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HomeMy WebLinkAboutFin FY2009-10 Tax and Revenue Anticipation NotesCITY OF�4W Agenda Item No: 3 Meeting Date: September 8, 2009 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Finance e1 � Prepared by: Cindy Mosser, Finance Direc City Manager Approval: SUBJECT: Resolution Authorizing and Approving the Borrowing of Funds for Fiscal Year 2009-2010 and the Issuance and Sale of a 2009-2010 Tax and Revenue Anticipation Note RECOMMENDATION: Approve the Resolution Authorizing the Issuance of Tax and Revenue Anticipation Notes for Fiscal Year 2009-2010. BACKGROUND: In April 2009, we attempted to participate in a Statewide Financing program through the California State Association of Counties and League of California Cities. Through this program an additional source of funding is available annually to the general fund for cash flow needs. The City has participated in this program several times in previous years. The last year the City participated in this program was in Fiscal Year 2004-2005. Due to the State's inability to produce a timely budget and the low credit rating of the State, the program sponsors were unable to obtain credit enhancement providers. With the downturn in sales tax receipts, other tax revenues, and the cash flow for this fiscal year, we would like to participate in a funding alternative that is feasible and prudent. Under the interpretation of Sections 53850-53858 of the California Government Code and Federal tax law by the City's bond counsel, Jones Hall, the City may borrow an amount not to exceed the maximum anticipated cash flow deficit plus five percent of working capital reserve if all the note proceeds, including investment earnings, are deemed spent within 6 months of the date of the issue of the notes. This method of financing involves the sale of Tax and Revenue Anticipation Notes (TRANs) and is a traditional means used by local governments to ensure a consistent cash flow during the fiscal year. ANALYSIS: The attached Resolution, and related supporting documents, authorizes the issuance by the City of San Rafael of Tax and Revenue Anticipation Notes (TRANs) in an amount not -to -exceed $8,500,000. The maturity of the TRANS will not exceed a period of thirteen months, and the notes will be issued effective in September 2009. The interest rate on the notes will depend on competitive rates at the time of the sale. FOR CITY CLERK ONLY File No.: Council Meeting: Disposition: SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 The purpose of the temporary cash borrowing is to increase available cash balances which provide operating funds to cover cash shortfalls. The cash shortfalls arise due to the timing differential of expected monthly cash receipts and disbursements throughout the 2009-2010 fiscal year. The TRANs also provide an additional source of revenues because the cost of the interest paid against the TRANs is less than reinvestment income of the proceeds. This produces a net gain to the City. The net return is allowable under IRS rules and is one of a very few tools where the City can actually retain the excess interest earnings without having to "rebate" the excess back to the federal government. The attached Resolution authorizes the issuance by the City of San Rafael in 2009 for TRANS in an amount not to exceed $8,500,000. Staff has calculated our expected level of funding to be $7,941,000. Enclosed with the report is a Cash Flow Worksheet, which determines our level of available funding. The result of $7,941,000 is tied to current year expenditures and revenues, and their impacts on monthly cash flows. The Resolution authorizes the City Manager, Finance Director and City Attorney to prepare and execute all necessary documents and agreements related to the TRANS borrowing. The Resolution also appoints Jones Hall, a Professional Law Corporation, as bond counsel and disclosure counsel and Northcross, Hill and Ach, Inc. as Financial Advisor to the City in connection with the issuance and sale of the Notes. The distribution of the Preliminary Official Statement by the City is subject to federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934. These laws require the Preliminary Official Statement to include all facts that would be material to an investor in the Notes. Material information is information that there is a substantial likelihood would have actual significance in the deliberations of the reasonable investor when deciding whether to buy or sell the Notes. If the City Council concludes that the Preliminary Official Statement includes all facts that would be material to an investor in the Obligations, it must adopt a resolution that authorizes staff to execute a certificate to the effect that the Preliminary Official Statement has been deemed final. The Securities and Exchange Commission (the SEC), the agency with regulatory authority over the City's compliance with the federal securities laws, has issued guidance as to the duties of the City Council with respect to its approval of the Preliminary Official Statement. In it's Report of Investigation in the Matter of County of Orange, California as it Relates to the Conduct of the Members of the Board of Supervisors (Release No. 36761 / January 24, 1996) (the Release), the SEC stated that, if a member of the City Council has knowledge of any facts or circumstances that an investor would want to know about prior to investing in the Notes, whether relating to their repayment, tax-exempt status, undisclosed conflicts of interest with interested parties, or otherwise, he or she should endeavor to discover whether such facts are adequately disclosed in the Preliminary Official Statement. In the Release, the SEC stated that the steps that a member of the City Council could take include becoming familiar with the Preliminary Official Statement and questioning staff and consultants about the disclosure of such facts. FISCAL IMPACT: Approving the resolution and moving forward with the TRANs, the proceeds of San Rafael TRANS would be placed into securities consistent with City investment practices and State law. Maturities would be matched to payment dates for principal and interest. SAN RAFAEL CITY COUNCIL AGENDA REPORT / Pa2e: 3 ACTION REQUIRED: Staff would recommend the Council accept the report and adopt the Resolution as presented, and direct the staff noted above to execute the necessary documents. ATTACHMENTS: Resolution (With Form of Note as Exhibit A) Cash Flow Worksheet Draft Preliminary Official Statement (POS) RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING AND APPROVING THE BORROWING OF FUNDS FOR FISCAL YEAR 2009-2010 AND THE ISSUANCE AND SALE OF 2009-10 TAX AND REVENUE ANTICIPATION NOTES IN AN AMOUNT NOT TO EXCEED $8,500,000 THEREFOR THE CITY COUNCIL OF THE CITY OF SAN RAFAEL, CALIFORNIA (the "CITY") DOES RESOLVE AS FOLLOWS: WHEREAS, pursuant to Article 7.6 (commencing with section 53850) of Chapter 4 of Part 1 of Division 2 of Title 5 of the California Government Code (the "Law'), this City Council (the "Council') has found and determined that moneys are needed for the requirements of the City, a municipal corporation and charter city duly organized and existing under the laws of the State of California, to satisfy obligations payable from the General Fund of the City (the "General Fund"), and that it is necessary that said sum be borrowed for such purpose at this time by the issuance of temporary notes therefor in anticipation of the receipt of taxes, income, revenue, cash receipts and other moneys to be received by the City for the General Fund during or allocable to the fiscal year of the City beginning July 1, 2009 and ending June 30, 2010 ("Fiscal Year 2009-10"); NOW, THEREFORE, it is hereby DETERMINED and ORDERED as follows: Section 1. Limitation on Maximum Amount. The principal amount of notes issued pursuant hereto, when added to the interest payable thereon, shall not exceed eighty-five percent (85%) of the estimated amount of the uncollected taxes, income, revenue, cash receipts and other moneys of the City for the General Fund attributable to Fiscal Year 2009-10, and available for the payment of said notes and the interest thereon (as hereinafter provided). Section 2. Authorization and Terms of Notes. Solely for the purpose of anticipating taxes, income, revenue, cash receipts and other moneys to be received by the City for the General Fund during or allocable to Fiscal Year 2009-10, and not pursuant to any common plan of financing, the City hereby determines to and shall borrow the principal amount of not -to - exceed Eight Million Five Hundred Thousand Dollars ($8,500,000) by the issuance of temporary notes under the Law, designated "City of San Rafael, California 2009-10 Tax and Revenue Anticipation Notes" (the "Notes'). The Notes shall be dated the date of initial delivery, shall mature (without option of prior redemption) no later than thirteen months after their date of issuance, and shall bear interest, payable at maturity and computed on a 30 -day month/360- day year basis, at an interest rate not in excess of five percent (5%) per annum. Both the principal of and interest on the Notes shall be payable in lawful money of the United States of America, as described below. Section 3. Form of Notes; Book Entry Only System. The Notes shall be issued in fully registered form, without coupons, and shall be substantially in the form and substance set forth in Exhibit A attached hereto and by reference incorporated herein, the blanks in said form to be filled in with appropriate words and figures. The Notes shall be numbered from 1 consecutively upward in order of issuance, shall be in the denomination of $5,000 each or any integral multiple thereof. "CUSIP" identification numbers shall be imprinted on the Notes, but such numbers shall not constitute a part of the contract evidenced by the Notes and any error or omission with respect thereto shall not constitute cause for refusal of any purchaser to accept delivery of and pay for the Notes. In addition, failure on the part of the City to use such CUSIP numbers in any notice to the registered owners of the Notes shall not constitute an event of default or any violation of the City's contract with such owners and shall not impair the effectiveness of any such notice. Except as provided below, the owner of all of the Notes shall be The Depository Trust Company, New York, New York ("DTC"), and the Notes shall be registered in the name of Cede & Co., as nominee for DTC. The Notes shall be initially executed and delivered in the form of a single fully registered Note in the full aggregate principal amount of the Notes. The City may treat DTC (or its nominee) as the sole and exclusive owner of the Notes registered in its name for all purposes of this Resolution, and the City shall not be affected by any notice to the contrary. The City shall not have any responsibility or obligation to any participant of DTC (a "Participant"), any person claiming a beneficial ownership interest in the Notes under or through DTC or a Participant (a "Beneficial Owner"), or any other person not shown on the register of the City as being an owner, with respect to the accuracy of any records maintained by DTC or any Participant or the payment by DTC or any Participant by DTC or any Participant of any amount in respect of the principal or interest with respect to the Notes. The City shall pay all principal and interest with respect to the Notes only to DTC or its nominee, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to the principal and interest with respect to the Notes to the extent of the sum or sums so paid. Except under the conditions noted below, no person other than DTC shall receive a Note. Upon delivery by DTC to the City of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., the term "Cede & Co." in this Resolution shall refer to such new nominee of DTC. If the City determines that it is in the best interest of the Beneficial Owners that they be able to obtain Notes and delivers a written certificate to DTC to that effect, DTC shall notify the Participants of the availability through DTC of Notes. In such event, the City shall issue, transfer and exchange Notes as requested by DTC and any other owners in appropriate amounts. DTC may determine to discontinue providing its services with respect to the Notes at any time by giving notice to the City and discharging its responsibilities with respect thereto under applicable law. Under such circumstances (if there is no successor securities depository), the City shall be obligated to deliver Notes to the Beneficial Owners as described in this Resolution. Whenever DTC requests the City to do so, the City will cooperate with DTC in taking appropriate action after reasonable notice to (a) make available one or more separate Notes evidencing the Notes to any DTC Participant having Notes credited to its DTC account or (b) arrange for another securities depository to maintain custody of Certificates evidencing the Notes. -2- Notwithstanding any other provision of this Resolution to the contrary, so long as any Note is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to the principal and interest with respect to such Note and all notices with respect to such Note shall be made and given, respectively, to DTC as provided as in the representation letter delivered on the date of issuance of the Notes. Section 4. Use of Proceeds. The proceeds of the sale of the Notes shall be deposited in a segregated account in the General Fund and used and expended by the City for any purpose for which it is authorized to expend funds from the General Fund. Section 5. Security. The principal amount of the Notes, together with the interest thereon, shall be payable from taxes, income, revenue, cash receipts and other moneys which are received by the City for the General Fund for Fiscal Year 2009-10. As security for the payment of the principal of and interest on the Notes the City hereby pledges the first "unrestricted moneys' (as hereinafter defined) to be received by the City (a) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of January, 2010; (b) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of May, 2010; and (c) an amount sufficient to pay interest as due on the Notes at their maturity, in the month of June, 2010 (such pledged amounts being hereinafter called the "Pledged Revenues"). The principal of the Notes and the interest thereon shall constitute a first lien and charge thereon and shall be payable from the Pledged Revenues. To the extent not so paid from the Pledged Revenues, the Notes shall be paid from any other moneys of the City lawfully available therefor. In the event that there are insufficient "unrestricted moneys" received by the City to permit the deposit into the Special Account (as hereinafter defined) of the full amount of the Pledged Revenues to be deposited in any month by the last business day of such month, then the amount of any deficiency shall be satisfied and made up from any other moneys of the City lawfully available for the repayment of the Notes and interest thereon. The term "unrestricted moneys" shall mean taxes, income, revenue, cash receipts, and other moneys intended as receipts for the General Fund for Fiscal Year 2009-10 and which are generally available for the payment of current expenses and other obligations of the City. Section 6. Special Account. There is hereby created, within the General Fund, a special account to be designated the "2009-10 Tax and Revenue Anticipation Note Special Account" (the "Special Account") and applied as directed in this Resolution. Any money placed in the Special Account shall be for the benefit of the owners of the Notes and, until the Notes and all interest thereon are paid or until provision has been made for the payment of the Notes at maturity with interest to maturity, the moneys in the Special Account shall be applied solely for the purposes for which the Special Account is created. During the months of January, May and June, 2010, the City shall deposit all Pledged Revenues in the Special Account. On the maturity date of the Notes, the City shall transfer to DTC the moneys in the Special Account necessary to pay the principal of and interest on the Notes at maturity and to the extent said moneys are insufficient therefor an amount of moneys from the General Fund which will enable payment of the full principal of and interest on the Notes at maturity. DTC will thereupon make payments of principal of and interest on the Notes to the DTC Participants who will thereupon make payments to the Beneficial Owners of the Notes. Any moneys remaining in the Special Account after the Notes and the interest thereon -3- have been paid, or provision for such payment has been made, shall be transferred to the General Fund. Section 7. Deposit and Investment of Special Account. All moneys held by the City in the Special Account, if not invested, shall be held in time or demand deposits as pubhc funds and shall be secured at all times by bonds or other obligations which are authorized by law as security for public deposits, of a market value at least equal to the amount required by law. Moneys in the Special Account shall, to the greatest extent possible, be invested by the City directly, or through an investment agreement, in investments as permitted by the laws of the State of California as now in effect and as hereafter amended, and the proceeds of any such investments shall be deposited in the Special Account. Section 8. Execution of Notes. The City Manager, the Finance Director or the City Attorney (each an "Authorized Officer') is hereby authorized to execute the Notes by manual or facsimile signature, and the City Clerk of the City is hereby authorized to countersign the same by manual or facsimile signature (although at least one of such signatures shall be manual) and to affix the seal of the City thereto by facsimile impression thereof, and said officers are hereby authorized to cause the blank spaces thereof to be filled in as may be appropriate. Section 9. Transfer of Notes. Any Note may, in accordance with its terms, but only if the City determines to no longer maintain the book entry only status of the Notes, DTC determines to discontinue providing such services and no successor securities depository is named or DTC requests the City to defiver Note certificates to particular DTC Participants, be transferred, upon the books required to be kept pursuant to the provisions of Section 11 hereof, by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Note for cancellation at the office of the City Clerk, accompanied by delivery of a written instrument of transfer in a form approved by the City, duly executed. Whenever any Note or Notes shall be surrendered for transfer, the City shall execute and defiver a new Note or Notes, for like aggregate principal amount of the Note or Notes surrendered for transfer. Section 10. Exchange of Notes. Any Note may, in accordance with its terms, but only if the City determines to no longer maintain the book entry only status of the Notes, DTC determines to discontinue providing such services and no successor securities depository is named or DTC requests the City to deliver Note certificates to particular DTC Participants, be exchanged at the office of the City Clerk for a like aggregate principal amount of Notes of authorized denominations and of the same maturity. Section 11. Note Register. The City shall keep or cause to be kept sufficient books for the registration and transfer of the Notes if the book entry only system is no longer in effect and, in such case, the City Clerk shall register or transfer or cause to be registered or transferred, on said books, Notes as herein before provided. While the book entry only system is in effect, such books need not be kept as the Notes will be represented by one Note registered in the name of Cede & Co., as nominee for DTC. -4- Section 12. Temporary Notes. The Notes may be initially issued in temporary form exchangeable for definitive Notes when ready for delivery. The temporary Notes may be printed, lithographed or typewritten, shall be of such denominations as may be determined by the City, and may contain such reference to any of the provisions of this Resolution as may be appropriate. Every temporary Note shall be executed by the City upon the same conditions and in substantially the same manner as the definitive Notes. If the City issues temporary Notes it will execute and furnish definitive Notes without delay, and thereupon the temporary Notes may be surrendered, for cancellation, in exchange therefor at the office of the City Clerk and the City Clerk shall deliver in exchange for such temporary Notes an equal aggregate principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall be entitled to the same benefits pursuant to this Resolution as definitive Notes executed and delivered hereunder. Section 13. Notes Mutilated, Lost, Destroyed or Stolen. If any Note shall become mutilated the City, at the expense of the owner of said Note, shall execute and deliver a new Note of like maturity and principal amount in exchange and substitution for the Note so mutilated, but only upon surrender to the City Clerk of the Note so mutilated. Every mutilated Note so surrendered to the City Clerk shall be canceled and delivered to, or upon the order of, the City. If any Note shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the City and, if such evidence be satisfactory to the City and indemnity satisfactory to it shall be given, the City, at the expense of the owner, shall execute and deliver a new Note of like maturity and principal amount in lieu of and in substitution for the Note so lost, destroyed or stolen. The City may require payment of a sum not exceeding the actual cost of preparing each new Note issued under this Section 13 and of the expenses which may be incurred by the City in the premises. Any Note issued under the provisions of this Section 13 in lieu of any Note alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the City whether or not the Note so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be equally and proportionately entitled to the benefits of this Resolution with all other Notes issued pursuant to this Resolution. Section 14. Covenants and Warranties. It is hereby covenanted and warranted by the City that all representations and recitals contained in this Resolution are true and correct, and that the City and its appropriate officials have duly taken all proceedings necessary to be taken by them, and will take any additional proceedings necessary to be taken by them, for the prompt collection and enforcement of the taxes, income, revenue, cash receipts and other moneys pledged hereunder in accordance with law and for carrying out the provisions of this Resolution. Section 15. Tax Covenants. (a) No Arbitrage. The City shall not take, nor permit nor suffer to be taken any action with respect to the proceeds of the Notes which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Notes (the "Closing Date') would have caused the Notes to be "arbitrage bonds' within the meaning of section 148 of the Internal Revenue Code of 1986 (the "Code'). -5- (b) Rebate Requirement. The City shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government. (c) Private Activity Limitation. The City shall assure that proceeds of the Notes are not so used as to cause the Notes to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.. (d) Federal Guarantee Prohibition. The City shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Notes to be "federally guaranteed" within the meaning of section 149(b) of the Code. (e) Maintenance of Tax -Exemption. The City shall take all actions necessary to assure the exclusion of interest on the Notes from the gross income of the owners of the Notes to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the Closing Date. Section 16. Official Statement. The City Council hereby approves the Official Statement describing the Notes, in substantially the form on file with the City Clerk, together with any changes therein or additions thereto deemed advisable by the Authorized Officer. The City Council authorizes and directs the Authorized Officer on behalf of the City to deem "finar pursuant to Rule 15c2-12 under the Securities Exchange Act of 1934 (the "Rule") the Official Statement prior to its distribution by the financial advisors to the City. The execution of the Official Statement, which shall include such changes and additions thereto deemed advisable by the Authorized Officer and such information permitted to be excluded from the Official Statement pursuant to the Rule, shall be conclusive evidence of the approval of the Official Statement by the City. The Authorized Officer is authorized and directed to execute the Official Statement and a statement that the facts contained in the Official Statement, and any supplement or amendment thereto (which shall be deemed an original part thereof for the purpose of such statement) were, at the time of sale of the Notes, true and correct in all material respects and that the Official Statement did not, on the date of sale of the Notes, and does not, as of the date of delivery of the Notes, contain any untrue statement of a material fact with respect to the City or omit to state material facts with respect to the City required to be stated where necessary to make any statement made therein not misleading in the light of the circumstances under which it was made. The Authorized Officer shall take such further actions prior to the signing of the Official Statement as are deemed necessary or appropriate to verify the accuracy thereof. The Official Statement is approved for distribution in the offering and sale of the Notes. Section 17. Sale of Notes. The Notes will be sold by a selection process conducted by Northcross, Hill & Ach, Inc. as Financial Advisor to the City, and sold to the underwriting firm selected at the conclusion of such process (the "Underwriter'), so long as the interest rate on the Notes does not exceed 5%, and the compensation paid to the Underwriter does not exceed one half of one percent (0.50%) of the principal amount of the Notes. The Authorized Officer is hereby directed to execute a Note Purchase Agreement, dated the date of sale of the Notes to the Underwriter, between the Underwriter and the City, in 0 substantially the form on file with the Authorized Officers (the 'Bond Purchase Agreement'), so long as the limitations set forth in the preceding paragraph are not exceeded. Section 18. Engagement of Professional Services. The City hereby approves the engagement of Jones Hall, A Professional Law Corporation, as Bond Counsel and Disclosure Counsel,and Northcross, Hill & Ach, Inc. as Financial Advisor to the City in connection with the issuance and sale of the Notes. Section 19. Preparation of Notes; Official Action. Jones Hall, A Professional Law Corporation, as bond counsel, is directed to cause suitable Notes to be prepared showing on their face that the same bear interest at the rate specified in the offer submitted by the successful bidder or bidders, and to cause the blank spaces therein to be filled in to comply with the provisions of this Resolution, and to procure their execution by the proper officers, and to cause the Notes to be delivered when so executed to DTC on behalf of the successful bidder or bidders therefor upon the receipt of the purchase price by the City Treasurer in accordance with such successful bid or bids. Each Authorized Officer and the City Clerk, or any of them, are further authorized and directed to make, execute and deliver such certificates, agreements and other closing documents as are necessary to consummate the transactions contemplated by this Resolution. Section 20. Effective Date. This Resolution shall take effect upon its adoption. -7- I, ESTHER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the Council of said City on Tuesday, the 8tb of September 2009, by the following vote, to wit: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT:COUNCILMEMBERS: In ESTHER C. BEIRNE, City Clerk EXHIBIT A FORM OF NOTE No.1 CITY OF SAN RAFAEL, CALIFORNIA 2009-10 TAX AND REVENUE ANTICIPATION NOTE INTEREST RATE: OWNER: PRINCIPAL SUM: MATURITY DATE: September J 2010 CEDE & CO. **** ISSUE DATE: September J 2009 MILLION DOLLARS**** CUSIP: The CITY OF SAN RAFAEL, a municipal corporation, duly organized and existing under and by virtue of the Constitution and laws of the State of California (the "City'), for value received hereby promises to pay to the Registered Owner stated above, or registered assigns (the "Owner"), on the Maturity Date stated above, the Principal Sum stated above, in lawful money of the United States of America, and to pay interest thereon in like lawful money at the rate per annum stated above, payable on the Maturity Date stated above, calculated on the basis of 360 -day year composed of twelve 30 -day months. Both the principal of and interest on this Note shall be payable at maturity to the Owner. It is hereby certified, recited and declared that this Note is one of an authorized issue of Notes in the aggregate principal amount of Million Dollars ($ ), all of like tenor, issued pursuant to the provisions of Resolution No. of the City Council of the City duly passed and adopted on September 8, 2009 (the "Resolution'), and pursuant to Article 7.6 (commencing with section 53850) of Chapter 4, Part 1, Division 2, Title 5, of the California Government Code, and that all things, conditions and acts required to exist, happen and be performed precedent to and in the issuance of the Notes exist, have happened and have been performed in regular and due time, form and manner as required by law, and that this Note, together with all other indebtedness and obligations of the City, does not exceed any limit prescribed by the Constitution or statutes of the State of California. The principal amount of the Notes, together with the interest thereon, shall be payable from taxes, income, revenue, cash receipts and other moneys which are received by the City for the General Fund of the City for Fiscal Year 2009-10. As security for the payment of the principal of and interest on the Notes the City has pledged the first "unrestricted moneys" (as hereinafter defined) to be received by the City (a) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of January, 2010; (b) ) an amount equal to fifty percent (50%) of the principal amount of the Notes in the month of May, 2010; and (c) an amount sufficient to pay interest as due on the Notes at their maturity, in the month of June, 2010 (such pledged amounts being hereinafter called the "Pledged Revenues'). The principal of the Notes and .the interest thereon shall constitute a first lien and charge thereon and shall be payable from the Pledged Revenues. To the extent not so paid from the Pledged Revenues, the Notes shall be paid from any other moneys of the City lawfully available therefor. In the event that there are insufficient "unrestricted moneys" received by the City to permit the deposit into the Special Account (as hereinafter defined) of the full amount of the Pledged Revenues to be deposited in any month by the last business day of such month, then the amount of any deficiency shall be satisfied and made up from any other moneys of the City lawfully available for the repayment of the Notes and interest thereon. The term "unrestricted moneys' shall mean taxes, income, revenue, cash receipts, and other moneys intended as receipts for the General Fund of the City for Fiscal Year 2009-10 and which are generally available for the payment of current expenses and other obligations of the City. The Notes are issuable as fully registered Notes, without coupons, in denominations of $5,000 and any integral multiple thereof. Subject to the limitations and conditions as provided in the Resolution, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations and of the same maturity. The Notes are not subject to redemption prior to maturity. This Note is transferable by the Owner hereof, but only under the circumstances, in the manner and subject to the limitations provided in the Resolution. Upon registration of such transfer a new Note or Notes, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The City may treat the Owner hereof as the absolute owner hereof for all purposes, and the City shall not be affected by any notice to the contrary. Unless this Note is presented by an authorized representative of The Depository Trust Company to the issuer or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has aninterest herein. Exhibit A Page 2 IN WITNESS WHEREOF, the City of San Rafael has caused this Note to be executed by the City Manager and countersigned by the City Clerk of the City, all as of the Issue Date stated above. Countersigned: [3N City Clerk CITY OF SAN RAFAEL Lai Exhibit A Page 3 City Manager ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto (Name, Address and Tax Identification or Social Security Number of Assignee) the within -registered Note and hereby irrevocably constitute(s) and appoints(s) attorney, to transfer the same on the Note register of the City with full power of substitution in the premises. Signature Guaranteed: NOTICE: Signature(s) must be guaranteed by a qualified guarantor. Exhibit A Page 4 NOTICE: The signature(s) on this assignment must correspond with the name(s) as written on the face of the within Note in every particular without alteration or enlargement or any change whatsoever. «} } 7 }} -- /�{�! ) k \ { .CL ! & !~\\ ! $ !®y! City of San Rafael 2009 TRAN Sizing Working Capital Reserve Amount Aggregate 2008-09 General Fund Expenditures $58,933,117 Less: Interfund Transfers Out (3,784,628) Less: 2008-09 TRAN Repayments 0 Subtotal: $55,148,490 A) Times 5% $2,757,424 B) Average Monthly Beginning Balance from prior year $274,358 Working Capital Reserve (Lesser of A or B) $274,358 TRAN Sizing Maximum cumulative cash flow deficit in FY 2009-10 $7,667,028 Working Capital Reserve 274,358 Maximum Allowed 2009-10 TRANS Size $7,941,386 Safe Harbor TRAN Size (Deficit / 0.9): $8,518,920 Maximum legal TRAN Size: $8,518,920 2009 TRANS Issued: $8,500,000 TRAN Coupon (interest rate): 2.50% 29236-03 JH:CKL 9-4-09 PRELIMINARY OFFICIAL STATEMENT DATED SEPTEMBER _, 2009 NEW ISSUE - FULL BOOK ENTRY RATING: Moody's: "_I See "Rating." In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to certain qualifications described in this Official Statement, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See "TAX MATTERS." CITY OF SAN RAFAEL 2009-10 TAX AND REVENUE ANTICIPATION NOTES Dated: Date of Delivery Due: 2010 The Notes are to be delivered as fully registered notes without coupons and when delivered will be registered in the name of The Depository Trust Company, New York, New York, or its nominee. DTC will act as securities depository for the Notes. Individual purchases of interest in the Notes will be made in book -entry form only in the principal amount of $5,000 or integral multiples thereof. Purchasers of Notes will not receive the physical Notes when purchased. Principal and interest are payable at maturity. The principal and interest with respect to the Notes is payable when due by the City of San Rafael (the "City"), as paying agent, to DTC which will in turn remit such principal and interest to the actual purchasers of the Notes as described in this Official Statement. The Notes are not subject to redemption prior to maturity. The Notes are by statute general obligations of the City, payable solely from taxes, income, revenue, cash receipts, and other moneys intended as receipts for the General Fund for Fiscal Year 2009-10 and which are generally available for the payment of current expenses and other obligations of the City (the "Unrestricted Moneys"). The Notes are secured by a pledge of Unrestricted Moneys (as defined in this Official Statement) to be received by the City in (a) an amount equal to 50% of the principal amount of the Notes in the month of January, 2010; (b) an amount equal to 50% of the principal amount of the Notes in the month of May, 2010; and (c) an amount sufficient to pay interest as due on the Notes at their maturity, in the month of June, 2010 (such pledged amounts being hereinafter called the "Pledged Revenues'). The Pledged Revenues will be deposited and held by the City in a special account to be designated the "2009-10 Tax and Revenue Anticipation Note Special Account" (the "Special Account"), and applied as directed in the City Council's Resolution adopted September S, 2009. The following firm, serving as financial advisor to the City, has structured this issue. INORTHCROSSIHiLLIACHI .Finavwia! Advisor> to Py&hi'Agem'hi c Interest Rate Reoffering Yield CUSIP The Notes are, to the extent more fully described in this Official Statement, legal investments for commercial banks in California and are eligible to secure deposits in public monies in the State of California. This cover page contains certain information for reference only. It is not a summary of this issue. Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. See "RISK FACTORS." The Notes will be offered when, as and if issued and received by the Underwriter subject to the approval as to their legality by Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel. Certain legal matters will also be passed upon by Jones Hall, A Professional Law Corporation, as Disclosure Counsel. It is anticipated that the Notes will be available for delivery in New York, New York for deposit with The Depository Trust Company, on or about October_, 2009. Dated: ,2009 Preliminary, subject to change. No dealer, broker, salesman or other person has been authorized by the City to give any information or to make any representations with respect to the Notes other than those contained in this Official Statement and, if given or made, such information or representation must not be relied upon as having been authorized by the City. This Official Statement does not constitute an offer to sell nor the solicitation of an offer to buy, nor shall there be any sale of the Notes by any person to make such offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Notes. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as a representation of facts. The information set forth in this Official Statement has been obtained from sources that are believed to be reliable, but is not guaranteed as to accuracy or completeness, and is not to be construed as a representation by the Underwriter. The information and expressions of opinion stated in this Official Statement are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the information or opinions set forth in this Official Statement or in the affairs of the City since the date hereof. This Official Statement is submitted in connection with the sale of the Notes referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any purpose, unless authorized in writing by the City. The Notes have not been registered under the Securities Act of 1933, in reliance upon an exemption contained in such Act. The Notes have not been registered under the securities laws of any state. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITER MAY OFFER AND SELL THE NOTES TO CERTAIN DEALERS AND BANKS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICE STATED ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICE MAY BE CHANGED FROM TIME TO TIME BY THE UNDERWRITER. Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act"). Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE CITY DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. CITY OF SAN RAFAEL CITY COUNCIL MEMBERS Albert J. Boro, Mayor Barbara Heller, Council Member Cyr N. Miller, Council Member Damon Connolly, Council Member Greg Brockbank, Council Member CITY STAFF Ken Nordhoff, City Manager Jim Schutz, Assistant City Manager Nancy Mackie, Deputy City Manager Rob Epstein, Esq., City Attorney Cindy Mosser, City TreasurerlFinance Director Esther C. Beirne, City Clerk PAYING AGENT City of San Rafael San Rafael, California BOND COUNSEL and DISCLOSURE COUNSEL Jones Hall, A Professional Law Corporation San Francisco, California FINANCIAL ADVISOR Northcross, Hill & Ach, Inc. San Rafael, California TABLE OF CONTENTS INTRODUCTION........................................................................................................... THENOTES.................................................................................................................. Descriptionof the Notes............................................................................................. SECURITY FOR AND SOURCES OF PAYMENT OF THE NOTES .............................. Securityfor the Notes................................................................................................. Available Sources of Repayment................................................................................ CashFlow.................................................................................................................. CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS....................................................................................7 FOR THE CITY Property Tax Rate Limitations - Article XIIIA............................................................................7 AUDITED FINANCIAL STATEMENTS OF THE CITY Appropriation Limitation -Article XI IIB..................................................................................... 8 California Constitution Article XIIIC and Article XIIID (Proposition 218) ...................................8 FORM OF OPINION OF BOND COUNSEL Proposition62.........................................................................................................................9 DTC AND THE BOOK -ENTRY ONLY SYSTEM Proposition1A.......................................................................................................................10 FORM OF CONTINUING DISCLOSURE CERTIFICATE FutureInitiatives....................................................................................................................11 RISKFACTORS.......................................................................................................................11 Bankruptcy Considerations....................................................................................................11 Limitationson Remedies.......................................................................................................12 NaturalDisasters...................................................................................................................12 TAXMATTERS.........................................................................................................................13 LEGALMATTERS.................................:..................................................................................14 RATING....................................................................................................................................14 LITIGATION..............................................................................................................................14 UNDERWRITING.....................................................................................................................14 CONTINUINGDISCLOSURE...................................................................................................15 ADDITIONAL INFORMATION..................................................................................................16 APPENDIX A - FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY APPENDIX B - AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2008 APPENDIX C - FORM OF OPINION OF BOND COUNSEL APPENDIX D - DTC AND THE BOOK -ENTRY ONLY SYSTEM APPENDIX E - FORM OF CONTINUING DISCLOSURE CERTIFICATE OFFICIAL STATEMENT CITY OF SAN RAFAEL 2009-10 TAX AND REVENUE ANTICIPATION NOTES INTRODUCTION This Official Statement provides information in connection with the issuance by the City of San Rafael (the "City") of its 2009-10 Tax and Revenue Anticipation Notes (the "Notes"). Authority. The Notes are issued in full conformity with the Constitution and laws of the State of California (the "State"), including Article 7.6 (commencing with section 53850) of Chapter 4 of Part 1 of Division 2 of Title 5 of the California Government Code (the "Law"). Issuance of the Notes was approved by a resolution adopted by the City Council on September 8, 2009 (the "Resolution"). The City may, under the Law, issue the Notes only if the principal of and interest on the Notes will not exceed 85% of the estimated amount of the uncollected Unrestricted Moneys (described below) which will be available for the payment of said Notes. Security for the Notes. The Notes are general obligations of the City payable solely from taxes, income, revenue, cash receipts, and other moneys intended as receipts for the General Fund for fiscal year 2009-10 and which are generally available for the payment of current expenses and other obligations of the City (the "Unrestricted Moneys"). See "SECURITY FOR AND SOURCES OF PAYMENT OF THE NOTES," "APPENDIX A — Financial, Economic and Demographic Information for the City' and "APPENDIX B — Audited Financial Statements of the City for the Year Ended June 30, 2008." Purpose. Proceeds from the sale of the Notes will be used and expended by the City for any purpose for which it is authorized to expend funds from the General Fund for the fiscal year 2009-10. Reference to Documents. Brief descriptions of the Notes, the security and sources of payment for the Notes, the City and its financial status follow. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to various documents are qualified in their entirely by reference to the forms thereof, all of which are available for inspection at the office of the Finance Director of the City. Preliminary, subject to change. THE NOTES Description of the Notes The Notes will be issued in the principal amount and bear interest at the interest rate shown on the cover page of this Official Statement. The Notes will be delivered in the form of fully registered Notes, without coupons, in denominations of $5,000 or any integral multiple thereof, and will be dated their date of issuance. The Notes will mature on the date set forth on the cover page of this Official Statement. The Notes, when issued, 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 Cede & Co. as its nominee, is the registered owner of all Notes, all payments on the Notes will be made directly to DTC, and disbursement of such payments will be the responsibility of DTC, and disbursement of such payments will be the responsibility of the Direct and Indirect Participants, as more fully described in "APPENDIX D — DTC and the Book -Entry Only System". SECURITY FOR AND SOURCES OF PAYMENT OF THE NOTES Security for the Notes The principal amount of the Notes, together with the interest thereon, is payable from "Unrestricted Moneys", which are taxes, income, revenue, cash receipts, and other moneys intended as receipts for the General Fund for Fiscal Year 2009-10 and which are generally available for the payment of current expenses and other obligations of the City. As security for the repayment of principal of and interest on the Notes, the City has pledged to deposit in a special fund within the General Fund designated as the "2009-10 Tax and Revenue Anticipation Note Special Account" (the "Special Account') the first Unrestricted Moneys to be received by the City in (a) an amount equal to 50% of the principal amount of the Notes in the month of January, 2010; (b) an amount equal to 50% of the principal amount of the Notes in the month of May, 2010; and (c) an amount sufficient to pay interest as due on the Notes at their maturity, in the month of June, 2010 (collectively, the "Pledged Revenues"). The Notes are equally and ratably secured by the City's pledge of the Pledged Revenues. The principal of the Notes and the interest thereon shall constitute a first lien and charge against and will be paid from such Pledged Revenues. To the extent not paid from Pledged Revenues, the Notes will be paid from any other moneys of the City lawfully available therefor. In the event that there are insufficient Unrestricted Moneys received by the City to permit the deposit into the Special Account of the full amount of the Pledged Revenues to be deposited in any month by the last business day of such month, then the amount of any deficiency shall be satisfied and made up from any other moneys of the City lawfully available for the repayment of the Notes and interest thereon. During the months of January, May and June, 2010, the City will deposit all Pledged Revenues in the Special Account for the payment of the principal of and interest on the Notes at maturity. Amounts deposited by the City in the Special Account will be applied solely for the purpose of paying the principal of and interest on the Notes. All moneys held by the City in the Special Account, if not invested, will be held in time or demand deposits as public funds and shall be secured at all times by bonds or other obligations which are authorized by law as security for public deposits, of a market value at least equal to the amount required by law. Moneys in the Special Account will, to the greatest extent possible, be invested by the City directly, or through an investment agreement, in investments as permitted by the laws of the State, and the proceeds of any such investments shall be deposited in the Special Account. See "APPENDIX A — Financial, Economic and Demographic Information for the City" and "APPENDIX B — Audited Financial Statements of the City for the Year Ended June 30, 2008." Available Sources of Repayment The Notes, in accordance with State law, are general obligations of the City, but are payable only out of Unrestricted Moneys. The City may, under existing law, issue the Notes only if the principal of, and interest on, the Notes will not exceed 85% of the estimated uncollected Unrestricted Moneys which will be available for the repayment of the Notes. The Note coverage ratio is the ratio of estimated Unrestricted Moneys to the amount of Unrestricted Moneys needed to pay principal of and interest on the Notes. The City expects to receive a projected $ in Unrestricted Moneys on a cash basis (including carry- over balances and transfers, and including proceeds of the Notes). The amount needed to repay the Notes and the interest thereon is $ Based on an amount of Unrestricted Moneys needed to pay principal of and interest on the Notes, the Note coverage ratio is :1. The table below gives detail as to the sources of Unrestricted Moneys and the Note Coverage Ratio. City of San Rafael Estimated Unrestricted General Fund Revenues Fiscal Year 2009-10 Source Amount Available Cash Balance , 2009 Taxes Other Revenue Proceeds of the Notes Transfers From Other City Funds Total Unrestricted Moneys [1] Principal Plus Interest for Note Payment Note Coverage Ratio (1 j Includes proceeds of the Notes. See also "APPENDIX A — Financial, Economic and Demographic Information for the City' and "APPENDIX B — Audited Financial Statements of the City for the Year Ended June 30, 2008." Cash Flow The City has prepared the accompanying monthly General Fund cash flow statements covering the 2008-09 fiscal year and the projected 2009-10 fiscal year. The General Fund is used to finance the ordinary operations of the City and is available for any legal authorized purposes. While expenditures generally occur evenly throughout the fiscal year, cash receipts occur unevenly. As a result the General Fund cash balance tends to show a deficit during parts of the fiscal year. The projections are based on the City's budget as well as the City's current financial condition. N 3 0 LL t N R U V c 3 LL `I i LL V c d L �p LL w_ L d C C R d co O � d v o a 0 o> 0 0 N i LL CONSTITUTIONAL AND STATUTORY PROVISIONS AFFECTING CITY REVENUES AND APPROPRIATIONS Property Tax Rate Limitations - Article XIIIA Article XIIIA of the State Constitution, known as Proposition 13, was approved by the voters in June 1978 and has been amended on occasions, including most recently on November 7, 2000 to reduce the voting percentage required for the passage of school bonds. Section 1(a) of Article XIIIA limits the maximum ad valorem tax on real property to 1% of "full cash value," and provides that such tax shall be collected by the counties and apportioned according to State statutes. Section 1(b) of Article XIIIA provides that the 1 % limitation does not apply to ad valorem taxes levied to pay interest or redemption charges on any (1) indebtedness approved by the voters prior to July 1, 1978, (2) bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition and (3) bonded indebtedness incurred by a school district, community college or county office of education district for the construction, reconstruction, rehabilitation or replacement of school facilities, including the furnishing and equipping of school facilities or the acquisition or lease of real property for school facilities, approved by 55% of the voters voting on the proposition. Section 2 of Article XIIIA defines "full cash value' to mean the county assessor's valuation of real property as shown on the fiscal year 1975-76 tax bill, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred. The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or to reflect a reduction in the consumer price index or comparable data for the taxing jurisdiction, or may be reduced in the event of declining property value caused by substantial damage, destruction or other factors. Section 51 of the Revenue and Taxation Code permits County assessors who have reduced the assessed valuation of a property as a result of natural disasters, economic downturns or other factors, to subsequently "recapture" such value (up to the pre -decline value of the property) at an annual rate higher than two percent, depending on the assessor's measure of the restoration of value of the damaged property. The California courts have upheld the constitutionality of this procedure. Legislation enacted by the State Legislature to implement Article XIIIA provides that, notwithstanding any other law, local agencies may not levy any ad valorem property tax except the one percent base tax levied by each County and taxes to pay debt service on indebtedness approved by the voters as described above. Since its adoption, Article XIIIA has been amended a number of times. These amendments have created a number of exceptions to the requirement that property be reassessed when it is purchased, newly constructed or undergoes a change in ownership. These exceptions include certain transfers of real property between family members, certain purchases of replacement dwellings for persons over age 55 and by property owners whose original property has been destroyed in a declared disaster, and certain improvements to accommodate disabled persons and for seismic upgrades to property. These amendments have resulted in marginal reductions in the property tax revenues of the City. Both the State Supreme Court and the United States Supreme Court have upheld the validity of Article XIIIA. Appropriation Limitation -Article XIIIB In addition to the limits Article XIIIA imposes on property taxes that may be collected by local governments, certain other revenues of the State and most local governments are subject to an annual "appropriations limit" imposed by Article XIIIB which effectively limits the amount of such revenues those entities are permitted to spend. Article XIIIB, approved by the voters in June 1979, was modified substantially by Proposition 111 in 1990. The appropriations limit of each government entity applies to "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by such entity in providing the regulation, product or service." "Proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on the appropriation of funds that are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non -tax funds. Article XIIIB also does not limit appropriation of local revenues to pay debt service on bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government, appropriations for qualified capital outlay projects, and appropriation by the State of revenues derived from any increase in gasoline taxes and motor vehicle weight fees above January 1, 1990, levels. The appropriations limit may also be exceeded in case of emergency; however, the appropriations limit for the next three years following such emergency appropriation must be reduced to the extent by which it was exceeded, unless the emergency arises from civil disturbance or natural disaster declared by the Governor, and the expenditure is approved by two-thirds of the legislative body of the local government. The State and each local government entity has its own appropriations limit. Each year, the limit is adjusted to allow for changes, if any, in the cost of living, the population of the jurisdiction, and any transfer to or from another government entity of financial responsibility for providing services. Proposition 111 requires that each agency's actual appropriations be tested against its limit every two years. If the aggregate "proceeds of taxes' for the preceding two-year period exceeds the aggregate limit, the excess must be returned to the agency's taxpayers through tax rate or fee reductions over the following two years. California Constitution Article XIIIC and Article MID (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 the California Constitution, and (iii) assessments, fees and charges for property related services as provided in Proposition 218. Proposition 218 then goes on to add 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 new 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 impairments of contracts. Like its antecedents, Proposition 218 is likely to undergo both judicial and legislative scrutiny before its impact on the City and its obligations can be determined. Certain provisions of Proposition 218 may be examined by the courts for their constitutionality under both State and federal constitutional law. The City is not able to predict the outcome of any such examination. Although a portion of the City's General Fund revenues are derived from general taxes purported to be governed by Proposition 218, all of such taxes (or increases thereof) were either adopted prior to the effective dates of such propositions or were approved (or ratified) by majority vote of the electorate. However, if the City is unable to continue to collect certain property -related fees or assessments currently collected by the City, the services and programs funded with these revenues would have to be curtailed and/or the City General Fund might have to be used to support them. The foregoing discussion of Proposition 218 should not be considered an exhaustive or authoritative treatment of the issues. The City does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of Proposition 218 on the City. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of Proposition 218. Proposition 62 On November 4, 1986, California voters adopted Proposition 62, a statutory initiative which, among other matters, requires: (a) that any tax for general governmental purposes imposed by local government entities be approved by a majority vote of the voters voting in an election on the issue, (b) that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local government entity be approved by a two-thirds of the voters voting in an election on the issue and (c) the revenues from a special tax be used for the purposes or for the services for which the special tax was imposed. Proposition 62 also provided that any tax imposed by any local government after August 1, 1985 and prior to November 5, 1986 (the effective date of proposition 62) can continue to be imposed only if approved by a majority vote of the voters voting in an election on the issue, and that any local government which fails to seek or obtain such approval shall cease to impose such tax on and after November 15, 1988. Following its adoption by the voters, various provisions of Proposition 62 were declared unconstitutional by the appellate court level. On September 28, 1995, however, the California Supreme Court, in Santa Clara County Local Transportation Authority v. Guardino, 11 Cal. 4m 220 (1995) ("Guardino"), upheld the constitutionality of the portion of Proposition 62 requiring a two-thirds vote in order for a local government or district to impose a special tax, and by implication, upheld a parallel provision requiring a majority vote in order for a local government or district to impose any general tax. The Guardino decision did not address the question of whether or not Proposition 62 should be applied retroactively to taxes imposed during the period that certain of its provisions were held to be unconstitutional. Following the Guardino decision several actions were filed challenging taxes imposed by public agencies after the adoption of Proposition 62. On June 4, 2001, the California Supreme Court rendered its opinion in Howard Jarvis Taxpayers Association v. City of La Habra, et al., 25 Cal. 4th 809 ("La Habra") holding that an action brought in 1996 challenging the imposition of a 1992 utility users tax imposed for general purposes, without voter approval, was not barred by a three-year statute of limitations period because the continued imposition and collection of the tax was an ongoing violation upon which the statute of limitations period began anew with each collection. The Guardino and La Habra decisions did not decide the question of the applicability of Proposition 62 to charter cities such as the City. Two cases decided by the California Courts of Appeals in 1993, Fielder v. City of Los Angeles (1993) 14 Cal. App. 4th 137 (rev. den. May 27, 1993), and Fisher v. County of Alameda (1993) 20 Cal. App. 4th 120 (rev. den. Feb. 24, 1994) hold that Proposition 62's restrictions on property transfer taxes do not apply to charter cities because charter cities derive their power to enact taxes under Article XI, Section 5 of the California Constitution relating to municipal affairs. Proposition 62, is an initiative statute, does not have the same level of authority as a constitutional initiative, but is analogous to legislation adopted by the State Legislature (except that it may be amended only by a vote of the State's electorate). However, Proposition 218, as a constitutional amendment, is applicable to charter cities and supersedes many of the provisions of Proposition 62 with respect to taxes imposed after January 1, 1995. The City believes that no general fund revenues are subject to challenge under Proposition 62. Proposition 1A Proposition 1A, proposed by the Legislature in connection with the State's fiscal year 2004-05 Budget, approved by the voters in November 2004 and generally effective in fiscal year 2006-07, 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 1A 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. 1101 Proposition 1A 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. The State may also approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. Proposition 1A also provides that if the State reduces the motor vehicle license fee rate currently in effect, 0.65 percent of vehicle value, the State must provide local governments with equal replacement revenues. Further, Proposition 1A requires the State, beginning July 1, 2005, 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 1A may result in more stable City revenues, although the actual impact of Proposition 1A will depend on future actions by the State. However, Proposition 1A could also result in decreased resources being available for State programs. This reduction, in turn, could affect actions taken by the State to resolve budget difficulties. Such actions could include increasing State taxes, decreasing spending on other State programs or other action, some of which could be adverse to the City. Future Initiatives From time to time other initiative measures could be adopted, further affecting the City's finances or the City's ability to raise or expend revenues. RISK FACTORS Bankruptcy Considerations In 1994, Orange County, California issued its 1994-1995 Tax and Revenue Anticipation Notes (the "Orange County Notes") under the same statutory authority as the Notes. On December 6, 1994, Orange County filed a petition in bankruptcy. Subsequently, Orange County declined to set aside the taxes and revenues it had pledged for the repayment of the Orange County Notes and a noteholder brought suit to compel Orange County to do so. A March 8, 1995 ruling of the United States Bankruptcy Court for the Central District of California, held that the lien securing the Orange County Notes did not attach to revenues received by Orange County after the filing of its bankruptcy petition on December 6, 1994, and therefore, Orange County was not required to set aside the revenues pledged under the note resolution following the bankruptcy. The Bankruptcy Court ruled that under the United States Bankruptcy Code, the lien did not attach to revenues received by Orange County after December 6, 1994 because the lien was a consensual security interest rather than a statutory lien. In July 1995, the United States District Court for the Central District of California reversed the decision of the Bankruptcy Court. Orange County appealed the decision of the District Court to the United States Court of Appeals for the Ninth Circuit. Before the Ninth 11 Circuit rendered a decision the parties settled their disputes. Accordingly, if the City were to file for bankruptcy, it is not clear whether it would be required to set aside revenues pledged under the Resolution as described above. In addition, the Pledged Revenues and other moneys that will be set aside to pay the Notes will be held in the City's General Fund, and these funds will be invested in the pooled investment fund. Should the City go into bankruptcy, a court might hold that the owners of the Notes do not have a valid lien on the Pledged Revenues. In that case, unless the owners could "trace" the funds, the owners would merely be unsecured creditors of the City. There can be no assurance that the owners of the Notes could successfully "trace" the Pledged Revenues. Limitations on Remedies The rights of the owners of the Notes are subject to the limitations on legal remedies against public agencies in the State, including a limitation on enforcement of judgments against funds needed to serve the public welfare and interest. Additionally, enforceability of the rights and remedies of the owners of the Notes and the obligations incurred by the City, may become subject to the following: the Federal Bankruptcy Code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditor's rights generally, now or hereafter in effect; equity principles which may limit the specific enforcement under State law of certain remedies; the exercise by the United States of America of the powers delegated to it by the Constitution; and the reasonable and necessary exercise in certain exceptional situations, of the police powers inherent in the sovereignty of the State and its governmental bodies in the interest of serving a significant and legitimate public purpose. Bankruptcy proceedings, or the exercise of powers by the federal or State government, if initiated, could subject the owners of the Notes to judicial discretion and interpretation of their rights in bankruptcy or otherwise, and consequently may entail risks of delay; limitation, or modification of their rights. Natural Disasters General. From time to time, the City is subject to naturally occurring vents that may adversely affect economic activity in the City, which could have a negative impact on City finances. Seismic and Other Geologic Risks. The City, like most regions in California, is an area of significant seismic activity, and is subject to potentially destructive earthquakes, as well as liquefaction, flow failures, lateral spreading, lurching, differential settlement, landslides, mudslides, subsidence and expansive soil. Flood. Subsidence of the areas of the City underlain with bay mud will continue for several decades. Subsidence or settlement may result in flooding as ground levels are lowered. Without levee maintenance, flooding poses a serious threat to the east San Rafael area (bordering the San Francisco Bay). In addition, sandy soils on moderate to steep slopes or clayey soils on steep slopes are susceptible to erosion when exposed to concentrated surface water flow. Within the valley areas, stream and river flow erodes the banks and causes the location of the stream or river to meander. Erosion undercuts the stream banks and leads to slope instability, causing structural damage. 12 TAX MATTERS In the opinion of Jones Hall, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however, to the qualifications set forth below, under existing law, the interest on the Notes is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. The opinions set forth in the preceding paragraph are subject to the condition that the City comply with all requirements of the Internal Revenue Code of 1986 (the "Code") that must be satisfied subsequent to the issuance of the Notes in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The City has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the Notes. Purchasers should be aware that the Internal Revenue Service has issued Notice 94-84 which may have federal income tax consequences with respect to the Notes. This Notice provides generally that, in the case of short-term tax-exempt obligations (such as the Notes), the Service is studying whether interest payable at maturity on the obligations should, or should not, be included in stated redemption price at maturity, for purposes of the rule that original issue discount represents the excess of stated redemption price at maturity over issue price. Notice 94-84 states that until the Internal Revenue Service provides further guidance, taxpayers may treat stated interest on certain short-term obligations, such as the Notes, either as includable in stated redemption price at maturity or as not included in stated redemption price at maturity. A taxpayer, however, must treat stated interest payable at maturity on all short-term tax-exempt bonds in a consistent manner. A short-term tax-exempt bond is defined as a tax- exempt bond with a term that is not more than 1 year from the date of issue. Purchasers of the Notes are cautioned that the opinion of Bond Counsel does not identify the amount of interest that is excluded from gross income for federal income tax purposes. Purchasers of the Notes should consult their tax advisors regarding effects of Notice 94- 84 upon individual tax circumstances. Owners of the Notes should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Notes may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the Notes other than as expressly described above. In the further opinion of Bond Counsel, interest on the Notes is exempt from California personal income taxes. A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX C. 13 LEGAL MATTERS Bond Counsel's employment is limited to reviewing the legal proceedings required for the authorization of the Notes and to rendering the opinion set forth in Appendix C hereof. Jones Hall is also acting as Disclosure Counsel to the City. Jones Hall will receive compensation from the City contingent upon the sale and delivery of the Notes. RATING It is anticipated that, on the date of issuance of the Notes, will assign its municipal bond rating of "_" to the Notes. This rating reflects only the views of the rating agency, and an explanation of the significance of this rating, and any outlook assigned to or associated with this rating, should be obtained from the rating agency. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. The City has provided certain additional information and materials to the rating agencies (some of which does not appear in this Official Statement). There is no assurance that this rating will continue for any given period of time or that this rating will not be revised downward or withdrawn entirely by the rating agency, if in the judgment of the rating agency, circumstances so warrant. The City has not undertaken any responsibility either to bring to the attention of the owners of the Bonds any proposed change in or withdrawal of a rating, or to oppose any such proposed revision or withdrawal. Any such downward revision or withdrawal of any rating on the Notes may have an adverse effect on the market price or marketability of the Notes. LITIGATION [confirm] No litigation is pending or threatened concerning the validity of the Notes. In the opinion of the City, there are no lawsuits or claims pending against the City that would impair the ability of the City to repay the Notes. UNDERWRITING The Notes are being purchased by (the "Underwriter"). The Underwriter has agreed to purchase the Notes at a price of $ (which is the aggregate principal amount of the Notes, plus a net original issue premium of $ less an Underwriter's discount of $ ). The Underwriter may offer and sell the Notes to certain dealers and others at a price lower than the offering price stated on the cover page hereof. The offering price may be changed from time to time by the Underwriter. 14 CONTINUING DISCLOSURE The City has covenanted for the benefit of the holders of the Notes to provide notices of the occurrence of certain enumerated events, if material. The notices of material events will be filed by the City with the Municipal Securities Rulemaking Board. The specific nature of the information to be contained in the notices of material events is summarized under the caption "APPENDIX E — Form of Continuing Disclosure Certificate." These covenants have been made in order to assist the purchaser of the Notes in complying with S.E.C. Rule 15c2 -12(b)(5) (the "Rule"). [Confirm]The City has not failed to comply with an undertaking under the Rule in any material respect during the past five years. 15 ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the Notes. Quotations from and summaries and explanations of the Notes, the resolutions, statutes and documents contained in this Official Statement do not purport to be complete, and reference is made to said documents and statutes for full and complete statements of their provisions. Any statement in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the City and the purchasers or owners of any of the Notes. The delivery of this Official Statement has been duly authorized by the City. in 16 City Manager APPENDIX A FINANCIAL, ECONOMIC AND DEMOGRAPHIC INFORMATION FOR THE CITY General The City of San Rafael (the "City") is located 17 miles north of San Francisco in Marin County (the "County"). Protected by its Mediterranean like setting along the shores of the San Francisco Bay, the City enjoys a mild climate year round. As the County seat, the City is considered the trade, financial and industrial leader of the County. The City currently has a land area of 22 square miles which includes 17 square miles of land and five of water and tide lands. In addition to the City's cultural, park and recreational resources, there are other nearby attractions including Muir Woods, five State parks, the San Francisco area, Oakland and the wine country. The City provides municipal services required by statute or charter, namely: Fire, Police, Community Development (encompassing Building, Planning and Code Enforcement), Public Works, Community Services (both Recreational and Child Care Programs), Redevelopment, Library and General Administrative Services. Marin County was one of the original counties of California, created in 1850 at the time of statehood. The County has a total area of 828 miles and, as of January 1, 2009, a population of approximately 258,618. Geographically, the county forms a large, southward -facing peninsula, with the Pacific Ocean to the west, San Pablo Bay and San Francisco Bay to the east, and -- across the Golden Gate -- the city of San Francisco to the south. Marin County's northern border is with Sonoma County. Most of the county's population resides on the eastern side, with a string of communities running along the Bay, from Sausalito to Tiburon to San Rafael to Corte Madera. The interior contains large areas of agricultural and open space; West Marin, through which California State Route 1 runs alongside the California coast, contains many small unincorporated communities dependent on agriculture and tourism for their economies. Population Population figures for the City, the County and the State for the last five years are shown in the following table. Table No. 1 CITY OF SAN RAFAEL Population Estimates Source: State Department of Finance estimates (as of January 1) A-1 City of Marin State of Year San Rafael County California 2005 57,072 251,820 36,675,346 2006 57,490 253,818 37,114,598 2007 58,047 255,982 37,559,440 2008 58,034 256,511 37,883,992 2009 58,363 258,618 38,292,687 Source: State Department of Finance estimates (as of January 1) A-1 Municipal Government The City was incorporated in 1874 and became a charter city in 1913. It has a council/city manager form of government with the County's only elected mayor and four elected city council members who serve four-year terms. The City Council appoints the City Manager who heads the executive branch of the government. The City Manager's office carries out the policy and directions of the Mayor and City Council. CITY FINANCES The following selected financial information provides a brief overview of the City's finances. This financial information has been extracted from the City's audited financial statements and, in some cases, from unaudited information provided by the City's Finance Department. The most recent audited financial statements of the City with an unqualified auditor's opinion is included as Appendix B hereto. See "APPENDIX B — Audited Financial Statements for the City for the Year Ended June 30, 2008." The City has not sought, and the auditor has not given, its consent to including the audited financial statements of the City in this Official Statement. Accounting Policies and Financial Reporting The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate entity. The operations of each fund are accounted for with a separate set of self -balancing accounts that comprise its assets, liabilities, fund equity, revenues, and expenditures or expenses, as appropriate. Government resources are allocated to and accounted for in individual funds based upon the purposes for which they are to be spent and the means by which the spending activities are controlled. The basis of accounting for all funds is more fully explained in the "Notes to Financial Statements" contained in Appendix B. The City Council employs, at the beginning of each fiscal year, an independent certified public accountant who, at such time or times as specified by the City Council, at least annually, and at such other times as he or she shall determine, examines the combined financial statements of the City in accordance with generally accepted auditing standards, including such tests of the accounting records and such other auditing procedures as such accountant considers necessary. As soon as practicable after the end of the fiscal year, a final audit and report is submitted by such accountant to the City Council and a copy of the financial statements as of the close of the fiscal year is published. The City's Independent Auditor's Report for fiscal year 2007-08 was prepared by Maze & Associates Accountancy Corporation, Pleasant Hill, California. The Governmental Accounting Standards Board ("GASB") published its Statement No. 34 "Basic Financial Statements — and Management's Discussion and Analysis — for State and Local Governments" on June 30, 1999. Statement No. 34 provides guidelines to auditors, state and local governments and special purpose governments such as school districts and public utilities, on new requirements for financial reporting for all governmental agencies in the United States. Generally, the basic financial statements and required supplementary information should include (i) Management's Discussion and Analysis; (ii) financial statements prepared using the economic measurement focus and the accrual basis of accounting and fund financial UK statements prepared using the current financial resources measurement focus and the modified accrual method of accounting and (iii) required supplementary information. The City was required to implement Statement No. 34 for the fiscal year 2001-02 audited financial statement. See "APPENDIX B — Audited Financial Statements of the City for the Year Ended June 30, 2008 — Note 1" for a description of the significant accounting policies of the City. General Fund Financial Summary The audited information contained in the following tables of revenues, expenditures and changes in fund balances, and assets, liabilities and fund equity has been derived from the City's audited financial statements for fiscal years 2005-06 through 2007-08. A-3 Table No. 2. CITY OF SAN RAFAEL General Fund -Audited Revenues, Expenditures and Fund Balances For Fiscal Years 2006-06 through 2007-08 Audited Audited Audited Fiscal Year Fiscal Year Fiscal Year 2005-06 2006-07 2007-08 Revenues: 6,141,552 6,928,766 7,023,660 Taxes and special assessments $37,316,540 44,921,449 $48,084,486 Licenses and permits 1,169,927 1,157,434 1,489,748 Fines and forfeitures 622,494 514,278 796,081 Use of money and property 401,632 431,553 224,439 Intergovernmental 6,021,170 6,932,034 7,246,381 Charges for services 1,823,411 1,868,014 2,203,852 Other revenues 223.914 217.968 269.656 Total Revenues 47,579,088 56,042,730 60,314,643 Expenditures: Current operating General government 6,141,552 6,928,766 7,023,660 Public safety 27,926,658 30,643,627 34,435,419 Public works and parks 6,318,640 6,914,505 7,602,332 Community development/redevelopment 2,702,210 3,163,138 3,705,928 Cultural and recreation 1,710,065 1,990,631 2,292,848 Capital Outlay 45,249 1,049,181 264,919 Capital improvement/special projects 816,328 213,390 484,926 Capitalized lease obligations\ 130,315 -- -- Debt service: principal 103.741 213.598 Total Expenditures 45,791,017 51,006,979 56,023,630 Excess (deficiency) of revenues over 1,788,071 5,035,751 4,291,013 expenditures Other financing sources (uses): Operating transfers in 965,780 653,990 933,760 Operating transfers out (5.278.870) (5.465.286) (4.928.005) Total other financing sources (uses) (4,313,090) (4,811,296) (3,994,245) Net change in Fund Balance (2,525,019) 224,455 296,768 Fund balance, July 1 8.222,561 5.697.542 5.921.997 Fund balance, June 30 $5,697,542 $5,921,997 $6,218,765 Source: City of San Rafael; Comprehensive Annual Financial Report (2005-06 through 2007-08). Table No. 3 CITY OF SAN RAFAEL General Fund Balance Sheet As of June 30 for Fiscal Years 2005-06 through 2007-08 2005-06 2006-07 2007-08 ASSETS: Cash and investments for operations $2,180,765 $1,102,324 $ 824,055 Restricted cash and investments 66,886 66,886 73,273 Receivables: Accounts 140,462 90,191 277,511 Taxes 4,186,359 3,996,538 4,365,440 Grants 18,775 Interest 308,875 371,621 285,703 Loans 326,588 19,319 632,316 Due from other funds -- 1,369,492 952,072 Prepaid expenses -- 36.491 55.859 TOTAL ASSETS 7.228.710 $7.052.862 7.466 2?9 LIABILITIES AND FUND BALANCE: Liabilities: Accounts payable $ 1,101,526 555,802 $ 866,126 Deposits payable 31,594 31,483 31,290 Compensated absences- matured -- 78,907 -- Developer bonds payable 398.048 464.673 350.048 TOTAL LIABILITIES 1,531,168 1,130,865 1,247,464 Fund Balance: Reserved for: 2,335,391 Encumbrances 96,738 181,589 Petty cash 3,395 3,795 Department savings 82,239 -- Project development 619,319 433,202 Loans receivable 36,491 632,316 Prepaid expenses 55,859 Court fine audit 816,119 Assessment districts/open space 66,886 73,273 Unreserved, designated: Emergency and cash flow 3,086,216 3,437,866 4,078,471 Unreserved, undesignated 275.935 1,579,063 (55,859) Total fund balance 5,697,542 5,921,997 6,218,765 Total liabilities and fund balance $7 052862 7 466 Source: City of San Rafael; Basic Financial Statements (2005-06 through 2007-08). Recent Budgets Fiscal Year 2008-09. The widespread economic downturn negatively affected the City's fiscal year 2008-09 budget. Sales tax revenues, the City's largest tax revenue in fiscal year 2007-08, declined by approximately 7%. Retail closures included major car dealerships, multiple larger store closures (Mervyns, Yardbirds, CompUSA, Circuit City, Elephant Pharmacy and Papyrus), and restaurant closures. In July 2008, adopting a balanced budget for fiscal year 2008-09 required, among other things: (i) suspension of six vacant positions for a total expenditure reduction of $635,400, (ii) GM use of excess reserves from the Liability, Worker's Compensation and Vehicle Equipment Funds of $635,000, and (iii) restructuring of training and scheduling changes in the Police Department, saving $252,000. In October 2008 and again in January 2009, the Council addressed further erosion in the City's tax revenues. In January 2009, the City discussed its services in three categories (those paid with general taxes, those supported by restricted resources and support/administrative functions). The City took a three-year outlook, which served as the catalyst for determining how compensation issues would be addressed in negotiations with several employee bargaining groups. Based on adjusted tax revenues, the City projected in January 2009 a $2.1 deficit at the end of fiscal year 2008-09. Because only half of the fiscal year remained to address the deficit, the City Council took a number of one-time and ongoing actions totaling $1.7 million, as follows: (i) the City used an additional $400,000 from gas tax revenue to pay for street maintenance, (ii) the City suspended six additional staff vacation positions, saving $251,000 over the balance of the fiscal year, (iii) the City reduced funding for sidewalk improvements and fire equipment ($347,000) and (iv) drew upon one-time reserves of $640,600, leaving the General Fund reserve at $3.1 million (5.5% of operating expenditures). In February 2009, the City projected a $473,000 deficit for fiscal year 2008-09. Between January 2009 and June 2009, the City took additional steps to reduce its deficit: it (i) contracted with the County to provide fire dispatch services as of March 2009, saving $225,000 per year, (ii) updated its fee schedule, increasing development -related fees (although development is declining), (iii) reduced staffing in Information Technology and Public Works Engineering, (iv) completed one-year agreements with all unrepresented managers, mid -managers and elected officials, resulting in a 5% salary reduction beginning in July 2009 (resulting in approximately $500,000 of savings for fiscal year 2009-10), and added health care plan cost limitations for new hires, (v) adopted a Recession Action Plan and Economic Vitality Plan and directed staff to implement an employee work furlough program for fiscal year 2009-10, (vi) agreed to severance packages for employees subject to layoff and a voluntary retirement program for eligible employees and (vii) agreed to share Battalion Chief and Emergency Services resources with the City of Larkspur. In addition, the City transferred reserves from its Radio Replacement Fund to the General Fund in the amount of $400,000. Fiscal Year 2009-10. At the April 29, 2009 special meeting, the City Council ranked service prioritizations for those City functions that receive general tax revenues. In June 2009, City staff made recommendations with respect to the City's fiscal year 2009-10 budget. At that time, the City projected a 6.8% decline in sales tax revenue from fiscal year 2008-09, 0% growth in property tax revenue from fiscal year 2008-09, and a 9.1 % decrease in transaction and use tax (Measure S) revenue from fiscal year 2008-09. In July 2009, the City projected a reduction of $200,000 of property transfer tax revenue and approximately $85,000 of storm water assessments The City adopted a fiscal year 2009-10 budget on July 6, 2009. The General Fund reserve is budgeted to remain at $3.1 million, which remains 5.5% of expenditures. The fiscal year 2009-10 budget includes (i) a reduction of an additional 20.11 FTEs (resulting in a total FTE reduction of 28.61 from fiscal year 2007-08), (ii) facility closures of 13 days to implement an employee furlough, (iii) deferred replacement of non -emergency vehicles and (iv) reset of the City's projected (and required) Liability and Workers Compensation reserves, providing one- time General Fund relief of $500,000. The fiscal year 2009-10 budget assumes no cost of living adjustments for operating expenses (supplies and services remain at fiscal year 2007-08 levels, except for specific agreements or contracts) and assumes no personnel cost increases for all 051 bargaining groups (except Fire Association and Fire Chief Officers, who are under contract until June 30, 2011). [confirm] Based upon information available to it, the City does not believe that the fiscal year 2009-10 budget requires amendment. Comparison of Budget to Actual Performance For purposes of comparison, the following table summarizes the City's adopted budgets for fiscal years 2007-08 and 2008-09 and sets forth audited revenues and expenditures for fiscal years 2007-08 and unaudited actuals for 2008-09; it also includes the City's adopted budget for fiscal year 2009-10. Table No. 4 CITY OF SAN RAFAEL General Fund - Comparison of Budgeted and Actual Revenues, Expenditures and Fund Balances For Fiscal Years 2006-07 through 2008-09 Fund Balance, July 1 (1) Revenues: - Taxes and special assessments Licenses and permits Fines and forfeitures Use of money and property Intergovernmental Charges for services Other revenues Total Revenues Expenditures Budgeted Audited Budgeted Unaudited Budgeted Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year 2007-08 2007-08 2008-09 2008-09 2009-10 $5,921,997 $5,921,997 48,153,318 1,386,895 757,750 449,218 6,716,428 2,005,358 110.750 59,579,717 48,084,486 1,489,748 796,081 224,439 7,246,381 2,203,852 269,656 60,314,643 $6,218,765 $6,218,765 $5,188,108 45,560,864 42,950,633 43,680,980 1,288,198 1,467,413 1,274,426 769,070 660,338 1,552,540 199,680 491,561 166,460 7,099,360 7,018,196 6,894,520 2,020,555 1,922,621 1,883,872 161.560 238.229 127.780 57,099,287 54,748,991 55,580,578 General government 7,465,814 7,023,660 6,993,725 6,824,384 7,136,420 Public safety 34,127,011 34,435,419 35,276,803 34,245,768 34,153,420 Public works and parks 7,670,636 7,602,332 - 7,361,116 7,310,112 8,430,670 Community development/redevel. 3,750,707 3,705,928 4,301,415 3,984,032 3,627,760 Cultural and recreation 2,234,087 2,292,848 2,448,378 2,463,775 2,355,370 Capital Outlay 165,470 264,919 84,711 112,192 44,850 Capital improvement/special projects 536,022 484,926 303,900 559,456 - 33,500 Debt service: principal 213.600 213.598 222.020 222.019 230.770 Total Expenditures 56,163,348 56,023,630 56,992,068 55,721,738 56,012,760 Other financing sources (uses): Operating transfers in 933,760 933,760 2,902,090 2,902,090 2,556,800 Operating transfers out (4.822.790) (4.928.005) (4.039.228) (4.039.228) (2.369.720) Total other financing sources (uses) (3,889,030) (3,994,245) (1,137,138) (1,137,138) 187,080 Net change in Fund Balance (472,661) 296,768 (1,029,919) (2,109,885) (245,102) Source: City of San Rafael - A -7 Tax Receipts Revenues received by the City include sales taxes, property taxes, transaction/use taxes (Measure S), business license taxes, property transfer taxes, occupancy taxes, franchise taxes. business license taxes and other miscellaneous taxes. In fiscal year 2007-08 (audited), sales and use taxes constituted approximately 30.5% of General Fund revenues, property taxes constituted approximately 29.3% of General Fund revenues and transaction/use taxes constituted approximately 7.3% of General Fund revenues. In fiscal year 2008-09 (unaudited), sales and use taxes constituted approximately 30% of General Fund revenues, property taxes constituted approximately 31.8% of General Fund revenues and transaction/use taxes constituted approximately 11.2% of General Fund revenues. The following table sets forth General Fund revenues received by the City for fiscal years 2004-05 through 2008-09 by source. Source: Sales and use tax (1) Property taxes (1), (2) Transaction/Use Tax (3) Business License Tax Property Transfer Tax Transient Occupancy Tax Franchise Tax Other Taxes (4) Licenses and Permits Fines and forfeitures Use of Money and Property Intergovernmental Charges for Services Other Revenue Total Table No. 5 CITY OF SAN RAFAEL General Fund Revenues by Source For Fiscal Years 2004-05 through 2008-09 2004-05 2005-06 2006-07 2007-08 2008-09 $17,132,100 $17,049,855 $18,012,985 $18,426,045 $15,859,530 12, 887, 768 14, 330, 730 15, 819, 824 17, 662, 230 17, 427, 964 0 1,138,669 6,471,371 7,338,412 6,110,732 2,248,198 2,386,124 2,424,636 2,440,544 2,405,934 1,876,872 1,968,744 1,459,213 1,273,448 669,774 1,339,687 1,542,967 1,679,901 1,963,575 1,678,912 2,152,830 2,499,578 2,770,196 2,874,952 2,941,149 149,006 174,079 150,646 200,984 162,128 920,754 1,169,927 1,157,434 1,489,746 1,467,413 1,066,374 622,494 572,432 856,917 660,338 641,566 401,632 431,554 224,438 491,561 3,521,583 2,246,965 3,064,710 3,150,677 2,712,708 1,722,137 1,823,411 1,809,861 2,143,011 1,922,621 260,786 223,913 217,967 269,655 238,229 $45,919,661 $47,579,087 $56,042,728 $60,314,634 $54,748,991 (1) Includes property tax backfill (Triple Flip). See "Impact of State Budget" below. [VERIFY] (2) Property tax revenue includes secured, unsecured and supplemental property tax revenue along with penalties and interest. [VERIFY] (3) Measure "S" Transaction and Use Tax. See "Other Taxes" below. (4) Other taxes include Source: City of San Rafael. M Sales Taxes General. Sales tax represented the largest source of revenue to the City in fiscal year 2007-08 and the second largest in fiscal year 2008-09. This section describes the current system for levying, collecting and distributing sales and use tax revenues in the State. However, the State budget situation has resulted in a temporary redirection of sales tax revenues from the City to the State (see " - Impact of State Budget" below). Sales Tax Rates. The sales tax is governed by the Bradley -Burns Uniform Local Sales and Use Tax (the "Sales Tax Law"). A sales tax is imposed on retail sales or consumption of personal property. The fax rate is established by the State Legislature. Effective April 1, 2009, the statewide tax rate is 8.25%. An additional 0.75% is collected in Marin County for transportation purposes. The City's share of sales tax was 1%, but is now 0.75% after the passage of Proposition 57. See "- Proposition 57" below. The 0.25% difference is offset by an increase in the City's share of property tax by a like amount. In addition, the City receives revenue from the 0.50% Measure S Transactions and Use Tax (approved by the City's voters in November 2005). Currently, taxable transactions in the City are subject to the following sales and use tax, of which the City's share is only a portion. The State collects and administers the tax, and makes distributions on taxes collected within the City, as follows: Table No. 6 0.25% CITY OF SAN RAFAEL 0.50 Sales Tax Rates 0.50 State (General Fund) (1) 6.00% State Fiscal Recovery Act (Triple Flip) 0.25 Local General Fund (Bradley -Burns) 0.75 Countywide Transportation Fund) 0.25 County Mental Health/Welfare Districts 0.50 Public Safety Augmentation Fund 0.50 Total State-wide Tax 8.25% Sonoma -Marin Train (SMART) 0.25% Transportation Authority of Marin 0.50 San Rafael Transactions and Use Tax (Measure S) 0.50 Local Tax Subtotal 1.25% Total Sales and Use Tax 9.50% (1) Effective April 1, 2009, the State general fund portion of the sales tax rate has been temporarily increased by 1.0%. See "Impact of State Budget" below". - The State's actual administrative costs with respect to the portion of sales taxes allocable to the City are deducted before distribution and are determined on a quarterly basis. Sales and use taxes are complementary taxes; when one applies, the other does not. In general, the statewide sales tax applies to gross receipts of retailers from the sale of tangible personal property in the State. The use tax is imposed on the purchase, for storage, use or other consumption in the State of tangible personal property from any retailer. The use tax generally applies to purchases of personal property from a retailer outside the State where the M use will occur within the State. The Sales Tax is imposed upon the same transactions and items as the statewide sales tax and the statewide use tax. Certain transactions are exempt from the State sales tax, including sales of the following products: • food products for home consumption; • prescription medicine; • newspapers and periodicals; • edible livestock and their feed; • seed and fertilizer used in raising food for human consumption; and • gas, electricity and water when delivered to consumers through mains, lines and pipes. This is not an exhaustive list of exempt transactions. A comprehensive list can be found in the State Board of Equalization's May 2003 publication entitled "Sales and Use Taxes: Exemptions and Exclusions," which can be found on the State Board of Equalization's website at http://www.boe.ca.gov/. Sales Tax Collection Procedures. Collection of the sales and use tax is administered by the California State Board of Equalization. According to the State Board of Equalization, it distributes quarterly tax revenues to cities, counties and special districts using the following method: Using the prior year's like quarterly tax allocation as a starting point, the Board first eliminates nonrecurring transactions such as fund transfers, audit payments and refunds, and then adjusts for growth, in order to establish the estimated base amount. The State Board of Equalization disburses 90% to each local jurisdiction in three monthly installments (advances) prior to the final computation of the quarter's actual receipts. Ten percent is withheld as a reserve against unexpected occurrences that can affect tax collections (such as earthquakes, fire or other natural disaster) or distributions of revenue such as unusually large refunds or negative fund transfers. The first and second advances each represent 30% of the 90% distribution, while the third advance represents 40%. One advance payment is made each month, and the quarterly reconciliation payment (clean-up) is distributed in conjunction with the first advance for the subsequent quarter. Statements showing total collections, administrative costs, prior advances and the current advance are provided with each quarterly clean-up payment. Under the Sales and Use Tax Law, all sales and use taxes collected by the State Board of Equalization under a contract with any city, city and county, redevelopment agency, or county are required to be transmitted by the Board of Equalization to such city, city and county, redevelopment agency, or county periodically as promptly as feasible. These transmittals are required to be made at least twice in each calendar quarter. Under its procedures, the State Board of Equalization projects receipts of the sales and use tax on a quarterly basis and remits an advance of the receipts of the sales and use tax to the City on a monthly basis. The amount of each monthly advance is based upon the State Board of Equalization's quarterly projection. During the last month of each quarter, the State Board of Equalization adjusts the amount remitted to reflect the actual receipts of the sales and use tax for the previous quarter. A-10 The Board of Equalization receives an administrative fee based on the cost of services provided by the Board to the City in administering the City's sales tax, which is deducted from revenue generated by the sales and use tax before it is distributed to the City. Proposition 57. On March 2, 2004, the State's voters approved the California Economic Recovery Bond Act ("Proposition 57"), which authorized the State to issue up to $15 billion of economic recovery bonds to finance the negative State General Fund reserve balance as of June 30, 2004 and other State General Fund obligations undertaken prior to June 30, 2004. Proposition 57 also called for local sales and use taxes to be redirected to the State, including 0.25% that would otherwise be available to the City, to pay debt service on the "economic recovery" bonds, and for an increase in local governments' share of local property tax by a like amount. Certain features and consequences of the sales tax redirection could impact the availability of the City's revenues. First, there may be a timing issue associated with the "backfill" of redirected sales and use taxes with property tax revenue: while sales and uses taxes are distributed by the State Board of Equalization on a monthly basis, the County would only backfill with property taxes on a semi-annual basis. This timing issue would not only impact the City's cash flow, but would cause the City to lose investment earnings on the sales and uses taxes it otherwise would have received on a monthly basis. Second, it is possible that the fees charged by the County for property tax administration, which are subtracted from property tax revenue collected by the County before it is allocated to the City, could increase as a result of the various tasks required of the County by the redirection. In addition, the State Board of Equalization administration fee is likely to increase as a percentage of local sales and use tax received by the City unless the State Board of Equalization reduces its fee, which it is unlikely to do because the cost of collecting the sales and use taxes on a per -transaction basis will not go down. Third, the redirection of sale and use taxes by the State reflects the vulnerability of local government to the State budget process. If, in the future, the State elects to further reallocate sales and use taxes or property tax revenue, or any other source of General Fund revenue, the City may not know the exact amount of revenue available to it. Given the short maturity date of the Notes, the City does not anticipate that the State's Budget situation will negatively impact the City's ability to pay debt service on the Notes. A-11 History of Taxable Transactions. For the first two quarters of 2008, total taxable transactions in the City were reported to be $757,410,000, a 4.6% decrease from the $794,257,000 of taxable transactions that were reported for the first two quarters of 2007. The following table shows taxable transactions in the City by type of business during calendar years 2003 through 2007. Annual figures are not yet available for 2008. Table No. 7 CITY OF SAN RAFAEL Taxable Transactions by Type of Business For Calendar Years 2003 through 2007 (Dollars in thousands) Source: State Board of Equalization Property Taxes Property taxes represented the second largest source of General Fund revenue in fiscal year 2007-08 and the largest source of General Fund revenue in fiscal year 2008-09. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. Property Tax Collection Procedures. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing state assessed public utilities' property and property, the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after 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 declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment A-12 2003 2004 2005 2006 2007 Retail Stores: Apparel Stores $ 20,803 $ 20,953 $ 20,011 $ 19,648 $ 21,820 General Merchandise Stores 121,708 118,611 113,107 117,592 113,702 Food Stores 54,717 54,054 58,740 60,125 64,434 Eating and Drinking Places 86,712 88,543 90,145 91,612 97,339 Home Furnishings and Appliances 87,086 92,473 98,062 99,082 95,163 Bldg. Materials and Farm Implmnts. 223,296 251,915 248,716 246,896 238,357 Auto Dealers and Auto Supplies 391,000 383,276 345,049 336,392 342,336 Service Stations 69,551 75,943 83,414 101,964 95,894 Other Retail Stores 179.778 187,435 190.815 188.718 202.315 Retail Store Totals 1,234,651 1,273,203 1,248,059 1,262,029 1,271,360 All Other Outlets 312.772 314.280 312.333 342.742 371.531 TOTAL ALL OUTLETS $1,547,423 $1,587,483 $1,560,392 $1,604,771 $1,642,891 Source: State Board of Equalization Property Taxes Property taxes represented the second largest source of General Fund revenue in fiscal year 2007-08 and the largest source of General Fund revenue in fiscal year 2008-09. This section describes property tax levy and collection procedures and certain information regarding historical assessed values and major property tax payers in the City. Property Tax Collection Procedures. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." The "secured roll" is that part of the assessment roll containing state assessed public utilities' property and property, the taxes on which are a lien on real property sufficient, in the opinion of the county assessor, to secure payment of the taxes. A tax levied on unsecured property does not become a lien against such unsecured property, but may become a lien on certain other property owned by the taxpayer. Every tax which becomes a lien on secured property has priority over all other liens arising pursuant to State law on such secured property, regardless of the time of the creation of the other liens. Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. Property taxes on the secured roll are due in two installments, on November 1 and February 1 of each fiscal year. If unpaid, such taxes become delinquent after 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 declared tax defaulted on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment A-12 of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1 1/2% 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. Property taxes are levied for each fiscal year on taxable real and personal property situated in the taxing jurisdiction as of the preceding January 1. A bill enacted in 1983, SB813 (Statutes of 1983, Chapter 498), however, provided for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Thus, this legislation eliminated delays in the realization of increased property taxes from new assessments. As amended, SB813 provided increased revenue to taxing jurisdictions to the extent that supplemental assessments of new construction or changes of ownership occur subsequent to the January 1 lien date and result in increased assessed value. Property taxes on the unsecured roll are due on the January 1 lien date and become delinquent, if unpaid on the following August 31. A 10% penalty is also attached to delinquent taxes in respect of property on the unsecured roll, and further, an additional penalty of 1 1/2% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date. The taxing authority has four ways of collecting 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. The exclusive means of enforcing the payment of delinquent taxes in respect of property on the secured roll is the sale of the property securing the taxes for the amount of taxes which are delinquent. Taxation of State -Assessed Utility Property. The State Constitution provides that most classes of property owned or used by regulated utilities be assessed by the State Board of Equalization ("SBE") and taxed locally. Property valued by the SBE as an operating unit in a primary function of the utility taxpayer is known as "unitary property", a concept designed to permit assessment of the utility as a going concern rather than assessment of each individual element of real and personal property owned by the utility taxpayer. State -assessed unitary and "operating nonunitary" property (which excludes nonunitary property of regulated railways) is allocated to the counties based on the situs of the various components of the unitary property. Except for unitary property of regulated railways and certain other excepted property, all unitary and operating nonunitary property is taxed at special county -wide rates and tax proceeds are distributed to taxing jurisdictions according to statutory formulae generally based on the distribution of taxes in the prior year. Historic Secured Property Tax Revenues. Section 4701 through Section 4717 of the California Revenue and Taxation Code permit counties to use a method of apportioning taxes (commonly referred to as the "Teeter Plan") whereby local agencies receive from the County 100% of their respective shares of the amount of secured ad valorem taxes levied, without regard to actual collections of taxes. Due to this allocation method, the cities in the County receive no adjustments for redemption payments on delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. Marin County has adopted the Teeter Plan. Consequently, secured property tax collections allocated to the City do not reflect actual collections. A-13 Assessed Valuation Information. Set forth below is a listing of the City's assessed valuations, net of homeowners' and other exemptions, for fiscal years 2001-02 through 2008-09. Table No. 8 CITY OF SAN RAFAEL Assessed Valuation For Fiscal Year 2001-02 through 2008-09 (Dollars in thousands) Local Secured t' Utility Unsecured Total % Change 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Source: California Municipal Statistics, Inc. The following table shows property tax levies and tax collections for fiscal years 2001-02 through 2008-09. Because Marin County has adopted the Teeter Plan, the cities in the County receive no adjustments for redemption payments on delinquent collections. The unsecured taxes are allocated based on actual unsecured tax collections. Table No. 9 CITY OF SAN RAFAEL Property Tax Levies and Tax Collections Fiscal Years 2001-02 through 2007-08 (Dollars in thousands) 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Source: California Municipal Statistics, Inc. A-14 Total current Total secured & % of levy current unsecured Adjusted total Collections of collected secured & Collections as Outstanding Delinq. tax current current secured & during fiscal unsecured percent of delinquent as % of Fiscal Year tax levv unsecured taxes (1) year collections (2) current levv taxes (3) current levv 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Source: California Municipal Statistics, Inc. A-14 The following table lists the top 25 local secured taxpayers in the City of San Rafael for fiscal year 2008-09. Table No. 10 CITY OF SAN RAFAEL Top 20 Local Secured Taxpayers Fiscal Year 2008-09 % of City's Total Secured and Unsecured Secured and Assessed Valuation Unsecured Assessed Taxpayer of Property Valuation tt Total Source: California Municipal Statistics, Inc. State Legislative Shift of Property Tax Allocation. See "State Budget and its Impact on the City" below for information about property tax shifts by the State. Other Taxes Transactional/Use Tax (Measure S). Transactional/Use Tax (Measure S) revenues contributed approximately 12.2% to the City's fiscal year 2007-08 General Fund revenues and 11.1 % to the City's fiscal year 2008-09 General Fund revenues. In November 2005, the voters in the City approved a 0.5% transaction and use tax, to help maintain essential City services. The tax took effect on April 1, 2006, and the first full year of receipts were received in fiscal year 2006-07. All proceeds of the tax are required to be deposited into the City's General Fund to be used for all general municipal governmental purposes at the City's discretion. The tax automatically expires in 2017. Franchise Tax. The City's Franchise Tax (which generated 4.8% of General Fund revenues in fiscal year 2007-08 and 5.4% of the City's fiscal year 2008-09 General Fund revenues) is imposed on the distribution and sales of public utility services. City Charter Article XIV provides regulations concerning franchised agencies and businesses. Currently, the City charges PG&E a franchise fee of 1% for gas and 0.50% for electricity. The local cable provider, Comcast, pays a 5% franchise fee on a quarterly basis to Marin Telecommunications Authority ("MTA"). Under a formation agreement, MTA deducts its budget cost from the received franchise fees and remits the net to each agency based on relative cable TV subscribers. Marin Sanitary Service collects and remits a 10% refuse fee for the privilege of being the sole waste hauler for the City. Under Proposition 218, the rates can only be increased by a vote of the City residents. Business License Tax. The Business License Tax generated approximately 4.0% to the City's fiscal year 2007-08 General Fund revenues and 4.4% to the City's fiscal year 2008-09 General Fund revenues. A Business License Tax is imposed on all business for the privilege of conducting business within the City. Most retail, wholesale, professional and service industries pay this tax on a gross receipts basis. A small portion of businesses pay a tax rate based upon the number of employees. Apartments pay a tax based upon the number of rental units. The A-15 Business License Tax rates are identified in Municipal Code Section 10.04, subject to indexing for inflation. Transient Occupancy Tax. The City's Transient Occupancy Tax contributed approximately 3.3% to the City's fiscal year 2007-08 General Fund revenues and 3.1% to the City's fiscal year 2008-09 General Fund revenues. A Transient Occupancy Tax is imposed on occupants of hotels, inns, motels and other lodging facilities unless such occupancy is for a period of 30 or more days. The tax is applied to the customer's lodging bill. Taxes are remitted to the City either monthly or quarterly for all approved lodging operations. The current Transient Occupancy tax rate is 10%. It was last modified in 1988 Property Transfer Tax. The Property Transfer Tax (which generated 2.1% of General Fund revenues in fiscal year 2007-08 and 1.2% of the City's fiscal year 2008-09 General Fund revenues) is imposed on any conveyance of real property when a change in deed is filed with the County. The City's Property Transfer Tax regulations are set forth in Municipal Code Section 3.22. The tax is imposed at the rate of $2 for each $1,000 or fractional part of $1,000 of value. Any increase in rates would require voter approval pursuant to Proposition 218. State Budget and its Impact on the City Set forth in the following paragraphs are descriptions of the State budget process, the current State budget situation, and the potential impacts on the City. The Budget Process. Through the State budget process, the State can enact legislation that significantly impacts the source, amount and timing of the receipt of revenues by local agencies, including the City. As in recent years, State budget deficits can result in legislation that adversely impacts local agency budgets. The State's fiscal year begins on July 1 and ends on June 30. The annual budget is proposed by the Governor by January 10 of each year for the next fiscal year (the "Governor's Budget"). Under State law, the annual proposed Governor's Budget cannot provide for projected expenditures in excess of projected revenues and balances available from prior fiscal years. Following the submission of the Governor's Budget, the Legislature takes up the proposal. Under the State Constitution, money may be drawn from the Treasury only through an appropriation made by law. The primary source of the annual expenditure authorizations is the Budget Act as approved by the Legislature and signed by the Governor. The Budget Act must be approved by a two-thirds majority vote of each House of the Legislature. The Governor may reduce or eliminate specific line items in the Budget Act or any other appropriations bill without vetoing the entire bill. Such individual line item vetoes are subject to override by a two-thirds majority vote of each House of the Legislature. Appropriations also may be included in legislation other than the Budget Act. Bills containing appropriations (except for K-14 education) must be approved by a two-thirds majority vote in each House of the Legislature and be signed by the Governor. Bills containing K-14 education appropriations only require a simple majority vote. Continuing appropriations, available without regard to fiscal year, may also be provided by statute or the State Constitution. Funds necessary to meet an appropriation need not be in the State Treasury at the time such appropriation is enacted; revenues may be appropriated in anticipation of their receipt. E.W. Recent State Budgets. Certain information about the State budgeting process and the State Budget is available through several State of California sources. A convenient source of information is the State's website, where recent official statements for State bonds are posted. The references to internet websites shown below are shown for reference and convenience only, the information contained within the websites has not been reviewed by the City and is not incorporated in this Official Statement by reference. The California State Treasurer's Internet home page at www.treasurer.ca.gov, under the heading "Financial Information," posts the State's audited financial statements. In addition, the "Financial Information" section includes the State's Rule 15c2-12 filings for State bond issues. The "Financial Information" section also includes the "Overview of the State Economy and Government, State Finances, State Indebtedness, Litigation" from the State's most current Official Statement, which discusses the State budget and its impact on school districts. The California Department of Finance's Internet home page at www.dof.ca.gov, under the heading "California Budget," includes the text of proposed and adopted State Budgets. The State Legislative Analyst's Office the ("LAO") prepares analyses of the proposed and adopted State budgets. The analyses are accessible on the Legislative Analyst's Internet home page at www.lao.ca.gov under the heading "Products." 2008-09 State Budget. On September 23, 2008, the Governor signed the 2008-09 State Budget into law (the "2008-09 Budget"). The 2008-09 Budget resolves the $24.3 billion budget deficit identified in the May (2008) revision to the Governor's Proposed Budget. The 2008-09 Budget, as adopted, projected revenues of $103.027 billion in fiscal year 2007-08 and $101.991 billion in fiscal year 2008-09 (representing an increase of $1.837 billion in fiscal year 2007-08 and a decrease of $996 million in fiscal year 2008-09, compared with the May Revision), provided a modest reserve of $1.7 billion, but projected a deficit of $1.0 billion in fiscal year 2009-10. Special Session - Revisions to 2008-09 Budget; 2009-10 Adopted State Budget. Set forth below is a summary of legislative actions from November 5, 2008 through February 20, 2009, when the Governor signed a budget package addressing the 2008-09 Budget deficit, and adopting a budget for fiscal year 2009-10. November 5, 2008. The Governor called the State Legislature into special session to deal with a budget deficit of $11 billion, which had arisen since the 2008-09 Budget was adopted principally because of a shortfall in revenues. This special session extended through February 19, 2009. January 9, 2009. The Governor submitted his proposed 2009-10 Budget (the "2009-10 Proposed Budget") to the State Legislature. The 2009-10 Proposed Budget assumed that, without corrective action, the State will face a deficit of $39.6 billion at the end of 2009-10. Consequently, the 2009-10 Proposed Budget proposed $41.7 billion in budgetary solutions to close the gap and establish a $2.2 billion reserve, resulting from spending reductions, revenue increases, accounting changes and debt issuances. Included in the proposals were (i) issuance of $4.7 billion in revenue anticipation warrants, (ii) lowering the value of the dependent credit for income tax returns, (iii) capturing savings in K-14 education through spending reductions, accounting changes and cost deferrals, (iv) raising $5 billion in proceeds with the securitization of lottery revenues, (v) redirecting $500 million in revenues from Proposition 10 cigarette tax A-17 and Proposition 63 income tax surcharge, (vi) a temporary increase in the State sales tax rate of 1.5 cents per dollar, and (vii) an extension of the State sales and use tax to include additional services, as well as an increase of 5 cents on the alcohol excise tax. Many of these proposals will require voter approval to be implemented. January 8, 2009. The LAO released its report on the 2009-10 Proposed Budget. The LAO states that the 2009-10 Proposed Budget is generally reasonable but will likely be subject to risks associated with continued deterioration of the economy and additional costs that the State is likely to incur but are not included in the 2009-10 Proposed Budget. In addition, the 2009-10 Proposed Budget relies heavily on State borrowing that is subject to voter approval, the favorable resolution of legal issues, and the State's access to credit markets. January 14 2009. The LAO released its report entitled "California's Cash Flow Crisis" stating that the State's cash flow had deteriorated steadily since the end of calendar year 2007 due to, among other things, sharply weakened General Fund revenues and limited access to credit markets. In addition, the report predicted that the State would have $3.2 billion in available cash by the end of January 2009, but warned that this amount would not be sufficient for normal cash flow operations with budgeted appropriations through the end of fiscal year 2008-09. February 19, 2009. The California Legislature voted to approve a budget package (the "Budget Package") addressing the State's $42 billion deficit, which includes $15 billion in State spending reductions, $12.8 billion in temporary tax increases (including an increase in the vehicle license fee and an increase in State sales and income taxes), $11.4 billion in borrowing and a $1 billion reserve. The Budget Package includes revisions to the 2008-09 Budget and adoption of a budget for fiscal year 2009-10 (the "2009-10 Budget"), addressing spending reductions, revenue increases, economic stimulus and increasing governmental efficiency. Certain measures contained in the Budget Package required voter approval at a special State- wide election which was held on May 19, 2009. Because the voters rejected the three propositions on the special election ballot that would have helped balance the State's budget, there will need to be further revisions to the Budget (see "May 14, 2009 Budget Revision" below). Key provisions of the Budget Package are: • Sales Tax Increase: A 1 -cent increase in the State sales tax, generating approximately $5.9 billion (2 years). Vehicle License Fee Increase: Increasing the fee from 0.65% to 1.15% (2 years). • State Personal Income Tax Increase: Imposing a 0.25% surcharge on personal income tax and reducing the dependent tax credit (2 years). February 13, 2009. The U.S. House of Representatives and the Senate approved the American Recovery and Reinvestment Act, which commits a total of $787 billion nationwide. A report issued by the LAO entitled "Federal Economic Stimulus Package: Fiscal Effect on California" estimates that the State will receive over $31 billion in aid and billions more in competitive grants. The LAO estimates that about $8 billion of these funds will be available in 2008-09 and 2009-10 to relieve the State's budgetary problems. Of this amount, the State's health programs will receive the largest share (about $9 billion) and education -related programs will receive nearly $8 billion. Labor and workforce development and social services programs will receive about $6 billion and $3.5 billion, respectively. By April 1, 2009 the State Director of lm Finance and State Treasurer will re -calculate the $8 billion estimate. If the amount is less than $10 billion, then annual State program reductions of nearly $1 billion and revenue increases of about $1.8 billion adopted as part of the 2009-10 Budget will go into effect. February 20, 2009. The Governor signed the Budget Package. The Governor used his line item veto authority in an attempt to achieve approximately $1 billion more in State General Fund savings in the 2009-10 Budget. This includes at lease a 10% reduction in expenditures for certain State offices through furlough days, elimination of positions, overtime reform and reducing paid State holidays, replacing State General Fund appropriations with respect to higher education with federal funds, and finding savings through reforms and cost-saving measures with the California Department of Corrections and Rehabilitation. March 13 2009 LAO Report. On March 13, 2009, the LAO updated its revenue forecast and projects that revenues will fall short of the assumptions in the 2009-10 Budget by $8 billion and that number of the adopted solutions—revenue increases and spending reductions—are of a short–term duration. Thus, without corrective actions, the State's huge operating shortfalls will reappear in future years—growing from $12.6 billion in 2010-11 to $26 billion in 2013. May 7 2009 LAO Report. On May 7, 2009, the LAO reported that, as result of the budget and cash pressures of recent months, the General Fund's "cash cushion"—the monies available to pay State bills at any given time—currently is projected to end fiscal year 2008[109 at a much lower level than normal. Without additional legislative measures to address the State's fiscal difficulties or unprecedented amounts of borrowing from the short-term credit markets, the State will not be able to pay many of its bills on time for much of fiscal year 20091110. Deterioration of the state's economic and revenue picture (such as the $8 billion revenue shortfall the LAO forecast in March 2009) or failure of measures in the May 19 special election would increase the State's cash flow pressures substantially—potentially increasing the short-term borrowing requirement to well over $20 billion. The LAO concludes that the State is likely to have difficulty borrowing anywhere close to the needed amounts from the short-term bond markets based on the State's own credit. The LAO advised the Legislature to reduce the State's short-term borrowing need to an amount under $10 billion for fiscal year 2009010, which would require pursuit of two options: (i) additional actions to increase revenues or decrease expenditures in order to return the fiscal year 2009010 budget to balance and (ii) additional actions to delay or defer scheduled payments to schools, local governments, service providers, and others. May 14 2009 Budget Revision. Under California law, in May of each year the Governor issues a revised budget with changes he or she can support, based on the debate, analysis and changes in the economic forecasts. On May 14, 2009, the Governor released the May Revision, which includes two alternative proposals to revise the State budget to address the State's increasing deficit. The specific proposal to be considered depended, in part, on the result of certain statewide ballot measures decided by the voters on the May 19, 2009 special election ballot. Because the voters of the State rejected the three propositions on the special election ballot that would have helped balance the State's budget, the Governor estimates a budget shortfall of $21 billion in 2009-10. The Legislature and the Governor will now need to agree to billions of dollars of additional spending cuts, tax increases or other budgetary solutions to bring the budget back into balance. Proposals in the May Revision include various expenditure cuts, borrowings and other measures. Such cuts and other measures may include reducing State EM payments to school districts by shortening the school year by 5 to 7.5 days, increasing class sizes and laying off additional teachers as needed to absorb reduced funding levels. Further details concerning the Governor's revised budget are expected to be available at http://www.ebudget.ca.gov/. The District cannot predict the exact impact any such budget reductions will have on its General Fund operating budget for the coming fiscal year. May 21 2009 LAO Report. On May 21, 2009, the LAO commented on the May Revision, stating that the Governor's estimate of a new $21 billion budget problem is reasonable and the May Revision proposals include major spending reductions and serious efforts for long—term state efficiencies and savings. The LAO reiterated that by acting quickly and reducing reliance on some of the Governor's riskiest proposals --such as financing $5.5 billion of the deficit by issuing revenue anticipation warrants --the Legislature can return the budget to balance, prevent another state cash crunch, and preserve core funding for what it deems to be California's long— term priorities. To accomplish these goals, the Legislature now needs to cut lower—priority programs substantially or eliminate them. To address significant budget deficits forecast in future years, the Legislature also needs to begin work this year on measures that further improve the efficiency of state services for 2010-11 and beyond. Governor Declares Fiscal Emergency; State Begins Issuing IOUs; Budget Compromise Announced. The Governor announced on July 1 that the budget deficit had grown by $2 billion to $26.3 billion due to the failure of State lawmakers to adopt immediate education cuts and money -shifting plans by the June 30 fiscal year end. He declared a fiscal emergency and ordered a Proposition 58 special session of the Legislature to solve the State's deficit, ordered State employees to take three unpaid furlough days every month and proposed closing the additional $2 billion shortfall largely by cutting school spending even further. To address the State's cash crisis, on July 2 the State began issuing registered warrants, or IOUs, to several classes of creditors, including certain local governments. 2009-10 State Budget Amendments. On July 24, 2009, the California legislature approved amendments to the 2009-10 Budget involving 30 separate pieces of legislation to close the $26.3 billion shortfall. The Governor signed the budget plan on July 28, 2009. Total general fund spending in fiscal year 2009-10 will be more than $84 billion, down from nearly $91.7 billion in fiscal year 2008-09 and nearly $103 billion in fiscal year 2007-08. The budget amendments combine deep spending cuts, borrowing from local governments and accounting maneuvers. The $15.3 billion in additional spending cuts include: - $6.1 billion from the K-14 education budget. - $2.8 billion from the California State University and University of California systems. - $1.3 billion in savings by furloughing nearly 200,000 state workers three days out of each month. - Approximately $3.2 billion from health and human services, including $1.3 billion in cuts to Medicaid. The approved amendments include borrowing from local governments and various accounting maneuvers to generate additional revenues in the 2009-10: A-20 - $2 billion borrowed from counties' property tax collections under provisions of Proposition 1A approved by the voters in 2004, but the State must repay counties with interest within three years. - $1.7 billion shift from redevelopment agencies into State funds in exchange for extending the number of years the agencies could collect tax increment. - $1 billion in revenues to be generated by selling a portion of the State Compensation Insurance Fund's workers compensation insurance portfolio. - $1.2 billion in savings from a one-time deferment of state worker paychecks for one day, moving them into the next fiscal year. - $1.7 billion in revenues by requiring taxpayers who make quarterly estimated payments to pay more in the first six months. This will result in lower revenues in the first half of the next fiscal year. - $600 million in revenues by increasing income tax withholdings from paychecks. This allows the State to grab more tax revenue earlier but will result in lower revenue later due to higher tax refunds or less taxes owed. The accounting shifts rely on the assumption that an economic recovery will be well underway in the next fiscal year and some economists believe that they produce a significant budget shortfall next year. Additionally, borrowing revenues from local governments is likely to result in litigation. The approved budget amendments discarded plans to take $1 billion in gasoline tax revenues from local governments and failed to approve $100 million in revenue from oil leases to be sold in the Santa Barbara Channel. Instead, the legislature intended the $1.1 billion difference to be made up by use of the general fund reserve. The Governor, however, exercised his line -item veto power to make nearly $500 million in additional cuts to social services, state prisons and higher education, and to provide for a general fund reserve of $500 million. Impact on the City. The declaration by the State of California of a fiscal emergency under Proposition 1A and a subsequent take -away of the equivalent of 8% of fiscal year 2008- 09 property related tax revenues from cities, could have an impact of approximately $ million on the City. Future State Budgets. The City cannot predict what actions will be taken in future years by the State Legislature and the Governor to address the State's current or future budget deficits. Future State budgets will be affected by national and state economic conditions and other factors over which the City has no control. To the extent that the State budget process results in reduced revenues to the City, the City will be required to make adjustments to its budget. Decrease in such revenues may have an adverse impact on the City's ability to pay the Notes. Retirement System Marin County Employees' Retirement Fund. The City participates in the Marin County Employees' Retirement Fund (the "Fund"). All full-time and permanent part-time employees who work at least 75% of a full-time position are eligible to participate. The Fund is A-21 an agent multiple -employer defined benefit retirement plan that acts as a common investment and administrative agent for various local governmental agencies within the County. The Fund provides retirement, disability and death benefits based on the employee's years of service, age, and final compensation. Employees vest after five years of service and are eligible to receive benefits after 10 years of service and having attained the age of 50; or 30 years of service (20 years for safety employees) regardless of age. These benefit provisions and all other requirements are established under the County Employee's Retirement Law of 1937. The funding policy of the Fund provides for actuarially determined periodic contributions by the City at rates such that sufficient assets will be available to pay Fund benefits when due. The City contributed 53.93% and 64.38% of payroll to the Fund for police and fire personnel, respectively, and 30.32% for other covered employees for the year ended June 30, 2008. The City's annual cost for the Fund for fiscal years 2007-08, 2006-07 and 2005-06 was $13,754,798, $11,108,650 and $9,316,354, respectively, which was equal to the City's required and actual contributions. The annual required contribution was determined as part of the actuarial study performed as of June 30, 2007. The employer rates for normal cost is determined using the Entry Age Normal Actuarial Cost Method, projected cost method. It takes into account those benefits that are expected to be earned in the future as well as those already accrued. The significant assumptions used in the 2007 actuarial valuation include an assumed rate of return on invested assets of 8.00%, annual payroll increases reflecting 4.00% for inflation and an approximate range of 0.50% to 3.00% for merit and longevity. The actual rate of return on investments was a gain of 12%. The actuarial value of assets was determined using techniques that smooth the effects of short-term volatility in the market value of investments over a period of five years. The Fund also uses the level percentage -open method to amortize the unfunded actuarial liability which was revised to 16 years level in the amortization period. It is assumed that payroll will increase at an annual inflation rate of 4.00% over the amortization period. The Plan's actuarial value (which differs from market value) and funding progress over the most recent three years available is shown in the table below. Table No. 11 Funded Status of the City's Defined Benefit Pension Plan (Fire, Safety, Miscellaneous) (Dollars in thousands) Source: Basic Financial Statements for the Year Ended June 30, 2008. Public Agency Retirement System. The City also contributes to the Public Agency Retirement system ("PARS"), a defined contribution retirement plan, which provides retirement benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's accounts are determined (instead of specifying the amount of benefits the individual is to receive). A-22 Actuarial Excess/ Excess Valuation Actuarial Accrued (Deficit) Annual (Deficit) as a Date Value of Liability (AAL) Assets Funded Covered percentage June 30 Assets Entry Ape Over AAL Ratio payroll of Payroll 2005 $195,698 $265,205 ($69,507) 74% $28,357 (245%) 2006 209,785 306,079 (96,294) 69% 28,606 (337%) 2007 234,930 314,604 (79,674) 75% 28,729 (277%) Source: Basic Financial Statements for the Year Ended June 30, 2008. Public Agency Retirement System. The City also contributes to the Public Agency Retirement system ("PARS"), a defined contribution retirement plan, which provides retirement benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual's accounts are determined (instead of specifying the amount of benefits the individual is to receive). A-22 All eligible non -represented employees of the City will become participants in PARS from the date they were hired. An eligible employee is any employee who, at any time during which the City maintains this plan, is not accruing a benefit under the Plan discussed above. As determined by PARS, each participating employee must contribute 3.75% of gross earnings to PARS. The City contributes and additional 3.75% of the employee's gross earnings. During fiscal year 2007-08 the City and employees contributed $69,940.The total covered payroll of employees participating in PARS was $1,865,066. 401(a) Tax Qualified Plan. In addition, the City participates in a 401(a) tax qualified plan for eligible non -represented management/mid-management employees. This is an employer -only contribution program separate from the Plan discussed above. The City Manager, as Plan Administrator, annually determines the percent amount of contribution which can range from 0% to 5% of base salary of eligible employees. During fiscal year 2007-08, the City contributed $139,124 to this plan on behalf of eligible employees. Post -Employment Health Benefits In April 2004, the Governmental Accounting Standards Board ("GASB") issued Statement No. 43, "Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans." Statement No. 43 establishes uniform financial reporting standards for postemployment healthcare and other nonpension benefits ("OPEB") plans. The approach followed in Statement No. 43 is generally consistent with the approach adopted for defined benefit pension plans with modifications to reflect differences between pension plans and OPEB plans. Statement No. 43 became effective for the City's OPEB Plans for the fiscal year ending June 30, In addition, in June 2004, GASB issued Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions, which addresses how state and local governments should account for and report their costs and obligations related to OPEB. Statement No. 45 generally requires that employers account for and report the annual cost of OPEB and the outstanding obligations and commitments related to OPEB in essentially the same manner as they currently do for pensions. Statement No. 45's provisions may be applied prospectively and do not require governments to fund their OPEB plans. An employer may establish its OPEB liability at zero as of the beginning of the initial year of implementation; however, the unfunded actuarial accrued liability is required to be amortized over future periods. Statement No. 45 also establishes disclosure requirements for information about the plans in which an employer participates, the funding policy followed, the actuarial valuation process and assumptions, and, for certain employers, the extent to which the plan has been funded over time. Statement No. 45 became effective for the City's fiscal year ending June 30, The City provides certain health care benefits for retired employees and their spouses. Substantially all of the City's employees may become eligible for these benefits if they are receiving a retirement benefit from the Plan discussed above within 120 days of retirement from City employment. At June 30, 2008, 268 retirees and surviving spouses received these benefits. The cost of these retiree health care benefits is recognized as an expenditure as claims are paid. For fiscal year 2007-08, those costs totaled $2,037,878 of which $1,206,071 was reimbursed from the Marin County Retirement Office Ces%meiilrmet] See Appendix B, Note 11 for information more about the City's Post -Employment Health Benefit liabilities. A-23 [summarize actuarial study] Outstanding General Fund Debt and Lease Obligations The City currently has outstanding general fund debt and lease obligations described below. The City has never defaulted on the payment of principal of or interest on any of its indebtedness. The City has complied with all significant bond covenants relating to reserve and sinking fund requirements, proofs of insurance, and budgeted revenues and maintenance costs. 2003 Authority Lease Revenue Bonds. In March 2003, the Authority issued 2003 Lease Revenue Bonds in the aggregate principal amount of $7,605,000, which are currently outstanding in the aggregate principal amount of $6,975,000. The proceeds were used for the design and construction of a public parking garage. The Lease Revenue Bonds are payable from lease payments made by the City pursuant to a lease relating to certain public facilities. Notes Payable. The City was obligated under (i) a note relating to the purchase of property maturing in November 2024, which had as of June 30, 2009 an outstanding principal amount of $ and accrued interest of $ and (ii) a note to the Superior Court of the County of Marin maturing in December 2011, which had as of June 30, 2009 an outstanding principal amount of $ and accrued interest of $ Capital Lease Obligations. In addition, the City has outstanding capital lease obligations for two fire trucks and its telephone system. See See Appendix B, Note 6. [confirm Section 33401 school district tax sharing obligation is an obligation of the redevelopment agency] Direct and Overlapping Debt Contained within the City are overlapping local agencies providing public services which have issued general obligation Certificates and other types of indebtedness. Direct and overlapping bonded indebtedness is shown in the following table. Table No. 12 CITY OF SAN RAFAEL Statement of Direct and Overlapping Debt As of June 30, 2009 (Unaudited) Source: California Municipal Statistics, Inc. A-24 Investment of City Funds The City may invest moneys not immediately required for operations in a manner consistent with the City's Statement of Investment Policy (the "Investment Policy"). The Investment Policy. The Investment Policy, adopted by the City Council on June 15, 2009, covers all short-term operating funds and investment activities of the City. These funds are accounted for in the City's annual audit report and include the General Fund, Special Revenue Funds, Debt Service Funds, Capital Project Funds, Enterprise Funds, Internal Funds and Fiduciary Funds. The Investment Policy is adopted by resolution of the City Council annually. The management responsibility for the City's investment program is delegated annually by the City Counsel to the Treasurer pursuant to California Government Code Section 53607. The Treasurer may delegate the authority to conduct investment transactions and to manage the operation of the investment portfolio to other specifically authorized staff members. The City Manager and the Treasurer jointly develop written administrative procedures and internal controls, consistent with the Investment Policy. The City may engage the support services of outside investment advisors, as long as it can be clearly demonstrated that these services produce a net financial advantage or necessary financial protection of the City's financial resources. Beginning in January 2005, the City established a contract with MBIA Municipal Investors Service Corporation to administer cash management services to a portion of the portfolio. These services include updating the Investment Policy annually, cash flow administration, procurement of various instruments, and preparing a comprehensive monthly report. The Investment Policy establishes five objectives for City investment: 1. Preservation of capital and protection of investment principal. 2. Maintenance of sufficient liquidity to meet anticipated cash flows. 3. Attainment of a market value rate of return. 4. Diversification to avoid incurring unreasonable market risks. 5. Compliance with the City's Municipal Code and with all applicable California statutes and Federal regulations. Specific Investment Restrictions. The City is governed by Sections 16429.1, 53600- 53609 and 53630-53686 et seq. of the California Government Code, except that, pursuant to California Government Code Section 5903(e), proceeds of bonds and any moneys set aside or pledged to secure payment of bonds may be invested in securities or obligations described in the ordinance, resolution, indenture, agreement or other instrument providing for the issuance of the bonds.. The City has further restricted the eligible types of securities and transactions to the following instruments (with further specific restrictions specified in the Investment Policy): 1. United States Treasury bills, notes and bonds with a final maturity not exceeding 5 years from the date of purchase. 2. Federal Agency debentures and mortgage-backed securities with a final maturity not exceeding 5 years from the date of purchase. 3. Federal Instrumentality (government sponsored enterprise) debentures, discount notes, callable and step-up securities, with a final maturity not exceeding 5 years from the date of purchase, issued only by Federal Home Loan Banks, Federal National Mortgage Association, Federal Farm Credit A-25 Banks, and federal Home Loan Mortgage Corporation and rated at least AAA or the equivalent. 4. Repurchase Agreements with a final termination date not exceeding one year collateralized by U.S. Treasury obligations, Federal Agency securities, or Federal Instrumentality securities listed in items 1, 2 and 3 above with a final maturity not exceeding 5 years. 5. Prime Commercial Paper with a final maturity not exceeding 270 days from the date of purchase. 6. Eligible Bankers Acceptances issued by FDIC insured commercial banks. 7. Medium -Term Notes issued by corporations organized and operating within the United States with a final maturity not exceeding 5 years from the date of purchase. 8. Negotiable Certificates of Deposit with a final maturity not exceeding 5 years from the date of purchase. 9. Non -Negotiable Certificates of Deposit and savings deposits with a maturity not exceeding 180 days. 10. State of California's Local Agency Investment Fund. 11. Money Market Funds. The above investment categories are more fully described in the Investment Policy Recent Monthly Report. The City Treasurer submits a monthly report to the City Council detailing and summarizing all transactions and stating the present status of City investments (the "Monthly Report"). As of July 31, 2009, the City Treasurer reports that the annualized return of the City's investment portfolio was 2.77% (based on a 365 -day year) and the weighted average days to effective maturity was 100 days. The following table summarizes certain information relating to the City's investment portfolio as of July 31, 2009: Table No. 13 CITY OF SAN RAFAEL Investment Portfolio Summary (as of July 31, 2009) Type of Investment Historic Cost Cash and equivalents $17,570,258 U.S. Treasury 999,453 U.S. Instrumentality 3,989,879 Corporate 496.270 Total $23,055,860 Source: City of San Rafael. A-26 Market Value % of Portfolio (z) $17,570,258 76.2% 1,000,012 4.3 3,995,294 17.3 497.946 2.2 $23,063,510 100.0% Employee Relations and Collective Bargaining The employee associations that represent City employees are shown below. Pursuant to the City's Employee Relations Ordinance and the Meyers -M ill ias-Brown-Act, the City and the employee associations negotiate wages, hours and conditions of employment. Employee Group Service Employees International Union (SEIU) San Rafael Police Association (SRPA) (Police) Police Mid -Management Firefighters' Association Fire Chief Officers' Association SEW — Childcare Association of Professional Employees (WCE) Local One — Confidential * Currently being negotiated.. A-27 Employees Contract Expiration Date 132 6/30/2010 89 6/30/2009" 6 6/30/2009* 56 6/30/2011 3 6/30/2011 49 10/30/2009 8 6/30/2010 6 6/30/2010 Employment and Industry The County is included in the San Francisco -San Mateo -Redwood City Metropolitan Division. The following table summarizes the civilian labor force, employment and unemployment in the County for the calendar years 2004 through 2008. These figures are county -wide statistics and may not necessarily accurately reflect employment trends in the City. During June 2009, the unemployment rate was 9.3% in the Metropolitan Division, 8.2% in Marin County and 12.1% in the State. Table 14 SAN FRANCISCO -SAN MATEO-REDWOOD CITY METROPOLITAN DIVISION Civilian Labor Force, Employment and Unemployment (Annual Averages) Civilian Labor Force (1) Employment Unemployment Unemployment Rate Wage and Salary Employment: (2) Agriculture Natural Resources and Mining Construction Manufacturing Wholesale Trade Retail Trade Transportation, Warehousing and Utilities Information Finance and Insurance Real Estate and Rental and Leasing Professional and Business Services Educational and Health Services Leisure and Hospitality Other Services Federal Government State Government Local Government Total All Industries (3) 2004 2005 2006 2007 2008 912,700 907,700 919,500 943,800 971,900 864,900 866,300 883,700 906,100 923,700 47,800 41,400 35,800 37,700 48,200 5.2% 4.6% 3.9% 4.0% 5.0% 3,100 2,700 2,800 2,700 2,700 200 200 200 200 200 42,200 41,300 43,100 45,400 44,100 44,100 42,600 43,500 43,500 42,600 26,500 26,100 26,700 27,100 26,700 93,300 93,800 93,600 95,000 93,900 44,900 43,500 42,100 40,600 40,300 43,500 40,800 39,000 39,500 40,000 66,600 66,900 67,500 67,700 65,000 20,800 20,900 21,200 21,100 21,200 176,000 183,000 191,700 203,900 210,600 100,100 100,800 103,200 105,200 106,700 114,000 116,100 119,900 124,300 126,100 36,900 36,900 37,300 38,600 39,200 21,400 20,400 19,900 19,400 19,300 31,100 32,800 34,100 34,900 35,600 77,800 79,800 81,400 82,700 83,500 942,500 948,600 967,200 991,800 997,700 (1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (3) Totals may not add due to rounding. Source: State of California Employment Development Department. �3 Largest Employers The 25 largest private -sector employers in the County for 2009, listed alphabetically as follows: Table 15 COUNTY OF MARIN Largest Employers (As of August 2009) Employer Name Location Industry Autodesk Inc San Rafael Computer Software -Manufacturers Brayton Purcell Novato Attorneys Cagwin & Dorward Landscape Novato Landscape Contractors College of Marin Kentfield Schools -Universities & Colleges Academic Corrections Dept San Quentin State Govt -Correctional Institutions Fireman's Fund Insurance Co Novato Insurance Kaiser Foundation Hospital San Rafael Hospitals Kentfield Rehabilitation Hosp Kentfield Hospitals Kitchen Works Inc San Rafael Kitchen Cabinets & Equipment -Household Leon's Bar B'Q Inc Mill Valley Food Products -Retail Macy's Corte Madera Department Stores Managed Health Network Inc San Rafael Health Plans Marin Community College Kentfield Schools -Universities & Colleges Academic Marin County Sheriffs Dept San Rafael Sheriff Marin General Hospital Greenbrae Hospitals Marin Group Sausalito Product Development & Marketing Marin Independent Journal Novato Newspapers (Publishers/Mfrs) Nordstrom Corte Madera Department Stores Novato Community Hospital Novato Hospitals Rowland Novato Community Hosp Novato Hospitals San Rafael Human Resources San Rafael Government Offices -City, Village & Twp Sonnen Motor Cars San Rafael Automobile Dealers -New Cars Township Building Svc Inc Novato Janitor Service Westamerica Bank San Rafael Banks YMCA San Rafael Social Service & Welfare Organizations Source: State of California Employment Development Department, extracted from The America's Labor Market Information System (ALMIS) Employer Database, 2009 2ntl Edition. Effective Buying Income "Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable' or "after-tax' income. Personal income is the aggregate of wages and salaries, other labor -related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner -occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance. According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income." A-29 The following table summarizes the total effective buying income for the City, the County, the State and the United States for the period 2004 through 2008. Table No. 16 CITY OF SAN RAFAEL Effective Buying Income As of January 1, 2004 through 2008 Source: Sales & Marketing Management Survey of Buying Power for 2004; Clantas Demographics for 2005 through 2008. A-30 Total Effective Buying Median Household Year Area Income (000's Omitted) Effective Buying Income 2004 City of San Rafael n/a n/a Marin County $ 9,888,678 61,606 California 705,108,410 43,915 United States 5,692,909,567 39,324 2005 City of San Rafael $ 1,663,310 $52,871 Marin County 9,505,593 61,624 California 720,798,106 44,681 United States 5,894,663,364 40,529 2006 City of San Rafael $ 1,769,150 $54,463 Marin County 10,057,703 64,365 California 764,120,963 46,275 United States 6,107,092,244 41,255 2007 City of San Rafael $ 1,874,323 $57,071 Marin County 10,585,120 67,799 California 814,894,438 48,203 United States 6,300,794,040 41,792 2008 City of San Rafael $ 1,899,075 $57,466 Marin County 10,769,315 68,816 California 832,531,445 48,952 United States 6,443,994,426 42,303 Source: Sales & Marketing Management Survey of Buying Power for 2004; Clantas Demographics for 2005 through 2008. A-30 Construction Activity Building activity for the past five years in the City is shown in the following table. Table No. 17 CITY OF SAN RAFAEL Total Building Permit Valuations (valuations in thousands) Calendar Year 2004 to 2008 2004 2005 2006 2007 2008 Permit Valuation New Single-family $14,601.9 $ 10,146.8 $ 6,304.0 $ 4,717.8 $ 1,372.5 New Multi -family 22,057.0 6,238.6 0.0 0.0 0.0 Res. Alterations/Additions 24,562.6 24.914.0 23.466.7 31.202.7 15.212.2 Total Residential 61,221.6 41,299.4 29,770.7 35,920.5 16,584.7 New Commercial 7,475.8 650.0 11,300.0 0.0 17,800.0 New Industrial 0.0 0.0 0.0 0.0 0.0 New Other 538.9 3,983.7 13,231.6 225.4 144.0 Com. Alterations/Additions 15.806.6 14.502.7 11.364.7 16.955.4 30.712.2 Total Nonresidential 23,821.3 19,136.5 35,896.3 17,180.8 $48,656.2 New Dwelling Units Single Family 78 36 7 4 2 Multiple Family 169 56 0 0 0 Total 247 92 7 4 2 Source: Economic Sciences Corporation, California Building Permit Activity A-31 APPENDIX B AUDITED FINANCIAL STATEMENTS OF THE CITY FOR THE YEAR ENDED JUNE 30, 2008 m APPENDIX C FORM OF OPINION OF BOND COUNSEL C-1 APPENDIX D DTC AND THE BOOK -ENTRY ONLY SYSTEM The following description of the Depository Trust Company ("DW"), the procedures and record keeping with respect to beneficial ownership interests in the Notes, payment of principal, interest and other payments on the Notes to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Notes 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 maybe. Neither the issuer of the Notes (the `Issuer") nor the trustee, fiscal agent or paying agent appointed with respect to the Notes (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 Notes, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Notes, or (c) redemption or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the Notes, 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 securities (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 -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is D-1 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 Standard & Poor's highest rating: AAA. 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 and www.dtc.org. 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 D-2 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, distributions, and dividend payments 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. D-3 APPENDIX E FORM OF CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of San Rafael (the "City") in connection with the issuance by the City of the $ City of San Rafael 2009-10 Tax and Revenue Anticipation Notes (the "Notes"). The Notes are being issued pursuant to a resolution adopted by the City Council of the City on , 2009 (the "Resolution"). The City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the holders and beneficial owners of the Notes and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2 - 12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Resolution, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Dissemination Agent' shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 3(a) of this Disclosure Certificate. WSW means the Municipal Securities Rulemaking Board, which has been designated by the Securities and Exchange Commission as the sole repository of disclosure information for purposes of the Rule. "Participating Underwriter" shall mean any of the original underwriters of the Notes required to comply with the Rule in connection with offering of the Notes. "Rule" shall mean Rule 15c2 -12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. Section 3. Reporting of Significant Events. (a) Pursuant to the provisions of this Section 3, the City shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Notes, if material: (1) Principal and interest payment delinquencies. (2) Non-payment related defaults. (3) Unscheduled draws on debt service reserves reflecting financial difficulties. (4) Unscheduled draws on credit enhancements reflecting financial difficulties. (5) Substitution of credit or liquidity providers, or their failure to perform. (6) Adverse tax opinions or events affecting the tax-exempt status of the security. (7) Modifications to rights of security holders. (8) Contingent or unscheduled bond calls. (9) Defeasances. E-1 (10) Release, substitution, or sale of property securing repayment of the securities. (11) Rating changes. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine if such event would be material under applicable Federal securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with the MSRB, in an electronic format as prescribed by the MSRB. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Notes pursuant to the Resolution. Section 4. Termination of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. If such termination occurs prior to the final maturity of the Notes, the City shall give notice of such termination in the same manner as for a Listed Event under Section 3(c). Section 5. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the City. Section 6. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a) it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Notes, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized Bond Counsel, have complied with the requirements of the Rule at the time of the primary offering of the Notes, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by holders of the Notes, or (ii) does not, in the opinion of the Trustee or nationally recognized Bond Counsel, materially impair the interests of the holders or beneficial owners of the Notes. Section 7. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the City chooses to include any information in any notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no obligation under this Disclosure Certificate to update such information or include it in any future notice of occurrence of a Listed Event. E-2 Section 8. Default. In the event of a failure of the City to comply with any provision of this Disclosure Certificate any holder or beneficial owner of the Notes may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the City to comply with this Disclosure Certificate shall be an action to compel performance. Section 9. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the City under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Notes. Section 10. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Notes, and shall create no rights in any other person or entity. Date: , 2009 E-3 CITY OF SAN RAFAEL 0 City Manager 29236-03 JH:CKL CITY OF SAN RAFAEL, CALIFORNIA 2009-10 TAX AND REVENUE ANTICIPATION NOTES NOTE PURCHASE AGREEMENT , 2009 City of San Rafael 1400 Fifth Avenue San Rafael, CA 94901 Ladies and Gentlemen: 9-4-09 The undersigned (the "Underwriter") offers to enter into this Note Purchase Agreement (the "Note Purchase Agreement') with the City of San Rafael (the "City"). This offer is made subject to written acceptance by the City prior to 11:59 p.m., Pacific Daylight Time, on the date hereof, and, upon such acceptance, this Note Purchase Agreement will be binding upon the City and the Underwriter. 1. Purchase and Sale of the Notes. Upon the terms and conditions and in reliance upon the representations, warranties and agreements herein set forth, the Underwriter hereby agrees to purchase from the City for reoffering to the public, and the City hereby agrees to sell to the Underwriter for such purpose, all (but not less than all) of the City's 2009-10 Tax and Revenue Anticipation Notes (the "Notes"), in the aggregate principal amount of $ . The aggregate purchase price to be paid by the Underwriter for the Notes shall be $ , being the principal amount of the Notes plus a premium of $ , less an Underwriter's discount of $ 2. The Notes. The Notes shall be dated their date of issuance, shall mature on , 2010, and are being issued under Resolution No. adopted by the City Council of the City on September 8, 2009 (the "Resolution"), in full conformity with the Constitution and laws of the State of California including Article 7.6, Chapter 4, Part 1, Division 2, Title 5 (commencing with Section 53850) of the California Government Code (the "Act'), as amended and supplemented, and particularly Section 53853(b) of the Act. The Notes will bear interest at the rate of % per annum. The Notes will be registered initially in the name of "Cede & Co." as nominee of The Depository Trust Company ("DTC") in New York, N.Y., the securities depository for the Notes. 3. Use of Documents. The City has delivered to the Underwriter copies of its Preliminary Official Statement dated 2009 (the "Preliminary Official Statement"). As of its date, such Preliminary Official Statement has been "deemed final" by the City for purposes of Securities and Exchange Commission Rule 15c2-12 (the "Rule"), except for information permitted to be omitted by said Rule. The City agrees to deliver to the Underwriter a final Official Statement, dated the date hereof (the "Official Statement") within 7 business days from the date hereof and in sufficient time to accompany any confirmations requesting payment sent to purchasers. The number of Official Statements so delivered will be sufficient to comply with the requirements of paragraph (b)(4) of the Rule and the Rules of the Municipal Securities Rulemaking Board. The City has approved the distribution by the Underwriter of the Official Statement and the City hereby authorizes the Underwriter to use, in connection with the offer and sale of the Notes, the Official Statement and the Resolution and all information contained herein and therein and all other documents, agreements, certificates or statements furnished by the City to the Underwriter or entered into in connection with the transactions contemplated by this Note Purchase Agreement. The City will undertake, pursuant to a Continuing Disclosure Certificate (the "Continuing Disclosure Certificate"), to provide notices of the occurrence of certain events, if material. A description of such undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement. 4. Public Offering of the Notes. The Underwriter agrees to make a bona fide public offering of the Notes at the price or yield set forth on the cover of the Official Statement. The Underwriter may offer and sell the Notes to certain dealers and banks at prices lower than the public offering price stated on the cover of the Official Statement and said public offering price may be changed from time to time by the Underwriter. 5. Closing. At 8:00 a.m., Pacific Daylight Time, on 2009, or at such other time and on such other date as shall have been mutually agreed upon by the City and the Underwriter (the "Issue Date"), the City will deliver to the Underwriter, through DTC, the Notes in registered form duly executed and other documents hereinafter mentioned, and the Underwriter will accept such delivery and pay the purchase price thereof in immediately available funds to the order of the City (the "Closing"). 6. Representations. Warranties and Agreements of the Citv. The City hereby represents, warrants and agrees with the Underwriter that: (A) The City is a general law city and municipal corporation, organized and existing pursuant to the Constitution and laws of the State of California (the "State"), and has all requisite right, power and authority to conduct its business, to adopt the Resolution, to issue the Notes and to execute this Note Purchase Agreement and the Continuing Disclosure Certificate (collectively, the "Documents"), and to perform its obligations under each such document or instrument, and to carry out and effectuate the transactions contemplated by the Documents. (B) (i) At or prior to the Closing, the City will have taken all actions required to be taken by it to authorize the issuance and delivery of the Notes; (ii) the execution and delivery of the Notes and this Note Purchase Agreement, the adoption by the City of the Resolution, and the performance by the City of the obligations contained in the Documents, have been duly authorized and such authorization will be in full force and effect at the time of the Closing; (iii) this Note Purchase Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of the City enforceable against the City in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws in effect for the protection of debtors and by application of general principles of equity; (iv) the City Council has duly authorized the consummation by the City of all transactions contemplated by this Note Purchase Agreement, the Resolution and the Continuing Disclosure Certificate; and (v) the City has authorized and approved the Preliminary 2 Official Statement and the Official Statement and the distribution thereof by the Underwriter. (C) No consent, approval, authorization, license, order, filing, registration, qualification, election or referendum, of or by any person, organization, court or governmental agency or public body whatsoever is required for the consummation of the transactions contemplated hereby, except for such actions as have been taken or as may be necessary to qualify the Notes for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions of the United States as the Underwriter may designate (except that the City shall not be responsible for the failure to comply with any such laws of regulations with regard to Blue Sky). (D) The City has complied in all material respects with the Securities Act of 1933, as amended (the "Securities Acf'), and, in so far as it relates to the Notes, the Internal Revenue Code of 1986 (the "Code"). (E) To the best knowledge of the City, based upon reasonable inquiry, as of the time of acceptance hereof, there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before any court or public body, pending or threatened against the City: (i) in any way affecting the existence of the City or in any way challenging the respective powers of the City or the entitlement of the officials of the City to their respective offices; or (ii) seeking to restrain or enjoin the sale, issuance or delivery of any of the Notes, the application of the proceeds of the sale of the Notes, or the collection of revenues or taxes of the City pledged or to be pledged or available to pay the principal of and interest on the Notes, or the pledge thereof, or in any way contesting the validity of the Notes or the Note Purchase Agreement, or contesting the powers or authority of the City with respect to the Notes or the Note Purchase Agreement; or (iii) in which a final adverse decision could (a) materially adversely affect the consummation of the transactions contemplated by this Note Purchase Agreement, (b) declare this Note Purchase Agreement to be invalid or unenforceable in whole or in material part, or (c) adversely affect the exclusion from gross income of the interest paid on the Notes for purposes of federal income taxation and the exemption of such interest from State income taxation. (F) As of the date thereof, the Preliminary Official Statement with respect to the information therein regarding the City did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except for information permitted to be omitted therefrom by the Rule 15c2-12. (G) As of the date thereof, the Official Statement with respect to the information therein regarding the City does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If between the date of the Official Statement and the Closing (i) any event shall occur or any pre-existing fact or condition shall become known which might or would cause the Official Statement, as then supplemented or amended, to contain any untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the City shall promptly notify the Underwriter thereof, and (ii) if in the reasonable opinion of the Underwriter, such event, fact or condition requires the preparation and publication of a supplement or amendment to the Official Statement, the City will at its expense supplement or amend the Official Statement in a form and in a manner jointly approved by the Underwriter and the City, which approval shall not be unreasonably withheld. (H) The City undertakes that, for a period beginning with the day on which the Notes are delivered to the Underwriter and ending on the earlier of (i) the 25th day following the end of the underwriting period, as defined in the Rule under the Securities Exchange Act of 1934, or (ii) 90 days following Closing, it will (a) apprise the Underwriter of all material developments, if any, occurring with respect to the City and (b) if requested by the Underwriter, prepare a supplement to the Official Statement in respect of any such material event. The period described in the preceding sentence shall be reduced to twenty-five (25) days if the Official Statement has been deposited with a nationally recognized municipal securities information depository and is available from such depository upon request. The Underwriter hereby agrees to use its best efforts to deposit the Official Statement with a nationally recognized municipal securities information depository so that such period will be reduced to twenty-five (25) days. Unless otherwise notified in writing by the Underwriter, the City may assume that the end of this underwriting period occurs on the date when the City delivers the Notes to the Underwriter. (1) Between the date hereof and the Closing, without the prior written consent of the Underwriter, the City will not have issued any bonds, notes or other obligations for borrowed money except as may be described in or contemplated by the Official Statement. (J) Any certificates signed by any official of the City and delivered to the Underwriter shall be deemed a representation and warranty by the City to the Underwriter as to the statements made therein but not of the person signing the same. (K) The City will punctually pay or cause to be paid the principal of and interest to become due on the Notes in strict conformity with the terms of the Resolution and the Notes and it will faithfully observe and perform all of the conditions, covenants and requirements of the Notes and the Documents. (L) The City will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter if and as the Underwriter may reasonably request in order (i) to qualify the Notes for offer and sale under the Blue Sky or other securities laws and regulations of such states and jurisdictions of the United States as the Underwriter may designate and (ii) to determine the eligibility of the Notes for investment under the laws of such states and other jurisdictions and will, if requested by the Underwriter, use its best efforts to continue such qualifications in effect so long as required for distribution of the Notes; provided that the City shall not be required to pay any fees in connection with the foregoing or to subject itself to service of process in any jurisdiction in which it is not presently so subject. (M) Between the date hereof and the Closing, the City will not modify or amend the Resolution without the prior written consent of the Underwriter. (N) The City will enter into the Continuing Disclosure Certificate in order to provide the information required therein. Except as disclosed in the Official Statement, the City has not failed to comply in all material respects with a continuing undertaking under the Rule during the previous five years. 7. Conditions to Obligations of Underwriter at Closing. The Underwriter has entered into this Note Purchase Agreement in reliance upon the representations and warranties of the City contained herein and the performance by the City of its obligations hereunder, as of the date hereof and as of the Closing. The obligation of the Underwriter to purchase the Notes at the Closing is subject to the following further conditions, any or all of which can be waived by the Underwriter in writing: (A) The representations and warranties of the City contained herein shall be true and correct in all material respects at the date hereof and at and as of the Closing, as if made at and as of the Closing, and the statements made in all certificates and other documents delivered to the Underwriter at the Closing and otherwise pursuant hereto shall be true and correct in all material respects at and as of the Closing; (B) At and as of the Closing (i) the Official Statement, this Note Purchase Agreement, the Continuing Disclosure Certificate and the Resolution shall be in full force and effect and shall not have been amended, modified or supplemented except as may have been jointly agreed to in writing by the City and the Underwriter; (ii) all actions under the Act which, in the opinion of Jones Hall, A Professional Law Corporation, Bond Counsel, shall be necessary in connection with the transactions contemplated hereby, shall have been duly taken and shall be in full force and effect; and (iii) the City shall perform or have performed all of its obligations required under or specified in the Resolution or this Note Purchase Agreement to be performed at or prior to the Closing; (C) To the best knowledge of the City, based on reasonable inquiry, no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court or public body, is pending or threatened against the City which has any of the effects described in Paragraph 6(E) hereof or contesting in any way the completeness or accuracy of the Official Statement; (D) No order, decree or injunction of any court of competent jurisdiction, nor any order, ruling or regulation of the Securities and Exchange Commission, has been issued or made with the purpose or effect of prohibiting the issuance, offering or sale of the Notes as contemplated hereby and no legislation has been enacted, or a bill favorably reported for adoption, or a decision by any court rendered, or a ruling, regulation, proposed regulation or official statement by or on behalf of the Securities and Exchange Commission or other governmental agency having jurisdiction of the subject matter has been made or issued, to the effect that the Notes or any other securities of the City or of any similar body of the type contemplated herein are not exempt from the registration, qualification or other requirements of the Securities Act and as then in effect, or of the Trust Indenture Act of 1939, as amended and as then in effect; and (E) At or prior to the Closing, the Underwriter shall have received a copy of the following documents in each case dated at and as of the Closing and satisfactory in form and substance to the Underwriter: (1) An approving opinion of Bond Counsel as to the Notes in the form attached to the Official Statement as Appendix C, addressed to the City and upon which the Underwriter may rely; (2) A supplemental opinion of Bond Counsel, addressed to the Underwriter, to the effect that: (i) the City Council has full right and lawful authority to adopt the Resolution and to enter into and perform its obligations thereunder and under this Note Purchase Agreement, and this Note Purchase Agreement has been duly authorized, executed and delivered by the City, and the Resolution and the Note Purchase Agreement (assuming the due authorization, execution and delivery of such other documents by and the validity of such other documents against the other party thereto) constitute valid and binding obligations of the City, enforceable against the City in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by principles of equity if equitable remedies are sought and by the limitations on legal remedies against governmental entities in the State and except that no opinion need be expressed with respect to any indemnification or contribution provisions contained in this Note Purchase Agreement; (ii) the statements contained in the Official Statement on the cover and in the sections thereof entitled "INTRODUCTION," "THE NOTES," and "TAX MATTERS," insofar as such statements purport to summarize certain provisions of the Resolution, the Notes and the exemption from State of California personal income tax and the exclusion from gross income for Federal income tax purposes of interest on the Notes, present an accurate summary of such provisions, such exemption and such exclusion; and (iii) the Notes are exempt from registration pursuant to the Securities Act and the Resolution is exempt from qualification pursuant to the Trust Indenture Act of 1939, as amended. (3) The certificate of the City, dated the Closing Date to the effect that: (i) the City is a general law city and municipal corporation duly organized and existing under the Constitution of the laws of the State; (ii) the Resolution was duly adopted at a meeting of the City Council which was called and held pursuant to law with all public notice required by law and at which a quorum was present and acting throughout, and the Resolution is in full force and effect and has not been amended, modified or rescinded; (iii) the adoption of the Resolution and the execution and delivery of the Notes, the Continuing Disclosure Certificate and this Note Purchase Agreement and compliance with the provisions hereof and thereof, under the circumstances contemplated thereby and hereby, do not and will not conflict with or constitute on the part of the City a breach of or default under any agreement or other instrument applicable or binding upon the City or any of its properties or any existing law, regulation, court order or consent decree to which the City or any of its properties is subject; (iv) the City has full right and lawful authority to deliver the Official Statement, to execute and deliver the Notes, and to execute and deliver this Note Purchase Agreement, to adopt the Resolution and the City has duly authorized, executed and delivered the Official Statement and this Note Purchase Agreement; (v) To the best knowledge of the City, based on reasonable inquiry, there is no action, suit or proceeding, inquiry or investigation before or by any court, public board or body, other than as disclosed in the Official Statement pending or, to the knowledge of the City, threatened against or affecting the City, (a) contesting in any way the completeness or accuracy of the Official Statement, or wherein an unfavorable decision, ruling or finding is likely to have a material adverse effect on the financial condition of the City, the transactions contemplated by the Note Purchase Agreement, the Continuing Disclosure Certificate, the Resolution or by the Official Statement, or (b) which is likely to adversely affect the validity or enforceability of, or the authority or ability of the City to perform its obligations under the Notes, the Note Purchase Agreement, the Continuing Disclosure Certificate, the Resolution, or any other agreement or instrument to which the City is a party and which is used or contemplated for use in consummation of the transactions contemplated by the Note Purchase Agreement, the Continuing Disclosure Certificate, the Resolution or the Official Statement; and (vi) The representations and warranties of the City herein are true and correct in all material respects as of the date made and as of the date of the Closing, and the City has performed all its obligations required under or specified in the Resolution and this Note Purchase Agreement to be performed at or prior to the Closing; and (vii) Such official has reviewed the Official Statement and on such basis certifies that, to the best of his knowledge after reasonable inquiry, the Official Statement does not contain any untrue statement of a material fact and does not omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (4) A certificate of the City Clerk of the City, together with a fully executed copy of the Resolution, to the effect that: (i) such copy is a true and correct copy of the Resolution; and (ii) the Resolution was duly adopted and has not been modified, amended, rescinded or revoked and is in full force and effect at and as of the Closing, except for amendments, if any, adopted with the consent of the Underwriter; (5) An non -arbitrage certification from the City in form and substance satisfactory to Bond Counsel, signed by an official of the City; (6) Evidence satisfactory to the Underwriter that at and as of the Closing the Notes have the same rating, if any, from Standard & Poor's Ratings Group as was used on the date of pricing to determine the interest rate for the Notes; (7) Certified copies of the Resolution and one executed original of each of the documents and such additional legal opinions, certificates, proceedings, instruments and other documents as the Underwriter or Bond Counsel may reasonably request in order to evidence compliance by the City with legal requirements, the truth and accuracy, at and as of the Closing, of the representations, warranties and agreements of the Authority herein contained and the statements contained in the Official Statement, and the due performance and satisfaction by the City at or prior to such time of all agreements then to be performed and all conditions then to be satisfied by the City. (8) An opinion of Jones Hall, A Professional Law Corporation, as disclosure counsel to the City, addressed to the Underwriter, to the following effect: We are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Official Statement and make no representation that we have independently verified the accuracy, completeness or fairness of any such statements. However, in connection with the Official Statement, we have reviewed certain documents. During the course of our work on this matter, no facts have come to our attention that cause us to believe that the Official Statement (except for any financial and statistical data and forecasts, numbers, estimates, assumptions and expressions of opinion, and information concerning the Depository Trust Company and the book -entry system for the Bonds, contained or incorporated by reference in the Official Statement and the appendices to the Official Statement, which we expressly exclude from the scope of this sentence) as of the date of the Official Statement or the date hereof contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 8. Termination of Obligations of Underwriter. If the City shall be unable to satisfy the conditions set forth in Section 7 to the obligations of the Underwriter contained in this Note Purchase Agreement, the obligations of the Underwriter under this Note Purchase Agreement may be terminated by the Underwriter by notice to the City at, or at any time prior to, the Closing. Notwithstanding any provision herein to the contrary, the performance of any and all f✓ conditions contained herein for the benefit of the Underwriter may be waived by the Underwriter in writing in its sole discretion. The Underwriter shall also have the right to terminate, in its sole discretion, its obligations under this Note Purchase Agreement, by notice to the City at, or at any time prior to the Closing, if between the date hereof and the Closing: (i) any event occurs or information becomes known, which, in the reasonable professional judgment of the Underwriter, makes untrue any statement of a material fact set forth in the Official Statement or results in an omission to state a material fact necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading; (ii) the market for the Notes or the market price for the Notes shall have been materially and adversely affected, in the reasonable professional judgment of the Underwriter, by (a) legislation enacted by the Congress of the United States, or passed by either House of Congress or favorably reported for passage to either House of Congress by any Committee of such House to which such legislation has been referred for consideration, or formally proposed, or introduced on the floor of either House of Congress, or by the legislature of the State of California or by the United States Tax Court, or a ruling, order, or regulation (final, temporary or proposed) made by the Treasury Department of the United States or the Internal Revenue Service or other federal or State Court or other authority, which would have the effect of changing, directly or indirectly, the federal income tax consequences or State income tax consequences of interest on obligations of the general character of the Notes in the hands of the holders thereof, or (b) any new outbreak or escalation of hostilities or other national calamity or crisis in the financial markets of the United States which has a material adverse effect on the market price of the Notes, or (c) a general suspension of trading on the New York Stock Exchange, or of fixing of minimum or maximum prices of trading on the New York Stock Exchange, or of fixing of minimum or maximum prices for trading or maximum ranges for prices for securities on the New York Stock Exchange, whether by virtue of a determination by that Exchange or by order of the Securities and Exchange Commission or any other governmental authority having jurisdiction, or (d) a general banking moratorium declared by either federal or State of New York authorities having jurisdiction; or (iii) additional material restrictions not in force or being enforced as of the date hereof shall have been imposed upon trading in securities generally by any governmental authority or by any national securities exchange which in the reasonable professional judgment of the Underwriter, materially and adversely affect the market price for the Notes. 9. Conditions to Obligations of the City. The performance by the City of its obligations under this Note Purchase Agreement with respect to issuance, sale and delivery of the Notes to the Underwriter is conditioned upon (i) the performance by the Underwriter of its obligations hereunder; and (ii) receipt by the City and the Underwriter of opinions and certificates being delivered at or prior to the Closing by persons and entities other than the City. 10. Expenses. (A) The City shall bear all expenses incident to the performance of its obligations hereunder, including but not limited to: (i) the cost of the preparation and reproduction of the Resolution; (ii) the fees and disbursements of Bond Counsel and Disclosure Counsel; (iii) the fees for rating the Notes; (iv) the cost of printing and distribution of the Preliminary Official Statement and the Official Statement; (v) fees and expenses of Underwriter's Counsel; and (vi) DTC and CUSIP Bureau costs and fees. To the extent the Underwriter pays any of the foregoing expenses and fees on behalf of the City, the City shall reimburse the Underwriter at the Closing. (B) The Underwriter shall bear all of its own expenses and fees incident to the purchase and resale of the Notes and costs of qualifying the Notes for sale under the Blue Sky laws of any state. 11. Notices. Any notice or other communication to be given under this Note Purchase Agreement (other than the acceptance hereof as specified in the first paragraph hereof) shall be given by telephone or telex, confirmed in writing, or by delivering the same in writing, if to the City, to the address first written above, attention: City Treasurer/Finance Director, or if to the Underwriter, to 12. Parties in Interest: Survival of Representations and Warranties. This Note Purchase Agreement when accepted by the City in writing as specified herein all constitute the entire agreement between the City and the Underwriter and is made solely for the benefit of the City and the Underwriter (including their respective successors and assigns). No other person shall acquire or have any right hereunder or by virtue hereof. The obligations of the City arising out of its representations and warranties in this Note Purchase Agreement shall not be affected by any investigation made by or on behalf of the Underwriter. 13. Execution in Counterparts. This Note Purchase Agreement may be executed in counterparts, each of which shall be regarded as an original and all of which shall constitute one and the same document. 10 14. Applicable Law. This Note Purchase Agreement shall be interpreted under, governed by and enforced in accordance with the laws of the State of California. The foregoing is hereby agreed to and accepted as of the date first above written: CITY OF SAN RAFAEL City Treasurer/Finance Director 11 Very truly yours, [UNDERWRITER] a Authorized Representative