts established pursuant to the Indenture will be invested solely in Investment Securities in accordance with State law and the City’s Investment Policy. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE.” The Series 2021 Bonds are, and all Bonds shall be, special obligations of the City, payable, as provided in the Indenture, solely from Net Revenues and the other assets pledged therefor under the Indenture. The Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. Insurance The Indenture provides that the City shall procure and maintain or cause to be procured and maintained casualty insurance on the Enterprise with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), in such amounts and against such risks, including accident to or destruction of the Enterprise, as are reasonably determined by the City to provide, in the event of any damage to or destruction of any material portion of the Enterprise, sufficient Net Revenues to reconstruct, repair or replace the damaged or destroyed portion of the Enterprise. The City is not expressly required under the Indenture to maintain earthquake or flood insurance on the Enterprise. In the event of any damage to or destruction of any material portion of the Enterprise caused by the perils covered by such insurance or self-insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or replacement of the damaged or destroyed portion of the Enterprise. The City shall begin such reconstruction, repair or replacement promptly after such damage or destruction shall occur, shall continue and properly complete such reconstruction, repair or replacement as expeditiously as possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such reconstruction, repair or replacement so that the same shall be completed and the Enterprise shall be free and clear of all claims and liens, unless the City determines that such damaged or destroyed portion of the Enterprise is not necessary to the efficient or proper operation of the Enterprise and therefore determines not to reconstruct, repair or replace such damaged or destroyed portion. If either (i) the City determines not to reconstruct, repair or replace such damaged or destroyed portion of the Enterprise, or (ii) such Net Proceeds exceed the costs of such reconstruction, repair or replacement, then the excess Net Proceeds 8.A.e Packet Pg. 630 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 14 4140-7650-4109.4 shall be deposited in the Water Fund and be available for other proper uses of funds deposited in the Water Fund. The Indenture further provides that City shall procure and maintain or cause to be procured and maintained standard comprehensive general liability insurance in protection of the City and its directors, officers, agents and employees with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), which insurance shall provide for indemnification of said parties against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Enterprise in such amounts as are reasonably determined by the City to protect the City and said parties against such risks. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE – COVENANTS – Insurance.” ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2021 Bonds are shown below. Sources: Principal Amount of Series 2021 Bonds Plus Net Original Issue Premium Total Sources Uses: Deposit to Improvement Fund (1) Costs of Issuance (2) Total Uses (1) See “PLAN OF FINANCE.” (2) Includes legal, Municipal Advisor, underwriting, rating agency, printing fees and other miscellaneous costs of issuance. 8.A.e Packet Pg. 631 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 15 4140-7650-4109.4 DEBT SERVICE PAYMENT SCHEDULE Following is the schedule of principal of and interest due on the Series 2021 Bonds for the period ending August 1 in each of the years indicated, assuming no extraordinary redemption prior to maturity: Date (August 1,) Principal Interest Annual Debt Service Total PLAN OF FINANCE The Project Net proceeds of the Series 2021 Bonds, together with other available moneys, will be applied to finance certain improvements to the City’s water system including well fields, wells, water treatment plants (“WTP”) and meeting technology, the most significant components of which are the Olympic Well Field Restoration Project, Arcadia Water Treatment Plant Expansion Project, Sustainable Water Infrastructure Project (SWIP) Injection Well, Groundwater Resiliency Enhancement at the Charnock Well Field, and Advanced Metering Infrastructure (AMI) Upgrade (smart water meters). Each of these projects are designed to further develop a diverse, sustainable, and drought-resilient local water supply for the local community in accordance with the City’s Sustainable Water Master Plan as discussed herein. A key aspect of the City’s Sustainable Water Master Plan is to increase local water supplies and, accordingly enhance water supplied and reliability for the region. The City believes the projects to be funded are aligned with several United Nations Sustainable Development Goals (“UN SDGs”) including goals 6 (Clean Water and Sanitation), 11 (Sustainable Cities and Communities), and 13 (Climate Action) and would align well to a “sustainability bond” designation. Historically, imported water has cost as much as 30% more than local water. By continuing to invest in local water supply, the City diversifies and enhances its drought resiliency and provides long-term cost savings and cost certainty for the community. 8.A.e Packet Pg. 632 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 16 4140-7650-4109.4 The following is a description of the principal projects to be funded, components of which are described below: 1. Olympic Well Field Restoration – To maximize local groundwater resources, the City will be constructing a new well head advanced water treatment facility (the “Olympic AWTF”), two new groundwater production wells (SM-8 and SM-9), and a new Olympic Pipeline to restore the Olympic Well Field to full production capacity (Olympic is one of three well fields serving the Arcadia Water Treatment Plants (“WTP”). The Olympic AWTF component of this project is funded through settlement funds from the responsible party. As described in this Official Statement, these groundwater wells and pipelines will be partially funded by proceeds of Series 2021 Bonds, and the treatment portion to restore the well field is funded through settlement funds on hand. 2. SWIP Injection Well (SM-10i) – The City’s SWIP Project includes a new Advanced Water Treatment Facility that will capture stormwater and municipal wastewater to produce advanced treated recycled water for non-potable use and potable reuse (e.g., groundwater augmentation via direct injection). The SWIP Injection Well will inject advanced treated recycled water from the SWIP to recharge local groundwater supplies and help maintain groundwater pumping in the Olympic Well Field. The SWIP Advanced Water Treatment Facility is funded by the City’s Wastewater Enterprise Fund. For a description of the larger SWIP project, see Appendix A under the caption “Capital Improvements.” The larger SWIP project is funded using the City’s Wastewater, Stormwater, and Clean Beaches and Ocean Parcel Tax Funds with financing from the Clean Water State Revolving Fund loan. The project was awarded Los Angeles County Measure W and State Water Board Prop 1 Stormwater grants. All elements are being implemented in one phase. Design of all elements is 100% complete and construction is approximately 35% complete. The project is scheduled to be completed in late 2022. 3. Arcadia WTP Expansion – The City will be expanding the hydraulic treatment capacity of the existing Arcadia WTP to treat additional groundwater available in the local groundwater basin while maintaining sustainable yield levels. Various ancillary facilities (e.g. new pumps, cartridge filters, mechanical piping upgrades, chemical feed systems, air stripping tower, and brine tank and pump station) will be added or expanded to increase the Arcadia WTP treatment capacity from 10 million gallons per day (“mgd”) to 13 mgd and allow the City to operate all four reverse osmosis (RO) skids at the same time instead of 3 duty and 1 standby (current arrangement). In addition to the capacity expansion, the existing RO system will be upgraded with a new high recovery technology, Flow Reversal Reverse Osmosis, to increase its production efficiency from 80% to 90% or greater. The Production Efficiency Enhancement Project would produce additional drinking water (approximately 1,200 acre-feet per year or “AFY”) without the need to extract additional groundwater. The increase in production of local groundwater supplies will help the City achieve its water self-sufficiency goal and reduce purchase of imported water from The Metropolitan Water District of Southern California (“MWD”), as described in more detail below. The Production Efficiency Enhancement Project is partially funded by grant funds through the California Department of Water Resources’ Water Desalination Grant Program. 4. Groundwater Resiliency Enhancement at the Charnock Well Field – the Charnock Well Field is the City’s largest groundwater well field and consists of five wells. To maintain resiliency and production of the City’s groundwater supply, two aging wells (Charnock 13 and 18) will be replaced as they are near the end of their asset life and have lost significant pumping capacity over time. Charnock Wells 13 and 18 have been in service since the 1980s and account for approximately 35% of the total groundwater supply for the City. Replacement of these two aging wells will help maintain local groundwater pumping. 5. AMI Upgrade – City-wide retrofit and deployment of AMI smart water meters to replace aging meters, minimize water waste/loss, and increase water use efficiency to support the City’s overall 8.A.e Packet Pg. 633 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 17 4140-7650-4109.4 water supply sustainability goals. The AMI smart water meters would provide real time water consumption readings, increase billing efficiency, and improve accuracy in water meter reads. Sustainability Goals of the Project The City has a long-standing commitment to sustainability. The City has established an Office of Sustainability and the Environment (“OSE”) responsible for developing and implementing policy initiatives that promote local environmental, economic, and social sustainability and integrating resource management, conservation, and sustainability practices with ongoing City operations. Among other responsibilities, OSE oversees the implementation of the Solar Santa Monica program that seeks to achieve energy self-sufficiency by integrating energy efficiency and solar in most of Santa Monica’s buildings, offers water efficiency programs to residents and businesses, provides assistance to the public with all aspects of green building, and provides sustainability training to residents, students and businesses. Specific to the water resources, OSE to developed a Water Neutrality ordinance to cap City-wide water demand at current levels for the foreseeable future. In addition, the City Council has adopted a greenhouse gas reduction goal of 80% below 1990 levels by 2050 and staff is investigating strategies to surpass that goal in order to reach climate neutrality. The City is currently on-track to meet the target of water self-sufficiency by 2023, as outlined in its 2018 Sustainable Water Master Plan Update. Analogous with these goals, the projects outlined in the 2018 Sustainable Water Master Plan Update are designed in furtherance of the Water Resources Division’s charge to make the City water self-sufficient aimed to provide long-term cost benefits to water rate payers, diversifying the City’s water supply portfolio to enhance sustainability and drought resiliency, and reduce the City’s water supply energy footprint. The 2018 Sustainable Water Master Plan Update comprised of three key components: 1) continuing and increasing water conservation efforts to permanently reduce water demand, 2) develop sustainable and drought resilient water supplies, and 3) expand local groundwater production within sustainable yield limits. Through projects like the Sustainable Water Infrastructure Project (SWIP) and the Arcadia Water Treatment Plant Expansion Project, the City will be able to increase its local water supply and reduce its reliance on imported water supplies. The SWIP would recover 1,680 acre-feet of water annually from stormwater, dry weather urban runoff and municipal wastewater through a new stormwater harvesting tank, a new advanced water treatment facility, and upgrades to the existing Santa Monica Urban Runoff Recycling Facility (SMURRF). Production efficiency enhancement of the City's Arcadia Water Treatment Plant will increase overall recovery to 90%, adding an additional 1,200 acre- feet of water annually. Climate change is adversely impacting the hydrologic cycle across the United States. The State of California, in particular, has experienced higher average temperatures, heat waves, devasting wildfires, and historic droughts that have all impacted regional and local water supplies. Given the growing statewide challenges associated with maintaining a reliable and resilient water supply, the City recently updated the City’s Sustainable Water Master Plan in 2018 aimed to provide a diverse, sustainable, and drought-resilient local water supply for the local community. See RISK FACTORS – Climate Change and Sea Level.” A key aspect of the City’s Sustainable Water Master Plan is to increase local water supplies, which will help the City realize a significant economic benefit through future avoided imported water costs paid to MWD. The City’s total water supply production cost is projected to be lower than imported water purchase costs within 5-6 years after project completion. See “THE WATER ENTERPRISE – Water Sources and Production.” Historically, imported water has cost as much as 30% more than local water. By continuing to invest in local water supply, the City diversifies and enhances its drought resiliency and provides long- 8.A.e Packet Pg. 634 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 18 4140-7650-4109.4 term cost savings and cost certainty for the community. On January 28, 2020, the City Council adopted a five-year schedule of water rate adjustments which will help the Water Fund maintain a positive fund balance, allowing the Funds to maintain current operations while also completing capital projects to increase local water supply and reduce costs in the long-term. See “REVENUES AND DEBT SERVICE COVERAGE – Historical and Projected Water Rates and Charges.” See, also “ESTIMATED SOURCES AND USES OF FUNDS” herein. CITY OF SANTA MONICA 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 west. The City encompasses an area slightly greater than eight square miles and, as of January 1, 2021, had an estimated residential population of 92,968 making it the 18th largest of the 88 cities 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. In addition to water, the City provides a full range of services, including police and fire protection, wastewater, street maintenance, public landscaping, a regional transit system, parking, parks and recreation including 245 acres of beaches, five public libraries, planning, building and safety, the iconic Santa Monica Pier, an airport, a cemetery, and a high level of support for social services, cultural programs and public education. It is City policy to use internal staff rather than contractors for core services, and as a result labor costs make up nearly 70% of General Fund operating expenses. Government and Administration The City 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, voted at-large, with overlapping terms of four years. Elections are held every two years, at which time three City Council members or four City Council members are elected. After each election, City Council members select one of their group to act as Mayor, who then presides over City Council meetings. The City Council appoints a City Manager, City Attorney and City Clerk. The City Manager is responsible for administering day-to-day operations of the City and for carrying out policies set by the City Council. The City is currently in process to recruit a City Manager, a Fire Chief and Police Chief. See also, APPENDIX A – “GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA.” City Finances – Water Fund Selected financial information concerning the Enterprise is set forth herein, including information extracted from the City’s audited financial statements and, in some cases, from unaudited information provided by the Water Resources Division and the City’s Finance Department. The Water Fund is reported within the proprietary fund category of the financial statements, as one of the City’s enterprise 8.A.e Packet Pg. 635 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 19 4140-7650-4109.4 funds. The proprietary fund financial statements provide individual information for water, wastewater, recycling, and bus operations, which are reported as major funds of the City. These funds combined with the non-major enterprise and related internal service funds are presented as business-type activities in the government-wide financial statements. Excerpts including detail concerning the Water Fund within the most recent audited financial statements of the City together with the unqualified auditors’ opinion is included as Appendix B hereto. See APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” Basis of Financial Reporting The City’s financial statements are prepared in accordance with generally accepted accounting principles for municipal governments. Financial statements of the Enterprise are prepared on the accrual basis of accounting and are included in the City’s Comprehensive Annual Financial Report. See, APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” The Government Finance Officers Association has awarded its Certificate of Achievement for Excellence in Financial Reporting to the City for each of the past 36 years. All revenues of the Enterprise are generated by charges and other activities of the Enterprise. [The Enterprise does not receive funds from the City or any tax revenues.] All revenues generated by the Enterprise are deposited into the Water Fund as required by the Charter. See “SECURITY AND SOURCES OF PAYMENT FOR THE SERIES 2021 BONDS – Water Fund.” Labor costs for personnel working in the Enterprise and other departments of the City are allocated on the basis of time worked for each division. See also, APPENDIX A – “GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA.” THE WATER ENTERPRISE General The City was founded in 1875 and started primarily as a seaside resort and gradually became integrated into the Los Angeles Metropolitan Area as development in the Los Angeles Basin grew. During the first half of the twentieth century, Santa Monica’s population (along with most of California) grew quickly. To meet the needs of the expanding population, the City of Los Angeles constructed aqueducts to bring water from the Owens Valley to supply the needs of Los Angeles. Much of the western Los Angeles area was unincorporated around the early part of the twentieth century, which prompted the City of Los Angeles to offer a reliable water supply as an incentive for annexation to the City of Los Angeles. For many areas, this was a welcomed opportunity; however, the City desired to remain independent and purchased several existing small water purveyors, such as the Arcadia Water Company and the Venice Water Company, to create its own water supply and administrative agency in 1916. Since 1916, the City has expanded groundwater pumping facilities, added a new water treatment plant (1966), and upgraded the water treatment facilities (2010) to expand and improve local water supply availability and reliability. The City, along with 12 other local governments, formed The Metropolitan Water District of Southern California (MWD) in 1928. MWD was originally created to build the Colorado River Aqueduct to supplement the water supplies of the original founding members in Southern California. Water was first delivered to the City in 1941 via the Colorado River Aqueduct. In 1972, MWD augmented its supply 8.A.e Packet Pg. 636 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 20 4140-7650-4109.4 sources to include deliveries from the State Water Project via the California Aqueduct. Today, MWD serves more than 145 cities and 94 unincorporated communities across Southern California. The City continues to purchase MWD water to supplement its local water supply. From 1960 to 1980, Santa Monica’s population growth slowed dramatically, with the City experiencing a small decline in population from 1980 to 1990. This slow growth rate was largely due to Santa Monica’s limited size and the limited availability of land to be developed. To diversify the City’s water supply portfolio and enhance drought resiliency, the City has been working on implementing solutions to achieve water self-sufficiency per City Council direction in 2011. The most recent guiding documents in the City’s effort to achieve water self-sufficiency are summarized in the 2018 Sustainable Water Master Plan Update and the 2020 Urban Water Management Plan. A brief description of these two documents as well as a summary of the imported water supplier, MWD, is provided below. Under the provisions of the California Constitution and the City Charter, the City owns and operates both water and wastewater utilities for the benefit of its residential and business community. With respect to the City’s water utility, the Enterprise is managed by the City’s Department Public Works Management, Water Resources Division (the “Water Resources Division”) and is under the management and control of the City Manager, subject to the powers and duties vested in the City Council. The Enterprise is supervised by the City’s Director of Public Works and its Water Resources Manager who are responsible for design, construction, maintenance and operation of the Enterprise. The City’s water utility has been distributing water to the City’s residents and businesses for more than 100 years. The City limits constitute the area served by the Enterprise and encompasses just over 8 square miles. The Water Resources Division provides water and wastewater services to over 93,000 residents and over 2,700 commercial customers in the City. The City currently owns and operates ten groundwater well fields, two water treatment facilities, four water storage reservoirs, and over 200 miles of water distribution pipelines. Water usage for the City is tracked among six water sectors, including Single Family Residential, Multi-Family Residential, Commercial/Industrial, Institutional, Landscape, and Other (Fire). Residential users currently comprise approximately 60% of Revenues and commercial users comprise approximately 24% of Revenues. The City also has interconnections with MWD, from which the City purchases supplemental supplies of water. The Water Resources Division provides water and wastewater services to approximately 18,000 accounts through two self-supporting enterprise funds. The City’s water enterprise fund (the Water Fund herein) supports the production and distribution of high-quality drinking water for the City. Approximately 65% to 75% of the City’s water supply is provided through local groundwater from the Santa Monica Groundwater Basin, with well fields in the Charnock, Olympic, and Arcadia sub-basins. The City’s local groundwater supply is supplemented by imported water purchased from MWD for an average remainder of 25% to 35% (and as much as 51% in 2020 as described herein). The City’s water treatment and distribution system includes the 5 mgd Charnock Treatment Plant, 10 mgd Arcadia Water Treatment Plant, four water storage reservoirs that total approximately 40 million gallons, and over 200 miles of water mains. The Water Resources Division is currently implementing various water supply projects, as outlined in the 2018 Sustainable Water Master Plan Update, designed to achieve water self-sufficiency by 2023. The wastewater enterprise fund supports operation of the City’s wastewater collection system. The wastewater is collected and sent to the City of Los Angeles’ Hyperion Treatment Plant for treatment where the City is a contracting agency with the City of Los Angeles. The wastewater enterprise does not support operations of the Enterprise and is not a source of funds for the payment of the principal of and interest on the Series 2021 Bonds. An average of 65% to 75% of the City’s water supply is obtained by the City from an underground aquifer called the Santa Monica Groundwater Basin which has served the City since 1916. This local water supply provides high quality, inexpensive water as compared to other sources including 8.A.e Packet Pg. 637 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 21 4140-7650-4109.4 imported water. In addition, imported water supplies from the Colorado River and Northern California via the State Water Project are surface water supplies where its availability is directly influenced by climate change and natural disasters (e.g., a major earthquake could impact State Water Project deliveries). As described herein, the City is working to develop additional supplies to reduce its reliance on imported water supplies and enhance supply reliability and resiliency. The following is a summary account of the Enterprise for the past six Fiscal Years (dollars in millions). 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Number of direct customer accounts 17,842 17,976 18,061 18,342 18,342 18,342 Water sold to direct customers (Whole Acre Feet) 11,242 11,552 11,718 11,265 10,988 10,606 Water Revenues $23,312 $24,280 $25,946 $26,851 $27,872 $27,131 Number of feet of new water main installed 2,495 2,269 (1) 4,500 4,825 10,822 (2) 4,155 (3) Water main system (in miles) 205 205 205 205 205 205 Reclaimed water main system (in miles) 5 5 5 5 5 5 (1) This total is lower compared to prior years because no water main capital improvement project was started this year. (2) The Enterprise has doubled linear feet on new projects as part of self-sufficiency goal to maintain 100-year replacement cycle per industry guidelines. (2) Water main replacement for Fiscal Year 2020-21 was reduced as a result of the Pandemic that delayed the construction schedule and will be caught up in future years.. Source: City of Santa Monica Public Works Department - Water Resources Division. An acre-foot (“AF”) is the amount of water that will cover one acre to a depth of one foot and equals 325,851 gallons. The following is a summary of water use by sector for Fiscal Years 2015-16 through 2020-21 presented in AF. 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Single Family Residential 2,656 2,641 2,773 2,556 2,756 2,934 Multi-Family Residential 4,970 4,987 4,917 4,752 4,944 4,911 Commercial/Industrial 2,974 3,030 3,028 2,914 2,100 1,931 Institutional 414 399 474 356 273 246 Landscape Irrigation 447 440 456 450 438 519 Fire 3 5 3 3 2 2 Total 11,464 11,502 11,651 11,031 10,513 10,542 Source: City of Santa Monica Public Works Department - Water Resources Division. The City is currently projecting increases in the use of water in the aggregate, with some decreases in single-family residential and institutional uses. The City’s projected population and water use projections were recently impacted by the 2020 Regional Housing Needs Assessment (RHNA) targets set by the Southern California Association of Governments (SCAG). These targets require the City to plan for an additional 8,873 new housing units over the 2021 to 2029 planning period, which units were not included in the City’s 2018 Sustainable Water Master Plan, but is included in the City’s 2020 Urban Water Management Plan’s water supply reliability assessment. The additional housing units required per RHNA will likely reduce the City’s goal of achieving 99% water self-sufficiency to approximately 90% water self-sufficiency. However, the timeline to achieve water self-sufficiency of 90% remains the same for 2023. 8.A.e Packet Pg. 638 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 22 4140-7650-4109.4 The City utilizes the Water Fund to account for revenues and expenses of providing water service to the citizens of the City. Currently, 47 full time equivalent employees are charged to the Water Fund. Management The following are biographical summaries of senior management of the Water Resources Division: Rick Valte, Acting Director of Public Works. Rick Valte is the Acting Director of Public Works for the City of Santa Monica overseeing operations in water resources, resource recovery and recycling, facilities, fleet services, street services, public landscaping, cemetery, airport, office of sustainability and the environment, and delivery of capital projects through engineering and architectural divisions. His career spans over twenty-five years in land development, watershed management, project development, construction management, municipal engineering, and public works administration, and included stints as the City’s Watershed Program Manager and City Engineer. Mr. Valte has led a wide range of capital projects for the City including the $80 million expansion of the City’s Big Blue Bus Campus and the $13 million Clean Beaches Initiatives Stormwater Tank. He earned his Bachelor of Science degree in Civil Engineering from the University of the Philippines and obtained a Professional Designation in Construction Management from the University of California Los Angeles Extension. He is a registered professional engineer in the State of California, and a U.S. Green Building Council LEED Accredited Professional. Sunny Wang, P.E., Water Resources Manager. Sunny Wang was appointed Water Resources Manager in 2019. Mr. Wang has approximately 20 years of global experience in advanced treatment technologies for water treatment, desalination, and potable reuse. Mr. Wang has managed or led the design of several water treatment plants (WTPs) around the world, including 10 RO facilities, that total over 200 mgd in production capacity. He helped develop and design several high profile advanced treatment facilities to diversify the region’s water supply portfolio such as the initial expansion of the Orange County Water District’s Groundwater Replenishment System, the Carlsbad Seawater Desalination Project, City’s Charnock Well Field Restoration Project, and the Silicon Valley Advanced Water Purification Center for the Santa Clara Valley Water District. Mr. Wang has a M.S., Chemical and Environmental Engineering, University of California, Riverside, 2004 and a B.S., Environmental Engineering, University of California, Riverside, 2001. Water Sources and Production General. The area served by the Enterprise receives its water supply from two sources: (i) groundwater supplies from the Santa Monica Groundwater Basin, and (ii) imported water purchased from MWD. Within the Santa Monica Groundwater Basin are five subbasins: the Arcadia, Charnock, Olympic, Coastal, and Crestal sub-basins. Groundwater pumping only occurs in the Arcadia, Charnock, and Olympic sub-basins currently. The City’s local water supply is predominantly groundwater supplies from the Santa Monica Groundwater Basin. The Santa Monica Groundwater Basin is an unadjudicated groundwater basin and in 2017, the Santa Monica Groundwater Basin Groundwater Sustainability Agency (the “SMBGSA”) was formed in accordance with the California Sustainable Groundwater Management Act (the “SGMA”) of 2014. The City is currently the only municipality or city that pumps groundwater from the Santa Monica Groundwater Basin and is the lead agency for the SMBGSA. The SMBGSA is currently developing the Groundwater Sustainability Plan (the “GSP”) pursuant to SGMA that will be submitted to the California Department of Water Resources by January 2022. The City has been working on reduce its reliance on imported water supplies since the early 2000s. During 2000-2009, the City imported nearly 90% of its 8.A.e Packet Pg. 639 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 23 4140-7650-4109.4 water supply from MWD. After the City completed the Charnock Well Field Restoration Project in 2010, the City was able to reduce imported water purchase to approximately 50% of its water supply. The City imported approximately 25% to 35%, on average annually, of its water supply from MWD from 2016 through 2019. However, in calendar year 2020, the City imported approximately 50% of its water supply from MWD as a result of extended outages of two groundwater wells, Charnock 13 and 18, in the Charnock Well Field. Charnock 13 and 18 account for approximately 35% of the City’s total groundwater pumping capacity. The extended outage was due to supply chain issues as a result of the Pandemic to service the wells and bring them back online. Charnock 13 was brought back online in early 2021 and Charnock 18 is expected to be brought back online by the end of summer 2021. Charnock 13 and 18 have been in service since the 1980s and each is at the end of its asset life resulting in loss of significant pumping capacity over time after each repair. A portion of the net proceeds of the Series 2021 Bonds will be used to replace these two wells to restore pumping capacity from Charnock 13 and 18 to enhance resiliency. Several water self-sufficiency projects to diversify the City’s water supply portfolio are currently being implemented to reduce the City’s reliance on imported water supplies as outlined in the City’s Sustainable Water Master Plan. Implementation of the SWMP has been proceeding since 2014, with updates provided during the City Council’s annual consideration of water rate adjustments, and are included in the City’s 2018 Sustainable Water Master Plan Update. See “REVENUES AND DEBT SERVICE COVERAGE – Future Sources of Water Supply and Reliability.” The Enterprise has adequate production and firm purchase capacity to meet the City customers’ needs. The following table illustrates the total water pumped from Enterprise wells and the amount of water purchased during the [most recent Calendar Years]. Table 1 Annual Water Production (acre-feet) Calendar Year 2016 2017 2018 2019 2020(1) 2021(1)(2) Purchased from MWD 2,904 4,131 4,037 3,020 5,424 1,899 Percentage of Total Supply 25% 36% 35% 28% 51% 46% From Enterprise Wells 8,543 7,276 7,389 7,628 5,181 2,239 Percentage of Total Supply 75% 64% 65% 72% 49% 54% Total Production 11,446 11,408 11,427 10,647 10,606 4,138 (1) Local groundwater production was impacted by extended outages of Charnock 13 and 18 groundwater wells as a result of the Pandemic that caused supply chain issues and resources shortages to repair the two wells. (2) [Water production as of May 31, 2021.] Source: City of Santa Monica Public Works Department - Water Resources Division. To diversify the City’s water supply portfolio and enhance drought resiliency, the City has been working on implementing solutions to achieve water self-sufficiency per City Council direction in 2011. The most recent guiding documents in the City’s effort to achieve water self-sufficiency are summarized in the 2018 Sustainable Water Master Plan Update and the 2020 Urban Water Management Plan. A brief description of these two documents as well as a summary of the imported water supplier, MWD, is provided below. 8.A.e Packet Pg. 640 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 24 4140-7650-4109.4 2018 Sustainable Water Master Plan Update. In 2018, the City completed an update to the City’s Sustainable Water Master Plan to achieve water self-sufficiency by 2023. See “Future Sources of Water Supply and Reliability” below. The City has identified three key components towards its achieving its water self-sufficiency goals on that timeline: (1) increasing water conservation efforts to permanently reduce water demand, (2) developing sustainable and drought resilient alternative water supplies, and (3) expanding local groundwater production within sustainable yield limits. The benefits of becoming water self-sufficient include long-term cost benefits for water ratepayers, establishment of a diverse, sustainable, and drought resilient local water supply, and reduction of the City’s water supply energy footprint. As described herein, the City has comprehensive water conservation requirements. The City appreciates the impact on water sales and works to carefully balance customer needs and water reliability efforts. 2020 Urban Water Management Plan. The Water Resources Division is preparing an Urban Management Plan (UWMP) update in compliance with the California Water Code. The UWMP is updated every five years and is due on or before July 1, 2021. The UWMP analyzes past and current water use as well as the City’s water supply sources. It also projects future water use and assesses the City’s water supply capabilities during various scenarios, such as multi-year drought. A public hearing for the UWMP was held on June 8, 2021 and the UWMP was adopted by the City Council. The Metropolitan Water District of Southern California. The following information has been obtained from MWD and sources that the City believes to be reliable, but the City can take no responsibility for the accuracy or completeness hereof. MWD is a metropolitan water district created in 1928 under authority of the Metropolitan Water District Act (California Statutes 1927, Chapter 429, as reenacted in 1969 as Chapter 209, as amended). MWD’s primary purpose is to provide a supplemental supply of water for domestic and municipal uses at wholesale rates to its member public agencies. If additional water is available, such water may be sold for other beneficial uses. MWD serves its member agencies as a water wholesaler and has no retail customers. MWD is comprised of 26 member public agencies, including the City among 14 cities, 11 municipal water districts, and one county water authority, which collectively serve the residents and businesses of more than 300 cities and numerous unincorporated communities. Member agencies request water from MWD at various delivery points within MWD’s system and pay for such water at uniform rates established by the Board for each class of water service. MWD’s water is a supplemental supply for its member agencies, most of whom have other sources of water. MWD currently has full authority to set rates and policies as necessary to provide a dependable water supply to Southern California. Historically, MWD provided between 40% and 60% of the water used annually within its service area, which consists of approximately 5,200 square miles in portions of Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura Counties. MWD serves a population of approximately 19 million people. MWD’s charges for water transactions and availability are fixed by its Board and are not subject to regulation or approval by the California Public Utilities Commission or any other state or federal agency. MWD imports water from two principal sources: northern California via the Edmund G. Brown California Aqueduct (the “California Aqueduct”) of the State Water Project owned by the State of California (the “State” or “California”) and the Colorado River via the Colorado River Aqueduct (“CRA”) owned by MWD. 8.A.e Packet Pg. 641 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 25 4140-7650-4109.4 MWD is the nation’s largest water wholesaler, providing an average of 1.34 billion gallons of water per day to 19 million consumers. MWD owns and operates the CRA, is one of twenty-seven contractors of the California Department of Water Resources’ (DWR’s) State Water Project (“SWP”) and manages/owns groundwater and surface water storage and treatment facilities. Although the Colorado River is over allocated, water supplies via the CRA have historically been stable while the SWP has been considerably variable. The Metropolitan Water District Act, California Statutes 1969, Chapter 209, as amended and supplemented (the “MWD Act”) provides each MWD member agency a preferential entitlement to purchase a portion of the water provided by MWD. This preferential right is based on the ratio of all payments on tax assessments and otherwise, except purchases of water, made to MWD by each member agency compared to total payments made by all member agencies on tax assessments and otherwise, except purchases of water. Historically, these rights have not been used by MWD in allocating MWD’s water. In 2004, the California Court of Appeal upheld MWD’s methodology for calculation of the respective members’ preferential rights under the MWD Act. MWD faces a number of challenges in providing a reliable and high quality water supply for southern California. These include, among others: (1) increased competition for low-cost water supplies; (2) variable weather conditions; (3) allocations to meet environmental and water quality requirements; and (4) climate change. The following table summarizes water rates under MWD’s current rate structure. MWD Water Rates (Dollars per Acre-Foot) Calendar Year 2021 Rates(1) Calendar Year 2022 Rates(1) Tier 1 Tier 2 Tier 1 Tier 2 Supply Rate $ 243 $ 285 $ 243 $ 285 System Access Rate 373 373 389 389 Water Stewardship Rate 0 0 0 0 System Power Rate 161 161 167 167 Treatment Surcharge 327 327 344 344 Treated Full Service $1,104 $1,146 $1,143 $1,185 (1) In December 2019, the MWD Board of Directors directed staff to not incorporate the Water Stewardship Rate, or any other rates or charges to recover demand management costs, with the proposed rates and charges for Fiscal Years 2021-22 and 2022-23. Source: MWD. Historically, MWD has increased their rates by 5% to 7%, on average, per year over the past 30 years. However, the City expects that MWD’s imported water rates will increase above its historical average increases as it implements regional water supply projects (e.g., Regional Recycled Water Program and Delta Conveyance Project), costs of which allocable to MWD are projected to be within a range of $1 billion to $3 billion for each project. MWD’s Local Resources Program. Since 1982, MWD has invested in local regional water supply reliability projects through its Local Resources Program (LRP). The LRP accelerates the development of local projects by incentivizing agencies within MWD’s service area to construct recycled water, groundwater recovery and seawater desalination projects. [In the City, the LRP supports _________.] 8.A.e Packet Pg. 642 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 26 4140-7650-4109.4 For purposes of agreements existing under the Local Resources Program (LRP), the LRP Effective Rate is calculated as the sum of the System Access Rate, any demand management cost recovery rate element, System Power Rate, the expected weighted average of Tier 1 Supply Rate and Tier 2 Supply Rate (equal to the estimated sales revenues expected from the sale of water at the Tier 1 and Tier 2 Supply Rates divided by total MWD sales in acre-feet expected to be made at the Tier 1 and Tier 2 Supply Rates), the Treatment Surcharge, and the Capacity Charge expressed in dollars per AF. Effective January 1, 2022, the LRP Effective Rate is $1,170 per AF, an increase of $42 per AF from the current level of $1,128 per AF. For calendar years 2021 and 2022, no Water Stewardship Rate applies and the MWD Board has not adopted any other demand management cost recovery mechanism. Therefore, the LRP Effective Rate effective January 1, 2021 and January 1, 2022 does not include any amount for a Water Stewardship Rate. Current Water Supply and Reliability As noted above, Santa Monica’s current water supply consists of two sources: (i) groundwater supplies from the Santa Monica Groundwater Basin, and (ii) imported water purchased from MWD. The development of additional supplies will enhance the City’s supply reliability and resiliency while reducing its reliance on imported water supplies. The City generally maximizes its local water supplies before supplementing with imported water supplies, as local water supplies are generally lower cost for rate payers than imported water. The water supply projects outlined in the 2018 Sustainable Water Master Plan Update aim to increase local water supplies to provide long-term cost savings and cost certainty to the City’s rate payers. Upon completion of the various water self-sufficiency projects, the City’s average unit water production cost for local water supplies is expected to continue to be lower than imported water purchase costs. There are currently no mandated restrictions with regards to access to local water supplies (e.g., groundwater supplies) or allocation from purchased water sources. However, the City is a part of the Santa Monica Groundwater Basin Groundwater Sustainability Agency and is in the process of developing a Sustainable Groundwater Plan to manage the local groundwater supply in a sustainable manner, which includes updating the sustainable yield of the local groundwater basins every 3-5 years. There have been several scientific literature reviews performed to assess potential groundwater sustainable yield levels. In 2018, an Updated Preliminary Study of the Sustainable Yield of the Groundwater Sub-basins (Richard C. Slade & Associates LLC, June 2018) was performed utilizing additional data obtained from recently constructed wells and exploratory borings completed by the City. The study estimated the sustainable yield of the Santa Monica Groundwater Basin (the “SMGB”) to be between 11,800 AFY and 14,725 AFY. The City of Santa Monica is the only water agency that pumps groundwater from the SMGB. 8.A.e Packet Pg. 643 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 27 4140-7650-4109.4 2018 Updated Preliminary Study of the Sustainable Yield of the Groundwater Subbasins within the SMGB Groundwater Subbasin Lower Limit (AFY) Upper Limit (AFY) Previous Studies (AFY) Arcadia 870 920 2,000 Charnock 6,410 8,080 4,420 to 8,200 Olympic 2,360 3,145 3,275 Coastal 1,160 1,450 4,225 Crestal NA NA 2,000 Subtotals: 10,800 13,595 15,920 to 19,700 ICF Recharge Factor: 1,000 1,130 NA Total: 11,800 14,725 15,920 to 19,700 Source: City of Santa Monica Public Works Department - Water Resources Division. In May 2017, the Cities of Santa Monica, Los Angeles, Beverly Hills, Culver City, and Los Angeles County signed a Memorandum of Understanding (the “MOU”) to form the Santa Monica Groundwater Basin Groundwater Sustainability Agency (SMBGSA) as described above. The SMBGSA is tasked with implementing an ongoing sustainable groundwater management program for the SMGB in conformance with California’s Sustainable Groundwater Management Act (SGMA) of 2014. A key piece of this program is the development of a Groundwater Sustainability Plan (GSP). As part of the GSP development, sustainable management criteria (e.g., sustainable yield) and interfaces with neighboring groundwater basins (e.g., West Coast Basin and Central Basin) for the SMB will be assessed. Preliminary estimates of the sustainable yield from the GSP effort indicate the future sustainable yield in the 10-20 year horizon is near the 10,800 AFY lower limit range of the 2018 sustainable yield estimate, which is roughly equal to the planned future groundwater extractions (approximately 10,100 AFY or 9,000 AFY if factoring in 1,100 AFY of groundwater recharge from the SWIP). by the City once the water self-sufficiency projects are completed in 2023. The GSP will provide the City with a road map to refine sustainable management practices and identify future studies for the SMGB. The SMBGSA must submit its GSP to the DWR by January 31, 2022. [In accordance with a “stress test” prescribed by the State Water Resources Control Board (adopted May 18, 2016), the City has determined it has sufficient water supplies to continue to meet the community’s water demands over the next [three] years. This positive result is due in large measure to the City’s outstanding conservation response during, and before, the current drought situation. Although the City meets this regulatory requirement, the City’s own conservation target will remain at a 20% reduction level, corresponding to Stage 2 of Santa Monica’s Water Shortage Response Plan.] Estimated Number of Years Current Water Supply Will Be Sufficient. As part of the City’s 2020 Urban Water Management Plan, the City assessed its water supply availability compared to projected water demand through 2040. The assessment considered three scenarios: normal, single-dry, and multiple-dry years. It also included water self-sufficiency projects identified in the City’s 2018 Sustainable Water Master Plan (SWMP) Update. The SWMP update included three key components: • Component 1 – Increasing water conservation efforts to permanently reduce water demand. • Component 2 – Developing sustainable and drought resilient alternative water supplies. 8.A.e Packet Pg. 644 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 28 4140-7650-4109.4 • Component 3 – Expanding local groundwater production within sustainable yield limits. The water conservation program is an on-going program being implemented by the Water Conservation Unit. With respect to water supply projects (Components 2 and 3), the following projects are currently being implemented to increase local water supply. Alternative Water Supply Projects (Component 2) • Increase Recycled Water Production. Upgrade the existing SMURRF as part of the SWIP project to increase recycled water production for non-potable uses in the City and offset imported water purchases from MWD. • Recharge Local Groundwater Aquifers. The SWIP project will provide a sustainable and drought resilient water supply by providing advanced treated recycled water (approximately 1,100 AFY) through a new advanced water treatment facility (“AWTF”) to recharge local groundwater aquifers. In return, the aquifer recharge that will be provided by the SWIP will allow the City to maximize groundwater pumping, within sustainable yield limits, from the Olympic Sub-basin. • Production Efficiency Enhancement at Arcadia WTP. Increase overall treated water production through implementation of new high recovery reverse osmosis technology to increase treatment efficiency to greater than 90 percent, adding up to an additional 1,200 AFY of potable water. This will also result in a reduction of RO concentrate discharge to the sewer system. Expanding Local Groundwater (Component 3) • Olympic Well Field Restoration. The Olympic sub-basin will be restored to full pumping capacity with a new well head treatment system to remove the contaminants some of which are classified or may be classified as carcinogens (e.g., 1,2,3-Trichloropropane, an organic compound generally used as a solvent (TCP), 1,4 Dioxane, a solvent and chemical stabilizer, trichloroethylene, a chemical used to make refrigerants and as a metal degreaser (TCE), and tetrachloroethylene (or perchloroethylene), a chemical used for dry-cleaning fabrics and metal degreasing (PCE or PERC)) that are limiting current production. The Olympic Well Field Restoration consists of: 1) Equipping two new groundwater wells, 2) construction of a new pipeline to convey the groundwater to the well head treatment facility, and 3) construction of a new Olympic AWTF to remove contaminants from the Olympic Well Field before it is sent to the City’s Arcadia WTP. • Arcadia WTP Expansion. The City’s Arcadia WTP is a brackish groundwater desalter that currently has a rated raw water treatment capacity of 11,300 AFY or 10 MGD and produces approximately 9,900 AFY (8.9 MGD) of treated water. To accommodate the production efficiency enhancement project additional groundwater flows from the Olympic Well Field Restoration Project, the Arcadia WTP will be expanded to its ultimate raw water treatment capacity of 14,700 AFY or approximately 13 MGD. Based on the assessment, the City has adequate water supply to meet projected water demand through 2040 under the three scenarios analyzed as part of the 2020 Urban Water Management Plan for projected water supply and demand. 8.A.e Packet Pg. 645 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 29 4140-7650-4109.4 Water Storage Capacity The City owns and operates four water storage reservoirs that total approximately 40 million gallons: Riviera Reservoir (25 million gallons), San Vincente Reservoir (5 million gallons), Mt. Olivette Reservoir (5 million gallons), and Arcadia Reservoir (5 million gallons). Each is in good operating condition and maintained per industry standards. The four reservoirs are maintained at capacity to meet daily diurnal and weekly water demand variations. The reservoirs are filled during nighttime and drawn down during the day to meet peak day water demands, as the City’s population during the day could be 5 times more than the nighttime population due to tourists and visitors that visit the City during the day. A condition assessment of the City’s four water storage reservoirs was completed by Stantec in March 2021. The condition assessment was conducted based on visual inspections of each reservoir while each reservoir is in operation. In general, the reservoirs are all in good operating condition and the top recommended improvements include raising the access hatch heights to enhance protection of water quality in the reservoir, raise and replace vents, and upgrade/replace older control equipment. The City intends to implement the recommendations made in the March 2021 assessment after 2023 when the various water self-sufficiency projects are completed Water Treatment Plants The City’s owns and two water treatment plants which are operated by the Water Resources Division. These plants were completed and/or their facilities updated in 2010 and both are in good operating condition and maintained in accordance with industry standards. Charnock Treatment Plant. The Charnock well field, located in the Charnock Sub-basin, consists of five groundwater wells: Charnock 13, Charnock 16, Charnock 18, Charnock 19, and Charnock 20. The well field is the most productive of the City’s three well fields (the majority of the current operating groundwater wells were installed in the 1980s, with the exception of Charnock 20 which was replaced in 2012). The Charnock Well Field is located in the City of Los Angeles and is the site of the Windward School, a private school which leases the property from the City. Production at the Charnock Well Field was halted in the 1990s due to third party contamination. The Charnock Treatment Plant was constructed in 2010 to provide well head treatment for water extracted from three of the five groundwater wells at the Charnock Well Field that was contaminated with methyl tertiary butyl ether (“MTBE”). Groundwater extracted by the three contaminated groundwater wells are treated through greensand filtration and biological granular activated carbon adsorption process to move the contaminants. The Charnock Treatment Plant has a treatment capacity of approximately 5 million gallons per day. After treatment the groundwater is then blended with the two other groundwater wells at the Charnock Well Field and conveyed to the City’s Arcadia Water Treatment Plant for further treatment. Under normal operating conditions, groundwater production from the Charnock well field averages approximately 8,000 AFY. Minimum and maximum groundwater withdrawals have been: 0 AFY in the 13-year period 1997-2009, inclusive, which was caused by problems relating to third party groundwater contamination at and near this well field; and 8,377 AF in 2014, which was the highest annual pumping from the Charnock Well Field to date since being restored to full production in 2010. Arcadia Water Treatment Plant. The site of the Arcadia Water Treatment Plant was originally just a pumping plant (1921) and water storage reservoir (1924) that provided groundwater to the area. In the 1960s, a groundwater softening facility was constructed to increase local groundwater supply to meet water demands from the growing population in the region. The Arcadia Water Treatment Plant is a groundwater softening facility that was upgraded in 2010 as part of the Charnock Well Field Restoration Project to provide multi-barrier treatment for the local groundwater. The treatment processes at the 8.A.e Packet Pg. 646 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 30 4140-7650-4109.4 Arcadia Water Treatment Plant consists of greensand filtration, reverse osmosis, decarbonation, mechanical aeration, chlorine disinfection, and fluoridation. The Arcadia Water Treatment Plant has a rated raw water treatment capacity of approximately 10 million gallons per day and produces approximately 8 million gallons per day of high-quality potable water. Recent Water Resources Division Actions in Response to the COVID-19 Pandemic The Pandemic has had a direct impact on the City’s commercial and institutional customer base and associated water revenues. The commercial and institutional customers make-up of approximately 20% of the Enterprise’s customer base and accounts for nearly 30% of the water revenues. The Enterprise’s primary customer base is from residential customers and the water revenues from the residential customer base is stable during the Pandemic. With the water revenues primarily impacted by the commercial and institutional sector, the Enterprise experienced a revenue decline of approximately 10-15% in total. To balance the Pandemic impacts on water revenue, the Enterprise reduced operating and maintenance expenditures by extending asset life and delayed non-critical maintenance activities. One of the major savings came from deferring capital improvement projects to straddle multiple fiscal years for financial flexibility (e.g., reduced and deferred annual water main replacement program to future years once revenues recover). [The Enterprise has not suffered any material deferred maintenance or project delays as a result.] Recent Water Resources Division Actions in Response to Drought Conditions To help respond to drought conditions, the City established a Water Conservation Unit (WCU) and entered Stage 2 of its Water Shortage Contingency Plan (also known as the Water Shortage Response Plan) in 2015. Stage 2 of the Water Shortage Contingency Plan (WSCP) establishes mandatory water use restrictions including a Water Use Allowance (WUA) for each water customer. The WUA is calculated as a percentage of the baseline year’s (calendar year 2013) water usage. The calculated WUA for Stage 2 is 20 percent of calendar year 2013’s usage. Since groundwater is a big part of the City’s water supply and the effects of drought are long term, the City continues to remain in Stage 2 despite Governor Brown declaring an end to the drought in April 2017. Following relatively wet years in 2018 and 2019, drought conditions returned in 2020 and 2021. On June 8, 2021 Santa Monica City Council adopted the City’s 2020 Urban Water Management Plan and updated WSCP. The WSCP was updated to be consistent with legislative changes to the California Water Code. It includes a description of on-going water conservation monitoring conducted by the City as well as procedures to perform annual water supply and demand assessments. These actions help ensure appropriate water shortage mitigation strategies are implemented. In addition to the Water Conservation Unit, a key component of the City’s 2018 Sustainable Water Master Plan Update aims to develop sustainable and drought resilient water supplies (Component 2). Water supply projects under Component 2 of the 2018 Sustainable Water Master Plan Update focuses on developing alternative water supplies including municipal wastewater, dry weather urban runoff, and, stormwater to diversify the City’s existing water supply portfolio. Future Sources of Water Supply and Reliability The City is continually investing in the City’s water system to ensure water delivery, prevent infrastructure failures and achieve water self-sufficiency. Among the purposes of these investments, is the City’s goal to locally source up to 99% of its water needs as outlined in the 2018 Sustainable Water Master Plan Update. This not only diversifies and protects the City against the risk of service interruptions in the event of an earthquake or other disaster, but it allows more control over the cost of water. Once the water self-sufficiency projects are complete, the City estimates that its water demand will be met through local water resources with a make-up of 60% local groundwater, 19% alternative 8.A.e Packet Pg. 647 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 31 4140-7650-4109.4 water supplies (e.g., advanced treated recycled water), 20% conservation, and 1% imported water. Since the 2018 Sustainable Water Master Plan Update was adopted, the 2020 Regional Housing Needs Assessment (RHNA) developed by the Southern California Association of Governments would require the City to plan for approximately 8,873 new housing units during the period of 2021-2029. The additional housing units required by the RHNA would impact the goal of achieving 99% water self-sufficiency by 2023 and reduce the goal to approximately 90% water self-sufficiency by 2023. The City is currently on track to meet the 2023 timeline, assuming funding and completion of the projects to be funded with net proceeds of the Series 2021 Bonds. The City, along with other members of the Santa Monica Groundwater Basin Groundwater Sustainability Agency (SMBGSA), is currently preparing a Groundwater Sustainability Plan (GSP) to comply with the California Sustainable Groundwater Management Act (SGMA) of 2014. As part of the GSP development, various climate change scenarios based on DWR guidance will be modeled for the Santa Monica Groundwater Basin. These scenarios will be utilized to assess how to best ensure the sustainability and resiliency of the City’s water supply. The City is actively pursuing local water resource projects to improve reliability and maximize groundwater access. Projects currently in progress comprise approximately [100]% of the anticipated approximately $123.2 million five-year Capital Improvement Plan, of which approximately $[78] million will be funded with net proceeds of the Series 2021 Bonds and the remainder will be funded with funds on hand and on a pay-go basis. See “THE ENTERPRISE – Enterprise Master Plan.” Water Conservation Programs and Urban Water Management Plan The Water Resources Division has a Water Conservation Unit dedicated to managing and advancing water conservation programs in the City. Drought planning efforts are led by the Water Resources Division and most recent efforts are summarized in the 2018 Sustainable Water Master Plan Update and the 2020 Urban Water Management Plan. In addition, the City’s Office of Sustainability and the Environment is responsible for developing and implementing policy initiatives that promote local environmental, economic, and social sustainability and integrating resource management, conservation, and sustainability practices with ongoing City operations During the State’s drought years, the City implemented several conservation programs including rebates for water-wise landscaping and harvesting rainwater. 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. Since its inception in December 1989, the City’s Baysaver Fixture Retrofit Program has retrofitted bathrooms with approximately 35,000 ultra-low flow toilets and low flow showerheads. The program goal is to retrofit 50% of all residential bathrooms and 25% of all commercial toilets in the City. This program 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 of the City of Los Angeles. Recent legislation, Assembly Bill (AB) 1668 and Senate Bill (SB) 606, enacted into law in 2019, impose new criteria to reduce demands and control water use even further. Indoor water standards are being established as well as criteria to manage outdoor water use to the individual parcel. These efforts are proceeding through the State regulatory agencies for final adoption and implementation timelines. Upon adoption and delivery of the implementation timelines, the Water Resources Division will evaluate expanding or developing new conservation programs to ensure compliance with the state regulations. 8.A.e Packet Pg. 648 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 32 4140-7650-4109.4 Risks to Water Supply The City’s local water supply is affected by many factors, including climate change, annual rainfall, production patterns, groundwater recharge opportunities, lowering of the groundwater table, and equipment and infrastructure maintenance schedules. Low water levels could adversely affect the City’s water supply and could impact operational expenses of the Enterprise or demand for water services. There is no assurance that the City’s sources of water supply will remain constant throughout the period the Series 2021 Bonds are outstanding. However, regional and local water storage programs, including MWD programs and sponsored programs, are designed to mitigate the potential effects of lower water levels in the Santa Monica Groundwater Basin. See “RISK FACTORS.” Water Quality Every year, the City publishes its Annual Water Quality Report or Consumer Confidence Report as required by the California Code of Regulations where a summary of water quality and compliance with state and federal drinking water standards is provided to the City’s customers. Every three years, the City reports on how the quality of water at the consumer’s tap compares to Public Health Goals set by the California Environmental Protection Agency. Santa Monica’s water meets or exceeds all Federal and State water quality standards. Public Health Goals are even more stringent standards for contaminants which may be exceeded while still complying with mandatory water quality standards. The City has consistently complied with all federal and state regulations. The City collects water samples on a regular basis from all sources of supply, reservoirs and locations throughout the distribution system. General mineral, physical, bacteriological, volatile organic chemicals (“VOCs”), total trihalomethanes (“THMs”), perchlorate, nitrate, ammonia, nitrite, fluoride and metals analyses are performed annually. Pesticides, herbicides, radiochemicals, and some organic, inorganic and mineral compounds analyses are performed at contract laboratories. MWD water imported by the City is treated at MWD’s Weymouth Water Treatment Plant or MWD’s Jensen Water Treatment Plant. Water quality data for the Weymouth and Jensen Water Treatment Plants reported in MWD’s annual Water Quality Report for 2020 shows no objectionable water quality characteristics. The Weymouth Water Treatment Plant receives most of it water supply from the Colorado River which has hard water. Hardness in water comes from calcium and magnesium minerals naturally occurring in the water. The quality of water in the Santa Monica Groundwater Basin, the source of approximately 65% to 75% of the City’s water supply, is generally good quality with the exception of two well fields that have been impacted by third party contamination. The Charnock Well Field was impacted by MTBE that shutdown the well field in the mid-1990s. A settlement agreement with the parties responsible for the MTBE contamination was reached in 2006 and the City completed a multi-barrier treatment system (new Charnock Treatment Plant and upgraded Arcadia Water Treatment Plant) to restore the Charnock Well Field to full production in 2010. The City’s Olympic Well Field has also been impacted by third party contamination with the presence of VOCs (e.g., 1,4-Dioxane, TCE, and PCE) limiting groundwater production and basin water quality. A settlement with the responsible parties for the Olympic Well Field contamination was also reached and the City is in the process of implementing the Olympic Well Field Restoration Project, as outlined in the 2018 Sustainable Water Master Plan Update, to bring the well field back to full production and restore water quality in the Olympic Sub-basin. A portion of the net proceeds of the Series 2021 Bonds will be used to replace two Charnock Wells to restore pumping capacity from Charnock 13 and 18 to enhance resiliency and to pay a portion of the costs of the Olympic Well Field Restoration. As described in this Official Statement, these groundwater wells and pipelines will be 8.A.e Packet Pg. 649 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 33 4140-7650-4109.4 partially funded by proceeds of Series 2021 Bonds, and the treatment portion to restore the well field is funded through settlement funds on hand. Environmental Regulation The quality of the City’s water is regulated by federal Safe Drinking Water Act and the California Health and Safety Code. These two statutes set standards for a variety of elements that can be found in drinking water supplies. The Maximum Contaminant Level (“MCL”) is the legally enforceable standard for concentrations of these constituents which the City must comply with. The Public Health Goal (“PHG”) is the lowest concentration of these constituents which pose less than a one in a million risk of adverse health impacts. The MCL is set as close to the PHG as is technically and economically feasible. The MCLs are set forth in series of rules. Compliance with these MCLs is determined by analytical procedures carried out by laboratories accredited by the State. The following are some of the rules and regulations applicable to the Enterprise. The City is in compliance with all such applicable regulations. Groundwater Rule. The United States Environmental Protection Agency (“EPA”) published the Groundwater Rule on November 8, 2006. The Groundwater Rule is to provide increased protection against microbial pathogens in water systems that use groundwater. Total Coliform Rule. EPA published the Revised Total Coliform Rule on February 13, 2013. Every week the City collects over fifty samples from locations throughout its distribution system. These include wells, reservoirs, and dedicated sample taps on mains. These samples are tested for Total Coliform, Escherichia coli, Chlorine Residual, and Heterotrophic Plate Count bacteria. These are measures of the microbial health of the distribution system. There are MCLs for both Total Coliform and Escherchia coli and the City has always complied with these standards. There are also standards requiring that a chlorine residual, which prevents the growth of bacteria throughout the Enterprise. Lead and Copper Rule. In 1991, EPA published a regulation to control lead and copper in drinking water, known as the Lead and Copper Rule. The treatment technique for the rule requires systems to monitor drinking water at customer taps. If lead concentrations exceed an action level of 15 ppb or copper concentrations exceed an action level of 1.3 ppm in more than 10% of customer taps sampled, the system must undertake a number of additional actions to control corrosion. The City has completed the required testing under this rule. When lead is found at the tap, it typically does not come from treatment plants and water mains. In Flint, Michigan, for example, the lead came from service lines running between the water main in the street and the home. A secondary source can be lead used in solder, a metal alloy used to join together older pipes and lead used in the manufacture of plumbing fixtures. The chemical composition of the water running through the mains, without the proper treatment, can cause lead to leach from these older lead pipes. Lead contamination in the City’s drinking water is highly unlikely. There are no lead service lines in the City. The City’s corrosion control processes have been deemed “optimal” by State drinking water regulators, a designation that Santa Monica’s water treatment is in accordance with best practices and no further corrosion treatments are required. 1,2,3-Trichloropropane (“123-TCP”). On December 14, 2017, the California Water Resources Control Board, Division of Drinking Water (“DDW”) adopted a regulation promulgating an MCL for 1,2,3-trichloropropane, a chemical that had use as a solvent (1,2,3-TCP), of 0.000005 milligrams per liter (mg/L, or 5 parts per trillion or 5 ppt). 1,2,3-TCP is present at one of the groundwater production well in 8.A.e Packet Pg. 650 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 34 4140-7650-4109.4 the Olympic Well Field and the City currently uses blending with other groundwater supplies to meet DDW standards. In addition to the above regulations, the EPA also regulates metals, organic compounds, trihalomethane (disinfectant/disinfection by-products), radionuclides, radon, arsenic, nitrosodium-ethylamine and total chromium. The EPA regulations set out a MCL for each organic chemical. The regulations also require that a water utility use treatment to comply with the MCL by collecting monthly samples of the treated water at a location prior to the distribution system. If results in the treated water supply exceed the MCL the water utility must resample the treated water to confirm the results and report the result to Division of Drinking Water within 48 hours of confirmation. Per and Polyfluoroalkyl Substances (“PFAS”). In July 2018, the DDW first established notification levels for PFAS in drinking water. Current notification levels are established at 10 parts per trillion for perfluorooctanoic acid (“PFOA”) and 40 parts per trillion for perfluorooctane sulfonic acid (“PFOS”). The City’s groundwater supply is not impacted by PFAS compounds. Process Memo 97-005. The City’s existing drinking water permit for the Charnock Treatment Plant and Arcadia Water Treatment Plant also complies with the DDW Process Memo 97-005 for use of extremely impaired source as a domestic water supply. Due to third party contamination at the Charnock Well Field and Olympic Well Field, the groundwater supplies extracted from the two well fields are considered to be extremely impaired and must follow the process and principles outlined in the Process Memo 97-005 to ensure it is suitable for domestic use. Future Regulation. Water utilities are subject to continuing quality and environmental regulation. Federal, state and local standards and procedures which regulate water utilities are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and procedures. Consequently, there is no assurance that any City facility subject to regulations currently in effect will always be in compliance with future regulations. An inability to comply with environmental standards could result in additional capital expenditures to comply, reduced operating levels or the complete shutdown of individual water facilities that are not in compliance. If the federal government, acting through the EPA or additional legislation, or the State impose stricter treatment standards, the City’s expenses could increase and the City would evaluate appropriate methods to address the expenses. The City anticipates advances in regulations and establishes options to comply with the flexibility to adapt as needed. REVENUES AND DEBT SERVICE COVERAGE The following information provides a brief overview of the operations and finances of the Enterprise. This financial information has been extracted from the City’s audited financial statements and, in some cases, from unaudited information provided by the Water Resources Division and the City’s Finance Department. Excerpts including detail concerning the Water Fund within the most recent audited financial statements of the City together with the unqualified auditors’ opinion is included as Appendix B hereto. See APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” Water Rates and Revenues The Enterprise serves over 93,000 residents and 2,700 commercial customers. Customer composition is as follows for Fiscal Year 2020-21: 8.A.e Packet Pg. 651 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 35 4140-7650-4109.4 Customer Percentage of Revenues Residential 62.90% Commercial 18.89 Fire Service 10.77 Landscape Irrigation 5.14 Institutional 2.30 100.00% Source: City of Santa Monica Public Works Department - Water Resources Division. The City categorizes water billing data by different uses. By doing so, billing data provides valuable water use information including which sectors consume the most water and how policies, such as implementation of water conservation programs, affect usage. The sectors analyzed are consistent with those found in the State’s Water Code and are defined below. Water use sectors listed in the Water Code include the following: • Single-Family Residential. A single-family dwelling unit. A lot with a free-standing building containing one dwelling unit that may include a detached secondary dwelling. This is a retail demand. • Multi-Family. Multiple dwelling units contained within one building or several buildings within one complex. • Commercial. A water user that provides or distributes a product or service. • Industrial. A water user that is primarily a manufacturer or processor of materials as defined by the North American Industry Classification System (NAICS) code sectors 31 to 33, inclusive, or an entity that is a water user primarily engaged in research and development. It should be noted that the industrial sector makes up a very small percentage of water use in the City (less than 1.5 % of total commercial use). As a result, industrial and commercial usage were combined for the purposes of analysis and discussion in this UWMP update. • Institutional. A water user dedicated to public service. This type of user includes, among other users, higher-education institutions, schools, courts, churches, hospitals, government facilities, and nonprofit research institutions. • Landscape. Water connections supplying water solely for landscape irrigation. Such landscapes may be associated with multi-family, commercial, industrial, or institutional/governmental sites, but are considered a separate water use sector if the connection is solely for landscape irrigation. • Sales to Other Agencies. These are water sales made to another agency. The City does not sell water to any other agency. • Groundwater Recharge. The managed and intentional replenishment of natural groundwater supplies using man-made conveyances such as infiltration basins or 8.A.e Packet Pg. 652 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 36 4140-7650-4109.4 injection wells. The City currently does not perform groundwater recharge but plans to in the future. • Saline Water Intrusion Barriers. Injection of water into a freshwater aquifer to prevent the intrusion of saltwater. The City does not use water for saline water intrusion barriers. • Agricultural Water. Water used for commercial agricultural irrigation. There are no agricultural water users in the City. • Distribution System Losses. Water losses from the water distribution system. • Other (Fire). Water used for the maintenance and testing of fire suppression systems, hydrant flushing, etc. Water usage for the City is tracked by six of the water sectors listed above, including Single Family Residential, Multi-Family Residential, Commercial/Industrial, Institutional, Landscape, and Other (Fire). The Santa Monica Municipal Code provides that the rate for water furnished through water meters and any service charge therefor shall be established, and may be amended or revised, from time to time, by resolution of the City Council, and such rates and charges shall constitute the charges for supplying water service to any consumer and shall be collected by the Utilities Division of the City. [All revenues derived from the five fees listed above, pursuant to the Santa Monica Municipal Code and subject to the limitations of California Government Code, are placed into the Water Fund and are expended only for Enterprise purposes. All interest earnings on moneys held in the Water Fund are retained in the Water Fund. The Municipal Code of the City requires that the income from the fees and charges assessed for water services equal the overall cost of operation, maintenance, debt coverage and capital improvements of the Enterprise.] Following a noticed public hearing held in accordance with the requirements of Proposition 218, the City Council approved a five-year plan on January 28, 2020, to increase water rates based on three-tier water commodity rate structure for all customers. See “Historical and Projected Water Rates and Charges” below. Low income users effectively receive a subsidy from the City’s General Fund. For low income water customers, the subsidy is $1 off the commodity rate for the first tier. The first tier consists of 11 HCF for single-family, 8 HCF per unit for multi-family. In order to qualify for the program, customers must be enrolled in the Southern California Gas or Southern California Edison Assistance Programs or be enrolled in the City’s Utilities User Tax Exemption Program. The average annual subsidy for the past five years was approximately $_______. For Fiscal Year 2019-20, this subsidy was approximately $_______. Largest Customers The ten largest customers of the Enterprise for the Fiscal Year ended June 30, 2020 are listed in the table below. 8.A.e Packet Pg. 653 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 37 4140-7650-4109.4 Table 2 Ten Largest Customers (Billing Units) Customer Nature of Business Percent of Total Operating Revenues Saint John’s Health Center Hospital 1.32% UCLA Medical Center Hospital 1.18 City of Santa Monica City Landscape 0.32 Hart Arboretum, LLC Mixed Used 0.30 Loews Beach Hotel Hotel 0.27 Fairmont Miramar Hotel Hotel 0.26 Sand & Sea Inc. Hotel 0.26 Morlin Management Corporation Commercial 0.26 Kite Pharma, Inc. Commercial 0.25 SM Investments NV Hotel 0.25 Total 3.630% Billing Unit = 100 Cubic Feet. Source: City of Santa Monica Public Works Department - Water Resources Division. Historical and Projected Water Rates and Charges The Water Resources Division conducts a rate study in 5-year increments. Water rates are subject to review and adjustment and approval, and are not automatically adjusted based on water cost. In addition to meeting legal requirements, the Water Resources Division also conducts public outreach and holds study sessions with City Council on the proposed water rates. The final proposed water rate is heard at a Public Hearing where the new water rates resolution are adopted by City Council. The City completed its five-year water and wastewater rate study (2020-2024), and the new rate structure was adopted on January 28, 2020. The new rate structure imposes a the three-tier water commodity rate structure for all customers (subject to adjustment to a drought rate structure as directed by the City Council when water conservation is mandated and subject to adjustment for residential low income customers with individual water meters). The new rate structure includes a fixed charge for approximately 15% of the Water Fund’s revenue requirements and the rest is billed through a three volumetric rate structure. The three tiers are based on the State of California’s goal for indoor water use (tier 1 allotment), available local groundwater supplies (tier 2), and imported water supplies (tier 3). The adopted rate increases will ensure that the City continues to have a well-maintained water system, maintain reserves at industry recommended levels, keep water bills low over time, and achieve the City’s goal of water self-sufficiency by 2023. The rate structure does not required City Council action each year to implement the maximum rate increase. [The methodology for developing the fee schedules for the above outlined charges is governed in part by the Santa Monica Municipal Code and the EPA.] [The Municipal Code of the City requires that the income from the fees and charges assessed for water services equal the overall cost of operation, maintenance, debt coverage and capital improvements of the Enterprise.] Table 3 below sets forth the historical and projected rate increases, including the as adopted on January 28, 2020 for calendar years 2020 through the end of 2024. 8.A.e Packet Pg. 654 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 38 4140-7650-4109.4 Table 3 Historical and Projected Rate Increases Calendar Year Actual Increase Maximum Increase/ Projected Increase(1) 2015 9% 9% 2016 5 9 2017 5 9 2018 5 9 2019 9 9 2020(1) 20 20 2021 18 18 2022(2) -- 14 2023(2) -- 14 2024(2) -- 14 (1) Effective March 1, 2020. (2) As approved on January 28, 2020. Source: City of Santa Monica. The following tables outline the adopted 2020-2024 water rate structure for the City. 8.A.e Packet Pg. 655 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 39 4140-7650-4109.4 Table 4 Rate Structure March 1, 2020 January 1, 2021 January 1, 2022 January 1, 2023 January 1, 2024 20% 18% 14% 14% 14% Water Rate Schedule Bi-Monthly Fixed Water Service Rates Calendar Year 2019-20 (3/1/2020 to 12/31/2020) Calendar Year 2020-21 (1/1/2021 to 12/31/2021) Calendar Year 2021-22 (1/1/2022 to 12/31/2022) Calendar Year 2022-23 (1/1/2023 to 12/31/2023) Calendar Year 2023-24 (1/1/2024 to 12/31/2024) Single Family Residential (meter size) 3/4 inch $ 11.11 $ 13.11 $ 14.95 $ 17.04 $ 19.43 1 inch 11.11 13.11 14.95 17.04 19.43 1.5 inch 15.66 18.48 21.07 24.02 17.38 2 inch 21.13 24.93 28.42 32.40 36.93 Multi-Family Residential and Non-Residential (meter size) 3/4 inch $ 13.44 $ 15.86 $ 18.08 $ 20.61 $ 23.50 1 inch 13.44 15.86 18.08 20.61 23.50 1.5 inch 20.32 23.97 27.33 31.16 35.52 2 inch 28.57 33.71 38.43 43.81 49.94 3 inch 50.57 59.68 68.03 77.56 88.41 4 inch 75.33 88.89 101.33 115.52 131.69 6 inch 144.10 170.04 193.84 220.98 251.91 8 inch 391.66 462.16 526.86 600.62 684.71 Fire Service Lines (meter size) 1.5 inch $ 42.65 $ 50.33 $ 57.38 $ 65.41 $ 74.57 2 inch 64.31 75.88 86.51 98.62 112.42 3 inch 132.88 156.80 178.75 203.77 232.30 4 inch 259.19 305.85 348.66 397.48 453.12 6 inch 584.00 689.12 785.60 895.58 1,020.96 8 inch 1,017.08 1,200.15 1,368.17 1,559.72 1,778.08 10 inch 1,522.33 1,796.35 2,047.84 2,334.54 2,661.38 8.A.e Packet Pg. 656 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 40 4140-7650-4109.4 Water Rate Schedule Commodity Charges - Bi-Monthly Volumetric Charges ($/HCF) (All Customers) Calendar Year 2019-20 (3/1/2020 to 12/31/2020) Calendar Year 2020-21 (1/1/2021 to 12/31/2021) Calendar Year 2021-22 (1/1/2022 to 12/31/2022) Calendar Year 2022-23 (1/1/2023 to 12/31/2023) Calendar Year 2023-24 (1/1/2024 to 12/31/2024) Tier 1 $3.78 $4.46 $5.08 $5.80 $ 6.61 Tier 2 4.39 5.18 5.91 6.73 7.67 Tier 3 6.26 7.39 8.42 9.60 10.94 Note: HCF = hundred cubic feet. Bi-Monthly Tier Breakpoint Table in HCF Customer Class and Meter Size Tier 1 Breakpoint Tier 2 Breakpoint Tier 3 Breakpoint Single Family Residential Per Unit (all meter sizes) 0 – 11 HCF 12 – 18 HCF 19+ HCF Multi-Family Residential Per Unit (all meter sizes) 0 – 8 HCF 9 – 13 HCF 14+ HCF Non-Residential Per Meter Size: 3/4 inch 0 – 11 HCF 12 – 18 HCF 19+ HCF 1 inch 0 – 11 HCF 12 – 18 HCF 19+ HCF 1.5 inch 0 – 22 HCF 23 – 36 HCF 37+ HCF 2 inch 0 – 35 HCF 36 – 58 HCF 59+ HCF 3 inch 0 – 70 HCF 71 – 115 HCF 116+ HCF 4 inch 0 – 110 HCF 111 – 180 HCF 181+ HCF 6 inch 0 – 220 HCF 221 – 360 HCF 361+ HCF 8 inch 0 – 924 HCF 925 – 1,512 HCF 1,513+ HCF Note: HCF = hundred cubic feet. 8.A.e Packet Pg. 657 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 41 4140-7650-4109.4 Mandated Level of Conservation Drought Commodity Charges - Bi-Monthly Volumetric Charges ($/HCF) (All Customers) Calendar Year 2019-20 (3/1/2020 to 12/31/2020) Calendar Year 2020-21 (1/1/2021 to 12/31/2021) Calendar Year 2021-22 (1/1/2022 to 12/31/2022) Calendar Year 2022-23 (1/1/2023 to 12/31/2023) Calendar Year 2023-24 (1/1/2024 to 12/31/2024) 10% Tier 1 $ 3.90 $ 4.60 $ 5.24 $ 5.97 $ 6.81 Tier 2 4.64 5.48 6.24 7.12 8.11 Tier 3 6.80 8.03 9.15 10.43 11.89 20% Tier 1 $ 4.18 $ 4.93 $ 5.62 $ 6.41 $ 7.31 Tier 2 4.98 5.88 6.70 7.64 8.71 Tier 3 7.30 8.62 9.82 11.20 12.76 30% Tier 1 $ 4.55 $ 5.36 $ 6.12 $ 6.97 $ 7.95 Tier 2 5.42 6.39 7.29 8.31 9.47 Tier 3 7.94 9.37 10.68 12.18 13.88 40% Tier 1 $ 5.03 $ 5.94 $ 6.77 $ 7.72 $ 8.80 Tier 2 6.00 7.08 8.07 9.20 10.49 Tier 3 8.79 10.38 11.83 13.49 15.37 50% Tier 1 $ 5.72 $ 6.75 $ 7.69 $ 8.77 $10.00 Tier 2 6.81 8.04 9.16 10.45 11.91 Tier 3 9.99 11.79 13.43 15.32 17.46 60% Tier 1 $ 6.74 $ 7.96 $ 9.07 $10.34 $11.79 Tier 2 8.03 9.48 10.81 12.32 14.04 Tier 3 11.78 13.90 15.84 18.06 20.59 Low-Income Commodity Charges – Bi-Monthly Volumetric Charges ($/HCF) (Residential Customers with Individual Water Meters Only) Calendar Year 2019-20 (3/1/2020 to 12/31/2020) Calendar Year 2020-21 (1/12021 to 12/31/2021) Calendar Year 2021-22 1/1/2022 to 12/31/2022) Calendar Year 2022-23 (1/1/2023 to 12/31/2023) Calendar Year 2023-24 (1/1/2024 to 12/31/2024) Tier 1 $2.78 $3.46 $4.08 $4.80 $ 5.61 Tier 2 4.39 5.18 5.91 6.73 7.67 Tier 3 6.26 7.39 8.42 9.60 10.94 The average annual residential water bill for calendar year 2021 is provided below for the average single-family resident and the multi-family resident. 8.A.e Packet Pg. 658 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 42 4140-7650-4109.4 Average single-family home: • Uses approximately 26 hundred cubic feet (HCF) of water for each billing period (60 days) or $157.30 per bill for 2021. Average multi-family resident (MFR): • The average multi-family unit comprises of 8 units that uses approximately 8 HCF per unit. • A single unit in an 8-unit MFR uses approximately 8 hundred cubic feet (HCF) of water for each billing period (60 days) or $38.68 per unit per bill for 2021. The total water bill for the 8-unit MFR is $309.44 per bill (every 60 days) in 2021. The table below illustrates the City’s average water rate for a single-family home compared to neighboring cities/municipalities as of January 28, 2020. For the City, this includes the most recent rate increases effective March 1, 2020 and January 1, 2021 as adopted on January 28, 2020. Table 5 Comparison of Average Bi-Monthly Water Service Charges Municipality Average Water Rate(1) Orange $110.82 Huntington Beach 113.64 Torrance 123.22 Santa Monica 133.41 Long Beach 147.61 Pasadena 146.50 Beverly Hills 163.72 Culver City 192.07 Los Angeles 195.93 Orange 110.82 (1) Comparisons based on the average single family home (average bimonthly water usage of 26 HCF) with such city. Source: City of Santa Monica Public Works Department - Water Resources Division. Rate Setting Process The City is required by the Indenture, at all times while any Series 2021 Bonds remain outstanding, to establish, fix, prescribe and collect rates and charges for the services of the Enterprise that will be at least sufficient to yield during each Fiscal Year (i) Revenues of the City for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to the Indenture to be made in such Fiscal Year, and (ii) a Debt Service Coverage Ratio for such Fiscal Year of not less than 1.20:1. The amounts of such fees and charges are revised periodically by resolution of the City Council. The City Manager annually reviews the system of rates and charges as part of the budgetary process. In May of each year, the City Manager submits to City Council a proposed operating budget for the Fiscal Year commencing the following July 1. The operating budget includes proposed expenditures and expenses and the means of financing them. Public hearings are conducted by the City Council to obtain citizen comments. The budget is adopted, prior to June 30, through passage of appropriate 8.A.e Packet Pg. 659 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 43 4140-7650-4109.4 resolutions. The final adopted budget is subject to mid-year revisions to reflect any significant changes in expenditures or revenues due to State or federally mandated programs, emergencies, or other unforeseen occurrences. Billing and Collection Procedures Billing and collection services for all water services are provided by the City’s Finance Department. Water charges for residential and commercial users are billed bi-monthly for approximately 61 days of service. The Revenue Division of the Finance Department prepares a bill covering charges for water, sewer, refuse, water conservation services and utility user’s tax. A billing summary is prepared by the Finance Department monthly, at which time accounts receivable are created and revenue is credited to the Water Fund. When the actual monies are received, the accounts receivable is reduced accordingly. Payments received are credited to the billed accounts in the following order: utility user’s tax, refuse, sewer, water conservation, and water. Payments received are credited first to the accounts in arrears and then to the current amounts for each utility in the order stated above. Water statements shall be due and payable upon presentation and shall become delinquent if not paid before the thirtieth day after mailing. If any customer is delinquent in the payment of his or her statement, the Utilities Manager may discontinue all water service to the premises concerned. Delinquent accounts will be assessed a late charge as provided for in the City’s Municipal Code. If an account is not paid within 31 days of date of billing, a second notice is sent. After 45 days from the date of billing, the accounts appear on a shut off list at which time an inspector is sent to the service address to discontinue wastewater service. On closed accounts, the customer receives a closing reminder notice 21 days after the closing bill was sent. If not paid the City will begin an internal collection process. The Municipal Code provides that a late charge will be assessed against any current or cumulative past due balances (thirty days or over) appearing on a customer’s bimonthly utility bill. This charge shall be due and payable immediately upon accrual. The late charge for utility bills shall be set by resolution of the City Council and may be amended by the City Council from time to time. Currently, the percentage of the City’s total utility bills that remain delinquent (>121 days overdue) is approximately 15%, which percentage unpaid has nearly doubled due to the Pandemic. A majority of these customers are on payment plans to pay off the balance of their bill. Prior to the Pandemic, the delinquent percentage was approximately 5% to 8%. It should be noted that this delinquency percentage includes customers that have been placed on payment plans and continue to make payments towards their balance. The actual delinquency that results in actual water shutoff for non-payment is typically less than 1%. The City assesses a Capital Facility Fee for new water and sewer connections, to be paid by the owner or developer of a building in the City. The Capital Facility Fee is collected as part of the building permit and water and sewer connection permit application procedures. Permits are not granted until payment has been received. The basis of the Capital Facility Fee considers projected customer growth, value of existing assets, value of planned assets, cash revenues, and debt service in establishing the fees. The fee shall be payable regardless of whether or not an actual connection to the water system has been made. The fee shall be established and from time to time amended or revised by resolution of the City Council. The most recent Capital Facility Fee was adopted on November 24, 2020. In September 2018, the Water Shutoff Protection Act (SB 998) (the “Act”) was signed into law. The legislation imposes specific requirements and procedures for the discontinuation of water service to 8.A.e Packet Pg. 660 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 44 4140-7650-4109.4 residential customers. The Act requires all California water systems to have written policies on the discontinuation of residential water service for non-payment. Specifically, the policy must include 1) a plan for deferred or reduced payments; 2) alternative payment schedules; 3) a formal mechanism for a customer to contest or appeal a bill; and 4) a telephone number for a customer to discuss options to avoid discontinuation of service for non-payment. [The City is in compliance with the requirements of the Act, and the City Council approved amendments to its water service connection fees on [January 28, 2020] to be compliant with the Act.] Water Reserves Fund The City has established a fund for accumulating excess water revenues, known as the “Water Reserves Fund.” Such fund shall consist of excess water revenue and shall be used solely and exclusively for funding expenses of the Enterprise. The reserve policy for the Water Fund was recently updated as part of the 2020 Water Rate Study and adopted water rates to align with industry best practices (e.g., American Water Works Association). For operating reserves, a 60-day minimum will be maintained with a recommended target of 90-days. For capital reserves, an amount equating to 3% of net assets will be maintained. In addition, a $1 million rate stabilization reserve will be maintained to account for unforeseen rate increases for the supplemental imported water supply. As of _____ 2021, the Water Reserves Fund had $______ on deposit. Operation and Maintenance Expenses As defined in the Indenture, Operation and Maintenance Costs include the reasonable and necessary costs expended or incurred by the City for maintaining and operating the Enterprise, calculated in accordance with Generally Accepted Accounting Principles, including the reasonable expenses of management and repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and including salaries and wages of employees, payments to its employee retirement systems (to the extent paid from Revenues), overhead, insurance, taxes if any, fees of auditors, accountants, attorneys or engineers and insurance premiums, and Administrative Costs, but excluding in all cases (a) depreciation, replacement and obsolescence charges or reserves therefor, (b) amortization of intangibles or other bookkeeping entries of a similar nature, (c) costs of capital additions, replacements, betterments, extensions or improvements to the Enterprise that, under Generally Accepted Accounting Principles, are chargeable to a capital account or to a reserve for depreciation, and (d) debt service payable on debt (determined in accordance with Generally Accepted Accounting Principles) incurred by the City with respect to the Enterprise, including Parity Obligations. The following is a description of certain costs incurred by the Enterprise: Pollution Remediation Costs. On December 1, 2006, the City amended a settlement agreement that it had entered into in 2003 with a consortium of oil companies in relation to MTBE contamination that had occurred at the City’s Charnock Well Field. The Charnock Well Field is used to supply drinking water to the City. The amended 2006 agreement called for the oil companies to pay the City $131.0 million in exchange for the City’s agreement to treat to applicable drinking water standards any water produced from the Charnock Well Field, which contains MTBE, tertiary butyl alcohol (“TBA”) and related petroleum hydrocarbons. Prior to this amended 2006 agreement and under the terms of other settlement agreements with other companies, the City received an additional $122.1 million also related to MTBE contamination of the City’s Charnock Well Field. Of this amount, $18.0 million was deposited into an escrow account specifically to be used for the design and building of a remediation plant. The account was to be replenished by the consortium of oil companies once exhausted until the remediation construction was complete. The City has received all the proceeds from each of these agreements, including the amended 2006 agreement. 8.A.e Packet Pg. 661 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 45 4140-7650-4109.4 To meet its Charnock Well Field water treatment obligation, the City has constructed and is operating a water treatment remediation plant (Charnock Treatment Plant) using the proceeds of the 2006 and the other earlier settlements. On November 13, 2009, the City entered into a settlement and release agreement with The Gillette Company (Gillette), guaranteed by The Procter & Gamble Company, in relation to groundwater contamination of the City’s Olympic Well Field. The Olympic Well Field is used to supply drinking water to the City. The agreement calls for Gillette to make payments to the City ranging from $150,000 to $11,183,175 annually, totaling $64.8 million over 30 years which included the City receiving title to property valued at $3.2 million. Under the agreement, the City has agreed to construct and operate facilities for treatment of certain contaminants and treat to applicable drinking water standards any water that it produces from the Olympic Well Field. At the end of Fiscal Year 2016-17, the City had received cash payments of $42,895,400. During Fiscal Year 2017-18, the City and Gillette agreed to modify their agreement whereby a lump sum payment of $10,415,000 was made by Gillette in exchange for a release from any and all future liabilities. On May 15, 2012, the City entered into a settlement and release agreement with The Boeing Company (Boeing) also in relation to groundwater contamination of the City’s Olympic Well Field. The agreement calls for Boeing to make payments to the City ranging from $150,000 to $5,000,000 annually over a ten-year period, totaling $39,500,000. On December 12, 2012, the agreement was modified with $21,000,000 being due from Boeing in January 2013 and payments of $3,670,000 being due from Boeing annually beginning in 2017 through 2021. The City received Boeing’s payment of $21,000,000 on January 7, 2013 [and subsequent payments were made in full through 2021]. Under the agreement, the City has agreed to construct and operate facilities for treatment of certain contaminants and treat to applicable drinking water standards any water that it produces from the Olympic Well Field. Using the expected cash flow technique utilizing present value, the City has measured the potential water treatment liability under the agreements by the anticipated cost of construction/remediation/operating contracts, which include a contingency of 10% for unforeseen costs. Additionally, the City engages in an ongoing program of pollution remediation related to its various properties. Two such sites are currently undergoing remediation in the form of either soil or vaporous contaminant removal or containment. By State law these occurrences are required to be reported to California Department of Health Services. The balance of the pollution remediation liability is $2,332,867 in the governmental activities of which $332,216 is due within one year and $34,174,514 in the business-type activities, of which $14,010,573 is due within one year. These liabilities are reported in the business-type and governmental activities in the Statement of Net Position. Capital Improvement Plan The City biennially develops a five-year Capital Improvement Program (CIP) budget. Although the program spans five years, funds are appropriated annually as part of the annual budget process. As described herein, the Arcadia WTP Expansion and Production Efficiency Enhancement Project are a part of a larger project, the Olympic Well Field Restoration and Arcadia WTP Expansion Project (Project) that consists of three major elements that are discussed briefly below. 1. Olympic Well Field Restoration – To maximize local groundwater resources, the City will be constructing a new well head advanced water treatment facility (Olympic 8.A.e Packet Pg. 662 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 46 4140-7650-4109.4 AWTF), two new groundwater production wells, and a new Olympic Pipeline to restore the Olympic Well Field to full production capacity (Olympic is one of three well fields serving the Arcadia WTP). The Olympic AWTF will be collocated at the Arcadia WTP and consist of ultra-violet light advanced oxidation process and granular activated carbon to remove 1,4 Dioxane and other volatile organic compounds (VOC) in the Olympic Well Field. Treated water from the Olympic AWTF will be sent to the RO system at the Arcadia WTP for further treatment. 2. Arcadia WTP Expansion – The City will be expanding the hydraulic treatment capacity of the existing Arcadia WTP to treat additional groundwater available in the local groundwater basin while maintaining sustainable yield levels. Various ancillary facilities (e.g. new pumps, cartridge filters, mechanical piping upgrades, and air stripping towers) will be added or expanded to increase the Arcadia WTP treatment capacity from 10 million gallons per day (mgd) to 13 mgd and allow the City to operate all four RO skids at the same time instead of 3 duty and 1 standby (current arrangement). The RO concentrate stream from the four RO skids will be treated further through closed circuit reverse osmosis (CCRO™) to produce additional drinking water (see item 3 below). The increase production of local groundwater supplies will help the City achieve its water self-sufficiency goal and reduce purchase of imported water from MWD. 3. Production Efficiency Enhancement Project – The existing RO system at the Arcadia WTP will be upgraded with a new high recovery technology, Flow Reversal Reverse Osmosis, to increase its production efficiency from 80% to 90% or greater. The Production Efficiency Enhancement Project would produce an additional drinking water (approximately 1,200 AFY) without the need to extract additional groundwater and reduce RO concentrate discharge to the sewer system. A key aspect of the City’s Sustainable Water Master Plan to increase local water supplies will realize a significant economic benefit through future avoided imported water costs paid to MWD. The City’s total water supply production cost is projected to be lower than imported water purchase costs within 5-6 years after project completion. For Fiscal Years 2019-20 and 2020-21, major projects included the Olympic Wellfield restoration and Olympic Wells equipping, and $6.4 million for the replacement of water mains and various capital water projects in progress budgeted at approximately $3.4 million. The Production Efficiency Enhancement Project is partially supported by a $10 million Water Desalination Grant awarded by the California Department of Water Resources. The Water Desalination Grant Program funds desalination projects for naturally-occurring brackish and ocean water for potable water supply. The SWIP and Production Efficiency Enhancement Projects are being supported by a financial contribution of up to $19.6 million over a 25-year period from MWD through its Local Resources Program. MWD’s support recognizes benefits of local water supply projects to the entire region because the project will upon completion lessens the strain on imported water sources, making them available to other agencies and areas that may need them in the future. Budget plan numbers for Fiscal Year 2020-21 through Fiscal Year 2024-25 are set forth in the table below. 8.A.e Packet Pg. 663 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 47 4140-7650-4109.4 Table 6 Adopted Fiscal Year 2020-22 Biennial Capital Improvement Program Project Title Fiscal Year Budget 2020-21 Fiscal Year Budget 2021-22 Fiscal Years Budget Plans 2022-23 2023-24 2024-25 Advanced Metering Infrastructure (AMI)* -- $15,000,000 -- -- -- Arcadia WTP Expansion* -- 47,900,000 -- -- -- Groundwater Well Imps. at Charnock* -- 8,700,000 -- -- -- Groundwater Sustainability Plan (GSP) $ 106,100 109,300 -- -- -- Olympic Wellfield Restoration 7,850,000 13,950,000 -- -- -- Olympic Wellfield Restoration* -- 3,900,000 -- -- -- Olympic Wellfield Equipping 3,000,000 1,600,000 -- -- -- Olympic Wellfield Management -- 275,000 $ 275,000 $ 137,500 -- Green Sand Media Replacement 477,400 491,700 -- -- -- Non-Potable Water Main Expansion 675,800 216,800 238,300 760,500 $ 783,300 Basin Sustainable Yield Analysis 530,450 -- -- -- 500,000 SWIP Injection Well* 1,591,350 900,000 -- -- -- Water Main Improvements - City Forces 265,200 273,200 281,377 289,819 298,514 Water Main Replacement 4,365,400 4,556,400 3,753,053 6,955,644 7,164,313 Other Projects 1,264,969 938,148 942,658 991,741 1,017,044 Total $20,126,669 $98,810,548 $5,490,388 $9,135,204 $9,763,171 * All or a portion of this project will be funded with proceeds of the Series 2021 Bonds. Source: City of Santa Monica. The following is a description of the principal projects of the Water Fund in the current CIP budgets and plans in the table above and not described under the caption “PLAN OF FINANCE.” Groundwater Sustainability Plan (GSP). This project will develop a Groundwater Sustainability (GSP) Plan by January 2022 in accordance with the California Sustainable Groundwater Management Act of 2014. The GSP will include components to monitor groundwater levels and storage, mitigate conditions of overdraft, regulate the migration of contaminated groundwater, and identify well construction locations and policies to manage groundwater resources. The City has filed establishment of the Santa Monica Groundwater Basin Groundwater Sustainability Agency (SMBGSA) with DWR per a cooperative agreement/MOU with LADWP, City of Beverly Hills, Culver City, and Los Angeles County to manage Santa Monica Groundwater Basin groundwater. Total projected costs of completion of this plan are estimated to be $515,400, with a final completion date in Fiscal Year 2021-22. The budgeted Fiscal Year 2020-21 expenditure for this project is $106,100 and the budgeted Fiscal Year 2021-22 expenditure for this project is $109,300. Non-Potable Water Main Expansion. This project will expand the non-potable water system to allow future connections as source water is developed at the Santa Monica Urban Runoff Recycling Facility (SMURRF). This budget will allow up to 1,000 linear feet per year of expansion and revenue may be recaptured as clients want to connect to the system. The expansion will reach 5th & Broadway, Palisades Park and continue along the San Vicente median. The City desires to expand its use of non-potable water as a water conservation measure. By expanding the purple pipe system systematically to nearby parks and new development, it makes the use of non-potable water a possibility. This is an ongoing project of the City. The budgeted Fiscal Year 2020-21 expenditure for this project is $675,800 and the budgeted Fiscal Year 2021-22 expenditure for this project is $216,800. Olympic Wellfield Restoration. The project will include a new pipeline and advanced water treatment facility for the Olympic Well Field. The new pipeline will separate Olympic Well Field groundwater from the Charnock Well Field for treatment at the new advanced water treatment facility. 8.A.e Packet Pg. 664 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 48 4140-7650-4109.4 The new advanced water treatment facility will be co-located at the Arcadia Water Treatment Plant. Total projected costs of this project are estimated to be $21,800,000, with a final completion date in Fiscal Year 2023-24. The budgeted Fiscal Year 2020-21 expenditure for this project is $7,850,000 and the budgeted Fiscal Year 2021-22 expenditure for this project is $13,950,000. With respect to the Olympic Well Field projects described in this Official Statement, the treatment portion to restore the well field is funded through settlement funds on hand, and the groundwater wells and pipelines will be partially funded by proceeds of Series 2021 Bonds, [with the remainder to be funded on a pay-go basis.] Olympic Wells Equipping. The project will equip two new wells along the Olympic Blvd median. These wells will produce an estimated 600 gpm each and will be used to provide water to the entire City. The wells will be equipped with a pump, artistic well enclosure, piping and all necessary electrical connections to make them fully operational. Total projected costs of this project are estimated to be $3,000,000, with a final completion date in Fiscal Year 2023-24. The budgeted Fiscal Year 2020-21 expenditure for this project is $1,600,000. Olympic Wellfield Management. This project will fund services related to the monitoring, reporting and remediation of groundwater contamination per the City’s Olympic Well Field Groundwater Management Plan. Total projected costs of this project are estimated to be $687,500, with a final completion date in Fiscal Year 2023-24. The budgeted Fiscal Year 2020-21 expenditure for this project is zero and the budgeted Fiscal Year 2021-22 expenditure for this project is $275,000. Santa Monica Groundwater Basin Sustainable Yield Analysis. This project will fund an assessment of the quantity and extent of groundwater in the subsurface and the amount of water that can be sustainably extracted at the Olympic, Charnock and Coastal subbasins. This step as part of a routine analysis of the Santa Monica Groundwater Basin is required to determine the quantity and extent of groundwater in the subsurface that can be sustainably extracted for use. This is an ongoing project of the City. The budgeted Fiscal Year 2020-21 expenditure for this project is $530,450 and the next projected Fiscal Year 2024-25 expenditure for this project is $500,000. Water Main Improvements - City Work Forces. This project will fund replacement of water mains by City Staff which also includes street, asphalt, and pavement repair, work labor, and materials from the Water and Street Maintenance Divisions. This project assists in keeping the City on the 100-year water main replacement cycle recommended in the Sustainable Water Master Plan to prevent breakages, property damage and water losses. This is an ongoing project of the City. The budgeted Fiscal Year 2020-21 expenditure for this project is $265,200 and the budgeted Fiscal Year 2021-22 expenditure for this project is $273,200. Water Main Replacement Program. This project provides for yearly repair and replacement of the 205-mile City water main system. The City’s goal is to keep on a recommended 100-year replacement schedule by replacing two miles of water main per year. Water main repair and replacement is required to improve water flow characteristics and service to Santa Monica residents, and prevent breakages, water loss, and property damage. This project proactively allows outdated/worn out water mains to be replaced, prior to any water main breaks. This is an ongoing project of the City. The budgeted Fiscal Year 2020-21 expenditure for this project is $4,365,400 and the budgeted Fiscal Year 2021-22 expenditure for this project is $4,556,400. Other projects include the expenses of the Enterprise allocable to the City’s Annual Paving and Sidewalk Repair Program, Water Facility Controller and Hardware Upgrades, Hansen 8 Software Upgrade, Computer Equipment Replacement Program, Telecommunications Services, and Vehicle Replacement Program (which constitute the largest annual expenditures among these other projects). 8.A.e Packet Pg. 665 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 49 4140-7650-4109.4 The projects support the Sustainable Water Master Plan (SWMP) and include the Groundwater Well Improvements and the Arcadia Water Treatment Plant Expansion Project in the Water Fund and the Sustainable Water Infrastructure Project (SWIP) in the Wastewater Enterprise Fund. Water Fund Financial Summary The information contained in the following tables of revenues, expenditures and changes in fund balance, and assets and liabilities has been derived from the City’s audited financial statements for Fiscal Years 2017-18 through 2019-20. The City’s audited financial statements for the Fiscal Year ended June 30, 2020 are attached as APPENDIX B hereto. Audited financial statements for prior years are available upon request from the Finance Department of the City and can be accessed on the City’s website at https://finance.smgov.net/budgets-reports/annual#/. The information on such website is not incorporated herein by such reference or otherwise. The total net position of the Water Fund decreased $20.2 million, or 19.6% from Fiscal Year 2019-20. Revenues reflect a $1.0 million increase in water service charges primarily from a 20% water rate increase offset by a decrease in customer water usage. The primary reason for the decrease is the transfer out of $24.0 million to the General Fund to assist with the loss of revenues due to the Pandemic. These were settlement funds which had no restrictions, not committed to water pollution remediation that would be used by the General Fund to provide essential services during severe revenue decreases as a result of the Pandemic, and had been recently transferred from the General Fund to cover water sustainability projects. Also in Fiscal Year 2019-20, the General Fund transferred approximately $94,000 to the Water Fund to subsidize utility rates for low income families. 8.A.e Packet Pg. 666 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 4140-7650-4109.4 Table 7 City of Santa Monica Water Fund Balance Sheet For Fiscal Years 2017-18 through 2019-20 2017-18 2018-19 2019-20 ASSETS Current Assets: Cash and Investments $43,753,231 $ 103,374,387 $ 77,476,001 Restricted Cash and Investments 338,867 355,474 355,474 Receivables (net, where applicable, of allowances for uncollectibles): Accounts 3,891,941 3,878,831 4,418,661 Interest 151,876 285,788 331,115 Settlement -- 7,340,000 3,670,000 Prepaids 8,828 48,277 54,274 Total Current Assets $48,144,743 $115,282,757 $ 86,305,525 Noncurrent Assets: Restricted Cash and Investments 2,006,582 1,428,792 1,435,680 Capital Assets: Land 21,006 21,006 21,006 Construction in Progress 1,738,104 1,781,004 5,144,984 Buildings 1,532,511 1,532,511 1,532,511 Improvements Other Than Buildings 1,015,098 1,015,098 1,015,098 Machinery and Equipment 3,778,029 3,778,029 3,778,029 Infrastructure 49,799,454 53,573,310 59,975,628 Intangibles 3,575,000 3,575,000 3,575,000 Less: Accumulated Depreciation (31,217,421) (32,534,055) (33,859,908) Net Capital Assets 30,241,781 32,741,903 41,182,348 Total Noncurrent Assets 32,248,363 34,170,695 42,618,028 TOTAL ASSETS $80,393,106 $149,453,452 $128,923,553 DEFERRED OUTFLOWS OF RESOURCES: Deferred Outflows from Pensions $ 2,281,745 $ 1,686,582 $ 1,650,419 Deferred Outflows from OPEB 54,243 58,458 72,929 TOTAL DEFERRED OUTFLOWS OF RESOURCES $ 2,335,988 $ 1,745,040 $ 1,723,348 LIABILITIES: Current Liabilities: Accounts Payable $ 1,806,723 $ 2,098,690 $ 4,377,824 Accrued Liabilities 170,934 181,339 190,120 Contracts Payable (retained percentage) 145,046 206,164 550,851 Compensated Absences Due Within One Year 224,237 252,498 221,612 Liabilities Payable from Restricted Assets – Deposits 316,094 355,474 239,071 Pollution Remediation Obligation Due Within One Year 1,210,000 7,127,106 14,010,573 Total Current Liabilities $ 3,873,034 $ 10,221,271 $ 19,590,051 Long-term Liabilities: Compensated Absences Due in More Than One Year 176,033 128,605 141,517 Pollution Remediation Obligation Due in More Than One Year 6,445,401 30,559,095 20,163,941 Net OPEB Liability 475,455 371,806 345,781 Net Pension Liability 6,834,313 6,527,447 7,303,364 Total Long-Term Liabilities 13,931,202 37,586,953 27,954,603 TOTAL LIABILITIES $17,804,236 $ 47,808,224 $ 47,544,654 DEFERRED INFLOWS OF RESOURCES: Deferred Inflows from Pensions 571,688 518,796 434,075 Deferred Inflows from OPEB 25,376 17,520 19,433 TOTAL DEFERRED INFLOWS OF RESOURCES $ 597,064 $ 536,316 $ 453,508 NET POSITION: Net Investment in Capital Assets $30,241,781 $ 32,741,903 $ 41,182,348 Unrestricted 34,086,013 70,112,049 41,466,391 TOTAL NET POSITION $64,327,794 $102,853,952 $ 82,648,739 8.A.e Packet Pg. 667 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 51 4140-7650-4109.4 Source: City of Santa Monica Comprehensive Annual Financial Reports for Fiscal Years 2017-18 through 2019-20. 8.A.e Packet Pg. 668 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 52 4140-7650-4109.4 Table 8 City of Santa Monica Water Fund Statement of Revenues and Expenditures For Fiscal Years 2017-18 through 2019-20 2017-18 2018-19 2019-20 Operating Revenues: Charges for Services $25,928,094 $ 26,851,412 $ 27,872,084 Total Operating Revenues $25,928,094 $ 26,851,412 $ 27,872,084 Operating Expenses: Personnel Services $ 6,358,652 $ 6,540,952 $ 7,344,828 Administrative Indirect 1,492,301 1,563,307 1,628,966 Contractual Services 1,635,139 1,785,392 2,312,556 Repairs and Maintenance 1,176,824 1,225,342 1,327,671 Materials and Supplies 5,074,351 2,178,348 1,784,243 Utilities 2,050,285 2,600,926 2,321,710 Water Purchases 4,889,236 4,005,039 5,166,214 Casualty Property and Liability Costs 282,497 289,117 353,972 Miscellaneous Fees and Costs -- 113,857 50,994 Depreciation and Amortization 1,353,313 1,316,634 1,355,440 Other 1,164,576 1,507,360 1,220,656 Total Operating Expenses $25,477,174 $ 23,126,274 $ 24,867,250 Operating Income (Loss) $ 450,920 $ 3,725,138 $ 3,004,834 Nonoperating Revenues (Expenses) Investment Income $ 139,089 $ 2,140,281 $ 3,294,697 Interest Expense (1,010) (1,994) (3,629) Gain (Loss) on Disposal of Capital Assets (40,224) -- -- Other Nonoperating Revenues 549,077 553,719 477,334 Total Nonoperating Revenues (Expenses), Net $ 646,932 $ 2,692,006 $ 3,768,402 Income (Loss) Before Capital Contributions, Transfers and Special Items $ 1,097,852 $ 6,417,144 $ 6,773,236 Transfers In (1) $11,100,450 $ 55,873,794 $ 94,120 Transfers Out (2) (2,028,208) (2,437,468) (26,959,512) Special Item 6,408,992 (21,327,312) (113,057) Change in Net Position $16,579,086 $ 38,526,158 $(20,205,213) Net Position at Beginning of Year, as restated 47,748,708 64,327,794 102,853,952 Net Position at End of Year $64,327,794 $102,853,952 $ 82,648,739 (1) In Fiscal Year 2018-19, the Transfers In of $55,873,794 represents transfers from the City’s General Fund of $55,786,329 as part of the Gillette/Boeing Settlement for remediation of the Olympic Well Field (transfer of payments to the water enterprise fund for pollution remediation, such payments originally deposited in the General Fund and sourced to remediation settlement funds,) and $87,465 for low income assistance. (2) In Fiscal Year 2018-19, the Transfers Out under the Special Item is for pollution remediation liability (such payments originally sourced to remediation settlement funds). [In Fiscal Year 2019-20. The Transfer out of $26,959,512 is more than the typical $2 million, as the Water Fund transferred back $24 million of unrestricted Gillette/Boeing settlement funds to provide financial relief to the General Fund as a result of the COVID-19 Pandemic.] Source: City of Santa Monica Comprehensive Annual Financial Reports for Fiscal Years 2017-18 through 2019-20. 8.A.e Packet Pg. 669 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 53 4140-7650-4109.4 Projected Coverage and Five-Year Forecast Table 10 shows a summary of the projected operating results of the Enterprise for the five Fiscal Years listed, as developed by the City. Future revenues are based on current water rates and projected rate increases and anticipated growth levels, reflecting current and proposed policies regarding building permit limitations and conservation measures. The indicated revenue increases are overall averages. Individual rates and charges will be increased at different rates to reflect the related cost of service. The following table also shows Net Revenues and debt service coverage on the Series 2021 Bonds for the indicated years. In the preparation of the projections in this section, the City has made certain assumptions with respect to conditions that may occur in the future. While the City believes these assumptions are reasonable for the purpose of the projections, they are dependent on future events, and actual conditions may differ from those assumed. To the extent actual future factors differ from those assumed by the City or provided to the City by others, the actual results will vary from those forecast and such variations may be material. The City does not plan to issue any updates or revisions to the forecast if or when its assumptions, expectations, or events, conditions or circumstances on which such forecast is based, occur or do not occur. 8.A.e Packet Pg. 670 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 54 4140-7650-4109.4 Table 9 Water Fund Pro Forma Statement of Financial Operations ($ in Thousands) Fiscal Year 2020-21 2021-22 2022-23 2023-24 2024-25 Operating Revenues: Water Sales $25,106 $33,915 $43,950 $49,802 $55,789 Charges for Services 917 917 917 917 917 Water Neutrality Fee Revenue 933 955 978 1,002 1,026 Other 175 150 150 150 150 Total Operating Revenues $27,131 $35,937 $45,995 $51,871 $57,881 Operating Expenses: Personnel Services $ 7,479 $ 7,790 $ 8,070 $ 8,357 $ 8,649 Administrative Indirect 1,699 1,740 1,782 1,824 1,868 Contractual Services 3,070 3,140 3,212 3,285 3,360 Repairs and Maintenance 1,385 1,417 4,166 4,266 4,367 Materials and Supplies 1,858 1,903 1,948 1,995 2,043 Utilities 2,206 2,259 2,313 2,369 2,426 Water Purchases 4,900 5,200 5,300 2,650 1,590 Casualty, Property and Liability Costs 375 413 454 491 531 Other 2,049 2,003 1,906 1,935 1,965 Total Operating Expenses $25,021 $25,864 $29,151 $27,172 $26,798 Net Operating Revenue $ 2,110 $10,073 $16,844 $24,699 $31,083 Non-Operating Revenue: Investment Income $ 328 $ 162 $ 260 $ 291 $ 273 Gain/Loss on Disposal of Asset -- -- -- -- -- Other 350 750 260 320 320 Non-Operating Revenue $ 678 $ 912 $ 520 $ 611 $ 593 Transfers In $ 104 $ 104 $ 104 $ 104 $ 104 Transfers Out(1) (2,282) (2,340) (2,401) (2,462) (2,524) Transfer Water Settlement Revenue to GF -- -- -- -- -- Special Item -- -- -- -- -- Net Revenues $ (2,178) $ (2,236) $ (2,297) $ (2,358) $ (2,420) Net Operating Revenue $ 2,110 $10,073 $16,844 $24,699 $31,083 Plus Investment Income 328 162 260 291 273 Pledged Revenues $ 2,438 $10,235 $17,105 $24,990 $31,356 Net Operating Revenue $ 2,110 $10,073 $16,844 $24,699 $31,083 Plus Investment Income 328 162 260 291 273 Less Transfers Out (2,282) (2,340) (2,401) (2,462) (2,524) Available for Debt Service $ 156 $ 7,895 $14,704 $22,528 $28,832 Transfer to/from Rate Stabilization Acct. -- -- -- -- -- Debt Service -- $ 1,035 $ 2,388 $ 3,633 $ 3,636 Debt Service Coverage Ratio n/a 7.63x 6.16x 6.20x 7.93x Revenue-Funded Capital Expenditures $ 8,859 $ 759 $11,259 $18,314 $14,268 Change in Fund Balance (8,249) 9,025 6,197 8,271 18,625 Ending Fund Balance $ 8,523 $17,547 $23,744 $32,015 $50,640 8.A.e Packet Pg. 671 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 55 4140-7650-4109.4 Days of Cash 124 248 297 430 690 (1) Transfer to General Fund for Office of Sustainability and Environment. Source: City of Santa Monica. 8.A.e Packet Pg. 672 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 56 4140-7650-4109.4 Table 9 revenue projections and expenditures assumptions include: (1) annual rate increases of 14% in Fiscal Year 2021-22 through Fiscal Year 2023-24 and 3% in Fiscal Year 2024-25; (2) annual water sales volume growth of 0.12%; (3) the issuance of indebtedness in the form of the Series 2021 Bonds only to finance $78 million of capital expenditures as currently anticipated; (4) operating expenditures projected assuming increases ranging from 2 to 3% per year; and (5) full implementation of the capital improvement program as outlined in Table 6. The Water Fund is projected to maintain positive balances through the five-year forecast period assuming the financing sources described in this Official Statement. [Not considered in the projections in the table above are the impacts on the Water Fund of the additional demands to be placed on the water supply by the requirement that the City plan for an additional 8,873 new housing units over the 2021 to 2029 planning period, which units were not included in the City’s 2018 Sustainable Water Master Plan, but is included in the City’s 2020 Urban Water Management Plan’s water supply reliability assessment. The additional housing units required per RHNA will likely reduce the City’s goal of achieving 99% water self-sufficiency to approximately 90% water self-sufficiency. However, the timeline to achieve water self-sufficiency of 90% remains the same for 2023.] Outstanding Indebtedness Upon issuance of the Series 2021 Bonds the only long-term debt of the Enterprise will be the Series 2021 Bonds. [Obligations payable from the Water Fund are currently limited to interfund obligations.] The City entered into a Construction Installment Sale Agreement on September 21, 2017 with the State Water Resources Control Board (SWRCB) to fund certain water recycling and conservation projects. This is an obligation of the Wastewater Enterprise Fund. This obligation is not an obligation of the Water Fund. As of June 30, 2020, City-wide there was approximately $158.6 million in non-voter approved City long-term capital lease obligations and installment payment obligations, including obligations of the City’s enterprise funds, with respect to revenue bond offerings outstanding. See APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” Such obligations are not obligations of the Water Fund. Except as otherwise described in this Official Statement, the City is not limited in the amount it may incur to finance the Enterprise. Section 607 of the City Charter provides that bonded indebtedness of the City may not exceed 10% of total assessed valuation of property within the City, exclusive of any indebtedness incurred for the purpose of water supply or sewers or storm drains. Additional Indebtedness The City currently expects to spend approximately $[123.2] million on capital projects for the Enterprise over the next five Fiscal Years. Of this amount, approximately $[78] million will be funded with proceeds of the Series 2021 Bonds. The City does not currently anticipate Additional Bonds or Parity Obligations for any purpose. The remainder is expected to be funded on a pay-as-you go basis attributed to available amounts on deposit in the Water Fund. For a description of the next five years of planned capital improvements, see “Capital Improvement Plan” above. See, also “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Additional Bonds and Parity Obligations.” 8.A.e Packet Pg. 673 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 57 4140-7650-4109.4 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”) and State law. The Investment Policy. An Investment Committee, consisting of the City Manager, Assistant City Manager, Director of Finance/City Treasurer, and the Assistant City Treasurer, provides general oversight and acts in an advisory capacity regarding City investments. In addition, the Committee will include one other department head serving one-year terms on a rotating basis and one member of the public. The Committee meets at least once each calendar quarter to review and evaluate previous investment activity, 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 discuss investment strategy with the Director of Finance/City Treasurer. The policy follows best practices and guidelines issued by the Government Financial Officers Association and the Association of Public Treasurers, United States and Canada. The Investment Policy establishes three objectives for City investment: (1) 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. (2) 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. (3) Return on investment: Earn a market rate of interest from City funds commensurate with the objectives of safety and availability of the 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. It is the City Treasurer’s policy to generally hold investments to maturity and the Treasurer does not anticipate any event in the future that would require selling investments prior to maturity to meet cash flow needs. The Investment Policy restricts the average weighted maturity of all pooled City investments to a maximum of three years. The City’s practice is not to permit investment of the City’s pooled securities either in derivatives or reverse repurchase agreements, nor does it permit leveraging of the City’s investment portfolio. The Investment Policy is annually submitted to the City Council for approval with the most recent approval occurring February 23, 2021. 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. The City’s investment policy dictates certain socially responsible guidelines for the investment of the City’s excess funds including a prohibition of investments in fossil fuel-related companies and banks which fund those companies. In an effort to enhance the socially responsible nature of the City’s investment portfolio, City staff now invests in green bonds and other social impact bonds as part of its investment strategy and plan. Investments in green bonds and other social impact bonds are required to meet the City’s legal and strategic investment parameters. As of March 31, 2021, the City’s portfolio has a total of approximately $46 million in green or impact bonds representing about 8% of the total value of the portfolio. When analyzing corporations for potential investment, the City included a review of the corporation’s Environmental, Social, and Governance (ESG) performance as a part of the overall credit analysis. 8.A.e Packet Pg. 674 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 58 4140-7650-4109.4 The Monthly Report. Section 711 of the City Charter delegates investment authority to the City Treasurer. The Investment Policy requires the City Treasurer to keep a record of all investment transactions, and make monthly reports to the City Council and the City Manager detailing and summarizing all transactions and stating the present status of City investments (the “Monthly Report”). The Monthly Report for March 2021 (the “March 2021 Cash and Investment Report”) provides a monthly summary review of the City’s investment portfolio and cash position. As of March 31, 2021, the total value of cash and investments held in the pooled portfolio (excluding investments held in trust by third parties such as bond proceeds, perpetual care funds and other escrow accounts) was $650.9 million. The March 2021 Cash and Investment Report shows an aggregate value $105 million less than for the same period last year. The pooled portfolio yield-to-maturity of 0.54% was one basis point (.01%) greater than the prior month but 135 basis points (1.35%) less than in March 2020. Net investment earnings for the month on a cash basis were $0.3 million. Fiscal year-to-date earnings of $9.4 million as of March 31, 2021 were 18.2% less than for the same period last year. As of March 31, 2021, the market value of the City’s investments was approximately $3.2 million less than the unamortized book value (purchase price). As of March 31, 2021, the average weighted days-to-maturity was 818 days (2.2 years). In addition to the pooled portfolio, the City’s total cash holdings as of March 31, 2021 included $15.4 million in debt proceeds held in trust with various fiscal agents, $19 million in other funds held in trust, and $27 thousand in petty cash/change funds for a total balance of $685.3 million. The Monthly Report dated March 31, 2021, indicates that: 50.7% of the City’s pooled investment portfolio (approximately $320.6 million) was invested in Federal Agency securities; 16.4% (approximately $106.6 million) was invested in corporate bonds; 11.5% (approximately $74.6 million) was invested in the Local Agency Investment Fund of the State (LAIF); 5% (approximately $32.8 million) was invested in supranationals; 7.1% (approximately $32.7 million) was held as cash in a general bank account; 10.3% (approximately $67.3 million) was invested in Municipal Bonds; and 0.4% (approximately $2.5 million) was held in Commercial Paper. Supranational organizations are international financial institutions that are generally established by agreements among nations, with member nations contributing capital and participating in management. Supranational bonds finance economic and infrastructure development and support environmental protection, poverty reduction, and renewable energy around the globe, which are issued by International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank. The Series 2021 are payable solely from Net Revenues of the Enterprise. The information above does not reflect funds pledged to the payment of debt service on the Series 2021 Bonds. Insurance The Indenture provides that the City shall procure and maintain or cause to be procured and maintained casualty insurance on the Enterprise with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), in such amounts and against such risks, including accident to or destruction of the Enterprise, as are reasonably determined by the City to provide, in the event of any damage to or destruction of any material portion of the Enterprise, sufficient Net Revenues to reconstruct, repair or replace the damaged or destroyed portion of the Enterprise. The City is not expressly required under the Indenture to maintain earthquake or flood insurance on any component of, or the entirety of, the Enterprise. The Indenture further provides that City shall procure and maintain or cause to be procured and maintained standard comprehensive general liability insurance in protection of the City and its directors, officers, agents and employees with responsible insurers, or provide self-insurance (so long as such self-insurance is, in the opinion of an accredited actuary, actuarially sound), which insurance shall provide for indemnification of said parties 8.A.e Packet Pg. 675 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 59 4140-7650-4109.4 against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Enterprise in such amounts as are reasonably determined by the City to protect the City and said parties against such risks. See APPENDIX C – “DEFINITIONS AND SUMMARY OF INDENTURE – COVENANTS – Insurance.” The City is exposed to various risks of loss related to torts, theft of, damage to, and destruction of assets, errors and omissions, injuries to employees and others, and natural disasters. The City has chosen to establish risk financing internal service funds where assets are set aside for claim settlements associated with such risks of loss up to certain limits and has obtained excess liability coverage through the Authority for California Cities Excess Liability (“ACCEL”), a California joint powers authority comprised of thirteen medium-size California cities self-insuring their catastrophic losses. Member cities first joined together in 1986 when the marketplace was unable to offer cities sufficient insurance coverage. ACCEL pools general liability, automobile liability, and public officials errors and omissions losses. Member cities share risk in excess of $1,000,000 and jointly purchase excess liability insurance to cover losses over $5,000,000 and up to $55,000,000 as described below. ACCEL is a member of PRISM (Public Risk Innovation, Solutions, and Management) Excess Insurance Authority for the purpose of providing access to excess workers’ compensation coverage for major employee injury risks through a program of pooled self-insurance/re-insurance and insurance on a risk sharing basis. The City participates in the PRISM Excess Workers Compensation Program through ACCEL but does not currently otherwise participate in the PRISM self-insurance programs. In 2020, the former CSAC Excess Insurance Authority announced its official rebranding as PRISM. In order to provide funds to pay claims, ACCEL collects premiums from each member. The premiums paid are credited with investment income at the rate earning on ACCEL’s investments. Based on ACCEL’s June 30, 2020 audited financial statements, the net reserves amounts related to the City were minus $2,452,041 (17% of ACCEL’s total net reserves and incurred but not reported claims). Total assets of ACCEL at June 30, 2020 were $40,427,154. ACCEL has no capital contributions. The City retains self-insurance up to $1,000,000 for general liability, automobile liability, and bus operations liability. Through ACCEL, the City covers all general liability losses between $1,000,000 and $5,000,000, and purchases excess liability insurance to cover losses over $5,000,000 and up to $55,000,000. The City retains self-insurance up to $1,000,000 for workers’ compensation. ACCEL covers up to an additional $4,250,000 for workers’ compensation and arranges for excess of workers’ compensation over $5,000,000 and up to statutory limits. The City’s unpaid claims liabilities are based on the results of actuarial studies. The unpaid claims liabilities are compiled by the Risk Manager of the City and include amounts for claims incurred but not reported as of year-end. Claims liabilities are calculated considering the effects of inflation, recent claim settlement trends including frequency and amount of payouts and other economic and social factors. Net present values of the unpaid claims liabilities are estimated for the year ended June 30, 2020, based on a 2.0% interest rate. Revenues of the risk management funds, together with funds to be provided in the future, are expected to provide adequate resources to meet liabilities as they come due. Non-incremental claims expenses have not been included as part of the liability for claims. During year ended June 30, 2020, the City entered into settlement agreements with a compendium of claimants for a total of $42.6 million. Of this amount, $11.0 million was reimbursed by ACCEL with the City making up the difference. There was no liability allocated to the Enterprise for the Fiscal Year ended June 30, 2020. 8.A.e Packet Pg. 676 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 60 4140-7650-4109.4 Retirement System The City contributes to the State of California Public Employees’ Retirement System (CalPERS), an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for cities in the State. CalPERS provides retirement and disability benefits, annual cost-of living adjustments, and death benefits to plan members and beneficiaries. CalPERS also provides death and disability benefits. These benefit provisions and all other requirements are established by state statute and City ordinance. CalPERS acts as a common investment and administrative agent for participating public entities within California. Benefit provisions and all other requirements are established by state statute and city ordinance. Copies of CalPERS annual financial reports may be obtained from their executive office: 400 Q Street, Sacramento, CA 95811 or on their website: www.calpers.ca.gov. The CalPERS website also contains CalPERS’ most recent actuarial valuation reports and other information concerning benefits and other matters. The City cannot guarantee the accuracy of such information. Actuarial assessments are “forward looking” statements that reflect the judgment of the fiduciaries of the pension plans, and are based upon a variety of assumptions, one or more of which may not materialize or be changed in the future. Actuarial assessments will change with the future experience of the pension plans. The information on such website is not incorporated herein by such reference or otherwise. See Note 16 in APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” 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 CalPERS, 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). There are no safety employees employed by the Enterprise. All Enterprise employees are members of the City’s Miscellaneous Plan. The City’s payroll for employees covered by CalPERS for the year ended June 30, 2020 was $202,363,924. Total payroll for the City for the year ended June 30, 2020 was $243,954,157 of which approximately $4.6 million was attributable to the 47 full time equivalent employees currently charged to the Enterprise. CalPERS costs of the Enterprise will include normal costs for current employees and amounts allocated to the Enterprise for the unfunded liability for the City’s miscellaneous plan. The Water Fund is allocated its portion of the City’s required contribution to the Miscellaneous Plan as determined by CalPERS actuaries. The Water Fund contributed 100% of its allocated required contributions of $[___], $0.8 million and $0.9 million to CalPERS for the fiscal years ended June 30, 2018, 2019, and 2020, respectively. The Water Fund is budgeted to make contributions of $[____] for Fiscal Year 2020-21 and $2,447,481 for Fiscal Year 2021-22. A menu of benefit provisions as well as other requirements are established by State statutes within the Public Employees’ Retirement Law. The City selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits by City ordinance. Pursuant to its contract with CalPERS, the City invests in separate plans for Miscellaneous Members, Fire Safety Members and Police Safety Members. As to each plan, the staff actuaries at CalPERS prepare annually an actuarial valuation which covers a Fiscal Year ending approximately 12 to 15 months before the actuarial valuation is delivered (thus, the actuarial valuation delivered to the City in July 2020 (the “2019 CalPERS Report”) covered CalPERS’ fiscal year ended June 30, 2019). The actuarial valuations express the City’s required contribution rates in percentages of covered payroll, which percentages the City must contribute in the Fiscal Year immediately following the Fiscal Year in which the actuarial valuation is prepared (thus, the City’s contribution rate derived from the actuarial 8.A.e Packet Pg. 677 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 61 4140-7650-4109.4 valuation as of June 30, 2019, that was delivered in July 2020, will affect the City’s Fiscal Year 2021-22 required contribution rate). CalPERS rules require the City to implement the actuary’s recommended rates. With respect to the City’s portion of the Public Employees’ Retirement Fund, the market value of assets available for benefits as of the 2019 CalPERS Reports was $1,500,809,000, with an accrued liability of $1,997,677,000, for an aggregate funded ratio of 75.1%. Section 20814(c) of the California Public Employees’ Retirement Law (“PERL”) requires that the employer contribution rates for all public employers be determined on an annual basis by the actuary and shall be effective on the July 1 following notice of a change in the rate. The total plan contributions are determined through CalPERS’ annual actuarial valuation process. The actuarially determined rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance any unfunded accrued liability, The City is required to contribute the difference between the actuarially determined rate and the contribution rate of employees. Employer contribution rates may change if plan contracts are amended. Payments made by the employer to satisfy contribution requirements that are identified by the pension plan terms as plan member contribution requirements are classified as plan member contributions. The California Public Employees’ Pension Reform Act of 2013 (“PEPRA”) made several changes to the pension benefits that may be offered to employees hired on or after January 1, 2013, including setting a new maximum benefit, a lower-cost pension formula for safety and non-safety employees with requirements to work longer in order to reach full retirement age and a cap on the amount used to calculate a pension. As such, the defined pension benefit is payable monthly for life, in an amount that varies, for employees hired before July 1, 2012, from 2.4% at age 50 to a maximum of 3% at age 55 for fire safety employees, 3% at age 50 for police safety employees and 2% at age 50 to a maximum of 2.7% at age 55 for Miscellaneous employees, of the employee’s single highest twelve months’ salary for each year of credited service. As described below, in 2012, the City and miscellaneous employees agreed to create a second tier benefit for those hired July 1, 2012 through December 31, 2012. The benefits vary from 1.4% at age 50 to a maximum of 2.4% at age 62. For employees hired after December 31, 2012, Miscellaneous employees benefits vary from 1% at age 52 to a maximum of 2.5% at age 67 and for fire and police safety employees from 2% at age 50 to a maximum 2.7% at age 57, of the average of the employee’s highest thirty six months’ salary subject to limitations. Retirement benefits are calculated based on a member’s years of service credit, age at retirement, and final compensation (average salary for a defined period of employment). Active full-time members in the City’s Miscellaneous Plan are required to contribute 6.25% to 8.00% of their annual covered salary. In addition to such employee/members contributions, the annual total required minimum employer contribution is the sum of the Employer Normal Cost Rate (Employer Rate, expressed as a percentage of payroll) plus the Employer Unfunded Accrued Liability (UAL) Contribution amount, that actuarially determined remaining amount necessary to fund the benefits for its members earned during the year with an additional amount to amortize the unfunded accrued liability. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration (the “Board of Administration”) and as may be amended by CalPERS. The contribution requirements of the plan members are established by State statute and the employer contribution rate is established and may be amended by CalPERS. Over the past few years, CalPERS adopted measures intended to strengthen the long-term future of the system. In 2017, CalPERS completed its most recent asset liability management study 8.A.e Packet Pg. 678 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 62 4140-7650-4109.4 incorporating actuarial assumptions and strategic asset allocation. In December 2017, the Board of Administration adopted relatively modest changes to the asset allocation that reduced the expected volatility of returns. The adopted asset allocation was expected to have a long-term blended return that continued to support a discount rate assumption of 7.00 percent. The Board of Administration also approved several changes to the demographic assumptions that more closely aligned with actual experience. On December 21, 2016, the Board of Administration lowered the discount rate from 7.50 percent to 7.00 percent using a three-year phase-in beginning with the June 30, 2016 actuarial valuations. The minimum employer contributions for Fiscal Year 2020-21 determined in 2019 CalPERS Reports were calculated using a discount rate of 7.00 percent. The decision to reduce the discount rate was primarily based on reduced capital market assumptions provided by external investment consultants and CalPERS investment staff. The specific decision adopted by the Board of Administration reflected recommendations from CalPERS staff and additional input from employer and employee stakeholder groups. Based on the investment allocation adopted by the Board of Administration and capital market assumptions, the reduced discount rate schedule provides a more realistic assumption for the long-term investment return of the fund. In addition to lowering the discount rate from 7.5% to 7.0%, the Board of Administration adopted a new amortization policy effective with the June 30, 2019 actuarial valuation. The new policy shortens the period over which actuarial gains and losses are amortized from 30 years to 20 years with the payments computed using a level dollar amount. In addition, the new policy removes the 5-year ramp-up and ramp-down on UAL bases attributable to assumption changes and non-investment gains/losses. The new policy removes the 5-year ramp-down on investment gains/losses. These changes will apply only to new UAL bases established on or after June 30, 2019. While these changes can result in short-term increases to required employer contributions, they are not expected to increase the long-term cost of the plan. Notwithstanding the Board of Administration’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the expected investment return of CalPERS assets or changes to the investment allocation may result in a change to this discount rate schedule. On July 12, 2021, CalPERS reported a preliminary 21.3% net return on investments for the 12-month period that ended June 30, 2021. CalPERS assets at the end of the fiscal year were reported at more than $469 billion. The preliminary 21.3% return lagged behind the fiscal year total fund benchmark of 21.7%. By application of CalPERS’ Funding Risk Mitigation Policy, approved by the Board of Administration in 2015, the double-digit return would trigger a reduction in the discount rate used to calculate employer and Public Employees' Pension Reform Act (PEPRA) member contributions. The discount rate, or assumed rate of return, is reported to drop to 6.8%, from its current level of 7%. The Funding Risk Mitigation Policy lowers the discount rate in years of good investment returns. This is the first time it has been triggered. This information is preliminary and the City has not yet been advised of any applicable return or discount rate with respect to its contributions and funding status resulting therefrom. Also significantly, as noted above, the Governor, in September 2012, signed AB 340 and AB 197, two bills which enacted the California Public Employees’ Pension Reform Act of 2013 (PEPRA). AB 340 made several changes to the pension benefits that may be offered to employees hired on or after January 1, 2013, including setting a new maximum benefit, a lower-cost pension formula for safety and non-safety employees with requirements to work longer in order to reach full retirement age and a cap on the amount used to calculate a pension. Among other things, AB 340 also enacted pension spiking reform for new and existing employees, required three-year averaging of final compensation for new employees, and provided employers with new authority to negotiate cost-sharing agreements with current employees. AB 340 also contained limitations on the use of retired annuitants, requiring that an annuitant have a six- 8.A.e Packet Pg. 679 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 63 4140-7650-4109.4 month break in service prior to returning to work. The legislation created mandatory benefits tiers for new employees who have not worked for another CalPERS agency hired beginning January 1, 2013 at 1.1% at age 50 to a maximum of 2.5% at age 67 for miscellaneous employees. As of November 7, 2020, the City had 1,878 active members of which 1,050 are considered “classic” members (hired prior to December 31, 2012), and 828 fall under the decreased benefits as prescribed in the Public Employees’ Pension Reform Act of 2012 (PEPRA) or the City’s decreased “Tier 2” structure of reduced benefits for employees that were hired from July 1, 2012 through December 31, 2012. PEPRA members pay a higher employee contribution which, by law, cannot be paid by the employer. Additionally, PEPRA employees have a higher eligible retirement age and a lower benefit. Starting July 1, 2020, the City eliminated Employer Paid Member Contributions for Miscellaneous members. This is expected to reduce employer contributions in future years. During Fiscal Year 2019-20, the City’s work force was reduced by 232 employees due to incentivized voluntary retirements and lay-offs. This reduction in force is expected to reduce future pension expense and reduce the unfunded liability. PEPRA members pay a higher employee contribution which, by law, cannot be paid by the employer. Additionally, PEPRA employees have a higher eligible retirement age and a lower benefit. The City has enacted a number of initiatives to mitigate the pressure of these cost drivers on the budget. 44% of current employees receive a reduced level of pension benefits based on Public Employee Pension Reform Act (PEPRA) levels or the City’s own “Tier 2” levels established on July 1, 2012, six months before the enactment of PEPRA, for employees who entered the City during those six months as new Miscellaneous bargaining group (non-sworn) employees. Employees in all bargaining groups hired after January 1, 2013 receive lower benefits as well. All employee groups have eliminated the employer paid member contribution (EPMC) benefit and the employee-paid portion of the pension cost is deducted from employees’ paychecks and paid directly to PERS. In March 2020, the City’s Coalition of Miscellaneous employees agreed to a lower level of pension benefits, eliminating the employer paid member contribution (EPMC) benefit that will result in a further $35 million decrease in the City’s unfunded pension liability. In addition to paying the employee portion of the contribution, public safety employee bargaining groups reimburse the City for a portion of the employer cost. Both police and fire Classic sworn employees (those hired before PEPRA benefits were established) pay over a quarter of the annual pension contribution cost, while Miscellaneous Classic employees, who have a lower level of benefits and therefore a lower cost contribution, pay approximately 23% of the annual cost. Among the City’s cost-saving measures is the series of payments made to CalPERS beyond the actuarially determined contribution. These additional discretionary payments reduce the City’s net pension liability. In 2014, after a series of pay downs funded from year-end savings, the City Council adopted a policy that, provided that there are sufficient funds, the annual budget would include a minimum set-aside of $1.0 million in the General Fund, and commensurate set-aside amounts in all other funds, to be used towards pay downs of the CalPERS unfunded liability. Based on the availability of additional funds, staff would annually assess the set-aside of additional CalPERS payments against other unfunded needs and present the City Council with a recommendation. In June 2017, responding to the prospect of additional significant pension contribution rate increases beginning in Fiscal Year 2018-19, the City Council approved a $45 million pay down of the City’s pension unfunded liability. In Fiscal Year 2018-19, in light of continuing pension challenges, and following resident interest in the City’s plan to manage pensions, the City Manager established an ad hoc Pension Advisory Committee (PAC) made up of residents and City employees. The PAC unanimously recommended an accelerated plan to pay down the City’s current pension unfunded liability over 13 years, to conclude in 2032-33. This accelerated paydown plan was adopted by the City Council and incorporated into the 8.A.e Packet Pg. 680 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 64 4140-7650-4109.4 Fiscal Year 2019-20 budget as part of the Guiding Principles to Handle Pension Liability. It was projected that the accelerated 13-year repayment would save more than $100 million in interest costs over 30 years ($41 million Present Value). This pay down plan superseded the previous annual pay down plan described above. The first accelerated payment in the amount of $9.3 million was made on October 31, 2019. With the latest payment, the City has made a total of $88.1 million in pay downs beyond the annual actuarially determined contribution. Due to the economic impact of the Pandemic, the City Council has temporarily changed the schedule of the accelerated paydowns, shifting to a 15-year paydown schedule and suspend the accelerated payments for up to the next two years. Another cost-saving measure is the City’s prepayment of its annual employer contributions to CalPERS since Fiscal Year 2007-08. The City continued this practice in Fiscal Year 2020-21, adjusting for the CalPERS change in policy that only allows for the unfunded liability portion of the annual contribution to be prepaid. Discounts received from such prepayments are used for pay downs of the net pension liability. For Fiscal Year 2017-18, CalPERS changed payment for the employer paid amortization of the unfunded pension liability from using a level percentage of pay to a flat dollar amount. In Fiscal Year 2019-20, the City paid CalPERS $20,063,066 for the employer paid amortization of the unfunded liability for the miscellaneous plan, of which approximately $322,000 was allocated to the Enterprise. In addition, the City paid $9.3 million beyond the actuarially determined contribution to conform to the City-adopted policy to amortize the unfunded liability over 13 years. Because of the fiscal impact of the Pandemic, future payments will correspond to a 15 year amortization schedule. Pension Funding Information. In calculating the annual actuarially recommended contribution rates, the CalPERS actuary calculates, on the basis of certain assumptions, the actuarial present value of benefits that CalPERS will fund under the CalPERS Plans, which includes two components, the normal cost and the Unfunded Accrued Liability (the “UAL”). The normal cost represents the actuarial present value of benefits that CalPERS will fund under the CalPERS Plans that are attributed to the current year, and the actuarial accrued liability (the “AAL”) represents the actuarial present value of benefits that CalPERS will fund that are attributed to past years. The UAL represents an estimate of the actuarial shortfall between actuarial value of assets on deposit at CalPERS and the present value of the benefits that CalPERS will pay under the CalPERS Plans to retirees and active employees upon their retirement. The UAL is based on several assumptions such as, among others, the rate of investment return, average life expectancy, average age of retirement, inflation, salary increases and occurrences of disabilities. In addition, the UAL includes certain actuarial adjustments such as, among others, the actuarial practice of smoothing losses and gains over multiple years (which is described in more detail below). As a result, the UAL may be considered an estimate of the unfunded actuarial present value of the benefits that CalPERS will fund under the CalPERS Plans to retirees and active employees upon their retirement and not as a fixed expression of the liability the City owes to CalPERS under its CalPERS Plans. The City’s net pension liability for each Plan is measured as the total pension liability, less the pension plan’s fiduciary net position. The total pension liability of each of the Plans is measured as of June 30, 2019, using an annual actuarial valuation as of June 30, 2018 rolled forward to June 30, 2019 using standard update procedures. The discount rate used to measure the total pension liability was 7.15% for each Plan. The projection of cash flows used to determine the discount rate assumed that contributions from all plan members will be made at current member contribution rates and that contributions from employers will be made at statutorily required rates, actuarially determined. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on plan investments was applied to all periods of projected benefits to determine total pension liability. 8.A.e Packet Pg. 681 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 65 4140-7650-4109.4 The actuarial funding method used is the Entry Age Normal Cost Method. Under this method, projected benefits are determined for all members and the associated liabilities are spread in a manner that produces level annual cost as a percent of pay in each year from the age of hire (entry age) to the assumed retirement age. The cost allocated to the current fiscal year is called the normal cost. The actuarial accrued liability for active members is then calculated as the portion of the total cost of the plan allocated to prior years. The actuarial accrued liability for members currently receiving benefits, for active members beyond the assumed retirement age, and for members entitled to deferred benefits, is equal to the present value of the benefits expected to be paid. No normal costs are applicable for these participants. The excess of the total actuarial accrued liability over the actuarial value of plan assets is called the unfunded actuarial accrued liability. Funding requirements are determined by adding the normal cost and an amortization of the unfunded liability expressed as a dollar amount. The standard actuarial practice at CalPERS is to recognize mandated legislative benefit changes in the first annual valuation following the effective date of the legislation. Voluntary benefit changes by plan amendment are generally included in the first valuation that is prepared after the amendment becomes effective, even if the valuation date is prior to the effective date of the amendment. Notwithstanding the Board of Administration’s decision to phase into a 7.0 percent discount rate, subsequent analysis of the expected investment return of CalPERS assets or changes to the investment allocation may result in a change to this discount rate schedule. Projected Future Employer Contribution Rates. CalPERS recently updated its projections for the City’s future employer contribution rates, considering the City’s aggregate $88.1 million paydown, and updated information on investment earnings, the City’s experience level, and payroll. The table below shows projected employer contributions as percentages of projected payroll (before cost sharing) for the next six fiscal years. The estimates are based on a 7.00% assumed investment return, and assuming that all other actuarial assumptions will be realized and that no further changes to assumptions, contributions, benefits, or funding will occur during the projection period. The projected normal cost percentages do not reflect that the normal cost will decline over time as new employees are hired into PEPRA or other lower cost benefit tiers. Projected Future Employer Contribution Rates Miscellaneous Fiscal Year Normal Cost† UAL Deposit* 2021-22 10.8% 15.4% 2022-23 10.5 16.4 2023-24 10.3 16.8 2024-25 10.1 17.3 2025-26 9.8 17.4 2026-27 9.6 17.4 † CalPERS projected. * Projected by CalPERS and the City of Santa Monica Finance Department. Sources: City of Santa Monica Finance Department and CalPERS Supplemental estimates. 8.A.e Packet Pg. 682 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 66 4140-7650-4109.4 While CalPERS will collect employer contributions toward the plan’s unfunded liability as dollar amounts instead of the prior method of a contribution rate beginning with the fiscal year ended June 30, 2019, latest estimates for the City in the table above have been provided as percentages. This change to fixed dollar amounts is intended to address potential funding issues that could arise from a declining payroll or reduction in the number of active members in the plan. Funding the unfunded liability as a percentage of payroll could lead to the underfunding of the plans. Although employers will be invoiced at the beginning of the fiscal year for their unfunded liability payment the plan’s normal cost contribution will continue to be collected as a percentage of payroll. Reporting obligations under Governmental Accounting Standards Board Statement No. 68 (including as amended by Statement No. 71, “GASB 68”) commenced with financial statements for the fiscal year ended June 30, 2015. Under GASB 68, an employer reports the net pension liability, pension expense and deferred outflows/deferred inflows of resources related to pensions in its financial statements as part of its financial position. Under GASB 68, gains and losses related to changes in total pension liability and fiduciary net position are recognized in pension expense systematically over time. The first amortized amounts are recognized in pension expense for the year the gain or loss occurs. The remaining amounts are categorized as deferred outflows and deferred inflows of resources related to pensions and are to be recognized in future pension expense. See Note 16 in APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020.” Funding History. The City’s Pension Plan includes separate valuations for Miscellaneous Members, Fire Safety Members and Police Safety Members. The funded status of the Miscellaneous Plan considering the accrued liability and market value valuations performed for each of the fiscal years ending June 30, 2015 through June 30, 2019 are set forth in the table below. Underfunded liability is primarily the result of a significant decline in the value of the plan assets, less than anticipated investment returns by CalPERS and an increase in benefits for Miscellaneous and Public Safety employees. As described above, the City has addressed the underfunded liability through significant changes to its compensation structure including a second tier of reduced retirement benefits for new miscellaneous employees. The City cannot predict the level of future contributions to CalPERS which may be required by CalPERS but such amounts may increase significantly over current levels. Miscellaneous Members (dollars in thousands) Valuation Date (June 30) Entry Age Normal Accrued Liability Market Value of Assets Underfunded Liability (MVA) Market Value Funded Ratio Annual Covered Payroll UAL as a Percentage of Covered Payroll 2015 $ 947,897 $715,137 $232,760 75.4% $138,779 167.7% 2016 1,006,963 720,374 286,589 71.5 143,079 200.3 2017 1,071,563 828,192 243,371 77.3 145,418 167.4 2018 1,168,227 892,957 275,270 76.4 150,624 182.8 2019 1,221,092 946,032 275,061 77.5 148,049 185.8 Source: City of Santa Monica Finance Department. 8.A.e Packet Pg. 683 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 67 4140-7650-4109.4 The City expects to continue to work with its employees to identify measures that will ensure that increases in ongoing compensation costs do not outstrip those of revenue growth. The passage of PEPRA in September 2012 is working to further control cost increases in the future, as new employees are receiving reduced retirement benefits and cities will be encouraged to increase employees’ share of contribution costs. Other Postemployment Benefits In addition to providing pension benefits through CalPERS, the City, in accordance with agreements with various bargaining units and groups, provides medical insurance benefits that are considered other postemployment benefits (“OPEB”) to certain retired employees under a single employer benefit plan. These benefits are subject to negotiations between the City and each bargaining unit and the related memorandum of understanding (“MOU”) is approved by the City Council. Employees of the Executive Pay Plan group and management employees of the Rent Control Board are eligible for a City paid medical insurance benefit if their combined retirement age and years of City service equals or exceeds 70. Under the terms of a MOU between the City and a coalition of the various non-sworn bargaining units (Coalition), all non-sworn permanent retirees are allowed to continue participating in one of the City’s health plans at the same rate as active employees. As with other MOU’s, this benefit is subject to bargaining between the City and the Coalition. The City has paid OPEB through employer only contributions on a pay-as-you-go basis and no contribution is required from employees. The Plan does not issue a stand-alone financial statement. As of June 30, 2019 measurement date, the plan was 19.31% funded. The Total OPEB Liability was $40,906,328, the Plan Fiduciary Net Position was $7,899,459, resulting in a net OPEB liability of $33,006,869, of which $28,234,108 is payable from Governmental Activities. The covered payroll (annual payroll of active employees covered by the plan) was approximately $237 million. See Note 16 in APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020” and the Supplemental Table therein. The Water Fund is allocated its portion of the City’s annual OPEB contribution. The Water Fund contributed 100% of its allocated contributions of $54,243, $73,855 and $[___] to OPEB for the fiscal years ended June 30, 2018, 2019, and 2020, respectively. The Water Fund is budgeted to make contributions of $73,855 for Fiscal Year 2020-21 and $77,548 for Fiscal Year 2021-22. The Actuarily Determined Contribution to OPEB costs by the City for Fiscal Year 2020-21 is $2,664,115. The discount rate used to measure the OPEB liability was 3.73%. This discount rate was determined based on the results of analysis described in GASB 75. Plan benefits for all current and future retirees are projected from year to year from the results of the valuation. Future employer contributions are projected based on levels over the last 5 years and certain assumptions about the benefit costs of future employees. Trust assets are projected based on the projected future contributions and the assumed return on assets. The City has historically funded OPEB on a pay-as-you-go basis however, in Fiscal Year 2014-15, the City began to prefund its OPEB obligation by paying into an Internal Revenue Code Section 115 irrevocable trust administered through the California Employees’ Retirement Benefit Trust (CERBT), an affiliate of CalPERS. Except as described below, the City has paid the equivalent of its annual actuarially determined OPEB contribution into the irrevocable trust each year. This has allowed the City to benefit from a higher discount rate used in calculating its OPEB unfunded liability. 8.A.e Packet Pg. 684 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 68 4140-7650-4109.4 As one response to the COVID-19 economic crisis, the City Council authorized the suspension of these prefunding payments to the OPEB trust through June 30, 2023, and the City elected not to make its actuarially determined OPEB liability contribution of $2,452,877 for Fiscal Year 2019-20. As a result, the discount rate used to determine the unfunded liability in the Fiscal Year 2019-20 financial statements was blended and lowered. The City expects the discount rate to increase once contributions continue. City staff has set aside the equivalent amount of the suspended payment as an assignment in the fund balance in case a better than projected financial situation in Fiscal Year 2020-21 allows for the prefunding. To counter the trend of health insurance cost increases, all members from the City’s collective bargaining groups contribute to health insurance premiums. Additionally, the City’s current contract with its insurance provider provides fixed rates through calendar year 2021. In addition, Miscellaneous employees increased their contribution towards healthcare premiums by 1 percent in the most recent labor agreement approved in March 2020. For actuarial methods and assumptions, see Note 16 in APPENDIX B – “EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020” and the Supplemental Table therein. Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the City are subject to continual revision as actual results are compared with past expectations and new estimates are made about the future. The schedule of funding progress above, presents multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial liabilities for benefits. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the City and plan members) and include the types of benefits provided at the time of each valuation. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations. Medical Trusts In addition to other postemployment benefits described above, the City has agreed, pursuant to bargaining unit agreements, to contribute monies to medical trusts, a defined contribution plan that provide postemployment medical benefits to employees. The amount of benefits provided to employees under these plans is limited solely to the amount contributed (determined by negotiations between the various bargaining groups and the City) related investment earnings, and forfeitures. For Fiscal Year 2019-20, the City contributed $4,190,105 towards the retiree medical trusts, of which approximately $[______] was allocated to the Enterprise. These are administered through third-party administrators and the City does not perform the investing function or have other significant responsibility relating to the management of plan assets and, accordingly, plan assets and any related liabilities have been excluded from the City’s basic financial statements. 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 8.A.e Packet Pg. 685 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 69 4140-7650-4109.4 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. Most City employees are represented by one of twelve bargaining units. City employees in the process of negotiations for renewal of an expired bargaining agreement have historically continued to work under the terms of their previous contract with no interruption in services. The approximately the 47 employees currently charged to the Enterprise are members of the _______ and ______ bargaining units. WATER ENTERPRISE REGULATORY REQUIREMENTS General Public water supply systems in the State such as the Enterprise are primarily regulated by the DDW and, in some limited instances, by the EPA, and the California Regional Water Quality Control Boards. Drinking water delivered to retail customers must comply with federal and state statutory and regulatory water quality standards designed to protect public health and safety. As part of routine operations and maintenance activities, the City transfers treated water between storage facilities and discharges water to the environment. These transfers and discharges are regulated under the Federal Clean Water Act through general and facility-specific National Pollutant Discharge Elimination System (“NPDES”) permits and water supply permits issued by the SWRCB. Such permits contain numerical limitations, monitoring, reporting, and notification requirements for water discharges from the facilities and pipelines of the Enterprise. The City is currently operating and maintaining the water treatment and transmission facilities in substantial compliance with the NPDES and water supply permit requirements. Federal Requirements Enterprise operations are subject to the provisions of the Federal Safe Drinking Water Act (as amended, the “Safe Drinking Water Act”), which sets forth requirements relating to the protection of drinking water and its sources, including rivers, lakes, reservoirs, springs, and ground water wells, against both naturally-occurring and man-made contaminants that may be found in drinking water. The Safe Drinking Water Act is administered by the EPA, with direct oversight by the DDW and includes, among other things, primary standards for 104 chemical, microbiological, radiological, and physical contaminants in drinking water and requirements for the preparation of consumer confidence reports, water system operator certifications, water distributions system monitoring, treatment plant monitoring and drinking water source assessments. As part of these requirements, the City performs required sampling at scheduled intervals under EPA’s Lead and Copper Rule to ensure the City’s potable water meets all lead and copper standards. All analyses continue to show that the City meets all applicable federal (and State) requirements for drinking water. The Safe Drinking Water Act also requires that every five years the EPA establish a list of contaminants that are known or anticipated to occur in public water systems and may require future regulation under the Safe Drinking Water Act. From this contaminant candidate list, the EPA identifies contaminants that are priorities for additional research and data gathering, which information is then used to determine whether or not a regulation is appropriate. This process is repeated for each list every five years. [The EPA completed its latest review in 2009 and no additional primary standards were added to the regulations. The EPA is currently evaluating the risks from several additional compounds and organisms including: microbial contaminants; the byproducts of drinking water disinfection; fire retardants; radon; water systems that do not currently disinfect their water but get it from a potentially 8.A.e Packet Pg. 686 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 70 4140-7650-4109.4 vulnerable ground water source; and issues related to water treatment and distribution system operational practices impacting distribution system water storage tanks’ water quality. The City currently complies with all applicable standards and regulations of the Safe Drinking Water Act.] The EPA also establishes Secondary Drinking Water Regulations, which are non-enforceable guidelines for contaminants that may cause negative aesthetic (such as taste or odor) or cosmetic effects (such as tooth discoloration). Water systems are not required to adopt these secondary standards, but states may choose to adopt and enforce them. The State has adopted the secondary standards and the City currently meets all such standards. State Regulations As an operator of a large municipal water system, the City is responsible for complying with various State requirements, including CEQA, with respect to the operational requirements, design and construction standards for water treatment systems, distribution systems and pipelines, and other water safety issues and training, and other requirements for certification of water treatment and distribution operators. Failure to meet these standards may subject the City to civil or criminal sanctions. The DDW is the regulatory agency responsible for ensuring that water systems meet the federal regulations outlined above, as well as additional or stricter State regulations. The City is currently in substantial compliance with all applicable State regulations. Proposed Regulations Other new regulations, including regulations that are in effect but whose compliance are not yet mandated and regulations that are currently proposed, will continue to impact the operation of the Enterprise and its associated costs. Also, the costs of proposed new regulations, including rules and regulations regarding 1,2,3-TCP (a persistent pollutant in groundwater), radon, groundwater and filter backwash, are currently unknown. See “RISK FACTORS – Statutory and Regulatory Compliance.” Permits and Licenses The City holds a Water Supply Permit from the DDW for operation of the Enterprise (the “Water Supply Permit”). The City is required to apply for an amendment to its Water Supply Permit as changes occur within the Enterprise, including the capacity and process improvements at the water treatment plants. The City works closely with the DDW during the design, construction and subsequent operations of all improvements that result in amendments to the Water Supply Permit to ensure amendment approval. Various other permits and licenses are required to operate the water treatment plants, water impounding system, water quality lab and distribution system. Such permit requirements address issues such as impaired water supplies (e.g., contaminated groundwater), regulations governing groundwater to address waterborne disease and microbial contamination, and rules on the monitoring, reporting and treatment requirements of public water systems associated with lead and copper. The City does not anticipate any problems with continued operation of the Enterprise under existing and planned future permits and licenses. Dam Licensing and Safety Issues In 1929, the California Legislature enacted legislation providing for supervision over non-federal dams in the State. The statutes place the supervision of the safety of non-federal dams and reservoirs under the jurisdiction of the California Department of Water Resources’ Division of Dam Safety 8.A.e Packet Pg. 687 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 71 4140-7650-4109.4 (“DSOD”). Dams under jurisdiction are artificial barriers, together with appurtenant work, including outlet towers, which are twenty-five feet or more in height or have an impounding capacity of fifty AF or more. Any artificial barrier not in excess of six feet in height, regardless of storage, or that has a capacity not in excess of fifteen AF, regardless of height, is not considered jurisdictional. The City owns and operates four water storage reservoirs that total approximately 40 million gallons: Riviera Reservoir (25 million gallons), San Vincente Reservoir (5 million gallons), Mt. Olivette Reservoir (5 million gallons), and Arcadia Reservoir (5 million gallons) under the jurisdiction of the DSOD. The DSOD reviews plans and specifications for the construction of new dams or for the enlargement, alteration, repair or removal of existing dams, under applications, and must grant written approval before the owner can proceed with construction. The DSOD routinely inspects operating dams to assure that they are adequately maintained. The DSOD also conducts investigations of selected dams and directs the owners to additional investigations and detailed safety evaluations when necessary. The DSOD may impose capacity restrictions on dams that may restrict reservoir capacity. RISK FACTORS The following factors, along with the other information in this Official Statement, should be considered by potential investors in evaluating purchase of the Series 2021 Bonds. However, they do not purport to be an exhaustive listing of risks and other considerations which may be relevant to an investment in the Series 2021 Bonds. In addition, the order in which the following factors are presented is not intended to reflect the relative importance of any such risks. Special Obligations The Series 2021 Bonds are, and all Bonds shall be, special obligations of the City, payable, as provided in the Indenture, solely from Net Revenues and the other assets pledged therefor under the Indenture. The Bonds shall not be deemed to constitute a debt or liability of the City, the State, or any political subdivision thereof, within the meaning of any constitutional or statutory provision. Neither the faith and credit nor the taxing power of the City or the State, or any political subdivision thereof, is pledged to the payment of the Bonds. The City has the capacity to enter into other obligations which may constitute additional charges against its Revenues. To the extent that additional obligations are incurred by the City, the funds available to make Net Revenues may be decreased. Acceleration; Limitations on Remedies The Indenture does not provide for the acceleration of payments on the Bonds, for the Trustee to declare payments on the Bonds to be due and payable immediately upon an Event of Default under the Indenture, however, the Indenture does provide that if the City is in default under any Parity Debt and, in accordance with the terms of the Obligation Instrument pursuant to which such Parity Debt was incurred, such Parity Debt is accelerated, then the entire principal amount of the Bonds, and the accrued interest thereon, shall become immediately due and payable, with interest on such accelerated amount at a rate per annum equal to the highest rate borne by the Bonds, as and to the extent permitted by law. If at any time after the entire principal amount of the Bonds, and the accrued interest thereon, shall have been so accelerated and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, all accelerations of Parity Debt shall have been rescinded, then and in every such case the Trustee, by written notice to the City, shall rescind and annul the acceleration of the Bonds and its consequences; but no such rescission and annulment shall extend to or shall affect any subsequent default by the City or shall impair or exhaust any right or power consequent thereon. 8.A.e Packet Pg. 688 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 72 4140-7650-4109.4 Any remedies available to the Owners of the Series 2021 Bonds upon the occurrence of an Event of Default are in many respects dependent upon judicial actions, which are often subject to discretion and delay and could prove both expensive and time consuming to obtain. Further, the rights of the Owners of the Bonds are subject to the limitations on legal remedies against cities in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the Owners of the Bonds, and the obligations incurred by the City, may become subject to the federal bankruptcy code (Title 11, United States Code) (the “Bankruptcy Code”) and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors’ rights generally, now or hereafter in effect, equity principles which may limit the specific enforcement under State law of certain remedies, the exercise by the United States of America of the powers delegated to it by the U.S. Constitution, the reasonable and necessary exercise, in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose and the limitations on remedies against cities in the State. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the Owners of the Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay, limitation, or modification of their rights. Under Chapter 9 of the Bankruptcy Code, which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of the Bonds, the Trustee could be prohibited from taking any steps to enforce their rights under the Indenture, and from taking any steps to collect amounts due from the City under the Indenture. The opinions to be delivered by Bond Counsel, concurrently with the issuance of the Series 2021 Bonds will be subject to such limitations and the various other legal opinions to be delivered concurrently with the issuance of the Series 2021 Bonds will be similarly qualified. See APPENDIX F – “PROPOSED FORM OF OPINION OF BOND COUNSEL.” Enterprise Expenses and Collections The Operation and Maintenance Costs related to the Enterprise are expected to increase in the next five years. See “REVENUES AND DEBT SERVICE COVERAGE – Projected Operating Results.” However, there can be no assurance that the City’s projected future Maintenance and Operation costs of the Enterprise will actually be as projected by the Water Resources Division and described in this Official Statement. In addition, demands on the Enterprise are expected to increase due to population growth and regulatory requirements in the future. Changes in technology, new regulatory requirements, disruption of water supply, increases in the cost of energy or other expenses would reduce Net Revenues, and could require substantial increases in service charges in order to comply with the rate covenant. Such rate increases could increase the likelihood of nonpayment, and could also decrease demand. The City’s ability to make debt service payments is dependent upon the collection of water service charges. Those charges are collected with relatively consistent and predictable demands. A number of factors could adversely affect the water service charge structure including, but not limited to, capital improvement needs, federal and state requirements and general economic conditions. The City has been able to adjust its rates from time to time to meet such conditions and expects to continue to have that ability. Risks Relating to the Water Supply Statewide weather systems and water systems are complex, and there are many uncertainties in estimating future effects of climate changes on water supply. [State studies (Department of Water 8.A.e Packet Pg. 689 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 73 4140-7650-4109.4 Resources, 2009 and California Climate Action Team, 2009)] identify that future weather changes may likely result in less water storage and water availability in the State due to decreased average rainfall, more droughts, less of the precipitation as snow, and earlier melting of snow pack. Warmer weather would also increase demand for irrigation of agriculture and landscaping. The City’s water supply has diversified sources, supplemental sources of supply and recycled water, along with a strong water conservation program. As part of the City’s 2020 Urban Water Management Plan, the City assessed its water supply availability compared to projected water demand through 2040. The assessment considered three scenarios: normal, single-dry, and multiple-dry years. It also included water self-sufficiency projects identified in the City’s 2018 Sustainable Water Master Plan (SWMP) Update. The SWMP update included three key components: (i) increasing water conservation efforts to permanently reduce water demand; (ii) developing sustainable and drought resilient alternative water supplies; and (iii) expanding local groundwater production within sustainable yield limits. The water conservation program is an on-going program being implemented by the Water Conservation Unit. See “THE WATER ENTERPRISE – Water Conservation Programs and Urban Water Management Plan.” The Plan establishes water supply and water conservation management strategies and policies, and concludes that adequate supplies will exist for the City through the planning period of 2040. Risks Relating to Water Sales; Water Supply Shortages At present, the City purchases imported water to cover on average of approximately 25% to 35% of its municipal water supply needs, with the City’s five well fields (total of ten groundwater wells) providing the remaining 65% – 75%, with a higher percentage of imported supplies in the last two Fiscal Years as described herein (attributable to extended outages of two major groundwater production wells due to supply chain and resource constraints from the COVID-19 Pandemic). Consumer demand and locally supplied water vary from year to year, resulting in variability in water sales. In recent years supplies and demands have been affected by drought, water use restrictions, economic conditions, weather conditions and environmental laws, regulations and judicial decisions as described herein. Future water sales will be subject to variability due to these and other factors. Sources of imported water include the State Water Project and the Colorado River, both of which are subject to drought conditions that in recent years have contributed to lower overall water deliveries to MWD. There can be no assurance that the sales, supplies and sources of water for the Enterprise will be maintained at the levels and proportions described in this Official Statement under the heading “THE WATER ENTERPRISE.” No assurance can be made that Net Revenues, estimated or otherwise, will be realized by the City in amounts sufficient to pay principal of and interest on the Series 2021 Bonds. Among other matters, drought, general and local economic conditions, and changes in law and government regulations (including initiatives and moratoriums on growth) could adversely affect the amount of Net Revenues realized by the City. In addition, the realization of future Net Revenues is subject to, among other things, the capabilities of management of the City, the ability of the City to provide water to its customers, and the ability of the City to meet its covenant to fix, prescribe, and collect rates and charges for the Water Service in amounts sufficient to timely pay principal of and interest on the Series 2021 Bonds, which could in turn adversely impact the timely payment of the principal of, premium if any, and interest on the Series 2021 Bonds. Current Drought Conditions [California is experiencing its second consecutive dry year. As of May 9, 2021, northern Sierra precipitation (a contributor to water supplies for the State Water Project, a principal source of water for MWD) was 48 percent of the 50-year average for the time of year, and the northern Sierra April 1, 2021 8.A.e Packet Pg. 690 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 74 4140-7650-4109.4 snowpack peaked on March 24 and measured at 72 percent of the April 1 average. As of May 1, 2021, the water year runoff forecast for the Sacramento River was 6.7 million acre-feet or 38% of average. Unimpaired flows through April 2021 for the Sacramento Valley were the 4th driest in the historical record dating back to 1906, behind only 1977, 1931 and 1924. Dry soil moisture conditions combined with low precipitation are the main drivers for the low runoff forecast. An extended drought period is ongoing in the Colorado River Basin (the second principal source of water for MWD). The Upper Colorado River Basin snowpack accumulation peaked on March 29, 2021 and measured at 88 percent of the 30-year April 1 median. As of May 4, 2021, the water year runoff forecast into Lake Powell (part of the Colorado river supply and storage facilities for MWD) was 34% of average, or the 3rd driest since Lake Powell was filled in 1964, behind only 2002 and 1997. As with the Sierra Nevada, dry soil moisture conditions and low precipitation are the main drivers for the low runoff forecast. As of May 9, 2021, the total system storage in the Colorado River Basin was 43 percent of capacity, a decrease of nine percent or 5.38 million acre-feet from the same time the prior year. The City is informed that the dry conditions are not affecting MWD’s supplies this year. According to the Bureau of Reclamation’s latest forecast, if current projections hold or conditions worsen, a first-ever shortage is anticipated to be declared in August 2021 for calendar year 2022, which would reduce deliveries to Arizona, Nevada, and Mexico. Because of its higher priority, MWD will not be directly affected by this shortage in 2022. On April 21, 2021, Governor Newsom proclaimed a state of emergency in Mendocino and Sonoma counties due to drought conditions in the Russian River Watershed. The Russian River Watershed is not a source of water for MWD and the region is not connected to either the State Water Project or the federal Central Valley Project. On May 10, 2021, Governor Newson expanded the drought emergency proclamation to cover Klamath River, Sacramento-San Joaquin Delta and Tulare Lake watersheds bringing the total number of counties under emergency proclamation to 41. The declaration of a drought emergency has not yet been extended to include Southern California counties.] Climate Change and Sea Level The issue of climate change has become an important factor in water resources planning in the State, and it is being considered during planning for water supplies and systems. Many studies cite evidence that increasing concentrations of greenhouse gases have caused and will continue to cause a rise in temperatures around the world, which will result in a wide range of changes in climate patterns. Moreover, they cite evidence that a warming trend occurred during the latter part of the 20th century and will likely continue through the 21st century. These changes could have a direct effect on water resources in the State, and numerous studies on climate and water in the State have been conducted to determine the potential impacts. However, there is no clear scientific consensus on exactly how global warming will quantitatively affect State water supplies, and current models of State water systems generally do not reflect the potential effects of global warming. Sea levels rise due to increased water volume from higher water temperatures and the melting of glaciers and ice sheets. Sea level rise can create multiple coastal hazards, such as beach erosion, increased frequency and intensity of coastal storms, permanent inundation and saltwater intrusion. Coastal flooding caused by storms and high tides is a temporary condition but can have damaging consequences. Over the longer-term, sea level rise (SLR) will compound the effects from coastal flooding as storms will occur on top of higher sea levels. In an effort to prepare for the anticipated impacts of SLR and coastal hazards, the City, with assistance from the University of Southern California Sea Grant, the Ocean Protection Council, the California Coastal Commission (CCC), and the State Coastal Conservancy, commissioned technical 8.A.e Packet Pg. 691 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 75 4140-7650-4109.4 reports that providing shoreline change projections, coastal hazard modeling, and vulnerability assessments. Miles of transportation and public and private utilities infrastructure, beaches, homes, businesses and concessionaires within the City bear some risk from SLR and coastal flooding. The City considered modelling of projected SLR and coastal flooding by 2100 along the coast of Santa Monica. A significant number of public facilities and infrastructure buildings, and other structures are likely to be affected by storm-induced flooding. In addition, the Santa Monica Pier, a major tourist destination in the City, could also be impacted by increased wave height and water volume. As the level of the Pacific Ocean continues to rise, areas that would have only been temporarily flooded or submerged during very high ‘King’ tides or El Niño conditions, may gradually begin to be permanently submerged or inundated. Over the mid-term (i.e., SLR of 6 inches to 24 inches), the Santa Monica sandy beach area towards Pacific Coast Highway is expected to see moderate inundation levels. Some areas have been flooded in the past during severe storms or El Niño events, and research indicates that this will become an occurrence of increasing frequency. Over the long-term (i.e., SLR of 16 inches to 66 inches, with a possibility of a 113 inch extreme rise) the coastal inundation hazard area is expected to expand further inland. The City is considering infrastructure to mitigate some of these impacts. With respect to the Enterprise, the City has implemented a review of climate change factors for new capital projects to enhance water supply reliability and resiliency. To further refine its evaluation of potential climate change impacts to its water supply, the City is exploring robust decision-making methods to model a focused suite of likely climate change scenarios, developed in consultation with the City’s Office of Sustainability and Environment and recognized climate change experts with local knowledge. Climate Change Vulnerability. Climate change in the coming decades is expected to test the City’s ability to sustainably manage its water resources, in particular its groundwater supply and to mitigate those components of climate change that most directly affect having a sustainable water supply. Chief among these are greenhouse gas emissions/energy, drought, temperature rise, sea level rise, saltwater intrusion/water quality, and flooding/storm surges that are discussed below. Greenhouse Gas Emissions/Energy. Water, and especially imported water from the State Water Project or the Colorado River, is a carbon intensive resource. In 2010, the Santa Monica City Council adopted the objective of the City achieving water sustainability by eliminating its dependence on environmentally costly imported water for use as a potable supply. Currently, the City produces approximately 60 to 70 percent of its water supply from local groundwater. By using local groundwater, the City is offsetting the energy and emissions typically associated with water imported from Northern California and the Colorado River. To further reduce its water-related carbon footprint, the City has implemented various water conservation programs all designed to permanently reduce demand. The City has audited its water infrastructure to ensure it is energy efficient by upgrading equipment and selecting energy efficient pumps. In addition, the City is applying innovative approaches to water and wastewater infrastructure such as below grade construction of critical treatment facilities to allow for alternative uses for surface areas such as parks, and the inclusion of solar panels to projects in order to reduce energy consumption. Drought and Temperature Rise. As previously discussed, increased seasonal temperatures and cyclical periods of drought of varying duration are expected to have a measurable influence on the City’s water supply strategy and long-term demand. As currently evident in summer months, warmer temperatures typically give rise to increased water demands. Accordingly, further city-wide reductions in 8.A.e Packet Pg. 692 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 76 4140-7650-4109.4 water demand through water conservation programs will greatly assist the City in maintaining its water use at levels which will support water self-sufficiency. Further assistance in meeting this challenge is the City’s broadening of its water supply portfolio to include alternative water supplies to enhance reliability and resiliency. The City is currently developing additional local water supplies with advanced treatment facilities for dry weather runoff, stormwater, municipal wastewater, and impaired/contaminated groundwater sources. By not relying on any one source of water and reducing its reliance on imported water supplies, the City will lower its vulnerability to drought and other natural disasters as it moves to meet its sustainability goal of becoming water self-sufficient. Sea Level Rise. Per the recommendations of the 2015 California Coastal Commission Sea Level Policy Guidance, the City considered the findings of the National Resource Council (NRC) 2012 report, Sea-Level Rise for the Coasts of California, Oregon, and Washington: Past, Present and Future. According to the 2012 NRC report, for the California coast south of Cape Mendocino, and the separate projections for the Los Angeles region, sea level rise is expected to be on the order of 12 - 61cm (5 - 24 inches) by 2050, and 42-167 cm (1.4 ft. - 5.5 ft.) by 2100. Other recent studies propose alternative sea level rise with the average rise for the Pacific Coast estimated to be between 0.6 - 1.0 m (2.0 - 3.3 ft.) by 2100. If sea level rises as predicted by the currently available studies, the City would have ample time to adapt to the potential risk to any water-related infrastructure near the beach by implementing mitigation measures such as natural dune barriers, engineered hardening of some infrastructure, or by implementing adaptive retreat from areas of higher risk whereby infrastructure would be relocated landward. Saltwater Intrusion/Water Quality. If current NRC sea level projections are proven to be accurate, saltwater intrusion may be expected to change the quality of the shallow groundwater zones immediately adjacent to the coast and those low-lying areas where wave run-up would likely be higher. A recent 2017 exploratory boring drilled at Santa Monica City Hall, located approximately 1,200 feet northeast of the Santa Monica Pier, determined that highly brackish-saline groundwater conditions do not occur at that location until approximately 540 feet below ground surface. Future changes to water quality from the groundwater zones the City currently pumps from are not expected through 2050. This is primarily because the City’s principal water supply wellfields are located inland and remote from the coast. Overall, salinity intrusion due to climate change is expected to be gradual, allowing enough time to modify the City’s reverse osmosis (RO) treatment facilities in response. As part of the City’s participation in the SMBGSA, the GSP being developed will also model the potential of seawater intrusion, as a function of climate change and pumping practices, into the groundwater basin and develop sustainability criteria to prevent seawater intrusion. Therefore, vulnerability to saltwater intrusion is considered to be low as various adaptive engineering measures are available. Flooding/Storm Surges. With increases in sea level, an increased vulnerability to flooding and storm surges can be expected. Along the coast, flooding and storm surge can be exacerbated by sea level rise attributed to poor drainage conveyance systems, melting continental and sea ice, and volume expansion of the oceans due to thermal warming, winds, and tides. To assess for such vulnerability, the City consulted the USGS Coastal Storm Modeling System 3.0 (CoSMoS 3.0) during its Sustainable Water Master Plan development process. The CoSMoS 3.0 has generated a series of figures showing potential impact to various coastal areas, including the Santa Monica Beach and Pier, caused by varying increases in sea level rise and a coinciding 100-year storm event. As with the general effects of expected sea level rise, the City can adapt to the potential increase in storm surge or flooding attributable to the predicted gradual rise of sea level by implementing engineering mitigation measures. Based on this intrinsic ability, City topography, and the CoSMoS 3.0 modeling output, the risk of flooding or a storm surge adversely impacting water related infrastructure, including the Clean Beaches Initiative (CBI) 8.A.e Packet Pg. 693 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 77 4140-7650-4109.4 Project and the Sustainable Water Infrastructure Project (SWIP), is considered to be low. However, the City simultaneously recognizes that large rogue storm events are possible. The City, along with other members of the Santa Monica Groundwater Basin Groundwater Sustainability Agency (SMBGSA), is also currently preparing a Groundwater Sustainability Plan (GSP) to comply with the California Sustainable Groundwater Management Act (SGMA) of 2014. As part of the GSP development, various climate change scenarios based on DWR guidance will be modeled for the Santa Monica Groundwater Basin. These scenarios will be utilized to assess how to best ensure the sustainability and resiliency of the City’s water supply. Climate change impacts were also considered for the development of the Santa Monica Groundwater Basin Groundwater Sustainability Agency’s Groundwater Sustainability Plan (GSP). The GSP is using climate change datasets provided by DWR that were originally developed for the Water Storage Investment Program (DWR 2018). These datasets were derived from a collection of 20 global climate projections. The central tendency of each of the 20 projections was used to establish projected climate conditions. Using DWR climate change factors, temperature in the Santa Monica Groundwater Subbasin is expected to increase, while average annual precipitation is projected to remain relatively constant. The timing of the precipitation is, however, projected to change with more precipitation received in January and February, and less precipitation received in October, November, and December. Seismic Activity and Natural Disasters The City, like all southern California communities, may be subject to unpredictable seismic activity, fires or floods. The City, like most regions that border the Pacific Ocean, is an area of significant seismic activity and, therefore, is subject to potentially destructive earthquakes. The San Andreas fault is the major active fault in the State, and is approximately 40 miles from the City. Several active or potentially active faults are located closer to the City, including the Santa Monica fault, the Malibu Coast fault and the Newport-Inglewood fault. Properties and improvements within the City are sometimes subject violent shaking from periodic earthquakes. On January 17, 1994, a 6.8 magnitude earthquake occurred in Northridge, California which resulted in 450 injuries and 3 fatalities in the City. The City sustained damage to 530 buildings, including 2,300 housing units and the temporary shutdown of Saint John’s Hospital. A total of 53 of the 530 damaged buildings were demolished. In July 2017, the California Geological Survey released new draft maps showing the location of earthquake fault lines that run beneath the City, the general locations of which have been known for many years. The City expects that the maps will impact future development on and near the identified fault lines. In advance of the draft maps, in March 2017 the City Council unanimously approved a comprehensive seismic retrofit ordinance intended to increase safety of earthquake-vulnerable buildings in the event of a large earthquake. As part of that process, the City released a City-wide list of almost 4,600 addresses in some 2,400 structures identified as at-risk in earthquakes. The Ordinance establishes a program under which building owners will receive notices to complete a seismic assessment for possible structural improvement. The Ordinance mandates strengthening and structural retrofit of buildings identified by the City as potentially hazardous, with retrofitting expected to occur over multiple years as buildings are brought into compliance with the requirements. Timelines for submitting structural evaluation reports and retrofitting will vary based on 8.A.e Packet Pg. 694 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 78 4140-7650-4109.4 the complexity of work involved in each building type. The City’s program is designed to limit the loss of life and infrastructure in the event of a disaster. Similarly, the City is susceptible to tsunami and seiche hazards. A tsunami is a sea wave generated by a submarine earthquake, landslide or volcanic eruption. A seiche is another form of earthquake- or landslide-induced wave or oscillation that can be generated in an enclosed body of water such as a lagoon or harbor. Tsunamis and seiches have both caused damage in the Santa Monica area. In the event of a severe earthquake, fire, flood or other natural disaster, there may be significant damage to both property and infrastructure in the City which could result in substantial damage to and interference with the City’s water supply. In the event of significant earthquake damage to the Enterprise and/or the City’s service area, or damage from some other significant natural disaster, there can be no assurance that Net Revenues would be sufficient to pay the principal of and interest on any outstanding Series 2021 Bonds. The City is not expressly required under the Indenture to maintain earthquake or flood insurance on the Enterprise, but is required to obtain coverage in such amounts and against such risks, including accident to or destruction of the Enterprise, as are reasonably determined by the City to provide, in the event of any damage to or destruction of any material portion of the Enterprise, sufficient Net Revenues to reconstruct, repair or replace the damaged or destroyed portion of the Enterprise. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Insurance” herein. Infectious Disease Outbreak – COVID-19 The finances and operations of the City have been and will continue to be impacted by the Pandemic. The Pandemic is ongoing, and the duration and severity of the outbreak and any mutant strain thereof, and the economic and other actions that may be taken by governmental authorities to contain the outbreak or to address its impacts are uncertain. The spread of COVID-19 has altered the behavior of businesses and people in a manner that has had a negative effect on global and local economies. Any continued spread of COVID-19, future outbreak of COVID-19 or another infectious disease has the potential to negatively impact the operations of the Enterprise or financial condition of the Water Fund. Federal, State and Local Actions. On January 31, 2020, the Secretary of the United States Health and Human Services Department declared a public health emergency for the United States and on March 13, 2020, the President of the United States declared the outbreak of COVID-19 in the United States a national emergency. Also on March 13, 2020, California Governor Gavin Newsom issued Executive Order N-26-20, proclaiming a State of Emergency to exist in California as a result of the threat of COVID-19. Subsequently, the President’s Coronavirus Guidelines for America and the United States Centers for Disease Control and Prevention called upon Americans to take actions to slow the spread of COVID-19 in the United States. On March 16, 2020, the Governor issued Executive Order N-28-20, lifting the State’s preemption of landlord/tenant law, authorizing local governments to halt evictions for renters and homeowners, slows foreclosures, and protects against utility shutoffs for Californians affected by COVID-19, and further providing that the order does not relieve a tenant from the obligation to pay rent, or restrict the landlord’s ability to recover rent that is due. The order expands a local government’s authority to limit residential or commercial evictions, but only as to nonpayment evictions caused by a documented loss of income caused by the Pandemic or the governmental responses. In August 2020, the Governor ordered an extension of protections through January 31, 2021, unless extended. The order also requests banks and other financial institutions to halt foreclosures and related evictions during this time period. On March 19, 2020, the Governor issued Executive Order N-33-20, a State-wide Stay at Home order to protect the health and well-being of all Californians and to establish consistency across the State 8.A.e Packet Pg. 695 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 79 4140-7650-4109.4 in order to slow the spread of COVID-19; such order to go into effect immediately and to stay in effect until further notice. The order directs all individuals living in the State to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors. On April 29, 2020, the Governor released a four-stage plan for reopening of the economy. On May 23, 2020, the State authorized the County’s plan to move to a Stage 2 reopening. Businesses that fall under the category of the Stage 2 business reopening included dine-in restaurants, destination retail, shopping malls, and in-store retail, with proper safety protocols in place. On August 28, 2020, the Governor released a new system, “Blueprint for a Safer California.” Starting September 9, 2020, the State began utilizing a four-tier, color-coded system for tracking COVID-19 trends. The new system will determine when counties can move forward with business reopenings. The four tiers, purple (widespread), substantial (red), moderate (orange), and minimal (yellow), have a different set of rules regarding what businesses are and aren’t allowed to reopen, whether they may open indoors or outdoors, and at what capacity they can operate. Counties must remain at each tier for a minimum of 21 days. Initially in the red tier, the County was permitted to allow for limited reopening of restaurants, places of worship, shopping centers, hair salons, movie theaters, and other businesses with modifications and/or capacity limits. Breweries (where no meals are provided), cardrooms, convention centers, and festivals remain closed under this tier. On or about November 20, 2020, the County was assigned to the purple tier. On March 15, 2021, the County was assigned to the less restrictive red tier, with an announcement that the County has met the state’s threshold to reopen key sectors will permit a wide range of indoor operations to resume in sectors including middle and high schools, and restaurants, movie theaters, gyms, museums, zoos and aquariums, all with safeguards in place. The move into the State’s less restrictive red tier came as COVID-19 case rates declined significantly from their winter peak. On May 6, 2021, the County was assigned to the least restrictive yellow tier, allowing for increases in capacity in many sectors and bars to begin providing indoor service at 25% capacity. Certain safety modifications remain as requirements, including masking, distancing and infection control to reduce the risk of transmission. The sectors with increases in capacity limits include amusement parks and fairs, gyms and fitness centers, yoga studios, private events, bars, hotels and short-term lodging rentals, private gatherings, breweries, indoor playgrounds, restaurants, cardrooms and racetracks, indoor and outdoor live events and performances, wineries and tasting rooms, family entertainment centers, and museums, zoos, and aquariums. With widespread vaccination currently underway in the United States and many countries worldwide, some of the governmental-imposed stay-at-home orders and restrictions on operations of schools and businesses implemented to respond to and control the outbreak have been eased. As of June 15, 2021, California Governor Newsom terminated the executive orders that put into place the Stay Home Order and the Blueprint for a Safer Economy. He also phased out the vast majority of executive actions put in place since March 2020 as part of the Pandemic response, leaving a subset of provisions that facilitate the ongoing recovery. The new public health order effective June 15 supersedes all prior health orders. Certain restrictions applicable to large gatherings (particularly the indoor event gatherings) are expected to be in place effective June 15, 2021 through October 1, 2021. The State will assess conditions by September 1, 2021, to determine whether updated requirements or recommendations are needed beyond October 1, 2021. Throughout the Pandemic, the City closely monitored the needs of its residential and commercial communities. On June 15, 2021, the City’s Thirty-Seventh Emergency Supplement to the Executive Order of the Director of Emergency Services terminated its prior suspension of discontinuation or shut-off 8.A.e Packet Pg. 696 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 80 4140-7650-4109.4 of water services for residents and businesses based on non-payment of water or sewer bills, and suspension of the imposition of late payment penalties for unpaid or delinquent water and/or sewer bills and refuse and recycling collection bills, which had been ordered in its March 18, 2020 Revised Fifth Supplement and had been extended through March 31, 2021. Also in its Thirty-Seventh Emergency Supplement, the City confirmed its residential tenant eviction moratorium, which initially applied to the nonpayment of rent that was due and unpaid between March 14, 2020 and September 30, 2020 and was subject to several prior extensions, extending such terms through June 30, 2021. A resolution adopted by the Los Angeles County Board of Supervisors on June 22, 2021, applies in the City and provides residential tenants with similar protections from evictions for reasons other than nonpayment of rent due to the financial impacts of COVID-19 through September 30, 2021. On June 24, 2021, the City’s Thirty-Eighth Emergency Supplement further confirmed the City’s residential tenant eviction moratorium, extending such terms through September 30, 2021. Through September 30, 2021, a landlord may not endeavor to evict a covered residential tenant for nonpayment of such rent due to the financial impacts of COVID-19. On July 14, 2021, the City’s Thirty-Ninth Emergency Supplement extends the City’s local emergency orders, with certain specified exceptions, to September 30, 2021. Exceptions include the temporary guidelines and regulations to permit the use of City sites for drive-in movie theaters, vehicle- based parades, concerts, and other entertainment events, speakers, tours, and corporate exhibitions. The extension does not apply and the use of City sites for these purposes will return to being governed by the City’s pre-COVID-19 community event regulations. For the latest information with respect to the City, please visit santamonica.gov/coronavirus. The information on such website is not incorporated herein by such reference or otherwise. With transmission of COVID-19 (and its Delta variant) recently on the increase in Los Angeles County, on July 15, 2021, the Los Angeles County Department of Public Health ordered the reimplementation, effective July 18, 2021, of an order requiring county residents to wear masks in indoor public spaces, regardless of their vaccination status. A continued spread of COVID-19, future outbreak of COVID-19 or another infectious disease, or the fear of any such outbreak, and measures taken to prevent or reduce it, could adversely impact State, national and global economic activities and, accordingly, adversely impact the financial condition and operations of the City and the finances or operations of the Enterprise, and the extent of impact could be material. These events and other factors resulting from such an outbreak, particularly if prolonged, could result in, or increase the likelihood of, the occurrence of certain of the other potential adverse effects described in this Official Statement. The City cannot predict the duration of the Pandemic, any resumption, duration or expansion of Stay at Home orders and restrictions and travel restrictions and warnings. Additionally, the City cannot predict what further impact the Pandemic may have on the finances or operations of the Enterprise, or the assessed values of property within the City. Statutory and Regulatory Compliance The City is subject to a variety of federal and State statutory and regulatory requirements with respect to the Enterprise. Laws and regulations governing treatment and delivery of water are enacted and promulgated by federal, State and local government agencies. Compliance with these laws and regulations is and will continue to be costly and, as more stringent standards are developed to ensure safe drinking water standards and the provision of water for other purposes, such costs will likely increase. The City’s failure to comply with applicable laws and regulations could result in significant fines and penalties. Such claims are payable from assets of the Enterprise or from other legally available sources. In addition to claims by private parties, changes in the scope and standards for public agency water systems such as that operated by the City may also lead to administrative orders issued by federal or State regulators. Future compliance with such orders can also impose substantial additional costs on the 8.A.e Packet Pg. 697 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 81 4140-7650-4109.4 Water Fund. No assurance can be given that the cost of compliance with such laws, regulations, and orders would not adversely affect the ability of the Enterprise to generate Net Revenues sufficient to pay the debt service on account of any Obligation on a parity with the Series 2021 Bonds. Although the City has covenanted in the Indenture to prescribe and collect rates and charges for the services of the Enterprise that will be at least sufficient to yield during each Fiscal Year (i) Revenues of the City for such Fiscal Year sufficient to make all deposits, transfers and payments required pursuant to the Indenture to be made in such Fiscal Year and a Debt Service Coverage Ratio for such Fiscal Year of not less than 1.20:1, the realization of future Net Revenues is subject to, among other things, the capabilities of management of the City, the ability of the City to comply with applicable laws and regulations and to provide water to its customers, the failure of which could in turn adversely impact the timely payment of the principal of, premium, if any, and interest on the Series 2021 Bonds. Environmental Laws and Regulations The City is subject to a wide variety of local, State, and federal health and environmental laws. Among the types of regulatory requirements faced by such facilities are air and water quality control requirements. Such regulations, as they may be from time to time amended or subsequently enacted could affect the Net Revenues available to pay the Series 2021 Bonds. Dam Safety The DSOD supervises the safety of the storage reservoirs in the State. The City owns and operates four water storage reservoirs that total approximately 40 million gallons: Riviera Reservoir (25 million gallons), San Vincente Reservoir (5 million gallons), Mt. Olivette Reservoir (5 million gallons), and Arcadia Reservoir (5 million gallons). Each of these is under the jurisdiction of the DSOD. DSOD may impose operating restrictions on dams and reservoirs that adversely affect the operation of the Enterprise. See “WATER ENTERPRISE REGULATORY REQUIREMENTS – Permits and Licenses.” Hazardous Substances Owners and operators of real property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as “CERCLA” or the “Superfund Act,” is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance whether or not the owner (or operator) has anything to do with creating or handling the hazardous substance. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly and adversely affect the operations and finances of the City. The City knows of no existing hazardous substances which require remedial action which may impact operation of the Enterprise. However, it is possible that such substances do currently or potentially exist and that the City is not aware of them. Future Legislation The City is subject to various laws, rules and regulations adopted by the local, State and federal governments and their agencies. The City is unable to predict the adoption or amendment of any such laws, rules or regulations, or their effect on the operations of the Enterprise or financial condition of the Water Fund. 8.A.e Packet Pg. 698 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 82 4140-7650-4109.4 Constitutional Limit on Fees and Charges If a portion of the Enterprise rates or connection charges were determined by a court to exceed the reasonable costs of providing service, any fee which the City charges may be considered to be a “special tax,” which under Article XIIIA of the California Constitution must be authorized by a two-thirds vote of the affected electorate. This limitation is applicable to the rates for service provided by the Enterprise. The reasonable cost of service provided by the Enterprise has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements, including debt service. In addition, the California courts have determined that fees such as connection fees (capacity charges) will not be special taxes if they approximate the reasonable cost of constructing enterprise improvements contemplated by the local agency imposing the fee. Such court determinations have been codified in the California Government Code (Section 66000 et seq.). The City believes that the rates and use charges imposed with respect to the Enterprise do not exceed the costs it reasonably bears in providing such services. Under Article XIIIB of the California Constitution, state and local government entities have an annual “appropriations limit” which limits their ability to spend certain moneys called “appropriations subject to limitation,” which consists of tax revenues, certain state subventions and certain other moneys, including user charges to the extent they exceed the costs reasonably borne by the entity in providing the service for which it is levying the charge. In general terms, the “appropriations limit” is to be based on certain fiscal year 1978-79 expenditures, and is to be adjusted annually to reflect changes in the consumer price index, population and services provided by these entities. Among other provisions of Article XIIIB, if an entity’s revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. See, also “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES.” Rate-Setting Process Under Proposition 218 As described in this Official Statement, the City will covenant in the Indenture to fix, prescribe and collect rates, fees, charges consistent with its rate covenant under the Indenture. The City, may make adjustments from time to time in such rates, fees, charges and connection fees and may make such classification thereof as it deems necessary, but shall not reduce the rates and charges then in effect unless the Net Revenues from such reduced rates, fees, charges and connection fees will at all times be sufficient to meet the requirements of such covenant. However, Proposition 218, which added Articles XIIIC and XIIID to the California Constitution, affects the City’s ability to impose future rate increases, and no assurance can be given that future rate increases will not encounter majority protest opposition or be challenged by initiative action authorized under Proposition 218. If future proposed rate increases cannot be imposed as a result of majority protest or initiative, the Enterprise might thereafter be unable to generate Net Revenues in the amounts required by the Indenture timely pay the principal of, premium, if any, and interest on the Series 2021 Bonds. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES – Articles XIIIC and XIIID of the California Constitution.” Possible Insufficiency of Insurance Proceeds The Indenture obligates the City to keep in force various forms of insurance, subject to deductibles, (i) in such amounts and against such risks, including accident to or destruction of the Enterprise, as are reasonably determined by the City to provide, in the event of any damage to or destruction of any material portion of the Enterprise, sufficient Net Revenues to reconstruct, repair or 8.A.e Packet Pg. 699 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 83 4140-7650-4109.4 replace the damaged or destroyed portion of the Enterprise, and (ii) provide for indemnification of the City and its directors, officers, agents and employees against direct or contingent loss or liability for damages for bodily and personal injury, death or property damage occasioned by reason of the use or ownership of the Enterprise in such amounts as are reasonably determined by the City to protect the City and said parties against such risks. The City makes no representation as to the ability of any insurer to fulfill its obligations under any insurance policy obtained pursuant to the Indenture and no assurance can be given as to the adequacy of any such insurance to fund necessary repair or replacement or to pay principal of and interest on the Bonds when due. In addition, certain risks, such as earthquakes and floods, are not expressly covered by the insurance required under the Indenture. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS – Insurance” herein. The City is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and injuries to employees. The City established a self-insurance program with risk financing internal service funds containing assets set aside for claim settlements associated with such risks of loss up to certain limits. The program pays up to $1,000,000 for each general liability, automobile liability, bus operations liability, and workers’ compensation claim. The City purchases commercial insurance for claims in excess of coverage provided by the self-insurance funds and for all other risks of loss. Settled claims have not exceeded this commercial coverage in any of the past three years. All funds of the City participate in the program and make payments to the Self-Insurance Funds based on actuarial estimates of amounts needed to pay claims. The fund establishes claims liabilities based on estimates of the ultimate cost of claims (including future claim adjustment expenses) that have been reported but not settled and of claims that have been incurred but not reported. The City has accrued for its anticipated liability with respect to claims filed and claims incurred but not reported to the City as of year-end. The accruals are in the amounts of $2,089,237 and $577,403 for the workers’ compensation claims and general liability claims, respectively. The City’s risk management program includes both self-insured and insured coverages; however, the program does not provide for every conceivable risk of loss. Damage attributable to seismic events and environmental pollution are excluded. In situations where the City has not purchased commercial coverage, the City has a ‘self-retention’ program that is administered and retains budgeted resources internally to provide coverage for loss liabilities. The City is not required to either insure against or self-insure against every potential risk of loss, and there is a risk that damage or destruction of property and equipment comprising the Enterprise could occur for which no insurance or self-insurance funds will be available. There can be no assurance that insurance providers will pay claims under any policies promptly or at all, should a claim be made under such policies in connection with property loss or damage. It is possible that an insurance provider will refuse to pay a claim, especially if it is substantial, and force the City to sue to collect on or settle the insurance claim. Further, there can be no assurances that any insurance proceeds will be sufficient to rebuild or replace any damaged property. Cybersecurity The City, like other public and private entities, relies on a large and complex technology environment to conduct its operations, and consequently faces the threat of cybersecurity incidents. Such incidents can result from unintentional events, or from deliberate attacks by unauthorized entities or individuals attempting to gain access to the City’s information technology systems to misappropriate assets or information or to cause operational disruption and damage. The City and its departments face cyber threats from time to time, including but not limited to hacking, viruses, malware, phishing, distributed denial-of-service, and other attacks on computers, networks, and systems. The City has not experienced a major cyber breach that resulted in a financial loss. The City currently purchases cyber insurance coverage. 8.A.e Packet Pg. 700 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 84 4140-7650-4109.4 Over the past two years, the City’s Information Services Department has partnered with several third-party vendors to perform cybersecurity assessments to evaluate all computing resources including networking infrastructure, operating systems, business applications, and related systems. City staff has conducted penetration tests and assessments of all technology systems. The findings of these assessments have been used to drive the recommendations to increase the overall resiliency of the City’s computing resources, cybersecurity strategic plan, and on-going capital funding. Currently, the City has established cybersecurity governance through the use of published policies, processes, and technologies to provide direction, structure, and safeguards when utilizing the City systems and handling of data. Core policies and procedures, such as Information Security Policy, Vulnerability Management Plan, Business Continuity and Disaster Recovery Plans, and various other procedural documents have been established within the City. The City also maintains an Incident Response Plan that outlines the City’s plan to monitor, identify, detect, respond, contain, and recover from security incidents, such as unauthorized access, use, disclosure, modification, destruction of information, or interference with City systems operations. The City performs annual tabletop exercises and actively participants in the FBI Cyberhood Watch, United States Secret Service, and MS-ISAC Cybersecurity Advisory Intelligence Communities. City staff is also fully engaged with cybersecurity peers within the industry. The City maintains a Cyber Risk Management program that identifies and prioritizes the digital risks and had developed a complex layered cyber security posture to protect the City’s digital assets and networks. In addition, the City is instituting measures to increase cloud security with the use of safety measures that will aid in the governance of the City’s cloud solutions and protect City data stored with cloud-based providers. In an effort to cultivate a cybersecurity culture, the City practices annual mandatory security awareness training and monthly phishing simulations for end-users to assess the City’s human risk exposure. The City disseminates notices of common threat vectors and safeguards that staff should follow. Change in Law There can be no assurance that the State Legislature will not at some future time enact legislation that will amend or create laws the intent of which is to reduce Net Revenues available to pay the principal of and interest on the Series 2021 Bonds. Similarly, the California electorate could adopt initiatives or the State Legislature could adopt legislation with the approval of the electorate amending the State Constitution the intent of which is to reduce Net Revenues available to pay the principal of and interest on the Series 2021 Bonds. The City is unable to predict at this time the enforceability of any such legislation or initiative and what effect, if any, it might have on Net Revenues available to pay the principal of and interest on the Series 2021 Bonds. The City has covenanted in the Indenture to preserve and protect the security of the Indenture and the rights of the Trustee and the Owners and the payments required to be made by the City under the Indenture and shall warrant and defend such rights against all claims and demands of all persons. Uncertainties of Projections, Forecasts and Assumptions Compliance with certain of the covenants in the Indenture is based upon assumptions and projections including, but not limited to, those described under “REVENUES AND DEBT SERVICE COVERAGE – Projected Operating Results.” Projections and assumptions are inherently subject to significant uncertainties. Inevitably, some assumptions will not be realized and unanticipated events and 8.A.e Packet Pg. 701 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 85 4140-7650-4109.4 circumstances may occur and actual results are likely to differ, perhaps materially, from those projected. Accordingly, such projections are not necessarily indicative of future performance, and neither the City nor the City’s Water Resources Division can assume responsibility for the accuracy of such projections. Economic, Political, Social, and Environmental Conditions Prospective investors are encouraged to evaluate current and prospective economic, political, social, and environmental conditions as part of an informed investment decision. Changes in economic, political, social, or environmental conditions on a local, state, federal, and/or international level may adversely affect investment risk generally. Such conditional changes may include (but are not limited to) fluctuations in business production, consumer prices, or financial markets, unemployment rates, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of war or terrorism, environmental damage, and natural disasters. Loss of Tax Exemption As discussed under the heading “TAX MATTERS,” the interest on the Series 2021 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of delivery of the Series 2021 Bonds, as a result of acts or omissions of the City in violation of its covenants in the Indenture. Should such an event of taxability occur, the Series 2021 Bonds would not be subject to a special redemption and would remain Outstanding until maturity or until redeemed under the redemption provisions contained in the Indenture. Risk of Tax Audit In December 1999, as a part of a larger reorganization of the Internal Revenue Service (the “IRS”), the IRS commenced operation of its Tax Exempt and Government Entities Division (the “TE/GE Division”), as the successor to its Employee Plans and Exempt Organizations division. The TE/GE Division has a subdivision that is specifically devoted to tax-exempt bond compliance. The City has not been contacted by the IRS regarding the examination of any of its tax-exempt bond transactions. The City is audited from time to time and is currently undergoing an IRS audit relating to settlement payments for litigation and other disputes. Secondary Market There can be no guarantee that there will be a secondary market for the Series 2021 Bonds or, if a secondary market exists, that any Series 2021 Bonds can be sold for any particular price. Occasionally, because of general market conditions or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then- prevailing circumstances. Such prices could be substantially different from the original purchase price. CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES Article XIIIA of the California Constitution Article XIIIA of the California Constitution provides that the maximum ad valorem tax on real property cannot exceed 1% of the “full cash value,” which is defined as “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 8.A.e Packet Pg. 702 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 86 4140-7650-4109.4 assessment,” subject to exceptions for certain circumstances of transfer or reconstruction and except with respect to certain voter approved debt. The “full cash value” is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reduction in property value caused by damage, destruction or other factors. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes, while generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. As amended, Article XIIIA exempts from the 1% tax limitation any taxes above that level required to pay debt service on certain voter-approved general obligation bonds for the acquisition or improvement of real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. Under California law, any fee that exceeds the reasonable cost of providing the service for which the fee is charged is a “special tax,” which under Article XIIIA must be authorized by a two-thirds vote of the electorate. Under Article XIIID, fees and charges for water, sewer, and refuse collection services are subject to majority protest, but are not subject to the two-third vote requirement of Article XIIIA. The reasonable cost of providing water services has been determined by the State Controller to include depreciation and allowance for the cost of capital improvements. In addition, the California courts have determined to date that fees such as capacity fees will not be special taxes if they approximate the reasonable cost of constructing the water or wastewater capital improvements contemplated by the local agency imposing the fee. Article XIIIB of the California Constitution On November 6, 1979, California voters approved Proposition 4, which added Article XIIIB to the California Constitution. In June 1990, Article XIIIB was amended by the voters through their approval of Proposition 111. Article XIIIB of the California Constitution limits the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted annually for changes in the cost of living, population and services rendered by the governmental entity. The “base year” for establishing such appropriation limit is the 1978-79 fiscal year. Increases in appropriations by a governmental entity are also permitted (i) if financial responsibility for providing services is transferred to the governmental entity, or (ii) for emergencies so long as the appropriations limits for the three years following the emergency are reduced to prevent any aggregate increase above the California Constitution limit. Decreases are required where responsibility for providing services is transferred from the governmental entity. Appropriations subject to Article XIIIB include, generally, any authorization to expend during the fiscal year the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, unemployment insurance and disability insurance funds. Appropriations subject to limitation pursuant to Article XIIIB do not include debt service on indebtedness existing or legally authorized as of January 1, 1979, on bonded indebtedness thereafter approved according to law by a vote of the electors of the issuing entity voting in an election for such purpose, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified outlay projects, and appropriations by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990 levels. “Proceeds of taxes” include, but are not limited to, all tax revenues and the proceeds to any entity of government from (i) regulatory licenses, user charges, and user fees to the extent such proceeds exceed the cost of providing the service or regulation, (ii) the investment of tax revenues, and (iii) certain State subventions received by local governments. Article XIIIB includes a requirement that if an entity’s 8.A.e Packet Pg. 703 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 87 4140-7650-4109.4 revenues in any year exceed the amount permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two fiscal years. As amended in June 1990, the appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the costs of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cost of living is, at the City’s option, either (i) the percentage change in California per capita personal income, or (ii) the percentage change in the local assessment roll for the jurisdiction due to the addition of nonresidential new construction. The measurement of change in population is a blended average of statewide overall population growth, and change in attendance at local school and community college districts. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate “proceeds of taxes” received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Article XIIIB permits any government entity to change the appropriations limit by vote of the electorate in conformity with statutory and Constitutional voting requirements, but any such voter- approved change can only be effective for a maximum of four years. The City is of the opinion that its water charges do not exceed the costs it reasonably bears in providing such services and therefore are not subject to the limits of Article XIIIB. The City will covenant in the Indenture that it will prescribe rates and charges sufficient to provide for payment of the principal of and interest on the Series 2021 Bonds in each year. Articles XIIIC and XIIID of the California Constitution On November 5, 1996, the voters of the State approved Proposition 218, known as the “Right to Vote on Taxes Act.” Proposition 218 added Articles XIIIC and XIIID to the California Constitution, which contain a number of provisions affecting the ability of the City to levy and collect both existing and future taxes, assessments, fees and charges. The interpretation and application of certain provisions of Proposition 218 will ultimately be determined by the courts with respect to some of the matters discussed below. It is not possible at this time to predict with certainty the future impact of such interpretations. The provisions of Proposition 218, as so interpreted and applied, may affect the City’s ability to meet certain obligations. Article XIIID. Article XIIID requires that any agency imposing or increasing any property-related fee or charge must provide written notice thereof to the record owner of each identified parcel upon which such fee or charge is to be imposed and must conduct a public hearing with respect thereto. The proposed fee or charge may not be imposed or increased if a majority of owners of the identified parcels file written protests against it. Article XIIID defines the terms “fee” and “charge” to mean “any levy other than an ad valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property ownership, including user fees or charges for a property-related service.” A “property-related service” is defined as “a public service having a direct relationship to property ownership.” Article XIIID further provides that reliance by an agency on any parcel map (including an assessor’s parcel map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership. As a result, if and to the extent that a fee or charge imposed by a local government for water service is ultimately determined to be a “fee” or “charge” as defined in Article XIIID, the local government’s ability to increase such fee or charge may be limited by a majority protest. Except for fees or charges for water, wastewater, and refuse collection 8.A.e Packet Pg. 704 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 88 4140-7650-4109.4 services, or fees for electrical and gas service, which are not treated as “property related” for purposes of Article XIIID, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area. In addition, Article XIIID includes a number of limitations applicable to existing fees and charges, including provisions to the effect that (i) revenues derived from the fee or charge shall not exceed the funds required to provide the property-related service, (ii) such revenues shall not be used for any purpose other than that for which the fee or charge was imposed, (iii) the amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel and (iv) no such fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Property-related fees or charges based on potential or future use of a service are not permitted. Based upon the California Second District Court of Appeal decision in Howard Jarvis Taxpayers Association v. City of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the California Supreme Court, it was generally believed that Article XIIID did not apply to water and wastewater rates and charges, which had been held to be commodity charges related to consumption of the service, not property ownership. In a decision rendered in February, 2004, the California Supreme Court in Richmond et al. v. Shasta Community Services District (S105078) upheld a Third District Court of Appeal decision that water connection fees were not property-related fees or charges subject to Article XIIID while at the same time stating in dicta that fees for ongoing water service through an existing connection were property related fees and charges. In October 2004, the California Supreme Court granted review of the decision of the Fourth District Court of Appeal in Bighorn-Desert View Water Agency v. Beringson, 120 Cal. App. 4th 891 (2004), in which the appellate court had relied on Howard Jarvis Taxpayers Association v. City of Los Angeles and rejected the Supreme Court’s dicta in Richmond et al. v. Shasta Community Services District. On March 23, 2005, the California Fifth District Court of Appeal held in Howard Jarvis Taxpayers Association v. City of Fresno, 127 Cal. App. 4th 914 (2005) that an “in lieu” fee which is payable to the City of Fresno’s general fund from its water utility and which is included in the city’s water rate structure was invalid. In reaching its decision, the court concluded that the city’s water rates were “property related” fees, governed by the limitations of Article XIIID. The City of Fresno requested a review of this decision by the California Supreme Court, which denied review. On July 24, 2006 the Supreme Court ruled in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (2006). The Court restated the dicta in Richmond et al. v. Shasta Community Services District that fees and charges for ongoing domestic water service through an existing connection were property related fees and charges under Article XIIID. Since 2006, the City has complied with the notice, hearing and protest procedures in Article XIII with respect to water rate increases based on the decision in Howard Jarvis Taxpayers Association v. City of Los Angeles. Article XIIIC. Article XIIIC provides that the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge and that the power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments. Article XIIIC does not define the terms “local tax,” “assessment,” “fee” or “charge,” so it was unclear whether the definitions set forth in Article XIIID referred to above are applicable to Article XIIIC. Moreover, the provisions of Article XIIIC are not expressly limited to local taxes, assessments, fees and charges imposed after November 6, 1996. The Supreme Court held in Bighorn-Desert View Water Agency v. Verjil that the provisions of Article XIIIC applied to rates and fees charged for domestic water use. In the decision, the Court noted that the decision did not address whether an initiative to reduce fees and charges could override statutory rate setting obligations. In any event, the City and its City Attorney do not believe that Article XIIIC grants to the voters within the City the power to repeal or reduce rates and charges in a manner which would be inconsistent with the contractual 8.A.e Packet Pg. 705 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 89 4140-7650-4109.4 obligations of the City. However, there can be no assurance of the availability of particular remedies adequate to protect the beneficial owners of the Series 2021 Bonds. Remedies available to beneficial owners of the Series 2021 Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to discretion and delay and could prove both expensive and time-consuming to obtain. In addition to the specific limitations on remedies contained in the applicable documents themselves, the right and obligation with respect to the Indenture is subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors’ rights, to the application of equitable principles if equitable remedies are sought, and to the exercise of judicial discretion in appropriate cases and to limitations on legal remedies against public agencies in the State of California. The various opinions of counsel to be delivered with respect to such documents, including the opinion of Bond Counsel (the form of which is attached as Appendix F), will be similarly qualified. The City believes that its current water rates and land based charges comply with the requirements of Proposition 218 (Article XIIIC) and expects that any future water rates and land based charges will comply with Proposition 218’s procedural and substantive requirements to the extent applicable thereto. The City is a defendant, with over 80 other California water providers, in litigation brought by a water ratepayer arguing the inclusion in water rates of costs to fund public fire hydrant flows violates Proposition 218 because these fire flows are not property based water service, but a general government service to be funded by taxes. The City cannot currently estimate potential costs of this litigation. See “ABSENCE OF MATERIAL LITIGATION.” Tiered Municipal Water Rate Structures After Capistrano Taxpayers Association Case In consideration of the April 2014 decision by the Court of Appeal of the State of California, Fourth Appellate District, issued a published decision (Capistrano Taxpayers Association v. City of San Juan Capistrano), the City recently completed its five-year water and wastewater rate study (2020-2024), and the new rate structure was adopted on January 28, 2020. The new rate structure includes a fixed charge for approximately 15% of the fund’s revenue requirements and the rest is billed through a three tiered rate structure. The three tiers are based on the State of California’s goal for indoor water use (tier 1 allotment), available local groundwater supplies (tier 2), and imported water supplies (tier 3). The proposed rate increase will ensure that the City continues to have a well-maintained water system, maintain reserves at industry recommended levels, keep water bills low over time, and achieve the City’s goal of water self-sufficiency by 2023. The ruling in the Capistrano case addresses two elements of Proposition 218; the use of tiered municipal water rate structures, which are commonly established to create an economic incentive for conservation and efficiency and, second, a fee imposed on all water customers to pay for a recycled water system. With tiered rates, the intended result is that with the more water that any individual household or business uses, the more paid for each additional increment or “tier” of water, with successive tiers imposing a greater premium on water. Such rates are intended to send a price signal that incentivizes conservation. Proposition 218 requires that all taxes and fees imposed by a public agency must not be any greater than the “cost of service” to the individual. Litigants in the Capistrano case argued that Proposition 218 requires public water agencies to calculate actual costs of providing water at various levels of tiered usage. The court agreed. The court acknowledged the importance of conservation but reasoned that agencies must achieve that goal without violating the required cost basis under Proposition 218. With respect to the fee component of a recycled water system, the court held that “a service” cannot be read to differentiate between recycled water and traditional potable water. 8.A.e Packet Pg. 706 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 90 4140-7650-4109.4 Statutory Spending Limitations A statutory initiative (“Proposition 62”) was adopted by the voters of the State at the November 4, 1986 General Election which (a) requires that any tax for general governmental purposes imposed by local governmental entities be approved by resolution or ordinance adopted by two-thirds vote of the governmental agency’s legislative body and by a majority of the electorate of the governmental entity, (b) requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within the jurisdiction, (c) restricts the use of revenues from a special tax to the purposes or for the service for which the special tax is imposed, (d) prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIIIA, (e) prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governmental entities and (f) requires that any tax imposed by a local governmental entity on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative or be terminated by November 15, 1988. The requirements imposed by Proposition 62 were upheld by the California Supreme Court in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal.4th 220; 45 Cal.Rptr.2d 207 (1995). Proposition 62 applies to the imposition of any taxes or the effecting of any tax increases after its enactment in 1986, but the requirements of Proposition 62 are subsumed by the requirements of Proposition 218 for the imposition of any taxes or the effecting of any tax increases after November 5, 1996. See “– Articles XIIIC and XIIID of the California Constitution” above. In the opinion of the City Attorney, the provisions of Proposition 62 do not apply to charter cities, although this position is being challenged by various groups, and may be the subject of future litigation. If ultimately found valid and applicable to charter cities, however, Proposition 62 could affect the ability of the City to continue the imposition of certain taxes, such as Utility User’s Taxes, Sales Taxes and Transient Occupancy Taxes, and may further restrict the City’s ability to raise revenue. Proposition 26 Proposition 26, a State ballot initiative aimed at restricting regulatory fees and charges, was approved by the California voters on November 2, 2010. Proposition 26 imposes a two-thirds voter approval requirement for the imposition of certain fees and charges by the State. It would also impose a majority voter approval requirement on local governments with respect to fees and charges for general purposes, and a two-thirds voter approval requirement with respect to fees and charges for special purposes. The initiative, according to its supporters, is intended to prevent the circumvention of tax limitations imposed by the voters pursuant to Proposition 13, approved in 1978, and other measures through the use of non-tax fees and charges. Proposition 26 expressly excludes from its scope “a charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable cost to the local government of providing the service or product to the payor.” The City believes that the initiative is not intended to and would not apply to fees for utility services charged by local governments such as the City; however, the City is unable to predict whether Proposition 26 will be interpreted by the courts to apply to the provision of utility services by local governments such as the City. Future Initiatives Article XIIIA, Article XIIIB, Article XIIIC and Article XIIID and Propositions 26 and 62 were each adopted as measures that qualified for the ballot pursuant to California’s constitutional initiative process. From time to time other initiative measures could be adopted, affecting the ability of the City to increase revenues and to increase appropriations. For example, ballot initiatives currently in process for 8.A.e Packet Pg. 707 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 91 4140-7650-4109.4 qualification for consideration at future elections include a measure that would require a two-thirds vote of the electorate for all taxes, including local general and special taxes put on the ballot through an initiative and a measure to revoke Proposition 13 protections for commercial and industrial properties. Such initiatives could be proposed and adopted affecting the Enterprise’s revenues or the City’s ability to increase such revenues. From time to time other initiatives could be proposed and adopted affecting the Enterprise’s revenues or the City’s ability to increase such revenues. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, bond counsel to the City (“Bond Counsel”), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2021 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the “Code”) and is exempt from State of California personal income taxes. Bond Counsel is of the further opinion that interest on the Series 2021 Bonds is not a specific preference item for purposes of the federal alternative minimum tax. A complete copy of the proposed form of opinion of Bond Counsel is set forth in Appendix F hereto. To the extent the issue price of any maturity of the Series 2021 Bonds is less than the amount to be paid at maturity of such Series 2021 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2021 Bonds), the difference constitutes “original issue discount,” the accrual of which, to the extent properly allocable to each beneficial owner thereof, is treated as interest on the Series 2021 Bonds which is excluded from gross income for federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2021 Bonds is the first price at which a substantial amount of such maturity of the Series 2021 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2021 Bonds accrues daily over the term to maturity of such Series 2021 Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2021 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2021 Bonds. Beneficial owners of the Series 2021 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2021 Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Series 2021 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2021 Bonds is sold to the public. Series 2021 Bonds purchased, whether at original issuance or otherwise, for an amount higher 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, the amount of tax-exempt interest received, and a beneficial owner’s basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such beneficial owner. Beneficial 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 2021 Bonds. 8.A.e Packet Pg. 708 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 92 4140-7650-4109.4 The City has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2021 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2021 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2021 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and 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), or any other matters coming to Bond Counsel’s attention after the date of issuance of the Series 2021 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2021 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Series 2021 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of, or the accrual or receipt of amounts treated as interest on, the Series 2021 Bonds may otherwise affect a beneficial owner’s federal, state or local tax liability. The nature and extent of these other tax consequences depends upon the particular tax status of the beneficial owner or the beneficial owner’s other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2021 Bonds to be subject, directly or indirectly, in whole or in part, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such legislative proposals or clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the Series 2021 Bonds. Prospective purchasers of the Series 2021 Bonds should consult their own tax advisors regarding the potential impact of any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel is expected to express no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel’s judgment as to the proper treatment of the Series 2021 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service (“IRS”) or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or assurance about the future activities of the City, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The City has covenanted, however, to comply with the requirements of the Code. Bond Counsel’s engagement with respect to the Series 2021 Bonds ends with the issuance of the Series 2021 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the City or the beneficial owners regarding the tax-exempt status of the Series 2021 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the City and its appointed counsel, including the beneficial owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the City legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2021 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2021 Bonds, and may cause the City or the beneficial owners to incur significant expense. 8.A.e Packet Pg. 709 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 93 4140-7650-4109.4 CERTAIN LEGAL MATTERS The validity of the Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix F hereto. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement. Orrick, Herrington & Sutcliffe LLP, as Disclosure Counsel, will provide certain other legal services for the City. Orrick, Herrington & Sutcliffe LLP will receive compensation from the City contingent upon the sale and issuance of the Bonds. Certain legal matters will be passed on for the City by the City Attorney of the City. Certain legal matters will be passed upon for the Underwriters by their counsel, Stradling Yocca Carlson & Rauth, a Professional Corporation. ABSENCE OF MATERIAL LITIGATION There is no action, suit or proceeding known to be pending or threatened either restraining or enjoining the execution or delivery of the Bonds or the Indenture, or in any way contesting or affecting the validity of the foregoing or any proceedings of the City taken with respect to any of the foregoing. Various claims and suits have been and can be expected to be filed against the City in the normal course of business. The aggregate amount of the uninsured liabilities of the City which may result from all claims will not, in the opinion of the City, materially affect the City’s finances or adversely impact the timely payment of the principal of, premium, if any, and interest on the Series 2021 Bonds. The City is a defendant, with over 80 other California water providers, in litigation brought by a water ratepayer arguing that the inclusion in water rates of costs to fund public fire hydrant flows violates Proposition 218 because these fire flows are not property based water service, but a general government service to be funded by taxes. Proposition 218 provides that no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area, but fees or charges for water service, among other enumerated services, are not treated as “property related.” The City cannot currently estimate potential costs of this litigation or whether such costs may be allocable in their entirety to the Water Fund. The California State Legislature has acted to address the potential negative impacts of this litigation. Senate Bill No. 1386, signed into law on September 28, 2020, provides that that water rates may recover the cost to provide fire flows (i.e., water service in the volumes and at the pressures needed to serve fire hydrants and sprinklers). Senate Bill No. 1386 provides that, “hydrants, as defined, are part of the system of public improvements included in the definition of “water” for purposes of the Proposition 218.” The bill would specify that the fees or charges for property-related water service imposed or increased, as specified, may include the costs to construct, maintain, repair, or replace hydrants as needed or consistent with fire codes and industry standards, and may include the cost of water distributed through hydrants. See “CONSTITUTIONAL LIMITATIONS ON TAXES AND WATER RATES AND CHARGES – Articles XIIIC and XIIID of the California Constitution.” INFORMATION CONCERNING THE METROPOLITAN WATER DISTRICT OF SOUTHERN CALIFORNIA The MWD periodically files its official statements and disclosure reports with the MSRB in connection with its publicly offered bonds. Such official statements and disclosure reports contain, among other things, information on MWD, MWD’s water supply and MWD’s rates and charges and other water supply and regional water information. Such official statements and disclosure reports are and will be available from the MSRB but are not incorporated by reference herein and none of MWD, the City or 8.A.e Packet Pg. 710 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 94 4140-7650-4109.4 the Underwriters assume any responsibility for the completeness or accuracy thereof. MWD is not obligated in any manner for the payment of principal of or interest on the Series 2021 Bonds and has provided or will provide any certifications regarding this Official Statement, nor has MWD made any undertaking for the benefit of the owners and beneficial owners of the Series 2021 Bonds to file any information with the MSRB. MWD has not reviewed nor participated in any way in the preparation of this Official Statement. UNDERWRITING The Series 2021 Bonds are being purchased by Morgan Stanley & Co. LLC, for itself and as representative of Siebert Williams Shank & Co., LLC and Stifel, Nicolaus & Company, Incorporated (together, the “Underwriters”). Pursuant to a Bond Purchase Agreement between Morgan Stanley & Co. LLC, as representative of the Underwriters, and the City (the “Purchase Agreement”), the Underwriters have agreed to purchase the Series 2021 Bonds for an aggregate purchase price of $______, which represents the par amount of the Series 2021 Bonds, plus original issue premium of $______, less an underwriters’ discount of $______, subject to the conditions set forth in the Purchase Agreement. The Purchase Agreement provides that the Underwriters will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such Purchase Agreement, the approval of certain legal matters by counsel and certain other conditions. The Underwriters may offer and sell the Bonds to certain dealers, institutional investors and others at prices lower than the public offering prices stated on the inside cover page hereof and such public offering prices may be changed from time to time by the Underwriters. The Underwriters and their affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage services. The Underwriters and their affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the City, for which they received or will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities, which may include credit default swaps) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of City, or the State, or any political subdivision thereof. The Underwriters and their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. Morgan Stanley & Co. LLC has entered into a retail distribution arrangement with its affiliate Morgan Stanley Smith Barney LLC. As part of the distribution arrangement, Morgan Stanley & Co. LLC may distribute municipal securities including the Series 2021 Bonds to retail investors through the financial advisor network of Morgan Stanley Smith Barney LLC. As part of this arrangement, Morgan Stanley & Co. LLC may compensate Morgan Stanley Smith Barney LLC for its selling efforts with respect to the Series 2021 Bonds. RATING S&P Global Ratings (“S&P”) has assigned its municipal bond rating of “___” to the Series 2021 Bonds. Such rating reflect only the view of such S&P, and an explanation of the significance of the rating 8.A.e Packet Pg. 711 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 95 4140-7650-4109.4 may be obtained by contacting Standard & Poor’s at 55 Water Street, New York, New York 10041. Such rating is not a recommendation to buy, sell or hold the Series 2021 Bonds. There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by S&P, if in its judgment circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Series 2021 Bonds. MUNICIPAL ADVISOR Public Resources Advisory Group, Los Angeles, California, served as Municipal Advisor (the “Municipal Advisor”) to the City with respect to the issuance of the Series 2021 Bonds. The Municipal Advisor has not been engaged, nor has it undertaken, to audit, authenticate or otherwise verify the information set forth in this Official Statement with respect to accuracy and completeness of disclosure of such information. The Municipal Advisor will receive compensation contingent upon the sale and issuance of the Series 2021 Bonds. CONTINUING DISCLOSURE The City has covenanted for the benefit of the Owners of the Series 2021 Bonds to provide annually certain financial information and operating data relating to the Series 2021 Bonds and the City (the “Annual Report”) and notice of certain events. For a complete listing of items of information which will be provided in the Annual Report and notices of enumerated events, see APPENDIX E – “FORM OF CONTINUING DISCLOSURE CERTIFICATE.” Such information is to be provided by the City not later than nine (9) months after the end of the City’s fiscal year (which currently would be April 1), commencing with the report for Fiscal Year 2020-21. Pursuant to the Continuing Disclosure Certificate, the Annual Report will be filed by the City through the Electronic Municipal Market Access (EMMA) website of the MSRB, or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to S.E.C. Rule 15c2-12(b)(5) promulgated under the Securities Exchange Act of 1934, as amended (“Rule 15c2-12”). These covenants have been made in order to assist the Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). Within the last five years, with respect to the City of Santa Monica General Obligation Refunding Bonds, Series 2012 (Library Improvement Project), the City erroneously filed its annual report for Fiscal Year 2018-19 four days late, on March 30, 2020, and did not file notice of such failure to timely file, and with respect to the City of Santa Monica Wastewater Refunding Revenue Bonds, Series 2012A, the City failed to timely file, and initially failed to file notice of such failure to timely file, information with respect to wastewater rate changes for Fiscal Year 2015-16, as required. Such failure to file was previously remedied in a corrective filing posted to EMMA. In addition, the City failed to tag all CUSIP numbers on one annual report with respect to the Santa Monica Finance Authority’s Lease Revenue Refunding Bonds, Series 2015 (Civic Center Parking Project), made one corrective filing, and has recently made an additional corrective filing posted to EMMA to address such technical failure to tag all CUSIP numbers for such series of lease revenue refunding bonds. The City has adopted disclosure policies and procedures in an effort to formalize its disclosure practices and implement additional procedures to timely file complete annual reports and event notices in the future. MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statements of the contents thereof. Copies of the Indenture and other documents are 8.A.e Packet Pg. 712 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution 96 4140-7650-4109.4 available, upon request, and upon 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. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or Owners of any of the Series 2021 Bonds. The execution and delivery of this Official Statement have been duly authorized by the City. CITY OF SANTA MONICA By: [Interim City Manager] 8.A.e Packet Pg. 713 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-1 4140-7650-4109.2 APPENDIX A GENERAL DEMOGRAPHIC INFORMATION REGARDING THE CITY OF SANTA MONICA Information contained in this Appendix A is presented as general background data. The Series 2021 Bonds are payable solely from Net Revenues to be made by the City of Santa Monica. Data contained in this Appendix A is intended to portray economic, demographic and business trends within the City. While not constituting direct revenue sources for the Series 2021 Bonds as such, these trends held explain changes in revenue sources for the Series 2021 Bonds which could be impacted by economic conditions. The County of Los Angeles and the State of California have no obligation to make any payments with respect to the Series 2021 Bonds. See “SECURITY AND SOURCES OF PAYMENT FOR THE BONDS” herein for a description of the security for the Series 2021 Bonds. Further, the information in this Appendix A is obtained from publicly available sources which do not yet provide current information in many cases to reflect the adverse impact of the Pandemic, particularly with respect to employment and taxable transactions. See “RISK FACTORS – Infectious Disease Outbreak – COVID-19” in this Official Statement for additional information. General 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, as of January 1, 2021, had an estimated residential population of 92,968 making it the 18th largest of the 88 cities 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, which runs about one mile beyond the eastern border of Santa Monica on a north-south course. Government and Administration The City 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 City Council members or four City Council members are elected. After each election, City Council members select one of their group to act as Mayor, who then presides over City 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 City Council. The election of City Council members is currently a matter before the California Supreme Court, after a holding of the California Court of Appeals in favor of the City was appealed to the California Supreme Court. See “CITY OF SANTA MONICA – City Council Elections” in this Official Statement. 8.A.e Packet Pg. 714 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-2 4140-7650-4109.2 Population The following table sets forth population data for the City. City of Santa Monica Population Year Population 1970 88,289 1980 88,100 1990 87,000 2000 84,084 2010 89,494 2011 90,350 2012 90,702 2013 91,757 2014 92,483 2015 93,199 2016 93,395 2017 93,763 2018 93,650 2019 93,309 2020 92,995 2021 92,968 Source: 1970-2000 data from U.S. Census Bureau; 2010-2021 data from State of California Department of Finance. City Enterprise Operations The City operates an airport, bus line, cemetery and pier. The City also provides water, refuse collection, recycling, wastewater and stormwater services. A portion of the revenues from these enterprises is annually paid to the City’s General Fund for various administrative support services provided to the enterprises. The City operates the Santa Monica Airport is a 227-acre general aviation airport, located at the southeastern edge of the City. On January 28, 2017, the City reached an agreement with the Federal Aviation Administration that, among other things, allows the City to close Santa Monica Airport to all aeronautical uses after December 31, 2028. In Fiscal Year 2019-20, the City’s 189 fixed route buses carried about 10.29 million revenue passengers. Woodlawn Cemetery was purchased by the City in 1897 and the mausoleum was purchased in 1972. It is operated as an enterprise competitive with comparable private facilities. It is located in the south-central portion of the City. The Santa Monica Pier is a local historical landmark built in 1909. It currently contains an amusement park, carousel, games, aquarium, restaurants, entertainment venues, and retail. Santa Monica Amusements, a privately-owned enterprise, operates Pacific Park, with its Ferris wheel, roller coaster, famous vintage wooden carousel, games and a food court. The Santa Monica Pier Aquarium has been operated by Heal the Bay since June 2003. The Aquarium attracted nearly 100,000 visitors per year prior 8.A.e Packet Pg. 715 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-3 4140-7650-4109.2 to the impacts of the Pandemic. The Pier was closed to the public at various points in the Pandemic. Initially, when the Pier began to reopen in Fiscal Year 2020-21, many restrictions were in place, including closures of the amusement rides at Pacific Park, the Pier Carousel, the Aquarium and the Arcade, as well as the Pier parking lot. The Pier and its amusements are now open. As of June 15, 2021, the State phased out the vast majority of executive actions put in place since March 2020 as part of the Pandemic response, leaving a subset of provisions that facilitate the ongoing recovery. See “THE WATER ENTERPRISE – Recent Water Resources Division Actions in Response to the COVID-19 Pandemic” and “RISK FACTORS – Infectious Disease Outbreak – COVID-19.” As described herein, the City’s Water Resources Division provides water and wastewater services to over 18,000 accounts through two self-supporting enterprise funds. The Water Fund supports the production and distribution of high-quality drinking water for the City. Approximately 65% to 75% of the City’s water supply is provided through local groundwater from the Santa Monica Groundwater Basin, with well fields in the Charnock, Olympic, and Arcadia sub-basins. The City’s local groundwater supply is supplemented by imported water purchased from MWD for the remainder 25% to 35% (and as much as 51% in 2020 as described herein). The City’s water treatment and distribution system includes the 5 million gallon per day (mgd) Charnock Treatment Plant, 10 mgd Arcadia Water Treatment Plant, four water storage reservoirs that total approximately 40 million gallons, and over 200 miles of water mains. The Water Resources Division is currently implementing various water supply projects designed to achieve water self-sufficiency by 2023. The wastewater enterprise fund supports operation of the City’s wastewater collection system. The wastewater is collected and sent to the City of Los Angeles’ Hyperion Treatment Plant for treatment where the City is a contracting agency with the City of Los Angeles. The Water Resources Division also operates the Santa Monica Urban Runoff Recycling Facility, a joint project with the City of Los Angeles, that treats up to 500,000 gallons per day of dry weather urban runoff (from excessive irrigation, spills, construction sites, pool draining, car washing, the washing down of paved areas, and some wet weather runoff) to produce treated water for non-potable uses (e.g., landscape irrigation and dual-plumbed systems (buildings plumbed to accept recycled water for the flushing of toilets)). To increase the City’s recycled water supply, the Water Resources Division is implementing the Sustainable Water Infrastructure Project (the SWIP as described in greater detail in this Official Statement) that will leverage municipal wastewater and stormwater to produce an additional 1,100 AFY of advanced treated recycled water to offset potable water demand and increase recycled water use in the City, including using the advanced treated recycled water to recharge local groundwater basins. During the State’s drought years, the City implemented several conservation programs including rebates for water-wise landscaping and harvesting rainwater. 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 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 of the City of Los Angeles. Industry and Employment The Santa Monica business community is comprised of a diverse collection of businesses ranging from traditional retailers to hi-tech post-production and internet firms. Tourism, health industries, and retail augment the large business service sector. Mainstay firms like Providence Saint John’s Health Center and UCLA Santa Monica Medical Center, Loews and Marriott Hotels, and new car dealerships occupy a more traditional niche as large institutional property owners, sales tax producers, and employers. 8.A.e Packet Pg. 716 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-4 4140-7650-4109.2 Major entertainment and multimedia-software industry firms like Snap Inc., Universal Music Group, Apple, Hulu and Lionsgate Entertainment are among over 200 hi-tech, multimedia, and entertainment firms of all sizes that maintain a presence in the City. The City invests significant governmental resources in its pedestrian-oriented commercial districts, including such nationally-recognized venues as the Third Street Promenade, Santa Monica Place Mall, which reopened in 2011 after a $265 million renovation facelift and now includes such luxury retailers as Tiffany, Nordstrom, Louis Vuitton and Coach, along with the Santa Monica Pier, Santa Monica’s world-renowned visitor destination. The City provides support for the Santa Monica Travel + Tourism Center and a variety of other services, including Downtown Ambassadors to assist with parking, maintenance, parks, and safety. A designated Quality of Life Team deals primarily with long-standing issues that impact the downtown, allowing hospitality and maintenance ambassadors to focus on providing a great experience for our residents, employees and visitors. Recently completed City projects include the Colorado Avenue Esplanade project, the California Incline Bridge Replacement and Pedestrian Overpass project and Ishihara Park. This investment has paid off in a healthy retail and restaurant sector and an active tourism industry which provides significant sales tax revenues to the City. However, the Pandemic has had significant impacts, particularly in certain sectors. The three largest business types producing taxable goods (exclusive of allocations from state and local pools) in the City for calendar year 2020 are: New Motor Vehicle Dealers, 18% of the City’s sales tax revenue; Electronics/Appliance Stores producing 11% of the City’s sales tax revenue; and Auto Leasing producing approximately 9% of City Sales Tax revenue. Sales Tax revenues from Casual Dining, traditionally one of the City’s largest sales tax producing categories, fell approximately 50% from 2019 as a direct result of the Pandemic. When grouped into major business groups, for calendar year 2020 (again excluding allocations from state and local pools), Autos and Transportation has provided over 32% of the City’s Sales Tax revenues. General Consumer Goods has provided 26% of Sales Tax revenues, and Restaurants and Hotels has provided approximately 18% of the City’s sales tax revenue. The City’s focus on “quality of life” issues has created a positive environment on the west side of Los Angeles in which to live, work, and visit. The resulting environment has attracted a stable, dynamic business base and a strong local economy. 8.A.e Packet Pg. 717 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-5 4140-7650-4109.2 The ten largest employers within the City boundaries and the number of persons employed by each organization are shown below: City of Santa Monica Largest Employers As of June 30, 2020 Company Number of Employees UCLA Medical Center, Santa Monica 2,879 City of Santa Monica 2,298(1) Santa Monica-Malibu Unified School District 1,962 Santa Monica College 1,800 SNAP Inc 1,460 Providence Saint John’s Health Center 1,400 Activision Publishing (Includes Beachhead Studios, Treyarch Corp) 1,231 RAND Corporation 891 Hulu 882 Lionsgate Entertainment Corp 819 Total jobs provided by ten largest employers 15,622 Average Total jobs in Santa Monica 90,567 Ten Largest Employers As Percent Of Total Jobs 17.25% (1) Currently 1,878, as of November 7, 2020. Source: City of Santa Monica Economic Development Division, Housing and Economic Development Department. 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 Years 2010 through 2020 Year City of Santa Monica City of Los Angeles County of Los Angeles State of California United States 2010 10.8% 13.3% 12.6% 12.5% 9.6% 2011 10.5 12.9 12.2 11.9 8.9 2012 9.4 11.6 11.0 10.5 8.1 2013 8.3 10.3 9.8 9.0 7.4 2014 7.0 8.7 8.2 7.6 6.2 2015 5.7 7.1 6.7 6.3 5.3 2016 5.1 5.3 5.3 5.5 4.9 2017 4.5 4.8 4.8 4.8 4.4 2018 4.4 4.7 4.7 4.3 3.9 2019 4.4 4.6 4.6 4.2 3.7 2020 10.5 12.9 12.8 10.1 8.1 Source: State of California, Employment Development Department, Labor Market Information Division and U.S. Department of Labor, Bureau of Labor Statistics. 8.A.e Packet Pg. 718 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-6 4140-7650-4109.2 The following table summarizes employment data for the County of Los Angeles for the years 2016 through 2020. Los Angeles County Annual Average Industry Employment and Labor Force 2016 2017 2018 2019 2020 Civilian Labor Force 5,018,900 5,088,900 5,094,300 5,122,800 4,921,500 Civilian Employment 4,751,200 4,843,700 4,857,300 4,888,600 4,291,700 Civilian Unemployment 267,700 245,200 237,000 234,300 629,800 Civilian Unemployment Rate 5.3% 4.8% 4.7% 4.6% 12.8% Total Farm 5,300 5,700 4,600 4,400 4,400 Total Nonfarm 4,396,100 4,449,200 4,516,100 4,561,500 4,146,700 Total Private 3,819,400 3,863,100 3,925,500 3,974,600 3,581,000 Goods Producing 498,500 491,100 490,800 492,500 460,900 Mining and Logging 2,400 2,000 1,900 1,900 1,700 Construction 134,000 138,700 146,300 149,800 145,500 Manufacturing 362,000 350,400 342,600 340,700 313,800 Service Providing 3,897,600 3,958,100 4,025,300 4,069,000 3,685,800 Trade, Transportation and Utilities 835,600 845,700 851,600 851,400 787,300 Wholesale Trade 222,100 221,500 223,200 220,500 200,100 Retail Trade 424,600 426,100 424,800 417,900 378,600 Transportation, Warehousing and Utilities 188,900 198,200 203,600 213,000 208,600 Information 229,400 214,900 216,400 217,900 185,800 Financial Activities 219,800 221,600 223,200 223,500 211,500 Professional and Business Services 603,000 612,100 630,400 643,900 593,300 Educational and Health Services 769,900 797,400 817,900 839,900 820,900 Leisure and Hospitality 510,000 524,600 536,500 547,200 394,400 Other Services 153,300 155,700 158,800 158,400 127,000 Government 576,700 586,100 590,600 586,900 565,600 Total, All Industries 4,401,400 4,454,900 4,520,700 4,565,800 4,151,000 Note: Total may not sum due to rounding. Source: State of California, Employment Development Department, March 2020 Benchmark. 8.A.e Packet Pg. 719 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-7 4140-7650-4109.2 Per Capita Income The following table summarizes per capita personal income for the Los Angeles-Long Beach- Anaheim Statistical Area, California and the United States for the years 2010 through 2019. Year Los Angeles-Long Beach-Anaheim Statistical Area California United States 2010 $45,050 $43,636 $40,547 2011 47,662 46,175 42,739 2012 50,912 48,813 44,605 2013 50,487 49,303 44,860 2014 53,450 52,363 47,071 2015 56,945 55,833 49,019 2016 58,945 58,048 50,015 2017 61,159 60,549 52,118 2018 63,886 63,720 54,606 2019 66,684 66,619 56,490 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Commercial Activity A six-year history of taxable transactions by type of business for the City are shown in the tables below. City of Santa Monica Taxable Transactions by Type of Business (in Thousands of Dollars) 2015-2017 Retail and Food Services 2015 2016 2017 Motor Vehicle and Parts Dealers $ 538,533 $ 520,199 $ 502,657 Home Furnishings and Appliance Stores 102,879 93,229 89,052 Building Material and Garden Equipment and Supplies Dealers 72,435 68,558 70,899 Food and Beverage Stores 120,335 119,903 120,712 Gasoline Stations 104,087 88,396 96,230 Clothing and Clothing Accessories Stores 436,328 444,031 396,455 General Merchandise Stores 46,095 40,384 40,399 Food Services and Drinking Places 637,231 680,660 692,408 Other Retail Group 394,699 401,811 382,892 Total Retail and Food Services 2,452,622 2,457,171 2,391,704 All Other Outlets 784,315 780,007 833,921 Total All Outlets 3,236,937 3,237,178 3,225,625 Source: California Department of Tax and Fee Administration. 8.A.e Packet Pg. 720 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-8 4140-7650-4109.2 City of Santa Monica Taxable Transactions by Type of Business (in Thousands of Dollars) 2018-2020 Retail and Food Services 2018 2019 2020 Motor Vehicle and Parts Dealers $ 543,859 $ 528,251 $ 465,423 Home Furnishings and Appliance Stores 73,162 71,752 48,962 Building Material and Garden Equipment and Supplies Dealers 71,629 74,955 75,305 Food and Beverage Stores 126,835 135,131 135,139 Gasoline Stations 102,149 96,008 43,993 Clothing and Clothing Accessories Stores 379,474 339,541 159,602 General Merchandise Stores 31,547 36,248 22,412 Food Services and Drinking Places 707,379 716,234 361,041 Other Retail Group 382,452 349,278 267,619 Total Retail and Food Services 2,418,485 2,347,397 1,579,496 All Other Outlets 922,078 1,036,255 875,838 Total All Outlets 3,340,563 3,383,652 2,455,334 Source: California Department of Tax and Fee Administration. Education Public instruction in the City is provided by the Santa Monica-Malibu Unified School District with 10 elementary schools (three of which are in the City of Malibu), three middle schools (one of which is in the City of Malibu), two high schools (one of which is in the City of Malibu), one continuation high school, one alternative school, an adult education program and child care and development centers. The City also has one community college, Santa Monica College, which includes technical and vocational schools, including the Academy of Entertainment and Technology. 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 Getty Center, Disneyland, Dodger Stadium, 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. For the past twelve consecutive years the City has hosted the finish line for the Los Angeles Marathon, allowing thousands of participants to be cheered on by residents and visitors. Santa Monica residents and visitors see the entire City as their park system – where users enjoy the community’s renowned public gathering places including the Third Street Promenade and Santa Monica Pier, green streets, 245 acres of sandy beach and 27 parks to pursue their recreational activities of choice. 8.A.e Packet Pg. 721 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-9 4140-7650-4109.2 In 2011, the City began implementation of a 5-year and 20-year Bike Action Plan with a goal of increasing bicycle transportation to a 14-35% share of transportations modes by 2030. The 2011 Bike Action plan provided a 5-year and 20-year road map for developing Santa Monica’s bicycle network. At that time protected bicycle lanes were not yet well-known in the United States. In October 2020, the Bike Action Plan was amended to build on the 20-year vision by updating corridors to protected bikeways citywide in the next five years, compete for outside grant funding, and to continue progress towards the community’s climate, safety, and mobility goals, and build resilience in these uncertain economic times. 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 the City than in any other city in the State. Santa Monica has over 70 galleries and artist studios, two major museums (including 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, photography, film, interactive media and award-winning architecture. Utilities Southern California Gas Company and Southern California Edison Company (“SCE”) provide gas and electricity service within the City, respectively. Frontier California supplies local telecommunication service. Over 100 telecommunications companies provide long-distance and wireless service. The City provides water and wastewater service. Public Transportation The City has one of the most extensive transit networks among cities of its size. The City and the Los Angeles County Metropolitan Transportation Authority’s (“LA Metro”) have made significant investments in the Expo Light Rail Line, and also on facilities and services designed to increase access to future station areas for people walking, biking or busing. The Expo Light Rail Line is open and offering convenient service between downtown Los Angeles and downtown Santa Monica and destinations in between. The City’s Big Blue Bus continues its operations in the City, offering revised routes and enhanced features in recent years. Increasing use of the Light Rail Line along the bus corridors and increased automobile ownership and bicycle use has generally resulted in declining ridership. Budgetary Process The budgetary process is guided by City Council’s priorities, with input from residents, neighborhood groups, boards, commissions, and businesses following fall neighborhood meetings and various year-round opportunities for suggestions and comments. To improve the efficiency of budget development, the City produces a biennial budget. In May of alternating years, the City Manager submits a proposed operating and capital budget to the City Council for the two Fiscal Years commencing on the following July 1. Study sessions and public hearings are conducted by the City Council to obtain City staff and citizen comments to the proposed budget, and prior to June 30, the first year of the budget is adopted, and the second year approved, each through passage of appropriate resolutions. The City’s fiscal year for budgeting and accounting purposes runs from July 1 to June 30. Since 2011, the City has utilized a biennial budget process, which allows the City to plan ahead and focus on strategic projects and capital budgeting in the second year, and has the added benefit of decreasing requested budget increases from one year to the next. The City adopted its Fiscal Year 2021-23 Biennial Budget on June 22, 2021. The overall budget for the City of Santa Monica is $707.8 million in Fiscal Year 2021-22 and $598.9 million in Fiscal Year 2022-23, net of reimbursements and transfers, adopted as 8.A.e Packet Pg. 722 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-10 4140-7650-4109.2 a balanced biennial budget focused on community priorities of a safe and clean Santa Monica, addressing homelessness, and an equitable and inclusive economic recovery. Beginning with the Fiscal Year 2019-21 Biennial Budget, the City transitioned to a 10-year forecast to better plan for significant increases in the City’s pension costs as well as to gauge the lifecycle costs of programs. While the City aims to resume forecasting at the 10-year timeframe, the uncertainty of the current economic climate renders long term forecasts too prone to substantial inaccuracy, and is therefore reverting to a five-year projection for the near-term that shows the most realistic scenario based on revenue modelling and expert forecasting. Assessed Valuations The City uses the facilities and services of the County of Los Angeles (the “County”) for the assessment and collection of property 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. Assessed valuations are reported at 100% of the full value of the property, as defined in Article XIIIA of the California Constitution. The following table shows assessed valuation for secured and unsecured property within the City for the five most recent Fiscal Years and for the current Fiscal Year. 8.A.e Packet Pg. 723 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution A-11 4140-7650-4109.2 City of Santa Monica Assessed Value of Taxable Property For Fiscal Years 2016-17 through 2020-21 (dollars in thousands) Fiscal Year Land Improvements Personal Property Public Utilities Secured Gross Exemptions(1) Secured Net Net Unsecured Net Assessed Valuations Total Direct Tax Rate(2) 2016-17 $19,308,450 $13,550,065 $ 48,643 -- $32,907,158 $ 653,548 $32,253,610 $ 906,371 $33,159,981 1.00 2017-18 20,799,168 14,235,956 124,391 -- 35,159,515 1,656,924 33,502,591 925,241 34,427,832 1.00 2018-19 22,406,863 15,268,820 428,740 -- 38,104,423 1,628,684 36,475,739 1,002,111 37,477,850 1.00 2019-20 23,887,232 16,243,029 84,504 -- 40,214,765 1,699,358 38,515,407 1,005,939 39,521,346 1.00 2020-21 25,589,175 17,188,677 369,459 -- 43,147,311 1,975,152 41,172,159 1,099,941 42,272,100 1.00 (1) Includes homeowner exemption. The City is reimbursed by the State for taxes lost because of these exemptions. (2) Excludes direct and overlapping Rates. Source: Los Angeles County Auditor-Controller. 8.A.e Packet Pg. 724 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] B-1 4140-7650-4109.4 APPENDIX B EXCERPTS FROM THE CITY OF SANTA MONICA COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED JUNE 30, 2020 8.A.e Packet Pg. 725 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution C-1 4140-7650-4109.4 APPENDIX C DEFINITIONS AND SUMMARY OF INDENTURE 8.A.e Packet Pg. 726 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution D-1 4140-7650-4109.4 APPENDIX D BOOK-ENTRY-ONLY SYSTEM The description that follows of the procedures and recordkeeping with respect to beneficial ownership interests in the Series 2021 Bonds, payment of principal of and interest on Series 2021 Bonds to Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in the Series 2021 Bonds, and other Series 2021 Bonds-related transactions by and between DTC, Participants and Beneficial Owners, is based on information furnished by DTC which the City believes to be reliable, but the City takes no responsibility for the completeness or accuracy thereof. The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the Series 2021 Bonds. The Series 2021 Bonds will be authenticated and issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered bond certificate for each maturity of the Series 2021 Bonds will be authenticated and issued for the Series 2021 Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. The information on such website is not incorporated herein by such reference or otherwise. Purchases of Series 2021 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2021 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2021 Bond (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2021 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2021 Bonds, except in the event that use of the book-entry system for the Series 2021 Bonds is discontinued. 8.A.e Packet Pg. 727 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution D-2 4140-7650-4109.4 To facilitate subsequent transfers, all Series 2021 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2021 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2021 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2021 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Series 2021 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2021 Bonds, such as prepayments, tenders, defaults, and proposed amendments to the Indenture. For example, Beneficial Owners of Series 2021 Bonds may wish to ascertain that the nominee holding the Series 2021 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Prepayment notices shall be sent to DTC. If less than all of the Series 2021 Bonds within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Series 2021 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts Series 2021 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Prepayment proceeds, distributions, and dividend payments on the Series 2021 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the City or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name” and will be the responsibility of such Participant and not of DTC, the Trustee, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of prepayment proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Series 2021 Bonds at any time by giving reasonable notice to the City or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. 8.A.e Packet Pg. 728 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution D-3 4140-7650-4109.4 The City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, Series 2021 Bonds will be printed and delivered to DTC. 8.A.e Packet Pg. 729 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-1 4140-7650-4109.4 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE THIS CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”), dated as of August 1, 2021, is executed and delivered by the City of Santa Monica (the “City”). WHEREAS, pursuant to the Indenture, dated as of August 1, 2021 (the “Indenture”), by and between the City and U.S. Bank National Association, as trustee (the “Trustee”), the City has issued $_________ aggregate principal amount of its City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 (the “Bonds”); and WHEREAS, this Disclosure Certificate is being executed and delivered by the City for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the underwriters of the Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, the City covenants as follows: Section 1. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Disclosure Certificate have the meanings herein specified. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. “Annual Report” means any Annual Report provided by the City pursuant to, and as described in, Sections 2 and 3 hereof. “Annual Report Date” means the date in each year that is nine months after the end of the City’s fiscal year, which date, as of the date of this Disclosure Certificate, is April 1. “Dissemination Agent” means the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. “Financial Obligation” means (a) a debt obligation of the City, (b) a derivative instrument entered into in connection with, or pledged as security or a source of payment for, an existing or planned debt obligation of the City, or (c) a guarantee of (i) a debt obligation of the City, or (ii) a derivative instrument described in clause (b), above; provided, however, that the term “Financial Obligation” shall not include “municipal securities” (as such term is defined in the Securities Exchange Act of 1934, as amended) as to which a “final official statement” (as such term is defined in the Rule) has been provided to the MSRB consistent with the Rule. “Listed Events” means any of the events listed in Section 4(a) or (b) hereof. “MSRB” means the Municipal Securities Rulemaking Board or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at http://emma.msrb.org. “Official Statement” means the Official Statement, dated August __, 2021 (including all exhibits or appendices thereto), relating to the offering and sale of Bonds. 8.A.e Packet Pg. 730 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-2 4140-7650-4109.4 “Participating Underwriters” means any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 2. Provision of Annual Reports. (a) The City shall, or shall cause the Dissemination Agent to provide to the MSRB an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2020-21 fiscal year. The Annual Report may include by reference other information as provided in Section 3 hereof; provided, however, that the audited financial statements of the City may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the City’s fiscal year changes, it shall, or it shall instruct the Dissemination Agent to, give notice of such change in a filing with the MSRB. (b) During any period in which the City is the Dissemination Agent, the City shall file each Annual Report with the MSRB not later than the Annual Report Date for such Annual Report. (c) During any period in which the City is not the Dissemination Agent (i) the City shall, not later than 15 Business Days prior to each Annual Report Date (a), provide to the Dissemination Agent the Annual Report to be filed not later than such Annual Report Date, (ii) the Dissemination Agent shall (A) not later than such Annual Report Date, file such Annual Report received by it with the MSRB, as provided herein, and (B) file a report with the City certifying that such Annual Report has been filed with the MSRB pursuant to this Disclosure Certificate and stating the date such Annual Report was so filed. (d) If the City is unable to file, or cause the Dissemination Agent to file, an Annual Report with the MSRB by the Annual Report Date for such Annual Report, the City shall, in a timely manner, file or cause to be filed with the MSRB, a notice in substantially the form attached as Exhibit A. Section 3. Content of Annual Reports. The City’s Annual Report shall contain or include by reference the following: (a) Audited financial statements of the City for the preceding fiscal year, prepared in accordance with the generally accepted auditing standards for municipalities in the State of California. If the City’s audited financial statements are not available by the time the Annual Report is required to be provided to the MSRB pursuant to Section 2(a) hereof, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the Official Statement, and the audited financial statements shall be provided to the MSRB in the same manner as the Annual Report when such audited financial statements become available. (b) To the extent not included in the audited financial statements of the City, the Annual Report shall include the principal amount of Bonds Outstanding as of the January 2 next preceding the Annual Report Date; and (c) To the extent not included in the audited financial statements of the City, the Annual Report shall include the following items, providing financial and operating data (as of the end of the preceding fiscal year) substantially similar to that provided in the corresponding tables and charts in the Official Statement: 8.A.e Packet Pg. 731 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-3 4140-7650-4109.4 (1) [Water Enterprise revenues and expenses and debt service coverage provided by Revenues for the Bonds and any Additional Bonds for the previous fiscal year in the form of Table __ in the Official Statement. (2) Information concerning any revision in the adopted rates and charges which are generally imposed by the City upon customers of the Water Enterprise as described in the section of the Official Statement entitled “REVENUES AND DEBT SERVICE COVERAGE – Water Rates and Revenues.” (3) A description of any Additional Bonds incurred during the prior fiscal year which is payable from Net Revenues on a parity with the Bonds (including the Bonds and any then-outstanding Additional Bonds).] Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities that have been made available to the public on the MSRB website. The City shall clearly identify each such other document so included by reference. Section 4. Reporting of Listed Events. (a) Pursuant to the provisions of this Section, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds in a timely manner not later than ten business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) unscheduled draws on debt service reserves reflecting financial difficulties; (iii) unscheduled draws on credit enhancements reflecting financial difficulties; (iv) substitution of credit or liquidity providers or their failure to perform; (v) adverse tax opinions or issuance by the Internal Revenue Service of proposed or final determination of taxability or of a Notice of Proposed Issue (IRS Form 5701 TEB); (vi) tender offers; (vii) defeasances; (viii) rating changes; (ix) bankruptcy, insolvency, receivership or similar event of the City; and (x) Default, event of acceleration, termination event, modification of terms or other similar events under the terms of a Financial Obligation, any of which reflect financial difficulties. For purposes of the event identified in paragraph (ix), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement 8.A.e Packet Pg. 732 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-4 4140-7650-4109.4 or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the obligated person. (b) Pursuant to the provisions of this Section, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a timely manner not later than ten business days after the occurrence of the event: (i) unless described in paragraph (v) of subsection (a) of this Section, other material notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; (ii) modifications to rights of Owners; (iii) optional, unscheduled or contingent bond calls; (iv) release, substitution or sale of property securing repayment of the Bonds; (v) non-payment related defaults; (vi) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms; (vii) appointment of a successor or additional Trustee or the change of name of a Trustee; and (viii) Incurrence of a Financial Obligation, or agreement to covenants, events of default, remedies, priority rights or other similar terms of a Financial Obligation, any of which affect holders of the Bonds. (c) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (b) of this Section, the City shall determine if such event would be material under applicable Federal securities laws. (d) Whenever the City obtains knowledge of the occurrence of a Listed Event described in subsection (a) of this Section, or determines that knowledge of a Listed Event described in subsection (b) of this Section would be material under applicable Federal securities laws, the City shall file, or shall cause the Dissemination Agent to file, within ten business days of such occurrence, a notice of such occurrence with the MSRB. Notwithstanding the foregoing, notice of Listed Events described in paragraph (iii) of subsection (b) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Bonds pursuant to the Indenture. Section 5. Format for Filings with MSRB. Any report or filing with the MSRB pursuant to this Disclosure Certificate must be submitted in electronic format, accompanied by such identifying information as is prescribed by the MSRB. Section 6. Termination of Reporting Obligation. The City’s obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall give, or, if 8.A.e Packet Pg. 733 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-5 4140-7650-4109.4 the City is not the Dissemination Agent, cause the Dissemination Agent to give, notice of such termination in a filing with the MSRB. Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the City pursuant to this Disclosure Certificate. The initial Dissemination Agent shall be the City. If at any time there is not any other designated Dissemination Agent, the City shall be the Dissemination Agent. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 2(a), Section 3 or Section 4(a) or (b) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by the Owners in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Owners or Beneficial Owners of the Bonds. In the event of any amendment or waiver of a provision of this Disclosure Certificate, the City shall describe such amendment or waiver in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements (i) notice of such change shall be given in a filing with the MSRB, and (ii) the Annual Report for the year in which the change is made shall present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice required to be filed pursuant to this Disclosure Certificate, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any Annual Report or notice in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Certificate to update such information or include it in any future Annual Report or notice required to be filed pursuant to this Disclosure Certificate. Section 10. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate, any Owner or Beneficial Owner of the Bonds may take such actions as may be 8.A.e Packet Pg. 734 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-6 4140-7650-4109.4 necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate; provided, that any such action may be instituted only in Superior Court of the State of California in and for the County of Los Angeles or in U.S. City Court in or nearest to the County of Los Angeles. A default under this Disclosure Certificate shall not be deemed an event of default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate. The City covenants that, if a Dissemination Agent other than the City has been appointed pursuant to Section 7 hereof, the City will indemnify and save such Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys’ fees) of defending against any claim of liability, but excluding liabilities due to such Dissemination Agent’s negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of such Dissemination Agent and payment of the Bonds. Section 12. Electronic Signature. The City acknowledges that the transaction consisting of this Disclosure Certificate may be conducted by electronic means. The City agrees, and acknowledges that it is its intent, that by signing this Disclosure Certificate using an electronic signature, it is signing, adopting, and accepting this Disclosure Certificate and that signing this Disclosure Certificate using an electronic signature is the legal equivalent of having placed its handwritten signature on this Disclosure Certificate on paper. The City acknowledges that it is being provided with an electronic or paper copy of this Disclosure Certificate in a usable format. Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and the Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. CITY OF SANTA MONICA By: [Interim City Manager] ATTEST: Denise Anderson-Warren, City Clerk APPROVED AS TO FORM: 8.A.e Packet Pg. 735 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-7 4140-7650-4109.4 George Cardona Interim City Attorney 8.A.e Packet Pg. 736 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution E-8 4140-7650-4109.4 EXHIBIT A FORM OF NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Santa Monica Name of Issue: City of Santa Monica Water Enterprise Revenue Bonds, Series 2021 Date of Issuance: August ___, 2021 NOTICE IS HEREBY GIVEN that the City of Santa Monica (the “City”) has not provided an Annual Report with respect to the above-named Bonds as required by Section 2 of the Continuing Disclosure Certificate, dated as of August 1, 2021, executed and delivered by the City. [The City anticipates that the Annual Report will be filed by _____________.] Dated: _______________ CITY OF SANTA MONICA By: 8.A.e Packet Pg. 737 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution F-1 4140-7650-4109.4 APPENDIX F PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Series 2021 Bonds, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel, proposes to render its final approving opinion with respect to the Series 2021 Bonds in substantially the following form: [Date of Delivery] Faithfully yours, ORRICK, HERRINGTON & SUTCLIFFE LLP per 8.A.e Packet Pg. 738 Attachment: Official Statement -Santa Monica 2021 Water Revenue Bonds 4140-7650-4109 4 [Revision 1] (4615 : Adoption of Resolution