10-18-2011 - Letter of Credit Substitution for the 2004 Lease R - Item 9 (2).pdfThomas Bachman
Assistant City Manager/
Finance Director
($108,585), with a 3-year commitment. This would generate a savings of approximately $72,000 per
year. All other terms and conditions of the offers were generally the same. The interest rate paid on
the Bonds is partly based on letter of credit bank's credit rating. Because Wells Fargo has a better
rating than Union Bank, staff believes a substitution will not negatively impact the extremely low
interest rate carried by the Bonds, currently 0.26%, and may actually have a positive impact.
Therefore, staff is recommending that the City and the PFA substitute a Wells Fargo Bank letter of
credit in place of the Union Bank letter of credit securing the Bonds. The substitution will require
that all existing Bondholders tender their Bonds and there be a complete remarketing of the Bonds to
new investors based on the Wells Fargo Bank letter of credit. This remarketing requires a complete
update of the original official statement prepared in connection with the issuance of the Bonds in
2004. The substitution of the letter of credit and the remarketing of the Bonds are expected to occur
on or about November 30, 2011.
In addition, staff is recommending that the remarketing agent for the Bonds be changed from Gates
Capital to Wells Fargo Bank. Wells Fargo Bank offered these services at a lower fee (.1% vs.
.125%) than the current provider. This action is expected to generate a savings of about $3,000 per
year.
The City resolution approves the distribution of the Reoffering Memorandum by the Remarketing
Agent in connection with the remarketing of the Bonds, and the execution of the Reimbursement
Agreement with Wells Fargo Bank in connection with the delivery of the letter of credit. The
Reoffering Memorandum describes the security for the Bonds and financial information relating to
the City. The Reimbursement Agreement governs how the City will repay Wells Fargo Bank for any
draws under the Letter of Credit, as well as the fees payable to Wells Fargo Bank.
The Authority resolution approves the distribution of the Reoffering Memorandum by the
Remarketing Agent in connection with the remarketing of the Bonds, minor amendments to the
existing Bond Indenture to accommodate the substitution of the letter of credit, and the execution of
the Remarketing Agreement with Wells Fargo Bank. The Remarketing Agreement governs how the
Remarketing Agent will be paid for services.
Copies of the draft forms of the Reimbursement Agreement, amendment to the Bond Indenture and
the Remarketing Agreement are on file with the City Clerk. The draft Reoffering Memorandum is
included with the staff report. The resolutions authorize staff to make changes to these documents as
needed to reflect the terms of the transaction as negotiated with the Wells Fargo Bank, and to update
any financial information relating to the City in the Reoffering Memorandum.
ALTERNATIVES:
Renew the letter of credit with Union Bank and keep the current remarketing agent.
FISCAL IMPACT:
The City will pay certain one-time expenses in connection with the substitution of the letter of credit.
These include the fees of legal counsel to Wells Fargo, bond counsel fees, and fees for preparation
and distribution of the Reoffering Memorandum. The total expenses of the substitution are expected
to be approximately $45,500. This amount will be more than recouped in the first year due to the
$75,000 annual savings on the letter of credit fees.
Dennis Swink
City Controller
Prepared by:
Finance Docs/Agenda Items/Bonds/Bonds-2004 LOC Substitution 10-18-11
RESOLUTION NO.
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF WEST
COVINA AUTHORIZING THE EXECUTION AND DELIVERY BY THE
CITY OF A REIMBURSEMENT AGREEMENT, APPROVING A
REOFFERING MEMORANDUM AND THE TAKING OF OTHER
CERTAIN ACTIONS IN CONNECTION THEREWITH
NOW, THEREFORE, BE IT RESOLVED by the City Council (the "City Council") of
the City of West Covina (the "City") as follows:
WHEREAS, the City and the West Covina Community Development Commission, as
successor to the Redevelopment Agency of the City of West Covina (the "Commission") have
heretofore entered into a Joint Exercise of Powers Agreement establishing the West Covina
Public Financing (the "Authority") for the purpose, among others, of issuing its bonds to be used
to provide financial assistance to the City and the Commission; and
WHEREAS, the Authority has previously issued $8,165,000 aggregate principal amount
of West Covina Public Financing Authority Variable Rate Lease Revenue Bonds, 2004 Series A
(Golf Course Project) and its $5,335,000 Variable Rate Lease Revenue Bonds, 2004 Series B
(Golf Course Project) (collectively, the "2004 Bonds") in order to assist the City in the financing
of the acquisition, construction and equipping of certain public capital improvements within the
City; and
WHEREAS, the 2004 Bonds were issued pursuant to an Indenture, dated August 1, 2004
(the "Indenture"), by and between the Authority and U.S. Bank National Association, a national
banking association organized and existing under the laws of the United States, as Trustee (the
"Trustee"); and
WHEREAS, the 2004 Bonds were executed and delivered as variable rate obligations
supported by a direct pay letter of credit delivered pursuant to a reimbursement agreement, dated
as of August 1,2004, by and between the City and Union Bank of California, N.A.;
WHEREAS, the City and the Authority desire to cause the delivery of a substitute letter
of credit to be issued pursuant to the terms of a Reimbursement Agreement, dated as of
November 1, 2011 (the "Reimbursement Agreement"), by and between the City and Wells Fargo
Bank, National Association; and
WHEREAS, in connection with the remarketing of the 2004 Bonds with the support of
the substitute letter of credit, a Reoffering Memorandum has been prepared for delivery to
holders of the 2004 Bonds;
WHEREAS, there have been prepared and submitted to this meeting the form of the
Reimbursement Agreement and the Reoffering Memorandum;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of West
Covina (the "City Council") as follows:
Section 1. Approval of the Reimbursement Agreement. The Reimbursement
Agreement, in substantially the form submitted to this meeting and made a part hereof as though
set forth in full herein, is hereby approved. The Mayor, the City Manager, the Assistant City
Manager and the Controller (the "Authorized Officers") are hereby authorized and directed, for
and in the name of the City, to execute and deliver the Reimbursement Agreement in
substantially the form presented to this meeting, with such changes, insertions and omissions as
the such officer executing the same may require or approve, such requirement or approval to be
conclusively evidenced by the execution of the Reimbursement Agreement by such officer.
Section 2. Approval of the Reoffering Memorandum. The Reoffering Memorandum,
in substantially the form presented to this meeting and made a part hereof as though set forth in
full herein, with such changes, insertions and omissions therein as may be approved by an
Authorized Officer, is hereby approved, and the use of the Reoffering Memorandum in
connection with the remarketing of the 2004 Bonds is hereby authorized and approved.
Section 3. The Mayor, the City Manager, the Assistant City Manager and the
Controller or any member of the City Council, is hereby authorized and directed to execute and
deliver any and all documents and instruments and to do and cause to be done any and all acts
and things necessary or proper for carrying out the transactions contemplated by this Resolution.
Section 4. This Resolution shall take effect from and after its passage and approval.
Section 5. The City Clerk shall certify to the adoption of this Resolution.
50444604.2
APPROVED AND ADOPTED this day of October, 2011.
Mayor
ATTEST:
City Clerk
, CITY CLERK of the City of West Covina, do hereby certify
that the foregoing resolution no. was duly adopted by the City Council of the City of
West Covina, California, at a regular meeting thereof held on , 2011.
YES:
NOES:
ABSENT:
City Clerk
APPROVED AS TO FORM:
City Attorney
50444604.2 3
RESOLUTION NO.-
A RESOLUTION OF THE WEST COVINA PUBLIC FINANCING
AUTHORITY AUTHORIZING THE EXECUTION AND DELIVERY BY
THE AUTHORITY OF A FIRST AMENDMENT TO INDENTURE AND A
REMARKETING AGREEMENT, AUTHORIZING THE DISTRIBUTION
OF A REOFFERING MEMORANDUM REGARDING WEST COVINA
PUBLIC FINANCING AUTHORITY VARIABLE RATE LEASE
REVENUE BONDS, 2004 SERIES A AND SERIES B (GOLF COURSE
PROJECT), AND THE TAKING OF OTHER CERTAIN ACTIONS IN
CONNECTION THEREWITH
WHEREAS, the City of West Covina (the "City") and the West Covina Community
Development Commission, as successor to the Redevelopment Agency of the City of West
Covina (the "Commission") have heretofore entered into a Joint Exercise of Powers Agreement
establishing the West Covina Public Financing Authority (the "Authority") for the purpose,
among others, of issuing its bonds to be used to provide financial assistance to the City and the
Commission; and
WHEREAS, the Authority has previously issued $8,165,000 aggregate principal amount
of West Covina Public Financing Authority Variable Rate Lease Revenue Bonds, 2004 Series A
(Golf Course Project) and its $5,335,000 Variable Rate Lease Revenue Bonds, 2004 Series B
(Golf Course Project) (collectively, the "2004 Bonds") in order to assist the City in the financing
of the acquisition, construction and equipping of certain public capital improvements within the
City; and
WHEREAS, the 2004 Bonds were issued pursuant to an Indenture, dated as of August 1,
2004 (the "Indenture"), by and between the Authority and U.S. Bank National Association, a
national banking association organized and existing under the laws of the United States, as
Trustee (the "Trustee"); and
WHEREAS, the 2004 Bonds were executed and delivered as variable rate obligations
supported by a direct pay letter of credit delivered pursuant to a reimbursement agreement, dated
as of August 1, 2004, by and between the City and Union Bank of California, N.A.;
WHEREAS, the Authority desires to clarify the requirements for, and to explicitly
provide for the substitution of a letter of credit provider through the delivery of a First
Amendment to the Indenture, dated as of November 1, 2011 (the "First Amendment to
Indenture"), by and between the Authority and the Trustee; and
WHEREAS, the Authority desires to cause Wells Fargo Bank, National Association
("Wells Fargo") to deliver a substitute letter of credit issued pursuant to the terms of a
Reimbursement Agreement, dated as of November 1, 2011 (the "Reimbursement Agreement"),
by and between the City and Wells Fargo; and
50444584.3
WHEREAS, the 2004 Bonds will be remarketed pursuant to a Remarketing Agreement,
dated as of October 1, 2011, as amended (the "Remarketing Agreement"), by and among the
Authority and Wells Fargo Bank, National Association, as remarketing agent; and
WHEREAS, in connection with the remarketing of the 2004 Bonds with the support of
the substitute letter of credit, a Reoffering Memorandum has been prepared for delivery to
holders of the 2004 Bonds;
WHEREAS, there have been prepared and submitted to this meeting forms of:
(a) The First Amendment to the Indenture;
(b) the Remarketing Agreement; and
(c) the Reoffering Memorandum;
WHEREAS, the Authority has reviewed the documentation related to the remarketing of
the 2004 Bonds which documentation is on file with the secretary of the Authority;
NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the West
Covina Public Financing Authority as follows:
Section 1. Approval of Recitals. All of the recitals herein contained are true and
correct and the Board of Directors of the Authority (the "Board") so finds.
Section 2. Approval of First Amendment. The First Amendment to the Indenture, in
substantially the form submitted to this meeting and made a part hereof as though set forth in full
herein, be and the same is hereby approved. The Chairman, the Vice Chairman, the Executive
Director and the Assistant Director of the Authority, and any designee thereof, (the "Authorized
Officers") are, and each of them is, hereby authorized and directed, for and in the name of the
Authority, to execute and deliver the First Amendment to Indenture in substantially 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 First Amendment to the Indenture by such Authorized Officer.
Section 3. Approval of the Remarketing Agreement. The Remarketing Agreement, in
substantially the form submitted to this meeting and made a part hereof as though set forth in full
herein, is hereby approved. The Authorized Officers are, and each of them is, hereby authorized
and directed, for and in the name of the Authority, to execute and deliver the Reimbursement
Agreement in substantially 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 Remarketing
Agreement by such Authorized Officer.
Section 4. Approval of the Reoffering Memorandum. The Reoffering Memorandum,
in substantially the form presented to this meeting and made a part hereof as though set forth in
full herein, with such changes, insertions and omissions therein as may be approved by an
Authorized Officer, is hereby approved, and the use of the Reoffering Memorandum in
connection with the remarketing of the 2004 Bonds is hereby authorized and approved.
50444584.3 2
Section 5. Further Authorization. The Authorized Officers are, and each of them
hereby is, authorized and directed to execute and deliver any and all documents and instruments
and to do and cause to be done any and all acts and things necessary or proper for carrying out
the execution and delivery of the First Amendment to Indenture, the Reimbursement Agreement,
the Remarketing Agreement, the Reoffering Memorandum, and the transactions contemplated by
the agreements or documents referenced in this Resolution.
Section 6. Effective Date. This Resolution shall take effect immediately upon i
adoption.
Section 7. Certification. The Secretary of the Authority shall certify the adoption of
this Resolution.
APPROVED AND ADOPTED at a regular meeting held On October , 201
Chairman
ATTEST:
Secretary
APPROVED:
City Attorney Arnold Alvarez-Glasman
50444584.3
STATE OF CALIFORNIA )
SS
COUNTY OF LOS ANGELES
, SECRETARY of West Covina Public Financing Authority, do
hereby certify that the foregoing Resolution No. was passed and adopted at a regular meeting
of said Board of Directors on the th day of October 2011, by the following vote, to wit:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
Secretary
APPROVED AS TO FORM:
City Attorney Arnold Alvarez-Glasman
50444584.3
REOFFIRI ‘1ORAND1 D 2011 (Dli‘VI OF 0/11/11)
REOFFERING - NOT A NEW ISSUE - BOOK-ENTRY-ONLY RATING
Standard & Poor's:
(See "CONCLUDING INFORMATION - Rating on the Bonds" herein)
On August 19, 2004, Fulbright & Jaworski L.L.P., Los Angeles, California, delivered its opinion in connection with the delivery of the Bonds. Such
opinion stated that, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming
compliance with the tax covenants described herein, interest on the Bonds is excluded pursuant to section 103(a) of the Internal Revenue Code of
1986 (the "Code"), from the gross income of the owners thereof for federal income tax purposes and is not an item of tax preference for purposes of
the federal alternative minimum tax. In the further opinion of Fulbright & Jaworski L.L.P., dated August 19, 2004, such interest is exempt from State
of California personal income taxes. In connection with the delivery of the Letter of Credit, Fulbright & Jaworski L.L.P., Bond Counsel, will deliver
its opinion that such delivery of the Letter of Credit will not, in and of itself adversely affect the exclusion from gross income of the interest due with
respect to the Bonds. Fulbright & Jcrworski L.L.P has not taken and does not intend to take any action to update its opinion or to determine if
interest on the Bonds is presently excluded from gross income for federal income tax purposes or exempt from State of California personal income
taxes. See, however; "LEGAL MATTERS - Tax Matters" herein.
LOS ANGELES COUNTY STATE OF CALIFORNIA
WEST COVINA PUBLIC FINANCING AUTHORITY
$8,165,000 VARIABLE RATE LEASE REVENUE BONDS, 2004 SERIES A
$5,335,000 VARIABLE RATE LEASE REVENUE BONDS, 2004 SERIES B
(GOLF COURSE PROJECT)
2004 Series A CUSIP: 95236PAY6 2004 Series B CUSIP: 95236PAZ3
Dated: Date of Initial Delivery Due: May 1,2034
This Reoffering Memorandum amends, supplements and restates the original Official Statement dated August 12, 2004.
The Variable Rate Lease Revenue Bonds, 2004 Series A and Variable Rate Lease Revenue Bonds, 2004 Series B (collectively, the "Bonds") were
originally issued in the principal amounts of $8,165,000 and $5,335,000, respectively, pursuant to an Indenture dated as of August 1, 2004 (the
"Indenture") by and between the West Covina Public Financing Authority (the "Authority") and U.S. Bank National Association as trustee (the
"Trustee") and are payable from Lease Payments to be made by the City of West Covina (the "City") to the Authority as rental for certain public
facilities (the "Leased Property") pursuant to a Lease Agreement (the "Lease"), as described herein and from certain funds held under the Indenture
and insurance or condemnation awards. The City is required under the Lease to make payments in each fiscal year in consideration of the use and
possession of the Leased Property from legally available funds of the City, in an amount sufficient to pay the annual principal and interest due on the
Bonds then outstanding, subject to abatement, as described herein (see "SOURCES OF PAYMENT FOR THE BONDS" and "RISK FACTORS" herein).
Payment of the principal and Purchase Price of and interest on the Bonds is supported by an irrevocable, direct-pay letter of credit (the "Credit
Facility") to be issued by Wells Fargo Bank, National Association (the "Credit Entity").
[Bank Logo]
The Credit Facility will permit the Trustee to draw up to an amount sufficient to pay (i) the principal of the Bonds when due, (ii) the Purchase Price
of the Bonds that are purchased pursuant to tenders and that are not remarketed, and (iii) up to 42 days' interest accrued on the Bonds, all as more
completely described in this Reoffering Memorandum. The Credit Facility will expire on November 29, 2014 and, unless extended or unless an
alternate letter of credit, or other security meeting the requirements of the Indenture is provided in replacement therefor, the Bonds are subject to
mandatory tender for purchase as described herein (see "THE BONDS - Tender and Purchase of Bonds - Mandatory Tender of Bonds" herein).
On November 30, 2011, the Bonds will be remarketed at a variable interest rate determined weekly (the "Variable Rate"), and, after the Fixed Rate
Conversion Date (as defined herein), semiannually as described herein at fixed interest rates (the "Fixed Rates") determined in accordance with the
Indenture (see "THE BONDS - General Provisions" herein). Each Variable Rate shall be determined by Wells Fargo Securities, as remarketing agent
(the "Remarketing Agent"), having due regard for prevailing financial market conditions, to be the rate (but not higher than the rate) which would be
necessary in order to enable the Remarketing Agent to remarket tendered Bonds at a price equal to 100% of the principal amount thereof on the date
such Variable Rate is determined. While bearing interest at the Variable Rate, interest on the Bonds will be payable on the first Business Day of each
calendar month.
So long as the Bonds bear interest at the Variable Rate, Bondholders will have the right to demand to have their Bonds purchased in the manner
described herein. Bonds bearing a Variable Rate being converted to Fixed Rates will be subject to mandatory tender for purchase on the Fixed Rate
Conversion Date, as described herein. The Bonds are also subject to optional and mandatory sinking fund prepayment and mandatory tender prior to
maturity as described herein. See "THE BONDS - Tender and Purchase of Bonds" and "- Redemption" herein.
This Reoffering Memorandum describes the Bonds only while bearing interest at a Variable Rate. Investors should not rely upon the
information in this Reoffering Memorandum in the event that the method of determining the interest rate on the Bonds is changed to a
Fixed Rate. Rather, investors should rely upon the offering document used in connection with any such change in interest rate mode.
This cover page contains certain information for general reference only It is not intended to be a summary of the security or terms of the Bonds.
Investors are advised to read the entire Reoffering Memorandum to obtain information essential to making an informed investment decision.
Certain legal matters will be passed on for the Authority and the City by Alvarez-Glasman & Colvin, West Covina, California, City Attorney and by
Fulbright & Jaworski L.L.P., Los Angeles, California, as Bond Counsel and Disclosure Counsel. Certain legal matters will be passed on for the
Credit Entity by Karl Christiansen, Senior Counsel of Wells Fargo Bank, National Association and by its Counsel, Kathleen C. Johnson, Esq.
Attorney at Law. It is anticipated that the remarketed Bonds, in book-entry form, will be available for delivery through the facilities of The
Depository Trust Company on or about November 30, 2011 (see "APPENDIX E - BOOK-ENTRY-ONLY SYSTEM" herein).
The date of the Reoffering Memorandum is , 2011.
Wells Fargo Securities
F,NERAL INFORMATION ABOUT THIS REOFFERING MEMORANDUM
Use of Reoffering Memorandum. This Reoffering Memorandum is submitted in connection with the
offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for
any other purpose. This Reoffering Memorandum is not to be construed as a contract with the purchasers
of the Bonds.
Estimates and Forecasts. When used in this Reoffering Memorandum and in any continuing disclosure
by the Authority or the City in any press release and in any oral statement made with the approval of an
authorized officer of the City or any other entity described or referenced herein, the words or phrases
"will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "forecast,"
"expect," "intend" and similar expressions identify "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those contemplated in such forward-
looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to
develop the forecasts will not be realized and unanticipated events and circumstances may occur.
Therefore, there are likely to be differences between forecasts and actual results, and those differences
may be material.
Limit of Offering. No dealer, broker, salesperson or other person has been authorized by the Authority or
the City to give any information or to make any representations in connection with the offer or sale of the
Bonds other than those contained herein and if given or made, such other information or representation
must not be relied upon as having been authorized by the Authority, the City, the Financial Advisor or the
Remarketing Agent. This Reoffering Memorandum does not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is
unlawful for such person to make such an offer, solicitation or sale.
Involvement of Remarketing Agent. The Remarketing Agent has submitted the following statement for
inclusion in this Reoffering Memorandum: The Remarketing Agent has reviewed the information in this
Reoffering Memorandum in accordance with, and as a part of, its responsibilities to investors under the
federal securities laws as applied to the facts and circumstances of this transaction, but the Remarketing
Agent does not guarantee the accuracy or completeness of such information.
Information Subject to Change. The information and expressions of opinions herein are subject to
change without notice and neither delivery of this Reoffering Memorandum nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no change in the affairs of the
Authority or the City or any other entity described or referenced herein since the date hereof. All
summaries of the documents referred to in this Reoffering Memorandum are made subject to the
provisions of such documents, respectively, and do not purport to be complete statements of any or all of
such provisions.
THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, IN RELIANCE UPON AN EXCEPTION FROM THE REGISTRATION
REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.
The CUSIP number of the Bonds is provided by Standard & Poor's CUSIP® Service Bureau and is set
forth herein for convenience of reference only. Neither the Authority nor the Remarketing Agent takes
any responsibility for the accuracy of such number.
WEST COVINA PUBLIC FINANCING AUTHORITY, CALIFORNIA
AUTHORITY BOARD MEMBERS AND CITY COUNCIL
Steve Herfert, Mayor
Mike Touhey, Mayor Pro Tern
Karin Armbrust, Councibnember
Sherri Lane, Councilmember
Shelley Sanderson, Councilmember
CITY STAFF
Andrew G. Pasmant, City Manager
Thomas E. Bachman, Assistant City Manager/Finance Director
Chris Freeland, Deputy City Manager
Dennis Swink, Controller
Sue Rush, City Clerk
Marian Smithson, City Treasurer
Arnold M. Alvarez-Glasman, City Attorney
PROFESSIONAL SERVICES
Bond Counsel and Disclosure Counsel
Fulbright & Jaworski L.L.P.
Los Angeles, California
Financial Advisor
Harrell & Company Advisors, LLC
Orange, California
Credit Entity
Wells Fargo Bank, National Association
Los Angeles, California
Trustee and Tender Agent
U.S. Bank National Association
Los Angeles, California
Remarketing Agent
Wells Fargo Securities
Los Angeles, California
TABLE OF CONTENTS
INTRODUCTION 1 Appropriations Limit 30
The Authority 1 General Fund Revenues and Expenditures 30
The City 1 Ad Valorem Property Taxes 33
The Bonds 1 Taxable Property and Assessed Valuation 33
Security and Sources of Repayment 2 Redevelopment Agencies 34
Information Concerning this Reoffering Largest Taxpayers 35
Memorandum 3 State Legislative Shift of Property Tax Allocation....36
Local Taxes 36 THE BONDS 4 Motor Vehicle License Fees 37 General Provisions 4
Tender and Purchase of Bonds 6 Retirement Programs 37
Other Post Employment Benefits 42 Redemption 9 Employee Relations and Collective Bargaining 44
SPECIAL CONSIDERATIONS RELATING Risk Management 44
TO THE BONDS SUBJECT TO OPTIONAL City Investment Policy and Portfolio 45
TENDER AND REMARKETING 12 Indebtedness of the City 46
The Remarketing Agent is Paid by the Authority 12 Direct and Overlapping Debt 47
The Remarketing Agent Routinely Purchases Financial Statements 49
Bonds for Its Own Account 12
Bonds May Be Offered at Different Prices on
Any Date Including a Rate Determination Date
The Ability to Sell the Bonds Other Than
Through Tender Process May Be Limited 13
Under Certain Circumstances, the Remarketing
Agent May Cease Remarketing the Bonds,
Without a Successor Being Named 13
RISK FACTORS 52
Base Rental 52
State Budget 53
Future State Budgets 53
Constitutional Limitation on Taxes and
Expenditures 54
Early Redemption Risk 58
Loss of Tax Exemption 58
.... 12
USES OF FUNDS 13 IRS Audit of Tax-Exempt Bond Issues 58
THE LEASED PROPERTY 14 LEGAL MATTERS 59
THE CREDIT FACILITY AND THE
REIMBURSEMENT AGREEMENT 14
The Credit Facility 14
The Credit Entity 15
The Reimbursement Agreement 16
SOURCES OF PAYMENT FOR THE BONDS 17
General 17
Base Rental 17
No Reserve Fund 18
Property Insurance 18
Reentering and Reletting 19
Encumbrances 19
Enforceability of Remedies 59
Approval of Legal Proceedings 59
Tax Matters 59
Litigation 61
CONCLUDING INFORMATION 61
Rating on the Bonds 61
Remarketing Agent 61
The Financial Advisor 62
Continuing Disclosure 62
Additional Information 62
References 62
Execution 62
Additional Obligations Payable from Base APPENDIX A — SUMMARY OF THE LEGAL
Rental 19 DOCUMENTS
THE CITY OF WEST COVINA 21
Government Organization 21
Community Information 22
Transportation 22
Population 23
Employment 24
Per Capita Income 26
Commercial Activity 27
Building Activity 29
FINANCIAL INFORMATION 30
Budgetary Process and Administration 30
APPENDIX B — CITY AUDITED FINANCIAL
STATEMENTS
APPENDIX C - FORM OF CONTINUING
DISCLOSURE AGREEMENT
APPENDIX D — OPINIONS OF COUNSEL
APPENDIX E - BOOK- ENTRY-ONLY SYSTEM
APPENDIX F - FORM OF IRREVOCABLE
LETTER OF CREDIT
REOFFERING MEMORANDUM
WEST COVINA PUBLIC FINANCING AUTHORITY
$8,165,000 VARIABLE RATE LEASE REVENUE BONDS, 2004 SERIES A
$5,335,000 VARIABLE RATE LEASE REVENUE BONDS, 2004 SERIES B
(GOLF COURSE PROJECT)
INTRODUCTION
This Reoffering Memorandum dated November , 2011 amends, supplements and restates the original
Official Statement dated August 12, 2004, with respect to the West Covina Public Financing Authority s'
Variable Rate Lease Revenue Bonds, 2004 Series A (the "Series A Bonds') and Variable Rate Lease
Revenue Bonds, 2004 Series B (the "Series B Bonds, and together with the Series A Bonds, the "Bonds").
The Series A Bonds were originally issued on August 19, 2004 in the principal amount of $8,165,000, of
which $6,715,000 remains outstanding. The Series B Bonds were originally issued on August 19, 2004 in
the principal amount of $5,335,000, of which $5,085,000 remains outstanding.
This Introduction is subject in all respects to the more complete information contained and referenced
elsewhere in this Reoffering Memorandum. The offering of the Bonds to potential investors is made only
by means of the entire Reoffering Memorandum.
The Authority
The West Covina Public Financing Authority (the "Authority") is a joint exercise of powers authority
organized and existing under and by virtue of the Joint Exercise of Powers Act, constituting Articles 1
through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code of
the State of California (the "Joint Powers Act"). The City of West Covina (the "City"), and the
Redevelopment Agency of the City of West Covina (now the West Covina Community Development
Commission), formed the Authority by the execution of a joint exercise of powers agreement on June 1,
1990. Pursuant to the Joint Powers Act, the Authority is authorized to issue lease revenue bonds to
provide funds to acquire or construct public capital improvements, such revenue bonds to be repaid from
the lease payments for such improvements, such as the lease payments described herein. The members of
the City Council of the City comprise the Authority Board of Directors.
The City
The City was incorporated in 1923 as a general law city and operates under the council-manager form of
government. The City encompasses 17 square miles in northeastern Los Angeles County. It is
approximately 19 miles northeast of Los Angeles. Neighboring communities include Covina, Baldwin
Park, Walnut, Industry and La Puente (see "THE CITY OF WEST COVINA" herein).
The Bonds
The Bonds will bear interest at the Variable Rate, which will be computed on the basis of a year of 365
days (366 days in leap years) and the actual days elapsed. The initial interest period will commence on
November 30, 2011. Such interest will be paid on the first Business Day of the following month,
commencing January 2, 2012. While the Bonds bear interest at the Variable Rate, interest will be
determined as described under the caption "THE BONDS - General Provisions - Interest on the Bonds -
Variable Rates."
The interest rate borne by the Bonds may be converted at the option of the Authority in accordance with
the terms of the Indenture, upon notice to the Owners of the Bonds, to a Fixed Rate and in such event the
Bonds will be subject to mandatory tender and purchase. See the caption "THE BONDS - General
Provisions - Conversion to Fixed Interest Rates," and "- Tender and Purchase of Bonds."
This Reoffering Memorandum describes the Bonds only while bearing interest at a Variable Rate.
Investors should not rely upon the information in this Reoffering Memorandum in the event that
the method of determining the interest rate period on the Bonds is changed to a Fixed Rate.
Rather, investors should rely upon the offering document used in connection with any such change
in interest rate mode.
Security and Sources of Repayment
The Bonds. The Bonds of each Series were originally issued pursuant to an Indenture dated as of August
1, 2004 (the "Indenture"), by and among the City, the Authority and U.S. Bank National Association, as
trustee (the "Trustee") as variable rate lease revenue bonds bearing interest at a Variable Rate, on August
19, 2004. On November 30, 2011 (the "Reoffering Date"), the Bonds will be remarketed at a Variable
Rate, supported by an irrevocable direct-pay letter of credit to be issued by Wells Fargo Bank, National
Association (the "Credit Entity"). See "THE CREDIT ENTITY AND THE REIMBURSEMENT
AGREEMENT" herein. The Bonds presently and will continue to bear interest at a Variable Rate unless
and until the Bonds are converted to a Fixed Rate pursuant to the Indenture.
The Bonds are payable from the base rental payments to be made by the City to the Authority as the rental
for the Leased Property, as described herein, pursuant to a lease agreement dated as of August 1, 2004,
between the Authority, as Lessor, and the City, as Lessee (the "Lease"), from certain funds held under the
Indenture and investment earnings thereon, and from net proceeds of insurance or condemnation awards
(see "SOURCES OF PAYMENT FOR THE BONDS," "APPENDIX A - SUMMARY OF THE LEGAL
DOCUMENTS - THE LEASE AGREEMENT," and "FINANCIAL INFORMATION" herein).
For a summary of the Indenture, the Lease and the Reimbursement Agreement see "APPENDIX A -
SUMMARY OF LEGAL DOCUMENTS" herein. Certain capitalized terms used in this Reoffering
Memorandum and not otherwise defined have the meaning given them in "APPENDIX A."
Base Rental. In general, the City is required under the Lease to pay to the Trustee specified amounts for
use and possession of the Leased Property, which amounts are sufficient in both time and amount to pay,
when due, the principal of and interest on the Bonds. The base rental payments due under the Lease (the
"Base Rental") are intended to repay the Bonds. The City is also required to pay any taxes and
assessments and the cost of maintenance and repair of the Leased Property. The City has covenanted in
the Lease to take such actions as may be necessary to include all Base Rental in its annual budget and to
make the necessary annual appropriations for all such Base Rental subject to complete or partial
abatement of such Base Rental resulting from a taking of the Leased Property (either in whole or in part)
under the powers of eminent domain or resulting from damage or loss of all or any portion of the Leased
Property. Except for the Authority's right, title and interest in and to the Lease, no funds or properties of
the Authority or the City are pledged to or otherwise liable for the obligations of the Authority (see "RISK
FACTORS" herein).
The Lease is, in the opinion of Bond Counsel, a valid and binding obligation of the City enforceable
against the City in accordance with its terms, except to the extent enforceability thereof may be limited by
bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights heretofore or
hereinafter enacted and may be subject to the exercise of judicial discretion in accordance with general
principles of equity which are deemed to preclude the enforcement of judgments against funds held by a
city which serve the public welfare and interest (see "RISK FACTORS - Base Rental" and "Limited
Recourse on Default" herein).
2
The City is permitted in certain circumstances to amend the Lease in order to provide for additional Base
Rental intended to repay additional series of bonds (see "SOURCES OF PAYMENT FOR THE BONDS -
Additional Obligations Payable from Base Rental" herein).
The Leased Property. The Leased Property being leased under the Lease includes the real property and
improvements thereon constituting the Police Administration Building, the Public Safety
Communications Building and North Parking Structure, comprising a portion of the West Covina Civic
Center Complex. A description of the Leased Property can be found under the heading "THE LEASED
PROPERTY."
The obligation of the City to pay Base Rental 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 pledged any form of
taxation. The obligation of the City to pay Base Rental does not constitute a debt or liability of the
State of California or of any political subdivision thereof within the meaning of any constitutional
or statutory debt limitation or restriction.
Letter of Credit. Payments of principal, redemption amount (but not any premium) and interest on the
Bonds will initially be paid from drawings under an irrevocable direct-pay letter of credit (the "Credit
Facility") issued by Wells Fargo Bank, National Association (the "Credit Entity"). Drawings under the
Credit Facility will be used to pay the principal of and interest on the Bonds when due. The Credit
Facility will also be drawn on if remarketing proceeds or other funds are not available to purchase Bonds
tendered by Owners at the Purchase Price (as defined herein) or on any optional or mandatory tender date
(see "THE CREDIT FACILITY AND THE REIMBURSEMENT AGREEMENT" herein).
Information Concerning this Reoffering Memorandum
This Reoffering Memorandum speaks only as of its date. The information set forth herein has been
obtained by the Authority and the City with the assistance of Harrell & Company Advisors, LLC (the
"Financial Advisor") from sources which are believed to be reliable and such information is believed to
be accurate and complete but such information is not guaranteed as to accuracy or completeness, nor has
it been independently verified and is not to be construed as a representation by the Financial Advisor,
Disclosure Counsel or the Remarketing Agent. Statements contained in this Reoffering Memorandum
which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are
intended as such and are not to be construed as representations of fact. The information and expressions
of opinion herein are subject to change without notice and the delivery of this Reoffering Memorandum
shall not, under any circumstances, create any implication that there has been no change in the
information or opinions set forth herein or in the affairs of the City since the date hereof.
Availability of Legal Documents. The summaries and references contained herein with respect to the
Indenture, the Lease, the Reimbursement Agreement, the Bonds and other statutes or documents do not
purport to be comprehensive or definitive and are qualified by reference to each such document or statute,
and references to the Bonds are qualified in their entirety by reference to the form thereof included in the
Indenture. Copies of these documents may be obtained after delivery of the Bonds at the corporate trust
office of the Trustee, U.S. Bank National Association, or from the City at 1444 West Garvey Avenue,
West Covina, California 91790.
THE BONDS
This Reoffering Memorandum describes the Bonds only while bearing interest at a Variable Rate.
Investors should not rely upon the information in this Reoffering Memorandum in the event that
the method of determining the interest rate on the Bonds is changed to a Fixed Rate. Rather,
investors should rely upon the offering document used in connection with any such change in
interest rate mode.
The Series A Bonds were originally issued in the principal amount of $8,165,000, of which $6,715,000
remains outstanding, taking into account an optional partial prepayment by the Authority in the amount of
$1,145,000 on December 1, 2006. The Series B Bonds were originally issued in the principal amount of
$5,335,000, of which $5,085,000 remains outstanding. The Bonds are dated the date of initial delivery of
the Bonds, and will bear interest at a Variable Rate, until converted to a Fixed Rate as described herein.
The Bonds will mature, subject to prior prepayment, on May 1, 2034. Interest with respect to the Bonds
will be determined as described herein. While bearing interest at the Variable Rate, the Bonds will be
issued in Authorized Denominations of $100,000 or any integral multiple of $5,000 in excess thereof.
The Bonds will be registered in the name of Cede & Co., as registered owner and nominee of The
Depository Trust Company, New York, New York ("DTC"). So long as DTC, or its nominee Cede & Co.,
is the registered owner of all the Bonds, all payments of principal of and interest on the Bonds and the
Purchase Price of the Bonds will be made directly to DTC. Disbursement of such payments to the DTC
Participants (as defined below) will be the responsibility of DTC. Disbursement of such payments to the
Beneficial Owners (as defined below) of the Bonds will be the responsibility of the DTC Participants as
more fully described herein. See the caption "Book-Entry-Only System" below and "APPENDIX E -
BOOK-ENTRY-ONLY SYSTEM."
There are a number of provisions in the Indenture relating to the terms of Bank Bonds (i.e., Bonds
purchased by the Credit Entity pursuant to the Letter of Credit and Reimbursement Agreement) that are
not described in this Reoffering Memorandum. All references to the terms of the Bonds in this Reoffering
Memorandum describe only Bonds that are not owned by the Credit Entity unless expressly indicated
herein.
General Provisions
Repayment of the Bonds. Interest on the Bonds is payable at the Variable Rate or the Fixed Rate, as
described below (see "Interest on the Bonds - Variable Rates" and "Conversion to Fixed Interest Rates"
below). Said interest will represent the portion of Base Rental designated as interest and coming due in
the period preceding each Bond Payment Date (as defined below) computed by multiplying the portion of
Base Rental designated as principal with respect to such Bonds by the rate of interest applicable to such
Bonds. Prior to the date that the Bonds are converted from a Variable Rate to a Fixed Rate (a "Fixed Rate
Conversion Date") interest on such Bonds and the related Base Rental will be computed on the basis of a
year consisting of 365 (or 366, as applicable) days and the actual number of days elapsed. Following the
Conversion Date, interest on the Bonds payable at the Fixed Rate and the related Base Rental will be
computed on the basis of a year consisting of 360 days and twelve 30-day months. Principal with respect
to the Bonds is payable from the principal component of Base Rental on May 1 in each of the years and in
the amounts set forth below.
Prior to the Fixed Rate Conversion Date, interest on the Bonds is payable on the first Business Day of
each calendar month (each, a "Bond Payment Date"). Following the Fixed Rate Conversion Date, Bond
Payment Dates will be May 1 and November 1 of each year, commencing on the first such date to occur
75 or more days after the Conversion Date, except that, after the Fixed Rate Conversion Date, the Bond
Payment Dates for any Bonds which are acquired from amounts drawn on the Credit Facility and owned
4
by the Credit Entity ("Bank Bonds") shall be the last business day of each calendar month so long as such
Bonds remain Bank Bonds.
Commencing November 30, 2011, interest on the Bonds will be payable from the Bond Payment Date
next preceding the date of authentication thereof, unless (a) such Bond is authenticated after a Record
Date and on or before the following Bond Payment Date, in which event interest thereon will be payable
from such Bond Payment Date; or (b) such Bond is authenticated on or before December 30, 2011, in
which event interest thereon will be payable from November 30, 2011; provided, however, that if, as of
the date of authentication of any Bond, interest on any Outstanding Bond is in default, interest represented
by such Bond will be payable from the Bond Payment Date to which interest has previously been paid or
made available for payment with respect to the Outstanding Bonds.
Remarketing. The Authority has entered into a Remarketing Agreement, dated as of October 20, 2011
(the "Remarketing Agreement") with Wells Fargo Securities, as remarketing agent (the "Remarketing
Agent"), pursuant to which the Remarketing Agent undertakes, among other things, to use its best efforts
to remarket all Bonds tendered for repurchase. Wells Fargo Securities is the trade name for certain capital
markets and investment banking services of Wells Fargo & Company and its subsidiaries, including Wells
Fargo Bank, National Association. The Authority or the Remarketing Agent may terminate the
Remarketing Agreement under the circumstances and in the manner described in the Remarketing
Agreement. Upon termination of the Remarketing Agreement, the Authority will appoint a replacement
remarketing agent in accordance with the Indenture.
Notwithstanding the foregoing, there shall not be any remarketing of the Bonds if there shall have
occurred and be continuing an Event of Default (as defined in the Indenture) or if any event shall have
occurred which with notice or the lapse of time would constitute an Event of Default.
Book-Entry-Only System. The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Bonds. The Bonds will be issued as fully registered securities registered in
the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. Interest on and principal of the Bonds will be payable when due by
wire of the Paying Agent to DTC which will in turn remit such interest and principal to DTC Participants
(as defined herein), which will in turn remit such interest and principal to Beneficial Owners (as defined
herein) of the Bonds (see "APPENDIX E - BOOK-ENTRY-ONLY SYSTEM" herein). As long as DTC is the
registered owner of the Bonds and DTC's book-entry method is used for the Bonds, the Paying Agent will
send any notices to bond owners only to DTC.
Tender of Bonds in Book-Entry System Are Subject to DTC Procedures. As long as the book-entry
system is in effect with respect to the Bonds, all tenders for purchase and deliveries of Bonds optionally
tendered for purchase upon election of the Bondholder or subject to mandatory tender under the
provisions of the Indenture will be made pursuant to DTC's procedures as in effect from time to time, and
none of the Authority, the City, the Trustee or the Remarketing Agent have any responsibility for or
liability with respect to the implementation of such procedures. For a description of the tender procedures
through DTC, see "APPENDIX E - BOOK-ENTRY-ONLY SYSTEM."
Discontinuance of Book-Entry Only System; Method of Payment. DTC may discontinue providing
its services as securities depository with respect to the Bonds at any time by giving reasonable notice to
the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository
is not obtained, Bonds are required to be printed and delivered as described in the Indenture. The
Authority may decide to discontinue use of the system of book-entry transfers through DTC (or a
successor securities depository). In that event, the Bonds will be printed and delivered as described in the
Indenture. In addition, the following provisions shall apply: interest with respect to the Bonds will be
payable by check of the Trustee mailed by first class mail on the applicable Interest Payment Date to the
Holders thereof at his address as it appears on the Bond registration books or, upon written request of a
Bondholder of at least $1,000,000 in principal amount of Bonds received at least 15 days prior to a
Record Date, by wire transfer in immediately available funds to an account in the United States
designated by such Bondholder, irrespective of the cancellation of such Bond upon the transfer or
exchange thereof subsequent to such Record Date and prior to such Interest Payment Date, unless the
Authority shall default in the payment of interest due with respect to such Interest Payment Date.
Payment of principal or premium, if any due shall be paid only upon surrender of such Bond at the
principal corporate trust office of the Trustee in St. Paul, Minnesota. In the event of any default in the
payment of interest, such defaulted interest shall be payable to the Holder of such Bond on a special
record date for the payment of such defaulted interest, which date shall be established by the Trustee by
notice mailed by or on behalf of the Authority to the Holders of the Bonds not less than 15 days preceding
such special record date.
Interest on the Bonds — Variable Rates
The Bonds shall bear interest at the Variable Rate until the Fixed Rate Conversion Date. So long as the
Bonds bear interest at a Variable Rate, the Remarketing Agent will set the Variable Rate on the second
Business Day of each calendar week (except that the Variable Rate shall initially be set on November 30,
2011). Each Variable Rate will be the rate per annum equal to the minimum rate necessary (as determined
by the Remarketing Agent) for the Remarketing Agent to sell the Bonds on the date the Variable Rate is
set at 100% of the principal amount thereof plus accrued interest; provided, however, that in no event
shall the interest rate borne by the Bonds (other than Bank Bonds) exceed the Maximum Rate. Each
Variable Rate will be effective Wednesday through the next succeeding Tuesday (or through the end of the
period in which the Bonds bear interest at a Variable Rate, whichever first occurs).
If for any reason the Remarketing Agent does not set a Variable Rate on the second Business Day of a
calendar week, then the Variable Rate for that period will be the Variable Rate set for the immediately
preceding Wednesday through Tuesday period. If a court holds that the Variable Rate set for any period is
invalid or unenforceable, the Variable Rate for that period for the Bonds will be the rate that is equal to
the 30-day tax-exempt commercial paper rate as published in The Bond Buyer (or any successor to such
publication) as of the date of determination of the unenforceable rate or, in the event The Bond Buyer (or
any such successor) is no longer published, any other newspaper or journal containing financial news,
printed in the English language and customarily published on each Business Day, of general circulation in
New York, New York and selected by the Authority, whose decision shall be final and conclusive.
Conversion to Fixed Interest Rates
The interest rate to be payable with respect to each series of the Bonds (but not less than all of any series
of Bonds) may be converted to a fixed interest rate at the election of the Authority, as provided in the
Indenture.
Tender and Purchase of Bonds
Option to Tender Prior to Fixed Rate Conversion Date. Prior to the Fixed Rate Conversion Date, any
Owner of the Bonds may give irrevocable written notice to the Tender Agent at its Principal Office and
request that the Tender Agent purchase all or any part (in Authorized Denominations) of the Bonds then
outstanding and registered in the name of such Owner at an amount or price equal to the unpaid principal
amount thereof plus accrued and unpaid interest thereon to, but not including, the Business Day on which
the Bonds are to be tendered to the Tender Agent (the "Optional Tender Date") and without premium.
Such notice (the "Optional Tender Notice") shall be substantially in the form set forth in the Indenture and
shall specify the Optional Tender Date (which shall not be less than 7 days after the date of receipt by the
Tender Agent of such Optional Tender Notice), the CUSIP Number, the principal amount being tendered
in integral multiples of Authorized Denominations and, so long as the Bonds are registered in the name of
the nominee of DTC, such notice shall also specify the Participant number and the contact person of the
Participant. Upon receipt of an Optional Tender Notice, the Tender Agent shall, as soon as is practicable
but in no event later than the close of business on the Business Day following the day of receipt of such
Optional Tender Notice, give notice to the Trustee, the Authority, the Credit Entity and the Remarketing
Agent of the Optional Tender Notice, the Optional Tender Date specified therein and the principal amount
of Bonds to be purchased on such Optional Tender Date.
Owners providing an Optional Tender Notice shall be required to tender the Bonds to the Tender Agent
for purchase by 11:00 A.M., New York time, on the Optional Tender Date. In the event of a failure by
Owners of Bonds to tender Bonds on the Optional Tender Date, said Owners of Bonds shall not be
entitled to any payment (including any interest to accrue subsequent to the Optional Tender Date) other
than the purchase price for such Untendered Bonds, and any Untendered Bonds shall no longer be entitled
to the benefits of the Indenture, except for the purpose of payment of the purchase price thereof. Such
Untendered Bonds shall be deemed purchased, canceled and no longer Outstanding under the Indenture.
However, the purchase price will be paid only upon presentment of the Bonds to the Tender Agent. Upon
the cancellation of Untendered Bonds, the Trustee shall authenticate new Bonds in the same aggregate
principal amount as, and in substitution for the Bonds not so tendered by such Owner and shall hold,
deliver and make available such new Bonds to the new Owner thereof in accordance with the provisions
of this Indenture which shall be fully applicable notwithstanding that such new Bonds are authenticated in
substitution for the Bonds not so tendered.
From and after the Fixed Rate Conversion Date, the Tender Agent will not be required to purchase such
Bonds on demand and optional tender by the Owners thereof in accordance with the Indenture.
Mandatory Tender of Bonds. The Bonds shall be subject to mandatory tender on the following dates
(collectively the "Mandatory Tender Dates") and under the circumstances as follows:
(a) In the event the City has complied with the requirements of the Indenture to change the interest
rate represented by the Bonds to a Fixed Rate, all Bonds shall be subject to mandatory tender and
purchase on the Fixed Rate Conversion Date. When a conversion from the Variable Rate to the
Fixed Rate is to be made, the Trustee shall notify the Owners of the Bonds so converted, the
Credit Entity by first class mail at least 30 but not more than 60 days prior to the proposed Fixed
Rate Conversion Date.
(b) The Bonds are subject to mandatory tender on a Business Day at least 5 days prior to the date on
which the Credit Facility is scheduled to expire or terminate in accordance with its respective
terms and if the Trustee has not received notice at least 45 days prior to such date that an
Alternate Credit Facility is to be provided. Not less than 30 days before each such Mandatory
Tender Date under this provision of the Indenture, the Trustee shall send a notice to all Owners by
first class mail, postage prepaid, which notice shall contain the following information: (1) that
the Credit Facility is scheduled to expire or terminate and no Alternate Credit Facility will be
provided, (2) that each Owner's Bond is subject to mandatory tender as provided in such notice,
and (3) if any of the nationally recognized rating agencies which has a credit rating outstanding
on the Bonds has indicated to the Trustee in writing that it will lower or withdraw its rating on the
Bonds as of such Mandatory Tender Date, notice of such new rating, or if no new rating is
available, notice that any of such rating agencies may lower or withdraw such rating as of such
Mandatory Tender Date.
(c) The Bonds are subject to mandatory tender on the first Business Day to occur on or after the
seventh day following receipt by the Trustee of notice from the Credit Entity of the occurrence of
an event of default or event of termination under the Reimbursement Agreement or that the Credit
Entity will not reinstate the interest portion of the Credit Facility and directing the mandatory
tender of the Bonds. Not later than the fifth Business Day after receipt by the Trustee of such
notice, the Trustee shall send to all Owners by first class mail, postage prepaid, and to the
Depository also by facsimile, a notice which shall contain the following information: (1) that the
Credit Entity has declared an event of default or event of termination under the Reimbursement
Agreement, or that the Credit Entity will not reinstate the interest portion of the Credit Facility,
7
and (2) that each Owner's Bond is subject to mandatory tender on the first Business Day to occur
on or after the fifth day following the receipt by the Trustee of such notice from the Credit Entity.
(d) The Bonds are subject to mandatory tender on the effective date of any Alternate Credit Facility
in accordance with the provisions of the Indenture.
(e) The Bonds are subject to mandatory tender on the first Business Day to occur on or after the
seventh day following the day a properly presented and conforming drawing by the Trustee under
the Credit Facility has not been timely honored or the Credit Facility has been repudiated. Not
later than the fifth Business Day following the day a properly presented and conforming drawing
by the Trustee under the Credit Facility has not been timely honored or the Credit Facility has
been repudiated, the Trustee shall send to all Owners by first class mail, postage prepaid, and to
the Depository also by facsimile, a notice which shall contain the following information: (1) that
a properly presented and conforming drawing by the Trustee under the Credit Facility has not
been timely honored or the Credit Facility has been repudiated, and (2) that each Owner's Bond is
subject to mandatory tender on the first Business Day to occur on or after the fifth day following
the day a properly presented and conforming drawing by the Trustee under the Credit Facility has
not been timely honored or the Credit Facility has been repudiated.
Owners of Bonds shall be required to tender the Bonds to the Tender Agent by 11:00 a.m. New York time
on the Mandatory Tender Date for purchase at a purchase price equal to the principal amount thereof plus
accrued interest thereon to and including the Mandatory Tender Date. So long as the Bonds are registered
in the name of the nominee of DTC, such tenders shall be made through the book-entry system. Any
Untendered Bonds shall be deemed to have been tendered. In the event of a failure by Owners of Bonds
to tender Bonds on the Mandatory Tender Date, said Owners of Untendered Bonds shall not be entitled to
any payment (including any interest to accrue on and after the Mandatory Tender Date) other than the
purchase price for such Untendered Bonds, and any Untendered Bonds shall no longer be entitled to the
benefits of the Indenture, except for the purpose of payment of the purchase price thereof. Such
Untendered Bonds shall be deemed purchased, canceled and no longer Outstanding under the Indenture.
However, the purchase price will be paid only upon presentation of the Bonds to the Tender Agent.
In the case of the Fixed Rate Conversion Date only, if the Remarketing Agent notifies the Trustee not less
than 15 days before the Fixed Rate Conversion Date that it cannot remarket all of the Bonds or if the
requirements for the effectiveness of a Fixed Rate Conversion Date are not satisfied before the Fixed Rate
Conversion Date, the Trustee shall give notice thereof by first-class mail, postage prepaid, to all Owners,
the Remarketing Agent, the Credit Entity and the City and each of such parties shall be restored to their
respective positions as if notice of the Fixed Rate Conversion Date had not been given and no mandatory
tender shall occur.
Remarketing of Bonds by Remarketing Agent. Subject to the terms of the Remarketing Agreement,
the Remarketing Agent shall use its best efforts to remarket Bonds subject to purchase on a Tender Date
and to remarket such Bonds registered in the name of the Credit Entity. The proceeds of any sale with
respect to a Tender Date shall be delivered to the Tender Agent for deposit in the Remarketing Proceeds
Account by no later than 11:00 a.m., New York time, on each Tender Date. The proceeds of the sale of
any Bonds registered to or on behalf of the Credit Entity shall be delivered to the Tender Agent for deposit
in the Remarketing Proceeds Account by 11:00 a.m., New York time, on the date of sale and the Tender
Agent shall remit such amounts to the Credit Entity no later than 4:00 p.m., New York time, on such date.
In the event that any Bonds are purchased for the benefit of the Credit Entity, the Remarketing Agent shall
continue to offer for sale and use its best efforts to sell such Bonds. Prior to the release of any Bank
Bonds or the remarketing of any Bonds purchased following the mandatory tender thereof, the Tender
Agent shall have received notice from the Trustee that the Credit Facility has been, or will be upon such
remarketing, reinstated or an Alternate Credit Facility has been delivered in an amount equal to the
principal amount of the Bank Bonds to be released and interest thereon in accordance with its terms.
Redemption
Special Mandatory Redemption from Net Proceeds. The Bonds are subject to mandatory redemption
on any Bond Payment Date, in whole or in part, from moneys drawn under the Credit Facility, which shall
be reimbursed from net proceeds of any insurance or condemnation award paid with respect to the Leased
Property ("Net Proceeds") following the deposit by the Trustee in the Lease Prepayment Account of the
Redemption Fund of Net Proceeds deposited by the City under the Indenture, at least 45 days prior to a
Bond Payment Date which have been credited towards the Prepayment made by the City pursuant to the
Lease, at a redemption price equal to the principal amount of the Bonds to be redeemed, together with
accrued interest to the date fixed for redemption, without premium; provided, however, that if there shall
no longer be available a Credit Facility to secure the payment of principal and interest represented by the
Bonds or if the Credit Facility does not permit a draw with respect to Prepayments, the Bonds are subject
to redemption from Net Proceeds which the Trustee shall deposit in the Lease Prepayment Account of the
Redemption Fund, to be used to redeem the Bonds by the Trustee as provided in the Lease and the
Indenture.
Optional Redemption During the Variable Rate Period. During the Variable Rate Period and on the
Fixed Rate Conversion Date, the Bonds are subject to optional redemption in whole or in part (in an
amount of $100,000 or any integral multiple of $5,000 in excess thereof) on any Business Day, at the
option of the Authority at a redemption price equal to the principal amount thereof together with accrued
interest to the date fixed for redemption, without premium.
Mandatory Sinking Account Redemption. The Outstanding Bonds of each series are subject to
mandatory redemption, in part, from Sinking Account Payments, on each May 1 on or after May 1, 2012,
at a redemption price equal to the principal amount thereof together with accrued interest to the date fixed
for redemption, without premium as follows:
SCHEDULE OF MANDATORY SINKING ACCOUNT PAYMENTS
OUTSTANDING SERIES A BONDS OUTSTANDING SERIES B BONDS
May 1 Principal
Year Amount
May 1
Year
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034 (maturity)
Principal
Amount*
$170,000
175,000
185,000
195,000
200,000
215,000
225,000
235,000
245,000
255,000
265,000
280,000
290,000
305,000
325,000
335,000
345,000
365,000
385,000
400,000
420,000
440,000
460,000
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034 (maturity)
$130,000
135,000
140,000
150,000
155,000
160,000
170,000
175,000
185,000
195,000
200,000
210,000
220,000
230,000
240,000
255,000
265,000
275,000
290,000
305,000
320,000
330,000
350,000
$1,145,000 of Series A Bonds were redeemed in 2006.
The amount of each such redemption shall be reduced proportionately in the event and to the extent of
any and all redemptions of Bonds other than sinking account redemptions.
Selection of Bonds for Redemption. Whenever provision is made in the Indenture for the redemption of
Bonds and less than all Outstanding Bonds are called for redemption, the Trustee shall select Bonds for
redemption, from the Outstanding Bonds not previously called for redemption, in Authorized
Denominations, first from Credit Facility Bonds, then (i) on a pro-rata basis among maturities and by lot
within a maturity, or (ii) from such maturities as are designated in a City Certificate; all in the manner
provided in the Indenture.
Notice of Redemption. When redemption is authorized or required, the Trustee shall give notice of the
redemption of the Bonds. Such notice shall specify: (a) that the Bonds or a designated portion thereof are
to be redeemed, (b) the CUSIP numbers and, if less than all of the Bonds of a maturity are to be
redeemed, the serial numbers of the Bonds to be redeemed, (c) the date of redemption, (d) the place or
places where the redemption will be made, (e) the following descriptive information regarding the Bonds:
date, interest rates and stated maturity dates, and (f) that a new Bond in an amount equal to that portion
not so redeemed will be executed by the Trustee and delivered to the Owner in the event of a partial
redemption. Such notice shall further state that on the specified date there shall become due and payable
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upon each Bond to be redeemed, the portion of the principal amount of such Bond to be redeemed,
together with interest accrued to said date, and that from and after such date, provided that moneys
therefore have been deposited with the Trustee, interest with respect thereto shall cease to accrue and be
payable.
Notice of such redemption shall be mailed by first-class mail, postage prepaid, to the City, to all
municipal Securities Depositories and to at least one national Information Service which the City shall
designate to the Trustee, and the respective Owners of any Bonds designated for redemption at their
addresses appearing on the Bond registration books, at least 30 days, but not more than 60 days, prior to
the redemption date; provided that neither failure to receive such notice nor any defect in any notice so
mailed shall affect the sufficiency of the proceedings for the redemption of such Bonds, and provided,
further, however, that the Trustee shall, on the day it receives notice of prepayment of Base Rental
pursuant to the Lease from the City, provide telephonic, telegraphic or telex notice of such notice of
redemption to the Remarketing Agent, the Credit Entity.
Partial Redemption of Bonds. Upon surrender of any Bond redeemed in part only, the Trustee or the
Tender Agent shall authenticate and deliver to the Owner thereof, at the expense of the City, a new Bond
or Bonds which shall be of Authorized Denominations equal in aggregate principal amount to the
unredeemed portion of the Bond surrendered and the of the same interest rate and the same maturity.
Such partial redemption shall be valid upon payment of the amount thereby required to be paid to such
Owner, and the City, the Authority and the Trustee shall be released and discharged from all liability to
the extent of such payment.
Effect of Redemption. Notice having been given as aforesaid, and the moneys for the redemption
(including the interest to the applicable date of redemption), having been set aside in the Redemption
Fund, the Bonds shall become due and payable on said date of redemption, and, upon presentation and
surrender thereof at the Principal Office, said Bonds shall be paid at the unpaid principal price with
respect thereto, plus interest accrued and unpaid to said date of redemption.
If, on said date of redemption, moneys for the redemption of all the Bonds to be redeemed, together with
interest to said date of redemption, shall be held by the Trustee so as to be available therefor on such date
of redemption, and, if notice of redemption thereof shall have been given as aforesaid, then, from and
after said date of redemption, interest with respect to the 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.
SPECIAL CONSIDERATIONS RELATING TO THE BONDS
SUBJECT TO OPTIONAL TENDER AND REMARKETING
The Remarketing Agent is Paid by the Authority
The Remarketing Agent's responsibilities include determining the interest rate from time to time and
remarketing Bonds that are optionally or mandatorily tendered by the owners thereof (subject, in each
case, to the terms of the Remarketing Agreement), as further described in this Reoffering Memorandum.
The Remarketing Agent is appointed by the Authority and is paid by the Authority for its services. As a
result, the interests of the Remarketing Agent may differ from those of existing holders and potential
purchasers of Bonds.
The Remarketing Agent Routinely Purchases Bonds for Its Own Account
The Remarketing Agent acts as remarketing agent for a variety of variable rate demand obligations and, in
its sole discretion, routinely purchases such obligations for its own account. The Remarketing Agent is
permitted, but not obligated, to purchase tendered Bonds for its own account and, in its sole discretion,
routinely acquires such tendered Bonds in order to achieve a successful remarketing of the Bonds (i.e.,
because there otherwise are not enough buyers to purchase the Bonds) or for other reasons. However, the
Remarketing Agent is not obligated to purchase Bonds, and may cease doing so at any time without
notice. The Remarketing Agent may also make a market in the Bonds by routinely purchasing and selling
Bonds other than in connection with an optional or mandatory tender and remarketing. Such purchases
and sales may be at or below par. However, the Remarketing Agent is not required to make a market in
the Bonds. The Remarketing Agent may also sell any Bonds it has purchased to one or more affiliated
investment vehicles for collective ownership or enter into derivative arrangements with affiliates or others
in order to reduce its exposure to the Bonds. The purchase of Bonds by the Remarketing Agent may
create the appearance that there is greater third party demand for the Bonds in the market than is actually
the case. The practices described above also may result in fewer Bonds being tendered in a remarketing.
Bonds May Be Offered at Different Prices on Any Date Including a Rate
Determination Date
Pursuant to the Remarketing Agreement, the Remarketing Agent is required to determine the applicable
rate of interest that, in its judgment, is the lowest rate that would permit the sale of the Bonds bearing
interest at the applicable interest rate at par plus accrued interest, if any, on and as of the commencement
of the applicable weekly interest period. The interest rate will reflect, among other factors, the level of
market demand for the Bonds (including whether the Remarketing Agent is willing to purchase Bonds for
its own account). There may or may not be Bonds tendered and remarketed on the commencement of the
applicable weekly interest period, the Remarketing Agent may or may not be able to remarket any Bonds
tendered for purchase on such date at par and the Remarketing Agent may sell Bonds at varying prices to
different investors on such date or any other date. The Remarketing Agent is not obligated to advise
purchasers in a remarketing if it does not have third party buyers for all of the Bonds at the remarketing
price. In the event that the Remarketing Agent owns any Bonds for its own account, it may, in its sole
discretion in a secondary market transaction outside the tender process, offer such Bonds on any date,
including the date of the commencement of the applicable weekly interest period, at a discount to par to
some investors.
The Ability to Sell the Bonds Other Than Through Tender Process May Be
Limited
The Remarketing Agent may buy and sell Bonds other than through the tender process. However, it is not
obligated to do so and may cease doing so at any time without notice and may require holders that wish to
tender their Bonds to do so through the Tender Agent with appropriate notice. Investors who purchase the
Bonds in connection with a remarketing or otherwise should not assume that they will be able to sell their
Bonds other than by tendering the Bonds in accordance with the tender process. The Letter of Credit is
not available to purchase Bonds other than those tendered in accordance with the tender process and, as
such, would not be drawn to purchase Bonds in connection with a sale of Bonds by the holder of a Bond
to a Remarketing Agent. The Letter of Credit will only be drawn when such Bonds have been properly
tendered in accordance with the terms of the transaction.
Under Certain Circumstances, the Remarketing Agent May Cease
Remarketing the Bonds, Without a Successor Being Named
Under certain circumstances the Remarketing Agent may cease its remarketing efforts without a successor
having been named, subject to the terms of the Remarketing Agreement.
USES OF FUNDS
The uses of funds with respect to the initial issuance of the Bonds were as follows:
Deposit to the Construction Fund
Debt Service Fund (1)
Underwriters Discount
Costs of Issuance Fund (2)
Total Uses
Series A Bonds
$7,271,275
556,550
61,238
275,937
$8,165,000
Series B Bonds
$4,726,028
366,422
40,013
202,537
$5,335,000
Amounts deposited in the Debt Service Fund and earnings thereon were used to pay interest and expenses on
the Bonds through and including November 1, 2006.
Amounts deposited in the Costs of Issuance Fund were used to pay costs of issuance of the Bonds, including
fees of Bond Counsel, Disclosure Counsel, Counsel to the Credit Entity, the Financial Advisor, the Trustee,
rating fees, letter of credit fees of the Credit Entity, fees of the Remarketing Agent, costs of printing the Official
Statement, and other costs of delivery of the Bonds.
THE LEASED PROPERTY
The Leased Property is comprised of the Police Administration Building, the Public Safety
Communications Building and North Parking Structure. These facilities are a part of the West Covina
Civic Center Complex. The Civic Center Complex also includes the City Hall and South Parking
Structure. It is located adjacent to the County of Los Angeles Citrus Municipal Court and the County's
East Regional County Library. The Civic Center complex provides 113,544 square feet of space for the
City's 415 safety and non-safety personnel. The City Hall and Police Administration Building were built
in 1969, and the combined north and south 435-space multi-level parking structure was completed in
1972. In 1987, the City financed the construction of the Public Safety Communications Building.
The City shall, at its own expense, have the right to make further additions, modifications and
improvements to the Leased Property. All additions, modifications and improvements to the Leased
Property shall thereafter comprise part of the Leased Property and be subject to the provisions of the
Lease.
The City may amend the Lease to substitute additional real property and/or improvements for existing
Leased Property, or to remove real property or improvements from the definition of Leased Property,
upon compliance with all of the conditions set forth in the Lease, as further described in "APPENDIX A -
SUMMARY OF THE LEGAL DOCUMENTS - THE LEASE - Release, Substitution or Removal of Leased
Property."
THE CREDIT FACILITY AND THE REIMBURSEMENT
AGREEMENT
The Irrevocable Letter of Credit (the "Credit Facility") will be issued by the Credit Entity pursuant to the
Reimbursement Agreement dated as of November 1, 2011 (the "Reimbursement Agreement"), by and
between the City and the Credit Entity. The following summarizes certain provisions of the Credit
Facility and the Reimbursement Agreement, to which documents reference is made for the complete
provisions thereof. The provisions of any substitute letter of credit and related reimbursement agreement
may be different from those summarized below.
The Credit Facility
The Credit Facility will be an obligation of the Bank (as defined below) to pay to the Trustee, upon
request made with respect to the Bonds and in accordance with the terms thereof, up to: (i) $11,800,000 to
pay principal of the Bonds when due, whether upon maturity, redemption or acceleration or to pay that
portion of the Purchase Price of Bonds tendered for purchase and not remarketed, equal to the principal
amount of such Bonds; plus (ii) $162,937 (an amount equal to 42 days' interest accrued on the Bonds
calculated at the rate of 12% per annum (computed on the basis of a 365-day year)) to pay accrued
interest on the Bonds when due or to pay the accrued interest portion of the Purchase Price of Bonds
tendered for purchase and not remarketed, as such amounts may be reduced or reinstated pursuant to the
terms of the Credit Facility. All drawings under the Credit Facility will be paid with the Bank's own
funds.
The Credit Facility shall terminate on the date which is the earliest of (i) honor by the Bank of a final
draft presented to it by the Trustee under the Credit Facility; (ii) the date of receipt by the Bank of notice
from the Trustee stating that the City has provided and the Trustee has accepted an Alternate Credit
Facility; or (iii) the Expiration Date of the Credit Facility (initially November 29, 2014).
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See "APPENDIX A - SUMMARY OF THE LEGAL DOCUMENTS - Credit Facility" for a more
complete description of the requirements and operation of the Credit Facility to pay the principal
and Purchase Price with respect to the Bonds and accrued interest as well as the requirements for
substitution of a new Credit Facility for an existing Credit Facility.
The Credit Entity
The following information concerning the Credit Entity has been provided by representatives of the
Credit Entity and has not been independently confirmed or verified by the City, the Authority, the
Financial Advisor, Bond Counsel, the Underwriter or the Remarketing Agent. No representation is made
herein as to the accuracy or adequacy of such information or as to the absence of material adverse
changes in such information subsequent to the date hereof, or that the information contained or
incorporated herein by reference is correct as of any time subsequent to its date.
Wells Fargo Bank, National Association (the "Bank")
The Bank is a national banking association organized under the laws of the United States of America with
its main office at 101 North Phillips Avenue, Sioux Falls, South Dakota 57104, and engages in retail,
commercial and corporate banking, real estate lending and trust and investment services. The Bank is an
indirect, wholly owned subsidiary of Wells Fargo & Company, a diversified financial services company, a
financial holding company and a bank holding company registered under the Bank Holding Company Act
of 1956, as amended, with its principal executive offices located in San Francisco, California ("Wells
Fargo").
Effective at 11:59 p.m. on December 31, 2008, Wells Fargo acquired Wachovia Corporation and its
subsidiaries in a stock-for-stock merger transaction. Information about this merger has been included in
filings made by Wells Fargo with the Securities and Exchange Commission ("SEC"). Copies of these
filings are available free of charge on the SEC's website at www.sec.gov or by writing to Wells Fargo's
Corporate Secretary at the address given below.
Each quarter, the Bank files with the FDIC financial reports entitled "Consolidated Reports of Condition
and Income for Insured Commercial Banks with Domestic and Foreign Offices," commonly referred to as
the "Call Reports." The Bank's Call Reports are prepared in accordance with regulatory accounting
principles, which may differ from generally accepted accounting principles. The publicly available
portions of the Call Reports contain the most recently filed quarterly reports of the Bank, which include
the Bank's total consolidated assets, total domestic and foreign deposits, and total equity capital. These
Call Reports, as well as the Call Reports filed by the Bank with the FDIC after the date of this Reoffering
Memorandum, may be obtained from the FDIC, Disclosure Group, Room F518, 550 17`11 Street, N.W.,
Washington, D.C. 20429 at prescribed rates, or from the FDIC on its Internet site at http://www.fdic.gov ,
or by writing to the Wells Fargo Corporate Secretary's Office, Wells Fargo Center, Sixth and Marquette,
MAC N9305-173, Minneapolis, MN 55479.
The Credit Facility will be solely an obligation of the Bank and will not be an obligation of, or
otherwise guaranteed by, Wells Fargo & Company, and no assets of Wells Fargo & Company or
any affiliate of the Bank or Wells Fargo & Company will be pledged to the payment thereof.
Payment of the Credit Facility will not be insured by the FDIC.
The information contained in this section, including financial information, relates to and has been
obtained from the Bank, and is furnished solely to provide limited introductory information regarding the
Bank and does not purport to be comprehensive. Any financial information provided in this section is
qualified in its entirety by the detailed information appearing in the Call Reports referenced above. The
delivery hereof shall not create any implication that there has been no change in the affairs of the Bank
since the date hereof.
The Reimbursement Agreement
The Reimbursement Agreement and the other agreements securing the City's obligation to reimburse the
Bank do not secure the Trustee, the Owners of the Bonds, or the Bonds.
Events of Default. The following is a summary of the circumstances set forth in the Reimbursement
Agreement which constitute events of default thereunder. This summary is qualified by referenced to the
complete text of the Reimbursement Agreement. Capitalized terms used under this caption and not
otherwise defined shall have the meanings given to such terms in the Reimbursement Agreement.
(a) Misrepresentation. Any representation or warranty made by the City in the Reimbursement
Agreement or in any certificate, financial or other statement furnished by the City pursuant to the
Reimbursement Agreement shall prove to have been untrue or incomplete in any material respect
when made;
(b) Required Payments. The City shall fail to pay to Bank or deposit with Bank any amount
specified in the Reimbursement Agreement or in the Fee Letter when due to be paid or deposited;
(c) Other Covenants. The City shall fail to perform or observe any other material term, covenant or
agreement on its part to be performed or observed under the Reimbursement Agreement (other
than as specified in (b) above) and, except in the case of the certain covenants set forth in the
Reimbursement Agreement any such failure shall remain unremedied for a period of twenty (20)
calendar days;
(d) Invalidity. Any material provision of the Reimbursement Agreement or any Related Document
shall at any time for any reason cease to be in full force and effect or valid and binding on the
City, or shall be declared to be null and void, or the validity or enforceability thereof shall be
contested by the City or the City shall deny that it has any further liability or obligation under the
Reimbursement Agreement, and such event shall have, or be likely to have, a material adverse
effect on the condition of the City and its ability to perform its obligations under the
Reimbursement Agreement or the Related Documents;
(e) Voluntary Insolvency. The City shall (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian or the like of itself or of its property, (ii) admit in writing its
inability to pay its debts generally as they become due, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, or (v) commence a voluntary case
under the federal bankruptcy laws of the United States of America or file a voluntary petition or
answer seeking reorganization, an arrangement with creditors, or an order for relief, or seeking to
take advantage of any insolvency law, or file an answer admitting the material allegations of a
petition filed against it in any bankruptcy, reorganization or insolvency proceeding; or corporate
action shall be taken by it for the purpose of effecting any of the foregoing;
(f) Default under Indenture or Related Documents. Any Event of Default shall occur under the
Indenture or any of the Related Documents;
(g) Other Defaults. The City shall default in the payment or performance of any obligation, or the
occurrence of any defined event of default under the terms of any contract or instrument pursuant
to which City has incurred any debt or other liability, including, without limitation, the Related
Documents, to any person or entity, including, without limitation, the Bank, which in any case
could result in a judgment in excess of $1,000,000.00;
(h) Material Adverse Change. A Material Adverse Change with respect to the City, as determined
by Bank in the good faith exercise of its discretion, shall occur;
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Rights Upon an Event of Default. Upon the occurrence of an Event of Default, the Bank may, and the
Bank shall upon the occurrence of an Event of Default for which the Bank has received a notice from the
Trustee that an event of default has occurred under the Indenture and such default is not cured by the City
within the applicable time period, (a) exercise all of its rights and remedies under any Related Document
(to which the Bank is a party or the Bank is a third party beneficiary) or applicable law, (b) require the
Trustee to cause a mandatory tender as provided in the Indenture, or (c) exercise all or any combination of
the remedies available at law or in equity.
No remedy conferred upon or reserved to the Bank in the Reimbursement Agreement is intended to be
exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative
and in addition to every other remedy given under the Reimbursement Agreement, the Indenture, the
Lease or the other Related Documents, now or hereafter existing at law or in equity or by statute.
OURCES OF PAYMENT FOR THE BOND
General
Each Bond represents a direct, undivided fractional interest in certain of the Base Rental to be paid by the
City to the Authority under the Lease. The Authority has assigned all of its rights under the Lease
including its rights to receive Base Rental from the City and its remedies under the Lease to the Trustee
for the benefit of the Owners of the Bonds. The Base Rental is calculated to be sufficient to pay, when
due, the annual principal of and interest due with respect to the Bonds.
Principal and interest on the Bonds will be paid from the Base Rental paid by the City for the use and
possession of the Leased Property, from insurance or condemnation Net Proceeds received with respect to
the Leased Property to the extent that such Net Proceeds are not used for repair or replacement, and from
interest or other income derived from the investment of the funds held by the Trustee for the City
pursuant to the Indenture.
The obligation of the City to pay Base Rental does not constitute an indebtedness of the City for
which the City is obligated to levy or pledge any form of taxation or for which the City has levied or
pledged any form of taxation. Neither the Bonds nor the obligation of the City to pay Base Rental
constitutes an indebtedness of the City, the State of California, or any of its political subdivisions
within the meaning of any constitutional or statutory debt limitation or restriction.
Base Rental
The City is required to pay to the Authority specified amounts for use of the Leased Property, which are
equal to the principal and interest due with respect to the Bonds. The Lease requires the City to pay Base
Rental to the Authority on the twenty-fifth day of the month immediately preceding each Bond Payment
Date. Base Rental to be paid by the City is assigned and is to be transmitted directly to the Trustee.
The Indenture requires that the Base Rental be deposited in the Lease Payment Account of the Debt
Service Fund and applied to make principal and interest payments when due with respect to the Bonds.
The City shall receive a credit against the Base Rental due equal to the amount on deposit in the Lease
Payment Account of the Debt Service.
The City has covenanted in the Lease to take such action as may be necessary to include all Base Rental
in its annual budget and to make annual appropriations for all such Base Rental. The Lease provides that
the several actions required by such covenants are deemed to be and shall be construed to be ministerial
duties imposed by law and that it is the duty of each and every public official of the City to take such
action and do such things as are required by law in the performance of the official duty of such official to
enable the City to carry out and perform the covenants in the Lease agreed to be carried out and
performed by the City.
The Lease provides that Base Rental for any portion of the Leased Property will be abated during any
period in which there is substantial interference with the City's use of such portions of the Leased
Property because of damage, destruction or condemnation of such portions. The amount of such
abatement shall be an amount such that the portion of Base Rental remaining represents the fair rental
value of the remaining portion of the Leased Property, as calculated by the City. Such abatement shall
continue for the period commencing with such taking, damage or destruction and ending with the
substantial completion of the work of replacement, repair or reconstruction. In the event of any such
damage or destruction, the Lease shall continue in full force and effect and the City waives any right to
terminate the Lease by virtue of such damage and destruction. Notwithstanding the foregoing, there shall
be no abatement of Base Rental under the Lease to the extent that the proceeds of rental interruption
insurance or amounts in the Debt Service Fund are available to pay Base Rental which would otherwise
be abated under the Lease.
During any period of abatement of Base Rental, the Trustee may pay principal and interest on the Bonds
allocable to such portions of the Leased Property, if available, from proceeds of insurance or
condemnation award. The City's reduced rental payments will constitute the total Base Rental. The
reduced Base Rental may not be sufficient to pay principal and interest on the Bonds in the amounts and
at the rates set forth therein. The failure to make such payment of principal and interest would not
constitute a default by the City under the Indenture, the Lease or otherwise.
No Reserve Fund
No Reserve Fund has been established under the Indenture while the Bonds are payable at the Variable
Rate.
Property Insurance
The Lease requires the City to maintain or cause to be maintained with respect to the Leased Property,
comprehensive general public liability and property damage insurance and fire insurance with extended
coverage (see "FINANCIAL INFORMATION - Risk Management" herein). The City is not obligated to
and currently does not maintain insurance against earthquake related damage. The City is required to
maintain rental interruption insurance covering loss of the use of any part of the Leased Property in an
amount equal to the maximum aggregate amount of Base Rental scheduled to be payable in any 24 month
period at an assumed rate of 5.24% (see "APPENDIX A - SUMMARY OF THE LEGAL DOCUMENTS - THE
LEASE AGREEMENT - Insurance" herein). In the event the Leased Property is damaged or destroyed, the
City may apply the net proceeds of any insurance award (except that received for the purposes of rental
interruption) to replace, repair, restore, modify or improve (collectively, "repair") the Leased Property, or
if repairing the Leased Property is not economically feasible, or in the best interest of the City, to prepay
Bonds on a pro-rata basis. In the event the Leased Property has been damaged or destroyed and the City
directs the Trustee to apply insurance proceeds arising from such damage or destruction to the payment or
redemption of Base Rental, then the Trustee shall apply such proceeds to the redemption of Bonds as
described under the caption "THE BONDS - Redemption - Special Mandatory Redemption from Net
Proceeds" herein. The amount of the Base Rental allocable to the portion of the Leased Property
comprising the improvements and facilities will be adjusted or abated (but only after all available moneys
have been depleted) during any period in which damage or destruction to the Leased Property or
condemnation of the Leased Property substantially interferes with the City's use and possession thereof.
If there are not sufficient insurance proceeds to complete repair of the Leased Property, the Base
Rental schedule will be proportionally reduced in accordance with the Lease. Such reduced Base
Rental may not be sufficient to pay principal and interest on the Bonds in the amounts and at the
rates set forth thereon. Such reduction would not constitute a default under either the Indenture or
the Lease.
The Lease required the City to obtain title insurance insuring the City's leasehold interest on the Leased
Property in an amount equal to the outstanding principal component of the Bonds (see "APPENDIX A -
SUMMARY OF THE LEGAL DOCUMENTS - THE INDENTURE - THE LEASE AGREEMENT").
Reentering and Reletting
If the City defaults in performance of its obligations under the Lease, the Trustee, as assignee of the
Authority, may re-enter and relet the Leased Property and may enforce the Lease and hold the City liable
for all Base Rental on an annual basis while re-entering and reletting the Leased Property. Such re-entry
and reletting shall not effect a surrender of the Lease. The City, in the event of default, waives all rights
to any rentals received by the Trustee through reletting of the Leased Property. The City agrees to pay all
costs, loss or damage howsoever occurring.
Encumbrances
The City and the Authority may not create any mortgage, pledge, lien, charge or encumbrance upon the
Leased Property other than "Permitted Encumbrances."
Permitted Encumbrances are defined to mean, as of any particular time: (i) liens for general ad valorem
taxes and assessments, if any, not then delinquent, or which the City may, pursuant to the Lease, permit to
remain unpaid; (ii) the Lease and the Site Lease; (iii) the Assignment Agreement; (iv) any right or claim
of any mechanic, laborer, materialman, supplier or vendor filed or perfected in the manner prescribed by
law after the date of the Lease; (v) easements, rights of way, mineral rights, drilling rights and other
rights, reservations, covenants, conditions or restrictions which exist of record as of the date of initial
issuance of the Bonds and which an Authorized Representative of the City certifies in writing will not
materially impair the beneficial use and occupancy of the Leased Property by the City; and (vi)
easements, rights of way, mineral rights, drilling rights and other rights, reservations, covenants,
conditions or restrictions established following the date of recordation of the Lease and to which the
Authority and the City consent in writing.
The Credit Entity does not hold a security interest in the form of a mortgage on the Leased Property.
Additional Obligations Payable from Base Rental
Issuance of Additional Bonds. In addition to the Bonds, the Authority may, by Supplemental Indenture,
establish one or more other issues of Additional Bonds on a parity with the Bonds, and may issue and
deliver such Additional Bonds in such principal amount as shall be determined by the City, but only upon
compliance by the Authority and the City with the provisions of the Indenture and subject to the following
specific conditions:
(a) The Authority shall be in compliance with all covenants and undertakings set forth in the
Indenture and the City shall be in compliance with all covenants and undertakings set forth in the
Lease.
(b) The Supplemental Indenture authorizing issuance of such Additional Bonds shall require that the
balance on deposit in the Reserve Fund upon delivery of said Additional Bonds is a sum at least
equal to the Reserve Requirement of the Bonds and said Additional Bonds, if any.
(c) Such Additional Bonds shall be equally and ratably secured with all other Bonds, without
preference or priority.
(d) The City and the Authority shall have entered into an amendment to the Lease in and by which
the City obligates itself in the manner provided in the Lease to make payments of rental for the
use of the Leased Property at the times and in the amounts sufficient to provide for the payment
of the principal of and interest on such Additional Bonds as such principal and interest become
due and to make all other payments in the manner provided in the Lease.
(e) The Authority and the City shall obtain the written consent of the Credit Entity.
Proceedings for the Issuance of Additional Bonds. Whenever the Authority shall have determined to
issue Additional Bonds pursuant to the Indenture, the Authority shall adopt a Supplemental Indenture
determining that the issuance of such Additional Bonds is necessary for the purposes specified above,
specifying the principal amount of such Additional Bonds and prescribing the terms and conditions of
such Additional Bonds and the funds to be established for the security and payment thereof. Before such
Additional Bonds shall be issued and delivered, the Authority and the City shall file the following
documents with the Trustee:
(a) An executed copy of the Supplemental Indenture authorizing such Additional Bonds.
(b) An opinion of Bond Counsel stating: (i) that the execution and delivery of the Additional Bonds
have been sufficiently and duly authorized by the Authority and the City; (ii) that the issuance of
the Additional Bonds is authorized by the Indenture; (iii) that the Additional Bonds when duly
executed and delivered, will be valid and binding obligations of the City, payable from Base
Rental in accordance with the terms of the Indenture and the Supplemental Indenture authorizing
the issuance of such Additional Bonds; (iv) that upon the delivery of the Additional Bonds the
aggregate principal amount of Bonds then Outstanding will not exceed the amount at the time
permitted by law or the then limits of indebtedness of the City, if any; and (v) that the issuance of
such Additional Bonds will not, of itself, cause interest on the Bonds to become includable in
gross income for federal income tax purposes.
(c) A Certificate of the City certifying that these requirements have been either met or provided for,
together with a copy of the amendment to the Lease.
(d) A Certificate of the City certifying that the estimated value of the Leased Property is equal to or
greater than the Outstanding amount of the Bonds and the Additional Bonds.
20
THE CITY OF WEST COVINA
The City of West Covina encompasses approximately 17 square miles within the San Gabriel Valley and
is located in the northeast portion of the County of Los Angeles. The City is 19 miles northeast of
downtown Los Angeles.
Government Organization
The City of West Covina was incorporated on February 17, 1923 as a general law city and uses the
Council-Manager form of municipal government. The City Council members are elected to overlapping
terms of four years and select one of their members to serve as Mayor. The City Manager is appointed by
the City Council and directs day-to-day administration of the City's business.
The members of the City Council, the expiration dates of their terms and key administrative personnel are
set forth in the charts below.
Council Member
Steve Herfert, Mayor
Mike Touhey, Mayor Pro Tern
Karin Armbrust, Councilmember
Sherri Lane, Councilmember
Shelley Sanderson, Councilmember
Term Expires
November 8, 2011
November 5, 2013
November 8, 2011
November 5, 2013
November 5, 2013
KEY ADMINISTRATIVE PERSONNEL
Andrew G. Pasmant, City Manager
Thomas E. Bachman, Assistant City Manager/Finance Director
Chris Freeland, Deputy City Manager
Christopher J. Chung, Community Development Commission Director
Michele McNeill, Community Services Director
Shannon Yauchzee, Public Works Director
Erin Hope, Risk Management Director
Dennis Swink, Controller
Sue Rush, City Clerk
Marian Smithson, City Treasurer
Arnold M. Alvarez-Glasman, City Attorney
West Covina currently employs 348 full-time staff members and 65 full-time equivalent part-time
workers. West Covina provides both police and fire protection. As of June 30, 2011, the City had 96
sworn police officers and the City's Fire Department had 64 sworn officers. In addition to public safety,
other City services include building permit and inspection, landscape and public infrastructure
maintenance, weed abatement, municipal code compliance and landfill enforcement, extensive parks and
recreation programs and facilities, as well as a local bus shuttle and paratransit system.
Community Information
The West Covina Unified School District serves more than 10,000 students in 8 elementary schools, 3
middle schools, 2 high schools (including one alternative) and 2 charter schools. There are numerous
private preschools and elementary schools within the City.
Within a 30-mile radius of West Covina are higher education facilities of all levels. With a selection of
nearby community colleges as well as four year universities, residents have a wide choice to continue or
complete their education.
Community Colleges
Citrus Community College
Mount San Antonio College
Rio Hondo Community College
Whittier Community College
Pasadena City College
Four Year Universities
Cal State Polytechnic University, Pomona
Cal State University, Fullerton
Cal State University, Los Angeles
Claremont McKenna College
Occidental College
Azusa Pacific University
University of La Verne
West Covina has five medical facilities and one trauma center available in close proximately for residents
of West Covina. Hospitals providing health care to City residents include Queen of the Valley Hospital,
West Covina Hospital and Kaiser Permanente Medical Group.
There are sixteen parks and two recreation centers, including the Community Youth Center and Cameron
Community Center and Gymnasium, with programs for sports and recreation. The Senior Citizen's
Center is active and hosts tournaments, trips and social gatherings.
Transportation
The City's close proximity to several major sources of transportation gives the City access to regional,
national and international markets.
Ontario International Airport is located 20 miles east of the City and is served by most domestic carriers.
Los Angeles International Airport is located 40 miles west of the City and is served by every major
airline.
The Metropolitan Transit District serves the City locally with two routes. West Covina serves as a transit
hub for bus service within the San Gabriel Valley. Together, Foothill Transit District and the Los Angeles
County Metropolitan Transportation Authority provide over 400 bus arrivals and departures in West
Covina daily. These buses serve express and local routes throughout West Covina and the greater Los
Angeles County area.
The City is served by two Metrolink train stations in the nearby cities of Covina and Baldwin Park.
Metrolink provides daily light-rail commuter train service between residential and major commercial
areas within Los Angeles, Riverside, San Bernardino and Ventura Counties.
The City also offers local shuttle bus service, providing convenient connections between regional malls,
Civic Center, Senior Citizens' Center, regional hospital facilities and the Baldwin Park Metrolink train
station.
22
West Covina enjoys easy access to the Los Angeles Freeway System. A major freeway, Interstate 10 (the
San Bernardino Freeway) runs through the northern section of the city. The following major freeways
also serve the city: State Highway 60 (Pomona Freeway) to the south; Interstate 605 (San Gabriel Valley
River Freeway) to the West; and State Highway 57 (Orange Freeway) to the east.
Population
The following table provides a comparison of population growth for the City of West Covina, surrounding
cities and Los Angeles County between 2007 and 2011.
TABLE NO. 1
CHANGE IN POPULATION
CITY OF WEST COVINA, SURROUNDING CITIES AND LOS ANGELES COUNTY
2007 — 2011
WEST COVINA SURROUNDING CITIES LOS ANGELES COUNTY
Year Percentage Percentage Percentage
Population Change Population Change Population Change
2007 106,985 165,131 9,780,808
2008 106,426 (0.5%) 164,447 (0.4%) 9,785,474 0.0%
2009 106,231 (0.2%) 163,894 (0.3%) 9,801,096 0.2%
2010 106,189 0.0% 163,648 (0.2%) 9,822,121 0.2%
2011 106,400 0.2% 163,976 0.2% 9,858,989 0.4%
% Increase Between
2007 -2011 (0.5%) (0.7%) 0.8%
Surrounding cities include Baldwin Park, Covina, Industry and La Puente.
Source: State of California, Department of Finance, "E-4 Population Estimates for Cities, Counties and the State,
2001-2010, with 2000 & 2010 Census Counts" Sacramento, California, August 2011, "E-5 Population and
Housing Estimates for Cities, Counties, and the State, 2010-2011, with 2010 Benchmark" Sacramento,
California, May 2011 and "January 2011 Tables of City Population Ranked by Size, Numeric and Percent
Change" Sacramento, California, May 2011.
23
Employment
As of July 1, 2011, the civilian labor force for the City was approximately 54,600 of whom 48,200 were
employed. The unadjusted unemployment rate as of July 2011 was 11.7% for the City as compared to
13.2% for the County and 12.4% for the State. Civilian labor force, employment and unemployment
statistics for the City, County, the State and the nation, for the years 2006 through 2010 are shown in the
following table:
TABLE NO. 2
CITY OF WEST COVINA
CIVILIAN LABOR FORCE, EMPLOYMENT AND UNEMPLOYMENT
ANNUAL AVERAGES
Year
Civilian
Labor Force Employment Unemployment
Unemployment
Rate
2006
City of West Covina 54,700 52,400 2,300 4.2%
Los Angeles County 4,806,600 4,578,700 229,900 4.8
California 17,686,700 16,821,300 865,400 4.9
United States 151,413,000 144,419,000 7,001,000 4.6
2007
City of West Covina 55,400 52,900 2,500 4.4
Los Angeles County 4,874,600 4,626,900 247,600 5.1
California 17,928,700 16,970,200 958,500 5.3
United States 153,126,000 146,049,000 7,078,000 4.6
2008
City of West Covina 55,800 52,200 3,700 6.5
Los Angeles County 4,930,900 4,563,200 347,600 7.5
California 18,191,000 16,833,400 1,307,600 7.2
United States 154,329,000 145,368,000 8,924,000 5.8
2009
City of West Covina 55,200 49,600 5,600 10.1
Los Angeles County 4,900,100 4,336,600 563,500 11.5
California 18,204,200 16,141,500 2,062,700 11.3
United States 154,142,000 139,877,000 14,265,000 9.3
2010
City of West Covina 55,100 48,900 6,100 11.2
Los Angeles County 4,879,500 4,262,300 617,200 12.6
California 18,176,200 15,916,300 2,259,900 12.4
United States 153,889,000 139,064,000 14,825,000 9.6
Source: California State Employment Development Department and United States Bureau of Labor Statistics.
24
The City is located in the Los Angeles-Long Beach-Glendale Metropolitan Division. Six major job
categories constitute 78.6% of the work force. They are service producing (15.5%), government (14.6%),
professional and business services (14.0%), educational and health services (13.9%), leisure and
hospitality (10.5%), and manufacturing (10.1%). The July 2011 unemployment rate in the Los Angeles-
Long Beach-Glendale Metropolitan Division was 13.3%. The State of California July 2011
unemployment rate (unadjusted) was 12.4%.
TABLE NO. 3
LOS ANGELES-LONG BEACH-GLENDALE METROPOLITAN DIVISION
WAGE AND SALARY WORKERS BY INDUSTRY 0)
(in thousands)
Industry 2007 2008 2009 2010 2011
Government 578.4 588.0 579.5 554.9 549.0
Other Services 147.0 146.9 137.1 136.8 135.4
Leisure and Hospitality 403.4 410.8 389.0 388.9 395.7
Educational and Health Services 479.8 493.4 503.1 505.9 521.3
Professional and Business Services 602.9 584.1 518.3 525.8 525.4
Financial Activities 245.3 233.8 214.6 209.8 206.6
Information 209 209.8 188.1 189.1 202.7
Transportation, Warehousing and Utilities 166.0 165.1 148.1 151.2 147.7
Service Producing
Retail Trade 422.0 413.5 379.5 382.8 385.0
Wholesale Trade 226.8 223.3 201.2 203.3 199.3
Manufacturing
Nondurable Goods 198.1 192.7 171.1 168.4 168.8
Durable Goods 250.9 244.3 214.7 208.2 209.3
Goods Producing
Construction 160.6 145.4 115.4 105.2 99.7
Mining and Logging 4.4 4.4 4.0 4.3 4.2
Total Nonfarm 4,094.6 4,055.5 3,763.7 3,734.6 3,750.1
Farm 7.7 6.9 5.9 6.2 6.2
Total (all industries) 1,112_3. 4,062.4 3,769.6 3.7.401 3,756.3
Source: State of California Employment Development Department, Labor Market Information Division, "Industry
Employment & Labor Force - by month, March 2010 Benchmark."
0) Annually, as of July.
25
The major employers operating within the City and their respective number of employees as of June 30,
2011 are as follows:
TABLE NO. 4
CITY OF WEST COVINA
LARGEST EMPLOYERS
Name of Company
Queen of the Valley Campus
West Covina Unified School District
Target Store #TI028 & #T2147
City of West Covina
Macy's
SGV Newspaper Group
J C Penney Corp Inc. #1505-7
Interspace/Concorde Battery
B.J.'s Restaurant and Brewery
Sears Roebuck & Company
Number of Employees Product/Service
1,781 Education
1,354 Education
482 Retail Store
459 Municipal Services
273 Department Store
264 Newspaper
256 Department Store
213 Manufacturing
181 Restaurant
149 Department Store
Source: City of West Covina Finance Department.
Per Capita Income
Per capita income information for West Covina, Los Angeles County, the State of California and the
United States is summarized in the following table.
TABLE NO. 5
PER CAPITA INCOME
CITY OF WEST COVINA, LOS ANGELES COUNTY,
STATE OF CALIFORNIA AND UNITED STATES
2005 — 2009
Year West Covina Los Angeles County State of California United States
2005 $37,543 $34,214 $37,183 $34,685
2006 40,538 36,196 39,358 36,629
2007 42,278 36,762 41,571 38,615
2008 42,916 39,657 43,641 40,208
2009 42,818 37,718 42,395 39,635
Source: West Covina Comprehensive Annual Financial Report; U.S. Department of Commerce, Bureau of
Economic Analysis.
26
Commercial Activity
The following table summarizes the volume of retail and food services sales and taxable transactions for
the City for 2005 through 2009 (the most recent year for which statistics are available for the full year).
The City's sales tax receipts declined by approximately 12% for Fiscal Year 2009/10 and increased by 4%
for Fiscal Year 2010/11. On September 1, 2011 Westfield West Covina hosted a grand opening ceremony
for the completion of the mall's Phase III development, which includes Nordstrom Rack, Gold's Gym and
a new state-of-the-art Playspace. Nordstrom Rack and Gold's Gym will join many new tenants at the
mall, including XXI Forever and H&M. These new businesses are expected to increase the City's sales
tax receipts in future years.
TABLE NO. 6
CITY OF WEST COVINA
TOTAL TAXABLE TRANSACTIONS
(in thousands)
2005 — 2009
Retail and Retail and Total Taxable
Food Services Food Services Transactions Issued Sales
Year ($000's) % Change Permits ($000's) % Change Permits
2005 $1,231,009 1,101 $1,344,132 1,914
2006 1,246,069 1.2% 1,123 1,361,247 1.3% 1,886
2007 1,249,018 0.2% 1,146 1,353,441 (0.6%) 1,841
2008 1,133,830 (9.2%) 1,139 1,251,547 (7.5%) 1,813
2009 967,357 (14.7%) 1,183 1,081,262 (13.6%) 1,631
Source: State Board of Equalization, "Taxable Sales in California."
The following table summarizes the change in taxable transactions for the City of West Covina and
surrounding cities for 2005 through 2009 (the most recent year for which statistics are available for the
full year).
TABLE NO. 7
CITY OF WEST COVINA AND SURROUNDING CITIES
CHANGE IN TOTAL TAXABLE TRANSACTIONS
(in thousands)
2005 — 2009
% Change from
City 2005 2006 2007 2008 2009 2005 - 2009
WEST COVINA $1,344,132 $1,361,247 $1,353,441 $1,251,547 $1,081,262 (19.6%)
Baldwin Park 530,775 557,750 566,938 528,973 462,814 (12.8%)
Covina 804,873 808,666 790,660 701,315 581,911 (27.7%)
Industry 2,810,034 2,989,254 3,067,172 2,758,613 2,362,529 (15.9%)
La Puente 221,950 230,991 219,884 200,713 179,370 (19.2%)
Source: State Board of Equalization, "Taxable Sales in California."
All Other Outlets 113,123 115,178 104,423 117,717 113,905
Total All Outlets $1 344 32 51,361,247 $1 353 441 $I 251 547 $1 081 262
Taxable transactions by type of business for the City are summarized below for 2005 through 2009 (the
most recent year for which statistics are available for the full year).
TABLE NO. 8
CITY OF WEST COVINA
TAXABLE TRANSACTIONS BY TYPE OF BUSINESS
(in thousands)
2005 - 2009
2005 2006 2007 2008 2009
Retail and Food Services
Clothing and Clothing
Accessories Stores $ 109,792 $ 111,315 $ 105,702 $ 100,212 $ 99,768
General Merchandise Stores 244,493 239,489 232,571 214,295 167,992
Food and Beverage Stores 42,203 43,174 46,154 43,304 47,804
Food Services and Drinking Places 127,138 141,155 144,280 145,907 139,998
Home Furnishings and
Appliance Stores 59,230 57,259 50,077 52,428 60,346
Building Materials and Garden
Equipment and Supplies 16,522 14,490 7,318 # #
Motor Vehicle and Parts Dealers 391,155 383,094 422,505 358,583 269,143
Gasoline Stations 72,406 85,224 89,283 83,865 73,758
Other Retail Group 168 070 170,869 151,128 135,236# 108,54911
Total Retail and Food Services 1,231,009 1,246,069 1,249,018 1,133,830 967,357
Source: State Board of Equalization, "Taxable Sales in California."
# Sales omitted because their publication would result in the disclosure of confidential information.
28
Building Activity
The following table summarizes building activity valuations for the City of West Covina for the five fiscal
years 2006/07 through 2010/11.
TABLE NO. 9
CITY OF WEST COVINA
BUILDING ACTIVITY AND VALUATION
(in thousands)
2006/07 to 2010/11
2006/07 2007/08 2008/09 2009/10 2010/11
Residential $ 28,599,403 $ 24,664,628 $ 21,318,098 $ 13,201,353 $ 15,927,162
Commercial 74,417,833 54,441,750 48,458,333 34,664,157 24,334,341
Total Valuation $103 017 236 $ 79,106,379 $ 69,776,431 $ 47,865,510 $ 40,261,503
Number of Residential Units 29 29 48
Source: City of West Covina.
FINANCIAL INFORMATION
Budgetary Process and Administration
The annual budget adopted by the City Council provides for the general operation of the City. The annual
budget is adopted in summary by the City Council in June of each year for the General, special revenue,
debt service funds and capital projects funds. The resolution sets a combined appropriation of the funds
for the operation of the City.
The City Manager is authorized to transfer budgeted amounts between departments to assure adequate
and proper standards of service. Budgetary revisions, including supplemental appropriations which
increase appropriations in individual funds, must be approved by the City Council. The budgetary level
of control is at the fund level. The budgeted figures used in the financial statements are the final amended
amounts, which do not vary significantly from the original adopted budget.
The budget is formally integrated into the accounting system and employed as a management control
device during the year for the General Fund, special revenue funds, debt service funds and capital projects
funds.
Budgets for governmental fund types are adopted on a basis consistent with generally accepted
accounting principles. Operating appropriations lapse at the end of the fiscal year. Capital projects funds
are appropriated on a project basis and appropriations are funded by the council to continue until the
specific projects are completed.
Appropriations Limit
Section 7910 of the Government Code of the State of California requires the City to adopt a formal
appropriations limit for each fiscal year. The City's appropriations limit for fiscal year 2011/12 is
$110,790,424. The City's appropriations subject to the limit for 2011/12 are $36,052,346. Based on this,
the appropriations limit is not expected to have any impact on the ability of the City to continue to budget
and appropriate the Lease Payments as required by the Lease.
General Fund Revenues and Expenditures
The City's General Fund Budget includes programs which are provided on a largely citywide basis. The
programs and services are financed primarily by the City's share of property taxes, sales tax, revenues
from the State, and charges for services provided. (See "RISK FACTORS - State Budget" herein).
A comparison of the Fiscal Year 2010/11 Budget, estimated actual results for Fiscal Year 2010/11 and the
Fiscal Year 2011/12 Budget is shown in Table No. 10. The City's budget for 2011/12 reflects the City's
assessment of the continuing impact of the recession on revenues.
Fiscal Year 2011/12 Budget
Some key assumptions incorporated into the Fiscal Year 2011/12 General Fund Budget prepared by the
City in June 2011 are as follows:
• Property tax will remain at its 2010/11 level;
• Sales tax will increase by 10% due to the opening of new major tenants at Westfield shopping
center;
• Non-safety employees will begin contributing the employees' share of the CalPERS contribution;
30
• $825,000 positive net impact of FEMA grant on Fire Department budget;
• Elimination of 14 vacant sworn police officer positions;
• Inclusion of cost of City Election in November 2011;
• Reduction of $500,000 in public safety overtime costs; and
• A drawdown of fund balance of $1.8 million
Revenues
The revenues in Table No. 10 that follows are categorized as:
Taxes, detailed in Table No. 15 "Tax Revenues by Source," which includes general property tax,
sales tax, transient occupancy taxes, franchise taxes (cable, utility, trash), business license tax,
documentary transfer tax and contractor's license tax;
Licenses and Permits, which includes construction building permits, and dog licenses;
Fines and Forfeitures, which includes municipal and vehicle code violations and vehicle impound
fees;
Revenue from Use of Money, which includes interest income (primarily on amounts due from the
West Covina Community Development Commission (CDC) on amounts borrowed from the City)
and rental income;
Intergovernmental Revenue, which includes motor vehicle license fees, state reimbursements for
mandated costs and Proposition A funds;
Charges for Services, comprised of ambulance fees (55%), towing and other charges such as plan
checking, building inspection, and other municipal services;
Interfund Charges for overhead charged to other departments and funds for General Fund support
and administrative functions, and a sales tax reimbursement from the CDC.
Miscellaneous Revenue.
The largest components of estimated Fiscal Year 2011/12 General Fund revenues are property tax
(approximately 36%) and sales tax (approximately 26%).
Expenditures
The expenditures in Table No. 10 that follows are categorized by governmental function. Each function
generally includes salaries and benefits, materials and supplies, and capital outlay, if any.
Salaries and Benefits include direct personnel costs, benefits, health insurance costs and workers'
compensation and unemployment insurance costs. Materials and supplies include non-personnel
operating costs and contract professional services.
The City has both a police department and a fire department. Public safety expenditures represent
approximately 80% of the total budgeted General Fund expenditures for Fiscal Year 2011/12.
Table No. 10 provides a comparison of the Fiscal Year 2010/11 Budget, estimated actual results for Fiscal
Year 2010/11 and the Fiscal Year 2011/12 Budget.
TABLE NO. 10
CITY OF WEST COVINA
GENERAL FUND REVENUES AND EXPENDITURES
2010/11
Budget
2010/11
Estimated
Actual
2011/12
Budget
Change
Amount %
Revenues:
Taxes $35,194,000 $36,018,006 $37,310,000 $ 1,291,994 3.6%
License and Permits 1,064,900 1,099,084 1,223,800 124,716 11.3%
Fines and Forfeitures 156,000 157,041 136,000 (21,041) (13.4%)
Use of Money and Property 3,015,000 3,082,869 3,040,228 (42,641) (1.4%)
Revenue from Other Agencies 1,308,000 1,704,024 2,903,092 1,199,068 70.4%
Charges for Services 3,513,150 3,204,286 3,037,700 (166,586) (5.2%)
Interfund Charges 2,950,000 2,234,635 2,375,000 140,365 6.3%
All Other Revenues 105,620 146,311 149,000 2,689 1.8%
Transfers In 1,604,650 1,592,645 1,449,000 (143,645) (9.0%)
Total Revenues $48,911,320 $49,238,901 $51,623,820 $ 2,384,919 4.8%
Expenditures:
General Government $ 1,282,433 $ 1,118,704 $ 1,215,934 $ 97,230 8.7%
Public Safety 41,352,521 40,831,073 42,514,559 1,683,486 4.1%
Public Works 4,674,414 4,398,238 4,511,977 113,739 2.6%
Community Services 1,189,022 1,097,794 1,163,627 65,833 6.0%
Administrative Services 3,225,936 3,040,323 3,268,452 228,129 7.5%
Transfers Out 1,020,266 966,050 811,050 (155,000) (16.0%)
Total Expenditures $52,744,592 $51,452,182 $53,485,599 $ 2,033,417 4.0%
Net Change in Fund Balance $ (3,833,272) $ (2,213,281) $ (1,861,779) $ 351,502
Beginning Undesignated Fund Balance 9,710,686 9,710,686 7,497,405
Ending Undesignated Fund Balance $ 5,877,414 $ 7,497,405 $ 5,635,626
Source: City of West Covina.
Ad Valorem Property Taxes
Taxes are levied for each fiscal year on taxable real and personal property which is situated in the City as
of the preceding January L For assessment and collection purposes, property is classified either as
"secured" or "unsecured," and is listed accordingly on separate parts of the assessment roll. The "secured
roll" is that part of the assessment roll containing State assessed property and real property having a tax
lien which is sufficient, in the opinion of the assessor, to secure payment of the taxes. Other property is
assessed on the "unsecured roll."
Property taxes on the secured roll are due in two installments, on November 1 and February 1 of the fiscal
year. If unpaid, such taxes become delinquent on December 10 and April 10, respectively, and a 10%
penalty attaches to any delinquent payment. In addition, property on the secured roll with respect to
which taxes are delinquent is sold to the State on or about June 30 of the fiscal year. Such property may
thereafter be redeemed by payment of the delinquent taxes and the delinquency penalty, plus a redemption
penalty of 11/2% per month to the time of redemption. If taxes are unpaid for a period of five years or
more, the property is subject to sale by the County Tax Collector.
Property taxes on the unsecured roll become delinquent, if unpaid on August 31. A 10% penalty attaches
to delinquent taxes on property on the unsecured roll, and an additional penalty of 11/2% per month begins
to accrue on November 1 of the fiscal year. The County of Los Angeles has four ways of collecting
delinquent unsecured personal property taxes: (1) a civil action against the taxpayer; (2) filing a
certificate in the office of the County Clerk specifying certain facts in order to obtain a judgment lien on
certain property of the taxpayer; (3) filing a certificate of delinquency for record in the County Recorder's
Office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of personal
property, improvements or possessory interests belonging or assessed to the assessee.
Taxable Property and Assessed Valuation
Set forth in Table No. 11 are assessed valuations for secured and unsecured property within the City of
West Covina.
TABLE NO. 11
CITY OF WEST COVINA
GROSS ASSESSED VALUE OF ALL TAXABLE PROPERTY
Fiscal Year
2007/08
2008/09
2009/10
2010/11
2011/12
Secu red
$8,086,113,985
8,612,770,792
8,392,455,137
8,384,860,755
8,552,654,130
Unsecured
$159,288,793
165,246,871
177,464,312
167,778,142
164,604,305
Total
$8,245,402,778
8,778,017,663
8,569,919,449
8,552,638,897
8,717,258,435
Source: County of Los Angeles Auditor-Controller.
33
Property tax levies and collections for the City are set forth in Table No. 12.
TABLE NO. 12
CITY OF WEST COVINA
SECURED TAX LEVIES AND COLLECTIONS
Fiscal Total Collections within the Fiscal Collections
Year Tax Year of the Levy in Total
Ended Levy for Percentage Subsequent Tax Percentage
June 30 Fiscal Year (1) Amount of Levy Years Collections of Levy
2007
2008
2009
2010
2011
$8,255,755
8,788,631
9,207,210
8,913,839
$7,536,422
7,766,633
8,509,721
8,152,304
91.29%
88.37%
92.42%
91.46%
(7,738)
(65,994)
104,568
111,790
$7,528,684
7,700,639
8,614,289
8,264,094
91.19%
87.62%
93.56%
92.71%
Source: City of West Covina and Los Angeles County Auditor-Controller.
(I) Includes City property taxes and CDC tax increment, prior to any passthroughs to other agencies.
Redevelopment Agencies
The California Redevelopment Law (Part 1 of Division 24 of the Health & Safety Code of the State)
authorizes the redevelopment agency of any city or county to receive an allocation of tax revenues
resulting from increases in assessed values of properties within designated redevelopment project areas
(the "incremental value") occurring after the year the project area is formed. In effect, local taxing
authorities, such as the City, realize tax revenues only on the assessed value of such property at the time
the redevelopment project is created for the duration of such redevelopment project. There are 2
redevelopment projects in the City, the merged West Covina Redevelopment Project and the City-Wide
Redevelopment Project. Table No. 13 sets forth total assessed valuations and redevelopment agency
incremental values.
The State Legislature approved ABX1 26 and ABX1 27 during the 2011/12 State budget process, which
have been signed by the Governor. ABX1 26 eliminates redevelopment agencies State-wide. ABX1 27
allows for redevelopment agencies to continue operating if payments are made by the community to
provide increased levels of school funding. The California Supreme Court has stayed certain provisions
of ABX1 26 and all of ABX1 27 until a ruling can be made on a challenge to those bills. See "RISK
FACTORS - State Budget." No assurance can be given on the impact of ABX1 26 and ABX1 27 on the
City's General Fund Property Taxes.
34
TABLE NO. 13
CITY OF WEST COVINA
TOTAL AND NET PROPERTY TAX VALUATIONS
Total Redevelopment
Fiscal Assessed Agency Net Percent
Year Valuation Incremental Value Value Change
2007/08
2008/09
2009/10
2010/11
2011/12
$8,245,402,778
8,778,017,663
8,569,919,449
8,552,638,897
8,717,258,435
$1,681,925,670
1,371,047,710
1,182,546,582
1,089,683,961
1,111,677,728
$6,563,477,108
7,406,969,953
7,387,372,867
7,462,954,936
7,605,580,707
12.9%
(0.3%)
1.0%
1.9%
Source: County of Los Angeles Auditor-Controller.
Largest Taxpayers
The principal taxpayers as of June 30, 2011 are as shown in Table No. 14.
TABLE NO. 14
CITY OF WEST COVINA
LARGEST TAXPAYERS
Assessed Percent
Taxpayer Valuation of Total
Plaza West Covina LLC
Eastland Shopping Center LLC
Gateway Crescent LLC
PPC WR Apartments LLC
Eastland Tower Partnership
Legacy Partners Verandas LP
CP Lafayette Parc LLC
SP Torrey Pines LLC
Hassen Real Estate Partnership
Kor Barn Sunset Plaza LLC
Source: West Covina Annual Financial Report.
$185,090,345 2.16%
102,072,600 1.19
56,730,228 0.66
51,361,141 0.60
51,008,272 0.60
48,065,859 0.56
43,724,863 0.51
40,107,000 0.47
34,956,936 0.41
30,540,327 0.36
$643,657,571 7.53%
35
State Legislative Shift of Property Tax Allocation
Beginning in 1992/93, the State has required that local agencies including cities remit a portion of
property taxes received to augment school funding. These funds are deposited in each county's Education
Revenue Augmentation Fund ("ERAF"). This was a permanent shift of property tax from the City's
General Fund.
On July 24, 2009, the California legislature approved amendments to the 2009/10 Budget to close an
anticipated $26.3 billion budget shortfall. The approved amendments included borrowing from local
governments by withholding the equivalent of 8% of Fiscal Year 2008/09 property related tax revenues
from cities' and counties' property tax collections under provisions of Proposition 1A (approved by the
voters in 2004), which the State must repay with interest within three years. The City participated in the
Proposition 1A securitization program undertaken by the California Statewide Community Development
Authority, whereby the City sold the $1,722,830 receivable that resulted from the State borrowing of
property tax revenues. The State may not implement additional borrowing under Proposition 1A in
2011/12, but could as soon as 2012/13.
In addition, certain other provisions in the State budget have resulted in a realignment of property tax
revenues:
On March 2, 2004, voters approved a bond initiative formally known as the "California Economic
Recovery Act." This act authorized the issuance of $15 billion in bonds to finance the 2002/03 and
2003/04 State budget deficits, to be payable from a fund to be established by the redirection of tax
revenues through the "Triple Flip." Under the "Triple Flip," one-quarter of local governments' 1% share
of the sales tax imposed on taxable transactions within their jurisdiction is redirected to the State. In an
effort to eliminate the adverse impact of the sales tax revenue redirection on local government, the
legislation provides for property taxes in the ERAF to be redirected to local government. Because the
ERAF moneys were previously earmarked for schools, the legislation provides for schools to receive
other state general fund revenues. It is expected that the swap of sales taxes for property taxes would
terminate once the deficit financing bonds were repaid, which is currently expected to occur in
approximately 12 years. The sales tax estimated to be received through an in lieu payment from State
property tax revenues, approximately $3.3 million, is included in sales taxes shown in Table No. 15.
The City receives a portion of Department of Motor Vehicles license fees ("VLF") collected statewide.
Several years ago, the State-wide VLF was reduced by approximately two-thirds. However, the State
continued to remit to cities and counties the same amount that those local agencies would have received if
the VLF had not been reduced, known as the "VLF backfill." The City's budgeted VLF amount of
$250,000 for Fiscal Year 2011/12 is based on the VLF expected to be paid to the County. The State VLF
backfill to be received through an in lieu payment from State property tax revenues, approximately $8.6
million, is included in property taxes shown in Table No. 15.
Local Taxes
In addition to ad valorem taxes on real property, the City receives the following local taxes:
Sales and Use Taxes. Sales tax is collected and distributed by the State Board of Equalization. Each
local jurisdiction receives an amount equal to 1% of taxable sales within their jurisdiction. In addition,
the City receives a portion of a 1/2 cent sales tax increase approved by voters in 1993. Sales tax generated
by this increase is used to offset certain expenses for public safety.
Franchise Taxes. The City levies a franchise tax on its cable television, trash collection and utility
franchises.
Business License Taxes. The City levies a business license tax based on the number of employees.
36
Transient Occupancy Taxes. The City levies a 10% transient occupancy tax on hotel and motel bills.
TABLE NO. 15
CITY OF WEST COVINA
TAX REVENUES BY SOURCE
Estimated Budget
2008 2009 2010 2011 2012
Property Taxes $17,841,038 $18,565,796 $17,841,038 $17,590,376 $17,685,000
Sales and Use Taxes (I) 11,043,774 12,572,858 11,043,774 11,503,540 12,700,000
Franchise Taxes 3,367,958 3,512,830 3,093,538 3,159,080 3,325,000
Transient Occupancy Taxes 1,057,734 787,286 647,123 756,573 850,000
Business License Taxes 1,566,042 1,828,915 2,075,987 2,182,985 2,200,000
Other Taxes 651,518 514,083 416,560 354,151 550,000
Total General Fund Tax Revenues $35,530,072 $37,781,768 $35,118,020 $35,546,705 $37,310,000
Source: City of West Covina.
(I) On September 1, 2011 Westfield West Covina hosted a grand opening ceremony for the completion of the mall's
Phase III development, which includes Nordstrom Rack, Gold's Gym and a new state-of-the-art Playspace.
Nordstrom Rack and Gold's Gym will join many new tenants at the mall, including XXI Forever and H&M.
These new businesses are expected to increase the City's sales tax beginning in 2011/12.
Motor Vehicle License Fees
As described above, the City receives a portion of Department of Motor Vehicles license fees ("VLF")
collected statewide. The total VLF estimated for Fiscal Year 2011/12 is $8,850,000, of which $250,000 is
expected to be received through a payment from the State and is included in "revenue from other
agencies" in the City's budget. The balance of $8.6 million is budgeted as property tax, to be received
through an in lieu payment from State property tax revenues.
A temporary two-year increase in VLF rates went into effect on May 19, 2009 and expired on July 1,
2011. This increased the funding of VLF from fees and reduced the State's VLF backfill from the
property tax realignment. See "RISK FACTORS - State Budget" herein.
Retirement Programs
California Public Employees Retirement System (PERS)
Plan Description. The City contributes to the California Public Employees Retirement System (PERS),
an agent multiple-employer public employee defined benefit pension plan. PERS provides retirement,
disability benefits, and death benefits to plan members and beneficiaries. PERS acts as a common
investment and administrative agent for participating public entities within the State of California. Copies
of PERS' annual financial report may be obtained from its executive office at 400 "P" Street, Sacramento,
California 95814.
Funding Policy. Participants are required to contribute 8% of their annual covered salary for
miscellaneous employees and 9% for safety employees. The City makes the contributions required of
City employees on their behalf and for their account. Benefit provisions and all other requirements are
established by state statute and City contracts with employee bargaining groups.
Under GASB 27, an employer reports an annual pension cost (APC) equal to the annual required
contribution (ARC) plus an adjustment for the cumulative difference between the APC and the
employer's actual plan contributions for the year. The cumulative difference is called the net pension
obligation (NPO). The ARC for the period July 1, 2009 to June 30, 2010 has been determined by an
actuarial valuation of the plan as of June 30, 2007. The contribution rate indicated for the period is
27.246% of payroll for the safety plan and 9.131% of payroll for the miscellaneous plan. In order to
calculate the dollar value of the ARC for inclusion in financial statements prepared as of June 30, 2010,
the contribution rate is multiplied by the payroll of covered employees that were paid during the period
from July 1, 2009 to June 30, 2010.
The excess of total actuarial accrued liability over the actuarial value of plan assets is called the unfunded
actuarial accrued liability. Changes in the liability due to subsequent plan amendments are amortized as a
level percent of pay over a closed 20-year period. Gains and losses that occur in the operation of the plan
are amortized over a rolling 30-year period. If the plan's accrued liability exceeds the actuarial value of
plan assets, then the amortization period may not be lower than the payment calculated over a 30-year
amortization period.
For the safety plan, the unfunded actuarial liability is amortized over a period ending June 30, 2039. For
the miscellaneous plan, the unfunded actuarial liability is amortized over a period ending June 30, 2038.
Contribution Rates. The contribution requirements of plan members and the City are established by
PERS. PERS set contribution rates for 2010/11 at 9.66% for miscellaneous employees and 27.535% for
safety employees. For 2011/12, PERS has set contribution rates at 14.207% for miscellaneous employees
and 33.657% for safety employees. These rates are factored in to the City's 2011/12 budget.
PERS set contribution rates for 2010/11 based on a 4.9% negative return on investments which occurred
in 2007/08. For the Fiscal Year 2008/09, the PERS portfolio had lost more than 23% of its value. This
loss will begin affecting PERS contribution rates in 2011/12. For Fiscal Year 2009/10 the PERS portfolio
rate of return was 11.6%. From July 1,2010 through June 30, 2011, the PERS portfolio rate of return was
20.9%. The City's percentage of payroll for PERS payments for each retirement account for 2005/06
through 2011/12 and estimates for 2012/13 and for 2013/14 are shown in the table below.
Fiscal Year
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13*
2013/14*
Miscellaneous
6.986%
10.017
9.529
8.596
9.131
9.660
14.207
15.700
19.500
Safety
27.234%
26.728
25.512
25.197
27.246
27.535
33.657
35.600
40.700
* Projected by PERS.
38
Annual Pension Costs. The City's annual pension cost for 2010/11 and the two previous years was
$6,049,513, $6,473,430 and $5,266,213, respectively. These were equal to the City's required and actual
contributions. The required contribution was determined as part of the June 30, 2007, actuarial valuation
using the entry age normal actuarial cost method. The actuarial assumptions included; (a) 7.75%
investment rate of return (net of administrative expenses), (b) projected salary increases of 3.25% to
14.45% for miscellaneous employees and 3.25% to 13.15% for safety employees, depending on age,
service, and type of employment, (c) 3.0% per year cost-of-living adjustments and (d) 3.25% payroll
growth. Both (a) and (b) included an inflation component of 3%. The actuarial value of PERS assets was
determined using techniques that smooth the effects of short-term volatility in the market value of
investments over a fifteen-year period. PERS unfunded actuarial accrued liabilities (or surplus) is being
amortized as a level percentage of projected payroll on a closed basis. The average remaining
amortization period at June 30, 2007 was 31years for miscellaneous employees and 32 years for safety
employees for prior and current service unfunded liability.
Fiscal
Year
THREE-YEAR TREND INFORMATION FOR PERS
Annual Pension Cost (Employer Contribution)
Percentage of
Safety Miscellaneous APC Contributed
Net Pension
Obligation
6/30/09 $4,182,392 $1,083,821 100%
6/30/10 5,253,816 1,219,614 100%
6/30/11 4,872,146 1,177,367 100%
The Schedule of Funding Progress for each of the City's employee groups below shows the recent history
of the actuarial value of assets, actuarial accrued liability, their relationship, and the relationship of the
unfunded accrued liability to payroll. The schedule of funding progress, presented below presents
multiyear trend information about whether the actuarial value of plan assets is increasing or decreasing
over time relative to the actuarial accrued liability for benefits.
Valuation
Date
6/30/07
6/30/08
6/30/09
Entry Age
Normal
Accrued
Liability
$218,973
233,093
255,522
Safety Employees
(dollar amount in thousands)
Unfunded
Actuarial Liability/
Value (Excess Funded
of Assets Assets) Status
$186,780 $32,193 85.3%
197,914 35,179 84.9%
204,352 51,170 80.0%
Annual
Covered
Payroll
$18,185
19,632
20,372
UAAL
As a % of
Payroll
177.0%
179.2%
251.2%
As of June 30, 2009, the market value of assets in this plan were $148,554,336, representing a funded
status on a market value basis of 58.1%, compared to June 30, 2008, when the market value of assets was
$202,894,626 and the funded status on a market value basis was 87.0%.
39
Entry Age
Normal
Accrued
Liability
Miscellaneous Employees
(dollar amount in thousands)
Unfunded
Actuarial Liability/
Value (Excess
of Assets Assets)
Valuation
Date
Annual UAAL
Covered As a % of
Payroll Payroll
Funded
Status
6/30/07 $ 92,669 $90,614 $ 2,055 97.8% $13,696 15.0%
6/30/08 99,307 96,052 3,255 96.7% 13,833 23.5%
6/30/09 111,022 99,657 11,365 89.8% 13,834 82.2%
As of June 30, 2009, the market value of assets in this plan were $72,620,160, representing a funded
status on a market value basis of 65.4%, compared to June 30, 2008, when the market value of assets was
$98,060,451 and the funded status on a market value basis was 98.7%.
Public Agency Retirement System (PARS)
Effective November 1, 2007, the City established two retirement plans with the Public Agency Retirement
System (PARS) to supplement the current CalPERS retirement benefits. PARS is a single-employer
defined benefit plan. It meets the requirements of a pension trust under the California Government Code.
Phase II Systems is the PARS Trust Administrator.
EPMC Replacement Supplemental Retirement Plan
Participants in this plan include all full-time employees and council members, except members of the
Police Officers Association. The EPMC Replacement Plan was established to replace a long-standing
benefit for city employees no longer allowed by CalPERS. The plan provides for a benefit in an amount
equal to the member's years of service, times the member's final pay, times the CalPERS age factor, times
.70% for miscellaneous employees (times .89% for safety employees). At the time of retirement,
employees will make an election to receive either a lump sum payment or receive ongoing stipends over
their lifetime.
Annual Pension Costs. The City makes all contributions to these plans. Participants do not make any
contributions. For the fiscal year ended June 30, 2011, the City's required and actual contributions were
$174,492. For the fiscal year ended June 30, 2010, the City's required contributions were $108,218 and
actual contributions were $187,218. The required contribution was based on the October 1, 2007
actuarial valuation using the entry age normal actuarial cost method. The unfunded actuarial liability is
based on a 20-year open amortization with amortization payments increasing 3.25% annually. The
actuarial assumptions include: investment rate of return of 7%, projected salary increases of 3.25% to
12.65% (depending on years of service), and assumed inflation rate of 3%. The ongoing stipends will
contain a 2% annual cost of living adjustment consistent with CalPERS pensions.
40
Supplemental Retirement Plan for Executive Staff and City Council
This plan is separated into three tiers.
Tier 1 (full-time non-safety Department Head) and Tier 2 (City Council) provides an additional retirement
amount to miscellaneous department heads and City Council in an amount equal to the amount of the
Retiree Medical Benefit received by the Police and Fire Chiefs. In order to be eligible for this benefit,
participants must have five years of service with the City and must retire into PERS from the City.
Tier 3 (City Manager) provides an increased retirement benefit to the City Manager consistent with the
terms of his contract. It will convert the retirement formula for all years of prior CalPERS service at non-
West Covina agencies to the CalPERS 2.5% @ 55 formula currently in place with the City of West
Covina.
Annual Pension Costs. All three tiers are combined for funding purposes in this plan. The City makes
all contributions to these plans. Participants do not make any contributions. For the fiscal year ended
June 30, 2011, the City's required and actual contributions were $52,716. For the fiscal year ended June
30, 2010, the City's required and actual contributions were $167,382. The required contribution was
based on the November 1, 2007 actuarial valuation using the entry age normal actuarial cost method. The
unfunded actuarial liability is based on a 20-year open amortization (10-years for Tier 3) with
amortization payments remaining level. The actuarial assumptions include: investment rate of return of
7%, assumed inflation rate of 3%, projected salary increases of 3.25% to 12.65% (depending on years of
service and 2% annual cost of living adjustments for Tier 3.
THREE-YEAR TREND INFORMATION FOR PARS
Annual Pension Cost (Employer Contribution)
Fiscal Percentage of Net Pension
Year EPMC Executive APC Contributed Obligation
6/30/08 $148,659 $146,569 100% $ -
6/30/09 95,989 168,074 100% -
6/30/10 187,218 167,382 100%
The Schedule of Funding Progress below shows the recent history of the actuarial value of assets,
actuarial accrued liability, their relationship, and the relationship of the unfunded accrued liability to
payroll. The schedule of funding progress, presented below presents multiyear trend information about
whether the actuarial value of plan assets is increasing or decreasing over time relative to the actuarial
accrued liability for benefits.
EPMC
Entry Age Unfunded
Normal Actuarial Liability/ Annual UAAL
Valuation Accrued Value (Excess Funded Covered As a % of
Date Liability of Assets Assets) Status Payroll Payroll
10/1/07 $1,359,333 $ - $1,359,333 0.00% $31,852,549 4.27%
6/30/09 1,028,173 27,130 1,001,043 2.64% 23,766,042 4.21%
Actuarial
Actuarial Value of
Valuation Assets
Date faj
7/1/09 $0
Annual required contribution
Interest on net OPEB obligation
Adjustment to annual required contribution
Annual OPEB cost (expense)
Contributions made (including premiums paid)
Increase in net OPEB obligation
Net OPEB obligation-beginning of year
Net OPEB obligation-end of year
$3,317,000
3,317,000
(1,114,523)
2,202,477
1,390,000
$3 592 477
The City's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net
OPEB obligation for 2010 and the two preceding years were as follows:
Percentage of
Fiscal Annual
Year OPEB Cost
6/30/08 N/A
6/30/09 $2,437,000
6/30/10 3,317,000
OPEB Cost Net Pension
Contributed Obligation
N/A N/A
43.0% $1,390,000
33.6% 3,592,477
The City's actual contribution to OPEB costs was $1,114,523 for Fiscal Year 2010/11 and is estimated to
be $ for Fiscal Year 2011/12. This estimated OPEB contribution is factored in to the City's
2011/12 budget.
Funded Status and Funding Progress. 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
employer 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 presents multi-year trend
information about whether the actuarial value of plan assets is increasing or decreasing over time relative
to the actuarial accrued liabilities for the benefits.
Schedule of Funding Progress
(dollar amounts in thousands)
Actuarial
Accrued
Liability Unfunded
(AAL) - AAL Funded
Entry Age (UAAL) Ration
(b) (b-a) (a/b)
$45,391 $45,391 0%
UAAL as a
Percentage of
Covered
Covered Payroll
Payroll ((b-a)/c)
$30,254 150.0%
The next OPEB actuarial valuation will be dated as of June 30, 201
43
Actuarial Methods and Assumptions. Projections of benefits for financial reporting purposes are based
on the substantive plan (the plan as understood by the employer and the plan members) and include the
types of benefits provided at the time of each valuation and the historical pattern of sharing of benefit
costs between employer and plan members to that point. 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 assets, consistent with the long-term perspective of the calculations.
The actuarial cost method used for determining the benefit obligations is the Entry Age Normal Cost
Method. The actuarial assumptions included a 5.0% investment rate of return, which is the assumed rate
of the expected long-term investment returns on plan assets calculated based on the funded level of the
plan at the valuation date, and an annual healthcare cost trend rate of 10% initially, reduced by
decrements of 1% per year to an ultimate rate of 5% after the sixth year. Both rates included an inflation
assumption. The UAAL is being amortized as a level percentage of projected payroll on an open basis
over 30 years. It is assumed the City's payroll will increase 3% per year.
Employee Relations and Collective Bargaining
City employees are represented by one labor union and seven associations covering the following
employee groups: Confidential/Exempt, Public Safety Dispatchers, General Employees, Maintenance
Employees, Mid-Management, Fire, Police, and Police Management. The largest association is the Police
Officers Association, representing approximately 24% of all City employees. Currently 100% of all City
employees are covered by negotiated agreements. All current negotiated agreements expire on June 30,
2012.
Risk Management
The City is exposed to various risks of loss related to its operation, including losses associated with errors
and omissions, injuries to employees and members of the public. The City's Internal Service Self
Insurance Fund is used to account for and finance its uninsured risks of loss.
The City of West Covina participates in a joint powers insurance authority insurance pooling arrangement
with other public agencies for general liability coverage in excess of the City's self-insured retention of
$1,000,000 per occurrence. The pool shares losses from $1 million to $2 million among its members and
purchases commercial insurance/reinsurance for losses from $2 million to $27 million, per occurrence.
The City of West Covina purchases statutory limits through a joint powers authority insurance pooling
arrangement with other public agencies for worker's compensation coverage in excess of the City's self-
insured retention of $1 million per occurrence.
Claims for general liability and worker's compensation did not exceed the self insurance retention level in
2009, 2010 and 2011.
The claims and judgments liability reported in the Internal Service Self Insurance Fund is based on the
requirements of Governmental Accounting Standards Board Statement No. 10, which requires that a
liability for claims and judgments be reported if information prior to the issuance of the financial
statements indicates that it is probable that a liability has been incurred at the date of the financial
statements and the amount of loss can be reasonably estimated. As of June 30, 2010 and June 30, 2011,
claims and judgments payable, including estimated claims for incurred but not reported claims, amounted
to $11,586,006 and $11,207,107, respectively.
44
City Investment Policy and Portfolio
The City administers a pooled investment program, except for those funds which are managed separately
by trustees appointed under bond indentures. This program enables the City to combine available cash
from all funds and to invest cash that exceeds current needs. Under the City's Investment Policy and in
accordance with the Government Code, the City may invest in the following types of investments subject
to certain limitations on maturity and amount:
U.S. Treasury Obligations, U.S. Agency Securities, Banker's Acceptances, Commercial Paper, Negotiable
Certificates of Deposit, Repurchase Agreements, Reverse Repurchase Agreements, Medium-Term Notes,
Time Certificates of Deposit, Money Market Mutual Funds, Mortgage Pass-Through Securities, County
Pooled Investment Funds, Local Agency Investment Fund.
As of August 31, 2011, the market value of the City Treasurer's investment portfolio was $50,081,087.
The diversification of the City Treasurer's investment portfolio assets as of such date is shown in the
following table.
Type of Investment "A) of Combined Portfolio
U.S. Government Agencies 32.2%
Los Angeles County Investment Pool 38.7
Local Agency Investment Fund 29.1
100.0%
The weighted average maturity of the investment portfolio was 819 days. The current yield of the
investment portfolio at August 31, 2011 was 2.8%.
45
Indebtedness of the City
The City had the following outstanding indebtedness as of June 30, 2011, exclusive of obligations to be
paid from specifically pledged revenues, such as revenue bonds, tax allocation bonds and special tax
bonds.
Category of Indebtedness
(1) 2002 Lease Revenue Bonds
(2) 2003 Lease Revenue Bonds
(3) 2004 Lease Revenue Bonds
(4) 2005 Lease Revenue Bonds
(5) 2006 Lease Revenue Bonds
(6) Notes Payable
(7) Capital Leases
(8) Compensated Absences
Original
Obligation
$21,895,000
3,625,000
13,500,000
2,735,000
18,005,000
2,741,000
3,050,000
Amount
Outstanding
$17,060,000
2,675,000
11,800,000
2,480,000
17,925,000
2,195,596
1,843,538
3,992,754
Final
Maturity
2035
2023
2034
2034
2036
2023
2015
N/A
(1)1(4) In 2002, the City entered into a lease agreement with the Authority to pay rental payments
securing the Authority's Variable Rate Lease Revenue Bonds, 2002 Series A and B ("2002
Bonds"). Interest is payable at a variable rate of interest. In 2005, the City prepaid a portion of
the lease agreement relating to the 2002 Bonds, Series A by entering into an amendment to the
lease agreement. The rental payments now also secure the Authority's Variable Rate Lease
Revenue Bonds, Series C. The annual lease payments, including credit fees, are estimated to be
$720,000 in fiscal year 2011/12, based on an estimated interest rate of 0.32%.
(2) In 2003, the City entered into a lease agreement with the Authority to pay rental payments
securing the Authority's Lease Revenue Bonds, 2003 Series A. The annual lease payments are
approximately $290,000.
(3) The Lease. The annual lease payments, including credit fees, are estimated to be $465,000 in
fiscal year 2011/12, based on an estimated interest rate of 0.49%.
(5) In 2006, the City entered into a lease agreement with the Authority to pay rental payments
securing the Authority's Variable Rate Lease Revenue Bonds, 2006 Series A and B. The annual
lease payments are approximately $950,000 in Fiscal Year 2011/12, increasing to $1.4 million
annually by 2023.
(6) The City has entered into various notes payable for the acquisition of property. Annual payments
in future years are approximately $210,000, after payment in full of one note in 2011/12 of
$250,000.
(7) The City has capitalized certain leases for equipment purchases. Annual lease payments are
approximately $500,000.
(8) Represents that portion of compensated absences not expected to be paid during the current year,
as of June 30, 2010.
46
Direct and Overlapping Debt
Set forth below is a direct and overlapping debt report (the "Debt Report") prepared by HdL Coren &
Cone, as of June 30, 2011. The Debt Report is included for general information purposes only. The City
has not reviewed the Debt report for completeness or accuracy and makes no representations in
connection therewith. Any inquiries concerning the scope and methodology of procedures carried out to
compile the information presented should be directed to HdL Coren & Cone, Diamond Bar, California.
The Debt Report generally includes long-term obligations sold in the public credit markets by public
agencies whose boundaries overlap the boundaries of the City in whole or in part. Such long-term
obligations are not payable from the City's General Fund nor are they necessarily obligations secured by
property within the City. In many cases, long-term obligations issued by a public agency are payable only
from the general fund or other revenues of such public agency.
TABLE NO. 16
CITY OF WEST COVINA
DIRECT AND OVERLAPPING DEBT
Gross Bonded °A Applicable Net Bonded
Debt Balance To City Debt 6/30/2011
Direct Debt
Revenue Lease Bonds & Capital Leases $119,854,497 100.000% $119,854,497
Total Direct Debt 119,854,497
Overlapping Debt
Metropolitan Water District $107,259,876 0.773 829,425
Mt. San Antonio CCD DS 2001 S-A 1,130,000 12.849 145,196
Mt. San Antonio CCD 2001 Series 2004B 8,080,000 12.849 1,038,215
Mt. San Antonio CCD 2005 Refunding Bond 55,835,843 12.849 7,174,458
Mt. San Antonio CCD 2001, Series C 2006 79,461,712 12.849 10,210,193
Mt SAC CD DS 2001, 2008 Series D 24,602,430 12.849 3,161,215
Baldwin Park Unified DS 96 Series A 2,713,733 0.292 7,915
Baldwin Park USD 2001 Refunding Bonds 5,890,000 0.292 17,179
Baldwin Park USD 2002 Series 2003 375,000 0.292 1,094
Baldwin Park USD 2002 Series 2004 6,356,248 0.292 18,539
Baldwin Park USD 2005 Refunding Bonds 9,936,887 0.292 28,983
Baldwin Park USD 2002 Series 2005 4,813,699 0.292 14,040
Baldwin Park USD 2002 Series 2006 17,473,384 0.292 50,965
Baldwin Pk Unif DS 2006 Ser 2007 23,600,000 0.292 68,834
Baldwin Pk Unif DS 2006 Ser 2008 14,001,457 0.292 40,838
Bassett USD DS 2004 Series 2005 A 11,203,352 0.069 7,780
Bassett Unified DS 2004 Series 2005 B 10,616,192 0.069 7,372
Bassett Unif DS 2006 Ser 2007 14,139,566 0.069 9,819
Bassett Unif DS 2006 Ser B 4,999,970 0.069 3,472
(Continued on next page).
Gross Bonded
Debt Balance
$ 14,775,000
21,135,713
45,010,000
17,359,117
2,724,899
8,290,987
29,790,000
55,280,000
2,514,562
39,899,075
15,400,173
42,400,000
32,422,549
12,000,000
27,987,385
13,465,000
23,247,718
255,000
13,715,243
6,001,837
11,420,000
25,580,000
6,950,887
8,030,000
15,340,000
8,465,000
')/o Applicable
To City
31.997
31.997
31.997
31.997
1.402
1.399
1.399
1.399
15.152
15.152
15.152
15.152
15.152
15.152
0.747
0.747
0.747
0.747
0.747
0.747
0.747
0.747
0.747
95.170
95.170
95.170
Net Bonded
Debt 6/30/2011
$ 4,727,554
6,762,791
14,401,843
5,554,394
38,194
115,955
416,635
773,131
381,018
6,045,684
2,333,502
6,424,635
4,912,808
1,818,293
209,151
100,625
173,732
1,906
102,495
44,852
85,342
191,161
51,944
7,642,139
14,599,055
8,056 128
$108,800,498
$228,654,995
(Continued from previous page).
Covina Valley USD DS 2001 Series B
Covina Valley USD DS 2002 Series B
Covina Valley USD DS 2006 Series 2006
Covina Valley Unif DS 2006, 2007 Ser B
Hacienda-La Puente USD DS 2000 Series A
Hacienda- La Puente USD DS 2000 S-03B
Hacienda-La Puente Unified DS 2005 Refunding Bond
Hacienda-La Puente Unified DS 2007 Refunding
Rowland Heights USD DS 2000 Series A
Rowland Heights USD DS 2000 Series B
Rowland Heights Unified DS 2005 Ref. Bonds
Rowland USD DS 2006 Series A
Rowland Heights USD DS 2006 Series B
Rowland Heights Unif UDS DS 2006 Series C BABS
Walnut Valley Unified DS 2011
Walnut Valley Unified 2011 Refunding Bonds
Walnut Valley Ref. DS Series 97 A
Walnut Valley USD DS 2000 Series C
Walnut Valley USD DS 2000 Series D
Walnut Valley USD DS 2000 Series E
Walnut Valley USD DS 2005 Ref. bond
Walnut Val Unif DS 2007 Ser A (Measure 5)
Walnut Val Unif DS 2007 Ser A (Measure Y)
West Covina USD 2000 Series C
West Covina USD 2002 Refunding Series A
West Covina USD 2000 Series D
Total Overlapping Debt
Total Direct and Overlapping Debt
2010/11 Assessed Valuation: $6,567,105,460 After Deducting $1,985,533,437 Redevelopment Increment.
Debt to Assessed Valuation Ratios: Direct Debt 1.83%
Overlapping Debt 1.66%
Total Debt 3.48%
Source: HdL Coren & Cone, Diamond Bar, California
48
Financial Statements
The City's accounting policies conform to generally accepted accounting principles and reporting
standards set forth by the State Controller. The audited financial statements also conform to the principles
and standards for public financial reporting established by the National Council of Government
Accounting and the Governmental Accounting Standards Board.
Basis of Accounting and Financial Statement Presentation. The government-wide financial statements
are reported using the accrual basis of accounting. Revenues are recorded when earned and expenses are
recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are
recognized as revenues in the year for which they are levied. Grants and similar items are recognized as
revenue as soon as all eligibility requirements imposed by the provider have been met.
Governmental fund financial statements are reported using the modified accrual basis of accounting.
Revenues are recognized as soon as they are both measurable and available. Revenues are considered to
be available when they are collectible within the current period or soon enough thereafter to pay liabilities
of the current period. Expenditures generally are recorded when a liability is incurred, as under accrual
accounting. However, debt service expenditures are recorded only when payment is due.
The City retained the firm of Diehl Evans, & Company, LLP, Certified Public Accountants, Irvine,
California, to examine the general purpose financial statements of the City as of and for the year ended
June 30, 2010. The following tables summarize the Balance Sheet and Statement of Revenues,
Expenditures and Changes in Fund Balance of the City's General Fund for the last five fiscal years. The
City received a Certificate of Achievement for Excellence in Financial Reporting for the Fiscal Year
ended June 30, 2010. See "APPENDIX B" hereto for the audited financial statements for the fiscal year
ended June 30, 2010. The City has not requested, and the auditor has not provided, any review or update
of such statements in connection with the inclusion in this Reoffering Memorandum. See Table No. 10
herein for a summary of estimated results for Fiscal Year 2010/11.
TABLE NO. 17
CITY OF WEST COVINA
GENERAL FUND BALANCE SHEET
As of June 30
2006 2007 2008 2009 20
Assets
Cash and investments
Receivables, net:
Accounts
Taxes
Interest
Due from other funds
Due from other governments
Prepaids and other assets
Advances to other funds
Total assets
6,641,674 $12,693,469 $ 9,677,975 $ 7,133,437 $ 6,799,084
203,686 218,014 211,610 171,196 216,610
3,258,765 2,933,315 3,016,718 2,577,013 2,696,505
145,336 154,459 100,639 54,834 14,346
4,752,871 4,745,023 4,699,985 2,851,580 826,181
2,157,791 2,043,620 2,104,729 58,454 34,849
61,842 47,594 71,949 44,510 60,765
$42,461,44¢
Liabilities and Fund Balance
Liabilities:
Accounts payable
Other accrued liabilities
Deposits
Deferred revenue
Due to other funds
Fund balance:
Reserved for:
Encumbrances
Prepaids and other assets
Advances to other funds
Unreserved, reported in
General fund
Total fund balance
900,731 $ 752,959 $ 746,396 $ 665,597 $ 576,981
1,772,589 2,043,353 2,445,868 2,257,459 2,379,916
223,683 222,508 223,959 377,135 306,800
6,127,179 4,843,850 4,218,193 1,365,550 964,214
_ - - - 77,050
$ 9,024,182 $ 7,862,670 $ 7,634,416 $ 4,665,741 $ 4,304,961
280,933 453,272 373,894 -
61,842 47,594 71,949 44,510
24,611,809 24,292,809 23,359,648 22,576,490
23,982,187 19,315,808 16,021,539 12,846,323 9,710,686
$48,936,771 $44,109,483 $39,827,030 $35,467,323 $31,567,950
$57.960.953 $51.972.153 $47.461.446 $40,133,064 $35,872.911
36,142
60,765
21,760,357
Source: City of West Covina Financial Statements.
TABLE NO. 18
CITY OF WEST COVINA
GENERAL FUND
STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE
For the year ended June 30
2006 2007 2008 2009 2010
Revenues:
Taxes
Licenses and Permits
Fines and Forfeitures
Investment income
Rental income
Revenue from other agencies
Charges for services
Other revenues
Total revenues
$34,380,808 $37,020,080 $37,866,384
1,329,125 1,831,001 1,188,547
108,320 154,215 156,913
4,358,369 4,679,267 4502310
96,888 178,695 221864
2,855,483 1,041,918 791,144
3,195,003 2,836,597 2,971,886
241,268 221,880 178,948
46,565,264 47,963,653 47,877,996
$37,781,768
1,085,650
195,325
3,278,279
302,658
1,507,997
3,146,647
1,422,382
48,720 706
$35,118,020
904,985
201,339
3,063,036
288,319
1,349,097
3,285,523
739,518
44,949,837
Expenditures:
Current:
General government
Less interfund revenues
Public safety
Public works
Community services
Community development
Total expenditures
Excess (deficiency) of revenues
over (under) ) expenditures
Other financing sources (uses):
Loss on sale of property
Transfers in
Transfers out
Total other financing sources (uses)
Net change in fund balance
Fund balance at beginning of year
Fund balance at end of year
4,302,189
(1,881,624)
38,810,835
4,179,688
963,118
561,520
46,935,726
3,021,877
(1 430 000)
1,591,877
4,614,107
(3,069,508)
40,049,486
4,713,285
1,283,609
590,983
48,181,962
1,180,000
(5,788,979)
(4,608,979)
5,047,965
(2,818,068)
43,362,282
5,099,806
1,260,286
616,900
52 569,171
1,324,998
(916,276)
408.722
4,647,495
(1,979,438)
43,214,194
5,229,300
915,840
499,571
52,526,962
1,957,412
(2,510,863)
(553,451)
4,572,167
(1,610,642)
42,980,283
4,665,175
787,274
431,979
51,826,236
3,118,140
(141,114)
2,977,026
(370,462) (218,309) (4,691,175) (3,806,256) (6,876,399)
1,221,415 (4,827,288) (4,282,453) (4,359,707) (3,899,373)
47,715,356 48,936,771 44,109,483 39,827,030 35,467,323
$48 936 771 $44 109 483 $ 9 827 030 $35 467 323 $31,567,950
Source: City of West Covina Financial Statements.
51
RISK FACTORS
The purchase of the Bonds involves investment risk. If a risk factor materializes to a sufficient degree, it
could delay or prevent payment of principal of and/or interest on the Bonds. Such risk factors include,
but are not limited to, the following matters and should be considered, along with other information in
this Reoffering Memorandum, by potential investors.
Base Rental
City's Base Rental and Other Payments. The Base Rental and other payments due under the Lease
(including a proportionate share of the costs of improvement, repair and maintenance of the Leased
Property and taxes, other governmental charges and assessments levied against the Leased Property) are
not secured by any pledge of taxes or other revenues of the City but are payable from yearly
appropriations of any funds lawfully available to the City. In the event the City's revenue sources are less
than its total obligations, the City could choose to fund other services before paying Base Rental and other
payments due under the Lease. The same result could occur if, because of State Constitutional limits on
expenditures, the City is not permitted to appropriate and spend all of its available revenues (see
"Constitutional Limitations on Taxes and Expenditures" below). To the extent these types of events or
other events adversely affecting the funds available to the City occur in any year, the funds available to
pay Base Rental may be decreased.
The City has the capacity to enter into other obligations, including additional base rental payments under
the Lease, which may constitute additional charges against its revenues. To the extent that additional
obligations are incurred by the City, the funds available to the City to pay Base Rental may be decreased
(see "FINANCIAL INFORMATION - Indebtedness of the City" herein).
Abatement. The amount of Base Rental due under the Lease will be adjusted or abated during any
period in which by reason of damage or destruction to the Leased Property or eminent domain
proceedings there is substantial interference with the use and possession of the Leased Property.
Notwithstanding the provisions of the Lease and the Indenture specifying the extent of abatement in the
event of the City's failure to have use and possession of the Leased Property, such provisions may be
superseded by operation of law, and, in such event, the resulting Base Rental may not be sufficient to pay
all of that portion of the remaining principal and interest represented by the Bonds. The amount of such
abatement shall reduce the Base Rental applicable to the Bonds.
Earthquake Risk. According to the City's General Plan, the City is located in a seismically active region
and could be impacted by a major earthquake originating from numerous faults in the area. Of primary
concern to the City are the Sierra Madre Fault, the San Andreas Fault and the Whittier Fault. According
to the Safety Element of the City's General Plan, groundshaking is the most significant seismic hazard.
Potential surface rupture in the City is not considered a significant seismic risk, since this occurs
primarily along fault lines and none of the known fault lines lie within the City. This hazard could result
in damage to the Leased Property, and possibly, abatement of all or a portion of Base Rental. The City
does not currently and is not required to maintain earthquake insurance with respect to the Leased
Property. It also does not maintain earthquake insurance on other City-owned facilities.
Insurance. The Lease obligates the City to obtain and keep in force various forms of insurance, to assure
repair or replacement of the Leased Property in the event of damage or destruction to the Leased Property
(see "APPENDIX A - SUMMARY OF THE LEGAL DOCUMENTS - THE LEASE AGREEMENT - Insurance"
herein). The City makes no representation as to the ability of any insurer to fulfill its obligations under
any insurance policy provided for in the Lease. In addition, certain risks, such as earthquake, may not be
covered by such property insurance (see "SOURCES OF PAYMENT FOR THE BONDS - Property
Insurance" herein).
In the event the Leased Property is partially or completely damaged or destroyed due to any uninsured or
underinsured event, it is likely that Base Rental will be partially or completely abated. Apart from the
proceeds of insurance, the City and the Authority will have no obligation to expend any funds to repair or
replace such damaged or destroyed property. If any leased property so damaged or destroyed is not
repaired or replaced within the period during which the proceeds of rental interruption insurance are
available, any such abatement could prevent the City from timely paying Base Rental.
Discovery of a Hazardous Substance That Would Limit the Beneficial Use of the Property. In
general, the owners and lessees of a parcel may be required by law to remedy conditions of the property
relating to the 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
lessee) is obligated to remedy a hazardous substance condition of property whether or not the owner (or
lessee) had any involvement in creating or handling the hazardous substance. The effect, therefore,
should the Property be affected by a hazardous substance, might be to limit the beneficial use of the
Property upon discovery and during remediation. The City is not aware of any such condition on the
property.
State Budget
[to be completed]
Future State Budgets
Changes in the revenues received by the State can affect the amount of funding, if any, to be received
from the State by the City and other cities and counties in the State. The City cannot predict the extent of
the budgetary problems the State will encounter in this or in any future fiscal year, and, it is not clear what
measures would be taken by the State to balance its budget, as required by law. In addition, the City
cannot predict the final outcome of current or future State budget negotiations, the impact that such
budgets will have on its finances and operations or what actions will be taken in the future by the State
Legislature and Governor to deal with changing State revenues and expenditures. Current and future
State budgets are being and will be affected by national and State economic conditions and other factors,
including the current economic downturn, over which the City has no control. Accordingly, there can be
no assurances that State actions to respond to State financial difficulties will not adversely affect the
financial condition of the City, significantly reduce or delay revenues to local governments or shift
financial responsibility for programs to local governments. Accordingly, no prediction can be made by
the City as to what future measures the State will adopt to respond to the current or potential future
financial difficulties.
If an event of default occurs and is continuing under the Lease Agreement, there is no remedy of
acceleration of any Lease Payments which have not come due and payable in accordance with the Lease.
The City will continue to be liable for Lease Payments as they become due and payable in accordance
with the Lease if the Trustee does not terminate the Lease, and the Trustee would be required to seek a
separate judgment each year for that year's defaulted Lease Payments. Any such suit for money damages
would be subject to limitations on legal remedies against counties in California, including a limitation on
enforcement of judgments against funds or property needed to serve the public welfare and interest. In
addition, the enforcement of any remedies provided in the Lease and the Indenture could prove both
expensive and time-consuming.
The Lease permits the Trustee to take possession of and re-lease the Property in the event of a default by
the City under the Lease. However, due to the fact that the Leased Property serves essential governmental
purposes, it is unlikely that a court would permit such remedy to be exercised. Even if such remedy may
be exercised, due to the specialized nature of the Leased Property it is unlikely that the Trustee could
readily re-lease it for rents which are sufficient to enable it to pay principal of and interest on the Bonds in
full when due.
Constitutional Limitation on Taxes and Expenditures
State Initiative Measures Generally. Under the California Constitution, the power of initiative is
reserved to the voters for the purpose of enacting statutes and constitutional amendments. Voters have
exercised this power through the adoption of Proposition 13 ("Article XIIIA") and similar measures, the
most recent of which were approved as Propositions 22 and 26 in the general election held on November
2, 2010.
Any such initiative may affect the collection of fees, taxes and other types of revenue by local agencies
such as the City. Subject to overriding federal constitutional principles, such collection may be materially
and adversely affected by voter-approved initiatives, possibly to the extent of creating cash-flow problems
in the payment of outstanding obligations such as the Lease.
Article XIIIA. Article XII1A of the California Constitution limits the taxing powers of California public
agencies. Article XIIIA provides that the maximum ad valorem tax on real property cannot exceed 1% of
the "full cash value" of the property, and effectively prohibits the levying of any other ad valorem
property tax except for taxes above that level required to pay debt service on voter-approved general
obligation bonds. "Full cash value" 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 assessment."
The "full cash value" is subject to annual adjustment to reflect inflation at a rate not to exceed 2% or a
reduction in the consumer price index or comparable local data. Article XIIIA has subsequently been
amended to permit reduction of the "full cash value" base in the event of declining property values caused
by substantial damage, destruction or other factors, and to provide that there would be no increase in the
"full cash value" base in the event of reconstruction of property damaged or destroyed in a disaster and in
other special circumstances. There may also be declines in valuations if the California Consumer Price
Index is negative.
The foregoing limitation does not apply to ad valorem taxes or special assessments to pay the interest and
redemption charges on any indebtedness approved by the voters before July 1, 1978 or any bonded
indebtedness for the acquisition or improvement of real property approved by two-thirds of votes cast by
the voters voting on the proposition.
In the general election held November 4, 1986, voters of the State of California approved two measures,
Propositions 58 and 60, which further amend the terms "purchase" and "change of ownership," for
purposes of determining full cash value of property under Article XIIIA, to not include the purchase or
transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of
other property between parents and children. Proposition 60 amends Article XII1A to permit the
Legislature to allow persons over age 55 who sell their residence and buy or build another of equal or
lesser value within two years in the same city, to transfer the old residence's assessed value to the new
residence. In the March 26, 1996 general election, voters approved Proposition 193, which extends the
parents-children exception to the reappraisal of assessed value. Proposition 193 amended Article XIIIA
so that grandparents may transfer to their grandchildren whose parents are deceased, their principal
residences, and the first $1,000,000 of other property without a re-appraisal of assessed value.
54
Because the Revenue and Taxation Code does not distinguish between positive and negative changes in
the California Consumer Price Index used for purposes of the inflation factor, there was a decrease of
0.237% in 2009/10 — applied to the 2010/11 tax roll — reflecting the actual change in the California
Consumer Price Index, as reported by the State Department of Finance. For each fiscal year since Article
XIIIA has become effective (the 1978/79 Fiscal Year), the annual increase for inflation has been at least
2% except in seven fiscal years as shown below:
Tax Roll Percentage
1981/82 1.000%
1995/96 1.190
1996/97 1.110
1998/99 1.853
2004/05 1.867
2010/11 (0.237)
2011/12 0.753
Proposition 8 Adjustments. Proposition 8, approved in 1978, provides for the assessment of real
property at the lesser of its originally determined (base year) full cash value compounded annually by the
inflation factor, or its full cash value as of the lien date, taking into account reductions in value due to
damage, destruction, obsolescence or other factors causing a decline in market value. Reductions based
on Proposition 8 do not establish new base year values, and the property may be reassessed as of the
following lien date up to the lower of the then-current fair market value or the factored base year value.
The State Board of Equalization has approved this reassessment formula and such formula has been used
by county assessors statewide.
Article XIIIB. On November 6, 1979, California voters approved Proposition 4, or the Gann Initiative,
which added Article XIIIB to the California Constitution. Article XIIIB limits the annual appropriations
of the State and any city, county, city and county, school district, authority or other political subdivision of
the State. The "base year" for establishing such appropriations limit is the 1978/79 Fiscal Year, and the
limit is to be adjusted annually to reflect changes in population, consumer prices and certain increases in
the cost of services provided by public agencies.
Appropriations subject to Article XIIIB include generally the proceeds of taxes levied by or for the entity
and the proceeds of certain State subventions, refunds of taxes, benefit payments from retirement,
unemployment insurance and disability insurance funds. "Proceeds of taxes" include, but are not limited
to, all tax revenues, certain State subventions, and the proceeds to an entity of government, from (1)
regulatory licenses, user charges and user fees, to the extent that such charges and fees exceed the costs
reasonably borne in providing the regulation, product or service, and (2) the investment of tax revenues.
Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts permitted
to be spent, the excess would have to be returned by revising tax rates or fee schedules within the next
two subsequent fiscal years.
In the June 1990 election, the voters approved Proposition 111 amending the method of calculation of
State and local appropriations limits. Proposition 111 made several changes to Article XIIIB. First, the
term "change in the cost of living" was redefined as the change in the California per capita personal
income ("CPCPI") for the preceding year. Previously, the lower of the CPCPI or the United States
Consumer Price Index was used. Second, the appropriations limit for the fiscal year was recomputed by
adjusting the 1986/87 limit by the CPCPI for the three subsequent years. Third and lastly, Proposition 111
excluded appropriations for "qualified capital outlay for fiscal 1990/91 as defined by the legislature" from
proceeds of taxes.
Section 7910 of the Government Code requires the City to adopt a formal appropriations limit for each
fiscal year. The City's appropriations limit for 2011/12 is $ 110,790,424. The City's appropriations
subject to the limit for 2011/12 are $ 36,052,346. Based on this, the appropriations limit is not expected
to have any impact on the ability of the City to continue to budget and appropriate the Lease Payments as
required by the Lease.
Proposition 62. Proposition 62 was a statutory initiative adopted in the November 1986 general election.
Proposition 62 added Sections 53720 to 53730, inclusive, to the California Government Code. It
confirmed the distinction between a general tax and special tax, established by the State Supreme Court in
1982 in City and County of San Francisco v. Farrell, by defining a general tax as one imposed for general
governmental purposes and a special tax as one imposed for specific purposes. Proposition 62 further
provided that no local government or district may impose (i) a general tax without prior approval of the
electorate by majority vote or (ii) a special tax without such prior approval by two-thirds vote. It further
provided that if any such tax is imposed without such prior written approval, the amount thereof must be
withheld from the levying entity's allocation of annual property taxes for each year that the tax is
collected. By its terms, Proposition 62 applies only to general and special taxes imposed on or after
August 1, 1985. Proposition 62 was generally upheld in Santa Clara County Local Transportation
Authority v. Guardino, a California Supreme Court decision filed September 28, 1995.
Proposition 218. On November 5, 1996, California voters approved Proposition 218 — Voter Approval
for Local Government Taxes — Limitation on Fees, Assessments, and Charges — Initiative Constitutional
Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing
certain vote requirements and other limitations on the imposition of new or increased taxes, assessments
and property-related fees and charges. Proposition 218 states that all taxes imposed by local governments
shall be deemed to be either general taxes or special taxes. Special purpose districts, including school
districts, have no power to levy general taxes. No local government may impose, extend or increase any
general tax unless and until such tax is submitted to the electorate and approved by a majority vote. No
local government may impose, extend or increase any special tax unless and until such tax is submitted to
the electorate and approved by a two-thirds vote.
Proposition 218 also provides that no tax, assessment, fee or charge shall be assessed by any agency upon
any parcel of property or upon any person as an incident of property ownership except: (i) the ad valorem
property tax imposed pursuant to Article XIII and Article XIIIA of the California Constitution, (ii) any
special tax receiving a two-thirds vote pursuant to Section 4 of Article XIIIA the California Constitution,
and (iii) assessments, fees, and charges for property related services as provided in Article XIIID.
Proposition 218 added voter requirements for assessments and fees and charges imposed as an incident of
property ownership, other than fees and charges for sewer, water, and refuse collection services. In
addition, all assessments and fees and charges imposed as an incident of property ownership, including
sewer, water, and refuse collection services, are subjected to various additional procedures, such as
hearings and stricter and more individualized benefit requirements and findings. The effect of such
provisions will presumably be to increase the difficulty a local agency will have in imposing, increasing
or extending such assessments, fees and charges.
Proposition 218 also extended the initiative power to reducing or repealing any local taxes, assessments,
fees and charges. This extension of the initiative power is not limited to taxes imposed on or after
November 6, 1996, the effective date of Proposition 218, and could result in retroactive repeal or
reduction in any existing taxes, assessments, fees and charges, subject to overriding federal constitutional
principles relating to the impairment of contracts.
Proposition 218 provides that, effective July 1, 1997, fees that are charged "as an incident of property
ownership" may not "exceed the funds required to provide the property related services" and may only be
charged for services that are "immediately available to the owner of the property."
56
Proposition 1A. Proposition IA ("Proposition 1A"), proposed by the Legislature in connection with the
2004/05 Budget Act and approved by the voters in November 2004, restricts State authority to reduce
major local tax revenues such as the tax shifts permitted to take place in Fiscal Years 2004/05 and
2005/06. Proposition 1 A provides that the State may not reduce any local sales tax rate, limit existing
local government authority to levy a sales tax rate or change the allocation of local sales tax revenues,
subject to certain exceptions. Proposition IA generally prohibits the State from shifting to schools or
community colleges any share of property tax revenues allocated to local governments for any fiscal year,
as set forth under the laws in effect as of November 3, 2004. Any change in the allocation of property tax
revenues among local governments within a county must be approved by two-thirds of both houses of the
Legislature.
Proposition IA provides, however, that beginning in Fiscal Year 2008/09, the State may shift to schools
and community colleges up to 8% of local government property tax revenues, which amount must be
repaid, with interest, within three years, if the Governor proclaims that the shift is needed due to a severe
state financial hardship, the shift is approved by two-thirds of both houses and certain other conditions are
met. Such a shift may not occur more than twice in any ten-year period. The State may also approve
voluntary exchanges of local sales tax and property tax revenues among local governments within a
county.
For Fiscal Year 2009/10, $1,722,830 of the City's property tax revenues were diverted to the State as a
result of a Proposition 1A suspension. The City participated in a Proposition I A Securitization Program
(the "Program") sponsored by the California Statewide Communities Development Authority. The
Program allowed the City to exchange its anticipated State property tax receivable for cash.
Proposition 1 A also provides that if the State reduces the vehicle license fee ("VLF") rate currently in
effect, 0.65% of vehicle value, the State must provide local governments with equal replacement
revenues. Further, Proposition 1A requires the State to suspend State mandates affecting cities, counties
and special districts, excepting mandates relating to employee rights, schools or community colleges, in
any year that the State does not fully reimburse local governments for their costs to comply with such
mandates.
Proposition 22. On November 2, 2010, voters in the State approved Proposition 22. Proposition 22,
known as the "Local Taxpayer, Public Safety, and Transportation Protection Act of 2010," eliminates or
reduces the State's authority to (i) temporarily shift property taxes from cities, counties and special
districts to schools, (ii) use vehicle license fee revenues to reimburse local governments for State-
mandated costs (the State will have to use other revenues to reimburse local governments), (iii) redirect
property tax increment from redevelopment agencies to any other local government, (iv) use State fuel tax
revenues to pay debt service on State transportation bonds, or (v) borrow or change the distribution of
State fuel tax revenues.
Proposition 26. On November 2, 2010, voters in the State also approved Proposition 26. Proposition 26
amends Article XIIIC of the State Constitution to expand the definition of "tax" to include "any levy,
charge, or exaction of any kind imposed by a local government" except the following: (1) a charge
imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to
those not charged, and which does not exceed the reasonable costs to the local government of conferring
the benefit or granting the privilege; (2) a charge imposed for a specific government service or product
provided directly to the payor that is not provided to those not charged, and which does not exceed the
reasonable costs to the local government of providing the service or product; (3) a charge imposed for the
reasonable regulatory costs to a local government for issuing licenses and permits, performing
investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative
enforcement and adjudication thereof; (4) a charge imposed for entrance to or use of local government
property, or the purchase, rental, or lease of local government property; (5) a fine, penalty, or other
monetary charge imposed by the judicial branch of government or a local government, as a result of a
violation of law; (6) a charge imposed as a condition of property development; and (7) assessments and
property-related fees imposed in accordance with the provisions of Article XIIID. Proposition 26
provides that the local government bears the burden of proving by a preponderance of the evidence that a
levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the
reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a
payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the
governmental activity. The City does not expect the provisions of Proposition 26 to materially impede its
ability to pay Lease Payments when due.
Future Initiatives. From time to time other initiative measures could be adopted, affecting the ability of
the City to increase revenues and appropriations.
Early Redemption Risk
Early redemption of the Base Rental and redemption of the Bonds may occur in whole or in part without
premium, on any Bond Payment Date if the Leased Property or a portion thereof is lost, destroyed or
damaged beyond repair or taken by eminent domain and from the proceeds of title insurance, or on any
Bond Payment Date, without a premium (see "THE BONDS - Special Mandatory Redemption From Net
Proceeds"), if the City exercises its right to prepay Base Rental in whole or in part pursuant to the
provisions of the Lease and the Indenture. Further, the Bonds are subject to mandatory tender on the
Fixed Rate Conversion Date, in the event the interest portion of the Credit Facility is not reinstated
following a draw thereon, in an event of default under the Reimbursement Agreement, upon expiration of
the Credit Facility, or upon delivery of an Alternate Credit Facility (see "APPENDIX A - SUMMARY OF
THE LEGAL DOCUMENTS - THE INDENTURE - Substitution of the Credit Facility" and "THE BONDS -
Tender and Purchase of Bonds" herein).
Loss of Tax Exemption
As discussed under the caption "LEGAL MATTERS - Tax Matters" herein, interest on the Bonds could
become includable in gross income for purposes of federal income taxation retroactive to the date the
Bonds were issued as a result of future acts or omissions of the City or the Authority in violation of their
covenants contained in the Indenture and the Lease. Should such an event of taxability occur, the Bonds
are not subject to special redemption or any increase in interest rate and will remain outstanding until
maturity or until prepaid under one of the redemption provisions contained in the Indenture.
IRS Audit of Tax-Exempt Bond Issues
The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond
issues, including both random and targeted audits. It is possible that the Bonds will be selected for audit
by the Internal Revenue Service. It is also possible that the market value of the Bonds might be affected
as a result of such an audit of the Bonds (or by an audit of similar bonds).
LEGAL MATTERS
Enforceability of Remedies
The remedies available to the Trustee and the Owners of the Bonds upon an event of default under the
Indenture, the Lease or any other document described herein are in many respects dependent upon
regulatory and judicial actions which are often subject to discretion and delay. Under existing law and
judicial decisions, the remedies provided for under such documents may not be readily available or may
be limited. The various legal opinions delivered concurrently with the delivery of the Bonds and to be
delivered by Bond Counsel and bank Counsel on the date of the delivery of the Credit Facility are
qualified to the extent that the enforceability of certain legal rights related to the Indenture, the Lease and
the Credit Facility are subject to limitations imposed by bankruptcy, reorganization, insolvency or other
similar laws affecting the rights of creditors generally and by equitable remedies and proceedings
generally.
Approval of Legal Proceedings
Certain legal matters will be passed on for the City by Alvarez-Glasman & Colvin, West Covina,
California, as City Attorney and by Fulbright & Jaworski L.L.P., Los Angeles, California, as Disclosure
Counsel and for the Credit Facility by Karl Christiansen, Senior Counsel of Wells Fargo Bank, National
Association and by its Counsel, Kathleen C. Johnson, Esq. Attorney at Law.
Tax Matters
Original Opinion
On August 19, 2004, Fulbright & Jaworski L.L.P., in connection with the issuance of the Bonds, delivered
its opinion to the effect that, based upon an analysis of then existing statutes, regulations, rulings and
judicial decisions, and assuming, among other matters, compliance with certain covenants and
requirements, interest on the Bonds is excluded from gross income for federal income tax purposes, and is
not an item of tax preference for purposes of federal individual or corporate alternative minimum tax, but
such interest may be included in the calculation of corporation alternative minimum taxable income, and
such interest is exempt from State of California personal income taxes. A complete copy of the opinion of
Fulbright & Jaworski L.L.P. delivered at the original issuance of the Bonds is set forth in "APPENDIX D"
hereto.
No Updated Opinion of Fulbright & Jaworski L.L.P.
Fulbright & Jaworski L.L.P. has not taken, and does not intend to take, any action to update its original
opinion or to determine if the interest on the Bonds is presently excluded from gross income for federal
income tax purposes or exempt from State of California personal income taxes.
Opinion of Bond Counsel
Fulbright & Jaworski L.L.P., Los Angeles, California, Bond Counsel, will deliver its opinion that the
delivery of the Credit Facility will not, in and of itself, result in the inclusion of the interest on the Bonds
in gross income for purposes of federal income taxation. Bond Counsel expresses no opinion as to
whether the interest on the Bonds is currently excluded from gross income for federal income tax
purposes. The opinion of Bond Counsel to be delivered in connection with the remarketing of the Bonds
is set forth in "APPENDIX D" hereto.
59
General Considerations
Notwithstanding the foregoing, investors should be aware of the following information.
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 interest on the Bonds. The
Authority and the City have made certain representations and covenanted to comply with certain
restrictions, conditions and requirements designed to ensure that the interest on the Bonds will not be
included in federal gross income. Inaccuracy of these representations or failure to comply with these
covenants may result in the interest on the Bonds being included in gross income for federal income tax
purposes, possibly from the date of original issuance of the Bonds. The opinion of Fulbright & Jaworski
L.L.P. delivered in connection with the initial execution and delivery of the Bonds assumed the accuracy
of these representations and compliance with these covenants. Fulbright & Jaworski L.L.P. 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 its attention after the date of issuance of the
Bonds may adversely affect the value of, or the tax status of interest with respect to, the Bonds.
Accordingly, the opinion of Fulbright & Jaworski L.L.P. delivered in connection with the initial issuance
of the Bonds is not intended to, and may not, be relied upon in connection with any such actions, events
or matters.
Although Fulbright & Jaworski L.L.P. has rendered an opinion that interest on the 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 interest with respect to, the 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. Fulbright & Jaworski L.L.P. expresses no opinion regarding
any such other tax consequences.
Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause the
interest on the Bonds to be subject, directly or indirectly, 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 future
legislative proposals, clarification of the Code or court decisions may also affect the market price for, or
marketability of, the Bonds. Prospective purchasers of the remarketed Bonds should consult their own
tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as
to which Fulbright & Jaworski L.L.P. expresses an opinion.
The opinion of Fulbright & Jaworski L.L.P. delivered in connection with the initial execution and delivery
of the Bonds was based on current legal authority existing as of August 19, 2004, covered certain matters
not directly addressed by such authorities, and represented its judgment as to the proper treatment of the
Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the
courts. Furthermore, Fulbright & Jaworski L.L.P. cannot give and has not given any opinion or assurance
about the future activities of the Authority or 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 Authority
and the City have covenanted, however, to comply with the requirements of the Code.
Fulbright & Jaworski L.L.P.'s engagement with respect to the issuance of the Bonds ended on August 19,
2004 with the original issuance of the Bonds. Bond Counsel's engagement with respect to the Bonds will
end on the date its opinion is delivered to the Trustee. Unless separately engaged, Fulbright & Jaworski
L.L.P. is obligated to defend the Authority, the City or the Beneficial Owners regarding the tax-exempt
status of the interest on the Bonds in the event of an audit examination by the IRS. Under current
procedures, parties other than the Authority and the City and their 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
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 Bonds and may cause the Authority or the
Beneficial Owners to incur significant expense.
Litigation
There is no action, suit or proceeding known by the Authority or the City to be pending or threatened,
restraining or enjoining the Authority or the City in the execution or delivery of any documents related to
the delivery of the Credit Facility and the remarketing of the Bonds, or in any way contesting or affecting
the validity of, the Bonds. There is no litigation known to be pending, or to the knowledge of the
Authority and the City, threatened, questioning the existence of the Authority or the City or the title of the
officers of the Authority or the City to their respective offices.
There exist lawsuits and claims against the City, which are incidental to the ordinary course of operations
of the City. In the view of the City's management and of the City Attorney, there is no litigation, present
or pending, which will individually or in the aggregate materially impair the City's ability to service its
indebtedness or which will have a material adverse effect on the business operations of the City.
CONCLUDING INFORMATION
Rating on the Bonds
In connection with the remarketing of the Bonds, as described in this Reoffering Memorandum, it is
expected that Standard & Poor's Ratings Services ("S&P") will assign the Bonds the rating of" 17
1
with the understanding that the Credit Facility will be issued by the Credit Entity on November 30, 2011.
The rating should be evaluated independently of any other ratings of the City. No application has been
made to any other rating agency in order to obtain additional ratings on the Bonds. The credit enhanced
ratings on the Bonds reflect S&P' current assessment of the creditworthiness of the Credit Entity and its
ability to pay draws under the Credit Facility. Any further explanation as to the significance of the above
ratings may be obtained from S&P.
The above described ratings are not recommendations to buy, sell or hold the Bonds, and such rating may
be subject to revision or withdrawal at any time by S&P. Neither the City, the Authority nor the
Remarketing Agent undertake any responsibility either to bring to the attention of the owners of the
Bonds the downward revision or withdrawal of any rating obtained or to oppose any such revision or
withdrawal. Any downward revision or withdrawal of a rating may have an adverse effect on the market
price of the Bonds.
Remarketing Agent
Wells Fargo Securities serves as Remarketing Agent for the Bonds. The Remarketing Agent will carry
out the duties and obligations provided for the Remarketing Agent under and in accordance with the
provisions of the Trust Agreement and the Remarketing Agreement, by and between the Authority and the
Remarketing Agent, dated as of October 20, 2011. Wells Fargo Securities is the trade name for certain
capital markets and investment banking services of Wells Fargo & Company and its subsidiaries,
including Wells Fargo Bank, National Association. The principal office of the Remarketing Agent (for
purposes of its responsibilities as Remarketing Agent) is 301 S College Street, Charlotte, North Carolina
28202.
The Financial Advisor
The material contained in this Reoffering Memorandum was prepared by the Authority with the assistance
of the Financial Advisor, who advised the Authority and the City as to the financial structure and certain
other financial matters relating to the Bonds. The information set forth herein has been obtained from
sources, which are believed to be reliable, but such information is not guaranteed by the Financial Advisor
as to accuracy or completeness, nor has it been independently verified. Fees paid to the Financial Advisor
are contingent upon the sale and delivery of the Bonds.
Continuing Disclosure
The City has covenanted to provide annually certain financial information and operating data relating to
the City by not later than March 31 each year commencing March 31, 2012, to provide the audited
Financial Statements of the City for the Fiscal Year ending June 30, 2011 and for each subsequent Fiscal
Year when they are available (together, the "Annual Report"), and to provide notices of the occurrence of
certain other enumerated events. The Annual Report will be filed by the City on the Electronic Municipal
Market Access Website ("EMMA") operated by the Municipal Securities Rulemaking Board
(www.emma.msrb.org). The specific nature of the information to be contained in the Annual Report or
the notices of listed events and certain other terms of the continuing disclosure obligation are summarized
in "APPENDIX C - FORM OF CONTINUING DISCLOSURE AGREEMENT." These covenants will be made
in order to assist the Underwriter in complying with Rule 15c2-12 of the Securities Exchange Act of 1934
(the "Rule").
Additional Information
The summaries and references contained herein with respect to the Indenture, the Lease, the Bonds,
statutes and other documents, do not purport to be comprehensive or definitive and are qualified by
reference to each such document or statute and references to the Bonds are qualified in their entirety by
reference to the form hereof included in the Indenture. Copies of the Indenture and the Lease may be
obtained from the Authority through the Executive Director, 1444 West Garvey Avenue, West Covina,
California 91790.
References
Any statements in this Reoffering Memorandum involving matters of opinion, whether or not expressly
so stated, are intended as such and not as representations of fact.
Execution
The execution of this Reoffering Memorandum by the Treasurer has been duly authorized by the West
Covina Public Financing Authority.
WEST COVINA PUBLIC FINANCING AUTHORITY
By:
Treasurer
APPENDIX A
SUMMARY OF THE LEGAL DOCUMENTS
[to be provided by Bond Counsel]
A-1
APPENDIX B
CITY AUDITED FINANCIAL STATEMENTS
APPENDIX C
FORM OF CONTINUING DISCLOSURE AGREEMENT
APPENDIX D
OPINIONS OF COUNSEL
[to be provided by Bond Counsel]
APPENDIX E
DTC AND THE BOOK-ENTRY-ONLY SYSTEM
The following description of the Depository Trust Company ("DTC'), the procedures and record
keeping with respect to beneficial ownership interests in the Bonds, payment of principal, interest and
other payments on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of
beneficial ownership interest in the Bonds and other related transactions by and between DTC, the DTC
Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no
representations can be made concerning these matters and neither the DTC Participants nor the
Beneficial Owners should rely on the foregoing information with respect to such matters, but should
instead confirm the same with DTC or the DTC Participants, as the case may be.
Neither the issuer of the Bonds (the "Issuer') nor the trustee, fiscal agent or paying agent
appointed with respect to the Bonds (the "Agent') take any responsibility for the information contained in
this Appendix.
No assurances can be given that DTC, DTC Participants or Indirect Participants will distribute
to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds,
(b) certificates representing ownership interest in or other confirmation or ownership interest in the
Bonds, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered
owner of the Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC
Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable
to DTC are on file with the Securities and Exchange Commission and the current "Procedures" of DTC
to be followed in dealing with DTC Participants are on file with DTC.
1. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository
for the Bonds (the "Securities"). The Securities will be issued as fully-registered securities registered in
the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an
authorized representative of DTC. One fully-registered Security certificate will be issued for each issue
of the Securities, each in the aggregate principal amount of such issue, and will be deposited with DTC.
If, however, the aggregate principal amount of any issue exceeds $500 million, one certificate will be
issued with respect to each $500 million of principal amount, and an additional certificate will be issued
with respect to any remaining principal amount of such issue.
2. 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-US. 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 contained on these Internet sites is not incorporated herein
by reference.
3. Purchases of Securities under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Securities on DTC's records. The ownership interest of
each actual purchaser of each Security ("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
Securities 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 Securities, except in the event that use of the book-entry system for the Securities is
discontinued.
4. To facilitate subsequent transfers, all Securities 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 Securities 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 Securities; DTC's records
reflect only the identity of the Direct Participants to whose accounts such Securities 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.
5. 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 Securities may wish to take
certain steps to augment the transmission to them of notices of significant events with respect to the
Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents.
For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the
Securities 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.
6. Redemption notices shall be sent to DTC. If less than all of the Securities 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.
7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with
respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI
Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer 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 Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
8. Redemption proceeds and distributions on the Securities 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 Issuer or Agent, 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, Agent, or
Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment
of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as
may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent,
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.
9. DTC may discontinue providing its services as depository with respect to the Securities at
any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a
successor depository is not obtained, Security certificates are required to be printed and delivered.
10. Issuer may decide to discontinue use of the system of book-entry-only transfers through
DTC (or a successor securities depository). In that event, Security certificates will be printed and
delivered to DTC.
11. The information in this section concerning DTC and DTC's book-entry system has been
obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the
accuracy thereof.
E-3
APPENDIX F
FORM OF IRREVOCABLE LETTER OF CREDIT