Stone & Youngberg - Californiacdiacdocs.sto.ca.gov/2000-0009.pdf · Maturitl (August ) 2001 2002...

NEW ISSUE-BOOK-ENTRY ONLY RATINGS: Senior Bonds Standard and Poor's: AAA Fitch: AAA Subordinate Bonds Not Rated (See "RATINGS" herein)

In the opinion of Kutak Rock LLP, Special Tax Counsel, under existing laws, regulations, rulings and judicial decisions and assuming the accuracy of certain representations and continuing compliance with certain cm·enants, interest on the Bonds (including original issue discount attributable to the Bonds) is excluded from gross income for federal income tax purposes, is not a specific preference item for purposes of the federal alternative minimum tax, and is exempt from California personal income taxes. See the caption "TAX MATTERS" herein.

$12,311,000.40 Cathedral City Public Financing Authority

2000 Tax Allocation Revenue Bonds, Series A

$3,815,000 Cathedral City Public Financing Authority

2000 Subordinate Tax Allocation Revenue Bonds, Series B

(Cathedral City Merged Redevelopment Project) (Cathedral City Merged Redevelopment Project)

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

The 2000 Tax Allocation Revenue Bonds, Series A (the "Senior Bonds") and the 2000 Subordinate Tax Allocation Revenue Bonds, Series B (the "Subordinate Bonds") (collectively, the "Bonds") are being issued by the Cathedral City Public Financing Authority (the "Authority") to make loans to the Cathedral City Redevelopment Agency (the "Agency") to assist in financing the construction and acquisition of certain capital improvements which are in the Agency's Merged Project Area.

The Senior Bonds will be secured under an Indenture of Trust, dated as of April 1, 2000 (the "Senior Indenture"), by and between the Authority and BNY Western Trust Company, as trustee (the "Senior Trustee"), by the Senior Revenues. The Senior Revenues consist principally of payments to be made by the Agency to the Authority under a Loan Agreement, dated as of April 1, 2000 (the "Senior Loan Agreement"), by and between the Agency and the Authority. The payments due under the Senior Loan Agreement are secured by a pledge of certain tax increment revenues as described herein (the "Tax Revenues").

The Subordinate Bonds will be secured under an Indenture of Trust, dated as of April 1, 2000 (the "Subordinate Indenture"), by and between the Authority and BNY Western Trust Company, as trustee (the "Subordinate Trustee"), by the Subordinate Revenues. The Subordinate Revenues consist principally of payments to be made by the Agency to the Authority under a Subordinate Loan Agreement, dated as of April 1, 2000 (the "Subordinate Loan Agreement"), by and between the Agency and the Authority. The payments due under the Subordinate Loan Agreement are secured by a pledge of the Tax Revenues, subject to the prior pledge of the Tax Revenues in favor of the Senior Parity Debt (i.e., the Senior Loan and debt on a parity with the Senior Loan).

The Bonds are being issued in fully registered form, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("OTC"), New York, New York. OTC will act as securities depository for the Bonds. Individual purchases of the Bonds may be made in book-entry form only, in denominations of $5,000 or any integral multiple thereof ($5,000 maturity value or any integral multiple thereof for Capital Appreciation Bonds). Purchasers of interests in the Bonds will not receive certificates from the Authority or the Trustee representing their interest in the Bonds purchased.

Interest on the Current Interest Bonds will be payable semiannually on February 1 and August 1 of each year, commencing August 1, 2000. Interest on the Capital Appreciation Bonds shall accrue thereon and compound on each February 1 and August 1, commencing August 1, 2000. The Accreted Value of the Capital Appreciation Bonds shall be payable solely at maturity. Payments of principal, premium, if any, interest and Accreted Value on the Bonds will be payable by the Trustee, to DTC, which is obligated in turn to remit such pnncipal, premium, if any, and interest to the DTC Participants for subsequent disbursement to the Beneficial Owners of the Bonds, as more fully described herein.

The Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as described herein. See "THE BONDSRedemption of the Bonds" herein.

Payment of the principal of and interest on the Senior Bonds when due will be insured by a municipal bond insurance policy to be issued by MBIA Insurance Corporation simultaneously with the delivery of the Senior Bonds. The Subordinate Bonds are not insured under the municipal bond insurance policy.

..MBIA The Senior Bonds are special obligations of the Authority payable solely from the Senior Revenues and from certain amounts held in the

funds and accounts established by the Senior Indenture and the Senior Loan Agreement. The Subordinate Bonds are special obligations of the Authority payable solely from the Subordinate Revenues and from certain amounts held in the funds and accounts established by the Subordinate Indenture and the Subordinate Loan Agreement. The Bonds are not a debt or liability of the Agency, the City, the State of California or any political subdivision thereof, other than the Authority, and shall be payable solely from the funds provided therefor. Neither the City, the State of California nor the Authority shall be obligated to pay the f rincipal of the Bonds, or the interest thereon, except from the funds described above, and neither the faith and the credit nor the taxing power o the Agency, the City, the State of California nor any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds. The issuance of the Bonds shall not directly, indirectly or contingently obligate the Agency, the City, the State of California or any political subdivision thereof to levy or pledge any form of taxation whatever therefor or to make any appropriations for their payment. Neither the Authority nor the Agency has taxing power.

This cover page contains certain information for general reference only. It is not intended to he a summary of the security or terms of this issue. Investors are adi·ised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. Capitalized terms used and not defined on this cover page shall have the meanin,;s set forth herein.

For a discussion of some of the risks associated with a purchase of the Bonds, see "RISK FACTORS" herein.

See the inside of this cover page for maturity schedules for the Bonds.

The Bonds are offered, when, as and if issued by the Underwriter, subject to apprornl as to their legality by Sabo & Green LLP, San Bernardino, California, Bond Counsel, and to certain other conditions. Cenain tax mauers with respect to the Bonds will he passed upon hy Kwak Rock LLP, Denver, Colorado, Special Tax Counsel. Certain legal matters will be passed upon for the Authority and the Agency by Sabo & Green LLP, Cathedral City, California, and for the Underwriter by Hawkins, Delafield & Wood, San Francisco. California. It is anticipated that the Bonds in book-entry form will be available for delivery through the DTC book-entry system in New York, New York on or ahow April 12, 2000.

Dated: March 30, 2000 Stone & Youngberg LLC

Maturitl (August )

2001 2002 2003 2004 2005 2006 2007 2008

Maturitl (August )

2023 2024 2025 2026 2027 2028

Maturitl (August )

2001 2002 2003 2004 2005 2006 2007 2008 2009


2000 Tax Allocation Revenue Bonds, Series A

(Cathedral City Merged Redevelopment Project) Maturity Schedule

$4,000,000 Serial Current Interest Senior Bonds Principal Interest Maturitl Principal Interest Amount Rate Price (August ) Amount Rate

$30,000 4.10% 100% 2009 $ 40,000 4.90% 30,000 4.20 100 2010 540,000 5.00 30,000 4.30 100 2011 565,000 5.10 35,000 4.40 100 2012 595,000 5.20 35,000 4.50 100 2013 630,000 5.30 35,000 4.60 100 2014 660,000 5.40 35,000 4.70 100 2015 700,000 5.50 40,000 4.80 100

$2,320,000 5.60% Tenn Senior Bonds due August 1, 2018 - Priced to Yield 5.65% $3,770,000 5.70% Tenn Senior Bonds due August 1, 2022 - Priced to Yield 5.75%

$2,221,000.40 Serial Capital Appreciation Senior Bonds

Original Final Original Principal Yield to Accreted Maturitl Principal Yield to Amount Maturity Value (August ) Amount Maturity

$271,093.50 6.00% $1,075,000 2029 $184,938.25 6.13% 255,527.50 6.00 1,075,000 2030 174,099.10 6.13 240,132.20 6.05 1,085,000 2031 162,912.75 6.15 226,233.35 6.05 1,085,000 2032 153,332.20 6.15 210,338.10 6.10 1,085,000 2033 144,315.85 6.15 198,077.60 6.10 1,085,000

$3,815,000 Cathedral City Public Financing Authority

2000 Subordinate Tax Allocation Revenue Bonds, Series B

(Cathedral City Merged Redevelopment Project) Maturity Schedule

$1,135,000 Serial Current Interest Subordinate Bonds Principal Interest Maturitl Principal Interest Amount Rate Price (August ) Amount Rate

$35,000 5.00% 100% 2010 $ 60,000 6.15% 40,000 5.30 100 2011 65,000 6.25 40,000 5.50 100 2012 70,000 6.30 45,000 5.60 100 2013 75,000 6.40 45,000 5.70 100 2014 80,000 6.50 50,000 5.80 100 2015 85,000 6.60 50,000 5.90 100 2016 90,000 6.70 55,000 6.00 100 2017 95,000 6.75 55,000 6.10 100 2018 100,000 6.80

$925,000 6.875% Tenn Subordinate Bond~ due August 1, 2025 - Price 100% $1,755,000 6.90% Tenn Subordinate Bonds due August 1, 2033 - Price 100%

Price

100% 100 100 100 100 100 100

Final Accreted

Value

$1,085,000 1,085,000 1,085,000 1,085,000 1,085,000

Price

100% 100 100 100 100 100 100 100 100

CITY OF CATHEDRAL CITY CATHEDRAL CITY REDEVELOPMENT AGENCY

CITY COUNCIL AND AGENCY BOARD

Gary L. Amy, Mayor and Chairman Sarah E. Di Grandi, Mayor Pro Tern and Member Robert D. Gomer, Councilmember and Member Kathy De Rosa, Councilmember and Member

Gregory S. Pettis, Councilmember and Member

AGENCY AND/OR CITY STAFF

Donald Bradley, City Manager/Executive Director Dudley Haines, Finance Director

Susan Moeller, Redevelopment Director James Cleary, Redevelopment Project Manager

SPECIAL SERVICES

Redevelopment Consultant

Katz Hollis Los Angeles, California

Bond Counsel

Sabo & Green LLP San Bernardino, California

Special Tax Counsel

Kutak Rock LLP Denver, Colorado

Authority and Agency Counsel

Sabo & Green LLP Cathedral City, California

Trustee BNY Western Trust Company

Los Angeles, California

TABLE OF CONTENTS

Page

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

GENERAL ................................................................................................................................................................... I

THE AUTHORITY ........................................................................................................................................................ 1 THE REDEVELOPMENT AGENCY ................................................................................................................................ 1 PURPOSE .................................................................................................................................................................... 2 AUTHORITY FOR ISSUANCE OF THE BONDS ................................................................................................................ 2 TAX ALLOCATION FINANCING AND SECURITY FOR THE BONDS ................................................................................. 2 BOND INSURANCE AND RESERVE ACCOUNT SURETY BOND FOR SENIOR BONDS ...................................................... 3 SUBORDINATE RESERVE ACCOUNT ........................................................................................................................... 4

CONTINUING DISCLOSURE ......................................................................................................................................... 4

REFERENCE TO UNDERLYING DOCUMENTS ............................................................................................................... 4

PLAN OF FINANCE .................................................................................................................................................... 4

ANNUAL DEBT SERVICE REQUIREMENTS OF THE SENIOR BONDS ............................................................. 6

ANNUAL DEBT SERVICE REQUIREMENTS OF THE SUBORDINATE BONDS ............................................... 7

ESTIMATED SOURCES A.1\ID USES OF FUNDS ..................................................................................................... 8

THEBONDS ................................................................................................................................................................. 8

GENERAL ................................................................................................................................................................... 8 REDEMPTION OF THE SENIOR BONDS ......................................................................................................................... 9 REDEMPTION OF THE SUBORDINATE BONDS ............................................................................................................ 10 NOTICE OF REDEMPTION .......................................................................................................................................... 12

EFFECT OF REDEMPTION .......................................................................................................................................... 12

SECURITY FOR THE BO~TIS ................................................................................................................................. 12

TAX ALLOCATION FINANCING ................................................................................................................................. 12

ALLOCATION OF TAXES ........................................................................................................................................... 13 SECURITY FOR THE SENIOR BONDS .......................................................................................................................... 14

SECURITY FOR THE SUBORDINATE BONDS ............................................................................................................... 16 THE PASS-THROUGH AGREEMENTS ......................................................................................................................... 17

BOND INSURANCE FOR THE SENIOR BONDS ................................................................................................... 17

THE POLICY AND THE INSURER ................................................................................................................................ 17

DISCLAIMER ............................................................................................................................................................ 20

RJSK FACTORS ......................................................................................................................................................... 20

REDUCTION IN TAXABLE VALUE - ECONOMIC FACTORS AND PROPERTY DAMAGE ................................................ 20 DEVELOPMENT RISKS .............................................................................................................................................. 21

LEVY AND COLLECTION OF TAXES .......................................................................................................................... 21

CALIFORNIA ECONOMY ........................................................................................................................................... 21

APPEALS TO ASSESSED VALUES AND BLANKET REDUCTIONS TO ASSESSED VALUES .............................................. 21

INVESTMENT RISK ................................................................................................................................................... 23 BANKRUPTCY .......................................................................................................................................................... 24

Low AND MODERATE INCOME HOUSING FUND ....................................................................................................... 24

CHANGE IN LA w ...................................................................................................................................................... 24

ASSUMPTIONS AND PROJECTIONS ............................................................................................................................ 24

RISK OF EARTHQUAKE ............................................................................................................................................. 25 RISKS ASSOCIATED WITH SUBORDINATE BONDS ..................................................................................................... 25

LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS .......................................... 25

PROPERTY TAX LIMITATIONS: ARTICLE XIII A OF THE CALIFORNIA CONSTITUTION ............................................... 25 COURT CHALLENGES TO ARTICLE XIII A ................................................................................................................ 26 IMPLEMENTING LEGISLATION ............................ ········ .............................................................. ··············· ................. 26 UNITARY PROPERTY ................................................................................................................................................ 27 TAXING ENTITY REVENUE .......................................................................... ····· .................. ····················· ....... ······ .... 29 CERTIFICATION OF AGENCY INDEBTEDNESS ............................................................................................................ 29 TAX INCREMENT LIMITATION .................................................................................................................................. 30 Low AND MOD ERA TE INCOME HOUSING ................................................................................................................. 30 APPROPRIATIONS LIMITATIONS: ARTICLE XIII B OF THE CALIFORNIA CONSTITUTION ............................................ 31 THE EDUCATIONAL RESERVE AUGMENTATION FlJND .............................................................................................. 31

THE REDEVELOPMENT AGENCY ........................................................................................................................ 31

GENERAL ................................................................................................................................................................. 31 MANAGEMENT OF THE AGENCY .............................................................................................................................. 32

THE MERGED PROJECT AREA .............................................................................................................................. 33

PROJECT AREA No. 1 .............................................................................................................................................. 33 PROJECT AREA No. 2 .............................................................................................................................................. 34

FINANCIAL INFORMATION CONCERNING TAX REVENUES ......................................................................... 34

PROJECT AREA NO. 1 ASSESSED VALUE INFORMATION .......................................................................................... 34 PROJECT AREA No. 2 ASSESSED VALUE INFORMATION .......................................................................................... 35 OUTSTANDING INDEBTEDNESS OF THE AGENCY ...................................................................................................... 36 PROFORMA DEBT SERVICE COVERAGE .................................................................................................................. 39

THE CITY OF CATHEDRAL CITI' ......................................................................................................................... 42

LITIGATION .............................................................................................................................................................. 42

RATINGS FOR THE SENIOR BONDS .................................................................................................................... 42

TAXMATTERS ......................................................................................................................................................... 42

CERTAIN LEGAL MATTERS .................................................................................................................................. 44

UNDERWRITING ...................................................................................................................................................... 44

REPORT OF REDEVELOPMENT CONSULTANT .............................................................................. APPENDIX A THE CITY OF CATHEDRAL CITY ...................................................................................................... APPENDIX B AGENCY AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR

ENDED JUNE 30, 1999 ..................................................................................................................... APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE LEGAL

DOCUMENTS .................................................................................................................................... APPENDIX D THE BOOK-ENTRY SYSTEM ............................................................................................................... APPENDIX E FORM OF OPINION OF BOND COUNSEL.. ........................................................................................ APPENDIX F FORM OF CONTINUING DISCLOSURE AGREEMENT .................................................................... APPENDIX G SPECIMEN BOND INSURANCE POLICY ........................................................................................... APPENDIX H ACCRETED VALUE TABLE .................................................................................................................. APPENDIX I

11

No dealer, broker, salesperson or other person has been authorized by the Authority, the Agency or the Underwriter to give any information or to make any representations other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as representations of fact.

The information set forth herein has been furnished by the Agency and by other sources which are believed to be reliable. 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 responsibility to investors under the federal securities law as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. The information and expressions of opinion herein are subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Agency or any other parties described herein since the date hereof. This Official Statement, including any supplement or amendment hereto, is intended to be deposited with one or more repositories.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.


2000 Tax Allocation Revenue Bonds, Series A (Cathedral City Merged Redevelopment

Project)

$3,815,000 Cathedral City Public Financing Authority 2000 Subordinate Tax Allocation Revenue

Bonds, Series B (Cathedral City Merged Redevelopment

Project)

INTRODUCTION

This Introduction is subject in all respects to the more complete information contained elsewhere in this Official Statement and the offering of the Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms used and not defined in this Introduction shall have the meanings assigned to them elsewhere in this Official Statement.

General

This Official Statement, including the cover page and appendices hereto, provides information in connection with the issuance by the Cathedral City Public Financing Authority (the "Authority") of $12,311,000.40 aggregate principal amount of Cathedral City Public Financing Authority 2000 Tax Allocation Revenue Bonds, Series A (Cathedral City Merged Redevelopment Project) (the "Senior Bonds") and $3,815,000 of 2000 Subordinate Tax Allocation Revenue Bonds, Series B (Cathedral City Merged Redevelopment Project) (the "Subordinate Bonds") ( collectively, the "Bonds"). The Senior Trustee (as defined.below) for the Senior Bonds and the Subordinate Trustee (as defined below) for the Subordinate Bonds are sometimes collectively referred to as the "Trustee."

The Authority

The Authority was established pursuant to a Joint Exercise of Powers Agreement, dated as of December 1, 1993, by and among the City of Cathedral City (the "City") and the Cathedral City Redevelopment Agency (the "Agency"), pursuant to Chapter 5, Division 7, Title 1 of the California Government Code (the "Act"). The Authority was created for the purpose of providing financing for public capital improvements for the City and the Agency through the acquisition by the Authority of such public capital improvements, the loan by the Authority to the City or the Agency to finance such public capital improvements and the purchase by the Authority of local obligations within the meaning of the Act. The City Council of the City serves as the Board of Directors of the Authority.

The Redevelopment Agency

The Agency was established in 1981 by the City Council of the City pursuant to the California Community Redevelopment Law, Part I of Division 24 of the California Health and Safety Code (the "Redevelopment Law"). For further information with respect to the Agency, see "THE REDEVELOPMENT AGENCY" herein.

For information concerning the Agency's Merged Project Area, see "THE MERGED PROJECT AREA" herein.

Purpose

The Senior Bonds are being issued to provide a loan (the "Senior Loan") to the Agency. The proceeds of the Senior Loan will be applied by the Agency, as follows: (i) construction and acquisition of certain capital improvements which are located in the Agency's Merged Project Area, (ii) funding a portion of the premium for a reserve fund surety bond and (iii) paying costs of issuance of the Senior Bonds. See "PLAN OF FINANCE" and "ESTTh1ATED SOURCES AND USES OF FUNDS" herein.

The Subordinate Bonds are being issued to provide a loan (the "Subordinate Loan") to the Agency. The proceeds of the Subordinate Loan will be applied by the Agency, as follows: (i) construction and acquisition of certain capital improvements which are part of the Agency's Redevelopment Projects, (ii) funding the Subordinate Reserve Account and (iii) paying costs of issuance of the Subordinate Bonds. See "PLAN OF FINANCE" and "ESTTh1ATED SOURCES AND USES OF FUNDS" herein.

Authority for Issuance of the Bonds

The Bonds are being issued pursuant to resolutions of the Authority, adopted January 26, 2000 and March 22, 2000 and the Act.

Tax Allocation Financing and Security for the Bonds

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a 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 within the project area (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 (the "Tax Increment") are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. The Tax Increment, however, may be subject to a number of claims and reductions which are prior to the pledge of the repayment of redevelopment agency indebtedness, including, among others, pass-through agreements with the Taxing Agencies and administrative charges by the County, as further described herein. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as described above.

As more fully described under "SECURITY FOR THE BONDS," the Redevelopment Law requires the Agency to apply at least 20% of the Tax Increment (referred to herein as the "Housing Set Aside Moneys") for the purpose of increasing, improving and preserving the supply of low and moderate income housing within or without the Merged Project Area.

Pursuant to certain "pass-through agreements" with the Taxing Agencies located within the Merged Project Area, the Agency is required to make certain payments to these Taxing Agencies out of the Tax Increment allocable to the Project Areas prior to repaying the Senior Parity Debt and the Subordinate Parity Debt (i.e., the Subordinate Loan and debt on a parity with the Subordinate Loan). See "SECURITY FOR THE BONDS - The Pass-Through Agreements" herein.

Any future decrease in the assessed valuation of the Merged Project Area, the applicable tax rates or tax collection rates, a general decline in the economic condition of the Merged Project Area or a change in law reducing Tax Increment received by the Agency from the Merged Project Area, may have

2

a material, adverse impact on the Tax Revenues allocated to the Agency. See "RISK FACTORS" and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" herein.

The Senior Bonds. The Senior Bonds are secured under an Indenture of Trust, dated as of April 1, 2000 (the "Senior Indenture"), by and between BNY Western Trust Company (the "Senior Trustee") and the Authority, by a pledge of the Senior Revenues. The Senior Revenues principally consist of repayments of the Senior Loan under the Loan Agreement, dated as of April 1, 2000 (the "Senior Loan Agreement"), by and between the Agency and the Authority. Pursuant to the Senior Loan Agreement, the Agency has pledged certain of its Tax Increment received from the Merged Project Area excluding certain deductions as described herein (the "Tax Revenues") to the repayment of the Senior Loan.

As more fully described under "SECURITY FOR THE BONDS - Senior Bonds - Issuance of Additional Senior Parity Debt," the Agency may issue or enter into additional obligations on a parity with the pledge of the Tax Revenues to the payment of the Senior Loan if certain debt service coverage tests are met. The Senior Loan and any debt payable on a parity with the Senior Loan are collectively referred to herein as the "Senior Parity Debt."

The Subordinate Bonds. The Subordinate Bonds are secured under an Indenture of Trust, dated as of April 1, 2000 (the "Subordinate Indenture"), by and between BNY Western Trust Company (the "Subordinate Trustee") and the Authority, by a pledge of the Subordinate Revenues. The Subordinate Revenues principally consist of repayments of the Subordinate Loan under the Subordinate Loan Agreement, dated as of April 1, 2000 (the "Subordinate Loan Agreement"), by and between the Agency and the Authority. Pursuant to the Subordinate Loan Agreement, the Agency has pledged the Tax Revenues to the repayment of the Subordinate Loan, subject to the prior pledge of the Tax Revenues in favor of the Senior Parity Debt.

As more fully described under "SECURITY FOR THE BONDS - Subordinate Bonds - Issuance of Subordinate Parity Debt," the Agency may issue or enter into other obligations ("Subordinate Parity Debt") on a parity with the pledge of the Tax Revenues to the payment of the Subordinate Loan if certain debt service coverage tests are met. The Subordinate Loan and any debt payable on a parity with the Subordinate Loan are collectively referred to herein as the "Subordinate Parity Debt."

Outstanding Debt. As more fully described under "FINANCIAL INFORMATION CONCERNING TAX REVENUES - Outstanding Indebtedness of the Agency," the Agency has certain outstanding obligations secured by the Tax Increment from the Merged Project Area, including obligations secured by a senior lien on a portion of Tax Increment relating to Project Area No. 1 and obligations secured by Tax Revenues on a parity with the Senior Loan. See "SECURITY FOR THE BONDS - Outstanding Debt" herein.

Bond Insurance and Reserve Account Surety Bond for Senior Bonds

Payment of the principal of and interest on the Senior Bonds when due will be guaranteed by a municipal bond insurance policy to be issued simultaneously with the delivery of the Senior Bonds by MBIA Insurance Corporation (the "Insurer"). See "BOND INSURANCE FOR SENIOR BONDS" herein.

On the date of the issuance of the Senior Bonds, the Agency intends to deposit a Surety Bond issued by the Insurer in the stated amounts of $1,085,000 (the "Senior Reserve Account Surety Bond") into the Senior Reserve Account held under the Senior Loan Agreement. See "SECURITY FOR THE BONDS - Senior Bonds - Senior Reserve Account" herein.

3

Subordinate Reserve Account

On the date of issuance of the Subordinate Bonds, the Agency will deposit $294,741.26 from the proceeds of the Subordinate Bonds into the Subordinate Reserve Account. See "SECURITY FOR THE BONDS - Subordinate Bonds - Subordinate Reserve Account" herein.

Continuing Disclosure

The Agency will undertake all responsibilities for continuing disclosure to Owners of the Bonds as described below, and the Authority shall have no obligation to the Owners or any other person with respect to such disclosures. The Insurer as a provider of municipal bond insurance is not subject to the continuing disclosure requirements of Securities and Exchange Commission Rule 15c2-12, and the Agency will not provide any ongoing disclosure with respect to the Insurer.

The Agency will covenant for the benefit of Bondholders to provide certain financial information and operating data relating to the Agency by not later than March 31 in each year commencing March 31, 2001 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed with each Nationally Recognized Municipal Securities Information Repository and with any then existing State Repository ( collectively, the "Repositories"). Currently, there is no State Repository. The notices of material events will be filed with the Repositories. The specific nature of the information to be contained in the Annual Report or the notices of material events is described in "APPENDIX G - FORM OF THE CONTINUING DISCLOSURE AGREEMENT" attached hereto. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

Reference to Underlying Documents

Brief descriptions of the Bonds, the Senior Indenture, the Subordinate Indenture, the Senior Loan Agreement, the Subordinate Loan Agreement, the Agency, the Authority, the City, the Merged Project Area and other related information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of and references to all documents, statutes, reports and other instruments referred to herein is qualified in its entirety by reference to such document, statute, report or instrument, copies of which are all available for inspection at the offices of the Agency. Certain capitalized terms used and not defined herein shall have the meaning given to those terms in "APPENDIX D - SUMMARY OF CERTAIN PROVISIONS OF THE LEGAL DOCUMENTS" attached hereto.

PLAN OF FINANCE

The Senior Bonds are being issued to provide a portion of the funds needed to (i) provide new moneys for certain projects of the Agency relating to the Merged Project Area, (ii) fund the premium for the Senior Reserve Account Surety Bond, and (iii) pay costs of issuance of the Senior Bonds.

The Subordinate Bonds are being issued to provide a portion of the funds needed to (i) provide new moneys for certain projects of the Agency relating to the Merged Project Area, (ii) fund the Subordinate Reserve Account, and (iii) pay costs of issuance of the Subordinate Bonds.

A portion of the proceeds of the Senior Bonds and the Subordinate Bonds will be used for various redevelopment activities of the Agency in the Merged Project Area designed to stimulate economic development, including the funding of a portion of the development costs of a planned

4

multiplex movie theater and a parking facility with approximately 1,100 spaces to be located near the Cathedral City City Hall in Project Area No. 1. The Agency, consistent with the Redevelopment Law, may substitute other projects for the projects described herein.

Planned Expenditure of Bond Proceeds

Reimbursement for Downtown Core Revitalization Efforts Public Parking Structure Town Square Fountain Construction Public Improvements and Common Area Costs for

Theater Building Direct Theater Assistance for Furniture, Fixtures & Equipment

Contribution Public Improvements, Infrastructure and Utility Costs south of East

Palm Canyon Public Common Area Costs Contingency

TOTAL

5

$2,840,000 5,112,000

232,000 769,000

1,325,000

1,270,500

2,200,500 1,255,000

$ 15,004,000

ANNUAL DEBT SERVICE REQUIREMENTS OF THE SENIOR BONDS

The following table provides the annual debt service requirements of the Senior Bonds. See Appendix I for a table showing accreted values with respect to the Capital Appreciation Bonds.

Year Accreted Value ( ending August 1) Principal Interest (Interest) Total

2000 $167,473.96 $ 167,473.96 2001 $30,000.00 553,125.00 583,125.00 2002 30,000.00 551,895.00 581,895.00 2003 30,000.00 550,635.00 580,635.00 2004 35,000.00 549,345.00 584,345.00 2005 35,000.00 547,805.00 582,805.00 2006 35,000.00 546,230.00 581,230.00 2007 35,000.00 544,620.00 579,620.00 2008 40,000.00 542,975.00 582,975.00 2009 40,000.00 541,055.00 581,055.00 2010 540,000.00 539,095.00 1,079,095.00 2011 565,000.00 512,095.00 1,077,095.00 2012 595,000.00 483,280.00 1,078,280.00 2013 630,000.00 452,340.00 1,082,340.00 2014 660,000.00 418,950.00 1,078,950.00 2015 700,000.00 383,310.00 1,083,310.00 2016 730,000.00 344,810.00 1,074,810.00 2017 770,000.00 303,930.00 1,073,930.00 2018 820,000.00 260,810.00 1,080,810.00 2019 860,000.00 214,890.00 1,074,890.00 2020 915,000.00 165,870.00 1,080,870.00 2021 970,000.00 113,715.00 1,083,715.00 2022 1,025,000.00 58,425.00 1,083,425.00 2023 271,093.50 $803,906.50 1,075,000.00 2024 255,527.50 819,472.50 1,075,000.00 2025 240,132.20 844,867.80 1,085,000.00 2026 226,233.35 858,766.65 1,085,000.00 2027 210,338.10 874,661.90 1,085,000.00 2028 198,077.60 886,922.40 1,085,000.00 2029 184,938.25 900,061.75 1,085,000.00 2030 174,099.10 910,900.90 1,085,000.00 2031 162,912.75 922,087.25 1,085,000.00 2032 153,332.20 931,667.80 1,085,000.00 2033 1441315.85 24Q.684.15 1.Q85.QQQ,QQ Totals $ l 2,31 l ,Q00.4Q $9,346,678.26 $2,623,992.60 $31 .351,678.26

6

ANNUAL DEBT SERVICE REQUIREMENTS OF THE SUBORDINATE BONDS

The following table provides the annual debt service requirements of the Subordinate Bonds.

Year ( ending August 1) Principal Interest Total

2000 $ 77,318.47 $ 77,318.47 2001 $ 35,000 255,363.76 290,363.76 2002 40,000 253,613.76 293,613.76 2003 40,000 251,493.76 291,493.76 2004 45,000 249,293.76 294,293.76 2005 45,000 246,773.76 291,773.76 2006 50,000 244,208.76 294,208.76 2007 50,000 241,308.76 291,308.76 2008 55,000 238,358.76 293,358.76 2009 55,000 235,058.76 290,058.76 2010 60,000 231,703.76 291,703.76 2011 65,000 228,013.76 293,013.76 2012 70,000 223,951.26 293,951.26 2013 75,000 219,541.26 294,541.26 2014 80,000 214,741.26 294,741.26 2015 85,000 209,541.26 294,541.26 2016 90,000 203,931.26 293,931.26 2017 95,000 197,901.26 292,901.26 2018 100,000 191,488.76 291,488.76 2019 105,000 184,688.76 289,688.76 2020 115,000 177,470.00 292,470.00 2021 125,000 169,563.76 294,563.76 2022 130,000 160,970.00 290,970.00 2023 140,000 152,032.50 292,032.50 2024 150,000 142,407.50 292,407.50 2025 160,000 132,095.00 292,095.00 2026 170,000 121,095.00 291,095.00 2027 185,000 109,365.00 294,365.00 2028 195,000 96,600.00 291,600.00 2029 21_0,000 83,145.00 293,145.00 2030 225,000 68,655.00 293,655.00 2031 240,000 53,130.00 293,130.00 2032 255,000 36,570.00 291,570.00 2033 275,000 18,975.00 293,975.00 Totals $3,815,000 $5,920,368.67 $9,735,368.67

7

(I)

(I)

ESTIMATED SOURCES AND USES OF FUNDS

Set forth below are the estimated sources and uses of proceeds of the Senior Bonds.

Sources:

Par Amount of Senior Bonds Original Issue Discount

TOTAL SOURCES: Uses:

Deposit to Senior Redevelopment Fund Underwriter's Discount Costs of Issuance< 1

>

TOTAL USES:

$ 12,311,000.40 (37,265.00)

$12,273,735.40

$11,616,301.49 183,433.91 474,000.00

$12,273,735.40

Includes legal fees, printing, rating agency fees and expenses, fees of the redevelopment consultant, bond insurance premium, premium for the Senior Reserve Account Surety Bond and other issuance costs.

Set forth below are the estimated sources and uses of proceeds of the Subordinate Bonds.

Sources:

Par Amount of Subordinate Bonds

Uses:

Deposit to Subordinate Redevelopment Fund Deposit to Subordinate Reserve Account Underwriter's Discount Costs of Issuance< 1

>

TOTAL USES:

$3,815,000.00

$ 3,392,866.24 294,741.26

74,392.50 53,000.00

$3,815,000.00

Includes legal fees, printing, rating agency fees and expenses, fees of the redevelopment consultant and other issuance costs.

THE BONDS

General

The Bonds will be issued as fully registered bonds, and when issued, will be registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), as securities depository for the Bonds. Individual purchases of the Bonds will be made in book-entry form only. The Current Interest Bonds will be issued in denominations of $5,000 or any integral multiple thereof. The Capital Appreciation Bonds will be issued in denominations consisting of the maturity value (representing both principal and interest payable at maturity) of $5,000 each or any integral multiple thereof. The Bonds will be issued in the principal amounts, will be dated and will bear interest at the rates and mature on the dates and in the amounts set forth on the inside cove·r page of this Official Statement. See Appendix I for a table showing accreted values with respect to the Capital Appreciation Bonds.

8

Interest on the Current Interest Bonds is payable commencing August 1, 2000, and semiannually thereafter on each August 1 and February 1 (each an "Interest Payment Date"). Interest will be calculated on the basis of a 360-day year composed of twelve 30-day months. Interest for the Capital Appreciation Bonds shall accrue thereon and shall compound on each Interest Payment Date. The Accreted Value of the Capital Appreciation Bonds shall be payable solely at maturity. Principal, premium, if any, interest and Accreted Value are payable by the Trustee to DTC, which is obligated in tum to remit such principal and interest to DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. See APPENDIX E - "THE BOOK-ENTRY SYSTEM" attached hereto.

Redemption of the Senior Bonds

Optional Redemption. The Capital Appreciation Bonds are not subject to optional redemption prior to maturity. The Current Interest Senior Bonds maturing on or after August 1, 2010, shall be subject to redemption in whole, or in part among such maturities as designated by the Authority and by lot within a maturity, at the option of the Authority, on any date on or after August 1, 2009, from and to the extent of optional Senior Loan prepayments by the Agency, at a redemption price expressed as a percentage of principal amount of the Current Interest Senior Bonds to be redeemed as follows, plus accrued interest to the redemption date:

Senior Bonds Redemption Schedule

Redemption Periods August 1, 2009 through July 31, 2010 August 1, 2010 through July 31, 2011 August 1, 2011 and thereafter

Redemption Price 102% 101 100

Mandatory Sinking Fund Redemption. The Bonds maturing on August 1, 2018 and August 1, 2022, respectively (the "Term Senior Bonds"), shall also be subject to redemption or prior purchase in part by lot, from Sinking Account payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that, if some but not all of the Term Senior Bonds have been optionally redeemed as described above, the total amount of all future Sinking Account payments payable with respect to the maturity redeemed shall be reduced by the aggregate principal amount of the maturity so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Authority.

The Term Senior Bonds maturing on August 1, 2018, are subject to mandatory sinking fund redemption in part by lot at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and on August 1, in the respective years as set forth in the following table; provided, however, that in lieu of mandatory sinking fund redemption thereof such Senior Bonds may be purchased by the Agency pursuant to the Senior Loan Agreement:

9

t . . Fmal Matunty

Sinking Account Schedule for the Term Senior Bonds Due August 1, 2018

Sinking Account Redemption Date

(August 1)

2016 2017 2018t

Principal Amount To be Redeemed

or Purchased $730,000

770,000 820,000

The Term Senior Bonds maturing on August 1, 2022, are subject to mandatory sinking fund redemption in part by lot at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and on August 1, in the respective years as set forth in the following table; provided, however, that in lieu of mandatory sinking fund redemption thereof such Senior Bonds may be purchased by the Agency pursuant to the Senior Loan Agreement:

t Final Maturity

Sinking Account Schedule for the Term Senior Bonds Due August 1, 2022


(August 1)

2019 2020 2021 2022t


or Purchased

$ 860,000 915,000 970,000

1,025,000

Redemption of the Subordinate Bonds

Optional Redemption. The Current Interest Subordinate Bonds maturing on or after August 1, 2005, shall be subject to redemption in whole, or in part among such maturities as designated by the Authority and by lot within a maturity, at the option of the Authority, on any date on or after August 1, 2004, from and to the extent of optional Subordinate Loan prepayments by the Agency, at a redemption price expressed as a percentage of principal amount of the Current Interest Subordinate Bonds to be redeemed as follows, plus accrued interest to the redemption date:

, Subordinate Bonds Redemption Schedule

Redemption Periods August 1, 2004 through July 31, 2005 August 1, 2005 through July 31, 2006 August 1, 2006 and thereafter

10

Redemption Price 102% 101 100

Mandatory Sinking Fund Redemption. The Bonds maturing on August 1, 2025 and August 1, 2033, respectively (the "Term Subordinate Bonds"), shall also be subject to redemption or prior purchase in part by lot, from Sinking Account payments made by the Authority, at a redemption price equal to the principal amount thereof to be redeemed together with accrued interest thereon to the redemption date, without premium, or in lieu thereof shall be purchased by the Agency as described below, in the aggregate respective principal amounts and on the respective dates as set forth in the following tables; provided, however, that, if some but not all of the Term Subordinate Bonds have been optionally redeemed as described above, the total amount of all future Sinking Account payments payable with respect to the maturity redeemed shall be reduced by the aggregate principal amount of the maturity so redeemed, to be allocated among such Sinking Account payments on a pro rata basis in integral multiples of $5,000 as determined by the Authority.

The Term Subordinate Bonds maturing on August 1, 2025, are subject to mandatory sinking fund redemption in part by lot at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and on August 1, in the respective years as set forth in the following table; provided, however, that in lieu of mandatory sinking fund redemption thereof such Subordinate Bonds may be purchased by the Agency pursuant to the Subordinate Loan Agreement:

t Final Maturity

Sinking Account Schedule for the Term Subordinate Bonds Due August 1, 2025


(August 1) 2019 2020. 2021 2022 2023 2024 2025t



115,000 125,000 130,000 140,000 150,000 160,000

The Term Subordinate Bonds maturing on August 1, 2033, are subject to mandatory sinking fund redemption in part by lot at a redemption price equal to the principal amount thereof to be redeemed, plus accrued interest thereon to the date of redemption, without premium, in the aggregate respective principal amounts and on August 1, in the respective years as set forth in the following table; provided, however, that in lieu of mandatory sinking fund redemption thereof such Subordinate Bonds may be purchased by the Agency pursuant to the Subordinate Loan Agreement:

11

Sinking Account Schedule for the Term Subordinate Bonds Due August 1, 2033

t Final Maturity

Notice of Redemption


(August 1) 2026 2027 2028 2029 2030 2031 2032 2033t



185,000 195~000 210,000 225,000 240,000 255,000 275,000

The Trustee on behalf of the Authority shall mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books of the Trustee, and to the Securities Depositories (as defined under the Senior Indenture and the Subordinate Indenture) and to one, or more Information Services ( as defined under the Senior Indenture and the Subordinate Indenture), at least thirty but not more than sixty days prior to the date fixed for redemption; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice shall state the date of the notice, the redemption date, the redemption place and the redemption price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities (in the event of redemption of all of the Bonds of such maturity or maturities in whole) of the Bonds to be redeemed, and shall require that such Bonds be then surrendered at the Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. The Trustee shall not mail notice of redemption of Bonds unless (i) there shall then be on deposit in the Principal Account all amounts required to pay the principal of and redemption premium (if any) on such Bonds upon the redemption thereof, or (ii) unless all such amounts are to be paid with the proceeds of refunding bonds.

Effect of Redemption

From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption shall have been duly provided, such Bonds so called shall cease to be entitled to any benefit under the Senior Indenture or the Subordinate Indenture, as applicable, other than the right to receive payment of the redemption price, and no interest shall accrue thereon from and after the redemption date specified in such notice.

SECURITY FOR THE BO:'.WS

Tax Allocation Financing

The Redevelopment Law generally provides a means for financing redevelopment projects based upon an allocation of taxes collected within a project area. The taxable valuation of a project area last

12

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 within a project area, which generally includes the State of California and any city, county, district or other public corporation for whose benefit taxes are levied (the "Taxing Agencies"), thereafter receive only 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 (the "Tax Increment") are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. The Tax Increment, however, is subject to a number of claims and reductions which are prior to the pledge of the repayment of redevelopment agency indebtedness, including among others pass-through agreements with the Taxing Agencies and administrative charges by the County, as further described herein. Redevelopment agencies themselves have no authority to levy property taxes and must look specifically to the allocation of taxes produced as above described.

The Agency has no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or diversion of Tax Increment to Taxing Agencies may have the effect of reducing the amount of Tax Revenues that would otherwise be available to pay the Senior Parity Debt and the Subordinate Parity Debt. Likewise, the reduction of assessed valuations of taxable property in the Merged Project Area, any reduction in tax rates or tax collection rates and broadened property tax exemptions would have a similar effect. See "RISK FACTORS" and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" herein.

The Senior Bonds are special obligations of the Authority payable solely from the Senior Revenues and from certain amounts held in the funds and accounts established by the Senior Indenture. The Subordinate Bonds are special obligations of the Authority payable solely from the Subordinate Revenues and from certain amounts held in the funds and accounts established by the Subordinate Indenture. The Bonds are not a debt or liability of the Agency, the City, the State of California or any political subdivision thereof, other than the Authority, and shall be payable solely from the funds provided therefor. Neither the City, the State of California nor the Authority shall be obligated to pay the principal of the Bonds, or the interest thereon, except from the funds described above, and neither the faith and the credit nor the taxing power of the Agency, the City, the State of California nor any political subdivision thereof is pledged to the payment of the principal of or the interest on the Bonds. The issuance of the Bonds shall not directly, indirectly or contingently obligate the Agency, the City, the State of California or any political subdivision thereof to levy or pledge any form of taxation whatever therefor or to make any appropriation for their payment. Neither the Authority nor the Agency has taxing power.

Allocation of Taxes

As provided in the Redevelopment Plan for the Merged Project Area adopted by the Agency on January 28, 1998 (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, taxes levied upon taxable property in the Merged Project Area each year by or for the benefit of the Taxing Agencies, for fiscal years beginning after July 1 subsequent to the effective date of the ordinance adopting the Redevelopment Plan for the Merged Project Area, or any amendment thereof, are divided as follows:

1. To the Taxing Agencies: That portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said Taxing Agencies upon the total sum of the assessed value of the taxable property in the Merged Project Area as shown upon the assessment roll

13

used in connection with the taxation of such property by such Taxing Agency last equalized prior to the ordinance approving the Redevelopment Plan, shall be allocated to, and when collected shall be paid into the funds o( the respective Taxing Agencies as taxes by or for said Taxing Agencies on all other property are paid;

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 shall be allocated to and when collected shall be paid to the respective Taxing Agency, that portion of said levied taxes each year in excess of such amount (the "Tax Increment") shall be allocated to, and when collected, shall be paid to the Agency to pay principal of and interest on loans, moneys advanced to, or indebtedness (whether funded, refunded, assumed or otherwise) incurred by the Agency to finance or refinance, in whole or in part, the redevelopment project.

Housing Set-Aside Amounts. The Redevelopment Law requires that, except under certain circumstances, redevelopment agencies set aside 20% of all gross Tax Increment (as described above) derived from redevelopment project areas into a low and moderate income housing fund, to be used for the purpose of increasing, improving and/or preserving the community's supply of low and moderate income housing. Such 20% set aside requirement is referred herein as the "Housing Set-Aside Amounts." The Housing Set-Aside Amounts are not pledged to and are not available to pay debt service on the Bonds, unless and to the extent the proceeds of the Senior Parity Debt or Subordinate Parity Debt are deposited in the Low and Moderate Income Housing Fund of the Agency. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Low and Moderate Income Housing" herein.

Security for the Senior Bonds

Pledge Under the Senior Indenture. Pursuant to the Senior Indenture, the Senior Revenues (as hereinafter defined) are pledged to the payment of the debt service on the Senior Bonds. See "Issuance of Additional Senior Parity Debt" below. The Senior Indenture defines "Senior Revenues" to mean (a) all amounts payable by the Agency to the Authority or the Trustee pursuant to the Senior Loan Agreement, other than (i) administrative fees and expenses and indemnity against claims payable to the Authority and the Senior Trustee and (ii) arbitrage rebate amounts payable to the United States of America; (b) any proceeds of Senior Bonds originally deposited with the Senior Trustee and all moneys deposited and held from time to time by the Senior Trustee in the funds and accounts established thereunder; ( c) investment income with respect to any moneys held by the Senior Trustee in funds and accounts established thereunder; and ( d) any other investment income received under the Senior Indenture.

The Senior Loan Agreement. Under the Senior Loan Agreement, the Tax Revenues (as hereinafter defined) allocated and paid to the Agency with respect to the Merged Project Area, are pledged to the repayment of the Senior Loan and other Senior Parity Debt (which includes the outstanding 1995 Project No. 2 Loan as described herein) under the Senior Loan Agreement. Generally, the Tax Revenues consist of certain of the Tax Increment from the Merged Project Area. As described herein under "THE MERGED PROJECT AREA," the Merged Project Area consists of Project Area No. 1 and Project Area No. 2. The Tax Revenues pledged under the Senior Loan Agreement exclude tax increment pledged with respect to Project Area No. 1 under a prior loan agreement (the "1995 Project No. 1 Loan Agreement"). The Agency has covenanted not to incur any additional indebtedness under the 1995 Project No. 1 Loan Agreement. See "FINANCIAL INFORMATION CONCERNING TAX

14

REVENUES - Outstanding Indebtedness of the Agency" and "-Proforma Debt Service Coverage" herein.

The Senior Loan Agreement generally defines "Tax Revenues" as all taxes annually allocated and paid to the Agency within the Plan Limit (see "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMIT A TIO NS - Tax Increment Limitation" herein) with respect to the Merged Project Area following the Closing Date, pursuant to Article 6 of Chapter 6 ( commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and other applicable State laws and as provided in the Redevelopment Plan, including (a) all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and (b) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law, but only to the extent permitted under the Redevelopment Law to be applied to the payment of the principal of, premium (if any) and interest on the Senior Loan and any Senior Parity Debt; but (i) excluding all other amounts required to be deposited in the Low and Moderate Income Housing Fund (see "Allocation of Taxes - Housing Set-Aside Amounts" above and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Low and Moderate Income Housing" herein), (ii) excluding amounts payable by the State to the Agency under and pursuant to the provisions of Chapter 1.5 of Part 1 of Division 4 of Title 2 ( commencing with Section 16110) of the Government Code of the State, (iii) excluding amounts payable by the Agency pursuant to the Pass-Through Agreements (see "The Pass-Through Agreements" below) except and to the extent that any amounts so payable are payable on a subordinate basis to the payment of the Senior Loan, the 1995 Project No. 2 Loan and any additional Senior Parity Debt, as applicable, and (iv) excluding all taxes (and related payment, subventions and reimbursements) to be applied as "Tax Revenues" with respect to the 1995 Project No. 1 Loan within the meaning of and pursuant to the 1995 Project No. 1 Loan Agreement. See "FINANCIAL INFORMATION CONCERNING TAX REVENUES - Outstanding Indebtedness of the Agency - Bonded Indebtedness" herein.

Senior Reserve Account. A Senior Reserve Account is established by the Senior Loan Agreement for the Senior Loan in an amount equal to the lesser of (i) Maximum Annual Debt Service (generally defined under the Senior Loan Agreement as maximum annual debt service on Senior Parity Debt), (ii) 125% of average annual debt service, or (iii) 10% of the initial principal amount of the Senior Bonds (the "Senior Reserve Requirement"). The initial Senior Reserve Requirement is $1,085,000 and will be satisfied with a Senior Reserve Account Surety Bond to be issued by the Insurer in the stated amount of $1,085,000. For information concerning the Insurer, see "BOND INSURANCE - The Policy and the Insurer" herein.

Issuance of Additional Senior Parity Debt. In addition to the Senior Loan, the Agency may issue or incur Senior Parity Debt subject to the following conditions, among others, under the Senior Loan Agreement:

(a) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the Senior Loan Agreement.

(b) The Tax Revenues received or estimated to be received for the then current Fiscal Year (i) calculated using a tax rate of one percent, (ii) based on the most recent taxable valuation of property in the Merged Project Area as evidenced in a written document from an appropriate official of the County and (iii) inclusive of Additional Revenues (see Appendix D for a definition of this term under the Senior Loan Agreement), but exclusive of investment earnings

15

and payments, subventions and other amounts described under clause (a) of the definition of Tax Revenues (see "The Senior Loan Agreement" above), shall be at least equal to 125% of Maximum Annual Debt Service (generally defined under the Senior Loan Agreement as maximum annual debt service on Senior Parity Debt), including within such Maximum Annual Debt Service, the amount of Maximum Annual Debt Service on the Senior Parity Debt then proposed to be issued or incurred, plus 100% of maximum annual debt service on Subordinate Parity Debt; provided that, if Tax Revenues will be reduced in any future Fiscal Year because of increased payments in such Fiscal Year pursuant to any Pass-Through Agreement, then such Tax Revenues estimated to be received in such Fiscal Year shall at least equal 125% of annual debt service payable on Senior Parity Debt in such Fiscal Year (assuming no future growth in assessed valuation in the Merged Project Area).

( c) The aggregate amount of the principal of and interest on the Senior Parity Debt and the Subordinate Parity Debt coming due and payable following the issuance of such Senior Parity Debt shall not exceed the maximum amount of Tax Revenues permitted under the Plan Limit to be allocated to the Agency following the issuance of such Senior Parity Debt (see "LTh1ITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Tax Increment Limitation" herein).

Security for the Subordinate Bonds

Pledge Under the Subordinate Indenture. Pursuant to the Subordinate Indenture, the Subordinate Revenues (as hereinafter defined) are pledged to the payment of the debt service on the Subordinate Bonds. See "Issuance of Subordinate Parity Debt" below. The Subordinate Indenture defines "Subordinate Revenues" to mean (a) all amounts payable by the Agency to the Authority or the Trustee pursuant to the Subordinate Loan Agreement, other than (i) administrative fees and expenses and indemnity against claims payable to the Authority and the Subordinate Trustee and (ii) arbitrage rebate amounts payable to the United States of America; (b) any proceeds of Subordinate Bonds originally deposited with the Subordinate Trustee and all moneys deposited and held from time to time by the Subordinate Trustee in the funds and accounts established thereunder; ( c) investment income with respect to any moneys held by the Subordinate Trustee in funds and accounts established thereunder; and ( d) any other investment income received under the Subordinate Indenture.

The Subordinate Loan Agreement. Under the Subordinate Loan Agreement, the Tax Revenues allocated and paid to the Agency with respect to the Merged Project Area, are pledged to the repayment of the Subordinate Loan and any Subordinate Parity Debt under the Subordinate Loan Agreement, subject to the prior pledge of the Tax Revenues in favor of the Senior Parity Debt. See "Security for the Senior Bonds" above.

Subordinate Reserve Account. A Subordinate Reserve Account is established by the Subordinate Loan Agreement for the Subordinate Loan in an amount equal to the lesser of (i) 2000 Subordinate Maximum Annual Debt Service (generally defined under the Subordinate Loan Agreement as maximum annual debt service on Subordinate Parity Debt), (ii) 125% of average annual debt service, or (iii) 10% of the initial principal amount of the Subordinate Bonds (the "Subordinate Reserve Requirement"). The initial Subordinate Reserve Requirement is $294,741.26 and will be satisfied with a deposit from the proceeds of the Subordinate Bonds.

Issuance of Additional Subordinate Parity Debt. In addition to the Subordinate Loan, the Agency may issue or incur Subordinate Parity Debt subject to the following conditions, among others, under the Subordinate Loan Agreement:

16

(a) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the Subordinate Loan Agreement.

(b) The Tax Revenues received or estimated to be received for the then current Fiscal Year (i) calculated using a tax rate of one percent, (ii) based on the most recent taxable valuation of property in the Merged Project Area as evidenced in a \.VTitten document from an appropriate official of the County and (iii) inclusive of Additional Revenues (see Appendix D for a definition of this term under the Subordinate Loan Agreement), but exclusive of investment earnings and payments, subventions and other amounts described under clause (a) of the definition of Tax Revenues (see "The Subordinate Loan Agreement" above), shall be at least equal to 110% of Maximum Annual Debt Service (generally defined under the Subordinate Loan Agreement as maximum annual debt service on Senior Parity Debt and Subordinate Parity Debt), including within such Maximum Annual Debt Service, the amount of Maximum Annual Debt Service on the Subordinate Parity Debt then proposed to be issued or incurred, as evidenced by a report of an Independent Financial Consultant.

( c) The aggregate amount of the principal of and interest on the Senior Parity Debt and Subordinate Parity Debt coming due and payable following the issuance of such Subordinate Parity Debt shall not exceed the maximum amount of Tax Revenues permitted under the Plan Limit to be allocated to the Agency following the issuance of such Subordinate Parity Debt (see "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Tax Increment Limitation" herein).

The Pass-Through Agreements

The Agency has entered into pass-through agreements (the "Pass-Through Agreements") with several Taxing Agencies which provide for payments to such entities from Tax Increment generated from the Merged Project Area. The Agency's obligations under the Pass-Through Agreements are senior to the Agency's obligation to make payments on the Senior Parity Debt and the Subordinate Parity Debt. The provisions of certain of these Pass-Through Agreements provide that the Taxing Agency's share of Tax Increment will increase in the future if certain conditions are met. For a summary of the terms of the Pass-Through Agreements, see APPENDIX A - "REPORT OF REDEVELOPMENT CONSULT ANT" attached hereto.

BOND INSURANCE FOR THE SENIOR BONDS

The following information has been furnished by MBIA Insurance Corporation (the "Insurer") for use in this Official Statement. No representation is made herein as to the accuracy or adequacy of such information or as to the absence of material adverse changes in such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct. Reference is made to Appendix I for a specimen of the Insurer's policy (the "Policy").

The Policy and the Insurer

The Insurer's Policy unconditionally and irrevocably guarantees the full and complete payment required to be made by or on behalf of the Issuer to the Senior Trustee or its successor of an amount equal to (i) the principal of ( either at the stated maturity or by an advancement of maturity pursuant to a mandatory sinking fund payment) and interest on, the Senior Bonds as such payments shall become due but shall not be so paid ( except that in the event of any acceleration of the due date of such principal by

17

reason of mandatory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of maturity pursuant to a mandatory sinking fund payment, the payments guaranteed by the Insurer's Policy shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (ii) the reimbursement of any such payment which is subsequently recovered from any owner of the Senior Bonds pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes an avoidable preference to such owner within the meaning of any applicable bankruptcy law (a "Preference").

The Insurer's Policy does not insure against loss of any prepayment premium which may at any time be payable with respect to any Senior Bond. The Insurer's Policy does not, under any circumstance, insure against loss relating to: (i) optional or mandatory redemptions (other than mandatory sinking fund redemptions); (ii) any payments to be made on an accelerated basis; or (iii) any Preference relating to (i) and (ii) above. The Insurer's Policy also does not insure against nonpayment of principal of or interest on the Senior Bonds resulting from the insolvency, negligence or any other act or omission of the Senior Trustee or any other Senior Trustee for the Senior Bonds.

Upon receipt of telephonic or telegraphic notice, such notice subsequently confirmed in writing by registered or certified mail, or upon receipt of written notice by registered or certified mail, by the Insurer from the Senior Trustee or any O\v11er of a Senior Bond the payment of an insured amount for which is then due, that such required payment has not been made, the Insurer on the due date of such payment or within one business day after receipt of notice of such nonpayment, whichever is later, will make a deposit of funds, in an account with State Street Bank and Trust Company, N.A., in New York, New York, or its successor, sufficient for the payment of any such insured amounts which are then due. Upon presentment and surrender of such Senior Bonds or presentment of such other proof of ownership of the Senior Bonds, together with any appropriate instruments of assignment to evidence the assignment of the insured amounts due on the Senior Bonds as are paid by the Insurer, and appropriate instruments to effect the appointment of the Insurer as agent for such owners of the Senior Bonds in any legal proceeding related to payment of insured amounts on the Senior Bonds, such instruments being in a form satisfactory to State Street Bank and Trust Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to such owners or the Senior Trustee payment of the insured amounts due on such Senior Bonds, less any amount held by the Senior Trustee for the payment of such insured amounts and legally available therefor.

The Insurer is the principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed company (the "Company"). The Company is not obligated to pay the debts of or claims against the Insurer. The Insurer is domiciled in the State of New York and licensed to do business in and subject to regulation under the laws of all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United States and the Territory of Guam. The Insurer has two European branches, one in the Republic of France and the other in the Kingdom of Spain. New York has laws prescribing minimum capital requirements, limiting classes and concentrations of investments and requiring the approval of Policy rates and forms. State laws also regulate the amount of both the aggregate and individual risks that may be insured, the payment of dividends by the Insurer, changes in control and transactions among affiliates. Additionally, the Insurer is required to maintain contingency reserves on its liabilities in certain amounts and for certain periods ohime.

As of December 31, 1998, the Insurer had admitted assets of $6.5 billion (audited), total liabilities of $4.2 billion (audited), and total capital and surplus of $2.3 billion (audited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities. As of September 30, 1999, the Insurer had admitted assets of $6.9 billion (unaudited), total

18

liabilities of $4.5 billion (unaudited), and total capital and surplus of $2.4 billion (unaudited) determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.

Furthermore, copies of the Insurer's year-end financial statements prepared in accordance with statutory accounting practices are available without charge from the Insurer. A copy of the Annual Report on Form 10-K of the Company is available from the Insurer or the Securities and Exchange Commission. The address of the Insurer is 113 King Street, Armonk, New York 10504. The telephone number of the Insurer is (914) 273-4545.

Year 2000 Readiness Disclosure. The Company is actively managing a high-priority Year 2000 ("Y2K") program addressing the issue of whether its computer systems can correctly distinguish between the years 1900 and 2000. The Company has established an independent Y2K testing lab in its Armonk office, with a committee of business unit managers overseeing the project. The Company has a budget of $1.13 million for its 1998-2000 Y2K efforts. As of September 30, 1999, the Company has spent $949,000 on the project. A recent review of efforts at certain subsidiaries has indicated the need to spend an additional $1.03 million this year on remediation. As of September 30, 1999, the company has spent $568,000 of this additional amount. However, this increase will not have a material effect on the Company's financial results.

The Company has initiated a comprehensive Y2K plan which includes the following phases: assessment - completed in the second quarter of 1998; remediation - completed in the fourth quarter of 1998; testing - completed in the second quarter of 1999; and contingency planning - completed in the third quarter of 1999, subject to final approval by senior management and any need for revision that might arise in the future. This plan covers "mission-critical" internally developed systems, vendor software, hardware and certain third-party entities through which the Company conducts its business. Testing to date indicates that functions critical to the financial guarantee business, both domestic and international, were Y2K ready as of December 31, 1998. Additional testing is being carried out throughout 1999.

Moody's Investors Service, Inc. rates the financial strength of the Insurer "Aaa".

Standard & Poor's Ratings Services Group, a division of The McGraw-Hill Companies, Inc., rates the financial strength of the Insurer "AAA".

Fitch IBCA, Inc. rates the financial strength of the Insurer "AAA".

Each rating of the Insurer should be evaluated independently. The ratings reflect the respective rating agency's current assessment of the creditworthiness of the Insurer and its ability to pay claims on its policies of insurance. Any further explanation as to the significance of the above ratings may be obtained only from the applicable rating agency.

The above ratings are not recommendations to buy, sell or hold the Senior Bonds, and such ratings may be subject to revision or withdrawal at any time by the rating agencies. Any downward revision or withdrawal of any of the above ratings may have an adverse effect on the market price of the Senior Bonds. The Insurer does not guaranty the market price of the Senior Bonds nor does it guaranty that the ratings on the Senior Bonds will not be revised or withdrawn.

In the event the Insurer were to become insolvent, any claims arising under a Policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association,

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established pursuant to Article 14.4 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1 of the California Insurance Code.

Disclaimer

The information relating to the Insurer and the Policy contained above has been furnished by the Insurer. No representation is made by the Authority, the Agency or the Underwriter as to the accuracy, completeness or adequacy of such information or as to the absence of material adverse changes in the condition of the Insurer subsequent to the date of this Official Statement. Additional financial information with respect to the Insurer is on file with the State of New York Insurance Department. Prospective purchasers of the Bonds may contact such Insurance Department to obtain such information. See APPENDIX I- "SPECTh1EN BOND INSURANCE POLICY" attached hereto.

NO ASSURANCE CAN BE GIVEN THAT THE INSURER WILL BE ABLE TO MEET ITS OBLIGATIONS UNDER THE POLICY.

RISK FACTORS

The following section describes certain risk factors affecting the payment and security of the Bonds. The following discussion of risks is not meant to be an exhaustive list of the risks associated with the purchase of the Bonds and does not necessarily reflect the relative importance of the various risks. Potential investors are advised to consider the following factors along with all other information in this Official Statement in evaluating the Bonds. There can be no assurance that other risk factors will not become material in the future.

Reduction in Taxable Value - Economic Factors and Property Damage

Tax Increment revenues allocated to the Agency are determined by the amount of incremental taxable value in the Merged Project Area and the current rate or rates at which property in the Merged Project Area is taxed. As described in greater detail below, Article XIII A of the State Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflation rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Property Tax Limitations: Article XIII A of the California Constitution" herein.

The reduction of taxable values of property in the Merged Project Area due to economic or other factors beyond the Agency's control, such as a relocation out of the Merged Project Area by one or more major property owners, or the complete or partial destruction of such property caused by, among other event, an earthquake or other natural disaster, could cause a reduction in the Tax Revenues. In addition, sale of property to a nonprofit corporation or purchase or condemnation of property by a governmental agency would remove such property from the tax rolls. See "INFORMATION CONCERNING ASSESSMENTS AND TAX REVENUES" for a description of the largest assessed properties within the Merged Project Area. The County has also in the past made some County-wide reductions in assessed values for single family homes based on reductions in market value. See "Appeals to Assessed Values and Blanket Reductions to Assessed Values" below.

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Reduction in Inflation Rate

As described in greater detail below, Article Xlli A of the California Constitution provides that the full cash value base ofreal property used in determining taxable value may be adjusted from year to year to reflect the inflation rate, not to exceed a two percent increase for any given year, or may be reduced to reflect a reduction in the consumer price index, comparable local data or any reduction in the event of declining property value caused by damage, destruction or other factors (as described above). Such measure is computed on a calendar year basis. Any resulting reduction in the full cash value base over the term of the Bonds could reduce Tax Revenues. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS - Property Tax Limitations: Article Xlli A of the California Constitution" herein.

Development Risks

The Agency's ability to make payments on the Senior Parity Debt and the Subordinate Parity Debt will in large measure depend on the continued economic strength of the Merged Project Area. The general economy of the Merged Project Area will be subject to all the risks generally associated with real estate development projects. Projected development within the Merged Project Area may be subject to unexpected delays, disruptions and changes. Real estate development operations may be adversely affected by changes in general economic conditions, fluctuations in the real estate market and interest rates, unexpected increases in development costs and by other similar factors. Further, real estate development operations within the Merged Project Area could be adversely affected by future governmental policies, including governmental policies to restrict or control development. If projected development in the Merged Project Area is delayed or halted, the economy of the Merged Project Area could be affected causing a reduction of the Tax Revenues. In addition, if there is a decline in the general economy of the Merged Project Area, the owners of property within the Merged Project Area may be less able or less willing to make timely payments of property taxes causing a delay or stoppage of the Tax Revenues received by the Agency from the Merged Project Area. In addition, the insolvency or banlcruptcy of one or more large owners of property within the Merged Project Area could delay or impair the receipt of Tax Increment by the Agency.

Levy and Collection of Taxes

The Agency has no 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 Tax Revenues. See "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMIT A TIO NS - Property Tax Collection Procedures" herein.

California Economy

California's most recent economic recession ended around 1995. No assurance can be made that one or more economic recessions will not occur in California during the term of the Bonds. See "RISK FACTORS - Reduction in Taxable Value - Economic Factors and Property Damage" " Reduction in Inflation Rate" and"- Development Risks" herein.

Appeals to Assessed Values and Blanket Reductions to Assessed Values

Pursuant to California law, a property owner may apply for a reduction of the property tax assessment for such owner's property 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.

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In Riverside 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 Riverside County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of the application by the County Assessor's Office (the "Assessor"), the Assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board ( or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal's filing date.

In the case of appeals based on declines in property values (Proposition 8), any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level ( escalated to the inflation rate of no more than two percent) following the year for which the reduction application is filed. However, the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and often does remain in effect beyond the year in which it is granted.

It is the current practice of the County to distribute Tax Increment revenues to the Agency as received based upon real property taxes levied during the then current fiscal year. The County does not reduce the Agency's receipts of Tax Increment on account of amounts refunded to a taxpayer as the result of a successful appeal. There can be no assurance that such practice will not be discontinued by the County in the future.

According to representatives of the County Assessor, in recent years the County has, pursuant to Article XIII A of the California Constitution, automatically reduced the assessed property values and corresponding property tax bills on single family residential properties if the value of the property has declined below the current assessed value as calculated by the County. In the past, residential and other properties were reassessed only at the owner's request. The County estimates 100,000 homes were reassessed County-wide in fiscal year 1994-95 and 197,000 homes were reassessed in fiscal year 1995-96.

Further appeals to assessed values in the Merged Project Area should be expected to be filed from time to time in the future. The Agency cannot predict the extent of these appeals or their likelihood of success.

For more information concerning appeals to assessed values in the Merged Project Area, see APPENDIX A - "REPORT OF THE REDEVELOPMENT CONSULT ANT" attached hereto.

Recently Resolved Appeals. The following table summarizes assessment appeals for each of the component Project Areas of the Merged Project Area recently resolved but not yet reflected on the tax roll. The valuation reductions shown below represent the change from the 1998-99 roll value of the property. The pre-appeal and post-appeal values may be based on an earlier fiscal year's roll value reflecting the year in which the appeal was first filed.

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Project Area No. 1 Project Area No. 2

Aggregate Assessment Appeals Recently Resolved in the Merged Project Area

Pre-Appeal Value

$ 7,564,113 206,040

Post-Appeal Value

$ 5,367,000 185,000

Value Reduction

$ 2,197,113 21,040

Source: Katz Hollis, Los Angeles, California.

Value Reduction as a% of Aggregate

Incremental Value

3.00 % 0.01

Pending Assessment Appeals. There are significant pending assessment appeals in the Merged Project Area. The following table summarizes these appeals. The amounts shown under "Estimated Post-Appeal Value" represent the potential assessed value decline which could be experienced if the appeals are resolved in favor of the taxpayers. The amount of the valuation reduction is estimated as a percentage of pre-appeal value (21 % for Project Area No. I and 12% for Project Area No. 2). The percentage reduction is consistent with the recent historical reduction in value for successful assessment appeals of property in the Merged Project Area. There can be no assurance that appeals will be resolved in these amounts.

Project Area No. 1 Project Area No. 2

Aggregate Pending Assessment Appeals in the Merged Project Area

Original Pre-Approval

Value

$ 14,923,013 3,455,572

Estimated Post-Appeal

Value

$ 11,726,622 3,025,994

Estimated Value

Reduction

$ 3,196,391 429,578


Value Reduction as a% of

Incremental Value

4.37 % 0.16

These appeals are still pending, therefore, the impact of the appeals will be experienced in the fiscal years following when the appeals are resolved. Estimates of the impacts resulting from the pending assessment appeals are included in the projection of tax increment revenue under in "FINANCIAL INFORMATION CONCERNING TAX REVENUES - Pro Forma Debt Service Coverage" herein.

Investment Risk

The Senior Reserve Account and the Subordinate Reserve Account and all funds held under the Senior Indenture and the Subordinate Indenture are required to be invested in Permitted Investments as provided under the Indentures. See Appendix D attached hereto for a summary of the definition of Permitted Investments. The Senior Redevelopment Fund, into which a portion of the proceeds of the Senior Bonds will be deposited, and the Special Fund into which all Tax Revenues are initially deposited, may be invested by the Agency in any investment authorized by law. The Subordinate Redevelopment Fund, into which a portion of the proceeds of the Subordinate Bonds will be deposited may be invested

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by the Agency in any investment authorized by law. All investments, including the Permitted Investments and those authorized by law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held by the Agency or under the Senior Indenture or the Subordinate Indenture could have a material adverse affect on the security for the Bonds.

Further, the Agency cannot predict the effects on the receipt of Tax Increment if the County or the City were to suffer significant losses in their portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy. See "Bankruptcy" below.

Bankruptcy

The rights of the Owners of the Bonds and the enforceability of the obligation to make Loan payments may be subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights under currently existing law or laws enacted in the future and may also be subject to the exercise of judicial discretion under certain circumstances. The opinions of Bond Counsel as to the enforceability of the obligation to make Loan payments will be qualified as to bankruptcy and such other legal events. See APP~NDIX F - "FORM OF OPINION OF BOND COUNSEL" attached hereto.

Low and Moderate Income Housing Fund

The Redevelopment Law currently requires that, except under certain circumstances, redevelopment agencies set aside 20% of all gross Tax Increment derived from redevelopment project areas into a low and moderate income housing fund, to be used for the purpose of increasing, improving and/or preserving the community's supply of low and moderate income housing. The provisions of the Redevelopment Law regarding the funding of low and moderate and income housing funds have been frequently amended since their original adoption. In addition, the interpretations of these laws by the California Attorney General and agency counsels throughout the State have at times been subject to variation and change. While the Agency is of the opinion that it has been in compliance with the provisions of the Redevelopment Law regarding its Low and Moderate Income Housing Fund, there can be no assurance as to whether a claim challenging the Agency's practices in this area might be filed. See "Lll\1ITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS -- Low and Moderate Income Housing" herein.

Change in Law

In general, there can be no assurance that the California electorate will not at some future time adopt initiatives or that the Legislature will not enact legislation that will amend the Redevelopment Law or other laws or the Constitution of the State of California resulting in a reduction of Tax Increment. If any such subsequent initiative or legislation would impair the Agency's ability to make payments on the Senior Parity Debt or the Subordinate Parity Debt, such initiative or legislation may be subject to legal challenge. See "LIMIT A TIO NS ONT AX REVENUES AND POSSIBLE SPENDING LIMIT A TIO NS -The Educational Reserve Augmentation Fund" herein.

Assumptions and Projections

To estimate the total Tax Revenues available to pay debt service on the Senior Bonds and the Subordinate Bonds, the Agency's Redevelopment Consultant has made certain assumptions with regard

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to the assessed valuation in the Merged Project Area, future tax rates, the percentage of taxes collected and the likelihood of appeals. See APPENDIX A - "REPORT OF REDEVELOPMENT CONSULT ANT" for a full discussion of the assumptions underlying the projections set forth herein with respect to such projections. The Agency believes these assumptions to be reasonable, but to the extent that the payment of any revenues that constitute Tax Increment is less than such assumptions, the total Tax Increment available will, in all likelihood, be less than those projected herein.

Risk of Earthquake

California is subject to periodic earthquake activity. If an earthquake were to substantially damage or destroy taxable property within the Merged Project Area, the assessed valuation of such property would be reduced. Such a reduction of assessed valuations could result in a reduction of the Tax Revenues that secure the Bonds. The Landers earthquake (7 .1 on the Richter scale) and the Big Bear earthquake (6.4 on the Richter scale) that both occurred in June, 1992 did not cause any significant damage to structures within the Merged Project Area that affected the assessed valuation of the property within these Merged Project Area. There are no high rise buildings in the Merged Project Area, and the majority of the buildings have been built within the last 15 years.

Risks Associated with Subordinate Bonds

In general, the Subordinate Bonds have a significantly higher degree of risk than the Senior Bonds. Payments due on the Subordinate Bonds will only be made after payment of amounts then due on the Senior Bonds. Therefore, any reduction in Tax Increment is likely to have a more adverse impact on the Subordinate Bonds than the Senior Bonds. Further, the Subordinate Bonds are not insured by a policy of municipal bond insurance and have not been rated by any rating agency. As a result of the matters described above, there may be no liquid secondary market for the Subordinate Bonds.

LIMITATIONS ON TAX REVENL'ES AND POSSIBLE SPENDING LIMITATIONS

Property Tax Limitations: Article XIIl A of the California Constitution

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 XIII A 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 ofreal property as shown on the fiscal year 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 two percent 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 one percent 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 October 1986 by initiative which exempts any bonded indebtedness approved by two-thirds of the votes cast by the voters for the acquisition or improvement of real property from the one percent limitation.

On September 22, 1978, the California Supreme Court upheld the amendment over challenges on several state and federal constitutional grounds (Amador Valley Joint Union School District v. State

25

Board of Equalization). The Court reserved certain constitutional issues and the validity of legislation implementing the amendment for future determination in proper cases.

In the general elections of 1986, 1988 and 1990, the voters of the State approved various measures which further amended Article Xill A. One such amendment generally provides that the purchase or transfer of (i) real property between spouses or (ii) the principal residence and the first $1,000,000 of the full cash value of other real property between parents and children, do not constitute a "purchase" or "change of ownership" triggering reassessment under Article Xill A. This amendment has reduced the local property tax revenues. Other amendments permitted the Legislature to allow persons over 55 who sell their residence and on or after November 5, 1986, 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, and permitted the Legislature to authorize each county under certain circumstances to adopt an ordinance making such transfers or assessed value applicable to situations in which the replacement dwelling purchased or constructed after November 8, 1988, is located within the county and the original property is located in another county within California.

In the October 1990 election, the voters approved additional amendments to Article Xill A permitting the State Legislature to extend the replacement dwelling provisions applicable to persons over 5 5 to severely disabled homeowners for replacement dwellings purchased or newly constructed on or after June 5, 1990, and to exclude from the definition of "new construction", triggering reassessment, improvements to certain dwellings for the purpose of making the dwelling more accessible to severely disabled persons. In the November 1990 election, the voters approved the amendment of Article Xill A to permit the State Legislature to exclude from the definition of "new construction" seismic retrofitting improvements or improvements utilizing earthquake hazard mitigation technologies constructed or installed in existing buildings after November 6, 1990.

Court Challenges to Article XIII A

The U.S. Supreme Court struck down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Proposition 13 provides that property may only be reassessed up to two percent per year, except upon change of ownership or new construction, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Proposition 13.

Based on the decision in the West Virginia case, property owners in California brought three suits challenging the acquisition value assessment provisions of Article Xill A. Two cases involved residential property, and one case involved commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article Xill A's assessment rules and concluded that the West Virginia case did not apply to California's laws. On June 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently withdrew its case. On June 18, 1992, the U.S. Supreme Court upheld the decision in Nordlinger v. Hahn, one of the challenges relating to residential property.

Implementing Legislation

Legislation enacted by the California Legislature to implement Article Xill A (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

26

that each county will levy the maximum tax permitted by Article Xill A of $4.00 per $100 assessed valuation (based on the traditional practice in California of using 25 percent of full cash value as the assessed value for tax purposes). The legislation further provided that, for fiscal year 1978-79, the tax levied by each county was to be appropriated among all taxing agencies within the county in proportion to their average share of taxes levied in certain previous years.

The apportionment of property taxes in fiscal years after fiscal year 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. Chapter 282 does not affect the derivation of the base levy ($4.00 per $100 assessed valuation) and the bonded debt tax rate.

Effective as of fiscal year 1981-82, assessors in California no longer record property values in the tax rolls at the assessed value of 25 percent of market values. All taxable property is shown at full market value (subject to a two percent annual limit in growth so long as property is not sold). In conformity with this change in procedure, all taxable property value included in this Official Statement is shown at 100 percent of market value and all general tax rates reflect the $1 per $100 of taxable value. Tax rates for bond service and pension liability are also applied to 100 percent of market value.

Future assessed valuation growth allowed under Article Xill A (new construction, change of ownership, two percent 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 ("Unitary Property") which is allocated by a different method as described under "--Unitary Property" below.

Unitary Property

AB 454 (Statutes of 1987, Chapter 921) provides that revenues derived from "Unitary Property" (consisting primarily of State-assessed operational property owned by public utility companies), commencing with fiscal year 1988-89, will be allocated as follows: (i) for revenues generated from the one percent tax rate, (a) each jurisdiction, including project areas, will receive a percentage up to 102% of its prior year State-assessed unitary revenue; and (b) if county-wide revenues generated from Unitary Property are greater than 102% of the previous year's revenues, each jurisdiction will receive a percentage share of the excess unitary revenues by a specified formula; and (ii) for revenue generated from the application of the debt service tax rate to county-wide unitary taxable value, each jurisdiction will receive a percentage share of revenue based on the jurisdiction's annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes. This provision applies to all Unitary Property except railroads whose valuation will continue to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination of the assessment of any State-assessed properties or a revision of the method of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions in a county.

On July 14, 1993, the Superior Court for the County of Sacramento entered a judgment validating a settlement agreement among all California counties and several public utility companies affecting the collection of Unitary Property taxes. The settlement agreement provides for a method of reducing the value of Unitary Property for three years, ending in fiscal year 1994-95. In fiscal year 1994-

27

95, the Agency received $263,410 in Unitary Revenue. The Settlement Agreement is not expected to have any further impacts on unitary tax revenues to be received by the Agency in future fiscal years.

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 aver 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 the taxes on 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 an order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of 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. A 10 percent penalty also applies to delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1 ½ percent per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date.

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 March 1 and become delinquent August 31.

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. Previously, statutes enabled the assessment of such changes only as of the next tax lien date following the change and thus delayed the realization of increased property taxes from the new assessments for up to 14 months. As enacted, Chapter 498 provided 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 tax lien date. To the extent such supplemental assessments occur within the Merged Project Area, Tax Revenue may increase.

Property Tax Administration Costs.. In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions on a prorated basis. It has been the practice of most California counties, including Riverside County, to reduce an agency's tax increment or bill an agency for their pro rata share of property tax administration costs. The amount estimated to be deducted by the County from fiscal year 1999-00 tax increment revenues allocable to the Merged Project Area is $67,819.

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County of Riverside Tax Loss Reserve Fund (Teeter Plan). General taxes, special taxes, tax increments and assessment installments are collected for all taxing entities and redevelopment agencies by the County. In 1993 the County approved a resolution of intent to begin operating under Section 4701-4717 of the California Revenue and Taxation Code (the "Teeter Plan"). Under the Teeter Plan, the County will maintain a County Tax Loss Reserve Fund for the purpose of paying each taxing entity 100% of the amounts of secured taxes levied (including tax increments) and 1915 Act assessments posted on the tax bill. The County has the power to unilaterally discontinue its practice of paying 100% of the tax levy to the Agency notwithstanding delinquencies and certain assessment appeals on a countywide basis with respect to one or more categories, including general taxes, special taxes or special assessment installments. The Teeter Plan may also be discontinued by petition of two-thirds (2/3) of the participant taxing agencies.

Taxing Entity Revenue

Section 33676 prior to amendment by AB 1290 (see "Assembly Bill 1290 and Time Limits for Agency Existence and Powers" below) allowed an affected taxing entity to elect, by resolution prior to the adoption of a redevelopment plan, to receive property taxes generated from:

1. increases in the tax rate levied by the affected entity; and

2. annual increases in the real property portion of the base year value up to the inflation limit of 2 percent provided in Article XIII A of the California Constitution.

Former Section 33616 provided that each school district were required to adopt the resolution and other taxing entities were permitted to adopt the resolution. The elections could not be made if the Taxing Agency entered into a pass-through agreement with the redevelopment agency. No entities have made such elections under the former 33676.

Exclusion of Tax Revenues for General Obligation Bonds Debt Service

An initiative to amend the California Constitution entitled "Property Tax Revenues of 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 increases 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 revenue 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 bonds approved by the voters on or after January 1, 1989. Pursuant to certain Pass-Through Agreements, the Agency has agreed to pay to the Taxing Agencies any amounts of Tax Increment which are attributable to general obligation bond tax overrides. See the Report of the Redevelopment Consultant attached hereto as Appendix A.

Certification of Agency Indebtedness

Section 33675 was added to the Redevelopment Law in 1976, providing for the filing not later than the first day of October of each year with the county auditor of a statement of indebtedness certified by the chief fiscal officer of the agency for each redevelopment project that receives tax increment. The statement of indebtedness is required to contain the date on which any bonds were delivered, the principal amount, term, purpose and interest rate of bonds and the outstanding balance on bonds. Similar

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information must be given for each loan, advance or indebtedness that the agency has incurred or entered into to be payable from tax increment. The Agency has complied with the requirements of Section 33675 each year since its effective date.

Section 33675 also provides that the county auditor is limited in payment of tax increment the agency to the amounts shown on the agency's statement of indebtedness. The section further provides that the statement of indebtedness is prima facie evidence of the indebtedness of the agency, but that the county auditor may dispute the amount of indebtedness shown on the statement in certain cases. Provision is made for time limits under which the dispute can be made by the county auditor as well as provisions for determination by the Superior Court in a declaratory relief action of the property disposition of the matter. The issue in any such action must involve only the amount of the indebtedness and not time validity of any contract or debt instrument, or any expenditures pursuant thereto. An exception is made for payments to a public agency in connection with payments by such public agency pursuant to a bond issue which shall not be disputed in any action under Section 33675.

Assembly Bill 1290 and Time Limits for Agency Existence and Powers

In 1993, Assembly Bill 1290 ("AB 1290") was passed by the California Legislature and signed into law by the Governor amending various provisions of the Redevelopment Law. Among other amendments to the Redevelopment Law, AB 1290 imposed time limits on existing redevelopment plans for the incurrence of indebtedness, the duration of the plan and the collection of the tax increment revenues. On December 14, 1994 the Agency passed ordinances with respect to each Project Area which brought the Redevelopment Plans for each Project Area into full compliance with AB 1290. In connection with the merger of Project Area No. 1 and Project Area No. 2, the Redevelopment Plans and certain of the limits with respect to tax increment and debt were amended. The Merged Project Area Redevelopment Plan contains a limit for the incurrence of debt of January 1, 2014, limits on the effectiveness of the Plan of November 28, 2022 for Project Area No. 1 and November 28, 2023 for Project Area No. 2 and limits on the ability to receive property taxes of November 28, 2032 for Project Area No. 1 and November 28, 2033 for Project Area No. 2.

Tax Increment Limitation

Section 33333.4 of the Redevelopment Law requires redevelopment plans adopted on or after October 1, 1976 and prior to January 1, 1994 to contain, among other things, a limitation on the number of dollars in taxes that may be divided and allocated to the redevelopment agency pursuant to the plan.

Pursuant to the provisions of the Agency's the Merged Project Area Redevelopment Plan, the maximum aggregate amount of tax increment the Agency may receive from the Merged Project Area is $328 million. Based on Agency records, the Agency has received approximately $35.2 million from the Merged Project Area.

Low and Moderate Income Housing

The Redevelopment Law requires that, except under certain circumstances, redevelopment agencies set aside 20% of all gross Tax Increment derived from redevelopment project areas into a low and moderate income housing fund, to be used for the purpose of increasing, improving and/or preserving the community's supply of low and moderate income housing. Such 20% set-aside requirement is referred herein as the "Housing Set-Aside Amounts." The Housing Set-Aside Amounts are not pledged to and are not available to pay debt service on the Bonds, unless and to the extent the proceeds of the Senior

30

Parity Debt or Subordinate Parity Debt are deposited in the low and moderate income housing fund of the Agency. See "SECURITY FOR THE BONDS - Allocation of Taxes" herein.

The Agency has deposited the full amount of the Housing Set-Aside Amounts into its Low and Moderate Income Housing Fund since the creation of each of the Project Areas, except that prior to fiscal year 1993-94 such amounts with respect to Project Area No. 3 were calculated by deducting 20% after deductions for Pass-Through Agreements. The Agency is of the opinion that its practice of funding its Low and Moderate Income Housing Fund based on net receipts of Tax Increment with respect to Project Area No. 3 was in compliance with then effective law.

Appropriations Limitations: Article XIII B of the California Constitution

On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIII B to the California Constitution. The principal effect of Article XIII B is to limit the animal 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 September 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 shall 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 XIII B, nor shall such portion of taxes be deemed receipt of proceeds 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 of California, including Section 33678 of the Redevelopment Law. The constitutionality of Section 33678 has been upheld in two California appellate court decisions, Brown v. Community Redevelopment Agency of the City of Santa Ana and Bell Community Redevelopment Agency v. Woosley. The plaintiff in Brown v. Community Redevelopment Agency of the City of Santa Ana petitioned the California Supreme Court for a hearing of this case. The California Supreme Court formally denied the petition and therefore the earlier court decisions are now final and binding. On the basis of these court decisions, the Agency has not adopted an appropriations limit.

The Educational Reserve Augmentation Fund

Legislation enacted as part of the State's fiscal year 1992/93 budget required certain redevelopment agencies to make a payment into a State Educational Revenue Augmentation Fund ("ERAF") for the benefit of schools and community college districts within the State. Legislation was enacted as part of the fiscal year 1993-94 budget which required that redevelopment agencies make additional payments of an aggregate amount of $65 million for fiscal year 1993-94 and 1994-95. The Agency paid approximately $1,388,606 in tax increment revenues for fiscal year 1993-94 and $335,515 for fiscal year 1994-95 as a result of such legislation. The Agency made these payments from funds on hand. The State budgets since fiscal year 1994-95 have not contained any extension of the payment to ERAF.

THE REDEVELOPMENT AGENCY

General

The Agency was established on December 2, 1981, by the City Council of the City, pursuant to the Redevelopment Law. The five members of the City Council serve as the governing body of the

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Agency and exercise all the rights, powers, duties and privileges of the Agency. The Mayor of the City serves as Agency Chairman. See "Management of the Agency" below.

All powers of the Agency are vested in its governing body. Pursuant to the Redevelopment Law, the Agency may exercise broad governmental functions and authority to accomplish its purposes, including, but not limited to, the right to issue bonds, notes and other obligations and expend their proceeds and the right to acquire, sell, develop, administer or lease property. The Agency may demolish buildings, clear land and cause to be constructed certain improvements, including streets, sidewalks and public utilities.

With certain exceptions, the Agency may not construct or develop buildings, with the exception of public facilities, but must sell or lease cleared property to redevelopers for construction and development in accordance with the Redevelopment Plans. The Agency may, out of any funds available to it for such purposes, pay for all or part of the value of the land and the cost of buildings, facilities, structures or other improvements to be publicly owned and operated, to the extent that such improvements are of benefit to a project area and no other reasonable means of financing is available.

Management of the Agency

Gary L. Amy currently serves as Chairman of the Agency. and term expiration are as follows:

Name GaryL. Amy Sarah E. Di Grandi Robert D. Gomer Kathy De Rosa Gregory S. Pettis

City and Agency Title Mayor/Chairman

Mayor Pro Tern/Member Councilmember/Member Councilmember/Member Councilmember/Member

The current members of the Council

Term Expires 11/1/00 11/1/02 11/1/00 11/1/02 11/1/00

Agency staff services are provided by City staff under a written policy between the Agency and the City. Such support includes project management, real estate acquisition and disposition, relocation, engineering and planning, legal, financing and fiscal services. See "INFORMATION CONCERNING ASSESSMENTS AND TAX REVENUES - Outstanding Indebtedness of the Agency - Arrangement With City for Administrative Services" herein.

The City Manager also serves as the Executive Director of the Agency. The City Manager is Donald Bradley. Mr. Bradley joined the City on November 1, 1999. He has 32 years of public sector experience, with 23 years as City Manager of the City of Pinole. He holds a Masters degree in Political Science from St. Mary's College.

The Finance Director of the City is Dudley B. Haines. Mr. Haines has been with the City for ten years. He has 17 years of public sector experience, having served as Finance Director of Delano, California and Controller of the City and Borough of Juneau, Alaska. Prior to his public service career, Mr. Haines worked for 15 years in the insurance industry. He holds a B.A. degree in Business Management from Eastern Washington University.

The Redevelopment Director is Susan Moeller. Ms. Moeller has been with the city for 6½ years. She has over 25 years of public sector experience (23 years in redevelopment) having worked for the cities of Hayward, San Leandro, Whittier, Santa Ana, Garden Grove and Fresno as well as Cathedral City. She holds a degree in English and Drama from California State University at Long Beach.

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THE MERGED PROJECT AREA

The Agency originally established three redevelopment project areas (the "Project Areas"). The redevelopment plan for Project Area No. 1 was adopted November 29, 1982 and amended on September 6, 1991 and December 14, 1994. The redevelopment plan for Project Area No. 2 was adopted on November 29, 1983 and amended on December 14, 1994. On January 14, 1998, the Agency adopted Ordinances No. 472 and 473, which amended the redevelopment plans for Project Area No. 1 and Project Area No. 2 and merged Project Area No. 1 into Project Area No. 2 to form the "Merged Project Area." Project Area No. 3 is no"t a part of this financing and the Tax Increment generated from Project Area No. 3 is not pledged to the Senior Parity Debt or the Subordinate Parity Debt.

Although information below regarding Project Area No. 1 and Project Area No. 2 is provided separately, the Tax Revenues securing the Bonds consists of certain Tax Increment from the Merged Project Area which was formed from the merger of these two Project Areas. See "SECURITY FOR THE BONDS" herein.

Project Area No. 1

On November 29, 1982, following reqms1te studies and hearings by the City Planning Commission and the Agency, the City Council of the City passed Ordinance No. 39 which created Project Area No. 1. On January 28, 1999 Project Area No. 1 was merged with Project Area No. 2. See '"Project Area No. 2" below.

Project Area No. 1 encompasses approximately 357 acres and includes the majority of the downtown business district from the westerly City limits to Date Palm Drive on the east. A variety of land uses are located in the Project Area, including single and multiple family residential, commercial, mobile home and light industrial.

The majority of the land located within Project Area No. 1 is zoned for commercial uses. The downtown area consists of approximately 100 commercial acres, although there is a small amount of multiple family housing located downtown. The Highway 111 corridor (East Palm Canyon Drive) is zoned for mixed uses including hotel, commercial and multifamily apartments and condominiums. Major commercial centers located near the central downtown business district, but not in Project Area 1 include: Canyon Plaza South, a retail strip mall located on a 40 acre site, which is fully developed; and Canyon Plaza North (Target Center), a retail strip mall and commercial recreation center located on a 40 acre site that is approximately 80% developed.

The Cathedral City Auto Center (the "Auto Center") is a 35 acre regional automobile sales and service center located in Project Area No. 1. In 1986, the Agency sold $2,645,000 (Taxable) Certificates of Participation, Series 1986A in order to finance the acquisition of five parcels of land to be utilized in development of the Auto Center (these Certificates were fully retired in 1989). Since 1986, those parcels have been developed pursuanJ to Disposition and Development Agreements negotiated between the Agency and various new car sales dealers. At present, the Autopark contains 19 franchises including: Toyota, Mazda/Hyundai, Kia, Lexus, Mitsubishi, Acura, Cadillac, Oldsmobile, Chrysler/Plymouth/Dodge, Pontiac/Buick and Jeep/Eagle. One parcel was utilized in the development of public parking.

On December 22, 1999 the Agency and Palm Canyon Partners, LLC ("Palm Canyon") entered into the Third Amended and Restated Disposition and Development Agreement (the "Palm Canyon DDA"). The Palm Canyon DDA provides for the development of a multiplex movie theater and parking

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facility with approximately 1,100 spaces on land adjacent to City Hall. See "PLAN OF FINANCE" herein.

Project Area No. 2

On November 29, 1983, following reqms1te studies and hearings by the City Planning Commission and the Agency, the City Council of the City passed Ordinance No. 61 created Project Area No. 2. On January 28, 1999 Project Area No. 2 was merged with Project Area No. 1. See "Project Area No. l" above.

Project Area No. 2 encompasses approximately 960 acres with 3,300 individual parcels. Of the total area, approximately 700 acres are zoned for single-family residential uses; 160 acres are zoned for multi-family residential uses; and the remaining 100 acres are zoned for commercial uses. Within Project Area No. 2, 2,620 lots are developed; there are approximately 680 lots which are undeveloped.

Project Area No. 2 contains two noncontiguous sub-areas. Sub area A, "Panorama," contains approximately one square mile of area. Panorama was an early attempt to develop a large planned community of single-family homes, parks and commercial development. The large majority of the area is zoned for single-family residential and is almost completely subdivided, and is 75% developed. Sub-area B, "Ramon Road," contains the secondary commercial strip within the City with many automobile accessory shops and other automotive retail along the strip.

FINANCIAL INFORMATION CONCERNING TAX REVENUES

The tables and financial information provided below were provided by the Agency, the County and Katz Hollis (the "Redevelopment Consultant"). The Report of the Redevelopment Consultant attached as Appendix A and the audited financial statements of the Agency attached as Appendix C should be read in their entirety.

Although information below regarding Project Area No. 1 and Project Area No. 2 is provided separately, the Tax Revenues securing the Bonds consists of certain Tax Increment from the Merged Project Area which was formed from the merger of these two Project Areas. See "SECURITY FOR THE BONDS" herein.

Project Area No. 1 Assessed Value Information

Assessed Valuations. The assessed valuation of properties located in Project Area No. 1 is $123,534,341 for fiscal year 1999-00. This represents a $73,134,712 incremental value over the base year assessed valuation of $50,399,629. The first table below shows the historical assessed values for fiscal years 1995-96 to 1999-00 based upon the County Auditor/Controller's equalized rolls. The second table below shows the ten largest assessees located within Project Area No. 1. For a pro forma table calculating estimated Tax Increment from Project No. 1 available to make payments under the Senior Parity Debt and the Subordinate Parity Debt based on fiscal year 1999-00, see "Pro Forma Debt Service Coverage" below.

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Fiscal Year 1995-96 1996-97 1997-98 1998-99 1999-00

Project Area No. 1 Historical Assessed Valuation Growth

Total Assessed Value

$129,190,929 127,517,884 128,883,692 120,131,243 123,534,341

Less Base Year Value

$ 50,399,629 50,399,629 50,399,629 50,399,629 50,399,629

Incremental Assessed Value $ 78,791,300

77,118,255 78,484,063 69,731,614 73,134,712

Source: Katz Hollis, Los Angeles, California. Project Area No. 1

Largest Fiscal Year 1999-00 Local Secured Property Taxpayers Fiscal Year

1999-00

Percentage Growth

NIA (2.12)% 1.77

(11.15) 4.88

%of Propertv Owner Use Assessed Valuation Total

6.65% 6.00 5.30 3.71 3.17 2.38 2.10 1.93 1.77 1.75

1. Dayton Hudson Corp.* Commercial $ 8,217,732 2. Frink, Doris M. * Commercial 7,415,797 3. Wessman, John Retail/Commercial 6,548,269 4. Gemstone Prop Commercial 4,581,174 5. Tram view Land Co. Retail 3,920,905 6. Great West Life & Annuity Inc. Co.* Restaurant/Commercial 2,942,737 7. Wilson, David W. Commercial 2,594,375 8. Dicker Warmington Prop. Commercial 2,385,210 9. Calpac Inc. Industrial 2,188,311 10. Spreen Inv. Co. II Commercial 2,160,075

Total Major Assessees ............................................................................................. . Total Project Value ................................................................................................. .. Percentage of Ten Major Assessees to Total Value ................................................ . Percentage of Ten Major Assessees to Incremental Value ...................................... .

$42,954,585 $123,534,341

34.76% 58.74%

· * Indicates taxpayers that have recently resolved or have pending assessment appeals of a significant value. See the Report of the Redevelopment Consultant attached hereto as Appendix A for more information concerning these appeals. Also see "RISK FACTORS -Appeals to Assessed Values" herein.


Project Area No. 2 Assessed Value Information

Assessed Valuations. The assessed valuation of properties located in Project Area No. 2 is $300,172,409 for fiscal year 1999-00. This represents an $272,750,684 incremental value over the base year assessed valuation of $27,421,725. The first table below shows the historical assessed values for fiscal years 1995-96 to 1999-00 based upon the County Auditor/Controller's equalized rolls. The second table below shows the ten largest assessees located within Project Area No. 2. For a table calculating estimated Tax Increment from Project No. 2 available to make payments under the Senior Parity Debt and the Subordinate Parity Debt in fiscal year 1999-00, see "Pro Forma Debt Service Coverage" below.

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Fiscal Year

1995-96 1996-97 1997-98 1998-99 1999-00

Project Area No. 2 Historical Assessed Valuation Growth

Total Assessed Value

$ 286,542,355 283,343,798 284,759,258 287,759,676 300,172,409

Less Base Year Value

$ 27,421,725 27,421,725 27,421,725 27,421,725 27,421,725

Incremental Assessed Value

$ 259,120,630 255,922,073 257,337,533 260,337,951 272,750,684


Project Area No. 2 Largest Fiscal Year 1999-00 Local Secured Property Taxpayers

Percentage Growth

NIA (1.23)% 0.55 1.16 4.77

Fiscal Year 1999-00 % of

Property Owner Use Assessed Valuation Total

1. Roman Canyon Assoc. LP Commercial $ 2,508,957 2. Palm Springs Oil Co. Inc. Service Station/ Commercial 1,901,116 3. Time Warner Entertainment

Advance Newhouse Possessory Interest 1,732,000 4. Secretary Housing & Urban Dev.

Of Wash. DC Single Family Residence 1,646,789 5. Mobil Oil Corp. Service Station 1,502,996 6. Cathedral Villa Single Family Residence 1,500,000 7. Fillet, David E. Retail 1,497,079 8. Haddad, Jack Commercial 1,468,458 9. Realty Queen Inc. Commercial 1,253,734 10. Rod Andrews Motors Inc. Commercial 1,015,718

Total Major Assessees ............................................................................................. . Total Project Value ................................................................................................. .. Percentage of Ten Major Assessees to Total Value ................................................ . Percentage of Ten Major Assessees to Incremental Value ...................................... .

0.84% 0.63

0.58

0.55 0.50 0.50 0.50 0.49 0.42 0.34

$16,026,847 $300,172,409

5.34% 5.88%

* Indicates taxpayers that have recently resolved or have pending assessment appeals of a significant value. See the Report of the Redevelopment Consultant attached hereto as Appendix A for more information concerning these appeals. Also see "RISK FACTORS - Appeals to Assessed Values" herein.


Outstanding Indebtedness of the Agency

Bonded Indebtedness. On November 28, 1995, the Authority issued $34,695,000 of 1995 Tax Allocation Revenue Bonds, Series A (Cathedral City Redevelopment Projects) (the "1995 Bonds") secured by three separate Loan Agreements, each dated as of November 1, 1995 (the "1995 Loan

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Agreements"), by and behveen the Authority and the Agency. The 1995 Loan Agreements are each, respectively, secured by a pledge of certain Tax Increment from Project Area No. 1 (the "1995 Project No. 1 Loan" and the "1995 Project No. 1 Loan Agreement"), Project Area No. 2 (the "1995 Project No. 2 Loan" and the "1995 Project No. 2 Loan Agreement") and Project Area No. 3 (the "1995 Project No. 3 Loan" and the "1995 Project No. 3 Loan Agreement"). The pledge of Tax Increment from Project Area No. 1 under the 1995 Project No. 1 Loan Agreement is senior to the pledge of Tax Revenues relating to Project Area No. 1 under the Senior Loan Agreement and the Subordinate Loan Agreement. The 1995 Project No. 1 Loan Agreement is not secured by a pledge of Tax Increment from Project Area No. 2. The pledge of Tax Revenues under the 1995 Project No. 2 Loan Agreement is on a parity with the pledge of Tax Revenues under the Senior Loan Agreement.

As part of the plan of finance in connection with the delivery of the Bonds, the principal amounts outstanding under the 1995 Project No. 2 Loan Agreement and the 1995 Project No. 3 Loan Agreement have been restructured. $6,110,000 in principal amount was transferred from the 1995 Project No. 2 Loan to the 1995 Project No. 3 Loan. Upon delivery of the Bonds, the outstanding principal amount under the 1995 Project No. 1 Loan Agreement will be $4,695,000 and the outstanding principal amount under the 1995 Project No. 2 Loan Agreement will be $3,895,000.

The table below provides certain summary information on the Senior Parity Debt and the Subordinate Parity Debt of the Agency. See "Proforma Debt Service Coverage" below for additional information.

Loans Securing Bonds

1995 Project No. 1 Loan 1995 Project No. 2 Loan 2000 Senior Loan 2000 Subordinate Loan

Outstanding Bonded Indebtedness Secured By Merged Project Area Tax Increment

Outstanding Final Project Area No. 1 Principal Maturity Tax Increment Amount Date Lien Status< 1

)

$4,695,000 August 1, 2024 First Priority , 3,895,000 August 1, 2024 Second Priority 12,311,000 August 1, 2033 Second Priority 3,815,000 August 1, 2033 Third Priority

Project Area No. 2 Tax Increment Lien Status(!)

No Lien First Priority First Priority

Second Priority

(I) The liens on tax increment under the various loans are ~ubject to certain exclusions. See "SECURITY FOR THE BONDS" herein. Source: Cathedral City Redevelopment Agency.

The Palm Canyon DDA. Under the Palm Canyon DDA, the Agency has agreed to guarantee certain lease payments of Palm Canyon Partners, LLC ("PC Partners") in the amount of up to $99,826 per month. This guarantee will have a term of 15 years. The lease payments will be made by PC Partners for property on which a multiplex theater will be developed. Under the DDA, the Agency will deposit $1.2 million to be held in a reserve fund for lease payments. If the reserve fund balance drops to $750,000 the Agency has a right to take possession of and operate the multiplex theater. The City Attorney of Cathedral City acting as Agency Counsel will deliver an opinion that the Agency's payment obligations

under the Palm Canyon DDA are subordinate to the pledge of Tax Revenues under the Senior Parity Debt and the Subordinate Parity Debt. See "THE MERGED PROJECT AREA - Project Area No. l" herein.

Big League Dream Guarantee. The Agency has a loan guarantee of $1,000,000 to First Community Bank on behalf of Big League Dream Sports, LLC (the "Big League Dream Guarantee").

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The Big League Dream Guarantee expires July 31, 2000. The original transaction was approved by the Agency's Board on July 8, 1998. The obligation of the Agency to make payments under the Big League Dream Guarantee is subordinate to the pledge of Tax Revenues under the Senior Parity Debt and the Subordinate Parity Debt.

IMAX Guarantee. The Agency entered into a payment guaranty (the "™AX Guarantee") effective July 3, 1998 for the benefit of La Jolla Bank to induce the Bank to make a loan in the principal amount of up to $3,176,000 to Desert IMAX LLC, a California limited liability company ("Desert IMAX"). Under the ™AX Guarantee, the Agency has guaranteed La Jolla Bank that all payments due from Desert IMAX will be paid as required. The maximum aggregate liability under the Th1AX Guarantee is limited to (a) $2,276,000 and (b) any attorney's fees, and other costs incurred by the Bank to collect and enforce the guarantee. In the event Desert ™AX defaults on the loan and the Agency has to make the debt payments, the Agency is entitled to foreclose on the property to recover damages. The obligation of the Agency to make payments under the IMAX Guarantee is subordinate to the pledge of Tax Revenues under the Senior Parity Debt and the Subordinate Parity Debt.

1986 Note. On December 29, 1986, the Agency issued a promissory note (the "1986 Note") in the sum of $2,788,423 for the disposition and development of approximately eleven acres of real property located within Project Area No. 3. The 1986 Note is payable from tax increment from the affected site and other available sources of revenue of the Agency in amounts equal to seventy percent of the sales and use tax revenues generated from business activities conducted upon the site. Interest on the 1986 Note accrues upon the opening of the facility and is a floating rate equal to two percent per annum over the Wells Fargo Bank prime rate. Principal and related interest is payable six months after the opening of the facility and every six months thereafter, until the 1986 Note is paid in full. On November 22, 2027 any unpaid principal and interest owed by the Agency under the 1986 Note is forgiven. The facility opened on October 29, 1987. The obligation of the Agency to make payments under the 1986 Note is payable solely from Tax Increment revenues generated from Project Area No. 3.

Union Bank Term Loan. The Agency entered into a term loan agreement on December 18,1996 with Union Bank of California (the "Union Bank Term Loan") to borrow $3,600,000. The Union Bank Term Loan has a seven year maturity. The funds borrowed under the Term Loan were granted to the Southern California Housing Development Corporation to purchase and rehabilitate the Cathedral Palms Apartments. The obligation of the Agency to repay the Union Bank Term Loan is secured solely by a pledge of Housing Set Aside Moneys.

Desert Water Agency Payment Agreement. On August 6, 1996, the Agency and the City entered into the Public Infrastructure Financing and Construction Agreement (the "DW A Payment Agreement"), with the Desert Water Agency ("DWA"). Under the DWA Payment Agreement, the Agency agrees to pay DW A approximately $1.25 million. This amount accrues interest at a rate equal to the rate offered by the California Local Agency Investment Fund. Principal and interest due under the DW A Agreement are due in full in December, 2005. The Agency plan to pay this amount from available sewer connection fees and tax increment. The amount currently outstanding under the DW A Payment Agreement is $1,335,355 ($87,411 in interest). The obligation of the Agency to make payments under the DW A Payment Agreement is subordinate to the pledge of Tax Revenues under the Senior Parity Debt and the Subordinate Parity Debt.

The Auto Dealer Guarantee. The Agency entered into a Guaranty Agreement with First Community Bank of the Desert dated June 14, 1996 (the '·Auto Dealer Guarantee"). Under the Auto

38

Dealer Guarantee, the Agency guarantees up to $250,000 in payments by P.A.L. Investments, Inc. under a note. P.A.L. Investments, Inc. is an auto dealer located in the City's auto center. The obligation of the Agency under the Auto Dealer Guarantee is subordinate to the pledge of Tax Revenues under the Senior Parity Debt and the Subordinate Parity Debt.

Loans Payable To City. During fiscal year 1991-92 the City advanced funds to the Agency (the "City Loans"). These advanced funds have no stipulated repayment date, bear interest at the rate earned on City investments from time to time and are currently outstanding in the aggregate principal amount of $3,700,847. The obligation of the Agency to repay the City Loans is subordinate to the obligation to make payments under the Senior Parity Debt and the Subordinate Parity Debt.

Arrangement with City for Administrative Services. Pursuant to the policy between the City and the Agency, the Agency reimburses the City for all administrative and other costs incurred by the City as a result of the Agency's operations. In fiscal year 1997-98, the amount paid under such policy was $875,865. The Agency's obligation to pay the City amounts under this arrangement is subordinate to the obligation to make payments under the Senior Parity Debt and the Subordinate Parity Debt.

Pro Forma Debt Service Coverage

The table below shows pro forma coverage of estimated Tax Revenues by component Project Area in the Merged Project Area for fiscal year 1999-00 to the debt service on the Senior Parity Debt and the Subordinate Loan. The tax increment shown in the table is based on an assumption of 2% annual growth in assessed values in the Merged Project Area. These pro forma tables do not include a reduction in Tax Revenues expected to occur in future years as a result of recently resolved and pending appeals to assessed values in the Merged Project Area. For a discussion of these appeals, see "RISK FACTORS -Appeals to Assessed Values and Blanket Reductions to Assessed Values" herein. Further, for a discussion of certain other matters that could cause reduction in the Tax Revenues available in future years, see "RISK FACTORS" and "LIMITATIONS ON TAX REVENUES AND POSSIBLE SPENDING LIMITATIONS" and the Report of the Redevelopment Consultant attached hereto as Appendix A. There can be no assurance that actual tax increment receipts will not significantly differ from the projections in the table below.

For projections of Tax Revenues in future years, see the Report of the Redevelopment Consultant attached hereto as Appendix A.

39

Pro Forma Debt Service Coverage<') 2000

Project Area Project Area Available Available Tax 2000 Subordinate

Year 1995 Project 2000 Senior Total Senior Project Area No. l No. l 1995 PA# l Senior Revenues for Subordinate Loan

Ending Area No. 2 Loan Loan No. 2 Tax Tax Loan Tax Loans Subordinate Loan (aggregate)

August l, Loan <2> Pa)'.'.ments Pa)'.'.m~nts R~v~nues<3

> Rev~nu~:l3> Ea)'.'.ments Revenue Coverage Loan Pa)'.'.ment~ Cov~rag~

2000 $504,523 $167,474 $671,996 $1,732,572 $488,763 $352,773 $135,991 2.78 $1,162,505 $77,318 2.02

2001 500,978 583,125 1,084,103 1,761,552 474,628 348,473 126,155 1.74 868,047 290,364 1.30

2002 501,353 581,895 1,083,248 1,793,483 484,480 348,973 135,508 1.78 910,426 293,614 1.32

2003 500,713 580,635 1,081,348 1,826,053 498,804 349,143 149,662 1.83 959,295 291,494 1.35

2004 499,383 584,345 1,083,728 1,859,275 513,414 349,083 164,332 1.87 1,005,057 294,294 1.37

2005 501,808 582,805 1,084,613 1,893,160 528,317 348,620 179,697 1.91 1,048,682 291,774 1.40

2006 502,698 581,230 1,083,928 1,927,724 543,517 352,740 190,777 1.95 1,095,506 294,209 1.43

2007 502,198 579,620 1,081,818 1,962,979 559,022 351,240 207,782 2.01 1,150,380 291,309 1.46

2008 500,268 582,975 1,083,243 1,522,733 574,836 349,355 225,481 1.61 731,924 293,359 l.22

2009 501,868 581,055 1,082,923 1,458,656 590,967 352,075 238,892 l.57 676,862 290,059 l.19

2010 1,930 1,079,095 1,081,025 1,480,813 607,420 349,200 258,220 1.61 825,785 291,704 1.21

2011 6,930 1,077,095 1,084,025 1,503,413 624,202 351,063 273,139 1.64 866,000 293,014 1.23

2012 6,668 1,078,280 1,084,948 1,526,465 641,320 352,400 288,920 1.67 899,014 293,951 1.25

2013 1,405 1,082,340 1,083,745 1,549,978 658,780 353,213 305,567 1.71 945,408 294,541 1.28

2014 1,405 1,078,950 1,080,355 1,573,961 676,589 348,500 328,089 1.76 989,723 294,741 1.31

2015 1,405 1,083,310 1,084,715 1,598,424 694,754 353,050 341,704 1.79 1,027,776 294,541 1.32

2016 6,405 1,074,810 1,081,215 1,623,377 713,283 351,775 361,508 1.84 1,069,732 293,931 1.35

2017 6,130 1,073,930 1,080,060 1,648,828 732,182 349,950 382,232 1.88 1,112,180 292,901 1.38

2018 855 1,080,810 1,081,665 1,674,788 751,459 352,575 398,884 1.92 1,163,445 291,489 1.41

2019 5,855 1,074,890 1,080,745 1,692,100 771,122 348,895 422,227 l.96 l, 194,559 289,689 l.43

2020 570 1,080,870 1,081,440 1,709,758 791,178 349,645 441,533 l.99 1,234,946 292,470 l.45

2021 570 1,083,715 1,084,285 1,727,769 811,635 349,540 462,095 2.02 1,274,334 294,564 1.47

2022 570 1,083,425 1,083,995 1,746,140 832,501 348,580 483,921 2.06 1,313,024 290,970 l.50

2023 5,570 1,075,000 1,080,570 1,764,879 853,784 351,765 502,019 2.10 1,331,941 292,033 1.52

2024 5,285 1,075,000 1,080,285 1,783,992 875,493 348,810 526,683 2.14 1,358,116 292,408 1.54

2025 1,085,000 1,085,000 1,803,488 897,636 897,636 2.49 1,743,594 292,095 l.96

2026 1,085,000 1,085,000 1,823,374 920,222 920,222 2.53 1,772,062 291,095 l.99

2027 1,085,000 1,085,000 1,843,657 943,260 943,260 2.57 1,800,171 294,365 2.02

2028 1,085,000 1,085,000 1,864,346 966,758 966,758 2.61 1,831,292 291,600 2.06

2029 1,085,000 1,085,000 1,885,449 990,726 990,726 2.65 1,861,864 293,145 2.09

2030 1,085,000 1,085,000 1,906,974 1,015,174 1,015,174 2.69 1,891,549 293,655 2.12

2031 1,085,000 1,085,000 1,928,929 1,040,110 1,040,110 2.74 1,919,924 293,130 2.15

2032 1,085,000 1,085,000 1,951,324 1,065,545 1,065,545 2.78 1,955,867 291,570 2.19

2033 1,085,000 1,085,000 1,974,166 1,091,489 1,091,489 2.83 1,990,656 293,975 2.22

40

Notes: (I) Under the Senior Loan Agreement, Tax Revenues are pledged to the payment of the Senior Parity Debt. Under the Subordinate Loan Agreement, Tax Revenues are pledged to Subordinate Parity Debt, subject to the prior pledge of Tax Revenues in favor of the Senior Parity Debt. Tax Revenues generally include certain Tax Increment from Project Area No. 2 and certain Tax Increment from Project Area No. 1 after payments on the 1995 Project No. 1 Loan. "SEE SECURITY FOR THE BONDS" herein. (2) Payments under the outstanding 1995 Project No. 2 Loan Agreement will be restructured on the date of delivery of the Bonds. See "FINANCIAL INFORMATION CONCERNING TAX REVENUES - Outstanding Indebtedness of the Agency -Bonded Indebtedness" herein. (3) Source of projection is Report of Redevelopment Consultant. Projection assumes, among other matters, 2% annual growth in assessed values. There can be no assurance that 2% annual growth in assessed values will occur. Decline in 2008 is projected as a result of increase in amounts paid to County under Pass-Through Agreement. See Appendix A attached hereto. (4) Coverage shown is (i) aggregate annual tax revenues pledged to loans securing bonds over (ii) aggregate annual payments on such loans.

Source: Cathedral City Redevelopment Agency

41

THE CITY OF CATHEDRAL CITY

The Merged Project Area is located within the City of Cathedral City. For general information concerning the City of Cathedral City, see APPENDIX B - "THE CITY OF CATHEDRAL CITY" attached hereto.

LITIGATION

There is no litigation pending and served or, to the Authority or the Agency's knowledge, threatened in any way to restrain or enjoin the issuance, execution or delivery of the Bonds, to contest the validity of the Bonds or the Senior Indenture or the Subordinate Indenture or the Senior Loan Agreement the Subordinate Loan Agreement or any proceedings of the Authority or the Agency with respect thereto. In the opinion of the Agency and its counsel, there are no lawsuits or claims pending or threatened against the Agency which will materially affect the Agency's finances so as to impair its ability to pay the Senior Loan or the Subordinate Loan when due.

RA TINGS FOR THE SENIOR BONDS

Standard & Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. and Fitch IBCA, Inc. will assign their municipal bond rating of "AAA," and "AAA," respectively, to the Senior Bonds based on the issuance by the Insurer of the Policy. Such ratings reflect only the views of the rating agencies and an explanation of the significance of such rating and any rating on any of the Agency's outstanding obligations may be obtained only from such rating agencies as follows: Standard & Poor's Ratings Group, 25 Broadway, 21st Floor, New York, New York 10004 and Fitch IBCA, Inc., One State Street Plaza, New York, New York 10004.

There is no assurance that such ratings will continue for any given period or that they will not be revised downward or withdrawn entirely be such rating agencies, if in their judgment, circumstances so warrant. The Authority, Agency, the Insurer and the Trustee undertake no responsibility either to notify the owners of the Senior Bonds of any revision or withdrawal of the rating or to oppose any such revision or withdrawal. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Senior Bonds.

The Subordinate Bonds have not been rated by any rating agency.

TAX MATTERS

Generally. In the opm10n of Kutak Rock LLP, Special Tax Counsel, under existing laws, regulations, rulings and judicial decisions, interest on the Bonds (including original issue discount attributable to the Bonds) is excluded from gross income for federal income tax purposes, is not a specific preference item for purposes of the federal alternative minimum tax, and is exempt from California personal income taxes. The opinions described in the preceding sentence assume the accuracy of certain representations and compliance by the Authority with covenants in the Senior Indenture and Subordinate Indenture designed to satisfy the requirements of the Internal Revenue Code of 1986, as amended, that must be met subsequent to the issuance of the Bonds. Failure to comply with such covenants could cause interest on the Bonds (including original issue discount attributable to the Bonds) to be included in gross income for federal income tax purposes retroactive to the date of issuance of the Bonds. The opinions of Special Tax Counsel will be rendered in reliance on the opinion of Bond Counsel as to the valid issuance of the Bonds and will not address any matters set forth in this Official

42

Statement except for the matters dealing with the federal and California income tax treatment of interest on the Bonds.

Notwithstanding Special Tax Counsel's opinion that interest on the Bonds (including original issue discount attributable to the Bonds) is not a specific preference item for purposes of the federal alternative minimum tax, such interest will be included in adjusted current earnings of certain corporations, and such corporations are required to include in the calculation of alternative minimum taxable income 75% of the excess of such corporation's adjusted current earnings over its alternative minimum taxable income (determined without regard to such adjustment and prior to reduction for certain net operating losses).

The accrual or receipt of interest on the Bonds (including original issue discount attributable to the Bonds) may otherwise affect the federal income tax liability of the owners of the Bonds. The extent of these other tax consequences will depend upon such owner's particular tax status and other items of income or deduction. Special Tax Counsel has expressed no opinion regarding any such consequences. Purchasers of the Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise entitled to claim the earned income credit, or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations, should consult their tax advisors as to the tax consequences of purchasing or owning the Bonds.

Original Issue Discount The Senior Bonds maturing August 1, 2018 and August 1, 2022 are being sold at a discount ( collectively, the "Discounted Obligations"). The difference between the initial public offering price, as set forth on the cover page hereof, of the Discounted Obligations and their stated amount to be paid at maturity, constitutes original issue discount treated as interest which is excluded from gross income for federal income tax purposes and is not included in California personal income taxes, subject to the caveats and provisions described above.

In the case of an owner of a Discounted Obligation, the amount of original issue discount which is treated as having accrued with respect to such Discounted Obligation is added to the cost basis of the owner in determining, for federal income tax purposes, gain or loss upon disposition of a Discounted Obligation (including its sale, redemption or payment at maturity). Amounts received upon disposition of a Discounted Obligation which are attributable to accrued original issue discount will be treated as tax-exempt interest, rather than as taxable gain, for federal income tax purposes.

Original issue discount is treated as compounding semiannually, at a rate determined by reference to the yield to maturity of each individual Discounted Obligation, on days which are determined by reference to the maturity date of such Discounted Obligation. The amount treated as original issue discount on a Discounted Obligation for a particular semiannual accrual period is equal to (a) the product of (i) the yield to maturity for such Discounted Obligation (determined by compounding at the close of each accrual period) and (ii) the amount which would have been the tax basis of such Discounted Obligation at the beginning of the particular accrual period if held by the original purchaser, (b) less the amount of any interest payable for such Discounted Obligation during the accrual period. The tax basis is determined by adding to the initial public offering price on such Discounted Obligation the sum of the amounts which have been treated as original issue discount for such purposes during all prior periods. If a Discounted Obligation is sold between semiannual compounding dates, original issue discount which would have been accrued for that semiannual compounding period for federal income tax purposes is to be apportioned in equal amounts among the days in such compounding period.

43

The Code contains additional provisions relating to the accrual of original issue discount in the ·case of an owner of a Discounted Obligation \vho purchased such Discounted Obligation after the initial offering. Owners of Discounted Obligations including purchasers of the Discounted Obligations in the secondary market should consult their own tax advisors with respect to the determination for federal income tax purposes of original issue discount accrued with respect to such obligations as of any date and with respect to the state and local tax consequences of owning a Discounted Obligation.

Changes in Federal Tax Law. From time to time, there are legislative proposals in the Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to obligations issued prior to enactment. Purchasers of the Bonds should consult their tax advisors regarding any pending or proposed tax legislation. The opinions expressed by Special Tax Counsel are based upon existing legislation as of the date of issuance and delivery of the Bonds, and Special Tax Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation.

CERTAIN LEGAL MATTERS

The legal opinion of Sabo & Green LLP, San Bernardino, California, Bond Counsel, approving the validity of the Bonds, and the legal opinion of Kutak Rock, Denver, Colorado, Special Tax Counsel, regarding certain tax matters with respect to the Bonds, will be made available to purchasers at the time of original delivery of the Bonds. The proposed forms of the legal opinions of Bond Counsel and Special Tax Counsel are attached hereto as Appendix F. Certain legal matters will be passed upon for the Authority and the Agency by Sabo & Green LLP, Cathedral City, California, and the Undenwiter by Hawkins, Delafield & Wood, San Francisco, California. Payment of the fees of Bond Counsel and Special Tax Counsel are contingent upon sale and delivery of the Bonds.

UNDERWRITING

The Underwriter has agreed, subject to certain conditions, to purchase the Senior Bonds from the Authority at an aggregate purchase price of $12,090,301.49. For a complete analysis of the sources and uses of funds, including the undenwiter' s discount and original discount, see "ESTilvIATED SOURCES AND USES OF FUNDS" herein. The public offering prices of such Senior Bonds may be changed from time to time by the Undenwiter.

The Underwriter has agreed, subject to certain conditions, to purchase the Subordinate Bonds from the Authority at an aggregate purchase price of $3,740,607.50. For a complete analysis of the sources and uses of funds, including the underwriter's discount and original discount, see "ESTilvIATED SOURCES AND USES OF FUNDS" herein. The public offering prices of such Subordinate Bonds may be changed from time to time by the Undenwiter.

44

MISCELLANEOUS

All references herein to the Bonds, the Senior Indenture, the Subordinate Indenture, the Senior Loan Agreement and the Subordinate Loan Agreement are brief outlines of certain provisions thereof. Such outlines do not purport to be complete statements of any or all of such provisions and reference is hereby made to such documents on file with the agency for further information in connection therewith.

This Official Statement is not to be construed as a contract with the purchasers of the Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so 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 Agency and the Authority.

CATHEDRAL CITY REDEVELOPMENT AGENCY

By: Isl Donald Bradley Executive Director

CATHEDRAL CITY PUBLIC FINANCING AUTHORITY

By: Isl Donald Bradley Executive Director

45

(THIS PAGE INTENTIONALLY LETT BLANK)

APPENDIX A REPORT OF REDEVELOPMENT CONSULTANT

(THIS PAGE INTENTIONALLY LEFT BLANK)

Katz Hollis

FCR Proj 1&2 \1arch Final 3/21/00

REPORT OF THE FISCAL CONSULTANT

Prepared for

THE REDEVELOPMENT AGENCY OF THE CITY OF CATHEDRAL CITY, CALIFORNIA

Riverside County, California

REDEVELOPMENT PROJECT NO. 1 REDEVELOPMENT PROJECT NO. 2

Submitted by Katz Hollis

March 2000

Katz Hollis

PART I

INTRODUCTION

The Redevelopment Agency of the City of Cathedral City, California (the "Agency") is considering causing the issuance of tax allocation revenue bonds (the "Bonds'') by the Redevelopment Financing Authority (the "Authority") of the Agency to refinance certain outstanding indebtedness of the Agency and the Authority and finance a portion of the redevelopment activities within each of the Agency's t\vo redevelopment Project Areas. The Bonds are to be secured, ultimately, by property tax increment revenues from two redevelopment Project Areas.

In connection with the proposed Bonds, the Agency has requested that Katz Hollis review current and historical taxable values and property tax revenues, review· currently pending and recently resolved assessment appeals and estimate future tax increment revenues for each of the two Project Areas. Pursuant to that request, Katz Hollis has prepared this Fiscal Consultant's Report (the "Report''). The key data for the two redevelopment Project Areas is summarized in tabular format on Figures 1-1 A and 1-1 B shown on the following page. This Report is organized into the following four parts:

Part I, "Introduction,'' provides an outline of the Report, a summary of the two Project Areas including Project Profiles, Figures I-IA and I-1B.

Part II, "Project Taxable Value and Tax Increment Revenue," covers current and historic values, taxable value attributable to major assessees, currentl)' pending and recently resolved assessment appeals, and information on the sources of tax increment revenues including unitary property taxes, supplemental property taxes and state special subventions. An analysis describing the impacts of existing liens on tax increment revenues including tax sharing agreements, the low and moderate income housing set-aside and property tax administrative charges is also included in Part II.

Part III, "Projection of Tax Increment Revenues," includes a projection of future levels of taxable value for each Project Area and other assessment activity, and resultant tax increment revenues. Additionally, Part III discusses and demonstrates the impact of recently resolved assessment appeals on tax increment revenue of the Project. Part III also includes a brief discussion of the underlying assumptions of the projection.

Part IV, "Background Information," contains background information on the topics covered in Parts I through III of this Report. It has been prepared for those readers of the Report who may ,,·ish further information on the analysis and conclusions presented in prior sections.

It should be noted that the value estimates and tax increment revenue projections in this Report are based upon information believed to be reasonable and accurate as of the date of this analysis. To the extent that current information is modified, resulting tax increment revenue may be other than that projected. The discussion of allocation procedures for property taxes contained in this Report is based largely upon information provided by representatives of Riverside County (the "County"). These procedures are in some measure set administratively and are subject to change. No proposed changes to these procedures, other than those discussed herein, have been identified to date.

Katz Hollis The Redevelopment Agency

of the City of Cathedral City, California Redevelopment Projects No. 1 and 2 Part I - Introduction

Characteristics of the Projects

Redevelopment Project No. 1

The Redevelopment Plan for Project No. 1 \Vas adopted on November 29, 1982. The Plan has been amended three times - February 6, 1991, December 14, 1994 and most recent!)' January 28, 1998. Project No. 1 encompasses approximately 357 acres and includes the majority of the downtown business district from the \Vesterly City limits to Date Palm Drive on the east. Through fiscal year 1998-99 the Agency has received approximately $9.9 million in tax increment revenues. Figure 1- lA shov-.'s the distribution of Project No. 1 secured taxable value among various land uses.


The Redevelopment Plan for Project No. 2 was adopted on November 29, 1983. Project No. 2 encompasses approximately 960 acres and contains nvo noncontiguous subareas. Subarea A. "Panorama," contains approximately one square mile and is primarily residential. Subarea B. "Ramon Road," contains the secondary commercial strip within the City. Project No. 2 ,vas amended on December 14. 1994 and again on January 28, 1998 along with Project No. 1. Through fiscal year 1998-99, the Agency has received approximately $25.3 million in tax increment revenues. Figure 1-1 B shov.,s the distribution of Project No. 2 secured taxable value among various land uses.

The third amendment to the Redevelopment Plan for Project Area No. 1 and the second amendment to the Redevelopment Plan for Project 2, among other things, merged Project No. l with Project No. 2 and replaced the pre-existing redevelopment plans with one amended and restated redevelopment plan for the entire merged Project Area (Merged Project Area). The cumulative tax increment limit for the Merged Project Area is $328 million while the cumulative bonded indebtedness limit is $126 million. The amendment also eliminated the annual tax increment limit of $2.5 million in Project No. 2.

The following Table summarizes some of the distinguishing characteristics of each Project Area.

Project Area Information Tax Increment Bonded

Date of Last Plan Tax Increment Received Indebtedness Project Area Acreage Adoption Amendment Limit through 1998-99 Dollar Limit

Project No. I 357 Nov. 29. 1982 Jan 28. 1998 Together $ 9.9 million Together

Project No. 2 960 Nov. 29. 1983 Jan 28. 1998 $328.0 million

S25.3 million $126.0 million

(1) ReceiptsthroughJuly. 1998.

I-2

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ta_, s;Ji,urng ,~eeme11t p.1yme11h

Ten l\Iajor Assessees

Dayton Hudson Co1v

Ft tnk. Don, :-.I

\\'l'ssruart. Jolm

Ue111sto1te Prop Tra1111·1ew Lmd 1.·,,

\.rJ<"al \\'est Ltfr ,\'. ,\1111111I\' Im· '·,,

\\'J!,.,11 I J,!\ ,cl\\

ll1c~ct \\'a1111Utl'.l<>11 !'1,

,.·,,11•,ll l11c

S~•IL'Cll lIII <',, ll

list'

Cu1111ncrc1al 1.'011tmerc1al

Reta1IIC011ttnt'tc1al

I ', 111unerc1al

Fct.t1I

Rc~l.11n,1nt 1 \1111111t_·rc1.d

1\1111mc1c-1,1]

1 °. i!tU!ll'Ict,ti

!11,l,istr,al

( \)Jlllllt'IC!dl

I ,1t,1I .\Lt1c•1 .'\'"e"ees

I utal F!()Jt'ct \'a!it,·

Percentagr of Ten \l:ijnr ,\"e\\re, to Tnt:1) \':due

Commercial

4%

Secured \·alue PH L:rnd I ·~r·

Res1dent1al

10% 11%

Industrial 14%,

'* Land u,;e d1stnbulto11 h,t,;;ed l1H the I 99S-9lJ K1vers1de < \:rnntv sc..:urcd rl1II

:\l:ijor ,\s\t'ssment Apprals

/(,-\()/,·,:J

!'e,1d1,1f:

:-\S\C'SSt:L-.

Ft mk Rubert L

[ l.J\1Ull !f1Jdsut1 I \•q• 1\l1ts11hisltt \lutut S,1Jc,

,\thnttc Richfield 1_\,

, rrcctt \\'est I.Ile l11s I-;,

H,trtk rcf .-\.t11,·11c,t I'> 1 U1..·ue Au(lersl,111 -::.1

r-o,,rJmaker Inc

:\',·Ison Soto

TOTAL

Pott-rit1,tl ~(1<1t1 ... 1 1J

\',1Jiut1011 Ulll':tcl I ·I I

2.1 'J- 11 3

I r; ,~ , 3 I

22:] (}I!

,, I-·' 1X1 I

1-x 1,1 CJ

~I II l , 3 I

!_1 _,1,

I'> 111x I,~')

5,39J.505

l I) E,um,ucd \'a]ne hi;;,;, fl'I 1he ~000-0 I and ,mti,q11e11t ta, f1._-,l1;;

See Part II, ·:\_~~es,01en1 Appeals" f.__H add1lh_•nal mf1._1nn;U1...:1n

('I Represe11Ls m11ll1ple appeal,

Unsecured

18%

Amount

X. 1 ~.-3~

- 15."'r () --tX_2f/)

I t<l.l-1 ~ l):( J ')I 1-;

_: <J L~ . ;-.' ,•11,,

2 _'X ·~ _: ! 11

~ I ~x 11 I

2.1 ()(_)_t_J- ~

I_' <1,.1 ,~,

', l:'i '31311

% of Total

(~ ()5° 0

,-., U0°o

"J(_)O O

'']', , I 'o

= ~~:'Cl

~ I'' ,, I,,,

I

l

3-t. r;o,o

lncre111ental Yalue h) T) pr

Secure,J 82%

Pr1._lJe..:-t Pr0file

C,1p1n"11t 1991 K,111 lfolu, _\11 <JO

r·ATH I Tl I 999 Re,·ised C,, ,J,

l(atzliollis l'1t\' ol Cathedral Cit\'

Rcdnl'lopnwnt Projcd :\o. 2

l'RO.IFCT PROFILE

Crnrral J11formatio11

l 1.tk .,t \..\_l(T't1,1n

\1111._·nllml·nh

\1--·,1

I,,,; lncrc·111c·nt l,11111li I 1

I,,,; lnucnis·nt f<,·ccl\'~J I hr,,ugh I <i'l,'(-'i') 1: I

'.l.1•;1111u111 H,,nJccl ln,Ic-1,k,ith'ss L11111t

f',e1n,!.:J I lcH I luht:mdmg I '1\,· ,,t L "]'ll ,1t1,,n ,,t !'Ian L! kl'l1\'c!1<";·,

I I 1 he clllli\l,d 1,-1._\_ Ul, fl'lllt'!lf liJ11lf a1ill'J1de-.J )JI 1 ~, ,),

~ 1 f ::.-lt1J1 tit· pr,,\Jlkd tlir,111.eh .\~t'Il'-': r~p1'tb

Tux Sharing .\grermenh

1 ·l1llnt\· \_-,1 R1vcrs1JL

1 ·,, 1,h,·ll.1 \':11ln· \\ :tlc'r] l1-;tmt

\' '\,1·,,1111t,• \h:1k111cnt J 11·;tr1c t

19 11•>-2000 lh·nnur E~tinrntr

Srrurrd

I ,111.I

!!11\'l' ·\ ,·1,11._·11t,,

I ',·r II ti I l 'J'c·1T1

I , . .-1111"!1,·11

1 ti ·-<·'- ur '-·\._!

l ll\l'rllred

I 111,l

lrnr'r ,\ (Jl1,·r1h

l',:1.,•1,.tl l'r,·11crt1

l•,,'!11J'' 1 \•!;,

I t,l I 11.,·,1,r,·,!

l11tal \':due·

I 11tal ( ;n"' Rn c·nur, a 1.0"" l1!! \f"\ k .. '\"l.'J1lll''·,

I •t 11 I ,,, \..'.c'\ ,·nu,·

I 111111 .\,11111111str.1t1\ ,·' ·r.,tfl'l'

I Lt! I.,,, l<c\ ,·nuc \\ .11!.1],j,•

I c ,, ! ,,,, ·;h,mng \l'Jc'<'llll'lll,

I L·u·,rn,· :;ct. \side

\, ;1iL1hlc- Tax lncrrmrnt Rn rnur

l'otal

I ()•) 1 )-~I I()( I

\':duc

'\I) i~ ~ (-)l)l)

~I:,; 1-1-; 2:-;11 IJ ,;:,;.j

] ,.j} 11 [ r,

~(-17 I J'IIJ i..l 7

,, , 17 I

,7:,:11•)'.\

===-~~!}~ 1 I 11 111,~

.ltlfl.l 72AO'J

H; I~;<.?

\",du,·

I 2 ,,, 7 =2•1

l--l--l/1/1()(1-l

;..: ~1)'1

: )1 f_ 7Xti

:>1 t.lil~ (\()~

·1-1.:-1.· ,1 I; ,j~ j

"l ,) 7 ~ 1

27.Hl,725

";u\·c111h,·r _'•J I 'i,'n fanuarv 2X [<l<lX

lJ(,1 I .-\crL·-;

1:2X lilHl,111111

2,,,1Jll_lJIJ1)

] 21, 111111_11111 I

[ 11 XI J', 11111 I

:,,,,\'t'!l1hcr :x 211_:i,

Lc,t1111:1tcd

\'ilJ·i.~111111 f-'ay111cnts ,-11; :, 1

1,X LJ•iS

I 7 Jx, -1,:' -114

Ith T<'J\h'nt.t!

\':due

t,772~X711

=I I 1 r, 7X I, 1 r, t.111X'I

I , l I) 211 I

'7111'1 q-;

'JII;\

t,t, ~ :-.; ~t

i ')21 I _j \ =

~ ~')3.3 ,,,

272,7~0.68~

2,727.~117 11 Ir,,

= r;x 1i /:'

\::_.1]' .::. 7U(i.2-; l

-1.12.-11-1

'-11>1

LH2.~7:Z

Figure 1-18

As,e~\ed Vuluc/Tax Rccciph .\Iajor ,hscssmcnt Appeals

. \sscs-;111 ent

Yc.11

[ ')'h 1/t,

11/'l(, <)7

]'Jll/ 'lX

I 'J'JX '!'! ]IJ<N 1111

11t\t1111c:il

lncrcmcnt,11

I ;1,ahk \'aluc

:"!)_ 1 :( l ti l! 1

2.;;;,'l q22,tl7l :,nnq, =(,I I _l_l 7 'I'\ .' 7.' 7,11 t,X-1

Hr·.t,,11, ii

k_L\'1._'_fEJL'.,; L3-1

.:: 21 l'i '7-1 2 I 71 I -1 I 1

-~ ~( )') ~..ii)

2.2 J-J I 12'1

/12",h·,·d

1·c11,lim:

.-\~scsscc

Andres Padron c ·rat>' Bkck,l

\!,,ht! ( 1t11·,,q1

1-irc';t,,w l<c:d E,t,1k

Realty ()llc',·n Inc -\II I llher, 1<1

IOL\L

l',1knt1,il ..'11111u11

\':1lu:1t1un l111r,act I -1)

I 2 ]till x 1-i-111

11,,11-1:

7-1 ,-17

~5 5,;1 l

Ut,-13'!

-150,618

r\1 :\rth'Hllt~ d,, 11\.-111111._hllll' :s:u111il1..·mv1ll<1I 1'T ;111; r1._·\1._·t1n1._·s:

;iH11huL1hk t,1 ,H·1._·rnd1..' r.1t1..'S: ltl ,i'\,\Jt1,_1n_ fL'\L'll\l•_·s. .trc :t\._·t ,_,t

Ll\. ~1t:1Im~~ dVJLTT11L·11l 11,~y11n:!ll<:- ( t l L--t1111akli \'al11'--' k,~s I,_, tilt· 1,,,_jq_2C1CICI ,rnd :-11hc:q1Jl'lll t-L\ 1,,lb

Sl'l· Pa11 IL .. ,.\'.--'-l'\'-Jlle11t ·\J'pt·.ds-" C,r ,1dd1t1t11nl 111ft11111.1t1<111

I;:;; I I ,,1,d rt'fk-.t~ It'll clpJlt,.';tl'- 11Ulkl I<;,[,!(

Trn .\llljor A,se~\ers

R,1rn.m 1 ·,1111,,n ,\.- .. ,, LI' P:1!m ~~t~rin~·=:. 1 1Jl 1 ·l, lnl I 1rn <' \\'amcr I· ntert:11n111c·r1t :i,·crd:'IJ\' lk,u,111l' ,\'- I 11~:111 J 1c'\ ,·l,•J' '.[,,ht! r rt! r ·,,q,

r ·.1thc,!r:t! \'tll:t

I tlkt I 1,1\ 1,J L

ll.1,LL!cl 1,,~

l<,·:ilt\ l)t1,·,·11 l11,

I<,,d .\ndrn\", \h,t,,r: In,

l :\e

·,,\llfllt'll !:ti

'~l'r\'lll' :)L!tll 111 ( 'llJliJllL·1 .... 1:tl

\•·-;'"'L''.~· ... (,rY lntc-rt'';t

S1mdc l·,1111111' !<, ;i,k11s ,·

\l·r\·11.c Statiz,n

',rnl!k I ,111111\ !<,· ,1,k11«·

l,et.nl

1 · l 1 i 11111 l' r ~ 1. 1 l , ·,,rn111c·r,1.1I

1·u111mnu.tl J ,,t:d \!:w•r .\·.·,, ;·.,',";

l 1.1!:lJ f1t1.l)L1_t \·.1ll.ll'

Prr-rc·ntai:c· ol Trn \J;,j11r \"r"c·c·, lo Total \'alur

Srrund \"alur l'r.- I.and 1·,r•

Res:dent1d!

Industrial

12%

Commerc1al

Retarl 9'3/o

Other 1%

'"'Lrrnd ll~t' d1stnhuht1J1 li,ts-ed ,)11 tht' I 4QX-44 R1\·t'r<::1dt' ( ·,,nnty <,;t.'1_\Jte<l 1'111

·\mount

-~ .:; I lX (-J~ 7

1_q111 !Jr1 J 7 ~ _--. f H 111

] 1,-Jt, 7X•i

] _;;(I~')';(,

J ,, II 1111111

-l 1 171l},'

J .j,,,-1-;,

I >,n.1 1 1 t]-; I] X

It, r 1=,. ~-17 ) ,1 !l l ] / ~ 41 I'/

% of Total

11:,-:....ico

ilfdno

11 'lS 0 o

, l (,~no

11.:::;11°0

,1.;11°0

11""\!Juo

: I 41JC' 0

t I -1:·' 0

I I )-~ a O

:;,J-1",o

Inrnmrntal ,·a1t11· h_\ TJpr

·3ecureJ

Pu,,e.__t Pr. 1 tlle

r ·,,p, "~.ht 1,,,1: f..:.1t, H,,11,s

1 21 (,0

r ·,\tli: r~ r t,1hlt-, ,J.,

Katz Hollis

PART II

PROJECT TAXABLE VALUE AND TAX INCRE:\1ENT REVENL'E

INTRODUCTION

The following paragraphs provide summarized information regarding pn1pert: tax rnluation and revenues realized or to be realized for the two Project Areas in the current and prior fiscal years. l'v1uch of the information regarding current year values and resultant revenues is r,resented on figures 11-1 A and 11-18. "'Estimate of Available Revenue for Fiscal Year 1999-2000_·· The historical , alue of the two Project Areas is shO\vn on figures II-2A and 11-28, '·Historical Taxable Value.·· Additional specifics regarding the analyses and assumptions that underlie the information in this Part 11 can he found in Part IV ... Background Information.··

PROJECT TAXABLE VALUE

Current and Historical Taxable Value

Project l\/o. I

A detailed revie,v of the reported 1999-2000 secured and unsecured taxable values of Project No. I ,vas not conducted. However. a historical reviev. of assessed taxable value was conducted over the last five fiscal years ( 1995-96 through 1999-2000). The review revealed that \ alue in the Project has remained relatively level during the five year fiscal year period except for fiscal year 1997-98. Total unsecured assessed value for fiscal year 1997-98 ,vas reported at $30.537.947 an increase of approximately $10.5 million or 8.2% from the total 1996-97 Project assessed value. This fluctuation ,vas attributable to an increase in unsecured personal r,roperty assessed valuation of approximately· $9.1 million over the previous fiscal year. In the follmving fiscal year 1998-99. unsecured personal property value ,vas reported at S8.3 million. which is comparable to the other fiscal years. According to County staff. the increase of approximately $9.1 million in fiscal year 1997-98 \vas a resu It of an input error and has since been corrected. Tahle I l-2A reflects an adjustment to the 1997-98 unsecured personal property value had the County input error not occurred.

Project No. 2

Taxable values in the Project have remained relatively stable in the five year period ( 1995-96 through 1999-2000). Assessed values decreased by approximately 1.2% from 1995-95 tn 1996-97. but have continued to increase annually from 1996-97 through 1999-00.

Assessment Appeals

Pending and recently resolved assessment appeals were reviewed in order to determine the potential impact on current and future project value and tax increment revenue should apr,eals be resolved in favor of the respective asscssees. The anal_y·sis of currently' pending and recently rcsnh ed assessment appeals disclosed minor apr,eals activity in Projects No. I and :\o. 2.

Katz Hollis The Redevelopment Agenc> of the City of Cathedral Cit:. California

Redevelopment Projects ;\o. 1 and 2 Part II - Project Taxable Values and Tax Increment Revenue

As discussed in further detail in Part IV of this report. there are t\\O hasic types of assessment appeals allO\vable under California statutes. The first type of appeal. commonly referred to as a base year assessment appeal. involves a dispute on the valuation assigned by the Assessor immediately suhsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the Assessor is reduced. the valuation of the property cannot increase in subsequent years more than 2.0 r,ercent annually unless and until another change in mvnership and/or additional new construction acti\ ity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal. can result if factors occur causing a decline in the market value of the property to a level below the property's then current taxable\ alue ( escalated base year value). In fiscal years subsequent to a successful Proposition 8 apr,eaL if the market\ aluc of the property has increased. the assessor may increase the reduced assessment up to an amount equal to the parcel's base assessment value. escalated forward by up to 2.0 percent per year.

Summaries of the assessment appeals potentially affecting each respective Pro_ject Area arc included below. Unless indicated to be a base year assessment dispute. all assessment appeals are assumed to he Proposition 8 appeals. See "TAXABLE VALUE - Assessment Appeals" in Part IV for additional information on appeals.

Project lVo. 1

The follmving table summarizes the recently resolved assessment appeals for Project :\io. I. The table includes the pre-appeal value. the resulting value after resolution of the appeal. and the \'aluation reduction for each resolved appeal. The valuation reductions shmvn belm\ are based on r,ost-appeal values shmvn on County records.

PROJECT NO. I RESOLVED ASSESSMENT APPEALS ASSUMED TO lr'v1PACT 2000-0 I

Assessee

Frink. Robert L.

Estimated 2000-0 I

Pre-Appeal Value( I)

$7,564.113

Estimated 2000-0 I

Post Appeal Value(2)

$5.367.000

Total Resolved 2000-01 Estimated Valuation Impact:

I I) Estimated at t\\o percent ahO\ e the n:portcd 1999-2000 assessed value 12) Estimated at the County°:-; reported resohed (post appeal value) ,,due for 19()7

Estimated 2000-01

Valuation Reduction

$2.197.1 13

S2,197.113

The 1999-2000 assessed value reported for this assessec indicates the post appeal value has not been reflected on the I 999-2000 rol I. Therefore. the reduction in valuation is assumed to he reflected on the 2000-0 I assessment roll. Revenue estimates shown on Figure 111-1 A. "Projection of Ta:\able V'alues and Revenues··. have been adjusted to reflect this reduction in value.

There arc also several pending assessment appeals in Project ~o. 1. The pending appeals pre-appeal values are assumed to be reduced by 21 percent. based on a revie\\ of recent reduction~ resulting from appeals of property in the Project No. 1. The following table summarizes these appeals.

I 1-2


of the City of Cathedral City. California Redevelopment Projects No. I and 2 Part II - Project Taxable Values and Tax Increment Revenue

PROJECT N0.1 PENDING ASSESSMENT APPEALS ASSl :\'JED TO ll'v1PACT 2000-0 I

Estimated Estimated 2000-0 I 2000-0 I

Assessee Pre-Appeal Value (I) Post Appeal Value

Day,ton Hudson Corp $7.621.804 $5.989.27>

Great West Life Ins (2) 2.231.728 1.753.710 Atlantic Richfield Co. I ,433.668 1.126.588 Mitsubishi Motor Sales 1.03 7.340 815.150 Bank of America ( 2) 936.221 73 5 .690 Irene Anderson ( 2) 631,887 496.542 Foodmaker Inc 901.282 708.235 Nelson Soto 129.083 IO 1.434

Total Pending 2000-01 Estimated Valuation Impact:

(I) Estimated at t\\0 rerccnt aho,c the rcrortcd 1999-2000 assessed ,aluc (2) Rcrrcscnts multirk arrcals

2000-0 I Estimated

Value Reduction

$ l .632.53 l 478.019 307.081 222.190 200.531 135.345 I 93.048 27.649

$3.196.393

Valuation adjustments resulting from currently pending assessment appeals are assumed to occur in fiscal year 1999-2000 and reflected on the 2000-0 I roll. Figure 111- l A. "'Projection of Taxable Values and Revenues". reflects the result of the estimated valuations if they were reduced and escalated 2.0 percent each year given the pending appeals are resolved in favor of the taxpayer.

Project No. 2

The follmving table summarizes the recently resolved assessment appeals for Project No. 2. The table includes the pre-appeal value. the resulting value after resolution of the appeal. and the valuation reduction for each resolved appeal. The valuation reductions shoV,·'11 on the fol lcl\ving table are based post-appeal values shmvn on County records.

I 1-3

Katz Hollis The Redevelopment Agency of the City of Cathedral City. California

Redevelopment Projects No. 1 and 2 Part II~ Project Taxable Values and Tax Increment Revenue

PROJECT NO. 2 RESOLVED ASSESSf\1ENT APPEALS ASSl lf\1ED TO IMPACT 2000-0 I

Assessee

Andres Padron Craig Blecka

Estimated 2000-01

Estimated 2000-01

Pre-Appeal Value Post Appeal \/alue ( 1)

$107.100 S95.000 98_9 .. iQ 90.000

Total Resolnd 2000-01 Estimated Valuation Impact:

(I) L:;t1matcJ at the ( \1unty rcrortcJ rc:--ol\ cd ( ro~t arrcal , aluc l , ,tluc lnr J l)lJ7

Estimated 2000-01

\' al uation Reduction

$12.100 8.940

S21.040

The 1999-2000 assessed value reported for these assessees indicates that the rost appeal , alues have not been reflected on the roll. Therefore. the reduction in valuation is assumed tt1 he reflected on the 2000-01 assessment roll. Revenue estimates shO\vn on Figure 111-1 B ... Pro_jection of Ta:-;.able Values and Revenues"". have been adjusted to reflect this reduction in value.

There are also several pending assessment appeals in Project "'-Jo. 2. Pending appeal pre-appeal values are assumed to be reduced by 12 percent. based on a revie,, of recent reductions resulting from appeals of property in the Pro_ject 1\o. 2. The follO\ving table summarizes these appeals.

PROJECT NO. 2 PENDINC1 ASSESSMENT APPEALS ASSlll'vtED TO lf\1PACT 2000-01

Assessee

Mobile Oil Corp Firestone Real Estate Realty Queen Inc.

All Others (IO appeals under I SOK)

Estimated 2000-01

Pre-Appeal Value

$1.3 1 1.528 599,667 446.848

1.097.529

Estimated 2000-01

Post Appeal Value

$1.148.486 525.120 391.298

961 .090

Total Pending 2000-01 Estimated Valuation Impact:

(I) Values cst1111atcd at rno rcrccnt ah(l\C Jl)()l)-20()() \aluc:-..

2000-01 Estimated

\/ al ue Reduction

$163.042 74.547 55.550

136.439

S429,578

Valuation ad_j ustmcnts rcsu !ting from currently pending assessment appeals for Project N ( )_ 2 are assumed to occur Ill fiscal \ car 1999-2000 and he reflected un the 2000-01 n1l l. Figure 111-1 B. ··pn)_jection of Taxable

11-4

Katz Hollis The Redevelopment Agenc: of the City of Cathedral City. California

Redevelopment Projects No. l and 2 Part II - Project Taxable Values and Tax Increment Revenue

Values and Revenue". reflects the result of the estimated valuations if the pending appeals are resolved 1n

favor of the taxpayer.

Major Asscssees

Figures I 1-3 A and I 1-3 B. '"Ten Major Assessees .. I ists the ten ma_jor assessccs for each respective Project Area and the corresponding property uses. Also included on the tables arc: the number of parcels assessed to each of the ma_jor assessees: the total taxable value in each rcspccti\ c project attributable to each assessec: and the percentage of total project taxable value represented by each asscssce. The fol lowing tables represent summaries of the major assessees as a percentage of total and incremental value fc1r each Project.

Project No. I Ten Major Assessees

Assessee

Dayton Hudson Corp Frink. Doris M. \Vessman. John Gem stone Prop Tramview Land Co. Great\Vest Life & Annuity Wilson. David\\/. Dicker \\1 arm ington Prop Calpac Inc. Spreen Inv Co II

Total Value Major Asscssees Percentage of Total Project Value Percentage to Incremental Value

11-5

1999-2000 Assessed Value

S 8.217.73:2 7.--ll5.797 ().5-t8.269 4.581.174 3.920.905 2.942. 73 7 2 . .59,U 75 2.385.210 2.188.311 2.160.075

S42.954.585

Percentage of Total Project

Value

()_65%

6.00% 5.30% 3.71°10 3_ 17~-o 2.38% 2.10% 1.93% 1.77% 1.75%

34.77'1/i, 58.73%


Redevelopment Projects No. I and 2 Part II - Project Taxable Values and Tax Increment Revenue

Project No. 2 Ten \1a_jor Assessees

Assessee

Roman Canyon Assoc. LP Palm Springs Oil Co Inc. Time \\iarner Entertainment Secretary Housing & Urban De\. l\1obil Oil Corp. Cathedral Villa Fillet, David E. Haddad. Jack Realty Queen Inc. Rod Andrews l\1otors Inc.

TAX REVENUE

Total Value ;\fajor Assessees Percentage of Total Project \'alue Percentage to Incremental Value

1999-200()

Assessed Value

S 2.508.957 l. 90 I. I I 6

1.n2.ooo 1.6-1-6. 789 1.502.996 1.500.000 l .-l-97.079

l .-l-68.-l-58

1.015.718

SI6.026.847

Perccntagi.2 of

fut a I Prn_ject Value

() .8--+ 0/o

0.6J 0 o

0.58~·0 0.55°0 o.smo 0.50% ().5ma (l_-1- 9 0/0

OX2°ci (U--+0 o

5.34% 5.88%,

The tax revenues in the two Project Areas consist primarily of tax increment revenues generated from the application of appropriate tax rates to the incremental taxable value in each respective Project Area. Other tax increment sources can include unitary property taxes. supplemental propert:~ taxes and state special supplemental subventions.

Tax Rates

Property tax rates levied in the Project and which generate revenues that accrue to the Agency include the basic one percent tax rate and debt service tax rates. the latter levied to repay voter-approved indebtedness. The Agency has entered into various tax sharing agreements \\ith taxing entities in each Project Area. Because of certain provisions in, these various agreements. the Agency is to be al located the one percent levy of tax increment revenues generated \vithin each Project Arca. As a result. the computation of tax increment for each Project Area excludes al I the override tax rates. Each Project Area· s revenues wi II therefore be computed on a one percent ( l % ) tax rate. For additional in formation regarding tax rates. please refer to '"TAX REVENUE - Tax Increment and Tax Rates·· in Part IV.

11-h



Cnita~- Proper{}· Taxes

The Agency receives an annual allocation of unitary property taxes attributable to each Project Arca. Based on County records. the l 998-99 amount of unitary property taxes attributable to the t\\O Project Areas are:

Project No. 1 Project :\o. 2

$51.79 l

S3 l.165

Typically. unitary revenue remains fairly constant from year to year. The rnenue amount is determined by a formula applied to taxes generated by total value of unitary property held by all utilities in Riverside County. It is assumed that such revenues will remain constant in 1999-:2000 and subsequent years. For additional information regarding unitary revenue. please refer to "TAX RE\'ENl IE - l initary Property Taxes"' in Part IV.

Supplemental Propert)' Taxes

Senate Bill (--ss-·) 813 (Chapter 498. Statutes of 1983) added sections 75 through 75. l 3 to the Revenue and Taxation Code which provide for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously. statutes enabled the assessment of such changes only as of the property tax lien date next following the change. and thus delayed the realization of increased property taxes from the nev\ assessment. As enacted. SB 813 provided increased revenue generated from the supplemental assessment of property to be allocated exclusively to school districts for the 1983-84 and l 984-85 fiscal years. That provision ,vas amended by SB 794 ( Chapter 44 7. Statutes of 1984) such that only supplemental property tax revenues collected for 1983-84 ,,ere to he allocated exclusively to school districts. As a result of SB 794. applicable legislation now prO\ ides that the supplemental revenues are to be al located to redevelopment agencies and taxing entities in the same manner as regularly collected property taxes.

A review of ne\v construction activity. represented by available bu i Id ing perm it information was undertaken for Project Nos. I and 2 to evaluate \vhether the project's would e.\.perience increases in tax revenue as a result of additional assessed value not currently' reflected on the tax roll. The analysis indicated that Project No. I would experience little to no additional value that is not already reflected on the 1999-00 tax roll. The review of the permit information for Project No. 2 revealed an estimated $5. l million in additional taxable value that is not reflected on the 1999-2000 tax roll. This estimated $5. l mi 11 ion i 11 ta:,.;ahle value ,vhen applied to the I% basic tax rate. can potentially generate $35 thousand in addition tax revenue for the Project Arca.

State Special Supplemental Subventions

Special Subvention revenues are monies received from the State of California as replacement for property taxes formerly generated by business inventory properties. None of the two Project Areas received any special supplemental subvention revenues in fiscal year 1998-99. Due to enacted legislation. it is assumed that the t,vo Project Areas ,viii not be allocated subvention revenue in 1999-2000 nor in future fiscal years. For additional information regarding state subvention revenue. please refer to .. Ti\ X REV E"'J l i r - State Special Supplemental Subvention./Business I 11\'cntory Replacement Re, en uc"' in Part IV.

II- 7


of the City of Cathedral City. California Redevelopment Projects No. l and 2 Part I I - Project Taxable Values and Tax Increment Revenue

OFF-SETS TO TAX INCREMENT

It is our understanding that the Agency intends to pledge those tax increment re\ cnucs descrihcd above. and allowed by law to be pledged. toward payments that \\ ill ultimate!) secure debt sen ice on the proposed Bonds. The AgenC) is required to make certain payments from tax 1-c\enues generated in each Project A.rea. as discussed belO\v. In addition. tax increment revenue a\ ai !able to the Agency from each Project Area. as shmvn on Figures I 1-1 A and 11-18. arc offset by the adjustments to ta\. increment re\enuc. also as discussed below.

Adjustments to Tax Increment Revenue

Property Tax Administrative Costs

Legislation enacted in l 990. Senate Bi 11 (SB) 25 5 7. and in l 992. SB l 5 59. authorizes county audit ors to determine property tax administrative costs proportionate I) attributable fl) local _jurisdictions and. for the 1990-91 and 1991-92 fiscal years. to invoice the _jurisdictions for such costs. ( ·ommencing in the ] 992-9] fiscal year. the amounts due as local agencies· contribution to covering count) aclm in istrat ive costs are to be al located to the county as part of the overal I system for the redistribution of property ta\.es ( as opposed to being paid pursuant to invoices). SB 1559 expressly included redevelopment agencies as jurisdictions that are to be charged for property tax administrative costs. The amounts deducted from ta\. increment revenue for each of the t\vo Project Areas for the 1998-99 fiscal year are as fol lmvs:

Project No. I Project No. 2

$15.000 $52.424

The amounts for each Project Area are approximately l .97 percent and 1.90 percent. respectively. of the estimated tax increment revenue for fiscal year 1998-99. As a result. these percentages are applied to the 1999-2000 gross tax increment revenue and deducted from ta\. increment revenue for property tax administrative costs for each Project Arca. These amounts are shown on Figures 11-1 A. and 11-1 B. and Figures 111-1 A and 111-18.

Payments to be made from Tax Increment

Pr<~ject iVo. I

Payments per an Agreement with Riverside Count)

On December 8. 1992. the Agency. the City and the County entered into an agreement regarding the payment of certain tax increment revenues generated in Project No. l to the County. The Agreement is an amended and restated version of an earlier agreement entered into on February 16. l 98J. The agreement states that commencing in fiscal year 1992-93. the Agency is to be al located 50 rercent of its share of ta:-.: increment derived from the one percent tax le\ y. In addition the Agreement pro\ ides for the Count) to receive I 00 percent of its share \\hen the cumulative allocation of the Count) ·s share t() the Prnjcct c\.cceds S8 million.

I 1-8

Katz Hollis The Redevelopment Agenc) of the City of Cathedral City. California


An estimate of the payment due for the 1999-2000 fiscal year is shm, n on Figure 11-1 A. The agreement has no provision for subordination of the payments to other obligations of Project No. I.

Payments per Agreements \vith the Coachella Valley Community College District. the Palm Springs Cemetery District. the Desert \Vater Agency. the Ri,erside County Flood Control and \Vater Conservation District. and the Coache I la Val le: :vlosqu ito Abatement District

These agreements \\ere entered into bet\veen January and June of 198.> and contain essentially identical prov is ions requiring payments based on a formula which inc I udes the Prnjccf s gro\\ th rate percentage and each entity's respective share. Specifically'. the Agency shall annually pay to each respective entity a sum of two components. The first component is the tax increment received h: the Agency in each fiscal year multiplied by the growth rate of the Project and each respccti\ e entity· s share nf the one percent levy. The second component is based on the City· s share of the one percent le\: multiplied by each entity· s share. Estimates of the payments due for the 1999-2000 fiscal year using the Agenc: ·s methodolog) of this calculation are shown on Figure 11-1 A. The agreements contain no prm isions for subordination of the payments to other items of Agency indebtedness. The respecti\e shares for the entities arc as shown belm\.

Coachella Valley Community College Palm Springs Cemetery Desert Water Agency Riverside County Flood Control and Water Conservation District Coachella Valley Mosquito Abatement District

8A3% 0.18% .2. l I%) -t.04% l.53%

Payments per an Agreement \Vith the Riverside Count~ Superintendent of Schools

On July 20, 1995. the Agency, the City and the Superintendent entered into an agreement regarding the payment of certain tax increment revenues generated in Project \lo. l to the County Superintendent of Schools (Superintendent). The Agreement provides for the Superintendent to receive its share ( 1.8 percent) of the Adjusted Gross Eligible Tax Increment. The Adjusted Gross Eligible Tax Increment is calculated based on the one percent levy once the Project has reached an Ending Accrued Operating Deficit ( EAOD) of zero. Pursuant to the Agreement the EAOD at the end of fiscal year 1993-94 is $1. 779J 83. In order to determine the annual offset of the EA.OD. Net Eligible Tax Increment (as defined in the Agreement) is determined by subtracting the sum of a stated annual debt service and operating expenses. The result is then subtracted from the immediately prior year's EA.OD to obtain the current EA.OD. Based on this calculation. the EA.OD is not anticipated to reach zero over the term of Project No. 1. As a result. the estimates shown on Figure 11-1 A show no offset for this agreement. The Agency's obligations under this agreement shall not be _junior and subordinate to any future Agency bonded indebtedness: provided. hm,e\ er. that the obi igations of the Agency under the agreement may. with the consent of the Superintendent. be subordinate to future Agency bonded indebtedness.

Payments per an Agreement \Vith the Palm Springs Uni ficd School District

On June .28. l 995. the Agency. the City and the Palm Srrin_!.!s l :nificd School District entered into an Agreement regarding the payment of certain tax increment revenue-. ~enerated 111 Prn_ject No. I to the Palm

11-9


Redevelopment Projects No. I and 2 Part II - Project Taxable Values and Tax Increment Re,·enue

Springs Unified School District (District). The Agreement prov ides for the Ag.enc: and the City to work cooperatively with the District to: ( 1) facilitate develormcnt by a third party developer ( De, eloper) of up t0 240 market rate and affordable housing units on the District"s existing Cathedral Cit: Flcmcntar: School site ( Project A): and ( 2) fac i I itate development by the District of a ne\\ school and park ( Pro_ject B) ( 011 a site in the area generally bounded by Converse Road. Gerald Ford Drive and Plumley Road m alternatin· site lncated in the City). in connection with a residential housing project to be constructed h: the De,eloper.

In order to assist in these activities. th1.: Agency shall provide certain assistance t() support Projects A and 8. This assistance includes the Agency making available $1 million of its 20 percent ltm and moderate income housing fund to assist in the creation in Project A of 110 less than 60 I('\\ ,md moderate income residential units. Th is assistance sh al I terminate upon the earlier of ( 1) the failure of Project A. to be commenced ( defined as the issuance of the first bui Id ing perm it for Project A) h: .I une 28. 2010: or ( 2) "hen al I Project B capital facilities costs have been repaid. from all available sources. to the part or parties entitled to receive such repayment. The Agency sh al I also pay to the District an amount equal to 1 00 percent of Net Ta:\. Increment ( as defined in the Agreement) from Project A. The Agency and City shal I abo gi, e good faith consideration to any request by the Developer for the potential use of either the City" s t)r Agency· s use t)f em incnt domain for Pro_ject Bland assembly. provided that any such possible exercise shall he.· at no Cl)Sl. expense or liabilit: to the City or Agency.

The Agency is currently in negotiations \\ ith Linc Housing. a non-profit housing developer. for the development of approximately 240 units of mixed income housing in the area immediately to the cast of the clmvntmvn core project. These negotiations are subject to an existing \;le111ora11dum of Understanding between the Agency and Linc. and a Disposition and Development Agreement is e:-..pectecl to be cone luded and entered into in February. 2000.

The site for the proposed development covers the existing Cathedral Cit: Elementary School site. City-owned park land (which wi 11 be replaced at another location) and other land already acquired and to be acquired by the Agency specifically for this project. The Agency 0f the City currently owns or has agreements for the acquisition of approximately seventy- percent ( 70%) of the land necessary for the project to take place.

Cathedral City Elementary School is being locakd to a site on Conv~rse Street. /\ g!·ound breaking for the new school facility took place in the first ,veek cf' November I 999 and the old site should he available for the housing project sometime in the summer of 2000.

Based upon our understanding of the ,igreement and the mo:-;t recent information regarding the elementary school construction. ,ve have made the following determinations:

I.

3.

The reduction in value resulting from the purchase of the site for school purposes has already occurred and is reflected in the taxable values used in this Report. The site of the future housing. is currently O\\ned by the District and does 1rnt contribute to the values presented in this Report. No value or resultant rc,enuc from the eventual de\ elopmcnt nf the lll)Using has hccn included in the estimates of this R1.:pl1rt.

11- lil

Katz Hollis The Redevelopment Agenc:

of the City of Cathedral City. California Redevelopment Projects No. I and 2 Part II - Project Taxable Values and Tax Increment Revenue

Project l'Vo. 2

Payment per an Agreement ,vith the County of Riverside

On November 2.3. 1983. the Agency. the City and the County entered into an agreement regarding the payment of certain tax increment revenues generated in Project No. 2 to the County. The agreement provides that. in each year in ,vhich the tax increment exceeds $1.5 mi Ilion. 20 percent ( conditions that enabled use of lesser percentages have expired) of the total tax increment in excess of S 1.5 million plus SI 05.000 shall be allocated to the County. The agreement provides for the County to recei, e I 00 percent of its share in each year fol lowing the fiscal year in which the A.gency reaches the former Plan I imitation ( $5 l mi II ion) on the total amount of tax increment which may be allocated to the Agenc:. I 11 add it ion. the agreement prov ides that the Agency shall receive no part of the County share after the Agency has retained. as a result of payments per the agreement. $8.5 m ii I ion of the County· s share of tax increment. An estimate of the payment due for the I 999-2000 fiscal year is shown on Figure I 1-1 B. The projection of future re,·enues inc I uded in Part 111 provides estimates of future payments per the agreement including those made at I 00°-10 of the County·s share. The agreement has no provision for subordination of the payments to other obi igations of Project No. 2.

Payment per an Agreement ,vith the Coachella \'alley \\'atcr District

On November 23. 1983. the Agency. the City· and the Coachella Valley \Vater District entered into an agreement regarding the payment of certain tax increment revenues generated in Project No. 2 to the Coachella Valley Water District. The District filed a complaint against the Agency concerning the impact to their share of tax revenues as a result of the elimination of the annual limit on tax revenues in Project :\Jo. 2. Consequently. the District and Agency entered into a Settlement Agreement in July. 1999 which provides that the Agency al locate to the District 40 percent of the District" s share of the first S2 .5 mi 11 ion of the total annual tax increment revenues allocated to the Project. and 100 percent of the District"s share of the total annual tax revenue in excess of $2.5 million. Under the original agreement. this 40 percent levy would be equal to 2.288 percent of the fiscal :year tax increment levies received by the Agency ( regardless of changes. if any. in the actual District share). \Vhen the tax increment revenues in the Project reached the former cap of $51 million. the District ,votild receive I 00 percent of its share. or 5. 72 percent of tax increment revenue in excess of the former cap. An estimate of the payment due for the 1999-2000 fiscal year is shown on F igurc I 1-1 B. The agreement has no provision for subordination of the payments to other obligations of Project No. 2.

Payment per an Agreement ,vith the Coachella Valley \fosquito Abatement District

On November 23. 1983. the Agency. the City. and the Coachella \'alley Mosquito Abatement District entered into an agreement regarding the payment of certain tax increment revenues generated in Project No. 2 to the Coachella Valley Mosquito Abatement District. The agreement provides for the payment. in each year in which the tax increment exceeds S 1.5 mi II ion. 50 percent ( conditions that enabled use of lesser percentages have expired) of the total tax increment in excess of $1 .5 mi 11 ion shall he a !located to the District. An estimate of the payment due for the 1999-2000 fiscal year is shown on figure 11-1 B. The agreement has no provision for subordination of the payments to other obligations of Project J\:t1. 2.

11- I l

KatzHollis The Redevelopment Agenc: of the City of Cathedral City. California

Rede\elopment Projects No. I and 2 Part 11 - Project Taxable Values and Tax Increment Re\ enue

Assembly Bill 1290

Concurrent with the merger of the redevelopment plans for Pro_iect No. 1 and No. :2. the Agency adopted amendments that combined the limit on the receipt of tax increment for the t\\0 Projects and eliminated an annual limit on the receipt of tax increment in Project No. 2.

Pursuant to section 33607.7 of the Health and Safety Code. added hy Assembly Bill ( AB) 1290. any amendment that increases the amount of tax increment to he recei\-ed h: a project tir ntends an: of the measure· s required time limits triggers payments to taxing entities with \\ horn the agency does not have a tax sharing agreement. These payments are to begin once the project" s origina I redevelopment rlan I imitations \vould have taken effect. Project No. 2 had a previous limit of $5 l million on its receipt of tax increment. It is estimated that Project No. 2 will reach this former limit within the time frame shmrn on the tax increment projection in Part I I I.

The AB 1290 payments are computed using the increase in re\enue. if any. o\cr the amount of revenue generated by a Project area in the year that the former I im it \\ cHild have been reached. In effect. the year in ,,-hich the former tax increment limit is met becomes a ne\\ .. base year .. for rurposcs or calculating AB 1290 payments. Revenues resulting from future year grovvth above the ne\\ tax hase year fund the payments. which are distributed to all affected taxing entities participating in the affected constituent rroject and not having preAB 1290 tax sharing agreements.

For further discussion of AB 1290 payments. see "A. VAILABLE TAX INCRE!\-1ENT - AB 1290 Pavments .. in Part IV.


The Agency must set aside 20 percent of its allocated tax increment for 1cm and moderate income housing purposes. except under certain specified conditions. It is our understanding that the Ag.enc: is current!::, depositing its fu 11 housing set-aside ob I igations for each Project Area into its Lo\, and rvtoderate Income Housing Fund. Since the proposed Bonds are not eligible for the expenditure of housing set-aside moneys. such amount is shmvn as an offset to available revenue on Figures 11- I A. and 11- I B.

TAX ALLOCATION PROCEDl,RES OF RIVERSIDE COUNTY

The major component of the allocation procedures that impact the Agenc: · s receipt of tax increment from the Project Areas is the County·s current policy of allocating the full amount of the estimated tax increment with no offset for delinquencies. taxable value adjustments or refunds of taxes as a result of successful assessment appeals. As a result of this policy. no offsets to tax increment revenue. reflective of the offsets mentioned above. are assumed.

11-1:

Katz Hollis City of Cathedral Cit~· RedeYelopment Pro,iect No. 1

Fi~rure 11-lA

ESTIMATE OF AVAILABLE REVENUE FOR FISCAL YEAR 1999-2000

1999-2000 Assessed Value (I)

Secured Land $ 42.716.982 Impro,·cments 64.-+S I A8~ Personal Property 2<>~_:n-i

Gross Secured 107.-U I .8:~(J Less: Exemptions 2.227JQ(J

Total Secured 10s.20..i.orn

Unsecured Land (,7_()8~ lmpro,·ements 10.65(>.-+-+8 Personal Property 7.88:;_8 I<,

Gross Unsecured 18.(,07.947 Less: Exemptions 277.<1 l <,

Total Unsecured 18J:"W_T:;J

Total Value s 123,534,341

Tax Increment Revenue a Revenue from Unitary Property (2)

I _00'%

Total Re,·enue

Less: County Administrative Charge (>)

Total Tax Increment Revenue

Payments From Ta.\ Increments (-+) C. V Community College Palm Springs Cemetery Desert Water Agency C. V i\fosquito Abatement County Superintendent of Schools Palm Springs Unified School District Flood Control & Water Consef\'ation County of RiYerside

Total Tax Sharing Payments

Housing Set-Aside o

Available Tax Increment Revenue

20'%

(I) Amounts shmrn arc as initially reported by RiYcrsidc Count>. ( 2) Amount as reported by Ri,crsidc County for fiscal year 1998-()9

$

s

I (J8~-8-+ Base Value

2~. 7(>7. 7()8 2 L887. Uo

~ I-Ui8(1

-+.'.'. %()_58-+ (1()(1.25~

..is.27:U~I

()

2.-+28.S-+2 2.<i97.7S<i

S. I 2<,.298 ()

S. I 2(i_2()8

50.399,624)

X. 7(i 7 187

2.194 1.591

()

()

-+.202 I 08.-+80

1999-200() Incremental Value

$ 18.9-+9.2I-+ -+2. S<,-+. > S ~

(SUl2)

<i l .-+<l2.2SS i.S>U7<i

(i 7.()8)

X.227. 90() S. I 86J)(i0

I :;_-l8 l.<i49 277.<) I (J

I >.20-l_<n:;

S 73,134,712

$

s

nuH 51.79 I

15.-+0-+

767,734

125.-l22

488,765

(,) County Administration charge is estimated at 1998-99 percentage r;1tc or 1 (J"7° o or Tot,1I Rc\cnuc (-+) Based 011 agreements bet\\ ccn Ri, crsidc Count>. the Rede, clopmcnt ,\_[.'.enc! _ :1 nd t lie t;1\i ng c11t1t ic~

;2111:1

1.1·1111 1" l·,11,:11! 1 1

Katz Hollis City of Cathedral City


Figure 11-18

ESTl\1ATE OF AVAILABLE REVENUE FOR FISCAL YEAR 1999-2000

Secured Land Improvements Personal Propert::,

Gross Secured Less: Exemptions

Total Secured

Unsecured Land Improvements Personal Property

Gross Unsecured Less: Exemptions

Total Unsecured

Total Value

Tax Increment Revenue (i.i Revenue from Unitary Property (2)

l.OOOa

Total Revenue

Less: County Administrative Charge (3)

Total Tax Increment Revenue

Payments From Tax Increments ( 4) County of Riverside Coachella Valley Water District Coachella Valley Mosquito Abatement

Total Tax Sharing Payments

Housing Set-Aside <cj,'

Available Tax Increment Revenue

20%

l 999-2000 Assessed Value

$ 80.383.099 2 18. 145.280

71.984

298.600.363 l.541.016

297 .059,34 7

9.071 878.098

2,225.893

3,113.062 ()

3. l 13.062

s 300,172,409

( l) Amounts shown are as initial I::, reported by Riverside County.

s

s

(2) Unitary revenue as reported by Riverside County for fiscal year 1998-99.

1984-85 Base Value

I 2.657 .229 14.466.664

8.895

27.132.788 230. 786

26.9((:.002

()

214.242 ]05.481

5 I 9.723 0

5 19.723

27.421.725

346.25 l 68.998 17.185

l 999-2000 Incremental Value

$ 67.725.870 203.678.616

63,08()

271.467,575 l .3 l 0.230

270.157.345

9.07 l 663.856

1.920...l 12

2.593 . .339 0

2.593.3.39

$ 272,750,684

$ 2.727.507 3 l.165

2. 758.672

52.415

2,706,257

432.434

541.251

$ 1,732,572

( 3) County Administration charge is estimated at 1998-99 percentage rate of l .9° o of Total Revenue. ( 4) Based on agreements between R iversidc County. the Redevelopment Agency. and the Ltx ing entities.

l(atzllollis City of Cathedral City

Redevelopment Project No. I

Figure ll-2A

Historical Taxable Value (I)

Fiscal Years 1995-96-1999-2000

1995-96 1996-97 1997-98(2) 1998-99 l 999-2000

Local Secured

Land $ 43,002,995 42,367,862 42,622,719 41,717.714 42,716,982

Improvements 66,479,348 66,927.449 66,782,265 60,395,607 64,451.483

Personal Property 295,144 240,652 185,193 217,330 263,374

Gross Total Value I 09, 777,487 I 09,535,963 I 09,590, 177 I 02,350,651 I 07.431,839

Less: Other Exemptions 636,792 1,940,926 2,144,432 2,187,314 2,227,829

\Jet Taxable Value I 09, 140,695 107,595,037 I 07,445. 745 I 00.163,337 I 05.204,0 I 0

t:nsecured

Land 1,831,610 1,906,069 2,252, I I 0 1,746,147 67,683

Improvements l 0,065,0 I 6 9,965,133 11,109,781 I 0.077,488 I 0,656.448

Personal Prope11y ( 2) 8,253,127 8,264,964 8,279,357 8,344,286 7,883,816

Gross Total Value 20,149,753 20.136. 166 21 Ji4 l ,248 20,167.921 18,607.947

Less: Other Exemptions 99,519 213,J 19 203,30 I 200,015 277.() I 6

'.\Jet Taxable \'alue 20.050.234 I 9,()22.847 21.437.c)47 ] l) • C)(1 7. C)(l(J 18.330.331

I otal Pmjl'.ct \'aluc 129,190,929 127,517,884 128,883,692 120, I J 1,243 J 23,534,341

l L'-" llase Year Value 50,39()_629 50.399.629 50.399,(129 50.399.(12() 50.399.629

IIH'l'ClllC!lta] \afuc $ 78,791,300 77,118,255 78,484,063 69,731,614 73,134,712

( I) .\mounts shown are the initial values reported by the County of Riverside.

( 2) Fiscal) car 1997-98 reflects a reduction applied to unsecured personal property of$<>. I million from County's reported value

of $17J 79.,57 due to County input error.

3 21 ()()

( \IHI ff IQ<NRc\lseJCo,ls

l(atzHollis Cit) of Cathedral Cit)

Rcclcnlopmcnt Project No.2

Historical Taxable Value (1)

Fiscal Years 1995-96 - 1999-2000

1995-96 1996-97

l,ocal Secured

Land $ 82,426,805 80,779,658

Improvements 200.486,JJJ 201,496.290

Personal Property 111,285 I 02.177

(iross Total Value 283,024.423 282.378. 125

l,css: Other Fxemptions 1,290.0JC) 1,300.022

:'\iet Taxable Value 28 I. 734.344 281,078,101

l nsecurcd

Land 14.799 7.613

I mpnwements 2,875.84() 809.()20

Personal Propert) 1.9 I 7.J6J 1.449.062

Cross Total Value 4,808.011 2.265.(i()S

Less: Other 1:xemptio11s

~ct Taxable \ alue 4.808.0 I I 2,2(15.695

Iota! Project Value 286.542,355 283,343,798

IL'""· Hase Year Value 27 . .t2 I. 725 27 . .t21.725

I ra-rcmcntal \ alur s 259,120,630 255,922,073

( I l .\mounts slrn,,n are the initial ,:dues reported b) the County of Ri,crsidc.

Figure 11-2B

1997-98 1998-99

81,639,279 81,472.041

202,226.48 I 205.289,552

87.0()7 90,818

283.952.857 286.852.411

1,394,553 1,5 I 8.442

282,558.304 285.JJJ,969

9.332 l).211

712.5.t7 no.J21

1.479.075 1.626.175

2.200.95--l 2.425. 707

2.200.954 2.425. 707

28-t.759,258 287.759,676

27.421.725 27.421.72'1

257.337.533 260,337.95)

1999-2000

80,383,099

218. l4:U80

71_()84

298.600,363

L54L0I6

297,059,347

9,()71

878,098

2.225,893

3.113.0(12

1.1 I 3.0(12

300,172,409

27.421.725

272.750.684

l/:21/0(1

C'Jth.:' tcr tables :-;Is

Katz Hollis City of Cathedral City Redevelopment Project No. I Figure ll-3A

TEN MAJOR ASSSESSEES FOR FISCAL YEAR 1999-2000

Major Rank Assessees Parcels Use

Dayton Hudson Corp Commercial

2 Frink. Doris M. Commercial

3 Viessman. John 11 Retail/Commercial

4 Gemstone Prop 3 Commercial

5 Tramvie\v Land Co. 10 Retail

6 Great \Vest Life & Annuity Inc Co. 7 RestaurantiCommcrc ial

7 Wilson .. David W. Commercial

8 Dicker Warmington Prop. 2 Commercial

9 Calpac Inc. 5 Industrial

IO Spreen Inv Co II Commercial

Total Value Major Assessees

Percentage to Total Value

Percentage to Incremental Value

1999-2000 00

Assessed Value Total

s 8,217.732 6.65°0

s 7,415,797 6.OO%i

s 6 .. 548.269 5.30°0

s ·-l.581.174 3. 71 ° 0

s 3 .. 920.905 3.17°0

s 2.942. 73 7 2 .38°0

s 2 .. 594.375 2.10° 0

$ 2.385 .. 210 1.93°0

s 2 .. 188.311 1.77°0

$ 2 .. 160.075 1. 75~,,o

s 42,954,585

34.77%

58.73 1%

1 \ I 11 ! I I

Katz Hollis City of Cathedral Cit;,

Redevelopment Project No. 2 Figure 11-3B

TEN MAJOR ASSSESSEES FOR FISCAL YEAR 1999-2000

l\fajor

Rank Assessees Parcels t:se

Roman Canyon Assoc. LP ') Commercial -

2 Palm Springs Oil Co Inc. _) Service Station/Commercial

3 Time Warner Entertainment Advance Ne\vhouse 8 Possessory Interest

4 Secretary Housing & Urban Dev. Of \Vash. DC 17 Single Family residence

5 Mobil Oil Corp. Service Station

6 Cathedral Villa 58 Single Family Residence

7 Fillet. David E. 6 Retail

8 Haddad. Jack 16 Commercial

9 Realty Queen Inc. 6 Commercial

10 Rod Andrews Motors Inc. 6 Commercial

Total Value Major Assessees

Percentage to Total Value

Percentage to Incremental Value

1999-2000 0 ,O

Assessed Value Total

s 2.508.957 0.84°0

s 1.901,116 0.63%

s 1.7>2.000 0.58°0

s 1.646.789 0.55°0

$ 1.502.996 0.50°0

s 1.500.000 0.50°0

s 1.497.079 o.so~o

$ 1.468.458 O.49°,o

$ 1.253.734 O.42°-o

$ 1.015.718 0.34°0

S 16,026,847

5.34%

5.88%

Katz Hollis

PARTIII

PROJECTION OFT AX 11\'CREMEI\T REVENUES

INTRODUCTION

The estimates of future taxable \'al ues and revenues for the two Pro_iect /\ reas. presented as Figures II l-1 A and 111-1 B. are provided as an indication of the effect of pending instances of assessment changes and as a model of the future effects of some of the factors discussed in this Report. The estimates of annual value and revenue are constructed through a method that attempts to include only e.\:isting or imminent instances of changes in values or revenues. As such. the projection is an indication of the effects of less than the full universe of clements that can affect the generation of future revenues in the t\\ o Pro_jcct 1\.rcas.

PROJECTION OF TAXABLE VALUES

Real property values included on Figures IIr-1 A and 111-1 B arc cumprised of locally-assessed secured and unsecured land and improvement values. The 1999-:2000 real property values are based on taxable values reported by Riverside County.

The attached projections are based on the assumptions that inflation,, ill remain at a minimum of two percent annually in future years and that the value of real property ,, i 11 increase annual I: at th is rate. Trended taxable rnlue growth which may occur as the resu It of intlationar::, growth of other property (discussed below). changes in mvnersh ip or new construction are not specifically included on Figures 111- l A. and 111- I B and has not been assumed.

Real property values are offset by the estimated impact of resolved and pending assessment appeals for properties in each respective Project Area. The assumptions used in determining the estimated impact are discussed in Part IL Assessment Appeals.

Other property values included on Figures 111-1 A and 111-1 B represent the taxable value of property not subject to the t\\o percent limitation on annual increases mandated by Proposition 13. Types of property comprising the Other Property category include secured and unsecured personal property and fixtures. The value of Other Property has been held constant at its 1999-:2000 value.

Project Tax Revenue

Tax increment revenues shown on Figures 111-1 A and lll-1 B have been calculated by applying a one percent tax rate to the incremental taxable value of each respective Project A.rea. To that amount. we have added each Project Area ·s share of estimated unitary property taxes. Unitary revenue for 1999-2000 is equal to the amount of unitary property taxes determined by Riverside County fnr each of the two Project Areas for the 1998-99 fiscal year. Unitary property taxes in subsequent fiscal \ cars have been held constant at the respective 1998-99 amount.

Total ta\: revenue for each Project Area includes neither supplemental property ta.\:es nor state special supplemental subventions. Total ta\: revenue estimates shcmn are based on the assumption that the Agency ,,ill continue to receive 100 percent of the tax levy per the current pr~1cticcs nf Ri\crsidc County. Therefore.

Katz Hollis The Redevelopment A.gene> of the City of Cathedral City. California

Redevelopment Projects No. I and 2 Part 111 - Projection of Tax Increment Revenues

no offsets to revenue resulting from delinquencies. refunds resulting from assessment appeals. impounds or other factors impacting collections of property tax revenues have not been assumed.

Available Tax Increment

In order to determine the available tax increment revenue. \\ c ha\ e reduced total tax incn..:ment hv the estimated annual amounts of property tax administrative costs and annual amounts due under agreements with affected taxing entities and the Im, and moderate income housing set-aside.

The County·s property tax administrative charges for each Pro_ject Area are assumed to annually equal the same percentage of tax revenues that the charge represented for each Project Area in 1998-99. Please sec ··Available Tax Increment"' in Part IV "'Background Information .. for deta i Is.

Payments from tax increment include those tu be made pursuant tc1 agreements \\ ith the folio\\ ing taxing entities. subdivided by Project Area.

Taxing_ Entitv/Private Entit, County of Riverside Flood Control & \\later Conservation County· Superintendent of Schools Coachella Valley l'v1osquito Abatement Coachella Valley Community College Palm Springs Cemetery Desert Water Agency Coachella Valley \\later District Palm Springs Unified School District

Project No. X X X X X X X

X '

Prnjcct ~o. 2 X

The provisions of the various agreements establishing payments to each of these entities are discussed in Part 11. ··Payments to he made from Tax Increment."

The projections also include the offset represented by the housing set-aside computed as 20 percent of Total Tax Increment. net of the County"s administrative charge. Please see ··Available Ta:\. Increment" in Part IV ··Background Information .. for details on the housing set-aside.

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Katz Hollis

PARTIV

BACKGROUND INFORl\IA TIOJ\

INTRODUCTION

This Part IV contains background information on the topics coven:d in Parts I through 111 of this Report. It has been prepared for those readers of the Report who ma\ ,, ish further information on the analvsis and conclusions presented in prior sections.

TAXABLE VALUE

Pursuant to provisions of the California Constitution and the California Revenue and Taxation Code. county assessors are directed to determine the ful I cash value of locally-assessed real and personal property as of January I of each year. Locally-assessed property is classified as either secured or unsecured. The secured classification includes property on ,vhich the property tax IC\ ied becomes a lien on the property to secure payment of the taxes. Property taxes levied on unsecured prorert) does not become a I ien against the unsecured rroperty. but may become a I ien on other property o,, ned hy the taxpayer. The SBE is charged with assessing the value of state-assessed properties as of Januar) l of each ) ear. ( Al I state-assessed property is classified as secured property.) Taxable property is assessed at l 00 percent of its full cash value as defined hy the California Constitution.

Locally-Assessed Values

Real property is comprised of locally-assessed secured and unsecured land and improvements. Pursuant to Article XIIIA of the California Constitution (effective as of the 1978-79 fiscal year) and Section 51 of the Revenue and Taxation Code. the taxable value of real property is I im ited to the lesser of actual market value or the 1975-76 value (the "base assessment value") compounded by an inflation factor of up to t,vo percent annually. A new base assessment value is determined in instances of ne,, construction or changes of O\vnership, \vhich may result in increased property values above the two percent annual inflation factor.

Other property· values are comprised of locally-assessed secured and unsecured personal property. The taxable value of personal property is based on its full cash value and ma: he re-valued annual I: without regard to the annual two percent inflation I imitation imposed by Artie le XI 11 ;\.

State Board of Equalization ("SBE") Values

The SB E determines the annual taxable value of real and personal property of state-assessed uti I ities. The SBE determines the value of both unitary and non-unitary property of utilities. The taxable value of unitary properties is based on the unit valuation of al I properties uti I ized state-wide in the primary function of a uti I ity. "t\on-un itary properties are assessed by the SBE but arc not part of the primary function of the uti I ity.

FollO\ving the passage of Proposition 13 adding Article XIII:\ to the California Cnnstitution. the SBE determined that the provisions of that Article requiring a ""roll hack .. of real property values to their 1975-76 val ucs and a constraint on in nationary growth of 2 percent per : car did not apply to state-assessed property. This interpretation has been upheld hy the California Supreme Court ( ITT World Communications. Inc. vs.

Katz Hollis The Redevelopment Agenc)

of the City of Cathedral City. California Redevelopment Projects No. 1 and 2 Part IV - Background Information

City and County of San Francisco. ct aL 3 7 Cal. 3d 859 - .January. 1985 ). Clrnscqucntly. state-assessed property may he re-valued annual I). and such assessments are not suh_jcct tu the annual 2 percent inflation limitation of Article XIIIA.

Prior to the 1988-89 fiscal year. the SB E reported the value l)f each uti I it) \\ it hi n each ind i\ id ua I tax rate area to the auditor-controller of each county. /\ssemhly Bill (""AB"') -l5--l (Chapt<:r 921. Statutes of 1987) revised the method of reporting and allocating property taxes generated from state-assessed properties so that only the taxable value of non-unitary properties and unitary railroad properties arc rcprn1ed for each tax rate area. As a result the taxable value of the Project does not include most state-assessed uni tar) property. The Agency docs receive an al location of property taxes generated from state-assessed un itar) property taxes. a description of \Vh ich is included be lmv in the --project Tax Re\ enue .. section l)f th is Part IV.

Assessment Appeals

An asses see of locally-assessed or state-assessed property may contest the taxable \ al uc cnro I led hy the county assessor or by the SBE. respectively. The assessee of state-assessed property ()r local !)-assessed personal property. the valuation of \vhich is subject to annual reappraisal. actually contests the determination of the full cash value of property when filing an assessment appeal. Because of the limitations tt) the determination of the ful I cash value of locally-assessed real property hy Artie le XI 11 A. an asscssce of local I: -assessed real property generally contests the original determination of the .. base assessment \ aluc·· of the parcel ( i.e .. the value assigned after a change of ownership or completion of ne\\ construction). In add it ion. the asscssee of locally-assessed real property may contest the current assessment value ( the base assessment \ al uc p !us the compounded annual inflation factor) \vhen specified conditions have caused the full cash value ( i.e .. market value) to drop below the current assessment value.

At the time of reassessment. after a change of ownership or completion of new construction. the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment \ alue. the assessee appeals the actual underly-ing market value of the sales transaction or the recently completed improvement. A base assessment appeal has significant future revenue impacts because a reduced base year assessment \viii then reduce the compounded value of the property prospective!). E:\cept for the 2 percent inflation factor. the value of the property cannot be increased until a change of ownership occurs or additional improvements are added.

Pursuant to Section 51 ( b) of the Revenue and Taxation Code. the assessor may place a \ alue on the tax roll 10\ver than the compounded base assessment value if the full cash value of real propert) has been reduced by damage. destruction. depreciation. obsolescence. removal of property. or other factors causing a decline in the value. Reductions in value pursuant to Section 5 l(h). commonly referred to as Proposition 8 appeals. can be achieved by a taxpa:y-er either by formal appeal or administratively by assessor staff appraising. the property. A reduced full cash value placed on the tax roll does not change the base assessment\ alue. The future impact of a parcel subject to a Proposition 8 appeal is dependent upon a change in the conditions\\ hich caused the drop in value. In fiscal years subsequent to a successful Proposition 8 appeal. the assessor ma) determine that the value of the property has increased as a result of corrective actions or impro\ ed market conditinns and enroll a value on the tax roll up to the parcel's compounded base assessment\ alue.

IV-:2


of the City of Cathedral City. California Redevelopment Projects No. I and 2 Part IV - Background Information

Appeals of the taxable value for Project Area assessments could potentially km er taxable \ alucs. as currently reported. thereby reducing tax increment revenues. For this reason. currently pending and recently resolved assessment appeals filed by taxpayers in each Project Arca \\CIT r-c, icm.:d. lhc results of this revic,, are discussed in Part II of this Report.

It should also be noted that the potential appeals impact as shtm n in the analyses in Part 11 of this Report. is based on assumed 21 percent valuation reductions for each of the contested parcels in Project No. I and 12 percent for contested parcels in Project No. 2. Actual impacts to tax increment revenues are dependent upon the actual revised value. if any. of assessments resulting from \alucs determined by the Riverside Count: Assessment Appeals Board or through litigation. and upon the timing of successful appeals. The actual valuation impact to each Project Area from a successful assessment appeal tyricall: occurs on the assessment roll next prepared after the actual valuation reduction.

The taxable value of uti I ity property may be contested h: uti I it: companies and rai I roads to the S BE. Typically. the impact of utility appeals is on the state-wide unitary, alue l)r a utilit: as determined by the SBE. As a result. the successful appeal of a utility may not impact the taxable ,,due of a project area but could impact the project area· s al location of unitary property taxes.

TAX REVENUE

Pursuant to Article XVI. Section 16 of the California Constitution and Section 33670 of the California Health and Safety Code. redevelopment agencies are eligible to receive that portion of levied property taxes \Vhich are in excess of levied property taxes generated from the application of tax rates to the base year value of redevelopment project areas. The primary source of the excess property taxes ( the "tax increment"·) is dependent on the total taxable value of a project area. In addition. tax increment may also he generated from property tax sources \Vhich are not included in the current taxable value of the project area. but may be directly or indirectly· related to current or past taxable values. These sources include unitary property taxes. supplemental property taxes and state special supplemental subventions.

Tax Increment and Tax Rates

By subtracting the base year value of a project area from the total taxable value of secured and unsecured real and personal property. the county auditor-controller determines the incremental taxable value of a project area. The resultant tax increment revenue is determined by applying aprlicahle tax rates to the incremental taxable value.

The projected tax increment revenues shmvn on Figures 111-1 A and 111-1 B hm e been computed using tax rates comprised of a "basic'" rate ( $1.00 per $100 of taxable value). Except for recently approved debt service levies. as discussed below. the revenues generated by the application of override rates to incremental assessed value in redevelopment projects accrue to redevelopment agencies instead of the levying entity. Debt service tax rates (rates in excess of $1.00 per $100 of taxable value) typically decline each year. A declining debt service tax rate is the result of several factors: an effective limit frnm Juh I. 1978 until .lune 3. 1986 estahl ished by Article XII I A ( and s incc amended. as discussed be lo\\ ) on the amount of property taxes that can he levied (equal to the annual obligations or indebtedness apprmecl h~ the \0ters): rising_ taxable \alues within

1\/-3


Redevelopment Projects No. 1 and 2 Part IV - Background Information

the jurisdictions of taxing entities levying the approved deht service ta, mte ( \\ hich reduces the tax rate needed to be levied by the taxing entity to meet debt service requirements): and the e\ entual rct irement. over time. of the voter-approved indebtedness.

On June 3. I 986. California voters approved a constitution al amendment tP Artie le X 111 A \\ h ich al lows. h:;. a t\vo-thirds vote. the levy of an ad valorem property tax in excess of 1 percent to pay debt service on indebtedness for the acquisition and improvement ofreal property apprm cd on or after Ju I: 1. 1978. further. a constitutional amendment apprmed by voters on November 8. 1988 and imrlementing legislation. AB 89 ( Chapter 250. Statutes of 1989). added subdivision ( e) to Section 3 3 6 70 which excludes from the calculation of tax increment revenues property taxes generated by any ne,, \ oter-arprm cd bonded i ndchtedness approved on or after January I. 1989. The tax rates used to calculate ta\. increment re\ cnues as sho,, n on r igures 111-1 A and I 11-1 B do not reflect any increases in tax rates.

Unita11• Property Taxes

Prior to 1988-89. the SBE reported the value of each utility within each individual tax rate area tn the auditorcontroller of each county. AB 454 (Chapter 921. Statutes of 1987) rc,ised the method or reporting and allocating property tax revenues generated from most state-assessed unitary properties heginning. with the 1988-89 fiscal year. Lnder AB 454. the state reports to each county auditor-controller only the county-wide unitary taxable value of each uti I ity. \\ ithout an indication of the distribution of the rnlue among tax rate areas. AB 454 provides t\vo formulas for auditor-controllers to uti I ize to determine the al location of u:1 itary property taxes derived from county-\vide unitary value. as described belo,,:

I) For revenue generated from the basic l percent tax rate. each _jurisdiction, including redevelopment project areas. is to receive up to I 02 percent of its prior year unitary property tax revenue. If countywide revenues generated from unitary properties are greater than I 02 percent of rrior :year revenues. each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction· s share of secured property taxes.

2) For revenue generated from the application of the debt service tax rate to county-\, ide unitar) taxable value. each jurisdiction. including redevelopment project areas. is to receive a percentage share of revenue based on the jurisdiction· s annual debt service requirements and the percentage of property taxes received by each jurisdiction from unitary property taxes.

The provisions of AB 454 apply to al I state-assessed property except rai I roads and non-unitary properties. whose valuation continues to be allocated to individual tax rate areas. The provisions of AR 454 do not constitute an e I im ination or a revision of the method of assessing uti I ities by the SB E. Generally. Chapter 921 al lows valuation growth or dee I ine of state-assessed unitary rrorerty to be shared hy a 11 _jurisdictions \\ ithin a county.

I \/-4


Redevelopment Projects No. l and .2 Part IV - Background Information

Supplemental Property Taxes

Senate Bi 11 ("SB'') 813 ( Chapter 498. Statutes of 1983) added sections 7 5 thmugh 75. U to the Revenue and Taxation Code which provide for the supplemental assessment and taxation of proper!: as of the occurrence of a change of mvnership or completion of new construction. Pre\ iousl:. statutes enabled the assessment of such changes only as of the March l property tax lien date ne\.t fol Im, ing the change. and thus delayed the realization of increased property taxes from the new assessment. As enacted. SB 813 prm ided increased revenue generated from the supplemental assessment of property to be allocated e\.clusi,,ely to school districts for the 1983-84 and 1984-85 fiscal years. That provision \\as amended b: SB 794 (Chapter 447. Statutes of 1984) such that only supplemental property tax revenues collected f(X 1983-84 ,, ere to be al located exclusively to school districts. As a result of SB 794. applicable legislation no,, prcH'ides that the supplemental revenues are to be allocated to redevelopment agencies and ta\.ing entities in the same manner as regularly collected property taxes.

State Special Supplemental Subventions/Business Inventor~, Replacement Revenue

Prior to 1980-81. tax revenues generated by the value of business inventories ,, ere based on the actual assessed value of inventories located in a jurisdiction. The revenues generated.,, hich ,,ere pro,,ided through taxpayer payments and state subventions ( 50 percent each). ,, ere d istrihuted to local entities and to redevelopment agenc ics.

In 1979. the Legislature enacted AB 66 (Chapter 1150. Statutes l)f 1979). eliminating the assessment and taxation of business inventory property and providing for replacement re,,enue for local agencies. except redevelopment agencies. In 1980. the Legislature enacted AB 1994 ( Chapter 610. Statutes of 1980 ). providing replacement revenue. in part. for the loss of business inventory revenues by redevelopment agencies.

Chapter 44 7 (SB 794 discussed above) repealed the provision of business inventory replacement revenue provided in both Chapter I 150 and Chapter 610 for local agencies and provided ,,arious other sources of revenue for local jurisdictions. including special state supplemental subventions for redevelopment agencies. The special subventions would be in amounts equal to the difference between the previously received business inventory replacement revenue and revenue derived by virtue of supplemental assessments (discussed above). If in any year, however, the previous year·s revenues from the supplemental tax roll exceed the former amount of business inventory replacement revenue. that prior year· s excess wi 11 be credited against the special state subvention due. The amount of the special state supplemental subventions due for redevelopment projects was initially reported (based upon 1983-84 business inventory replacement revenue) to the State Controller· s office by auditor-controllers of California counties containing redevelopment projects.

In 1990. the Legislature adopted AB 160 (Chapter 449. Statutes of 1990) \\hich precludes redevelopment agencies from pledging special subvention revenues tov-.ard the payment of debt service for bonded indebtedness incurred after July 31. I 990 (the effective date of the legislation). However. as special sub,ention revenues are a legal resource of the agencies. the agencies an: still permitted to use the subvention revenues to assist in the payment of debt sen ice obligations. Chapter --+49 dl)cs lll)t impair an agency·s ability to pledge supplemental property taxes for any bonded indebtedness.

IV-5



The 1992-93 state budget reduced the state· s funding for the special subvention. As enacted under AB 979 ( Chapter 5 8 7, Statutes of 1992 ), the Budget Act e I im inated 1992-93 subvention payments for most redevelopment projects. including the Project. Accordingly, no special suh\ention revenues have been received in 1992-93. 1993-94 and 1994-95. As the Legislature has significant!~ reduced special subvention payments in 1992-93 as \veil as in prior years. we have not projected special suhvention revenues to he received in 1995-96 nor other future fiscal years.

AVAILABLE TAX INCREMENT

The follO\ving is a discussion of offsets to tax increment revenue.

Propert)· Tax Administrative Charges

In 1990. the Legislature enacted SB 25 5 7 ( Chapter 466. Statutes of I 990) \\ h ich al lows counties to charge for the cost of assessing, collecting and allocating property· tax revenues to local government jurisdictions on a prorated basis. As enacted. SB 25 5 7 appeared to exclude redevelopment agcnc ics from either a reduction in tax increment revenues or a charge for a county·s property tax administration costs. SB 1559 (Chapter 697, Statutes of 1992), was enacted in 1992 and clarified the provisions of SB 2557 as they relate to redevelopment agencies. In addition to including redevelopment agencies among entities subject to the property tax administration charge, SB 1559 also provides that amounts due as local agencies· contribution for such charge are to be allocated to the county as part of the overall system for the redistribution of property taxes (as opposed to being paid pursuant to invoices). The property tax administrative charges are included as a deduction to tax increment revenues, on Figures I 1-1 A. I 1-1 B. I I I- 1 A, and 111-1 B in Parts 11 and Part I II of this Report.

AB 1290 Payments

Pursuant to Section 33607.7 of the Health and Safety· Code. a redevelopment plan amendment for any redevelopment plan adopted prior to January I, 1994 that increases the I imitation on the number of dollars to be allocated to the redevelopment agency or the time limit on the establishing of loans. advances and indebtedness must begin making statutory· payments to affected taxing entities that do not have existing tax sharing agreements. These payments are to begin once any of the original plan I im its is reached. For purposes of calculating AB 1290 payments, the year in which a project's first limit is met becomes the new· tax base year. AB 1290 payments are paid from revenues resulting from the growth in the new tax base :year, and are made per the follow·ing formulas:

(I) Commencing ,vith the first fiscal _year follmving the year in \vhich the Agency would have reached the applicable financial limit and continuing through the last fiscal year in which the Agency receives tax increments, the Agency shall pay to the affected taxing entities an amount equal to 25 percent of the tax increments received h:' the Agency after the amount required to be deposited in the Low and Moderate Income Housing Fund has been deducted.

IV-6


of the City of Cathedral City. California Redevelopment Projects No. I and 2 Part IV - Background Information

( 2) Commencing with the l l th fiscal year fol lov,·ing the year in \\ h ich the i\t!enc~ \\ ou Id hm c reached the applicable financial limit and continuing through the last fiscal ~ car in \\ hich the Agency receives tax increments. the Agency shall pay to the affected taxing entities. in addition to the amounts paid rursuant to item ( l) above and after deducting the amount allocated to the LO\\ and ivfoderate I ncomc Housing Fund. an amount equal to 21 percent of the portion of tax increments recci\ cd hy the Agency. which shall he calculated hy appl:ying the tax rate against the amount of assessed value hy \\hich the current year assessed, alue exceeds the first adjusted base year assessed value. The first adjusted base year assessed, alue is the assessed rnlue of the project in the I 0th fiscal year in which the Agency receives ta\. increment.

( 3) Commencing with the 3 I st fiscal year fol lmving the year i 11 \\ h ich the /\gene~ wou Id have reached the applicable financial limit and continuing through the last fiscal ~ car· in ,,hich the Agency receives tax increments. the Agency shall pay to the affected taxing entities. in addition to the amounts paid pursuant to items ( l) and (2) above and after deducting the amount allocated to the Luw and tvtoderate Income Housing Fund. an amount equal to 14 percent of the portion of tax increments received hy the Agency. which sh al I be calculated by applying the tax rate against the amount of assessed , alue h~ ,, hich the current year assessed value exceeds the second adjusted base year assessed value. The second adjusted hase year assessed value is the assessed value of the project in the 30th fiscal year in \\hich the Agency recei\ cs ta:\ increments.


Chapter 133 7. Statutes of 1976. added Sections 33334.2 and 3333--U to the Health and Safety Code. requiring redevelopment agencies to set-aside 20 percent of al I tax increment al located to redevelopment project areas adopted after December 31. 1976. into a lmv and moderate income housing fund. ,.\s pro,·ided hy Section 33334.2. the lmv and moderate income housing requirement can he reduced or eliminated if a redevelopment agency finds that: l) no need exists in the community to impro,·e or increase the supply of lo,, and moderate income housing: 2) that some stated percentage less than 20 percent of the tax increment revenues is sufficient to meet the housing need: or 3) that other substantial or equivalent efforts. including the obligation of funds of equivalent impact from state. local and federal sources for Im\ and moderate income housing arc being provided for in the community.

As amended by AB 3 15 (Chapter 872. Statutes of 1991 ). Section 33 334 .2 restricts the abi I it, to reduce or eliminate the low and moderate income housing requirement. ;\ community can claim that no need exists. or can claim that less than 20 percent of tax increment revenue is sufficient. only if that claim is consistent with the housing element of the community's general plan. Communities which have claimed an '"equivalent effort" exemption face a June 30. 1993. repeal date for that authority e\.cept for obligations incurred prior to f\1ay L 1991, which \Vere entered into with the understanding that the ··equiv a lent effort" exemption wou Id remain intact.

AB 265 (Chapter 1135. Statutes of 1985) amended Section 33334.3 and added Sections 33334.6 and 33334.7 to extend the requirement for redevelopment agencies to set aside 20 percent of allocated ta:-..: increment revenue into a lmv and moderate income housing fund to redevelopment project areas adopted prior to January I. 1977. heginning with fiscal year 1985-86 revenues. An agenc: ma~ make the same findings described ah()\ e to reduce or cl im inate the Im, and moderate income hous in~ req u irc111ent for a ··pre- 197T pro_ject area.

IV- 7


of the City of Cathedral City. California Redevelopment Projects No. 1 and 2 Part IV - Background Information

For pre-1977 project areas. an agency may reduce its low and moderate income housing deposit requirement in any fiscal year that an agency finds that the reduction is necessar: to make payments on "existing obligations:· i.e. indebtedness incurred prior to January I. 1986. and. for fiscal years through 1995-96 only. to fund the orderly and timely completion of ··public and private project. programs or activities·· approved by the Agency prior to January 1. 1985. Eligible obligations and programs under AB 265 must be included on a statement of existing obligations and/or a statement of existing programs describing each such obligation. project. program and activity adopted by September I. 1986.

Should an eligible agency defer the lmv and moderate income housing requirement. the amount equal to the difference between the 20 percent requirement for a given year and the amount deposited that year shall constitute a deficit in the housing fund and an indebtedness of the project area. An agency. per the legislation. is required to adopt a plan to eliminate the cumulative deficit created b: such shortfalls in subsequent years.

TAX ALLOCATION PROCEDURES OF RIVERSIDE COCI\TY

Tax Increment Revenue

Riverside County reports preliminary taxable values for redevelopment project areas by property category in July of each fiscal year. The report is generated a second time in late August after equalized taxable values are available.

When computing tax increment revenues. the County subtracts the base year taxable value from the current year taxable value for each tax rate area comprising a redevelopment project to arrive at incremental taxable value by tax rate area. Secured and unsecured tax rates are applied to incremental taxable values by tax rate area. and the resulting revenues are then aggregated to arrive at the total tax increment revenues due a given redevelopment project area and annexed area( s ). if applicable. of a redevelopment project.

Tax Receipts

Tax increment revenues are scheduled for disbursement twice per year. 50~/o in January and 50% in May. Since 1988-89. unitary revenues have been disbursed separately. lagging behind the tax increment disbursements by fifteen to sixteen days. In addition. supplemental revenues are disbursed as collected. on a monthly basis.

According to Auditor-Controller staff. the Count) accounts for delinquencies and taxable\ alue changes only on a County wide basis. Taxing entities are impacted by delinquencies and \ alue clrnnges that occur throughout the County. Hmvev~r. it is the County"s current policy to allocate redevelopment agencies I 00 percent of the calculated tax increment due a project area. based on the original computation of tax increment using the equalized roll. Redevelopment agency allocations are not currently affected by either roll adjustments or delinquencies. A review of Agency receipts for the t\\o Project Areas confirms that the County is. in fact. providing revenues on the basis of computed levy. less property tax administrative charges.

I \•-8



LEGISLATI01"

Educational Revenue Augmentation Fund

Since 1993-94 the State Budget has not contained an extension or the requirement for redevelopment agency payments to the Educational Revenue Augmentation Fund. As a result there arc no requirements for payments to be made by the Agency for the current or future fiscal years.

Proper{)' Tax Lien Date

S8327 (Chapter 499. Statutes of 1995) changed the definition l)f the rropert: tax lien date in Section 2192 of the Revenue and Taxation Code from March I to January l. The impact of such a change is largely related to timing issues and is reflected in several sections of the Code. For example. the ne,, definition of lien date in several sections of the law changes the timing and number of tax hills. penalty and exemption calculations. and the establishment of a property base :year value. All of these sections remain the same in substance. but change in their relationship to the timing of the earlier lien date. The change in lien date could potentially affect the amounts of supplemental revenues (resulting from assessment changes 011 other that the I ien date) that accrue to the Agency. Future supplemental assessments related to new development have not been included in the estimates of revenue included in this report and therefore the change in lien date does not impact the revenue estimates of th is report.

IV-9

APPENDIX B THE CITY OF CATHEDRAL CITY

The following demographic information is supplied as background information only. The Senior Loan securing the Senior Bonds and the Subordinate Loan securing the Subordinate Bonds arc payable only from Tax Revenues from the Merged Project Area.

Population and Households

The City's population at January 1, 1999 was estimated at 36,750. Between 1991 and 1999 the population grew from 32,200 to 36,750 which represents an average annual growth rate of 1.9%. This compares to the average annual increase for the State as a \\·hole during the same time period of 2.5%. The median age of the City's population is 31.3 years, which is below· the median age of 35.2 years for the Coachella Valley as a whole.

The following table shows the population for the City and the County from 1991 to 1999.

CITY OF CATHEDRAL CITY AND COUNTY OF RIVERSIDE Population Figures

1991-1999 as of January 1

City of Cathedral City County of Riverside

Number Percent Change Number Percent Change

Over Interval Over Interval 1991 32,000 1,223,200 1992 33,500 4.7% 1,268,735 3.7% 1993 33,850 1.1% 1,304,500 2.8%1 1994 34,250 1.2% 1,331,890 2.1% 1995 34,900 1.9% 1,355,655 1.8% 1996 35,450 1.6% 1,381,830 1.9% 1997 35,450 0% 1,400,390 1.3% 1998 39,000 1.6% 1,440,970 2.9% 1999 36,740 2.1% 1,473,410 2.3%

Source: California Department of Finance.

Total households in the City numbered 12,154 as of January 1, 2000. Of these, 7,955 \Vere family and 4,199 \Vere nonfamily households, with an average of 2. 96 persons per household.

Income

The follmving table summarizes the total effective buying income and the median household effective buying income for the County, the State and the United States for the years 1994 through 1998. This table is based on effective buying income as reported in the annual publication "Survey of Buying Pmver" published by Sales and Marketing !'vtanagement ivtagazine. Effective buying income is defined as personal income less personal taxes and non-tax payments. Personal income

8-1

includes wages and salaries, other labor-related income, proprietor's income, rental mcome, dividends, personal interest income and transfer payments ( such as fines and penalties) and personal contributions for social insurance.

Year/Area 1994

County of Riverside California United States

1995 County of Riverside California United States




COL:\TTY OF RIVERSIDE Effective Buying Income

For the Years 1994 through 1998 as of December 31

Total Effective Buying Income (OOO's omitted)

S2 l, 105,536 552,074,838

4,436,178,724

$17,823,798 477,640,503

3,964,285,118

S 18,120,962 492,516,991

4,161,512,384

$19,477,361 524,439,600

4,399,998,035

$20,543,675 551,999,317

4,621,491,730

Median Household Effective

Buying Income

$37,777 40,969 37.070

S30,951 34,533 32,238

$31,337 35,216 33,482

$32,690 36,483 34,618

$33,089 37,091 35,377

Source: Sales & Marketing Management Magazine "Survey of Buying PO\ver."

\Vhile comparable effective buying income statistics are not available for the City, as of January L 2000, per capita income in the City was estimated to be S 16,725 per year, while household income totaled S38,545 and family income totaled S43, 123.

Housing

The City offers an abundance of available property for residential development. The current estimated sales price for existing single-family detached housing ranges from $50,000 to S299.000. In 1999 the California Department of Finance reported a total of 17,237 residential units in City, of which 12,357 (77.7~/o) were occupied. It is estimated that 2,539 of total housing units in the City are for seasonal use.

The following table presents a breakdown of housing units by type \vi thin the City.

Type of Unit

Single Family Detached Attached

Multiple Family 2-4 Units 5 or more Units

Mobile Homes

Total Units

CITY OF CATHEDRAL CITY Housing Units

1999

Number

8,366 2,034

2,294 1,701 2,842

17,237

Source: California State Department of Finance.

l\fajor Employers

Percent of Total Units

48.5% 11.8%

13.3% 9.8% 16.4%

100%

There are six manufacturing plants located in the City producing, among other items, sports equipment, housing and construction supplies. Industrial facilities include six machine shops and four public \varehouses. However, as shown in the follmving table, the top employers are in the nonmanufacturing industries.

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Company

Palm Springs School District Double Tree Resort Hotel Wal-Mart Desert Auto Park Cathedral City Lucky's La\vrence \Velk's Desert Oasis Southern California Edison Sam's Club Canyon Springs Hospital Target Albertson's Food 4 Less Coca Cola Bottling Company

CITY OF CATHEDRAL CITY i\fajor Employers

Private Sector

Product/Service

Public schools Resort Hotel Retail sales Automotive Sales Local government Retail Sales Destination resort Utilities Retail Sales Hospital services Retail Sales Retail Sales Retail Sales Beverage distribution

Source: Cathedral City Chamber of Commerce.

Number of Employees

1,325 355 280 195 170 150 140 140 126 125 125 92 75 75

In Riverside County there are more than 600 manufacturing firms involved in the manufacture of such products as aerospace and aircraft parts, electronic components and systems, mobile homes and recreational vehicles, irrigation equipment, and frozen food products. There are numerous industrial parks at various locations within the County of Riverside. Most of the industry lies in the western portion of the County, from Coachella Valley to the west.

B--+

The following table lists the largest employers in the County.

Company Name

County of Riverside University of California, Riverside Stater Bros. Markets Riverside Unified School District Corona-Norco Unified School District Moreno Valley Unified School District Ralphs Grocery Co. Wal-Mart Stores Inc.

COUNTY OF RIVERSIDE Largest Employers

Private Sector

Product/Service

Local government Higher education Grocery retailer Public education Public education

Public education

Grocery retailer Retail department store chain

Riverside County Regional Medical Healthcare Center Kaiser Permanente Riverside Healthcare Medical City of Riverside Municipal government Palm Springs Unified School District Public Education Fleetwood Enterprises Inc. Manufactured housing and

recreational vehicles Valley Health System Healthcare Hemet Unified School District Public education Eisenhower Medical Center Healthcare Jurupa Unified School District Public education Lake Elsinore Unified School Public education District Marriott's Desert Springs Resort & Hotel Spa Riverside County Office of Public education Education Guidant Corp. Medical devices

Number of Employees

13,340 5,336 4,600 3,553 3,059

3,000

2,720 2,650 2,400

2,300

2,261 2,249 2,200

2,200 2,000 1,990 1,750 1,700

1,700

1,521

1,500

Source: Riverside Chamber of Commerce, The Business Press, "The Book of Lists 2000", compiled as of January I, 1999. (I) Employers are ranked by number of county-based employees.

13-5

Employment

Labor force employment and unemployment for the City and County as compared to the same figures on a state and national level are set forth in the following table for the period 1996 through 1999:

CITY OF CATHEDRAL CITY AND COUNTY OF RIVERSIDE

Labor Force Employment and Unemployment(]> Annual Averages for Years 1996 through 2000

Civilian Unemployment Year/Area Labor Force Employment Unemployment

1996 Cathedral City 17,410 16,140 1,270 County of Riverside 615,600 565,200 50,400 California 15,511,600 14,391,500 I, 120,100 United States 135,071,000 127,831,000 7,240,000

1997 Cathedral City 18,220 17,000 1,040 County of Riverside 643,300 595,200 48,100 California 15,941,200 14,936,900 1,004,300 United States 137,097,000 130,646,000 6,451,000

1998 Cathedral City 18,620 17,510 1,110 County of Riverside 657,400 613,300 44,100 California 16,329,100 15,360,000 968,500 United States 138,545,000 132,517,000 6,028,000

1999 Cathedral City 19,570 18,780 790 County of Riverside 689,000 657,700 31,300 California 16,583,100 15,703,800 879,300 United States 140,108,000 134,420,000 5,688,000

2000(2)

Cathedral City 20,020 19,170 850 County of Riverside 704,700 671,200 33,500 California 16,719,800 15,875,800 843,900 United States 141,165,000 135,362,000 5,804,000

Source: California Employment Development Department and U.S. Department of Labor Statistics. 11

l 1999 Benchmark, data not seasonally adjusted. 1~) Preliminary, data through February. 2000.

B-6

Rate

7.3% 8.2 7.2 5.4

6.7% 7.5 6.3 4.7

6.0% 6.7 5.9 4.4

4.0% 4.5 5.3 4.1

4.2% 4.8 5.0 4.1

The following table shows the labor force employment in the County by employment sector for the period 1994 through 1998.

RIVERSIDE COUNTY Labor Force and Industry Employment0

>

1994-1998

Industry 1994 1995 1996 1997 1998 Agriculture 16,500 17,300 16,900 17,400 17,500 Manufacturing Nondurable 13,300 14,200 15, I 00 15,300 15,600 Durable 24,800 25,700 27,000 29,400 31,800 SubTotal 38,100 39,900 42,100 44,700 47,400 Mining 500 300 400 400 300 Construction 21,100 22,600 24,300 29,000 33,600 Transportation and Public 11,200 11,500 10,900 11,600 12,400 Utilities Wholesale Trade 11,700 12,800 13,500 14,200 15,100 Retail Trade 73,000 75,600 76,700 80,100 83,200 Finance, Insurance and 14,800 13,800 13,900 13,500 14,400 Real Estate Services 89,100 93,800 98,000 105,300 112,900 Government 65,500 67,000 69,100 72,200 73,600

Source: California Employment Development Department

(I) Data not seasonally adjusted. Industry employment is based on location of workplace~ parts may not add due to independent rounding.

B-7

Construction Activity

The value of all building permits issued in the City totaled $173,861,000 during 1999, a 55. 7% increase from activity in 1998. A summary of building permit activity over the five-year period is presented in the following table.

Valuations

Residential Non-Residential Total Building Valuations

Residential Units Single Units Multiple Dwelling Units Total Residential Units

CITY OF CATHEDRAL CITY Building Permit Activity and Valuations

(OOO's) 1995-1999

1995 1996 1997

$23,355 27,149 50,504

177 4

181

$17,802 20,618 38,420

126 0

126

$17,128 22,707 39,835

106 2

108

Source: Construction Industry Research Board.

$53,112 58,504

111,616

325 84

409

$78,263 95,598

173,861

392 294 686

There are 2,230 acres in the City limits zoned for commercial and industrial use, including five industrial parks or districts. About 50% of this acreage is vacant in parcels ranging from onehalf to 160 acres.

Commerce

In addition to six manufacturing plants (see "Major Employers" above), the City also has several retail centers, including the Golden Mile Development which houses Wal-Mart, Sav-On, Lucky's and Pep Boys Automotive as well as a number of small stores and fast food restaurant. Other retail centers house Sam's Club, K-Mart, Albertson's, Payless Drugs, Food 4 Less and Target. The Cathedral City Market Place also houses a large movie theatre. The City has approximately nineteen automobile franchises and is home to the 26-acre Cathedral City Auto Center, the largest auto center in the Coachella Valley.

Through the fourth quarter 1998, total taxable transactions for retail stores increased 13.25% from the prior year while total taxable transactions from all sources increased 15.68%. The following table presents taxable sales transactions for 1994 through 1998.

8-8

CITY OF CATHEDRAL CITY Number of Permits and Taxable Transactions

1994-1998

Retail Stores Total All Outlets

Year 1994 1995 1996 1997 1998

Number of Permits

518 494 460 454 480(I)

Taxable Transactions $343,168

349,351 349,691 364,362 412,623

Source: California State Board of Equalization 0 ) Number of permits tabulated only through third quarter.

Transportation

Number of Taxable Permits Transactions

1,138 $393,850 1,070 398,978

991 407,849 953 438,416 962(I) 507,167

The City is located along Interstate 10 and parallels State Route 111. Interstate 10 is the principal transportation artery for the County.

Regularly scheduled local public transit within the City and the County of Riverside is provided by the Sunline Transit. Greyhound service is available from Palm Springs. Air passenger and cargo service is available at Palm Springs Regional Airport which is two miles west of the City This airport affords travelers the services of all major airlines. Bermuda Dunes, a private airport, is located eight miles northeast of the City.

Other transportation services include rail and truck shipping services and passenger rail service to Indio and Palm Springs.

Utilities

Natural gas, electricity and telephone service in the City are provided by Southern California Gas Company and Southern California Edison and GTE Incorporated. Coachella Valley Water District and Desert Water Agency provide water and sewer service to the City.

Community Services

The City provides police services to its residents through its Police Department which is staffed by 4 7 full-time officers headed by the Chief of Police. The Department has 12 patrol cars, 10 detective units, one D.A.R.E.- unit and two canine units. Fire and emergency protection is provided by the Fire Chief and 33 full-time firefighters, three fire stations, one ladder truck, two fire engines, one squad truck, one water tender truck, two medical ambulances and one reserve medic unit.

The City has four elementary schools and one middle school totaling 4,364 students. Cathedral City High School has an enrollment of 2,019 students. College of the Desert is a fully accredited community college bestowing various associate art degrees. The college works with local business providing contract education and a comprehensive array of training and management

8-9

programs. Satellite campuses of California State University, San Bernardino and Chapman University offer bachelor, master and doctoral programs. University of California at Riverside, University of Redlands and the Claremont Colleges are 60 minutes away. Soon to arrive is the University of California - Riverside, A. Gary Anderson School of Management.

Health care is available through the Eisenhower Medical Center and Desert Hospital, who provide a total of 600 beds. The Eisenhower Immediate Care Center and Express Heath Care provide emergency outpatient and clinical services. Charter Behavioral Health System of Southern California, a leader in the mental health care industry, is located in the City.

The City opened a new 20,000 square foot library on January 13, 1996. The Cathedral City Library is administered by the Riverside City/County Library. The library provides a host of exhibits, historical collections, art, computer services and books from around the world.

Local and regional news coverage is provided by The Desert Sun and Desert Post newspapers. The City has one AM and one FM radio station. Two local television stations (stations 3 and 6) and Continental Cablevision, Time Warner Cable and Total T.V. provide cable service to the local area. To keep residents informed of community services and events, the City publishes Cathedral City Newsletter, a special newsletter and issues press releases to the local media.

Statewide banking systems maintaining branches in the Coachella valley include Bank of America and Wells Fargo. In addition, several local or regional banks operate branch offices in the City and most of the State's major savings and loan associations have local offices in the City.

The City's public recreation facilities include four parks, three playgrounds, a senior citizens center and a swim club. There are 24 acres of park and 120 acres of open space in the City limits and surrounding areas. Panorama Park, Century Park and Acqua-Caliente Park provide residents with a variety of community and recreational services geared to all age groups. Examples of programs incude day camps and after school camps for school age children, nutrition programs for elder citizens, an immunization program, and a host of activity programs geared toward hobbies and fitness.

The Desert Princess Country Club and Resort, a 27-hole, par 72 championship course, and Lawrence Welk's Desert Oasis Gold Course, a 27-hole course are located in the City. Both are open to the public. Many other public and private golf courses are found in surrounding community.

B-10

APPENDIX C AGENCY AUDITED FINANCIAL STATEMENTS FOR FISCAL YEAR

ENDED JUNE 30, 1999

CITY OF CATHEDRAL CITY REDEVELOPMENT AGENCY

COMPONENT UNIT FINANCIAL STATEMENTS

WITH REPORT ON AUDIT BY INDEPENDENT

CERTIFIED PUBLIC ACCOUNT ANTS

JUNE 30, 1999


TABLE OF CONTENTS

June 30, 1999

Independent Auditors' Report

General Purpose Financial Statements:

Combined Balance Sheet - All Governmental Fund Types and Account Groups

Combined Statement of Revenues, Expenditures and Changes in Fund Balances - All Governmental Fund Types

Combined Statement of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual - All Governmental Fund Types

Notes to Financial Statements

Supplemental Information:

Evaluation of Year 2000 Issue

Comparative Balance Sheet - Special Revenue Fund

Comparative Statement of Revenues, Expenditures and Changes in Fund Balance - Special Revenue Fund

Combining Balance Sheet - All Debt Service Funds

Combining Statement of Revenues, Expenditures and Changes in Fund Balances - All Debt Service Funds

Combining Schedule - Balance Sheet - Debt Service Project Areas I and 2

Combining Schedule of Revenues, Expenditures and Changes in Fund Balances - Debt Service Project Areas 1 and 2

Page Number

1 - 2

3-4

5-6

7-9

10 - 22

24

25

26

27

28

29


TABLE OF CONTENTS (CONTINUED)

June 30. 1999

Supplemental Information (Continued):

Combining Balance Sheet - All Capital Projects Funds

Combining Statement of Revenues. Expenditures and Changes in Fund B~lances - All Capital Projects Funds

Combining Schedule - Balance Sheet - Capital Project Areas I and 2

Combining Schedule of Revenues. Expenditures and Changes in Fund Balances - Capital Project Areas 1 and 2

Schedule of Long-Term Debt by Project Area -General Long-Term Debt Account Group

Independent Auditors' Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards

Page Number

30

31

,.., _,_

"" _,.)

34

35 - 36

7:)iE_fil, Eu-an1- & Company, _J}_f!SJJ

2121 ALTON PARKWAY, SUITE 100 IRVINE, CALIFORNIA 92606-4906 (949) 757-TTOO

Agency Members City of Cathedral City

Redevelopment Agency Cathedral City, California

CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS

D1-ca't §. clf'tmijo CERTIFIED PUBLIC ACCOUNTANT

a Joint venture

October 28, l 999

INDEPENDENT AUDITORS' REPORT

74-133 El PASEO, SUITE 8 PALM DESERT, CALIFORNIA 92260

(760) TT3-4078

We have audited the general purpose financial statements of the City of Cathedral City Redevelopment Agency (a component unit of the City of Cathedral City), as of and for the year ended June 30, 1999 as listed in the table of contents. These financial statements are the responsibility of the Agency· s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards issued by the Controller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the general purpose financial statements referred to above present fairly, in all material respects, the financial position of the City of Cathedral City Redevelopment Agency as of June 30, 1999, and the results of its operations for the year then ended in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued our report dated October 28, 1999 on our consideration of the City of Cathedral City Redevelopment Agency's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants.

- 1 -

The Year 2000 supplementary infonnation on page 23 is not a required part of the general purpose financial statements but is supplementary information re0uired by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the supplementary information. However. we did not audit the information and do not express an opinion on it. In addition. we do not provide assurance that the City of Cathedral City Redevelopment Agency is or will become year 2000 compliant, that the City of Cathedral City Redevelopment Agency's year 2000 remediation efforts 'Aiill be successful in whole or in part, or that parties with which the Agency does business are or will become year :woo compliant.

Our audit was made for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The financial statements listed in the table of contents as supplementary information on pages 24 to 34 are presented for purposes of additional analysis and are not a required part of the general purpose financial statements of the City of Cathedral City Redevelopment Agency. The information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and. in our opinion, is fairly stated in all material respects in relation to the general purpose financial statements taken as a whole.

- 2 -

GENERAL PURPOSE FINANCIAL STATEMENTS

CITY OF CATHEDRAL CITY REDEVELOP!\1E;\T AGENCY

C0\1Bl~ED BALANCE SHEET

ALL GOVER~\1ENTAL FLND TYPES A:\iD ACCOLT;\lT GROUPS

June 30, 1999

\Vith comparative totals for June 30, 1998

Governmental Fund Types

Special Debt Capital

ASSETS AND OTHER DEBITS Revenue Service Projects Cash and investments (Note 3) $ 2,631,219 $ 1,822,867 s 3.547,304 Cash with fiscal agent ( Note 3) 380.559 Receivables:

Accounts 174,824 23 7,183 Interest 27,967 40,268 38,277 Loan 11,264

Advances to other funds 2,572,867 Deposit with County Clerk 244.415 411,298 Land held for resale 2,560,622 6,904,459 Property, plant and equipment ( Note 4) Amount available ( deficit) for repayment of long - tenn debt Amount to be provided for repayment of long - tenn debt

TOTAL ASSETS AND OTHER DEBITS $ 5,650.311 ~ 4,8 I 6.584 ~ I 0,908,521

LIABILITIES. EQUITY AND OTHER CREDITS

LIABILITIES:

Accounts payable $ 37,854 $ 667,283 s 299,749 Accrued liabilities 12,087 72,251 Advances from other funds 2,572,867 Deposits payable 29,788 Deferred revenue 56,220 Advances from City of Cathedral City (Note 5) Notes payable (Note 5) Loans payable (Note 5)

TOTAL LIABILITIES 49.941 3,240,150 458,008

EQCITY AND OTHER CREDITS: Investment in general fixed assets (Note 4) Fund balances (Note 6):

Reserved for: Restricted assets 11,264 Long - tenn receivables and advances 2,572,867 Debt service 1,543,574 Deposits 244,415 411,298 Land held for resale 2,560,622 6,904,459 Loan guaranty 250,000

Unreserved:

Designated for low and moderate income housing 2,784,069 Designated for capital projects 2,880,017 Undesignated (2,540,007) 4,739

TOT AL EQUITY AND OTHER CREDITS 5,600,370 1,576.434 I 0,450.513

TOTAL LIABILITIES, EQUITY AND OTHER CREDITS $ 5,650.311 $ 4,816.584 s 10,908.521

See independent auditors' report and notes to financial statements.

- 3 -

Account Groups Totals (Memorandum Only)

General General

Fixed Long - Term Assets Debt 1999 1998

s s $ 8,001,390 $ 13.480. I 08 380,559 381,093

182.030 925,368 106,512 13 7.499

11.264 13.075 2,572,867 2.312.867

655,713 1,527,645 9,465,081 7.161,366

10,777.802 10,777,802 22,594,969 (996,433) (996,433) 2,002.085

46,105,143 46,105,143 43,832.752 s I 0,777.802 $ 45,108,710 $ 77.26 I ,928 $ 94,368,827

s $ $ 1,004,886 $ 815,701 84,338 81,843

2,572,867 2,312,867 29,788 56,220 36.220

3,700,847 3,700,847 3,700,847 8,212,508 8,212,508 8,170,307

33,195,355 33,195,355 33,963,683 45,108,710 48,856,809 49,081.468

10,777,802 10,777,802 22,594,969

11,264 13,075 2,572,867 2,312,867 1,543,574 2,002,085

655,713 1,527,645 9,465,081 7,161,366

250,000 250,000

2,784,069 3,990,654 2,880,017 5,763,558

(2,535,268) (328,860) 10,777.802 28,405,119 45,287,359

$ 10,777,802 $ 45,108,710 $ 77.261,928 $ 94,368.827

- 4 -

CITY OF C.-\ THEDR..\L CITY REDEVELOP\lENT AGENCY

CO\!Bl:\ED STA TE\tE:\T OF REVENLES. EWENDITL:RES .-\ND

CH..\\/GES 11\ FL\:D 8.-\L.-\\/CES - :-\LL GOVERN\tENT:-\L Fl;No TYPES

For the year ended June 30, 1999

With comparative totals for the year ended June 30. 1998

Governmental Fund Types

REVENL'ES:

Tax increment

Interest

Reimbursement from outside agencies

1'v11scellaneous

TOTAL REVENUES

EXPENDITURES: Current:

General government

Pass - through to other agencies Capital outlay

Debt service:

Interest Principal

TOTAL EXPENDITURES

EXCESS OF REVENUES OVER ( L~DER) EXPENDITURES

OTHER FINANCING SOURCES (USES): Operating transfers in Operating transfers out

Transfers from the City of Cathedral City

Transfers to the City of Cathedral City

TOTAL OTHER FINANCING SOLRCES (USES)

EXCESS OF REVENUES AND

OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES

AND OTHER FINANCING USES

FUND BALA:\/CES AT BEGINNING OF YEAR

FU~D BALANCES AT END OF YEAR


- 5 -

Special Debt Capital

Revenue Service Projects

$ 2.349,322

97.683

345,357

2.792.362

327.196

2,708,887

198,176

108,861

3,343.120

(550.758)

(45,186)

(45,186)

(595,944)

6.196.314

$ 5,600,370

$ 9,408,582

I 13,063

9,521.645

215.877

5.337,622

1.897. 160

835,000

8.285.659

1.235,986

58,132

(3,111,092)

(838,767)

(3,891,727)

(2,655,741)

4,232,175

$ 1.576.434

$

209.143

2.434,401

2.643,544

626.171

6.639.923

79,817

I 51.259

7,497,170

(4,853.626)

3.177,736

(124.776)

37,968

(50,690)

3.040,238

(1,813,388)

12,263,901

$ I 0,450,513

Totals ( \1emorandum Only)

1999 1998

$ 11,757.904 s 11,953,012

419,889 1,253,804

2,434,401 3,973,796

345.357 32,840

14,957,551 17.213,452

1.169,244 1.271.792 5,337,622 5,306,429

9,348,810 21.622,572

2,175,153 1,972,169

1,095,120 1,416.898

19. 125,949 31,589,860

( 4, 168.398) (14,376,408)

3,235,868 15,170,646

(3,235.868) (15,170,646)

37,968

(934,643) (1,081,785)

(896,675) (1,081,785)

(5,065,073) (15,458,193)

22.692,390 38,150,583

$ 17,627,317 $ 22,692,390

- 6 -

CITY OF CATHEDRAL CITY REDEVELOP~1ENT AGENCY

CO\!Bll\ED STA TE\1E~T OF REVEl\UES, EXPE-:\DITLRES AND CHAl\GES 1:,; FL'"\iD BALAl\CES - BL'DGET AJ\iD ACTUAL

.-\LL GOVERNMENTAL FL~D TYPES

For the year ended June 30. 1999

REVENUES: Tax increment

Interest Reimbursement from outside agencies Proceeds from sale of property \1iscellaneous

TOTAL REVENUES

EXPENDITCRES: Current:

General government Pass - through to other agencies

Capital outlay Debt service:

Interest Principal

TOTAL EXPENDITURES

EXCESS OF REVENLES OVER (L~DER) EXPENDITURES

OTHER FINANCING SOURCES (USES): Operating transfers in Operating transfers out Transfers from the City of Cathedral City Transfer to the City of Cathedral City

TOTAL OTHER FINANCING SOURCES (USES)

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER ( UNDER) EXPENDITURES A~D OTHER FINANCING USES

FUND BALANCES AT BEGINNING OF YEAR

FL~D BALANCES AT END OF YEAR


- 7 -

Special Revenue Funds

Budget

$ 2.431.216

50,000

110.000

2,591,216

391.642

5,118,437

198,176

108,861

5,817,116

( 3.225,900)

217,800

(28,750)

(45,186)

143,864

(3,082,036)

6,196,314

$ 3,114,278

Actual $ 2,349,322

97.683

345,357

2.792,362

327. 196

2,708,887

I 98,176

108.861

3,343,120

(550,758)

(45,186)

(45,186)

(595,944)

6. I 96.314

$ 5,600,370

Variance Favorable

( Unfavorable) $ ( 81.894)

47.683

235,357

201.146

64.446

2,409.550

2,473,996

2.675,142

(217,800)

28,750

(189,050)

2,486,092

$ 2.486,092

Debt Service Fund

Variance Favorable

Budget Actual ( Cnfavorable)

$ 9,724,866 s 9,408,582 $ (316,284)

300,000 113,063 ( I 86,937)

10,024,866 9,521.645 (503,221)

165.200 215,877 (50,677)

5,344,075 5,337,622 6,453

1,905,673 1,897,160 8,513

835,000 835,000

8,249,948 8,285,659 (35,71 I)

1,774.918 1,235,986 (538,932)

58.132 58,132

1,151,092 (3,111,092) (4,262,184)

(838,767) (838,767)

312,325 (3,891,727) (4,204,052)

2,087,243 (2,655,74 I) (4,742,984)

4,232,175 4,232,175

$ 6,319,418 $ I .576,434 $ (4,742,984)

Capital Projects Funds

Budget

s

2,061,091

1,243,000

3.304.091

608,780

11.299,793

11.908.573

(8,604.482)

1,151.092

19,258

(50,690)

1,119,660

(7,484,822)

12,263,901

$ 4.779.079

- 8 -

$

Actual

209.143

2,434.401

2.643.544

626,171

6,639,923

79,817

151.259

7.497, 170

(4.853,626)

3.177.736 (124,776)

37,968

(50,690)

3,040.238

( I ,8 I 3,388)

12,263,901

$ 10.450,513

Variance Favorable

( Unfavorable)

s 209,143

373.310 (1,243,000)

(660.547)

(17,391)

4,659.870

(79.8 I 7) (151,259)

4,4 I 1,403

3.750,856

2,026,644 (124,776)

18,710

1,920,578

5,671,434

$ 5,671.434

CITY OF CATHEDRAL CITY REDEVELOP\-1ENT AGE~CY

C0\181~ED Sl .-\ TE:\1ENT OF REVE~LES. EXPENDITURES AND CHA\:GES IN FL:ND BALA\iCES - BUDGET A\iD ACTUAL

ALL GOVERN~1ENTAL FL;ND TYPES ( CONTl\iLED)

For the year ended June 30. 1999

Totals Uv1emorandum Only)


Interest


Proceeds from sale of property

Miscellaneous

TOTAL REVENUES


General government

Pass - through to other agencies

Capital outlay

Debt service:

Interest

Principal

TOT AL EXPENDITuRES

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES

OTHER FINANCING SOURCES (CSES): Operating transfers in

Operating transfers out




EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER (L'NDER) EXPENDITURES AND OTHER FINANCING USES

FUND BALANCES AT BEGINNING OF YEAR

FUND BALANCES AT END OF YEAR


- 9 -

$

Budget

12.156.082

350,000

2.061,091

1,243,000

110.000

15,920,173

1.165,622

5,344,075

16,418,230

2,103,849

943,861

25,975,637

( I 0,055 ,464)

1.368,892

I, 122,342

19,258

(934,643)

1,575,849

(8,479,615)

22,692,390

$ 14.212,775

$

Actual

I 1.757,904

419.889

2.434,-Wl

345,357

14,957,551

1,169,244

5.337,622

9.348.8 I 0

2.175.153

1.095,120

I 9,125,949

(4,168,398)

3,235,868

(3,235,868)

37,968

(934,643)

(896,675)

(5,065,073)

22.692,390

S 17.627,317

Variance

Favorable

( L:nfavorable)

$ (398,178)

69.889

373.310

( l .2-B.000)

235.357

(962,622)

(3.622)

6.453

7.069,420

(71,304)

( I 51.259)

6,849.688

5,887.066

1,866,976

(4,358.210)

18.710

(2,472,524)

3,414,542

$ 3.414.542

NOTES TO FINANCIAL STATEMENTS


NOTES TO FINANCIAL ST A TEMENTS

June 30, 1999

I. SUM~1ARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Description of Funds and Account Groups:

The Agency utilizes fund accounting. I ts accounts are organized on the basis of funds and account groups. 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 comprises its assets. liabilities. fund equity, revenues and expenditures or expenses, as appropriate. Government. resources are allocated 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. The various funds and account groups are classified for reporting purposes as follows:

Governmental Fund Types:

Special Revenue Fund

The Special Revenue Fund of the Redevelopment Agency is used to account for that portion of the Agency's tax increment revenue that is legally restricted for increasing or improving housing for low or moderate income households.

Debt Service Funds

The Debt Service Funds account for tax increment revenues and related interest income. The funds are used to repay principal and interest on indebtedness of the Agency and to pay for costs related to capital improvements and administrative costs, which are considered to be indebtedness of the Agency. Under provisions of the Health and Safety Code, these funds are referred to as '"Special Funds".

Capital Projects Funds

The Capital Projects Funds account for debt proceeds available for project improvements, interest income on invested funds and certain other income. The funds are expended primarily for redevelopment project costs and administrative expenses. Under provisions of the Health and Safety Code, these funds are referred to as ··Redevelopment Funds".

See independent auditors· report.

- IO -


NOTES TO FINANCIAL ST A TEMENTS (CONTINUED)

June 30, 1999

I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

a. Description of Funds and Account Groups (Continued):

Account Groups:

General Fixed Assets Account Group

Fixed assets acquired for general government purposes are recorded as expenditures in the governmental fund types and are capitalized at cost in this group of accounts. No depreciation has been provided for general fixed assets.

General Long-Term Debt Account Group

This group accounts for all long-term debt of the Agency. The proceeds of the indebtedness are recorded in the Capital Projects (Redevelopment) Fund and serves as a financing source for redevelopment expenditures.

b. Basis of Accounting:

Basis of accounting refers to when revenues and expenditures are recognized in the accounts and reported in the financial statements. All governmental funds are accounted for using the modified accrual basis of accounting. Revenues are recognized when they become measurable and available as net current assets. Expenditures generally are recognized when the related fund liability is incurred. An exception to this general rule is principal and interest on general long-term debt which are recognized when due.

c. Measurement Focus:

All governmental funds are accounted for on a spending or '"'financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance sheets. Their reported fund balances (net current assets) are considered a measure of "'available spendable resources". Governmental fund operating statements present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets.


- 11 -

CITY OF CATHEDRA.L CITY REDEVELOPMENT AGENCY

:-JOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30. 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

c. Measurement Focus (Continued):

Noncurrent portions of long-term receivables due to governmental funds are reported on their balance sheets, in spite of their spending measurement focus. Special reporting treatments are used to indicate, however. that they should not be considered ··available spendable resources", since they do not represent net current assets. t\ioncurrent portions of long-term receivables are offset by fund balance reserve accounts.

d. Budgetary Reporting:

The City of Cathedral City Redevelopment Agency adopts an annual budget prepared on the modified accrual basis for all of its governmental funds. The Executive Director and Director of Finance prepare and submit the annual budget to City Council and administer it after adoption. The Executive Director is authorized to adjust appropriations within each department or activity, provided that the total appropriations for each department or activity does not exceed the amounts approved in the budget for any amending resolutions. Transfers of cash or unappropriated fund balance from one fund to another can only be made with approval from the Agency Members. Unexpended appropriations for authorized, but uncompleted, projects in the Capital Improvement's budget can be carried forward to the next succeeding budget upon recommendation of the Director of Finance and approval of the Executive Director. For each fund, total expenditures may not legally exceed total appropriations. During the year, several supplementary appropriations were necessary. Individual amendments were not material in relation to the original appropriations.

e. Investments:

Investments are stated at fair value (quoted market price or the best available estimate thereof).

f. Land Held for Resale:

Land held for resale represents land that was acquired for resale in accordance with the objective of the Redevelopment Project. These costs will be charged to current year project expenditures when the land is sold. Land held for resale is valued at the lower of cost or the sales price per contract with the developer. A portion of fund balance is reserved for land held for resale to indicate that a portion of fund balance is not available for future expenditures.


- 12 -


NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

g. Property Tax Calendar:

Property taxes are assessed and collected each fiscal year according to the following property tax calendar:

Lien Date Levy Date Due Date

Delinquent Date

March 1 July I to June 30 November I - I st Installment March I - 2nd Installment December IO - 1st Installment April IO - 2nd Installment

Under California law, property taxes are assessed and collected by the counties up to I% of assessed value, plus other increases approved by the voters. The property taxes go into a pool, and are then allocated to the agencies based on complex formulas prescribed by the state statutes.

h. Relationship to the City of Cathedral City:

The City of Cathedral City Redevelopment Agency is an integral part of the reporting entity of the City of Cathedral City, California. The funds and account groups of the Agency have been included within the scope of the general purpose financial statements of the City because the City Council of the City of Cathedral City exercises oversight responsibility over the operations of the Agency. Only the funds and account groups of the Agency are included herein and these financial statements, therefore, do not purport to represent the financial position or results of operations of the City of Cathedral City.

1. Comparative Data:

Comparative total data for the prior year have been presented in the accompanying financial statements in order to provide an understanding of changes in the Agency's financial position and operations. However, comparative (i.e., presentation of prior year totals by fund type) data have not been presented in each of the statements since their inclusion would make the statements unduly complex and difficult to read.


- I 3 -

CITY OF CA THEDR.AL CITY REDEVELOPMENT AGENCY

NOTES TO FINANCIAL ST A TEMENTS <CONTINUED)

June 30, 1999

I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

J. Total Columns on Combined Statements:

Total columns on the combined statements are captioned .. Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns is not comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data.

k. Estimates:

The preparation of financial statements in conformity \\iith generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

2. ORGANIZATION AND TAX INCREMENT FINANCING:

Redevelopment Goals and Objectives:

The general objective of the Redevelopment Plan adopted by the Agency is to encourage investment in the Redevelopment Project Area by the private sector. The Redevelopment Plan provides for the acquisition of property, the demolition of buildings and improvements, the relocation of any displaced occupants, and the construction of streets, parking facilities, utilities and other public improvements. The Redevelopment Plan also includes the ability to redevelop land by private enterprise or public agencies, the rehabilitation of structure, the rehabilitation or construction of single family and low and moderate income housing, and participation by owners and tenants of properties in the Redevelopment Project.

Redevelopment Project Areas:

Prior to January 13, 1998, the Agency had established three redevelopment project areas. Project Area No. 1 was adopted November 29, 1982 and amended on September 6, 1991 and December 14, 1994, Project Area No. 2 was adopted on November 29, 1983 and Project Area No. 3 was adopted on November 30, 1984. On January 14, 1998, the Agency adopted Ordinances No. 4 72 and 4 73, which amended Project Area No. 1 and Project Area No. 2 which merged Project Area No. I into Project Area No. 2 to form the .. Merged Project Area". The objectives of the projects are to eliminate conditions of blight by: providing needed public improvements; encouraging rehabilitation and repair of deteriorating structures; and facilitating land assembly and development which will result in employment opportunities and an expanded tax base.

See independent auditors' report.

- 14 -

,



June 30. 1999

ORGANIZATION AND TAX INCREMENT FINANCING (CONTINUED):

Tax Increment Financing:

The law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a redevelopment project. The assessed valuation of a redevelopment project last equalized prior to adoption of a redevelopment plan or amendment to such redevelopment plan. or .. base roll'', is established and, except for any period during which the assessed valuation drops below the base year level, the taxing bodies thereafter receive the taxes produced by the levy of the current tax rate upon the base roll. Taxes collected upon any increase in assessed valuation over the base roll ("'tax increment") are paid 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.

3. CASH AND INVESTMENTS:

Cash and investments reported in the accompanying financial statements consisted of the following at June 30, 1999:

Cash and investments pooled with the City Cash and investments with fiscal agent

$ 8,001,390 380.559

$ 8,381,949

The Agency's funds are pooled with the City of Cathedral City cash and investments in order to generate optimum interest income. The information required by GASB Statement No. 3 related to authorized investments, credit risk, etc. is available in the annual report of the City.

4. CHANGES IN GENERAL FIXED ASSETS:

A summary of general fixed asset transactions for the year ended June 30, 1999 are as follows:

Balance at Balance at July 1, 1998 Additions Deletions June 30, 1999

Land $ 10,741,138 $ - $ - $ 10,741,138 Equipment 34,095 2.569 36,664 Construction

In progress 11,819,736 11,819.736 Totals $ 22.594,969 $ 2.569 $ 11.819.736 $ 10,777.802


- 15 -



June 30. 1999

5. GENERA.L LONG-TERM DEBT:

A summary of general long-term debt for the year ended June 30. 1999. is as follows:

Balance at Balance at Julv L 1998 Additions Deletions June 30l 1999

Advances from the City of Cathedral City $ 3.700.847 $ 198.365 $ 198.365 $ 3.700.847

Notes payable 8.170.307 302.321 260.120 8.212.508 Loans payable 33.963.683 66.672 835.000 33.195.355

Totals $ 45.834.837 $ 567.358 $ l .293A85 $ 45.108,710

The beginning balance of the general long-term debt account group was restated at July 1. 1998 to reflect a loan payable not included in the prior year.

Advances from the City of Cathedral City:

During fiscal year 1992 the City of Cathedral City advanced funds to the Agency. The 1992 advanced funds. with no stipulated repayment date. bear interest at the rate earned on City investments for Project Area No. 1 (Merged Project Area).

Advances from the City of Cathedral City Project Area No. 1


Balance at Julv 1, 1998

$ 3,700.847 $

- 16 -

Additions Deletions Balance at

June 30, 1999

198.365 $ 198.365 $ 3,700.847



June 30, 1999

5. GENERAL LONG-TERM DEBT (CONTINUED):

Notes Payable:

The following represents the notes payable in the General Long-Tenn Debt Account Group:

On December 29, 1986 the Agency issued a promissory note in the sum of $2,788,423 for the disposition and development of approximately eleven acres of real property located in Project Area No. 3. Interest on the note accrues upon the opening of the facility (October 2 7, 1987) following development of the property at a floating rate equal to two percent per annum over the Wells Fargo Bank prime rate. The note will be repaid by the Agency in an amount equal to 70% of the sales and use tax revenues derived from business activities conducted upon the site and received by the City of Cathedral City. On November 22, 2027, any unpaid principal and interest owed by the Agency will be forgiven. $

On June 6, 1990, the Agency entered into an owner participation agreement for the development of a retail shopping center located in Project Area No. 3. Under the terms of the agreement, the Agency will reimburse the developer for 90% of the acquisition costs plus interest at 12% per annum from the date costs were incurred. The note will be repaid by the Agency in an amount equal to 75% of the sales tax revenues derived from business activities conducted upon the site and received by the City of Cathedral City. On July 15, 2008, any unpaid principal and interest owed by the Agency will be forgiven. The balance outstanding represents costs incurred to date plus accrued interest.

The Agency entered into a term loan agreement dated December 18, 1996 with Union Bank of California to borrow $3,600,000 to provide funds to grant to the Southern California Housing Development Corporation (SCHDC). SCHDC will use the funds to purchase and rehabilitate the Cathedral Palms Apartments. The note bears an interest rate of 5.6% for the first five years and the Agency has an option to convert a variable rate to a fixed rate during the last two years. During fiscal year 1998-99, the Agency made a principal payment in the

Outstanding at June 30. 1999

4.359.699

513.884

amount of $108,861. =-$ __ 3_._33_8_,9_2_5

TOTAL NOTES PAYABLE ~$=~8~.2~12~.)~-0=8


- 17 -



June 30, 1999


Notes Payable (Continued):

Debt Service Requirements to Maturity:

There is no fixed repayment schedule on the amount owed on the disposition and development agreement of $4,359,699 and on the amount owed on the owner participation agreement of $513.884. Future debt service payments on the term loan agreement to Union Bank of California and notes payable are as follows:

Year Ending June 30, Principal Interest Total

2000 2001 2002 2003 2004

$ 115,170 $ 192,300 $ 307,470 121,844 791.351

185,013 306.857 177,854 969.205

1,518,581 791 979

112,224 1.630.805 23.002 814.981

Totals $ 3,338,925 $ 690 .3 93 =$ ====4=. 0=29=·=3 1=8

Loans Payable:

The following represents the loans payable in the General Long-Term Debt Account Group:

On November_ 1, 1995, the Public Financing Authority of the City of Cathedral City (a component unit of the City of Cathedral City) issued separate loans to each of the Agency's three project areas. The loans were made with the proceeds from the issuance of tax allocation bonds by the Authority. These loans were made to pay the principal at maturity of outstanding loans to the Authority, to refund certai-9- outstanding tax allocation bonds of the Agency and to assist in the construction and acquisition of certain capital improvement projects. A portion of these proceeds, $15,519,005, were used to purchase state and local government securities that were deposited in a trust with an escrow agent to provide for all future debt service payments on $14,700,000 of outstanding tax allocation bonds of the Agency. As a result, all of the tax allocation bonds of the Agency are considered def eased and the liabilities have been removed from the general long-term debt account group.


- 18 -

Outstanding at June 30, 1999



June 30. 1999


Loans Payable (Continued):

$5,135.000 Project Area No. 1 (Merged Project Area) Loan; issued November I, 1995; principal payments are due each August 1 through August I. 2024 in amounts ranging from $85,000 to $330.000; interest is due semi-annually each February 1 and August 1 at rates ranging from 4.00% to 5. 70%; secured by tax increment revenues. $

$13,125,000 Project Area No. 2 (Merged Project Area) Loan; issued November 1. 1995; principal payments are due each August 1 through August I, 2009 in amounts ranging from $720,000 to $1.230,000; interest is due semi-annually each February 1 and August 1 at rates ranging from 4.00% to 5 .25%; secured by tax increment revenues.

$16,435,000 Project Area No. 3 Loan; issued November 1, 1995; principal payments are due on August I. 1996 in the amount of $145,000 and then annually beginning August 1, 2010 through August 1, 2024 in amounts ranging from $730.000 to $1,550,000; no principal payments are due August 1, 1997 through August I, 2009; interest is due semi-annually each February 1 and August 1 at rates ranging from 4.00% to 5.70%; secured by tax increment revenues.

The City of Cathedral City and Redevelopment Agency of the City of Cathedral City entered into an agreement dated August 6, 1996 with the Desert Water Agency (Agency) for the construction of public infrastructure consisting of water and wastewater system improvement. The Agency completed the improvement on behalf of the City at a total cost of $ 1.24 7,944 on November 30, 1998. The principal amount of$1,247,944 bears interest at the City's average monthly interest rate earned on LAIF and the entire principal and interest is due at the end of seven years. At June 30, 1999, the amounts payable under the agreement amounted to $1,335,355 which included $87,411 m interest.

TOTAL LOANS PAYABLE


- 19 -

$

Outstanding at June 30. 1999

4.790,000

I 0,780,000

16.290.000

1.335,355

33.195.355



June 30. 1999


Debt Service Requirements Maturity:

The annual requirements to amortize long-term debt. excluding advances from the City of Cathedral City. the loan payable to the Desert Water Agency and notes payable as of June 30, 1999. are as follows:

Year ended June 30,

:2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Total principal and interest

Less: total interest

Total principal


Loans Payable Merged Project Area

Area No. 1 Area No. 2 $ 349,768 $ 1,277.537

350.623 1.278.84 7 346,222 1,277.420 346,558 1,273.167 346,612 1,271,768 346,351 1,272,689 345,680 1,270,025 349,490 1,268,780 347,798 1,268,847 345,715 1,264,995 348,137 1,262.288 345,132 346,731 347,806 348.356 343,275 347,413 345,862 343,763 345,735 341,770 342,092 341,560 340,173 342,787 339 405

Area No. 3 $ 906,520

906.520 906,520 906,520 906,520 906,520 906.520 906,520 906.520 906,520 906,520

1,617,357 1,617,983 1,617,508 1,612,933 1.611,007 1,610,407 1,611.920 1,610.407 1,604,760 1,604,638 1,600,810 1,598,135 1,596,327 1,595,103 1,594.175

8,984.814 (4.194.814)

13,986.363 34,074,190 (3.206.363) (17.784.190)

Project Total

$ 2.533,825 2.535,990 2,530.162 2.526.245 2,524,900 2.525.560 2,522.225 2.524,790 2,523.165 2,517.230 2,516.945 1.962.489 1,964.714 1,964,314 1,961.289 1,954,282 1,957.820 1,957,782 1,954,170 1,950.495 1,946.408 1,942,902 1,939,695 1,936,500 1,937,890 1,933,580

57,045.367 (25,185.367)

$ 4. 790.000 $ 10,780,000 $ 16.290.000 $ 31.860.000

- 20 -


NOTES TO FINANCIAL STATEMENTS (CONTINUED)

June 30. 1999

6. ACCUMULATED FUND DEFICITS:

The following funds reported deficits at June 30, 1999:

Debt Service Fund - Merged Project Area

7. DEBT WITHOUT GOVERNMENT COMMITMENT:

Amount of Deficit

$ 2.159,448

The following certificates of participation are not reflected in the General Long-Term Debt Account Group since they are obligations of private parties (with no government commitment) payable entirely from and secured by non-City resources as described in the various agreements:

1985 Certificates of Participation

On November 1, 1985, $2,200,000 of Certificates of Participation were issued to finance the acquisition and construction of a commercial retail facility, Canyon Plaza South, located in the City of Cathedral City. Certificates are issued in denominations of $5,000. Annual interest ranging from 6.5% to 9.75% and annual principal payments ranging from $35,000 to $215,000 through November I, 2010 are payable solely from payments by the developer under a lease agreement between the Agency and Developer. As provided in the Sale Agreement, the Agency· s obligation to pay installment payments shall be a special obligation limited solely to the revenues from the lease. Under no circumstances shall the Agency be required to advance any monies derived from any source of income other than the revenues under the Lease Agreement, for the payment of any of the Agency's obligations under the First Installment Sale Agreement not shall any other funds or property of the Agency be liable in any manner whatsoever for the payment of the Installment Payments. The outstanding balance at June 30, 1999 was $1,610,000.

Loan to Southern California Housing Development Corporation

On December 27, 1996, an $800,000 loan was issued by Hemet Federal Savings and Loan Association to provide funds to the Southern California Housing Development Corporation to construct the Casa Apartments. The loan bears interest at 6.5% with monthly payments of $5,056 due each month with the final payment due January I, 2027. The loan is secured by a deed to trust on the building. The Agency has no obligation to pay the debt. At June 30, 1999, the outstanding principal balance was $776.806.


- 21 -


NOTES TO FINANCIAL ST A TEMENTS ( CONTINUED)

June 30. 1999

8. LOAN GUARANTEES:

First Communitv Bank

In June 1996. the Cathedral City Redevelopment Agency entered into a loan guarantee agreement with First Community Bank on behalf of one of the auto dealers located in the City's auto center. The Agency has guaranteed the loan up to $250.000. The transaction was approved by the Agency's Board on June 12. 1996.

The Cathedral City Redevelopment Agency has a loan guarantee of $1.000.000 to First Community Bank on behalf of Big League Dream Sports. LLC. The loan guarantee expires July 31. 2000. The original transaction was approved by the Agency· s Board on July 8. 1998.

La Jolla Bank

The Redevelopment Agency of the City of Cathedral City has entered into a payment guaranty effective July 3, 1998 for the benefit of La Jolla Bank (Bank) to induce the Bank to make a combination construction and permanent trust deed loan in the principal amount of up to $3.176,000 to Desert IMAX LLC. a California limited liability company.

Subject to conditions of an intercreditor agreement and provisions of the guaranty agreement, the Agency has guaranteed the Bank that all payments due will be paid as required. The maximum aggregate liability under this guarantee is limited to (a) $2,276.000 and (b) any attorney's fees, and other costs incurred by the Bank to collect and enforce the guarantee. In the event Desert IMAX defaults on the loan and the Agency has to make the debt payments, the Agency is entitled to foreclose on the property to recover damages.


- 22 -

SUPPLEMENT AL INFORMATION


EVALUATION OF THE YEAR 2000 ISSUE

June 30, 1999

The Cathedral City Redevelopment Agency computer processing systems are integrated with the City of Cathedral City. The City of Cathedral City is in the process of evaluating its computer programming code, computer equipment, and other electronic systems and equipment (including equipment containing embedded chips) to ascertain which of these might be impacted by a failure to properly recognize and process transactions dated on or after the year 2000. In addition, certain dates in calendar year 1999 may present difficulties because some programs and embedded chips \Vere coded to read a date of'"99" of ··9999" to mean something other than the date (e.g., --end of file'', etc.) which might also prevent the proper processing of data. As of June 30, 1999. the unexpended portion of contracts entered into by the City of Cathedral City to make computer systems and other equipment year 2000 compliant is approximately $50,000. Additional amounts may be expended for the City's year 2000 assessment, implementation, and testing activities, as well as amounts that may need to be expended after January 1, 2000 to correct problems not previously detected and corrected by the City. Because of the unprecedented nature of the year 2000 issue, it is not possible to provide assurances that the City has or will achieve complete year 2000 compliance, even after completing all planned year 2000 corrective actions and related testing. Nor can the Agency determine the effect, if any, on Agency operations should entities external to the Agency (other governments, significant vendors, suppliers, service providers, customers taxpayers, businesses, etc.) fail to achieve year 2000 compliance in a timely manner. The scope of an audit does not include an evaluation of the adequacy of management· s plans with respect to this issue. Equipment and systems considered by management to be critical to conducting operations include the following: Updated reflection software, Updated SFG software and hardware consisting of new personal computers.


- 23 -

CITY OF C..\ THEDR.-\L CITY REDEVELOP\1ENT AGE~CY

Cash and investments

Receivables:

Accounts

Interest

Loan

Deposits with County Clerk

Land held for resale

TOTAL ASSETS

C0\1P:\R . .\ TIVE BALANCE SHEET

SPECIAL REVENL'E Fl'.1\D

June 30, 1999 and 1998

ASSETS

LIABILITIES AND FUND BALA:"..JCE

LIABILITIES:

Accounts payable

Accrued liabilities

TOT AL LIABILITIES

FUND BALANCE:

Reserved for restricted assets

Reserved for deposits

Reserved for land held for resale

Unreserved - designated for low and moderate income housing

TOTAL FUND BALANCE

TOTAL LIABILITIES AND FUND BALANCE

- 24 -

$

$

$

$

Low and t\foderate

Income Housing Fund

1999 1998

2,631,219 $ 3,876,768

174,824 116.326

27,967 43.896

11,264 13.075

244,415 1.014,790

2.560.622 I, 177. 795

5,650.311 $ 6,242.650

37,854 $ 35,289

12,087 I 1.04 7

49,941 46.336

11,264 13.075

244,415 1,014,790

2,560.622 1.177,795

2,784,069 3,990.654

5.600,370 6.196.314

5,650,311 $ 6.242,650

CITY OF CATHEDRAL CITY REDEVELOP:\1ENT AGENCY

COMPARA Tl' 'E ST A TEf'.1ENT OF REVENLES. EXPENDITLRES AND CHANGES IN FUND BALANCE - SPECIAL REVENL1E FlY.\lD

For the years ended June 30. 1999 and 1998


Interest

\1iscellaneous

TOT AL REVENUES


General government

Capital outlay

Debt service:

Interest

Principal

TOT AL EXPENDITURES

EXCESS OF REYENCES OYER (UNDER) EXPENDITURES

OTHER FINANCING SOURCES (USES): Operating transfers in




EXCESS OF REVENUES AND OTHER FINANCING SOURCES OYER (UNDER) EXPENDITURES AND OTHER FINANCING USES

FUND BALANCE AT BEGINNING OF YEAR

FUND BALANCE AT END OF YEAR

- 25 -

$

Low and Moderate

Income Housing Fund

1999 1998

2,349,322 $ 2,390.588

97.683 200.794

345.357 32.840

2,792.362 2.624.222

327.196 336,425

2,708.887 2.510.443

198,176 204.307

108.861 102.898

3,343.120 3. 154,073

(550,758) (529,851)

217.800

(28.749)

(45,186) (52,122)

(45.186) 136.929

(595,944) (392,922)

6,196,314 6,589,236

$ 5,600,370 S 6,196,314

CITY OF CATHEDRAL CITY REDEVELOP\tENT AGENCY

ASSETS

Cash and investments Cash with fiscal agent

Receivables: Accounts r nterest

Advances to other funds

TOT AL ASSETS

CO!'-.tBINI~G BALANCE SHEET .. ~LL DEBT SERVICE FL~DS

June 30. 1999

With comparative totals for June 30, 1998

\1erged Project Project Area Area 3

$ 20. 754 s 1,802,113

380,559

8 15

18.270 21.998

2.572.867

$ 419,591 s 4,396,993

LIABILITIES AND FUND BALANCES

LIABf LITIES: Accounts payable $ 6,172 $ 661,111

Advances from other funds 2.5n.867

TOT AL LIABIL!Tf ES 2,579,039 661,111

FUND BALANCES (DEFICITS): Reserved for long - tenn receivables

and advances 2.572,867

Reserved for debt service 380,559 1,163,015

L'nreserved - undesignated (2,540,007)

TOTAL FUND BALANCES ( DEFICITS) (2,159,448) 3,735.882

TOT AL LIABfLITIES AND FUND BALANCES $ 419,591 $ 4,396,993

- 26 -

$

$

$

$

Totals 1999 1998

1,822.867 $ 3,730.460

380.559 381.093

23 27.657

40.268 92.965

2.572.867 2.312.867

4.816.584 $ 6.545.042

667,283 $

2.572.867 2,312.867

3,240,150 2.312.867

2.572.867 2.312.867

1,543,574 2,002.085

(2,540.007) (82,777)

1,576.434 4,232, I 75

4,816,584 $ 6,545.042

CITY OF CATHEDRAL CITY REDEVELOP:v1ENT AGE~CY

COMBINING STATEMENT OF REVENUES. EXPENDITLRES AND CHANGES IN FUND BALANCES - ALL DEBT SERVICE FUNDS

For the year ended June 30, I 999

\Vith comparative totals for the year ended June 30. 1998

Merged Project Totals


Interest

TOT AL REVENUES


General government

Pass - through to other agencies

Debt service:

Interest

Principal

TOT AL EXPENDITURES

EXCESS OF REVENUES OVER (L'NDER) EXPENDITURES





Project Area

$ 2.753.285

34,506

2,787.791

65.078 491,808

990,640

835.000

2.382,526

405.265

58,132

(1,960,000)

(580,068)

(2,481.936)

$

Area 3

6.655,297

78.557

6,733.854

150.799

4.845,814

906,520

5.903. 133

830.721

(1,151,092)

(258,699)

( 1.409, 791)

$

1999

9,408.582

113,063

9,521,645

215.877 5,337,622

1,897.160

835,000

8,285,659

1,235,986

58.132 (3. I 11,092)

(838,767)

(3,891.727)

s

1998

9,562.424

752,926

I 0,315,350

161.691

5,306,429

1,731,596

805,000

8.004,716

:Ul0,634

( 14.924,097) (875,864)

(15,799,961)

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES (2,076.671) (579,070) (2,655,741) ( I 3,489,327)

FUND BALANCES (DEFICITS), AT BEGINNING OF YEAR

FUND BALANCES (DEFICITS), AT END OF YEAR

(82,777) 4,314,952 4.232, 175 I 7,721,502

$ (2, I 59,448) $ 3,735.882 $ 1,576,434 $ 4,232,175

- 27 -

CITY OF CATHEDRAL CITY REDEVELOP\-1ENT AGENCY

CO\1BI:--;ING SCHEDULE - BALANCE SHEET DEBT SER VICE PROJECT AREAS I AND 2

June 30, 1999

Project Area I

ASSETS

Cash and investments s 8,179

Cash with fiscal agent 380.559

Receivables: Accounts 5

Interest

TOTAL ASSETS $ 388.743

LIABILITIES AND FL'.ND BALA~CES

LIABILITIES: Accounts payable s 486

Advances from other funds 2.312,867

TOTAL LIABILITIES 2,313,353

FUND BALANCES (DEFICITS): Reserved for debt service 380,559

Unreserved - undesignated (2,305.169)

TOTAL FUND BALANCES (DEFICITS) ( 1.924,6 I 0)

TOTAL LIABILITIES AND FUND BALANCES $ 388. 743

- 28 -

$

$

$

s

Project Area 2 Totals

12.575 s 20,754

380.559

3 8

18.270 18.270

30.848 $ 419.591

5,686 $ 6,172

260.000 2.572.867

265.686 2.579.039

380,559

(234.838) (2,540.007)

(234,838) ( 2, I 59,448)

30.848 $ 419.591

CITY OF CATHEDRAL CITY REDEVELOPMENT AGE:\JCY

CO~18l~ING SCHEDULE OF REVENLES. EXPENDITLRES :\:\JD CHA~GES IN FU!'\D BALANCES - DEBT SERVICE PROJECT AREAS I A1\D 2

For the year ended June 30. I 999

Project Project Area I Area 2 Totals

REVENUES: Tax increment $ 644,218 $ 2,109.067 s 2,753,285

Interest 2,140 32,366 34,506

TOTAL REVENLES 646,358 2.141,433 2,787,791

EXPENDITCRES: Current:

General government 15,770 49.308 65,078

Pass - through to other agencies 106,843 384.965 491,808

Debt service: Interest 456,927 533,713 990,640

Principal 90.000 745,000 835,000

TOT AL EXPENDITURES 669,540 1,712,986 2,382,526

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (23,182) 428.447 405,265

OTHER FINANCING SOURCES (USES): Operating transfers in 58,132 58,132

Operating transfers out ( 1,960,000) (1,960,000)

Transfer to City of Cathedral City (97,460) (482,608) (580,068)

TOT AL OTHER FINANCING SOURCES (USES) (39,328) (2,442,608) (2,481,936)

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER ( UNDER) EXPENDITURES AND OTHER FINANCING USES (62,510) (2,014,161) (2,076,671)

FUND BALANCES (DEFICITS), AT BEGINNING OF YEAR (1,862,100) 1,779,323 (82,777)

FUND BALANCES (DEFICITS), AT END OF YEAR s (1,924.610) $ (234,838) $ ( 2. 159,448)

- 29 -

CITY OF CATHEDRAL CITY REDEVELOP1\1E\.'T AGE'.\CY

ASSETS

Cash and investments Receivables:

Accounts Interest

Deposit with County Clerk

Land held for resale

TOTAL ASSETS

C0\1B!~!~G BALANCE SHEET .~LL CAPITAL PROJECTS FL~DS

June 30. !999

\Vith comparative totals for June 30, 1998

1\1erged Project Project Area Area 3

s 630.823 $ 2,916.481

7. I 83

1,382 36,895

41 1.298

5,688.096 1.216,363

s 6.738,782 $ 4,169,739


LIABILITIES: Accounts payable s 288.379 $ 11.370

Accrued liabilities 10,262 61,989

Deferred revenue 56,220

Deposits payable 29,788

TOTAL LIABILITIES 384.649 73.359

FUND BALANCES: Reserved for land held for resale 5,688,096 1,216,363

Reserved for deposit 411.298

Reserved for loan guaranty 250.000

Unreserved - designated for capital projects 2.880,017

Unreserved - undesignated 4.739

TOTAL FUND BALA>JCES 6,354. I 33 4,096,380

TOTAL LIABILITIES AND FUND BALANCES $ 6,738,782 $ 4,169,739

- 30 -

Totals 1999 1998

$ 3,547.304 $ 5,872,880

7,183 781.385

38,277 638

411,298 512.855

6,904,459 5,983.571

$ I 0.908.521 $ 13,15IJ29

$ 299,749 $ 780.412

72,251 70,796

56,220 36,220

29,788

458,008 887,428

6,904,459 5,983,571

411,298 512,855

250,000 250,000

2,880,017 5,763,558

4,739 (246,083)

10,450.513 12,263,901

$ 10,908,521 $ 13,151.329

CITY OF CATHEDRAL CITY REDEVELOPrvtENT AGENCY

CO!\tBINING STATEMENT OF REVENUES. EXPENDITURES AND CHANGES IN FL'ND BALANCES - ALL CAPITAL PROJECTS FUNDS

For the year ended June 30, 1999

\Vith comparative totals for the year ended June 30, 1998

Merged Project Totals Project Area Area 3 1999 1998

REVET\UES: Interest $ 1,382 $ 207,761 $ 209.143 $ 300,084 Reimbursement from outside agencies 2.434,40 I 2.434.40 l 3.973,796

TOTAL REVENUES 2.435. 783 207.761 2.643.544 4.273.880

EXPE~DITURES: Current:

General government 413.934 212,237 626.171 773,676

Capital outlay 4.197.268 2,442.655 6,639.923 19.112.129 Debt service:

Interest 79.817 79,817 36,266 Principal 151.259 151.259 509,000

TOTAL EXPENDITURES 4.611.202 2.885.968 7,497.170 20,431.07]

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES (2, 175,4 l 9) ( 2.6 78,207) (4,853,626) (16.157.191)

OTHER FINANCING SOURCES (USES): Operating transfers in 3,043,825 133,911 3,177.736 14.952.846 Operating transfers out (58,133) (66.643) (124,776) (217,800)

Transfers from the City of Cathedral City 37.968 37.968 Transfers to the City of Cathedral City (50,690) (50,690) ( 153.799)

TOT AL OTHER FINANCING SOURCES (USES) 2,972.970 67.268 3,040.238 14,581.247

EXCESS OF REVENUES AND OTHER FINANCING SOURCES OVER (UNDER) EXPENDITURES AND OTHER FINANCING USES 797,551 (2,610,939) ( I ,8 l 3,388) ( 1.5 7 5, 944)

FUND BALANCES, AT BEGl~'NING OF YEAR 5,556,582 6,707,319 12,263.90 I 13.839,845

FUND BALANCES, AT END OF YEAR $ 6,354,133 $ 4,096,380 $ I 0.450,513 s 12.263.901

- 31 -

CITY OF CATHEDRAL CITY REDEVELOP\1ENT AGE~CY

CO\1811\."IJ\iG SCHEDL'LE - BALA1\."CE SHEET CAPIL\L PROJECT .--\REAS I r\1'."D 2

June 30. 1999

Project

Area I :-\SSETS

Cash and investments $ 79,307

Receivables: Accounts 244 Interest 1.382

Deposit with County Clerk Lan,-! held for resale

TOTAL ASSETS $ 80.933


LIABILITIES: Accounts payable $ 40.728 Accrued liabilities 10,262

Deferred revenue 56,220

Deposits payable 29,788

TOTAL LIABILITIES 136,998

FUND BALANCES (DEFICITS): Reserved for land held for resale Reserved for deposit Reserved for loan guaranty 250,000

L'.nreserved - undesignated (306,065)

TOTAL FL~D BALAJ\iCES (DEFICITS) (56,065)

TOTAL LIABILITIES AND FUND BALANCES $ 80,933

- 32 -

$

s

$

$

Project Area 2 Totals

551.516 s 630.823

6,939 7. 183

1.382

411.298 411,298

5,688.096 5,688,096

6.657.849 $ 6,738,782

247.651 $ 288,379

10,262

56,220

29. 788

247,651 384,649

5,688,096 5,688,096

411,298 411,298

250,000

310,804 4,739

6,410,198 6.354, I 33

6,657,849 $ 6,738,782

CITY OF CATHEDRAL CITY REDEVELOP\IE\JT AGE;--JCY

C0\181:--.Jl\JG SCHEDULE OF REVENUES. EXPE:--.JDITURE~ AND CHANGES IN FUND BALANCES - CAPITAL PROJECT AREAS I AND 2

For the year ended June JO. l 999

REVENlJES: Interest


TOT AL REVENUES


General government

Capital outlay

TOT AL EXPENDITURES

EXCESS OF REVENUES OVER (UNDER) EXPENDITURES





TOTAL OTHER FINANClNG SOURCES (USES)

EXCESS OF REVENUES AND OTHER FlNANClNG SOURCES OVER ( UNDER) EXPENDITURES AND OTHER FINANClNG USES

FUND BALANCES (DEFIClTS), AT BEGINNING OF YEAR

FUND BALANCES (DEFICITS), AT END OF YEAR

s

$

- 33 -

Project

Area 1

1.382

63.380

64,762

413.934

3,903

417.837

(353,075)

391,951

(58,133)

19,257

353.075

(56,065)

$

Project

Area 2

2.371.021

2.371.021

4,193.365

4,193,365

( 1,822.344)

2,651.874

18,711

(50,690)

2,619.895

797,551

5,612,647

(56,065) $ 6,410, 198

Totals

S 1 .382

2,434,401

2,435,783

413.934

4. 197.268

4,611.202

(2,175,419)

3,043.825

(58. 133)

37,968

(50,690)

2,972.970

797,551

5,556,582

$ 6,354.133

CITY OF CATHEDRAL CITY REDEVELOP~1ENT AGE~CY

ASSETS

Amount available ( deficit) for

repayment of long-term debt Amount to be provided for

repayment of long - term debt

TOTAL ASSETS

LIABILITIES

Advances from the City of Cathedral City

Notes payable Loans payable

TOTAL LIABILITIES

SCHEDULE OF LO:\G - TER\1 DEBT RY PROJECT AREA GE\:ERAL LO\;G - TER\1 DEBT ACCOL:\T GROLP

June 30. 1999

With comparative totals for June 30. 1998

$

$

$

\1erged Project Area

(2,159,448)

22. 765.650

20,606.202

3,700.847

16,905.355

$ 20,606,202

s

Project Area 3

1.163.0 I 5

20.000.568

S 21.163,583

$

4,873.583

16,290,000

S 21,163.583

- 34 -

$

s

$

$

Low and Moderate

Housing Fund

3.338.925

3.338.925

3,338.925

3,338,925

Totals 1999 1998

$ (996,433) s 2,002.085

46,105.143 43.832. 752

$ 45.108,710 $ 45,834.837

s 3,700,847 $ 3. 700.847

8,212,508 8. 170,307

33.195.355 33,963.683

S 45,108,710 $ 45.834.837

C]jit:fz.f, Ec:rani & Company, __£__£(JJ

2121 ALTON PARKWAY, SUITE 100 IRVINE, CALIFORNIA 92606-4906 (949) 757-nOO

CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS

Dica't §. clf'tmijo CERTIFIED PUBLIC ACCOUNTANT

a joint venture

October 28, 1999

INDEPENDENT AUDITORS' REPORT

74-133 EL PASEO, SUITE€ PALM DESERT, CALIFORNIA 9226C

(760) TT3-407E

ON COMPLIANCE AND ON INTE~"f\IAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT

OF FINANCIAL ST A TEMENTS PERFO~v1ED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Agency Members City of Cathedral City

Redevelopment Agency Cathedral City, California

We have audited the general purpose financial statements of the City of Cathedral City Redevelopment Agency (a component unit of the City of Cathedral City) as of and for the year ended June 30, 1999, and have issued our opinion thereon dated October 28, 1999. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.

Compliance

As part of obtaining reasonable assurance about whether the financial statements of the City of Cathedral City Redevelopment Agency are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Such provisions included those provisions of laws and regulations 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 results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards.

- 35 -

I ntemal C ontro I 0\ er Financial Reporting

In planning and performing our audit. we considered the City of Cathedral City Redevelopment Agency"s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control o\·er financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material \Veakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected \vithin a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

This report is intended for the information of the management, and the State Controller. However, this report is a matter of public record and its distribution is not limited.

D~ ,(u~ ~ c~,\.Lf

- 36 -

APPENDIXD

SUMMARY OF CERTAIN PROVISIONS OF THE LEGAL DOCUMENTS

The following is a brief summary of the provisions of the Indenture of Trust with respect to the Senior Bonds (the "Senior Indenture"), the Indenture of Trust with respect to the Subordinate Bonds (the "Subordinate Indenture"), the Loan Agreement with respect to the Senior Loan (the "Senior Loan Agreement") and the Loan Agreement with respect to the Subordinate Loan (the "Subordinate Loan Agreement"). Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof.

DEFINITIONS

Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary:

"Additional Revenues" means, with respect to the Senior Loan, as of the date of calculation, the amount of Tax Revenues which, as shown in the written report of an Independent Redevelopment Consultant, are 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 Merged Project Area due to construction which has been completed, but which is not then reflected on the tax roll. "Additional Revenues" means, with respect to the Subordinate Loan, as of the date of calculation, (a) the amount of Tax Revenues which, as shown in the written report of an Independent Redevelopment Consultant, are 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 Merged Project Area due to construction which has been completed, but which is not then reflected on the tax roll and (b) the amounts of Tax Revenues which, as shown in the written report of an Independent Redevelopment Consultant, are estimated to be receivable by the Agency in succeeding Fiscal Years as a result of increases in the assessed valuation of taxable property in the Merged Project Area due to inflation at an assumed annual inflation rate equal to the lesser of (i) the annual rate of inflation for the preceding twelve-month period for which figures are available or (ii) an annual rate of inflation of two percent (2% ).

"Bond Year" means each twelve-month period extending from August 2 in one calendar year to August 1 of the succeeding calendar year, both dates inclusive, except that the first Bond Year shall begin on April 1, 2000, and end on August 1, 2000.

"Business Day" means a day on which banks in Los Angeles, California, are not required or authorized to remain closed.

"Closing Date" means the date of delivery of the Bonds to Stone & Youngberg as the original purchaser thereof.

"Code" means the Internal Revenue Code of 1986, as amended from time to time. Any reference to a provision of the Code shall be deemed to include the applicable Tax Regulations promulgated with respect to such provision.

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"Continuing Disclosure Agreement" means that certain Continuing Disclosure Agreement dated as of the Closing Date, as originally executed by the Agency and as it may be amended from time to time in accordance with the terms thereof.

"County" means the County of Riverside.

"Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State of California but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.

"Federal Securities" means any direct, noncallable general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TGRS), or obligations the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America.

"Financial Guaranty Agreement" means the Financial Guaranty Agreement with respect to the Senior Bonds, dated as of the Closing Date, by and between the Authority and the Insurer related to the Reserve Account Surety Bond, as amended from time to time.

"Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority or the Agency as its official fiscal year period.

"Independent Financial Consultant" means any financial consultant or fiscal consultant or firm of such consultants appointed and paid by the Agency, and who, or each of whom-

(a) is in fact independent and not under domination of the Authority, the City or the Agency;

(b) does not have any substantial interest, direct or indirect, in the Authority, the City or the Agency; and

( c) is not connected with the Authority, the City or the Agency as an officer or employee of the Authority, the City or the Agency but who may be regularly retained by the Authority, the City or the Agency.

"Independent Redevelopment Consultant" means any consultant or firm of such consultants appointed by the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the

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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, with the Agency, other than as original purchaser of Agency obligations; 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.

"Insurer" means MBIA Insurance Corporation, as issuer of the Insurance Policy and the Reserve Account Surety Bond with respect to the Senior Bonds.

"Insurance Policy" means the Financial Guaranty Insurance Policy issued by the Insurer with respect to the Senior Bonds, insuring the payment when due of the principal of and interest on the Senior Bonds as provided herein.

"Interest Payment Date" means February I and August 1 in each year, beginning August I, 2000, and continuing thereafter so long as any Bonds remain outstanding.

"Maximum Annual Debt Service" means, with respect to the Senior Loan, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Senior Loan and the 1995 Project No. 2 Loan and any Parity Debt with respect thereto to be Outstanding in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Senior Loan and the 1995 Project No. 2 Loan and on any Parity Debt with respect thereto to be Outstanding in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Debt to the extent the proceeds thereof are then deposited in a fully self-supporting escrow fund (the fully self-supporting nature of which is evidenced by a report prepared by an Independent Financial Consultant and delivered to the Insurer) from which amounts may not be released to the Agency unless the amount of Tax Revenues then to be received is not less than the percentage of Maximum Annual Debt Service required by the terms of Section 2.07(b) of the Senior Loan Agreement.. "Maximum Annual Debt Service" means, with respect to the Subordinate Loan, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Senior Loan and the 1995 Project No. 2 Loan and on any Parity Debt with respect thereto and the Subordinate Loan and any additional Parity Debt with respect thereto to be Outstanding in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Senior Loan and the 1995 Project No. 2 Loan and on any Parity Debt with respect thereto and the Subordinate Loan and any Parity Debt with respect thereto to be Outstanding in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Debt with respect to the Subordinate Loan to the extent the proceeds thereof are then deposited in a fully self-supporting escrow fund (the fully self-supporting nature of which is evidenced by a report prepared by an Independent Financial Consultant) from which amounts may not be released to the Agency unless the amount of Tax Revenues then to be received is not less than the percentage of Maximum Annual Debt Service required by the terms of Section 2.07(b) of the Subordinate Loan Agreement.

"Merged Project Area" means Cathedral City Redevelopment Merged Project Area, resulting from the merger of Cathedral City Redevelopment Project Area No. 1 and Cathedral City Redevelopment Project Area No. 2 by action of the Agency taken in 1998.

"Moody's" means Moody's Investors Service, Inc., its successors and assigns.

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"Original Purchaser" means Stone & Youngberg at the first purchase of the Bonds.

"Owner", when used with respect to any Bond, means the person in whose name the ownership of such Bond is registered on the Bond registration books of the Senior Trustee or the Subordinate Trustee, as applicable ..

"Parity Debt" means, with respect to the Senior Loan and the 1995 Project No. 2 Loan, any loans, bonds, notes, advances or indebtedness payable from the related Tax Revenues on a parity with the Senior Loan and the 1995 Project No. 2 Loan, issued or incurred pursuant to Section 2.07 of the Senior Loan Agreement. "Parity Debt" means, with respect to the Subordinate Loan, any bonds, notes loans, advances or other indebtedness on a parity with the Subordinate Loan, issued or incurred pursuant to Section 2.07 of the Subordinate Loan Agreement.

"Participating Underwriter" has the meaning ascribed thereto in the Continuing Disclosure Certificate.

"Pass-Through Agreements" means agreements entered into by the Agency pursuant to former Section 33401 (b) of the Redevelopment Law providing for the payment of taxes to a taxing entity adversely affected by the redevelopment of Redevelopment Project No. 1 constituent project area and Redevelopment Project No. 2 constituent project area.

"Permitted Investments" means any of the following which at the time of investment are legal investments under the laws of the State for the moneys proposed to be invested therein, but only to the extent that the same are acquired at Fair Market Value:

( a) Federal Securities;

(b) Federal Housing Administration debentures;

( c) Commercial paper, payable in the United States of America, having original maturities of not more than 92 days and which are rated in the highest rating category by Standard & Poor's Corporation;

( d) Interest bearing demand or time deposits issued by state banks or trust companies, savings and loan associations, federal savings banks or any national banking associations the deposits of which are insured by the Bank Insurance Fund (BIF) or the Savings Association Insurance Fund (SAIF); provided that such deposits: (a) must be continuously and fully insured by BIF or SAIF, or (b) must have maturities of less than 366 days and be deposited with banks or savings and loan associations the short term obligations of which are rated at least A-1+ by Standard and Poor's Corporation;

(e) Money market mutual funds or portfolios investing in short-term United States Treasury securities rated AAA by Standard & Poor's Corporation. With respect to the Senior Bonds, the Senior Trustee shall provide to the Insurer an annual certification that the money market portfolio into which funds are invested is then rated AAA by Standard & Poor's Corporation. Upon notice that Standard & Poor's Corporation rating of the money market portfolio has dropped below AAA, the Senior Trustee or the Subordinate Trustee, as applicable, shall immediately withdraw funds and reinvest in Permitted Investments; and

(f) With respect to the Senior Bonds, such other investments as are approved in writing by the Insurer.

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"Qualified Reserve Account Credit Instrument" means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Senior Trustee pursuant to Section 2.05 of the Senior Loan Agreement and with the Subordinate Trustee pursuant to Section 2.05 of the Subordinate Loan Agreement, provided that all of the following requirements are met: (a) the long-term credit rating of such bank or insurance company is in one of the two highest rating categories by S&P or Moody's, or the claims paying ability of such insurance company is rated in the highest rating category by A.M. Best & Company; (b) such letter of credit or surety bond has a term of at least twelve ( 12) months; ( c) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to Section 2.05; (d) the Senior Trustee or the Subordinate Trustee, as applicable, is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amount of Loan payments required pursuant to Section 3.03(a); and (e) prior written notice is given to S&P before the effective date of any such Qualified Reserve Account Credit Instrument.

"Redevelopment Law" means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the Health and Safety Code of the State, and the acts amendatory thereof and supplemental thereto.

"Reserve Account Surety Bond" means the Senior Loan debt service reserve account surety bond issued by the Insurer pursuant to the Financial Guaranty Agreement for the credit of the Reserve Account under the Senior Loan Agreement.

"Reserve Requirement" means, with respect to the Senior Loan, as of any calculation date, the least of (a) Maximum Annual Debt Service with respect to the Senior Loan, or (b) one hundred twenty-five percent ( 125%) of average annual debt service on the Senior Loan, or ( c) ten percent ( 10%) of the initial principal amount of the Senior Loan. "Reserve Requirement" means, with respect to the Subordinate Loan, as of any calculation date, the least of (a) Subordinate Maximum Annual Debt Service (as defined below), or (b) one hundred twenty-five percent (125%) ofaverage annual debt service on the Subordinate Loan, ( c) or ten percent ( 10%) of the initial principal amount of the Subordinate Loan.

"Revenues" means, with respect to the Senior Loan: (a) all amounts payable by the Agency to the Authority pursuant to the Senior Loan Agreement, other than (i) administrative fees and expenses and indemnity against claims payable to the Authority and the Senior Trustee and (ii) amounts payable to the United States of America pursuant to applicable federal tax law; (b) any proceeds of Senior Bonds originally deposited with the Senior Trustee and all moneys deposited and held from time to time by the Senior Trustee in the funds and accounts established under the Senior Indenture; ( c) investment income with respect to any moneys held by the Senior Trustee in the funds and accounts established under the Senior Indenture; and (d) any other investment income received under the Senior Indenture. "Revenues" means, with respect to the Subordinate Loan: (a) all amounts payable by the Agency to the Authority pursuant to the Subordinate Loan Agreement, other than (i) administrative fees and expenses and indemnity against claims payable to the Authority and the Subordinate Trustee and (ii) amounts payable to the United States of America pursuant to applicable federal tax law; (b) any proceeds of Subordinate Bonds originally deposited with the Subordinate Trustee and all moneys deposited and held from time to time by the Subordinate Trustee in the funds and accounts established under the Subordinate Indenture; (c) investment income with respect to any moneys held by the Subordinate Trustee in the funds and accounts established under the Subordinate Indenture; and ( d) any other investment income received under the Subordinate Indenture.

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''Senior Loan" means the loan from the Authority to the Agency pursuant to the Senior Loan Agreement.

"Senior Trustee" means the trustee under the Senior Indenture.

"S&P" means Standard & Poor's Ratings Group, its successors and assigns.

"Subordinate Loan" means the loan from the Authority to the Agency pursuant to the Subordinate Loan Agreement.

"Subordinate Maximum Annual Debt Service" means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Subordinate Loan and any additional Parity Debt with respect to the Subordinate Loan to be Outstanding in such bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Subordinate Loan and any additional Parity Debt with respect to the Subordinate Loan to be Outstanding in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fun~ payments. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Debt with respect to the Subordinate Loan to the extent the proceeds thereof are then deposited in a fully self-supporting escrow fund (the fully self-supporting nature of which is evidenced by a report prepared by an Independent Financial Consultant) from which amounts may not be released to the Agency unless the amount of Tax Revenues then to be received is not less than the percentage of Maximum Annual Debt Service with respect to the Subordinate Loan required by the terms of Section 2.07(b) of the Subordinate Loan Agreement.

"Subordinate Trustee" means the trustee under the Subordinate Indenture.

"Tax Revenues" means, with respect to the Merged Project Area, all taxes annually allocated and paid to the Agency with respect to the Merged Project Area following the Closing Date for the Bonds, pursuant to Article 6 of Chapter 6 (commencing with Section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State and as provided in the Redevelopment Plan, including (a) all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and (b) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to Section 33334.3 of the Redevelopment Law, but only to the extent permitted under the Redevelopment Law to be applied to the payment of the principal of, premium (if any) and interest on the Senior Loan and any Parity Debt with respect thereto and on the Subordinate Loan and any Parity Debt with respect thereto; but (i) excluding all other amounts required to be deposited in the Low and Moderate Income Housing Fund, (ii) excluding amounts payable by the State to the Agency under and pursuant to the provisions of Chapter 1.5 of Part 1 of Division 4 of Title 2 ( commencing with Section 16110) of the Government Code of the State, and (iii) excluding amounts payable by the Agency pursuant to the Pass-Through Agreements and certain provisions of the Redevelopment Law, except and to the extent that any amounts so payable are payable on a basis subordinate to the payment of the Senior Loan, the 1995 Project No. 2 Loan and any additional Parity Debt with respect to the Senior Loan, and to the payment of the Subordinate Loan and any additional Parity Debt with respect to the Subordinate Loan, as applicable and (iv) excluding all taxes (and related payments, subventions and reimbursements) to be applied as "Tax Revenues" with respect to the 1995 Project No. 1 Loan within the meaning of and pursuant to the 1995 Project No. 1 Loan Agreement.

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INDENTURES

Establishment of Funds and Accounts; Flow of Funds

Loan Funds. The proceeds of sale of the Senior Bonds ( other than accrued interest with respect to the Current Interest Bonds which will be deposited into the Interest Account established under the Senior Indenture) will be deposited with the Senior Trustee in the Loan Fund established under the Senior Indenture. The proceeds of sale of the Subordinate Bonds ( other than accrued interest which will be deposited into the Interest Account established under the Subordinate Indenture) will be deposited with the Subordinate Trustee in the Loan Fund established under the Subordinate Indenture. On the Closing Date, the Senior Trustee or the Subordinate Trustee, as applicable will disburse all amounts in each of the Loan Funds to the Agency for the purpose of funding the Senior Loan and the Subordinate Loan.

Costs oflssuance Funds. Pursuant to the Senior Loan Agreement and the Subordinate Loan Agreement, on the Closing Date a portion of the proceeds of the Senior Loan and a portion of the proceeds of the Subordinate Loan will be deposited with the Senior Trustee or the Subordinate Trustee, as applicable, in the Costs of Issuance Fund established under the Senior Indenture and in the Costs oflssuance Fund established under the Subordinate Indenture, respectively. The moneys in the Costs of Issuance Funds will be disbursed to pay costs of issuing the Bonds and other related financing costs from time to time upon receipt of written requests of the Authority. On the 90th day following the Closing Date, or upon the earlier request of the Authority stating that all such costs have been paid, the Senior Trustee will transfer all remaining amounts in the Costs oflssuance Fund established under the Senior Indenture to the Agency to be deposited by the Agency in the Merged Redevelopment Project 2000 Redevelopment Fund established under the Senior Loan Agreement. On the 90th day following the Closing Date, or upon the earlier request of the Authority stating that all such costs have been paid, the Subordinate Trustee will transfer all remaining amounts in the Costs of Issuance Fund established under the Subordinate Indenture to the Agency to be deposited by the Agency in the Merged Redevelopment Project 2000 Subordinate Loan Redevelopment Fund established under the Subordinate Loan Agreement.

Revenue Funds; Deposit and Transfer of Amounts Therein. All Revenues with respect to the Senior Loan will be deposited by the Senior Trustee in the Revenue Fund established under the Senior Indenture promptly upon receipt. Before each Interest Payment Date, the Senior Trustee will transfer from said Revenue Fund and deposit into the following respective accounts ( each of which the Senior Trustee will establish and maintain within said Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues with respect to the Senior Loan sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(a) Interest Account. Not less than five (5) Business Days prior to each Interest Payment Date, the Senior Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all outstanding Current Interest Bonds. All moneys in the Interest Account will be used and withdrawn by the Senior Trustee solely for the purpose of paying the interest on the Current Interest Bonds as it will become due and payable (including accrued interest on any Current Interest Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having come due and payable on the outstanding Current Interest Bonds, will be withdrawn therefrom by the

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Senior Trustee and transferred to the Agency to be used for any lawful purposes of the Agency.

(b) Principal Account. Not less than five (5) Business Days prior to each Interest Payment Date on which the principal or Accreted Value of the Senior Bonds will be payable, the Senior Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit therein to equal the principal amount or Accreted Value of the Senior Bonds coming due and payable on such Interest Payment Date, or the redemption price of the Senior Bonds ( consisting of the principal thereof and any applicable redemption premiums) required to be redeemed on such Interest Payment Date. All moneys in the Principal Account will be used and withdrawn by the Senior Trustee solely for the purpose of (i) paying the principal or Accreted Value of the Senior Serial Bonds at the maturity thereof, (ii) paying the principal of the Senior Term Bonds upon the mandatory sinking fund redemption thereof or upon the maturity thereof, or (iii) paying the redemption price of Current Interest Bonds upon the redemption thereof.

All Revenues with respect to the Subordinate Loan will be deposited by the Subordinate Trustee in the Revenue Fund established under the Subordinate Indenture promptly upon receipt. Before each Interest Payment Date, the Subordinate Trustee will transfer from said Revenue Fund and deposit into the following respective accounts ( each of which the Subordinate Trustee will establish and maintain within said Revenue Fund), the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues with respect to the Subordinate Loan sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(a) Interest Account. Not less than five (5) Business Days prior to each Interest Payment Date, the Subordinate Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all outstanding Subordinate Bonds. All moneys in the Interest Account will be used and withdrawn by the Subordinate Trustee solely for the purpose of paying the interest on the Subordinate Bonds as it will become due and payable (including accrued interest on any Subordinate Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having come due and payable on the outstanding Subordinate Bonds, will be withdrawn therefrom by the Subordinate Trustee and transferred to the Agency to be used for any lawful purposes of the Agency.

(b) Principal Account. Not less than five (5) Business Days prior to each Interest Payment Date on which the principal of the Subordinate Bonds will be payable, the Subordinate Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit therein to equal the principal amount of the Subordinate Bonds coming due and payable on such Interest Payment Date, or the redemption price of the Subordinate Bonds ( consisting of the principal thereof and any applicable redemption premiums) required to be redeemed on such Interest Payment Date. All moneys in the Principal Account will be used and withdrawn by the Subordinate Trustee solely for the purpose of (i) paying the principal of the Subordinate Serial Bonds at the maturity thereof, (ii) paying the principal of the SubordinateTerm Bonds upon the mandatory sinking fund redemption thereof or upon the maturity thereof, or (iii) paying the redemption price of Subordinate Bonds upon the redemption thereof.

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Consent oflnsurer under the Senior Indenture, Notice to Insurer under the Senior Indenture.

Wherever the term "Bond Owner" or a term oflike meaning appears in the Senior Indenture, the Insurer shall be deemed to be a Bond Owner of a sufficient percentage of the outstanding Bonds (a) to initiate any action or effect any demand which Bond Owners may initiate or effect, and (b) to approve or disapprove any action, forbearance or amendment which is subject to Bond Owner's approval or initiation. Any Senior Indenture provision providing for the discretionary consent of the Senior Trustee requires the prior written consent or direction of the Insurer.

The Insurer shall be deemed to be a Bond Owner for all purposes. At the time that the Senior Trustee is required to give any notice pursuant to the Senior Indenture or the Senior Loan Agreement, like notice shall be given to the Insurer. In addition, the Senior Trustee shall immediately notify the Insurer (i) not less than ten (10) Business Days in advance of the execution of any supplement, amendment or change to the Senior Indenture and the Senior Loan Agreement, (ii) upon any draw upon the Reserve Account with respect to the Senior Bonds, (iii) upon any deficiency in any fund or account under the Senior Indenture, (iv) upon a direction from the Authority to redeem all or any portion of the Current Interest Bonds, (v) upon the resignation or petition for removal of the Senior Trustee or the appointment of a successor Senior Trustee and (vi) upon any event of default or upon any event that with notice and/or with the lapse of time could become an event of default under the Senior Indenture or the Senior Loan Agreement.

Investment of Funds

All moneys in any of the funds or accounts established with the Senior Trustee pursuant to the Senior Indenture or the Senior Loan Agreement and all moneys in any of the funds or accounts established with the Subordinate Trustee pursuant to the Subordinate Indenture or the Subordinate Loan Agreement will be invested by the Senior Trustee or the Subordinate Trustee, as applicable, solely in Permitted Investments as directed by the Authority or the Agency, as applicable, in advance of the making of such investments. In the absence of any such direction from the Authority, the Senior Trustee or the Subordinate Trustee, as applicable, will invest any such moneys in Permitted Investments described in clause ( e) of the definition thereof. Obligations purchased as an investment of moneys in any fund will be deemed to be part of such fund or account.

All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Senior Indenture or the Senior Loan Agreement and all interest or gain derived from the investment of amounts in any of the funds or accounts established under the Subordinate Indenture or the Subordinate Loan Agreement will be deposited in the fund or account from which such investment was made, except as described under the caption "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Loan Agreements - Reserve Accounts" in this Appendix A. For the purpose of determining the amount in any fund or account, the value of Permitted Investments credited to such fund will be valued at the lesser of (a) the original cost thereof (excluding any brokerage commissions and excluding any accrued interest), or (b) the par amount thereof.

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Covenants of the Authority

Payment of Bonds, Pledge and Assignment. The Authority will punctually pay or cause to be paid the principal and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Senior Indenture or the Subordinate Indenture, as applicable, but only out of Revenues and other assets pledged for such payment as provided in the Senior Indenture or Revenues and other assets pledged for such payment as provided in the Subordinate Indenture, as applicable. The Authority will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Senior Indenture or upon the Revenues and other assets pledged or assigned under the Subordinate Indenture while any of the Bonds are outstanding, except the pledge and assignment created by the Senior Indenture and the Subordinate Indenture, as applicable.

Accounting Records and Financial Statements. The Senior Trustee will at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries will be made of all transactions relating to the proceeds of Senior Bonds, the Revenues with respect to the Senior Bonds, the Senior Loan Agreement and all funds and accounts established pursuant to the Senior Indenture. The Subordinate Trustee will at all times keep, or cause to be kept, proper books ofrecord and account, prepared in accordance with industry standards, in which complete and accurate entries will be made of all transactions relating to the proceeds of Subordinate Bonds, the Revenues with respect to the Subordinate Bonds, the Subordinate Loan Agreement and all funds and accounts established pursuant to the Subordinate Indenture. Such books of record and account will be available for inspection by the Authority and the Agency, during regular business hours and under reasonable circumstances.

No Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness will be issued or incurred which are payable out of the Revenues with respect to the Senior Bonds in whole or in part. The Authority covenants that no additional bonds, notes or other indebtedness will be issued or incurred which are payable out of the Revenues with respect to the Subordinate Bonds in whole or in part.

Tax Covenants. The Authority will not take, nor permit nor suffer to be taken by the Senior Trustee or the Subordinate Trustee or otherwise, any action with respect to the proceeds of any of the Bonds which would cause any of the Bonds to be "arbitrage bonds" within the meaning of applicable federal tax law. The Authority will cause to be calculated all excess investment earnings which are required to be rebated to the United States of America under applicable federal tax law. The Agency further covenants not to apply the proceeds of the Bonds in a manner which would have the effect of causing the Bonds to become "private activity bonds" within the meaning of applicable federal tax law. The Authority covenants to take any and all action and to refrain from taking such action, which is necessary in order to comply with the Code or amendments thereto in order to maintain the exclusion from federal gross income, pursuant to Section 103 of the Code, of the interest on the Bonds.

Continuing Disclosure. Pursuant to the Senior Loan Agreement and the Subordinate Loan Agreement, the Agency has undertaken all responsibility for compliance with continuing disclosure requirements, and the Authority shall have no liability to the Owners of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of the Senior Indenture or the Subordinate Indenture, failure of the Agency to comply with the Continuing Disclosure Agreements shall not be considered an event of default under the Senior Indenture and the Subordinate Indenture. However, any Participating Underwriter or any Owner or beneficial

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owner of the Bonds may take such actions as may be necessary and appropriate to compel performance by the Agency, including seeking mandate or specific performance by court order.

Senior Loan Agreement and Subordinate Loan Agreement; Amendments Thereof. The Authority and the Senior Trustee will promptly collect all amounts due from the Agency pursuant to the Senior Loan Agreement and the Authority and the Subordinate Trustee will promptly collect all amounts due from the Agency pursuant to the Subordinate Loan Agreement and each will diligently enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder.

The Authority, the Senior Trustee and the Agency may at any time amend or modify the Senior Loan Agreement but only (a) if the Senior Trustee first obtains the written consent of the Insurer and of the Owners of a majority in aggregate principal amount of the Senior Bonds then outstanding to such amendment or modification, or (b) with the written consent of the Insurer, but without the consent of any of the Bond Owners, if such amendment or modification is for any one or more of the following purposes-

(a) to add to the covenants and agreements of the Agency contained in the Senior Loan Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Senior Loan Agreement, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Senior Bonds; or

(c) to amend any provision thereof relating to federal tax law, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on any of the Senior Bonds under the federal tax law, in the opinion of nationally-recognized bond counsel; or

( d) to amend or supplement the Senior Loan Agreement to comply with the requirements of a provider of a Qualified Reserve Account Credit Instrument.

The Authority, the Subordinate Trustee and the Agency may at any time amend or modify the Subordinate Loan Agreement but only (a) if the Subordinate Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Subordinate Bonds then outstanding to such amendment or modification, or (b) without the consent of any of the Bond Owners, if such amendment or modification is for any one or more of the following purposes-

(a) to add to the covenants and agreements of the Agency contained in the Subordinate Loan Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Subordinate Loan Agreement, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Subordinate Bonds; or

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( c) to amend any provision thereof relating to federal tax law, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on any of the Subordinate Bonds under the federal tax law, in the opinion of nationally-recognized bond counsel; or

( d) to amend or supplement the Subordinate Loan Agreement to comply with the requirements of a provider of a Qualified Reserve Account Credit Instrument.

Amendment of Indentures

The Senior Indenture may be modified or amended at any time by a supplemental indenture with the written consent of the Insurer and of the Owners of a majority in aggregate principal amount of the Senior Bonds then outstanding. No such modification or amendment may (a) extend the maturity of or reduce the interest rate on any Senior Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums (ifany) at the time and place and at the rate and in the currency provided therein of any Senior Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of Bonds required for the written consent to any such amendment or modification, or ( c) without its written consent thereto, modify any of the rights or obligations of the Subordinate Trustee.

The Senior Indenture may also be modified or amended at any time by a supplemental indenture, with the written consent of the Insurer, but without the consent of any Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Authority, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved to or conferred upon the Authority, so long as such limitation or surrender ofrights does not adversely affect the interests of the Senior Bond Owners; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Senior Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments do not materially adversely affect the interests of the Owners of the Senior Bonds; or

( c) to amend any provision of the Senior Indenture relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on any of the Senior Bonds under the Code, in the opinion of nationally-recognized bond counsel.

The Subordinate Indenture may be modified or amended at any time by a supplemental indenture with the written consent of the Owners of a majority in aggregate principal amount of the Subordinate Bonds then outstanding. No such modification or amendment may (a) extend the maturity of or reduce the interest rate on any Subordinate Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums (ifany) at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Subordinate Bond, (b) reduce the percentage of Subordinate Bonds required for the written consent to any such amendment or modification, or ( c) without its written consent thereto, modify any of the rights or obligations of the Subordinate Trustee.

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The Subordinate Indenture may also be modified or amended at any time by a supplemental indenture without the consent of any Subordinate Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes:

(a) to add to the covenants and agreements of the Authority, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power reserved to or conferred upon the Authority, so long as such limitation or surrender ofrights does not adversely affect the interests of the Subordinate Bond Owners; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Subordinate Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments do not materially adversely affect the interests of the Owners of the Subordinate Bonds; or

( c) to amend any provision of the Subordinate Indenture relating to the Code, to any extent whatsoever but only if and to the extent such amendment will not adversely affect the exclusion from gross income of interest on any of the Subordinate Bonds under the Code, in the opinion of nationally-recognized bond counsel.

Events of Default

Events of Default Defined. The following events constitute events of default under the Senior Indenture and under the Subordinate Indenture:

(a) Default in the due and punctual payment of the principal of any Senior Bond or Subordinate Bond, as applicable, when and as the same becomes due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise.

(b) Default in the due and punctual payment of any installment of interest on any Current Interest Bond or Subordinate Bond, as applicable, when and as such interest installment becomes due and payable.

( c) Default by the Authority in the observance of any of the other covenants, agreements or conditions contained in the Senior Indenture or in the Senior Bonds and in the Subordinate Indenture or in the Subordinate Bonds, if such default continues for a period of 30 days after written notice thereof, specifying such default and requiring the same to be remedied, has been given to the Authority by the Senior Trustee or the Subordinate Trustee, as applicable, or to the Authority and the Senior Trustee or the Subordinate Trustee, as applicable, by the Owners of not less than 25% in aggregate principal amount of the Senior Bonds or Subordinate Bonds, as applicable, at the time outstanding; provided that such default shall not constitute an event of default if the Authority commences to cure such default within said 30 day period and thereafter diligently and in good faith cures such default within a reasonable period of time.

(d) Certain events relating to bankruptcy or insolvency of the Authority.

Remedies. Upon the occurrence and during the continuance of any event of default, the Senior Trustee under the Senior Indenture and the Subordinate Trustee under the Subordinate Indenture, as applicable, may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the outstanding Senior Bonds and on the

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outstanding Subordinate Bonds, as applicable, and to enforce any rights of the Senior Trustee under or with respect to the Senior Indenture and any rights of the Subordinate Trustee under or with respect to the Subordinate Indenture. Upon the occurrence of an event of default and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Senior Trustee and of the Senior Bond Owners under the Senior Indenture or to enforce the rights of the Subordinate Trustee and of the Subordinate Bond Owners under the Subordinate Indenture, as applicable, the Senior Trustee or the Subordinate Trustee, as applicable, shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the Revenues with respect to the Senior Loan or of the Revenues with respect to the Subordinate Loan, as applicable, and other amounts pledged under the Senior Indenture or the Subordinate Indenture, as applicable, pending such proceedings, with such powers as the court making such appointment shall confer. If an event of default has occurred and is continuing and (i) if requested to do so by the Owners of at least 25% in aggregate principal amount of Senior Bonds then outstanding or if an event of default has occurred and is continuing and if requested to do so by the Owners of at least 25% in aggregate principal amount of Subordinate Bonds then outstanding, (ii) the Senior Trustee or the Subordinate Trustee, as applicable, has been indemnified and (iii) in the case of the Senior Bonds, the Insurer has provided its written consent, all as provided in the Senior Indenture or the Subordinate Indenture, as applicable, the Senior Trustee or the Subordinate Trustee is obligated to exercise such one or more of the rights and powers conferred by the Senior Indenture or the Subordinate Indenture as said Senior Trustee or Subordinate Trustee, as applicable, being advised by counsel, deems most expedient in the interests of the Bond Owners. No delay or omission to exercise any right or power accruing upon any event of default shall impair any such right or power or shall be construed to be a waiver of any such event of default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

Application of Revenues and Other Funds After Default. All amounts received by the Senior Trustee under the Senior Indenture pursuant to any right given or action taken by the Senior Trustee under the Senior Indenture shall be applied by the Senior Trustee in the following order upon presentation of the Senior Bonds -

First, to the payment of the fees, costs and expenses of the Senior Trustee in declaring such event of default and in carrying out the provisions of the Senior Indenture, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of the whole amount of interest on and principal of and Accreted Value of the Senior Bonds then due and unpaid, with interest on overdue installments of principal and interest and Accreted Value, if applicable, to the extent permitted by law at the net effective rate of interest then borne by the outstanding Senior Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal and Accreted Value, then such amounts shall be applied in the following order of priority:

(a) first, to the payment ofall installments ofinterest on the Senior Bonds 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 and Accreted Value of all installments of the Senior Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal and Accreted Value in full,

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( c) third, to the payment of interest on overdue installments of principal and interest and Accreted Value, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

All amounts received by the Subordinate Trustee under the Subordinate Indenture pursuant to any right given or action taken by the Subordinate Trustee under the Subordinate Indenture shall be applied by the Subordinate Trustee in the following order upon presentation of the Subordinate Bonds-

First, to the payment of the fees, costs and expenses of the Subordinate Trustee in declaring such event of default and in carrying out the provisions of the Subordinate Indenture, 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 Subordinate Bonds then due and unpaid, with interest on overdue installments of principal and interest, if applicable, to the extent permitted by law at the net effective rate of interest then borne by the outstanding Subordinate Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

(a) first, to the payment ofall installments of interest on the Subordinate Bonds 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 Subordinate Bonds then due and unpaid, 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 interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

Power of Senior Trustee and Subordinate Trustee to Control Proceedings. In the event that the Senior Trustee or the Subordinate Trustee, as applicable, upon the happening of an event of default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Senior Indenture or the Subordinate Indenture, as applicable, whether (i) in the case of the Senior Bonds, upon its own discretion with the consent of the Insurer or upon the request of the Owners of a majority in aggregate principal amount of the Senior Bonds then outstanding with the consent of the Insurer or (ii) in the case of the Subordinate Bonds, upon its own discretion or upon the request of the Owners of a majority in aggregate principal amount of the Subordinate Bonds then outstanding, said Senior Trustee or Subordinate Trustee, as applicable, shall have full power, in the exercise of its discretion for the best interests of the Owners of the Senior Bonds or the Subordinate Bonds, as applicable, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that said Senior Trustee or Subordinate Trustee shall not, unless there no longer continues an event of default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the outstanding Senior Bonds or Subordinate Bonds, as applicable, opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation. Any suit, action or proceeding which any Owner of Senior Bonds shall have the right to bring to enforce any right or remedy under the Senior Indenture may be brought by the Senior Trustee with the consent of the Insurer for the equal benefit and protection of all Owners of Senior

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Bonds similarly situated and the Senior Trustee is hereby appointed (and the successive respective Owners of the Senior Bonds issued thereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Senior Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Senior Bonds as a class or classes, as may be necessary or advisable in the opinion of the Senior Trustee as such attorney-in-fact. Any suit, action or proceeding which any Owner of Subordinate Bonds shall have the right to bring to enforce any right or remedy under the Subordinate Indenture may be brought by the Subordinate Trustee under the Subordinate Indenture for the equal benefit and protection of all Owners of Subordinate Bonds similarly situated and said Subordinate Trustee is hereby appointed (and the successive respective Owners of the Subordinate Bonds issued thereunder, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawful attorney-in-fact of the respective Owners of the Subordinate Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Subordinate Bonds as a class or classes, as may be necessary or advisable in the opinion of said Subordinate Trustee as such attorney-in-fact.

Limitation on Bond Owners' Right to Sue. No Owner of any Senior Bond has the right to institute any suit, action or proceeding at law or in equity, for any remedy under the Senior Indenture, unless (a) such Owner has previously given to the Senior Trustee and the Insurer written notice of the occurrence of an event of default; (b) the Owners of a majority in aggregate principal amount of all the Senior Bonds then outstanding with the consent of the Insurer have requested the Senior Trustee in writing to exercise its powers under the Senior Indenture; ( c) said Owners have tendered to the Senior Trustee indemnity reasonably acceptable to the Senior Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and ( d) the Senior Trustee has refused or failed to comply with such request for a period of 30 days after such written request has been received by the Senior Trustee and said tender of indemnity is made to the Senior Trustee. No Owner of any Subordinate Bond has the right to institute any suit, action or proceeding at law or in equity, for any remedy under the Subordinate Indenture, unless (a) such Owner has previously given to the Subordinate Trustee written notice of the occurrence of an event of default; (b) the Owners of a majority in aggregate principal amount of all the Subordinate Bonds then outstanding have requested the Subordinate Trustee in writing to exercise its powers under the Subordinate Indenture; ( c) said Owners have tendered to the Subordinate Trustee indemnity reasonably acceptable to the Subordinate Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and ( d) the Subordinate Trustee has refused or failed to comply with such request for a period of 30 days after such written request has been received by the Subordinate Trustee and said tender of indemnity is made to the Subordinate Trustee.

Non-Waiver. A waiver of any event of default by any Owner of Senior Bonds or any Owner of Subordinate Bonds will not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of any Owner of any of the Senior Bonds or any Owner of any of the Subordinate Bonds to exercise any right or power accruing upon any event of default will impair any such right or power or be construed to be a waiver of any such event of default.

Discharge of Indentures

The Authority may pay and discharge the indebtedness on any or all outstanding Senior Bonds in any one or more of the following ways:

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(a) by paying or causing to be paid the principal of and interest and redemption premium (if any) on such Senior Bonds outstanding, as and when the same become due and payable;

(b) by irrevocably depositing with the Senior Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds and accounts provided for in the Senior Indenture and the Senior Loan Agreement, is fully sufficient to pay such Senior Bonds, including all principal, interest and redemption premiums, if any; or

( c) by irrevocably depositing with the Senior Trustee or any other fiduciary, in trust, in an escrow, Federal Securities, in such amount as an independent certified public accountant determines will, together with the interest to accrue thereon and moneys then on deposit in the funds and accounts provided for in the Senior Indenture and the Senior Loan Agreement, be fully sufficient to pay and discharge the indebtedness on such Senior Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.

Upon such payment, and notwithstanding that any Senior Bonds have not been surrendered for payment, the pledge of the Revenues with respect to the Senior Bonds and other funds provided for in the Senior Indenture with respect to such Senior Bonds, and all other obligations of the Authority under the Senior Indenture with respect to such Senior Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Senior Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose. In the event the Authority shall, pursuant to the foregoing provisions, pay and discharge any portion or all of the Senior Bonds then outstanding, the Senior Trustee shall be authorized to take such actions and execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge, including, without limitation, selection by lot of Senior Bonds of any maturity of the Senior Bonds that the Authority has determined to pay and discharge in part. In the event the Authority shall, pursuant to the foregoing provisions, pay and discharge all of the Senior Bonds then outstanding, any funds thereafter held by the Senior Trustee which are not required for said purposes, shall be paid over to the Authority.

Notwithstanding the foregoing provisions of the Senior Indenture, in the event that the principal, interest and premium (if any) on the Senior Bonds shall be paid by the Insurer pursuant to the Insurance Policy, the obligations of the Senior Trustee and the Agency shall continue in full force and effect and the Insurer shall be fully subrogated to the rights of all Owners of the Senior Bonds so paid. In addition, the obligations of the Senior Trustee, Authority and the Agency under the Senior Indenture shall continue in full force and effect, and shall not be terminated, until such time as the Agency shall have paid all amounts (if any) as shall be due and owing to the Insurer under the Financial Guaranty Agreement; and the Senior Trustee shall not distribute any funds to the Authority as described in the preceding paragraph unless the Authority shall have certified to the Senior Trustee that there are no obligations then due and owing by the Agency to the Insurer under the Financial Guaranty Agreement.

The Authority may pay and discharge the indebtedness on any or all outstanding Subordinate Bonds in any one or more of the following ways:

(a) by paying or causing to be paid the principal of and interest and redemption premium (ifany) on such Subordinate Bonds outstanding, as and when the same become due and payable;

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(b) by irrevocably depositing with the Subordinate Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds and accounts provided for in the Subordinate Indenture and the Subordinate Loan Agreement, is fully sufficient to pay such Subordinate Bonds, including all principal, interest and redemption premiums, if any; or

( c) by irrevocably depositing with the Subordinate Trustee or any other fiduciary, in trust, in an escrow, Federal Securities, in such amount as an independent certified public accountant determines will, together with the interest to accrue thereon and moneys then on deposit in the funds and accounts provided for in the Subordinate Indenture and the Subordinate Loan Agreement, be fully sufficient to pay and discharge the indebtedness on such Subordinate Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates.

Upon such payment, and notwithstanding that any Subordinate Bonds have not been surrendered for payment, the pledge of the Revenues with respect to the Subordinate Bonds and other funds provided for in the Subordinate Indenture with respect to such Subordinate Bonds, and all other obligations of the Authority under the Subordinate Indenture with respect to such Subordinate Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Subordinate Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose. In the event the Authority shall, pursuant to the foregoing provisions, pay and discharge any portion or all of the Subordinate Bonds then outstanding, the Subordinate Trustee shall be authorized to take such actions and execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge, including, without limitation, selection by lot of Subordinate Bonds of any maturity of the Subordinate Bonds that the Authority has determined to pay and discharge in part. In the event the Authority shall, pursuant to the foregoing provisions, pay and discharge all of the Subordinate Bonds then outstanding, any funds thereafter held by the Subordinate Trustee which are not required for said purposes, shall be paid over to the Authority.

LOAN AGREEMENTS

Terms of Senior Loan and Subordinate Loan; Payment of Principal and Interest

Pursuant to the Senior Loan Agreement and to the Subordinate Loan Agreement, the Authority agrees to make the Senior Loan and the Subordinate Loan to the Agency on the Closing Date. The principal of each of the Senior Loan and the Subordinate Loan is payable in aggregate installments as of August 1 in each of the years and in the amounts, and interest on each installment of the Senior Loan and on each installment of the Subordinate Loan is calculated at the rates per annum and is payable as of each Interest Payment Date in the aggregate amounts, corresponding to the amounts of principal and interest then coming due with respect to the outstanding Senior Bonds and Subordinate Bonds, as applicable. Principal of and interest on the Senior Loan and on the Subordinate Loan is payable by the Agency to the Senior Trustee or Subordinate Trustee, as applicable, as assignee of the Authority under the Senior Indenture or the Subordinate Indenture, in immediately available funds.

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Prepayment of Senior Loan and Subordinate Loan

The Senior Loan and the Subordinate Loan are subject to optional prepayment in whole, or in part, on any Interest Payment Date on which the Senior Bonds or the Subordinate Bonds, as applicable, are subject to optional redemption, from any available source of funds of the Agency, at a prepayment price corresponding to the redemption price of the Senior Bonds or the Subordinate Bonds to be redeemed from such prepayments. In the event that a portion of the principal of the Senior Loan shall have been prepaid by the Agency pursuant to the Senior Loan Agreement, the amount of all future annual principal installments set forth in the Senior Loan Agreement shall be reduced in the aggregate amount of such principal so prepaid, based on calculations to be provided to the Senior Trustee by an Independent Financial Consultant or by the Original Purchaser. In the event that a portion of the principal of the Subordinate Loan shall have been prepaid by the Agency pursuant to the Subordinate Loan Agreement, the amount of all future annual principal installments set forth in the Subordinate Loan Agreement shall be reduced in the aggregate amount of such principal so prepaid, based on calculations to be provided to the Subordinate Trustee by an Independent Financial consultant or by the Original Purchaser.

Reserve Accounts

Each of the Senior Loan Agreement and the Subordinate Loan Agreement establishes a separate Reserve Account to be held by the Senior Trustee and the Subordinate Trustee, as applicable, in trust for the benefit of the Agency and the Owners of the Senior Bonds and the Owners of the Subordinate Bonds. The amount on deposit in the Reserve Account established by the Senior Loan Agreement shall be maintained at the Reserve Requirement with respect to the Senior Loan at all times so long as the Senior Loan remains unpaid. The amount on deposit in the Reserve Account established by the Subordinate Loan Agreement shall be maintained at the Reserve Requirement with respect to the Subordinate Loan at all times so long as the Subordinate Loan remains unpaid. In the event that the Agency fails to deposit with the Senior Trustee the full amount of principal and interest on the Senior Loan on or before the fifth (5th) Business Day preceding any Interest Payment Date as required under the Senior Loan Agreement, on such Interest Payment Date the Senior Trustee will withdraw the amount of such deficiency from the Reserve Account established by the Senior Loan Agreement and transfer such amount to the Interest Account and the Principal Account, in such order. In the event that the Agency fails to deposit with the Subordinate Trustee the full amount of principal and interest on the Subordinate Loan on or before the fifth (5th) Business Day preceding any Interest Payment Date as required under the Subordinate Loan Agreement, on such Interest Payment Date the Subordinate Trustee will withdraw the amount of such deficiency from the Reserve Account established by the Subordinate Loan Agreement and transfer such amount to the Interest Account and the Principal Account, in such order. Amounts on deposit in the Reserve Account established under the Senior Loan Agreement and on deposit in the Reserve Account established under the Subordinate Loan Agreement are not pledged or available to make payments with respect to any obligations other than the Senior Loan and the Subordinate Loan, as applicable.

In the event that the amount on deposit in the Reserve Account established by the Senior Loan Agreement or on deposit in the Reserve Account established by the Subordinate Loan Agreement shall at any time be less than the Reserve Requirement with respect to the Senior Loan or the Reserve Requirement with respect to the Subordinate Loan, as applicable, the Senior Trustee or the Subordinate Trustee, as applicable, will promptly notify the Agency of the amount required to be deposited therein to restore the balance to the applicable Reserve Requirement. In the event that the amount on deposit in the Reserve Account established by the Senior Loan Agreement or on deposit in the Reserve Account established by the Subordinate Loan Agreement on the fifth (5th) Business Day preceding any Interest Payment Date exceeds the Reserve Requirement with respect

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to the Senior Loan or the Reserve Requirement with respect to the Subordinate Loan, the Trustee will withdraw from such Reserve Account all amounts in excess of such Reserve Requirement and, credit such amounts towards the deposit of principal and interest on the Senior Loan or the Subordinate Loan, as applicable, then required to be made by the Agency. At the written request of the Agency filed with the Senior Trustee, all amounts in the Reserve Account established by the Senior Loan Agreement shall either (a) be credited, on the fifth (5th) Business Day preceding the final Interest Payment Date, to the payment of principal and interest on the Senior Loan then required to be made by the Agency, or (b) be transferred, on the final Interest Payment Date, to the Agency to be deposited in the Redevelopment Fund for the Merged Project Area. At the written request of the Agency filed with the Subordinate Trustee, all amounts in the Reserve Account established by the Subordinate Loan Agreement shall either (a) be credited, on the fifth (5th) Business Day preceding the final Interest Payment Date, to the payment of principal and interest on the Subordinate Loan then required to be made by the Agency, or (b) be transferred, on the final Interest Payment Date, to the Agency to be deposited in the Redevelopment Fund for the Merged Project Area. No amounts shall be withdrawn from the Reserve Fund established by the Senior Loan Agreement and transferred to the Agency during any period in which an event of default has occurred and is continuing under the Senior Loan Agreement. No amounts shall be withdrawn from the Reserve Fund established by the Subordinate Loan Agreement and transferred to the Agency during any period in which an event of default has occurred and is continuing under the Subordinate Loan Agreement.

The Agency shall have the right at any time to release funds from the Reserve Account established under the Senior Loan Agreement and from the Reserve Fund established under the Subordinate Loan Agreement, in whole or in part, by tendering to the Trustee a Qualified Reserve Account Credit Instrument. Upon tender of such a Qualified Reserve Account Credit Instrument to the Senior Trustee or the Subordinate Trustee, as applicable, and upon delivery by the Agency to the Senior Trustee or the Subordinate Trustee, as applicable, of a written calculation of the amount permitted to be released from the applicable Reserve Account (upon which calculation the Senior Trustee and the Subordinate Trustee may conclusively rely), the Senior Trustee or the Subordinate Trustee, as applicable, shall transfer such amount from the applicable Reserve Account to the Agency free and clear of the lien, all as provided in the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable. The Trustee shall comply with all documentation relating to a Qualified Reserve Account Credit Instrument as shall be required to maintain such Qualified Reserve Account Credit Instrument in full force and effect and as shall be required to receive payments thereunder in the event and to the extent required to make any payment when and as provided in the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable.

At least fifteen days prior to the expiration of any Qualified Reserve Account Credit Instrument, the Agency shall be obligated either (i) to replace such Qualified Reserve Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or (ii) to deposit or cause to be deposited with the Senior Trustee or the Subordinate Trustee, as applicable, an amount of funds such that the amount on deposit in the applicable Reserve Account is equal to the Reserve Requirement (without taking into account such expiring Qualified Reserve Fund Credit Instrument). In the event that the Agency shall fail to take action as specified in clause (i) or (ii) of the preceding sentence, the Senior Trustee or the Subordinate Trustee, as applicable, shall, prior to the expiration thereof, draw upon the Qualified Reserve Account Credit Instrument in full and deposit the proceeds of such draw in the applicable Reserve Account.

In the event that a Reserve Requirement shall at any time be maintained in a Reserve Account in the form of a combination of cash and a Qualified Reserve Account Credit Instrument, the Senior Trustee or the Subordinate Trustee, as applicable, shall apply the amount of such cash to make any payment required to be made from such Reserve Account before the Senior Trustee or

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the Subordinate Trustee shall draw any moneys under such Qualified Reserve Account Credit Instrument for such purpose. In the event that the Senior Trustee or the Subordinate Trustee shall at any time draw funds under a Qualified Reserve Account Credit Instrument to make any payment then required to be made from a Reserve Account, the Tax Revenues thereafter received by the Trustee with respect to the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable, to the extent remaining after making the other deposits (if any) then required to be made as provided in such Loan Agreement, shall be used to reinstate the applicable Qualified Reserve Account Credit Instrument.

The Reserve Requirement established by the Senior Loan Agreement will be initially maintained in the Reserve Account established by the Senior Loan Agreement through the issuance of the Qualified Reserve Account Credit Instrument consisting of the Reserve Account Surety Bond. Pursuant to the terms and conditions of the Reserve Account Surety Bond, the Senior Trustee shall deliver to the Insurer a demand for payment under the Reserve Account Surety Bond in the required form at least three (3) days prior to the date on which funds are required for the purposes set forth in the Senior Loan Agreement. It shall be the responsibility of the Senior Trustee to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any time under the Reserve Account Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement.

The Reserve Account established by the Senior Loan Agreement and the Reserve Account established by the Subordinate Loan Agreement may be maintained in the form of one or more separate sub-accounts which are established for the purpose of holding separately the proceeds of the Senior Bonds and any Parity Debt or the Subordinate Bonds and any Parity Debt in conformity with applicable provisions of the Code.

Redevelopment Funds

Each of the Senior Loan Agreement and the Subordinate Loan Agreement establishes a separate Redevelopment Fund, to be held and maintained by the Agency. Amounts on deposit in the Redevelopment Fund established under the Senior Loan Agreement and amounts on deposit in the Redevelopment Fund established under the Subordinate Loan Agreement shall be derived solely from a portion of the proceeds of the Senior Loan and the Subordinate Loan, as applicable, and from the interest, profits and other income received from the investment of moneys therein. Moneys in the Redevelopment Fund established under the Senior Loan Agreement and.in the Redevelopment Fund established under the Subordinate Loan Agreement shall be used solely in the manner provided by the Redevelopment Law and the Redevelopment Plan to provide financing for projects relating to the Merged Project Area.

Parity Debt

The Agency may issue or incur Parity Debt on a parity with the Senior Loan, subject to the following conditions:

(a) No event of default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the applicable Loan Agreement.

(b) The Tax Revenues received or to be received for the then current Fiscal Year (i) calculated using a tax rate of one percent (1 %), (ii) based on the most recent taxable valuation of property in the Merged Project Area as evidenced in a written document from an appropriate official of the County and (iii) inclusive of Additional Revenues, but

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exclusive of investment earnings, State subventions and other like amounts, shall be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service with respect to the Senior Loan and any Parity Debt with respect to the Senior Loan, including within such Maximum Annual Debt Service the amount of maximum annual debt service on the Parity Debt then proposed to be issued or incurred, plus one hundred percent (100%) of Maximum Annual Debt Service on the Subordinate Loan and any Parity Debt with respect to the Subordinate Loan; provided that, if Tax Revenues will be reduced in any future Fiscal Year because of increased payments in such Fiscal Year pursuant to any Pass-Through Agreement, then Tax Revenues estimated to be received in such Fiscal Year shall at least equal one hundred twenty-five percent (125%) of annual debt service payable on the Senior Loan and any Parity Debt in such Fiscal Year ( assuming no future growth in assessed valuation in the Merged Project Area).

( c) The aggregate amount of the principal of and interest on the Senior Loan, any Parity Debt with respect to the Senior Loan, the Subordinate Loan and any Parity Debt with respect to the Subordinate Loan coming due and payable following the issuance of such Parity Debt shall not exceed the maximum amount of Tax Revenues permitted under the Plan Limit to be allocated to the Agency following the issuance of such Parity Debt.

( d) The Parity Debt Instrument providing for the issuance of such Parity Debt shall provide that interest thereon shall be payable on February 1 and August 1 and principal thereof shall be payable on August 1 in any year in which principal is payable.

( e) The Parity Debt Instrument providing for the issuance of such Parity Debt may provide for the establishment of separate funds and accounts.

(f) The Agency shall deliver to the Senior Trustee and the Insurer a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in subsections (a), (b), (c) and (d) above have been satisfied.

The Agency may issue or incur Parity Debt on a parity with the Subordinate Loan, subject to the following conditions:

(a) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the Subordinate Loan Agreement.

(b) The Tax Revenues received or estimated to be received for the then current Fiscal Year (i) calculated using a tax rate of (1 %), (ii) based on the most recent taxable valuation of property in the Merged Project Area as evidenced in a written document from an appropriate official of the County and (iii) inclusive of Additional Revenues, but exclusive of investment earnings and payments, subventions and other amounts described under clause (a) of the definition of Tax Revenues, shall be at least equal to one hundred ten percent ( 110%) of Maximum Annual Debt Service as defined in the Subordinate Loan Agreement (including within such Maximum Annual Debt Service, the amount of debt service on the Subordinate Parity Debt then proposed to be issued or incurred), as evidenced by a report of an Independent Financial Consultant.

( c) The aggregate amount of the principal of and interest on the Senior Loan, any Parity Debt with respect to the Senior Loan, the Subordinate Loan and any Parity Debt with respect to the Subordinate Loan coming due and payable following the issuance of such

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Parity Debt shall not exceed the maximum amount of Tax Revenues permitted under the Plan Limit to be allocated to the Agency following the issuance of such Parity Debt.

( d) The Parity Debt Instrument providing for the issuance of such Parity Debt shall provide that interest thereon shall be payable on February 1 and August 1 and principal thereof shall be payable on February I in any year in which principal is payable.

( e) The Parity Debt Instrument providing for the issuance of such Parity Debt may provide for the establishment of separate funds and accounts.

(f) The Agency shall deliver to the Subordinate Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in subsections (a), (b), (c) and (d) above have been satisfied.

Pledge and Deposit of Tax Revenues

The Senior Loan, the 1995 Project No. 2 Loan and all Parity Debt with respect thereto are equally secured by a first pledge of, security interest in and lien on all of the Tax Revenues, without preference or priority. The Senior Loan, the 1995 Project No. 2 Loan and all additional Parity Debt are additionally secured by a first pledge of and lien upon all of the moneys in the Special Fund established by the 1995 Project No. 2 Loan Agreement and continued by the Senior Loan Agreement and the Subordinate Loan Agreement (the "Special Fund") and in the Reserve Account established by the Senior Loan Agreement, including all amounts derived from the investment of such moneys.

The Subordinate Loan and all Parity Debt with respect thereto shall be equally secured by a pledge of and security interest in and lien on all of the Tax Revenues, without preference or priority, subject, in all regards, to the prior pledge of, security interest in and lien on the Tax Revenues in favor of the Senior Loan, the 1995 Project No. 2 Loan and all Parity Debt with respect thereto. The Subordinate Loan and all Parity Debt with respect thereto shall be additionally secured by a first and exclusive pledge of and lien upon all of the moneys in the Reserve Account established under the Subordinate Loan Agreement, including all amounts derived from the investment of such moneys. Subject to the prior pledge, security interest and lien in favor of the Senior Loan and the 1995 Project No. 2 Loan and all Parity Debt with respect thereto, Tax Revenues and other moneys in the Special Fund are allocated pursuant to the Subordinate Loan Agreement to the payment of the principal of and interest on the Subordinate Loan and all Parity Debt with respect thereto.

The Agency shall deposit in the Special Fund all of the Tax Revenues until such time (if any) during any Bond Year as the amounts on deposit in such Special Fund equal the aggregate amounts required to be transferred to the Senior Trustee and to the Subordinate Trustee in such Bond Year; and any Tax Revenues received during such Bond Year in excess of such amounts shall be released from the pledge and lien and may be used for any lawful purposes of the Agency. The Agency shall withdraw from the Special Fund and transfer to the Senior Trustee the following amounts at the following times and in the following order of priority:

(a) Interest and Principal Deposits. No later than the fifth (5th) Business Day preceding each Interest Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Senior Trustee all amounts of principal of and interest on the Senior Loan becoming due and payable on such Interest Payment Date.

(b) Reserve Account Deposits. In the event that the Senior Trustee notifies the Agency that the amount on deposit in the Reserve Account established by the Senior Loan Agreement is less than the Reserve Requirement, the Agency shall immediately withdraw

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from the Special Fund and transfer to the Senior Trustee for deposit in such Reserve Account an amount of money necessary to maintain the Reserve Requirement therein.

Following the transfer of amounts to the Senior Trustee described above and the transfer of amounts required by the 1995 Project No. 2 Agreement, the Agency shall withdraw from the Special Fund and transfer to the Subordinate Trustee the following amounts at the following times and in the following order of priority:

(a) Interest and Principal Deposits. No later than the fifth (5th) Business Day preceding each Interest Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Subordinate Trustee all amounts of principal and interest on the Subordinate Loan becoming due and payable on such Interest Payment Date.

(b) Reserve Account Deposits. In the event that the Subordinate Trustee notifies the Agency that the amount on deposit in the Reserve Account established by the Subordinate Loan Agreement is less than the Reserve Requirement, the Agency shall immediately withdraw from the Special Fund and transfer to the Subordinate Trustee for deposit in such Reserve Account an amount of money necessary to maintain the Reserve Requirement therein.

Except as may be otherwise provided in any documents authorizing the issuance of any Parity Debt with respect to the Senior Loan or with respect to the Subordinate Loan, the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which, together with other available amounts in such Special Fund, exceeds the amounts required to be transferred to the applicable trustee pursuant to the Senior Loan Agreement, the 1995 Project No. 2 Loan Agreement, any Parity Debt Instrument with respect to the Senior Loan, the Subordinate Loan Agreement and any Parity Debt Instrument with respect to the Subordinate Loan in such Bond Year. In the event that for any reason whatsoever any amounts shall remain on deposit in a Special Fund on any August 1 after making all of the transfers theretofore required to be made pursuant to the foregoing described provisions, the 1995 Project No. 2 Loan Agreement and any Parity Debt Instrument with respect to the Senior Loan and any Parity Debt Instrument with respect to the Subordinate Loan, the Agency shall withdraw such amounts from the Special Fund, to be used for any lawful purpose of the Agency.

Other Covenants of the Agency

Limitation on Superior Debt. The Agency covenants that, so long as the Senior Loan remains unpaid, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any loans, advances or indebtedness, which is in any case secured by a lien on all or any part of the Tax Revenues pledged to pay the Senior Loan which is superior to or on a parity with the lien established under the Senior Loan Agreement for the security of the Senior Loan, excepting only Parity Debt issued as provided in the Senior Loan Agreement. The Agency further covenants that, so long as the Subordinate Loan remains unpaid, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any loans, advances or indebtedness, which is in any case secured by a lien on all or any part of the Tax Revenues which is superior to or on a parity with the lien established under the Subordinate Loan Agreement, excepting only the Senior Loan, Parity Debt with respect to the Senior Loan and the 1995 Project No. 2 Loan and Parity Debt issued as provided in the Subordinate Loan Agreement. Nothing in the Senior Loan Agreement or the Subordinate Loan Agreement is intended or shall be construed in any way to prohibit or impose any limitations upon the issuance by the Agency of loans, bonds, notes, advances or other indebtedness which are unsecured or which are secured by

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a lien junior to the Subordinate Loan and any Parity Debt with respect to the Subordinate Loan on the Tax Revenues.

Books and Accounts; Financial Statements. The Agency will keep, or cause to be kept, proper books ofrecord and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues, the Special Fund, the Redevelopment Fund established under the Senior Loan Agreement, the Redevelopment Fund established under the Subordinate Loan Agreement, the Reserve Account established under the Senior Loan Agreement and the Reserve Account established under the Subordinate Loan Agreement. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the reasonable inspection of the Authority, the Senior Trustee, the Subordinate Trustee and the Owners of any Senior Bonds then outstanding or any Subordinate Bonds then outstanding, or their representatives authorized in writing.

The Agency will cause to be prepared and filed with the Senior Trustee annually, within 180 days after the close of each Fiscal Year so long as any of the Senior Bonds are outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements from the Special Fund, the Redevelopment Fund established under the Senior Loan Agreement and the Reserve Account established under the Senior Loan Agreement, and the financial condition of the Redevelopment Project. The Agency will furnish a copy of such statements to the Insurer and, upon reasonable request, to any Owner of Senior Bonds. The Agency will cause to be prepared and filed with the Subordinate Trustee annually, within 180 days after the close of each Fiscal Year so long as any of the Subordinate Bonds are outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements from the Special Fund, the Redevelopment Fund established under the Subordinate Loan Agreement and the Reserve Account established under the Subordinate Loan Agreement, and the financial condition of the Redevelopment Project. The Agency will furnish a copy of such statement, upon reasonable request, to any Owner of Subordinate Bonds.

Protection of Security and Rights. The Agency will preserve and protect the security of the Senior Loan and the rights of the Senior Trustee and the Owners of Senior Bonds with respect to the Senior Loan. The Agency will preserve and protect the security of the Subordinate Loan and the rights of the Subordinate Trustee and the Owners of Subordinate Bonds with respect to the Subordinate Loan. From and after the Closing Date, the Senior Loan and the Subordinate Loan shall be incontestable by the Agency.

Taxation of Leased Property. All amounts derived by the Agency as payments in lieu of Tax Revenues with respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of the Senior Loan Agreement and the Subordinate Loan Agreement, and shall be paid to the Agency for deposit in the Special Fund.

Disposition of Property. The Agency will not participate in the detachment of any land or real property from the Merged Project Area or the disposition of any land or real property in the Merged Project Area which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right-of-way) so that such detachment or disposition shall, when taken together with other such detachments or dispositions, aggregate either more than 10% of the land area in the Merged Project Area or 10% of the assessed value of the Merged Project Area. Notwithstanding the foregoing, the Agency will not participate in any such detachment or disposition ( except property dedicated for public right-ofway) at any time when Tax Revenues are less than one hundred twenty-five percent (125%) of Maximum Annual Debt Service with respect to the Senior Loan or less than one hundred ten percent

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( 110%) of Maximum Annual Debt Service with respect to the Subordinate Loan calculated in the same manner as required for the issuance or incurrence of Parity Debt with respect to the Senior Loan or Parity Debt with respect to the Subordinate Loan, as applicable.

Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure 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 the State, and shall forward information copies of each such filing to the Senior Trustee and to the Subordinate Trustee. The Agency shall not enter into any agreement with the County or any other governmental unit, or any amendment or supplement to any existing agreement, which would have the effect of reducing the amount of Tax Revenues available for payment of the Senior Loan and the Subordinate Loan.

Compliance With Arbitrage Requirements; Rebate Requirements. The Agency shall not take, or permit or suffer to be taken by the Senior Trustee, the Subordinate Trustee or otherwise, any action with respect to the proceeds of the Senior Loan and of the Subordinate Loan which would cause any of the Bonds to be "arbitrage bonds" under federal tax law. The Agency agrees to furnish all information to, and cooperate fully with, the Authority, the Senior Trustee, the Subordinate Trustee and their respective officers, employees, agents and attorneys, in order to assure compliance with the provisions of federal tax law relating to the rebate of excess investment earnings. The Agency will pay to the Senior Trustee and to the Subordinate Trustee, as applicable, from available Tax Revenues or any other source of legally available funds all amounts determined by the Authority to be subject to such rebate.

Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Senior Loan and the proceeds of the Subordinate Loan are not so used as to cause the Bonds to satisfy the private business tests of section 141 (b) of the Code.

Private Loan Financing Limitation. The Agency shall assure that the proceeds of the Senior Loan and the proceeds of the Subordinate Loan are not so used as to cause the Bonds to satisfy the private loan financing test of section 141 ( c) of the Code.

Federal Guarantee Prohibition. The Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code.

Redevelopment of Merged Project Area. The Agency shall ensure that all activities undertaken by the Agency with respect to the redevelopment of the Merged Project Area are undertaken and accomplished in conformity with all applicable requirements of the Redevelopment Plan and the Redevelopment Law. The Agency has covenanted to deposit or cause to be deposited in the Low and Moderate Income Housing Fund all amounts when, as and ifrequired to be deposited therein pursuant to the Redevelopment Law.

Plan Limit; Annual Review of Tax Revenues. The Agency shall annually review the total amount of Tax Revenues remaining available to be received by the Agency under the Plan Limit, as well as future cumulative annual payments on the Pass-Through Agreements, the Senior Loan, the Subordinate Loan and other obligations of the Agency payable from Tax Revenues. The Agency will not accept such Tax Revenues greater than the aggregate annual debt service payable by the Agency in any year if such acceptance will cause the amount remaining under the tax increment limit to fall below remaining cumulative debt service, except for the purpose of depositing such revenues in escrow for future payments on the Senior Loan or the Subordinate Loan or to prepay

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the Senior Loan or the Subordinate Loan or to pay amounts payable under the Financial Guaranty Agreement.

Continuing Disclosure. The Agency covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Senior Loan Agreement or the Subordinate Loan Agreement, failure of the Agency to comply with the Continuing Disclosure Agreement shall not be an Event of Default under either of said loan agreements. However, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Agency to comply with its obligations as provided in the Senior Loan Agreement or the Subordinate Loan Agreement.

Amendment of Loan Agreements. The Senior Loan Agreement and the Subordinate Loan Agreement may only be amended as provided in the Senior Indenture or the Subordinate Indenture, as applicable. See "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Indentures - Covenants of the Authority- Senior Loan Agreement and Subordinate Loan Agreement; Amendments Thereof' above.

Events of Default and Remedies

The following events constitute events of default under each of the Senior Loan Agreement and the Subordinate Loan Agreement:

(a) Failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the Senior Loan or Parity Debt with respect to the Senior Loan or on the Subordinate Loan or Parity Debt with respect to the Subordinate Loan when 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 Senior Loan Agreement and in the Subordinate Loan Agreement, other than as referred to in the preceding clause (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 Senior Trustee or the Subordinate Trustee, as applicable; provided, however, that ifin the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such 30 day period, neither the Senior Trustee nor the Subordinate Trustee shall 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) Commencement by the Agency of a voluntary bankruptcy proceeding.

If an event of default has occurred and is continuing under the Senior Loan Agreement, the Senior Trustee may, but only with the prior written consent of the Insurer, and at the written direction of the Insurer, the Senior Trustee shall, (a) declare the principal of the Senior 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, and (b) subject to indemnity satisfactory to the Senior Trustee from any liability or expense, exercise any other remedies available to the Senior Trustee in law or at equity. This provision, however, is subject to the condition that if, at any time after the principal of the Senior 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 Senior Trustee a sum sufficient to pay all installments of principal of the Senior Loan matured prior to such declaration

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and all accrued interest thereon, with interest on such overdue installments of principal and interest at the net effective rate then borne by the outstanding Senior Bonds, and the reasonable expenses of the Senior Trustee, and any and all other defaults known to the Senior Trustee ( other than in the payment of principal of and interest on the Senior Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Senior Trustee or provision deemed by the Senior Trustee to be adequate shall have been made therefor, then the Insurer may, by written notice to the Senior Trustee and the Agency, rescind and annul such declaration and its consequences.

If an event of default has occurred and is continuing under the Subordinate Loan Agreement, the Subordinate Trustee shall, (a) declare the principal of the Subordinate 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, and (b) subject to indemnity satisfactory to the Subordinate Trustee from any liability or expense, exercise any other remedies available to the Subordinate Trustee in law or at equity. This provision, however, is subject to the condition that if, at any time after the principal of the Subordinate 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 Subordinate Trustee a sum sufficient to pay all installments of principal of the Subordinate Loan matured prior to such declaration and all accrued interest thereon, with interest on such overdue installments of principal and interest at the net effective rate then borne by the outstanding Subordinate Bonds, and the reasonable expenses of the Subordinate Trustee, and any and all other defaults known to the Subordinate Trustee ( other than in the payment of principal of and interest on the Subordinate Loan due and payable solely by reason of such declaration) shall have been made good or cured to the satisfaction of the Subordinate Trustee or provision deemed by the Subordinate Trustee to be adequate shall have been made therefor, then the Subordinate Trustee may rescind and annul such declaration and its consequences.

Application of Funds Upon Default

All amounts received by the Senior Trustee or the Subordinate Trustee, as applicable, pursuant to any right given or action taken by the Senior Trustee or the Subordinate Trustee under the provisions of the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable, or otherwise held by the Senior Trustee or the Subordinate Trustee upon the occurrence of any Event of Default, shall be applied by the Senior Trustee or the Subordinate Trustee in the following order:

First, to the payment of the fees, costs and expenses of the Senior Trustee or the Subordinate Trustee, as applicable, in declaring such event of default and in carrying out the provisions of the Senior Loan Agreement or the Subordinate Loan Agreement relating to remedies, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of the whole amount ofinterest on and principal of the Senior Loan or the Subordinate Loan, as applicable, then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the outstanding Senior Bonds or Subordinate Bonds, as applicable; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

(a) first, to the payment of all installments of interest on the Senior Loan or the Subordinate Loan, as applicable, 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,

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(b) second, to the payment of principal of all installments of the Senior Loan or the Subordinate Loan, as applicable, 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 Senior Loan or the Subordinate Loan, as applicable, 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, and

( d) fourth, to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

No Waiver. Nothing in the Senior Loan Agreement or the Subordinate Loan Agreement shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Tax Revenues and other amounts pledged thereunder, the principal of and interest and premium (if any) on the Senior Loan and the Subordinate Loan to the Senior Trustee and Subordinate Trustee, as applicable, as of the respective Interest Payment Dates, or affect or impair the right of action, which is also absolute and unconditional, of the Senior Trustee or Subordinate Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable.

A waiver of any default by the Senior Trustee or the Subordinate Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Senior Trustee or the Subordinate Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Senior Trustee or the Subordinate Trustee by the Redevelopment Law or by the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable, may be enforced and exercised from time to time and as often as shall be deemed expedient by the Senior Trustee or the Subordinate Trustee.

Discharge of Loan Agreements

If the Agency shall pay and discharge the entire indebtedness on the Senior Loan or on the Subordinate Loan in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and prepayment premiums (if any) on the Senior Loan or the Subordinate Loan, as and when the same become due and payable;

(b) by irrevocably depositing with the Senior Trustee or the Subordinate Trustee, as applicable, 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 Senior Indenture and the Senior Loan Agreement or pursuant to the Subordinate Indenture and the Subordinate Loan Agreement, as applicable, is fully sufficient to pay all principal of and interest and prepayment premiums (if any) on the Senior Loan or the Subordinate Loan, as applicable; or

( c) by irrevocably depositing with the Senior Trustee or the Subordinate Trustee, as applicable, or any other fiduciary, in trust, Federal Securities in such amount as an

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independent certified public accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Senior Indenture and the Senior Loan Agreement or pursuant to the Subordinate Indenture and the Subordinate Loan Agreement, as applicable, be fully sufficient to pay and discharge the indebtedness on the Senior Loan or the Subordidnate 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 Senior Loan Agreement or the Subordinate Loan Agreement, as applicable, shall have been paid or provision for their payment has been made, the pledge of and lien upon the Tax Revenues and other funds provided for in the Senior Loan Agreement or the Subordinate Loan Agreement and all other obligations of the Senior Trustee or the Subordinate Trustee, as applicable, the Authority and the Agency under the Senior Loan Agreement or the Subordinate Loan Agreement, as applicable, shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Senior Trustee or the Subordinate Trustee, from the amounts so deposited with the Senior Trustee or the Subordinate Trustee or such other fiduciary, all sums due with respect to the Senior Loan or the Subordinate Loan, as applicable, and all expenses and costs of the Senior Trustee or the Subordinate Trustee.

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APPENDIXE THE BOOK-ENTRY SYSTEM

The information concerning DTC set forth herein has been supplied by DTC, and Authority and the Agency assume no responsibility for the accuracy thereof.

DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("DTC Participants") deposit with DTC. DTC also facilitates the settlement among DTC Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in DTC Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "DTC Direct Participants" include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its DTC Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a DTC Direct Participant, either directly or indirectly ("DTC Indirect Participants"). The Rules applicable to DTC and its DTC Participants are on file with the Securities and Exchange Commission.

Purchases of Bonds under the DTC system must be made by or though DTC Direct Participants, which will receive credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each of the Bonds ( a "Beneficial Owner") is in turn to be recorded on the Direct and DTC Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or DTC Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of DTC Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Bonds, except in the event that use of'the book-entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by DTC Participants with DTC are registered in the name of DTC's nominee, Cede & Co. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC has no lmowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the DTC Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The DTC Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to DTC Direct Participants, by DTC Direct Participants to DTC Indirect Participants, and by DTC Direct Participants and DTC Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each DTC Direct Participant in such issue to be redeemed.

Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds. Under its usual · procedures, DTC mails an Omnibus Proxy to the Authority as soon as possible after the record date. The

Omnibus Proxy assigns Cede & Co.' s consenting or voting rights to those DTC Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal and interest payments on the Bonds will be made to DTC. DTC' s practice is to credit DTC Direct Participants' accounts on the payment date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on a payment date. Payments by DTC 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 DTC Participant and not of DTC, the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the Trustee, disbursement of such payments to DTC Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and DTC Indirect Participants.

The Authority and the Trustee cannot and do not give any assurances that DTC Direct Participants or DTC Indirect Participants will distribute to the Beneficial Owners (i) principal and interest on the Bonds, (ii) certificates representing an ownership interest in or other confirmation of ownership interests in the Bonds, or (iii) redemption or other notices sent to DTC or Cede & Co., its nominee, as registered owner of the Bonds, or that they will do so on a timely basis or that DTC, DTC Direct Participants or DTC Indirect Participants will service and act in the manner described in the Official Statement.

The Authority and the Trustee shall be entitled to treat the person in whose name any Bond is registered as the Bond Owner thereof for all purposes of the Indenture and any applicable laws, notwithstanding any notice to the contrary received by the Trustee or the Authority; and the Authority and the Trustee shall have no responsibility for transmitting payments to, communication with, notifying, or otherwise dealing with any Beneficial Owners of the Bonds. Neither the Authority nor the Trustee will have any responsibility or obligations, legal or otherwise, to the Beneficial Owners or to any other party including DTC or its successor ( or substitute depository or its successor), except for the registered owner of any Bond.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bonds are required to be printed and delivered.

THE TRUSTEE, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

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APPENDIXF

SABO & GREEN, LLP

Cathedral City Public Financing Authority

A LIMITED LIABILITY PARTNERSHIP

ATTORNEYS AT LAW 35-325 DATE PALM DRIVE #'232

CATHEDRAL CITY, CALIFORNIA 92234

(760) 770-0873 Fax Number (760) 770-1724

April 12, 2000

68-700 Avenida Lalo Guerrero Cathedral City, California 92234

$12,311,000.40 CATHEDRAL CITY PUBLIC FINANCING AUTHORITY

2000 TAX ALLOCATION REVENUE BONDS, SERIES A (CATHEDRAL CITY MERGED REDEVELOPMENT PROJECT)

$3,815,000 CATHEDRAL CITY PUBLIC FINANCING AUTHORITY

2000 SUBORDINATE TAX ALLOCATION REVENUE BONDS, SERIES B (CATHEDRAL CITY MERGED REDEVELOPMENT PROJECT)

OPINION OF BOND COUNSEL

Dear Chairperson and Members of the Authority:

We have examined a record of the proceedings relating to the issuance by the Cathedral City Public Financing Authority, a joint powers authority created and existing under the laws of the State of California (the "Authority") of its $12,311,000.40 Cathedral City Public Financing Authority 2000 Tax Allocation Revenue Bonds, Series A (Cathedral City Merged Redevelopment Project) (the "Senior Bonds") and its $3,815,000 Cathedral City Public Financing Authority 2000 Subordinate Tax Allocation Revenue Bonds, Series B (Cathedral City Merged Redevelopment Project (the "Subordinate Bonds") (the Senior Bonds and the Subordinate Bonds

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April 12, 2000 Page 2

being hereinafter from time to time collectively referred to as the "Bonds") .

The Bonds are authorized to be issued pursuant to the provisions of the Marks-Roos Local Bond Pooling Act of 1985 (California Government Code Section 6584, et seq.) (the "Act"), and are issued pursuant to a Resolution adopted by the Authority on January 26, 2000, a Resolution adopted by the Authority on March 22, 2000, an Indenture of Trust relating to the Senior Bonds dated as of April 1, 2000 (the" Senior Indenture"), by and between the Authority and BNY Western Trust Company, as trustee (the "Senior Trustee"), for the purpose of providing funds to make a loan (the "Senior Loan") to the Cathedral City Redevelopment Agency ( the "Agency") and an Indenture of Trust relating to the Subordinate Bonds dated as of April 1, 2000 (the "Subordinate Indenture"), by and between the Authority and BNY Western Trust Company, as trustee (the "Subordinate Trustee"), for the purpose of providing funds to make a loan (the "Subordinate Loan") to the Agency. The Agency shall apply the proceeds of the Bonds to acquire and construct certain capital improvements, and to pay costs of issuance and provide a reserve fund for the Bonds.

The Bonds are dated as of their date of deli very, mature, bear interest, are payable and are subject to redemption prior to maturity in whole or in part, all as provided in the Indenture.

The Internal Revenue Code of 1986, as amended (the "Code"), establishes certain requirements which must be met subsequent to the delivery of the Bonds in order that interest on the Bonds not be included in the gross income of the owners thereof for Federal income tax purposes under the Code. Noncompliance with such requirements may cause interest on the Bonds to be included in the gross income of the owners thereof retroactive to the date of issuance of the Bonds, regardless of when such noncompliance occurs. We have examined the Senior Indenture, the Loan Agreement relating to the Senior Loan dated as of April 1, 2000, by and between the Authority and the Agency (the "Senior L9an Agreement"), the Subordinate Indenture, the Loan Agreement relating to the Subordinate Loan dated as of April 1, 2000, by and between the Authority and the Agency (the "Subordinate Loan Agreement") and the Tax Compliance Certificate of the Authority dated as of the date of

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closing (collectively, the "Bond Documents") which, in our opinion, establish procedures under which, if followed, such requirements can be met.

The Authority has covenanted in the Bond Documents to at all times do and perform all acts and things permitted by law and necessary or desirable in order to assure that interest paid on the Bonds shall not be included in the gross income of the owners thereof for Federal income tax purposes. In rendering this opinion, we have assumed compliance by the Authority and the Agency with, and enforcement by the Authority and the Agency of, the provisions of the Bond Documents, as applicable.

We are of the opinion that:

1. The Authority is a public body, corporate and politic, duly organized and existing under the laws of the State of California.

2. The Senior Indenture has been duly authorized, executed and delivered by the Authority and is valid and binding upon the Authority and, assuming due authorization, execution and deli very by the Trustee, is enforceable in accordance with its terms. The Senior Bonds are valid and binding special obligations of the Authority, payable solely from the Revenues (as defined in the Senior Indenture). The Senior Indenture creates a valid first lien on the Revenues for the benefit of the Owners of the Senior Bonds.

3. The Subordinate Indenture has been duly authorized, executed and delivered by the Authority and is valid and binding upon the Authority and, assuming due authorization, execution and delivery by the Subordinate Trustee, is enforceable in accordance with its terms. The Subordinate Bonds are valid and binding special obligations of the Authority, payable solely from the Revenues (as defined in the Subordinate Indenture). The Subordinate Indenture creates a valid first lien on the Revenues for the benefit of the Owners of the Subordinate Bonds.

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4. The Senior Loan Agreement has been duly authorized, executed and delivered by the Authority and the Agency and is valid and binding upon the Authority and the Agency and enforceable in accordance with its terms.

5. The Subordinate Loan Agreement has been duly authorized, executed and delivered by the Authority and the Agency and is valid and binding upon the Authority and the Agency and enforceable in accordance with its terms.

6. Under existing statutes and court decisions, interest on the Bonds is not included in gross income of the owners thereof for Federal income tax purposes under the Code. In addition, such interest will not be treated as a preference item in calculating the Federal alternative minimum tax imposed under the Code with respect to individuals and corporations; such interest, however, is included in the adjusted net book income or the adjusted current earnings of a corporation for purposes of computing the alternative minimum tax and environmental tax imposed on corporations under the Code.

7. Under existing statutes, interest on the Bonds is exempt from present State of California personal income taxes.

In rendering this opinion, we are advising you that the enforceability of the Bonds, the Senior Indenture, the Subordinate Indenture, the Senior Loan Agreement and the Subordinate Loan Agreement may be limited by bankruptcy, moratorium, insolvency or other laws affecting creditors' rights or remeqies and is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

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Respectfully submitted,

Sabo & Green, LLP

APPENDIXG

FORM OF CONTINUING DISCLOSURE AGREEMENT

This Continuing Disclosure Agreement (the "Disclosure Agreement") is executed and delivered by the Cathedral City Redevelopment Agency (the "Agency ") in connection with the issuance of its $12,311,000.40 Cathedral City Public Financing Authority 2000 Tax Allocation Revenue Bonds, Series A (Cathedral City Merged Redevelopment Projects) (the "Series A Bonds") and its $3,815,000 Cathedral City Public Financing Authority 2000 Subordinate Tax Allocation Revenue Bonds, Series B (Cathedral City Merged Redevelopment Projects) (the "Series B Bonds", and together with the Series A Bonds, the "Bonds"). The Series A Bonds are being issued under and secured by an Indenture of Trust, dated as of April 1, 2000 by and between the Cathedral City Public Financing Authority (the "Issuer") and BNY Western Trust Company, as trustee (the "Trustee") (the "Series A Indenture") and the Series B Bonds are being issued under and secured by a separate Indenture of Trust, dated as of April 1, 2000 by and between the Issuer and the Trustee (the "Series B Indenture", and together with the Series A Indenture, the "Indentures"). The proceeds of the Series A Bonds are being loaned by the Issuer to the Agency pursuant to a Senior Loan Agreement dated as of April 1, 2000 between the Issuer and the Agency (the "Senior Loan Agreement") and the proceeds of the Series B Bonds are being loaned by the Issuer to the Agency pursuant to a Subordinate Loan Agreement dated as of April 1, 2000 between the Issuer and the Agency (the "Subordinate Loan Agreement" and together with the Senior Loan Agreement, the "Loan Agreements"). Pursuant to Section 5 .14 of the Indentures and Section 4.18 of the Loan Agreements, the Agency, the Dissemination Agent and the Trustee covenant and agree as follows:

SECTION 1. Purpose of the Disclosure Agreement. The Disclosure Agreement is being executed and delivered by the Agency for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (defined below). The Agency and the Trustee acknowledge that the Issuer has undertaken no responsibility with respect to any reports, notices and disclosures provided or required under this Agreement, and has no liability to any person, including any Holder or Beneficial Owner of the Bonds, with respect to the Rule.

SECTION 2. Definitions. In addition to the definitions set forth above and in the Indentures, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this section, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement.

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

"Disclosure Representative" shall mean the Finance Director or Assistant City Manager of the Agency or his or her designee, or such other person as the Agency shall designate in writing to the Trustee from time to time.

"Dissemination Agent" shall mean MuniFinancial, Inc. or any other successor Dissemination Agent designated in writing by the Agency and which has filed with the Trustee a written acceptance of such designation.

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"Listed Event" shall mean any of the events listed m Section 5(a) of the Disclosure Agreement.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. As of the date of the Disclosure Agreement, the National Repositories approved by the Securities and Exchange Commission are set forth in Exhibit B hereto.

"Participating Underwriter" shall mean the original underwriter of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" shall mean each National Repository and each State Repository.

"Rule" shall mean Rule l 5c2- l 2(b )(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State" shall mean the State of California.

"State Repository" shall mean any public or private repository or entity designated by the State as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of the Disclosure Agreement, there is no State Repository.

SECTION 3. Provision of Annual Reports.

(a) The Agency shall, or shall cause the Dissemination Agent to, not later than 210 days after the end of the Agency 's Fiscal Year (which presently ends on June 30), commencing with the report for the 1999-2000 Fiscal Year, provide to each Repository an Annual Report which is consi$tent with the requirements of Section 4 of this Disclosure Agreement. In each case, the Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of the Disclosure Agreement; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if they are not available by that date. If the Agency's Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5( c ).

(b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the Repositories the Agency shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the Agency to determine if the Agency will be in compliance with subsection (a). The Agency shall provide written certification with each Annual Report furnished to the Dissemination Agent and Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent and Trustee may conclusively rely on such certification of the Agency and shall have no duty or obligation to review such Annual Report.

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in subsection (a), the Dissemination Agent shall send to the Municipal Securities Rulemaking Board and to each Repository a notice in substantially the form attached hereto as Exhibit A. ·

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( d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any;

(ii) file a report with the Agency, the Issuer and (if the Dissemination Agent is not the Trustee) the Trustee certifying to the extent it can confirm the same that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided, and listing all the Repositories to which it was provided.

SECTION 4. Content of Annual Reports. The Agency's Annual Report shall contain or include by reference the following:

1. Audited financial statements of the Agency for the prior Fiscal Year, 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; provided, that if the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), 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.

2. Financial information and operating data with respect to the Agency for prior fiscal year of the type included in the Official Statement relating to the Bonds, dated March 30, 2000, in the following categories (to the extent not included in the Agency's audited financial statements): (i) aggregate assessed values of the Project Areas; (ii) list of top ten largest local secured property taxpayers for each Project Area; (iii) calculation of proforma coverage ratio calculated in the same manner as provided in the Official Statement under the section entitled "INFORMATION CONCERNING ASSESSMENTS AND TAX REVENUES - Pro Forma Debt Service Coverage;" (iv) information on appeals by top ten tax payers in each Project Area; (v) information concerning significant events or transactions affecting the amount of Tax Revenues available to pay the Loan payments; and (iv) description of outstanding indebtedness other than the loan Agreements payable from Tax Revenues.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Agency is an "obligated person" ( as defined by the Rule), which have been filed with each of the Repositories or the Securities and Exchange Commission; provided, that if any document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board; and provided further, that the Agency ~hall clearly identify each such other document so included by reference.

SECTION 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this section, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

I. Principal or interest payment de! inquencies;

2. Non-payment related defaults;

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3. Modifications to the rights of Bondholders;

4. Optional, contingent or unscheduled calls;

5. Defeasances;

6. Rating changes;

7. Adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds;

8. Unscheduled draws on the debt service reserves reflecting financial difficulties;

9. Unscheduled draws on the credit enhancements reflecting financial difficulties;

10. Substitution of the credit or liquidity providers or their failure to perform;

11. Release, substitution or sale of property securing repayment of the Bonds.

(b) The Trustee shall, within one (1) Business Day of obtaining actual knowledge of the occurrence of any of the Listed Events (with no obligation to determine the materiality thereof) contact the Disclosure Representative, inform such person of the event, and request that the Agency promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). For the purpose of this Disclosure Agreement, "actual knowledge" means actual knowledge at the corporate trust office of the Trustee by an officer of the Trustee with responsibility for matters related to the administration of the Indenture of Trust.

( c) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Agency shall as soon as possible determine if such event would be material under applicable federal securities laws.

(d) If the Agency has determined that knowledge of the occurrence of a Listed Event would be material under applicable federal securities laws, the Agency shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b), the Agency determines that the Listed Event would not be material under applicable federal securities laws, the Agency shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has been instructed by the Agency to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repositories with a copy to the Agency and the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsection (a)(4) and (5) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Holders of affected Bonds pursuant to the Indenture.

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SECTION 6. Termination of Reporting Obligation. The Agency 's obligations under the Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If the Agency's obligations under the Loan Agreements are assumed in full by some other entity, such person shall be responsible for compliance with this Disclosure Agreement in the same manner as if it were the Agency and the original Agency shall have no further responsibility hereunder. If such termination or substitution occurs prior to the final maturity of the Bonds, the Agency shall give notice of such termination or substitution in the same manner as for a Listed Event under Section 5(f).

SECTION 7. Dissemination Agent. The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the Issuer pursuant to this Disclosure Agreement. The initial Dissemination Agent is MuniFinancial, Inc. The Dissemination Agent may resign by providing thirty days written notice to the Agency and the Trustee. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent.

SECTION 8. Amendment; Waiver. Notwithstanding any other prov1s1on of the Disclosure Agreement, the Agency and the Trustee may amend this Disclosure Agreement ( and the Trustee shall agree to any amendment so requested by the Agency provided neither the Trustee nor the Dissemination Agent shall be obligated to enter into an amendment that modifies or increases their duties or obligations hereunder) and any provision of this Disclosure Agreement 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 Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture 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 Bonds.

In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Agency shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the Agency. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a Listed Event under Section S(f), and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

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SECTION 9. Additional Information. Nothing in the Disclosure Agreement shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in the Disclosure Agreement 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 the Disclosure Agreement. If the 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 the Disclosure Agreement, the Agency shall have no obligation under the Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of the Agency or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the request of any Participating Underwriter or the Holder of at least 25% aggregate principal amount of Outstanding Series A Bonds or Series B Bonds, shall, but only to the extent funds in an amount satisfactory to the Trustee have been provided to it or it has been otherwise indemnified to its satisfaction from any cost, liability, expense or additional charges and fees of the Trustee whatsoever, including without limitation, fees and expenses of its attorneys) or any Holder or Beneficial Owner of the Bonds may take such actions as may be neces·sary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indentures or the Loan Agreements, and the sole remedy under this Disclosure Agreement in the event of any failure of the Agency or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance hereunder

SECTION 11. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and the Agency agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The obligations of the Agency under this section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. The Trustee and the Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder in accordance with its respective schedule of fees as agreed to between the Trustee and the Agency from time to time and as agreed to between the Dissemination Agent and the Agency from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent or the Trustee in the performance of its duties hereunder.

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SECTION 12. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows:

To the Agency:

To the Dissemination Agent:

To the Trustee:

The City of Cathedral City 68-700 A venida Lalo Guerrero Cathedral City, California 92234-7031 Attention: Finance Director Telephone/Fax: (619) 770-0340 I (619) 324-4816

MuniFinancial, Inc. 28765 Single Oak Drive, Suite 200 Temecula, California 92590 Attention: Disclosure Telephone/Fax: (909) 699-3990 I (909) 699-3460

BNY Western Trust Company 700 South Flower Street, 2nd Floor Los Angeles, California 90017 Attention: Corporate Trust Department Telephone/Fax: (213) 630-6408 I (213) 630-6442

Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notice or communications should be sent.

SECTION 13. Beneficiaries. This Disclosure Agreement shal1 inure solely to the benefit of the Issuer, the Agency, the Trustee, the Dissemination Agent, the Participating Underwriter and the Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity.

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-SECTION 14. Counterparts. This Disclosure Agreement may be executed in several

counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Date: April 12, 2000

CATHEDRAL CITY REDEVELOPMENT AGENCY

By _________________ _

Finance Director

BNY WESTERN TRUST COMPANY, as Trustee

By _______________ _

Authorized Officer

MUNIFINANCIAL, INC. as Dissemination Agent

By _____________ _

Authorized Officer

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EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name oflssuer :

Name of Bond Issue:

Name of Borrower:

Date oflssuance:

CATHEDRAL CITY PUBLIC FINANCING AUTHORITY

Cathedral City Public Financing Authority 2000 Tax Allocation Revenue Bonds, Series A (Cathedral City Merged Redevelopment Projects) and Cathedral City Public Financing Authority 2000 Subordinate Tax Allocation Revenue Bonds, Series B (Cathedral City Merged Redevelopment Projects)

Cathedral City Redevelopment Agency

April 12, 2000

NOTICE IS HEREBY GIVEN that the Cathedral City Redevelopment Agency has not provided an Annual Report with respect to the above-named Bonds as required by Section 5.14 of the Indentures dated as of April 1, 2000, by and between BNY Western Trust Company, as trustee, and the Issuer. [The Agency anticipates that the Annual Report will be filed by _____ .]

Dated: ------

cc: Borrower

MUNIFINANCIAL, INC., as Dissemination on behalf of BORROWER

EXHIBITB

Nationally Recognized Municipal Securities Information Repositories approved by the Securities and Exchange Commission as of the date of the Disclosure Agreement:

Bloomberg Municipal Repositories P.O. Box 840 Princeton, NJ 08542-0840 Internet address: [email protected] (609) 279-3225 (609) 279-3204 (to order documents) FAX: (609) 279-5962

DPC Data Inc. One Executive Drive Fort Lee, NJ 07024 Phone: (201) 346-0701 Fax: (201) 947-0107 E-mail: [email protected]

cc: Stone & Youngberg 50 California Street, 35th Floor San Francisco, CA 94111 Phone: ( 415) 445-2300 Fax: ( 415) 445-2395

Standard & Poor's J.J. Kenny Repository 55 Water Street, 45th Floor New York, NY 10041 (212) 438-4595 f AX: (212) 438-3975

Muller Data Attn: Municipal Disclosure 395 Hudson Street, 3rd Floor New York, NY 10014 Internet address: [email protected] Telephone: (212) 807-5001 or (800) 689-8466 FAX: (212) 989-2078

APPENDIXH SPECIMEN BOND INSURANCE POLICY

(THIS PAGE INTENTIONALLY LEFT BLANK)

MBIA FINANCL\.L GUAR.i\NTY INSURANCE POLICY

MBIA Insurance Corporation Armonk, New York 10504

Policy No. [NlnvIBER)

lvffilA. Insurance Corporation (the ''Insurer'), in consideration of the payment of the premium and subject to the tenns ·of this policy, hereby unconditionally and irrevocably guarantees to any o\\111er, as hereinafter defined, of the following described obligations, the full and complete payment required to be made by Oi on behalf of the Issuer to [PA Y1NG AGENTrrRUSTEEJ or its successor (the "Paying Agent") of a.11 amount equal to (i) the principal of (either at the St2led maturity or by any advancement of mall.lrity pursuant to a mandatory sinkmg fund pa)ment) and interest on, the Ob~aations ( as that term is defined below) as such pa)1!1ents shall become due but shall not be so paid ( except that in the event of any acceleration of the due dare of such principal by reason of mandaiory or optional redemption or acceleration resulting from default or otherwise, other than any advancement of marurity pursuant to a mandate!')' sinking fund payment, the payments guaranteed hereby shall be made in such amounts and at such times as such payments of principal would have been due had there not been any such acceleration); and (n") the reimbtn'SeIIle:nt of any such payment which is subsequently recovered from any O'Mler pursuant t.o a final judgment by a court of competent jurisdiction that such payment. constitutes an avoidable preference to such o\\ller within the meaning of any applicable bankruptcy law. The amollllts referred to in clauses (i) and ("u") of the preceding sen~ce shall be referred to herein collectively as the "Insured Amounts." "Obligations" shall mean:

[PAR] {LEGAL NAME OF ISSUE]

Upon receipt of telephonic or telegraphic notice, such notice subsequently confinned in writing by registered or certified mail, or upon receipt of 'Nrittcr1 notice by registered or c::rtificd mail, by the Insurer from the Paying Agent or any owner of an Obligation the pa)Tllent of an Insured Amount for which is then due, that such required payment bas not been made, the Insurer on the due dare of such payment or within one business day after receipt of notice of such nonpa)ment, whichever is later, will make a deposit of fi.mds, in an account with State Street Bank and Trust Company, NA., in New York, New York, or its suc:ccssor, sufficient for the payment of any such hlsured .A.mounts which are then due. Upon presentment and surrender of such Obligations or presentment of such other proof of ownership of the Obligations, together with any appropriate instruments of assignment to evidence the assignment of the~ Amounts due on the Obligations as are paid by the Insurer, and appropriate ID.:)""truments to effect the appointment of the Insurer as agent for such ownexs of the Obligations in any legal proceeding related to payment of Insured Amotmts on the Obligations, such i:r..stnnnents being i11 a form satisfactory to State Street Bank and Trust Company, N.A., State Stld Bank and Trust Company, N.A. shall disburse to such owne:s., or the Paying Agent payment of the Insured Amounts due on such Obligations, less aey amount held by the Paying Agent for the payment of such Insured Amounts and legally available therefor. This policy does not insure 3=:aainst loss of any prepayment premium which may at any time be payable with respect t.o any Ob~oarion.

As used herein, the term "owner" shall mean the registered omicr of any Obligation as indicated in the books maintamed by the Paying Agent, the Issuer, or any designee of the Issuer for such purpose. The term O\\T.er shall not ~elude the Issuer or any party whose agreement with the Issuer constin.ttes the underlying security for the Obligations.

Any service of process m the Insurer may be made to the Insurer at its offices loeated at 113 King Street, Amlonk, New York 10504 and such service of process Si.~all be valid and binding.

This policy ~ non-cancellable for any reason. Toe premium on this policy is not refundable for any reason including the payment prior to maturity of the Obligations.

In the event the In.surer were t.o become insolvent, any claims arising under a policy of financial guaranty insurance are excluded from coverage by the California Insurance Guaranty Association, established pursuant to Article 141 (commencing with Section 1063) of Chapter 1 ofPan2 of Division I of the California Insurance Code.

IN VJITNESS WnER.EOF, the Insurer has caused this policy to be executed in facsimile on its behalfby its duly authorized officers, this [DAY] day of [MONTH, YEAR].

MBIA. Insurance Corporation

Acrest:

(THIS PAGE INTENTIONALLY LEFf BLANK)

APPENDIX I ACCRETED VALUE TABLE

(THIS PAGE INTENTIONALLY LEFf BLANK)

Cathedral Lity Public .Financing Authority 2000 Tax Allocation Revenue Bonds

Serial Capital Appreciation Bonds Accreted Value Table

Serial Maturities due August 1,

2023 2Q21 2025 2026 2027 2028 2029 2030 2031 2032 2QTI

4/12/00 $ 1,260.90 $ 1,188.50 $ 1,106.60 $ 1,042.55 $ 969.30 $ 912.80 s 852.25 $ 802.30 $ 750.75 $ 706.60 $ 665.05

8/1/00 1,283.65 1,209.95 1,126.75 1,061.55 987.10 929.55 868.00 817.10 764.65 719.70 677.40

2/1/01 1,322.15 1,246.25 1,160.85 1,093.65 1,017.20 957.90 894.60 842.15 788.15 741.80 698.20

8/1/01 1,361.85 1,283.65 1,195.95 1,126.75 1,048.25 987.10 922.00 868.00 812.35 764.65 719.70

2/1/02 1,402.70 1,322.15 1,232.15 1,160.85 1,080.20 1,017.20 950.25 894.60 837.35 788.15 741.80

8/1/02 1,444.75 1,361.85 1,269.40 1,195.95 1,113.15 1,048.25 979.40 922.00 863.10 812.35 764.65

2/1/03 1,488.10 1,402.70 1,307.80 1,232.15 1,147.10 1,080.20 1,009.40 950.25 889.65 837.35 788.15

8/1/03 1,532.75 1,444.75 1,347.35 1,269.40 1,182.10 1,113.15 1,040.35 979.40 917.00 863.10 812.35

2/1/04 1,578.75 1,488.10 1,388.15 1,307.80 1,218.15 1,147.10 1,072.25 1,009.40 945.20 889.65 837.35

8/1/04 1,626.10 1,532.75 1,430.10 1,347.35 1,255.30 1,182.10 1,105.10 1,040.35 974.25 917.00 863.10

2/1/05 1,674.90 1,578.75 1,473.40 1,388.15 1,293.60 1,218.15 1,138.95 1,072.25 1,004.25 945.20 889.65

8/1/05 1,725.15 1,626.10 1,517.95 1,430.10 1,333.05 1,255.30 1,173.90 1,105.10 1,035.10 974.25 917.00

2/1/06 1,776.90 1,674.90 1,563.85 1,473.40 1,373.70 1,293.60 1,209.85 1,138.95 1,066.95 1,004.25 945.20

8/1/06 1,830.20 1,725.15 1,611.20 1,517.95 1,415.60 1,333.05 1,246.95 1,173.90 1,099.75 1,035.10 974.25

2/1/07 1,885.10 1,776.90 1,659.90 1,563.85 1,458.80 1,373.70 1,285.15 1,209.85 1,133.55 1,066.95 1,004.25

8/1/07 1,941.65 1,830.20 1,710.15 1,611.20 1,503.30 1,415.60 1,324.55 1,246.95 1,168.40 1,099.75 1,035.10

2/1/08 1,999.90 1,885.10 1,761.85 1,659.90 1,549.15 1,458.80 1,365.15 1,285.15 1,204.35 1,133.55 1,066.95

8/1/08 2,059.90 1,941.65 1,815.15 1,710.15 1,596.40 1,503.30 1,407.00 1,324.55 1,241.40 1,168.40 1,099.75

2/1/09 2,121.70 1,999.90 1,870.05 1,761.85 1,645.10 1,549.15 1,450.10 1,365.15 1,279.55 1,204.35 1,133.55

8/1/09 2,185.35 2,059.90 1,926.65 1,815.15 1,695.25 1,596.40 1,494.55 1,407.00 1,318.90 1,241.40 1,168.40

2/1/10 2,250.90 2,121.70 1,984.90 1,870.05 1,746.95 1,645.10 1,540.35 1,450.10 1,359.45 1,279.55 1,204.35

8/1/10 2,318.45 2,185.35 2,044.95 1,926.65 1,800.25 1,695.25 1,587.60 1,494.55 1,401.25 1,318.90 1,241.40

2/1/11 2,388.00 2,250.90 2,106.85 1,984.90 1,855.15 1,746.95 1,636.25 1,540.35 1,444.35 1,359.45 1,279.55

8/1/11 2,459.65 2,318.45 2,170.55 2,044.95 1,911.75 1,800.25 1,686.40 1,587.60 1,488.75 1,401.25 1,318.90

2/1/12 2,533.45 2,388.00 2,236.20 2,106.85 1,970.05 1,855.15 1,738.10 1,636.25 1,534.55 1,444.35 1,359.45

8/1/12 2,609.45 2,459.65 2,303.85 2,170.55 2,030.15 1,911.75 1,791.35 1,686.40 1,581.75 1,488.75 1,401.25

2/1/13 2,687.70 2,533.45 2,373.55 2,236.20 2,092.05 1,970.05 1,846.25 1,738.10 1,630.40 1,534.55 1,444.35

8/1/13 2,768.35 2,609.45 2,445.35 2,303.85 2,155.85 2,030.15 1,902.85 1,791.35 1,680.50 1,581.75 1,488.75

2/1/14 2,851.40 2,687.70 2,519.35 2,373.55 2,221.60 2,092.05 1,961.20 1,846.25 1,732.20 1,630.40 1,534.55

8/1/14 2,936.95 2,768.35 2,595.55 2,445.35 2,289.40 2,155.85 2,021.30 1,902.85 1,785.45 1,680.50 1,581.75

2/1/15 3,025.05 2,851.40 2,674.05 2,519.35 2,359.20 2,221.60 2,083.25 1,961.20 1,840.35 1,732.20 1,630.40

8/1/15 3,115.80 2,9%.95 2,754.95 2,595.55 2,431.15 2,289.40 2,147.10 2,021.30 1,896.95 1,785.45 1,680.50

2/1/16 3,209.30 3,025.05 2,838.30 2,674.05 2,505.30 2,359.20 2,212.90 2,083.25 1,955.30 1,840.35 1,732.20

8/1/16 3,305.55 3,115.80 2,924.15 2,754.95 2,581.70 2,431.15 2,280.75 2,147.10 2,015.40 1,896.95 1,785.45

2/1/17 3,404.75 3,209.30 3,012.60 2,838.30 2,660.45 2,505.30 2,350.65 2,212.90 2,077.40 1,955.30 1,840.35

8/1/17 3,506.85 3,305.55 3,103.75 2,924.15 2,741.60 2,581.70 2,422.70 2,280.75 2,141.25 2,015.40 1,896.95

Cathedral City Public Financing Authority 2000 Tax Allocation Revenue Bonds

Serial Capital Appreciation Bonds Accreted Value Table

Serial Maturities due August 1,

2023 WM 2025 2026 2fJ21_ 2028 2@2 2Q.3Q 2QJ1 2032 mn 2/1/18 3,612.10 3,404.75 3,197.60 3,012.60 2,825.25 2,660.45 2,496.95 2,350.65 2,207.10 2,077.40 1,955.30

8/1/18 3,720.45 3,506.85 3,294.35 3,103.75 2,911.40 2,741.60 2,573.45 2,422.70 2,275.00 2,141.25 2,015.40

2/1/19 3,832.05 3,612.10 3,394.00 3,197.60 3,000.20 2,825.25 2,652.35 2,496.95 2,344.95 2,207.10 2,077.40

8/1/19 3,947.00 3,720.45 3,496.70 3,294.35 3,091.70 2,911.40 2,733.65 2,573.45 2,417.05 2,275.00 2,141.25

2/1/20 4,065.45 3,832.05 3,602.45 3,394.00 3,186.00 3,000.20 2,817.45 2,652.35 2,491.35 2,344.95 2,207.10

8/1/20 4,187.40 3,947.00 3,711.45 3,496.70 3,283.20 3,091.70 2,903.80 2,733.65 2,568.00 2,417.05 2,275.00

2/1/21 4,313.00 _4,065.45 3,823.70 3,602.45 3,383.30 3,186.00 2,992.80 2,817.45 2,646.95 2,491.35 2,344.95

8/1/21 4,442.40 4,187.40 3,939.35 3,711.45 3,486.50 3,283.20 3,084.50 2,903.80 2,728.35 2,568.00 2,417.05

2/1/22 4,575.70 4,313.00 4,058.55 3,823.70 3,592.85 3,383.30 3,179.05 2,992.80 2,812.25 2,646.95 2,491.35

8/1/22 4,712.95 4,442.40 4,181.30 3,939.35 3,702.45 3,486.50 3,276.50 3,084.50 2,898.70 2,728.35 2,568.00

2/1/23 4,854.35 4,575.70 4,307.80 4,058.55 3,815.35 3,592.85 3,376.90 3,179.05 2,987.85 2,812.25 2,646.95

8/1/23 5,000.00 4,712.95 4,438.10 4,181.30 3,931.75 3,702.45 3,480.45 3,276.50 3,079.75 2,898.70 2,728.35

2/1/24 4,854.35 4,572.35 4,307.80 4,051.65 3,815.35 3,587.10 3,376.90 3,174.45 2,987.85 2,812.25

8/1/24 5,000.00 4,710.65 4,438.10 4,175.20 3,931.75 3,697.05 3,480.45 3,272.05 3,079.75 2,898.70

2/1/25 4,853.15 4,572.35 4,302.55 4,051.65 3,810.35 3,587.10 3,372.65 3,174.45 2,987.85

8/1/25 5,000.00 4,710.65 4,433.80 4,175.20 3,927.15 3,697.05 3,476.40 3,272.05 3,079.75

2/1/26 4,853.15 4,569.05 4,302.55 4,047.50 3,810.35 3,583.30 3,372.65 3,174.45

8/1/26 5,000.00 4,708.40 4,433.80 4,171.60 3,927.15 3,693.45 3,476.40 3,272.05

2/1/27 4,852.00 4,569.05 4,299.45 4,047.50 3,807.05 3,583.30 3,372.65

8/1/27 5,000.00 4,708.40 4,431.20 4,171.60 3,924.10 3,693.45 3,476.40

2/1/28 4,852.00 4,567.05 4,299.45 4,044.75 3,807.05 3,583.30

8/1/28 5,000.00 4,707.00 4,431.20 4,169.15 3,924.10 3,693.45

2/1/29 4,851.30 4,567.05 4,297.35 4,044.75 3,807.05

8/1/29 5,000.00 4,707.00 4,429.50 4,169.15 3,924.10

2/1/30 4,851.30 4,565.70 4,297.35 4,044.75

8/1/30 5,000.00 4,706.10 4,429.50 4,169.15

2/1/31 4,850.80 4,565.70 4,297.35

8/1/31 5,000.00 4,706.10 4,429.50

2/1/32 4,850.80 4,565.70

8/1/32 5,000.00 4,706.10

2/1/33 4,850.80

8/1/33 5,000.00

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