$15,300,000 TURLOCK PUBLIC FINANCING AUTHORITY TAX ...cdiacdocs.sto.ca.gov/2009-1290.pdf · TURLOCK...

NEW ISSUE - BOOK-ENTRY ONLY Ratings:Standard & Poor’s: “BBB+”

See “CONCLUDING INFORMATION – Ratings” herein.In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond Counsel, under existing law (i) assuming continuing

compliance with certain covenants and the accuracy of certain representations, interest on the 2011 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and (ii) interest on the 2011 Bonds is exempt from personal income taxation by the State of California. Interest on the 2011 Bonds may be subject to certain federal taxes imposed only on certain corporations, including the corporate alternative minimum tax on a portion of that interest. For a more complete discussion of the tax aspects, see “TAX MATTERS.”

$15,300,000 TURLOCK PUBLIC FINANCING AUTHORITY

TAX ALLOCATION REVENUE BONDS,SERIES 2011

Dated: Date of Delivery Due: September 1, as shown below

Purpose of Financing. The captioned bonds (the “2011 Bonds”) are being issued by the Turlock Public Financing Authority (the “Authority”) (i) to provide funds to finance the acquisition and construction of certain capital improvements in the Turlock Redevelopment Project (the “Project Area”) of the Turlock Redevelopment Agency (the “Agency”), (ii) to establish a Reserve Fund with respect to the 2011 Bonds, and (iii) to pay the costs of issuing the 2011 Bonds.

The 2011 Bonds. The 2011 Bonds are being issued in fully registered form without coupons and, when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). Payments of the principal of, premium, if any, and interest on the 2011 Bonds will be made by U.S. Bank National Association, as trustee for the 2011 Bonds (the “Trustee”) to DTC, which is obligated in turn to remit such principal, premium, if any, and interest to its DTC Participants for subsequent disbursement to the beneficial owners of the 2011 Bonds.

The 2011 Bonds are being issued pursuant to a Trust Agreement, dated as of February 1, 2011 (the “Trust Agreement”) by and between the Authority and the Trustee. Interest on the 2011 Bonds shall be payable on March 1 and September 1 of each year, commencing on September 1, 2011. The 2011 Bonds are special obligations of the Authority payable from Revenues, as defined in this Official Statement, which primarily consist of Loan Installments (as defined in this Official Statement) payable by the Agency to the Authority pursuant to a Loan Agreement, dated as of February 1, 2011 (the “Loan Agreement”). In addition, the Authority is authorized to issue additional bonds secured by Revenues on a parity with the 2011 Bonds. See “SECURITY FOR THE 2011 BONDS – Additional Bonds”.

The 2011 Bonds are subject to optional and mandatory redemption prior to maturity, as provided in this Official Statement.The 2011 Bonds are special, limited obligations of the Authority, payable from and secured solely by the Trust Estate (as defined in

this Official Statement). The 2011 Bonds do not constitute a charge against the general credit of the Authority or its members, and under no circumstances will the Authority be obligated to pay principal of or redemption premium or interest on the 2011 Bonds except from the Trust Estate. Neither the State of California nor any public agency (other than the Authority) nor any member of the Authority is obligated to pay the principal of or redemption premium or interest on the 2011 Bonds, and neither the faith and credit nor the taxing power of the State of California or any public agency thereof or any member of the Authority is pledged to the payment of the principal of or redemption premium or interest on the 2011 Bonds, and neither the principal of nor the redemption premium or interest on the 2011 Bonds constitutes a debt, liability or obligation of the State of California or any public agency (other than the Authority) or any member of the Authority.

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MATURITY SCHEDULE(See inside front cover)

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Loan Installments. The Loan Installments payable by the Agency under the Loan Agreement are secured by and payable from “Pledged Tax Revenues” received by the Agency from the Project Area on a parity with the Agency’s obligations to make payments under two existing loan agreements (the “Prior Loan Agreements”). In addition, the Agency is authorized to incur additional debt secured by Pledged Tax Revenues on a parity with its obligations under the Loan Agreement and the Prior Loan Agreements. See “SECURITY FOR THE 2011 BONDS – Additional Debt”.

Tax Sharing Agreements. The Agency is subject to a number of tax sharing agreements and statutory pass-through obligations. See “THE PROJECT AREA – Tax Sharing Agreements and Statutory Pass-Through Obligations.”

Risk Factors. The Agency’s receipt of Pledged Tax Revenues is subject to certain risks and limitations. See “RISK FACTORS” and “LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS.”

Summary Only. This cover page contains certain information for quick reference only. It is not intended to be a summary of all factors relating to an investment in the 2011 Bonds. Investors should review the entire Official Statement before making any investment decision.

The 2011 Bonds will be offered when, as and if issued and received by the purchasers, subject to the approval of validity by Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel. Certain legal matters will be passed upon for the Agency and the Authority by the City Attorney. Certain legal matters will be passed upon for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California. It is anticipated that the 2011 Bonds, in book-entry form, will be available for delivery to DTC in New York, New York on or about February 8, 2011.

Dated: January 27, 2011.

MATURITY SCHEDULE (Base CUSIP:† 90020L)

Maturity Date (September 1)

Principal Amount

Interest

Rate

Price

or Yield CUSIP†

2011 $ 290,000 2.500% 100.000% BJ8 2014 260,000 4.250 4.500 AX8 2015 270,000 4.750 4.900 AY6 2016 280,000 5.000 5.200 AZ3 2017 295,000 5.375 5.550 BA7 2018 310,000 5.750 5.875 BB5 2019 325,000 6.000 6.200 BC3 2020 345,000 6.250 6.450 BD1 2021 370,000 6.500 6.650 BE9

$1,270,000 7.000% Term Bond due September 1, 2025, Priced to yield 7.100% CUSIP† BF6

$1,120,000 7.250% Term Bond due September 1, 2029, Priced to yield 7.300% CUSIP† BG4

$10,165,000 7.500% Term Bond due September 1, 2039, Priced to yield 7.550% CUSIP† BH2

† Copyright 2011, American Bankers Association. CUSIP data are provided by Standard & Poor’s CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither the Agency, the Authority nor the Underwriter assumes any responsibility for the accuracy of these CUSIP data.

TURLOCK PUBLIC FINANCING AUTHORITY

AUTHORITY BOARD OF DIRECTORS, AGENCY AND CITY COUNCIL MEMBERS

John Lazar, Authority Chair/Agency Chairman/Mayor Amy Bublak, Authority Director/Agency Member/Councilmember

Bill DeHart Jr., Authority Director/Agency Member/Councilmember Mary Jackson, Authority Director/Agency Member/Councilmember

Forrest J. White, Authority Director/Agency Member/Councilmember

AUTHORITY, AGENCY AND CITY STAFF

Roy W. Wasden, Authority and Agency Executive Director/City Manager Phaedra Norton, City Attorney

Marie Lorenzi, Senior Accountant Heidi McNally-Dial, Economic Development/Redevelopment Manager

SPECIAL SERVICES

BOND COUNSEL

Richards, Watson & Gershon, A Professional Corporation

Los Angeles, California

FINANCIAL ADVISOR/FISCAL CONSULTANT

Urban Futures, Inc. Orange, California

TRUSTEE

U.S. Bank National Association

San Francisco, California

(THIS PAGE INTENTIONALLY LEFT BLANK)

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TABLE OF CONTENTS Page Page

INTRODUCTION..................................................1

Financing Purpose............................................1

Security for the 2011 Bonds.............................1

Legal Authority ..................................................2

The Project Area ...............................................3

Professionals Involved in the Offering.............3

Other Information ..............................................3

THE FINANCING PLAN ......................................4

The Project ........................................................4

Estimated Sources and Uses of Funds...........4

THE BONDS.........................................................5

Description ........................................................5

Redemption .......................................................5

Book-Entry Only System ..................................7

Debt Service Schedule.....................................8

Bonds as Special, Limited Obligations............9

SECURITY FOR THE 2011 BONDS..................9

Tax Allocation Financing ..................................9

Allocation of Taxes ...........................................9

Pledged Tax Revenues ..................................10

Additional Debt................................................11

Additional Bonds .............................................12

Reserve Fund..................................................13

THE AUTHORITY ..............................................13

THE AGENCY ....................................................14

Authority and Personnel .................................14

Agency Administration....................................14

Budgetary Policies ..........................................14

Agency Indebtedness .....................................15

Owner Participation Agreement.....................15

THE PROJECT AREA .......................................15

The Redevelopment Plan...............................15

Land Use .........................................................16

New Development; Net Transaction Value...16

Redevelopment Plan Limitations ...................17

Tax Sharing Agreements and Statutory Pass-Through Obligations..............................18

Allocation of Taxes .........................................22

Low and Moderate Income Housing..............23

Historic Assessed Value and Tax Revenues ........................................................24

Major Taxable Property Owners ....................26

Appeals of Assessed Values .........................27

Proposition 8 Assessed Value Reductions... 28

History of Foreclosures in the Project Area.. 28

Projected Tax Revenues ............................... 28

Estimated Loan Installment Coverage.......... 32

RISK FACTORS ................................................ 33

Estimates of Pledged Tax Revenues............ 33

Recent Assessed Values............................... 33

Reduction in Taxable Value........................... 33

Reduction in Inflationary Rate ....................... 34

Levy and Collection........................................ 34

Additional Obligations .................................... 34

State Budget ................................................... 35

Bankruptcy Risks and Foreclosure ............... 40

Seismic Factors and Flooding ....................... 41

Loss of Tax Exemption .................................. 41

Limitation on Remedies; Bankruptcy ............ 42

LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS................................ 42

Property Tax Limitations - Article XIIIA......... 42

Challenges to Article XIIIA............................. 43

Implementing Legislation ............................... 43

Property Tax Collection Procedures ............. 43

Unitary Property.............................................. 44

Appropriations Limitations - Article XIIIB ...... 45

Exclusion of Tax Revenues for General Obligation Bonds Debt Service ..................... 45

Statement of Indebtedness............................ 46

AB 1389 Reporting Requirements ................ 46

Proposition 218............................................... 47

Future Initiatives ............................................. 47

CONCLUDING INFORMATION ....................... 47

Continuing Disclosure .................................... 47

Litigation.......................................................... 47

Ratings ............................................................ 48

Tax Matters ..................................................... 48

Certain Legal Matters..................................... 50

Financial Interests .......................................... 50

Underwriting.................................................... 50

Miscellaneous ................................................. 51

APPENDIX A – City of Turlock General Information APPENDIX B – Audited Financial Statements of the Agency for Fiscal Year Ended June 30, 2010 APPENDIX C – Fiscal Consultant Report APPENDIX D – Summary of Principal Documents APPENDIX E – Form of Bond Counsel Opinion APPENDIX F – Form of Continuing Disclosure Certificate APPENDIX G – Book-Entry Only System

GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized by the Agency to give any information or to make any representations with respect to the 2011 Bonds other than as contained in this Official Statement, and, if given or made, such other information or representation must not be relied upon as having been given or authorized by the Agency or the Underwriter.

Use of Official Statement. This Official Statement is submitted in connection with the sale of the 2011

Bonds described in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement does not constitute a contract between any 2011 Bond owner and the Agency or the Underwriter.

Preparation of this Official Statement. The information contained in this Official Statement has been

obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness. 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.

Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure made by

the Agency, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “forecast,” “expect,” “intend” and similar expressions identify “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material.

This Official Statement speaks only as of its date, and the information and expressions of opinion contained

in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the 2011 Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Agency or the other parties described in this Official Statement, since the date of this Official Statement.

Document Summaries. All summaries of the Trust Agreement, the Loan Agreement, or other documents

contained in this Official Statement are made subject to the provisions of such documents and do not purport to be complete statements of any or all such provisions. All references in this Official Statement to the Trust Agreement, the Loan Agreement, and such other documents are qualified in their entirety by reference to such documents, which are on file with the Agency.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or a

solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

No Registration with the SEC. The issuance and sale of the 2011 Bonds have not been registered under

the Securities Act of 1933 or the Securities Exchange Act of 1934, both as amended, in reliance upon exemptions provided thereunder by Sections 3(a)(2) and 3(a)(12), respectively, for the issuance and sale of municipal securities.

Public Offering Prices. The Underwriter may offer and sell the 2011 Bonds to certain dealers and dealer

banks and banks acting as agent at prices lower than the public offering prices stated on the inside cover page of this Official Statement, and the Underwriter may change those public offering prices from time to time.

Web Page. The City of Turlock maintains a website. However, the information maintained on the website is

not a part of this Official Statement and should not be relied upon in making an investment decision with respect to the 2011 Bonds.

Regional Location Map of the City of Turlock

OFFICIAL STATEMENT

$15,300,000 TURLOCK PUBLIC FINANCING AUTHORITY Tax Allocation Revenue Bonds, Series 2011

INTRODUCTION This Official Statement, including the cover page and appendices, is provided to furnish

information in connection with the sale by the Turlock Public Financing Authority (the “Authority”) of its Turlock Public Financing Authority Tax Allocation Revenue Bonds, Series 2011 (the “2011 Bonds”). The 2011 Bonds will be issued pursuant to that certain Trust Agreement, dated as February 1, 2011 (the “Trust Agreement”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”)

This Introduction contains a brief summary of certain information contained in this

Official Statement. It is not intended to be complete and is qualified by the more detailed information contained elsewhere in this Official Statement. Definitions of certain terms used in this Official Statement are set forth in “APPENDIX D - Summary of Principal Documents.”

Financing Purpose

The 2011 Bonds are being issued for the purpose of (i) financing the acquisition and

construction of certain capital improvements (the “Project”) located in and of benefit to the Turlock Redevelopment Agency’s (the “Agency”) Turlock Redevelopment Project Area (the “Project Area”), (ii) funding a reserve fund for the 2011 Bonds and (iii) paying the costs of issuing the 2011 Bonds. See “THE FINANCING PLAN.” More specifically, the Authority will provide financing for the Project by making a loan to the Agency pursuant to a Loan Agreement, dated as of February 1, 2011 (the “Loan Agreement”), among the Agency, the Authority and the Trustee.

Security for the 2011 Bonds

Security for the 2011 Bonds. The 2011 Bonds are payable solely from revenues

(“Revenues”) received by the Authority, which primarily consist of semi-annual loan payments (the “Loan Installments”) made by the Agency under the Loan Agreement. The Authority will assign its right to receive the Loan Installments to the Trustee for the benefit of the 2011 Bond Owners. The Loan Installments and the Revenues are calculated to be in an amount necessary to pay principal of and interest on the 2011 Bonds. See “SECURITY FOR THE 2011 BONDS.”

In addition, the Authority is authorized to issue additional bonds (“Additional Bonds”;

together with the 2011 Bonds, the “Bonds”) secured by Revenues on a parity with the 2011 Bonds. See “SECURITY FOR THE 2011 BONDS – Additional Bonds.”

The Loan Installments. The Loan Installments payable by the Agency under the Loan

Agreement are secured by and payable from “Pledged Tax Revenues” received by the Agency from the Project Area, which are derived from the tax increment generated in the Project Area (see “THE PROJECT AREA”). The Loan Installments are secured by and payable from Pledged Tax Revenues on a parity with the Agency’s obligations to make payments (the “Prior Loan

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Installments”) under the following two outstanding loan agreements (the “Prior Loan Agreements”), pursuant to which the Authority loaned proceeds of the following two series of outstanding bonds to the Agency (the “Parity Loans”):

(i) A Loan Agreement, dated as of March 1, 1999 (the “1999 Loan

Agreement”), pursuant to which the Authority loaned proceeds of the Authority’s $4,970,000 initial principal amount Revenue Bonds, Series 1999 (the “1999 Bonds”) to the Agency (the “1999 Loan”) and the Agency agreed to make loan installments to the Authority (the “1999 Loan Installments”).

(ii) A Loan Agreement, dated as of August 1, 2006 (the “2006 Loan

Agreement”), pursuant to which the Authority loaned proceeds of the Authority’s $25,440,000 initial principal amount Revenue Bonds, Series 2006 (the “2006 Bonds”) to the Agency (the “2006 Loan”) and the Agency agreed to make loan installments to the Authority (the “2006 Loan Installments”). In addition, the Agency is authorized to incur additional debt secured by Pledged Tax

Revenues on a parity with its obligations under the Loan Agreement and the Prior Loan Agreements. See “SECURITY FOR THE 2011 BONDS – Additional Debt.”

Tax Sharing Obligations. The Agency is subject to a number of tax sharing

agreements with and statutory pass-through obligations to taxing entities within the County of Stanislaus (the “County”). The right of the taxing entities to receive tax increment was previously subordinated to the Prior Loan Installments, except with respect to Keyes Unified School District for the reasons set forth below. With respect to the Loan Installments:

(i) The Agency has received subordination to the Loan Installments of all but

one of its statutory pass-through obligations: the statutory pass-through obligation to Keyes Unified School District. The Agency did not request subordination from the Keyes Unified School District because the School District is entitled to pass-through payments with respect to only one tax rate area for which the County is not reporting any assessed value.

(ii) The Agency confirmed subordination to the Loan Installments of its

obligations under tax sharing agreements.

See “THE PROJECT AREA – Tax Sharing Agreements and Statutory Pass-Through Obligations.”

Risk Factors. Any future decrease in the taxable valuation in the Project Area or in the

tax rates could adversely impact the availability of Pledged Tax Revenues and could have an adverse impact on the ability of the Agency to make the Loan Installments. See “ “RISK FACTORS.” Legal Authority

The Authority. The Authority is a joint exercise of powers authority organized and

existing pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Joint Powers Act”) and pursuant to a Joint Exercise of Powers Agreement, dated as of December 15, 1998, by and between the Agency and the City of Turlock (the “City”). See “THE AUTHORITY.” The 2011 Bonds are being issued under Article 4 of the Joint Powers Act and the Trust Agreement.

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The Agency. The Agency is a redevelopment agency existing under the Community Redevelopment Law of the State of California (the “State”), constituting Part 1 of Division 24 (commencing with Section 33000) of the California Health and Safety Code, as amended (the “Redevelopment Law”). See “THE AGENCY” herein.

The Agency is authorized to enter into the Loan Agreement under the Redevelopment

Law.

The Project Area The City Council adopted the Redevelopment Plan (as amended, the “Redevelopment

Plan”) establishing the Project Area by Ordinance No. 834 on November 23, 1993. The Project Area includes areas located in the County. Ordinance No. CS-251, as amended, of the Board of Supervisors of the County authorized the Agency to redevelop the portions of the Project Area located within unincorporated areas of the County. The Redevelopment Plan was amended on November 1, 1994 by Ordinance No. 863 to adopt certain provisions required by the Redevelopment Law (see “THE PROJECT AREA – Redevelopment Plan Limitations”) and again on July 9, 1996 (by Ordinance No. 906) to add territory to the original Project Area.

See “THE PROJECT AREA” for additional information on land use and property

ownership within the Project Area.

Professionals Involved in the Offering

U.S. Bank National Association, San Francisco, California, will act as Trustee under the Trust Agreement. Stone & Youngberg LLC is the Underwriter of the 2011 Bonds. All proceedings in connection with the issuance and delivery of the 2011 Bonds are subject to the approval of Richards, Watson & Gershon, A Professional Corporation, Los Angeles, California, Bond Counsel. Urban Futures Inc., Orange, California, is serving as Fiscal Consultant and Financial Advisor. Certain legal matters will be passed on for the Underwriter by Jones Hall, A Professional Law Corporation, San Francisco, California, as Underwriter’s Counsel, and for the Agency, the City and the Authority by Phaedra Norton, City Attorney.

Payment of the fees of the Financial Advisor, Bond Counsel, the Underwriter and

Underwriter’s Counsel is contingent upon issuance and delivery of the 2011 Bonds.

Other Information

Following in this Official Statement are brief descriptions of the 2011 Bonds, the Agency, Authority, the City, the Loan Agreement, the Tax Revenues, the Pledged Tax Revenues, the Project Area, security for the 2011 Bonds, risk factors, constitutional and statutory limitations on Pledged Tax Revenues and certain other information relevant to the issuance of the 2011 Bonds. All references in this Official Statement to the Trust Agreement and the Loan Agreement are qualified in their entirety by reference to the Trust Agreement and the Loan Agreement, and all references to the 2011 Bonds are further qualified by reference to the definitive Bonds and to the terms thereof which are contained in the Trust Agreement. All capitalized terms used but not otherwise defined in this Official Statement have the meanings assigned to them in the Trust Agreement or the Loan Agreement, as applicable.

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THE FINANCING PLAN

The Project Proceeds deposited into the 2011 Project Fund will be held and disbursed by the

Trustee as set forth in the Trust Agreement for purposes of financing certain capital improvements as part of the Agency’s Downtown Revitalization Project (the “Project”) in the Project Area.

The Project includes a 57,570 square-foot public safety building on approximately 4.6

acres of land in the City’s Downtown Core District. The public safety building will house all City police personnel and equipment and City fire administration personnel. The public safety building will include an 180-foot tall communications tower, which will provide communication for the communities of Turlock and Ceres and will be a key component of the countywide integrated public safety communication system.

The various elements of the Project are not security for the Loan Installments or the

2011 Bonds and the Agency can provide no assurance that the elements of the Project will not change.

Estimated Sources and Uses of Funds

The anticipated sources and uses of funds relating to the 2011 Bonds are as follows:

Sources: Principal Amount of the 2011 Bonds $15,300,000.00 Less: Original Issue Discount (102,320.25) Less: Underwriter’s Discount (167,792.70)

Total Sources $15,029,887.05 Uses:

Costs of Issuance Fund (1) $ 149,000.00

Deposit to Reserve Fund (2) 1,329,143.76

Deposit to 2011 Project Fund (3) 13,551,743.29

Total Uses $15,029,887.05

(1) Includes the Trustee fees, Bond Counsel fees, printing costs, rating agency fees and other related

costs. (2) Equal to the Reserve Requirement for the 2011 Bonds. See “SECURITY FOR THE 2011 BONDS –

GENERAL – Reserve Fund.” (3) Proceeds deposited in the 2011 Project Fund will be used to fund redevelopment projects in or of

benefit to the Project Area. See “The Project” below.

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THE BONDS

Description

General. The 2011 Bonds will be issued as fully registered bonds, and will bear interest at the rates, and mature on September 1 on the dates and in the amounts all as set forth on the cover page of this Official Statement. The 2011 Bonds will be dated their date of delivery (the “Closing Date”).

Interest on the 2011 Bonds will be payable semiannually on March 1 and September 1

of each year (each an “Interest Payment Date”), commencing September 1, 2011, and will be calculated on the basis of a 360-day year composed of twelve 30-day months. Each Bond will bear interest from its dated date.

Interest on the 2011 Bonds will be paid to the person whose name appears on the bond

registration books (the “Bond Register”) of the Trustee as the registered owner, as of the close of business on the 15th day of the month next preceding the Interest Payment Date (the “Record Date”). Principal of and the redemption premium (if any) on the 2011 Bonds are payable in lawful money of the United States of America. Interest will be paid by check mailed to each registered owner at its address as it appears in the 2011 Bond Register, or, upon written request of an Owner of at least $1,000,000 in aggregate principal amount of 2011 Bonds received by the Trustee not later than the Record Date, by wire transfer to an account within the United States of America. While the 2011 Bonds are held in the book-entry only system of DTC, all such payments will be made to Cede & Co., as the registered owner of the 2011 Bonds.

Redemption

The 2011 Bonds are subject to redemption as described in the following paragraphs. Optional Redemption from Prepayment of Loan. In the event that the Agency

exercises its option to prepay principal installments of the loan made with the proceeds of the 2011 Bonds (the “2011 Loan”) pursuant to the Loan Agreement, the Revenues derived from such prepayment will be applied to the redemption of the 2011 Bonds maturing on or after September 1, 2021 as a whole, or in part among maturities as designated in a Written Order of the Authority or the Agency and by lot within a maturity, in integral multiples of $5,000 principal amount, on any date on or after March 1, 2021, at a redemption price equal to 100% of the principal amount of the 2011 Bonds to be redeemed, plus accrued interest to the date of redemption, without premium.

Mandatory Redemption from Sinking Fund Payments. The 2011 Bonds maturing on

September 1, 2025, are subject to mandatory redemption from sinking fund payments made by the Authority on each September 1 beginning September 1, 2022_, and will be redeemed on the dates set forth below at 100% of the principal amount of such 2011 Bonds called for redemption plus interest accrued and unpaid to the date fixed for redemption, without premium, according to the schedule set forth below.

Date

(September 1) Principal Amount to be Redeemed

Date (September 1)

Principal Amount to be Redeemed

2022 $390,000 2024 $335,000 2023 310,000 2025 (maturity) 235,000

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The 2011 Bonds maturing on September 1, 2029, are subject to mandatory redemption from sinking fund payments made by the Authority on each September 1 beginning September 1, 2026, and will be redeemed on the dates set forth below at 100% of the principal amount of such 2011 Bonds called for redemption plus interest accrued and unpaid to the date fixed for redemption, without premium, according to the schedule set forth below.

Date


Date (September 1)


2026 $250,000 2028 $290,000 2027 270,000 2029 (maturity) 310,000

The 2011 Bonds maturing on September 1, 2039, are subject to mandatory redemption

from sinking fund payments made by the Authority on each September 1 beginning September 1, 2030, and will be redeemed on the dates set forth below at 100% of the principal amount of such 2011 Bonds called for redemption plus interest accrued and unpaid to the date fixed for redemption, without premium, according to the schedule set forth below.

Date


Date (September 1)


2030 $330,000 2035 $ 780,000 2031 355,000 2036 835,000 2032 380,000 2037 2,780,000 2033 410,000 2038 2,985,000 2034 460,000 2039 (maturity) 850,000

Purchase in Lieu of Redemption. In lieu of redemption of any 2011 Bond, amounts on

deposit in the 2011 Project Fund, the Principal Fund or in the Redemption Fund may also be used and withdrawn by the Trustee at any time prior to selection of 2011 Bonds for redemption having taken place with respect to such amounts, upon a Written Order for the purchase of such 2011 Bonds at public or private sale as and when and at such prices (including brokerage and other charges, but excluding accrued interest, which is payable from the Interest Fund) as the Authority may in its discretion determine, but not in excess of the redemption price plus accrued interest to the purchase date.

Notice of Redemption. When the Trustee receives notice from the Authority or the

Agency of an optional redemption or when redemption of the 2011 Bonds is required by the Trust Agreement, the Trustee will give notice that 2011 Bonds, identified by CUSIP numbers, serial numbers and maturity date, have been called for redemption and, in the case of 2011 Bonds to be redeemed in part only, the portion of the principal amount that has been called for redemption (or if all the Outstanding Bonds of a maturity are to be redeemed, so stating, in which event such serial numbers may be omitted), that they will be due and payable on the date fixed for redemption (specifying such date) upon surrender at the Principal Corporate Trust Office of the Trustee, at the redemption price (specifying such price), together with any accrued interest to such date, and that all interest on the 2011 Bonds, or portions of the 2011 Bonds, so to be redeemed will cease to accrue on and after such date and that from and after such date such 2011 Bond or such portion will no longer be entitled to any lien, benefit or security under the Trust Agreement, and the Owner of the 2011 Bonds shall have no rights in respect of such redeemed Bond or such portion except to receive payment from such moneys of such redemption price plus accrued interest to the date fixed for redemption.

Redemption notices must be sent by first class mail at least 30 but not more than 60

days before the date fixed for redemption, to the owners of 2011 Bonds, or portions of the 2011 Bonds, called for redemption, at their respective addresses as they appear on the 2011 Bond Register. No notice of redemption need be given to the Owner of a 2011 Bond to be called for

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redemption if such Owner waives notice in writing, and such waiver is filed with the Trustee prior to the date fixed for redemption. Neither the failure of an Owner to receive notice of redemption of 2011 Bonds nor any error in such notice will affect the validity of the proceedings for the redemption of 2011 Bonds.

In the event that funds required to pay the redemption price of the 2011 Bonds are not

on deposit with the Trustee at the time the optional redemption notice is given, the notice will state that redemption is conditional upon the receipt by the Trustee, on or prior to the redemption date, of moneys sufficient to pay the redemption price, and that if moneys are not received the Authority will not be required to redeem the 2011 Bonds.

Selection of 2011 Bonds for Redemption. Whenever less than all of the 2011 Bonds

of any one maturity are to be prepaid on any one date, the Trustee will select the particular Bonds to be redeemed by lot and in selecting the 2011 Bonds for redemption the Trustee will treat each Bond of a denomination of more than $5,000 as representing that number of 2011 Bonds of $5,000 denomination which is obtained by dividing the principal amount of such 2011 Bond by $5,000, and the portion of any 2011 Bond of a denomination of more than $5,000 to be redeemed shall be redeemed in an Authorized Denomination.

Effect of Redemption. If any 2011 Bond or any portion of a 2011 Bond is called for

redemption and payment of the redemption price, together with unpaid interest accrued to the date fixed for redemption, has been made or provided for by the Authority, then interest on such 2011 Bond or such portion will cease to accrue from such date, and from and after such date such 2011 Bond or such portion shall no longer be entitled to any lien, benefit or security under the Trust Agreement, and the Owner shall have no rights in respect of such 2011 Bond or such portion except to receive payment of such redemption price, and unpaid interest accrued to the date fixed for redemption.

Book-Entry Only System

DTC will act as securities depository for the 2011 Bonds. The 2011 Bonds will be executed and delivered as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee). One fully-registered certificate will be issued for each maturity of the 2011 Bonds, each in the initial aggregate principal amount of such maturity, and will be deposited with DTC. See “APPENDIX G - Book-Entry Only System.”

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Debt Service Schedule

Scheduled debt service on the 2011 Bonds, without regard to any optional redemption, along with debt service on the 1999 Bonds and the 2006 Bonds, without regard to any optional redemption, is shown in the following table. The scheduled Loan Installments are identical to scheduled debt service on the 2011 Bonds and the Prior Loan Installments are identical to scheduled debt service on the 1999 Bonds and the 2006 Bonds.

Table 1

TURLOCK PUBLIC FINANCING AUTHORITY TAX ALLOCATION REVENUE BONDS, SERIES 2011

Scheduled Debt Service on the 1999 Bonds, the 2006 Bonds and the 2011 Bonds

Bond Year

Ending September 1

2011 Bonds

Principal

2011 Bonds

Interest

Total 2011 Bonds Debt

Service

1999 and 2006 Bonds Debt

Service

Aggregate Debt

Service 2011 $ 290,000 $ 606,966.48 $ 896,966.48 $ 1,877,688.76 $ 2,774,655.24 2012 -- 1,069,143.76 1,069,143.76 1,881,738.76 2,950,882.52 2013 -- 1,069,143.76 1,069,143.76 1,884,363.76 2,953,507.52 2014 260,000 1,069,143.76 1,329,143.76 1,880,563.76 3,209,707.52 2015 270,000 1,058,093.76 1,328,093.76 1,880,601.26 3,208,695.02 2016 280,000 1,045,268.76 1,325,268.76 1,884,213.76 3,209,482.52 2017 295,000 1,031,268.76 1,326,268.76 1,883,168.76 3,209,437.52 2018 310,000 1,015,412.50 1,325,412.50 1,880,778.76 3,206,191.26 2019 325,000 997,587.50 1,322,587.50 1,882,043.76 3,204,631.26 2020 345,000 978,087.50 1,323,087.50 1,885,591.26 3,208,678.76 2021 370,000 956,525.00 1,326,525.00 1,881,983.76 3,208,508.76 2022 390,000 932,475.00 1,322,475.00 1,886,411.26 3,208,886.26 2023 310,000 905,175.00 1,215,175.00 1,883,262.50 3,098,437.50 2024 335,000 883,475.00 1,218,475.00 1,883,040.00 3,101,515.00 2025 235,000 860,025.00 1,095,025.00 1,885,000.00 2,980,025.00 2026 250,000 843,575.00 1,093,575.00 1,882,500.00 2,976,075.00 2027 270,000 825,450.00 1,095,450.00 1,882,500.00 2,977,950.00 2028 290,000 805,875.00 1,095,875.00 1,884,750.00 2,980,625.00 2029 310,000 784,850.00 1,094,850.00 1,884,000.00 2,978,850.00 2030 330,000 762,375.00 1,092,375.00 1,885,250.00 2,977,625.00 2031 355,000 737,625.00 1,092,625.00 1,883,250.00 2,975,875.00 2032 380,000 711,000.00 1,091,000.00 1,883,000.00 2,974,000.00 2033 410,000 682,500.00 1,092,500.00 1,884,250.00 2,976,750.00 2034 460,000 651,750.00 1,111,750.00 1,886,750.00 2,998,500.00 2035 780,000 617,250.00 1,397,250.00 1,885,250.00 3,282,500.00 2036 835,000 558,750.00 1,393,750.00 1,884,750.00 3,278,500.00 2037 2,780,000 496,125.00 3,276,125.00 -- 3,276,125.00 2038 2,985,000 287,625.00 3,272,625.00 -- 3,272,625.00 2039 850,000 63,750.00 913,750.00 -- 913,750.00 Total $15,300,000 $23,306,291.54 $38,606,291.54 $48,966,700.12 $87,572,991.66

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Bonds as Special, Limited Obligations

The 2011 Bonds are special, limited obligations of the Authority, payable from and secured as to the payment of principal, interest and premium, if any, from the “Trust Estate,” which consists of Revenues, amounts in the funds established by the Trust Agreement (except amounts in the Rebate Fund) and the rights and interest of the Authority under the Loan Agreement.

The 2011 Bonds are special, limited obligations of the Authority, payable from and

secured solely by the Trust Estate. The 2011 Bonds do not constitute a charge against the general credit of the Authority or its members, and under no circumstances will the Authority be obligated to pay principal of or redemption premium or interest on the 2011 Bonds except from the Trust Estate. Neither the State of California nor any public agency (other than the Authority) nor any member of the Authority is obligated to pay the principal of or redemption premium or interest on the 2011 Bonds, and neither the faith and credit nor the taxing power of the State of California or any public agency thereof or any member of the Authority is pledged to the payment of the principal of or redemption premium or interest on the bonds, and neither the principal of nor the redemption premium or interest on the bonds constitutes a debt, liability or obligation of the State of California or any public agency (other than the Authority) or any member of the Authority.

SECURITY FOR THE 2011 BONDS

Tax Allocation Financing

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll, is established and, except for any period during which the taxable valuation drops below the base year level, the taxing agencies thereafter receive the taxes produced by the levy of the then-current tax rate upon the base roll. Taxes collected upon any increase in taxable valuation over the base roll are allocated to a redevelopment agency (although the Agency may be required to pay a portion of such taxes to other taxing agencies pursuant to contractual agreements or operation of certain provisions of the Redevelopment Law) and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as indicated above.

Allocation of Taxes

As provided in the Redevelopment Plan, and pursuant to Article 6 of Chapter 6 of the Redevelopment Law (commencing with Section 33670 of the California Health and Safety Code) and Section 16 of Article XVI of the Constitution of the State of California, taxes levied upon taxable property in the Project Area each year by or for the benefit of the State of California and any city and county, district or other public corporation (herein collectively referred to as “taxing agencies”) for each fiscal year beginning after the effective date of the ordinance approving the Redevelopment Plan, are divided as follows:

1. To other taxing agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of the taxing agencies upon the total sum of the assessed value of the taxable property in the redevelopment

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project area as shown upon the assessment roll used in connection with the taxation of such property by such taxing agency last equalized prior to the effective date of the ordinance approving the redevelopment plan (the “Base Year Amount”) shall be allocated to and when collected shall be paid into the funds of the respective taxing agencies as taxes by or for the taxing agencies on all other property are paid; and

2. To the Agency: Except for taxes which are attributable to a tax rate levied by

a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the taxing agency on or after January 1, 1989, which will be allocated to and when collected will be paid to the respective taxing agency, and except for statutory pass-through payments, that portion of the levied taxes each year in excess of the Base Year Amount will be paid into a special fund of the Agency to pay the principal of and interest on bonds, loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed, or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the redevelopment project area. When all bonds, loans, advances, and indebtedness, if any, and interest thereon, have

been paid, all moneys thereafter received from taxes upon the taxable property in the Project Area shall be paid into the funds of the respective taxing agencies as taxes on all other property are paid. See “Pledged Tax Revenues” and “THE PROJECT AREA - Tax Sharing Agreements and Statutory Pass-Through Obligations” below.

The Agency’s ability to collect tax increment and pay debt service is constrained by

limitations set forth in the Redevelopment Plan. See “THE PROJECT AREA - Redevelopment Plan Limitations.”

See “RISK FACTORS” and “LIMITATIONS ON TAX REVENUES AND POSSIBLE

SPENDING LIMITATIONS” below for information about various factors that could impact the availability of Pledged Tax Revenues.

Pledged Tax Revenues

“Pledged Tax Revenues” are defined in the Loan Agreement to mean all Tax Revenues (as that term is defined in the following paragraph) received by the Agency in any Fiscal Year; provided, however, that Pledged Tax Revenues for any Fiscal Year may not exceed (a) the Debt Service for such Fiscal Year (less any amounts then on deposit in the Debt Service Fund, other than (i) Tax Revenues received for such Fiscal Year and deposited in the Debt Service Fund or (ii) amounts representing investment earnings that may be released to the Agency pursuant to the Loan Agreement), plus (b) the amounts, if any, necessary to be deposited into the Reserve Fund established under the Trust Agreement to maintain the Reserve Requirement.

The Loan Agreement defines “Tax Revenues” to mean, for each Fiscal Year, the taxes

(including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations) eligible for allocation to the Agency pursuant to the Redevelopment Law in connection with the Project Area, excluding (a) the amount of such taxes required by the Redevelopment Law to be deposited in the Agency’s Low and Moderate Income Housing Fund and used for certain housing purposes, except to the extent such amounts are used to pay principal or interest or other financing charges with respect to that portion of the 2011 Bonds of which the proceeds were used to increase, improve or preserve the supply of low and moderate income housing within or of benefit to the Project Area, (b) amounts payable to affected taxing entities pursuant to the Redevelopment Law or pass-through agreements with any such entities, to the extent such

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payments are not subordinated to the Agency’s obligation to make payments pursuant to the Loan Agreement and (c) amounts, if any, received by the Agency pursuant to Section 16111 of the Government Code), as provided in the Redevelopment Plan.

The Agency deposits 20% of gross tax increment revenues received by the Agency into

its Low and Moderate Income Housing Fund. None of the tax increment revenues deposited into the Low and Moderate Income Housing Fund are available to pay debt service on the 2011 Bonds. See “THE PROJECT AREA – Low and Moderate Income Housing.”

The Agency has no power to levy and collect property taxes, and any property tax

limitation, legislative measure, voter initiative or provisions of additional sources of income to taxing agencies having the effect of reducing the property tax rate, could reduce the amount of Pledged Tax Revenues that would otherwise be available to pay the Loan Installments and, as a result, the Authority’s ability to pay debt service on the 2011 Bonds. Likewise, broadened property tax exemptions could have a similar effect. See “RISK FACTORS” and “LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS.”

Additional Debt

Outstanding Parity Debt. The Agency has previously entered into (i) the 1999 Loan Agreement, pursuant to which the 1999 Loan is outstanding as of September 2, 2010 in the aggregate principal amount of $3,245,000 and (ii) the 2006 Loan Agreement, pursuant to which the 2006 Loan is outstanding as of September 2, 2010 in the aggregate principal amount of $24,055,000. The Prior Loan Installments are payable from Pledged Tax Revenues on a parity with the Loan Installments.

Issuance of Additional Parity Debt. In addition to the Parity Loans and the 2011 Loan,

the Agency may issue or incur additional obligations secured by Pledged Tax Revenues on a parity basis (“Parity Debt”) in an amount determined by the Agency, subject to the following conditions precedent (among others):

(a) No Event of Default shall then exist under the Loan Agreement. (b) The balance in the Reserve Fund shall be at least equal to the then-

effective Reserve Requirement (see “-Reserve Fund” below). There is no requirement for a debt service reserve account to be funded for the Parity Debt if issued under a separate trust agreement.

(c) The Trustee shall receive a written report of an independent

redevelopment consultant to the effect that the Tax Revenues received or to be received by the Agency based upon the most recent assessed valuation of taxable property in the Project Area (as reported by the County Assessor or the County Auditor-Controller), and upon an assumed tax rate of 1%, shall be at least equal to 125% of Maximum Annual Debt Service on the 2011 Loan and all Parity Debt which will be outstanding immediately following the issuance of such Parity Debt.

(d) Principal of the Parity Debt will be payable on September 1 in any year in which it is payable and interest thereon shall be required to be paid only on March and September 1 of any year in which interest is payable. For purposes of calculating Tax Revenues pursuant to paragraph (c) above in

connection with the issuance of Parity Debt, Tax Revenues may include (i) at the option of the

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Agency, “Additional Revenues” (as defined below) and (ii) moneys required to be deposited into the Low and Moderate Income Housing Fund to the extent such amounts will be available to pay debt service on the 2011 Bonds and/or the Parity Debt.

The Loan Agreement provides that, in the event that one or more property owners in the

Project Area have filed appeals which are then pending requesting reductions in the assessed valuation of their property and such appeals are known to the Agency, Tax Revenues must be reduced by an amount equal to at least 50% of the reduction of Tax Revenues that would result if the appeals were successful.

“Additional Revenues” is defined in the Loan Agreement to mean, as of the date of

calculation, the amount of additional Tax Revenues which, as shown in the Report of an Independent Redevelopment Consultant, is estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of increases in the assessed valuation of taxable property in the Project Area due to any additional assessed valuation of taxable property as to which construction has been completed.

Issuance of Subordinate Debt. The Loan Agreement authorizes the Agency to incur

Subordinate Debt (defined in the Loan Agreement as any loan, bond, note, advance or other indebtedness of the Agency payable from Tax Revenues on a subordinate basis to the 2011 Loan and any Parity Debt); provided that prior to the incurrence of any Subordinate Debt, the Agency must obtain the Report of an Independent Redevelopment Consultant showing that, for each Fiscal Year that the Loan is scheduled to remain outstanding, the amount of projected Tax Revenues for such Fiscal Year shall equal at least 100% of the combined scheduled debt service for such Fiscal Year with respect to the 2011 Loan, all outstanding Parity Debt and all outstanding Subordinate Debt that is secured by a pledge of or lien on Tax Revenues.

Additional Bonds

The Trust Agreement provides that the Authority may issue additional bonds payable

from the Trust Estate and secured by a lien and charge upon the Trust Estate equal to and on a parity with the lien and charge securing the Outstanding 2011 Bonds (“Additional Bonds”), but only upon satisfaction of certain conditions precedent, including the following:

(a) There may be no ongoing Event of Defaults under the Trust Agreement

(including any Supplemental Trust Agreement). (b) The Additional Bonds may only be issued to aid in financing the

Redevelopment Project or to refund any outstanding Bonds. (c) The principal payment date of the Additional Bonds must be September 1

and the Interest Payment Dates must be March 1 and September 1; provided, that the Additional Bonds may provide for compounding of interest in lieu of payment of interest.

(d) The Reserve Fund shall be funded to the Reserve Requirement which

results from the issuance of such Additional Bonds. (e) The Loan Agreement must have been supplemented by a Parity Debt

Instrument (as defined in the Loan Agreement) meeting the conditions described in “Additional Debt – Issuance of Additional Parity Debt” above.

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Reserve Fund Reserve Requirement. The Trust Agreement provides that on the date of issuance of

the 2011 Bonds, a Reserve Fund will be funded with 2011 Bond proceeds in an amount equal to the Reserve Requirement.

The Trust Agreement defines the “Reserve Requirement” to be, so long as the 2011

Bonds are the only Bonds Outstanding under the Trust Agreement, $1,329,143.76; and if any Additional Bonds are Outstanding under the Trust Agreement, as of any date of calculation, the least of (i) Maximum Annual Debt Service (exclusive of the 1999 Loan and the 2006 Loan), (ii) 10% of the sum of the original principal amounts of all Loans then Outstanding (exclusive of the 1999 Loan and the 2006 Loan), or (iii) 125% of the average annual Debt Service (exclusive of the 1999 Loan and the 2006 Loan).

So long as the 2011 Bonds are the only Bonds Outstanding under the Trust Agreement,

the Trustee will not release any amounts in excess of the Reserve Requirement until the amount then on deposit in the Reserve Fund exceeds the least of (i) Maximum Annual Debt Service (exclusive of the 1999 Loan and the 2006 Loan), (ii) 10% of the original principal amount of all Loans then Outstanding (exclusive of the 1999 Loan and the 2006 Loan), or (iii) 125% of the average annual Debt Service (exclusive of the 1999 Loan and the 2006 Loan).

Use of Moneys in the Reserve Fund. Moneys in the Reserve Fund will be used and

withdrawn by the Trustee solely for the purpose of paying the interest on or the principal of or the redemption premium, if any, on the 2011 Bonds or any Additional Bonds issued under the Trust Agreement; but solely if insufficient moneys are available in the Interest Fund, the Principal Fund, the Redemption Fund or the Surplus Fund for that purpose.

Reserve Financial Guaranty. The Trust Agreement provides that the Reserve

Requirement may be satisfied with a “Reserve Financial Guaranty” (either alone or in combination with a cash deposit). See “APPENDIX D -- Summary of Principal Documents” for a summary of the provisions of the Trust Agreement relating to the Reserve Fund.

Reserve Funds Relating to the 1999 Bonds and the 2006 Bonds. The amounts in the

reserve funds for the 1999 Bonds and the 2006 Bonds are available only for deficiencies in their respective loans, and will not be available to pay the principal of, interest on, or the redemption premium, if any, on the 2011 Bonds.

THE AUTHORITY

The Authority is a joint exercise of powers authority organized and existing pursuant to Article 1 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the “Joint Powers Act”) and pursuant to a Joint Exercise of Powers Agreement, dated as of December 15, 1998, by and between the Agency and the City.

The members of the Authority’s Board of Directors are the members of the City Council.

The Chair of the Authority is the Mayor of the City, the Vice-Chair is the Vice Mayor, the Executive Director is the City Manager, the Secretary is the City Clerk and the Treasurer and Controller is the Finance Director of the City.

Article 4 of the Joint Powers Act authorizes the Authority to issue the 2011 Bonds to

make the Loan to the Agency.

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THE AGENCY

Authority and Personnel

The Agency was established on October 18, 1977 by action of the City Council pursuant to the Redevelopment Law, and the City Council then designated itself as the governing board of the Agency. The Agency is charged with the authority and responsibility of redeveloping and upgrading blighted areas of the City. The Agency is a separate public body and exercises governmental functions in planning and carrying out redevelopment projects. The Agency can build public improvements, facilitate the development of on- and off-site improvements for private development projects, acquire and re-sell property, and provide services of special benefit to the Project Area. All powers of the Agency are vested in its five members. Because the Project Area includes unincorporated area located in the County, the Board of Supervisors of the County adopted Ordinance No. CS-251, which authorized the Agency to redevelop such unincorporated area.

Agency Administration

Members of the Agency are the members of the City Council and its employees are also employees of the City.

The Redevelopment Law requires redevelopment agencies to have an independent

financial audit conducted each year. The financial audit is also required to include an opinion of the Agency’s compliance with laws, regulations and administrative requirements governing activities of the Agency. The firm of Caporicci & Larson, Certified Public Accountants, Oakland, California, prepared financial statements for the Agency for the fiscal year ended June 30, 2010. The firm’s examination was made in accordance with generally accepted auditing standards. The Agency follows fund accounting principles reflecting the modified accrual basis of accounting in which revenue is recognized when earned or otherwise becomes available, and expenditures are recognized when incurred. The firm reported after their examination that they noted no instances of noncompliance for the fiscal year ended June 30, 2010. See “APPENDIX B - Audited Financial Statements of the Agency for Fiscal Year Ended June 30, 2010.”

Caporicci & Larson has not been asked to consent nor has it consented to appending

the fiscal year 2009-10 audit to this Official Statement, and Caporicci & Larson has not performed any post-audit review of the financial condition or operations of the Agency.

Budgetary Policies

Each year, the Executive Director submits to the City Council members, in their capacity as members of the Agency a proposed budget for the fiscal year commencing the following July 1. After reviews and a public hearing, the budget is adopted through the passage of a resolution by the City Council members, in their capacity as members of the Agency, and provides for the general operation of the special revenue and capital project funds. The budget becomes effective on July 1 of each year. Annual budgets are adopted on a basis consistent with generally accepted accounting principles. Expenditures in excess of budgeted amounts are allowed by law but must be approved individually by the City Manager.

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Agency Indebtedness Other than amounts due under loans made by the City to the Agency, the Parity Loans,

and the 2011 Loan when issued, the Agency currently has no outstanding debt.

Owner Participation Agreement The Agency is not a party to any agreement with private parties pursuant to which the

Agency is obligated to pay tax increment.

THE PROJECT AREA

The Redevelopment Plan

The City Council adopted the Redevelopment Plan establishing the Turlock Redevelopment Project by Ordinance No. 834 on November 23, 1993. The Project Area includes areas located in the County. Ordinance No. CS-251, as amended, of the Board of Supervisors of the County authorized the Agency to redevelop the portions of the Project Area located within unincorporated areas of the County. The Redevelopment Plan conforms with the City General Plan and is designed to enable the Agency to, among other things, assist current property owners and businesses and new developers to intensify commercial and related activities in the Project Area, acquire, assemble, prepare and dispose of parcels for modern commercial and related uses, to improve the accessibility, strengthen the economic base by the installation of needed improvements and expand, preserve and improve the supply of low- and moderate-income housing.

The Redevelopment Plan was amended on November 1, 1994 by Ordinance No. 863. The 1994 amendment increased the time period during which the Redevelopment Plan will be in effect, increased the time period during which the Agency may establish indebtedness and increased the amount of Tax Revenues that may be allocated to the Agency. The 1994 amendment brought the Redevelopment Plan into conformance with the limitations of Section 33333.6 of the Redevelopment Law (“AB 1290”) which went into effect on January 1, 1994. See “THE PROJECT AREA – Redevelopment Plan Limitations” below.

On July 9, 1996, by Ordinance No. 906, the City Council amended the Redevelopment Plan to add territory (the “Added Area”) to the original Project Area (the “Original Area”). The Original Area and the Added Area are collectively referred to in this Official Statement as the “Project Area.”

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Land Use The Project Area includes approximately 2,245 acres in the Original Area and 2,073

acres in the Added Area, for a total of 4,318 acres. The Original Area includes the Turlock downtown area and other commercial, industrial and residential land uses. The Added Area includes a mix of residential, commercial and industrial uses. Shown in the table below are land uses in the Project Area, based on fiscal year 2010-11 secured assessed values. The plurality of land in the Project Area is currently being used for residential purposes.

Table 2 TURLOCK REDEVELOPMENT AGENCY

Turlock Redevelopment Project – Original Area and Added Area Land Use Categories Fiscal Year 2010-11

No. of Parcels Secured Assessed

Valuation

Percent of Total Secured

Assessed Value

Industrial 369 $443,266,142 32.78% Single Family Residential 3,934 408,893,743 30.24 Commercial 230 337,886,327 24.99 Multi-Family Residential 582 117,517,647 8.69 Vacant 425 40,325,402 2.99 Agriculture 22 4,140,133 0.31 Government 101 47,318 0.00 Miscellaneous 44 -- 0.00 Institutional 5 -- 0.00 Total 6,163 $1,352,076,712 100.00%

Source: Urban Futures Inc.

All properties within the Project Area are subject to the Agency’s approved development

standards and guidelines. The Redevelopment Plan requires that new construction comply with all applicable State statutes and local laws in effect, including City zoning ordinances and City codes for building, electrical, heating, ventilating and plumbing. The Redevelopment Plan further provides that no new improvement shall be substantially modified, altered, repaired or rehabilitated, except in accordance with development standards and/or architectural, landscape and site plans submitted to and approved by the Agency.

A portion of the Project Area also lies within the Stanislaus Enterprise Zone (Zone 40), a

joint commitment by the County and the Cities of Ceres, Modesto and Turlock to encourage economic and community development and maintain a business-friendly environment. Enterprise zones are designated by the Governor of California through the Housing and Community Development Department; property owners and both new and existing businesses within its limits can take advantage of incentives offered by the State and local government, including tax credits (hiring tax credit, sales and use tax credit, business expense deduction, 15-year net operating loss, net interest deduction) and local assistance (business assistance, job placement assistance, fast track permitting). The Enterprise Zone designation will last through November 16, 2020. The Enterprise Zone covers approximately 72,000 acres in the County, including 7,042 acres in the City; all but 788 acres are in the Project Area.

New Development; Net Transaction Value

The projection of Tax Revenues shown below (see “ – Projected Tax Revenues”)

assumes, based on the value of building permits issued between January 1, 2010 and August

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26, 2010, that $1,463,900 (13 permits) will be added to the secured value of the Original Area and $1,506,884 (15 permits) will be added to the secured value of the Added Area in fiscal year 2011-12.

The Fiscal Consultant also subtracted $944,792 (215 transactions totaling $30,592,433

sales price) from the fiscal year 2011-12 assessed value of the Original Area and $292,895 (82 transactions totaling $20,628,472 sales price) from the fiscal year 2011-12 assessed value of the Added Area for net resale transaction values based on transactions between January 1, 2010 and August 26, 2010 (see “APPENDIX C - Fiscal Consultant Report – Exhibit G).

Redevelopment Plan Limitations

General. In 1993, the California Legislature enacted AB 1290. Among the changes to the Redevelopment Law accomplished by AB 1290 was a provision which limits the period of time for incurring and repaying loans, advances and indebtedness which are payable from tax increment allocated to the Agency. In order to comply with AB 1290, the City adopted Ordinance No. 863 on November 1, 1993. The following table summarizes the various limitations established by the Redevelopment Plan with respect to tax increment and bonded indebtedness.

Description Original Area

Only Added Area

Only Project Area as a Whole

Plan Life:

November 23, 2033 July 9, 2026 N/A

Final Date to Incur Debt: (1)


Final Date to Collect Tax Increment and Repay Debt


Limit on Tax Increment allocated to the Agency

$1.315 billion None None

Tax increment allocated to the Agency as of June 30, 2010 (estimated)

$22,481,665 N/A N/A

Limit on outstanding bonded indebtedness: (2)

None None $440 million

Outstanding bonded indebtedness: (3) N/A N/A $42,600,000

(1) This limit does not prevent the Agency from incurring debt to be paid from the Agency’s Low and Moderate Income

Housing Fund or establishing more debt in order to fulfill the Agency’s housing obligations under Section 33413 of the Redevelopment Law. Housing Set-Aside is pledged to payment of up to 20% of the debt service on the 2006 Bonds.

(2) This limitation is exclusive of certain payments defined in the Redevelopment Plan relating to affordable housing and payments to taxing entities.

(3) Includes the Loan ($15,300,000) and the Parity Loans ($27,300,000 as of September 2, 2010).

The Fiscal Consultant estimates that the assessed value in the Original Area would have

to increase at an average annual rate of 10.68% in order for the Agency to reach the cumulative tax increment cap of $1.315 billion prior to the final maturity date of the 2011 Bonds.

SB 1045; SB 1096. Pursuant to Senate Bill 1045 (“SB 1045”) in connection with

adoption of statutes requiring an ERAF shift for fiscal year 2003-04, and pursuant to Senate Bill 1096 (“SB 1096”) in connection with the adoption of statutes requiring an ERAF shift for fiscal years 2004-05 and 2005-06, the State Legislature authorized amendments of redevelopment plans to extend by one year for each ERAF shift the time limit of the effectiveness of the plan and the time limit to repay indebtedness and receive tax increment. The Agency is considering amending the Redevelopment Plan pursuant to SB 1045, but to date, has not done so, and the limits shown above do not reflect any one-year extensions. The Project Area is not eligible for a SB 1096 extension. See also “RISK FACTORS – State Budget and ERAF Shift.”

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SB 211. On October 10, 2001 the Governor of the State signed into law Senate Bill 211

(“SB 211”), which allows redevelopment agencies to eliminate the time limits on their ability to incur debt for project areas established prior to January 1, 1994. Additionally, SB 211 allows redevelopment agencies to extend the termination date of their redevelopment plans and the deadline for the receipt of tax increment for the repayment of debt by 10 years for project areas established prior to January 1, 1994. In order to extend the termination of the redevelopment plans or the deadline for the receipt of tax increment for the repayment of debt, the redevelopment agency must make certain findings of blight in the applicable project areas. In addition, if a redevelopment agency elects to extend the time limits on the incurrence of debt, the termination of the redevelopment plans or the deadline for the receipt of tax increment for the repayment of debt, the redevelopment agency must make certain additional statutory pass-throughs to other taxing entities.

Only the Original Area is eligible for extension under SB 211. The Agency is not

currently considering the extension of the time limits for the Redevelopment Plans for the Original Area as permitted by SB 211.

AB 26. In July 2009, the State legislature adopted Assembly Bill 26 (“AB 26”), which

provided that the governing body of an agency could adopt an ordinance to extend the limits on the termination of redevelopment plans approved prior to 1994 and the authority to collect tax increment revenues by one additional year if the Agency makes a payment to the Supplemental Educational Revenue Augmentation Fund (“SERAF”) in fiscal year 2009-10. The City Council has to amend the Redevelopment Plan to implement the one year extension. The SERAF payment is described in detail under the caption “RISK FACTORS — State of California Fiscal Issues.”

Compliance with the Redevelopment Law. The Agency has covenanted in the Loan

Agreement to comply with all requirements of law to insure the allocation and payment to it of the Pledged Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County.

Tax Sharing Agreements and Statutory Pass-Through Obligations

Section 33676 Tax Sharing Agreements. For redevelopment project areas established prior to January 1, 1994, Section 33676 of the Redevelopment Law allows taxing entities to receive additional property taxes in a redevelopment project area above the base year revenue amount. Such payments are based on annual increases in the real property portion of the base year value up to the inflation limit of 2%.

The City of Turlock, Turlock Fire Protection District, Turlock Joint Elementary School

District and Turlock Joint Union High School District have each elected to receive their respective proportionate shares of the tax increment produced in the Original Area by the yearly 2% inflation increase in the Base Year Roll pursuant to California Health and Safety Code Section 33676. The two school districts have unified and are now collectively known as the Turlock Unified School District.

Negotiated Tax Sharing Agreements. Pursuant to former Section 33401 of the

Redevelopment Law, the Agency has entered into four pass-through agreements, described as follows. Each of the four pass-through agreements contains a provision to the effect that the taxing entity will subordinate such taxing entity’s right to receive a portion of the tax increment under the related pass-through agreement to debt service payments on indebtedness of the Agency, if the Agency provides such taxing entity reasonably satisfactory evidence that the

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projected tax increment will be sufficient to allow the Agency to meet the Agency’s obligations under such pass-through agreement and to pay debt service on the Agency’s indebtedness. The Agency notified the four taxing entities of its intention to enter into the Loan Agreement, with accompanying tables showing tax increment projections, the Prior Loan Installments and estimated Loan Installments. In the Agency’s notifications, the Agency requested each taxing entity to confirm the subordination to the Prior Loan Installments and the Loan Installments; provided that the subordination would be deemed confirmed if the taxing entity did not respond by November 9, 2010. The Agency either did not receive a protest or received confirmation of subordination from each of the four taxing entities. Consequently, for the purposes of showing coverage throughout this Official Statement, the projected Tax Revenues reflect the fact that the taxing entities’ right to receive payment under the respective negotiated pass-through agreements has been subordinated to the Loan Installments.

County of Stanislaus. On December 7, 1993, the Agency entered an agreement (the

“County Agreement”) with the County of Stanislaus in order for the Agency to mitigate the financial burden caused by the Redevelopment Plan. The County Agreement provides that the Agency will pass through to the County and the County Fire Service Fund each year a certain percentage of the County’s and County Fire Service Fund’s share of tax increment derived from the Original Area, in the following amounts:

(i) The Agency did not pass through moneys to the County or the County Fire

Service Fund during the first 10 years of the Original Area. (ii) Commencing with Fiscal Year 11 and continuing through Fiscal Year 15, the

Agency agrees to pay the County 31.5% of the amount of the County’s and County Fire Service Fund’s Share (the “County Share”) of tax increments from the Original Area (such “County Share” is defined in the County Agreement to mean the percentage of each property tax dollar that would have been received by the County and County Fire Service Fund at the time of the effective date of the Redevelopment Plan adoption if the Redevelopment Plan had not existed).

(iii) Commencing with Fiscal Year 16 (FY 2008-09) and continuing through Fiscal

Year 20 (FY 2012-13), the Agency agrees to pay the County 50% of the County Share of tax increments from the Original Area.

(iv) Commencing with Fiscal Year 21 (FY 2013-14) and continuing through Fiscal

Year 29 (FY 2021-22), the Agency agrees to pay the County 65% of the County Share of tax increments from the Original Area.

(v) Commencing with Fiscal Year 30 (FY 2022-23) and continuing through Fiscal

Year 45, the Agency agrees to pay the County 80% of the County Share of tax increments from the Original Area.

The County, in the context of reviewing the Agency’s subordination request with respect

to the Loan Installments, projected that the amount of the Agency’s pass-through obligations in fiscal year 2011-12 would be greater than the amount projected by the Fiscal Consultant. The County’s projections and the Agency’s projections do not materially differ with respect to the amount of total assessed value or gross tax increment. The Agency believes the County applies a different calculation methodology to pass-through projections than it does to actual pass-through payments. The Agency believes its projection is based on a methodology that is more similar to the County’s method for calculating actual pass-through payments than the County’s.

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Turlock Mosquito Abatement District. On November 15, 1993, the Agency entered an agreement (the “Mosquito District Agreement”) with the Mosquito Abatement District (the “Mosquito District”) in order for the Agency to mitigate the financial burden caused by the Redevelopment Plan. The Mosquito District Agreement provides that the Agency will pass through to the Mosquito District each year a certain percentage of the Mosquito District’s share of tax increment derived in the Original Area, in the following amounts:

(i) Fiscal Years 2004-05 to 2013-14. Commencing with Fiscal Year 11 and

continuing through Fiscal Year 20, within 30 days after the Agency has received its annual allocation of Pledged Tax Revenues, the Agency agrees to pay the Mosquito District 25% of the District’s Share of the Agency’s Net Tax Increments (i.e., tax increment revenues less the 20% housing set aside) received that fiscal year. The “District’s Share” means the proportionate percentage share of the property taxes the District received from the Original Area on the 1993-94 Base Year Roll.

(ii) Fiscal Years 2014-15 to 2023-24. Commencing with Fiscal Year 21 and

continuing through Fiscal Year 30, within 30 days after the Agency has received its annual allocation of Pledged Tax Revenues, the Agency agrees to pay the Mosquito District 35% of the District’s Share of the Agency’s Net Tax Increments received from the Original Area that fiscal year.

(iii) Fiscal Years 2024-25 and Thereafter. Commencing with Fiscal Year 31 and

continuing through the termination of the Agency’s receipt of tax increment, within 30 days after the Agency has received its annual allocation of Pledged Tax Revenues, the Agency agrees to pay the Mosquito District 50% of the District’s Share of the Agency’s Net Tax Increments received from the Original Area that fiscal year. Stanislaus County Office of Education. On December 14, 1993, the Agency entered an

agreement (the “Office Agreement”) with the Stanislaus County Office of Education (the “Office”) in order for the Agency to mitigate the financial burden caused by the Redevelopment Plan by providing for the payment for a portion of the cost of land and/or certain capital improvements to existing buildings and facilities. The Office Agreement provides that:

(i) In the first fiscal year in which the Agency receives tax increment, the Agency

shall deposit $10,000 into a fund to be used for Office capital improvements (the “Office Fund”).

(ii) Commencing the 6th fiscal year and in each year thereafter, the Agency shall

deposit in the Office Fund that portion of tax revenues the Office would be entitled to receive from the Original Area, if the Office had elected under Section 33676(a)(2) of the Health and Safety Code to receive the Office’s share of tax increment revenues attributable to the annual 2% increase on the Base Year Roll (the “Office Share of Inflation Assessments”).

(iii) Fiscal Years 2004-05 to 2023-24. Commencing the 11th fiscal year and

continuing through the 30th fiscal year, the Agency shall deposit in the Office Fund (in addition to the amount specified above), an amount equal to 20% of the “Office’s Net Increment Share.” The “Office’s Net Increment Share” means 80% of the Office’s share of tax increment had the Redevelopment Plan not been adopted, excluding any payments made pursuant to Item (ii) above.

(iv) Fiscal Years 2024-25 to 2033-34. Commencing the 31st fiscal year and

continuing through the 40th fiscal year, the Agency shall annually set aside (in addition

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to the amounts specified in (ii) above) for the Office an amount equal to 50% of the Office’s Net Increment Share.

(v) Fiscal Years 2034-35 and Thereafter. Commencing the 41st fiscal year and

continuing through the 45th fiscal year, the Agency shall annually set aside for the Office (in addition to the amounts specified in (ii) above) an amount equal to 100% of the Office’s Net Increment Share. Yosemite Community College District. On December 3, 1993, the Agency entered an

agreement (the “College District Agreement”) with the Yosemite Community College District (the “College District”) in order for the Agency to mitigate the financial burden caused by the Redevelopment Plan by providing for the payment for a portion of the cost of land and/or certain capital improvements to existing buildings and facilities. The College District Agreement provides for a payment structure that is identical to that of the Office Agreement.

Statutory Pass-Throughs. Pursuant to Health and Safety Code Section 33607.5,

applicable to the portion of a redevelopment plan which was amended after January 1, 1994 to annex area (such as the Added Area, but not the Original Area), the Tax Revenues generated in the Added Area are subject to certain statutory pass-throughs. The amounts to be passed through to the affected taxing entities are as follows:

Tier 1: From the 1st fiscal year through the last fiscal year in which the Agency

receives tax increments, the Agency shall pay an amount equal to 25% of the tax increments received by the Agency after the amount required to be deposited into the Agency’s Low and Moderate Income Housing Fund (the “Housing Fund”).

Tier 2: From the 11th fiscal year through the last fiscal year in which the Agency

receives tax increments, the Agency shall pay, in addition to the amount specified in (a) above, an amount equal to 21% of the tax increment which are in excess of the values in the Added Area in the 10th fiscal year, after the amount required to be deposited into the Agency’s Housing Fund.

Tier 3: From the 31st fiscal year through the last fiscal year in which the Agency

receives tax increments, the Agency shall pay, in addition to the amount specified in (a) and (b) above, an amount equal to 14% of the tax increment received by the Agency which are in excess of the values in the Added Area in the 30th fiscal year, after the amount required to be deposited into the Agency’s Housing Fund. Tier 1 and Tier 2 payments are currently being made for the Added Area. The affected

taxing entities are as follows: (i) Stanislaus County (including the County Fire Service), (ii) Stanislaus County Superintendent of Schools (including the County Schools Service Fund); (iii) Yosemite Community College District; (iv) Turlock Mosquito Abatement District; (v) City of Turlock; (vi) Keyes Unified School District; (vii) Turlock Fire Protection District; (viii) Turlock Irrigation District; (ix) Chatom Union School District; (x) Turlock Unified School District.

Pass-through payments made pursuant to Section 33607.5 of the Redevelopment Law

may be subordinated to bonded debt service. These pass-through payments are already subordinate to the Agency’s obligations under the Prior Loan Agreements, except with respect to Keyes Unified School District for the reasons set forth below. The Agency has received subordination to the Loan Installments of all but one of its statutory pass-through obligations: the statutory pass-through obligation to Keyes Unified School District. The Agency did not request subordination from the Keyes Unified School District because the School District is entitled to

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pass-through payments with respect to only one tax rate area for which the County is not reporting any assessed value.

Recent Court Decisions. In Los Angeles Unified School District v. County of Los

Angeles et al. (2010; Case No. B213703), the Los Angeles Unified School District (“LAUSD”) sought a writ of mandate to compel the County of Los Angeles to increase its allocation of statutory pass-through payments. At issue was the relationship between ERAF payments (which are generally deemed to be property tax revenue) and statutory tax sharing payments, because statutory tax sharing payments must be “allocated among the affected taxing entities … in proportion to the percentage share of property taxes each affected taxing entity … receives during the fiscal year the funds are allocated…” (quoting Health & Safety Code §33607.5, subd. (a)(2).). The trial court concluded that ERAF revenue should be excluded from the calculation of LAUSD’s percentage share of property taxes for purposes of calculating statutory tax sharing allocation. The Court of Appeal, Second Appellate District reversed, holding that the correct allocation of the statutory tax sharing payments is dependent upon the correct calculation of the percentage share of property taxes that each affected taxing entity receives during the fiscal year the funds are allocated, including most ERAF payments (the Court of Appeal held that supplemental ERAF deposits from non-property tax revenue may be excluded from the statutory tax sharing calculation). A petition for review was filed with the California Supreme Court but denied on April 28, 2010.

The case will not increase the total amount of statutory tax sharing payments in future

years. The potential significance of this case to the Agency is that the allocation imposed by the Court of Appeal will increase the amount of statutory tax sharing payments to school districts, and decrease the amount of tax increment revenue allocated to counties, cities and special districts. Because the Agency has obtained the subordination of all but one of its statutory tax sharing payments to the Agency’s obligation to pay debt service on the Parity Loans and the Loan, the Agency does not expect the case to adversely impact its ability to pay the Parity Loans or the Loan.

Allocation of Taxes

Secured taxes are due November 1 and February 1 in two equal installments.

Installments of taxes levied upon secured property become delinquent on December 10 and April 10, respectively. Taxes on unsecured property are due March 1 and become delinquent August 31.

The County Auditor-Controller is responsible for the aggregation of the taxable values

assigned by the Assessor as of the January 1 lien date for property within the boundaries of the Project Area. This results in the reported total current year Project Area taxable value and becomes the basis of determining Pledged Tax Revenues due to the Agency. Although adjustments to taxable values for property within the Project Area may occur throughout the fiscal year to reflect escaped assessments, roll corrections, etc., such adjustments are not assumed on the projection of Tax Revenues (below).

Stanislaus County calculates tax increment to redevelopment project areas on a tax rate

area basis. A tax rate area is a geographic area that contains the same underlying taxing entities that levy a property tax. There are a total of 45 tax rate areas in the Original Area and 27 in the Added Area. Pursuant to Section 96.6(c)(1) of the Revenue & Taxation Code, the County calculates tax increment only for those tax rate areas where the current year assessed value exceeds the base year value. If the base year value is higher, the County excludes it from the calculation of tax increment. Stanislaus County is the only county in the state that is authorized to calculate tax increment in this way. This has the impact of allocating additional tax increment

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to the Agency from that which would normally occur. For fiscal year 2009-10, the Fiscal Consultant estimates that this has had the impact of increasing gross tax increment to the Project Area by approximately $74,355. Since the County is authorized under State law to calculate tax increment in this way, the Fiscal Consultant has also prepared calculations of tax increment to exclude all tax rate areas where the base year value exceeds the current year value.

For fiscal year 2010-11, the Original Project Area has four tax rate areas (007-008, 007-

041, 007-062, and 007-189) that have a negative increment valuation. The base year assessed valuation ($25,103,871) and the current assessed value ($15,646,151) of those tax rate areas will not be included in the calculation of incremental assessed valuation for fiscal year 2010-11.

For fiscal year 2010-11, the Added Area has two tax rate areas (007-166 and 007-195)

that has a negative increment valuation. The base year assessed valuation ($689,206) and the current assessed value ($236,743) of that tax rate area will not be included in the calculation of incremental assessed valuation for fiscal year 2010-11.

In calculating tax increment, the County applies a “base year equivalent tax rate.” This

tax rate is in excess of the standard 1% tax rate under Proposition 13. The Fiscal Consultant’s review indicates that only the 1% tax rate should be applied to incremental value in the Project Area, and that this has caused the County calculation of tax increment to be overstated by approximately $185,600 for 2009-10. See “APPENDIX C – Fiscal Consultant Report – Property Tax Allocation Procedures” and “- Table 3 Historical Tax Increment Revenue.”

Stanislaus County has implemented the Alternative Method of Distribution of Tax Levies

and Collections and of Tax Sale Proceeds (the “Teeter Plan”), which allows each entity levying property taxes in the County to draw on the amount of secured property taxes levied rather than the amount actually collected. Therefore, the Agency’s receipt of tax revenues reflects the total amount levied on the secured tax roll rather than actual collections. There is no assurance that such practice will continue in the future or, as a result, that Pledged Tax Revenues will remain immune from tax collection risk. The County remits property taxes to the Agency in late December or early January and in April of each fiscal year. The Agency also receives allocations of supplemental property taxes during the course of the year. A final payment is made in August of each year.

Low and Moderate Income Housing

The Redevelopment Law requires redevelopment agencies to annually set aside 20% of all Tax Revenues into the Low and Moderate Income Housing Fund. Sections 33334.2 and 33334.3 of the Redevelopment Law require redevelopment agencies to set aside not less than 20% of all Tax Revenues allocated and paid to redevelopment agencies from redevelopment project areas adopted after November 30, 1976 in the Low and Moderate Income Housing Fund to be expended for authorized low and moderate income housing. Amounts on deposit in the Low and Moderate Income Housing Fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low and moderate income housing purposes.

Under the Redevelopment Law, the set-aside requirement could be reduced or

eliminated if the redevelopment agency finds (1) that no need exists in the community to improve or increase the supply of low and moderate income housing, (2) that some stated percentage less than 20% of the tax increment is sufficient to meet the housing need or (3) that other substantial efforts, including the obligation of funds from certain local, state or federal sources for low and moderate income housing, or equivalent impact are being provided for in

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the community. The tax increment projections estimate the annual housing set aside requirement of future tax increment allocations to the Agency and are exclusive of assumed SB 2557 administrative charges.

Moneys deposited into the Low and Moderate Income Housing Fund pursuant to the

Redevelopment Law are not available to pay the Loan Installments or the 1999 Loan Installments.

Historical Assessed Value and Tax Revenues

Set forth in the following table is a summary of historical assessed values and gross tax increment revenues in the Project Area for fiscal years 2006-07 through 2010-11; the Fiscal Consultant Report includes similar tables for each component area of the Project Area. Taxable values have declined from $1,578,965,275 in fiscal year 2006-07 to $1,456,998,971 in fiscal year 2010-11. The total percentage change was approximately 7.7% over the four-year period. The average annual percentage change in values was approximately 1.9%.

Secured taxable values since fiscal year 2006-07 have decreased from $1,490,439,687

to $1,352,076,712 (approximately 9.28%). The City purchased 12 parcels as the location for the public safety building being

financed with proceeds of the 2011 Bonds. Approximately $260,000 of assessed value related to 2 of those parcels is included in the Project Area's fiscal year 2010-11 assessed value, even though the parcels are exempt from taxation under City ownership. The Fiscal Consultant expects the parcels to have a $0 assessed value on the fiscal year 2011-12 roll. The City may request that these parcels be removed from the base year roll, but it has not yet done so.

Table 3

TURLOCK REDEVELOPMENT AGENCY Turlock Redevelopment Project Area-Original Area and Added Area

Historical Assessed Values

2006-07 2007-08 2008-09 2009-10 2010-11 Secured Value $1,490,439,687 $1,607,636,795 $1,534,200,864 $1,459,686,467 $1,352,076,712 Unsecured Value 88,525,588 94,107,118 100,246,145 112,702,285 104,922,259 Total Assessed Value 1,578,965,275 1,701,743,913 1,634,447,009 1,572,388,752 1,456,998,971 Percentage Change over prior year

13.27% 7.78% -3.95% -3.80% -7.34%

Actual Incremental Value

(1) $851,748,931 $974,527,569 $907,230,665 $845,172,408 $729,782,627

Incremental Value used for Tax Increment

(2) $866,382,817 $984,273,206 $917,933,991 $855,887,780 $739,692,810

_____________________ (1) Taxable value above initial base year value of $727,216,344. (2) The County does not reduce the incremental value for tax rate areas where the current year assessed value is less

than the base year value. The amount shown is what has been used for purposes of calculating tax increment. Source: Urban Futures Inc.; Stanislaus County Auditor-Controller’s Office.

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The table below shows historical tax increment revenues in the Project Area. The Fiscal Consultant disagrees with the County’s method of calculating tax increment. Because the County applies a tax rate in excess of 1% when computing tax increment (whereas the Fiscal Consultant uses the basic 1%), the Fiscal Consultant believes the County has been overstating tax increment revenues generated by the Project Area. For fiscal year 2009-10, the Fiscal Consultant believes the County overstated tax increment by $185,600.

Table 4

TURLOCK REDEVELOPMENT AGENCY Turlock Redevelopment Project Area-Original Area and Added Area

Historical Tax Increment Revenue

2006-07 2007-08 2008-09 2009-10

Total Taxable Value $1,578,965,275 $1,701,743,913 $1,634,447,009 $1,572,388,752 Less: Base Year Value 727,216,344 727,216,344 727,216,344 727,216,344 Plus: Negative TRA Increment

(1) 14,633,886 9,745,637 10,703,326 10,715,372

Incremental Value $866,382,817 $984,273,206 $917,933,991 $855,887,780 Tax Increment

(2) $8,663,828 $9,842,732 $9,179,340 $8,558,878

Less: Section 33676 Allocations (669,862) (767,928) (752,327) (787,455) Less: County Admin Fees (101,114) (111,128) (114,422) (123,603) Less: Tax Sharing Payments

(3) (1,128,824) (1,287,721) (1,372,088) (1,327,488)

Net Tax Increment Levy $6,764,028 $7,675,955 $6,940,503 $6,320,332 Net Tax Increment Receipts

(4) $6,670,159 $7,498,873 $6,710,803 $6,228,751

Ratio of Receipts to Levy 98.61% 97.69% 96.69% 98.55% Supplemental Property Taxes $791,512 $463,965 $138,944 $24,432 Total Tax Increment Receipts $7,461,671 $7,962,838 $6,849,747 $6,253,183 Ratio of Receipts to Levy 110.31% 103.74% 98.69% 98.94% _____________________ (1) The County does not reduce tax increment for tax rate areas where the current year value is below the base year value. (2) The County applies a tax rate above 1%. The Fiscal Consultant’s calculations include only the 1% tax rate. (3) Tax Sharing payments to the County from the Original Area and the statutory payments from the Added Area. (4) Actual amount remitted by the County exclusive of supplemental property tax revenues. The amount has been reduced for Section 33676 allocations, the property tax administrative fee and statutory and County tax sharing payments. Source: Urban Futures Inc.; Stanislaus County Auditor-Controller’s Office.

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Major Taxable Property Owners The following table lists the ten largest secured taxpayers within the Project Area; the

Fiscal Consultant Report includes similar tables for each component area of the Project Area. Based on fiscal year 2010-11 locally assessed taxable valuations, the top ten taxable property owners in the Original Area represent approximately 20.02% of the total Project Area secured taxable value of $1,352,076,712. See “Appeals of Assessed Values” below.

Table 5

TURLOCK REDEVELOPMENT AGENCY Turlock Redevelopment Project-Original Area and Added Area

Ten Largest Secured Property Owners Fiscal Year 2010-11

Property Owner Component

Area Land Use

FY 2010-11 Secured

Assessed Value

% of Total FY 2010-11

Secured Assessed

Value

1 Foster Poultry Farms Original Industrial $64,368,911 4.76%

2 California Dairies Inc Added Industrial 54,655,557 4.04

3 Sensient Dehydrated Flavors Inc Added Industrial 53,605,476 3.96

4 Mello Richard D & Judith G Added Industrial 21,207,737 1.57

5 Turlock Cinema Center LLC Added Commercial 18,390,906 1.36

6 Dairy Farmers Of America Added Industrial 15,986,327 1.18

7 Turlock Town Center LP Original Commercial 11,838,491 0.88

8 D Street Funds (1)

Original Commercial 11,118,362 0.82

9 Beatrice Public Ref Serv Inc (2)

Added Industrial 10,285,425 0.76

10 Volk Enterprises Inc Added Industrial 9,230,825 0.68

Totals $270,688,017 20.02% (1) This property was sold by Valley Fresh Inc. at the end of calendar year 2010; the final sales price and

change in assessed value is not yet available and is not reflected in the above figures. (2) Beatrice has filed an assessment appeal on one parcel with a total assessed value of $10,309,858 and is

claiming a value of $6,974,000. Source: Urban Futures Inc.; Stanislaus County Assessor Records

Set forth in the following paragraphs are summaries of the five largest taxable property

owners: Foster Poultry Farms has been in business in the City since 1939, and currently

operates a turkey processing facility there. In 1999, the facility expanded a second time when Foster Poultry Farms purchased the Butter Ball Plant across the street. Today, the Foster Farm facility has more than 300,000 square feet of operation and 1,600 employees. Foster Poultry Farms is appealing the assessed value of four parcels with a total assessed value of $5,183,664; Foster Poultry Farms claims the property should be valued at $3,076,791.

California Dairies, Inc. is the result of the 1999 merger of three dairy cooperatives;

California Milk Producers, Danish Creamery and San Joaquin Valley Dairymen. All three cooperatives date back to the turn of the 20th century. California Dairies, Inc. is owned by 680 California dairies who ship over 14 billion pounds of milk to be sold and processed annually. These members have nearly $100 million of equity invested in the company. The owners have dairies located from San Diego County in the south to Marin County in the north. Most of the milk supply is located in the San Joaquin Valley from Kern County to San Joaquin County. The

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Turlock plant produces powders and a variety of different consumer size packages of butter and has 120 employees.

Sensient Technologies is a leading global developer, manufacturer and marketer of

technical and food colors, flavors and fragrances. The Company’s subsidiary, Sensient Dehydrated Flavors, formerly known as Rogers Foods, Inc. (which began in the City in 1932 as Poochinelli Packing Co.), manufactures flavorings and other products for the food processing, food service, and beverage industries (specializing in dehydrated spices and vegetables such as parsley, celery, and spinach, and also makes flavors for condiments, dairy products, gravies, marinades and sport drinks). Sensient Technologies has 450 employees in California with 175 in a 300,000 square foot distribution center/administrative offices in the City. The company also has facilities in France, Netherlands and China. Sensient Technologies completed a 200,000 square foot expansion on the site in the City in 2009. Sensient Dehydrated Flavors Inc. has appealed the assessed value of a single parcel in two different tax years. For fiscal year 2008-09, the assessed value was $23,462,728 and Sensient claims a value of $11,731,364. For fiscal year 2009-10, the assessed value was $16,908,530 and Sensient claims a value of $8,454,265.

Richard and Judith Mello own 5 parcels in the Added Area, on which is located the

corporate offices of Northern Refrigerated Transportation, Inc. and cold storage distribution warehouse. The site includes a 27,000 square foot refrigerated warehouse with 36 truck bays, and a separate drivers' quarters equipped with restrooms, showers and a break room.

Turlock Cinema Center LLC owns five parcels on West Main Street near Highway 99.

The parcels total approximately 15.8 acres and house a varied of commercial and retail businesses. A 14-screen theater anchors the site and is complemented by an assortment of restaurants and retail uses. The Center also is home to the popular 7,000 square foot Turlock Poker Room and a FunWorks Entertainment Center. Turlock Town Center LP has appealed the assessed value of two parcels with an assessed value of $15,545,000; Turlock Town Center LP claims a value of $13 million.

Appeals of Assessed Values

Pursuant to California law, property owners may apply for a reduction of their property

tax assessment by filing a written application, in form prescribed by the State Board of Equalization, with the appropriate county board of equalization or assessment appeals board.

After the applicant and the assessor have presented their arguments, the Appeals Board

makes a final decision on the proper assessed value. The Appeals Board may rule in the assessor’s favor, in the applicant’s favor, or the Board may set their own opinion of the proper assessed value, which may be more or less than either the assessor’s opinion or the applicant’s opinion.

Any reduction in the assessment ultimately granted applies to the year for which the

application is made and may also affect the values in subsequent years. Refunds for taxpayer overpayment of property taxes may include refunds for overpayment of taxes in years after that which was appealed. Current year values may also be adjusted as a result of a successful appeal of prior year values. Any taxpayer payment of property taxes that is based on a value that is subsequently adjusted downward will require a refund for overpayment.

Appeals for reduction in the “base year” value of an assessment, if successful, reduce

the assessment for the year in which the appeal is taken and prospectively thereafter. The base year is determined by the completion date of new construction or the date of change of

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ownership. Any base year appeal must be made within four years of the change of ownership or new construction date.

Appeals may also be filed under Section 51 of the Revenue and Taxation Code, which

requires that for each lien date the value of real property shall be the lesser of its base year value annually adjusted by the inflation factor pursuant to Article XIIIA of the State Constitution or its full cash value, taking into account reductions in value due to damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in value. Significant reductions have taken place in some counties due to declining real estate values. Reductions made under this code section may be initiated by the County Assessor or requested by the property owner. After a roll reduction is granted under this section, the property is reviewed on an annual basis to determine its full cash value and the valuation is adjusted accordingly. This may result in further reductions or in value increases. Such increases must be in accordance with the full cash value of the property and it may exceed the maximum annual inflationary growth rate allowed on other properties under Article XIIIA of the State Constitution. Once the property has regained its prior value, adjusted for inflation, it once again is subject to the annual inflationary factor growth rate allowed under Article XIIIA. See “LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS -- Article XIIIA of the California Constitution” below.

For calendar years 2007 through 2009, the total valuation reduction ($12,801,560) was

21.79% of total requested assessed value reductions ($58,757,362) and 8.29% of the total assessed value of all filed appeals ($154,445,205). Current appeals pending in the Project Area represent real property with a total assessed valuation of $124,502,838. Based on the applicants’ opinion of value, the total potential reduction in assessed valuation is $53,655,915. Based on a 1% tax rate, and applying the assumed 50% reduction factor required by the additional bonds test of the Loan Agreement (see “SECURITY FOR THE 2011 BONDS – Additional Debt”), and adjusting for a pro rata reduction for deposits to the Low and Moderate Income Housing Fund, the Fiscal Consultant assumes the potential reduction in Pledged Tax Revenues in fiscal year 2010-11 is $214,624 (see Exhibit F of the Fiscal Consultant Report).

Proposition 8 Assessed Value Reductions

The Stanislaus County Assessor reports that the assessed value of property in the City of Turlock was reduced by $218,555,050 between fiscal years 2009-10 ($4,923,512,507) and 2010-11 ($4,704,957,457), including approximately $220 million of Proposition 8 reductions on 10,237 parcels that were partially offset by other increases in assessed value.

The Stanislaus County Assessor reports that there were approximately $306 million of

Proposition 8 reductions on 9,153 parcels in the City of Turlock in fiscal year 2009-10.

History of Foreclosures in the Project Area

Exhibit H to the Fiscal Consultant Report includes foreclosure data for the period of January 1, 2008 through September 2010. The percentage of properties in the Project Area that were foreclosed upon was 0.19% for calendar year 2008, 1.20% for calendar year 2009 and 1.18% for calendar year 2010 (through September).

Projected Tax Revenues

The tax increment revenue projections for the Project Area, as prepared by Urban Futures Inc., are summarized in the table below. These projections are based upon the following assumptions. The Agency believes these assumptions to be reasonable, but to the

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extent that assessed valuations, the tax rates or the percentage of taxes collected are less than the Agency’s assumptions, the Pledged Tax Revenues available to pay debt service on the 2011 Bonds could be less than those projected. No assurance can be given that the level of projected Pledged Tax Revenues will be achieved. See Appendix C for the entire Fiscal Consultant Report.

Included Tax Rate Areas; Tax Rate: As previously discussed, the County has special

legislation that allows it to exclude from the calculation of tax increment all tax rate areas where the base year value exceeds the current year value. Consequently, the projection below excludes all tax rate areas (both the base year value and the current assessed value) where the base year value exceeds the current year value.

In addition, although the County applies a “base year equivalent tax rate” that is in

excess of the standard 1% tax rate under Proposition 13, the projection below assumes only the 1% tax rate is applied to incremental value in the Project Area

Inflation Rate: In California, real property values (land and improvements) are subject to

an annual inflationary increase, as allowed under Proposition 13. The projection assumes, with respect to secured and unsecured property, a 1% growth rate over the actual fiscal year 2010-11 assessed value for fiscal year 2011-12, and a 2% inflation factor thereafter. See “RISK FACTORS - Reduction in Inflationary Rate.”

New Development; Net Transaction Values: Based on the value of building permits

issued between January 1, 2010 and August 26, 2010, the Fiscal Consultant added $1,463,900 (13 permits) to the secured value of the Original Area and $1,506,884 (15 permits) to the secured value of the Added Area in fiscal year 2011-12. The Fiscal Consultant also subtracted $944,792 (215 transactions totaling $30,592,433 sales price) from the assessed value of the Original Area and $292,895 (82 transactions totaling $20,628,472 sales price) from the assessed value of the Added Area for net resale transaction values based on transactions between January 1, 2010 and August 26, 2010.

Collections: Stanislaus County operates under the Teeter Plan; as a result, tax

increment allocated to the Agency reflects the amount levied on the secured tax roll rather than actual collections. The projections assume 100% of the amount levied will be collected on an annual basis.

Appeals: The projections assume a reduction in assessed value in fiscal year 2010-11

of $214,624 and no reductions thereafter. See “Appeals of Assessed Values” above. County Collection Charges: For fiscal year 2009-10, the County charged the Agency a

collection fee of $123,603 (1.4% of estimated fiscal year 2009-10 gross tax increment revenue). The projection assumes the County will continue to charge the Agency for property tax administration at a rate equal to 1.4% of gross tax increment.

Unitary Taxes: The County has remitted approximately $15,000 of annual unitary

revenue to the Agency for the Project Area in recent years. The projection assumes no utility tax revenue will be remitted to the Agency in future years. See “LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS – Unitary Property” below.

Housing Set-Aside: The projection of Pledged Tax Revenues assumes Housing Set-

Aside will not be available to pay the Loan Installments or the Prior Loan Installments.

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Pass-Through Agreements and Statutory Pass-Through Obligations: The Agency is subject to a number of tax sharing agreements with and statutory pass-through obligations to taxing entities within the County of Stanislaus (the “County”). The right of the taxing entities to receive tax increment was previously subordinated to the Prior Loan Installments, except with respect to Keyes Unified School District for the reasons set forth below. With respect to the Loan Installments:

(i) The Agency has received subordination to the Loan Installments of all but

one of its statutory pass-through obligations: the statutory pass-through obligation to Keyes Unified School District. The Agency did not request subordination from the Keyes Unified School District because the School District is entitled to pass-through payments with respect to only one tax rate area for which the County is not reporting any assessed value.

(ii) The Agency confirmed subordination to the Loan Installments of its

obligations under tax sharing agreements.

See “THE PROJECT AREA – Tax Sharing Agreements and Statutory Pass-Through Obligations.”

For the Fiscal Consultant’s projections of tax increment revenue through fiscal year

2014-15, see “APPENDIX C - Fiscal Consultant Report – Exhibit A.”

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Table 6 TURLOCK REDEVELOPMENT AGENCY

Turlock Redevelopment Project – Original Area and Added Area Estimate of Tax Increment Revenues

Fiscal Years 2011-12 through 2039-40 (Dollars in Thousands)

Fiscal Year

Incremental Assessed

Valuation (1)

Gross Tax Increment

Revenues (2)

Section 33676

Payments (3)

Low/Moderate Income Housing

Fund (4)

County Admin.

Fees (5)

Estimated Appeals

Reduction (6)

Pledged Tax

Revenues

10-11 $739,692,810 $7,396,928 $780,226 $1,323,340 $103,557 $214,624 $4,975,181 11-12 755,837,068 7,558,371 810,652 1,349,544 105,817 5,292,358 12-13 784,982,274 7,849,823 872,114 1,395,542 109,898 5,472,269 13-14 814,710,385 8,147,104 934,805 1,442,460 114,059 5,655,780 14-15 845,033,058 8,450,331 998,750 1,490,316 118,305 5,842,960 15-16 875,962,185 8,759,622 1,063,974 1,539,130 122,635 6,033,884 16-17 907,509,894 9,075,099 1,130,502 1,588,919 127,051 6,228,626 17-18 939,688,557 9,396,886 1,198,361 1,639,705 131,556 6,427,263 18-19 972,510,794 9,725,108 1,267,577 1,691,506 136,152 6,629,873 19-20 1,005,989,475 10,059,895 1,338,177 1,744,344 140,839 6,836,536 20-21 1,040,137,730 10,401,377 1,410,189 1,798,238 145,619 7,047,331 21-22 1,074,968,950 10,749,689 1,483,642 1,853,210 150,496 7,262,342 22-23 1,110,496,794 11,104,968 1,558,564 1,909,281 155,470 7,481,654 23-24 1,146,735,195 11,467,352 1,634,984 1,966,474 160,543 7,705,352 24-25 1,183,698,364 11,836,984 1,712,932 2,024,810 165,718 7,933,524 25-26 1,221,400,797 12,214,008 1,792,439 2,084,314 170,996 8,166,259 26-27 1,259,857,278 12,598,573 1,873,537 2,145,007 176,380 8,403,649 27-28 1,299,082,889 12,990,829 1,956,256 2,206,914 181,872 8,645,786 28-29 1,339,093,012 13,390,930 2,040,630 2,270,060 187,473 8,892,767 29-30 1,379,903,338 13,799,033 2,126,692 2,334,468 193,186 9,144,687 30-31 1,421,529,870 14,215,299 2,214,474 2,400,165 199,014 9,401,645 31-32 1,463,988,933 14,639,889 2,304,012 2,467,175 204,958 9,663,743 32-33 1,507,297,177 15,072,972 2,395,341 2,535,526 211,022 9,931,083 33-34 1,551,471,586 15,514,716 2,488,497 2,605,244 217,206 10,203,769 34-35 1,596,529,483 15,965,295 2,583,516 2,676,356 223,514 10,481,909 35-36 1,642,488,538 16,424,885 2,680,435 2,748,890 229,948 10,765,612 36-37 1,689,366,774 16,893,668 2,779,292 2,822,875 236,511 11,054,989 37-38 1,737,182,575 17,371,826 2,880,127 2,898,340 243,206 11,350,154 38-39 1,785,954,691 17,859,547 2,982,978 2,975,314 250,034 11,651,221 39-40 1,835,702,251 18,357,023 3,087,887 3,053,827 256,998 11,958,310

(1) Incremental valuation over current adjusted Base Year valuation ($701,423,267). The adjusted Base Year valuation is assumed to remain constant through the final

maturity date of the 2011 Bonds. The adjustment, which is described more completely in “THE PROJECT AREA – Allocation of Taxes,” above, is the result of the fact that Stanislaus County excludes from its calculation of tax increment both the assessed value and base year value of any tax rate area where the current year assessed value is less than the base year value.

(2) Gross tax increment based on a tax rate of 1.00%. (3) Inflationary Section 33676 inflationary pass-through payments from Original Project Area. (4) Based on 20% of gross tax increment revenues after deducting Section 33676 payments. (5) Estimated based on 1.4% of gross tax increment revenues. (6) Estimated revenue reduction from pending assessment appeals, pursuant to the parity bond test of the Prior Loans. Source: Urban Futures Inc.

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Estimated Loan Installment Coverage

The following table shows year-by-year coverage on the Prior Loan Installments and the Loan Installments, based on estimated Tax Revenues from the Project Area. Based on fiscal year 2010-11 Tax Revenues, coverage on the maximum amounts payable in any one Bond Year with respect to the Prior Loan Installments and the Loan Installments is equal to approximately 151.6%.

Table 7

TURLOCK REDEVELOPMENT AGENCY Projected Coverage on the Prior Loan Installments and the Loan Installments

Bond Years 2011 through 2039

Coverage Coverage Bond Year Projected Prior 2011 Total Based on Based on

Ending Tax Loan Loan Loan Projected FY 10-11 Sept. 1

(1) Revenues

(2) Installments

Installments Installments Tax Revenues Tax Revenues

2011 $4,975,181 $1,877,689 $ 896,966 $2,774,655 179.3% 179.3% 2012 5,292,358 1,881,739 1,069,144 2,950,883 179.3 168.6 2013 5,472,269 1,884,364 1,069,144 2,953,508 185.3 168.4 2014 5,655,780 1,880,564 1,329,144 3,209,708 176.2 155.0 2015 5,842,960 1,880,601 1,328,094 3,208,695 182.1 155.1 2016 6,033,884 1,884,214 1,325,269 3,209,483 188.0 155.0 2017 6,228,626 1,883,169 1,326,269 3,209,438 194.1 155.0 2018 6,427,263 1,880,779 1,325,413 3,206,192 200.5 155.2 2019 6,629,873 1,882,044 1,322,588 3,204,632 206.9 155.2 2020 6,836,536 1,885,591 1,323,088 3,208,679 213.1 155.1 2021 7,047,331 1,881,984 1,326,525 3,208,509 219.6 155.1 2022 7,262,342 1,886,411 1,322,475 3,208,886 226.3 155.0 2023 7,481,654 1,883,263 1,215,175 3,098,438 241.5 160.6 2024 7,705,352 1,883,040 1,218,475 3,101,515 248.4 160.4 2025 7,933,524 1,885,000 1,095,025 2,980,025 266.2 167.0 2026 8,166,259 1,882,500 1,093,575 2,976,075 274.4 167.2 2027 8,403,649 1,882,500 1,095,450 2,977,950 282.2 167.1 2028 8,645,786 1,884,750 1,095,875 2,980,625 290.1 166.9 2029 8,892,767 1,884,000 1,094,850 2,978,850 298.5 167.0 2030 9,144,687 1,885,250 1,092,375 2,977,625 307.1 167.1 2031 9,401,645 1,883,250 1,092,625 2,975,875 315.9 167.2 2032 9,663,743 1,883,000 1,091,000 2,974,000 324.9 167.3 2033 9,931,083 1,884,250 1,092,500 2,976,750 333.6 167.1 2034 10,203,769 1,886,750 1,111,750 2,998,500 340.3 165.9 2035 10,481,909 1,885,250 1,397,250 3,282,500 319.3 151.6 2036 10,765,612 1,884,750 1,393,750 3,278,500 328.4 151.8 2037 11,054,989 - 3,276,125 3,276,125 337.4 151.9 2038 11,350,154 - 3,272,625 3,272,625 346.8 152.0 2039 11,651,221 - 913,750 913,750 1275.1 544.5

(1) Tax Revenues are shown on a fiscal year basis (July 1 through June 30) and debt service is shown on a

Bond Year basis (September 2 through September 1). (2) See “Projected Tax Revenues” above.

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RISK FACTORS

Prospective investors in the 2011 Bonds should consider the risk factors described in this section. However, the information set forth in these paragraphs does not purport to be an exhaustive listing of risks and other considerations which may be relevant to investing in the 2011 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of any such risks.

Estimates of Pledged Tax Revenues

To estimate the revenues available to pay debt service on the Loan Installments, the

Agency has made certain assumptions with regard to the assessed valuation in the Project Area and future tax rates. The Agency believes these assumptions to be reasonable, but to the extent that the assessed valuation, the tax rates or the percentage of taxes collected (as a result of the Teeter Plan being terminated or otherwise) are less than the Agency’s assumptions, the Pledged Tax Revenues available to pay the Loan Installments will, in all likelihood, be less than those projected.

As described in “THE PROJECT AREA – Allocation of Taxes,” the County, when

calculating tax increment, applies a “base year equivalent tax rate.” This tax rate is in excess of the standard 1% tax rate under Proposition 13. The Fiscal Consultant concluded that only the 1% tax rate should be applied to incremental value in the Project Area, and that this has caused the County calculation of tax increment to be overstated by approximately $185,600for fiscal year 2009-10 and to be overstated in previous fiscal years. The projection of Tax Revenues assumes only the 1% tax rate, and the Agency could be subject to an effort by the County to recover previous overpayments (if any). The Agency does not expect any such efforts to adversely impact its ability to pay the Loan Installments.

Recent Assessed Values

The aggregate assessed value of the Project Area has decreased from $1,578,965,275

in fiscal year 2006-07 to $1,456,998,971 in fiscal year 2010-11, an average annual decrease of approximately 1.9%. Assessed values decreased by 3.80% in fiscal year 2009-10 and 7.34% in fiscal year 2010-11. The Agency can provide no assurances about future increases or decreases in assessed value.

Reduction in Taxable Value

Pledged Tax Revenues allocated to the Agency are determined by the amount of incremental taxable value in the Project Area and the current rate or rates at which property in the Project Area is taxed. The reduction of taxable values of property caused by economic factors beyond the Agency’s control, such as a relocation out of the Project Area by one or more major property owners, or the complete or partial destruction of such property caused by, among other eventualities, an earthquake, flood (see “Seismic Factors and Flooding,” below) or other natural disaster, could cause a reduction in the Pledged Tax Revenues securing the Agency’s obligation to make the Loan Installments. Property owners may also appeal to the County Assessor for a reduction of their assessed valuations. Such a reduction of assessed valuations and the resulting decline in Pledged Tax Revenues or the resulting refund of property taxes could have an adverse effect on the Agency’s ability to make Loan Installments and, consequently, the Authority’s ability to pay debt service on the 2011 Bonds. See “SECURITY FOR THE 2011 BONDS Appeals of Assessed Values.”

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Application of the provisions of Article XIIIA(2)(d) of the California Constitution and California Revenue and Taxation Code Section 68 may also result in a significant reduction of the assessed valuation of a property within a redevelopment project area. These provisions permit a person who is displaced from property by eminent domain proceedings or by governmental action resulting in a judgment of inverse condemnation to transfer the adjusted base year value of the property from which the person is displaced to another comparable property anywhere within the State. Persons acquiring replacement property must request assessment pursuant to these provisions within four years of the date the property was acquired by eminent domain or purchase or the date the judgment of inverse condemnation becomes final. Any such assessment pursuant to these provisions of Article XIIIA(2)(d) and California Revenue and Taxation Code Section 68 could result in a substantial and completely unexpected reduction in the assessed valuation of a property within the Project Area.

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis.

Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the

actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation seven times: in fiscal year 1983-84, 1%; in fiscal year 1995-96, 1.19%; in fiscal year 1996-97, 1.11%; in fiscal year 1999-00, 1.85%; in fiscal year 2004-05, 1.867%; in fiscal year 2010-11, -0.237%; and in fiscal year 2011-12, 0.753. Fiscal year 2010-11 is the first time the inflationary value adjustment has been a negative number. The Agency is unable to predict if any adjustments to the full cash value base of real property within the Project Area, whether an increase or a reduction, will be realized in the future.

Levy and Collection

The Agency does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues, and accordingly, could have an adverse impact on the ability of the Agency to pay the Loan Installments. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency’s ability to make Loan Installments.

Stanislaus County has elected to follow the procedures of Sections 4701 et seq. of the

California Revenue and Taxation Code, known as the “Teeter Plan” as to general taxes entered and collected on the secured tax roll. Consequently, property tax revenues in the Project Area reflect levies rather than actual collections. No assurances can be made that the County will continue to administer the Teeter Plan or that the Agency will continue to participate in the Teeter Plan.

Additional Obligations

As described in “SECURITY FOR THE 2011 BONDS,” the Loan Installments are secured by and payable from Pledged Tax Revenues on a parity with the 1999 Loan Installments and the 2006 Loan Installments and, in addition, the Agency may issue or incur

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obligations payable from Pledged Tax Revenues on a parity with its pledge of Pledged Tax Revenues to payment of the Loan Installments, but only upon satisfaction of certain conditions, including a 125% coverage test.

The existence of and the potential for such obligations increases the risks associated

with the Agency’s payment of Loan Installments in the event of a decrease in the Agency’s collection of Tax Revenues.

State Budget

Prior Fiscal Years. In connection with its approval of the budget for fiscal years 1992-93, 1993-94, 1994-95, 2002-03, 2003-04, 2004-05, and 2005-06, the State Legislature enacted legislation which, among other things, reallocated funds from redevelopment agencies to school districts by shifting a portion of each agency’s tax increment, net of amounts due to other taxing agencies, to school districts for such fiscal years for deposit in the Education Revenue Augmentation Fund (“ERAF”). The ERAF payments were paid timely by the Agency by allocation of the ERAF payments among the amounts otherwise required to be passed through to taxing entities as surplus Tax Increment Revenues.

AB 1389. In 2008, the State Legislature adopted, and the Governor of the State signed, legislation, Chapter 751, Statutes 2008 (AB 1389) (“AB 1389”), that among other things require redevelopment agencies to pay into ERAF in fiscal year 2008-09, prior to May 10, 2009, an aggregate amount of $350 million, of which the Agency was to pay approximately $280,000. On April 30, 2009, a California Superior Court in California Redevelopment Association v. Genest (County of Sacramento) (Case No. 34-2008-00028334) held that the required payment by redevelopment agencies into ERAF in fiscal year 2008-09 pursuant to AB 1389 violated the California constitution and invalidated and enjoined the operation of the California Health and Safety Code section requiring such payment. On May 26, 2009, the State filed a notice that it would appeal the decision of the superior court. On September 28, 2009, the State noticed its withdrawal of its appeal of California Redevelopment Association v. Genest. Accordingly, the Superior Court holding of invalidity of the applicable portion of AB 1389 is final.

2009 SERAF Legislation. In connection with various legislation related to the budget for the State for its Fiscal Year 2009-10, in late July 2009, the State legislature adopted, and the Governor of the State signed, Assembly Bill No. 26 (the “2009 SERAF Legislation”).

The 2009 SERAF Legislation mandates that redevelopment agencies in the State make deposits to the Supplemental Educational Revenue Augmentation Fund (“SERAF”) that is established in each county treasury throughout the State the aggregate amounts of $1.7 billion for fiscal year 2009-10, which are due prior to May 10, 2010, and $350 million for Fiscal Year 2010-11, which are due prior to May 10, 2011.

The Agency paid $3,337,940 in fiscal year 2009-10 pursuant to the 2009 SERAF Legislation, and the California Department of Finance has notified the Agency that the amount payable by the Agency pursuant to the 2009 SERAF Legislation will be $687,223 for fiscal year 2010-11. The Agency expects that the SERAF payments will be paid timely by the Agency by allocation of the SERAF payments among the amounts otherwise required to be passed through to taxing entities as surplus Tax Increment Revenues. The Agency did not use moneys in its Low and Moderate Income Housing Fund to make the fiscal year 2009-10 payment and does not expect to use money in its Low and Moderate Income Housing Fund for the fiscal year 2010-11 payment.

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The 2009 SERAF Legislation contains provisions that subordinate the obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness. Section 6 of AB 26, codified at Health and Safety Code, § 33690 (a) (3), states: “The obligation of any agency to make the payments required pursuant to this subdivision shall be subordinate to the lien of any pledge of collateral securing, directly or indirectly, the payment of the principal, or interest on any bonds of the agency including, without limitation, bonds secured by a pledge of taxes allocated to the agency pursuant to Section 33670 of the California Health and Safety Code.”

The 2009 SERAF Legislation imposes various restrictions on redevelopment agencies that fail to timely make the required SERAF payments, including (i) a prohibition on adding or expanding project areas, (ii) a prohibition on the incurrence of additional debt, (iii) limitations on the encumbrance and expenditure of funds, including funds for operation and administration expenses, and (iv) commencing with the July 1 following the due date of a SERAF annual payment that is not timely made, a requirement that the applicable redevelopment agency allocate an additional 5% of all taxes that are allocated to the redevelopment agency under the Redevelopment Law for low and moderate income housing for the remainder of the time that the applicable redevelopment agency receives allocations of tax revenues under the Redevelopment Law. The 5% additional housing set-aside penalty provision referred to in the 2009 SERAF Legislation (the “Penalty Set-Aside Requirement”) would be in addition to the 20% of such tax revenues already required to be used for low and moderate income housing purposes. A redevelopment agency that borrows from amounts required to be allocated to its housing set aside funds to make required SERAF payments but does not timely repay the funds, will also be subject to the Penalty Set-Aside Requirement.

Although the 2009 SERAF Legislation contains provisions that subordinate the obligation of redevelopment agencies to make the SERAF payments specified therein to certain indebtedness (which would include a subordination of the Agency’s obligations with respect to the new SERAF payments to the Agency’s obligation to pay debt service on the 2011 Bonds), there is no provision in the 2009 SERAF Legislation subordinating the Penalty Set-Aside Requirement to any indebtedness of a redevelopment agency that fails to timely make the SERAF payments mandated by the SERAF Legislation.

The California Redevelopment Association, the Union City Redevelopment Agency and

the Fountain Valley Redevelopment Agency filed a lawsuit in Sacramento County Superior Court on October 20, 2009, challenging the constitutionality of the 2009 SERAF Legislation and seeking a permanent injunction to prevent the State from taking redevelopment funds for non-redevelopment purposes. On May 4, 2010, the Superior Court upheld the 2009 SERAF Legislation. The plaintiffs have appealed the decision in the Third District Court of Appeal. The appeal seeks repayment of the fiscal year 2009-10 payment and a prohibition of the second payment. The Agency cannot predict the outcome of the appeal.

Proposition 22. The State’s ability to impose future ERAF and SERAF payments on

redevelopment agencies may be affected by Proposition 22, which was approved by the California electorate on November 2, 2010. Proposition 22, among other things, amends Sections 24 and 25.5 of Article XIII of the California Constitution to prohibit the State from reallocating, transferring, borrowing, appropriating or restricting the use of taxes imposed or levied by a local government solely for the local government’s purposes. As applied to redevelopment agencies, Proposition 22 adds Section 25.5(A)(7) to Article XIII of the State Constitution to prohibit the State from requiring a redevelopment agency (A) to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on ad valorem real property and tangible personal property allocated to the agency pursuant to Section 16 of Article XVI of the State Constitution to or for the benefit of the State, any agency of the State, or any other jurisdiction;

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or (B) to use, restrict, or assign a particular purpose for such taxes for the benefit of the State, any agency of the State, or any other jurisdiction, other than (i) statutory pass through payments required by Health and Safety Code Sections 33607.5 and 33607.7 and (ii) payments for the purpose of increasing, improving, and preserving the supply of low and moderate income housing available at affordable housing cost. Although the passage of Proposition 22 will have no impact upon the Agency’s obligation to pay the 2010 SERAF Amount, the State Legislative Analyst’s Office (“LAO”) has stated that the measure prohibits the State from enacting new laws that require redevelopment agencies to shift funds to schools or other agencies. No assurance can be provided that Proposition 22 will be implemented as contemplated by the LAO. In addition, Proposition 22 is subject to interpretation by the courts and there can be no assurance that the measure will not be challenged by the State or other parties or repealed by the voters of the State in the future.

Proposed 2011-12 Budget and Redevelopment Agencies. On January 10, 2011

Governor Jerry Brown released his proposed budget for fiscal year 2011-12 ("Proposed Budget"). The Proposed Budget is designed to address an estimated budget shortfall of $25.4 billion in the fiscal year 2011-12 California State Budget. The budget shortfall consists of an $8.2 billion projected deficit for 2010-11 and a $17.2 billion gap between projected revenues and spending in 2011-12. The Governor's proposal includes approximately $12.5 billion in budget cuts, $12 billion in tax extensions and changes, and $1.9 billion in other solutions. The Governor is calling for a statewide special election in June to extend for five more years tax measures currently set to expire.

The Proposed Budget makes the following redevelopment-related proposals (the "RDA

Provisions"), among others, although only limited details are provided for such a far-reaching proposal:

(i) The RDA Provisions, if adopted, would eliminate the current funding

mechanism for redevelopment agencies. (ii) The RDA Provisions, if adopted, would prohibit existing agencies from

creating new contracts or obligations effective upon enactment of urgency legislation. (iii) By July 1, the RDA Provisions, if adopted, would disestablish existing

redevelopment agencies and successor local agencies would be required to use the property tax revenues that redevelopment agencies would otherwise have received to retire redevelopment agency debts and contractual obligations "in accordance with existing payment schedules” (emphasis added).

(iv) For fiscal year 2011-12, the RDA Provisions, if adopted, would divert an

estimated $1.7 billion remaining after paying the redevelopment agency debts and contractual obligations described in the preceding paragraph (iii) to offset State General Fund costs for Medi-Cal and trial courts. An additional estimated $210 million would be distributed on a one-time basis to cities, counties, and special districts proportionate to their current share of the countywide property tax.

(v) For fiscal years after fiscal year 2011-12, the RDA Provisions, if adopted,

would distribute the money available after payment of redevelopment agency debt and contractual obligations described in the preceding paragraph (iii) to schools, counties, cities, and non-enterprise special districts for general uses.

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(vi) The RDA Provisions, if adopted, would shift amounts in the redevelopment agency's balances reserved for low-moderate income housing to local housing authorities for low and moderate income housing.

(vii) If adopted, the RDA Provisions would introduce a new financing

mechanism for economic development. Specifically, the Proposed Budget proposes that the Constitution be amended to provide for 55% voter approval for limited tax increases and bonding against local revenues for development projects such as are currently done by redevelopment agencies. Voters in each affected jurisdiction would be required to approve use of their tax revenues for these purposes. Implementation of the Proposed Budget. Implementation of the Proposed Budget,

including the RDA Provisions, would require implementing legislation by the Legislature and voter approval as to certain material elements and would probably include terms which are not yet proposed but that would be material to the Agency and the 2011 Bonds. The Agency cannot predict the ultimate form of any implementing legislation, if any is adopted.

Elements of the RDA Provisions, including the economic development program

authorization, contemplate voter approval through the initiative process. It is possible that Proposition 22, which is described immediately above, will affect the State's ability to implement some of the RDA Provisions. It is possible that the Governor and the Legislature may seek voter approval of changes to the terms of Proposition 22 that are in conflict with the Proposed Budget, including the RDA Provisions.

The Agency cannot predict the timing, terms or ultimate implementation of any such final

legislation or voter initiative measures, or the impact on the Agency or the 2011 Bonds of any proposed, interim or final legislative and constitutional changes that may be adopted arising out of the Proposed Budget.

Legislative Analyst Report. The LAO released its Overview of the Governor's Budget

("LAO Overview") on January 12, 2011. As it relates to the RDA Provisions the LAO Overview suggests the proposal has merit "but faces considerable implementation issues." The LAO Overview notes:

the administration's plan will require considerable work by the Legislature to sort through many legal, financial and policy issues. Several voter-approved constitutional measures, for example, constrain the State's authority to redirect redevelopment funds, use property tax revenues to pay for state programs, or impose increased costs on local agencies. In addition, the administration’s plan does not address many related issues, such as clarifying the future financial responsibility for low- and moderate- income housing (currently, a redevelopment program).

Finally, the LAO Overview recommends that the Legislature pass urgency legislation as

soon as possible prohibiting redevelopment agencies, during the period of legislative review of the Proposed Budget, from taking actions that increase their debt.

Potential Impact on the Agency and the 2011 Bonds. There are a variety of ways in

which the Proposed Budget and the RDA Provisions, if adopted, could impact the Agency and the 2011 Bonds, although the Agency is not able to predict the full variety or extent of these impacts, and the impacts will vary greatly depending on the final terms of laws adopted to implement the Proposed Budget and the RDA Provisions:

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(i) The RDA Provisions, if adopted, could impact the Agency's activities and programs generally and could reduce or eliminate its fund balances and staffing.

(ii) The RDA Provisions, if adopted, could affect the Agency's compliance

with and performance under existing contracts and obligations, including senior Pass-Through Agreements and Housing Set-Aside obligations.

(iii) Subject to certain constitutional protections described below, the RDA

Provisions, if adopted, could affect the Agency's compliance with and performance under the terms of the Indenture and the 2011 Bonds. These impacts could relate to the amount or availability of property tax revenue, Tax Increment revenues or Tax Revenues for the 2011 Bonds and other uses, the manner of application of Tax Revenues to debt service, flow of funds, use of 2011 Bond proceeds to fund new projects, compliance with Indenture covenants, continuing disclosure and other matters.

(iv) Pending final adoption of laws to implement the RDA Provisions, interim

proposals could affect the activities of the Agency and the value of the 2011 Bonds. (v) Most significantly, the RDA Provisions -- if adopted and implemented in

their proposed form – would eliminate redevelopment agencies and redeploy tax increment revenues affecting redevelopment agencies. These actions would almost certainly raise legal and practical issues, some of which may be subject to litigation and ultimate resolution in the courts, or subsequent legislative action. These issues could affect the Agency and its compliance with the terms of the Indenture and the 2011 Bonds, and resolution of these issues could involve expense and delay or modification of certain of the rights of the bondholders in ways the Agency cannot predict. Constitutional Protections. The Agency believes that constitutional protections against

the impairment of contracts will prevent the proposed actions in the RDA Provisions from adversely affecting the validity of the 2011 Bonds or the Agency's pledge of Tax Revenues to secure the payment of the 2011 Bonds. Indeed, the RDA Provisions purport to provide for the payments by successor entities of existing redevelopment agencies' "debts and contractual obligations."

Article I, section 10 of the United States Constitution provides that “No state shall...pass

any...law impairing the obligation of contracts.” Article I, section 9 of the California Constitution provides that a “law impairing the obligation of contracts may not be passed.” Each of these provisions is generally referred to as a “contracts clause”. Federal courts have applied a fact-based three-part test to determine whether a state law violates the federal contracts clause. In general, the test compares any impairment against the significant and legitimate public purpose behind the state law; there is no absolute prohibition against impairment.

The United States Supreme Court has declared in the context of a New Jersey law that

would have retroactively repealed a 1962 statutory (but contractual) covenant that would have adversely impacted bondowners: “A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.” See United States Trust Co. of New York v. New Jersey (1977) 431 U.S. 1, 25-26.

The Agency cannot predict the applicable scope of "contract clause" protections to the

2011 Bonds and the RDA Provisions as they may ultimately be implemented. Efforts to protect the rights of 2011 Bondholders and to enforce the terms of the Indenture, if necessary, could

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involve expense and delay including with respect to the determination of the applicable scope of the "contract clause" provisions.

Future State Action. The Agency cannot predict what actions will be taken in the future

by the voters of the State, the State Legislature and the Governor to deal with changing State revenues and expenditures and the repercussions they may have on the current fiscal year State Budget, the Proposed Budget and future State budgets, or their impact on the Agency. These developments at the State level, whether related to the Proposed Budget or not, may, in turn, affect local governments and agencies, including the Agency. Even if the proposals affecting the Agency in the Proposed Budget are not adopted, the State Legislature may adopt other legislation from time to time requiring redevelopment agencies to make other payments to ERAF or SERAF or to make other payments. The impact that current and future State fiscal shortfalls will have on the Agency is unknown at this time. In prior years, the State has experienced budgetary difficulties and as in the Proposed Budget, balanced its budget by requiring local political subdivisions, such as the County, the City and the Agency, to fund certain costs previously borne by the State.

Information About the State Budget and the State. Information about the State budget and State spending is regularly available from various State offices, including the Department of Finance, the Office of the Legislative Analyst and the State Treasurer. However, none of such information is incorporated by such reference.

Bankruptcy Risks and Foreclosure

General. The enforceability of the rights and remedies of the owners of the 2011 Bonds and the obligations of the Authority, the City and the Agency 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 creditors’ rights generally, now or hereafter in effect; usual equitable 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 federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing 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 2011 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.

In addition, although bankruptcy proceedings would not cause ad valorem property taxes

to become extinguished, bankruptcy of a property owner in the City or the Project Area could result in a delay in prosecuting superior court foreclosure proceedings of delinquent property and, in the absence of the Teeter Plan, could result in a delay in the receipt by the Agency of Tax Revenues City. Such a delay, in the absence of the Teeter Plan, would increase the possibility of a delay or default in payment of the principal of and interest on the 2011 Bonds.

History of Foreclosures in the Project Area. Exhibit H to the Fiscal Consultant Report

includes foreclosure data for the period of January 1, 2008 through September 2010, on foreclosures. The percentage of properties in the Project Area that were foreclosed upon was 0.18% for calendar year 2008, 1.10% for calendar year 2009 and 1.08% for calendar year 2010 (through September).

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Seismic Factors and Flooding

Seismic. According to the City’s General Plan, there are no known geologic faults in the City or in the valley portion of Stanislaus County. The nearest faults are the Tesla Ortigalita fault in the Diablo Range, and the Bear Mountain and Melones faults in the eastern portion of Stanislaus County – both of which have been inactive for the last 150 million years. There are no Alquist-Priolo Special Studies Zones in the City.

Two other concealed faults have been discovered more recently. The San Joaquin

Fault, lying close to Interstate 5, about 18 miles west of the City, shows displacement during the last 700,000 years. The Vernalis Fault, lying about 20 miles northwest of the City, exhibits displacement sometime during the past 1.6 million years.

Like any other place in the San Joaquin Valley, the City could be impacted by

earthquakes along faults in other parts of the region and elsewhere in the State. Recorded earthquakes from faults outside the region of the City have in the past produced ground shaking to an intensity of VI on the Modified This Mercalli Intensity Scale of 1931. According to the State Division of Mines and Geology, ground shaking to an intensity of VII is possible in the future.

A maximum-intensity earthquake would be capable of causing considerable damage in

ordinary structures. Most masonry structures in the City’s downtown area were built in the 1920s, well before the adoption of stricter building requirements after 1933. However, these structures, many of which have unoccupied second floors, have withstood the test of time defined by the State’s Historical Building Code, and no action is planned to bring them up to current building code standards. All new buildings in the City must meet the seismic requirements of the Uniform Building Code.

The occurrence of severe seismic activity in the City could result in substantial damage

to property located in the Project Area, and could lead to successful appeals for reduction of assessed values of such property. Such a reduction could result in a decrease in Pledged Tax Revenues collected by the Agency and/or an inability of the Authority to pay debt service on the 2011 Bonds on a timely basis.

Flooding. Stanislaus County has experienced major flooding in numerous years, most

recently in 1997. However, the City is more than 10 miles from a major river (the San Joaquin River) and has not been affected. According to the Federal Emergency Management Agency, no part of the City is within a special flood hazard area, including the 100-year flood zone.

According to the U.S. Army Corps of Engineers’ 1992 standards, the City falls within the

dam failure inundation area for the New Don Pedro Dam, located along the Tuolumne River, 25 miles northeast of the City. According to the City’s general plan, failure inundation areas are those that would be flooded if a dam were to fail completely within a one-hour period. The City believes such a disaster is unlikely and would occur only under unique circumstances.

Loss of Tax Exemption

As discussed under the heading “CONCLUDING INFORMATION – Tax Matters,” the interest on the 2011 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date of issuance of the 2011 Bonds as a result of acts or omissions of the Authority or the Agency in violation of covenants in the Trust Agreement or the Loan Agreement. Should such an event of taxability occur, the 2011 Bonds would not be

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subject to a special redemption and would remain outstanding until maturity or until prepaid under the prepayment provisions contained in the Trust Agreement.

Limitation on Remedies; Bankruptcy

The rights of the Owners of the 2011 Bonds are subject to the limitations on legal remedies against municipal entities in the State, including State constitutional limits on expenditures and limitations on the enforcement of judgments against funds needed to serve the public welfare and interest, by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws affecting the enforcement of creditors’ rights, by equitable principles, by the exercise of judicial powers in appropriate cases and by the exercise by the federal and State governments of their sovereign powers. The opinions of counsel to the Authority, the City and the Agency, including Bond Counsel, delivered in connection with issuance of the 2011 Bonds, will be so qualified. Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. Bankruptcy proceedings, if initiated, or the exercise of powers by the federal or state government, could subject the owners of the 2011 Bonds to judicial discretion and interpretation of their rights in bankruptcy proceedings or otherwise and consequently may entail risk or delay, limitation or modification of their rights.

LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS

Property Tax Limitations - Article XIIIA

California voters, on June 6, 1978, approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property to mean “the county assessor’s valuation of real property as shown on the 1975/76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment.” The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to 1% of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in June 1986 by initiative which exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the 1% limitation.

In the general election held November 4, 1986, voters of the State of California approved

two measures, Propositions 58 and 60, which further amend Article XIIIA. Proposition 58 amends Article XIIIA to provide that the terms “purchased” and “change of ownership,” for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children.

Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age

55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence’s assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60.

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Challenges to Article XIIIA

There have been many challenges to Article XIIIA of the California Constitution. Recently, the United States Supreme Court heard the appeal in Nordlinger v. Hahn, a challenge relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XIIIA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California’s present system of property tax assessment and cannot evaluate the ultimate effect on the Agency’s receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property. Implementing Legislation

Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA.

The apportionment of property taxes in fiscal years after 1978/79 has been revised

pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State moneys beginning in fiscal year 1978/79 and is designed to provide a permanent system for sharing State taxes and budget surplus funds with local agencies. Under Chapter 282, cities and counties receive about one-third more of the remaining property tax revenues collected under Proposition 13 instead of direct State aid. School districts receive a correspondingly reduced amount of property taxes, but receive compensation directly from the State and are given additional relief.

Future assessed valuation growth allowed under Article XIIIA (new construction, change

of ownership, 2% annual value growth) will be allocated on the basis of “situs” among the jurisdictions that serve the tax rate area within which the growth occurs except for certain utility property assessed by the State Board of Equalization which is allocated by a different method discussed in this Official Statement.

Property Tax Collection Procedures

Classifications. In California, property which is subject to ad valorem taxes is classified as “secured” or “unsecured.” Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against unsecured property, but may become a lien on certain other property owned by the taxpayer.

Collections. The method of collecting delinquent taxes is substantially different for the

two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (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

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taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee.

The exclusive means of enforcing the payment of delinquent taxes with respect to

property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes which are delinquent.

Penalties. A 10% penalty is added to delinquent taxes which have been levied with

respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption and a $15 Redemption Fee. If taxes are unpaid for a period of five years or more, the property is recorded in a “Power to Sell” status and is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes on 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.

Delinquencies. The valuation of property is determined as of January 1 each year and

equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1. Unsecured taxes enrolled by July 31, if unpaid, are delinquent August 31 at 5:00 p.m. and are subject to penalty; unsecured taxes added to roll after July 31, if unpaid, are delinquent on the last day of the month succeeding the month of enrollment.

Disbursement to the Agency. The Agency receives its major payments of secured and

unsecured tax increment from the County in late December or early January and in April of each fiscal year. The Agency also receives allocations of supplemental property taxes during the course of the fiscal year. A final payment is made in August of each year.

Supplemental Assessments. A bill enacted in 1983, SB 813 (Statutes of 1983,

Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. The statute may provide increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues may increase. The projection of Tax Revenues assumes no revenue from supplemental assessments in future years. See “THE PROJECT AREA – Projected Tax Revenues.”

Tax Collection Fees. SB 2557 (Chapter 466, Statutes of 1990) permits county auditors

to withhold a portion of annual tax revenues for the recovery of county charges related to property tax administration services to cities in an amount equal to their property tax administration costs proportionately attributable to cities. Subsequent legislation specifically includes redevelopment agencies among the entities which are subject to a property tax administration charge. The projection of Tax Revenues assumes the County will continue to charge the Agency an annual collection fee of 1.4% of gross tax increment revenue. See “THE PROJECT AREA – Projected Tax Revenues.”

Unitary Property

AB 2890 (Statutes of 1986, Chapter 1457) provides that, commencing with the fiscal year 1988-89, assessed value derived from State-assessed unitary property (consisting mostly

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of operational property owned by utility companies and in this Official Statement defined as “Unitary Property”) is to be allocated county-wide as follows: (i) each tax rate area will receive the same amount from each assessed utility received in the previous fiscal year unless the applicable county-wide values are insufficient to do so, in which case values will be allocated to each tax rate area on a pro-rata basis; and (ii) if values to be allocated are greater than in the previous fiscal year, each tax rate area will receive a pro-rata share of the increase from each assessed utility according to a specified formula. Additionally, the lien date on State-assessed property has been changed to January 1. Railroad property will continue to be assessed and revenues allocated to all tax rate areas where the railroad property is sited.

To administer the allocation of unitary tax revenues to redevelopment agencies, the

County no longer includes the taxable value of utilities as part of the reported taxable values of the project area. The County has remitted approximately $15,000 per year of annual unitary revenue to the Agency for the Project Area in recent years. The projection of Tax Revenues assumes the County will remit no utility tax revenue to the Agency in future years. See “THE PROJECT AREA – Projected Tax Revenues.”

Appropriations Limitations - Article XIIIB

On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. The principal effect of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity.

Effective November 30, 1980, the California Legislature added Section 33678 to the

Redevelopment Law which provided that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness will not be deemed the receipt by such agency of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor will such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law. Exclusion of Tax Revenues for General Obligation Bonds Debt Service

An initiative to amend the California Constitution entitled “Property Tax Revenues Redevelopment Agencies” was approved by California voters at the November 8, 1988 general election. Under prior law, a redevelopment agency using tax increment revenue received additional property tax revenue whenever a local government increased its property tax rate to pay off its general obligation bonds. This initiative amended the California Constitution to allow the California Legislature to prohibit redevelopment agencies from receiving any of the property tax revenues raised by increased property tax rates imposed by local governments to make payments on their bonded indebtedness. The initiative only applies to tax rates levied to finance general obligation bonds approved by the voters on or after January 1, 1989. Any revenue reduction to redevelopment agencies would depend on the number and value of the general obligation bonds approved by voters in prior years, which tax rate will reduce due to increased valuation subject to the tax or the retirement of the indebtedness.

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Statement of Indebtedness

Under the Redevelopment Law, the Agency must file with the County Auditor a Statement of Indebtedness for the Project Area by October 1 each year. As described below, the Statement of Indebtedness controls the amount of tax increment revenue that will be paid to the Agency in each fiscal year.

Each Statement of Indebtedness is filed on a form prescribed by the State Controller and

specifies, among other things: (a) the total amount of principal and interest payable on all loans, advances or indebtedness (including the 2011 Bonds, the Outstanding Senior Bonds and any parity debt) (the “Debt”), both over the life of the Debt and for the current fiscal year, and (b) the amount of “available revenue” as of the end of the previous fiscal year. “Available revenue” is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenue and other revenues) received during the previous fiscal year, plus any carry-forward from the prior fiscal year. Available revenue includes amounts held by the Agency and irrevocably pledged to the payment of Debt, but does not include Housing Set-Aside.

The County Auditor may only pay tax increment revenue to the Agency in any fiscal year

to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the Statement of Indebtedness.

The Statement of Indebtedness constitutes prima facie evidence of the debt of the

Agency; however, the County Auditor may dispute the Statement of Indebtedness in certain cases. Section 33675 provides for certain time limits controlling any dispute of the Statement of Indebtedness, and allows for Superior Court determination of such dispute in the event it cannot be resolved by the Agency and the County Auditor. Any such action may only challenge the amount of the Debt as shown on the Statement of Indebtedness, and not the validity of any Debt or related contract or the expenditures related thereto. No challenge can be made to payments to a trustee in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue.

The Agency’s October 1, 2010 Statement of Indebtedness included outstanding

obligations sufficient to collect all of the tax increment currently generated in the Project Area for Fiscal Year 2010-11. The Agency expects that its future Statements of Indebtedness will also include outstanding obligations sufficient to collect all of the tax increment generated in the Project Area during the applicable fiscal year.

AB 1389 Reporting Requirements

AB 1389, also requires redevelopment agencies, under certain circumstances, to submit

reports to the office of the county auditor in the county in which they are located. These reports are required to include calculations of the tax increment revenues that redevelopment agencies have received and payments that redevelopment agencies have made pursuant to Tax Sharing Agreements with taxing entities and Statutory Tax Sharing. County auditors are required to review the reports and, if they concur, issue a finding of concurrence. The State Controller is required to review such reports and submit a report to the Legislative Analyst’s office and the Department of Finance identifying redevelopment agencies for which county auditors had not issued a finding of concurrence or are otherwise not in compliance with provisions of AB 1389. AB 1389 includes penalties for any redevelopment agency listed on the most recent State Controller’s report, including a prohibition on issuing bonds or other obligations until the listed agency is removed from the State Controller’s report.

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The Agency filed the first required report for the five year period ending June 30, 2008 with the Stanislaus Auditor-Controller. In April 2009, the State Controller’s office issued a report which included the Agency on the list of redevelopment agencies with respect to which the County Auditor had concurred with their reports.

The report required by AB 1389 for the fiscal year ended June 30, 2009 was due by October 1, 2009 and the Agency made a timely submission. The Agency expects that the County Auditor-Controller will again concur with the information contained in the Agency’s fiscal year 2008-09 report.

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. Tax Revenues securing the 2011 Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which were limited by Proposition 218.

Future Initiatives

Article XIIIA, Article XIIIB and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California’s initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency’s ability to expend revenues.

CONCLUDING INFORMATION

Continuing Disclosure The Agency, on behalf of itself and the Authority, has covenanted for the benefit of

holders and beneficial owners of the 2011 Bonds to provide certain financial information and operating data relating to the Agency and the Authority by not later than 9 months following the end of their respective fiscal years (which currently would be by March 31 each year based upon the June 30 end of their fiscal years), commencing by March 31, 2012 with the report for the 2010-11 Fiscal Year (the “Annual Report”), and to provide notices of the occurrence of certain enumerated events.

The specific nature of the information to be contained in the Annual Report or the notices

of material events is set forth in “APPENDIX F - Form of Continuing Disclosure Certificate.” These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the “Rule”).

Neither the Agency, the Authority, nor the City has ever failed to comply in all material

respects with a previous undertaking under the Rule.

Litigation

There is no litigation pending or, to the knowledge of the Authority, the City or the Agency, threatened in any way to restrain or enjoin the issuance, execution or delivery of the 2011 Bonds, to contest the validity of the 2011 Bonds, the Trust Agreement, the Loan

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Agreement or any proceedings of the Authority, the Agency or the City with respect thereto. In the opinion of the Authority, the Agency, the City and their counsel, there are no lawsuits or claims pending against the Authority, the Agency or the City which will materially affect the finances of the Authority, Agency or City so as to impair the ability to pay principal of and interest on the 2011 Bonds when due. Ratings

It is anticipated that, on the date of issuance of the 2011 Bonds, Standard & Poor’s, a Division of McGraw-Hill Companies (“S&P”), will assign its municipal bond rating of “BBB+” to the 2011 Bonds.

This rating reflects only the view of S&P, and an explanation of the significance of these ratings, and any outlook assigned to or associated with this rating, should be obtained from S&P.

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 Authority has provided certain additional information and materials to S&P (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 S&P, if in the judgment of the rating agency, circumstances so warrant. Any such downward revision or withdrawal of any rating on the 2011 Bonds may have an adverse effect on the market price or marketability of the 2011 Bonds. Tax Matters

The Internal Revenue Code of 1986, as amended (the “Code”), establishes certain requirements which must be met subsequent to the issuance and delivery of the 2011 Bonds for interest thereon to be and remain excluded from gross income for Federal income tax purposes. Noncompliance with such requirements could cause interest on the 2011 Bonds to be included in gross income for Federal income tax purposes retroactive to their date of issue. These requirements include, but are not limited to, provisions which limit how the proceeds of the 2011 Bonds may be spent and invested, and generally require that certain investment earnings be rebated on a periodic basis to the United States of America. The Authority has made certifications and representations and has covenanted to maintain the exclusion of the interest on the 2011 Bonds from gross income for Federal income tax purposes pursuant to Section 103(a) of the Code.

In the opinion of Richards, Watson & Gershon, A Professional Corporation, Bond

Counsel, under existing law and assuming the accuracy of such certifications and representations by the Authority and compliance with such covenants, (i) interest on the 2011 Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Code, and (ii) the 2011 Bonds are not “specified private activity bonds” within the meaning of Section 57(a)(5) of the Code and, therefore, interest on the 2011 Bonds is not a preference item for purposes of computing the alternative minimum tax imposed by Section 55 of the Code. Bond Counsel is also of the opinion that under existing law interest on the 2011 Bonds is exempt from State of California personal income taxes.

Under the Code, a portion of the interest on the 2011 Bonds earned by certain

corporations may be subject to a federal corporate alternative minimum tax. In addition, interest

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on the 2011 Bonds may be subject to a federal branch profits tax imposed on certain foreign corporations doing business in the United States and to a federal tax imposed on excess net passive income of certain S corporations. The exclusion of interest from gross income for federal income tax purposes may have certain adverse federal income tax consequences on items of income, deduction or credit for certain taxpayers, including financial institutions, certain insurance companies, recipients of Social Security and Railroad Retirement benefits, those deemed to incur or continue indebtedness to acquire or carry tax-exempt obligations, and individuals eligible for the earned income tax credit. Bond Counsel will express no opinion regarding these and other such consequences.

Bond Counsel has not undertaken to advise in the future whether any circumstances or

events occurring after the date of issuance of the 2011 Bonds may affect the tax status of interest on the 2011 Bonds. No assurance can be given that future legislation, or amendments to the Code, if enacted into law, will not contain provisions which could eliminate, or directly or indirectly reduce the benefit of the exclusion of interest on the 2011 Bonds from gross income for Federal income tax purposes. Certain requirements and procedures contained or referred to in relevant documents may be changed and certain actions may be taken, under the circumstances and subject to the terms and conditions set forth in such documents, upon the advice or with the approving opinion of nationally recognized bond counsel. Bond Counsel expresses no opinion as to any 2011 Bond, or the interest thereon, if any such change occurs or action is taken upon the advice or approval of bond counsel other than Richards, Watson & Gershon, A Professional Corporation.

If the issue price of a 2011 Bond (the first price at which a substantial amount of the

bonds of a maturity are to be sold to the public) is less than the stated redemption price at maturity of such 2011 Bond, the difference constitutes original issue discount, the accrual of which is excluded from gross income for Federal income tax purposes to the same extent as interest on the 2011 Bonds. Further, such original issue discount accrues actuarially on a constant yield method over the term of each such 2011 Bond and the basis of each Bond acquired at such initial offering price by an initial purchaser thereof will be increased by the amount of such accrued original issue discount. The accrual of original issue discount is generally taken into account as an increase in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such 2011 Bonds. Purchasers who acquire Bonds with original issue discount are advised that they should consult with their own independent tax advisors with respect to the state and local tax consequences of owning such 2011 Bonds.

If the issue price of a 2011 Bond is greater than the stated redemption price at maturity

of such 2011 Bond, the difference constitutes original issue premium, the amortization of which is not deductible from gross income for Federal income tax purposes. Original issue premium is amortized over the period to maturity of such 2011 Bond based on the yield to maturity of that 2011 Bond (or, in the case of a 2011 Bond callable prior to its stated maturity, the amortization period and yield may be required to be determined on the basis of an earlier call date that results in the lowest yield on that 2011 Bond), compounded semiannually. For purposes of determining gain or loss on the sale or other disposition of such 2011 Bond, the purchaser is required to decrease such purchaser’s adjusted basis in such 2011 Bond by the amount of premium that has amortized while the purchaser has owned the 2011 Bond.

Payments of interest on tax-exempt obligations, including the 2011 Bonds, are generally

subject to IRS Form 1099-INT information reporting requirements. If an owner of a 2011 Bond is subject to backup withholding under those requirements, then payments of interest will also be subject to backup withholding. Those requirements do not affect the exclusion of such interest from gross income for federal income tax purposes.

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Prospective purchasers of the 2011 Bonds should consult their own independent tax

advisers regarding pending or proposed federal and state tax legislation and court proceedings, and prospective purchasers of the 2011 Bonds at other than their original issuance at the respective prices indicated on the cover of this Official Statement should also consult their own tax advisers regarding other tax considerations such as the consequences of market discount, as to all of which Bond Counsel expresses no opinion.

The Internal Revenue Service has established a program to audit issues of tax-exempt

bonds in order to determine whether, in its view, interest should instead be included in gross income of the 2011 Bondholders for purposes of federal income taxation. It cannot be predicted whether or not the 2011 Bonds will be subjected to such an audit. If such an audit is undertaken, it could adversely affect the market value of the 2011 Bonds until the audit is concluded, regardless of the ultimate outcome of the audit.

A copy of the proposed form of opinion of Bond Counsel is attached to this Official

Statement as Appendix E.

Certain Legal Matters The legal opinion of Bond Counsel, approving the validity of the 2011 Bonds, in

substantially the form attached hereto as Appendix E, will be made available at the time of original delivery of the 2011 Bonds. Certain matters will be passed upon for the Authority, the Agency and the City by Richard C. Burton, City Attorney. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement.

Financial Interests

The fees being paid to the Financial Advisor, Underwriter, Underwriter’s Counsel and

Bond Counsel are contingent upon the issuance and delivery of the 2011 Bonds.

Underwriting Pursuant to a Purchase Contract among the Agency, the Authority and the Underwriter

(the “Purchase Contract”), the 2011 Bonds are being purchased by the Authority from the Agency for immediate resale to Stone & Youngberg LLC (the “Underwriter”).

The Underwriter has agreed to purchase the 2011 Bonds from the Authority at a

purchase price of $15,029,887.05 (being the principal amount of the 2011 Bonds ($15,300,000) less an original issue discount of $102,320.25 and less an underwriter’s discount of $167,792.70).

The initial public offering prices of the 2011 Bonds may be changed from time to time by

the Underwriter. The purchase contract relating to the 2011 Bonds provides that the Underwriter will purchase all the 2011 Bonds if any are purchased, and that the obligation to make such purchase is subject to certain terms and conditions set forth in the purchase contract, including, among others, the approval of certain legal matters by counsel.

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Miscellaneous All summaries of the Trust Agreement, the Loan Agreement, applicable legislation,

agreements and other documents are made subject to the provisions of such documents and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Authority for further information in connection therewith.

Any statements made in this Official Statement involving matters of opinion or of

estimates, whether or not expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized.

The execution and delivery of this Official Statement has been duly authorized by the

Authority and the Agency.

TURLOCK PUBLIC FINANCING AUTHORITY By: /s/ Roy W. Wasden Executive Director

TURLOCK REDEVELOPMENT AGENCY By: /s/ Roy W. Wasden Executive Director

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APPENDIX A

CITY OF TURLOCK GENERAL INFORMATION

General

The City of Turlock (the “City”) is located in Stanislaus County (the “County”), approximately half-way between Fresno and Sacramento on Highway 99 in the Central Valley, 107 miles east of San Francisco, 85 miles south Sacramento, and 305 miles north of Los Angeles.

Originally established as a farming community in the 1850s, the City is now the second

largest city in the County covering 13.3 square miles and with a population of approximately 71,000. While agriculture still plays a major role, the City has an increasingly diverse economy with a variety of businesses and industry located in town. For fiscal year 2010-11, the City has budgeted for 342 salaried full time equivalent (“FTE”) employees, a decrease of 10 FTE positions from the 352 FTE positions that were budgeted for the 2009-10 fiscal year.

Administration

The members of the City Council and their terms of office are shown below: Member Term Expires

John S. Lazar, Mayor November 2014 Amy Bublak November 2012 Bill DeHart November 2014 Mary Jackson November 2012 Forrest White November 2014

Investment of Agency Funds

The Agency’s funds are invested by the City in accordance with the City’s Investment Policy.

The Investment Policy. The Investment Policy is adopted by City Council resolution

and is reviewed on an annual basis by the Finance Director and City Treasurer. Any modifications to the Investment Policy are recommended for approval by the City Council. The current Investment Policy was adopted by the City Council on November 14, 2006. The authorized City investment officials generate reports for management purposes. In addition, the City Council is provided with quarterly reports which include data on investment instruments being held, including location of all investments length of investment, how the investment is secured, the rate of return, on individual investments, as well as any narrative necessary for clarification. The Finance Director establishes a system of written internal controls which is reviewed by an independent auditor. This review is designed to provide internal controls by assuring compliance with policies and procedures, to prevent losses of public funds arising from fraud, employment error, misrepresentation of third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the City.

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The Investment Policy establishes three objectives for City investment, in the following order of priority:

(1) Safety of principal: to ensure that capital losses are avoided, whether from

securities default, broker-dealer default, or erosion of market value and to diversify in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.

(2) Liquidity: to enable the City to meet all operating requirements which might be

reasonably anticipated. (2) Return of Investment: to attain a market rate of return through budgetary and

economic cycles, taking into account the City’s investment risk constraints and the cash flow characteristics of the portfolio.

Balance as of June 30, 2010. As of June 30, 2010, the market value of the Agency’s

portion of the City’s investment pool was $16,709,375.

Agency Pension Obligation The Agency pays directly for one employee whose responsibilities are to oversee the

redevelopment and economic development opportunities for the City. In addition, the Agency pays the City for management, accounting and other administrative support services.

The miscellaneous employees of the City are part of an agent multiple-employer defined

benefit pension plan. The safety employees are part of a cost-sharing multiple-employer defined benefit pension plan.

CalPERS requires that miscellaneous employees contribute 8% and safety employees

contribute 9% of their annual salary to CalPERS. For fiscal year 2009-10, the City’s actuarially determined employer contributions as a percentage of covered payroll were as follows:

Employee Category Contribution Rate Miscellaneous 14.558% Public Safety- Fire 25.924 Public Safety – Police 22.935

For fiscal year 2009-10, the City’s annual pension cost of $4,521,164 for CalPERS was

equal to the City’s required and actual contributions. The required contribution was determined as part of the June 30, 2006 actuarial valuation using the entry age normal actuarial cost method. The actuarial assumptions included (a) a 7.75% investment rate of return (net of administrative expenses), (b) projected annual salary increases that range from 3.25% to 14.45% depending on age, length of service and type of employment, (c) payroll growth of 3.25%, (d) a 15-year smoothed market asset valuation method and (e) 3.00% per year cost of living adjustments.

As of June 30, 2009 (the most recent valuation), the City’s unfunded liability for

miscellaneous employees was approximately $19,306,169. Because the Safety-Fire and Safety-Police plans have fewer than 100 active members, the State does not provide actuarial data for these plans on a stand-alone basis. Both the City’s fire and police plans met the criteria for pooling and are now part of the “Safety 3% at 50 Risk Pool,” which is a cost-sharing multiple-employer defined benefit plan.

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Three-year trend actuarial information for the miscellaneous and the safety (police and

fire) plans is set forth below:

Fiscal Year

Annual Pension Cost

(APC)

Percentage of APC

Contributed Net Pension Obligation

2007-2008 $3,831,256 100% - 2008-2009 4,692,274 100 - 2009-2010 4,521,164 100

Post-Employment Health-Care Benefits

The Agency pays directly for one employee whose responsibilities are to oversee the

redevelopment and economic development opportunities for the City. In addition, the Agency pays the City for management, accounting and other administrative support services. The Agency’s employee is eligible to participate in the City’s Management/Confidential Other Post-Employment Benefit (OPEB) plan described below. The Agency’s OPEB obligation for a single employee is not able to be segregated from the plan as a whole.

The City has four post employment health care plans in place pursuant to negotiated

Memoranda of Understanding (MOU) and Schedules of Benefit (Schedule) with its employee bargaining units. The City’s funding obligation for each plan is defined within the respective MOU or Schedule and is a specified percentage of payroll. The four plans and the City’s funding obligation for each plan are as follows:

Plan Covered Employee Group Funding Obligation

Mangement/Confidential

Employees covered by the

Management and/or Confidential

Employees Schedule of Benefits

2-1/2% of base salary

MiscellaneousEmployees covered by Turlock City

Employees Association MOU2% of base payroll

PoliceEmployees covered by Turlock

Associated Police Officers MOU3% of payroll

FireEmployees covered by Turlock

Firefighters Local #2434 MOU4% of payroll

The administration of benefits for each plan rests with the individual plan administrators.

The City, by agreement either through the MOU or Schedule, administers the benefits for the Management/Confidential and Miscellaneous plans. The respective bargaining unit representatives administer the benefits for the Police and Fire plans.

In general, employees are required to retire from the City and be members of their

respective covered group for 10-15 years to be eligible to receive a benefit from their respective plan. The benefit can only be used to purchase post employment health insurance. The retiree has the option to continue on the City’s health insurance plan (and pay the 100% of the premium for continued participation), to become a member of a non-City group plan, or to purchase an individual health insurance policy. The benefit can then be used to provide assistance with paying the monthly premium. In no case does the retiree receive a benefit greater than the monthly health insurance premium. For retirees who choose to remain on the City’s health

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insurance plan, this eligibility terminates when the retiree becomes eligible for Medicare benefits, reaches age 65, is deceased, or chooses to voluntarily leave the plan, whichever comes first. Spousal eligibility requirements vary with each plan. The City currently has 42 retirees and/or spouses who have chosen to remain on the City’s health insurance plan post retirement. The health insurance premium assistance described in this paragraph is referred to as the “offset benefit” below.

Funding Policy – Funding varies with each plan. For the Management/Confidential and

Miscellaneous plans, the City sets aside the contributions as required by the respective MOU or Schedule in a separate general ledger fund for each plan. The City has not established irrevocable trusts for these plans nor are the contributions placed in individual accounts for the employees. Therefore, under the requirements of GASB 45, the City is not able to include the funds set aside as monies available to reduce its net OPEB obligation for these plans. The following provides the balance of funds as of June 30, 2009 set aside by the City to fund benefits under these plans. For financial statement purposes these monies have been included in the fund activity from which the employee’s regular payroll expenditures occur (see footnote #7 for the designated portion for governmental funds).

Plan Amount Set Aside Management/Confidential $ 752,078 Miscellaneous $1,199,408 For the Police and Fire plans, the City remits the contributions as required by the

respective MOU to each plan on a quarterly basis. These plans have each established irrevocable trusts for their respective plan assets. As noted above, the plans’ trustees are responsible for the development of benefit levels that can be sustained by the contributions to be received as well as the general plan administration. The City does not have any responsibility for nor involvement in these activities. The following provide the assets available for plan benefits s of July 1, 2007, the date of the latest actuarial valuation.

Plan Trust Fund Assets Police $925,000 Fire $407,063

Annual OPEB Cost and Net OPEB Obligation – The City’s annual post employment health benefit cost is calculated based on the annual required contribution (ARC). The ARC represents a level of funding that, if paid on an on-going basis, is projected to cover the normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed 30 years.

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The following table presents the components of the City’s annual OPEB cost, amounts actually contributed and changes in the City’s Net OPEB Obligation for the year. The amounts are based on actuarial valuations dated July 1, 2007 and amounts contributed for the 2008-09 fiscal year. The table is broken out between the offset benefit and the City’s health insurance plan.

OFFSET PLAN

Mangement/

Confidential Miscellaneous Police Fire Total

Annual required contribution 58,696$ 147,954$ 566,560$ 55,776$ 828,986$

Interest on net OPEB obligation -

Adjustments -

Annual OPEB cost (expense) 58,696 147,954 566,560 55,776 828,986

Contributions to irrevocable trust (179,331) (306,467) (485,798)

Benefits payments (21,111) (4,691) (25,802)

Increase (decrease) in NOO 37,585 143,263 387,229 (250,691) 317,386

Net OPEB obligation - beginning - - - - -

Net OPEB obligation - ending 37,585$ 143,263$ 387,229$ (250,691)$ 317,386$

It should be noted that $131,500 of the total $306,467 contributed to the irrevocable trust

for the fire plan relates to the settlement of a claim filed by the plan asserting that prior year contributions had not been determined in accordance with the language in the MOU.

HEALTH CARE PLAN

Mangement/

Confidential Miscellaneous Police Fire Total

Annual required contribution 83,623$ 483,822$ 183,910$ 119,934$ 871,289$

Interest on net OPEB obligation -

Adjustments -

Annual OPEB cost (expense) 83,623 483,822 183,910 119,934 871,289

Contributions to irrevocable trust -

Benefits payments (119,934) (94,596) (91,938) (19,363) (325,831)

Increase (decrease) in NOO (36,311) 389,226 91,972 100,571 545,458

Net OPEB obligation - beginning - - - - -

Net OPEB obligation - ending (36,311)$ 389,226$ 91,972$ 100,571$ 545,458$

The City’s annual OPEB cost, the percentage of annual OPEB cost contributed to the

plans, and the net OPEB obligation for the 2008-09 fiscal year are as follows:

OFFSET PLAN

Mangement/

Confidential Miscellaneous Police Fire

Annual OPEB Cost $ 58,696 147,954$ 566,560$ 55,776$

Percent Contributed 35.97% 3.17% 31.65% 549.46%

Net OPEB Obligation $ 37,585 143,263$ 387,229$ (250,691)$

HEALTH CARE PLAN

Mangement/

Confidential Miscellaneous Police Fire

Annual OPEB Cost $ 83,623 483,822$ 183,910$ 119,934$

Percent Contributed 143.42% 19.55% 49.99% 16.14%

Net OPEB Obligation $ (36,311) 389,226$ 91,972$ 100,571$

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Population

The following table summarizes the population estimates for the City, the County and State of California as of January 1, 2006 through January 1, 2010, with census figures for 1970, 1980, 1990 and 2000.

CITY OF TURLOCK

Population Estimates

Calendar Year

City of Turlock

County of Stanislaus

State of California

1970(1)

13.992 194,506 19,971,069 1980 26,287 265,900 23,668,562

(1)

1990(1)

42,224 370,522 29,758,213 2000

(1) 55,811 446,997 33,873,086

2006 67,518 511,605 37,087,005 2007 68,813 517,611 37,463,609 2008 69,650 522,004 37,871,509 2009 70,087 525,090 38,255,508 2010 71,181 530,584 38,648,090 (1) As of April 1 Source: State Department of Finance.

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Employment

The County makes up the Modesto Metropolitan Statistical Area. The unemployment rate in the Stanislaus County was 16.4% in August 2010, down from a revised 17.5% in July 2010, and above the year-ago estimate of 15.3%. The unemployment rate in the City of Turlock was 12.5% in August 2010, down from a non-adjusted 13.4% in July 2010. This compares with an unadjusted unemployment rate of 12.4% for California and 9.5% for the nation during the same period. The following table summarizes the civilian labor force, employment and unemployment in Stanislaus County for the calendar years 2005 through 2009. These figures are county-wide statistics and may not necessarily accurately reflect employment trends in the City.

STANISLAUS COUNTY

Civilian Labor Force, Employment and Unemployment (Annual Averages)

2005 2006 2007 2008 2009

Civilian Labor Force (1) 227,100 225,600 228,200 233,000 236,100

Employment 207,900 207,600 208,500 207,400 198,300

Unemployment 19,200 17,900 19,700 25,600 37,900

Unemployment Rate 8.5% 8.0% 8.6% 11.0% 16.0%

Wage and Salary Employment: (2)

Agriculture 13,800 12,900 12,900 13,600 13,200

Mining, Logging, Construction 13,400 13,200 11,200 9,100 7,000

Manufacturing 22,600 22,200 22,900 22,600 20,800

Wholesale Trade 6,300 5,900 6,100 6,000 6,100

Retail Trade 22,300 22,500 22,100 21,100 19,300

Transportation, Warehousing, Utilities 5,200 5,200 5,600 5,700 5,600

Information 2,500 2,400 2,300 1,900 1,300

Financial Activities 6,200 6,300 6,200 6,100 5,700

Professional and Business Services 14,900 14,800 14,800 14,300 13,100

Educational and Health Services 19,400 19,900 21,100 21,700 22,100

Leisure and Hospitality 14,800 15,300 15,400 15,500 14,700

Other Services 6,100 5,900 6,000 5,800 5,300

Federal Government 1,200 1,200 1,100 900 900

State Government 1,700 1,800 1,800 1,800 1,700

Local Government 22,700 23,300 23,500 23,900 23,200

Total all Industries (3) 172,800 172,800 173,000 170,000 160,000 (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: Labor Market Information Division of the California State Employment Development Department.

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Major Employers

The City is primarily a food processing center with increasingly diverse industrial and commercial development. The following tables list the City’s top ten employers, as of June 2010.

CITY OF TURLOCK

Top Ten Turlock Employers As of June 2010

Name of Company Product(s) Employment

Turlock Unified School Districts Public Education 2,120 Foster Farms Poultry Processing 1,508 Emanuel Medical Center Health Care 1,421 CSU, Stanislaus Education 1,100 Turlock Irrigation District Utilities 482 Wal-Mart Retail 360 City of Turlock Local Government 345 Target Retail 250 Mid Valley Dairy Dairy 216 Costco Retail 215 Source: Turlock Chamber of Commerce.

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.”

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STANISLAUS COUNTY EFFECTIVE BUYING INCOME

As of January 1, 2005 through 2009

Year

Area

Total Effective Buying Income (000’s Omitted)

Median Household Effective Buying

Income

2005 City of Turlock $ 1,030,990 $38,439 Stanislaus County 7,749,738 39,038 California 720,798,106 44,681 United States 5,894,663,364 40,529


2007 City of Turlock $ 1,205,310 $41,930 Stanislaus County 8,8,46,150 42,406 California 814,894,438 48,203 United States 6,300,974,040 41,792



Source: The Nielsen Company (US), Inc.

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Construction Activity

The following table summarizes building permit valuations in the City and the County in calendar years 2005 through 2009.

CITY OF TURLOCK

Total Building Permit Valuations (Valuations in Thousands)

2005 2006 2007 2008 2009 Permit Valuation New Single-family $67,053 $40,579 $23,638 $14,991 $7,387 New Multi-family 9,661 0 19,411 0 1,975 Res. Alterations/Additions 8,772 7,635 7,932 5,307 4,311

Total Residential 85,486 48,215 50,982 20,298 13,673

New Commercial 8,281 7,688 12,391 12,492 1,101 New Industrial 626 311 2,013 10,414 6,506 New Other 6,751 5,202 3,366 1,860 2,491 Com. Alterations/Additions 13,319 16,909 13,986 9,474 12,359

Total Nonresidential 28,978 30,111 31,758 34,242 22,458 New Dwelling Units Single Family 501 262 152 110 53 Multiple Family 113 0 217 0 20 TOTAL 614 262 369 110 73 Source: Construction Industry Research Board, Building Permit Summary.

STANISLAUS COUNTY

Total Building Permit Valuations (Valuations in Thousands)

2005 2006 2007 2008 2009 Permit Valuation New Single-family $854,957 $455,387 $248,269 $84,805 $48,633 New Multi-family 17,137 10,388 53,436 1,300 7,471 Res. Alterations/Additions 57,379 55,455 46,018 28,721 25,966

Total Residential 929,474 521,230 347,723 114,827 82,071

New Commercial 165,249 104,690 130,172 70,620 40,195 New Industrial 13,700 48,137 25,245 35,306 12,181 New Other 93,782 91,502 63,879 41,293 31,547 Com. Alterations/Additions 63,049 105,382 86,403 88,634 64,982

Total Nonresidential 335,780 349,712 305,700 235,854 148,906 New Dwelling Units Single Family 4,489 2,276 1,230 467 246 Multiple Family 234 134 537 19 85 TOTAL 4,723 2,410 1,767 486 331 Source: Construction Industry Research Board, Building Permit Summary.

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Commercial Activity In 2009, the State Board of Equalization converted the business codes of sales and use

tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 is not comparable to that of prior years. A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2009 in the County were reported to be $862,064,000, a 13.2% decrease over the total taxable sales of $993,158,000 reported during calendar year 2008. Figures are not yet available for 2010.

CITY OF TURLOCK

Taxable Transactions (Dollars in Thousands)

Retail Stores Total All Outlets

Number

of Permits

Taxable

Transactions

Number

of Permits

Taxable

Transactions 2005 796 $840,080 1,526 $1,024,325 2006 785 877,167 1,508 1,037,223 2007 780 880,875 1,506 1,059,481 2008 842 810,276 1,558 993,158 2009 932 693,785 472 862,064

Source: State Board of Equalization.

In 2009, the State Board of Equalization converted the business codes of sales and use

tax permit holders to North American Industry Classification System codes. As a result of the coding change, data for 2009 is not comparable to that of prior years. A summary of historic taxable sales within the County during the past five years in which data is available is shown in the following table. Total taxable sales during calendar year 2009 in the County were reported to be $5,847,057,000, a 13.1% decrease over the total taxable sales of $6,728,692,000 reported during calendar year 2008. Figures are not yet available for 2010.

STANISLAUS COUNTY Taxable Transactions

(Dollars in Thousands)

Retail Stores Total All Outlets

Number

of Permits

Taxable

Transactions

Number

of Permits

Taxable

Transactions 2005 5,420 $5,143,024 11,127 $7,285,900 2006 5,373 5,268,389 10,903 7,352,532 2007 5,335 5,092,753 10,887 7,135,883 2008 5,636 4,585,837 10,928 6,728,692 2009 6,364 3,925,636 9,644 5,847,057

Source: State Board of Equalization.

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Agriculture

The City is located in one of the most productive agricultural areas in the United States. The County ranks in the top ten of the nation’s counties in sales of agricultural products with production primarily in fruits, nuts, livestock and animal products. There are approximately 813,000 acres of farmland in the County. Following is a five calendar-year summary of farm production in the County.

STANISLAUS COUNTY

GROSS VALUE OF AGRICULTURAL PRODUCTION IN STANISLAUS COUNTY (Thousands of Dollars)

2004 2005 2006 2007 2008

Fruit & Nut Crops $ 616,452 $ 686,897 $ 660,001 $ 755,650 $ 756,392 Field Crops 137,871 147,744 167,576 175,779 265,724 Vegetable Crops 125,903 91,454 93,239 100,416 104,930 Seed Crops 401 810 617 756 813 Nursery Products 111,272 71,240 87,351 99,985 101,207 Organic Products 15,225 10,055 Apiary Products 8,865 12,045 12,745 31,139 43,911 Other Agriculture 9,540 Livestock and Poultry 403,205 401,244 628,551 446,133 434,125 Animal Products 574,465 566,161 498,072 796,567 747,146 TOTAL $1,978,434 $1,977,595 $2,148,152 $2,421,650 $2,473,843

Source: Stanislaus County Department of Agriculture.

The gross agricultural income for 2008 is $2,473,843,000. This figure represents an

increase of $52,193,000 from the 2007 gross production value of $2,421,650,000. The following table shows a listing of the leading agricultural commodities in 2008.

STANISLAUS COUNTY

LEADING FARM COMMODITIES

Rank Commodity Gross Production Value in 2008

1 Milk 689,285 2 Almonds 424,200 3 Chickens 229,887 4 Cattle & Calves 141,033 5 Silage 128,327 6 Walnuts 106,622 7 Deciduous Fruit & Nut Nursery 68,888 8 Alfalfa 67,830 9 Peaches 64,888 10 Tomatoes 59,830

Source: Stanislaus County Department of Agriculture.

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APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE AGENCY FOR FISCAL YEAR ENDED JUNE 30, 2010

REDEVELOPMENT AGENCY OF

THE CITY OF TURLOCK

COMPONENT UNIT FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2010

Redevelopment Agency of the City of Turlock For the year ended June 30, 2010 Table of Contents

Page Independent Auditors’ Report Basic Financial Statements Government-Wide Financial Statements:

� Statement of Net Assets .................................................................................................. 1 � Statement of Activities and Changes in Net Assets .................................................. 2

Governmental Fund Financial Statements:

� Balance Sheet .................................................................................................................... 3

� Reconciliation of the Governmental Funds Balance Sheet to the Governmental-Wide Statement of Net Assets .......................................... 4

� Statement of Revenue, Expenditures and Changes in Fund Balances .................. 5

� Reconciliation of the Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances to the Governmental-Wide Statement of Activities and Changes in Net Assets ............................................ 6 Notes to Basic Financial Statements ............................................................................................ 7 Required Supplementary Information ...................................................................................... 20 Independent Auditors’ Compliance Report .............................................................................. 23

01Caporicci & Larson, Inc.A Suhsidia’y ofMarcum LLPcerqfied Public Accountants

INDEPENDENT AUDITORS’ REPORT

To the Board of Directorsof the Redevelopment Agency of the City of Turlock

Turlock, California

We have audited the accompanying financial statements of the governmental activities andeach major fund of the Redevelopment Agency of the City of Turlock (Agency), a componentunit of the City of Turlock, California (City), as of and for the year ended June 30, 2010, as listedin the foregoing table of contents, which collectively comprise the Agency’s basic financialstatements. These basic financial statements are the responsibility of the Agency’s management.Our responsibility is to express an opinion on these basic financial statements based on ouraudit. The prior year summarized comparative information was derived from the Agency’s2009 financial statements, which were audited by Caporicci & Larson, CPA’s, whose operationsby merger became a wholly owed subsidiary of Marcum LLP as of October 1, 2010, arid whosereport dated December 28, 2009, expressed an unqualified opinion on those financialstatements. As discussed in Note 8, the Agency has restated its 2009 financial statements duringthe current year to reflect adjustments made to Agency accounts during the audit of the City’sfinancial statements, in conformity with accounting principles general accepted in the UnitedStates of America. The other auditors’ reported on the 2009 financial statements before therestatement.

We conducted our audit in accordance with auditing standards generally accepted in theUnited States of America and the standards applicable to financiai audits contained inGovernment Auditing Standards, issued by the Comptroller General of the United States. Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includesconsideration of internal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Agency’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing theaccot.mting principles used and the significant estimates made by management, as well asevaluating the overall basic financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, the basic financial statements referred to above present fairly, in all materialrespects, the respective financial position of the governmental activities and each major fund ofthe Agency as of June 30, 2010, and the respective changes in financial position for the year thenended in conformity with accounting principles generally accepted in the United States ofAmerica.

We also audited the adjustments described in Note 8 that were applied to restate the 2009financial statements. In our opinion, such adjustments were appropriate and have beenproperly applied.

www.c.Icpacom

To the Board of Directors

of the Redevelopment Agency of the City of Turlock Turlock, California Page 2 In accordance with Government Auditing Standards, we have also issued our report dated December 29, 2010, on our consideration of the Agency’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Required Supplementary Information (budget comparison information) as listed in the table of contents, is not a required part of the basic financial statements, but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquires of management regarding the methods of measurement and presentation of the Required Supplementary Information. However, we did not audit the information and express no opinion on it. The Agency has not presented Management’s Discussion and Analysis that accounting principles generally accepted in the United Sates of America has determined is necessary to supplement, although not required to be a part of, the financial statements.

Certified Public Accountants San Francisco, California December 29, 2010

BASIC FINANCIAL STATEMENTS

GOVERNMENT-WIDE FINANCIAL STATEMENTS

Redevelopment Agency of the City of Turlock

Statement of Net Assets

June 30, 2010

(With comparative totals for June 30, 2009)

20102009

(restated)

Current assets:

Cash and investments 16,709,375$ 19,895,036$

Cash and investments with fiscal agent 6,984,766 11,819,659

Accounts receivable 204,479 284,922

Interest receivable 47,940 84,733

Total current assets 23,946,560 32,084,350

Noncurrent assets:

Loans receivable 6,398,354 5,828,280

Deferred charges 585,969 608,363

Capital assets:

Nondepreciable 1,557,751 1,557,751

Depreciable, net 7,523,070 7,669,331

Total capital assets 9,080,821 9,227,082

Total noncurrent assets 16,065,144 15,663,725

Total Assets 40,011,704 47,748,075

Current liabilities:

Accounts payable 489,677 33,129

Payroll payable 4,065 3,872

Interest payable 448,363 456,257

Deposits payable 1,269,755 1,042,910

Long-term debt, due within one year 525,000 505,000

Total current liabilities 2,736,860 2,041,168

Noncurrent liabilities:

Long-term debt, due in more than one year 27,593,850 28,130,080

Total noncurrent liabilities 27,593,850 28,130,080

Total Liabilities 30,330,710 30,171,248

Invested in capital assets, net of related debt 6,060,485 6,062,592

Restricted for:

Capital projects - 305,275

Special projects and programs 12,594,096 11,208,960

Total restricted 12,594,096 11,514,235

Unrestricted (8,973,587) -

Total Net Assets 9,680,994$ 17,576,827$

See accompanying Notes to Basic Financial Statements.

ASSETS

LIABILITIES

NET ASSETS

Governmental Activities

1


Statement of Activities and Changes in Net Assets

For the fiscal year ended June 30, 2010

(With comparative totals for the fiscal year ended June 30, 2009)

Program

Revenues

Charges

Expenses for Services 20102009

(restated)

Primary government:

Governmental activities:

Community development 7,782,562$ 16,588$ (7,765,974)$ (2,196,199)$

Interest on long-term debt 1,367,615 (1,367,615) (1,391,123)

Total governmental activities 9,150,177 16,588 (9,133,589) (3,587,322)

General revenues and transfers:

Taxes:

Property 6,142,918 6,720,383

Interest and investment earnings 267,958 574,686

Transfers to other City funds (5,173,120) (2,773,367)

Total general revenues and transfers 1,237,756 4,521,702

Changes in net assets (7,895,833) 934,380

Net Assets:

Beginning of year 17,576,827 16,642,447

End of year 9,680,994$ 17,576,827$


Functions/Programs

Net (Expense) Revenue

And Changes in

Net Assets

Governmental Activities

2

GOVERNMENTAL FUND FINANCIAL STATEMENTS


Balance Sheet

Governmental Funds

June 30, 2010

(With comparative totals for June 30, 2009)

Special

Revenue

Downtown

Housing Improvement

Set Aside Redevelopment Project 2010 2009

Assets

Cash and investments 6,446,528$ 10,011,148$ 251,699$ 16,709,375$ 19,895,036$

Cash and investments with fiscal agent 6,984,766 6,984,766 11,819,659

Accounts Receivable 3,372 201,107 204,479 284,922

Interest receivable 9,038 38,902 47,940 84,733

Loans receivable 6,398,354 6,398,354 5,828,280

Other assets

Total Assets 12,857,292$ 17,235,923$ 251,699$ 30,344,914$ 37,912,630$

Liabilities and Fund Balances

Liabilities

Accounts payable 469,001$ 20,676$ 489,677$ 33,129$

Payroll payable 4,065 4,065 3,872

Deferred revenue 6,398,354 6,398,354 5,821,039

Deposits payable 1,269,755 1,269,755 1,042,910

Due to City

Advances from other City funds

Total Liabilities 6,867,355 1,294,496 8,161,851 6,900,950

Fund Balances

Reserved for:

Loans receivable 31,522

For other assets

Unreserved, designated for:

Post Employment Retirement Benefits

Compensated absences 5,965 5,965 3,681

Unreserved, undesignated 5,989,937 15,935,462 251,699 22,177,098 30,976,477

Total Fund Balances 5,989,937 15,941,427 251,699 22,183,063 31,011,680

Total Liabilities and Fund Balances 12,857,292$ 17,235,923$ 251,699$ 30,344,914$ 37,912,630$


Capital Projects

Major Funds

Total

3


Reconciliation of the Governmental Funds Balance Sheet

to the Government-Wide Statement of Net Assets

June 30, 2010

Total Fund Balances - Total Governmental Funds 22,183,063$

Amounts reported for governmental activities in the Statement of Net

Assets are different because:

Non depreciable capital assets 1,557,751$

Depreciable capital assets 8,750,389

Accumulated depreciation (1,227,319)

Total capital assets 9,080,821

(448,363)

Long-term liabilities - due within one year (525,000)$

Long-term liabilities - due in more than one year (27,593,850)

Unamortized cost of issuance included in deferred charges 585,969

Total long-term liabilities, net of deferred charges (27,532,881)

6,398,354

Net Assets of Governmental Activities 9,680,994$


Capital assets used in governmental activities are not current financial

resources. Therefore capital assets were not reported in the Governmental

Funds Balance Sheet.

Interest payable on long-term debt does not require current financial

resources. Therefore, interest payable is not reported as a liability in the

Governmental Funds Balance Sheet.

Long-term liabilities are not due and payable in the current period.

Therefore, long-term liabilities are not reported as a liability in the

Governmental Funds Balance Sheet

Other long-term assets are not available to pay for current period

expenditures and therefore, are deferred in the Governmental Funds

Balance Sheet.

4


Statement of Revenues, Expenditures, and Changes in Fund Balances

Governmental Funds

For the Fiscal Year Ended June 30, 2010

(With comparative totals for the fiscal year ended June 30, 2009)

Special

Revenue

Downtown

Housing Improvement

Set Aside Redevelopment Project 2010 2009

Revenues

Taxes and assessments 1,540,855$ 4,602,063$ 6,142,918$ 6,720,383$

Use of money and property 53,237 214,721 267,958 574,686

Miscellaneous 16,588 16,588 2,637

Total Revenues 1,594,092 4,833,372 6,427,464 7,297,706

Expenditures

Current:

Public ways/facilities

Community development 809,481 7,404,135 8,213,616 2,157,706

Capital outlay 140,000

Debt service

Principal 505,000 505,000 480,000

Interest and fiscal charges 1,364,345 1,364,345 1,387,254

Issuance costs for Tax Allocation Bonds

Total Expenditures 809,481 9,273,480 10,082,961 4,164,960

Excess (Deficit) of Revenues over

Expenditures 784,611 (4,440,108) (3,655,497) 3,132,746

Other Financing Sources (Uses)

Transfers in from other City funds 127,878 20,221 148,099 11,460

Transfers out to other City funds (128,506) (5,192,713) (5,321,219) (2,784,827)

Issuance of Tax Allocation Bonds

Premium on Tax Allocation Bonds

Total Other Financing

Sources (Uses) (628) (5,172,492) (5,173,120) (2,773,367)

Net change in fund balances 783,983 (9,612,600) (8,828,617) 359,379

Fund Balances, July 1 5,205,954 25,554,027 251,699 31,011,680 30,652,301

Fund Balances, June 30 5,989,937$ 15,941,427$ 251,699$ 22,183,063$ 31,011,680$


Major Funds

Capital Projects

Total

5


Reconciliation of the Governmental Statement of Revenues, Expenditures and

Changes in Fund Balances to the Government-Wide Statement of Activities and

Changes in Net Assets


Net change in fund balances - Total Governmental Funds (8,828,617)$

Amounts reported for governmental activities in the Statement of

Activities are different because:

-

(146,261)

Principal payments on long-term debt 505,000

(3,270)

577,315

Change in Net Assets of Governmental Activities (7,895,833)$


Expenses reported in the Statement of Activities which do not require the use of

current financial resources and, therefore, are not reported as expenditures in

governmental funds. These expenditures are reported as Loans Receivable and

Deferred Revenue on the Fund Financial Statements.

Governmental funds report capital outlay as expenditures. However, in the

Government-Wide Statement of Activities and Changes in Net Assets, the cost of

those assets is allocated over their estimated useful lives as depreciation expense.

This is the amount of capital assets recorded in the current period.

Depreciation expense on capital assets is reported in the Government-Wide

Statement of Activities and Changes in Net Assets, but they do not require the use

of current financial resources. Therefore depreciation expense is not reported as

expenditures in the governmental funds.

Interest expense on long-term debt is reported in the Government-Wide

Statement of Activities and Changes in Net Assets, but it does not require

the use of current financial resources. Therefore, interest expense is not

reported as an expenditure in governmental funds. In addition,

governmental funds report the effect of debt issuance costs when the debt

is first issued, whereas these amounts are deferred and amortized over the

life of the debt in the Statement of Activities.

Repayment of bond principal is an expenditure in the governmental

funds, but the repayment reduces long-term liabilities in the Statement of

Net Assets. This is the amount by which proceeds exceeded repayments.

6

Redevelopment Agency of the City of Turlock Notes to Basic Financial Statements


7

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The basic financial statements of the Redevelopment Agency (Agency) of the City of Turlock, California, (City) have

been prepared in conformity with generally accepted accounting principles (GAAP) as applied to governmental

agencies. The Governmental Accounting Standards Boards (GASB) is the accepted standard setting body for

establishing governmental accounting and financial reporting principles. The more significant of the Agency’s

accounting policies are described below.

A. Reporting Entity

The Agency, a blended component unit of the City of Turlock (City), was created in October 1977 by a City

ordinance pursuant to the California Community Redevelopment Law. The members of the City Council serve as the

governing board for the Agency. All powers of the Agency are vested in the governing board. The Agency is a

separate public body and exercises governmental functions in planning and carrying out redevelopment projects. The

Agency can facilitate the development of on- and off-site improvements, acquire and sell property, construct public

buildings and provide services to the project area. The Agency has broad general powers to fulfill the objectives

contained in the redevelopment plan, and has created a single redevelopment plan within the boundaries of the City.

The financial transactions of the Agency are also included in the City’s Basic Financial Statements and can be

obtained from the City’s Finance Department located at 156 South Broadway, Turlock, CA 95380.

A component unit, the Agency, is a legally separate organization for which the primary government, the City, is

financially accountable; and which the nature and significance of the Agency’s relationship with the City is such that

exclusion would cause the City’s financial statements to be misleading or incomplete.

B. Basis of Accounting/Management Focus

The accounts of the Agency are organized on the basis of funds, each of which is considered a separate accounting

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. Governmental 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 spending activities

are controlled.

Government - Wide Financial Statements

The Agency’s government-wide financial statements include a Statement of Net Assets and a Statement of Activities

and Changes in Net Assets. These statements present summaries of governmental activities for the Agency.

These statements are presented on an “economic resources” measurement focus and the accrual basis of accounting.

Accordingly, all of the Agency’s assets and liabilities, including capital assets, as well as infrastructure assets, and

long-term liabilities, are included in the accompanying Statement of Net Assets. The Statement of Activities presents

changes in net assets. Under the accrual basis of accounting, revenues are recognized in the period in which they are

earned while expenses are recognized in the period in which the liability is incurred. The types of transactions

reported as program revenues for the Agency are reported as charges for services.

Certain eliminations have been made as prescribed by GASB Statement No. 34 in regards to interfund activities,

payables and receivables. All internal balances in the Statement of Net Assets have been eliminated.

Redevelopment Agency of the City of Turlock Notes to Basic Financial Statements, Continued


8

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

B. Basis of Accounting/Management Focus (continued)

Governmental Fund Financial Statements

Governmental fund financial statements include a Balance Sheet and a Statement of Revenues, Expenditures and

Changes in Fund Balances for all major governmental funds and non-major funds aggregated. An accompanying

schedule is presented to reconcile and explain the differences in net assets as presented in these statements to the net

assets presented in the government-wide financial statements. The Agency has presented all funds as major funds.

All governmental funds are accounted for on a spending or "current financial resources" measurement focus and the

modified accrual basis of accounting. Accordingly, only current assets and current liabilities are included on the

Balance Sheet. The Statement of Revenues, Expenditures and Changes in Fund Balances present increases (revenues

and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Under

modified accrual basis of accounting, revenues are recognized in the accounting period in which they become both

measurable and available to finance expenditures of the current period. Accordingly, revenues are recorded when

received in cash, except that revenues subject to accrual (generally 90 days after year-end) are recognized when due.

The primary revenue sources which have been treated as susceptible to accrual by the Agency are property tax

increment and investment earnings. Expenditures are recorded in the accounting period in which the related fund

liability is incurred.

Major Funds

The Agency reports the following major governmental funds:

Special Revenue, Housing Set Aside

This fund accounts for 20% of the tax increment revenue generated within the Agency boundaries which is

required under California law to be set aside for low- and moderate-income housing programs.

Capital Projects, Redevelopment

This fund accounts for 80% of the tax increment revenue generated within the Agency boundaries as well as the

use of bond proceeds. Activities accounted for in this fund include the repayment of Agency debt, the payment of

tax sharing obligations with various taxing agencies within the Agency boundaries, and the expenditure of funds

to eliminate blight and encourage economic development consistent with the Agency’s implementation plan.

Capital Projects, Downtown Improvement Project

This fund accounts for unexpended monies left from the City’s downtown improvement project. These monies

can be used for additional improvements and art work within in the downtown.

C. Use of Restricted/Unrestricted Net Assets

When an expense is incurred for purposes for which both restricted and unrestricted net assets are available, the

Agency’s policy is to apply restricted net assets first.



9


D. Cash, Cash Equivalents, and Investments

In order to facilitate the management of cash, the Agency pools its cash and investments with those of the City of

Turlock. The balance in the pooled cash account is available to meet current operating requirements. Cash in excess

of current requirements is invested in various interest-bearing accounts and other investments for varying terms.

In accordance with GASB Statement No. 40, Deposit and Investment Disclosures (Amendment of GASB No. 3),

certain disclosure requirements for Deposits and Investment Risk are made in the following areas:

� Interest Rate Risk

� Credit Risk

• Overall

• Custodial Credit Risk

• Concentrations of Credit Risk

In addition, other disclosures are specified including use of certain methods to present deposits and investments,

highly sensitive investments, credit quality at year-end and other disclosures.

In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for

External Investment Pools, highly liquid market investments with maturities of one year or less at time of purchase

are stated at amortized cost. All other investments are stated at fair value. Market value is used as fair value for those

securities for which market quotations are readily available.

E. Capital Assets

Capital assets are valued at historical cost or estimated historical cost if actual historical cost was not available.

Donated fixed assets are valued at their estimated fair market value on the date donated. Agency policy has set the

capitalization threshold for reporting capital assets at $5,000. Depreciation is recorded on a straight-line basis over

estimated useful lives of the assets as follows:

Land Improvements 25-60 years

Furniture and Equipment 5 years

In June 1999, the Governmental Accounting Standards Board (GASB) issued Statement No. 34 which requires the

inclusion of infrastructure capital assets in local governments’ basic financial statements. In accordance with GASB

Statement No. 34, the Agency has included all infrastructure into the basic financial statements.

For all infrastructure systems, the Agency elected to use the Basic Approach as defined by GASB Statement No. 34

for infrastructure reporting. Original costs were developed based on historical construction/acquisition records. The

accumulated depreciation, defined as the total depreciation from the date of construction/acquisition to the current

date on a straight-line, unrecovered cost method was computed using industry accepted life expectancies. The book

value was then computed by deducting the accumulated depreciation from the original cost.



10


F. Long-Term Liabilities

Government-Wide Financial Statements

Long-term debt and other financed obligations are reported as liabilities in the appropriate activities.

Fund Financial Statements

The fund financial statements do not present long-term debt but are shown in the Reconciliation of the Governmental

Funds Balance Sheet to the Government-Wide Statement of Net Assets.

G. Net Assets and Fund Equity


Invested in Capital Assets, Net of Related Debt – This amount consists of capital assets net of accumulated

depreciation and reduced by outstanding debt that attributed to the acquisition, construction, or improvement of

the assets.

Restricted Net Assets – This amount is restricted by external creditors, grantors, contributors, or laws or

regulations of other governments.

Unrestricted Net Assets – This amount is all net assets that do not meet the definition of “invested in capital

assets, net of related debt” or “restricted net assets.”

Fund Financial Statements

Fund Equity – Reservations of fund balances of governmental funds are created to either satisfy legal covenants,

including State laws, that require a portion of the fund equity be segregated or identify the portion of the fund

equity not available for future expenditures.

H. Tax Increment Revenue

When redevelopment agency project areas are adopted a base year assessed value is determined. The property tax

revenue generated by this base year assessed value is distributed to respective taxing entities in the same manner as

prior to the adoption of a project area. The post-adoption growth in the assessed value for parcels within the project

area is referred to as “incremental growth” and the associated property taxes as “tax increment revenue”. Tax

increment revenue is determined and distributed by Stanislaus County as part of the County’s overall property tax

apportionment activities as described below.

All property taxes are collected and allocated by Stanislaus County to the various taxing entities. Secured property

taxes are determined annually as of January 1, and attach as an enforceable lien on real property as of July 1. Taxes

are due November 1 and February 1, and are delinquent if not paid by December 10 and April 10, respectively.



11


H. Tax Increment Revenue (continued)

In November 1993, the Agency adopted the “Teeter Plan” method of property tax distribution. Under the Teeter Plan,

the County remits tax increment revenue to the Agency based on assessments, not on collections, according to the

following schedule: 55% in December, 40% in April, and 5% at the end of the fiscal year. Under this plan a need for

an allowance for uncollectible taxes is eliminated.

Tax increment revenue is recognized when it is available and measurable. The Agency considers tax increment

revenue as available if it is received within 60 days after the fiscal year end.

I. Use of Estimates

The preparation of basic financial statements in conformity with generally accepted accounting principles requires

management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of

assets and liabilities and the disclosed contingent assets and liabilities. In addition, estimates affect the reported

amount of expenses. Actual results could differ from these estimates and assumptions.

2. CASH AND INVESTMENTS

The City maintains an internal cash and investment pool, which includes cash balances and authorized investments of all

funds, which the City Treasurer invests to enhance interest earnings. The Agency is a participant in the City’s pooled

cash activity. The Agency’s share of the City’s pooled cash at June 30, 2010, was $16,709,375. The following

information pertains to the City’s cash and investment activity.

Certain restricted funds that are held and invested by independent outside custodians through contractual agreements are

not pooled and are reported as cash and investments with fiscal agents.

Investment income earned on pooled cash and investments (including realized and unrealized gains and losses) is

allocated quarterly to the various funds based on average quarterly cash balances. Investment income from cash and

investments with fiscal agents is credited directly to the related funds.

A. Authorized Investments

The City’s Investment Policy is adopted by the City Council in accordance with California Government Code (Code)

Section 53601 and has as its objectives the following (in order of priority):

� Safety: Safety of principal is the foremost objective of the investment program. Investments of the City of

Turlock shall be undertaken in a manner that seeks to ensure that capital losses are avoided, whether from

securities default, broker-dealer default, or erosion of market value. To attain this objective, diversification is

required in order that potential losses on individual securities do not exceed the income generated from the

remainder of the portfolio.

� Liquidity: The City of Turlock's investment portfolio will remain sufficiently liquid to enable the City to

meet all operating requirements which might be reasonably anticipated.

� Return on Investment: The City of Turlock's investment portfolio shall be designed with the objective of

attaining a market rate of return throughout budgetary and economic cycles, taking into account the City's

investment risk constraints and the cash flow characteristics of the portfolio.



12

2. CASH AND INVESTMENTS (continued)

A. Authorized Investments (continued)

Under provisions of the City’s Investment Policy, the City may invest in the following types of investments:

� U.S. Treasury notes, bonds, and/or bills;

� U.S. Government Federal Agency Securities;

� Certificate of Deposits;

� Bankers Acceptances, investment in any one commercial bank is limited to no more than 30% of the total

investment in BA’s and the maximum maturity for any security at acquisition is 180 days;

� Commercial Paper, investment in any single issuer is limited to no more than 10% of total investment in

Commercial Paper and the maximum maturity for any security at acquisition is 270 days;

� State of California Local Agency Investment Fund (LAIF);

� Money Market and Mutual Funds; and

� Corporate Notes, AAA rated.

Unless otherwise noted, the above investments are authorized within the limitations delineated in Code Sections 53600 et

seq. A five-year maximum maturity (at acquisition) for each investment is allowed unless a longer term approved in

advance by the City Council.

B. Cash Deposits

At June 30, 2010 the carrying amount of the City’s time and demand deposits was $50,785,312. The difference between

the bank balance of $51,673,271 and the carrying amount resulted from outstanding checks and deposits in transit. Of the

time deposits and demand deposits, $100,000 was covered by federal depository insurance with the balance being

collateralized with securities held by the counter party or its agent in accordance with Section 53652 of the Code. The

Code requires California banks and savings and loan associations to secure a city’s deposits by pledging government

securities with a value of 110% of a city’s total deposits, or by pledging first trust deed mortgage notes having a value of

150% of a city’s total deposits.

C. Risk Disclosures

Interest Rate Risk - As a means of limiting its exposure to fair value losses arising from rising interest rates, the City’s

investment policy provides that final maturities of securities cannot exceed five years. Specific maturities of investments

depend on liquidity needs. Maturities as a percentage of the total fair value of the investment portfolio are noted in the

table above. The average life of the portfolio is 221 days.

Credit Risk – It is the City’s policy that federal agency securities must have the highest rating issued by the nationally

recognized statistical rating organizations. The Local Agency Investment Fund (LAIF), administered by the State of

California, has a separate investment policy, governed by Government Code Sections 16480-16481.2 that provides credit

standards for its investments.



13


C. Risk Disclosures (continued)

At June 30, 2010 the City’s credit risks, expressed on a percentage basis were as follows:

S&P Credit % of

Rating Investments

US Governments Agencies AAA 15.08%

CA Local Agency Investment Fund not rated 59.82%

Certificates of deposit not rated 22.96%

Money Market/Mututal Funds not rated 2.14%

Total 100.00%

Custodial Credit Risk - For an investment, custodial credit risk is the risk that, in the event of the failure of the counter

party, the City will not be able to recover the value of its investments or collateral securities that are in the possession of

an outside party. All securities, with the exception of LAIF, Certificates of Deposit and Money Market/Mutual Funds, are

held by a third-party custodian (Wells Fargo Bank). Wells Fargo Bank is a registered member of the Federal Reserve

Bank. The securities held by Wells Fargo are in street name and a customer number is assigned to the City identifying

ownership.

GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools,

requires that the City’s investments be carried at fair market value instead of cost. Accordingly, the City adjusts the

carrying value of its investments to reflect their fair value at each fiscal year-end and the effects of these adjustments are

included in income for that fiscal year. The change in value of the City’s investments from June 30, 2009 to June 30,

2010 amounted to an unrealized gain of $228,900.

D. External Investment Pool

The City invests in the California Local Agency Investment Fund (LAIF), a State of California external investment pool.

LAIF determines fair value on its investment portfolio based on market quotations for those securities where market

quotations are readily available, and on amortized cost or best estimate for those securities where market value is not

readily available. The City values its investment in LAIF at amortized cost, which approximates the fair market value.

The City’s investment with LAIF at June 30, 2010 includes a portion of pool funds invested in structured notes and asset-

backed securities. These investments may include the following:

Structured Notes are debt securities (other than asset-backed securities) whose cash flow characteristics (coupon

rate, redemption amount, or stated maturity) depend upon one or more indices and/or have embedded forwards or

options. They are issued by corporations and by government-sponsored enterprises such as the Federal National

Mortgage Association and the Federal Home Loan Bank System or an international agency such as the World

Bank.

Asset-Backed Securities entitle their purchasers to receive a share of the cash flows from a pool of assets, such as

principal and interest payments from a pool of mortgages (e.g., CMOs) or small business loans or credit card

receivables (such as ABCP).



14


D. External Investment Pool (continued)

As of June 30, 2010, the City had $60,003,775 invested in LAIF, which had invested 5.42% of the pool’s funds in

structured notes and asset-backed securities. LAIF’s fair value factor of 1.001643776 was used to calculate the fair value

of investments in LAIF as of June 30, 2010.

3. LOANS RECEIVABLE

Government Wide Financial Statements

At June 30, 2010, the Agency’s loans receivable consisted of the following:

Governmental

Activities

Cherry Tree Village $ 848,621

Central Valley Coalition for Affordable Housing 4,796,167

First Time Homebuyer Loans 306,500

EAH, Inc. 447,066

Total 6,398,354$

Cherry Tree Village

The Agency has a loan receivable with Cherry Tree Village Partners, L.P. to assist with the development of a

low/moderate-income housing apartment complex. The loan receivable is pursuant to a Loan Agreement which calls

for the Agency to advance a total of $600,000 to the project over eleven years. The loan carries a 5% simple interest

rate and is repayable from residual rental receipts per the terms of the Agreement. As of June 30, 2010, the Agency’s

receivable consists of the full $600,000 in principal plus accrued interest of $248,621

Central Valley Coalition for Affordable Housing

The Central Valley Coalition for Affordable Housing (CVCAH) is a Community Housing Development Organization

(CHDO) participating in various projects in Turlock. A CHDO is a private, nonprofit, community-based service

organization that has the capacity to develop affordable housing for the community it serves. The City of Turlock,

under the HOME Investment Partnership (HOME) Program, is required to reserve HOME funds for investment in

housing to be developed, sponsored, or owned by CHDOs. The City must identify and certify qualifying nonprofit

organizations as CHDOs through HUD regulations.

CVCAH is currently participating in three types of projects within the City of Turlock – one of which is using

Redevelopment Agency low/moderate income housing funds. CVCAH developed Crane Terrace, a 44-unit, three-

story, low-income senior living apartment complex which was completed and occupied in August 2006. Since then it

has averaged close to 100% occupancy. The Redevelopment Agency has loaned $4 million to this $10.5 million

project under a Development and Disposition Agreement (DDA) dated April 26, 2005. The DDA calls for repayment

of the 55-year note to begin in year 31 from residual rental receipts. The note carries 3% simple interest. The total

outstanding principal and interest at June 30, 2010 was $4,796,167.



15

3. LOANS RECEIVABLE (continued)

Government Wide Financial Statements (continued)

First Time Homebuyer Loans

The First Time Homebuyer Loan (FTHB) program, funded using Federal and/or State of California HOME funds

along with Redevelopment Agency low/moderate income housing funds, provides eligible prospective homebuyers

within the City of Turlock with up to $80,000 in funding assistance through a silent second deed of trust on their home.

The loans are interest free for the first five years and accrue interest at 5% simple interest annually thereafter. The

loans are due and payable should the homeowner refinance or sell the property. Proceeds from repaid loans are used to

extend new loans. As of June 30, 2010, the Agency funded or assisted in funding 15 outstanding FTHB loans.

EAH, Inc. EAH, Inc. is a nonprofit corporation which develops and manages affordable housing projects in the western United

States. The Redevelopment Agency entered into a Disposition and Development Agreement (DDA) with EAH to

assist in the development and help secure financing for multi-family housing project on 6.7 acres of property in the

area of Linwood Avenue and Hwy 99. The site is currently owned by the City of Turlock and will be conveyed to the

developer (EAH) pursuant to the terms of the DDA. The proposed project is 144 unit, three-story, apartment complex

for low- and moderate-income families with amenities that would complement the project and surrounding

neighborhood.

The DDA contains funding for up to $4 million of RDA low- and moderate-income funds divided into two separate

funding horizons. The first is a pre-construction loan of up to $1 million to reimburse the developer for certain pre-

construction, design and engineering costs. The second is a development cost loan of up to $3 million to be used for

construction and development of the project, excluding development fees, management fees or other similar fees. The

DDA contains conditions which must be achieved in order for the developer to be eligible to receive funding under

either loan as well as conditions related to the development of the project, additional funding sources which must be

obtained, and conditions for the transfer of ownership of the property.

Each loan will be memorialized with a Promissory Note and will become a recorded deed of trust against the property.

The $1 million pre-construction loan is interest free for the earlier of: (1) two years from the date of execution, or (2)

when the construction loan closes. Both the pre-construction and development cost loans will be rolled into a

permanent loan at the completion of construction. The combined loans will carry a 3% annual interest rate and be

repaid using residual receipts over a 55 year period. As of June 30, 2010 the Agency had expended $447,066 of the

pre-construction funds.



16

4. CAPITAL ASSETS


At June 30, 2010, the Agency’s capital assets consisted of the following:

Balance Balance

Govermental Activities July 1, 2009 Additions Deletions June 30, 2010

Non-depreciable Assets:

Land 1,555,251$ 1,555,251$

Construction in progress 2,500 2,500

Total nondepreciable assets 1,557,751 - - 1,557,751

Depreciable Assets:

Furniture & Equipment 40,361 40,361

Land Improvements 8,710,028 8,710,028

Total depreciable assets 8,750,389 - - 8,750,389

Less accumulated depreciation:

Furniture & Equipment (40,360) (1) (40,361)

Land Improvements (1,040,698) (146,260) (1,186,958)

Total accumulated depreciation (1,081,058) (146,261) - (1,227,319)

Net depreciable assets 7,669,331 (146,261) - 7,523,070

Total governmental activities 9,227,082$ (146,261)$ -$ 9,080,821$

Governmental activities depreciation expense for capital assets for the year ended June 30, 2010 as $149,261 which

was recorded as part of Community Development activity expenses.

5. LONG-TERM DEBT


Following is a summary of the Agency’s long-term debt transactions during the fiscal year ended June 30, 2010:

Balance Balance Due within Due in more

Governmental Activities July 1, 2009 Additions Retirements June 30, 2010 one year than one year

Loans payable to City of Turlock

Public Financing Authority 28,330,000$ (505,000)$ 27,825,000$ 525,000$ 27,300,000$

Add: Unamortized Bond Premium 305,080 (11,230) 293,850 293,850

Total 28,635,080$ -$ (516,230)$ 28,118,850$ 525,000$ 27,593,850$



17

5. LONG-TERM DEBT (Continued)

Government-Wide Financial Statements (continued)

Loans Payable to City of Turlock Public Financing Authority

Loans payable to the City of Turlock Public Financing Authority (Authority) consist of the proceeds of two bond

issues consummated by the Authority, the proceeds of which were loaned to the Agency. The following provides

additional information related to these two loans.

In March 1999, the Authority issued $4,970,000 in Revenue Bonds and loaned the proceeds to the Agency to finance

the rehabilitation of the City’s downtown area. The Agency’s tax increment revenue is pledged for repayment of the

bonds (see below) which carry coupon interest rates ranging from 3.5% - 5.55% and have semi-annual principal and

interest payments on the first of March and September through September 2024. The outstanding principal for this

loan as of June 30, 2010 is $3,395,000.

In August 2006, the Authority issued $25,440,000 in Tax Allocation Revenue Bonds and loaned the proceeds to the

Agency to be used to finance various infrastructure projects to be constructed within the Agency’s project area

boundaries. As with the 1999 Bonds, the Agency’s tax increment revenue is pledged for repayment of these bonds

(see below). The bonds, which carry coupon interest rates ranging from 4.0% - 5.0%, have semi-annual principal and

interest payments on the first of March and September through September 2036. The outstanding principal for this

loan as of June 30, 2010 is $24,430,000.

Pledged Revenues for 1999 Revenue Bonds and 2006 Tax Revenue Allocation Bonds

Pursuant to a Loan Agreement between the Agency, the Authority and the Bond Trustee, the Agency has pledged its

tax increment revenue (reduced by the amount allocable to the Housing Set-Aside fund, unsubordinated pass through

payments, and amounts payable to other taxing agencies under Redevelopment Law) for repayment of the Bonds.

Pledged revenues are further limited to the current fiscal year’s debt service requirements. Debt service for 2009-10

was 22% of total tax increment revenues. Total tax increment revenues (prior to Housing Set-Aside and pass through

payments) for 2009-10 were $8,491,729; while principal and interest payments on the bonds totaled $1,869,360.

The annual debt service requirements for the loans payable to the Authority are as follows:

For the Years

Ending June 30, Principal Interest Principal Interest Principal Interest

2011 150,000$ 179,009$ 375,000$ 1,161,054$ 525,000$ 1,340,063$

2012 160,000 170,872 390,000 1,143,841 550,000 1,314,713

2013 170,000 162,210 410,000 1,125,841 580,000 1,288,051

2014 180,000 153,023 430,000 1,106,941 610,000 1,259,964

2015 185,000 143,442 450,000 1,087,141 635,000 1,230,583

2016-2020 1,100,000 551,344 2,550,000 5,126,955 3,650,000 5,678,299

2021-2025 1,450,000 205,739 3,125,000 4,531,756 4,575,000 4,737,495

2026-2030 5,795,000 3,478,875 5,795,000 3,478,875

2031-2035 7,400,000 1,837,500 7,400,000 1,837,500

2036-2037 3,505,000 177,376 3,505,000 177,376

3,395,000$ 1,565,639$ 24,430,000$ 20,777,280$ 27,825,000$ 22,342,919$

1999 Revenue Bonds

2006 Tax Allocation

Revenue Bonds Total



18

6. RISK MANAGEMENT

The Agency participates in the City’s risk management program. All claims are accounted for in the City’s general

and workers’ compensation claims. All claims that were probable liabilities that occurred prior to the year-end and

that were estimable were recorded in accordance with GASB Statement No. 10.

7. COMMITMENT – SUPPLEMENTAL EDCATION REVENUE AUGMENETATION FUNDS (SERAF)

In July 2009, the State Legislature passed and the governor signed, Assembly Bill (AB) 26x4, which requires

redevelopment agencies statewide to deposit a total of $2.05 billion of property tax increment in county

“Supplemental” Educational Revenue Augmentation Funds” (SERAF) to be distributed to meet the State’s

Proposition 98 obligations to schools. The SERAF revenue shift of $2.05 billion will be made over two years, $1.7

billion in fiscal year 2009-2010 and $350 million in fiscal year 2010-2011. The SERAF would then be paid to school

districts and the county offices of education which have students residing in redevelopment project areas, or residing

in affordable housing projects financially assisted by a redevelopment agency, thereby relieving the State of payments

to those schools.

The California Redevelopment Association (CRA) in conjunction with redevelopment agencies across the State filed

suit in Sacramento Superior Court challenging the constitutionality of the SERAF transfers. On May 4, 2010, the

Court denied the CRA petition and also rejected a request to stay making payments in accordance with the legislation.

CRA appealed the court’s decision as well as the denial of a stay on the payments. On May 7, 2010, the Third District

Court of Appeals denied CRA’s appeal of the stay on making the payments which were due to the County Auditor-

Controller’s on May 10, 2010. The Court of Appeals has not yet issued a ruling on CRA’s appeal of the Superior

Court decision.

The Agency’s obligation under AB26x4 was $3,337,940 for the 2009-10 fiscal year and will be $687,223 for fiscal

year 2010-11. The Agency’s 2009-10 payment was made in a timely fashion using excess increment funds.



19

8. PRIOR PERIOD ADJUSTMENT

When the 2008-09 Agency financial statements were prepared, the citywide GASB Statement No. 45, Accounting and

Financial Reporting by Employers for Postemployment Benefits Other Than Pensions adjustment had not yet been

completed. Additionally, during this process, it was determined that the City would no longer be presenting the

amounts that it had been setting aside outside of an irrevocable trust for OPEB as Agency Funds. For financial

statement purposes, these amounts were transferred back to the original funding sources. (i.e. the amounts the General

Fund departments contributed to the Agency Funds have been returned to the General Fund). The following table

presents the effects of these adjustments on the Agency’s 2008-09 Statement of Net Assets and Statement of Activities.

As Originally

Presented

OPEB

Adjustment

Close

Agency

Fund

As Currently

Presented

Statement of Net Assets

Cash and investments 19,876,887$ 18,149$ 19,895,036$

Net Assets 17,558,678$ 18,149$ 17,576,827$

Statement of Activities

Community development expenses (2,200,041)$ (1,365)$ 2,570$ (2,198,836)$

Community development charges for services 1,272 1,365 2,637

Interest on long-term debt (1,391,123) (1,391,123)

Net Expense and changes in net assets (3,589,892) 0 2,570 (3,587,322)

Total general revenuse and transfers 4,521,702 4,521,702

Changes in net assets 931,810 0 2,570 934,380

Net assets - beginning of year 16,626,868 15,579 16,642,447

Net assets - end of year 17,558,678$ -$ 18,149$ 17,576,827$

REQUIRED SUPPLEMENTARY INFORMATION

Redevelopment Agency of the City of Turlock Required Supplementary Information

For the year ended June 30, 2010

20

BUDGETARY CONTROL AND ACCOUNTING

The Agency follows these procedures in establishing the budgetary data reflected in the basic financial statements: 1. The Executive Director submits to the Agency Board a proposed budget for the fiscal year

beginning July 1. The budget includes proposed expenditures and the means of financing them.

2. The Board reviews the proposed budget at specially scheduled meetings which are open to the

public. The Board also conducts a public hearing on the proposed budget to obtain comments from interested citizens.

3. Prior to July 1, the budget is legally adopted through a passage of a resolution. 4. The Executive Director is authorized to transfer funds within departmental budgets between

major object classifications and between capital projects in the same fund. The Board must authorize transfers between funds, between departments, and from the fund balances reserved for specific purposes.

5. Formal budgetary accounting is employed as a management tool for all funds. Annual

budgets are legally adopted and amended as required for the Special Revenue and Capital Projects funds.

6. All budgets are prepared on a basis consistent with generally accepted accounting principles in

the United States.

7. Budgeted amounts are reflected after all applicable amendments are revisions. 8. Appropriations lapse at the end of the fiscal year and are rebudgeted, if necessary, for the

coming year. 9. For each legally adopted operating budget, expenditures may not exceed budgeted

appropriations at the activity level. The legal appropriation basis is at the level called “department”. A “department” for legal appropriation purposes may be a single organization (e.g. City Attorney) or an entire department having multiple organizations (e.g. Parks and Recreation) or an entire fund (e.g. Downtown Support).


Required Supplementary Information

Schedule of Revenues, Expenditures, and Changes

In Fund Balances - Budget and Actual -

Housing Set Aside Fund


Variance with

Amended BudgetPositive

Original Amended Actual (Negative)

Revenues

Taxes and assessments 1,387,100$ 1,387,100$ 1,540,855$ 153,755$


Other - -

Total Revenues 1,393,600 1,393,600 1,594,092 200,492

Expenditures

Current

Community development 5,690,244 6,230,228 809,481 5,420,747

Capital Outlay - -

Total Expenditures 5,690,244 6,230,228 809,481 5,420,747

Excess (Deficit) of Revenues over Expenditures (4,296,644) (4,836,628) 784,611 5,621,239


Transfers in from other City funds 169,147 169,147 127,878 41,269

Transfers out to other City funds (315,393) (315,393) (128,506) (186,887)

Total Other Financing Sources (Uses) (146,246) (146,246) (628) (145,618)

Net change in fund balance (4,442,890)$ (4,982,874)$ 783,983 5,475,621$

Fund Balance, July 1 5,205,954

Fund Balance, June 30 5,989,937$

Budget

21


Required Supplementary Information

Schedule of Revenues, Expenditures, and Changes

In Fund Balances - Budget and Actual -

Redevelopment


Variance with

Amended BudgetPositive

Original Amended Actual (Negative)

Revenues

Taxes and assessments 4,356,800$ 4,356,800$ 4,602,063$ 245,263$


Other - - 16,588 16,588

Total Revenues 4,456,800 4,456,800 4,833,372 376,572

Expenditures

Current

Community development 4,029,374 7,472,314 7,404,135 68,179

Capital Outlay 2,000,000 2,000,000 - 2,000,000

Debt service

Principal 505,000 505,000 505,000 -

Interest and fiscal charges 1,364,360 1,364,360 1,364,345 15

Total Expenditures 7,898,734 11,341,674 9,273,480 2,068,194

Excess (Deficit) of Revenues over Expenditures (3,441,934) (6,884,874) (4,440,108) 2,444,766


Transfers in - 20,221 20,221 -

Transfers out to other City funds (18,168,966) (18,168,966) (5,192,713) 12,976,253

Total Other Financing Sources (Uses) (18,168,966) (18,148,745) (5,172,492) 12,976,253

Net change in fund balance (21,610,900)$ (25,033,619)$ (9,612,600) 15,421,019$

Fund Balance, July 1 25,554,027

Fund Balance, June 30 15,941,427$

Budget

22

01Caporicci & Larson, Inc.A Subsidiary ofMareum LLPCerqfied Public Accountants

REPORT ON INTERNAL CONTROL OVER HNANCIAL REPORTINGAND ON COMPLIANCE AND OTHER MAflERS BASED ON AN AUDITOF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH

GOVERNMENT AUDITING STANDARDS

To the Board of Directorsof the Redevelopment Agency of the City of Turlock

Turlock, California

We have audited the basic financial statements of the Redevelopment Agency of the City ofTurlock (Agency), a component unit of the City of Turlock, as of and for the year ended June 30,2010, and have issued our report thereon dated December 29, 2010. We conducted our audit inaccordance with auditing standards generally accepted in the United States of America and thestandards applicable to financial audits contained in Government Auditing Standards, issued bythe Comptroller General of the United States.

Internal Control over Financial Reporting

In plarming and performing our audit, we considered the Agency’s internal control overfinancial reporting as a basis for designing our audit procedures for the purpose of expressingour opinion on the financial statements, but not for the purpose of expressing an opinion on theeffectiveness of the Agency’s internal control over financial reporting. Accordingly, we do notexpress an opinion on the effectiveness of the Agency’s internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allowmanagement or employees, in the normal course of performing their assigned functions, toprevent, or detect and correct, misstatements on a timely basis. A signficant deficiency is adeficiency, or combination of deficiencies, in internal control that is less severe than a materialweakness, yet important enough to merit attention by those charged with governance. Amaterial weakness is a deficiency, or combination of deficiencies, in internal control, such thatthere is a reasonable possibility that a material misstatement of the Agency’s financialstatements will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control over financial reporting was for the limited purposedescribed in the first paragraph of this section and would not necessarily identify alldeficiencies in internal control over financial reporting that might be deficiencies, significantdeficiencies, or material weaknesses. We did not identify any deficiencies in internal controlover financial reporting that we consider to be material weaknesses, as defined above.

wwwc-lcpa.com

To the Board of Directors

of the Redevelopment Agency of the City of Turlock Turlock, California Page 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Agency’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws identified in the Guidelines for Compliance Audits of California Redevelopment Agencies, issued by the State Controller and as interpreted in the Suggested Auditing Procedures for Accomplishing Compliance Audits of California Redevelopment Agencies, issued by the Governmental Accounting and Auditing Committee of the California Society of Certified Public Accountants. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The result of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of management, the board of Directors of the Agency, others within the entity, and the State controller and is not intended to be and should not be used by anyone other than these specified parties. However, this report is a matter of public record and its distribution is not limited.

Certified Public Accountants San Francisco, California December 29, 2010

24

C-1

APPENDIX C

FISCAL CONSULTANT REPORT

1

Finance Redevelopment Implementation Planning Bond Administration

January 19, 2011

Roy Wasden Executive Director Turlock Redevelopment Agency 156 S Broadway Turlock, CA 95380

RE: Turlock Redevelopment Agency Turlock Redevelopment Project Area Tax Increment Verification and Revenue Projections

Dear Mr. Wasden:

Urban Futures, Inc. (UFI) is pleased to present this report of projected tax increment revenues to the Turlock Redevelopment Agency (the "Agency") for the Turlock Redevelopment Project Area (the "Project Area"). The following information is included as exhibits to this report:

Exhibits A to A-3: Tax Increment Projections

Exhibits B: Historical Assessed Valuation

Exhibits C: Historical Tax Increment

Exhibits D: Ten Largest Secured Taxpayers

Exhibits E: Land Uses in the Project Area

Exhibit F: Current Assessment Appeals

Exhibit G: Historical Assessment Appeals

Exhibit H: Foreclosure Activity

Exhibit I: Building Permit Valuation Summary

Exhibit J: Property Resale Analysis

Exhibit K: Project Area Map

Projected taxable valuations and tax revenues contained in this report are based on assumptions derived from the following information:

1. Historical growth trends;

2. Trended growth in valuation as permitted by Article XIIIA of the California

2

Constitution (Proposition 13);

3. Financial reports and information supplied or prepared by the Agency; and

4. Assessed valuation information provided by the County of Stanislaus, from the offices of the Auditor-Controller and Assessor.

The purpose of the projections is to demonstrate the availability of tax increment expected to be generated from the Project Area to secure debt service requirements of the Agency for the (proposed) 2011 Tax Allocation Bonds.

Revenue projections have been conservatively estimated in order to reduce the risk of overstating future tax increment revenues.

General Projection Assumptions

1. The revenue projections assume an assessed valuation (“AV”) growth rate of one percent (1%) over the actual FY 2010-11AV in the Project Area for FY 2011-12, and an annual AV growth rate of two percent (2%) thereafter, representing the two percent (2%) annual inflation increase allowable under Proposition 13. The State Board of Equalization provides instructions in December of each year to County Auditors with regards to the inflation factor to use for the subsequent fiscal year’s AV. The annual inflation factor is based on annual percentage changes in the California Consumer Price Index (“CCPI”), using the most recent October CCPI as compared to the October CCPI from the previous year, up to a maximum increase of 2% annually.

For FY 2010-11 tax roll values, the annual percentage change in CCPI was negative (a factor of .99763 was applied to FY 2009-10 AV, to arrive at FY 2010-11 AV), for the first time since 1978. For FY 2011-12 tax roll values, the annual percentage change in CCPI will be .753%, resulting in an adjustment factor of 1.00753 which will be applied to FY 2010-11 AV, to arrive at FY 2011-12 AV for parcels that otherwise had no changes (such as new construction, resales, supplemental values, etc.).

2. For FY 2011-12, $944,792 has been deducted from the Original Area estimated valuation based on the net value of resale transactions, and $1,463,900 has been added for building permit valuations for new construction. In the Added Area, $292,895 has been deducted from the estimated FY 2011-12 assessed valuation based on the net value of resale transactions, and $1,506,884 has been added for building permit valuations for new construction.

3. The tax rate is assumed to be 1.00% for FY 2010-11 and all subsequent fiscal years.

4. For Tax Rate Areas with negative increment in FY 2010-11, both the base year valuation and the current assessed valuation have not been included in the calculation of total incremental assessed valuation for FY 2010-11, per the

3

tax allocation procedures of Stanislaus County (See: Property Tax Allocation Procedures).

Project Areas

The Redevelopment Plan for Turlock Redevelopment Project (the “Original Area”) was approved by City Ordinance No. 834 on November 23, 1993, and subsequently amended by Ordinance 863 on November 1, 1994 to amend fiscal and time limitations contained in the original plan, as necessary, pursuant to AB 1290 mandates. On July 9, 1996, the Redevelopment Plan was amended by City Ordinance 906 to add territory to the Original Area (the “Added Area”).

Tables 1, 2 and 3 below illustrate general information regarding the Project Area.

TABLE 1: PROJECT AREA GENERAL INFORMATION

AREA DATE OF ADOPTION ORDINANCE NO. ACTION

Original Project Area November 23, 1993 834 Adopt and approve the Redevelopment Plan

Original Project Area November 1, 1994 863 Amend fiscal and time limitations pursuant to AB 1290 mandates

Added Area July 9, 1996 906 Add territory to the Project Area

TABLE 2: REDEVELOPMENT PLAN LIMITATION DATES AND AMOUNTS

Time Limits Dollar Limits

SUB AREA Debt Incurrence Plan Effectiveness Debt Repayment Cumulative Tax Increment

OutstandingBond Debt

Original Project Area 11/23/2013 11/23/2033 11/23/2043 $1,315,000,000(1) $440,000,000

(combinedareas)Added Area 7/9/2016 7/9/2026 7/9/2041 n/a

(1) As of June 30, 2010, the Agency has received $22,481,665 cumulative tax increment. It is estimated that the future AV growth rate would have to exceed 10.68% annually through 2040 in order to reach the cumulative tax increment cap prior to the final term date of the 2010 Bonds.

4

Project Tax Rate Areas

The tax rate area (“TRA”) numbers used by the Stanislaus County Auditor-Controller’s Office to identify tax revenue apportionment for the Project Area are summarized in the following table.

TABLE 4: PROJECT TAX RATE AREA ID NUMBERS

Original Project Area

007-003, 007-006, 007-008, 007-016, 007-022, 007-024, 007-026, 007-027,007-031, 007-032, 007-035, 007-036, 007-038, 007-041, 007-042, 007-043,007-046, 007-050, 007-051, 007-056, 007-062, 007-068, 007-069, 007-074,007-075, 007-087, 007-093, 007-108, 007-110, 007-120, 007-121, 007-127,007-128, 007-129, 007-130, 007-131, 007-132, 007-133, 007-134, 007-135,007-136, 007-137, 007-138, 007-139, 007-140, 007-150, 007-188, 007-189,

007-192, 007-198, 007-201, 101-013

Added Area

007-012, 007-014, 007-059, 007-090, 007-096, 007-097, 007-112, 007-114,007-115, 007-122, 007-142, 007-143, 007-144, 007-147, 007-149, 007-163,007-164, 007-165, 007-166, 007-167, 007-168, 007-169, 007-170, 007-171,007-172, 007-173, 007-174, 007-175, 007-176, 007-177, 007-178, 007-179,007-180, 007-181, 007-182, 007-183, 007-184, 007-195, 007-204, 101-014,

101-017

Property Tax Allocation Procedures

The Stanislaus County Auditor-Controller’s office calculates tax increment for redevelopment agencies in the County by comparing the current year assessed valuation of each TRA in a redevelopment project area to the respective base year assessed valuation for each TRA. Further, if a TRA has a negative increment value, whereby the current assessed valuation is less than the base year valuation, the assessed value of that TRA (both current and base value) is not included in the calculation of total incremental assessed valuation for the project area.

For FY 2010-11, the Original Project Area has four tax rate areas (007-008, 007-041, 007-062, and 007-189) that have a negative increment valuation. The base year assessed valuation ($25,103,871) and the current assessed value ($15,646,151) of those TRAs will not be included in the calculation of incremental assessed valuation for the current year.

For FY 2010-11, the Added Area has two tax rate areas (007-166, and 007-195) that have a negative increment valuation. The base year assessed valuation ($689,206) and the current assessed value ($236,743) of those TRAs will not be included in the calculation of incremental assessed valuation for the current year.

Exhibits B and C show a comparison of historical adjusted and unadjusted incremental AV and tax increment revenues.

TABLE 3: PROJECT AREA ACREAGE

Original Project Area 2,245 acres

Added Area 2,073 acres

Total 4,318 acres

5

Low- and Moderate-Income Housing Set-Aside

Pursuant to Section 33334.2 of California Redevelopment Law, the Agency must set aside 20 percent of annual tax increment allocated to the Agency, for use in projects benefiting low- and moderate- income housing (the "LMI Housing Set-Aside"). LMI Housing Set-Aside has been deducted from the Tax Revenues that are shown in Exhibit A.

Pass Through Agreements

The Agency has entered into negotiated tax sharing agreements with taxing entities in the Original Area, and is responsible for statutory pass through payments in the Added Area. The following tables summarize the provisions of the tax increment agreements with and statutory pass through obligations to the affected taxing entities.

TABLE 5: SUMMARY OF TAX SHARING AGREEMENTS: Original Project Area

Stanislaus County (General Fund and Fire Services) FY 2008-09 to 12-13 = 50% of share of tax increment FY 2013-14 to 21-22 = 65% of share of tax increment

FY 2022-23 and thereafter = 80% of share of tax increment Combined tax increment share = 25.63%

Turlock Mosquito Abatement District FY 2004-05 to 13-14 = 25% of share of tax increment FY 2014-15 to 23-24 = 35% of share of tax increment

FY 2024-25 and thereafter = 50% of share of tax increment District tax increment share = 1.22%

Yosemite Community College District FY 2004-05 to 23-24 = 20% of share of tax increment (non-housing),

over and above inflationary pass through, plus inflationary pass through

FY 2024-25 to 33-34 = 50% of (same as above) FY 2034-35 and thereafter = 100% of (same as above)

District tax increment share = 7.63%

Stanislaus County Office of Education FY 2004-05 to 23-24 = 20% of share of tax increment (non-housing),

over and above inflationary pass through, plus inflationary pass through

FY 2024-25 to 33-34 = 50% of (same as above) FY 2034-35 and thereafter = 100% of (same as above)

District tax increment share = 6.58%

The Added Project Area was adopted after December 31, 1994, and therefore, the Agency is obligated under Health & Safety Code Section 33607.5 (the "AB 1290 Pass Through Formula") to share tax increment revenues generated in the Amendment Project Area with affected taxing entities, including Stanislaus County (including the County Fire Service), Stanislaus County Superintendent of Schools (including the County Schools Service Fund), Yosemite Community College District, Turlock Mosquito Abatement District, City of Turlock, Keyes Unified School District, Turlock Fire Protection District, Turlock Irrigation District, Chatom Union School District, and Turlock Unified School District. With respect to Keyes Unified School District, that taxing entity is in only one Added Area TRA for which the County is not currently reporting any AV, and therefore no statutory pass through payments are currently being made to Keyes Unified School District.

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Generally, the AB 1290 Pass Through Formula payments for the Added Area are as follows:

Base Year/ Pass Through Pass Through(1) Adjusted Base Year Commences Tier A (Years 1-45) 25% 1995-96 1997-98 Tier B (Years 11-45) 21% + Tier A 2006-07 2007-08 Tier C (Years 31-45) 14% + Tiers A & B 2026-27 2027-28 _______________________________________________________________________

(1) Percentage applied to each entity’s share of tax increment reduced by pro-rata share of Agency’s low and moderate housing set-aside. Tiers B and C percentages apply only to the future AV growth over the adjusted base year AV for each of those Tiers.

Subordination

Each of the tax sharing agreements from the Original Project Area contain subordination clauses, whereby the Agency may subordinate the payment of pass through payments to payments of debt service on the Agency’s bond debt, after providing tax increment projections and related information that demonstrates that sufficient tax increment revenues will be available to pay all bond debt service payments and pass through obligations. The Agency has provided such information to the taxing entities affected by the tax sharing agreements, prior to the sale of the proposed 2010 Tax Allocation Bonds.

With regards to the Added Area AB 1290 Pass Through Formula payments, the Agency has provided the information required by Health & Safety Code Section 33607.5(e)(2), in order to request subordination of the AB 1290 Pass Through Formula payments to the debt service on the 2010 Bonds. The taxing entities have 45 days from receipt of the subordination request to provide substantial evidence that the Agency will not be able to pay the debt payments and the amount required to be paid to the affected taxing entity to challenge the request, otherwise the request to subordinate will be deemed approved.

The projections of tax increment in Exhibit A assume that Original Area tax sharing agreement pass through payments and the Added Area AB 1290 Pass Through Formula payments will be subordinate to debt service payments on the Agency’s bond debt, including the proposed 2010 Tax Allocation Bonds. The Original Area tax sharing agreement pass through payments and the Added Area AB 1290 Pass Through Formula payments are subordinate to the debt service payments on the outstanding 1999 and 2006 tax allocation bonds.

County Collection Fees

As permitted by Chapter 466, the County of Stanislaus Auditor-Controller deducts administration charges from the tax increment distributed to the Agency for the Project Area. In fiscal year 2009-10, the county administrative fees totaled $123,603. For the purposes of this report, we have estimated the administration charges to be 1.4% of gross tax increment, which is consistent with historical administrative expenses. We have assumed that the administrative charges will continue to be collected by the Auditor Controller and will increase or decrease proportionally with the changes in revenues. County collection fees have been deducted from the projected Tax Increment Revenues (see: Exhibit A).

State Budget: ERAF & SERAF Shifts

Over the past decade, the State has experienced revenue shortfalls in its budget. To fully fund the State’s commitment to Proposition 98 (K-12 School Funding), legislation was approved that

7

mandated redevelopment agencies statewide to transfer $75 million of tax increment revenue to Educational Revenue Augmentation Fund (“ERAF”) in 2002-03, $135 million in 2003-04, and $250 million in 2004-05 and 2005-06.

To address the continuing revenue shortfall, on July 28, 2009, the Governor signed ABX4-26 into law. ABX4-26 requires a one year transfer of $1.7 billion, in the aggregate, from redevelopment agencies to their respective County Supplemental Educational Revenue Augmentation Fund ("SERAF") in FY 2009-10, plus another $350 million aggregate transfer in FY 2010-11.

The Agency's 2009-10 SERAF payment obligation in the amount of $3,337,940 was paid by the deadline of May 10, 2010, from accumulated cash reserves (excluding LMI Housing Set-Aside amounts). The Agency's 2010-11 SERAF payment is estimated by the California Redevelopment Association (“CRA”) to be $686,565, and is due by May 10, 2011. The CRA is appealing a May 2010 Sacramento Superior Court decision which upheld the legality of ABX4-26.

The Agency anticipates that, if required, the May 2011 SERAF payment ($686,565) would be paid from accumulated cash reserves (excluding LMI Housing Set-Aside amounts).

Building Permit Activity

Based on building permits that were issued in the Project Area during the period January 1, 2010 to August 26, 2010, we have compiled the permit valuations and included those totals in the projected assessed valuation of the Project Area for FY 2011-12. These permit filings generally reflect rehabilitation, remodeling or expansion to existing structures rather than new construction. The permit valuation amounts are expected to be included on the FY 2011-12 tax roll, based on construction completed by the January 1, 2011 lien date. Building permit valuations are summarized in Exhibit I, and have been added to the projected AV for FY 2011-12 as shown in Exhibits A-2 and A-3.

Public Safety Facility Parcels

The City and Agency have purchased 12 parcels for the site of the new Public Safety Facility. The parcels are located in the Original Area, and 10 of the 12 parcels are shown on the FY 10-11 tax roll to have zero assessed valuation. The remaining two parcels are expected to have zero assessed valuation when the FY 2011-12 tax roll is finalized. The Agency will request that the County Assessor remove the FY 1993-94 valuation of these parcels from the Original Area base year valuation, as the 12 parcels will now be permanently exempt from property taxes.

Resale Activity

Based on properties that were transferred to new owners in the Project Area during the period January 1, 2010 to October 5, 2010, we have compared the recorded sales/transfer price to the current (FY 2010-11) assessed valuation, to determine a net transfer valuation gain/loss for that period. The new valuation of transferred parcels, based on the sales/transfer price, will be included on the FY 2011-12 tax roll, based on the January 1, 2011 lien date. The net valuations of resale transactions is shown in Exhibit J, and those amount have been included as adjustments to the tax increment revenues shown in Exhibit A for FY 2011-12.

Foreclosure Activity

Historical Foreclosure activity for parcels in the Original Area, Added Area, and the remainder of the

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City are shown in Exhibit H. Foreclosed properties as a percentage of total properties in the Project Area were a relatively low 1.10% in 2009, and increased from .18% in 2008. For the period January 2010 through September 2010, foreclosed properties represent 1.08% of all properties in the Project Area. Changes in assessed valuation of properties in the Project Area based on foreclosures are included in the adjustments for property resale transactions (see: Exhibit J).

Assessment Appeals

In Stanislaus County, a property owner desiring to reduce the assessed value of such owner's property in any one year must submit an application to the Stanislaus County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. The Appeals Board, within two years of each applicant's filing date, will hold a hearing and then either reduce the assessment or confirm the assessment.

In order to issue the proposed 2010 Bonds on a parity basis with the Agency’s current outstanding debt, Tax Revenues must be adjusted for an assumed reduction for assessment appeals pending, based on the assumption that 50% of the applicants’ total requested reduction in assessed valuation will be realized.

The percentage of actual AV reductions of appealed properties over the last three years has been much lower than 50%. For the period 2007 to 2009, the valuation reduction of approved appeals as a percentage of the requested AV reduction for all appeals filed was 21.79% (see: Exhibit G).

Current appeals pending in the Project Area represent real property with a total assessed valuation of $124,502,838. Based on the applicants’ opinion of value, the total potential reduction in assessed valuation is $53,655,915. Based on a 1% tax rate, and applying the assumed 50% reduction factor and adjusting for a pro rata reduction for LMI Housing Set-Aside, the assumed potential reduction to Tax Revenues in FY 2010-11 is $214,624 (see: Exhibit F). This amount has been deducted from the FY 2010-11 Tax Revenues shown in Exhibit A.

While UFI has taken steps to assure the accuracy of the data used in the formulation of these projections, we cannot insure that projected valuations will, in fact, be realized because actual values will most likely be affected by future events and conditions that cannot be predicted with certainty.

We believe that this report provides the Turlock Redevelopment Agency with a reasonable basis for demonstrating the available tax increment revenues of the Turlock Redevelopment Project Area. We are available to answer any questions that you may have regarding this information.

Sincerely,

URBAN FUTURES, INC.

Douglas P. Anderson Managing Principal

Turlock Redevelopment Agency Exhibit ATurlock Redevelopment Project (Combined Original and Amendment Area)

Projected Tax Increment RevenuesFY 2010-11 to FY 2014-15

2010-11 2011-12 2012-13 2013-14 2014-15Assessed Valuations Secured Assessed Valuation 1,344,463,128 1,359,640,856 1,386,833,673 1,414,570,347 1,442,861,754 Unsecured Assessed Valuation 96,652,949 97,619,478 99,571,868 101,563,305 103,594,572 Total Taxable Valuation (1) 1,441,116,077$ 1,457,260,335$ 1,486,405,541$ 1,516,133,652$ 1,546,456,325$ Less: Base Year Valuation (2) 701,423,267 701,423,267 701,423,267 701,423,267 701,423,267 Incremental Valuation 739,692,810$ 755,837,068$ 784,982,274$ 814,710,385$ 845,033,058$ Tax Rate 1.00% 1.00% 1.00% 1.00% 1.00% Gross Tax Increment 7,396,928$ 7,558,371$ 7,849,823$ 8,147,104$ 8,450,331$

Adjustments to Tax Increment Less: Section 33676 Pass Throughs 780,226 810,652 872,114 934,805 998,750 Less: Low/Mod Housing Set-Aside (3) 1,323,340 1,349,544 1,395,542 1,442,460 1,490,316 Less: Estimated Appeals Reduction (4) 214,624 Less: County Admin. Fees (5) 103,557 105,817 109,898 114,059 118,305 Tax Revenues 4,975,181$ 5,292,358$ 5,472,269$ 5,655,780$ 5,842,960$

Subordinate Obligations

AB 1290 Pass Through Payments (6) 929,581$ 945,427$ 976,723$ 1,024,505$ 1,073,242$ Tax Sharing Agreement Payments (7) 438,288 451,395 476,217 622,285 658,376 Net Tax Revenues 3,607,312$ 3,895,535$ 4,019,329$ 4,008,990$ 4,111,343$

(1) Valuations for FY 2010-11 as provided by County of Stanislaus, with adjustments made for negative value tax rate areas. Assessed valuation growth is assumed to be 1% for FY 11-12, and 2% thereafter. $1,463,900 and $1,506,884 have been added to the secured valuation for the Original Project Area and Amended Area, respectively, in FY 11-12 for valuation of building permits issued. $944,792 and $292,895 have been deducted from the Original Project Area and Amended Area valuations, respectively, for net resale transaction values.(2) Base Year valuation of all Tax Rate Areas that have positive increment for FY 2010-11. Assumed to remain constant thereafter.(3) Based on 20% of: [Gross Tax Increment, Less: Section 33676 Pass Throughs].(4) Assumed reduction in Assessed Valuations from pending appeals, per the terms of the Parity Bond test from the 2006 Loan Agreement.(5) Estimated based on 1.4% of Gross Tax Increment amounts.(6) AB 1290 Payments on Amendment Area tax increment.(7) Tax Sharing Agreement payments from the Original Area.

Turlock Redevelopment Agency EXHIBIT A-1

Turlock Redevelopment Project

Tax Increment Projections - COMBINED AREAS

(1) (2) (3) (4) (5) (6) (7)

ASSESSED GROSS T.I. 33676 LMI COUNTY ESTIMATED TAX

VALUATION REVENUES PASS HOUSING ADMIN. APPEALS REVENUES

FY GROWTH THROUGHs FUND FEES REDUCTION

Base A.V. $701,423,267

1 10-11 1,441,116,077 7,396,928 780,226 1,323,340 103,557 214,624 4,975,181

2 11-12 1,457,260,335 7,558,371 810,652 1,349,544 105,817 5,292,358

3 12-13 1,486,405,541 7,849,823 872,114 1,395,542 109,898 5,472,269

4 13-14 1,516,133,652 8,147,104 934,805 1,442,460 114,059 5,655,780

5 14-15 1,546,456,325 8,450,331 998,750 1,490,316 118,305 5,842,960

6 15-16 1,577,385,452 8,759,622 1,063,974 1,539,130 122,635 6,033,884

7 16-17 1,608,933,161 9,075,099 1,130,502 1,588,919 127,051 6,228,626

8 17-18 1,641,111,824 9,396,886 1,198,361 1,639,705 131,556 6,427,263

9 18-19 1,673,934,061 9,725,108 1,267,577 1,691,506 136,152 6,629,873

10 19-20 1,707,412,742 10,059,895 1,338,177 1,744,344 140,839 6,836,536

11 20-21 1,741,560,997 10,401,377 1,410,189 1,798,238 145,619 7,047,331

12 21-22 1,776,392,217 10,749,689 1,483,642 1,853,210 150,496 7,262,342

13 22-23 1,811,920,061 11,104,968 1,558,564 1,909,281 155,470 7,481,654

14 23-24 1,848,158,462 11,467,352 1,634,984 1,966,474 160,543 7,705,352

15 24-25 1,885,121,631 11,836,984 1,712,932 2,024,810 165,718 7,933,524

16 25-26 1,922,824,064 12,214,008 1,792,439 2,084,314 170,996 8,166,259

17 26-27 1,961,280,545 12,598,573 1,873,537 2,145,007 176,380 8,403,649

18 27-28 2,000,506,156 12,990,829 1,956,256 2,206,914 181,872 8,645,786

19 28-29 2,040,516,279 13,390,930 2,040,630 2,270,060 187,473 8,892,767

20 29-30 2,081,326,605 13,799,033 2,126,692 2,334,468 193,186 9,144,687

21 30-31 2,122,953,137 14,215,299 2,214,474 2,400,165 199,014 9,401,645

22 31-32 2,165,412,200 14,639,889 2,304,012 2,467,175 204,958 9,663,743

23 32-33 2,208,720,444 15,072,972 2,395,341 2,535,526 211,022 9,931,083

24 33-34 2,252,894,853 15,514,716 2,488,497 2,605,244 217,206 10,203,769

25 34-35 2,297,952,750 15,965,295 2,583,516 2,676,356 223,514 10,481,909

26 35-36 2,343,911,805 16,424,885 2,680,435 2,748,890 229,948 10,765,612

27 36-37 2,390,790,041 16,893,668 2,779,292 2,822,875 236,511 11,054,989

28 37-38 2,438,605,842 17,371,826 2,880,127 2,898,340 243,206 11,350,154

29 38-39 2,487,377,958 17,859,547 2,982,978 2,975,314 250,034 11,651,221

30 39-40 2,537,125,518 18,357,023 3,087,887 3,053,827 256,998 11,958,310

Turlock Redevelopment Agency EXHIBIT A-2Turlock Redevelopment Project

Tax Increment Projections - ORIGINAL AREA

(1) (2) (3) (4) (5) (6)

ASSESSED GROSS T.I. 33676 LMI COUNTY TAX

VALUATION REVENUES PASS HOUSING ADMIN. REVENUESFY GROWTH THROUGHs FUND FEES

Base A.V. $495,319,817

1 10-11 770,222,084 2,749,023 780,226 393,759 38,486 1,536,551

2 11-12 778,443,413 2,831,236 810,652 404,117 39,637 1,576,830

3 12-13 794,012,281 2,986,925 872,114 422,962 41,817 1,650,031

4 13-14 809,892,527 3,145,727 934,805 442,184 44,040 1,724,697

5 14-15 826,090,377 3,307,706 998,750 461,791 46,308 1,800,857

6 15-16 842,612,185 3,472,924 1,063,974 481,790 48,621 1,878,539

7 16-17 859,464,428 3,641,446 1,130,502 502,189 50,980 1,957,775

8 17-18 876,653,717 3,813,339 1,198,361 522,996 53,387 2,038,596

9 18-19 894,186,791 3,988,670 1,267,577 544,219 55,841 2,121,033

10 19-20 912,070,527 4,167,507 1,338,177 565,866 58,345 2,205,119

11 20-21 930,311,938 4,349,921 1,410,189 587,946 60,899 2,290,887

12 21-22 948,918,177 4,535,984 1,483,642 610,468 63,504 2,378,370

13 22-23 967,896,540 4,725,767 1,558,564 633,441 66,161 2,467,602

14 23-24 987,254,471 4,919,347 1,634,984 656,873 68,871 2,558,620

15 24-25 1,006,999,560 5,116,797 1,712,932 680,773 71,635 2,651,457

16 25-26 1,027,139,551 5,318,197 1,792,439 705,152 74,455 2,746,152

17 26-27 1,047,682,343 5,523,625 1,873,537 730,018 77,331 2,842,740

18 27-28 1,068,635,989 5,733,162 1,956,256 755,381 80,264 2,941,260

19 28-29 1,090,008,709 5,946,889 2,040,630 781,252 83,256 3,041,750

20 29-30 1,111,808,883 6,164,891 2,126,692 807,640 86,308 3,144,251

21 30-31 1,134,045,061 6,387,252 2,214,474 834,556 89,422 3,248,801

22 31-32 1,156,725,962 6,614,061 2,304,012 862,010 92,597 3,355,442

23 32-33 1,179,860,481 6,845,407 2,395,341 890,013 95,836 3,464,216

24 33-34 1,203,457,691 7,081,379 2,488,497 918,576 99,139 3,575,166

25 34-35 1,227,526,845 7,322,070 2,583,516 947,711 102,509 3,688,335

26 35-36 1,252,077,382 7,567,576 2,680,435 977,428 105,946 3,803,767

27 36-37 1,277,118,929 7,817,991 2,779,292 1,007,740 109,452 3,921,507

28 37-38 1,302,661,308 8,073,415 2,880,127 1,038,658 113,028 4,041,603

29 38-39 1,328,714,534 8,333,947 2,982,978 1,070,194 116,675 4,164,100

30 39-40 1,355,288,825 8,599,690 3,087,887 1,102,361 120,396 4,289,047

Turlock Redevelopment Agency EXHIBIT A-3Turlock Redevelopment Project

Tax Increment Projections - ADDED AREA

(1) (2) (3) (4) (5)ASSESSED GROSS T.I. LMI COUNTY TAXVALUATION REVENUE HOUSING ADMIN. REVENUES

FY GROWTH (a) (A.V.-BASE)*.01 FUND FEESBase Year $206,103,450

1 10-11 670,893,993 4,647,905 929,581 65,071 3,653,254

2 11-12 678,816,922 4,727,135 945,427 66,180 3,715,528

3 12-13 692,393,260 4,862,898 972,580 68,081 3,822,238

4 13-14 706,241,126 5,001,377 1,000,275 70,019 3,931,082

5 14-15 720,365,948 5,142,625 1,028,525 71,997 4,042,103

6 15-16 734,773,267 5,286,698 1,057,340 74,014 4,155,345

7 16-17 749,468,732 5,433,653 1,086,731 76,071 4,270,851

8 17-18 764,458,107 5,583,547 1,116,709 78,170 4,388,668

9 18-19 779,747,269 5,736,438 1,147,288 80,310 4,508,840

10 19-20 795,342,215 5,892,388 1,178,478 82,493 4,631,417

11 20-21 811,249,059 6,051,456 1,210,291 84,720 4,756,444

12 21-22 827,474,040 6,213,706 1,242,741 86,992 4,883,973

13 22-23 844,023,521 6,379,201 1,275,840 89,309 5,014,052

14 23-24 860,903,991 6,548,005 1,309,601 91,672 5,146,732

15 24-25 878,122,071 6,720,186 1,344,037 94,083 5,282,066

16 25-26 895,684,512 6,895,811 1,379,162 96,541 5,420,107

17 26-27 913,598,203 7,074,948 1,414,990 99,049 5,560,909

18 27-28 931,870,167 7,257,667 1,451,533 101,607 5,704,526

19 28-29 950,507,570 7,444,041 1,488,808 104,217 5,851,016

20 29-30 969,517,722 7,634,143 1,526,829 106,878 6,000,436

21 30-31 988,908,076 7,828,046 1,565,609 109,593 6,152,844

22 31-32 1,008,686,237 8,025,828 1,605,166 112,362 6,308,301

23 32-33 1,028,859,962 8,227,565 1,645,513 115,186 6,466,866

24 33-34 1,049,437,161 8,433,337 1,686,667 118,067 6,628,603

25 34-35 1,070,425,905 8,643,225 1,728,645 121,005 6,793,574

26 35-36 1,091,834,423 8,857,310 1,771,462 124,002 6,961,845

27 36-37 1,113,671,111 9,075,677 1,815,135 127,059 7,133,482

28 37-38 1,135,944,533 9,298,411 1,859,682 130,178 7,308,551

29 38-39 1,158,663,424 9,525,600 1,905,120 133,358 7,487,121

30 39-40 1,181,836,693 9,757,332 1,951,466 136,603 7,669,263

Turlock Redevelopment Agency Exhibit BHistorical Assessed Values

Combined Areas

2006-07 2007-08 2008-09 2009-10 2010-11

Secured Value 1,490,439,687 1,607,636,795 1,534,200,864 1,459,686,467 1,352,076,712 Unsecured Value 88,525,588 94,107,118 100,246,145 112,702,285 104,922,259 Total Assessed Value 1,578,965,275$ 1,701,743,913$ 1,634,447,009$ 1,572,388,752$ 1,456,998,971$

Percentage Change 13.27% 7.78% -3.95% -3.80% -7.34%

Actual Incremental Valuation (1) 851,748,931$ 974,527,569$ 907,230,665$ 845,172,408$ 729,782,627$

Incremental Value used for Tax Increment (2) 866,382,817$ 984,273,206$ 917,933,991$ 855,887,780$ 739,692,810$

(1) Taxable value above initial base year value of $727,216,344 (2) The County does not reduce the incremental value for tax rate areas where the current year assessed value is less than the base year value. The amount shown is what has been used for purposes of calculating tax increment.

Original Area

2006-07 2007-08 2008-09 2009-10 2010-11

Secured Value 841,056,730 918,354,857 873,562,181 816,544,674 737,678,248 Unsecured Value 44,913,853 46,542,696 55,466,847 50,845,548 48,189,987 Total Assessed Value 885,970,583$ 964,897,553$ 929,029,028$ 867,390,222$ 785,868,235$




(1) Taxable value above initial base year value of $520,423,688. (2) The County does not reduce the incremental value for tax rate areas where the current year assessed value is less than the base year value. The amount shown is what has been used for purposes of calculating tax increment.

Added Area

2006-07 2007-08 2008-09 2009-10 2010-11

Secured Value 649,382,957 689,281,938 660,638,683 643,141,793 614,398,464 Unsecured Value 43,611,735 47,564,422 44,779,298 61,856,737 56,732,272 Total Assessed Value 692,994,692$ 736,846,360$ 705,417,981$ 704,998,530$ 671,130,736$




(1) Taxable value above initial base year value of $206,792,656. (2) The County does not reduce the incremental value for tax rate areas where the current year assessed value is less than the base year value. The amount shown is what has been used for purposes of calculating tax increment.

Turlock Redevelopment Agency Exhibit CHistorical Tax Increment Revenue

Combined Areas

2006-07 2007-08 2008-09 2009-10

Total Taxable Value 1,578,965,275 1,701,743,913 1,634,447,009 1,572,388,752 Less: Base Year Value 727,216,344 727,216,344 727,216,344 727,216,344 Plus: Negative TRA Increment (1) 14,633,886 9,745,637 10,703,326 10,715,372 Incremental Value 866,382,817$ 984,273,206$ 917,933,991$ 855,887,780$

Tax Increment (2) 8,663,828$ 9,842,732$ 9,179,340$ 8,558,878$ Less: Section 33676 Allocations (669,862) (767,928) (752,327) (787,455) Less: County Admin. Fees (101,114) (111,128) (114,422) (123,603) Less: Tax Sharing Payments (3) (1,128,824) (1,287,721) (1,372,088) (1,327,488) Net Tax Increment Levy 6,764,028$ 7,675,955$ 6,940,503$ 6,320,332$

Net Tax Increment Receipts (4) 6,670,159$ 7,498,873$ 6,710,803$ 6,228,751$

Ratio of Receipts to Levy 98.61% 97.69% 96.69% 98.55%

Supplemental Property Taxes 791,512$ 463,965$ 138,944$ 24,432$

Total Tax Increment Receipts 7,461,671$ 7,962,838$ 6,849,747$ 6,253,183$


(1) The County does not reduce tax increment for tax rate areas where the current year value is below the base year value.(2) The County applies a tax rate above 1 percent. The Fiscal Consultant's calculations include only the 1 percent tax rate.(3) Tax Sharing payments to the County from the Original Area and the statutory payments from the Added Area.(4) Actual amount remitted by the County exclusive of supplemental property tax revenues. The amount has been reduced for Section 33676 allocations, the property tax administrative fee and statutory and County tax sharing payments.

Original Area

2006-07 2007-08 2008-09 2009-10

Total Taxable Value 885,970,583 964,897,553 929,029,028 867,390,222 Less: Base Year Value 520,423,688 520,423,688 520,423,688 520,423,688 Plus: Negative TRA Increment (1) 13,660,491 8,152,789 9,124,485 9,874,097 Incremental Value 379,207,386$ 452,626,654$ 417,729,825$ 356,840,631$

Tax Increment (2) 3,792,074$ 4,526,267$ 4,177,298$ 3,568,406$ Less: Section 33676 Allocations (669,862) (767,928) (752,327) (787,455) Less: County Admin. Fees (40,991) (48,361) (46,801) (45,148) Less: Tax Sharing Payments (3) (342,665) (389,292) (517,050) (449,091) Net Tax Increment Levy 2,738,556$ 3,320,686$ 2,861,120$ 2,286,712$



Supplemental Property Taxes 536,133$ 362,645$ 34,116$ (30,778)$



Added Area

2006-07 2007-08 2008-09 2009-10

Total Taxable Value 692,994,692 736,846,360 705,417,981 704,998,530 Less: Base Year Value 206,792,656 206,792,656 206,792,656 206,792,656 Plus: Negative TRA Increment (1) 973,395 1,592,848 1,578,841 841,275 Incremental Value 487,175,431$ 531,646,552$ 500,204,166$ 499,047,149$

Tax Increment (2) 4,871,754$ 5,316,466$ 5,002,042$ 4,990,471$ Less: County Admin. Fees (60,123) (62,767) (67,621) (78,455) Less: Tax Sharing Payments (3) (786,159) (898,429) (855,038) (878,397) Net Tax Increment Levy 4,025,472 4,355,270 4,079,383 4,033,619



Supplemental Property Taxes 255,379$ 101,319$ 104,829$ 55,210$



Turlock Redevelopment Agency Exhibit D

Largest Local Secured TaxpayersFY 2010-11

Combined Areas

Taxpayers Land Use

FY 10-11 Secured AssessedValuation

Percent of Total FY 10-11 Secured

A.V. (1)

Foster Poultry Farms Industrial $64,368,911 4.76%California Dairies Inc Industrial 54,655,557 4.04%Sensient Dehydrated Flavors Inc Industrial 53,605,476 3.96%Mello Richard D & Judith G Industrial 21,207,737 1.57%Turlock Cinema Center LLC Commercial 18,390,906 1.36%Dairy Farmers Of America Industrial 15,986,327 1.18%Turlock Town Center LP Commercial 11,838,491 0.88%Valley Fresh Inc Commercial 11,118,362 0.82%Beatrice Public Ref Serv Inc Industrial 10,285,425 0.76%Volk Enterprises Inc Industrial 9,230,825 0.68%

Total $270,688,017 20.02%

(1) Based on Fiscal Year 2010-11 combined secured assessed valuation: $1,352,076,712

Original Project Area

Property Owner Land Use



A.V. (1)

Foster Poultry Farms Industrial $64,368,911 8.73%Turlock Town Center LP Industrial 11,838,491 1.60%Valley Fresh Inc Commercial 11,118,362 1.51%Evergreen Packaging Inc Industrial 7,767,997 1.05%Calaveras Materials Inc Industrial 5,955,568 0.81%Nucp Turlock LLC Industrial 5,784,908 0.78%Maffeo Bros Commercial 5,389,511 0.73%John & Janet Freitas Commercial 5,220,738 0.71%Wfp Turlock LLC Industrial 5,090,202 0.69%Doo J Commercial 4,580,739 0.62%

Total $127,115,427 17.23%

(1) Based on Fiscal Year 2010-11 secured assessed valuation: 737,678,248$

Amended Project Area

Property Owner Land Use



A.V. (1)

California Dairies Inc Industrial $54,655,557 8.90%Sensient Dehydrated Flavors Inc Industrial 53,605,476 8.72%Mello Richard D & Judith G Industrial 21,207,737 3.45%Turlock Cinema Center LLC Commercial 18,390,906 2.99%Dairy Farmers Of America Industrial 15,986,327 2.60%Beatrice Public Ref Serv Inc Industrial 10,285,425 1.67%Volk Enterprises Inc Industrial 9,230,825 1.50%Raven Investments Inc Industrial 9,074,000 1.48%J R Development Enterprises Inc Commercial 8,355,502 1.36%Fresno Farming LLC Industrial 7,679,091 1.25%

Total $208,470,846 33.93%

(1) Based on Fiscal Year 2010-11 secured assessed valuation: $614,398,464

TURLOCK REDEVELOPMENT AGENCY Exhibit ELand Use Analysis

Combined Project Area

Land UseNumber of

ParcelsSecured Assessed

Valuation (1)


A.V.

Industrial 369 443,266,142$ 32.78%Single Family Residential 3,934 408,893,743 30.24%Commercial 230 337,886,327 24.99%Multi-Family Residential 582 117,517,647 8.69%Vacant 425 40,325,402 2.98%Agriculture 22 4,140,133 0.31%Government 101 47,318 0.00%Miscellaneous 44 - 0.00%Institutional 5 - 0.00%

Total 6,163 1,352,076,712$ 100.00%

Original Area

Land UseNumber of


Valuation (1)


A.V.

Single Family Residential 2,816 234,114,076$ 31.45%Commercial 561 223,153,441 29.98%Industrial 167 167,213,442 22.46%Multi-Family Residential 542 101,046,217 13.57%Vacant 207 18,883,181 2.54%Government 78 47,318 0.01%Institutional 5 - 0.00%Miscellaneous 38 - 0.00%

Total 4,414 744,457,675$ 100.00%

Added Area

Land UseNumber of


Valuation (1)


A.V.

Industrial 202 276,052,700$ 45.43%Single Family Residential 1,118 174,779,667 28.76%Commercial 120 114,732,886 18.88%Vacant 218 21,442,221 3.53%Multi-Family Residential 40 16,471,430 2.71%Agriculture 22 4,140,133 0.68%Government 23 - 0.00%Miscellaneous 6 - 0.00%

Total 1,749 607,619,037$ 100.00%

(1) Based on Fiscal Year 2010-11 secured assessed valuation

Exhibit F

TURLOCK REDEVELOPMENT AGENCYTURLOCK REDEVELOPMENT PROJECT

Outstanding Assessment Appeals

A. Assessed Valuation of Properties with Outstanding Assessment Appeals: 124,502,838$

B. Applicant's Opinion of Value: 70,846,923$

C. Potential AV Reduction: 53,655,915$

D. Assumed AV Reductions (50%), per Additional Bonds Test from the 2006 Loan Agreement:

26,827,958$

E. Assumed Tax Rate: 1.00%

F. Gross Tax Increment Decrease: 268,280$

G. Less: LMI Housing Set-Aside (20%) 53,656$

H. Assumed Reduction to FY 2010-11 Tax Revenues: 214,624$

Outstanding Assessment Appeals Data Applicant's PotentialNumber Assessed Opinion of Valuation

Applicant of Parcels Value Value DecreaseFoster Poultry Farms 4 $5,183,664 $3,076,791 $2,106,873Sensient Dehydrated Flavors Inc 1 23,462,728 11,731,364 11,731,364Sensient Dehydrated Flavors Inc(1) 1 16,908,530 8,454,265 8,454,265Turlock Cinema Center LLC 2 15,545,000 13,000,000 2,545,000Beatrice Public Ref Serv Inc 1 10,309,858 6,974,000 3,335,858Calaveras Materials Inc 1 5,173,085 3,362,505 1,810,580Fresno Farming LLC 1 6,527,735 3,698,870 2,828,865All Others 33 41,392,238 20,549,128 20,843,110

Totals 44 $124,502,838 $70,846,923 $53,655,915

Source: County of Stanislaus

(1) Applicant has filed an appeal in more than one tax year for the same parcel.

Exhibit GTURLOCK REDEVELOPMENT AGENCYTURLOCK REDEVELOPMENT PROJECT

HISTORICAL ASSESSMENT APPEALSFor Appeals Reviewed 2007 to 2009

Assessed Value of Properties with

Appeals Filed

Owner'sOpinion Of

Value

TotalRequested AV

Reduction

Amount of Allowed

Reduction by Appeals Board

Allowed Reductions as a percentage of

RequestedReductions

154,445,205$ 95,687,843$ 58,757,362$ 12,801,560$ 21.79%

REDEVELOPMENT AGENCY OF THE CITY OF TURLOCK Exhibit HTURLOCK REDEVELOPMENT PROJECT

Foreclosure Activity

ForeclosedParcels

TotalRDA/CityParcels Percentage

ForeclosedParcels


ForeclosedParcels


Original Project Area 9 4,414 0.20% 52 4,414 1.18% 57 4,414 1.29%Added Area 3 1,749 0.17% 22 1,749 1.26% 16 1,749 0.91%

Total Project Area 12 6,163 0.19% 74 6,163 1.20% 73 6,163 1.18%

Remainder of City 14 17,355 0.08% 159 17,355 0.92% 184 17,355 1.06%Totals 26 23,518 0.11% 233 23,518 0.99% 257 23,518 1.09%

January - December 2008 January - December 2009 January - September 2010

Exhibit ITURLOCK REDEVELOPMENT AGENCYBuilding Permit Summary

Project Area - Permits IssuedJanuary 1, 2010 - August 26, 2010

Original Area:Number of Permit

Permit Description Permits Valuation

Remodel / New Fuel Station 1 500,000$ Tenant Improvements 3 412,500 Various 9 551,400 Total 13 1,463,900$

Added Area:Number of Permit

Permit Description Permits Valuation

Industrial Expansion 6 500,379$ Commercial Remodel 1 350,000 Tenant Improvements 3 280,000 Various 5 376,505 Total 15 1,506,884$

Turlock Redevelopment Agency Exhibit JResale Activity

Number of Transactions (1)

Secured Assessed Valuation (2) Sales Price (3) Difference (4)

Original AreaJanuary- October 5, 2010 215 31,537,225$ 30,592,433$ (944,792)$

Amended AreaJanuary- October 5, 2010 82 20,921,367$ 20,628,472$ (292,895)$

Total 297 52,458,592$ 51,220,905$ (1,237,687)$

Source: MetroScan

(1) Represents property resale transactions for properties with a reported full sales/transfer price. (2) FY 2010-11 Assessed Valuation of resale properties. (3) Reported full sales/transfer price of resale properties. (4) Difference has been deducted from projected FY 2011-12 Assessed Valuations in Exhibits A, A-1, A-2, and A-3.

Exhibit K

D-1

APPENDIX D

SUMMARY OF PRINCIPAL DOCUMENTS

The following is a brief summary of certain provisions of the Trust Agreement and the Loan Agreement. This

summary is not intended to be definitive and is qualified in its entirety by reference to the Trust Agreement and the

Loan Agreement for the complete terms thereof. Copies of these documents are available upon request from the

Trustee.

DEFINITIONS

The following are summaries of definitions of certain terms used in this Summary of Principal Legal Documents.

Unless the context clearly requires otherwise, all capitalized terms not defined herein or elsewhere in the Official

Statement have the meanings set forth in the Trust Agreement, and if not in the Trust Agreement, then the Loan

Agreement.

“Accountant” shall mean an independent certified public accountant, or a firm of independent

certified public accountants, selected by the Authority.

“Act” shall mean Articles 1 through 4 of Chapter 5 of Division 7 of Title 1 of the California

Government Code, as amended and supplemented from time to time.

“Additional Bonds” means all bonds of the Authority authorized and executed pursuant to the

Trust Agreement and issued and delivered in accordance with the Trust Agreement.

“Additional Revenues” shall mean as of the date of calculation, the amount of additional Tax Revenues which, as shown in the Report of an Independent Redevelopment Consultant, is estimated to be receivable

by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made as a result of

increases in the assessed valuation of taxable property in the Project Area due to any additional assessed valuation of

taxable property as to which construction has been completed.

“Agency” shall mean the Turlock Redevelopment Agency and its successors.

“Authority” shall mean the Turlock Public Financing Authority, a joint exercise of powers agency

established pursuant to the laws of the State, and its successors.

“Authorized Denominations” shall mean $5,000 and any integral multiple thereof, but not

exceeding the principal amount of Bonds maturing on any one date.

“Authorized Officer” shall mean (i) with respect to the Authority, the Chair, Vice-Chair or

Executive Director of the Authority or any other Person authorized by the Authority in a Written Order to perform an act or sign a document on behalf of the Authority for purposes of the Trust Agreement or the Loan Agreement, or

(ii) with respect to the Agency, the Chair, the Vice Chair or the Executive Director of the Agency or any other

Person authorized by the Agency in a Written Order to perform an act or sign a document on behalf of the Agency

for purposes of the Trust Agreement or the Loan Agreement.

“Bond Counsel” shall mean Richards, Watson & Gershon, A Professional Corporation, Los

Angeles, California, or a firm of attorneys of favorable reputation in the field of municipal bond law.

“Bond Law” shall mean the Marks-Roos Local Bond Pooling Act of 1985, being Article 4 of

Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California.

“Bond Register” shall mean the registration books specified as such in the Trust Agreement.

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“Bond Year” shall mean (1) with respect to the initial Bond Year, the period from the date the

Bonds are originally delivered to and including the first succeeding September 1, and (2) thereafter, each twelve-

month period from September 2 in any calendar year to and including September 1 in the following calendar year.

“Bonds” shall mean 2011 Bonds and all Additional Bonds.

“Business Day” shall mean any day other than (i) a Saturday or Sunday or (ii) a day on which

commercial banks in New York, New York or the city in which the Principal Corporate Trust Office of the Trustee is located are closed.

“Cash Flow Certificate” shall mean a written certificate executed by a Cash Flow Consultant.

“Cash Flow Consultant” shall mean any independent financial advisor or independent certified

accountant retained by the Authority or the Agency to provide services with respect to the Bonds; provided, that

with respect any Cash Flow Certificate delivered pursuant to the provision of the Trust Agreement relating to the

defeasance of Bonds, Cash Flow Consultant shall be an independent certified accountant retained by the Authority

or the Agency to act as a verification agent with respect thereto.

“City” shall mean the City of Turlock, California, and its successors.

“Closing Date” shall mean the date of initial issuance and delivery of the Bonds.

“Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations

thereunder.

“County” shall mean Stanislaus County, California.

“Debt Service” means, for any Fiscal Year or other period, the sum of (a) the interest due and

payable during such Fiscal Year or other period with respect to the 2011 Loan and all outstanding Parity Debt,

assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments on any such

Parity Debt are made as scheduled, (b) that portion of the principal amount of the 2011 Loan and all outstanding

Parity Debt maturing during such Fiscal Year or other period; and (c) that portion of the principal amount of the

2011 Loan and all outstanding Parity Debt required to be redeemed or paid (together with the redemption premiums,

if any, thereof) during such Fiscal Year or other period. “Debt Service” shall not include (x) interest on Parity Debt

which is to be paid from amounts constituting capitalized interest or (y) that portion of the proceeds of any Parity

Debt required to remain unexpended and to be held in escrow pursuant to the terms of a Parity Debt Instrument,

provided that (i) projected interest earnings on such proceeds, plus such amounts, if any, deposited by the Agency in

the Interest Account, are sufficient to pay the interest due on such portion of the Parity Debt so long as it is required to be held in escrow and (ii) the conditions for the release of such proceeds from escrow, insofar as they relate to

Tax Revenue coverage and satisfaction of the Reserve Requirement pursuant to the Trust Agreement, are

substantially similar to those for the issuance of Parity Debt.

“Debt Service Account” shall mean the account within the Revenue Fund by that name established

and maintained pursuant to the Trust Agreement.

“Debt Service Fund” shall mean the “Redevelopment Project Debt Service Fund” held by the

Trustee pursuant to the Loan Agreement.

“Event of Default” shall mean any event of default specified as such in the Trust Agreement or the

Loan Agreement, as applicable.

“Expense Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Expenses” shall mean all costs of issuing the Bonds and all administrative costs of the Authority

that are charged directly or apportioned to the administration of the Loan and the Bonds, such as salaries and wages

D-3

of employees, audits, overhead and taxes (if any), legal and financial consultant fees and expenses, amounts

necessary to pay to the United States of America or otherwise to satisfy requirements of the Code in order to

maintain the tax-exempt status of the Bonds, and compensation, reimbursement and indemnification of the Trustee

(including attorneys’ fees), together with all other reasonable and necessary costs of the Authority or charges

required to be paid by it to comply with the terms of the Trust Agreement or of the Bonds or in connection with the

Loan.

“Fiscal Year” shall mean the fiscal year of the Authority and the Agency, which at the Closing

Date, is the period commencing on July 1 in each calendar year and ending on June 30 in the following calendar

year.

“Funds” shall mean, collectively, the Revenue Fund, the Interest Fund, the Principal Fund, the

Redemption Fund, the Expense Fund, the Reserve Fund, the Surplus Fund, the 2011 Project Fund and the Rebate

Fund, including all accounts therein.

“Government Obligations” shall mean and include any of the following (to the extent that at the

time of investment are legal investments under the laws of the State for the proposed purpose):

(i) United States Treasury Obligations – State and Local Government Series

(SLGS), United States Treasury bills, notes and bonds, and other non-callable direct obligations of the United States

of America (“Treasuries”),

(ii) evidences of ownership of proportionate interests in future interest and principal payments on Treasuries held by a bank or trust company as custodian, under which the owner of the investment is

the real party in interest and has the right to proceed directly and individually against the obligor and the underlying

Treasuries are not available to any person claiming through the custodian or to whom the custodian may be

obligated;

(iii) pre-refunded municipal obligations rated “AAA” and “Aaa” by S&P and

Moody’s, respectively;

(iv) securities eligible for “AAA” defeasance under then existing criteria of S&P; or

(v) any combination of the foregoing.

“Housing Fund” shall mean the Housing Fund established pursuant to Section 33334.3 of the

Redevelopment Law and held by the Agency.

“Independent Certified Accountant” shall mean any certified public accountant or firm of certified public accountants duly licensed or registered or entitled to practice and practicing as such under the laws of the

State, appointed by the Agency, and who, or each of whom:

(a) is in fact independent and not under domination of the Agency, the Authority or

the City;

(b) does not have any substantial interest, direct or indirect, in the Agency, the

Authority or the City; and

(c) is not connected with the Agency, the Authority or the City as an officer or

employee of the Agency, the Authority or the City, but who may be regularly retained to make reports to the

Agency, the Authority or the City.

“Independent Redevelopment Consultant” shall mean any consultant or firm of such consultants

appointed by the Agency, and who, or each of whom:

D-4

(a) is judged by the Agency to have experience in matters relating to the collection

of Tax Revenues or otherwise with respect to the financing of redevelopment projects;

(b) is in fact independent and not under the domination of the Agency;

(c) does not have any substantial interest, direct or indirect, in the Agency; and

(d) is not connected with the Agency as an officer or employee of the Agency, but

who may be regularly retained to make reports to the Agency.

“Information Services” shall mean the following information services: Financial Information,

Inc.’s “Daily Called Bond Service,” 30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention:

Editor; FIS/Mergent, Inc., 5250 77 Center Drive, Suite 150, Charlotte, North Carolina 28217, Attention: Call

Notification; Standard & Poor’s Securities Evaluation, Inc., 55 Water Street, 45 Floor, New York, New York 10041,

Attention: Notification Department; Xcitek, 5 Hanover Square, New York, New York 10004; or, in accordance with

then-current guidelines of the Securities and Exchange Commission, such other services providing information with

respect to called bonds, or no such services, as the Authority may designate in an Officer’s Certificate delivered to

the Trustee.

“Interest Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Interest Payment Date” shall mean March 1 and September 1 in each year, commencing on

March 1, 2011.

“Investment Securities” shall mean and include any of the following securities (to the extent that at the time of investment are legal investments under the laws of the State for the proposed purpose):

(i) Direct obligations (other than an obligation subject to variation in principal

repayment) of the United States of America;

(ii) Obligations fully and unconditionally guaranteed as to timely payment of

principal and interest by the United States of America;

(iii) Obligations fully and unconditionally guaranteed as to timely payment of

principal and interest by any agency or instrumentality of the United States of America when such obligations are

backed by the full faith and credit of the United States of America.

(iv) Evidences of ownership of proportionate interests in future interest and principal

payments on obligations described in clause (i), (ii) or (iii) above held by a bank or trust company as custodian,

under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming

through the custodian or to whom the custodian may be obligated.

(v) Federal Housing Administration debentures.

(vi) The listed obligations of government-sponsored agencies which are not backed

by the full faith and credit of the United States of America:

(a) Federal Home Loan Mortgage Corporation (FHLMC);

(b) Participation certificates (excluded are stripped mortgage securities

which are purchased at prices exceeding their principal amounts) - Senior Debt obligations;

(c) Farm Credit Banks (formerly: Federal Land Banks, Federal

Intermediate Credit Banks and Banks for Cooperatives) Consolidated system-wide bonds and notes;

D-5

(d) Federal Home Loan Banks (FHL Banks) Consolidated debt obligations;

(e) Federal National Mortgage Association (FNMA) Senior debt

obligations Mortgage-backed securities (excluded are stripped mortgage securities which are purchased at prices

exceeding their principal amounts);

(f) Student Loan Marketing Association (SLMA) Senior debt obligations

(excluded are securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date);

(g) Financing Corporation (FICO) Debt obligations;

(h) Resolution Funding Corporation (REFCORP) Debt obligations.

(vii) Unsecured certificates of deposit, time deposits, and bankers’ acceptances

(having maturities of not more than 30 days) of any bank the short-term obligations of which are rated “A-1” or

better by S&P.

(viii) Deposits the aggregate amount of which are fully insured by the Federal Deposit

Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million, including certificates

of deposit placed through the CDARS program.

(ix) Commercial paper (having original maturities of not more than 270 days) rated

“A-1+” by S&P and “Prime-1” by Moody’s.

(x) Money market funds rated “Aam” or “AAm-G” by S&P, or better.

(xi) “State Obligations,” which means.

(a) Direct general obligations of any state of the United States of America

or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general

obligation debt of which is rated “A3” by Moody’s and “A” by S&P, or better, or any obligation fully and

unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated;

(b) Direct general short-term obligations of any state agency or subdivision

or agency thereof described in (a) above and rated “A-1+” by S&P and “MIG-1” by Moody’s;

(c) Special Revenue Bonds (as defined in the United States Bankruptcy

Code) of any state, state agency or subdivision described in (A) above and rated “AA” or better by S&P and “Aa” or

better by Moody’s;

(xii) Pre-refunded municipal obligations rated “AAA” by S&P and “Aaa” by Moody’s meeting the following requirements:

(a) the municipal obligations are (1) not subject to redemption prior to

maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call

and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations

other than as set forth in such instructions;

(b) the municipal obligations are secured by cash or direct obligations

(other than an obligation subject to variation in principal repayment) of the United States of America (“United States

Treasury Obligations”) which may be applied only to payment of the principal of, interest and premium on such

municipal obligations;

D-6

(c) the principal of and interest on the United States Treasury Obligations

(plus any cash in the escrow) has been verified by the report of independent certified public accountants to be

sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal

obligations (“Verification”);

(d) the cash or United States Treasury Obligations serving as security for

the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations;

(e) no substitution of a United States Treasury Obligation shall be

permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and

(f) the cash or United States Treasury Obligations are not available to

satisfy any other claims, including those by or against the trustee or escrow agent

(xiii) Repurchase agreements with (1) any domestic bank, or domestic branch of a

foreign bank, the long term debt of which is rated at least “A” by S&P and Moody’s; or (2) any broker-dealer with

“retail customers” or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees

the provider) of which has, long-term debt rated at least “A” by S&P and Moody’s, which broker-dealer falls under

the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated “A” or better by S&P

and Moody’s, provided that:

(a) The market value of the collateral is maintained at levels and upon such

conditions as would be acceptable to S&P and Moody’s to maintain an “A” rating in an “A” rated structured financing (with a market value approach); provided, however, that such collateral levels need not be met, if a

repurchase agreement has a term of 270 days or less (with no evergreen provision), and so long as such collateral

levels are 103 percent or better and the provider is rated at least “A” by S&P and Moody’s;

(b) The Trustee or a third party acting solely as agent therefor or for the

Authority (the “Holder of the Collateral”) has possession of the collateral or the collateral has been transferred to the

Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the

transferor’s books);

(c) The repurchase agreement shall state and an opinion of counsel shall be

rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security

interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this

means the Holder of the Collateral is in possession);

(d) All other requirements of S&P in respect of repurchase agreements

shall be met; and

(e) The repurchase agreement shall provide that if during its term the

provider’s rating by either Moody’s or S&P is withdrawn or suspended or falls below “A-” by S&P or “A3” by

Moody’s, as appropriate, the provider must, at the direction of the Authority or the Trustee, within 10 days of receipt

of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the Authority

or Trustee.

(xiv) Investment agreements with a domestic or foreign bank or corporation (other

than a life or property casualty insurance company) the long-term debt of which, or, in the case of a guaranteed

corporation the long-term debt, or, in the case of a monoline financial guaranty insurance company, claims paying

ability, of the guarantor is rated at least “AA” by S&P and “Aa” by Moody’s; provided that, by the terms of the

investment agreement:

(a) Interest payments are to be made to the Trustee at times and in amounts

as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on

the Bonds;

D-7

(b) The invested funds are available for withdrawal without penalty or

premium, at any time upon not more than seven days’ prior notice (and the Authority and the Trustee agree to give

or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds

thereunder with no penalty or premium paid);

(c) The investment agreement shall state that the provider’s payment

obligation thereunder is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel, shall state that the

obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its

other depositors and its other unsecured and unsubordinated creditors;

(d) The Authority or the Trustee receives the opinion of domestic counsel

(which opinion shall be addressed to the Authority) that such investment agreement is legal, valid, binding and

enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable);

(e) The investment agreement shall provide that if during its term:

(I) the provider’s rating by either S&P or Moody’s falls below

“AA-” or “Aa3”, respectively, the provider shall, at its option, within 10 days of receipt of publication of such

downgrade, either (A) collateralize the investment agreement by delivering or transferring in accordance with

applicable state and federal laws (other than by means of entries on the provider’s books) to the Authority, the

Trustee or a third party acting solely as agent therefor (the “Holder of the Collateral”) collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as

would be acceptable to S & P and Moody’s to maintain an “A” rating in an “A” rated structured financing (with a

market value approach); or (B) repay the principal of and accrued but unpaid interest on the investment, and

(II) the provider’s rating by either S&P or Moody’s is withdrawn

or suspended or falls below “A-” or “A3”, respectively, the provider must, at the direction of the Authority or the

Trustee, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the

investment, in either case with no penalty or premium to the Authority or Trustee,

(f) The investment agreement shall state and an opinion of counsel shall be

rendered, in the event collateral is required to be pledged by the provider under the terms of the investment

agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority

security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession);

(g) the investment agreement must provide that if during its term:

(I) the provider shall default in its payment obligations, the

provider’s obligations under the investment agreement shall, at the direction of the Authority or the Trustee), be

accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the Authority or Trustee,

as appropriate, and

(II) the provider shall become insolvent, not pay its debts as they

become due, be declared or petition to be declared bankrupt, etc. (“event of insolvency”), the provider’s obligations

shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to

the Authority or Trustee, as appropriate.

(xv) State of California Local Agency Investment Fund.

“Loan” shall mean the 2011 Loan and Parity Debt issued so as to increase the amount of the Loan Installments under the Loan Agreement.

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“Loan Agreement” shall mean the Loan Agreement, dated as of August 1, 2006, by and among the

Authority, the Agency and the Trustee, as amended or supplemented from time to time in accordance with its terms.

“Loan Installments” shall mean principal and interest installments of the Loan, payable in the

amounts and at the times specified in the Loan Agreement relating to terms of the Loan, together with any premium

payable in connection with prepayment of the Loan.

“Maximum Annual Debt Service” shall mean, with respect to the Bonds, the largest Annual Debt Service during the period from the date of such determination through the final maturity date of any Outstanding

Bonds.

“Maximum Annual Debt Service” shall mean, as of the date of calculation, the greatest total Debt

Service with respect to the 2011 Loan and all outstanding Parity Debt, scheduled to become payable in any Fiscal

Year during the period commencing with the then current Fiscal Year and terminating with the Fiscal Year in which

the last payments are due under the Loan Agreement or the last outstanding Parity Debt Instrument, whichever is

later. For purposes of such calculation, at the option of the Agency, there may be excluded a pro rata portion of each

installment of principal of any Parity Debt, together with the interest to accrue thereon, to the extent that the

proceeds of such Parity Debt are deposited in an escrow fund from which amounts may not be released to the

Agency unless the Tax Revenues for the current Fiscal Year (calculated in accordance with the Loan Agreement), as

reported by the County (plus, at the option of the Agency, Additional Revenues) at least equals 125 percent of the

amount of Maximum Annual Debt Service.

“Moody’s” shall mean Moody’s Investors Service, its successors and assigns.

“1999 Bonds” means the $4,790,000 Turlock Public Financing Authority Revenue Bonds, Series

1999.

“1999 Loan” means the outstanding balance of the loan made by the Authority to the Agency

pursuant to the 1999 Loan Agreement.

“1999 Loan Agreement” means the Loan Agreement, dated as of March 1, 1999, by and among

the Authority, the Agency and State Street Bank and Trust Company of California, N.A., as prior trustee, as

succeeded by the U.S. Bank National Association, as the trustee.

“1999 Trust Agreement” means the Trust Agreement relating to the 1999 Bonds, by and between

the Authority and U.S. Bank National Association (as predecessor in interest to State Street Bank and Trust

Company of California, N.A.), dated as of March 1, 1999.

“1999 Trustee” means U.S. Bank National Association (as predecessor in interest to State Street

Bank and Trust Company of California, N.A), as trustee under the 1999 Trust Agreement.

“Officer’s Certificate” shall mean a certificate signed by an Authorized Officer.

“Opinion of Bond Counsel” shall mean a legal opinion signed by Bond Counsel.

“Outstanding” shall mean, as of any date, the aggregate of Bonds authorized, issued, authenticated

and delivered under the Trust Agreement, except:

(a) Bonds cancelled or surrendered to the Trustee for cancellation pursuant to the

Trust Agreement;

(b) Bonds deemed to have been paid as provided in the Trust Agreement; and

(c) Bonds in lieu of or in substitution for which other Bonds shall have been

authenticated and delivered pursuant to the Trust Agreement.

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“Owner” shall mean, as of any date, the Person or Persons in whose name or names a particular

Bond shall be registered on the Bond Register as of such date.

“Parity Debt” shall mean the 1999 Loan, the 2006 Loan and any other loans, bonds, notes,

advances or indebtedness payable from the Pledged Tax Revenues on a parity with the 2011 Loan, issued or

incurred pursuant to and in accordance with the provisions of the Loan Agreement.

“Parity Debt Instrument” means the 1999 Loan Agreement, the 2006 Loan Agreement, any supplement to the Loan Agreement that provides for the issuance of Parity Debt so as to increase the amount of the

Loan Installments payable under the Loan Agreement, and any other instrument that provides for the issuance of

Parity Debt in accordance with the Loan Agreement.

“Person” shall mean an individual, a corporation, a partnership, an association, a joint stock

company, a trust, any unincorporated organization or a government or political subdivision thereof.

“Pledged Tax Revenues” shall mean, for any Fiscal Year, all Tax Revenues received by the

Agency for such Fiscal Year; provided that Pledged Tax Revenues for any Fiscal Year shall not exceed (a) the Debt

Service for such Fiscal Year (less any amounts then on deposit in the Debt Service Fund, other than (i) Tax

Revenues received for such Fiscal Year and deposited in the Debt Service Fund or in any account therein or

(ii) amounts representing investment earnings that may be released to the Agency pursuant to the Loan Agreement),

plus (b) the amounts if any, necessary to be deposited in the Reserve Fund to maintain the Reserve Requirement

“Prepayment” shall mean any prepayment of principal received with respect to the Loan earlier than the time scheduled for payment pursuant to the Loan Agreement.

“Principal Corporate Trust Office” shall mean the corporate trust office of the Trustee in San

Francisco, California, at the address set forth in the Trust Agreement; provided, however, for transfer, registration,

exchange, payment and surrender of Bonds, “Principal Corporate Trust Office” means the corporate trust office of

U.S. Bank National Association in St Paul, Minnesota, or such other office designated by the Trustee from time to

time.

“Principal Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Principal Installment” shall mean, with respect to any Principal Payment Date, the principal

amount of Outstanding Bonds due on such date, if any.

“Principal Payment Date” shall mean September 1 of each year commencing September 1, 2011

and ending September 1, 2039

“Project Area” shall mean the area in which the Turlock Redevelopment Project as described in

the Redevelopment Plan.

“Rebate Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Redemption Fund” shall mean the Fund by that name established pursuant to the Trust

Agreement.

“Redevelopment Fund” shall mean that fund established pursuant to the Loan Agreement.

“Redevelopment Law” shall mean the Community Redevelopment Law of the State of California,

constituting Part 1 of Division 24 of the Health and Safety Code of the State of California, and acts amendatory

thereof and supplemental thereto.

“Redevelopment Plan” shall mean the redevelopment plan for the Project Area of the Agency,

adopted and approved as the Redevelopment Plan for the Project by Ordinance No. 834, adopted by the City

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Council of the City on November 23, 1993, as amended by Ordinance No. 863, adopted on November 1, 1994, and

as further amended by Amendment No. 1 to the Turlock Redevelopment Plan for the Turlock Redevelopment

Project, approved by Ordinance No. 906, adopted on July 9, 1996, and as further amended by all amendments

thereto hereafter made in accordance with the Redevelopment Law.

“Redevelopment Project” shall mean the undertaking of the Agency pursuant to the

Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area.

“Report” shall mean a document in writing signed by an Independent Redevelopment Consultant

or an Independent Certified Public Accountant and including:

(a) a statement that the person or firm making or giving such Report has read the

pertinent provisions of the Loan Agreement to which such Report relates;

(b) a brief statement as to the nature and scope of the examination or investigation

upon which the Report is based; and

(c) a statement that, in the opinion of such person or firm, sufficient examination or

investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the

subject matter referred to in the Report.

“Reserve Financial Guaranty” shall mean a policy of municipal bond insurance or surety bond

issued by a municipal bond insurer or a letter of credit issued by a bank or other institution if the obligations insured

by such insurer or issued by such bank or other institution, as the case may be, have ratings at the time of issuance of such policy or surety bond or letter of credit in the highest rating category (without regard to qualifiers) by S&P and

Moody’s and, if rated by A.M. Best & Company, also in the highest rating category (without regard to qualifiers) by

AM. Best & Company.

“Reserve Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Reserve Requirement” means, so long as the 2011 Bonds are the only Bonds Outstanding under

the Trust Agreement, $1,329,143.76; and if any Additional Bonds are Outstanding under the Trust Agreement, as of

any date of calculation, the least of (i) Maximum Annual Debt Service (exclusive of the 1999 Loan and the 2006

Loan), (ii) 10 percent of the sum of the original principal amounts of all Loans then Outstanding (exclusive of the

1999 Loan and the 2006 Loan), or (iii) 125 percent of the average annual Debt Service (exclusive of the 1999 Loan

and the 2006 Loan).

“Responsible Officer” shall mean any Vice-President, Senior Vice-President, Assistant Vice-President, or Trust Officer of the Trustee having regular responsibility for corporate trust matters.

“Revenue Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Revenues” shall mean all amounts received by the Trustee as the payment of interest or

redemption premium on, or the equivalent thereof, and the payment or return of principal of, or the equivalent

thereof, the Loan, whether as a result of scheduled payments or Prepayments or remedial proceedings taken in the

event of a default thereon, and all investment earnings on any moneys held in the Funds or accounts established

under the Trust Agreement, except the Rebate Fund.

“S&P” shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill

Companies, Inc., its successors and assigns.

“Securities Depositories” shall mean The Depository Trust Company, 55 Water Street, 50th Floor,

New York, New York, 10041, Attn: Call Notification Department, Fax (212) 855-7232; and, in accordance with

then current guidelines of the Securities and Exchange Commission, such other addresses or such other securities depositories as the Authority may designate to the Trustee in writing.

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“Serial Bonds” shall mean Bonds for which no Sinking Account Installments are provided.

“Sinking Account Installment” shall mean the amount of money required to be paid by the

Authority on a Sinking Account Payment Date toward the retirement of any particular Term Bonds on or prior to

their respective stated maturities, as set forth in the Trust Agreement.

“Sinking Account Payment Date” shall mean any September 1 on which Sinking Account

Installments on Term Bonds are scheduled to be paid, as set forth in the Trust Agreement

“State” shall mean the State of California.

“Subordinate Debt” shall mean any loan, bond, note, advance, or other indebtedness of the Agency

payable from Tax Revenues which is subordinate to the Loan.

“Subordinate Debt Instrument” shall mean any resolution, loan agreement, trust agreement or

other instrument authorizing any Subordinate Debt.

“Supplemental Trust Agreement” shall mean any agreement supplemental to or amendatory of the

Trust Agreement which is duly executed and delivered in accordance with the provisions of the Trust Agreement.

“Surplus Fund” shall mean the Fund by that name established pursuant to the Trust Agreement.

“Tax Certificate” shall mean Certificate Regarding Compliance with Certain Tax Matters, dated

the date of the original delivery of the Bonds relating to the requirements of certain provisions of the Code, as each

such certificate may from time to time be modified or supplemented in accordance with the terms thereof.

“Tax Revenues” shall mean, for each Fiscal Year, the taxes (including all payments, reimbursements and subventions, if any, specifically attributable to ad valorem taxes lost by reason of tax

exemptions and tax rate limitations) eligible for allocation to the Agency pursuant to the Law in connection with the

Project Area, excluding (a) the amount of such taxes required by the Law to be deposited in the Housing Fund and

used for certain housing purposes, except to the extent such amounts are used to pay principal or interest or other

financing charges with respect to that portion of the Bonds of which the proceeds were used to increase, improve or

preserve the supply of low and moderate income housing within or of benefit to the Project Area, (b) amounts

payable to affected taxing entities pursuant to the Redevelopment Law or pass-through agreements with any such

entities, to the extent such payments are not subordinated to the Agency’s obligation to make payments pursuant to

the Loan Agreement and (c) amounts, if any, received by the Agency pursuant to Section 16111 of the Government

Code), as provided in the Redevelopment Plan. As of the Closing Date, the Agency does not plan to use any of the

money deposited in the 2011 Project Fund for low and moderate income housing purposes.

“Term Bonds” shall mean Bonds which are payable on or before their specified maturity dates

from Sinking Account Installments established for that purpose.

“Trust Agreement” shall mean that certain Trust Agreement dated as of August 1, 2006, by and

between the Authority and the Trustee, pursuant to which the Bonds are to be issued, as amended or supplemented

from time to time in accordance with its terms.

“Trustee” shall mean U.S. Bank National Association, a national banking association, in its

capacity as trustee under the Trust Agreement, and any successor as trustee under the Trust Agreement.

“Trust Estate” shall mean each and all of the following:

(a) the proceeds of sale of the Bonds;

(b) the Revenues;

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(c) the amounts in the Funds established by the Trust Agreement, except amounts in

the Rebate Fund; and

(d) the rights and interest of the Authority under the Loan Agreement, (except the

Authority’s rights to indemnification of the Authority and reimbursement for any of the Authority’s costs or

expenses thereunder).

“2006 Bonds” means the $25,440,000 Turlock Public Financing Authority Tax Allocation Revenue Bonds, Series 2006.

“2006 Loan” means the outstanding balance of the loan made by the Authority to the Agency

pursuant to the 2006 Loan Agreement.

“2006 Loan Agreement” means the Loan Agreement, dated as of August 1, 2006, by and among

the Authority, the Agency and U.S. Bank National Association, as trustee.

“2011 Bonds” means the Turlock Public Financing Authority Tax Allocation Revenue Bonds,

Series 2011, issued under the Trust Agreement.

“2011 Loan” means the outstanding balance of the loan made under the Loan Agreement dated, as

of February 1, 2011, in the original principal amount of $15,300,000 and funded on the Closing Date with respect to

the 2011 Bonds.

“2011 Project Fund” shall mean the fund by that name established pursuant to the Trust

Agreement.

“Written Certificate of the Agency” shall mean a request or certificate, in writing, signed by the

Chair of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose.

“Written Order” shall mean a written direction of the Authority or the Agency to the Trustee

signed by an Authorized Officer.

TRUST AGREEMENT

Establishment of Funds

There is established with the Trustee the following special trust funds for the Bonds, which the

Trustee shall keep separate and apart from all other funds and moneys held by it: the Revenue Fund, the Interest

Fund, the Principal Fund, the Redemption Fund, the Reserve Fund, the Expense Fund, the Surplus Fund, the 2011

Project Fund and the Rebate Fund.

Revenue Fund. (a) All Revenues, other than Revenues described in subsections (b) and (c) below, received by the Trustee will be deposited by the Trustee into the Debt Service Account within the Revenue Fund.

The Trustee will transfer Revenues from the Debt Service Account, in the amounts and at the times specified in the

Trust Agreement for deposit into the following respective funds in the following order of priority:

(1) Interest Fund;

(2) Reserve Fund;

(3) Expense Fund; and

(4) Surplus Fund.

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(b) All Revenues derived from Prepayments received by the Trustee will be deposited in the

Redemption Fund to be used to redeem Bonds pursuant to the provisions of the Trust Agreement.

(c) All Revenues derived from regularly scheduled principal payments of Loan will be

deposited in the Principal Fund and applied in accordance with the Trust Agreement.

Interest Fund. The Trustee will deposit in the Interest Fund before each Interest Payment Date or

redemption date from the Debt Service Account an amount of Revenues which together with any amounts then on deposit in said Fund is equal to the interest on the Bonds due on such date. On each Interest Payment Date, the

Trustee shall pay the interest due and payable on the Bonds on such date from the Interest Fund. All amounts in the

Interest Fund shall be used and withdrawn by the Trustee solely for the purpose of paying interest on Bonds as it

shall become due and payable (including accrued interest on any Bonds purchased or redeemed prior to maturity

pursuant to the Trust Agreement).

Reserve Fund. As soon as practicable before each Interest Payment Date, after making the deposit

to the Interest Fund as described above, the Trustee shall deposit into the Reserve Fund from the Debt Service

Account an amount of Revenues which, together with amounts then on deposit in the Reserve Fund, equals the

Reserve Requirement. The Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys or one

or more Reserve Financial Guaranties or any combination thereof, which in the aggregate make funds available in

the Reserve Fund in an amount equal to the Reserve Requirement. Upon the deposit with the Trustee of any such

Reserve Financial Guaranty, the Trustee shall release moneys from the Reserve Fund to the Debt Service Account of the Revenue Fund, in an amount equal to the face amount of such Reserve Financial Guaranty.

Except as provided in the following paragraphs, all moneys in the Reserve Fund will be used and

withdrawn by the Trustee solely for the purpose of paying the interest on or the principal of or the redemption

premium, if any, on the Bonds; but solely if insufficient moneys are available in the Interest Fund, the Principal

Fund, the Redemption Fund or the Surplus Fund for such purpose.

After making each semi-annual valuation of the amount in the Reserve Fund pursuant to the Trust

Agreement, if the Trustee determines that moneys held in the Reserve Fund equal or exceed the amount necessary to

redeem all Outstanding Bonds plus any then-applicable premium on such Bonds, the Trustee shall notify the

Authority about such fact and, upon consent of the Authority, shall liquidate the Investment Securities in the

Reserve Fund and deposit all such moneys in the Redemption Fund to redeem Outstanding Bonds pursuant to the

Trust Agreement.

On any date that a portion of the Bonds are subject to redemption, the Authority may, in an

Written Order, instruct the Trustee to release money from the Reserve Fund and apply such money for the

redemption of the called Bonds, so long as the amount that will remain on deposit in the Reserve Fund shall be at

least equal to the Reserve Requirement effective after such redemption, as certified by the Authority in such Written

Order.

On or before each Interest Payment Date, the Trustee shall transfer amounts in Reserve Fund

exceeding the Reserve Requirement to the Interest Fund; provided, however, that if the 2011 Bonds are the only

Bonds then Outstanding, the Trustee shall not release or transfer any amounts in excess of the Reserve Requirement

until the amount then on deposit in the Reserve Fund exceeds the least of: (i) Maximum Annual Debt Service

calculated with respect to solely the 2011 Loan, (ii) 10 percent of the sum of the original principal amount of the

2011 Loan, or (iii) 125 percent of the average annual Debt Service calculated with respect to solely the 2011 Loan.

Expense Fund. After making the deposits required by the Trust Agreement relating to the Interest Fund and Reserve Fund, the Trustee will deposit from the Debt Service Account into the Expense Fund an amount

of Revenues, specified in a Written Order as necessary (taking into account amounts then on deposit therein) to pay

all Expenses as they become due and payable. The Trustee will also deposit in the Expense Fund all amounts paid to

the Trustee pursuant to the Trust Agreement relating to payment of expenses. Amounts in the Expense Fund will be

applied by the Trustee to the payment of Expenses upon receipt of a Written Order stating the Person to whom

payment is to be made, the amount and purpose of the payment and that the payment is a proper charge against the

Expense Fund. Notwithstanding the foregoing, the Trustee will transfer all amounts in the Expense Fund that

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represent money derived from the sale of the Bonds to the Debt Service Account on the earlier of (A) 120 days after

the Closing Date, or (B) receipt of a Written Order from the Authority stating that all of the costs of issuance with

respect to the Bonds have been paid.

Surplus Fund. After making the deposits required by the Trust Agreement relating to the Interest

Fund, Reserve Fund and Expense Fund, the Trustee shall deposit any moneys remaining in the Debt Service

Account in the Surplus Fund. Amounts in the Surplus Fund (together with any earnings thereon) will be withdrawn upon a Written Order of the Authority within one year of receipt of such funds by the Trustee and transferred to the

Authority and applied to the payment of Expenses or the acquisition or construction of capital improvements by the

Agency. Prior to such withdrawal and transfer, money in the Surplus Fund may be used and withdrawn by the

Trustee for the purpose of paying the principal of and the interest and redemption premium, if any, on the Bonds or

Expenses; but solely in the event that insufficient moneys are available for such purpose in the Interest Fund, the

Principal Fund or the Redemption Fund.

Principal Fund. All moneys transferred to the Principal Fund pursuant to the Trust Agreement

shall be applied to the payment of the Principal Installments or Sinking Account Installments, as applicable, of the

Bonds when due on each Principal Payment Date.

Redemption Fund. (a) All moneys held in or transferred to the Redemption Fund from the

Revenue Fund or the 2011 Project Fund pursuant to the Trust Agreement shall be used for the purpose of optionally

redeeming or purchasing all or a portion of the Outstanding Bonds pursuant to the Trust Agreement.

(b) All moneys held in or transferred to the Redemption Fund from the Reserve Fund

pursuant to the Trust Agreement, or by the Authority for the purpose of optionally redeeming Bonds pursuant to the

Trust Agreement, shall be used for the purpose of optionally redeeming or purchasing in lieu of redemption all or a

portion of the Outstanding Bonds.

(c) The Trustee will use amounts in the Redemption Fund solely for the payment of the

redemption price of Bonds called for redemption or the purchase price of Bonds purchased. Accrued interest to the

redemption or purchase date on such Bonds shall be paid from the Interest Fund.

2011 Project Fund. On the Closing Date, the Trustee shall deposit a portion of the sale proceeds

of the Bonds in the 2011 Project Fund. Moneys in the 2011 Project Fund shall be transferred to the Agency from

time to time upon receipt by the Trustee of a requisition of the Agency. Upon written request of the Agency, any

amount in the 2011 Project Fund may be transferred to the Debt Service Account of the Revenue Fund.

Rebate Fund. The Trustee agrees to establish and maintain a fund separate from any other fund

established and maintained under the Trust Agreement designated the Rebate Fund. The Trustee will deposit in the

Rebate Fund the Rebate Amount from funds provided by the Authority all in accordance with Rebate Instructions

received from the Authority, if any. The Trustee will apply moneys held in the Rebate Fund according to written

instructions provided by the Authority. Subject to the provisions of the Trust Agreement, moneys held in the Rebate

Fund are pledged to secure payments to the United States of America. The Authority and the Owners will have no

rights in or claim to such moneys. The Trustee will invest all amounts held in the Rebate Fund in Investment

Securities as directed in writing by the Authority and all investment earnings with respect thereto shall be deposited

in the Rebate Fund. At the option of the Authority, the Authority may remit the rebate amounts to the appropriate

agency of the United States of America directly, without the deposit of moneys in the Rebate Fund.

Security for and Investment of Moneys

Security. All moneys required to be deposited with or paid to the Trustee in any of the Funds (other than the Rebate Fund) shall be held by the Trustee in trust, and except for moneys held for the payment or

redemption of Bonds or the payment of interest on Bonds, while held by the Trustee, constitute part of the Trust

Estate and shall be subject to the lien and pledge created under the Trust Agreement.

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Investment of Funds. So long as the Bonds are Outstanding and there is no default under the Trust

Agreement, moneys on deposit to the credit of the Revenue Fund, the Interest Fund, the Principal Fund, the Expense

Fund, the 2011 Project Fund, and the Surplus Fund and all accounts within such funds shall, at the request of an

Authorized Officer of the Authority, which may be telephonic if confirmed in writing within two Business Days,

specifying and directing that such investment of such funds be made, be invested by the Trustee in Investment

Securities, and moneys held in the Rebate Fund or the Redemption Fund shall, at the request of an Authorized Officer of the Authority, which may be telephonic if confirmed in writing within two Business Days, specifying and

directing that such investment of such funds be made, be invested by the Trustee in Government Obligations, and

the Trustee will be entitled to rely on such instructions for purposes of this section. If no written instructions are

provided, the Trustee shall invest such funds in Investment Securities described in clause (x) of the definition

thereof. Moneys on deposit in the Reserve Fund shall be invested in Investment Securities pursuant to a Written

Order of the Authority.

Notwithstanding anything to the contrary contained in the Trust Agreement, an amount of interest

received with respect to any Investment Security equal to the amount of accrued interest, if any, paid as part of the

purchase price of such Investment Security shall be credited to the Fund (or account) from which such accrued

interest was paid. The Trustee will not be responsible for any losses or consequences of any investment if it follows

such instructions in good faith. The Trustee and its affiliates may act as principal, agent, sponsor or otherwise with

respect to any Investment Security. Investment Securities that are registrable securities shall be registered in the name of the Trustee.

The securities purchased with the moneys in each such Fund will be deemed a part of such Fund.

If at any time it shall become necessary or appropriate that some or all of the securities purchased with the moneys

in any such Fund be redeemed or sold in order to raise moneys necessary to comply with the provisions of the Trust

Agreement, the Trustee will effect such redemption or sale, employing, in the case of a sale, any commercially

reasonable method of effecting the same. The Trustee will not be liable or responsible for any consequences

resulting from any such investment or resulting from the redemption, sale or maturity of any such investment as

authorized pursuant to this section.

Investments in the Revenue Fund, the Interest Fund, the Principal Fund, the Redemption Fund, the

Expense Fund, the 2011 Project Fund, and the Surplus Fund may be commingled at the written direction of the

Authority for purposes of making, holding and disposing of investments, notwithstanding provisions in the Trust Agreement for transfer to or holding in particular Funds amounts received or held by the Trustee; provided, that the

Trustee will at all times account for such investments strictly in accordance with the Funds to which they are

credited and otherwise as provided in the Trust Agreement.

For the purpose of determining the amount in any fund or account maintained by the Trustee

under the Trust Agreement, any investments credited to such fund or account shall be valued at least semi-annually,

at least 45 days before each Interest Payment Date, at the market value thereof. In making any valuations under the

Trust Agreement the Trustee may utilize computerized securities pricing services that may be available to it,

including those available through its regular accounting system.

Covenants of the Authority

Payment of Bonds; No Encumbrances. The Authority will cause the Trustee to promptly pay, from

Revenues and other funds derived from the Trust Estate pledged under the Trust Agreement, the principal of and

redemption premium, if any, and the interest on every Bond issued under and secured by the Trust Agreement at the place, on the dates and in the manner specified in the Trust Agreement and in such Bonds according to the true

intent and meaning thereof.

Enforcement and Amendment of Loan Agreement. The Authority shall enforce all of its rights with

respect to the Loan Agreement to the fullest extent necessary to preserve the rights and protect the security of the

Owners under the Trust Agreement.

The Authority and the Trustee may, without the consent of or notice to the Owners, consent to any

amendment, change or modification of the Loan Agreement that may be required (a) to conform to the provisions of

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the Trust Agreement (including any modifications or changes contained in any Supplemental Trust Agreement), (b)

for the purpose of curing any ambiguity or inconsistency or formal defect or omission, (c) so as to add additional

rights acquired in accordance with the provisions of such the Loan Agreement, (d) in connection with any other

change therein which is not to the material prejudice of the Trustee or the owners of the Bonds pursuant to an

Opinion of Counsel, or (e) in the Opinion of Bond Counsel, to preserve or assure the exemption of interest on the

Loan or the Bonds from federal income taxes or the exemption from California personal income tax.

Except for amendments, changes or modifications provided for in the preceding paragraph, neither

the Authority nor the Trustee will consent to any amendment, change or modification of any Obligation without the

mailing of notice and the written approval or consent of the Owners of not less than a majority in aggregate principal

amount of the Bonds at the time Outstanding given and procured. If at any time the Authority or the Agency, as the

case may be, shall request the consent of the Trustee to any such proposed amendment, change or modification of an

Obligation, the Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of such

proposed amendment, change or modification to be mailed in the same manner as provided by the Trust Agreement.

Such notice shall briefly set forth the nature of such proposed amendment, change or modification and shall state

that copies of the instrument embodying the same are on file with the Trustee for inspection by all Owners. Nothing

shall prevent the Trustee, with the consent of the Authority, from settling a default under any Obligation on such

terms as the Trustee may determine to be in the best interests of the Owners.

Tax Covenants. The Authority will not take any action, or fail to take any action, if any such action or failure to take action would adversely affect the exclusion from gross income of interest on the Bonds

under Section 103 of the Code. The Authority will not directly or indirectly use or permit the use of any proceeds of

the Bonds any other funds of the Authority or take or omit to take any action that would cause the Bonds to be

“private activity bonds” within the meaning of Section 141(a) of the Code or obligations which are “federally

guaranteed” within the meaning of Section 149(b) of the Code. The Authority will not allow ten percent or more of

the proceeds of the Bonds to be used in the trade or business of any nongovernmental units and will not lend five

percent or more of the proceeds of the Bonds to any nongovernmental units.

The Authority will not directly or indirectly use or permit the use of any proceeds of the Bonds or

any other funds of the Authority to take or omit to take any action that would cause the Bonds to be “arbitrage

bonds” within the meaning of Section 148 of the Code. To that end, the Authority will comply with all requirements

of Section 148 of the Code to the extent applicable to the Bonds. In the event that at any time the Authority is of the opinion that for purposes of compliance with tax covenants it is necessary to restrict or to limit the yield on the

investment of any moneys held by the Trustee, the Authority will so instruct the Trustee in writing, and the Trustee

will take such actions as directed by such instructions.

The Authority will pay or cause to be paid the Rebate Amount, if any, as provided in the Tax

Certificate. This covenant shall survive payment in full or defeasance of the Bonds. To the extent that the Authority

does not pay the Rebate Amount directly to the Internal Revenue Service, the Authority will cause the Rebate

Amount to be deposited in the Rebate Fund as provided in the Tax Certificate.

The Trustee will conclusively be deemed to have complied with the provisions of the Trust

Agreement including the provisions of the Tax Certificate if it follows the directions of the Authority set forth in the

Tax Certificate and the Rebate Instructions and will not be required to take any actions under in the absence of

Rebate Instructions from the Authority.

If the Authority provides to the Trustee an Opinion of Bond Counsel that any specified action required for purposes of compliance with tax covenants is no longer required or that some further or different action

is required to maintain the exclusion from gross income for federal income tax purposes of interest with respect to

the Bonds, the Trustee and the Authority may conclusively rely on such Opinion in complying with the requirements

of the Trust Agreement, and the covenants under the Trust Agreement shall be deemed to be modified to that extent

The provisions in the Trust Agreement relating to tax covenants shall survive the defeasance of the

Bonds.

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Defaults and Remedies

Events of Default. The following constitute “Events of Default” under the Trust Agreement:

(a) if payment of interest on the Bonds are not made when due; or

(b) if payment of any Principal Installment are not made when due and payable, whether at

maturity, by proceedings for redemption, by acceleration or otherwise;

(c) if the Authority fails to observe or perform in any material way any agreement, condition, covenant or term contained in the Trust Agreement on its part to be performed, and such failure continues for 30

days after written notice specifying such failure and requiring the same to be remedied shall have been given to the

Authority by the Trustee or by the Owner(s) of not less than 25 percent in aggregate principal amount of the Bonds

Outstanding, provided, that if such default (other than a default arising from nonpayment of the Trustee’s fees and

expenses) be such that it cannot be corrected within the applicable period, it shall not constitute an Event of Default

if corrective action is instituted by the Authority within the applicable period and diligently pursued until the default

is corrected; or

(d) if an “Event of Default by the Agency as defined in the Loan Agreement has occurred

and is continuing.

If an Event of Default occurs, then, and in each and every such case during the continuance of

such Event of Default, the Trustee or the Owners of not less than a majority in aggregate principal amount of the

Bonds at the time Outstanding shall be entitled, upon notice in writing to the Authority, to declare the principal of all of the Bonds then Outstanding, and the interest accrued thereon, to be due and payable immediately, and upon such

declaration the same will be immediately due and payable.

Any such declaration, however, is subject to the condition that if, at any time after such

declaration and before any judgment or decree for the payment of the moneys due shall have been obtained or

entered, the Authority shall deposit with the Trustee a sum sufficient to pay all the principal or redemption price of

and installments of interest on the Bonds payment of which is overdue, with interest on such overdue principal at the

rate borne by the respective Bonds, and the reasonable charges and expenses of the Trustee, and any and all other

defaults known to the Trustee (other than in the payment of principal of and interest on the Bonds due and payable

solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Trustee or

provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the

Trustee may, if such declaration was made by the Trustee, and the Trustee shall, upon receipt of written notice by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding, which written

notice shall also be delivered to the Authority, on behalf of the Owners of all of the Bonds, rescind and annul such

declaration and its consequences and waive such default; but no such rescission and annulment will extend to or

shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Proceedings by Trustee. Upon the happening and continuance of any Event of Default the Trustee

in its discretion may, or at the written request of the Owners of not less than 25 percent in aggregate principal

amount of Bonds Outstanding shall, do the following:

(a) by mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of

the Owners, including the right to receive and collect the Revenues;

(b) bring suit upon or otherwise enforce the Loan;

(c) by action or suit in equity enjoin any acts or things which may be unlawful or in violation

of the rights of the Owners;

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(d) as a matter of right, have a receiver or receivers appointed for the Trust Estate and of the

earnings, income, issues, products, profits and revenues thereof pending such proceedings, with such powers as the

court making such appointment shall confer, and

(e) take such action with respect to the Loan or Investment Securities as the Trustee shall

deem necessary and appropriate, subject to the provisions of the Trust Agreement relating and to the terms of such

the Loan or Investment Securities.

Effect of Discontinuance or Abandonment. In case any proceeding taken by the Trustee on

account of any default shall have been discontinued or abandoned for any reason, or shall have been determined

adversely to the Trustee, then and in every such case the Trustee and the Owners will be restored to their former

positions and rights under the Trust Agreement, respectively, and all rights, remedies and powers of the Trustee will

continue as though no such proceeding had been taken.

Rights of Owners. Anything in the Trust Agreement to the contrary notwithstanding, subject to the

limitations and restrictions as to the rights of the Owners upon the happening and continuance of any Event of

Default, the Owners of not less than 25 percent in aggregate principal amount of the Bonds then Outstanding will

have the right, upon providing the Trustee security and indemnity reasonably satisfactory to it against the costs,

expenses and liabilities to be incurred therein or thereby, by an instrument in writing executed and delivered to the

Trustee, to direct the method and place of conducting all remedial proceedings to be taken by the Trustee under the

Trust Agreement.

The Trustee may refuse to follow any direction that conflicts with law or the Trust Agreement or

that the Trustee determines is prejudicial to rights of other Owners or would subject the Trustee to personal liability

without adequate indemnification therefor.

Restriction on Owner’s Action. In addition to the other restrictions on the rights of Owners to

request action upon the occurrence of an Event of Default and to enforce remedies set forth in the Trust Agreement,

no Owner of any of the Bonds will have any right to institute any suit, action or proceeding in equity or at law for

the enforcement of any trust under the Trust Agreement, or any other remedy under the Trust Agreement or on the

Bonds, unless such Owner previously shall have given to the Trustee written notice of an Event of Default as

provided in the Trust Agreement and unless the Owners of not less than 25 percent in aggregate principal amount of

the Bonds then Outstanding shall have made written request of the Trustee to institute any such suit, action,

proceeding or other remedy, after the right to exercise such powers or rights of action, as the case may be, shall have accrued, and shall have afforded the Trustee a reasonable opportunity either to proceed to exercise the powers

granted in the Trust Agreement, or to institute such action, suit or proceeding in its or their name; nor unless there

also shall have been offered to the Trustee security and indemnity reasonably satisfactory to it against the costs,

expenses and liabilities to be incurred therein or thereby, and the Trustee shall not have complied with such request

within a reasonable time; and such notification, request and offer of indemnity are declared in every such case to be

conditions precedent to the execution of the trusts of the Trust Agreement or for any other remedy under the Trust

Agreement, it being understood and intended that no one or more Owners of the Bonds secured by the Trust

Agreement shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the

security of the Trust Agreement, or to enforce any rights under the Trust Agreement or under the Bonds, except in

the manner provided in the Trust Agreement, and that all proceedings at law or in equity shall be instituted, had and

maintained in the manner provided in the Trust Agreement, and for the equal benefit of all Owners of Outstanding

Bonds; subject, however, to the provisions of this section. Notwithstanding the foregoing described provisions or any other provision of the Trust Agreement, the obligation of the Authority shall be absolute and unconditional to

pay, but solely from the Trust Estate, the principal of and the redemption premium, if any, and the interest on the

Bonds to the respective Owners thereof at the respective due dates thereof, and nothing in the Trust Agreement shall

affect or impair the right of action, which is absolute and unconditional, of such Owners to enforce such payment.

Power of Trustee to Enforce. All rights of action under the Trust Agreement or under any of the

Bonds secured by the Trust Agreement which are enforceable by the Trustee may be enforced by it without the

possession of any of the Bonds, or the production thereof at the trial or other proceedings relative thereto, and any

such suit, action or proceedings instituted by the Trustee shall be brought in its own name, as Trustee, for the equal

and ratable benefit of the Owners subject to the provisions of the Trust Agreement.

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Remedies Not Exclusive. No remedy in the Trust Agreement conferred upon or reserved to the

Trustee or to the Owners is intended to be exclusive of any other remedy or remedies, and each and every such

remedy will be cumulative, and will be in addition to every other remedy given under the Trust Agreement or now

or hereafter existing at law or in equity or by statute.

Waiver of Events of Default; Effect of Waiver. Upon the written request of the Owners of at least a

majority in aggregate principal amount of all Outstanding Bonds the Trustee shall waive any Event of Default under the Trust Agreement and its consequences. The Trustee may waive any Event of Default under the Trust Agreement

and its consequences at any time. lf any Event of Default has been waived, the Trustee will promptly give written

notice of such waiver to the Authority and will give notice thereof by first class mail, postage prepaid, to all Owners

of Outstanding Bonds if such Owners had previously been given notices of such Event of Default; but no such

waiver, rescission and annulment will extend to or affect any subsequent Event of Default, or impair any right or

remedy consequent thereon.

No delay or omission of the Trustee or of any Owner to exercise any right or power accruing upon

any default or Event of Default will impair any such right or power or will be construed to be a waiver of any such

default or Event of Default, or an acquiescence therein; and every power and remedy given by the Trust Agreement

to the Trustee and to the Owners of the Bonds, respectively, may be exercised from time to time and as often as may

be deemed expedient

Application of Moneys. All moneys in the funds and accounts held under the Trust Agreement (except the Rebate Fund) and any moneys received by the Trustee pursuant to the Trust Agreement relating to

Events of Default will, after payment of all fees and expenses of the Trustee, and the fees and expenses of its

counsel incurred in connection with the performance of the Trustee’s duties, be applied as follows:

(a) unless the principal of all of the Outstanding Bonds are due and payable,

FIRST - To the payment of the Owners entitled thereto of all installments of interest then

due on the Bonds, in the order of the maturity of the installments of such interest, and if the

amount available are not sufficient to pay in full any particular installment, then to the payment

ratably, according to the amounts due on such installment, to the Persons entitled thereto, without

any discrimination or privilege;

SECOND - To the payment of the Owners entitled thereto of the unpaid principal of and

redemption premium, if any, and any of the Bonds which shall have become due (other than Bonds matured or called for redemption for the payment of which moneys are held pursuant to the

provisions of the Trust Agreement) in the order of their due dates, and if the amount available

shall not be sufficient to pay in full the principal of and redemption premium, if any, on such

Bonds due on any particular date, then to the payment ratably, according to the amount due on

such date, to the Persons entitled thereto without any discrimination or privilege;

THIRD - To be held for the payment to the Owners entitled thereto as the same shall

become due of the principal of and redemption premium, if any, on and interest on the Bonds

which may thereafter become due, either at maturity or upon call for redemption prior to maturity,

and if the amount available shall not be sufficient to pay in full such principal and redemption

premium, if any, due on any particular date, together with interest then due and owing thereon,

payment shall be made in accordance with the FIRST and SECOND paragraphs above.

(b) if the principal of all of the Outstanding Bonds is due and payable, to the payment of the principal and redemption premium, if any, and interest then due and unpaid upon the Outstanding Bonds without

preference or priority of any of the principal of or the redemption premium, if any, on any Outstanding Bond over

any other Outstanding Bond or of any interest on any Outstanding Bond over any other Outstanding Bond, ratably,

according to the amounts due respectively for principal and redemption premium, if any, and interest, to the Owners

entitled thereto without any discrimination or preference except as to any difference in the respective amounts of

interest specified in the Outstanding Bonds.

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The Trustee

Duties, Immunities and Liability of Trustee. No provision in the Trust Agreement requires the

Trustee to risk or expend its own funds or otherwise incur any financial liability in the performance of any of its

duties under the Trust Agreement unless the Owners shall have offered to the Trustee security or indemnity it deems

reasonable, against the costs, expenses and liabilities that may be incurred.

In accepting the trust created by the Trust Agreement, the Trustee acts solely as Trustee for the Owners and not in its individual capacity, and under no circumstances shall the Trustee be liable in its individual

capacity for the obligations evidenced by the Bonds.

The Trustee makes no representation or warranty, express or implied, as to the compliance with

legal requirements of the use contemplated by the Authority of the funds under the Trust Agreement.

The Trustee will not be responsible for the validity or effectiveness or value of any collateral or

security securing the Loan. The Trustee will not be responsible for the recording or filing of any document relating

to the Trust Agreement or the Loan Agreement or of financing statements (or continuation statements in connection

therewith) or mortgage or of any supplemental instruments or documents of further assurance as may be required by

law in order to perfect the security interests or lien on or in any collateral or security securing the Loan. The Trustee

shall not be deemed to have made representations as to the security afforded thereby or as to the validity or

sufficiency of any such document, collateral or security.

The Trustee shall not be deemed to have knowledge of any Event of Default under the Trust Agreement unless and until a Responsible Officer at the Trustee’s Principal Corporate Trust Office shall have actual

knowledge thereof.

Indemnity for Trustee. Before taking any action or exercising any rights or powers under the Trust

Agreement, the Trustee may require that satisfactory indemnity be furnished to it for the reimbursement of all costs

and expenses which it may incur and to indemnify it against all liability, except liability which may result from its

negligence or willful misconduct, by reason of any action so taken.

Amendment

Supplemental Trust Agreements Without Consent of Owners. The Authority may, without the

consent of the Owners, enter into a Supplemental Trust Agreement or Supplemental Trust Agreements, which

thereafter will form a part of the Trust Agreement, for any one or more of the following purposes:

(a) to add to the agreements and covenants of the Authority contained in the Trust Agreement other agreements and covenants thereafter to be observed, or to surrender any right or power in

the Trust Agreement reserved to or conferred upon the Authority; provided, that no such agreement,

covenant or surrender shall materially adversely affect the rights of any Owner;

(b) to cure any ambiguity, to supply any omission or to cure, correct or supplement any

defect or inconsistent provisions contained in the Trust Agreement or in any Supplemental Trust

Agreement;

(c) to make any change which does not materially adversely affect the rights of any Owner;

(d) to grant to the Trustee for the benefit of the Owners additional rights, remedies, powers

or authority;

(e) to subject to the Trust Agreement additional collateral or to add other agreements of the

Authority;

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(f) to modify the Trust Agreement or the Bonds to permit qualification under the Trust

Indenture Act of 1939, as amended, or any similar statute at the time in effect, or to permit the qualification

of the Bonds for sale under the securities laws of any state of the United States of America; or

(g) to evidence the succession of a new Trustee.

The Trustee may in its discretion determine whether or not in accordance with the powers of

amendment pursuant to the Trust Agreement any particular Bond would be affected by any modification or amendment of the Trust Agreement and any such determination shall be binding and conclusive on the Authority

and all Owners of Bonds. The Trustee will be entitled to rely upon and shall be fully protected in relying upon an

Opinion of Bond Counsel, in form and substance satisfactory to it, with respect to the extent, if any, to which any

action affects the rights under the Trust Agreement of any Owner.

Supplemental Trust Agreements With Consent of Owners. Any modification or alteration of the

Trust Agreement or of the rights and obligations of the Authority or of the Owners of the Bonds may be made with

the consent of the Owners of not less than a majority in aggregate principal amount of the affected Bonds then

Outstanding; provided, that no such modification or alteration can be made which will reduce the percentage of

aggregate principal amount of Bonds the consent of the Owners of which is required for any such modification or

alteration, or permit the creation by the Authority of any lien prior to or on a parity with the lien of the Trust

Agreement upon the Trust Estate or which will affect the times, amounts and currency of payment of the principal of

or the redemption premium, if any, on or the interest on the Bonds or affect the rights, duties or obligations of the Trustee without the consent of the party affected thereby.

Defeasance

Defeasance. If and when the Bonds secured under the Trust Agreement shall become due and

payable in accordance with their terms or through redemption proceedings as provided in the Trust Agreement, or

otherwise, and the whole amount of the principal and the redemption premium, if any, and the interest so due and

payable upon all of the Bonds shall be paid, or provision shall have been made for the payment of the same, together

with all other sums payable under the Trust Agreement by the Authority, including all fees and expenses of the

Trustee, then and in that case, the Trust Agreement and the lien created by the Trust Agreement shall be completely

discharged and satisfied and the Authority shall be released from the agreements, conditions, covenants and terms of

the Authority contained in the Trust Agreement, and the Trustee shall assign and transfer to or upon the order of the

Authority all property (in excess of the amounts required for the foregoing) then held by the Trustee free and clear of any encumbrances and shall execute such documents as may be reasonably required by the Authority in this

regard.

Notwithstanding the satisfaction and discharge of the Trust Agreement, those provisions of the

Trust Agreement relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of

Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds,

nonpresentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, remain in effect and

shall be binding upon the Trustee and the

Owners and the Trustee shall, subject to the Trust Agreement relating to unclaimed money,

continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the

principal of and redemption premium, if any, on and interest on the Bonds, to pay to the Owners of Bonds the funds

so held by the Trustee as and when such payment becomes due, and those provisions of the Trust Agreement

contained in the Trust Agreement relating to the compensation and indemnification of the Trustee shall remain in effect and shall be binding upon the Trustee and the Authority.

Bonds Deemed to Have Been Paid. If moneys shall have been set aside and held by the Trustee for

the payment or redemption of any Bonds and the interest installments therefor at the maturity or date fixed for

redemption thereof, such Bonds shall be deemed to be paid within the meaning and with the effect provided in the

Trust Agreement. Any Outstanding Bond will, prior to the maturity or date fixed for redemption thereof, be deemed

to have been paid within the meaning and with the effect expressed in the Trust Agreement if -

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(a) in case said Bonds are to be redeemed on any date prior to their maturity, the Authority shall

have given to the Trustee in form satisfactory to the Trustee irrevocable instructions to mail notice of redemption of

such Bonds on such date fixed for redemption, such notice to be given in accordance with the Trust Agreement,

(b) there shall have been deposited with the Trustee in escrow either moneys in an amount which

(as stated in a Cash Flow Certificate) shall be sufficient, or noncallable Government Obligations the principal of and

the interest on which when due, and without any reinvestment thereof, will provide moneys which, together with the moneys, if any, deposited with or held by the Trustee at the same time, will be sufficient (as verified by a Cash Flow

Certificate), to pay when due the principal of and the redemption premium, if any, and the interest due and to

become due on such Bonds on and prior to the date fixed for redemption or maturity date thereof, as the case may

be, and

(c) in the event any of such Bonds are not to be redeemed within the next succeeding 60 days, the

Authority will have given the Trustee in form satisfactory to the Trustee irrevocable instructions to mail, as soon as

practicable in the same manner as a notice of redemption is mailed pursuant to the redemption provisions in the

Trust Agreement, a notice to the Owners of such Bonds and to the Securities Depositories and the Information

Services that the deposit required by (b) above has been made with the Trustee and that such Bonds are deemed to

have been paid in accordance with this paragraph and stating such maturity or date fixed for redemptions upon

which moneys are to be available for the payment of the principal of and redemption premium, if any, on and

interest on such Bonds.

Neither the securities nor moneys deposited with the Trustee in accordance with the defeasance

provisions in the Trust Agreement nor principal or interest payments on any such securities will be withdrawn or

used for any purpose other than, and will be held in trust for, the payment of the principal of and redemption

premium, if any, on and interest on such Bonds; provided, that any cash received from such principal or interest

payments on such obligations deposited with the Trustee, if not then needed for such purpose, will, to the extent

practicable and at the direction of the Authority, be reinvested in Government Obligations maturing at times and in

amounts, together with the other moneys and payments with respect to Government Obligations then held by the

Trustee, sufficient to pay when due the principal of and redemption premium, if any, and interest to become due on

such Bonds on and prior to such date fixed for redemption or maturity date thereof, as the case may be, and interest

earned from such reinvestments shall, upon receipt by the Trustee of a Written Order so directing, be paid over to

the Authority as received by the Trustee free and clear of any trust, lien or pledge.

Moneys Held for Particular Bonds. Except as otherwise provided in the Trust Agreement, the

amounts held by the Trustee for the payment of the principal or the redemption premium, if any, or the interest due

on any date with respect to particular Bonds will, on and after such date and pending such payment, be set aside on

its books and held in trust by it solely for the Owners of the Bonds entitled thereto.

Governing Law

The Trust Agreement shall be governed as to validity, construction and performance by the laws

of the State of California.

Payment on Business Days

If the date for making any payment or the last date for performance of any act or the exercising of

any right, as provided in the Trust Agreement, shall not be a Business Day, such payment may be made or act

performed or right exercised on the next succeeding Business Day, with the same force and effect as if done on the

nominal date provided in the Trust Agreement, and no interest shall accrue for the period from and after such nominal date.

Unclaimed Money

Any money held by the Trustee in trust for the payment and discharge of the interest on, or

principal or prepayment premium, if any, of any Bond which remains unclaimed for two years after the date when

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such amounts have become payable, if such money was held by the Trustee on such date, or for two years after the

date of deposit of such money if deposited with the Trustee after the date such amounts have become payable, will,

pursuant to a Written Order of the Authority, be paid by the Trustee to the Authority as its absolute property free

from trust, and the Trustee shall thereupon be released and discharged with respect thereto and the Owners shall

look only to the Authority for the payment of such amounts; provided, that before being required to make any such

payment to the Authority, the Trustee shall, at the expense of the Authority, give notice by first class mail to all Owners and to those securities depositories and securities information services selected by it that such money

remains unclaimed and that after a date named in such notice, which date shall not be less than 60 days after the date

of giving such notice, the balance of such money then unclaimed will be returned to the Authority.

LOAN AGREEMENT

The Loan; Establishment of Funds; Additional Debt

The Loan; Term of Loan. The Authority agrees to lend and the Agency agrees to accept the Loan

under and subject to the terms of the Loan Agreement, the Bond Law and the Redevelopment Law. Interest on each

installment of principal of the Loan shall be calculated on the basis of a 360-day year of twelve 30-day months. In

the event that the Agency fails to pay an installment of principal or interest when due, such principal shall continue

to accrue interest at the effective rates of the Bonds of the corresponding maturities from and including the Interest

Payment Date with respect to which such principal or interest is payable to but not including the date of actual payment. Principal of, premium, if any, and interest on the 2011 Loan shall be payable by the Agency to the

Trustee, as assignee of the Authority’s rights under the Loan Agreement, in immediately available funds which

constitute lawful money of the United States of America.

Optional Prepayment. The Authority agrees to lend and the Agency agrees to accept the Loan.

The principal of the 2011 Loan shall be subject to optional prepayments in whole, or in part in any integral multiple

of $5,000, on any date on which the 2011 Bonds are subject to optional redemption pursuant to the Trust

Agreement, by depositing with the Trustee on or before the applicable redemption date an amount sufficient to

redeem a like aggregate principal amount of the Bonds together with the amount of accrued interest and premium, if

any, required to be paid upon such redemption. The Agency may allocate the prepayment among such unpaid

principal installments of the Loan (and the corresponding maturities of the Bonds) as the Agency may determine at

its discretion; provided that the Agency shall specify such allocation in the written notice to the Authority and the Trustee. Absent such designation by the Agency in writing, the prepayment shall be allocated on a pro rata basis

among the unpaid principal installments of the Loan.

Parity Debt. (a) In addition to the 1999 Loan, the 2006 Loan and the 2011 Loan, the Agency may

issue or incur Parity Debt in such principal amount as shall be determined by the Agency. The Agency may issue

and deliver any Parity Debt subject to the following specific conditions, which are made conditions precedent to the

issuance and delivery of such Parity Debt:

(i) no Event of Default under the Loan Agreement, any Parity Debt Instrument or

under any Subordinate Debt Instrument shall have occurred and be continuing, and the Agency shall otherwise be in

compliance with all covenants set forth in the Loan Agreement;

(ii) the balance in the Reserve Fund shall be at least equal to the then effective

Reserve Requirement;

(iii) the Tax Revenues received or to be received by the Agency based upon the most recent assessed valuation of taxable property in the Project Area (as reported by the County Assessor or the County

Auditor-Controller), and upon an assumed tax rate of one percent, will be at least equal to 125 percent of Maximum

Annual Debt Service on the 2011 Loan and all Parity Debt which will be outstanding immediately following the

issuance of such Parity Debt;

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(iv) principal with respect to such Parity Debt will be required to be paid on

September 1 in any year in which such principal is payable and interest thereon shall be required to be paid only on

March 1 and September 1 of any year in which interest is payable;

(v) the Agency will deliver to the Trustee a Written Certificate of the Agency

certifying that the conditions precedent to the issuance of such Parity Debt set forth in clauses (i), (ii) and (iii) above

have been satisfied and accompanied by a written Report of an Independent Redevelopment Consultant evidencing that the condition set forth in clause (iii) above has been satisfied;

(vi) to the extent that payments on such Parity Debt will not be made to the

registered owners thereof by the Trustee, the Agency will covenant to deliver to the Trustee a Written Certificate of

the Agency at least 20 days prior to each Interest Payment Date specifying (a) the amount of interest with respect to

such Parity Debt coming due on such Interest Payment Date, (b) the amount of principal with respect to such Parity

Debt coming due on such Interest Payment Date, and (c) the paying agent for such Parity Debt or other person to

whom such amounts shall be paid on or before such Interest Payment Date, as required by the applicable Parity Debt

Instrument; and

(vii) Exhibit A of the Loan Agreement shall be updated to reflect the additional Loan

Installments as a result of such Parity Debt

(b) For the purpose of calculating Tax Revenues under clause (a)(iii) above, in connection

with the issuance of Parity Debt:

(i) At the option of the Agency, Tax Revenues shall be increased by Additional

Revenues;

(ii) Consistent with the definition of Tax Revenues, Tax Revenues shall include

amounts not exceeding 20 percent of the taxes eligible for allocation to the Agency pursuant to the Redevelopment

Law, which may be otherwise required by the Redevelopment Law to be set aside for certain housing purposes, if,

and only to the extent that, the Agency delivers to the Trustee an opinion of counsel experienced in Redevelopment

Law to the effect that, relying on the factual representations made to the Agency to such counsel, such amounts may

be lawfully made available as Tax Revenues and the Agency makes such amounts available as Tax Revenues from

the date of delivery to the final maturity of such Parity Debt; and

(iii) In the event that one or more property owners in the Project Area have filed

appeals which are then pending requesting reductions in the assessed valuation of their property and such appeals are known to the Agency, Tax Revenues shall be reduced by an amount equal to at least one-half of the reduction of

Tax Revenues that would result if the appeals were successful.

(c) In the event such Parity Debt is to be issued solely for the purpose of refunding and

retiring any outstanding Parity Debt, interest and principal payments on the outstanding Parity Debt to be so

refunded and retired from the proceeds of such Parity Debt being issued shall be excluded from the foregoing

computation of Maximum Annual Debt Service. Nothing contained in the Loan Agreement shall limit the issuance

of any obligation of the Agency payable from the Tax Revenues and secured by a lien and charge on the Tax

Revenues if, after the issuance and delivery of such obligation, the Loan shall have been deemed discharged under

the Loan Agreement.

Subordinate Debt. The Agency may from time to time incur Subordinate Debt; provided that

prior to the incurrence of any Subordinate Debt which will be secured by a pledge of or lien on Tax Revenues, the

Agency will obtain the Report of an Independent Redevelopment Consultant showing that, for each Fiscal Year that the Loan is scheduled to remain outstanding, the amount of projected Tax Revenues for such Fiscal Year shall equal

at least 100 percent of the combined scheduled debt service for such Fiscal Year with respect to the 2011 Loan, all

outstanding Parity Debt and all outstanding Subordinate Debt that is secured by a pledge of or lien on Tax

Revenues.

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Pledge of Tax Revenues and Application of Funds

Pledge of Pledged Tax Revenues. Except as otherwise provided in the Loan Agreement, the 2011

Loan and all Parity Debt shall be equally secured by a first pledge of and lien on all of the Pledged Tax Revenues,

without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery.

The Pledged Tax Revenues are allocated in their entirety to the payment of the principal of and interest on the Loan,

the payments on which are allocated and pledged in their entirety to the payment of the principal and interest on the Bonds, and all Parity Debt, as provided in the Loan Agreement. The Pledged Tax Revenues shall be subject to the

lien of such pledge without any physical delivery thereof or further act, and the lien of such pledge shall be valid and

binding as against all parties having claims of any kind in tort, contract or otherwise against the Agency. The Loan

Agreement need not be recorded.

Neither the Loan nor the Loan Agreement is a debt of the City, the State of California or any of its

political subdivisions and neither the City, the State nor any of its political subdivisions is liable thereon, nor in any

event shall the Loan be payable out of any funds or properties other than those of the Agency as provided in the

Loan Agreement. Neither the Loan nor the Loan Agreement constitutes an indebtedness within the meaning of any

constitutional or statutory debt limitation or restriction. Neither the members of the Agency nor any persons

executing the Loan Agreement are liable personally thereon by reason of its execution and delivery.

Debt Service Fund; Deposit of Pledged Tax Revenues. There has been already established a fund

known as the “Redevelopment Project Debt Service Fund,” which shall be held by the Trustee. From and after the date of delivery of the Bonds, the Agency will promptly upon receipt thereof by the Agency pay all Pledged Tax

Revenues to the Trustee and the Trustee will deposit such Pledged Tax Revenues in the Debt Service Fund. Prior to

the payment in full of the principal of and interest and prepayment premium (if any) on the 2011 Loan and all Parity

Debt and the payment in full of all other amounts payable under the Loan Agreement and under any Parity Debt

Instruments, the Agency will not have any beneficial right or interest in the moneys on deposit in the Debt Service

Fund, except only as provided in the Loan Agreement and in any Parity Debt Instruments, and such moneys shall be

used and applied as set forth in the Loan Agreement and in any Parity Debt Instruments.

All moneys in the Debt Service Fund will be set aside by the Trustee in the Interest and Principal

Accounts in the order of priority described below, each of which shall be disbursed and applied only as provided in

the Loan Agreement and in any Parity Debt Instrument

Allocation of Pledged Tax Revenues in the Debt Service Fund; Transfers to the Reserve Fund. The Trustee will set aside or withdraw from the Debt Service Fund the following amounts at the following times and

in the following order of priority:

(a) Interest Deposits. No later than the 14th day preceding each Interest Payment Date, the

Trustee will set aside in the Debt Service Fund and deposit in the Interest Account an amount that, together with any

money contained therein, equals the amount of interest on the 2011 Loan and all Parity Debt becoming due and

payable on such Interest Payment Date. No deposit need be made into the Interest Account if the amount contained

therein, is at least equal to the aggregate amount of the interest becoming due and payable on the 2011 Loan and all

Parity Debt on each succeeding Interest Payment Date within the then current Bond Year. Moneys in the Interest

Account will be used and withdrawn by the Trustee for the purpose of paying the interest on the Loan and all Parity

Debt as the same becomes due and payable (including accrued interest payable upon optional prepayment of the

Loan or upon prepayment, redemption or purchase of any Parity Debt prior to maturity).

(b) Principal Deposits. No later than the 14th day preceding each Interest Payment Date on which principal of the 2011 Loan or of any Parity Debt shall be payable, the Trustee will set aside from the Debt

Service Fund and deposit in the Principal Account an amount that, together with any money contained therein,

equals the amount of principal of the 2011 Loan and all Parity Debt becoming due and payable on such Interest

Payment Date. No deposit need be made into the Principal Account if the amount contained therein is at least equal

to the aggregate amount of the principal of the 2011 Loan and of all Parity Debt becoming due and payable during

the then current Bond Year. Moneys in the Principal Account will be used and withdrawn by the Trustee solely for

the purpose of paying the principal of the 2011 Loan and all Parity Debt as the same become due and payable.

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(c) Transfers to Reserve Fund. The Trustee will transfer any amount remaining in the Debt

Service Fund after making the deposits described by subparagraphs (a) and (b) above to the Reserve Fund

established pursuant to the Trust Agreement to the extent necessary to restore the balance therein to the Reserve

Requirement, as defined in the Trust Agreement

(d) Surplus. The Agency will not be obligated to transfer to the Trustee for deposit in the

Debt Service Fund in any Bond Year an amount of Pledged Tax Revenues that, together with other available amounts in the Debt Service Fund, exceeds the amounts required in such Bond Year; provided that, during each

Fiscal Year, the Agency will also transfer to the Trustee the amount indicated in the statement furnished by the

Authority pursuant to the Trust Agreement in connection with Trustee’s compensation and other Expenses. In the

event that for any reason whatsoever any amounts shall remain on deposit in the Debt Service Fund on any

September 2 after making all of the transfers theretofore required to be made therein and in the Reserve Fund

pursuant to the Loan Agreement and any Parity Debt Instrument, the Trustee shall withdraw such amounts from the

Debt Service Fund and transfer such amounts to the Agency, to be used for any lawful purpose of the Agency.

Investment of Moneys; Valuation of Investments. Subject to the Trust Agreement, all moneys held

by the Agency or the Trustee in any of the funds or accounts established pursuant to the Loan Agreement will be

invested in Investment Securities subject to the limitations set forth in the Loan Agreement; provided moneys in the

Redevelopment Fund and the Housing Fund may be invested in Investment Securities and in such other obligations

as the Agency is now or may hereafter be authorized to lawfully invest its funds. Absent any prior written instruction from the Agency or the Authority, moneys in any fund held by the Trustee under the Loan Agreement or

the Trust Agreement shall be invested in Investment Investments described in clause (x) of the definition thereof.

Investments of money in the Debt Service Fund or in the Interest Account or in the Principal Account must mature

prior to the date at which such money is estimated to be required to be paid out under the Loan Agreement and any

Parity Debt Instrument. The Trustee may commingle any amounts in any of the funds and accounts held under the

Loan Agreement with any other amounts held by the Trustee for purposes of making any investment at the direction

of the Agency, provided that the Trustee shall maintain separate accounting procedures for the investment of all

funds and accounts held under the Loan Agreement. Any Investment Securities that are registrable securities shall

be registered in the name of the Trustee. All interest, profits and other income received from the investment of

moneys in any fund or account established under the Loan Agreement shall be deposited in such fund or account.

For the purpose of determining the amount in any fund or account established under the Loan Agreement, the value of investments credited to such fund shall be calculated at the cost thereof (excluding accrued interest and brokerage

commissions, if any).

Covenants of The Agency

Punctual Payment. The Agency will punctually pay, or cause to be paid, the principal of and

interest on the Loan together with any prepayment premium thereon in strict conformity with the terms of the Loan

Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan

Agreement.

Limitation on Additional Debt.

(a) The Agency agrees that, until the Loan has been paid and discharged pursuant to the

Loan Agreement, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or

otherwise incur any loans, advances or indebtedness, which are in any case secured by a lien on all or any part of the

Tax Revenues that is superior to or on a parity with the lien established under the Loan Agreement for the security of the Loan, excepting only Parity Debt. Nothing in the Loan Agreement is intended or shall be construed in any

way to prohibit or impose any limitations upon the issuance or incurring by the Agency of Subordinate Debt, so long

as the Agency is in compliance with the provision of the Loan Agreement described above under “The Loan;

Establishment of Funds; Additional Debt – Subordinate Debt,” or of loans, bonds, notes, advances or other

indebtedness that is unsecured.

(b) Anything in paragraph (a) above to the contrary notwithstanding, the Agency agrees that

it will not enter into any obligation or make any expenditure payable from taxes allocated to the Agency under the

Redevelopment Law the payments of which, together with payments theretofore made or to be made with respect to

D-27

other obligations (including, but not limited to the Loan) previously entered into by the Agency, would exceed the

then effective limit on the amount of taxes which can be allocated to the Agency pursuant to Section 33333.2(1) of

the Redevelopment Law and the Redevelopment Plan.

Payment of Claims. The Agency from time to time will pay and discharge, or cause to be paid and

discharged, any and all lawful claims for labor, materials or supplies, which, if unpaid, might become liens or

charges upon the properties owned by the Agency or upon the Pledged Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. Nothing contained in the

Loan Agreement shall require the Agency to make any such payment so long as the Agency in good faith shall

contest the validity of said claims.

Books and Accounts; Financial Statements. The Agency will keep proper books of record and

accounts, separate from all other records and accounts of the Agency, in which complete and correct entries shall be

made of all transactions relating to the Redevelopment Project and the Tax Revenues. Such books of record and

accounts shall at all times during business hours be subject to the inspection of the Authority, the Trustee or of the

Owners of not less than 10 percent of the aggregate principal amount of the Bonds then Outstanding or their

representatives authorized in writing.

The Agency will prepare and file with the Trustee annually as soon as practicable, but in any event

not later than nine months after the close of each Fiscal Year, so long as any Bonds are Outstanding, an audited

financial statement of the Agency relating to the Debt Service Fund and all other funds or accounts established pursuant to the Loan Agreement or the Trust Agreement for the preceding Fiscal Year, prepared by an Independent

Certified Accountant, showing the balances in each such fund as of the beginning of such Fiscal Year and all

deposits in and withdrawals from each such fund during such Fiscal Year and the balances in each such fund as of

the end of such Fiscal Year, which audited financial statement shall include a statement as to the manner and extent

to which the Agency has complied with the provisions of the Loan Agreement and the Trust Agreement as it relates

to such funds. The Agency will also prepare and file with the Trustee annually as soon as practicable, but in any

event not later than nine months after the close of each Fiscal Year, a summary statement showing the status of the

Redevelopment Project for the preceding Fiscal Year. The Agency will furnish a copy of such audited financial

statement and such summary statement upon request to any Owner, investment bankers, security dealers and others

interested in the Bonds.

Protection of Security and Rights. The Agency will preserve and protect the security of the Loan and any Parity Debt, the rights of the Trustee and the Bond Owners with respect to the Loan and the rights of the

owners of any Parity Debt with respect to such Parity Debt. From and after the Closing Date, the Loan shall be

incontestable by the Agency.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid

and discharged, all taxes, service charges, assessments and other governmental charges, or charges in lieu thereof,

which may be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area,

when the same shall become due. Nothing contained in the Loan Agreement shall require the Agency to make any

such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges.

The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the

Redevelopment Project or any part thereof.

Disposition of Property. The Agency will not authorize the disposition of more than 10 percent of

the land area within the Project Area (excluding any area shown in the Redevelopment Plan in effect on the date of the Loan Agreement as planned for public use) to one or more public bodies or other persons or entities whose

property is exempt from taxation unless the Agency first obtains a Report of an Independent Redevelopment

Consultant showing that Tax Revenues for the current Fiscal Year (based upon the most recent assessed valuation of

taxable property in the Project Area as reported by the County Assessor or the County Auditor-Controller and upon

an assumed tax rate of one percent), plus at the option of the Agency the Additional Revenues, but in any case

excluding the portion derived from the area to be disposed, shall equal at least 125 percent of Maximum Annual

Debt Service on the Loan and all outstanding Parity Debt.

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Maintenance of Tax Revenues. The Agency will comply with all requirements of the

Redevelopment Law to ensure the allocation and payment to it of the Tax Revenues, including without limitation the

timely filing of any necessary statements of indebtedness with appropriate officials of the County and (in the case of

supplemental revenues and other amounts payable by the State of California) appropriate officials of the State of

California. The Agency will not amend the Redevelopment Plan (except for the purpose of extending or eliminating

the time limit on the establishment of loans, advances, and indebtedness, extending the time limit on the effectiveness of the Redevelopment Plan, extending the time limit on the payment of indebtedness, extending the

time limit for the receipt of tax increment, or increasing the limitation on the number of dollars of taxes to be

allocated to the Agency), or enter into any agreement with the County or any other governmental unit, which would

have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loan, unless the

Agency shall have filed with the Trustee the Report of an Independent Redevelopment Consultant stating that the

amount of Tax Revenues for the then current Fiscal Year (based upon the most recent assessed valuation of taxable

property in the Project Area as reported by the County Assessor or the County Auditor-Controller and upon an

assumed tax rate of one percent), plus at the option of the Agency the Additional Revenues, shall equal at least 125

percent of Maximum Annual Debt Service on the Loan and all outstanding Parity Debt.

Tax Covenants. The Agency agrees to deposit in the Rebate Fund such amounts as are required to

be deposited therein pursuant to the Tax Certificate. All money at any time deposited in the Rebate Fund shall be

held by the Trustee in trust, to the extent required to satisfy the Rebate Amount (as defined in the Tax Certificate), for payment to the United States of America. Anything in the Loan Agreement to the contrary notwithstanding, all

amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by the Tax

Certificate

The Agency will not use or permit the use of any proceeds of the Loan or any funds of the

Agency, directly or indirectly, to acquire any securities or obligations, and shall not take or permit to be taken any

other action or actions, which would cause the obligation represented by the Loan Agreement or the Bonds to be

“arbitrage bonds” within the meaning of Section 148 of the Code or “federally guaranteed” within the meaning of

Section 149(b) of the Code and any such applicable requirements promulgated from time to time thereunder and

under the Internal Revenue Code, as amended. The Agency will comply with all requirements of the Internal

Revenue Code to the extent applicable to the obligation represented by the Loan Agreement or the Bonds. In the

event that at any time the Agency is of the opinion that for purposes of compliance with the tax covenants it is necessary to restrict or to limit the yield on the investment of any moneys held by the Trustee under the Loan

Agreement or the Trust Agreement, the Agency shall so instruct the Trustee in writing, and the Trustee shall take

such action as may be necessary in accordance with such instructions.

The Agency specifically agrees to comply with the provisions and procedures of the Tax

Certificate and the Trustee agrees to comply with any lawful written instructions by the Agency provided in

accordance with such Tax Certificate.

The Agency may not use or permit the use of any proceeds of the Loan or any funds of the

Agency, directly or indirectly, in any manner, and shall not take or omit to take any action that would cause the

Loan Agreement or any of the Bonds to be treated as an obligation not described in Section 103(a) of the Code.

Notwithstanding any provisions in the Loan Agreement, if the Agency provides to the Trustee an

opinion of nationally recognized bond counsel that any specified action required under the Loan Agreement relating

to tax covenants is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest with respect to the Bonds, the Trustee and the Agency may conclusively rely on

such opinion in complying with the requirements in the Loan Agreement relating to tax covenants, and, the

covenants thereunder shall be deemed to be modified to that extent.

Redevelopment of Project Area. The Agency will ensure that all activities undertaken by the

Agency with respect to the redevelopment of the Project Area are undertaken and accomplished in conformity with

all applicable requirements of the Redevelopment Plan and the Redevelopment Law.

Annual Review of Tax Revenues. The Agency will use all reasonable efforts to ensure that the

aggregate amount of scheduled debt service remaining to be paid on the 2011 Loan, all outstanding Parity Debt and

D-29

all outstanding Subordinate Debt secured by a lien on or pledge of Tax Revenues will at no time exceed 95 percent

of the aggregate amount of Tax Revenues which the Agency is permitted to receive under the Redevelopment Plan.

Events of Default and Remedies

Events of Default and Acceleration of Loan. The following events will constitute Events of

Default:

(a) failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the 2011 Loan or any Parity Debt when and as the same shall become due and payable.

(b) failure by the Agency to observe and perform any of the covenants, agreements or

conditions on its part contained in the Loan Agreement, other than as referred to in the preceding subparagraph (a),

for a period of 30 days after written notice, specifying such failure and requesting that it be remedied has been given

to the Agency by the Trustee, or to the Agency and the Trustee by the Owners of not less than 25 percent in

aggregate principal amount of the Outstanding Bonds; provided, however, that if in the reasonable opinion of the

Agency the failure stated in such notice can be corrected, but not within such 30-day period, the Trustee shall not

unreasonably withhold its consent to an extension of such time if corrective action is instituted by the Agency within

such 30-day period and diligently pursued until such failure is corrected.

(c) the filing by the Agency of a petition or answer seeking reorganization or arrangement

under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of

competent jurisdiction shall approve a petition, filed with or without the consent of the Agency, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if,

under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall

custody or control of the Agency or of the whole or any substantial part of its property.

If an Event of Default has occurred and is continuing, the Trustee may, and at the written direction

of the Owners of a majority in aggregate principal amount of the Outstanding Bonds the Trustee shall, (i) declare the

principal of the Loan, together with the accrued interest on all unpaid installments thereof, to be due and payable

immediately, and upon any such declaration the same shall become immediately due and payable, anything in the

Loan Agreement to the contrary notwithstanding, and (ii) to the extent indemnified to its satisfaction from any

liability or expense, exercise any other remedies available to the Trustee in law or at equity. Immediately upon

becoming aware of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to

the Agency by telephone, telecopier or other telecommunication device, promptly confirmed in writing. This provision, however, is subject to the condition that if, at any time after the principal of the Loan shall have been so

declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been

obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all installments of principal of

the Loan matured prior to such declaration and all accrued interest thereon, with interest on such overdue

installments of principal at the net effective rate then borne by the Outstanding Bonds, and the reasonable expenses

of the Trustee (including but not limited to attorneys fees), and any and all other defaults known to the Trustee

(other than in the payment of principal of and interest on the Loan due and payable solely by reason of such

declaration) shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the

Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in

aggregate principal amount of the Outstanding Bonds may, by written notice to the Trustee and the Agency, rescind

and annul such declaration and its consequences. However, no such rescission and annulment shall extend to or

shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

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Remedies. Upon the occurrence of an Event of Default the Trustee will have the right:

(a) by mandamus or other action or proceeding or suit at law or in equity to enforce its rights

against the Agency or any member, officer or employee thereof, and to compel the Agency or any such member,

officer or employee to perform and carry out its or his duties under law and the agreements and covenants required

to be performed by it or him contained in the Loan Agreement;

(b) by suit in equity to enjoin any acts or things which are unlawful or violate the rights of the Authority or the Trustee; or

(c) by suit in equity upon the happening of an Event of Default to require the Agency and its

members, officers and employees to account as the trustee of an express trust.

Application of Funds upon Default. All amounts received by the Trustee pursuant to any right

given or action taken by the Trustee under provisions of the Loan Agreement, or otherwise held by the Trustee upon

the occurrence of an Event of Default, shall be applied by the Trustee in the following order:

First, to the payment of the costs and expenses of the Trustee, including reasonable compensation

to its agents, attorneys and counsel; and

Second, to the payment of the whole amount of interest on and principal of the Loan then due and

unpaid (with such overdue principal continue to accrue interest at the effective rates of the Bonds of the

corresponding maturities from and including the Interest Payment Date with respect to which such principal or

interest is payable to but not including the date of actual payment) and the whole amount of interest on and principal of any then outstanding Parity Debt also in default and due and unpaid and, to the extent that any portion of the Loan

or the Parity Debt will remain outstanding after such payments, to restore the balance in the Reserve Fund and the

reserve funds relating to the Parity Debt to their respective reserve requirements; provided, however, that in the

event such amounts are insufficient to pay in full the amount of such interest and principal, then such amounts will

be applied in the following order of priority:

(a) first, to the payment of all installments of interest on the Loan and the Parity Debt then

due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in

full,

(b) second, to the payment of principal of all installments of the Loan and the Parity Debt

then due and unpaid, other than principal having come due and payable solely by reason of acceleration on a pro rata

basis in the event that the available amounts are insufficient to pay all such principal in full,

(c) third, to the payment of principal of the Loan and the Parity Debt then due and unpaid

and having come due and payable solely by reason of acceleration, on a pro rata basis in the event that the available

amounts are insufficient to pay all such principal in full,

(d) fourth, to the payment of interest on overdue installments of principal, on a pro rata basis

in the event that the available amounts are insufficient to pay all such interest in full, and

(e) fifth, on a pro rata basis based on the respective remaining outstanding principal amounts

of the Loan and the Parity Debt, to the replenishment of the Reserve Fund and the reserve funds relating to the

Parity Debt to restore the balances thereof to the applicable reserve requirements, to the extent practicable.

No Waiver. Nothing in any provision of the Loan Agreement shall affect or impair the obligation

of the Agency, which is absolute and unconditional, to pay from the Pledged Tax Revenues and other amounts

pledged under the Loan Agreement, the principal of and interest and prepayment premium (if any) on the Loan to

the Trustee as provided in the Loan Agreement, or affect or impair the right of action, which is also absolute and unconditional, of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Loan

Agreement.

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A waiver of any default by the Trustee will not affect any subsequent default or impair any rights

or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing

upon any default will impair any such right or power or will be construed to be a waiver of any such default or an

acquiescence therein, and every power and remedy conferred upon the Trustee by the Redevelopment Law or by the

Loan Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the

Trustee.

If a suit, action or proceeding to enforce any right or exercise any remedy will be abandoned or

determined adversely to the Trustee, the Agency and the Trustee will be restored to their former positions, rights and

remedies as if such suit, action or proceeding had not been brought or taken.

Discharge of Loan Agreement

If the Agency shall pay and discharge the entire indebtedness on the Loan in any one or more of

the following ways:

(a) by well and truly paying or causing to be paid the principal of, interest and prepayment

premium (if any) on the Loan, as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an

amount which, together with the available amounts then on deposit in any of the funds and accounts established

pursuant to the Trust Agreement or the Loan Agreement, is fully sufficient to pay all principal of and interest and

prepayment premiums (if any) on the Loan; or

(c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Government

Obligations in such amount as an Independent Certified Public Accountant determines in a written report filed with

the Trustee (upon which report the Trustee may conclusively rely) will, together with the interest to accrue thereon

and available moneys then on deposit in the funds and accounts established pursuant to the Trust Agreement or

pursuant to the Loan Agreement, be fully sufficient to pay and discharge the indebtedness on the Loan (including all

principal, interest and prepayment premiums) at or before maturity;

then, at the election of the Agency but only if all other amounts then due and payable under the Loan Agreement

shall have been paid or provision for their payment made, the pledge of and lien upon the Pledged Tax Revenues

and other funds provided for in the Loan Agreement and all other obligations of the Trustee, the Authority and the

Agency under the Loan Agreement with respect to the Loan shall cease and terminate, except only (a) the obligation

of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to the Loan and all expenses and costs of the Trustee, and (b) the tax

covenants of the Agency under the Loan Agreement.

Notwithstanding anything to the contrary in the Loan Agreement, to the extent that all or a portion

of the Bonds shall be defeased and discharged pursuant to the Trust Agreement, the corresponding portion of the

Loan shall be deemed discharged under the Loan Agreement.

Amendment

The Loan Agreement may be amended by the parties thereto but only under the circumstances set

forth in, and in accordance with, the provisions of the Trust Agreement. The Authority and the Trustee agree that

the Trust Agreement will not be amended without the prior written consent of the Agency.

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APPENDIX E

FORM OF BOND COUNSEL OPINION

Upon issuance and delivery of the Bonds, Richards Watson & Gershon, A Professional Corporation,

Bond Counsel, proposes to render its final approving opinion with respect to the Bonds in substantially

the following form:

February 8, 2011

Turlock Public Financing Authority 156 S. Broadway, Suite 110

Turlock, CA 95380-5454

Opinion of Bond Counsel

with reference to

$15,300,000 Turlock Public Financing Authority

Tax Allocation Revenue Bonds

Series 2011

Ladies and Gentlemen:

We have examined (i) a record of proceedings relating to the issuance of the above-captioned

bonds (the “Bonds”) of the Turlock Public Financing Authority, a public entity of the State of California

(the “Authority”); (ii) the Trust Agreement, dated as of February 1, 2011 (the “Trust Agreement”), by and

between the Authority and U.S. Bank National Association, as trustee (the “Trustee”); (iii) the Loan Agreement, dated as of February 1, 2011 (the “Loan Agreement”), by and among the Authority, the

Turlock Redevelopment Agency (the “Agency”) and the Trustee; and (iv) such other matters of law as we

have deemed necessary to enable us to render the opinions expressed herein. As to questions of fact material to this opinion, we have relied upon such certificates and documents without undertaking to

verify the same by independent investigation. Capitalized terms used and not defined herein have the

meanings ascribed to them in the Trust Agreement, or if not in the Trust Agreement, the Loan Agreement.

The Bonds are issued under and pursuant to the Trust Agreement and the provisions relating to

the joint exercise of powers found in Chapter 5 of Division 7 of Title 1 of the Government Code of

California, as amended (the “Act”), including the provisions of the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act. The Bonds are issued for the purpose of making a Loan to the

Agency to finance certain public capital improvements for the benefit of the Project Area.

From the examination described herein, we are of the opinion that under existing law:

1. The Authority is duly created and validly existing under the provisions of the Act.

2. The Authority has the right and power to enter into the Trust Agreement, and the Trust

Agreement has been duly and lawfully authorized, executed and delivered by the Authority and, assuming

due authorization, execution and delivery by the Trustee, is in full force and effect in accordance with its terms and is valid and binding upon the Authority and enforceable in accordance with its terms, and no

other authorization for the Trust Agreement is required. The Trust Agreement creates the valid pledge

which it purports to create of the Revenues and certain funds established by the Trust Agreement,

E-2

including the investments, if any, thereof, subject to the provisions of the Trust Agreement permitting the

application thereof for the purposes and on the terms and conditions set forth in the Trust Agreement.

3. The Authority is duly authorized and entitled to issue the Bonds, and the Bonds have

been duly and validly authorized and issued by the Authority in accordance with the Constitution and

statutes of the State of California, including the Act, and in accordance with the Trust Agreement. The Bonds constitute the valid and binding obligations of the Authority as provided in the Trust Agreement,

are enforceable in accordance with their terms and the terms of the Trust Agreement and are entitled to

the benefits of the Act and the Trust Agreement. The Bonds are not an obligation of the State of California, any public agency thereof (other than the Authority), or any member of the Authority and

neither the faith and credit nor the taxing power of the State of California or any public agency thereof or

any member of the Authority is pledged for the payment of the Bonds. The Authority has no taxing power.

4. The Agency and the Authority have the right and power to enter into and carry out their

obligations under the Loan Agreement and have duly authorized, executed and delivered the Loan Agreement, which, assuming due authorization, execution and delivery by the Trustee, constitutes a valid

and binding agreement of the Agency and the Authority enforceable in accordance with its terms. The

Loan Agreement creates the valid pledge which it purports to create of the Pledged Tax Revenues, subject to the provisions of the Loan Agreement permitting the application thereof for the purposes and on the

terms and conditions set forth in the Loan Agreement.

5. Interest on the Bonds is exempt from personal income taxes of the State of California

and, assuming compliance with the covenants described below, is excluded from gross income for federal

income tax purposes. The Bonds are not “specified private activity bonds” within the meaning of Section

57(a)(5) of the Internal Revenue Code of 1986, as amended (the “Code”) and, therefore, the interest on the Bonds will not be treated as a preference item for purposes of computing the alternative minimum tax

imposed by Section 55 of the Code. However, we note a portion of the interest on Bonds owned by

corporations may be subject to the federal alternative minimum tax, which is based in part on adjusted current earnings.

The Code sets forth certain requirements which must be met subsequent to the issuance and

delivery of the Bonds for interest thereon to be and remain excluded from gross income for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be

included in gross income retroactive to the date of issue of the Bonds. The Authority and the Agency

have covenanted to satisfy, or take such actions as may be necessary to cause to be satisfied, each provision of the Code necessary to maintain the exclusion of the interest on the Bonds from gross income

for federal income tax purposes pursuant to Section 103(a) of the Code.

Certain requirements and procedures contained or referred to in the Trust Agreement and other

relevant documents may be changed and certain actions may be taken, under the circumstances and

subject to the terms and conditions set forth in such documents, upon the advice or with the approving

opinion of nationally recognized bond counsel. We express no opinion as to any Bond, or the interest thereon, if any change occurs or action is taken upon the advice or approval of other bond counsel.

Except as stated in the paragraph numbered 5 and the paragraph immediately following paragraph 5, we

express no opinion as to any federal or state tax consequences of the ownership or disposition of the Bonds.

The opinions expressed in the paragraphs numbered 2, 3 and 4 hereof are qualified to the extent that the enforceability of the Loan Agreement, the Trust Agreement and the Bonds may be limited by any

applicable bankruptcy, insolvency, debt adjustment, fraudulent conveyance or transfer, moratorium,

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reorganization or other similar laws affecting creditors’ rights, to the application of equitable principles,

to the exercise of judicial discretion in appropriate cases and to the limitations on legal remedies against public entities in the State of California. We express no opinion with respect to any indemnification,

contribution, penalty, choice of law, choice of forum or waiver provisions contained in the foregoing

documents.

The opinions expressed herein are based on an analysis of existing law and cover certain matters

not directly addressed thereby. Such opinions may be affected by actions taken or omitted or events

occurring after the date hereof, and we have not undertaken to determine, or to inform any person, whether any such actions or events are taken or do occur. We have assumed the genuineness of all

documents and signatures presented to us. We have not undertaken to verify independently, and have

assumed, the accuracy of the factual matters represented, warranted or certified in such documents. Furthermore, we have assumed compliance with all agreements and covenants contained in the Trust

Agreement and the Loan Agreement. We have not undertaken any responsibility for the accuracy,

completeness or fairness of the Official Statement or any other offering material relating to the Bonds and

no opinion is expressed herein with respect thereto.

Respectfully submitted,

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APPENDIX F

FORM OF CONTINUING DISCLOSURE CERTIFICATE

$15,300,000 TURLOCK PUBLIC FINANCING AUTHORITY

TAX ALLOCATION REVENUE BONDS, SERIES 2011

This CONTINUING DISCLOSURE CERTIFICATE (this “Disclosure Certificate”) is

executed and delivered by the TURLOCK REDEVELOPMENT AGENCY (the “Redevelopment Agency”) on behalf of itself and the Turlock Public Financing Authority (the “Authority”) in connection with the issuance of the bonds captioned above (the “2011 Bonds”). The 2011 Bonds are being executed and delivered pursuant to a Trust Agreement, dated as of February 1, 2011 (the “Trust Agreement”), by and between the Authority and U.S. Bank National Association, as trustee (the “Trustee”).

The Redevelopment Agency covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being

executed and delivered by the Redevelopment Agency for the benefit of the holders and beneficial owners of the 2011 Bonds and in order to assist the Participating Underwriter in complying with S.E.C. Rule 15c2-12(b)(5).

Section 2. Definitions. In addition to the definitions set forth above and in the Trust

Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

“Annual Report” means any Annual Report provided by the Redevelopment Agency

pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. “Annual Report Date” means the date that is nine months after the end of the

Redevelopment Agency’s fiscal year (currently March 31 based on the Redevelopment Agency’s fiscal year end of June 30).

“Dissemination Agent” means U.S. Bank National Association, or any successor

Dissemination Agent designated in writing by the Redevelopment Agency and which has filed with the Redevelopment Agency a written acceptance of such designation.

“Listed Events” means any of the events listed in Section 5(a) of this Disclosure

Certificate. “MSRB” 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, or any other repository of disclosure information that may be designated by the Securities and Exchange Commission as such for purposes of the Rule in the future.

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“Official Statement” means the final official statement executed by the Redevelopment Agency in connection with the issuance of the 2011 Bonds.

“Participating Underwriter” means Stone & Youngberg LLC, the original underwriter of

the 2011 Bonds required to comply with the Rule in connection with offering of the 2011 Bonds. “Rule” means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission

under the Securities Exchange Act of 1934, as it may be amended from time to time. Section 3. Provision of Annual Reports. (a) The Redevelopment Agency shall, or shall cause the Dissemination Agent to, not

later than the Annual Report Date, commencing March 31, 2012, with the report for the 2010-11 fiscal year, provide to the MSRB, in an electronic format as prescribed by the MSRB, an Annual Report that is consistent with the requirements of Section 4 of this Disclosure Certificate. Not later than 15 Business Days prior to the Annual Report Date, the Redevelopment Agency shall provide the Annual Report to the Dissemination Agent (if other than the City). If by 15 Business Days prior to the Annual Report Date the Dissemination Agent (if other than the Redevelopment Agency) has not received a copy of the Annual Report, the Dissemination Agent shall contact the Redevelopment Agency to determine if the Redevelopment Agency is in compliance with the previous sentence. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Redevelopment Agency may be submitted separately from the balance of the Annual Report, and later than the Annual Report Date, if not available by that date. If the City’s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). The Redevelopment Agency shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Redevelopment Agency hereunder.

(b) If the Redevelopment Agency does not provide (or cause the Dissemination Agent to

provide) an Annual Report by the Annual Report Date, the Redevelopment Agency shall provide (or cause the Dissemination Agent to provide) to the MSRB, in an electronic format as prescribed by the MSRB, a notice in substantially the form attached as Exhibit A.

(c) With respect to each Annual Report, the Dissemination Agent shall:

(i) determine each year prior to the Annual Report Date the then-applicable rules and electronic format prescribed by the MSRB for the filing of annual continuing disclosure reports; and

(ii) if the Dissemination Agent is other than the Redevelopment Agency, file a

report with the Redevelopment Agency certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, and stating the date it was provided. Section 4. Content of Annual Reports. The City’s Annual Report shall contain or

incorporate by reference the following: (a) The Redevelopment Agency’s audited financial statements prepared in accordance

with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Redevelopment

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Agency’s audited financial statements are not available by the Annual Report Date, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Additional Items relating to the Authority.

(i) Outstanding principal amount of the 2011 Bonds as of the end of the most recent

fiscal year; and (ii) Balance of the Reserve Fund as of the end of the most recent fiscal year.

(c) Additional Items Relating to the Agency. Unless otherwise provided in the audited financial statements filed on or before the Annual Report Date, financial information and operating data with respect to the Redevelopment Agency for the preceding fiscal year, substantially similar to that provided in the corresponding tables in the Official Statement:

(i) aggregate assessed values of the Project Area for the most recently completed

fiscal year and a calculation of Tax Revenues for such fiscal year in the form of Table 6 of the Official Statement (excluding estimated value attributable to new development);

(ii) to the extent the County is willing to provide such information to the Agency, a list

of top ten largest local secured property taxpayers within the Project Area in the form of Table 5 of the Official Statement;

(iii) calculation of the coverage ratio for the preceding fiscal year (but not projected

debt service coverage for future fiscal years) provided by Tax Revenues with respect to the Loan Installments, the Prior Loan Installments and any Parity Debt for such fiscal year, calculated in the same manner as provided in Table 7 of the Official Statement;

(iv) description of outstanding indebtedness payable from Pledged Tax Revenues

issued during such fiscal year and total outstanding bonded indebtedness (as defined for purposes of the Redevelopment Law) outstanding as of the end of such fiscal year;

(v) at such time as the Agency no longer participates in the County’s Teeter Plan (or

another similar program) and to the extent the County is willing to provide such information to the Agency, a description of the total tax levy, total receipts and collection rate for the most recently completed fiscal year;

(vi) a description of any ERAF or similar payments made by the Agency as described

in “RISK FACTORS - State Budget”; (vii) with respect to any fiscal year in which the pending appeals in the Project Area

challenging 5% or more of the aggregate assessed value in the Project Area, but only to the extent available from the County, information on aggregate appeals pending and resolved in such fiscal year in the Project Area in the form of Table 6 of the Official Statement; and

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(viii) the cumulative tax increment allocated to the Agency as of June 30 of the most recently completed fiscal year in the Project Area

(c) In addition to any of the information expressly required to be provided under this

Disclosure Certificate, the Redevelopment Agency shall provide such further material information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

(d) Any or all of the items listed above may be included by specific reference to other

documents, including official statements of debt issues of the Redevelopment Agency or related public entities, which are available to the public on the MSRB’s Internet web site or filed with the Securities and Exchange Commission. The Redevelopment Agency shall clearly identify each such other document so included by reference.

Section 5. Reporting of Significant Events. (a) The Redevelopment Agency shall give, or cause to be given, notice of the

occurrence of any of the following Listed Events with respect to the 2011 Bonds:

(1) Principal and interest payment delinquencies. (2) Non-payment related defaults, if material. (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, the issuance by the Internal Revenue Service of

proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security.

(7) Modifications to rights of security holders, if material. (8) Bond calls, if material, and tender offers. (9) Defeasances. (10) Release, substitution, or sale of property securing repayment of the

securities, if material. (11) Rating changes.

(12) Bankruptcy, insolvency, receivership or similar event of the obligated

person.

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(13) The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.

(14) Appointment of a successor or additional trustee or the change of name

of a trustee, if material.

(b) Whenever the Redevelopment Agency obtains knowledge of the occurrence of a Listed Event, and, if the Listed Event is described in subsections (a)(2), (a)(6), (a)(7), (a)(8) (if the event is a bond call), (a)(10), (a)(13) or (a)(14) above, the Redevelopment Agency determines that knowledge of the occurrence of that Listed Event would be material under applicable Federal securities law, the Redevelopment Agency shall, or shall cause the Dissemination Agent (if not the Redevelopment Agency) to, file a notice of such occurrence with the MSRB, in a timely manner not in excess of 10 business days after the occurrence of the Listed Event, in an electronic format as prescribed by the MSRB, and mail a copy to the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(8) and (9) above need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds under the Trust Agreement.

Section 6. Identifying Information for Filings with the MSRB. All documents provided to

the MSRB under the Disclosure Certificate shall be accompanied by identifying information as prescribed by the MSRB.

Section 7. 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 2011 Bonds. If such termination occurs prior to the final maturity of the 2011 Bonds, the Redevelopment Agency shall give notice of such termination in the same manner as for a Listed Event under Section 5(c).

Section 8. Dissemination Agent. The Redevelopment Agency 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 Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Redevelopment Agency. Any Dissemination Agent may resign by providing 30 days’ written notice to the Redevelopment Agency.

Section 9. Amendment; Waiver. Notwithstanding any other provision of this Disclosure

Certificate, the Redevelopment Agency 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 Sections 3(a), 4 or 5(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 2011 Bonds, 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

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time of the primary offering of the 2011 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the 2011

Bonds in the manner provided in the Trust Agreement for amendments to the Trust Agreement with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the 2011 Bonds.

If the annual financial information or operating data to be provided in the Annual Report

is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be

followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Redevelopment Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative.

A notice of any amendment under this Section 9 shall be filed in the same manner as for

a Listed Event under Section 5(c). Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed

to prevent the Redevelopment Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Redevelopment Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Redevelopment Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 11. Default. If the Redevelopment Agency fails to comply with any provision of

this Disclosure Certificate, the Participating Underwriter or any holder or beneficial owner of the 2011 Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Redevelopment Agency 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 Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Redevelopment Agency to comply with this Disclosure Certificate shall be an action to compel performance.

Section 12. Duties, Immunities and Liabilities of Dissemination Agent. (a) The

Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Redevelopment Agency agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and

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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 Dissemination Agent shall have no duty or obligation to review any information provided to it by the Redevelopment Agency hereunder, and shall not be deemed to be acting in any fiduciary capacity for the Redevelopment Agency, the 2011 Bond holders or any other party. The obligations of the Redevelopment Agency under this Section shall survive resignation or removal of the Dissemination Agent and payment of the 2011 Bonds.

(b) The Dissemination Agent shall be paid compensation by the Redevelopment Agency

for its services provided hereunder in accordance with its schedule of fees as amended from time to time, and shall be reimbursed for all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder.

Section 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of

the Redevelopment Agency, the Dissemination Agent, the Participating Underwriter and the holders and beneficial owners from time to time of the 2011 Bonds, and shall create no rights in any other person or entity.

Section 14. Counterparts. This Disclosure Certificate may be executed in several

counterparts, each of which shall be regarded as an original, and all of which shall constitute one and the same instrument.

Date: February 8, 2011

TURLOCK REDEVELOPMENT AGENCY

By: Name: Title:

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EXHIBIT A

NOTICE OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Turlock Public Financing Authority Name of Issue: Turlock Public Financing Authority Tax Allocation Revenue Bonds,

Series 2011 Date of Issuance: February 8, 2011 NOTICE IS HEREBY GIVEN that the City has not provided an Annual Report with

respect to the above-named Bonds as required by Continuing Disclosure Certificate dated February 8, 2011. The Redevelopment Agency anticipates that the Annual Report will be filed by ________________.

Dated:

DISSEMINATION AGENT: _________________

By: Its:

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APPENDIX G

BOOK-ENTRY ONLY SYSTEM The following description of the Depository Trust Company (“DTC”), the procedures and

record keeping with respect to beneficial ownership interests in the 2011 Bonds, payment of principal, interest and other payments with respect to the 2011 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the 2011 Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, the entities responsible for the execution and delivery of the 2011 Bonds (the “Issuer”) makes no representations concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be.

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 2011 Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the 2011 Bonds, or (c) prepayment or other notices sent to DTC or Cede & Co., its nominee, as the registered owner of the 2011 Bonds, or that they will so do on a timely basis, or that DTC, DTC Participants or DTC Indirect Participants will act in the manner described in this Appendix. The current “Rules” applicable to DTC are on file with the Securities and Exchange Commission and the current “Procedures” of DTC to be followed in dealing with DTC Participants are on file with DTC.

DTC and its Participants. The Depository Trust Company (“DTC”), New York, NY, will

act as securities depository for the 2011 Bonds. The 2011 Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered security certificate will be issued for each maturity of the 2011 Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest 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 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, “NSCC”, “GSCC”, “MBSCC”, and “EMCC”, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access

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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.

Book-Entry Only System. Purchases of the 2011 Bonds under the DTC system must

be made by or through Direct Participants, which will receive a credit for the 2011 Bonds 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 2011 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2011 Bonds, except in the event that use of the book-entry system for the 2011 Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC

are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of the 2011 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the 2011 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Certificates are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by

Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the 2011 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the 2011 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the 2011 Bonds may wish to ascertain that the nominee holding the 2011 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Prepayment notices shall be sent to DTC. If less than all of the 2011 Bonds within an

issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with

respect to the 2011 Bonds unless authorized by a Direct Participant in accordance with DTC’s Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the 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 the 2011 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

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Payments of principal, premium, if any, and interest evidenced by the 2011 Bonds will be

made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Issuer or the Trustee, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC (nor its nominee), the Trustee, or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and interest evidenced by the 2011 Bonds to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

DTC may discontinue providing its services as depository with respect to the 2011

Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

The Issuer may decide to discontinue use of the system of book-entry transfers through

DTC (or a successor securities depository). In that event, Bonds will be printed and delivered. Discontinuance of DTC Services. In the event that (a) DTC determines not to

continue to act as securities depository for the 2011 Bonds, or (b) the Issuer determines that DTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book-Entry Only System with DTC for the 2011 Bonds. If the Issuer determines to replace DTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Bond for each maturity of the 2011 Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Trust Agreement. If the Issuer fails to identify another qualified securities depository to replace the incumbent securities depository for the 2011 Bonds, then the 2011 Bonds will no longer be restricted to being registered in the 2011 Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the 2011 Bonds designates.

If the Book-Entry Only System is discontinued, the following provisions would also apply:

(i) the 2011 Bonds will be made available in physical form, (ii) principal, and prepayment premiums, if any, with respect to the 2011 Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the 2011 Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of 2011 Bonds received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the 2011 Bonds will be transferable and exchangeable as provided in the Trust Agreement.

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